The Daily – September 7, 2023

September 7, 2023

Daily Market Commentary

NEWS

Canadian Headlines

• A consortium of investors including Blackstone Inc. and Thomson Reuters Corp. raised about £2 billion ($2.5 billion) by offloading shares in London Stock Exchange Group Plc via an overnight placing. The group, which also includes Canada Pension Plan Investment Board and Singaporean sovereign wealth fund GIC, sold 25.5 million shares at £79.50 apiece, according to a statement Thursday. The price represents a 3.8% discount to the exchange operator’s previous close. The selling consortium is made up of the former owners of Refinitiv, a data services firm that LSEG acquired for $27 billion in 2021. The group has spent much of the year selling large chunks of shares in the exchange operator. In March, they announced the sale of about £2 billion of the shares and in May, they kicked off a process to sell about £2.7 billion.
• Prime Minister Justin Trudeau said Canada is on track to sign a free trade agreement with Indonesia within the next 12 months. Trudeau made the comments in an interview with Bloomberg News in Singapore, where he is visiting as part of a trip through Asia to further trade ties and attend the Group of 20 leaders’ meeting. Trudeau visited Jakarta this week and met with President Joko Widodo, who is also the chair of the Association of Southeast Asian Nations. Expanding trade with Asian countries is one of the goals of Canada’s Indo-Pacific strategy.

World Headlines

• European stocks were flat, erasing an earlier decline, as some luxury stocks bounced back and drugmakers rose. The Stoxx Europe 600 Index was little changed at 11:55 a.m. in London, following a six-day losing streak. Utilities and drugmakers rose, while miners and technology stocks were the biggest decliners among sectors. Some luxury-goods makers rose after a slump on Wednesday, triggered by a warning from Richemont that inflation is starting to hit demand. Swatch Group AG, Burberry Group AG and Hermes International SA all advanced on Thursday after declining in the prior session. The sector was also boosted by an earnings beat from luxury shoemaker Tod’s SpA.
• US stocks futures dropped, while the dollar climbed to a six-month high as investors ramped up bets on further Federal Reserve policy tightening. Contracts on the Nasdaq 100 dropped 0.7%, with Apple Inc. and Nvidia Corp. losing about 2% in premarket trading. China’s plans to ban iPhones in some government agencies sent a chill through US technology stocks that have led this year’s advance. The Bloomberg Dollar Spot Index is on track for an eighth consecutive week of gains, which would be the longest ever run of increases in data going back to 2005. Signs that the US economy is headed for a soft landing are bolstering bets that the Fed will keep borrowing costs higher for longer, which would burnish the greenback’s appeal.
• Asian stocks fell as the dollar extended gains and Chinese property developers dropped following their sharp rally in the previous session. The MSCI Asia Pacific Index slid as much as 0.8%, set for a third day of losses. Tech was the worst performing sector as solid US data overnight spurred bets for further Federal Reserve tightening. The materials sector was also a major drag as Australia’s largest mining stock BHP Group traded ex-dividend. Almost all equity benchmarks in the region were in the red as the Bloomberg dollar index rose to a fresh six-month high. Indian stocks were rare advancers, lifted by gains in power producers. China’s developer stocks slid after a rally in the previous session on bets for further policy support. The sectoral retreat weighed on the broader Chinese and Hong Kong markets.
• Oil edged lower after capping the longest run of gains in more than four years as OPEC+ leaders extended supply cuts to the end of 2023. West Texas Intermediate fell toward $87 a barrel after posting nine daily gains, the longest stretch of advances since January 2019. That surge, which propelled futures into overbought territory, came as Saudi Arabia and Russia pledged to prolong their export curbs through the fourth quarter. Traders will get an official snapshot of US inventories later Thursday. Ahead of that, the industry-funded American Petroleum Institute reported that crude inventories fell by 5.5 million barrels last week, according to a person familiar with the figures. The breakdown also recorded a drop in oil holdings at the key Cushing, Oklahoma storage hub, as well as a big decline in gasoline stockpiles.
• Gold held a drop as stronger-than-expected US economic data bolstered bets that the Federal Reserve could hike interest rates again this year. The metal was steady on Thursday after falling 0.5% in the previous session. US service-sector activity rose sharply in August — surpassing all economist estimates — highlighting the robustness of consumer demand in the world’s biggest economy. Spot gold added 0.1% to $1,919.07 an ounce as of 10:16 a.m. in London, and is down more than 1% so far this week. The Bloomberg Dollar Spot Index edged up. Silver steadied, while platinum and palladium slipped.
• The euro-area economy barely grew in the second quarter as new data showing a dismal performance for exports forced a downward revision in overall growth numbers for the region. Gross domestic product rose only 0.1% in the three months through June, compared with a prior increase measured at 0.3% — an outcome that had surprised to the upside when first published in late July. Economists had anticipated that the reading would be repeated in fuller data, according to the median estimate in a Bloomberg survey. The report on Thursday will provide European Central Bank policymakers with harder evidence of the weakness taking hold in the euro-zone economy, a week before they prepare to decide whether another interest-rate increase is warranted to tame inflation.
• Apple Inc. shares tumbled in premarket trading Thursday, on track to wipe out $194 billion of market value in just two days, as China plans to expand a ban on the use of iPhones to government-backed agencies and state companies. Shares of the Cupertino, California-based company fell as much as 3.2% premarket, after slumping 3.6% Wednesday. It would mark the second time in roughly a month that its shares have seen such a sharp decline. China, which is the technology giant’s biggest foreign market and global production base, has been on a yearslong effort to root out foreign technology used in sensitive environments. The latest development also coincides with Beijing’s effort to reduce its reliance on American software and circuitry.
• The US and European Union are working on an agreement that would introduce new tariffs aimed at excess steel production from China and other countries, as well as put behind them a Trump-era trade conflict. The levies would primarily be focused on imports from China that benefit from non-market practices, according to people familiar with the discussions, who said talks were ongoing. The scope of the measures, including other countries that could be targeted and the level of the tariffs, are still being discussed. It’s also expected to provide a framework for other nations to join in the future. The agreement would be part of the so-called Global Arrangement on Sustainable Steel and Aluminum that the EU and the Biden administration have been negotiating since 2021. The talks are aimed at settling a dispute that started when President Donald Trump slapped tariffs on metals imports from Europe, citing risks to national security.
• Britain’s residential property market slump deepened, with figures from two of the top mortgage lenders indicating home prices falling at the fastest pace since 2009 and warnings of worse to come. Halifax said Thursday the average value of a home fell 1.9% in August alone to £279,569 ($349,570), the sharpest monthly pace since November. It left prices 4.6% lower than a year ago when the value of UK property peaked. The findings echo those of rival lender Nationwide Building Society last week, and together those reports suggest the UK property market is about half way through a 10% drop economists forecast. Bank of England Governor Andrew Bailey last night warned that much of the impact of a surge in interest rates has yet to hit the economy.
• China is slowly decoupling from the US, with businesses slashing investment into America to the lowest since the global financial crisis and official data showing trade dependency slumping. The value of completed Chinese foreign direct investment transactions in the US was $2.49 billion last year, less than half the amount in 2021 and the smallest since 2009, according to new research from consulting firm Rhodium Group.  Separately, data from China’s customs department on Thursday showed the share of Chinese imports from the US has fallen since 2018, when former US President Donald Trump ramped up his trade war with the Asian country.
• Mexico’s ruling Morena party picked Claudia Sheinbaum, the former mayor of Mexico City, as its candidate to succeed President Andres Manuel Lopez Obrador, seeking to retain power in next year’s general elections. A close ally of the president seen as his preferred heir, Sheinbaum beat out five other candidates from the party’s coalition in a nationwide poll of over 12,000 voters to determine the nominee. Even if an expected choice, she is now in position to benefit from Lopez Obrador’s high popularity to launch her presidential campaign ahead of the June 2 vote, where she appears as the early frontrunner. The polls commissioned by Morena showed that Sheinbaum was first in five surveys with support from 36% to 41% depending on the poll, said party coordinator Alfonso Durazo. Marcelo Ebrard, who was foreign minister until earlier this year, was second-place finisher with support ranging from 25% to 26%. Ebrard earlier Wednesday said the process to pick the nominee was tainted and needs to be redone, casting doubt on how the process would advance.
• Kraken’s crypto derivatives unit plans to expand its services, targeting a market void left by the collapse of former rival FTX. London-based Crypto Facilities Ltd., which offers leveraged and cash-settled futures contracts in tokens like Bitcoin and Ether for institutional investors, is in talks with the UK’s Financial Conduct Authority to gain permissions that would allow it to custody a broader range of client assets in the country, Chief Executive Officer Mark Jennings said in an interview. Under the UK’s Client Money and Assets rules, also known as CASS, Crypto Facilities would be able to offer futures contracts denominated in the fiat currency it is holding for the client such as euros and pounds, Jennings said. That would represent an expansion on Crypto Facilities’ multilateral trading facility license, which it received in 2020.
• The United Auto Workers plans to make a counteroffer to Ford Motor Co. after rejecting the company’s first proposal last week, according to people familiar with the matter. Union leaders are planning to make their proposal Wednesday afternoon, said the people, who asked not to be named because the talks are private. Ford made an offer on Aug. 31 that included 9% wage increases plus payments that equal 6% of pay. The company also offered $12,000 in cost-of-living assistance and the elimination of different tiers of compensation. UAW President Shawn Fain and his bargaining teams are working more rapidly with Ford than they are with General Motors Co. or Stellantis NV, maker of Jeep and Chrysler models. This after Fain said in an Aug. 31 video that the first Ford offer “insults our very worth.”
• The founders of the former self-driving unit of Ford Motor Co. and Volkswagen AG are launching a new autonomous trucking startup with backing said to be more than $1 billion from Japan’s SoftBank Group Corp. The new firm, named Stack AV, is led by Bryan Salesky, Pete Rander and Brett Browning, who previously ran Argo AI, the self-driving operation that Ford and VW shut down last year. Based in Pittsburgh, which was also home to Argo, Stack AV has hired 150 people and already has a test fleet of trucks on the road, Salesky said in an interview. While Salesky and SoftBank declined to detail the investment in Stack, Matt Smith, an economic development official in Pittsburgh, said he expects the commitment to be “north of $1 billion,” adding to a growing tech corridor in the city known as Robotics Row.
• China’s stumbling recovery this year has produced a string of reassurances that the impact on the US of even a sharp downturn in the world’s second-largest economy will prove limited. Just last month, economists at Wells Fargo estimated that if China’s total output dropped by a cumulative 12.5% over three years, US growth would dip 0.2 percentage point in 2025. And Nobel laureate economist Paul Krugman recently concluded that, as to whether a debacle in China similar to the US crisis of 2008-09 would would “pretty clearly” not result in major global spillovers. A little-noticed study by the Federal Reserve published in 2019 offers a more cautionary perspective. Eight Fed economists at the time examined a scenario in which China’s growth fell 4 percentage points short of projections in a year. They predicted a global flight to safety by investors would send the dollar surging about 7% and cause both long-term Treasury yields and equities to tumble. US growth could in time drop more than 1 percentage point