September 19, 2022
Daily Market Commentary
Canadian Headlines
- Ontario Teachers’ Pension Plan Board has acquired a co-control stake in GPA Global from EQT Private Equity and other minority shareholders, OTPP says in a statement. GPA’s two founders, Tom Wang and Adam Melton, will roll over their respective ownership and continue to lead the company
World Headlines
- European stocks dropped after their biggest weekly decline in three months, with investors awaiting a Federal Reserve monetary policy meeting this week. The U.K. stock market is closed Monday for the funeral of Queen Elizabeth II. The Stoxx Europe 600 Index slipped 0.6% at 1:20 p.m. in Paris, led lower by energy stocks, which dropped as oil prices dipped. Technology stocks also underperformed as the yield on the 10-year US Treasury note surpassed 3.5% for the first time since 2011. The main European index declined to its lowest level since July 6, wiping out most of its summer rally. Stocks slumped last week following a higher-than-expected reading on US inflation, which added to concern that the Fed will stick to its hawkish path. Economists predict the central bank will raise its key interest rate by 75 basis points on Wednesday, part of an effort by monetary authorities around the world to quash inflation. The Bank of England meets Thursday.
- Stocks slid with US equity futures in a cautious start on Monday as investors await a slew of interest rate decisions in the days ahead and after global equities notched their worst week since hitting this year’s low in June. Futures on the S&P 500 index dropped 1% along with the Nasdaq 100, indicating extended declines for the benchmark after its steepest weekly decline since June 17. The weakness in markets reflects expectations for an outsized interest rate hike from the Federal Reserve on Wednesday and worries that its aggressive tightening to quell inflation will trigger a recession.
- Asian equities fell, poised for a fifth session of decline, as the dollar strengthened ahead of the Federal Reserve’s meeting this week. The MSCI Asia Pacific ex-Japan index erased early gains and fell as much as 0.8%, dragged by consumer discretionary and tech shares. Benchmarks in Hong Kong and South Korea were among the worst performers in the region. Japan’s market was shut for a holiday. The Hang Seng China Enterprises Index fell more than 1%, taking its losses from a June 28 peak to just short of 20%, which will mark the start of a bear market. Mainland China stocks traded little changed Monday as megacity Chengdu exited a lockdown.
- Oil dipped as the dollar strengthened ahead of central-bank meetings this week that are expected to lead to further monetary tightening, heightening concern among traders that economies could weaken. Brent crude fell almost 2% to below $90 a barrel, with markets in the U.K. and Japan shut for holidays. The dollar is trading near a record, making commodities priced in the currency more expensive. A raft of central-bank decisions from the US to Europe and Asia are scheduled as monetary policymakers try to tame inflation. Those bank interventions could come at the cost of economic growth. Concerns that a global slowdown will sap energy demand have put oil on track for its first quarterly decline in more than two years.
- Gold kicked off a pivotal week with fresh declines as the dollar strengthened, with investors bracing for a Federal Reserve rates decision that risks putting more pressure on the precious metal. The metal slid as much as 0.9% on Monday, extending a slump over the past month in the face of the dollar’s relentless gains. Market expectations are for the Fed to raise interest rates by 75 basis points, but last week’s hot inflation data has prompted some bets on an even larger one.
- Copper declined with most other industrial metals as the dollar strengthened ahead of a crucial week of central bank rate decisions, even as the physical market showed signs of tightness. The metal has dropped more than 20% this year as tighter monetary policies, Europe’s energy crisis and an economic slowdown in China fueled global recession fears and dampened sentiment toward the metal, which is viewed as an economic barometer. Appetite for riskier assets fell on Monday as markets expected an outsized interest rate hike from the US Federal Reserve on Wednesday in a bid to counter soaring inflation. Other central banks announcing monetary policy decisions this week include the Bank of England and the Bank of Japan.
- The evocative bugle call of the “Last Post” echoed around a hushed Westminster Abbey as Queen Elizabeth II’s state funeral drew to a close — a poignant mark of remembrance and gratitude for the UK’s longest-serving monarch. After four extraordinary days in which hundreds of thousands of people queued for miles to pay tribute to the Queen at her lying-in-state in London’s Westminster Hall, Monday’s funeral was the final public moment for a woman who dutifully reigned over her country for 70 years. Global leaders and dignitaries from US President Joe Biden to Emperor Naruhito of Japan gathered in Westminster Abbey for the funeral, described by government officials as the biggest international event the UK has held in decades, possibly ever.
- President Joe Biden said US military forces would defend Taiwan from “an unprecedented attack,” his latest pledge of support as his administration seeks to deter China from increasing military pressure on the democratically elected government in Taipei. Biden made the remark during an interview with “60 Minutes” that aired Sunday, while distancing himself from the question of whether Taiwan is or should be independent. Interviewer Scott Pelley asked the president if US forces would “defend the island.” “Yes, if in fact there was an unprecedented attack,” Biden replied, according to a transcript provided by the broadcaster. Pelly then asked if that meant US soldiers would defend Taiwan in the case of a Chinese invasion, unlike the current situation in Ukraine, and the president again said “yes.”
- Volkswagen AG is looking to raise as much as 9.4 billion euros ($9.4 billion) from the initial public offering of its iconic sports-car maker Porsche AG in what could be Europe’s largest listing in more than a decade. The German carmaker said late Sunday it is seeking a valuation of 70 billion to 75 billion euros for the listing, below an earlier top-end goal of as much as 85 billion euros, with the deal going ahead at a time of deep market upheaval. European markets have been largely shut to IPOs for most of the year, with companies shying away from seeking new listings because of the region’s energy crisis, rising interest rates and record inflation. Amid the stock market slump, the plan to list is getting a boost from firm commitments of key cornerstone investors. Qatar Investment Authority, Norway’s sovereign wealth fund, T. Rowe Price and ADQ are set to subscribe to preferred shares of as much as 3.7 billion euros, the manufacturer said.
- A rebound for Cathie Wood’s exchange-traded funds may depend in part on an equally battered large-cap technology stock that’s a long-time favorite of hers — Nvidia Corp. ETFs controlled by the growth stock proponent’s ARK Investment Management LLC have been loading up on Nvidia shares, purchasing more than 400,000 in September, according to the firm’s daily trading disclosures. ARK funds held more than 675,000 shares as of June 30, according to data compiled by Bloomberg. Nvidia shares have plunged 55% this year, the biggest drop among tech stocks with market values of $100 billion or more. Sales growth has slowed at a time when valuations for rapidly expanding companies have come under intense pressure amid soaring interest rates.
- The App Association brands itself as the leading voice for thousands of app developers around the world. In reality, the vast majority of its funding comes from Apple Inc. The tech giant isn’t a member of the association. But it plays a dominant behind-the-scenes role shaping the group’s policy positions, according to four former App Association employees who asked not to be named discussing internal matters. In fact, critics note, the association’s lobbying agenda tracks closely with Apple’s — even when it’s at odds with app developers, the companies that make the individual games and programs that run on Apple’s iPhone and other devices.
- The odds of capitulation in stock markets are rising, with macro hedge funds pricing in a more extreme scenario for a global selloff, according to Morgan Stanley’s quant strategists. Global macro investors are expecting elements of market dislocation, as they remain “net short on equities, and are targeting a tactical risk for the US terminal rate and US treasury 10Y yield to go beyond 5% and 4%, respectively,” strategists including Gilbert Wong wrote in a note. “Being overweight cash is the best way to hedge.” Funds are targeting Asia/EM and US equity valuations to decline 5-6% from current levels, which implies the MSCI Emerging Market Index at a near bear case target of 890 and a new year-to-date low of 3,600 for the S&P 500 Index, according to the US investment bank’s calculations.
- A slide in cryptocurrencies on Monday put Bitcoin on the cusp of the lowest level since 2020 ahead of a global wave of monetary tightening that’s expected to stretch from Europe to the US this week. The largest digital token sank as much as 6.7% and was trading at $18,500 as of 7:10 a.m. in London. Ether shed up to 6.2%, struggling to hold the $1,300 mark. Coins like XRP and Polkadot posted heavier losses. Investors are bracing for volatility from the jumbo interest-rate hike expected this week from the Federal Reserve to fight price pressures. US equity futures were in the red and a dollar gauge pushed higher in signs of market caution.
- The United Arab Emirates has accelerated a plan to raise its oil production capacity, according to people familiar with the matter, as it tries to cash in on its crude reserves before the world transitions to cleaner energy. Abu Dhabi National Oil Co., which pumps almost all the UAE’s oil, wants to be able to produce 5 million barrels of crude a day by 2025, according to the people. That’s sooner than a previously disclosed aim of 2030. The new target will be difficult to achieve and may increase the expense of a project that was already set to cost billions of dollars, the people said. Adnoc and the UAE government initially planned to bring the objective forward to 2027, before deciding on 2025, they said.
- Instacart Inc. doesn’t plan to raise much capital in its initial public offering and instead plans to have most of the listing come from the sale of employees’ shares, said people familiar with its thinking. In meetings with prospective investors in recent weeks, Instacart executives said they didn’t plan to issue many new shares in their IPO, the people said. The sale of mostly employee shares would allow Instacart’s staff, including some of its earliest hires, to at last cash out of some of the shares they have been accumulating. The move could help Instacart, which was founded in 2012, retain talent by allowing employees more ways to benefit from their shares. Listed shares could also make Instacart more attractive to new employees than startups that have decided to wait for a better market to list.
- Germany may secure supplies of liquefied natural gas from the United Arab Emirates in the coming days as part of the country’s push to offset Russia’s moves to slash supplies. Chancellor Olaf Scholz is likely to sign delivery contracts during a two-day trip to the Middle East, Economy Minister Robert Habeck said on Monday, indicating that talks are well-advanced especially with the UAE. “The gas supply is gradually broadening and the government is permanently in talks with many countries, also with nations on the Arabian peninsula,” Habeck said. “The chancellor is traveling next week to the UAE and will certainly be able to sign some contracts for LNG there.”
- Months after an announcement that China will build and largely finance an $8 billion nuclear power plant outside Buenos Aires, the deal is hung up over Argentina’s demand that its engineers be permitted to manufacture the reactor fuel domestically. Becoming the first nation licensed to make fuel for China’s Hualong One reactor would greatly advance Argentina’s atomic program. It would also signal that China is willing to license technology to trading partners, following a commercial pathway blazed by US nuclear manufacturers. “We are trying to establish the best conditions to transfer the knowledge for making the fuel,” said Adriana Serquis, a physicist and president of Argentina’s National Atomic Energy Commission, in an interview. “The commercial balance for us is very important. We are also hoping that the Chinese understand that a deal with us is also a win for them because that opens more possibilities.”
*All sources from Bloomberg unless otherwise specified