October 3, 2023

Daily Market Commentary


Canadian Headlines

  • Brookfield Asset Management Ltd. has raised $12 billion for its largest ever private equity fund, boosting its financial firepower after a period of heavy spending. The Canadian investment firm has committed $3.5 billion of its own money to the BCP VI vehicle, according to a statement on Tuesday, with the remainder coming from investors including pension plans, sovereign wealth funds and family offices. Brookfield has been one of the world’s most active investment firms this year, even as many of its peers have remained on the sidelines in a quiet spell for mergers and acquisitions. It’s outspent a host of other big-name private equity firms on its way to multibillion-dollar deals for companies including US annuity provider American Equity Investment Life Holding Co. and Middle Eastern payments processor Network International Holdings Plc.
  • India has instructed Canada to reduce the number of diplomats in the South Asian country by two thirds as relations between the two nations continue to slide over the murder of a Sikh separatist leader, the Financial Times reported, citing people it didn’t identify. New Delhi has told Canada it must repatriate about 40 diplomats by Oct. 10 and has threatened to revoke the immunity of diplomats who remain after that date, the newspaper said. Canada has 62 diplomats in India and has been told to reduce that by 41, it said. Prime Minister Justin Trudeau has accused India’s government of involvement in the June killing of a Sikh separatist leader in Canada. India’s Foreign Minister Subrahmanyam Jaishankar, who was in Washington last week, said he had discussed the issue with US Secretary of State Antony Blinken and US National Security Adviser Jake Sullivan, and added that political assassination was “not consistent with our policy.”
  • Canada’s Lundin Mining Corp. said Chief Executive Officer Peter Rockandel has resigned and will be replaced by president and former director Jack Lundin. The announcement marks the latest in a wave of leadership departures since the Canadian mining company moved its headquarters from Toronto to Vancouver in September, prompting several executives and managers to step down. In a Monday press release, the company said Rockandel will leave his post at the end of the year and Lundin will assume the role Jan. 1. Rockandel will then continue to act as an advisor, Lundin said in the statement.
  • Neighbourly Pharmacy Inc., Canada’s largest and fastest growing network of independent pharmacies, announced today that, based on the unanimous recommendation of a committee of independent directors of its board of directors, it has entered into a letter of intent with an affiliate of Persistence Capital Partners in respect of a transaction whereby a newly-formed entity controlled by PCP would acquire all of the common shares in the capital of the Company, other than those Common Shares already owned by PCP or its affiliates, at a purchase price of $20.50 per Share, payable in cash. The Company has granted the Purchaser exclusivity through November 13, 2023 to complete negotiations of definitive agreements between the Company and the Purchaser.

World Headlines

  • European stocks extended declines after Monday’s selloff that saw the regional equity benchmark hit a six-month low, as rising bond yields dent risk appetite. The Stoxx Europe 600 Index fell 0.4% by 11:50 a.m. in London. Basic resources shares lagged as copper fell for a second day following hawkish signals from the Federal Reserve and weak manufacturing data across major economies. Utilities were also among the worst performers as bond proxies lost ground. Retail stocks were weighed down by a warning from online retailer Boohoo Group Plc. Last week, European stocks posted their first quarterly drop in a year as investors fretted over the likelihood of higher-for-longer rates, slower economic growth and concerns about China’s recovery. The focus will soon turn to earnings as traders assess how companies have navigated these headwinds, though seasonality shows that European equities perform best over the last three months of the year.
  • The benchmark 10-year yield has advanced some 140 basis points from its April low, as expectations of interest rate cuts from the Federal Reserve gradually faded. Instead, a robust US economy and labor market is causing markets to price a one-in-three chance of a rate hike in November. That has pressured equity markets, with the S&P 500 enduring two months of losses. Monday’s Treasury selloff came after US lawmakers managed to avert a government shutdown, prompting traders to increase bets that the Fed could up rates in November. Comments from two Fed policymakers reinforced that view, with Cleveland Fed president Loretta Mester saying one more rate hike was likely needed and Governor Michelle Bowman urging multiple increases. On Tuesday, bond proxies such as utilities were hard hit in Europe, while retail stocks were dragged down on a warning from online retailer Boohoo Group Plc. Boohoo shares fell 10%. In US premarket trading, Tesla Inc. dipped after third-quarter delivery numbers missed estimates. Another tech name, Airbnb Inc. slid almost 2%.
  • Asian stocks dropped as hawkish signals from Federal Reserve officials spurred risk-off sentiment, with Chinese shares listed in Hong Kong leading regional losses on their return from a holiday. The MSCI Asia Pacific Index fell as much as 1.7% to reach its lowest since late December. The regional benchmark is heading for a correction, with declines from a July 31 peak approaching the 10% mark. The Hang Seng China Enterprises Index slumped more than 3% to be the worst performer among major gauges in Asia, dragged lower by tech stocks like Meituan and Alibaba, and some financials. Shares also declined in Japan. The broad weakness came as the latest commentary from Fed officials stirred concerns that the central bank will continue to raise interest rates. Traders boosted bets on a November rate hike to a roughly one-in-three chance, up from the 25% likelihood priced on Friday. Positive Chinese travel data did little to lift sentiment as investors focus on uncertainties lingering in the world’s second-largest economy.
  • Oil held onto the previous day’s drop as macroeconomic concerns overshadowed physical market tightness to cloud the demand outlook. West Texas Intermediate traded near $89 a barrel after declining by 2.2% in the previous session. A global rout in sovereign bonds and shares extended into Tuesday, while the dollar strengthened as traders digested messaging that the Federal Reserve will need to leave borrowing costs higher for longer. Fears over the global economy have seen WTI drop about 6% since last Wednesday’s close, halting a rally that saw it surge to $95 a barrel last week. Higher interest rates make it more expensive to store and ship crude and the strengthening dollar means it’s pricier for most buyers. The reversal has come despite a spate of buying of key oil grades by the trading arm of China’s top refiner.
  • Gold steadied after touching the lowest level in almost seven months as investors continue to sell the metal in response to surging bond yields. The plunge in bullion is relentless with the metal still on course for a seventh straight day of declines, the longest losing streak since 2018. Benchmark US yields jumped to the highest levels in 16 years on Monday, extending an uptrend that began in May. Spot gold fell 0.1% to $1,826.11 an ounce as of 11:24 a.m. in London, after closing 1.1% lower on Monday. Platinum edged up after earlier touching the lowest in a year. Silver also rose after hitting the lowest in almost seven months, while palladium fell.
  • The European Union is on track to release nearly €13 billion ($13.6 billion) of funding for Hungary that the bloc froze last year over concerns about democratic backsliding by Prime Minister Viktor Orban. The forint gained following media reports that the EU intended to unblock the money. EU Budget Commissioner Johannes Hahn told Bloomberg earlier this year that Hungary was on track to receive the money after changes were made to strengthen the nation’s judicial independence. A release date for the funds is speculative, but it’s possible that Hungary will tap a share of the more than $30 billion that was suspended by the end of the year as work is progressing well, according to a person familiar with the discussions. The release of the funds is taking time because the commission is conducting a thorough technical assessment of the judicial reforms, said the person, who spoke on the condition of anonymity. The timing depends on the conclusion of the EU’s assessment of Hungary’s legislatives changes.
  • Joe Biden’s reelection campaign is launching a new ad highlighting his efforts to lower consumer costs, ramping up its effort to reverse the president’s poor marks on the economy ahead of the 2024 election. The minute-long spot cites caps on insulin prices for seniors, Medicare’s power to negotiate drug prices, clean-energy investments and lower health care premiums as examples of how Biden has worked to ease Americans’ financial burdens. Concerns about the economy, as well as Biden’s age, have him running a close race against Republican frontrunner Donald Trump, polls show, even though the former president faces a litany of federal and state criminal charges over his efforts to overturn his 2020 election loss to Biden and his alleged mishandling of classified documents.
  • As OPEC+ ministers prepare to review global oil markets, the group is showing no signs of cooling a rally that brought prices near $100 a barrel. Crude has soared more than 20% in three months as alliance leaders Saudi Arabia and Russia squeeze supplies while world fuel demand hits records. The surge threatens to undermine a fragile global economy, harm consumers with another inflationary spike and derail central banks’ plans to wrap up interest-rate hikes. Yet delegates from the Organization of Petroleum Exporting Countries and its partners don’t expect Wednesday’s meeting of the Joint Ministerial Monitoring Committee to recommend any policy changes. United Arab Emirates Energy Minister Suhail al Mazrouei said on Monday that OPEC+ has “the right policy.”
  • Japan’s government approved as much as ¥192 billion ($1.3 billion) in subsidies for Micron Technology Inc.’s Hiroshima factory, part of Tokyo’s efforts to bolster next-generation chip production at home. The subsidies will help the Boise, Idaho-based company install Dutch firm ASML Holding NA’s extreme ultraviolet lithography equipment to make advanced chips, Economy Minister Yasutoshi Nishimura said Tuesday. Such chips will be essential to power generative AI, data centers and self-driving technology, he said. Tokyo’s support for Micron comes as similar efforts by the US to bolster domestic chip production are getting stymied by labor issues and slow delivery of promised funding. The world’s biggest chipmaker, Taiwan Semiconductor Manufacturing Co., said in July that it was delaying the start of production at its planned Arizona factory to 2025.
  • Singapore authorities seized or froze assets worth more than S$2.8 billion ($2 billion) in one of the city-state’s largest money laundering investigations, a senior official said on Tuesday while signaling the government could tighten immigration rules to curb illicit inflows. The amount disclosed to parliament by Second Minister for Home Affairs Josephine Teo is higher than the S$2.4 billion previously announced. The assets included 152 properties, 62 vehicles, thousands of bottles of liquor, cryptocurrencies, gold bars and jewellery. The probe, which saw 10 foreigners with Chinese origins charged in August for alleged forgery and laundering proceeds from scams and illegal online gambling, is ongoing, she said. The city-state will review how to tighten its immigration verification checks, though “the crooks will still try to find a way around,” said Teo.
  • Mark Carney, the former Bank of England governor, said he expects the US Federal Reserve to raise interest rates again before the end of the year to help curb inflation. “I expect that there will be a bit more tightening by the Fed, probably an additional rate increase this year,” Carney said Monday during an interview on “The David Rubenstein Show: Peer to Peer Conversations.” Carney’s remarks align with what officials from the Federal Reserve have been saying. The central bank recently left the benchmark interest rate unchanged at a target range of 5.25% to 5.5% — a 22-year high. However, 12 of 19 Fed officials anticipate one more rate increase for this year. Federal Reserve Bank of Cleveland President Loretta Mester said Monday that the central bank will likely need to raise rates once more this year and then hold them at higher levels for some time to get inflation back to its 2% target.
  • Republican Matt Gaetz officially moved to topple House Speaker Kevin McCarthy on Monday evening, teeing up a high-stakes vote likely to dramatically shift the balance of power in Washington whatever the outcome. At least one other Republican dissident explicitly said he would join Gaetz and others indicated they were strongly considering doing so. As few as five ultra-conservatives could overthrow McCarthy if all Democrats support them. Gaetz, a Florida Republican, cited McCarthy’s embrace on Saturday of a bipartisan deal to avert a US government shutdown as provocation for the mutiny. “Bring it on,” McCarthy responded on X moments after Gaetz stood in the well of the House, formally beginning the process.  McCarthy must call a vote within two legislative days. The speaker or his GOP allies are expected to seek a vote as soon as Tuesday on an effort to block the maneuver.
  • More and more Wall Street equity strategists are sounding the alarm on the impact of higher interest rates. The team at Goldman Sachs Group Inc. joined peers at Morgan Stanley and JPMorgan Chase & Co. warning that elevated rates could spark further declines in equities. They pointed to the divergence between the S&P 500 stock index and 10-year real rates approaching the steepest in almost two decades, with the exception of 2020. Such a decoupling implies a shrinking return for holding riskier equities compared with a safe-haven asset like US government bonds. That “may further limit the ability of equities to digest further increase in rates,” strategists including Andrea Ferrario and Christian Mueller-Glissmann wrote in a note dated Oct. 2.
  • The dollar’s relentless rally has finally toppled the last Asian currency standing, with the Indonesian rupiah joining regional peers in erasing this year’s gains against the greenback. The rupiah succumbed via a modest weakening Tuesday, even after the central bank said it intervened to shore up the exchange rate. All other Asian currencies have already retreated this year against their US peer, which has advanced in 10 of the last 11 weeks. “Higher US yields and stronger dollar have been the key driver of the rupiah’s recent weakness,” said Vijay Kannan, a macro strategist at Societe Generale SA in Singapore. “This should continue to be a headwind for bond flows and the rupiah.”
  • Taiwan Semiconductor Manufacturing Co.’s stock has lost more value than any other in Asia since mid-June as investors brace for prolonged weakness in the chip sector. The rout may not be over. Since its June high, Taiwan-based TSMC shares have fallen 11%, erasing $77 billion from its market cap due to worries about the macro environment and soft global consumer electronics demand. A continued rise in the volatility skew in recent months as traders bid up bearish contracts is indicating a further drop in TSMC’s stock. Shares of the world’s largest contract chipmaker jumped 60% between October last year and June thanks to the global frenzy over everything related to artificial intelligence. But traders have turned more wary about just how much that will contribute to the bottom line, especially without a pickup in the smartphone and personal-computer business. Even high-end AI chip orders have slowed at a faster pace than expected.
  • The judge: “rogue.” The prosecutor: “racist.” The proceeding: “greatest witch hunt of all time.” And that was before the courtroom was gaveled to order. The first trial of Donald Trump began Monday in New York with scenes unlike anything in US history. Trump — former star of The Apprentice, and now effectively branded a fraudster — was there, entering the courthouse used as the backdrop for Law & Order. In the six hours he spent in court confronting a civil case that threatens his company and cuts to the heart of his persona as a master dealmaker, he railed against the justice system, accused the judge of incompetence and suggested he be criminally prosecuted, and made the case to his supporters that he was being wrongfully targeted. All his blistering comments were made outside the courtroom