April 20, 2022

Daily Market Commentary

Canadian Headlines

• Canadian equities extended a winning streak as technology and consumer stocks surged. The S&P/TSX Composite rose for the fourth straight day, climbing 0.64%, or 140.41 to 22,018.82 in Toronto. The gain was the biggest since an advance of about 0.9% on March 21. Shopify Inc. contributed the most to the index gain, increasing 4.3%. Lithium Americas Corp. had the largest increase, rising 7.6%.
• Rogers Communications Inc. lifted its 2022 revenue forecast after delivering strong first-quarter results, saying it expects faster business growth from an economic rebound and rising immigration in Canada. The country’s largest wireless and cable company earned C$462 million ($368 million) on an adjusted basis in the quarter ended March 31. That equals 91 Canadian cents per share, beating the average analyst estimate of 83 cents.  Toronto-based Rogers said it expects service revenue to increase 6% to 8% this year over 2021 levels; the previous guidance was 4% to 6%. It also increased its forecast for free cash flow and for adjusted earnings before interest, taxes, depreciation and amortization.
• Lululemon Athletica Inc. outlined a new five-year plan intended to double sales to $12.5 billion by 2026, in part by expanding its offerings to men. The athletic-wear retailer aims to double the revenue it gets from men’s products and its digital channel, while quadrupling international sales from 2021 levels, the company said in a statement. Executives are meeting with analysts and investors at an event in New York on Wednesday. “We remain early in our growth journey, with our strong product engine, proven ability to create enduring guest relationships, and significant runway in core, existing, and new markets,” said Lululemon Chief Executive Officer Calvin McDonald. The company said it has already delivered on its 2023 growth goals and now is targeting a compound annual growth rate of about 15% from 2021 to 2026.

World Headlines

• European stocks gained as a flurry of corporate earnings reassured investors that profits can overcome economic hurdles while U.S. Treasury yields pulled back. The Stoxx Europe 600 climbed 0.9% at 10:47 a.m. in London. Technology and banking shares soared. Miners underperformed as metals fell. European equities have been under pressure this year as various risks from hawkish central banks to the war in Ukraine threaten to hurt the economy, with the International Monetary Fund slashing its world growth forecast on Tuesday. Investors are now looking to earnings and corporate guidance to assess whether companies can overcome rising headwinds, including surging inflation.
• U.S. index futures were steady, reversing earlier losses, as a rally in Treasuries signaled calming nerves over inflation and Federal Reserve rate-hike bets. The dollar slumped the most this month. Contracts on the Nasdaq 100 and S&P 500 gauges were little changed after earlier falling 1.2% and 0.6% respectively. The 10-year Treasury yield shed 7 basis points as money managers from Bank of America Corp. to Nomura Asset Management indicated the panic over inflation has gone too far. U.S. 10-year real yields turned positive for the first time since March 2020, signaling a potential return to the pre-pandemic normal. But that was quickly followed by a global drop in bond yields as investors assessed growth challenges from the Ukraine war and the potential for a peak in inflation. Bank of America said it has turned long on 10-year Treasuries.
• Asian stocks rose as Japanese equities rallied on the back of a weaker yen, which will support exports. Shares in China fell as investors were disappointed by the decision among banks to keep borrowing rates there unchanged. The MSCI Asia Pacific Index gained as much as 0.9% and was poised to snap a three-day losing streak. Japanese exporters including Toyota and Sony helped lead the way, with shares also stronger in Singapore, Malaysia and the Philippines.  China’s benchmarks bucked the uptrend and dipped more than 1%, as lenders maintained their loan rates for a third month despite the central bank’s call for lower borrowing costs to help an economy hurt by Covid-19 and geopolitical headwinds.
• Oil rebounded as industrial activity in virus-hit China picked up, and a report pointed to a decline in U.S. crude stockpiles. Brent futures climbed above $108 a barrel after tumbling more than 5% on Tuesday. In China’s leading commercial hub of Shanghai, carmakers to supermarkets are now starting to resume their operations as the city seeks to recover from the economic toll of an unprecedented lockdown. The industry-funded American Petroleum Institute reported that U.S. crude stockpiles declined by about 4.5 million barrels last week, according to people familiar with the data. If confirmed by government figures due Wednesday, that would be the biggest drop in nationwide holdings since early February. Oil rallied to the highest level since 2008 last month in the initial aftermath of President Vladimir Putin’s invasion of Ukraine. Since then, crude has seen volatile trading as investors gauge moves by the U.S. and U.K. to ban Russian imports, as well as the impact of major releases from strategic reserves. Supply outages have also roiled prices, with protest-driven disruptions in Libyathe latest to hit the market.
• Gold held the biggest decline in three weeks as Treasury yields surged on expectations for faster monetary tightening in the U.S. The precious metal was steady after tumbling 1.5% on Tuesday. Yields on U.S. 10-year government bonds are getting close to 3% and real yields, which take inflation into account, briefly turned positive for the first time in more than two years. The improving returns on debt typically damp demand for non-interest bearing bullion. The Federal Reserve’s most hawkish official, James Bullard, opened the door to discussing the first 75 basis-point rate hike since 1994, a move economists say would be a last resort in case inflation spirals out of control. While rising U.S. yields are weighing on gold, the impact is being cushioned by haven demand due to the war in Ukraine. The International Monetary Fund slashed its world growth forecast by the most since the early months of the pandemic on Tuesday, and warned that global stock and bond markets are at risk of a sell-off if rapid monetary tightening coincides with a recession.
• Netflix Inc. shares are on course to lose about $42 billion in value Wednesday after the streaming giant reported its first subscriber decline in more than a decade as the company pledges to make a slew of changes to its business to arrest a customer exodus. Shares in the company fell more than 27% premarket trading, extending its plunge this year to 58%. If the losses hold, Netflix is poised to become the worst-performing stock this year in both the benchmark S&P 500 and tech-heavy Nasdaq 100 indexes. The streaming service shocked Wall Street by losing 200,000 customers in the first quarter, the first time it has shed subscribers since 2011. It also projected it will shrink by another 2 million customers in the second quarter.
• Technology stocks seeing renewed losses, traders getting bullish on Treasuries, the dollar pushing to new highs and testing times for credit. These are the expectations of investors as bond markets took another step toward pre-pandemic normality, with benchmark inflation-adjusted Treasury yields climbing above zero. Back in positive territory for the first time in more than two years, the real yield move threatens to remove a key pillar of support for risk assets like stocks and credit and spark a reassessment of sovereign debt.
• Elon Musk has given fresh fuel to speculation he would launch a tender offer for Twitter Inc. shares in the event that the board resists his proposal to acquire 100% of the company and take it private. The 50-year-old billionaire Tesla Inc. and SpaceX chief tweeted a cryptic message with blank space for a word followed by the phrase “is the Night.” The missing language may be “Tender,” as per the F. Scott Fitzgerald book title, or it could be “Tonight,” as Musk used seven underscores for the blank space. His habitual style on the social platform has been to express himself through web memes and implications, having previously tweeted “seize the memes of production” in the time between his initial investment in Twitter and the SEC filing that made it public
• Amazon.com Inc. struck deals to boost its access to renewable energy by almost a third as the company looks to get all of its power from green sources within a few years. The retail giant will buy power from 3.5 gigawatts of new projects — mostly solar farms in the U.S. — to supply its offices, warehouses and data centers, it said in a statement. Amazon is seeking to bolster its standing as the world’s largest corporate green energy buyer as investors and consumers pressure big businesses to go greener, and has signed a number of deals in recent years. Power purchase agreements are a key way to scale up green energy. Buyers can use them to reach corporate sustainability goals, while developers benefit by having stable demand for electricity that can help underpin financing agreements to build new projects.
• U.S. mortgage applications slid for a sixth straight week as mortgage rates climbed to a 12-year high, weighing on both home purchases and refinancing. The Mortgage Bankers Association’s index of total applications dropped 5% in the week ended April 15 to 374, the lowest since February 2019, the Washington-based group said Wednesday. The average contract rate on a 30-year fixed mortgage rose 7 basis points to 5.2%, the highest since April 2010. The rate has climbed 1.14 percentage points in the last eight weeks. That’s the quickest rise since 2003. The effective rate, which includes the effects of compounding, rose to 5.39%.
• Ukrainian defenders at a sprawling steel plant in the key port city of Mariupol said they were outnumbered and appealed to world leaders for help as they faced what might be their last stand. Russia is demanding that they lay down their arms and surrender. The government in Kyiv said a preliminary agreement had been reached to evacuate women, children and elderly people from the city later on Wednesday, describing the humanitarian situation there as “catastrophic.” The UN’s refugee agency said more than 5 million people had fled Ukraine. A senior Chinese diplomat said Beijing would strengthen its strategic ties with Russia, reaffirming support for President Vladimir Putin as his forces face accusations of war crimes for killing civilians.
• Just Eat Takeaway.com NV said it’s considering a partial or full sale of its Grubhub unit less than a year after buying it for $7.3 billion, in a reversal that highlights how the end of the pandemic has turned the food delivery industry from a hot property into a struggling sector. The Amsterdam-based company said in a statement Wednesday it’s exploring strategic actions for the U.S. division, just as it’s losing an unusually high level of customers across its key markets. Months after the transaction closed in June, Chief Executive Officer Jitse Groen said the business would be an important part of industry consolidation. A transaction has yet to materialize. Just Eat isn’t the only pandemic darling changing course to cope with customers’ post-lockdown freedom. Netflix Inc. posted its first subscriber drop in a decade, prompting co-founder Reed Hastings to introduce advertising to the streaming service after years of saying he wouldn’t. Peloton Interactive Inc. will raise the price of a monthly subscription, which gives owners of its stationery bike access to virtual classes, for the first time in eight years in a bid to boost revenue.
• Siemens Gamesa Renewable Energy SA agreed to sell its European onshore wind portfolio to Scottish utility SSE Plc for 580 million euros ($630 million). It’s the first major divestment for Chief Executive Officer Jochen Eickholt after he was promoted last month to try to turn the turbine maker around as project delays and cost overruns led to profit warnings. The industry is grappling with soaring commodity costs and pandemic-related disruptions to supply chains. The deal includes 3.9 gigawatts of onshore wind projects in Spain, France, Italy and Greece and the possibility of developing 1 gigawatt of solar at the same sites, according to a statement on Tuesday. The transaction will help Siemens Gamesa shore up its finances.
• Iran said it needs tens of billions of dollars of investment in its natural gas sector, underscoring how it would struggle to ramp up production even if the U.S. lifts sanctions. Iran holds the world’s biggest proven gas reserves after Russia. But it may be forced to import the fuel in the coming years, Oil Minister Javad Owji said. “In the years ahead we must invest $80 billion,” he said in a speech on Tuesday, according to the Iranian Students’ News Agency.  “In the absence of adequate investment we will be forced to import.” Owji also said Iran needed to put more money into its oil refineries to ensure they continue meeting local demand for diesel and gasoline.
• Google and Meta Platforms Inc. moved on Wednesday to curtail the social media presence of Hong Kong’s sole chief executive candidate, an unusual move to comply with U.S. sanctions that thrust the American internet giants into the debate over a perceived erosion of freedoms in the city. YouTube shut down the campaign channel of former policeman John Lee’s election campaign channel, citing sanctions Washington imposed on officials allegedly involved in quashing the pro-democracy movement that erupted in 2019. Lee, a staunch supporter of the China-extradition bill that sparked the protests in Hong Kong, was sanctioned in 2020 for his role in curtailing political freedoms under China’s national security law. Facebook, which said it has to abide by U.S. law, is also preventing Lee from using its payments services. “If we identify accounts maintained by or on behalf of people on the U.S. Government’s list of Specially Designated Nationals, we have a legal obligation to take certain action,” the company said in an emailed statement
• Exporting nickel from Russia to China is profitable again, after falling prices on the London Metal Exchange reopened the arbitrage window. The difference between nickel prices on the Shanghai Futures Exchange and in London has largely returned to historical levels. The effects of last month’s epic short squeeze on the LME have eased and the global benchmark has tumbled nearly 40% from a record high. That’s reopened the arbitrage window for flows into China, the world’s largest consuming market of the metal used in stainless steel and electric vehicle batteries, according to researcher Shanghai Metals Market.
• Russia’s state oil producing giant Rosneft PJSC surprised traders in Europe and Asia with offers to sell large amounts of crude at speed, as well as setting out significant changes to the payment process for at least some of the cargoes. The move is another sign of disruption to some of the firm’s operations following Russia’s invasion of Ukraine. There has been a growing pressure in Europe to place an embargo on Russian oil, creating a potential impetus to get purchases finalized before any such step is taken. The firm offered as much as 37.4 million barrels of the nation’s flagship Urals oil for sale from Russia’s western ports for loading in May and June, a tender document seen by Bloomberg shows. That works out at about 40% of its daily seaborne exports of the crude last year. It separately offered 11 prompt cargoes of other grades for loading from the east of the country, according to traders.
• Germany will provide Ukraine with ammunition and training for heavy artillery as Chancellor Olaf Scholz comes under pressure to give more support to the effort to fend off Russian forces. The training and ammunition are for the PzH 2000, a self-propelled, rapid-fire artillery system, which the Netherlands is sending to Ukraine, according to a senior government official. The training could be provided in Poland or Germany, but not in Ukraine because of ongoing attacks from Russia, said the official, who asked not to be identified because talks between NATO allies and Ukraine are confidential. Chancellor Olaf Scholz has come under intense pressure, including from members of his own ruling coalition, to increase military support to Ukraine, including sending heavy weapons.
• Bank of America Corp. is offering multiple new bonds in Europe’s debt market as it joins the ranks of U.S. lenders raising financing across the Atlantic. The Charlotte, North Carolina-headquartered lender is marketing two euro notes and a sterling tranche, according to a person familiar with the matter, who asked not to be named as they aren’t authorized to speak publicly. It’s the bank’s first visit to the region’s debt market since September, according to data compiled by Bloomberg, and comes two days after it reported better-than-expected quarterly earnings. The sale comes hot on the heels of a 500 million-pound ($650 million) offering from Wells Fargo & Co. on Tuesday, which snapped a month-long absence of U.S. lenders in Europe’s debt market amid volatility following Russia’s invasion of Ukraine and seasonal earnings blackouts. Goldman Sachs Group Inc. and JPMorgan Chase & Co. are the only other U.S. lenders to raise funds in Europe’s publicly syndicated debt market this year, according to data compiled by Bloomberg.
• Procter & Gamble Co. shares rose on the back of sales growth that beat analyst expectations, helping to counter a sustained increase in costs.  Sales in the fiscal third quarter ended March 31 were $19.4 billion, P&G said in a statement Wednesday, compared with the $18.7 billion average estimate of 18 analysts surveyed by Bloomberg. Earnings per share excluding some items were $1.33, also beating analyst estimates. The closely watched metric of organic revenue growth, which strips out some items, was 10% in the quarter. Analysts had projected an increase of 6.2%.
• Credit Suisse Group AG issued its fifth profit warning in six quarters, as the hit from Russia’s war in Ukraine combined with a growing burden of legal costs for the struggling lender. The Zurich-based bank said Wednesday that it expects to post a loss for the first quarter on the back of a 200 million-Swiss-franc ($210 million) charge related to Russian exposure, and an extra 600 million francs in legal provisions for previously-disclosed cases which “originated more than a decade ago.” The negative results are another setback for the bank as it faces a difficult transition year likely to be marked by restructuring and legal battles. The lender is stopping new business in Russia in line with global peers and has been rapidly winding down credit to Russian clients, potentially entailing a more permanent loss in trading and lending revenues.
• Baker Hughes Co. reported lower than expected first-quarter earnings and said the rest of the year will impacted by “broad-based inflation and supply pressures”, exacerbated by “unfortunate geopolitical events.” The world’s second-biggest oil servicer reported earnings of 15 cents a share, excluding certain items, that missed analysts’ expectations, according to the statement. Shares fell 2.7 percent in pre-market trading. “Our first quarter results reflect operating in a very volatile market environment during the first few months of 2022,” Chief Executive Officer Lorenzo Simonelli said Wednesday in a statement. “As we look ahead to the rest of 2022, we see a favorable oil and gas price backdrop but also a dynamic operating environment.”

*All sources from Bloomberg unless otherwise specified