September 15, 2022

Daily Market Commentary

Canadian Headlines

  • Ontario’s government is creating an economic advisory group with representatives from Stellantis NV and three indigenous groups to try to advance billions of dollars of investment in clean energy and infrastructure projects. The governments of Canada and Ontario have provided financial support to a raft of electric vehicle initiatives to try to save auto-sector jobs as the industry transitions away from fossil fuels. That includes money for Stellantis to assemble electric vehicles in Windsor, Ontario, and to LG Energy Solution and Stellantis to build an EV battery plant nearby. Billions of dollars of investment will be needed, including spending on highways and energy infrastructure. The new group is meant to go beyond the government’s legal duty to consult with First Nations and ensure that indigenous people secure jobs and economic prosperity from any development near their communities, Greg Rickford, Ontario’s Minister of Indigenous Affairs, said in an interview.

World Headlines

  • European stocks fluctuated on Thursday after sliding in the past two days as investors weighed cheaper valuations against worries that persistently high inflation would cause central banks to remain hawkish for longer. The Stoxx 600 Index erased earlier gains to trade little changed as of 11:50 a.m. in London. Banks outperformed with gains of 1.3%, while real estate and energy dropped. The European benchmark gauge has struggled to recover from a slide since mid-August as a worsening energy crisis and slowing growth combine with high inflation and hawkish central banks. Although lower valuations have lured some investors back to stocks, growing uncertainty around the size of the Federal Reserve’s rate hike next week has kept gains in check.
  • US futures declined as investor sentiment swung between hopes that inflation has peaked and concern that large interest-rate hikes by the Federal Reserve will hamper economic growth. Treasury yields rose and the dollar gained. Contracts on the S&P 500 and Nasdaq 100 fluctuated before turning lower, with the latter underperforming after the underlying gauges posted modest rallies on Wednesday. Traders remain focused on US economic data, with a decline in producer prices there providing some relief after Tuesday’s consumer inflation jolt saw wagers for rate increases ratchet higher and stocks slump the most in two years. Jobs, manufacturing and retail numbers later Thursday will be parsed for clues on the strength of the economy and inflation expectations.
  • Asian stocks extended their recent weakness as investors remained cautious over tighter Federal Reserve policy, with losses in China weighing on the regional benchmark. The MSCI Asia Pacific Index erased earlier gains to fall as much as 0.4%, on track to fall for a third day. Financials and energy shares advanced the most, while technology stocks were the biggest drag. Chinese stocks led declines in the region as a meeting between President Xi Jinping and Vladimir Putin nears, an event that traders say raises geopolitical risks. Meanwhile, the People’s Bank of China’s kept its key rate unchanged while draining liquidity from the banking system. An easing of lockdown in the Chinese megacity of Chengdu was insufficient to provide reassurance.
  • Oil fluctuated as traders grappled with the outlook for Chinese demand and assessed comments from the US on refilling strategic reserves. West Texas Intermediate swung between gains and losses before trading little changed near $88 a barrel. Global benchmark Brent traded close to $94. China’s Chengdu was easing lockdown measures in parts of the city Thursday. The country is considering allowing its refiners to export more fuel in an attempt to help revive its economy, a move that has roiled global refined fuels markets in recent days.
  • Gold extended a decline below $1,700 an ounce as worse-than-expected inflation data out of the US earlier this week increased expectations of a prolonged period of monetary tightening. Bullion slid as much as 0.7% on Thursday as Treasury yields edged higher, putting pressure on the non-yielding asset. US consumer and producer prices show inflationary pressures remain in the economy, as the Federal Reserve prepares for its meeting next week. Investors are now fully pricing in a 75 basis point rate hike from the US central bank, while some are even predicting a full percentage point increase. Initial jobless claims due Thursday will provide an indication of whether the labor market remains tight, while retail sales will be scrutinized for a gauge of consumer spending.
  • Adobe Inc. is nearing a deal to acquire Figma, a startup that makes online design collaboration tools, people with knowledge of the matter said. An agreement may be announced as soon as Thursday, the people said, asking not to be identified because the information is private. The parties have been discussing a valuation of more than $15 billion for Figma, one of the people said.  Deliberations are ongoing, and terms of a deal could still change, the people said. Representatives for Adobe and Figma didn’t immediately respond to requests for comment.
  • Ethereum has completed a key revamp of its blockchain network, marking the crypto world’s most-ambitious software upgrade to date. Called the Merge, the upgrade completed in the early hours of Thursday, said Ethereum co-founder Vitalik Buterin in a Twitter post. The change replaced power-hungry computers that were used to order transactions on the network with a more energy-efficient setup using piles of the network’s native token, Ether, placed in special, so-called staking wallets. As a result, Ethereum’s energy consumption will decline by an estimated 99%. Such an upheaval had never been attempted in crypto before, let alone on Ethereum, home to about 3,500 active decentralized apps, ranging from exchanges to games and handling billions of dollars worth of crypto. In the works for years, the Merge doesn’t change the end-user experience on Ethereum, but it’s a key stepping stone to more upgrades that will make the network faster and cheaper, and should further increase its stature and usage.
  • Shell Plc Chief Executive Officer Ben van Beurden will step down at the end of this year after almost 40 years at the company, to be replaced by the firm’s head of gas and renewables, Wael Sawan. Van Beurden, 64, has steered the company through some of its most turbulent times. The first big move of his tenure as CEO, which began in 2014, was the takeover of rival BG Group Plc, a deal valued at close to $50 billion that tested the company’s finances during an oil price slump, but is now paying off as natural gas prices soar. At the outset of the Covid-19 pandemic, Van Beurden made the first cut to Shell’s dividend since the Second World War, a move that upset investors and underscored the seriousness of the global health crisis for the oil and gas industry.
  • KKR & Co. and Global Infrastructure Partners are among private equity firms competing for a stake in Vodafone Group Plc’s wireless towers unit, people familiar with the matter said. Swedish investment firm EQT AB has also been exploring a potential investment in Frankfurt-listed Vantage Towers AG, the people said, asking not to be identified discussing confidential information. Vodafone has invited suitors to participate in an auction process, according to the people. Shares in Vantage rose as much as 4.2% on Thursday, giving the company a market value of 13.4 billion euros ($13.4 billion).
  • US railroads and unions representing more than 100,000 workers reached a tentative deal, the government said, a breakthrough that looks to avert a labor disruption that risked adding supply-chain strains to the world’s largest economy. After 20 straight hours of talks, the companies and union negotiators reached a preliminary agreement balancing the needs of workers, businesses and the economy, according to a Labor Department statement early Thursday. It was a “hard-fought, mutually beneficial deal,” the emailed statement said. “Our rail system is integral to our supply chain, and a disruption would have had catastrophic impacts on industries, travelers and families across the country.”
  • The German government is ready to take a stake in a second domestic natural gas supplier to contain a worsening energy crisis that’s already prompted talks on the potential nationalization of energy giant Uniper SE. A rescue package for VNG AG, the troubled gas importing subsidiary of German utility EnBW AG, could include a capital injection that would give the government a minority stake in the company, according to people familiar with the matter. VNG, which supplies gas to approximately 400 municipal utilities and industrial operators, submitted an application for state aid last week. Like Uniper, VNG is being squeezed by surging gas prices and a shortfall in deliveries from its key supplier Russia, which cut flows to Europe in reaction to the continent’s support for Ukraine.
  • Investors withdrew a net $1.34 billion from State Street’s SPDR S&P 500 in the latest session, reducing the fund’s assets by 0.4 percent to $351.1 billion, the lowest level since July 15, according to data compiled by Bloomberg. This was the third straight day of outflows, totaling $7.95 billion. The fund’s assets decreased by 2.1 percent during that span. The fund has suffered net outflows of $5.56 billion in the past year.
  • Barclays Plc is close to concluding a buyback of securities after the bank accidentally issued billions of dollars more structured and exchange-traded notes than it had registered with the Securities and Exchange Commission. The total cost of the error is still unknown. The British lender said in a filing Thursday that $7.7 billion of securities have been submitted for the so-called rescission offer through a tender process, out of a total of $9.5 billion eligible. These will be settled today, it added. Some investors have submitted their claims by other means and are under review, the bank added. In total, $17.7 billion of securities were affected.
  • Microsoft Corp.’s planned $69 billion purchase of Activision Blizzard Inc. has been referred to a full in-depth review by the UK’s merger watchdog. The Competition and Markets Authority said Thursday it had referred the deal for a thorough probe after it previously found concerns that it could lead to a substantial lessening of competition in the gaming console, subscription and cloud markets. The combination with Activision — which owns some of the most popular franchises including Call of Duty, World of Warcraft and Guitar Hero — will make Microsoft the world’s third-largest gaming company and boost the Xbox maker’s roster of titles for its Game Pass subscribers.
  • Treasury Secretary Janet Yellen will unveil some of the Biden administration’s planned changes for the Internal Revenue Service, including efforts to dramatically bolster the capacity of in-person and call-in support services, during a speech Thursday at an IRS facility just outside Washington. Congress approved $80 billion in new funding for the tax-collection agency in legislation passed in August, clearing the way for big upgrades in technology, taxpayer services and enforcement that would concentrate on the wealthy and corporations. The new money will “transform the IRS into a 21st century agency,” Yellen said in excerpts from the speech released by the Treasury Department. “While all the improvements won’t be done overnight, taxpayers can expect to feel real differences during the next filing season.”
  • Queen Elizabeth II’s death is prompting an outpouring of grief around the world and bringing parts of the UK to a standstill ahead of her state funeral on Monday. Less visibly, it also set in a motion a wholesale restructuring of the royal family’s finances. Officially established as long ago as 1337, the major estates that help to fund the British monarchy are now all serving a new generation of the Windsors. It’s no ordinary wealth transfer, with the various inheritances following paths set down for centuries and holdings as varied as London offices, the UK’s seabed and a prison. King Charles III, 73, is now entitled as Britain’s sovereign to a slug of income from the Crown Estate — the largest of the investment entities linked to the UK monarchy — as well as from a private estate, the Duchy of Lancaster. Meantime, his eldest son William, 40, has inherited the Duchy of Cornwall, after succeeding his father as Prince of Wales and next-in-line to the throne.
  • The UK is considering scrapping a cap on banker bonuses, a controversial move that underlines the new government’s determination to introduce major post-Brexit reforms to the City of London. New Chancellor of the Exchequer Kwasi Kwarteng believes the change would make London more attractive, according to two people familiar with the matter. The discussions are still ongoing about the details, the people said, although an announcement could come as soon as next week, one of them added. The cap, introduced by the European Union in the wake of the 2008 financial crisis, limits bankers’ bonuses to two times their salary. It was thought that the UK might ditch the rules after Brexit to lure bankers to the City but fears of a public backlash have previously limited the political appetite.
  • Gazprom PJSC’s daily natural gas output rose in the first half of September, on track for a second monthly gain, as exports to key European markets continued to fall and flows to China increased. Traders and policy makers are closely monitoring production and exports of Russia’s gas giant, with European countries racing to prepare for the heating season at a time when prices for the fuel are more than seven times higher than the seasonal average. Gazprom, which historically accounted for a third of all gas consumed in Europe, has been reducing supplies to the continent for months amid the region’s support for Ukraine. The latest blow for European gas market came from the Nord Stream shutdown earlier this month with no clear signs of when flows will resume.
  • Pakistan has warned of more floods in some areas over the weekend, adding to the woes of the nation where almost 1,500 people have lost their lives, millions of homes got destroyed and the damage could surge to $30 billion.  Predictions of heavy rains in Madhya Pradesh, a state in neighboring India, could raise the water levels of some rivers in Pakistan from Saturday and cause more floods, state-owned Associated Press of Pakistan reported, quoting Faisal Farid, director general of Punjab’s disaster management authority. More than a third of the South Asian nation, which was already reeling from dwindling currency reserves and the highest inflation in decades, is under water. The floods, which have killed 1,486 people and affected 33 million, are forcing the federal government to warn of a looming food crisis as crops and livestock have been swept away.

*All sources from Bloomberg unless otherwise specified