February 3, 2022
Daily Market Commentary
- Canadian equities rose Wednesday, shrugging off another decline in information-technology stocks led by a 10% decline for Shopify, to advance to the highest closing level since Jan. 17. The S&P/TSX Composite rose for the fourth day, climbing 0.2%, or 42.44 to 21,362.36 in Toronto. Information technology and health case sectors were the sole declining groups as 128 of 241 shares rose and 109 fell; 9 of 11 sectors were higher. Toronto-Dominion Bank contributed the most to the index gain, increasing 1.6%. Birchcliff Energy Ltd. had the largest percentage increase, rising 5.5%
- Property prices in Canada are set to fall as rising interest rates bring an end to a “speculative fever” in the housing market, the country’s banking regulator said on a podcast. An extended run-up in home prices, readily-available mortgages, and a propensity among Canadians to buy and flip homes have all fueled the buying frenzy, Peter Routledge, head of the Office of the Superintendent of Financial Institutions, said on The Herle Burly podcast on Wednesday. Higher rates are set to dampen that fever and lead to a slowdown in prices, he said. “In some markets, where you had really rapid increases in prices, you could see a fall of 10%, 20%,” Routledge said. Canada has emerged as one of the world’s frothiest property markets — for 12 consecutive years, the housing market has soared to record heights. As fears of a housing bubble have grown, the government has imposed an added layer of protection in the form of a stress test, ensuring new borrowers have enough income to handle higher interest payments.
- Canada’s Conservatives ousted their leader, Erin O’Toole, after he failed to stem internal dissent that has been building since last year’s election defeat — paving the way for the country’s largest opposition party to shift to the right. The military veteran and former corporate lawyer tried to moderate the party’s image with policies that appealed to centrist suburban voters. His removal potentially opens the door for Pierre Poilievre, a firebrand who is deeply popular with the Conservatives’ base, to take the helm. Deputy Leader Candice Bergen has been named to the to top job in the interim. O’Toole, 49, reversed the party’s opposition to a carbon price, alienating traditional supporters in oil-producing western Canada. He also attempted to walk a fine line on the convoy of truckers that has occupied downtown Ottawa since Friday. He supported their right to oppose vaccine mandates but avoided identifying closely with the group, some of whom hold extreme views.
- European equities fell at the open, ahead of a big day of central bank decisions, as disappointing earnings from U.S. technology giants and a simmering crisis at Ukraine’s border weighed on sentiment. The Stoxx 600 Europe Index slid 0.6% as of 9:37 a.m. in London, tracking Asian stocks and U.S. futures lower. Energy outperformed, with Shell Plc rising on the back of soaring profits and a buyback announcement. The main European equities benchmark started this month on the right foot, after a selloff in January triggered by fears of more aggressive Federal Reserve policy tightening. While solid earnings reports have helped alleviate some concerns over a less forgiving macroeconomic backdrop, traders are now awaiting European Central Bank and Bank of England meetings later on Thursday for more clarity on the monetary policy front.
- Nasdaq 100 Index futures tumbled as disappointing earnings and forecasts from technology bellwethers halted a rally in global stocks. The British pound defied broad dollar strength to rise after a U.K. rate increase. Contracts on the tech-heavy gauge were down 2.3% Thursday, dragged lower by a 20% premarket rout in Facebook parent Meta Platforms Inc. after a weaker-than-expected revenue forecast. S&P 500 Index futures were 1.2% lower. Weak numbers from Meta to Qualcomm Inc. and Spotify Technology SA jolted investors who had bet a strong earnings season would keep equities attractive and counter some of their lingering worries including Federal Reserve tightening and stubborn inflation.
- Asian equities snapped a four-day rally after Meta Platforms and Sony posted subdued earnings and prospects, weighing on the region’s technology sector. The MSCI Asia Pacific Index eased 0.3% after gaining as much as 0.1%. Sony and Panasonic were among the biggest drags on the gauge amid concerns over their future earnings. Regional tech shares also took a hit from disappointing forecasts from Facebook’s parent and Spotify, while materials and utilities climbed. Nasdaq 100 futures dropped more than 2% intraday while Japan’s benchmarks fell, offsetting gains in South Korean and Singapore gauges, which staged a catch-up rally after reopening from the Lunar New Year holiday. Asia’s stock gauge yesterday advanced for a fourth day as fears of Fed tightening receded. The earnings season has taken center stage, with investors trawling through management commentary for the outlook for supply chains and corporate profits. Bank of England and European Central Bank rate decisions are due later Thursday.
- Oil retreated as traders waited to see whether OPEC+ can deliver on its latest promised increase in supply, while stock markets fell. West Texas Intermediate slid 1.4% after nearing $90 Wednesday, dragged down in part by softer risk sentiment in equities. While the Organization of Petroleum Exporting Countries and its allies agreed midweek to a further lift in output, traders are doubtful that all members will be able to meet their quotas in full. Crude is still heading for a seventh weekly gain, with banks including Goldman Sachs Group Inc. seeing oil moving toward $100 a barrel. The rally has been underpinned by rising demand, low stockpiles and interruptions to supply. High levels of backwardation in the futures curve continue to signal a tight market.
- Gold and copper edged lower after a three-day advance as the dollar climbed on poor risk sentiment driven by weak corporate earnings. Bullion is holding above $1,800 an ounce as traders price in the prospects of the Federal Reserve raising interest rates in March, while volatility in equities and geopolitical tensions are providing support to the haven asset. Later Thursday are rate decisions by the European Central Bank and the Bank of England. Spot gold edged 0.1% lower to $1,805.43 an ounce as of 9:35 a.m. in London, after climbing 0.9% in the last three days. The Bloomberg Dollar Spot Index rose 0.2% after dropping 0.2% in the previous session. Silver, platinum and palladium fell. Markets in China remain closed for the Lunar New Year holidays.
- Shell Plc is ready to supply extra natural gas to Europe should an escalation of the standoff over Ukraine reduce flows from Russia. The offer from one of the world’s biggest liquefied natural gas traders will bring some respite for Europe’s policymakers. The European Union has been talking to exporters including Qatar and Azerbaijan for more supplies, while the U.S. has also been scouring the globe, including approaching China, about emergency shipments to the continent. But Russian volumes are so large that they’re practically irreplaceable. Diverting LNG cargoes from Asia to Europe could be an option, Shell Chief Executive Officer Ben Van Beurden said. Higher arrivals of the liquefied fuel — and a mild winter — have already helped halve European gas prices from a December record. But this could easily reverse if Asian demand picks up again, pulling LNG cargoes away from Europe.
- Omicron cases are spreading in China in the countdown to the Winter Olympics in Beijing, with a leading ski jumper pulling out after she tested positive. Sweden will lift coronavirus restrictions starting next week, citing a high vaccination rate and a manageable situation in its hospitals, while France’s health minister said the country is past the worst of the latest wave. A sub-variant of omicron, known as BA.2, is spreading rapidly in South Africa and may cause another surge of infections, one of the country’s top scientists said. BA.2 appears to be more transmissible, though it doesn’t seem to cause more severe disease.
- Russia said it was destructive for President Joe Biden to move additional troops to Europe and station more along NATO’s eastern flank, as French President Emmanuel Macron prepares for his third call in a week with Russian President Vladimir Putin to discuss Ukraine. Putin is expected to speak to reporters Thursday after meeting with Argentinian President Alberto Fernandez, a day after the Pentagon said about 2,000 soldiers will travel from the U.S. to Europe in the coming days. Another 1,000 troops based in Germany will be deployed in Romania. Russia has decried the presence of NATO troops near Russian borders, even as Moscow has continued its buildup of forces near Ukraine to well over 100,000. Western officials continue to warn of punishing economic sanctions if Russia invades Ukraine, which the Kremlin denies it plans to do. Turkey’s Recep Tayyip Erdogan is traveling to Ukraine on Thursday.
- Meta Platforms Inc.’s one-day crash may rank as the worst in stock-market history. The Facebook parent plunged 22% in early U.S. trading on the back of poor earnings results, putting it on track to erase about $195 billion. At current levels, that’s the biggest collapse in market value for any U.S. company. But there’s no certainty the losses will hold, especially given the recent volatility that’s whipped across technology shares. Markets have swung wildly in recent weeks, with buy-the-dip traders sometimes storming in during the final hours of the trading day.
- Carlyle Group Inc. dealmakers’ cut of profits from successfully exiting investments more than quadrupled in 2021, another example of the burgeoning wealth created in a boom year for private equity. The firm sold out of a record $15.3 billion of deals in the fourth quarter, Washington-based Carlyle said Thursday in a statement. Distributable earnings, or profit available to shareholders, surged to $902.8 million in the quarter, a 281% increase from a year earlier. Carlyle’s dealmakers received $1.41 billion of the profits tied to exits in 2021, a 315% increase from the prior year in so-called realized performance revenues related compensation. Employee pay and benefits almost doubled in 2021 to $2.3 billion, a figure that excludes stock-based compensation, which also increased.
- Cathie Wood dumped more PayPal Holdings Ltd. shares and added exposure to the fintech firm’s smaller rival Block Inc., after PayPal saidgrowth in spending on its platform continued to slow during the fourth quarter. Wood’s Ark Fintech Innovation ETF sold 158,126 shares in PayPal Wednesday, the most since at least April, according to Ark’s trading data compiled by Bloomberg. That amounted to $21 million based on Wednesday’s closing level. The Ark ETFs bought more than half a million shares of Block, formerly known as Square. PayPal’s shares slumped by a record 25% Wednesday after the company said it suffered the slowest growth in payments volume in two years, prompting a wave of downgrades and price target cuts from analysts. Block also fell nearly 11%.
- A new and independent union won the right to represent workers at General Motors Co.’s truck plant in Mexico — a sign that new North American free trade rules are bolstering the nation’s labor rights. The union, known as SINTTIA, won the vote by a wide margin, Mexican labor authorities said. The group defeated the CTM, Mexico’s entrenched labor group, to represent more than 6,000 workers in labor negotiations at the plant, which produces the Chevrolet Silverado and GMC Sierra models in Silao, a city in central Mexico. The victory by an independent union could start to break the CTM’s longstanding hold on Mexican labor wages and begin the long process of bringing pay closer to what workers make in the U.S. and Canada. Workers and labor rights groups have criticized the CTM for years, alleging that it negotiated low-wage “protection contracts” that suppressed pay for the very workers the union was supposed to represent. A Bloomberg investigation substantiated the claims.
- Tesla Inc. is issuing an over-the-air software fix for more than 817,000 cars due to a seat belt chime malfunction that could cause drivers to not be aware that they are unbuckled. Tesla plans to release the recall after discussions with the U.S. National Highway Traffic Safety Administration, according to a notice filed online by the agency on Thursday. No accidents have been reported, according to documents filed by Tesla with NHTSA. The recall covers 817,143 2021-2022 Model S and Model X, 2017-2022 Model 3, and 2020-2022 Model Y vehicles.
- Texas officials say they’re confident the state’s power grid can avoid a repeat of last year’s catastrophic blackouts as a major storm sweeps through the region, though the icy blast could still bring local outages. An ice storm that hit the state on Wednesday evening is expected to bring sleet, snow and freezing rain during the next few days. The state’s grid operator, Electric Reliability Council of Texas, and other energy officials are reassuring Texans that there’s more than enough capacity to keep power flowing even if demand for electricity and natural gas soars to record levels. The stakes are high in Texas, where last year’s winter storm led to blackouts and deaths of more than 200 people. This storm will test whether Governor Greg Abbott and Republican lawmakers have done enough to bolster the power network, including new rules requiring the grid operator to increase reserve capacity and make it easier for industrial users to get paid to reduce consumption.
- Qualcomm Inc., the biggest maker of chips that run smartphones, slipped in pre-market trading after efforts to expand beyond its main business were hampered by chip shortages in the latest quarter. While overall sales and profit easily topped analysts’ estimates, the company fell short of projections in certain categories, including chips for cars, the Internet of Things and radio-frequency components. The pain was partially self-inflicted: The company prioritized sales to phone makers in China during the run-up to the Lunar New Year shopping season — at the expense of other categories.
- The Bank of England lifted its key interest rate as part of a package of measures to contain inflation, warning that prices could top more than triple the government’s target. Policy makers came within a whisker of delivering a 50-basis point increase, with four of the nine-member opting for an increase that would have been unprecedented since the U.K. central bank gained independence from government in 1997. The move lifted the benchmark lending rate to 0.5% from 0.25%, ushering in a new era where the BOE will start to unwind 895 billion pounds ($1.2 trillion) of bond holdings it amassed over the past decade to stimulate the economy.
- Apple Inc. had its strongest quarter for iPhone sales in India yet, a sign the Cupertino, Calif.-based company is finally making progress in the world’s fastest-growing smartphone market. Sales increased to 2.3 million units in the fourth quarter, up 34% from a year earlier, according to numbers from the market research firm Counterpoint. China’s Xiaomi Corp. and South Korea’s Samsung Electronics Co. sold 9.3 million and 7.2 million smartphones for the quarter respectively, leading in terms of units. Apple appears to have pulled in more revenue than any of its rivals, however, because of the iPhone’s high price tag, according to Counterpoint’s calculations. The U.S. company took in an estimated $2.09 billion for the quarter, edging aside Samsung with revenue of about $2 billion.
- Credit traders at Goldman Sachs Group Inc. are betting against bonds of Adler Group SA, the embattled real estate firm that’s been a target of short seller Fraser Perring’s Viceroy Research. The bank’s traders in London have been buying credit-default swaps linked to Adler in recent weeks, which will pay out if the German property company defaults, according to people familiar with the matter. They are also taking a so-called short position that will profit if the firm’s bonds fall further, the people said, who asked not to be identified because they’re not authorized to talk about the trade. Adler’s shares and bonds have been consistently under pressure since Viceroy Research published a report in October that said the firm was built on systemic fraud. Its debt pile of around $9 billion includes more than a billion dollars of bonds that Goldman Sachs’ investment banking unit helped to sell to investors several years ago, Bloomberg data shows.
- Wall Street favorite Amazon.com Inc. could be the next technology giant to flag that pandemic-era growth is fading, but the stock’s sideway travel for many months is likely to lessen any post-earnings blow. PayPal Holdings Inc. and Netflix Inc. are among the online companies warning in recent days that their businesses are cooling off because economies have reopened. The slowdown sent their shares plunging, denting hopes for a recovery in high-growth stocks after the Federal Reserve tightening shocks. Amazon also saw a boom in business from people who were cooped up during lockdowns, a trend that’s taken a U-turn as less-severe Covid-19 infections led to people going back to in-store shopping. There’s one other headache: being one the largest U.S. employers, it has been facing pressures from wage inflation and shortage of labor.
- BC Partners has fallen short of the original target for its latest multibillion-dollar fund, missing out on an otherwise buoyant period for buyout managers seeking fresh capital. The London-based private equity firm raised about 5.3 billion euros ($6 billion) in committed capital from investors for its 11th flagship fund, according to people familiar with the matter. BC Partners had originally sought 8.5 billion euros in what was meant to be its largest fund to date, but struggled to convince some long-term backers to recommit, even after extending the fundraising by several months. The total amount available to deploy is about 7 billion euros as the firm put in some of its own money and attracted some large co-investment commitments, said the people, who asked not to be named discussing private information. The co-investment structure allows institutional investors to join major takeovers alongside the private equity manager.
- A group of investors that built a single-family rental company inside Blackstone Inc. during the U.S. foreclosure crisis is back with a new venture — one they say can help young families buy homes at a time when rising prices are pushing ownership increasingly out of reach. Rent-to-own startup Pathway Homes plans to spend an initial $750 million acquiring houses on behalf of its customers, who will lease the properties with the option to purchase them. The company is backed by venture capital firm Fifth Wall, U.K.-based Regis Group and Invitation Homes Inc., the single-family landlord that Blackstone took public in 2017. Texas-based Invitation Homes, the largest single-family landlord in the U.S. with more than 80,000 properties, is investing $225 million in Pathway’s first fund. The startup is in advanced talks with additional investors and could add an additional $1.5 billion in buying power, a representative said.
“Some people want it to happen, some wish it would happen, others make it happen.” – Michael Jordan
*All sources from Bloomberg unless otherwise specified