November 25, 2022

Daily Market Commentary

Canadian Headlines

  • The S&P/TSX Composite rose 0.3%, with nine of 11 sectors higher, led by materials stocks. As of market close, 148 of 236 stocks rose, while 84 fell. Corus Entertainment Inc. led the advances, rising 5.7%, while Wesdome Gold Mines Ltd. decreased 3.5%.
  • Prime Minister Justin Trudeau is set to take the stand at a public inquiry into his decision to invoke emergency powers to quell a trucker-convoy protest that gridlocked Canada’s capital city and blockaded US border crossings. Trudeau’s testimony Friday comes on the final day of the six-week hearing that’s seen almost every senior federal government official appear, along with police officers, mayors and the convoy organizers. The inquiry was mandated by the prime minister’s emergency edict itself. Hundreds of semi-trucks and other vehicles arrived in Ottawa on the last weekend in January to protest vaccine mandates and other public health restrictions enacted during the Covid-19 pandemic. The inquiry has heard Ottawa police expected the trucks to leave after the weekend, but instead the protesters dug in and raised millions of dollars — some in Bitcoin — through online fundraising platforms including GiveSendGo.

World Headlines

  • European shares were muted on Friday as they head for a sixth week of gains, the longest winning streak in a year, extending a rally fueled by expectations that the Federal Reserve will slow the pace of rate hikes. The Stoxx Europe 600 Index was 0.2% lower by 10:17 a.m. in London, with energy stocks outperforming, while real estate and consumer products lagged. Volume is expected to remain lower due to the Thanksgiving holiday in the US. Equities in the region have gained for six straight weeks for the first time since November 2021, with the blue-chip Euro Stoxx 50 entering a bull market and the Stoxx 600 rising 15% from a September low on optimism that central banks will moderate their rates hikes, while a strong earnings season and China’s plans to ease Covid-19 restrictions have also boosted sentiment.
  • US equity futures and European stocks fluctuated as investors assessed prospects for less-aggressive central bank tightening and weighed China’s latest move to stimulate its economy as Covid-19 infections rise. S&P 500 contracts inched higher before an abbreviated Thanksgiving weekend cash trading session on Wall Street. Those on the Nasdaq 100 were steady. Energy companies climbed in premarket as oil prices clawed back some of their weekly decline. Apple Inc. slipped after a report that production of iPhones in November could fall by at least 30% at a Chinese plant where worker protests have disrupted operations. US stocks are poised to end the shortened trading week higher, rising after recent commentary from Federal Reserve officials that supported the case for a slower pace of interest-rate increases. Fed minutes published Wednesday showed that officials concluded the central bank should soon moderate the pace of rate hikes to mitigate overtightening risks.
  • Asian stocks declined, with Chinese technology shares retreating amid concerns about growing mainland Covid cases. The MSCI Asia Pacific Index lost as much as 0.5%, on course to snap a three-day advance, with Tencent and Alibaba the biggest drivers of losses. The measure was still poised for its fourth weekly gain, the longest such streak since August. Trading volumes were thinner than usual in some markets following the US Thanksgiving holiday. Benchmarks in Hong Kong were among the biggest decliners, with the Hang Seng Tech Index closing down more than 2% before Meituan’s earnings release. Virus cases surged in Chinese cities including the capital Beijing, testing authorities’ resolve to ease their strict Covid Zero policy. Hopes for reopening had fueled a recent equity rally after a four-month selloff.
  • Oil pared a third weekly loss as the European Union weighed a higher-than-expected price cap on Russian crude and economic slowdown concerns threatened the demand outlook. Brent traded above $86 a barrel, putting the global benchmark on course for a small decline at the end of a volatile week, with trading volumes thin around a US holiday. European diplomats remain locked in talks over how strict the cap should be, highlighting disagreements between member states. Negotiations could resume Friday but may also slip beyond that. The cap talks come ahead of an OPEC+ meeting at the start of next month. Iraq and Saudi Arabia’s oil ministers met on Thursday and said the group could take further measures if required to achieve stability in the market.
  • Gold edged lower on Friday and is poised for a small weekly gain, after Federal Reserve minutes showed increasing support for slowing the pace of interest-rate hikes. Bullion has rallied about 8% in November amid dollar weakness, after aggressive monetary tightening by the US central bank led to a run of seven monthly losses. Lower-than-expected inflation prints have heightened expectation of a slowdown in rate hikes, a prospect validated by the Fed’s minutes on Wednesday. Attention will turn to a long slate of US economic data next week, including the Fed’s favored inflation metric and nonfarm payrolls. Prints that suggest price pressures are continuing to ease and the labor market is weakening will boost bets on a smaller rate hike by the central bank next month.
  • Copper miners are boosting output at last after several years of anemic performance. But it may not be enough to meaningfully lift stockpiles from historically low levels, keeping supplies tight in a market critical to the energy transition. The reason is a bottleneck in capacity at the world’s smelters, whose role turning ore into metal makes them a crucial cog in the supply chain between miners and the manufacturers of products from mobile phones and air-conditioning units to electric vehicles. “There isn’t enough smelting capacity around,” said Ye Jianhua, an analyst at Shanghai Metals Market. A surplus of mine production would “hardly alleviate the tightness associated with low refined copper inventories next year,” he said.
  • US retailers are bracing for a slower-than-normal Black Friday as high inflation and sagging consumer sentiment erode Americans’ demand for material goods. After adjusting for inflation, seasonal sales are likely to fall 1.2%, the first decline since 2009, according to S&P Global Market Intelligence. At the same time, there’s a lot of nuance to be gleaned from companies’ earnings reports in recent weeks. It’s clear that shoppers are willing to fork out cash, if the price is right. A buildup of inventory has forced companies into widespread markdowns — a move that hurts profits but appears to be drawing in discount-hunting consumers. At the same time, companies from Nordstrom Inc. to Kohl’s Corp. have noted weaker performance in late October and earlier December. If that trend continues, a stock rally that has bolstered the industry in recent weeks could prove short-lived.
  • The construction of a €1.62 billion ($1.69 billion) interconnector between France and Ireland will start in 2023, France’s Energy Transition Ministry said in a statement Friday. The 700-megawatt undersea link is due to be commissioned in 2026. The European Investment Bank, Barclays, BNP Paribas and Danske Bank will provide €800 million in financing, while the European Union has agreed to provide €530.7 million. Nexans will provide the cable for the Celtic Interconnector, a joint venture between RTE and Eirgrid, and Siemens Energy will provide the high-voltage transmission technology, according to a company statement. The order value for Siemens Energy is in the “mid three-digit million-euro range.”
  • BlackRock Inc., the world’s largest asset manager, says it’s cautious on the longer-term outlook for Chinese stocks even as sentiment toward the market is turning more positive. “Geopolitics remains a key risk,” a team comprising portfolio managers and Belinda Boa, head of Asia Pacific active investments, wrote in a report on the region’s 2023 outlook. Among other concerns, there’s uncertainty on the possible impact of new U.S. policies on sectors beyond semiconductors as well as potential retaliatory measures, they said. Privately owned enterprises and foreign investors also face a potentially “adverse climate” given the bigger emphasis on ideology relative to the past few decades in China, according to BlackRock. The money manager’s tone breaks with the growing bullishness toward China and is markedly different from its own view a year ago.
  • Adani Enterprises Ltd. seeks to raise 200 billion rupees ($2.5 billion) by selling new shares as billionaire Gautam Adani’s flagship firm looks to increase its free float and improve leverage ratios. The board of the Ahmedabad-based company, helmed by Asia’s richest person, approved a further public offer of equity shares, according to an exchange filing Friday. The breakneck expansion by the ports-to-power conglomerate has added both financial complexity and leverage to the business. The fundraising, in one fell swoop, can improve the company’s debt ratios — the lenders are urging for it too — broaden its investor base, increase stock liquidity and possibly spur analyst coverage for a firm that’s currently tracked by just two brokerages despite surging over 2,000% in the last four years.
  • Credit Suisse Group AG fell to a fresh record low as investors weighed the impact of the massive outflows the bank reported this week and news that rivals in the key growth market of Asia are benefiting from the Swiss firm’s troubles. Shares of the lender declined as much as 2.3% in Zurich on Friday, to a new intraday low, after Vontobel cut its price target and said the firm “urgently” needs to halt outflows in its core wealth management business. Credit Suisse announced on Wednesday that clients had pulled about 84 billion francs ($89 billion) in the first six weeks of the fourth quarter, with no reversal yet. Outflows were particularly pronounced in the wealth management unit, where they amounted to 10% of assets under management.
  • SSE Plc has agreed to sell a 25% stake in its electricity transmission grid business to the Ontario Teachers’ Pension Plan Board for about £1.5 billion ($1.8 billion). The network helps transport renewable resources in the north of Scotland to demand centers further south. SSE is also selling a stake in its electricity distribution business. The process is expected to commence in early 2023, according to a statement. The stake sale is part of a strategic plan unveiled by SSE after it rejected a proposal from activist investor Elliott Investment Management to split the company in two by separating the renewables business.
  • A group of children and young adults including Greta Thunberg have filed a class action lawsuit against the Swedish state for failing to take adequate measures to stop climate change. The lawsuit is part of an international wave of climate-related legal action, some of it targeting national governments. It follows a high-profile case in the Netherlands, where the country’s highest court ruled in 2019 that the government had a legal obligation to take action to mitigate global warming. The Swedish suit involves Thunberg, possibly the world’s best known climate activist, and more than 600 others who claim that Sweden’s climate policies violate its constitution as well as the European Convention on Human Rights.
  • Tesla Inc. is recalling almost 81,000 electric cars in China — more than it typically ships from its Shanghai factory in any given month — due to a software issue and seat belt problems. The US EV maker will call back 70,434 imported Model S, Model X and Model 3 vehicles, and 10,127 China-made Model 3 cars, the nation’s State Administration for Market Regulation said in a statement Friday. The Model S and Model X recalls require an over-the-air software fix to address a defect in the cars’ battery management system, which may lead to a loss of power, while the Model 3s in question have a faulty seat belt fixture.
  • There are serious ramifications to being exposed to Covid-19 in China — and not just infection. As the country confronts its biggest outbreak ever, residents in major cities are hunkering down because of the prospect of being sent to a quarantine camp or locked down at home. Going out in the capital of Beijing means having to scan a QR code to enter venues like shops and restaurants, or to even take public transportation. Under the country’s ubiquitous contract-tracing surveillance system, visiting the same places as someone who later turns up infected can land you in a government isolation facility, where conditions can be so poor that some people say they are buying chamber pots and portable tents in preparation. That’s why the capital has largely battened down. People are staying at home as transmission increases, even though the overall risk of infection remains low, with 1,854 cases reported for the city of 22 million people on Thursday.
  • European Central Bank Governing Council member Madis Muller warned that the main risk in the battle with record inflation is halting increases in interest rates too early. Pledging that the ECB would break the “backbone” of the unprecedented upswing in euro-zone prices, Muller said officials will do “everything in our capability” to get a grip on inflation, with hikes in borrowing costs remaining “our main tool.” “If you’re going to worry right now, then don’t worry about the quickly increasing interest rates but about the central bank deciding to stop taking the bitter medicine too early, before the illness is cured,” Muller said Friday in Tallinn, where he heads Estonia’s central bank. “In that event, the problem of high inflation would remain for longer.”
  • The worst may soon be behind global bonds, with supply set to shrink faster than demand, according to JPMorgan Chase & Co. The key driver will be estimated reduction of $1.6 trillion in global bond supply, outpacing an estimated deterioration of about $700 billion in demand, strategists led by Nikolaos Panigirtzoglou in London wrote in a research note Thursday. That decline in demand will be a major improvement from the $5.9 trillion slide last year, they said. Bonds have slumped around the world in 2022, leading to the first bear market in a generation, as central bank interest-rate hikes pushed up yields and volatility. Global debt has tumbled 16% this year, heading for its first ever back-to-back annual decline since at least 1990, according to a Bloomberg index. Still, the gauge has risen more than 5% in November amid the lure of higher yields and the prospect of slower Federal Reserve tightening.
  • Elon Musk has said Twitter Inc will launch its new Verified services next Friday, after a series of delays and mishaps over fake accounts. Twitter had earlier suspended the $8 subscription program to combat a growing problem of users impersonating major brands. During the initial roll out, one account claiming to be Nintendo Inc. posted an image of Super Mario holding up a middle finger, while another posing as pharma giant Eli Lilly & Co. tweeted that insulin was now free — forcing the company to issue an apology. A purported Tesla Inc. account joked about the carmaker’s safety record.
  • Man Group Plc has launched a fund carrying the EU’s highest ESG designation, in the middle of an industry-wide reset that’s likely to see far fewer asset managers offering such products. Man AHL, part of the world’s largest publicly traded hedge-fund firm, unveiled the Man AHL TargetClimate UCITs fund, according to a press release dated Nov. 23 found on Man’s website. The fund is registered as Article 9, which is the top classification within EU environmental, social and governance investing rules. The launch, which is the first of its kind for Man AHL, comes as asset managers across Europe have had to strip the tag from billions of dollars worth of funds. This week alone, Amundi SA said it will downgrade “almost all” its roughly $46 billion in Article 9 funds, after the EU made clear the designation must be reserved for products that are 100% sustainable, save for hedging and liquidity needs. That’s a higher bar than many had anticipated.

*All sources from Bloomberg unless otherwise specified