September 22, 2022
- The S&P/TSX Composite fell for the second day, dropping 1%, or 184.15 to 19,184.54 in Toronto. The index dropped to the lowest closing level since Sept. 6. Toronto-Dominion Bank contributed the most to the index decline, decreasing 2.0%. Canopy Growth Corp. had the largest drop, falling 4.6%.
- Canada should follow the example set by the Inflation Reduction Act, which motivates US energy companies to adopt carbon-reduction technology with generous credits rather than emissions caps, according to an Enbridge executive. The legislation passed last month offers nearly $370 billion to address climate change with grants and tax credits for more renewable fuel and power development. Long sought by the Biden administration, the law passed last month after West Virginia’s holdout Democrat Senator Joe Manchin brokered a compromise that made it more palatable to the oil industry by tying renewable projects on federal land and water to more drilling leases. Canada wants to reduce emissions by 42% by 2030 and is primarily focused on reaching that goal by making the oil industry cleaner. Canadian crude produced from oil sands is among the most carbon intensive in the world. The government is offering 50% tax credits for projects that would store carbon emissions underground. Many affiliated with the energy industry say the reduction target is too ambitious and could strain the oil patch labor force.
- European stocks fell on Thursday, catching up with Wednesday’s selloff on Wall Street, as investors rushed to price in the Federal Reserve’s hawkishness after it signaled determination to fight inflation even if that fuels a recession. The Stoxx 600 was down 0.9% at 12:08 p.m. in London, with real estate and technology stocks leading the declines. Still, the benchmark came off earlier lows as US stock futures recouped overnight declines. Aggressive policy tightening by the Fed and the European Central Bank has hammered equity markets this year, setting the Stoxx 600 on course for its biggest annual decline since the global financial crisis. The index has also almost erased gains from a sharp summer rally.
- US equity futures wavered as the Federal Reserve’s hawkish decision gave way to optimism that a recession will act as a circuit breaker for aggressive action. Contracts on the S&P 500 swung between losses and gains after the benchmark’s tumble Wednesday took it more than 20% below the record high in January. The Fed gave its clearest signal yet that its willing to tolerate a recession as the necessary trade-off for regaining control of inflation with officials signalling a further 1.25 percentage points of tightening before yearend.
- Asian stocks recovered some of its losses following the Federal Reserve’s outsized rate hike, as Japan’s intervention to support the yen sent the dollar lower. The MSCI Asia Pacific Index retreated 0.6%, trimming an earlier slump of as much as 1.6%. Tech stocks were the biggest drag, with TSMC, Alibaba and Samsung Electronics hauling down the gauge. Hong Kong stocks slid the most in the region to close at its lowest level in over a decade. Asian stocks and currencies came under pressure after the Fed delivered a third straight 75-basis-point rate hike and signaled more aggressive tightening than some analysts had expected, reinforcing fears of a recession. A dramatic rebound in the equity benchmark came late afternoon — with the gauge briefly recouping all its losses — as Japan’s action to stem the yen’s slide caused the greenback to erase gains.
- Oil rose as the dollar declined and investors weighed the demand outlook following another interest-rate hike from the Federal Reserve. West Texas Intermediate traded near $84 a barrel after falling over the past two sessions. The dollar dipped and US equity futures turned higher, spurring more positive sentiment in crude early on Thursday. Those moves came despite Fed Chair Jerome Powell vowing that officials would crush inflation after they boosted rates by 75 basis points for a third straight time. Thin liquidity has exacerbated price swings for oil, leading to wild volatility at times. Crude remains on track for its first quarterly decline in more than two years on concerns that demand may be crimped by an economic slowdown, but for most of September prices have been largely rangebound.
- Gold pared a loss after Japan said it had intervened in the foreign exchange market, causing the dollar to give up its gains. “Gold was stuck between Putin and Powell and now we can add Kuroda to the mix,” said Ole Hansen, head of commodity strategy at Saxo Bank A/S. “Fresh longs will not rush back in until some tailwinds from lower yields and dollar begin to emerge.” Spot gold edged lower 0.2% to $1,671.76 an ounce at 10:43 a.m. in London. The Bloomberg Dollar Spot Index weakened 0.1%, after earlier rallying to an all-time high. Silver climbed, while palladium and platinum fell.
- A week before Porsche AG’s first day of trading in Frankfurt, price indications already point to a strong debut for the sports-car maker seeking to defy jittery markets with the biggest European initial public offering in a decade. The company was trading at as much as 17% above the top end of the 76.5 to 82.5-euro price range marketed at institutional and retail investors, according to unregulated gray market pricing. In the unregulated market, investors bet on the price at which the shares of a company will debut to profit from any sizable jump. Early price indications, while encouraging, are no guarantee of a rally during Porsche’s trading debut next week, as central banks’ hawkish stance is putting pressure on equity markets.
- Turkey’s central bank delivered another shock cut to interest rates, despite inflation running at a 24-year high and with the lira trading at a record low. The Monetary Policy Committee led by Governor Sahap Kavcioglu lowered the benchmark to 12% from 13% on Thursday. In a statement accompanying its decision, the central bank said there was a “loss of momentum in economic activity.” The lira extended declines after the decision and hit a fresh low against the US currency. It was trading 0.3% weaker against the dollar as of 2:04 p.m. in Istanbul.
- The cost of preparing a classic lunch at an American diner has shot up by almost 13% in a year. To track inflation’s effect on a beloved menu choice, Bloomberg created an American Diner Index that includes ingredients for the toothpicked club sandwich, as well as the accompanying potato chips, ice cream and soda. Although restaurant owners don’t necessarily pass all rising expenses onto their customers, the gauge provides an insight into how much more expensive it’s become to assemble a basic meal. Prices for lettuce and bread have surged 33% and 20% in the past year, respectively, contributing to the surge in the index, which is based on consumer-price data published monthly by the US Bureau of Labor Statistics. Two other key ingredients in the club sandwich, turkey and ham, also soared by more than 10%. And a half gallon of ice cream now costs about $5.64, up from $4.92 a year ago.
- President Vladimir Putin’s order to call up as many as 300,000 reservists to fight in Ukraine triggered alarm and scattered demonstrations as Russians were forced to confront the reality of the deadly conflict. Police detained about 1,400 people at protests against the order in 38 cities Wednesday night, according to the OVD-Info monitoring group. Some of the male detainees were handed draft notices, while protesters may face criminal charges under the harsh laws against criticism of the war the Kremlin has imposed since the Feb. 24 invasion. Some university students who joined the demonstrations were threatened with expulsion, which could annul draft exemptions.
- The US Securities and Exchange Commission will stop short of banning payment for order flow, a controversial way to process retail stock trades, as it proposes new rules for the $48 trillion American equities market. The decision, described by people familiar with the matter, follows months of internal deliberations at the agency. It marks a win for brokerages that get paid for processing rights, although the SEC may still enact other changes that make the practice less profitable, according to the people. The regulator, which is expected to unveil its plans in the coming months, declined to comment. Wall Street has been on edge since Gary Gensler signaled last year that the agency may outlaw payment for order flow during the overhaul. The practice often involves one brokerage routing retail stock trade orders to another firm for execution rather than to the New York Stock Exchange or Nasdaq.
- Federal Reserve officials gave their clearest signal yet that they’re willing to tolerate a recession as the necessary trade-off for regaining control of inflation. Policy makers, criticized for being too late to realize the scale of the US inflation problem, are moving aggressively to catch up. They raised interest rates by 75 basis points on Wednesday for the third time in a row and forecast a further 1.25 percentage points of tightening before year end. That was more hawkish than expected by economists. In addition, officials cut growth projections, raised their unemployment outlook and Chair Jerome Powell repeatedly spoke of the painful slowdown that’s needed to curb price pressures running at the highest levels since the 1980s.
- SoftBank Group Corp. has slashed the valuation of Oyo Hotels on its books by more than 20% as once high-flying Indian startup prepares for an initial public offering, people familiar with the matter said. The Japanese investor, the largest shareholder in the hotel-booking firm, cut its estimated value for Oyo to $2.7 billion in the June quarter from an earlier $3.4 billion after benchmarking it against peers with similar operations, said the people, asking not to be named because the information isn’t public. The lodging firm had reached a valuation of $10 billion in a 2019 funding round. Oyo, formally known as Oravel Stays Ltd., filed a fresh round of financial documents with India’s market regulator on Monday as it plans for a stock-market debut after cost cuts and recovery in travel helped it reduce losses. The company expects approval from the Securities and Exchange Board of India for the public debut soon and aims to tap the market at a valuation of about $5 billion early next year, the people said. Oyo’s deliberations about its IPO aren’t final and its plans could still change, depending on market conditions.
- CALB Co., a Chinese battery supplier for electric vehicle makers, is seeking to raise as much as HK$13.6 billion ($1.7 billion) in its Hong Kong initial public offering. The Jiangsu-based company will start taking orders from investors for about 265.8 million shares and is marketing them at between HK$38 and HK$51 each, according to a statement. At the top price, it would be the third largest Hong Kong listing of the year, according to calculations by Bloomberg. The offering is among a group of potential listings that could revive Hong Kong’s flagging IPO market, after a dearth of sizable debuts in the first half of the year. Funds raised in the Asian financial hub have slumped as surging inflation and rising rates drove volatility in equities and kept issuers on the sidelines.
- The UK is trying to secure long-term supplies of liquefied natural gas from US producers as high energy prices across Europe threaten the economy far beyond just this winter. The government’s energy supply task force is seeking proposals from LNG exporters to supply domestic buyers under deals lasting as long as 20 years, according to people familiar with the matter, who asked not to be named as the talks are private. The task force is being led by Madelaine McTernan, a former M&A banker who headed the UK’s vaccine group that procured Covid shots early in the pandemic. A spokesperson for the Department for Business, Energy and Industrial Strategy declined to comment. Talks are still in early stages and it’s unclear who would pay for any gas cargoes.
- Bond traders are girding for the risk that Federal Reserve Chair Jerome Powell is ready, willing and able to plunge the US into recession to get the inflation bogey under control. Yields on long-dated Treasuries dove in the wake of the Fed’s decision to push through a third straight 75 basis point interest-rate hike. The move was accompanied by projections showing rates will need to keep rising, and an admission from the central bank boss that this inflation fight will involve some pain. Short-end rates for the first half of 2023 have already leaped higher, bringing market policy-rate expectations in line with those of officials near 4.6%, and indicating traders believe in the Fed’s determination to act aggressively until inflation is firmly trending lower. While the initial reaction was perhaps a bit too hawkish, the shakeout from bond and stock markets was that growth will ultimately suffer.
- Airbus SE won a $4.85 billion deal to supply 40 airliners to a unit of China Southern Airlines Co., cementing its position in one of the world’s biggest aviation markets at the expense of chief rival Boeing Co. Xiamen Air, which has been an all-Boeing operator, agreed to buy Airbus’s A320neo narrow-body jets, according to a stock exchange statement. The planes will be delivered from 2024 to 2027, with the list price for the purchase expected to be lower after discounts. Boeing has historically counted China Southern as its biggest customer, but business has slowed for the manufacturer in the wake of two crashes of its best-selling 737 Max and as political tensions rise between Washington and Beijing. Airbus’ local final assembly line in Tianjin has also helped it to secure its advantage in the key market.
- North Korea denied it sold weapons to Russia in an unusually direct statement, and blasted the US over “rumors” that Kim Jong Un’s regime was aiding Vladimir Putin’s war in Ukraine. “We have never exported weapons or ammunition to Russia before and we will not plan to export them,” the state’s official Korean Central News Agency reported Thursday, citing an unnamed vice director general in the Defense Ministry’s General Bureau of Equipment. “We condemn the US for thoughtlessly circulating the rumor against the DPRK to pursue its base political and military aim, and we warn the US to stop making reckless remarks pulling up the DPRK and to keep its mouth shut,” the official said, referring to the country’s formal name — the Democratic People’s Republic of Korea. He added North Korea still had the right to make the sale.
- The Bank of England delivered a second consecutive half-point hike in its battle to bring down inflation, as three officials pushed for the institution to join its global peers in moving at an even quicker pace. The move to 2.25% was backed by five of the nine-member Monetary Policy Committee, including Governor Andrew Bailey, while one voted for a smaller move. Policy makers also unanimously endorsed plans to start reducing the mammoth government bond holdings built up since the financial crisis over a decade ago. Officials also lowered their forecast for peak inflation from more than 13% to less than 11% and suggested a deep recession may be averted as a result of new Prime Minister Liz Truss’s energy relief plan.
- Ukraine handed over a key ally of Russian President Vladimir Putin in exchange for hundreds of prisoners of war including many captured in a landmark battle, a swap that outraged pro-Kremlin propagandists. Viktor Medvedchuk was one of 55 people turned over to Russia in return for 215 prisoners, including 188 who held out for months against Russian assault at the Azovstal steel plant in the port city of Mariupol early in the war, Ukrainian President Volodymyr Zelenskiy said in a statement late Wednesday. Among them were 108 members of the Azov brigade that Kremlin officials have long cast as “Nazis” destined for prosecution in their efforts to justify Putin’s invasion. “It is not a pity to give Medvedchuk in exchange for real warriors,” Zelenskiy said. Those handed over to Russia included “people who fought against Ukraine. And those who betrayed Ukraine,” he said.
- Japan intervened to prop up the yen for the first time since 1998, after its central bank sparked further declines in the currency by sticking with ultra-low interest rates as its global peers hiked. The yen rose as much as 2.3% against the dollar, pulling back sharply from the lows of the day when it had breached a key psychological level of 145, as top currency official Masato Kanda said Thursday the government was taking “decisive action.” The intervention shows that Prime Minister Fumio Kishida’s government has reached the limit of its patience after the yen tumbled around 20% against the dollar this year as hedge funds kept adding to short bets on the yen. The question now is whether the unilateral action will work, with the currency already paring gains within hours.
- Manhattan’s hot rental market ended its six-month streak of record-setting prices in August, as rates fell slightly from the month before. New leases were signed at a median of $4,100, down $50 from July’s all-time high, according to a report Thursday by appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate. The price dip came during the market’s busiest month of the year, with more than 5,800 deals inked in August, a nearly 10% increase over July’s volume. “Rents are robust but they are starting to plateau,” said Jonathan Miller, president of Miller Samuel. He doesn’t expect costs to drop significantly unless the labor market shifts, cutting off the flow of new hires into the city and making it harder for current apartment dwellers to pay their bills.
*All sources from Bloomberg unless otherwise specified