January 26, 2022
Daily Market Commentary
- Canadian equities rose slightly by 0.1%, ending a five-day losing streak as major U.S. markets were weighed down by potential interest rate hikes by the U.S. Federal Reserve set for tomorrow. The S&P/TSX Composite advanced slightly to 20,590.98 in Toronto, ending a 5-day loss. The gain follows the previous session’s decrease of 0.2 percent. Companies in the energy sector surged as oil prices climbed on the outlook for energy demand. Suncor Energy Inc. contributed the most to the index gain, increasing 5.0 percent. Turquoise Hill Resources Ltd. had the largest increase, rising 15.6 percent.
- Toronto-Dominion Bank plans to hire more than 2,000 technology workers this year, more than six times the number added last year, pitting the lender against fintech firms in the war for talent. The hires come as the bank works to become more digitally focused, according to a statement Wednesday, and follow the 300-plus technology roles added in 2021. Toronto-Dominion declined to say how much it’s planning to spend on the hires. The pandemic accelerated efforts by the Toronto-based company to shift to an operating model that’s more tech-centric so innovations can be quickly introduced to staff and customers, said Greg Keeley, senior executive vice president for platforms and technology. That’s increased the need for workers skilled in cloud-computing, artificial intelligence and agile project-management — and has put the bank in competition with tech giants, startups and fintechs for that talent, he said.
- Royal Bank of Canada, which has the biggest capital-markets division among Canada’s banks, has raised salaries for junior bankers for a second time as it competes for talent with Wall Street rivals. First-year investment bank analysts will now be paid $100,000, an increase of $5,000 on a previous raise in 2021, Financial News reported Wednesday, citing people familiar with the matter it didn’t identify. Second-year analysts will be paid $105,000 and those in their third year will be paid $110,000. Heightened competition for talent has seen pay soar for junior bankers in the past year. Last week, JPMorgan Chase & Co. increased salaries for its entry-level bankers for the second time in six months to $110,000 from $100,000 a year. Citigroup Inc. is also reportedly boosting base salaries for first-year analysts to $110,000, while those in their second and third years will now receive $125,000.
- European stocks gained the most in seven weeks as dip buyers returned ahead of the Federal Reserve’s meeting where policy makers are expected to signal plans for their first interest rate hike since 2018. The Stoxx 600 Europe was up 2% by 10:23 a.m. in London. More cyclical stocks, such as travel and leisure and automakers, led the gains, while personal care shares lagged. U.S. stock futures also jumped, led by Nasdaq 100 contracts. European equities are recovering after tumbling earlier this month on concerns over more aggressive interest rate hikes. While the regional benchmark is still on course for its worst month since October 2020, it has outperformed the S&P 500 thanks to a lower exposure to expensive growth stocks. Investors are also closely monitoring corporate earnings to gauge the strength of recovery amid inflation and supply crunch woes
- U.S. equity futures climbed with European stocks Wednesday ahead of a Federal Reserve decision in which officials are expected to signal plans for tightening policy. Contracts on U.S. gauges also climbed, with a jump of more than 2% in Nasdaq 100 futures signaling a rebound for tech shares. Microsoft Corp. and Texas Instruments Inc. gained in premarket trading after delivering upbeat outlooks. Markets have been volatile going into the Fed decision, with Russia-U.S. tension adding to investor concerns. Traders are waiting to see how hawkish the central bank sounds in its fight to tame inflation — both over interest-rate hikes expected from March and subsequent reductions in its holdings of Treasuries.
- Stocks in Asia were mixed after slumping across the board in the previous session, as investors awaited the Federal Reserve’s policy decision. The MSCI Asia Pacific Index was down 0.1%, on track to fall for a fourth day, with advances in communication services and financials offsetting losses in technology shares. Benchmarks in China, Hong Kong and Singapore were among the gainers, while Japan’s Topix Index fell deeper into correction territory. Asian equities have tumbled this month amid heightened volatility on the prospect of U.S. monetary-policy tightening, with the Fed expected to telegraph a March interest-rate hike on Wednesday. Worries over rising rates sent a gauge of the region’s tech hardware stocks to its lowest in months on Wednesday, with chipmakers TSMC and Samsung Electronics among the biggest drags.
- Brent oil climbed toward $89 a barrel after industry estimates showed a draw in U.S. stockpiles and investors tracked tensions over Ukraine. The global crude benchmark rose 0.9% in London. The American Petroleum Institute reported a 875,000-barrel weekly drop in U.S. crude stockpiles, according to people familiar with the data. If confirmed by government figures later Wednesday, it would be the eighth decline in nine weeks. The oil market’s structure has also surged in recent days, signaling tight supply. Crude is having a volatile week, retreating Monday then rebounding Tuesday. Prices remain close to a seven-year high with demand continuing to recover from the pandemic as mobility picks up. A string of Wall Street banks including Goldman Sachs Group Inc. have forecast oil will hit $100 a barrel this year as the global market tightens.
- Gold held near the highest level in more than two months as investors waited for the outcome of a Federal Reserve meeting that could offer more clues on the outlook for monetary policy tightening. Fed Chair Jerome Powell and his fellow policy makers are expected to signal their first interest-rate hike since 2018, setting the stage for a March move to cool red-hot inflation. The Federal Open Market Committee is all but certain to hold its benchmark rate near zero after the two-day meeting that ends Wednesday, while sticking to a plan to end its bond-buying program in March. Bullion has risen more than 4% since the end of November amid headwinds in equity markets as investors hone in on the possibility of an error by the Fed. The risk of a Russian invasion of Ukraine and a cut in the International Monetary Fund’s world economic growth forecast for this year are also aiding the haven asset.
- Austria will end a lockdown for unvaccinated people next week as the latest wave of Covid-19 infections isn’t overwhelming hospitals. Hong Kong’s zero-tolerance approach could keep the Asian financial hub cut off from most of the world until 2024, according to a report. France, South Korea and Germany posted record case numbers. BioNTech SE plans a 50% boost in staff at its biggest German factory this year as the omicron variant drives demand for boosters of the vaccine it developed with Pfizer Inc.
- Russian Foreign Minister Sergei Lavrov signaled that Moscow will respond to any “aggressive” action by the U.S. and its European allies as Germany and France pursue efforts to broker a peaceful resolution to the tensions over Ukraine. Top political advisers from Russia and Ukraine, and their counterparts from Berlin and Paris, are holding talks in the French capital on Wednesday. A group of top Italian business leaders went ahead with a virtual meeting with Russian President Vladimir Putin despite an appeal to scrap it from the government in Rome. Russia has denied it intends to invade Ukraine, despite massing thousands of troops, tanks and equipment near its neighbor’s eastern border. The Kremlin has demanded concessions from NATO, including a guarantee the alliance won’t add Ukraine as a member and a rollback of forces from former Soviet states.
- Federal Reserve policy makers are poised to signal plans for their first interest rate hike since 2018 and discuss shrinking their bloated balance sheet as they seek to restrain the hottest inflation in nearly 40 years. The Federal Open Market Committee is all but certain to hold its benchmark rate near zero after a two-day policy meeting Wednesday, while sticking to its plan to taper asset purchases and end them in March. The committee will release a statement at 2 p.m. in Washington and Chair Jerome Powell will hold a press conference 30 minutes later. There are no published forecasts at this meeting.
- Advent International and Centerbridge Partners increased their takeover offer for Aareal Bank AG to 1.86 billion euros ($2.1 billion) in a bid to win over key shareholders before the acceptance period runs out on Feb. 2. The private equity firms are now offering 31 euros a share, 7% more than the original bid, according to a statement on Wednesday. That’s their “best and final” offer, the companies said. Aareal shares rose as much as 2.9% to 28.66 euros. Major investors Teleios Capital Partners and Petrus Advisers rebuffed the initial offer over diverging views on valuation, threatening to derail the deal even after Advent and Centerbridge extended the offer period and lowered the minimum acceptance threshold last week.
- Ford Motor Co. Chief Executive Officer Jim Farley said there are no plans to sell the company’s stake in electric truck startup Rivian Automotive Inc., but didn’t rule out liquidating an investment that has increased sevenfold. “We’ll look at everything,” Farley said in an interview with Emily Chang on Bloomberg TV. “Everything is on the table. Our lock-up period ends in May.” Speculation has grown that Ford might cash out of Rivian after the 118-year-old automaker exited the startup’s board in September and abandoned plans to jointly develop an electric vehicle. Ford said last week that it intended to record a fourth quarter gain of $8.2 billion on Rivian, which went public in November in the biggest IPO of the year. Ford owns about 12% of Rivian after investing $1.2 billion in the Irvine, California-based company founded by R.J. Scaringe. Rivian also is backed by Amazon.com Inc. and other blue-chip investors.
- Imerys SA, the French provider of specialty materials, is planning a sale of its high temperature solutions business, people familiar with the matter said. The Paris-based company is working with advisers at Morgan Stanley and Rothschild & Co. to gauge interest in the unit, according to the people, who asked not to be identified because the information is private. It could fetch as much as 900 million euros ($1 billion), the people said. The high temperature solutions division provides minerals to make insulation materials for molds and furnaces used by metal foundries and iron and steel producers, as well as to protect industrial equipment used in power plants, chemical refineries and cement factories.
- AT&T Inc. posted fourth-quarter earnings that topped analysts’ expectations, giving investors less reason to fret over lavish free-phone promotions and the mounting costs of 5G and fiber network expansion. Fourth-quarter earnings excluding some items were 78 cents a share, compared with the 75-cent average estimate of analysts surveyed by Bloomberg. The company said 2022 adjusted earnings will be $3.10 to $3.15 a share on a low-single-digit revenue increase. Analysts had projected earnings would be $3.13 a share on sales of $155.2 billion.
- Squeezed by soaring yields and potential government price caps, European utilities are making a dash to the bond market. Energy companies from Italy’s Enel SpA and Germany’s E.On SE have raised 9.1 billion euros ($10.3 billion) in January, the highest tally in data going back to 2014. Utilities account for a third of all investment-grade corporate bond offerings in Europe so far this year. Issuance is up 53% compared with January 2021. Companies in the industry are tapping bond markets before borrowing costs rise even further and in case finances are hit by government price caps, bankers said. They have tended to issue shorter-dated debt, with investors increasingly wary of longer maturities given the recent volatility in the rates market.
- Citigroup Inc. will completely refurbish its 42-story office tower in London’s Canary Wharf district, a three-year undertaking that underlines the bank’s commitment to London and office-life even as it moves to more flexible ways of working. The U.S. lender said in a statement Wednesday that it expects the overhaul of 25 Canada Square to be completed in 2025. The project will cost more than 100 million pounds ($135 million) and will require all staff to relocate while the work takes place, a person familiar with the matter said. The overhauled Citi Tower, which the bank bought for one billion pounds in 2019, will have a greater emphasis on shared work spaces and energy efficiency. It is expected to be the most carbon-efficient building in Citi’s real estate portfolio and home to 9,000 colleagues in London, as well as the bank’s EMEA headquarters.
- President Joe Biden said he would consider personally sanctioning Vladimir Putin if he orders an invasion of Ukraine, escalating the U.S. effort to deter the Russian leader from war. “Yes,” Biden said Tuesday in Washington, in answer to a reporter’s question about whether he could see Putin facing U.S. sanctions. “I would see that.” The U.S. rarely levels sanctions directly against heads of state. But Biden has threatened some of the most severe economic penalties the U.S. and its allies can muster if Putin orders more than 100,000 troops massed outside Ukraine to cross the country’s border.
- After a selloff that put global stocks on course for their worst month since the start of the pandemic, strategists from Goldman Sachs Group Inc. to Citigroup Inc. say it’s now time to buy. “Any further significant weakness at the index level should be seen as a buying opportunity, in our view,” Goldman strategists including Peter Oppenheimer wrote in a note on Wednesday. Citi strategists including Robert Buckland, meanwhile, said that the “rapid de-rating of growth stocks may slow as real yields stabilize.” Equities have had a rough start to 2022, amid a rise in bond yields, expectations for Federal Reserve tightening and the threat of a war in Ukraine. The global MSCI ACWI Index is down about 7% in January, and is set for its worst month since March 2020. The S&P 500 Index, meanwhile, narrowly avoided a correction on Tuesday, closing more than 9% off its record high on Jan. 3.
- Pole position in the electric-vehicle business and a high valuation means Tesla Inc. needs to deliver a blowout quarter to reclaim its trillion-dollar market value. Tesla’s estimate-beating production and delivery stats have helped boost its projected revenue growth to 46% in 2022, a far cry compared to 20% for General Motors Co. and 15% for Ford Motor Co. The problem is, even after the stock slumped 25% from its November record, Tesla’s dizzying market capitalization of $922 billion is more than 10 times the size of those 100-plus year old Detroit giants. For Lindsey Bell, chief markets & money strategist at Ally Invest Securities, Tesla’s size only makes it more susceptible to violent market gyrations amid an environment of rising interest rates.
- Surging energy prices and a tight rein on spending have driven Big Oil’s cash flow to a new high, enticing back investors despite their concerns about climate change. The stellar fourth-quarter performance expected from the world’s five supermajors caps a long period when they had fallen out of favor amid the shift to cleaner forms of energy. Some investors are now rethinking their disavowal of the industry as tight markets send fossil fuel prices soaring. BP Plc, Shell Plc, TotalEnergies SE, Exxon Mobil Corp. and Chevron Corp. will together report $36 billion of free cash flow in the closing quarter of 2021, bringing the full-year total to a record $116 billion, according to analyst estimates compiled by Bloomberg. With the outlook for oil and natural gas getting even tighter, the majors’ cash flow is expected to come close to that level again in 2022, further adding to the industry’s appeal.
- Mattel Inc. shares rose after a report that the company has won the license to produce toys based on Disney Inc. princesses and the “Frozen” movies. Mattel will start selling the new Disney toys in 2023, the Wall Street Journal reported Wednesday. The second-largest U.S. toy company had lost the princess and “Frozen” licenses in 2016 to rival Hasbro Inc. Shares of Mattel rose 8% in premarket trading, while Hasbro slipped 0.2%. Mattel had gained about 9% in the 12 months through Tuesday and Hasbro was little changed, compared with a 13% rise in the S&P 500 Index.
- The oil market’s largest exchange traded fund, which normally buys a significant amount of crude futures, added swaps contracts to its holdings. The U.S. Oil Fund, ticker USO with total net assets of $2.6 billion, this month purchased swaps that are now valued about $150 million, according to its website. It follows an agreement signed with Macquarie to act as a swaps counterparty for USO late-last year. When crude prices crashed in April 2020, investors poured billions into funds like USO betting on a rebound. The fund was already a huge player in the futures market, and its sudden rapid growth prompted regulators to order it to alter strategy by moving into longer-dated contracts. At one point amid the scrutiny, USO was halted from buying futures altogether.
- Brazil’s annual inflation slowed less than expected in early January, underscoring the persistent price pressures the central bank faces as it prepares to hike its interest rate next week. Prices rose 10.20% from a year ago, above the 10.05% median forecast in a Bloomberg survey. On the month, they rose 0.58%, the national statistics agency reported on Wednesday. The central bank, led by Roberto Campos Neto, has deployed some of the world’s most hawkish monetary policy in the wake of the pandemic, lifting rates 725 basis points since March. Higher borrowing costs, though, have so far failed to significantly cool red-hot inflation even as the economy struggles through recession.
- A $14 billion Pentagon software upgrade for F-35 jets is being installed on planes that are already deployed even though it’s “immature, deficient and insufficiently tested,” according to a new assessment by the military’s testing office. Aircraft operators “identified deficiencies in weapons, fusion, communications and navigation, cybersecurity and targeting processes that required software modification and additional time and resources, which caused delays,” according to the 13-page assessment in the testing office’s annual report, which will soon be released. Built by Lockheed Martin Corp., the F-35 is a flying computer, with more than 8 million lines of computer code, and software needed to increase its capabilities has been marred by problems since deliveries of the upgrades began in 2020
“Success is not final; failure is not fatal: it is the courage to continue that counts.” – Winston Churchill
*All sources from Bloomberg unless otherwise specified