November 30, 2023

Daily Market Commentary

Canadian Headlines

  • Toronto-Dominion Bank missed analysts’ earnings estimates after setting aside more money than forecast for potentially souring loans and announcing a restructuring charge related to a planned 3% cut to the lender’s workforce. Provisions for credit losses totaled C$878 million ($645 million) in the fiscal fourth quarter, more than the C$844.5 million analysts had expected. The bank earned C$1.83 a share on an adjusted basis, it said in a statement Thursday, less than the C$1.90 average estimate of analysts in a Bloomberg survey. Toronto-Dominion said it took C$266 million in after-tax restructuring charges, falling in line with other Canadian banks, including Royal Bank of Canada, Bank of Montreal and Bank of Nova Scotia, all of which have recently announced job cuts. Toronto-Dominion’s 3% reduction in its workforce would amount to more than 3,000 positions.
  • Royal Bank of Canada beat analysts’ earnings estimates after reporting strong capital-markets performance and a tax adjustment in the company’s favor. Corporate and investment banking revenue rose to the highest in almost two years in the fiscal fourth quarter, and the capital-markets unit’s net income climbed 36% from a year earlier. Results were also helped by a C$578 million ($425 million) boost related to deferred tax adjustments, the Toronto-based bank said in a statement Thursday. The lender earned C$2.78 per share on an adjusted basis in the fiscal fourth quarter, topping the C$2.62 average estimate of analysts in a Bloomberg survey. Royal Bank’s US subsidiary, City National Bank, reported an adjusted net loss of $89 million in the three months through October. That followed a loss of $12 million in the third quarter after its parent injected almost $3 billion in capital this year into the Los Angeles-based bank, which has struggled with deposit outflows and a higher cost of funding.
  • Canadian Imperial Bank of Commerce topped analysts’ earnings estimates as the lender reported loan-loss provisions that came in below forecasts. CIBC earned C$1.57 per share on an adjusted basis in the fiscal fourth quarter, it said in a statement Thursday, beating the C$1.53 average estimate of analysts in a Bloomberg survey. The Toronto-based bank set aside C$541 million ($397 million) in provisions for credit losses, less than the C$559.9 million forecast by analysts. Provisions for losses on impaired loans climbed C$259 million. CIBC’s earnings have previously been dented by a surge in impairments in the bank’s US office loan portfolio. CIBC’s stock performance tends to be closely correlated to the broader outlook for the Canadian housing market, according to analysts. That’s because the Toronto-based lender has a larger proportion of its domestic loan book in residential mortgages than its peers do. The bank’s shares have slipped 2.6% this year, less than the 6.4% decline for the S&P/TSX Commercial Banks Index.

World Headlines

  • European stocks are poised for their best monthly gain since January as cooling inflation data across the region gave fresh impetus for a risk on rally from real estate to tech. The Stoxx 600 rose 0.4% at 11:38 a.m. in London, taking the benchmark’s November gain to over 6% — its biggest monthly advance since January. Financial services and energy sectors outperformed Thursday, while autos and travel and leisure dropped. European equities have rebounded after declining for three straight months, as investors bet that interest rates had hit a peak. Easing inflation pressure has driven yields lower this month, boosting sectors like real estate, which is just shy of posting its best monthly performance ever. Traders are betting on earlier rate cuts from the European Central Bank, with a quarter point decrease to the ECB’s deposit rate now fully priced by April.
  • Stocks advanced and Treasuries steadied at the end of a blistering November run as investors waited for a key US inflation metric for further evidence that price pressure are cooling. Treasuries paused their strongest monthly gain since 2008, with yields on 10-year paper up four basis points at 4.30%. The dollar bounced 0.4% at the end of its worst month in a year, sending all major developed- and emerging-market currencies lower. The euro traded down 0.5% versus the greenback as the pace of price growth in the region cooled. Easing inflation and signs of a milder-than-expected slowdown in the US economy have sent Treasuries, agency and mortgage debt to their best month since the 1980s — triggering a November surge that pulled along assets from stocks to credit to emerging markets.
  • Asian stocks headed toward their best month since January, with investors in Chinese shares shrugging off a weak set of economic data on expectations that Beijing will ramp up support for the flagging economy. The MSCI Asia Pacific Index rose as much as 0.6%, buoyed by Chinese tech giants such as Tencent. Japanese shares snapped a three-day losing streak, while Korean stocks advanced after the Bank of Korea held its key interest rate. Chinese benchmarks gained, with Hong Kong’s Hang Seng Index rebounding from the lowest level in a year after activity in China’s manufacturing and services sectors shrank in November, adding to expectations of further government support for the economy. Chinese President Xi Jinping’s first visit to Shanghai in three years was also seen as a positive for the tech sector.
  • Oil rose for a third day as traders counted down to a key meeting that will see OPEC+ set output policy into the new year. West Texas Intermediate rose to trade above $78 a barrel. OPEC+ heavyweight Saudi Arabia is pressing fellow members to join it in restraining output to stave off a renewed oil surplus next year. A deeper collective cut by 1 million barrels a day or more will be discussed when ministers meet by video conference, delegates said. The absence of group-wide reductions may spur more weakness in oil prices — after Brent dropped roughly 13% over the past two months — amid plentiful supplies from outside the producer group, including record exports from the US. The International Energy Agency said earlier this month the market would flip back into a surplus next year.
  • Gold weakened — after a five-day rally that’s pushed it close to an all-time high — ahead of US data that may solidify bets the Federal Reserve will start cutting rates early next year. The metal dropped as much as 0.4% on Thursday as the dollar strengthened. Traders are waiting for the release of the so-called core PCE price index — the Fed’s favored inflation gauge — which is forecast to decelerate to 0.1% in October from the previous month. The precious metal has rallied sharply over the last few weeks as Treasury yields and the dollar fell after cooling inflation data boosted expectations a dovish pivot in US monetary policy is getting closer. Swaps markets are now pricing in a 46% chance of a rate cut as early as March, with lower borrowing costs typically positive for non-interest bearing bullion.
  • Euro-zone inflation cooled more than expected, putting the 2% target in sight as investors step up bets that the European Central Bank will cut interest rates sooner than officials suggest. Consumer prices rose 2.4% from a year ago in November — down from 2.9% the previous month and less than the estimates of all economists in a Bloomberg poll. Price pressures continued easing across almost all categories and remained at a two-year low. Inflation is undershooting analyst expectations across the 20-nation euro area following the ECB’s unprecedented ramp-up in interest rates. Output is waning as well, however: Gross domestic product shrank 0.1% in the third quarter, leaving the region teetering on the brink of a recession.
  • Ford Motor Co. restored financial guidance Thursday, saying profits would come in lower than earlier projections due to rising labor costs from its new contract with the United Auto Workers union. The automaker now expects 2023 adjusted earnings before interest and taxes to be in a range of $10 billion to $10.5 billion, according to a statement. That’s lower than the $11 billion to $12 billion the automaker forecast in July before suspending guidance in October during the six-week strike by the UAW. Ford estimated its labor costs will rise by $8.8 billion over the four-year and eight-month duration of the new contract covering its 57,000 US hourly workers. The automaker previously said higher labor costs would add about $900 to the cost of each car, shaving margins by as much as 70 basis points.
  • In a year in which little has gone right in the US bond market, November turned out to be a month for the record books. Investors frantically bid up the price of Treasuries, agency and mortgage debt, sparking the best month since the 1980s and igniting a powerful pan-markets rally in everything from stocks to credit to emerging markets. Even obscure cryptocurrencies, the sort of speculative, uber-risky assets that struggled when yields were soaring, posted big gains. For those bond investors bracing for a possible third straight year of losses — an unprecedented streak in the Treasuries market — the rally was desperately needed. The Bloomberg US Aggregate Index has returned 4.9% this month through Wednesday as the yield on the 10-year bond, the benchmark for everything from home loans to corporate debt, sank close to 0.65 percentage points to 4.29%.
  • Israel and Hamas agreed to lengthen their truce for at least another day, allowing for the release of more hostages held by the militant group in Gaza. The two sides announced the extension minutes before their cease-fire was due to end at 7 a.m. local time on Thursday, underscoring the fraught nature of the negotiations. The truce began on Nov. 24, marking the first halt in fighting since the war erupted on Oct. 7. That day, Hamas attacked southern Israeli communities from Gaza, killing 1,200 people and taking about 240 captive. Under the deal, Hamas frees some of those hostages each day, while Israel releases jailed Palestinians. In addition, Israel is allowing more aid into Gaza, where the United Nations says the humanitarian situation is “catastrophic” following Israel’s retaliatory airstrikes and a ground offensive.
  • Russian President Vladimir Putin will hold a large-scale talk-show event on Dec. 14, reviving a once annual occurrence that he skipped last year amid his war against Ukraine. Putin’s news conference will combine two events that have traditionally featured questions from the media and citizens respectively, Kremlin spokesman Dmitry Peskov said, according to state-run Tass news service. Putin has held an annual end-of-the-year marathon conference since returning to the presidency in 2012, but canceled it last year after Russian forces made repeated retreats in the war and tensions lingered over a September mobilization.
  • Marina Bay Sands Pte plans to tap banks for a loan of as much as S$10 billion ($7.5 billion) as the luxury casino operator seeks to expand its hotel and entertainment business. The Las Vegas Sands Corp.-owned resort may start marketing the deal as early as next quarter, according to people with knowledge of the matter, who asked not to be identified as the matter is private. The plan will include the rollover of a delayed drawdown facility, refinancing of existing loans and new debt. Las Vegas Sands denied the report. “We are neither in the market or looking for S$10 billion in loans,” said Ron Reese, senior vice president of global communications for Las Vegas Sands.
  • China’s most famous entrepreneur broke years of silence about Alibaba Group Holding Ltd. with a call to arms for employees, following years of brutal government punishment and strategic missteps that cost the e-commerce pioneer its place as leader of the country’s tech industry. Jack Ma, the once-outspoken billionaire who stayed out of public view after clashing with Beijing, took to an internal message board to urge Alibaba to “correct its course” and lauded rival PDD Holdings Inc., which has been swiping market share. He expressed confidence the 220,000-plus staff can return to their success of the past with determination and hard work. Once the most valuable company in China, Alibaba has fallen far behind games and social media leader Tencent Holdings Ltd. It’s also set to lose its position as China’s most valuable e-commerce operator to eight-year-old upstart PDD, which has far outstripped Alibaba’s growth with the help of hit shopping app Temu. On Thursday, Alibaba slid as much as 1.4% in Hong Kong, putting its market value at about $187 billion, just below PDD’s and a fraction of its peak of more than $850 billion three years ago.
  • After two years of delays and production snags, Tesla Inc. is finally ready to hand its Blade Runner-esque Cybertrucks over to customers. Chief Executive Officer Elon Musk will deliver the first vehicles Thursday at Tesla’s Austin headquarters as part of a live-streamed launch event starting at 2 p.m. local time. The company is also expected to provide key details about the Cybertruck, including its price, configurations and battery range. The Cybertruck marks Tesla’s first entry into the highly competitive pickup truck market in the US, and the move has been met with excitement, but also heavy criticism and doubt. One analyst suggested last week the automaker should cancel the Cybertruck altogether because it’s unlikely to be profitable, while Musk himself has lamented how “insanely difficult” the vehicle is to produce. It’s also not clear whether the vehicle, with its unusual design, will appeal to work truck owners and commercial fleet purchasers who value function over flash.
  • Robinhood Markets Inc is launching commission-free stock trading in the UK, marking the international debut of the company that benefitted from the “meme-stock” frenzy of the Covid pandemic. The Silicon Valley-headquartered firm has started rolling out trading of more than 6,000 US-listed stocks and other securities to British retail investors. For now, users must join a waitlist to get switched on, but the service aims to be immediately available starting in 2024. At a time when retail investors’ enthusiasm for stocks has cooled, Vlad Tenev, Robinhood’s chief executive and co-founder, says he wants to shake up the UK market.
  • The European Union and South America’s biggest economies are closer than ever to concluding a major trade agreement more than two decades in the making, with leaders from both regions optimistic they can strike the elusive deal next week. European Commission President Ursula von der Leyen and Brazil leader Luiz Inacio Lula da Silva are planning to meet on the sidelines of the United Nations’ COP28 climate summit in Dubai to make a final political push for the agreement, people familiar with the matter said. The meeting, which could take place on Saturday, will occur amid significant advances in technical negotiations between the two sides that have moved them closer to surpassing the environmental differences that derailed a previous iteration in its final stages, according to the people, who requested anonymity because they were not authorized to speak publicly.
  • Ukrainian President Volodymyr Zelenskiy visited a command post near Kupyansk on Thursday in a sign of support for troops holding their ground in the northeastern town that Russian forces are aiming to recapture. Kupyansk, which sits on a strategic rail link with Russia, located about 40 kilometers (25 miles) from the border, is one of the areas where some of the most active fighting is taking place. Ukrainian troops liberated it more than a year ago when they recaptured large parts of the surrounding Kharkiv region.
  • The planet has been so hot in 2023 that even before the year ends, the World Meteorological Organization has declared it the warmest ever recorded. Global temperatures were around 1.4C (2.5F) above the pre-industrial average for the first 10 months of the year, according to the WMO’s Provisional State of the Global Climate Report 2023. That provides enough certainty to declare it the hottest year on record even with a month left to go, in what is a stark warning to climate negotiators gathered in the Middle East. “Record global heating should send shivers down the spines of world leaders and it should trigger them to act,” UN Secretary-General António Guterres said in Dubai on Thursday as the COP28 climate summit kicked off. “We are living through climate collapse in real time, and the impact is devastating.” The United Nations agency’s report also includes a bleak rundown of the year’s most extreme climate events, laying out the stakes for the tens of thousands of global leaders, diplomats, business people and activists descending on the United Arab Emirates for two weeks of climate talks.