The Daily – October 4, 2023

October 4, 2023

Daily Market Commentary

NEWS

Canadian Headlines

• Toronto home prices fell for a second straight month as more owners brought properties to market. The benchmark price of a house in Canada’s largest city dropped 0.8% in September to C$1.15 million ($840,200), following a 0.2% decline the previous month, according to data released Wednesday by the Toronto Regional Real Estate Board. Toronto’s real estate market is slowing markedly, with sales in September declining 1.8% to just 5,205 transactions — the lowest in six months, according to seasonally adjusted data. Mortgage rates near 15-year highs are squeezing buyers from the market and there are few signs of it letting up. The latest inflation report showed consumer price increases accelerated in August. A Bank of Canada official warned that the central bank is “not out of the woods” as it seeks to tame inflation.
• Flows on TC Energy Corp.’s Keystone oil pipeline dropped to zero on Tuesday, according to a prominent data provider, potentially disrupting deliveries to a key US hub that’s already struggling with the lowest crude inventories in more than a year. The roughly 600,000 barrel-a-day pipeline system — which carries heavy Canadian oil-sands crude from Alberta as far south as the US Gulf Coast — halted shipments by late morning, according to people, who cited Wood Mackenzie data. An email to Wood Mackenzie seeking comment wasn’t returned. Pipelines often shut down for maintenance for periods lasting less than a day, but the Keystone disruption is happening while inventories at Cushing, Oklahoma, are at their lowest for this time of year in nine years, according to US Energy Information Administration data released last week.
• Canada’s government is still in discussions with India about its diplomatic presence in the South Asian country as a dispute rages over the murder of a Sikh separatist leader in a Vancouver suburb. Foreign Minister Melanie Joly said Tuesday that Canada is in “constant cooperation and dialogue with India” after reports that Canada has been instructed to cut the number of diplomats by two-thirds — a move that would send dozens of staff home and significantly reduce its contingent in New Delhi. India’s Ministry of External Affairs didn’t respond to a request for comment.  The South Asian country had earlier informed the Canadian government that it expects a reduction in its diplomatic presence to bring it to parity with the Indian high commission in Ottawa.

World Headlines

• European stocks edged higher, but stayed near six-month lows on Wednesday as investors continued to focus on rising bond yields. The Stoxx 600 was up 0.4% at 10:53 a.m. in London, reversing an earlier drop. The yield on 30-year Treasuries hit 5% for the first time since 2007, while in Europe, German 10-year yields rose to 3% for the first time since 2011 amid worries about higher-for-longer interest rates. Utilities and media stocks outperformed, while retailers and automakers lagged. The selloff in the bond market has hammered global stocks in recent days on concerns that central banks will keep interest rates elevated longer than expected. The Stoxx 600 has extended losses after dropping for two months in a row, and is now just over 3% from erasing its 2023 gain. Focus is also now shifting to the third-quarter reporting season, which kicks off later this month.
• A global financial rout eased Wednesday as Treasury yields slipped and the dollar weakened from a 10-month high. US index futures were higher, pointing to a recovery for the S&P 500 which plumbed a four-month low Tuesday. Ten-year Treasury yields, the benchmark for the global cost of capital, dropped below 4.8% after jumping 30 basis points this week. The latest leg of the selloff has been fueled by Tuesday’s better-than-expected US job data, as well as a slew of hawkish comments from Federal Reserve officials. As conviction grew that US interest rates could rise further from current 22-year highs, 30-year yields touched 5% for the first time since 2007. Markets are pricing a one-in-three chance of a November hike and see a more than 50% likelihood of a move in December. Data on U.S. private payrolls due later from the ADP Research Institute could fan more volatility, coming on the heels of Tuesday’s JOLTS survey.
• Asian stocks tumbled, with several local benchmarks tracking a key regional gauge toward a correction, as strong US jobs data intensified concerns over higher-for-longer interest rates. The MSCI Asia Pacific Index fell as much as 1.8%, taking its decline from a July high to more than 10%. Tech and consumer discretionary stocks were among the biggest drags as a global bond selloff drove Treasury yields to the highest levels in more than a decade. South Korea’s Kospi was among the region’s worst performers Wednesday as traders returned from a holiday, falling more than 2% to flirt with correction territory. Japan’s Nikkei 225 also neared the milestone, with almost 90% of its members trading at a four-week low as local companies navigate currency weakness and inflation pressures.
• Oil remained under pressure following a widespread selloff in global financial markets, even as Saudi Arabia and Russia reaffirmed that they will continue output curbs until the end of the year. West Texas Intermediate fell below $88 a barrel. Deteriorating sentiment across markets over the last few days, spurred by a higher-for-longer outlook for global interest rates, has stopped a stellar oil price rally in its tracks. Prices continued to fall Wednesday even as OPEC+ leaders Saudi Arabia and Russia committed once again to continue additional curbs until December. The producer group’s Joint Ministerial Monitoring Committee convenes online during the day.
• Gold steadied around its lowest level in almost seven months, with Treasury yields pushing to new multi-year highs after US employment data reinforced the case for a higher-for-longer rate environment. Still, bullion is starting to show resistance to higher interest rates, which typically weigh on gold. It’s a dynamic that held throughout last year thanks to repeated dip buying, before breaking down last month as investors accelerated their sales. Spot gold was steady at $1,822.73 an ounce as of 10:40 a.m. in London, down 1.4% for the week so far. Platinum was flat after falling to the lowest in a year during the previous session. Silver and palladium edged lower.
• Kevin McCarthy’s ouster as US House speaker plunged Congress into an internal power struggle as it faces key deadlines on avoiding a government shutdown and approving aid for Ukraine — all as the country hurtles toward a presidential election. McCarthy lost his leadership post after hardliners in his own party revolted over his compromise with Democrats to avert a government shutdown last weekend. He said he won’t run again for speaker and hasn’t thought about resigning from Congress. Representative Patrick McHenry took over as acting speaker after the 216-210 vote as the House awaits an election for a permanent replacement. There is a wide open lane, with members set to go home for a week and the House expected to hold speaker elections Oct. 11.
• President Joe Biden is canceling an additional $9 billion in student-loan debt, his latest action to aid borrowers after the Supreme Court blocked his debt-relief plan and as payments resume for millions of Americans. Biden on Wednesday will detail the efforts, which will bring relief for 125,000 borrowers through changes to programs intended to aid public servants, Americans with disabilities and low-income borrowers, according to the White House. The administration also identified 51,000 additional borrowers who paid for at least 20 years but never got relief and will provide them nearly $2.8 billion in debt relief through fixes to income-driven repayment.
• Saudi Arabia and Russia reaffirmed that they will stick with oil supply curbs of more than 1 million barrels a day until the end of the year as a rally in prices falters. The leaders of the OPEC+ coalition announced the plans in separate official statements on Wednesday. Riyadh has slashed crude production by 1 million barrels a day, and Moscow is curbing exports by 300,000 a day, on top of earlier cuts made with fellow OPEC+ nations. Oil prices surged to almost $100 a barrel in London last week as the two nations choked supplies just as global demand hits a record, draining inventories at the fastest pace in years. But the rally has since cooled, with Brent futures retreating to near $89 on Wednesday amid signs that the price spike is encouraging the Federal Reserve to keep interest rates higher for longer. JPMorgan Chase & Co. says “demand destruction has begun” as fuel costs squeeze consumers.
• General Motors Co. is setting up a $6 billion line of credit to shore up liquidity, a move indicating the carmaker is preparing for a strike at US plants that may drag on and start to drain its coffers. The Detroit-based company’s move to bolster its financial position was announced in a securities filing early Wednesday. GM wants the 364-day revolving credit line to maintain operational flexibility, a company spokesman said. As of June 30, GM’s total automotive liquidity stood at $38.9 billion, so it’s not at risk of running out of money anytime soon. But the new credit line is a sign GM may be buckling in for a prolonged work stoppage by the United Auto Workers.
• European Union diplomats meeting ahead of a leaders summit this week have reached an outline agreement on how to tackle immigration crises, according to two officials with knowledge of their discussions. Italy is on track to see the largest number of migrants arrive since 2016 and Giorgia Meloni’s right-wing government has been appealing to partners to provide more support. More than 133,000 people have made the journey to Italy across the Mediterranean by boat since the start of this year through Sept. 30, according to UNHCR data released on Monday, helped by unseasonably mild weather.
• The European Union has formally launched an anti-subsidies probe into electric vehicles manufactured in China, setting in motion a one-year investigation that could see provisional measures such as countervailing duties imposed in the next nine months. The probe, which was announced by European Commission President Ursula von der Leyen last month, will focus on new battery-powered electric vehicles (BEVs) and alleged subsidies granted by the Chinese state, a legal notice in the EU’s official journal confirmed Wednesday. Though narrow in scope, the investigation focuses on a major global industry that has seen a massive rise in exports from China in recent years. Despite concerns in various sectors that Beijing could retaliate, the EU wants to act now given the precedent in other subsidized industries such as solar panels.
• More than 75,000 Kaiser Permanente workers are slated to go on strike Wednesday morning, interrupting one of the nation’s largest health care providers and adding to a months-long series of labor disruptions across US industries. The three-day strike could stall services for nearly 13 million people in at least half a dozen states. It’s expected to shut down nonessential services such as routine doctor’s visits as radiology technicians, pharmacy technicians, dental assistants, optometrists, and hundreds of other support staff take to picket lines. Hospitals and emergency services will continue to function through a combination of staff reassignments and replacement workers, according to the company. Strike lines will be set up at Kaiser Permanente hospitals and medical office buildings across the country, including California, Colorado, Washington, Oregon, Virginia and Washington, DC.
• Apple Inc. Chief Executive Officer Tim Cook sold stock worth about $41 million after taxes in his biggest sale in more than two years as the shares of the iPhone maker slide off recent highs. Cook sold 511,000 shares, according to a filing with the US Securities and Exchange Commission on Tuesday. He still has about 3.28 million shares in the Cupertino, California-based company where he’s worked for more than two decades, according to data compiled by Bloomberg. The share sale comes after Cook took a rare pay cut of about 40% to $49 million for 2023. As part of the changes to his compensation, his stock awards tied to Apple’s performance will increase to 75% this year from 50% previously.