January 13, 2022

Daily Market Commentary

Canadian Headlines

  • Canadian equities climbed as the materials sector soared to its highest point in more than a month and energy rose. The S&P/TSX Composite gained for the second day, climbing 0.6% or 120.19 points to 21,395.00 in Toronto. The index advanced to the highest closing level since Nov. 25. First Quantum Minerals Ltd. contributed the most to the index gain and had the largest move, increasing 9.6%.
  • Canada will face challenges in retaining its status as a global oil and gas power in a world transitioning toward net zero carbon emissions by mid-century, the International Energy Agency said. The country seeks to remain “a major global oil and gas supplier” beyond 2050 even as countries, including Canada itself, push toward emission cuts, the agency said in its Canada 2022 Energy Policy Review Thursday. Holder of the world’s third-largest oil reserves, Canada’s largest oil producers pledged to zero out carbon emissions from their operations by the middle of the century, primarily through the use of carbon capture and storage, in a bid to preserve the sector. But those targets don’t include anything about the much larger volumes of emissions that result from burning the fuel they produce by refineries, factories, vehicles and homes.
  • Exxon Mobil Corp. is looking to sell its Canadian shale assets to focus on Alberta’s oil sands. Exxon and its majority-owned Imperial Oil Ltd. unit will start marketing XTO Energy Canada, which produces 9,000 barrels a day of crude and 140 million cubic feet a day of natural gas in the Montney and Duvernay shale formations of Alberta and other areas, Imperial said in a statement Wednesday. Exxon has prioritized key projects in Guyana, the U.S. Permian Basin as well as oil-refining and chemical build-outs since a strategic reboot in 2020, when the company posted its first annual loss in four decades. Imperial is a major producer in Alberta’s oil sands, which hold the world’s third-largest oil reserves.

World Headlines

  • The Stoxx Europe 600 Index paused after a two-day advance, with technology and miners offsetting declines in travel and leisure and consumer products. Elsewhere, the pound advanced to its highest level since Oct. 29 amid calls for U.K. Prime Minister Boris Johnson to resign over a “bring your own bottle” party at the height of a lockdown meant to stem the first wave of coronavirus infections in 2020.
  • U.S. equity futures were little changed as investors digested the latest read on American inflation and assessed bets on timing for the first Federal Reserve rate increases in the pandemic era. Contracts on the S&P 500 and Nasdaq 100 flatlined as investors waited for the next trading impetus. In the premarket, shares in Delta Air Lines Inc. rose more than 2% after the carrier said the omicron variant won’t derail its expectation to remain profitable for the rest of the year, as it released fourth-quarter financial results. The dollar edged lower as a growing tide of investors bet the world’s reserve currency has reached a peak with rate hikes largely priced-in to the market. The latest inflation reading confirmed consensus bets the Fed will embark on a series of hikes starting in March.
  • Asian stocks were little changed after capping their biggest rally in a year, with health-care and software-technology names retreating while financials advanced. The MSCI Asia Pacific Index fluctuated between a drop of 0.3% and a gain of 0.2% on Thursday. Hong Kong’s Hang Seng Tech Index lost 1.8% after rising the most in three months in the previous session. Benchmarks in China and Japan were the day’s worst performers, while the Philippines and Australia outperformed. The Asian stock measure jumped 1.9% Wednesday on views that the Federal Reserve’s anticipated rate hikes will help curb inflation and allow the global recovery to chug along. U.S. inflation readings overnight, at an almost four-decade high, were in line with expectations and helped investors keep previous bets.
  • Oil steadied near a two-month high as demand withstands the omicron variant and supplies come under pressure, tightening global markets. West Texas Intermediate held above $82 a barrel after U.S. crude stockpiles dropped, adding to an increasingly tight supply picture caused by outages and constraints from Libya and Nigeria to Russia. Consumption has proved remarkably resilient as the new virus strain delivers only a limited setback, the International Energy Agency said. Since 2022 began WTI has surged more than 9%, joining other commodities in a strong start to the year, on signals that consumption outside Asia is largely recovering from the pandemic. The International Energy Agency has said demand is stronger than expected, while the Energy Information Administration’s latest outlook showed that global oil inventories are set to decline this quarter.
  • Gold held near the highest in a week as the dollar weakened after U.S. inflation data that came in close to expectations. The consumer price index climbed 7% year-on-year in December, the largest gain since June 1982, but in line with forecasts, according to Labor Department data released Wednesday. The dollar extended its drop after its worst session since May as money managers cut back their bullish bets. That bolstered gold. Bullion is holding above $1,800 an ounce, even as investors price in tighter monetary policy. Fed Chair Jerome Powell has pledged to do what’s necessary to contain the surge in inflation and prolong the expansion. The economy grew at a modest pace in the final weeks of last year, the U.S. central bank said in its Beige Book survey Wednesday.
  • Delta Air Lines Inc. says the rapidly spreading omicron coronavirus variant will delay a recovery in travel by 60 days and contribute to a first-quarter loss but won’t derail the carrier’s expectation to remain profitable for the rest of the year. With Covid cases expected to peak in the U.S. in the next seven days, the pace of improvement in travel should resume its original December trajectory in the second half of February, Delta said in a statement Thursday in which it disclosed fourth-quarter financial results.
  • The U.S. military will deploy new help to hospitals in New York and New Jersey as they grapple with a wave of hospitalizations driven by the omicron variant. President Joe Biden will announce on Thursday that his administration is deploying military doctors, nurses and others to six hospitals in six states, including Coney Island Hospital in Brooklyn and University Hospital in Newark, the White House said. The workers are relief teams dispatched to ease pressures on overwhelmed health centers. Biden will make the announcement in a speech on the latest in his administration’s pandemic response, focusing on surge teams and aid sent to states. He’ll be joined by Defense Secretary Lloyd Austin and Federal Emergency Management Agency Administrator Deanne Criswell.
  • China detected omicron in a second major port city, deepening concern about a wider outbreak at Beijing’s doorstep and raising the prospect that more foreign businesses would halt operations along the northeastern coast. France eased border restrictions for U.K. travellers who are vaccinated as both countries face the spread of omicron, while Germany reported record new infections for a second day. Crowds at the Australian Open will be capped at half capacity as authorities in host city Melbourne worry about surging infections. A U.S. study found that almost all teenagers who needed intensive care for Covid-19 were unvaccinated, bolstering the case for the shot in teens.
  • LG Energy Solution is set to price Friday its initial public offering that’s poised to be South Korea’s largest on record, amid a frenzy for new issuance that has dominated the market over the past year. The battery maker and its parent LG Chem Ltd. are expected to raise up to 12.75 trillion won ($10.7 billion) by selling 42.5 million shares. Institutional investors have oversubscribed the offering by more than 1,500 times, the Seoul Economic Daily reported, citing unidentified people in the investment banking industry. Even if priced at the bottom of the marketed range at 257,000 won, proceeds would exceed past annual amounts raised in South Korea, with the exception of 2021, data compiled by Bloomberg show. At the top price of 300,000 won, the size would be more than double Samsung Life Insurance Co.’s 4.9 trillion won IPO in 2010, the nation’s largest deal to date.
  • Boeing Co.’s 737 Max is poised to resume commercial flights in China as soon as this month, according to people familiar with the matter, a significant milestone for the narrow-body workhorse after it was grounded worldwide in 2019. A so-called operational readiness flight conducted by Hainan Airlines on Jan. 9 is a sign the model could return to China’s skies within weeks, according to the people, who asked not to be identified discussing non-public information. The country’s Max operators haven’t given a specific date for the resumption and the move could still be delayed, particularly with Lunar New Year holidays approaching. Boeing shares jumped 2.9% in premarket New York trading on Thursday after the Bloomberg report.
  • Taiwan Semiconductor Manufacturing Co. raised its growth projections and unveiled record spending plans for 2022, signaling that the voracious demand for chips that has fueled a months-long supply chain squeeze will persist for years. Apple Inc.’s most important chipmaker is now projecting average sales growth of 15% to 20% annually — as much as double its previous expectation. The company foresees sales of $16.6 billion to $17.2 billion in the first quarter alone, at least 5% ahead of estimates. It intends to spend $40 billion to $44 billion expanding and upgrading capacity in 2022. Those numbers affirm TSMC’s pole position in the market during an unprecedented chip shortage triggered by the pandemic, a deficit that’s walloped the production of cars, mobile phones and game consoles. Asia’s most valuable corporation intends to continue spending heavily to maintain its technological lead over Intel Corp. to Samsung Electronics Co., safeguarding its market share as the growing number of connected devices like cars drive datacenters and high-end computing.
  • Thyssenkrupp AG plans to hold a majority stake in its rebranded electrolysis unit after its initial public offering to tap into the growing market for green hydrogen to fight climate change. The engineering conglomerate is preparing to list its electrolysis plant business this year, renaming it Nucera, in a move that could value the unit at as much as 5 billion euros ($5.7 billion), people familiar with the matter said previously. Thyssenkrupp plans to hold more than 50% of shares following a rights issue by its joint venture with Italy’s Industrie De Nora SpA. Thyssenkrupp is hoping to raise around 600 million euros from the share issue, Krude said, implying a free float of between 10% to 20% based on analyst valuations of the division between 3 billion and 6 billion euros.
  • U.S. private equity giant Blackstone Inc. moved closer to triumphing in its almost yearlong pursuit of troubled Australian casino operator Crown Resorts Ltd. after sweetening its offer a third time to A$8.9 billion ($6.5 billion). The buyout firm, which already owns 10% of Crown, lifted its bid to A$13.10 per share, from a November offer of A$12.50, the Melbourne-based casino company said in a statement Thursday. Crown sharesrose 8.7% to A$12.64 in early afternoon trading in Sydney after closing at A$11.63 on Wednesday. Crown said it will now engage with Blackstone, and will recommend shareholders accept the bid if a binding offer of at least A$13.10 a share is made. A deal would end a sorry chapter in Crown’s history after it was found unsuitable to run its Sydney casino and given two years to address a litany of wrongdoing at its flagship Melbourne casino, including facilitating money laundering and underpaying taxes.
  • Federal Reserve Bank of San Francisco President Mary Daly and her Philadelphia Fed peer Patrick Harker joined the ranks of officials publicly discussing an interest-rate increase as early as March as the central bank seeks to combat the hottest inflation in a generation. “I definitely see rate increases coming, as early as March even, because it really is clear that prices have been uncomfortably high,” Daly told PBS NewsHour in an interview Wednesday evening. “American consumers are feeling the pain.” Their messages, which echo remarks from other Fed officials in recent days, have been fully absorbed by financial markets. Investors expect policy makers to raise interest rates at their March meeting and signal a shift toward shrinking the Fed’s $8.8 trillion balance sheet later in 2022.
  • Amtrak’s new expansion plan that requires a $75 billion federal government investment over fifteen years relies on state partnerships to add intercity service, minimizing the risk of taxpayers being on the hook for large additional subsidies, the railroad’s top official said. The expansion plan was unveiled after Congress passed a $550 billion infrastructure bill that includes $66 billion for passenger rail improvements that be split between Amtrak and the U.S. Federal Railroad Administration. It calls for adding 39 new routes that Amtrak officials said would bring service to 160 new communities.
  • Europe’s longer-term power prices were pulled lower for the seventh session as milder weather and improved gas supplies brought down nearer-term prices. It’s getting cheaper to power homes and factories across the region as more liquefied natural gas arrives in Europe to fuel power stations, and windy weather bolsters renewable output. Power costs still remain at historic highs, with Germany’s year-ahead price, a benchmark for the continent, more than double its level this time last year. That contract continued its descent, dropping 4.8% to 110.8 euros a megawatt-hour on the Epex Spot exchange by 11:27 a.m. London time. That’s a 7-day falling streak, the longest since February 2020, and was followed by prices across the continent.
  • Europe’s debt market is breaking records with $107 billion of sales in a single week as borrowers rush to get ahead of rising interest rates. Portugal, Spain and discount airline Wizz Air have all raised funding this week. The tally beats a previous record set in early 2020, when firms loaded up on cash just before the pandemic took hold. The sales boom follows an earlier-than-normal close for the market in the lead-up to Christmas, while the European Central Bank is also set to start winding down bond purchases. Rate hikes are also coming in the U.S. after the biggest surge in U.S. consumer prices in nearly four decades last year.
  • Boris Johnson bought some breathing space by apologizing for attending a party at his Downing Street office during the first pandemic lockdown, but anger in his ruling U.K. Conservative Party means his grip on power is precarious. Opposition politicians repeatedly called on him to resign during a heated session of Prime Minister’s Questions in Parliament on Wednesday. Tory benches were subdued. Johnson’s apology, for now, was just enough to calm the mutinous mood among his MPs. Early Thursday, Johnson pulled out of a planned visit to Lancashire in northern England because a family member tested positive for coronavirus, according to his press secretary.
  • Renault SA expects the semiconductor shortage that has roiled the auto industry to continue throughout 2022 despite some progress by chipmakers to increase supply. The disruptions will peak in the first six months and won’t be worse than what carmakers experienced last year, Chief Executive Officer Luca de Meo said Thursday. The supply snarls cut Renault’s output by around 500,000 cars last year. The CEO is under pressure to gradually bolster Renault’s earnings performance after the company posted a record loss in 2020. While Covid-19 dealt a blow to the French company, it came on top of pressure from the arrest of former leader Carlos Ghosn and years of excessive expansion.
  • Apartment rents in Manhattan rose to a December record, fueled by demand at buildings that have doormen. The median rent in New York’s most expensive borough climbed 16% from a year earlier to $3,475, according to a report Thursday from appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate. That was largely due to leases at buildings with doormen, where rents are now above pre-pandemic levels. Median rents at doorman buildings climbed 23% to $4,298, while buildings without doormen gained 7.8% to $2,695. That’s an example of the polarization in the market, with prices at non-doorman buildings still lagging behind 2019 levels, according to Jonathan Miller, president of Miller Samuel. Landlords at luxury buildings, meanwhile, are cutting back on concessions.
  • BlackRock Inc. has cut the already-low fees on two major fixed-income ETFs following similar moves by State Street Corp. and Vanguard Group in recent weeks. The world’s largest issuer of exchange-traded funds reduced the fee on the $25.2 billion iShares MBS ETF (ticker MBB) to 0.04% from 0.06%, and on the $9.2 billion iShares 0-5 Year TIPS Bond ETF (STIP) to 0.03%from 0.04%. The changes appeared in filings with the U.S. Securities and Exchange Commission last week and were earlier reported by the Financial Times. State Street kicked off the latest round of cost-cutting late last year, when it reduced the expense ratio on three of its corporate bond ETFs. The firm’s products were struggling to attract the same kind of cash as similar offerings from rivals.

“Hope smiles from the threshold of the year to come, whispering ‘It will be happier.'” – Alfred, Lord Tennyson

*All sources from Bloomberg unless otherwise specified