December 17, 2021

Daily Market Commentary

Canadian Headlines

  • Prime Minister Justin Trudeau is instructing his top economic ministers to take tough positions on trade issues amid growing disputes with the U.S., potentially signaling a more protectionist approach from Canada. The marching orders were contained in mandate letters to cabinet ministers released Thursday afternoon, nearly three months after Trudeau was re-elected to a third term in September. The letters to Canada’s finance, trade and procurement ministers all included language that could be seen as a veiled threat to counter Buy American policies put forward by President Joe Biden’s administration — a notable change of tone from a prime minister who has been a strong proponent of open trade.
  • A working group associated with the Bank of Canada to guide reforms of risk-free term interest rate benchmarks recommends discontinuing the Canadian Dollar Offered Rate, or CDOR. The Canadian Alternative Reference Rate working group, or CARR, published a report on Thursday summarizing its findings.  “CARR has recommended that the administrator of CDOR, Refinitiv Benchmark Services (UK) Limited (RBSL), cease publication of all of CDOR’s remaining tenors after the end of June 2024”.  The decision to cease CDOR rests solely with Refinitiv, according to a notice published on the Bank of Canada’s website.
  • Canada’s population growth returned to near record growth levels after authorities eased border restrictions, the latest data show. The number of people living in the country rose by 0.5%, or 190,339, to 38.4 million in the three months ending September 30, Statistics Canada reported Thursday in Ottawa. The gains were driven largely by an influx of new immigrants and foreign students. That’s the fourth consecutive quarterly gain and reflects a stabilizing flow of international migration after the Canadian government eased most travel restrictions earlier this year for those coming to the country for work, school or family reunification. New international migration totaled 165,446 in the third quarter — the second highest on record. That included 122,748 immigrations who came to Canada in the three-month period, as well as 60,987 non-permanent residents, mainly new foreign students.


World Headlines

  • Stocks extended declines on Friday amid a drop in global technology shares as concerns about tightening monetary policy and economic risks from the fast-spreading omicron virus variant sapped sentiment. Tech shares led declines in Europe’s Stoxx 600 index on concern tightening monetary policy will hurt extended valuations. Asian tech stocks also fell, along with Nasdaq 100 futures. The Nasdaq 100 led a drop in U.S. contracts, while tech shares were among the biggest declines in Europe and Asia. Investors also braced for a quarterly rebalancing of the S&P 500 Index after the market close and the so-called triple witching expiration of equity derivatives that could magnify market moves.
  • The MSCI Asia Pacific Index dropped as much as 1%, set for the fifth decline over the past six days. Technology shares around the region took a hit, led by Chinese giants including Tencent and Alibaba Group, as a global sector selloff continued on higher rate fears. China was among the region’s worst performers after the Biden administration added 34 Chinese targets to its banned-entity list, weighing on sentiment. Japanese stocks held their losses after the Bank of Japan lengthened its cautious withdrawal from emergency pandemic aid.
  • The Bloomberg Dollar Spot Index was steady and the greenback was mixed versus its Group-of-10 peers, with most currencies confined to narrow ranges. The pound steadied amid seasonal flows into the dollar and as the boost from Thursday’s surprise Bank of England rate hike wore off. The yen edged higher on concerns about the risk that eventual draw-down in central bank liquidity could trigger a reversal in the rally. Australian and New Zealand dollar led G-10 declines as falling stocks and mounting virus numbers sapped demand for risk currencies.
  • Oil fell for the first day in three on concerns about the demand impact from the omicron variant. U.S. natural gas headed for a third straight weekly decline on milder-than-usual winter. Zinc traded near the highest level since the end of October as another smelter in Europe curbed production.
  • Europe’s natural gas prices plunged from a record close after Russia in the last minute topped up supplies to the region for today. Gazprom reserved about 30% of the Mallnow station capacity in Germany, where Russia’s Yamal-Europe pipeline terminates, in a series of within-day auctions overnight.
  • China ramped up its buying of cheap Iranian crude last month after independent refiners were granted additional import quotas. The nation brought in almost 18 million barrels in November, according to Kpler, up almost 40% from October and the biggest volume since August. However, flows may be limited in coming months.
  • China iron ore stockpiles at major ports rose 1.4% to 157 million tons in the week ending Dec. 17, Mysteel Global data showed. The inventory has jumped 4.6% since Nov. 12.
  • Zinc Set for 7-Week High as Europe’s Energy Crisis Halts Smelter. Nyrstar, a leading global producer owned by Trafigura Group, said it will halt production at a smelter in France in the first week of January. Nyrstar’s plant in Auby, in northern France, has been running at reduced capacity since October and the other two plants in the Netherlands and Belgium have also been operating at a reduced rate, and will continue to do so, it said. Zinc, used to galvanize steel, surged to the strongest in more than a decade in October after Trafigura and Glencore Plc announced production cuts, driving the backwardation to the widest since 2019. While tightness has eased with supplies pouring into Asian warehouses, output disruptions continue in Europe after power prices hit records following an unexpected halt of nuclear reactors.
  • Gold headed for its first weekly advance since the middle of November, following several central bank announcements on monetary policy.  The Bank of England unexpectedly raised interest rates on Thursday for the first time in three years, setting aside concerns over the coronavirus to tackle the highest inflation in more than a decade. A day earlier, U.S. Federal Reserve officials decided to double the pace of tapering, while projecting a series of rate increases in coming years, starting with three hikes in 2022. In a more nuanced move, the European Central Bank temporarily boosted monthly bond buying for half a year to smooth the exit from pandemic stimulus, while the Bank of Japan took a cautious stance on winding down support Friday.
  • Boris Johnson suffered a seismic political upset as his ruling Conservatives lost a key parliamentary election, a result that will intensify pressure on him and possibly call his position as PM into question. The Tories lost yesterday’s vote in North Shropshire, a seat they’ve held since it was created in 1832, to the Liberal Democrats’ Helen Morgan. She won the by-election by nearly 6,000 votes
  • U.K. November retail sales rose 1.4% from a month earlier, more than expected, thanks to Black Friday discounts. In Germany, the Ifo survey found businesses lost confidence in the near-term economic outlook with its main gauge of expectations slipping for a sixth month. A final reading showed euro-area inflation accelerated 4.9% last month, in line with initial estimates. And rounding off the week’s flurry of central bank activity, Russia’s central bank raised its key rate by 100 bps, as expected, as inflation remains double its target.
  • ECB officials called for vigilance on inflation. Policy maker Francois Villeroy de Galhau said the difference between the ECB’s new forecast for 1.8% inflation in 2023 and 2024 and the ECB’s 2% target is within the “margin of uncertainty.” His colleague Olli Rehn warned that the path of inflation is mired in “considerable uncertainty.”
  • European car sales plunged 17% in November, the worst showing for the month since the European Automobile Manufacturers’ Association started tracking figures in 1993. Registrations are now up just 0.8% from the first 11 months of last year.
  • EU leaders failed to reach a deal on how to react to the gas crisis after Poland and the Czech Republic demanded stronger action to cap the costs of pollution. After two rounds of heated talks, the heads of government dropped plans to adopt a statement on the energy crunch.
  • The U.K. and Australia finalized their trade deal, the first post-Brexit agreement reached by Britain that goes beyond rolling over a previous EU relationship. The agreement includes controversial provisions to open up the British market to Australian agricultural goods.
  • China’s Guangdong province is tightening Covid restrictions after a new cluster of infections emerged. One major manufacturing township has been locked down, with nobody allowed in or out.

“Nothing ever seems too bad, too hard, or too sad when you’ve got a Christmas tree in the living room.” – Nora Roberts

*All sources from Bloomberg unless otherwise specified