October 17, 2023

Daily Market Commentary

Canadian Headlines

  • A Canadian general criticized the Chinese air force over an incident off the coast of the Asian nation that apparently saw a fighter jet cut off a patrol plane and drop flares in its path. The episode on Monday was reported by Global News, which had journalists on the Canadian surveillance aircraft. Chinese fighters also flew within 5 meters (5.5 yards) of the plane, it added. “They became very aggressive and to a degree we would deem it unsafe and unprofessional,” Major-General Iain Huddleston told the Canadian news outlet. Canada didn’t want to have “anything untoward happen that would result in loss of life,” he said. Beijing filed a diplomatic complaint with Ottawa over the incident in the South China Sea, Foreign Ministry spokeswoman Mao Ning said Tuesday at a regular press briefing in Beijing, adding that in recent years Canadian planes have conducted reconnaissance “against China.”

World Headlines

  • Elsewhere in stocks, Ericsson AB slumped more than 9% after the Swedish 5G-equipment maker warned of persisting weak demand. Rolls Royce Holdings Plc rose after the jet engine maker announced plans to cut jobs and streamline its business. Europe’s Stoxx 600 Index saw modest losses. Poland’s stocks and currency extended gains following Sunday’s elections, which gave pro-European Union parties a majority in parliament.
  • Stocks edged lower and bonds dropped as investors kept a close eye on diplomatic efforts to contain the Israel-Hamas war, including a planned visit to the region by US President Joe Biden. Futures contracts for US equities slipped by about 0.3% as traders assessed a flurry of major earnings. Bank of America Corp. advanced in premarket after its net interest income beat estimates. Goldman Sachs Group Inc. fluctuated after its third-quarter results. Johnson & Johnson rose after increasing its revenue outlook. Biden is set to travel to Israel Wednesday, aiming to show solidarity with the US’s closest ally in the Middle East and prevent the conflict from engulfing the wider region. He’ll then be in Jordan for talks with King Abdullah II and Egyptian and Palestinian Authority leaders.
  • Asian equities advanced, halting a two-day selloff, as technology stocks rallied amid easing concerns over a wider conflict in the Middle East. The MSCI Asia Pacific Index climbed as much as 0.9%, with chipmakers Taiwan Semiconductor, Samsung and SK Hynix as the biggest boosts. Benchmarks in South Korea and Japan were among the largest gainers amid broad regional gains. Philippine stocks were the best performers, with Citigroup suggesting the earnings could see positive surprise in third quarter. Stocks in Hong Kong and mainland China closed higher after China said it would tighten curbs on short-selling activities. Investors await GDP data Wednesday that is expected to show continued weakness in the economy.
  • Oil steadied as the US intensified diplomatic efforts to contain the crisis in Gaza, with President Joe Biden to visit Israel this week to spearhead his administration’s drive to prevent a regional conflagration. West Texas Intermediate held above $86 a barrel after a period of volatile trading over the last week. Biden will travel to the country on Wednesday to show his support after the Oct. 7 attacks by Hamas that sparked the conflict. At the same time, Israel is still making plans for a ground offensive into Gaza. The crude market has been left on edge by the sudden crisis in the Middle East on concern that it risks spreading beyond Israel and Gaza, potentially endangering crude flows from key producers. Iran, which supports Hamas, has warned that an expansion of the war was “approaching the inevitable stage.” In addition to roiling futures markets in recent days, the conflict is also upending options pricing and has sent freight costs soaring.
  • Gold steadied after dropping at the start of the week, with traders closely watching as the US ramps up efforts to prevent the Israel-Hamas war from expanding into a regional conflict. Spot gold fell as much as 0.4% before trading little changed at $1,920.91 an ounce as of 10:04 a.m. in London, following a 0.7% loss on Monday. The Bloomberg Dollar Spot Index rose 0.2%. Silver and platinum were little changed, while palladium declined
  • Choice Hotels International Inc. offered to buy Wyndham Hotels & Resorts Inc. in a deal that would combine massive companies in the economy hotel space with brands including Super 8 and Quality Inn. Choice is offering to pay $90 a share in cash and stock, in a deal valued at about $9.8 billion including the assumption of debt, according to a statement Tuesday. While the companies have discussed the potential transaction for months, Wyndham’s decision to break off negotiations prompted Choice to take its offer public, the company said. “We have long respected Wyndham’s business and are confident that this combination would significantly accelerate both Choice’s and Wyndham’s long-term organic growth strategy,” Choice Chief Executive Officer Patrick Pacious said in the statement.
  • Bank of America Corp. traders reported their best third-quarter results in at least a decade while net interest income topped analysts’ estimates as the lender continues to reap the benefits of Federal Reserve rate hikes and volatile markets. The firm’s fixed-income and equity traders trumped expectations, with stock-trading revenue up 10% to $1.7 billion. The quarter saw dramatic market swings, as the Fed’s push to quell inflation with higher interest rates helped traders. The windfall from trading helped Bank of America’s net income surge 10% to $7.8 billion, or 90 cents a share, topping beating analysts’ 81-cent estimate. The second-largest US bank also said that NII, a key source of revenue for the bank, rose 4.5% to $14.4 billion in the quarter. Analysts had expected a 2.5% increase for NII, the revenue collected from loan payments minus what depositors are paid.
  • Space Exploration Technologies Corp. plans to lobby the US Congress on Wednesday for a multiyear extension of a ban on imposing safety regulations on commercial human spaceflight. An executive at Elon Musk’s rocket company who is scheduled to testify at a Senate subcommittee hearing plans to argue that the Federal Aviation Administration already is struggling to keep pace with a rapidly shifting rocket launch industry. “We want to keep moving as fast paced as we can,”  William Gerstenmaier, vice president of build and flight reliability at SpaceX, said Monday in an interview with Bloomberg News. “And we don’t want to be held up where we don’t need to be held up.”
  • UK wage growth slipped in the three months to August, indicating a cooling of labor-market pressures that will make it easier for the Bank of England to keep interest rates on hold next month. In a curtailed set of labor market data, which did not include figures on employment and unemployment, the Office for National Statistics said average earnings excluding bonuses rose 7.8% from a year earlier. That was down from an upwardly revised 7.9% in July, the fastest since the data series began in 2001. The dip in wage growth, which comes one day before official figures are forecast to show inflation slowed further in September, will help build confidence among BOE policymakers that their string of 14 consecutive interest-rate hikes since the end of 2021 is having an effect.
  • After US Secretary of State Antony Blinken met Saudi Crown Prince Mohammed bin Salman in Riyadh Sunday, both posted a similar photo — but with contrasting descriptions. Blinken said they talked about “the Hamas terrorist attacks on Israel,” in his post to X, formerly Twitter. The prince said they were looking for ways “to stop the military operations that have claimed the lives of innocent people,” a reference to Israel’s bombing of Gaza. The disconnect isn’t limited to the Saudis. Just a few governments in the region have publicly denounced the Oct. 7 Hamas massacre of 1,300 Israelis. Instead, the focus of much of the rest of the world has shifted to civilian casualties in Gaza, where daily Israeli airstrikes have killed more than 3,000. Even allies like the US and UK have publicly called on Israel to protect noncombatants as it prepares for a massive ground invasion.
  • Germany rejected the latest proposal to overhaul the European Union’s power market over fears that France could use it to unfairly benefit its nuclear industry and undercut prices across the bloc. Time is running out for the two countries — the EU’s largest economies — to resolve their dispute over the role of nuclear power in Europe’s energy transition, or risk stalling the region’s green agenda. Spain, which holds the EU’s rotating presidency, is seeking a compromise among the bloc’s 27 countries at a gathering of energy ministers in Luxembourg on Tuesday. However, the chances of a deal rest almost exclusively on France and Germany, which are still far apart on the matter. A deadline to complete the task before next year’s elections is rapidly approaching.
  • Johnson & Johnson raised its 2023 revenue outlook as its drugs business came in slightly ahead of expectations. Operational sales for the full year will now range from $84.4 billion to $84.8 billion, J&J said Tuesday in a statement, up from an August forecast for sales of $83.6 billion to $84.4 billion. Adjusted earnings will be $10.07 a share to $10.13 a share, J&J said, compared with the earlier outlook of $10 a share to $10.10 a share. Sales in the pharmaceutical unit, the New Brunswick, NJ-based company’s largest, reached $13.9 billion, beating the average estimate of $13.5 billion. The company’s medical devices sold $7.5 billion, lower than the $7.59 billion seen by Wall Street.
  • Ericsson AB shares fell to the lowest in six years after it said market weakness will persist into the fourth quarter and beyond, as the company struggles to counter reduced investment in fifth-generation mobile infrastructure from US and European operators. “We expect the underlying uncertainty impacting our Mobile Networks business to persist into 2024,” the Swedish 5G-equipment maker said in a statement on its third quarter results on Tuesday. Ericsson pre-announced the quarter’s earnings last week, reporting a 32 billion kronor ($2.9 billion) impairment of the enterprise-focused Vonage unit that it bought last year. The company on Tuesday forecast earnings before interest, taxes and amortization margin in the current quarter of around 10% and delayed its goal of reaching its target of 15% to 18% indefinitely.
  • Representative Jim Jordan closed in Monday night on the votes he needs to be the next US House speaker, but a band of Republican holdouts continues to threaten his bid. Jordan, a hardline conservative from Ohio, planned to press his candidacy in a vote on the House chamber floor as early as noon Tuesday. “We’ve got a few more people we want to talk to, listen to, and then we’ll have a vote, tomorrow,” Jordan said as he left a closed-door conference with other House Republicans on Monday night. His plan to proceed with a vote appeared to carry some risk, but a person familiar with the matter said he was prepared to press his case with multiple ballots, if necessary. With Republicans holding a slender majority in the chamber, Jordan can’t lose more than four votes in party-line balloting with Democrats, who will be backing their own leader, Hakeem Jeffries.
  • As the buzz surrounding weight-loss drugs gets ever louder, analysts at Goldman Sachs Group Inc. are predicting a potential $100 billion market opportunity, with Eli Lilly & Co. and Novo Nordisk A/S leading the pack. Eli Lilly, whose pipeline of drugs includes Mounjaro, is now the world’s biggest health-care company by market value. Meanwhile, Novo Nordisk became Europe’s most valuable listed company last month, boosted by market enthusiasm for its Ozempic and Wegovy drugs. Shares of both companies have surged this year. The Goldman analysts see the global market for anti-obesity medicines potentially growing to about $100 billion in 2030, compared with about $6 billion in annualized sales earlier this year. This is based on roughly 15 million US adults receiving anti-obesity medicine treatment for chronic weight loss management in 2030, out of about 105 million obese or overweight adults in the US. The analysts excluded diabetics from their obesity projections.
  • A brief 10% surge in Bitcoin gave traders a glimpse into the possible impact of a looming US Securities & Exchange Commission decision on whether to allow exchange-traded funds that invest directly in the cryptocurrency. An erroneous report that BlackRock Inc. had won approval to launch a spot ETF rapidly sent the largest digital asset to $30,002 on Monday, the highest price since August. The move cooled after the world’s biggest money manager said its application remains under review, leaving Bitcoin 4.4% higher for Oct. 16. It was little changed at around $28,400 on Tuesday in New York. BlackRock is among about a dozen firms seeking to offer the first US spot Bitcoin ETFs amid expectations that the SEC may soon end its opposition to the products. Optimists argue such funds will help spur wider crypto adoption.