November 28, 2022
- Canada’s banks are expected to post their second straight quarter of declining earnings as the darkening economic outlook slows loan growth and prompts them to stockpile capital, outweighing the benefit of wider lending margins. Net income at the country’s six largest lenders is projected to have fallen 0.8% in the quarter through October, according to the average of analysts’ estimates compiled by Bloomberg. That would follow a 13% decline in the prior quarter. Fiscal fourth-quarter results kick off Tuesday with Bank of Nova Scotia. With interest-rate increases raising the odds of a recession, Canada’s banks are expected to set aside more capital to absorb potential loan losses, overwhelming the benefit of wider lending spreads and continued loan growth. Analysts project the Big Six took C$2.17 billion ($1.62 billion) in provisions to protect against bad loans last quarter, roughly the same amount they set aside in the prior three quarters combined.
- Prime Minister Justin Trudeau’s government is boosting military spending and expanding Canadian trade ties in the Indo-Pacific region as part of a “generational” policy shift aimed at countering China’s influence. Foreign Minister Melanie Joly released her nation’s Indo-Pacific Strategy Sunday morning, including nearly $1.7 billion (C$2.3 billion) in spending. That money is being used for more navy patrols in the region, better intelligence and cybersecurity measures, and increased cooperation with regional partners in the East and South China Seas. The 26-page document — unveiled by Joly and a trio of other ministers in Vancouver, with Trudeau’s defense chief holding a virtual briefing later Sunday — includes a lengthy section on China, which it refers to as an “increasingly disruptive global power.”
- Private equity firm EQT AB is in exclusive talks to buy a majority stake in French calibration company Trescal from Canadian pension fund Omers. EQT’s infrastructure arm is expected to close the proposed acquisition in the first quarter of next year, Omers Private Equity said in a statement Monday. The transaction is set to value Trescal at around €1.4 billion ($1.5 billion) including debt, people with knowledge of the matter said. Trescal, led by Chief Executive Officer Guillaume Caroit, calibrates measuring instruments for the aerospace, energy and automotive industries. Omers bought Trescal from French private equity firm Ardian SAS in 2018.
- European stocks retreated on Monday, following six weeks of gains, as investors fled risk assets on concern over growing protests against Covid curbs in China amid reduced optimism about the nation’s economic reopening. The Stoxx Europe 600 Index fell 0.8% as of 10:26 a.m. in London. Energy shares underperformed as oil plunged on China unrest, and real estate and retail sectors were also lower. Credit Suisse Group AG fell to a fresh low, dropping for a 10th session, the longest losing streak since 2011. Adler Group SA soared as much as 64% after the German landlord agreed a deal with creditors to extend debt maturities and postpone publication of audited accounts.
- US stock index futures declined on Monday on growing concerns about the path of an economic reopening in China following protests against Covid restrictions over the weekend. S&P 500 futures were down 0.8% as of 5:25 a.m. in New York, while Nasdaq 100 futures fell 0.9%. The key US equity gauges are coming off weekly gains amid bets that the Federal Reserve will scale back interest rate hikes. Global investor sentiment took a hit today after news of the worsening protests affecting cities including Shanghai and Beijing. The latest developments contrast with reports earlier this month that China was toning down its Covid Zero curbs, which had sparked a rally in equities.
- Chinese stocks fall anew, driving broad risk-off sentiment across risk assets as investors fret over mounting protests against China’s Covid Zero policy. The Shanghai Composite Index slides 1%, Hang Seng Index slips nearly 2%, and the Nikkei and the Topix also decline. Asian currencies fall against a stronger dollar and Treasuries gain. The onshore yuan drops as much as 1% before trimming losses.
- Oil tumbled to the lowest level since December as a wave of unrest in China punished risk assets and clouded the outlook for energy demand, adding to the stresses in an already-volatile global crude market. West Texas Intermediate sank toward $74 a barrel following three weeks of losses, while Brent traded around $81. Protests over harsh anti-virus curbs erupted across the world’s largest crude importer over the weekend, including demonstrations in Beijing and Shanghai, spurring a broad sell-off in commodities as the week opened. The rare show of defiance is raising the threat of a government crackdown. The unrest comes after a sharp pullback in the oil market as the risk of a slowdown in China looms and the European Union floated a price cap on Russian crude that looks set to have minimal impact on trade. Speculators have been forced to markedly reduce bullish bets, posting the sixth-largest reduction in net-long positions on record for Brent last week.
- Gold rose, erasing earlier declines, as traders weigh growing unrest in China over Covid restrictions and await key US economic data for its bearing on Federal Reserve policy. Gold has experienced a volatile year, with prices surging to a peak in March after Russia’s invasion of Ukraine. The metal has since slumped about 15% as the Fed tightened monetary policy aggressively to tackle inflation. Spot gold added 0.3% to $1,760.98 an ounce as of 9:29 a.m. in London. The Bloomberg Dollar Spot Index weakened slightly. Silver fell, while platinum and palladium advanced.
- The protests that erupted against China’s Covid Zero strategy represent one of the most significant challenges to Communist Party rule since the Tiananmen crisis more than 30 years ago. How Xi Jinping responds to it may end up being just as pivotal for the country’s future. From the capital Beijing to the far western outpost of Kashgar, Chinese residents frustrated by lockdowns and mass-testing campaigns have taken to the streets in recent days to urge change. In Shanghai — stricken by a grueling two-month Covid clampdown earlier this year — one crowd called for Xi to step down, defying the risk of a long prison term. Demonstrations ranged from a few people to street rallies of hundreds. Easing the outcry presents Xi with perhaps his biggest policy dilemma after a decade in power. A rapid exit from Covid Zero could fuel a surge in deaths, undercutting Xi’s efforts to cast China’s pandemic response as superior to that of the West. Cracking down on the protests, on the other hand, could build public sympathy for a cause that has already demonstrated nationwide support.
- 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 $1.56 billion in the week ended Nov. 25, compared with gains of $2.07 billion in the previous week, according to data compiled by Bloomberg. So far this year, inflows have totalled $25.7 billion.
- Chair Jerome Powell is expected to this week cement expectations that the Federal Reserve will slow its pace of interest-rates increases next month, while reminding Americans that its fight against inflation will run into 2023. Powell is scheduled to deliver a speech, nominally focused on the labor market, at an event on Wednesday hosted by the Brookings Institution in Washington. It will be one of the last from policymakers before the start of a quiet period ahead of their Dec. 13-14 gathering. The event provides Powell with a stage to echo fellow Fed officials in signaling they will raise their benchmark rate by 50 basis points at their final meeting of the year, after four successive 75 basis-point hikes.
- Stock markets are in for a wild ride next year as they don’t yet reflect the risk of a US recession, according to strategists at Goldman Sachs Group Inc. and Deutsche Bank. The team including Christian Mueller-Glissmann and Cecilia Mariotti said their model implies a 39% probability of a US growth slowdown in the next 12 months, but risk assets are only pricing in an 11% chance. “This increases the risk of further recession scares next year,” they wrote in a note on Monday. Deutsche Bank’s Binky Chadha, meanwhile, expects the S&P 500 Index to slump to 3,250 points — 19% below current levels — in the third quarter as a recession begins, before rebounding in the fourth quarter.
- Turmoil at Apple Inc.’s key manufacturing hub of Zhengzhou is likely to result in a production shortfall of close to 6 million iPhone Pro units this year, according to a person familiar with assembly operations. The situation remains fluid at the plant and the estimate of lost production could change, the person said, asking not to be named discussing private information. Much will depend on how quickly Foxconn Technology Group, the Taiwanese company that operates the facility, can get people back to assembly lines after violent protests against Covid restrictions. If lockdowns continue in the weeks ahead, production could be set further back. The Zhengzhou campus has been wracked by lockdowns and worker unrest for weeks after Covid infections left Foxconn and the local government struggling to contain the outbreak. Thousands of staff fled in October after chronic food shortages, only to be replaced by new employees who rebelled against pay and quarantine practices.
- Meta Platformoci Inc. was slapped with a €265 million ($277 million) fine for failing to prevent the leak of the personal data of more than half a billion users of its Facebook service. The Irish Data Protection Commission, the main privacy watchdog for Meta in the European Union, levied the fine following a probe that found the social-media company had failed to apply strict safeguards required under the bloc’s sweeping General Data Protection Regulation. On top of the fine — the third-biggest under GDPR — the watchdog ordered Meta’s Irish unit to make sure its processing complies with the law, according to an emailed statement on Monday.
- Shares in troubled Swiss lender Credit Suisse Group AG slipped as much as 5.4% on Monday, hitting a fresh record low and putting them on track for their longest losing streak since 2011. The stock has fallen for ten straight days, losing as much as 27%, with last week’s warning about massive outflows in the core wealth management business stunning investors. News that the lender agreed a sale of a large part of its securitized products business to Apollo Global Management Inc. was also received negatively, with analysts saying many details were lacking. The developments add to woes in recent years as a succession of big losses and management chaos shattered Credit Suisse’s status as one of Europe’s most prestigious lenders. The bank last month announced a restructuring that included breaking up the investment bank, separating the advisory and capital markets unit and thousands of job cuts.
- The European Union’s executive arm is set to propose a series of environmental and climate commitments in a bid to ease approval of a landmark trade deal with four South American nations. The proposal, in the process of being finalized, would be binding for both parties and would specify how to implement sustainable development pledges featured in the trade text negotiated with the Mercosur trading bloc, according to people familiar with the matter. The group includes Argentina, Brazil, Uruguay and Paraguay. The so-called additional instrument would focus on the fight against deforestation, the implementation of the Paris climate accord, the protection of biodiversity and labor rights, said the people who asked not to be named on a confidential issue.
- Rolls-Royce Holdings Plc said it used hydrogen fuel to successfully power a modern aircraft engine in a world first for the aviation industry as it comes under pressure to develop zero-emissions propulsion. The test was conducted with a converted Rolls-Royce AE 2100-A regional aircraft engine using hydrogen created by wind and tidal power, the UK manufacturer said in a statement Monday. The design originally powered Saab 2000 turboprops. Following a series of ground tests, Rolls-Royce will move on to so-called rig tests, followed by a full-scale ground test with one of its Pearl 15 jet engines, according to the company, which is carrying out the project with EasyJet Plc as part of a partnership announced in July.
- The Bahamian government blasted the person in charge of restructuring crypto exchange FTX, the latest salvo in an escalating fight over what remains of Sam Bankman-Fried’s crumbled empire. Bahamas Attorney General Ryan Pinder on Sunday said that recent statements made in US bankruptcy proceedings by John J. Ray III were “regrettable” and misrepresented actions taken by the nation’s securities watchdog. Ray, a turnaround and restructuring expert, is also acting as FTX’s chief executive officer. Tensions have been rising after more than 100 FTX companies filed for bankruptcy in the US on Nov. 11. A major source of conflict has been the Bahamas regulator’s move to then seize the digital assets of the local FTX unit.
*All sources from Bloomberg unless otherwise specified