November 27, 2023

Daily Market Commentary

Canadian Headlines

  • A meandering benchmark index and a slew of companies going private have left Canada’s capital markets in a precarious position. The number of companies leaving the country’s public markets has exceeded new ones joining. In 2023, 19 publicly listed Canadian firms have gone private and taken about C$12.5 billion off the Toronto Stock Exchange and junior TSX-Venture, including one that went bankrupt. Summit Industrial Income REIT, valued at $4.2 billion, and Home Capital Group Inc., which fetched a $4.1 billion valuation, were the two largest Canadian take-private deals this year. New listings haven’t kept pace. There has been just one initial public offering on the TSX this year and another 12 companies debuting on the junior exchange, raising a total of just $114 million.
  • First Quantum Minerals Ltd. took the first step in an arbitration process with Panama as the Canadian firm’s flagship copper operation faces anti-mining protests and a Supreme Court ruling on whether its contract is constitutional. The company said late Sunday that it issued an arbitration notice to President Laurentino Cortizo’s administration. Panama extended First Quantum’s mining license last month, before reacting to protests by proposing to put the mine’s future to a popular vote. The referendum proposal and a push for congress to repeal the contract were subsequently shelved as the government waits to see if the Supreme Court will kill the agreement instead.  The dispute has called into question the very future of the $10 billion Cobre Panama mine. Last week, the company halted commercial production as a port blockade chokes key supplies to an operation that accounts for more than 1% of global copper supply.
  • Suncor Energy said the Terra Nova Floating, Production, Storage and Offloading vessel has safely restarted following the completion of the Terra Nova Asset Life Extension project. Production is expected to ramp up over the coming months.

World Headlines

  • European stocks were largely unchanged after rallying for a second week as traders assessed the path of monetary policy and braced for inflation data due later this week. The Stoxx Europe 600 Index dipped less than 0.1% as of 8:17 a.m. in London. Energy stocks lagged as oil fell, with traders looking ahead to this week’s delayed OPEC+ meeting. Among individual movers, BASF SE dropped after it was cut to underweight from equal-weight at Morgan Stanley. Julius Baer Group Ltd. shares declined for a sixth day as it is reviewing its private debt business after running up an exposure of 606 million Swiss francs ($688 million) to a single client. European stocks are set for the best month since January as investors anticipate the end of the rate-hiking cycle as consumer prices ease. Some warning signals — like bond volatility remaining way higher than its equity equivalent — are starting to flash as the rally heads into December.
  • Stocks fell and gold climbed to a six-month high as data showed a sharp slowdown in China’s industrial profits, which reinforced investor concerns about its sluggish economy. In earnings due this week, Crowdstrike Holdings Inc. will underscore how businesses are prioritizing cybersecurity after recent high-profile corporate hacks, while Salesforce Inc. and Dell Technologies Inc. are expected to post slower sales growth as overall corporate expenditure tightens.
  • Asian stocks fell as concerns over China’s economic health persisted, though losses narrowed following a report that President Xi Jinping will meet tech companies in Shanghai. The MSCI Asia Pacific Index dropped as much as 0.5%, with TSMC and Toyota Motor among the biggest drags. Stocks in Japan, Taiwan, Australia and Singapore also slipped. Markets in India and the Philippines were closed for holidays. China’s benchmark CSI 300 Index fell after data showed industrial profit growth slowed for a second month, suggesting the economy remains fragile despite policy efforts to support the property sector. Shares trimmed their declines after a report that Xi will visit the Shanghai Futures Exchange as well as several technology companies, which spurred a rally in some chipmakers.
  • Oil fell for a fourth day as traders looked ahead to this week’s delayed OPEC+ meeting and wider financial markets carried a risk-off tone. Global benchmark Brent dropped below $80 a barrel after falling in each of the last five weeks, the longest such run since the end of 2021. Crude fell alongside equities as the week’s trading kicked off, with data showing profits at China’s industrial companies rose at a much slower pace in October, highlighting risks to growth in the world’s largest crude importer. The Organization of Petroleum Exporting Countries had to push back the critical gathering to decide on supply policy by four days to Nov. 30 amid a dispute over quotas. Signs of weakness in crude futures have traders and analysts expecting the group will take additional measures to tighten the market.
  • Gold climbed to the highest since May as the dollar continued to weaken ahead of Treasury auctions that are expected to indicate whether the US bond market is set for a meaningful revival. Bullion closed above $2,000 an ounce on Friday, capping a second weekly gain and bolstering confidence that higher prices are justified. The metal has been buoyed in the second half of November by weaker US economic data that added to expectations for early rate cuts by the Federal Reserve next year. Spot gold rose 0.7% to $2,015.07 an ounce as of 9:16 a.m. in London, after gaining more than 3% over the previous two weeks. The Bloomberg Dollar Spot Index weakened 0.1%, following its first back-to-back weekly decline since July. Silver gained 1.9%, while platinum and palladium also advanced.
  • Iron ore declined after its longest streak of weekly gains since January, hit by Beijing’s latest warnings about increased market supervision as its seeks to curb price rises. The steelmaking material lost as much as 1.8% in Singapore after the National Development and Reform Commission said in a statement late Friday that it had met with major port operators to discuss iron ore inventory and storage matters, as well as to seek measures against hoarding. Prices have gained around 30% since mid-August amid optimism for more property-sector stimulus despite a lack of significant pick up in demand fundamentals. Market watchers remain hopeful China’s 1 trillion yuan ($140 billion) debt issuance announced last month will provide more affordable housing and lift steel markets, while some are calling for more aid from Beijing.
  • Israel is coming under increasing pressure to agree to an extension of a four-day pause in its war with Hamas. US President Joe Biden said he supports prolonging the cease-fire, which is due to end on Tuesday morning and part of a deal to free hostages held by Hamas in Gaza. The halt in fighting is “critically needed” for additional aid to get into the territory and for more captives to be freed. Israeli Prime Minister Benjamin Netanyahu spoke to Biden on Sunday and said an extension was possible, reiterating that every extra day of the truce is conditional on 10 more hostages being released. And he said Israel will not change its goal of trying to destroy Hamas.
  • A $1.7 trillion equity rally and the best bond gains in a year in emerging markets got a vote of confidence from investors in US exchange-traded funds who brought in fresh deposits last week, taking 2023 inflows above $10 billion. Net deposits into ETFs that invest across developing nations as well as those that target specific countries totaled $766.1 million in the week ended Nov. 24, building on gains of $1.57 billion in the previous week, according to data compiled by Bloomberg. So far this year, inflows have totalled $10.1 billion. Emerging-market assets are heading for the biggest monthly gains since January since easing US inflation boosted wagers the Fed has reached the peak of its monetary-tightening cycle and may even cut rates in 2024. Stocks have rallied for four successive weeks, while sovereign bond yields have shed 84 basis points on average since late October. Carry returns are improving as 19 of 30 widely traded developing-nation currencies head for monthly rallies.
  • Reeling from a bear market last year, beaten-up investors decided to send more than $60 billion to exchange-traded funds focusing on dividends. Rather than give shelter in a stormy season, the largest dividend ETFs have been left behind by a tech-obsessed market whose biggest proxies have surged 15% or more. At the bottom of the leader board is the $18 billion iShares Select Dividend ETF (ticker DVY), down 5.4% on a total return basis after all-in bets on utilities and financial stocks fizzled. It’s the latest lesson on the dangers of market timing. Investors wanted exposure to companies with a history of paying out profits as a precaution amid the Federal Reserve’s most aggressive tightening cycle in 40 years. Instead they were saddled with underperforming companies that proved especially vulnerable when yields shot higher.
  • Bank of England Governor Andrew Bailey suggested that interest-rate cuts are unlikely for the “foreseeable future” as he warned that the second half of the inflation battle will be “hard work.” He said in an interview with the Newcastle Chronicle newspaper published Monday that the recent step down in UK inflation is “very good news” but cautioned that it is unlikely to be repeated. “We do have to get it down to 2% and that’s why I have pushed back of late against assumptions that we’re talking about cutting interest rates or we will be cutting interest in anything like the foreseeable future because it’s too soon to have that discussion,” he said. The remarks are the latest from a BOE rate-setter to push back against the idea of starting to reverse their string of 14 hikes. Officials including Chief Economist Huw Pill have highlighted the risk of sticky domestic price pressures, evident in indicators such as wage growth and services sector inflation.
  • Chinese President Xi Jinping will visit Shanghai for the first time since the financial hub’s bruising two-month Covid lockdown, local media reported, as he tries to boost waning private sector sentiment. Xi is scheduled to visit the Shanghai Futures Exchange and several technology giants operating in the mega-city on Tuesday, the South China Morning Post reported, citing people familiar with the matter. He will also urge officials to boost market liberalization to spur cross-border trade and capital flows during his three-day trip, according to the Monday report. The Chinese leader’s first public visit to Shanghai since November 2020 sends a powerful signal about his determination to reinvigorate investor confidence roiled by abrupt crackdowns and geopolitical turmoil, as China’s pandemic exit weighs on growth.
  • IPhone maker Hon Hai Precision Industry Co. plans to expand its footprint in India with another NT$50 billion ($1.6 billion) investment for construction projects. The announcement, made in an exchange filing in Taiwan late Monday, didn’t give any further details, saying only that the investment was for “operational needs.” A spokesperson for the company declined to say where the new facilities would be or what they would build. The news comes as Hon Hai, also known as Foxconn, and other Taiwanese electronics manufacturers continue to diversify their businesses outside of China as tensions rise between Washington and Beijing.
  • Investors added money to exchange-traded funds that buy emerging market stocks and bonds last week. This was the third straight week of inflows. Inflows to U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $766.1 million in the week ended Nov. 24, compared with gains of $1.57 billion in the previous week, according to data compiled by Bloomberg. So far this year, inflows have totalled $10.1 billion.
  • Blackstone Inc.’s Steve Schwarzman said his firm has seen a bevy of buying opportunities in real estate across Europe. The private equity giant is eyeing opportunities in data centers, warehouses and student housing across Europe, Schwarzman said in a Bloomberg Television interview on the sidelines of the UK’s Global Investment Summit in London. Blackstone is benefiting from the fact that it has one of the biggest pools of uninvested capital in the world, he said. “The deal business is not totally in mothballs and these things start again,” Schwarzman, who’s Blackstone’s chairman and chief executive officer, said in the interview. “I think we’re more on that side of the cycle, although it has been somewhat dreary for a year.”
  • President Joe Biden isn’t planning to attend the COP28 climate summit later this week in Dubai, according to people familiar with the situation. Although no official announcement has been made, the US delegation preparing for the annual climate talks has been told not to expect the president at this year’s event, the people said, asking to not to be named because the information is private.  The global leaders’ summit that opens COP takes place on Friday and Saturday this week. Biden’s list of official engagements has him in the US until Thursday, when he’s expected to meet the the Angolan president in Washington. Presidential travel schedules can be changed at the last minute.