November 23, 2022
Daily Market Commentary
- Alberta announced plans to spend C$2.4 billion ($1.8 billion) on tax breaks and increased social benefits, as the oil-rich Canadian province uses part of its budget surplus to help residents deal with soaring inflation. The package includes a six-month suspension of the provincial fuel tax, C$600 for parents of children under 18 and vulnerable individuals, and the indexation of provincial tax brackets and of some relief benefits. It also provides C$200 per household in electricity rebates. The measures, announced on television by new Premier Danielle Smith, draws on a projected C$13.2 billion budget surplus. The province is enjoying a surge of revenue from taxes and energy royalties after oil prices skyrocketed when Russia invaded Ukraine.
- Circle K parent Alimentation Couche-Tard Inc. reported strong profit growth as fuel prices remained elevated, but volumes fell and operating costs were higher. The global chain of 14,300 gas stations and convenience stores earned $810 million in the fiscal second quarter ended Oct. 9. The company made 82 cents a share on an adjusted basis, which was 26% higher than a year earlier but missed analysts’ consensus of 85 cents. Gross profit from the fuel business jumped 20% to $1.4 billion, mostly because of high US gasoline prices. Volumes were down everywhere, falling 1.9% in the US and 6.5% in Canada, on a same-store basis.
- European stocks were subdued on Wednesday after closing at their highest in three months yesterday, as investors weighed data showing a contraction in the region’s top two economies while awaiting minutes of the Federal Reserve’s meeting. The Stoxx 600 was up less than 0.1% by 12:04 p.m. in London. Miners and travel and leisure outperformed, while autos and real estate were the biggest laggards. European stocks have seen muted moves since mid-November as optimism about cooling inflation gave way to worries that central banks will stick to their hawkish policy outlooks until they see a more meaningful decline in prices. Still, Germany’s DAX is back in a bull market and the Euro Stoxx 50 is on the cusp of joining it. Minutes of the Fed’s last policy meeting, due today, are set to show how united policymakers are over a higher peak for interest rates going forward.
- US equity futures and European stocks were steady as investors looked forward to the release of policy minutes from the Federal Reserve’s latest meeting for potential signs that the pace of rate hikes may slow. Contracts on the S&P 500 edged higher after the underlying gauge closed at its highest level since Mid-September on Tuesday, while those on the Nasdaq 100 were little changed. The publication of minutes from the Fed’s Nov. 1-2 meeting — due at 2 p.m. in Washington — will be studied for how united policymakers were over a higher peak for interest rates than previously signaled in their inflation fight. Some investors anticipate that lower-than-estimated inflation figures could prompt the Fed to temper the size of its rate hikes as early as at next month’s gathering.
- Asian stocks advanced as investors await the Federal Reserve’s minutes to assess the US rate-hike path while weighing risks from China’s Covid lockdowns and regulatory crackdown. The MSCI Asia Pacific excluding Japan Index climbed as much as 0.7%, led by gains in tech and energy stocks. Alibaba and other Chinese internet firms were the biggest individual contributors to the measure’s gain. Equities in Hong Kong snapped a five-day losing streak while those in mainland China closed with a small gain as investors analyze impact of virus curbs. Traders were also cautious following a report that Chinese authorities are planning to impose a fine of more than $1 billion on Jack Ma’s Ant Group. Elsewhere, benchmarks in Australia, Taiwan, South Korea and Indonesia posted moderate gains. Japan’s markets were closed for a holiday.
- Oil fell as the EU discussed imposing a price cap on Russian oil between $65 and $70 a barrel. West Texas Intermediate dropped below $80 a barrel, after a run of recent volatility that on Monday pushed prices to the lowest since January. The European Union’s discussions on Russian oil exports come as ambassadors meet Wednesday with the aim of approving the mechanism. The cap level could be close to the current Russian price given it has been selling at discounts of about $20 a barrel in recent months. Russia has said that it won’t sell crude to nations that use the cap, which is designed to punish Moscow for its invasion of Ukraine while keeping the nation’s oil flowing.
- Gold steadied as investors await Federal Reserve minutes due for release later Wednesday for fresh clues on how the path of monetary tightening could impact the precious metal. Bullion has been under pressure throughout the year as the US central bank hiked rates, boosting bond yields and the dollar. This month gold has recouped some losses as lower-than-expected inflation data stoked bets on less aggressive tightening. Smaller rate hikes could boost the appeal of non-interest-bearing gold, which tends to have a negative correlation with bond yields. The metal snapped a four-day losing streak in the previous session as the dollar weakened.
- The Federal Reserve is set to show how united policymakers were at their meeting this month over a higher peak for interest rates than previously signaled as they calibrate their fight against decades-high inflation. At the conclusion of the Nov. 1-2 meeting of the US central bank’s policy-setting Federal Open Market Committee, Chair Jerome Powell told reporters that rates would probably have to go higher than the FOMC’s quarterly projections in September had indicated. In his post-meeting press conference, Powell tied the notion of heading for a higher peak for the Fed’s benchmark rate to a disappointing report on inflation that had been released in the weeks after the September forecasts were published. The question of how the FOMC views the relationship between near-term inflation data and the ultimate destination for rates is critical for investors. Officials update the projections at their next meeting on Dec. 13-14.
- Uniper SE will need additional capital of up to €25 billion ($25.8 billion) from the German government as Russia’s gas supply cuts leave the utility giant struggling to survive. An initial government injection of €8 billion will not be sufficient to stabilize the company, it said in a statement on Wednesday. The additional authorized capital will be created by issuing new shares — to which only the government will be admitted to subscribe — and is intended to cover future losses. Uniper has been one of the companies hardest hit by a reduction in Russian gas flows amid the war in Ukraine. Gas prices have soared to levels beyond what the utility was paying for fuel piped from Russia.
- Pick a number and cross your fingers. Crypto naysayers who argue that’s the essence of Bitcoin prognostication are likely finding validation in the thick uncertainty shrouding the sector. Over the past few days, long-term targets for the world’s largest token by market value have ranged from $5,000 at strategists BCA Research Inc. to $1 million by 2030 for Ark Investment Management’s Cathie Wood. The cavernous spread reflects the gnarly question of what further contagion may or may not lie ahead following the evisceration of Sam Bankman-Fried’s FTX exchange and trading house Alameda Research, onetime crypto darlings.
- Deere & Co. expects profit to surge to a record next year as soaring farm profits continue to stoke tractor demand and amid easing supply-chain constraints. Net income for the fiscal year will be between $8 billion and $8.5 billion, the world’s largest maker of agricultural machinery said Wednesday after reporting fourth-quarter earnings that beat analysts’ expectations. The annual profit forecast compares to the $7.87 billion average adjusted estimate of 26 analysts surveyed by Bloomberg. Deere has benefited from the rise in farmers’ incomes as drought in the US and China and disruptions from Russia’s war in Ukraine have driven up crop prices, encouraging growers to replace aging equipment. That has helped Deere, which is seen as a bellwether for the agricultural industry, outperform broader equity indexes, with its shares up more than 21% this year.
- The European Union watered down its latest sanctions proposal for a price cap on Russia’s oil exports by delaying its full implementation and softening key shipping provisions. The bloc proposed adding a 45-day transition to the introduction of the cap, according to a document seen by Bloomberg. The proposed grace period would apply to oil loaded before Dec. 5 — the date oil sanctions are due to kick in — and unloaded by Jan. 19, aligning the EU to a clause previously announced by the US and the UK. The latest proposal eases several elements of the cap that were laid out in the bloc’s most recent sanctions package, including ones that could have placed indefinite restrictions on ships that carried Russian oil above the price cap. Penalties on those ships would now be limited to a 90-day period and apply only to Russian oil.
- Credit Suisse Group AG clients pulled as much as 84 billion Swiss francs ($88.3 billion) of their money from the bank during the first few weeks of the quarter, underlining ongoing concerns over the bank’s restructuring efforts after years of scandals. The Zurich-based bank warned on Wednesday that it will face a loss of up to 1.5 billion Swiss francs ($1.6 billion) for the three final months of the year, partly as a result of the decline in wealth and asset management client funds from the start of October to Nov. 11. That’s potentially the worst exodus since the financial crisis. The outflows were particularly pronounced at the key wealth management unit, where they amounted to 10% of assets under management. While they have been “reduced substantially from the elevated levels of the first two weeks of October 2022,” they have yet to reverse, the bank said.
- As developing-world sovereign bonds get ready to close the door on their worst year in over a quarter of a century, things can only get better, according to Morgan Stanley strategists. Emerging-market sovereign debt will return 10% through the end of 2023 and will be a better bet for investors than US corporate debt, according to strategists including James Lord, Simon Waever and Emma Cerda. They expect US credit to sell off, with investment-grade spreads widening 155 basis points and high-yield counterparts by 575. A closely watched benchmark of emerging-market sovereign debt, the JPMorgan EMBI Global Diversified Composite Index, has lost roughly 20% so far in 2022 and is on track for its worst year since at least 1994. Almost all other corners of fixed income are also poised for double-digit losses.
- China signaled more monetary policy stimulus is on the table, including a cut to the reserve requirement ratio, as authorities look to boost lending and ramp up support for the economy. Tools such as cutting banks’ required reserve ratio will be used “in a timely and appropriate manner” to maintain reasonably ample liquidity, the State Council said, according to broadcaster CCTV. The People’s Bank of China usually follows such statements by cutting the amount of cash banks have to keep in reserve within days. The statement from the country’s cabinet is the latest indication of help for the economy, which is under pressure from a deepening property crisis and Covid outbreaks. Credit growth in October dropped to the lowest level since 2019. Economists surveyed by Bloomberg predict the economy will likely expand just 3.3% for the full year, far below an official target of around 5.5% that has been downplayed for months.
- Hundreds of workers at Apple Inc.’s main iPhone-making plant in China clashed with security personnel, as tensions boiled over after almost a month under tough restrictions intended to quash a Covid outbreak. Workers at the Foxconn Technology Group plant streamed out of dormitories in the early hours of Wednesday, jostling and pushing past the white-clad guards they vastly outnumbered, according to videos sent by a witness to portions of the protest. Several white-suited people pummeled a person lying on the ground with sticks in another clip. Onlookers yelled “fight, fight!” as throngs of people forced their way past barricades. At one point, several surrounded an occupied police car and began rocking the vehicle while screaming incoherently. The protest started overnight over unpaid wages and fears of spreading infection, according to the witness, asking to remain anonymous for fear of repercussions. Several workers were injured and anti-riot police arrived on the scene Wednesday to restore order, the person added.
- US mortgage rates retreated sharply for a second week, hitting a two-month low and providing a bit of traction for the beleaguered housing market. The contract rate on a 30-year fixed mortgage decreased 23 basis points to 6.67% in the week ended Nov. 18, according to Mortgage Bankers Association data released Wednesday. Rates have plunged nearly a half percentage point in the past two weeks, the most since 2008, as recession concerns mount, inflation shows signs of cooling and a number of Federal Reserve officials say it may soon be appropriate to slow the pace of monetary tightening.
- Amazon.com Inc. spooked investors last month when it predicted the slowest holiday season growth in its history. Now there are signs—albeit tentative—that the world’s largest e-commerce company could have a somewhat merrier Christmas than anticipated. Inflation has eased in recent weeks and, according to survey results released Sunday by Jefferies Financial Group, US consumers see prices moderating in all categories except rent and groceries. Americans continue to spend despite rising interest rates, with October retail sales increasing the most in eight months. Analysts, meanwhile, expect Amazon to hit the higher end of its fourth-quarter forecast, with revenue growing 6.7% to $146.6 billion, according to data compiled by Bloomberg. That’s still a slowdown from last year’s 9.4% growth but hardly a disaster. Asked about Amazon’s holiday prospects during an earnings call in October, Chief Financial Officer Brian Olsavsky expressed measured optimism but acknowledged that various headwinds—inflation, rising interest rates, the war in Ukraine—made prognostication unusually difficult this year. Indeed, two data tracking firms have decidedly different forecasts. Last week, Insider Intelligence said it expected online sales in November and December to rise 12% from a year earlier and faster than last year’s growth of 10.4%. Yet in October, Adobe Inc. predicted an increase of just 2.5%, a marked slowdown from its 8.6% growth tally in 2021.
- Investment banks may be cutting jobs, but professional services firms are only getting bigger. EY is on track to hire around 220,000 people in the twelve months to July 2023, having achieved its highest growth in nearly two decades in the previous period. That’s before a potential break-up of its auditing and consulting divisions takes effect, which could further ramp up a recruitment drive that reached about 160,000 in the 2022 financial year. As part of the push the firm expects to sift through more than 3 million resumes this year, Trent Henry, EY Global vice chair for talent, said in an interview. The company is using automation to help its recruitment professionals and match candidates to job postings, he said.
- New York Governor Kathy Hochul has signed one of the most restrictive laws in the US on regulating cryptocurrency mining, becoming the first state to impose such a ban. The bill triggers a two-year moratorium on new permits for crypto-mining companies that are powered by fossil fuels and use proof-of-work authentication methods, with millions of computers, to validate transaction data. That earns the companies rewards in the form of the token from the blockchain network. The Bitcoin network relies on proof-of-work authentication. Billions of dollars have been invested in Bitcoin mining operations and the energy consumption for such operations can equal that of an entire nation.
- Sam Bankman-Fried, disgraced founder of the now collapsed crypto exchange FTX and trading house Alameda Research, apologized to staff in a letter that outlined a crash in “collateral” to $9 billion from $60 billion. “I didn’t mean for any of this to happen, and I would give anything to be able to go back and do things over again,” he wrote in the message sent to employees Tuesday and obtained by Bloomberg News. A combination of a credit squeeze, a further selloff in virtual coins and a “run on the bank” left collateral at $9 billion ahead of FTX’s Nov. 11 bankruptcy, he wrote. The estimate for liabilities had reached $8 billion by then, he said.
*All sources from Bloomberg unless otherwise specified