October 23, 2023
- A hot spot for Canadian oil drillers is emerging in a tiny corner of eastern Alberta, drawing companies including Canadian Natural Resources Ltd. and Baytex Energy Corp. in search of cheaper, lower-emissions heavy crude. Oil drillers have applied for 81 licenses to drill into the so-called Waseca formation so far this year, 30 more than in all of 2022. That’s the biggest increase in any oil and gas formation in the province this year, according to regulatory data. The formation holds heavy oil about 400 meters (1,300 feet) beneath Alberta’s soil near the oil-sands region of Cold Lake. But, unlike the oil sands, the Waseca can be tapped with conventional drilling gear that costs less and generates lower emissions because steam isn’t needed to make the crude flow.
- Consumer confidence slipped into negative territory for the first time in more than six months, as a growing number of Canadians say their own financial circumstances are worsening. The Bloomberg Nanos Canadian Confidence Index, a measure of sentiment based on weekly polling, dropped to 49.5. A level below 50 suggests net negative views about the economy. It’s the lowest reading since April and compares with 53.1 in early June, this year’s peak. The number suggests Canadians are becoming less optimistic about their financial health and their wealth, which is closely tied to housing. Canadian home sales fell for a third straight month in September as the Bank of Canada’s aggressive interest-rate hikes continue to keep buyers off the market.
- European stocks fell to the lowest level since early January as the spike in US 10-year Treasury yields to 5% fueled worries about higher-for-longer interest rates from the Federal Reserve. The Stoxx 600 index was down 0.9% as of 10:50 a.m. in London, extending Friday’s selloff as the gauge fell for a fifth day. The rout has now reduced year-to-date gains to just 1.2%. Bond proxy sectors such as real estate, utilities and telecom were among the biggest laggards. Renewables were also under pressure and outpaced the wider gauge’s decline. Last week, European stocks dropped amid a sharp escalation in the Israel-Hamas conflict. Higher oil prices and rising bond yields also weighed on investor sentiment, sending the Stoxx 600 to a 3.4% retreat.
- US equities are set for a fifth straight session of losses, longest streak since December 2022. The futures contracts for both the S&P 500 and the tech-heavy Nasdaq 100 indexes retreated about 0.5% as of 5:28 a.m. in New York. The VIX Index of US stock-market volatility rose to 22.6 points, the highest level since March. Beyond the spike in yields, the direction of the US stock market will also depend on key earnings later this week from tech mega-caps Amazon.com Inc., Meta Platforms Inc., Alphabet Inc. and Microsoft Corp..
- Asian stocks extended losses from last week as risk sentiment remained weak amid concerns over the conflict in the Middle East, with some gauges in China sliding to multi-year lows. The MSCI Asia Pacific Index fell as much as 0.8%, heading for a fourth day of declines, with TSMC, BHP Group and Samsung among the biggest drags. The regional stock gauge was on track to finish at the lowest close since November. Technology was the worst-performing sector as confidence was rattled after Beijing launched a series of investigations into Apple supplier Foxconn, weighing on shares of its listed arm Hon Hai Precision in Taiwan. A gauge of Chinese tech stocks slumped to the lowest since its inception more than three years ago, as investor demand evaporates in the face of higher global rates. Fed Chairman Jerome Powell is due to give remarks and the European Central Bank will deliver a policy decision later this week. The CSI 300 Index, a benchmark of onshore China equities, slid to its lowest level since early 2019 while the Hong Kong market was shut for a holiday.
- Oil was steady as talks over hostage releases were said to potentially delay a ground invasion of Gaza by Israel. Global benchmark Brent was little changed near $92 a barrel. Israel warned that Iran-backed Hezbollah risked dragging neighboring Lebanon into the war even as it continued fierce air raids on Hamas in Gaza. More than 60,000 people in Israel have been evacuated along the border with Lebanon. Brent has advanced about 8% since the Oct. 7 attack on Israel by Hamas, amid concerns the conflict will drag in other nations including Lebanon, Iran and potentially the US. The Middle East supplies around a third of the world’s crude and among the market’s main risks are Washington ramping up compliance checks on sanctioned Iranian oil and Tehran disrupting key shipping routes.
- Gold edged lower as benchmark Treasury yields hit the highest since 2007 while fears of a spiraling conflict in the Middle East receded. The precious metal has rallied about 8% since the Hamas attacks on Israel, and on Friday came close to exceeding $2,000 an ounce for the first time since mid-May. At the weekend, Hamas released two US hostages and aid started to trickle through Egypt’s border with Gaza, which helped ease global concerns around the conflict. Still, Israel has stepped up air raids on Gaza in preparation for the “next phase” of its conflict with Hamas, while also warning that Hezbollah risks dragging Lebanon into a wider regional war. Spillover into the wider Middle East region could cause energy prices to spike, triggering inflation that is difficult for central banks to deal with without harming their economies.
- Copper tumbled to the lowest in nearly eleven months, offering fresh evidence that soaring borrowing costs and slower spending are beginning to bite in all corners of the industrial economy. Prices for the metal — viewed as a bellwether for the global economy — slumped as much as 1.2% to $7,856 a ton on the London Metal Exchange, briefly crashing through the bottom of a tight trading range that has held through much of this year before rebounding partially. Until recently, mounting worries about weak global manufacturing activity have been partially offset by threats to supply. But prices have been grinding lower in recent months as a rebound in inventories signals that production is now starting to shoot ahead of demand.
- Chevron Corp. agreed to buy Hess Corp. for $53 billion, a deal aimed at boosting production growth as the US oil industry bets on an enduring future for fossil fuels. In an all-stock transaction, Chevron will pay $171 per share for Hess, a premium of about 10% to the 20-day average price, according to a statement from the companies on Monday. Hess shareholders will receive 1.025 shares of Chevron for each Hess share, giving the company a total enterprise value of $60 billion, including debt. The acquisition will give Chevron a significant foothold in Guyana, the South American country that is one of the world’s newest oil producers. It will enable faster production growth and more generous returns to investors, according to the statement. This is the second major deal in the US oil industry in just a few weeks. Exxon Mobil Corp. has agreed to buy shale-oil producer Pioneer Natural Resources Co. for $58 billion, underpinning a bet that oil and gas will remain central to the world’s energy mix for decades to come.
- For a fleeting moment this month, investment bankers in leveraged finance — the lucrative lending that oils the wheels of M&A and feeds the $1.3 trillion market for collateralized loan obligations — had rare cause for cheer. Company valuations were enticingly low for dealmakers, the US Fed looked closer to reversing punishing rate hikes, loans were getting done. A realization that Federal Reserve Chair Jay Powell isn’t ready to turn quite yet has put those Wall Street hopes on ice. Financing packages are stalling again. A CLO industry that boomed in the cheap money era, by bundling up slices of loans and selling them as bonds, looks particularly vulnerable to the freeze. Through a decade of low rates, bankers turned CLOs from niche securitizations into a capital markets pillar and one of the hottest finance products around. Now, much of the industry’s shrinking, starved of its usual feedstock of loans in a moribund M&A market. Demand from big US commercial banks for the largest tranche of CLOs has also cratered; better returns are on offer elsewhere.
- The odds of a year-end rally in US stocks are fading as investors face a multitude of risks from elevated profit estimates to the Federal Reserve’s policy tightening, according to Morgan Stanley’s Michael Wilson. The strategist — among the most bearish voices on US stocks — said he “would not be surprised” to see further declines in the S&P 500 with “earnings expectations likely too high for the fourth quarter and 2024, and policy tightening likely to be felt from both a monetary and fiscal standpoint.” Wall Street analysts expect S&P 500 firms to post an earnings decline of 1.1% for the third quarter, before a rebound of 5.2% in the October-December period, according to data compiled by Bloomberg Intelligence. Forward 12-month estimates have also risen close to a record high.
- Reliance Industries Ltd., controlled by Asia’s richest tycoon Mukesh Ambani, is nearing a cash and stock deal to buy Walt Disney Co.’s India operations, according to people familiar with the matter. The US entertainment giant may sell a controlling stake in the Disney Star business, which it values at around $10 billion, as opposed to piecemeal transactions weighed earlier, the people said, asking not to be named because the discussions are private. Reliance views the assets at between $7 billion to $8 billion, some of the people said. Under the proposal, Disney will likely continue to hold on to a minority stake in the Indian company after any cash and stock swap transaction is completed, the people said. No final decision has been made on the deal or the valuation, and Disney could still decide to hold onto the assets for a bit longer, they added.
- Roche Holding AG said it will pay $7.1 billion to acquire Telavant Holdings, Inc. in a bid to shore up its pipeline of experimental medicines. The Swiss pharmaceutical company will gain rights in the US and Japan to develop and market RVT-3101, a promising new therapy for treating inflammatory bowel disease that’s currently undergoing clinical trials. Roche will also provide a near-term milestone payment of $150 million. Roche has come under pressure to improve its pipeline as a windfall of revenue from products used in the Covid-19 pandemic comes to an end.
- Emerging-market investors got an unwelcome reminder of geopolitical tensions around Taiwan as riskier assets remained weighed down by conflicts in eastern Europe and the Middle East. Taiwan Semiconductor Manufacturing Co. shares tumbled the most in five weeks, accounting for 21% of the MSCI Emerging Markets Index’s decline on Monday. Developing currencies were little changed, with South Africa’s rand, the Indonesian rupiah and the Malaysian ringgit among the laggards. Geopolitical tensions have exacerbated selloffs in emerging-market assets, adding to negative sentiment fueled by rising US Treasury yields as well as China’s property crisis. Stocks have already erased $646 billion since Hamas attacked Israel earlier this month, taking the loss of shareholder wealth in the developing world since July to $2.3 trillion.
- Volkswagen AG shares declined after outlining weaker-than-expected third-quarter earnings and hedging losses. Europe’s biggest carmaker now sees operating return on sales for the year as low as 7%, from at least 7.5%, it said late Friday in a preliminary quarterly release. VW is due on Thursday to report full results for the three months through September. The company missed expectations on higher product costs for its volumes brands, a pressing issue for the nameplate VW brand where the company is scrambling to work out on a major efficiency plan to boost earnings. Flooding impacting a supplier in Slovenia also crimped vehicle output during the quarter.
- Chinese authorities are again shaking the confidence of foreign companies in the country with a series of arrests across industries and an investigation into Foxconn Technology Group, Apple Inc.’s most important partner and one of the largest employers in China. Over the weekend, state media said that regulators are conducting tax audits and reviewing land use by Foxconn, the Taiwanese company that makes the vast majority of iPhones at factories in China. Hon Hai Precision Industry Co., Foxconn’s public arm, said it will collaborate with authorities. Meanwhile, an executive and two former employees of WPP Plc, one of the world’s biggest advertising companies, have been arrested in China, people familiar with the matter said. The government detained a local employee of a Japanese metals trading company in March, the Nikkei newspaper reported Sunday. And this month, a court formally charged an Astellas Pharma Inc. executive on suspicion of espionage.
- Argentina investors again braced for a selloff after Economy Minister Sergio Massa did better than forecast in Sunday’s presidential vote, dashing hopes for an outright win by a more market-friendly candidate. The country’s dollar bonds — already trading below 30 cents on the dollar — extended their losses on Monday, with five of them including the 2029 note figuring among the worst performers in emerging markets. The peso may weaken on parallel currency markets used to skirt controls on the expectation Argentines will rush into dollars as the government continues spending policies that are seen stoking inflation already running over 130%. Massa surprised pundits Sunday night by taking 37% of the vote, forcing a second-round ballot next month with runner-up Javier Milei, the firebrand libertarian outsider who got 30% support with 97% of votes counted. The biggest question for investors is who backers of third-place candidate Patricia Bullrich migrate to in the Nov. 19 runoff.
- Europe’s space agency reached a tentative deal with SpaceX to launch as many as four satellites next year amid setbacks with the region’s latest homegrown rocket. The agreement with the European Space Agency requires final approval from the European Commission and other EU member states before taking effect, a spokesperson for the ESA said by phone on Monday. SpaceX plans two Falcon 9 launches, each with two Galileo satellites on board, the Wall Street Journal reported earlier on Monday, citing the agency’s director of navigation, Javier Benedicto. The ESA’s Galileo constellation provides navigation services around the world.