September 12, 2022

Daily Market Commentary

Canadian Headlines

  • Around the world, soaring borrowing costs are squeezing homebuyers and property owners alike. From Sydney to Stockholm to Seattle, buyers are pulling back as central banks raise interest rates at the fastest pace in decades, sending house prices falling. Meanwhile, millions of people who borrowed cheaply to purchase homes during the pandemic boom face higher payments as loans reset. The rapid cooldown in real estate — a leading source of household wealth — threatens to worsen a global economic downturn. While the slump so far isn’t near the levels of the 2008 financial crisis, how the decline plays out is a key variable for central bankers who want to tamp down inflation without hurting consumer confidence and triggering a deep recession. Already, frothy markets such as Australia and Canada are facing double-digit house-price declines, and economists believe the worldwide downswing is only getting started.
  • Tamarack Valley Energy said it has agreed to buy Deltastream Energy Corporation for $1.425 billion: $825 million cash, a $300 million DAP, and $300 million of stock.
  • Shawcor Ltd. (“Shawcor” or the “Company”) (TSX: SCL) today announced that it will seek to change its name to Mattr (the “Name Change”). The Name Change is expected to occur during the first half of 2023, conditional on regulatory and shareholder approvals, and it is anticipated that trading of the Company’s common shares will commence under a new ticker symbol. Further details regarding the Name Change, including the effective date of the Name Change and the new ticker symbol of the Company, will be announced over the coming months. Concurrently, the Company has commenced a review of strategic alternatives for its Pipeline Performance Group (“PPG”), Shaw Pipeline Services (“SPS”) and Oilfield Asset Management (“OAM”) operating units. A range of options are under consideration, including the potential sale of all three operating units. Shawcor’s PPG and SPS operating units currently form the entirety of the Company’s Pipeline & Pipe Services (“PPS”) reporting segment, while the OAM operating unit is a component of the Composites Systems (“CS”) reporting segment.

World Headlines

  • European stocks rose for a third day as investors looked ahead to US inflation data to gauge whether a further cooling would prompt the Federal Reserve to turn less hawkish. The Stoxx Europe 600 Index was up 0.9% by 10:55 a.m. in London. Retailers, automakers, miners and banks outperformed, while health care lagged. The European benchmark has attempted to recover this month after a summer rally stalled in August. The index posted its first weekly gain in four on Friday after the European Central Bank hiked rates and reassured investors that it was focused on taming scorching inflation.
  • US futures extended a rally and the dollar retreated as traders bet inflation is near peaking even as policy makers ramp up hawkish rhetoric. Contracts on the S&P 500 and Nasdaq 100 rose, suggesting US stocks may add to last week’s gains. A gauge of the dollar fell for a second day, on track for its biggest two-day drop in almost three months, as all G-10 peers surged expect the yen. Treasury yields ticked lower. Investor focus is on August US inflation data due Tuesday, with headline CPI expected to cool to an 8% a year pace while the core measure that excludes food and energy is seen accelerating. Traders almost fully expect another jumbo-sized Fed hike next week, following two 75-basis-point increases, and forward guidance by Fed officials in the run-up to the policy meeting has supported that view.
  • Asian stocks began the week by heading for a third straight daily advance, bolstered by the weakening of the dollar and oil prices. The MSCI Asia Pacific Index climbed as much as 0.8% on Monday, poised for its highest close in nearly two weeks, as tech and materials shares rallied. TSMC rose 2.4%, boosting Taiwan’s gauge, after the firm said August sales rose 59% from a year ago and Reuters reported that the US plans to broaden curbs on chip shipments to China. Markets were closed for holidays in China, Hong Kong and South Korea. Benchmarks in the Philippines, Taiwan, Japan and Australia were all up. India’s S&P BSE Sensex Index also rose ahead of the nation’s retail inflation data for August, while Thailand’s main gauge was higher for a fifth-straight day to erase this year’s decline amid optimism the economic recovery has momentum.
  • Oil wiped out an earlier decline as a slump in the dollar offset mounting concerns that global demand is weakening. The global Brent benchmark rose to trade near $94 a barrel, after earlier shedding as much as 1.8% in London. Risk sentiment generally firmed across markets on Monday with equity markets climbing in Europe and the dollar weakenening sharply as traders bet inflation is near a peak. However, there are concerns the outlook for consumption is worsening as global growth slows and China maintains its strategy of controlling Covid-19 by curbing activity. An outbreak at one of China’s top media schools in Beijing should be stamped out “in the shortest period of time,” local government officials said Sunday.
  • Gold was flat before US inflation data due Tuesday, and as central bankers in the US and Europe signaled more rate rises were on the way. Bullion has mainly fluctuated between $1,700 an ounce and $1,720 in September after several months of declines, and closed Friday with its first weekly gain in four. The dollar was down on the day.  Spot gold was trading at $1,716.07 an ounce at 10:13 a.m. Singapore time, little changed from its close on Friday. The Bloomberg Dollar Spot Index declined. Silver and palladium were up, while platinum fell.
  • The euro surged the most in six months against the dollar as European Central Bank policy makers underlined the need for further interest-rate hikes and as an anticipated slowdown in US inflation cooled the rampant demand for greenbacks. The common currency rose as much as 1.6% to $1.0198, its biggest increase since March, lent support by more hawkish rhetoric from ECB officials such as Bundesbank President Joachim Nagel, who said the central bank must take further steps if the inflation picture stays the same. The ECB raised its key rate by an unprecedented 75 basis points last week to curb the fastest pace of consumer-price growth on record. Investors are also moving to cover positions ahead of Tuesday’s US CPI report, with Bloomberg’s gauge of the greenback’s strength falling to its weakest level in almost two weeks. US price growth is expected to have slowed in August, according to a Bloomberg survey of economists, which could potentially reduce the need for more aggressive Federal Reserve interest-rate hikes that have supported the dollar.
  • Russia hit power plants deep behind Ukrainian lines, causing blackouts across the northeast of the country as Kyiv’s forces pressed a lightning offensive that’s reversed months of Moscow’s advances. More than 30 settlements, including Kramatorsk and Dnipro, suffered Russian missile and air strikes over the past day, Ukraine’s General Staff said in its regular update on Facebook Monday. Kharkiv was one of at least two power plants struck by rockets. Russia has suffered a major and unexpected strategic setback in Ukraine that could potentially mark a turning-point in the conflict, said two people close to the Defense Ministry and security services in Moscow. The war is now in its 29th week after President Vladimir Putin ordered the invasion of neighboring Ukraine.
  • Investors withdrew money from exchange-traded funds that buy emerging market stocks and bonds last week. This was the third straight week of outflows. Outflows from U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $758.4 million in the week ended Sept. 9, compared with losses of $1.21 billion in the previous week, according to data compiled by Bloomberg. So far this year, inflows have totalled $20.8 billion.
  • US firms that do most of their business at home will fare better than those exposed to Europe, where a recession is all but guaranteed, according to Goldman Sachs Group Inc. strategists. A Goldman team led by David Kostin say that while the path of US growth may be “uncertain,” the economic situation in Europe is dire. Goldman’s preference for US exposure comes during what is turning out to be a particularly tough year for business in Europe amid a gas crisis, soaring inflation and tightening central-bank policy. In dollar terms, the Stoxx Europe 600 has lagged the S&P 500 this year and a Goldman basket of US firms with 100% domestic sales has outperformed one tracking those with high sales to Europe.
  • Ark Investment Management’s Cathie Wood is warning about the risks of US auto debt if there’s a drop in prices. The prevalence of ride-hailing services mean that people wouldn’t prioritize paying car loans as they did during the 2008-2009 financial crisis, she said in a Twitter post. Her comments follow a series of tweets from last week saying the Federal Reserve is “making a mistake” with its interest rate increases, and turning inflation into deflation.
  • China confirmed that Xi Jinping plans to travel to Central Asia this week, in what would be the president’s first trip aboard since the pandemic hit more than two years ago. Xi will visit Kazakhstan and Uzbekistan from Wednesday to Friday, the Chinese Foreign Ministry said in a statement Monday, confirming earlier reports from those countries. Uzbekistan is hosting the Shanghai Cooperation Organization summit, which will give Xi a chance to meet Russian President Vladimir Putin in person for the first time since Moscow began its invasion of Ukraine in February. The trip marks Xi’s return to the world stage spotlight after being the only Group of 20 leader to avoid traveling outside his country since the world’s first Covid lockdown began in January 2020. Besides a visit the Chinese territory of Hong Kong in July, Xi will have gone without leaving his country’s strict Covid Zero regime for some 970 days.
  • Germany has made a preliminary decision to buy Israel’s Arrow 3 air-defense system instead of a rival product manufactured by Lockheed Martin Corp., according to people familiar with the matter. Chancellor Olaf Scholz discussed the air-defense issue earlier Monday with Israeli Prime Minister Yair Lapid in Berlin and they both gave positive signals about a possible deal at a joint news conference. Scholz referred to a new fund for military spending set up by his ruling coalition worth 100 billion euros ($102 billion), which he said was “for investment in our security and that of our neighbors.” Germany has earmarked the additional money for its armed forces in part as a response to Russia’s invasion of Ukraine.
  • Serbia is set to receive a $1 billion loan from the United Arab Emirates, securing more advantageous terms as the Balkan nation says it faces resistance by many investors for its failure to adopt sanctions against Russia. President Aleksandar Vucic signed the loan agreement with a 3% interest rate on Sunday during a visit to the UAE and talks with Emirati leader Sheikh Mohammed bin Zayed, with funds earmarked for debt servicing and energy investments. Finance Minister Sinisa Mali said the government in Belgrade would have faced more than double the amount of interest costs on the international bond market.
  • Pfizer Inc. and Moderna Inc.’s Covid-19 vaccines targeting the omicron variant were approved by Japan’s health ministry late Monday, paving the way for them to be rolled out in the world’s third-largest health-care market. The ministry endorsed the shots shortly after an expert panel advised deploying the boosters. Pfizer’s omicron booster can be administered to Japanese aged 12 and over, the panel advised, while Moderna’s should be limited to those 18 and above. Japan is the latest country to sign off on the targeted boosters following similar approvals by the US, UK and Australia in the past couple of months. South Korea and Taiwan have only authorized Moderna’s shot. Public health authorities are looking to the updated inoculations to sharpen their Covid response as the coronavirus continues to mutate, allowing for breakthrough infections.
  • India plans to pay about 200 billion rupees ($2.5 billion) to the state-run fuel retailers, such as Indian Oil Corp., to partly compensate them for losses and keep a check on cooking gas prices, according to people familiar with the matter. The oil ministry has sought a compensation of 280 billion rupees, but the finance ministry is agreeing to only about a 200 billion cash payout, the people said, asking not to be identified as the discussions are private. The talks are at an advanced stage but a final decision is yet to be taken, the people said. The three biggest state-run retailers, which together supply more than 90% of India’s petroleum fuels, have suffered the worst quarterly losses in years by absorbing record international crude prices. While the handout could ease their pain, it would add pressure to the government’s coffers that are already strained by tax cuts on fuels and a higher fertilizer subsidy to tackle mounting inflationary pressures.
  • Twitter Inc. said Elon Musk’s latest move to cancel his agreement to buy the social network is invalid after the billionaire said the company’s treatment of a whistle-blower gave him another reason to walk away from the $44 billion deal. Musk’s latest move to terminate the deal is “invalid and wrongful” and “Twitter has breached none of its representations or obligations,” the company’s lawyers said in a letter on Monday, according to a regulatory filing. It’s Musk’s third attempt to withdraw his offer because of what he says are violations of the buyout agreement. Musk previously raised concerns about the number of “bot” accounts on the platform, and, now, has said that Twitter should have notified him before it spent $7.75 million in a separation agreement with Peiter Zatko, the company’s former security chief.
  • US bond-market indicators suggest that investors are gaining confidence that this year’s spike in inflationary pressures will ultimately be brought under control in the wake of Federal Reserve policy tightening. With markets bracing for fresh consumer price readings this week and a Fed policy decision on Sept. 21, trading in inflation-linked instruments indicates an easing of concern. The cost of hedging high inflation has fallen, while so-called real rates on bonds — a reflection of yields that bondholders get once inflation effects are stripped out — have jumped.  Meantime, so-called breakeven rates on Treasury Inflation Protected Securities — a proxy for where markets expect inflation to be — have dropped, and flows around related exchange-traded funds suggest appetite for protection has reduced in recent weeks.
  • Bitcoin extended a rally amid a brighter mood in global markets and as traders await US inflation data and monitor a seminal upgrade of the Ethereum blockchain. The largest token rose as much as 3.3% on Monday and was trading a little above $22,000 as of 9:55 a.m. in London. Smaller coins like Solana also pushed higher but Ether lagged behind. Bitcoin jumped about 10% on Sept. 9, part of a broader embrace of beaten-down assets encouraged by a weaker dollar that hinted at a little less investor fear in a tough year. The greenback continued to slide at the start of the week.

 

*All sources from Bloomberg unless otherwise specified