November 18, 2022

Daily Market Commentary

Canadian Headlines

  • Canada’s government was worried about the hit to its reputation from trucker-convoy trade disruptions as it negotiated with the US on electric-vehicle incentives. Michael Sabia, the top civil servant in the finance department, told a public inquiry into Prime Minister Justin Trudeau’s invocation of emergency powers that border blockades came at an especially bad time for Canada, which was already battling US protectionist measures. Convoy protesters shut down multiple border crossings in mid-February, including the Ambassador Bridge into Detroit that is Canada’s busiest trade corridor with the US and a vital link for the auto manufacturing sector. They also gridlocked downtown Ottawa for nearly a month, denouncing Trudeau and federal Covid-19 restrictions that included vaccine mandates.

World Headlines

  • European stocks climbed and euro-area blue-chip gauge was set for a bull market, on investor optimism over China’s reopening and bets that central banks will slow their rate hikes. The Stoxx Europe 600 Index gained 1.1% by 11:40 a.m. in London. The blue-chip Euro Stoxx 50 gauge rallied as much as 1.6% today, rising 20% above this year’s low and poised for a bull market. It would be the second major European gauge to cross that threshold after the DAX did so on Tuesday. Stocks in the region have been muted this week following four weeks of strong gains that were fueled by the robust earnings season and slower-than-expected US inflation data, which fueled hopes that the Federal Reserve will slow its interest-rates hiking path. China’s reopening plans and a Bloomberg report about the European Central Bank potentially slowing rate increases are also adding to optimism.
  • The US S&P 500 index is down 1% so far this week, index futures on the benchmark gained 0.3%. Nasdaq contracts also advanced, while in New York premarket trading, chip equipment maker Applied Materials rose 4.1% after issuing a forecast-topping sales forecast. A host of tech names, including Nvidia Corp., Meta Platforms Inc. and Inc., also gained. The moves come a day after shares were knocked sharply lower by hawkish comments from St. Louis Fed President James Bullard, who said interest rates needed to rise at least to 5%-5.25% to curb inflation. His comments prompted markets to dial up their expectations for how high US rates might go. The dollar retreated while Treasury yields extended their surge in the wake of Bullard’s comments. But Bullard is only the latest policymaker to warn markets that while inflation appears to be easing off multi-decade highs, policy needs to be tightened further to tame price pressures.
  • Asian stocks rose on Friday, with Chinese technology shares gaining amid a series of positive corporate developments. The MSCI Asia Pacific Index rose as much as 1% before giving up much of the gains. Alibaba and Meituan were the biggest contributors to advances on the gauge, even as the rally eased in afternoon trading on Friday. Early advances were driven by announcements of share buybacks and gaming approvals for some major industry players. Most national benchmarks across Asia were range-bound heading into the weekend as investors seek fresh cues after November’s broad rebound in global equity markets. China’s steps to revive its economy and the US Federal Reserve’s tightening path remain the key focus areas for Asian traders.
  • Oil was poised for a weekly loss of almost 8% as concerns over a softer demand outlook filtered through the market. Demand for winter-delivery cargoes has slipped from Singapore to Houston, while the forward curve for both major crude benchmarks has weakened in a sign of ample supply. West Texas Intermediate edged up 0.6% on Friday, remaining near $82 a barrel after Thursday’s slump. Oil futures are trading near their lowest level since September amid swelling Covid cases in China and aggressive monetary tightening by central banks. A deteriorating market for physical barrels has also weighed on prices. Crude is trading below several key moving averages, sparking so-called technical-based selling, against a backdrop of elevated speculative long positions.
  • Gold headed for its first weekly decline this month after Fed officials pushed back against the prospect of a pause in monetary tightening. Bullion slipped in the previous session as officials including St. Louis Fed President James Bullard and Minneapolis Fed President Neel Kashkari said they needed to go further with rate hikes. The push-back has helped curb expectations the central bank could soon pause its tightening, even as two gauges of inflation came in lower than expected this month. The metal steadied on Friday, set to finish the week 0.4% lower. The Fed’s jumbo rate hikes this year to cool rampant inflation have pushed up Treasury yields and the dollar, contributing to bullion plunging 16% from a peak in March.
  • European Central Bank President Christine Lagarde said interest rates may need to be lifted to levels that restrict economic expansion in order to drive down inflation that’s rocketed to more than five times the official target. Lagarde said Friday that the “risk of a recession” has increased, but that a downturn on its own won’t be sufficient to tame soaring prices. Having already delivered the most aggressive monetary tightening in its history, the ECB is expected to raise borrowing costs to 2% or more next month from 1.5% now. “We expect to raise rates further — and withdrawing accommodation may not be enough,” Lagarde said in a speech in Frankfurt. “Ultimately, we will raise rates to levels that bring inflation back down to our medium-term target in a timely manner.”
  • Bitcoin is up about 3% this week, topping global stocks and bucking the chaos sparked by FTX’s chaotic bankruptcy. Democratic lawmakers who received millions of dollars in campaign donations from Sam Bankman-Fried say they will be ready to grill the former FTX CEO about the exchange’s collapse. Liquidators appointed by a Bahamian court to take over FTX Digital Markets Ltd.’s affairs said there’s “significant” concern that FTX management lacked authority to put the crypto businesses into bankruptcy in the US. The embattled cryptocurrency mogul and two other top FTX executives received massive loans from affiliated trading arm, Alameda Research. Advisers overseeing the bankruptcy of FTX Group are struggling to locate the company’s cash and crypto, citing poor internal controls and record keeping.
  • By almost all metrics, New York’s cannabis market rollout should be in the final innings. The state began handing out growing licenses to more than 200 farms last spring and farmers have since sowed seeds, tended to rows of plants all summer, and just in the last few weeks, finished harvesting. Now, hundreds of thousands of pounds of weed — worth hundreds of millions of dollars — is ready to be sold at dispensaries. There’s one hitch: Instead of being shipped to retail stores, the weed is just piling up. Though a rampant gray market is already up and running, not one legal recreational dispensary has yet opened in New York, despite the state regulator’s repeated assurances that cannabis stores would be a fixture by the end of this year. The languishing stockpiles — estimated to weigh around 300,000 pounds, according to the Office of Cannabis Management — pose a host of problems for farmers, not least of which is that over time, cannabis can deteriorate. Based on an average estimated wholesale value of about $2,500 per pound, according to Cannabis Benchmarks, a research firm that tracks wholesale marijuana prices nationwide, the hoard could be worth as much as $750 million. If farmers don’t get their harvest into stores soon, that near-billion-dollar revenue will eventually start to dwindle. In the meantime, farmers have to figure out how to store it indefinitely, making sure the weed is as fresh as possible while also keeping it safe from theft or potential contamination.
  • Heavy rain in the past few weeks has restocked Norway’s depleted hydro reservoirs and reduced the risk of power exports to the UK grinding to a halt this winter. That’s a boost for other markets also, including Germany and the Netherlands, who rely on electricity from the Nordic nation sometimes referred to as Europe’s green battery because of its vast and cheap hydro resources. At the height of the power crisis in August, the Norwegian government indicated that foreign sales could be curbed to protect domestic supplies. “Now we’ve had rain, luckily, so the situation is much better,” Energy Minister Terje Aasland said in an interview. “We are going into a more secure winter when it comes to security of supply than was the starting point earlier.”
  • Masayoshi Son is now personally on the hook for about $4.7 billion on side deals he set up at SoftBank Group Corp. to boost his compensation, after mounting losses in the company’s tech portfolio wiped out the value of his interest in the second Vision Fund. Over the years, the Japanese billionaire’s controversial personal stakes in SoftBank’s investments drew fire from investors, who pointed to the mix of personal and company interests as a corporate governance concern. Son — who holds a more than 30% stake in SoftBank — has denied there was a conflict of interest and said it was remuneration for his investment expertise, in lieu of investment fees. The move has backfired, enveloping Son’s personal finances in the downside of the world’s biggest tech investor’s bets. Son was down more than $4 billion on his side deals through the June quarter, Bloomberg News reported earlier.
  • Jaguar Land Rover said it was looking to recruit workers who’ve been fired by technology companies such as Meta Platforms Inc. and Twitter Inc. to fill digital and engineering vacancies. The luxury carmaker wants to hire about 800 workers across the UK, US, Ireland, India, China and Hungary, JLR said in a statement Friday. The jobs are in areas including autonomous driving, artificial intelligence, electrification, cloud software, data science and machine learning, it added. Tech companies are trimming staff and slowing hiring as they face higher interest rates and sluggish consumer spending, as well as a strong dollar. Facebook parent Meta is cutting about 11,000 jobs, the first major round of layoffs in the social-media company’s history, while Twitter under new owner Elon Musk has imposed deep cuts and seen many of its workers quit.
  • BlackRock Inc. is betting on a surge of demand for the battered bonds of US and European companies. With cooling inflation data signaling a slowing in the US Federal Reserve’s interest-rate increases, yields at both the high-grade and junk end of credit are now starting to look appealing, according to Carolyn Weinberg, global head of product for BlackRock’s iShares and index investments. The Fed’s monetary policies typically influence central bank actions globally. “We are at the beginning of a rotation as investors come back into credit,” Weinberg said in an interview. “With the rapid move in front-end rates, the curve has repriced credit to attractive levels, particularly as we approach the end of the Fed’s hiking cycle.”
  • The organizers behind the World Cup in Qatar have banned the sale of alcohol within the stadiums, dramatically reversing a decision to allow Anheuser-Busch InBev NV to sell Budweiser beer. The decision will likely result in moving concession stands serving alcohol even further away from the stadiums. The tournament, typically the world’s largest sporting event and a decade in the planning, kicks off Sunday with the hosts taking on Ecuador. The move to ban alcohol sales outside stadiums is an about-face from Qatar’s previous position. The Supreme Committee on Delivery and Legacy had promised alcohol will be available in designated “fan zones” outside stadiums and other hospitality venues, and was considering allowing beer to be consumed inside venues. InBev has paid FIFA millions of dollars for exclusive rights to sell Budweiser at the World Cup.
  • BHP Group Ltd.’s souped-up bid for a much smaller copper rival shows how the mining industry is increasingly confident about future demand for the metal, despite near-term economic gloom that’s weighed on prices this year. Global copper prices have struggled in recent months under pressure from economic woes hitting US, Europe and China. BHP’s sweetened offer for OZ Minerals Ltd. was 49% higher than the target’s share price before a first bid was announced, for a company with just 7% of the mining giant’s output of the metal. BHP’s bid highlights how miners may be more willing to cough up for control of copper deposits as a wave of demand looms over the next decade from renewable energy and power grids. There will be sustained shortages of the metal once the global economy returns to “normal” after the current slump, Robert Friedland, a mining veteran and co-chairman of Ivanhoe Mines Ltd., said earlier this week.
  • Ford Motor Co. sees a prolonged shortage of mature chips that automakers need for their vehicles. “It’s too painful. We need to understand your technology roadmap better,” Chief Executive Officer Jim Farley said at the annual Semiconductor Industry Association dinner, in an interview with Texas Instruments Inc. CEO Rich Templeton. “And we need supply chain people from your companies and our companies to get it right.” Over the past two years, constrained chip supply has cost Ford 1.3 million vehicles in lost production. On top of that, the same issue led Ford to lose 4 million employee workdays this year, the company’s chief said. The parts in question are not cutting-edge silicon but mature technology doing basic tasks. Scarce MOSFET chips — costing just $0.40 apiece — for windshield wipers in the Ford F-150 cost the company 40,000 units of that vehicle’s production, Farley said.
  • The pharmaceutical industry may have difficulties in supplying enough medicines in Europe next year because of shortages of cardboard for packaging, according to a trade group representing generic drugmakers. “You may think cardboard would never cause a shortage of medicines,” Adrian van den Hoven, director-general of Medicines for Europe said on Thursday at a medical conference in Budapest. However, the issue is “massive.” The cardboard issue adds one more complication for the pharmaceutical industry, which is already facing rising inflation and the energy price crunch. The European Organization for Packaging and the Environment flagged the issue of cardboard availability to the European Union in September, with Managing Director Francesca Stevens noting that the drug and food industries may face issues amid low supplies of packaging

*All sources from Bloomberg unless otherwise specified