October 25, 2023
- The slowdown that economists have been warning about appears to have arrived in Canada, which is why expectations are that Governor Tiff Macklem and his governing council will keep the benchmark overnight rate unchanged at 5% today at 10 a.m. in Ottawa. Macklem will give a news conference an hour later. Bank of Montreal is exploring the sale of a portfolio of recreational vehicle loans, according to people with knowledge of the matter. The bank is in discussions with buyers including the credit arms of alternative asset managers, the people said, and the face value of the portfolio is at least $5 billion. Ahead Wednesday, Agnico Eagle Mines and New Gold Inc. report results.
- European stocks were steady on Wednesday as earnings from some of the region’s biggest consumer-facing companies stoked concerns that a global economic slowdown was hurting corporate profits. The Stoxx Europe 600 Index was little changed by 12:45 p.m. in London, after paring an earlier 0.5% decline. Real estate, personal care, retail and travel and leisure stocks were the major laggards. Shares in Kering SA slid after the Gucci owner reported a drop in sales amid a global slowdown in luxury, while home products company Reckitt Benckiser Group Plc fell after sales missed expectations. European stocks have come under pressure this month as worries over a possible escalation in the Israel-Hamas conflict damped risk appetite, coupled also with concerns over bond market volatility and the expectation of a slowing global economy. The benchmark Stoxx 600 Index is down nearly 8% since reaching a high in July, and is coming closer to erasing its year-to-date gain.
- US equity-index futures dropped after Microsoft Corp. and Google’s parent Alphabet Inc. delivered a mixed picture of big tech earnings, setting the stage for peers still reporting this week. Contracts on the Nasdaq 100 sank 0.5% and those on the S&P 500 were down 0.3%. Alphabet fell as much as 7% in premarket trading after its cloud unit reported a smaller than expected profit. Microsoft, on the other hand, climbed after results in its cloud business beat expectations. Meanwhile, Texas Instruments Inc. dropped after a disappointing revenue forecast suggested that demand remains sluggish for a broad range of electronic components. With earnings season in full swing, investors are looking for evidence on how companies are coping with high interest rates and whether consumer spending is changing because of inflation. Meta Platforms Inc., the parent company of Instagram and Facebook, is set to report later Wednesday, with Amazon.com Inc due Thursday.
- Asian stocks trimmed their earlier gains as an initial rally in Chinese markets eased despite Beijing’s latest steps to support its flagging economy and markets. The MSCI Asia Pacific Index rose 0.3%, reducing its advance of as much as 1.2% with Tencent, Alibaba and Toyota the biggest boosts. Equities in Hong Kong opened sharply higher, with the Hang Seng Tech Index surging nearly 5% but those gains were halved as concerns about China’s troubled property sector lingered. Benchmarks climbed in mainland China, Taiwan, Japan and most other Asian nations. Investor sentiment was initially bolstered after President Xi Jinping stepped up his effort to revive the world’s second-largest economy, including new debt issuance and an unprecedented visit to the central bank. The moves boosted Chinese infrastructure stocks and spurred hopes for a recovery in consumption, helping lift consumer and manufacturing shares elsewhere in the region.
- Oil held onto a run of declines on signs that the Israel-Hamas war will remain contained for the time being at least. Global benchmark Brent crude was little changed near $88 a barrel, after trading closer to $94 late last week. The US and Saudi Arabia agreed to pursue diplomatic efforts to maintain stability across the Middle East, the White House said Tuesday, helping to ease fears of major disruptions to the oil market. That has come against a backdrop of pockets of weakness in the market for real-world barrels. US supplies were offered into Europe at the lowest levels in months on Tuesday, as a slump in refinery profits and high freight costs weigh on prices. The decline is pressuring key market gauges at the front of the futures curve.
- Gold held steady after two days of losses, with investors continuing to watch for further strength in Treasury yields. The market is focused on the potential for more wild swings in the US bond market after yields breached 5% on Monday for the first time in 16 years. Asset managers have continued to unwind net long positioning on long-bond contracts, a move that may support yields over coming weeks. Higher yields are typically negative for non-interest bearing gold. The metal reached a five-month high last week in a sharp rally sparked by the Israel-Hamas war, though haven appetite has since waned as concerns eased over the potential for the conflict to widen to other countries in the Middle East.
- Beijing’s surprising investigation of Foxconn Technology Group, Apple Inc.’s largest iPhone assembler, is stoking fears about founder Terry Gou’s business empire as he pursues Taiwan’s presidency. Shares of Hon Hai Precision Industry Co., the public arm of Foxconn, has lost 5% this week after Chinese state media said regulators are tax-auditing Foxconn subsidiaries and investigating its use of land. Hon Hai unit Foxconn Industrial Internet Co. slumped 15% in Shanghai trading, while two Hong Kong-listed units also declined Tuesday. The four stocks have lost about $9 billion in value this week. Hon Hai is down 15% from its high in June, while Foxconn Industrial has slumped 40%
- The US economy likely expanded in the third quarter at the fastest clip in nearly two years, a surprising acceleration primarily powered by a consumer reaping the benefits of resilient job growth, rising wealth and easing inflation. Gross domestic product is projected to have grown at an annual rate of 4.5% last quarter, more than double the pace in the prior period, according to a Bloomberg survey of economists ahead of the release of government data on Thursday. That would be the fastest pace since the end of 2021, when the economy was shaking off the effects of the pandemic.
- Boeing Co. lowered its annual target for 737 aircraft deliveries as the US planemaker grapples with quality shortfalls afflicting its top-selling model. The company expects to hand over between 375 and 400 of the single-aisle jet this year, Boeing said in a statement Wednesday as it reported earnings. The revision comes a month after executives already struck a more cautious note, saying deliveries would be in the range of 400 planes as repairs to a critical fuselage section prove more complex than anticipated. Boeing maintained its goal of generating between $3 billion and $5 billion in free cash flow this year and affirmed plans to more than double its cash generation to $10 billion by mid-decade. The company also kept its delivery target for the 787 Dreamliner model, another key source of cash.
- Hilton Worldwide Holdings Inc. reported earnings that beat analyst estimates as strong demand for international trips made up for slowing leisure travel in the US. Hilton had adjusted earnings per share of $1.67 in the third quarter, according to a statement Wednesday. That was higher than an average analyst estimate of $1.65, according to data compiled by Bloomberg. The post-pandemic travel surge in the US is starting to slow, but bookings at Hilton’s international hotels made up for the pullback. Revenue per available room, or revpar, increased by 39% in Asia, compared to the same period of 2022. It grew just 3% in the US.
- Switzerland corrected the result of Sunday’s parliamentary elections, the government said in a statement, but the allocation of seats in the lower house of parliament remains unchanged. The voters’ shares of parties had to be corrected because of a software error, the executive said on Wednesday after the glitch was discovered one day before. In three cantons, votes were counted three to five times. Since lawmakers are elected canton-by-canton, the error didn’t affect who is elected to parliament, but it did change how successful the parties were on a national level. The corrected results show a slightly worse result for the leading Swiss People’s Party, while the two green parties did less badly than initially reported.
- Russian oil-product exports plunged to the lowest in more than three years, with outflows still limited after Moscow’s initial ban on diesel shipments and the slow ramp-up of refining activity during seasonal maintenance. Shipment of refined fuels from Russia shrank to just 2.1 million barrels a day in the first three weeks of this month, according to data compiled by Bloomberg from analytics firm Vortexa Ltd. That’s about 8% below the levels in September and the lowest volume since July 2020. The oil market is closely watching Russian exports to work out its crude production since Moscow stopped releasing official output data. Seaborne crude oil flows from the nation are growing, signaling Russia’s waning adherence to the OPEC+ pact to curb outflows.
- Gucci sales fell as Kering SA’s biggest brand grappled with the twin challenges of a luxury goods slowdown and internal tumult, which is set to weigh on the label’s profitability this year. Comparable revenue at Gucci slid 7% in the third quarter, Kering said Tuesday after markets closed. Analysts expected a drop of 6.2%. Overall, sales at the Paris-based company declined 9%, also missing estimates. Kering shares fell as much as 4.5% in early Paris trading, bringing this year’s losses to about 18%.
- The worst selloff of longer-term Treasuries in more than four decades is putting a spotlight on the market’s biggest missing buyer: the Federal Reserve. The Fed is shrinking its portfolio of government securities at a $720 billion annual pace, making the Treasury Department’s job of funding a near-$2 trillion federal deficit all the harder. Quantitative tightening, as the Fed’s program is known, ended earlier than officials expected the last time it was executed, and some market participants predict the same this time. While Fed Chair Jerome Powell and fellow policymakers have indicated the surge in longer-term Treasury yields may reduce the case for continuing to hike the central bank’s benchmark interest rate, they’ve made no such suggestion for QT. Instead, they’ve said the process could keep going even after rate cuts have begun.
- UBS Group AG is extending a $9 billion credit line to one of the Middle East’s most influential investors as Chief Executive Officer Sergio Ermotti seeks to retain the region’s ultra wealthy following the takeover of Credit Suisse, people with knowledge of the matter said. The Swiss lender recently agreed to provide the financing to former Qatari prime minister Sheikh Hamad bin Jassim bin Jaber Al Thani, the people said, asking not to be named discussing private details. The credit facility is at least 50% more than the total of existing lines from UBS and Credit Suisse that it replaces. UBS declined to comment on the matter. A representative for Sheikh Hamad didn’t respond to a request for comment.
- House Republicans nominated Representative Mike Johnson of Louisiana as their latest choice for speaker, selecting one of Donald Trump’s most outspoken allies in his efforts to overturn the 2020 presidential election. Johnson, the party’s fourth speaker nominee in three weeks, said he is “very confident” he will be elected speaker on Wednesday. Republicans plan a noon vote on the House floor. Johnson’s nomination marked the latest twist in a three-week saga that has prevented action on emergency aid to Israel and Ukraine, and on funding to head off an impending mid-November US government shutdown.
- A measure of applications to finance home purchases slid to the lowest level since 1995 as mortgage rates approached 8%, underscoring how mounting affordability challenges are crimping demand. The Mortgage Bankers Association’s index of home-purchase applications decreased 2.2% in the week ended Oct. 20 to 127, the lowest level since 1995. The contract rate on a 30-year fixed mortgage climbed for a seventh-straight week to 7.9%, data out Wednesday showed. Taking mortgage-related fees and compound interest into account, the effective rate surpassed 8% for the first time in 23 years. The rate on a five-year adjustable mortgage climbed almost half a percentage point, the most since early June, to almost 7%.
- T-Mobile US Inc. posted third-quarter profits that beat estimates, buoyed by better-than-expected mobile customer gains. It’s the last of the Big Three wireless carrier to report strong results, a positive sign for the telecommunications industry, which has been struggling with subscriber growth in recent years. The Bellevue, Washington-based company added a net 850,000 postpaid mobile phone customers in the quarter ending Sept. 30, the company said Wednesday, beating analysts’ estimates of 780,400. In June, T-Mobile reported adding 760,000 mobile phone customers in what it said was its best second quarter in eight years. Adjusted earnings were $1.82 per share, compared to the average analyst estimate compiled by Bloomberg of $1.69 per share. Third-quarter revenue was $19.3 billion, in line with analysts’ estimates. Shares rose 1.6% at 7 a.m. in early trading in New York.
- Microsoft Corp. share were on track for their biggest gain in three months after it reported strong sales, bolstered by recovering cloud-computing growth amid demand for new artificial intelligence products. Revenue in the fiscal first quarter, which ended Sept. 30, rose 13% to $56.5 billion, the most in six quarters and topping analysts’ average projections. Profit was $2.99 a share, the software maker said in a statement Tuesday. Azure cloud-services sales gained 29%, compared with 26% growth in the previous quarter. Chief Executive Officer Satya Nadella is revamping the company’s entire product suite, including Office, Windows, search and security software, to add features based on OpenAI technology. The partnership has helped Microsoft lure corporate customers keen to use ChatGPT and other new technologies — which answer questions and generate content — in their own applications. The company, which already counts most businesses as clients of its productivity tools and operating systems, has also been testing a pricier, AI-enhanced version of its Office software.