November 21, 2022

Daily Market Commentary

Canadian Headlines

  • Home Capital Group Inc., the Canadian mortgage lender that nearly collapsed five years ago and was bailed out by Berkshire Hathaway Inc., agreed to a C$1.7 billion ($1.3 billion) takeover by the co-founder of a rival financial firm. Smith Financial Corp., the family holding company of First National Financial Corp. co-founder Stephen Smith, is offering C$44 a share, is a 63% premium to Home Capital’s closing price on Friday. The announcement comes three months after the company disclosed it had received an approach from an unidentified buyer that it rejected as too low.  The deal would mark a significant step-up in the financial-company holdings of Smith, who is still executive chairman of mortgage lender First National. Smith also has “significant equity positions” in other financial firms including Fairstone Bank of Canada, Guaranty Mortgage Insurance Co. and EQB Inc.
  • dentalcorp Holdings Ltd., Canada’s largest and one of North America’s fastest growing networks of dental practices, today announced that its Board of Directors has formed a special committee of non-executive, independent directors (the “Special Committee”) to undertake, in consultation with its financial and legal advisors, a review and evaluation of strategic alternatives that may be available to the Company to unlock shareholder value. “Our management team is fully aligned with the Board’s decision to explore options to maximize shareholder value, including in response to unsolicited expressions of interest that have been received,” said Graham Rosenberg, dentalcorp’s Chief Executive Officer and Chairman of the Board. “We are the clear leader in Canada underpinned by our continued strong business performance and the tremendous growth opportunities before us. Our Board and management team remain committed to our growth strategy of supporting our practitioners and their teams in delivering high quality oral care to Canadians,” Mr. Rosenberg added.

World Headlines

  • European equities edged lower after gaining for five weeks in a row as investors were spooked by potential signs Chinese officials are reverting to tighter Covid Zero curbs. The Stoxx Europe 600 fell 0.2% by 10:43 a.m. in London. Miners and technology were the biggest decliners, while health care and telecommunication stocks outperformed. Among individual movers, Rheinmetall AG gained after Deutsche Bank AG raised the defense and automotive company to buy from hold. Next Plc and Boohoo Group Plc slipped as they were both downgraded to hold from buy at Panmure Gordon, which cited inventory challenges for UK apparel retailers.
  • Stocks fell amid concern that China may tighten Covid curbs after a string of reported deaths, with investors seeking shelter in the dollar. S&P 500 and Nasdaq 100 contracts both dropped by at least 0.5%. Chinese stocks fell in US premarket trading, amid worries that progress in China’s reopening could see setbacks. Walt Disney Co. defied the gloom, rallying after the company surprised by bringing back former leader Bob Iger as chief executive officer. European equities edged lower, with mining stocks falling. The dollar climbed against its Group-of-10 counterparts and emerging-market currencies. Treasuries were steady after giving back earlier gains. Oil sank on concern of a weakening demand outlook from China.
  • Asian stocks declined, with Hong Kong leading losses, as investors assessed the outlook for China’s reopening while continuing to monitor the Federal Reserve’s policy trajectory. The MSCI Asia Pacific Index dropped as much as 1.2%. Chinese technology stocks were the biggest drags on the gauge, also driving the Hang Seng Index down almost 2%, after fresh reports of Covid deaths and lockdowns in China. Malaysian shares pared losses as a deadline for party leaders to name a prime minister was extended after Saturday’s election produced the country’s first-ever hung parliament. Benchmarks across Asia Pacific also fell, while the dollar strengthened, as Federal Reserve Bank of Boston President Susan Collins reiterated the likelihood of large US interest-rate hikes, with the outlook for inflation still uncertain. US stocks had risen recently on hopes for a slower pace of tightening.
  • Oil extended declines after the biggest weekly drop since August as China tightened anti-Covid curbs, hurting the outlook for demand. Global benchmark Brent fell below $87 a barrel after retreating by almost 9% last week. The country saw its first Covid-related death in almost six months on Saturday and another two were reported on Sunday, sparking fears of a further wave of restrictions in the world’s biggest oil importer just as a city of 11 million near the capital asked residents to stay home amid an outbreak. Goldman Sachs Group Inc. lowered its fourth-quarter forecast for Brent crude by $10 a barrel to $100, according to a note, with the reduction driven in part by the possibility of further anti-virus measures in China as cases climb.
  • Gold edged lower in Asia as traders waited for fresh clues about the course of the Federal Reserve’s monetary-policy tightening path. Bullion ended last week 1.2% lower after Fed officials emphasized the need to go further with interest-rate hikes to cool rampant inflation, dimming hopes for a central bank pause despite cooler-than-expected consumer-price data in October. Spot gold slipped 0.3% to $1,745.58 an ounce as of 12:37 p.m. in Singapore after closing 0.6% lower in the previous session. The Bloomberg Dollar Spot Index gained 0.4% after rising 0.2% on Friday. Silver, palladium and platinum declined
  • At least 46 people were killed and about 700 others were injured in Indonesia after a 5.6 magnitude earthquake shook the western Java region on Monday afternoon. Several homes, stores and public buildings were damaged, and landslides were reported in some parts of Cianjur regency,  the epicenter of the roughly 7-second earthquake, authorities said. Tremors were felt in nearby cities, including the capital Jakarta, some 100 kilometers away from the epicenter, where office workers evacuated buildings.
  • The US and the European Union aim to work together to counter what they call non-market policies, including in China, according to a draft statement ahead of high-level talks due in Washington next month. The two sides will pledge to explore which policy tools could tackle the threat posed by such practices, including in the medical devices sector in China, as well as through certain government-controlled investment funds, says the draft, which was obtained by Bloomberg News and is subject to change as discussions on the text continue. A reference by the EU to some of China’s market-impacting policies would represent a win for the US as Washington has been pushing the bloc to take a tougher stand on the issue. European leaders have sought a middle path on China, with French President Emmanuel Macron calling Friday for engagement with Beijing and resisting efforts to divide the world into competing blocs.
  • Equity investors hoping for a better year in 2023 will be disappointed, according to Goldman Sachs Group Inc. strategists, who said the bear market phase is not over yet. “The conditions that are typically consistent with an equity trough have not yet been reached,” strategists including Peter Oppenheimer and Sharon Bell wrote in a note on Monday. They said that a peak in interest rates and lower valuations reflecting recession are necessary before any sustained stock-market recovery can happen. The strategists estimate the S&P 500 will end 2023 at 4,000 index points — just 0.9% higher than Friday’s close — while Europe’s benchmark Stoxx Europe 600 will finish next year about 4% higher at 450 index points. Barclays Plc strategists led by Emmanuel Cau have the same target for the European gauge and said the path to get there will be “tricky.”
  • Walt Disney Co. shares jumped after it brought back former leader Bob Iger to replace his successor Bob Chapek as chief executive officer, a surprise capitulation by the board after a string of disappointing results. Iger, 71, who spent more than four decades at Disney, including 15 years as its CEO, has agreed to serve for two years and will help find a permanent replacement, according to a company statement. Chapek, 62, is leaving effective immediately. Iger will be charged with reversing the steep decline in Disney’s shares, which are headed toward their worst annual loss since at least the 1970s. He’ll need to rein in Disney’s spending on programming for streaming video while reigniting growth for the Disney+ service, all while managing a declining cable-TV business.
  • ABB Ltd.’s electric-vehicle charging business has raised funds from minority investors that value the company at about 2.5 billion Swiss francs ($2.6 billion).  The division, ABB E-mobility, sold new shares for about 200 million francs to equity fund Interogo Holding AG, family office moyreal holding AG and ABB E-mobility Chairman Michael Halbherr, according to a statement Monday. The 8% stake sale will provide funding to grow the charging business, as the Swiss conglomerate still pursues plans for an eventual listing. ABB, which maintains a 92% holding, in June delayed an IPO of the unit that was set to raise $750 million because of the market rout that has slowed new listing this year. The industrials company offers a range of chargers and related installation and maintenance services, used by operators like Ionity GmbH and Electrify America.
  • Merck & Co. agreed to purchase Imago BioSciences Inc. to gain therapies for bone marrow conditions that lead to overproduction of blood cells, including one drug in mid-stage trials. Merck will pay $36 a share in cash for South San Francisco-based Imago, more than double its last closing price, for a total value of about $1.35 billion. The transaction is expected to close in the first quarter of next year, the companies said Monday in a statement. Imago is developing therapies for myeloproliferative neoplasms, with one drug called bomedemstat in mid-stage trials for conditions that affect the bone marrow’s production of platelets and red blood cells. The purchase is part of Merck’s search for more treatments for cancer and rare diseases after its deal discussions with Seagen Inc. stalled earlier this year.
  • More than two years of growth-squelching policies sent international investors fleeing China. It’s taken all of two weeks to lure them back. From Morgan Stanley and Bank of America to TCW, Fidelity International and Franklin Templeton, some of the biggest players in global markets are turning increasingly bullish on Chinese assets. It’s a stark contrast from just last month, when foreign firms pulled an estimated $8.8 billion from the nation’s slumping stocks and bonds, and analysts were predicting more gloom ahead. The dramatic about-face comes as Beijing seemingly shifts toward a more pro-growth footing, tweaking Covid policies to minimize economic and social costs, delivering a plan to rescue the beleaguered property market and dialing back tensions with the West. The result: mainland shares are up more than 7% in November, while the yuan is on pace for its first advance in nine months. With concerns that monetary-policy tightening in the US and Europe could soon tip the developed world into a recession, foreign firms are increasingly looking to China as a key portfolio hedge.
  • Twitter Inc.’s head of France announced his departure in a tweet on Sunday ahead of what may be additional layoffs at the embattled platform. Damien Viel, who confirmed his departure in a separate message to Bloomberg, had led the region for about seven years. A number of workers at the Paris office, which had fewer than 50 employees before billionaire Elon Musk took over last month, are focused on advertiser relationships.  Musk, who’s already slashed Twitter’s workforce in half in sweeping job cuts that included much of the company’s management, is considering additional layoffs to begin as soon as Monday. They’ll likely focus on the sales and partnerships side of the business, people familiar with the matter have said.
  • Seven national football teams, including England, will not wear a rainbow armband showing solidarity with LGBTQ rights, bowing to pressure from FIFA because players might receive a yellow card for the show of support. The football associations of England, Wales, Belgium, the Netherlands, Denmark, Germany and Switzerland said they made the decision in light of a threat from FIFA that captains who wear the OneLove armbands may face “sporting sanctions”. “As national federations, we can’t put our players in a position where they could face sporting sanctions including bookings, so we have asked the captains not to attempt to wear the armbands in FIFA World Cup games,” the football associations said in a joint statement. “We are very frustrated by the FIFA decision which we believe is unprecedented.” Some associations had expected that teams would face fines for breaching kit rules rather than sporting sanctions.
  • Apollo Global Management Inc. raised its first long-only fund to make opportunistic investments in multiple credit asset classes, including scooping up some of the $43 billion in buyout loans currently stuck on bank balance sheets. The $2.4 billion Accord+ Fund will buy new and existing secured debt offering double-digit yields — such as the recent Carnival Corp. issuance — as well as private financings and high-quality structured credit that may be trading at prices below its true value, John Zito, Apollo’s deputy chief investment officer of credit, said in an interview. Typically banks provide financing with the aim of later selling it to investors, but those lenders have been forced to hold onto the debt or sell it at steep discounts as would-be buyers stay on the sidelines.
  • Agribusiness giant Cargill Inc. named Brian Sikes as its new chief executive officer to replace David MacLennan, who will take on a new role at America’s largest private company. Sikes, who became chief operating officer last year after running Cargill’s meat business, will take the top job on Jan. 1 and MacLennan will become executive chair, the company said on Monday. The changes comes after MacLennan, who turned the 157-year old agricultural commodities trader into a protein giant, delivered two consecutive years of record profits.

*All sources from Bloomberg unless otherwise specified