February 14, 2022
Daily Market Commentary
- Largely civil and without violence, a demonstration in Windsor, Ontario was finally cleared by police Sunday after blocking one of North America’s busiest cross-border trade arteries for more than five days. But while the stand-off is over and the Ambassador Bridge has reopened, deep issues remain. Many of the protesters hold views that are uncompromising, including a hardened mistrust of media and of the doctors and scientists responsible for giving advice about Covid-19. They often mentioned their love of country, even as their upside-down Canadian flags billowed in the frigid breeze. Fury with Prime Minister Justin Trudeau was expressed in profanity-strewn banners, but dealings with reporters, police, and residents were largely polite.
- The trucker blockade at the U.S.-Canada border ended over the weekend but efforts to tally the economic costs are still under way. Commercial traffic resumed late Sunday along the Ambassador Bridge after the week-long standoff. A larger protest against vaccine mandates for lorry drivers has been going on for two weeks in Ottawa, where hundreds of tractor-trailers blocked downtown streets.
- European stocks plunged on Monday, falling for a third day as concerns over growing geopolitical risks in Ukraine added to broader worries around aggressive tightening in monetary policy. The Stoxx Europe 600 Index dropped 2.7% by 12:19 p.m. in London after hitting its lowest in three weeks and erasing about $368 billion from the market capitalization of stocks in the benchmark index. The banking index sank as much as 4.6% to give up its position as the best-performing sector this year, with lenders that have the greatest exposure to Ukraine dropping the most. Technology stocks hit a nine-month low and the travel and leisure sector also sank, while energy and food and beverage stocks posted smaller declines.
- Stocks fell around the world on Monday as geopolitical risks over Ukraine rippled through global markets, adding to concerns about inflation and the prospect of aggressive Federal Reserve interest-rate hikes to tame it. U.S. futures dropped, with airlines sliding in premarket trading as Ukraine tensions hit travel stocks and companies exposed to Russia and eastern Europe were under pressure. Expensive growth stocks, which stand to suffer the most from higher interest rates, also fell. Meanwhile, banks were among the biggest declines in Europe, surrendering their place as the region’s best-performing sector of 2022 to energy.
- Asia stocks tumbled on inflation worries, geopolitical developments and virus concerns. Japan led the losses, re-opening after a holiday on Friday and catching up with declines in the U.S. The Nikkei 225 slid more than 2%. Stocks fell in China, Hong Kong and South Korea. U.S. equity futures rose slightly.
- Brent oil edged higher, after paring earlier gains, with prices growing increasingly volatile in the face of geopolitical tensions over Ukraine. The global benchmark traded near $95 a barrel, while West Texas Intermediatetraded above $93, both about $2 off their highs for the day. Wider markets struck a risk-off tone, with equities in Europe plunging to a three-week low. While crude has been swinging wildly in recent days as tensions around Ukraine grow, the underlying market remains robust. Physical barrels priced off a key global benchmark are hitting unprecedented levels, and the spread between between Brent crude’s two nearest futures contracts touched $2 a barrel.
- Gold was steady after surging on Friday in its biggest advance in almost four months, as geopolitical tensions over Ukraine boost demand for the haven asset. Bullion’s appeal as a store of value is being burnished by risk aversion in markets and a surge in inflation worldwide, even as the Federal Reserve gears up to raise interest rates. The yield on 10-year Treasuries ticked up Monday after tumbling on Friday from a 2019 high. U.S. National Security Advisor Jake Sullivan told CNN on Sunday there’s “a distinct possibility that there will be major military action very soon” in Ukraine. Russia has repeatedly denied it plans to invade its neighbor and Kremlin officials have accused the U.S. of stoking “hysteria.”
- BlackRock Inc. is boosting its offering of products that allow Brazilians to access international exchange-traded funds, as the nation’s incipient industry of index-based strategies gains some traction. The world’s largest asset manager will open up six of its fixed-income ETFs through Brazilian depositary receipts, or BDRs, that will be listed on the local exchange operator B3 SA, according to Karina Saade, BlackRock’s country manager for Brazil. That pushes the total of BDRs linked to overseas-listed BlackRock ETFs to 80.
- Cedar Holdings Group Co., a Chinese commodities trader, is under pressure to repay 20 billion yuan ($3.1 billion) due to investors in wealth management products, Caixin reported. The outstanding Cedar-backed products are held by about 8,000 individuals, Caixin said last week, citing investors it interviewed. The company in April last year started delaying redemptions on matured products, only paying interest, and as of last month also stopped making interest payments, according to Caixin. China has been rocked by a string of defaults amid a liquidity squeeze in the property market, with firms including China Evergrande Group and Kaisa Group Holdings Ltd. angering investors by missing payments. Cedar ranked 359th on the Fortune Global 500 list of companies last year, generating revenue of $33.8 billion.
- Lockheed Martin Corp. ended its bid to buy Aerojet Rocketdyne Holdings Inc. after the Federal Trade Commission sued to block the $4.4 billion deal on the grounds it would hurt competition among defense contractors. The planned acquisition would have led to “greater efficiency, speed, and significant cost reductions for the U.S. government,” Lockheed Martin Chairman and Chief Executive Officer James Taiclet said in a statement. “However, we determined that in light of the FTC’s actions, terminating the transaction is in the best interest of our stakeholders.” The unraveling merger complicates Bethesda, Maryland-based Lockheed’s efforts to develop hypersonic weapons — a critical U.S. defense imperative — after the company had planned to bring Aerojet’s propulsion systems in-house. It also raises questions for Aerojet, which now faces a proxy battle as its leaders spar over the defense supplier’s future.
- Hong Kong’s daily virus cases topped 2,000 for the first time,with health officials warning of a “crisis” as a growing number of positive cases threatened to overwhelm hospitals and upend the government’s Covid Zero strategy. The Ambassador Bridge linking Canada and the U.S. reopened after protesters blocked the key trade channel for more than five days. A protest in New Zealand’s capital Wellington against vaccine mandates entered its seventh day even as Prime Minister Jacinda Ardern urged participants to go home. The gap is widening between Covid infections and deaths, with effective vaccines and milder variants helping improve survival rates dramatically, according to new analysis from Bloomberg.
- Speculation the Federal Reserve could call an emergency meeting to begin raising interest rates came and went quickly last week. By late Friday, there was almost no trace of it in U.S. markets. But in South America, similar chatter had traders on edge. In both Colombia and Chile last week, their bets showed a real chance that local central banks could lift borrowing costs this month — even though policy meetings aren’t on the calendar — to expedite the rate-hiking campaigns that began last year. In Chile, the speculation reached such a fevered pitch that over the weekend the head of the central bank felt obligated to deny any such plan.
- China’s surprise decision to clear Pfizer Inc.’s coronavirus pill for use offers rare insight into how Beijing may be planning to move beyond the Covid Zero strategy that’s leaving it increasingly isolated. Paxlovid’s conditional approval over the weekend makes it the first foreign pharmaceutical product China has endorsed for Covid-19, with the country until now sticking steadfastly to domestically developed vaccines and therapeutics, even withholding approval for the highly potent mRNA shot co-produced by Pfizer and BioNTech SE. Pfizer’s pill will serve a strategic purpose, said Zeng Guang, a former chief scientist at the Chinese Center for Disease Control and Prevention who advised Beijing on Covid control, told investors in a briefing organized by Sealand Securities Co. on Saturday, hours after the approval was announced. The move may lay the groundwork for China’s Covid containment regime to gradually give way to a more flexible approach, he suggested, according to a transcript seen by Bloomberg News and confirmed by Sealand.
- Investors added money to exchange-traded funds that buy emerging market stocks and bonds last week. This was the seventh straight week of inflows. Inflows to U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $1.37 billion in the week ended Feb. 11, compared with gains of $334.3 million in the previous week, according to data compiled by Bloomberg. So far this year, inflows have totalled $6.77 billion.
- Saudi Arabia transferred a $80 billion stake in Aramco to the kingdom’s sovereign wealth fund, boosting its assets ahead of plans to tap debt markets for the first time. The transfer from the government will “bolster the fund’s strong financial position and high credit ratings in the medium term,” the Public Investment Fund said, adding that it “relies on the value of its assets and the returns on its assets under management for its funding strategy.” The Aramco deal, which essentially transfers an asset from one pocket of the government to another, is the latest move taken to bolster the fund’s assets. The PIF, which got its first credit ratings this month ahead of a potential bond sale, was previously handed billions of dollars from the central bank’s reserves and received free land to develop projects.
- Apollo Global Management Inc. signed a deal to invest $1.4 billion in Aldar Properties PJSC, its latest commitment to Abu Dhabi after agreements in recent years that spanned the emirate’s state energy company and one of its wealth funds. As part of the transaction, Apollo will take a direct minority stake in Aldar Investment Properties, in what could be one of the largest foreign direct investments in Abu Dhabi’s private sector, according to a statement on Monday. The deal is expected to close in the first quarter. Aldar, which primarily operates in Abu Dhabi, has been chasing growth in a cramped market. At home, the emirate’s biggest developer is growing its management business. Beyond the United Arab Emirates, it’s gained a foothold in Egypt through its acquisition of a majority stake in a developer known as Sodic.
- Elon Musk apparently isn’t pleased with pressure the National Highway Traffic Safety Administration put on Tesla Inc. to conduct its 11th recall in the U.S. in just over three months. Asked by a Twitter follower on Saturday what the rationale was for recalling a feature called Boombox, which enabled people to play sounds through an external speaker of their vehicle, Tesla’s chief executive officer replied: “The fun police made us do it (sigh).” Tesla told NHTSA on Feb. 4 that it would disable Boombox when its vehicles are in drive, neutral or reverse, to comply with a safety standard requiring electric cars to emit sounds that alert pedestrians. In its recall report, the company said NHTSA asked for information in January 2021 to investigate whether the feature complied with the safety standard. Tesla decided to conduct a voluntary recall after months of back-and-forth with the agency, according to the report.
- Tensions over Russia’s military buildup near Ukraine are entering a potentially decisive week, with the U.S. warning an invasion may be imminent and President Vladimir Putin accusing America of failing to meet his demands. U.S. National Security Advisor Jake Sullivan, who on Friday cited the risk that Russia will attack or seek to ignite conflict within Ukraine this week, told CNN on Sunday there’s “a distinct possibility that there will be major military action very soon.” The U.S. and its European allies have been pressing Putin for weeks to pull back an estimated 130,000 troops massed near Ukraine, but a frenzy of diplomatic activity — including key leaders cycling through Moscow for talks with Putin — has failed to produce an off-ramp.
- Boeing Co. said it’s not racing to resume deliveries of its 787 Dreamliner as the company played down the risk that customers waiting for the jet might switch to rival planemaker Airbus SE. Stan Deal, president and chief executive officer of Boeing Commercial Airplanes, said the company is in talks with all the affected airlines and indicated he doesn’t expect to lose their orders. “We hope the power of the product is going to get us through,” he said at a media briefing in Singapore ahead of the city’s biennial air show, which starts Tuesday. “But we don’t take that for granted.” Deal declined to specify when deliveries might restart, adding “we’re not going to rush the process.”
- Audioboom Group Plc shares surged to a record in London amid reports that Amazon.com Inc. and Spotify Technology SA are exploring bids for the U.K. podcasting group. Amazon and Spotify may decide on formal offers as soon as this month, with the former getting advice from JPMorgan Chase & Co. on its interest in the British company, Sky News reported on Sunday. The stock jumped as much as 22% to the highest since listing in December 2005 and was trading 10% higher at 1,940 pence as of 10 a.m. in London, taking its market capitalization to 306 million pounds ($414 million).
- Russia is showing no indication of increasing gas flows to Europe amid rising tension with the west over Ukraine. Top supplier Gazprom PJSC again opted not to book any pipeline space for March to send gas to Germany via the key Yamal-Europe link, according to monthly auction results on Monday. Westbound supplies through that route have been halted since December. The company also didn’t buy extra transit capacity for its fuel through Ukraine. The escalating tension risk worsening Europe’s existing energy crunch as Russian supplies have been curbed for months. Gazprom has said it meets the demand from its long-term European buyers in full and lower flows reflect lack of requests from clients. Still, this helped to push European prices for everything from gas to power and carbon emissions to records in December.
- Apollo Global Management Inc. is nearing a deal to buy a majority stake in Novolex Holdings from Carlyle Group Inc., according to people familiar with the matter. A deal could be announced as soon as Monday, said the people, who asked to not be identified because the matter isn’t public. It could value the packaging company at about $6 billion, one of the people said. Carlyle will retain a minority stake in Novolex, the people said. The deal is the latest large-scale packaging company to be purchased by private equity, which likes the steady cash flow. Stone Canyon Industries is considering a sale of Mauser Packaging Solutions that could value the company at as much as $8 billion, while the owners of Five Star Holdings are also considering a sale for the company, Bloomberg News has reported.
- Cash is better than corporate bonds for Goldman Sachs Group Inc. strategists, given the global environment of rising prices and tightening monetary policy. Persistent inflation and waning stimulus from central banks will prove challenging for credit markets this year, while cash is becoming a more competitive asset class because of better yields in short-dated rates markets, they said. The call comes as markets were roiled on Monday, with corporate bonds and equities sliding, as investors turned to havens on the risk of an imminent Russian invasion of Ukraine. That added to losses bond investors were already suffering this year given expectations for rate hikes and the tapering of central bank asset purchases.
- Oil’s surge toward $100 a barrel for the first time since 2014 is threatening to deal a double-blow to the world economy by further denting growth prospects and driving up inflation. That’s a worrying combination for the U.S. Federal Reserve and fellow central banks as they seek to contain the strongest price pressures in decades without derailing recoveries from the pandemic. Group of 20 finance chiefs meet virtually this week for the first time this year with inflation among their top concerns. While energy exporters stand to benefit from the boom and oil’s influence on economies isn’t what it once was, much of the world will take a hit as companies and consumers find their bills rising and spending power squeezed by costlier food, transportation and heating.
- India’s retail inflation breached the central bank’s 6% tolerance limit for the first time in seven months, an increase that is unlikely to prompt the growth-focused central bank to raise interest rates. Consumer prices rose 6.01% in January from a year earlier, the Statistics Ministry said in a statement on Monday. That’s nearly in line with the 6% median estimate in a Bloomberg survey of 40 economists and the highest reading since June. “The inflation reading came in line with our expectations. RBI too was expecting the reading to be around the upper limit,” said Upasna Bhardwaj, an economist with Kotak Mahindra Bank Ltd. “The trajectory is expected to have peaked out in January and hence we do not expect any change to policy stance.”
- Axis Bank Ltd. is nearing a deal to buy Citigroup Inc.’s India retail banking business in a transaction that could be valued at about $2.5 billion, people familiar with the matter said. An agreement for the consumer unit may be announced as soon as the next few weeks and is contingent on approval from the Reserve Bank of India, the people said, asking not to be identified as the information is private. The deal would include a cash component of less than $2 billion, accounting for the consumer business’s liabilities, the people said. The Indian lender emerged as the buyer after beating out rivals, with factors such as job security for current Citigroup employees and competition concerns being taken into account, one of the people said. Axis Bank will need around six months to merge its consumer business in the country with Citigroup’s, a different person said.
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*All sources from Bloomberg unless otherwise specified