February 17, 2022
Daily Market Commentary
- Prime Minister Justin Trudeau will deliver a speech in Canada’s parliament this morning, explaining his government’s decision to invoke an emergency law against protesters who have blocked streets and bridges. The address is scheduled to begin around 10 a.m. Ottawa time. Big box retailer Canadian Tire Corp. delivered 4Q revenue and earnings that beat analysts’ estimates. Cybersecurity company ESentire Inc. struck a deal to sell a stake to the Caisse de depot et placement du Quebec and a Canadian venture capital firm, according to people familiar with the matter.
- European equities were little changed as investors mulled a flurry of earnings results against persisting geopolitical tensions around Ukraine. The Stoxx 600 Index dropped 0.1% by 8:48 a.m. in London, with energy shares declining with oil while personal care shares outperformed on positive earnings results. European stocks have been under pressure this year over fears that central banks’ attempts to fight inflation could curb growth and as Ukraine-Russia tensions persist. The Federal Reserve minutes released on Wednesday brought some relief to traders already pricing in aggressive monetary tightening.
- Stocks were mixed on Thursday as traders weighed geopolitical developments in Ukraine and a flurry of corporate earnings. U.S. equity futures declined, while Europe’s Stoxx 600 Index was little changed and Asian shares edged up. Energy companies underperformed as crude oil fell. Havens such as the yen and goldpushed higher. Government bond yields retreated and the dollar was steady. Russia’s Foreign Ministry denied a claim by the U.S. and Britain that it’s added as many as 7,000 troops to what President Joe Biden has said are around 150,000 soldiers already near Ukraine’s borders. European Union leaders will discuss the tensions Thursday in Brussels, before Group of Seven foreign ministers meet in Munich on Saturday.
- Asian equities edged up as expectations for easing of pandemic restrictions in some countries fueled a rally in shares tied to economic reopening, while investors continued to eye Ukraine risks. The MSCI Asia Pacific Index was up 0.1% after falling as much as 0.5% on renewed geopolitical concerns. Japanese travel-related stocks jumped ahead of a conference by Prime Minister Fumio Kishida where he is expected to ease virus-related curbs. South Korea’s cosmetic makers advanced on hopes for looser mask rules, while Singapore’s aviation stocks gained on plans to cut travel and social restrictions. Reopening stocks were in focus in Hong Kong too after a report that the financial hub plans to mass test the entire city spurred optimism that authorities are laying the groundwork to gradually open the economy.
- Oil futures curves are indicating one of the strongest periods the market has ever seen, amid a bout of headline price volatility. Brent prices have swung wildly above $90 this week, but there’s been even more action in the market’s structure. Nearby contracts are commanding enormous premiums over those further out, indicating that traders are clamoring for barrels right now. Some futures spreads have reached their strongest levels in data going back to 2007. Nowhere is the move clearer than in the world’s most important physical oil price — Dated Brent — which on Wednesday topped $100 for the first time since 2014. The market for real barrels in the North Sea has boomed in recent weeks, with differentials for some physical cargoes hitting the highest on record as demand from European refiners surges.
- Gold extended an advance to a fresh eight-month high as investors weighed concerns over Ukraine and the release of Federal Reserve minutes that were interpreted as relatively dovish. The metal climbed as much as 1.1%, gaining with other havens, as geopolitical tensions persist. U.S. inflation that’s running at a 40-year high is also adding to bullion’s appeal as a hedge against rising consumer prices, despite a more aggressive approach to monetary tightening by the Fed. Nervousness over the crisis in Europe lingers, with Russia denying a claim by the U.S. and Britain that it has added as many as 7,000 troops to what President Joe Biden has said are around 150,000 soldiers already near Ukraine’s borders. Russia has said it was pulling back some troops from near the border and has repeatedly denied it plans to invade its neighbor.
- Japan is rolling back some of the developed world’s most stringent border measures, ending a ban on new entry by foreigners and easing quarantine rules. Starting next month, new foreign entrants except for tourists will be admitted as Prime Minister Fumio Kishida seeks to tread a narrow path on pandemic policy that brought down his two predecessors. Hong Kong has plans to mass-test the whole city for Covid with Beijing’s help, as new cases surged to more than 6,100. Public hospitals are in “major crisis,” the city’s chief hospital manager said. White House chief medical adviser Anthony Fauci said the dynamics of the Covid-19 outbreak in the U.S. are pointing in a “sharp downward direction.”
- Russia’s Foreign Ministry denied a claim by the U.S. and Britain that it’s added as many as 7,000 troops to bolster what President Joe Bidenhas said are around 150,000 soldiers already near Ukraine’s borders. The two sides in the conflict in eastern Ukraine — government forces and Moscow-backed separatists — accused each other of breaking cease-fire rules and the Kremlin said the situation there is getting more tense. The Organization for Security and Co-operation in Europe, which monitors cease-fire compliance, regularly reports dozens of tit-for-tat violations. European Union leaders are discussing the Russia tensions in Brussels, before Group of Seven foreign ministers meet in Munich on Saturday. Russian President Vladimir Putin and Japanese Prime Minister Fumio Kishida will speak by phone later Thursday. Officials in Moscow have dismissed U.S. warnings of a possible invasion of Ukraine as “hysteria” and propaganda.
- Ares Management Corp. is buying Capital Automotive LLC, a net-leasing business for car dealerships, from Brookfield Property Partners LP with funds managed by its alternative credit and real estate units. The transaction, valued at $3.8 billion, closes a deal that has been in the works for two years. Bloomberg News first reported that Brookfield was eying a sale of the business in March 2020. Last September, Ares announced it would be accelerating its net-lease investments and offerings. Founded in 1998 as Capital Automotive Real Estate Services Inc., the company provides financing options to business operators based in the U.S. and Canada that need support for facility renovations, upgrades and expansions. The McLean, Virginia-based firm has a portfolio of more than 250 real estate assets through long-term triple net leases. According to its website, the landlord for automotive dealerships has completed more than $6 billion in property acquisitions since its inception.
- The National Highway Traffic Safety Administration is investigating complaints of Tesla Inc. cars with Autopilot driver assist that suddenly brake at high speeds, the latest in a string of confrontations between the company and safety regulators. The agency said it is launching a preliminary defect investigation after receiving 354 complaints that “unexpected activation of braking system may cause rapid deceleration.” NHTSA previously confirmed it was reviewing complains about the phenomenon, which has been dubbed “phantom braking.” The probe adds to a slew of recalls and investigations of Tesla vehicles. Two weeks ago Tesla announced its 11th U.S. vehicle recall in roughly four months, the latest in a spurt of safety-related fixes that have coincided with regulators subjecting the carmaker to greater scrutiny.
- Some investors in an asset class particularly vulnerable to inflation are looking to Federal Reserve Chairman Jerome Powell to prove his mettle next month. Roaring consumer price growth is particularly bad news for the debt market because many investors depending on fixed income often benefit less from asset price increases, while inflation eats into their regular interest payments. That’s why the likes of JPMorgan Asset Management’s Bob Michele are looking to the Fed to tamp down on price pressures, potentially with an unusually sharp increase in interest rates of 50 basis points.
- Amazon.com Inc. has agreed to accept Visa Inc.’s cards across its global network, settling a feud that threatened to damage the financial giant’s business and disrupt e-commerce payments. The agreement, announced by both companies, resolves a dispute that at one point spurred Amazon to consider a ban on U.K.-issued Visa credit cards. The retailer said it will no longer charge customers who use Visa cards on its site in Singapore and Australia an extra fee, and won’t turn off Visa credit cards from amazon.co.uk. Amazon had considered shifting its popular co-brand credit card to Mastercard Inc., Bloomberg News has reported. The Amazon card is one of the industry’s largest co-branded portfolios, and the company used talks to renew the agreement as a way to secure better terms from Visa, according to people familiar with the matter.
- Walmart Inc. surpassed Wall Street’s quarterly profit expectations and unveiled an upbeat sales outlook for the current fiscal year despite persistent cost pressures and flagging consumer sentiment. Comparable sales at U.S. Walmart stores will post a percentage gain “slightly above 3%” excluding fuel during the current fiscal year, which ends in early 2023, the retailer said in a statement Thursday as it reported earnings. That suggests a better performance than the 2.7% average gain expected by analysts. The results underscore Walmart’s efforts to navigate scarce transportation capacity, a labor squeeze and rising fuel costs that are combining with robust demand to spur the fastest growth in U.S. consumer prices in four decades. U.S. retail sales in January rose the most in 10 months, signaling resilient demand despite surging inflation and the weakest consumer confidence in a decade.
- DoorDash Inc. shares jumped 26% in premarket trading, putting them on course to rise back above their listing price, after the food-delivery company reported record orders in the fourth quarter. DoorDash said customers placed 369 million orders in the quarter, a 35% increase from a year earlier, signaling resilience in the food-delivery industry even as the boost from pandemic lockdowns fades. The report reassured investors in the sector after a poor update from rival Delivery Hero SE sent the European company’s stock down 37% last week. Shares in the U.S. firm have handily outperformed global food-delivery peers, including Uber Technologies Inc., since their initial public offering in December 2020, and are poised to rise back above their listing price of $102 if premarket gains hold. That’s quite a feat when the U.K.’s Deliveroo Plc is trading 64% below its March 2021 debut price.
- U.S. authorities conducting a criminal probe into how Morgan Stanley executives handle block trades are examining recordings of phone calls between the bank and outside fund managers, according to people with knowledge of the inquiry. The recordings involve conversations between Pawan Passi, one of Morgan Stanley’s top equities executives in block trades, and investing clients, the people said, asking not to be identified discussing the confidential investigation. The use of such invasive information-gathering underscores how a civil inquiry opened by the Securities and Exchange Commission in 2018 has escalated, with the Justice Department launching an inquiry too. Passi, whose role in the probe was reported by Bloomberg on Tuesday, isn’t the only person at Morgan Stanley whose actions are drawing scrutiny. The Justice Department has been seeking communications between clients and Morgan Stanley executives including Evan Damast, the firm’s global head of equity and fixed-income syndicate, John Paci, a senior equities trading executive, and Charles Leisure on the syndicate desk, the people said. Neither they, nor Passi, have been accused of wrongdoing.
- Hy2gen AG, a German startup partly owned by oil trading giant Trafigura Group, raised 200 million euros ($227 million) to build plants that will produce green hydrogen for industries and transport. It will be the largest private spending in green hydrogen, with the funds coming from Hy24, Mirova SA and Caisse de Depot et Placement du Quebec, with Technip Energies NV as a strategic investor, Hy2gen said in a statement Thursday. The financing is a mixture of equity and convertible bonds. “We were looking for the best possible combination of financial and strategic investors,” said Cyril Dufau-Sansot, chief executive officer of Hy2gen, which has 880 megawatts of projects in planning and construction and a further 12 gigawatts in development. The plants “have the potential to decarbonize entire industries and transport sectors.”
- Japan’s biggest steelmaker is calling on Tokyo to provide at least 2 trillion yen ($17.3 billion) in subsidies over almost three decades to meet net-zero carbon targets, as it seeks to stay competitive against China and other global rivals. Nippon Steel needs the money to vie on an “equal footing,” according to Hideo Suzuki, the managing executive officer overseeing its net-zero initiative. The company expects it will cost as much as 5 trillion yen to build facilities enabling decarbonization by 2050. Suzuki said without the financial leg up, Chinese rivals — which already churn out more than half of the world’s steel — will be a greater threat to Japanese producers, as they will be able to take advantage of massive funding from their own centralized government.
- In early 2019, BNP Paribas SA compliance staff were handed a powerful new tool designed to help them police a massive trading division that handled billions of euros of transactions each day. Called RedOwl, it was monitoring software that let front-line supervisors search through thousands of employees’ emails and documents to suss out wrongdoing. But the bank soon discovered someone should have been watching the watchdogs. Within months, BNP was conducting an internal probe into allegations that a trio of compliance staffers who were testing the application had used it to look up the bonus of their manager, as well as spying on their colleagues’ shopping habits, according to people familiar with the situation and a document seen by Bloomberg News. Their access was terminated following the complaints about improper use of the system.
- Palantir Technologies Inc. shares tumbled in New York after the data software company announced earnings that illustrated continued lack of profits, despite showing an operating margin forecast to improve slightly during this year. The stock fell as much as 11% during premarket trading on Thursday. Palantir shares have lost almost half their value over the past 12 months. Peter Thiel and Alex Karp started Palantir almost two decades ago to sell software to U.S. government agencies and their allies. The company has worked furiously in recent years, especially during the past year, to bring on more corporate customers. It has added hundreds of salespeople, simplified its software products and even spun up a program to take equity stakes in small startups that agree to be customers.
- Nvidia Corp., which walked away from a $40 billion acquisition of Arm Ltd. earlier this month, failed to impress investors with its latest forecast, a sign of the lofty expectations for the most valuable U.S. chipmaker. Though the company topped Wall Street estimates with its latest quarterly results — and projected strong growth for the current period — the shares fell more than 3% in pre-market trading on Thursday. Chief Executive Officer and co-founder Jensen Huang has turned a niche business — graphics cards for gamers — into a chip empire worth more than $600 billion. But investors have high hopes for the company, and even a record-setting quarter can leave them underwhelmed.
- Circle Internet Financial, the issuer of the cryptocurrency USDC stablecoin, said the terms of its planned merger with special purpose acquisition company Concord Acquisition Corp. have changed and the value of the transaction has doubled to $9 billion. The increase comes after “material improvements in Circle’s financial outlook and competitive position” including the growth and market share of the USDC stablecoin, Boston-based Circle said in a statement Thursday. USD Coin, which is currently the fifth-biggest cryptocurrency, has a market value of more than $52 billion, according to CoinGecko, compared with about $25 billion when the agreement was first announced in July. Stablecoins are cryptocurrencies that aim to peg their value to something, usually the U.S. dollar, and are often used by online exchanges to facilitate transactions.
- Steve Dickson, who led the U.S. Federal Aviation Administration through a tumultuous period following fatal crashes of Boeing Co.’s 737 Max and the Covid-19 pandemic, is stepping down from the agency at the end of March. Dickson informed FAA’s employees in an email Wednesday of his plan to depart less than three years into his five-year term. He called the decision “very difficult,” but said he was motivated by the long periods he’d been forced to spend away from his family in Georgia as a result of the job and the pandemic.
- India unveiled its hydrogen roadmap, offering incentives for investors to produce the fuel at low costs and help the nation shift away from its reliance on fossil fuels. The first part of the plan announced Thursday offers free transmission of renewable electricity from one state to the other for the production of hydrogen and ammonia, helping drive down costs for an industry that’s already winning support from billionaires like Mukesh Ambani and Gautam Adani. The government is considering offering subsidies and obliging oil refineries and fertilizer plants to use the fuel in the second phase, which is still being prepared, Power Minister Raj Kumar Singh said Wednesday.
- AutoNation Inc., the country’s largest dealership chain, posted record profit in the fourth quarter as it reaped gains from soaring vehicle prices and boosted sales of used cars. Adjusted earnings came to $5.76 a share, the Fort Lauderdale, Florida-based retailer said Thursday, surpassing the $5.00 average estimateof 10 analysts surveyed by Bloomberg. Revenue from used cars surged 55% from a year earlier while sales of new cars slipped 7%, a reflection of the ongoing chip shortage that has choked off supply of new inventory.
“Don’t be pushed around by the fears in your mind. Be led by the dreams in your heart.” ― Roy T. Bennett, The Light in the Heart
*All sources from Bloomberg unless otherwise specified