June 17, 2022
Daily Market Commentary
- Canadian equities plunged to their biggest drop since June 2020, hitting their lowest point in 14 months as concerns mount that a recession is coming. The S&P/TSX Composite fell 3.1% at 19,004.06 in Toronto. Toronto-Dominion Bank contributed the most to the index decline, decreasing 3.4%. Cargojet Inc. had the largest drop, falling 19.3%.
- Champion Petfoods is exploring options including a potential sale that could value the company at more than $2 billion a few years after its last takeover talks, according to people with knowledge of the matter. The company, based in Edmonton, Alberta, is working with an adviser on the planned process, the people said, asking not to be identified discussing private information. Deliberations are at early stage and may not lead to a transaction, the people said. Pet food, viewed as a recession-proof business, has seen a boom as pet ownership ballooned during the Covid pandemic. About 70% of US households owned a pet in 2021 and 2022, up from 67% in 2019, according to a survey conducted by the American Pet Products Association.
- European stocks rose on Friday, trimming their weekly drop, as dip buyers emerged and Bank of America Corp. strategists lifted the region’s equities to neutral, saying the selloff has gone too far. The Stoxx Europe 600 Index was up 1% by 9:26 a.m. in London after slumping yesterday to its lowest since February 2021. Real estate, travel and leisure and financial services sectors outperformed. The regional benchmark gauge has been roiled this year with central banks embarking on a rate hiking path at a time when runaway inflation and slowing economic growth were already denting the outlook for equities. Bank of America strategists led by Sebastian Raedler said most of the impact from negative economic news has already been priced into the European stock market, with the Stoxx 600 trading about 19% below its January record high.
- S&P 500 and Nasdaq 100 contracts climbed more than 0.9%, signaling steadier sentiment compared with Thursday’s plunge in US shares to the lowest since late 2020. Friday also brings the quarterly event known as triple witching. The $3.5 trillion options expiry may lead to short covering, which could bring temporary relief for the stock market. Markets are rounding off a week buffeted by interest-rate increases, including the Federal Reserve’s biggest move since 1994, a shock Swiss National Bank hike and the latest boost in UK borrowing costs. The rate hikes are draining liquidity, sparking losses in a range of assets. Global stocks face one of their worst weeks since pandemic-induced turmoil of 2020. The question is how far assets have to sink before the tightening cycle is fully priced in.
- Asian stocks tumbled to a two-year low as traders fear the global rush to hike interest rates may result in a steep economic downturn. The MSCI Asia Pacific Index slumped as much as 1.5% Friday. The measure has fallen every session this week, and is on track to post its largest weekly drop since since the early days of the pandemic in March 2020. Asia stocks have fallen along with global peers as concerns over the potential for more jumbo rate hikes by the Federal Reserve, which raised its benchmark by 75 basis points on Wednesday, triggered a broad market rout. As the global campaign to rein in decades-high inflation continues, investors worry policy tightening may become overdone and throw major economies into recessions.
- Oil is heading for its first weekly decline since April after a period of choppy trading as investors weigh the prospect of further monetary tightening from central banks to curb rampant inflation. West Texas Intermediate was trading near $118 and is on track for a 1.6% decline this week. Federal Reserve Chair Jerome Powell this week openly endorsed for the first time raising interest rates well into restrictive territory, a strategy that’s often resulted in an economic downturn. The bank hiked rates the most since 1994 on Wednesday to combat inflation. Russia’s invasion of Ukraine has compounded global price rises and helped to drive up the cost of everything from food to fuels. US retail gasoline prices have repeatedly broken records and the national average recently topped $5 a gallon. The White House is weighing limits on fuel exports to try and alleviate the pump pain.
- Gold is heading for a weekly decline as traders weigh the impact of tighter monetary policy on global growth. While higher rates will damp the appeal of non-interest bearing bullion, deepening fears over an economic slowdown driven by rampant inflation have supported demand for the haven asset. The global stock and bond rout continued this week after the Federal Reserve raised rates by 75 basis points, the biggest increase since 1994, and central banks in Europe lifted borrowing costs. The Bank of Japan held firm with its rock-bottom interest rates Friday, resisting an intensifying global wave of central bank tightening and market pressure on the yen and government bonds. On Thursday, the Swiss National Bank unexpectedly increased rates for the first time in 15 years, while the Bank of England raised its lending rate to its highest since 2009 and cautioned of more to come.
- Iron ore’s rout extended to a seventh day, with the plunge taking prices back to levels last seen in January, as China’s Covid Zero policy triggered concern disruptions to industry will last for months to come. The steel-making ingredient has fallen about 12% so far this week, its heaviest weekly decline in more than seven months. The demand outlook has been further clouded by China’s announcement that it plans mass-testing drives across Shanghai’s 25 million residents every week, while a temporary lockdown will also be imposed on residential complexes where a Covid case is detected. Although the new measures will initially last until at least the end of July, some China watchers expect they may be in place until the start of next year. That’s undermining hopes that affected cities will soon return to normalcy after months of severe disruptions to businesses and roiled factory operations.
- Syngenta Group is considering a plan to launch its mega initial public offering in Shanghai before the end of this year, according to people familiar with the matter, paving the way for one of the world’s biggest listings in 2022. The seed and fertilizer giant owned by China National Chemical Corp. could seek a 65 billion yuan ($9.7 billion) listing on Shanghai’s Nasdaq-style Star Board that it has already announced, the people said, asking not to be identified as the information is private. The Switzerland-headquartered company could allocate about 30 billion yuan worth of the offering to strategic investors, the people said. It planned to sell as many as 2.79 billion new shares in the IPO, equivalent to a 20% stake, according to a prospectus filed last year.
- The world’s central bankers are unleashing what may prove to be the most aggressive tightening of monetary policy since the 1980s, risking recessions and roiling financial markets as they rush to tackle the surge in inflation they didn’t see coming. The week began with a sudden shift on Wall Street to price in a 75 basis pointinterest-rate increase by the Federal Reserve. The US central bank delivered that on Wednesday — the biggest move since 1994 — as Chairman Jerome Powell declared himself “strongly committed to bringing inflation back down.” The bond market’s reaction to the concerted withdrawal of stimulus proved so violent the European Central Bank Wednesday held an emergency meeting to address surging yields in some euro-zone members. Emerging markets from Brazil to Taiwan to Hungary also lifted borrowing costs, while Australia, South Korea, India, New Zealand and Canada are among those preparing more action.
- President Joe Biden will launch a global infrastructure initiative to counter China’s international ambitions, particularly in the Indo-Pacific, National Security Advisor Jake Sullivan said Thursday. The announcement is set for next week’s Group of Seven summit. The heads of state will meet June 26-28 in Germany. The US-initiated partnership will cover global infrastructure, physical health and digital infrastructure and will provide “an alternative to what the Chinese are offering,” ultimately with hundreds of billions of dollars in investment between the US and its G-7 partners, Sullivan said at an event hosted by the Center for a New American Security.
- Facebook’s hometown of Menlo Park, California, has struck a deal to decarbonize 95% of its buildings by 2030, replacing the city’s fossil-fuel infrastructure with climate-friendly heat pumps, solar panels and electric car chargers. The wealthy Silicon Valley enclave on Wednesday announced a partnership with BlocPower, a New York-based company that, in founder Donnel Baird’s words, “turns buildings into Teslas.” In New York City, the startup coordinates and finances retrofits of apartment buildings, replacing natural-gas and oil boilers with high-efficiency heat pumps and solar panels. BlocPower has focused on low-income communities and last year the city of Ithaca, New York, chose the company to lead an initiative to decarbonize its building stock.
- Airline and airport executives spent the past two years trying to convince everyone it’s safe to fly during a pandemic, touting reduced touch points and hospital-grade filters. Little did they know how overwhelmed they’d be once travel came roaring back. From Sydney, where passengers are waiting for hours to check in, to chaotic scenes in India and Europe, where the UK has seen weeks of disruption and Deutsche Lufthansa AG is canceling hundreds of flights, the aviation industry doesn’t have nearly enough people to run operations smoothly, even as post-summer demand for travel is still unclear. As countries reopen borders and Covid curbs fall away, travel has sprung back with such voracity that it’s resulted in an unprecedented labor crunch, made worse by the pandemic-induced layoffs of hundreds of thousands of workers, from pilots to cabin crew and ground-handling staff. Many are in no mood to come back but even if they were, scaling up at such pace is a risk for airlines and airports, with spiraling inflation and economic pressures putting a question mark over how sustainable the current demand really is.
- European natural gas prices headed for the biggest weekly gain since Russia began its war on Ukraine as Moscow’s deep supply cuts reverberate across the region. Benchmark futures rose as much as 8.4%, taking this week’s gain to about 60%. Eni SpA will receive just half of what it requested from Gazprom PJSC on Friday, compared with about two-thirds the previous day. The cuts have hit some of the biggest consumers in a blow for the region that’s already struggling with surging inflation and meager growth. European politicians accuse the Kremlin of using gas for political ends, and the cuts coincide with a symbolic trip by the leaders of Italy, Germany and France to Ukraine this week. Italian Prime Minister Mario Draghi said Moscow’s claims the cuts are not deliberate but rather due to technical glitches are “lies.” Germany accused Russia of trying to push the price of gas up as the government urged citizens to curb consumption.
- While US drivers despair over gasoline topping $5 a gallon, spare a thought for motorists in oil-rich Norway, where prices sit at $10. Gas stations in Oslo were selling the unleaded fuel for about 27 kroner a liter, or about $10.30 a gallon, on Friday. That makes it the most expensive European country to fill up and second only to Hong Kong globally. Almost half of the pump cost in the Nordic nation is made up of road, carbon and sales taxes, according to the Norwegian Automobile Federation. Norway is Europe’s top petroleum producer and the surge in oil and gas prices due to the war in Ukraine has boosted its coffers. But its consumers — like those across the continent — have been hit by rising pump prices at a time when they’re being squeezed by higher energy and near-record food costs.
- The European Commission recommended that Ukraine and Moldova be granted candidate status in a symbolic step on the long path to become members of the European Union, according to two people familiar with the matter. The EU’s executive arm approved it Friday with conditions that the pair will have to meet in the future on the rule of law, justice and anti-corruption, the people said. The commission also recommended that Georgia receive candidate status, but after it meets specific conditions, two of the people said. The recommendation is particularly significant for Ukraine, which has invested so much of its political future on a closer relationship with Europe as it seeks moral support in countering Russian aggression.
- BNP Paribas SA has expressed interest in a potential acquisition of ABN Amro Bank NV, the Dutch consumer lender that’s been government-owned since the financial crisis, according to people with knowledge of the matter. France’s biggest bank recently reached out for a meeting with the Dutch government and discussed its interest in a transaction, the people said, asking not to be identified because the information is private. BNP is drawn to ABN Amro’s retail and corporate franchise and the opportunity to expand in northern Europe, the people said. The Dutch government isn’t seriously examining the interest for the time being, and BNP’s preliminary contact hasn’t progressed to any detailed negotiations, the people said. The state may prefer to sell down further shares on the market, which would allow it to raise money while retaining some control, one of the people said.
- China’s central bank has agreed to accept Ant Group Co.’s application to set up a financial holding company, Reuters reported, clearing a path for the fintech giant to potentially revive its listing plans following a lengthy regulatory overhaul. The People’s Bank of China’s acceptance signals that approvals are expected and Ant is poised to emerge from a regulatory crackdown, Reuters reported, citing people familiar with the matter. Beijing has promised to unwind crackdowns that torpedoed Ant’s record initial public offering in 2020 and ensnared every sector from online education to gaming. Once Ant is able to set up the financial holding company, it can fold key operations into the entity, following a framework laid down by the central bank last year.
- With crypto prices tumbling precipitously, traders have begun increasingly turning against one another to eke out ever-elusive profits. Many shark traders scour blockchains — digital ledgers for recording transactions — seeking information on other traders, particularly those with highly leveraged positions, an anonymous user known as Omakase, a contributor to the Sushi decentralized exchange, said in an interview. The sharks then attack the positions by trying to push them into liquidation, and earning liquidation bonuses that are common in decentralized finance (DeFi), where people trade, lend and borrow from each other without intermediaries like banks.
- Revlon Inc. shares surged as much as 65% in pre-market trading after ET Now, citing people familiar with the matter, reported that Reliance Industries Ltd. is considering buying the cosmetics giant. Reliance Industries, controlled by Indian billionaire Mukesh Ambani, is mulling an offer just days after Revlon filed for Chapter 11 bankruptcy, the publication reported. Revlon, owned by billionaire Ron Perelman’s MacAndrews & Forbes, suffered during the pandemic after years of declining sales and endured financial controversies that the company said Thursday could “impede” its restructuring process.
- World Wrestling Entertainment Inc. said Chief Executive Officer Vince McMahon will step back from his duties while the board investigates allegations of misconduct by him and another executive. McMahon, who is also chairman, will retain his responsibilities related to the company’s creative content during the period, according to a statement Friday. Stephanie McMahon was appointed by a special board committee to serve as interim CEO and interim chairwoman. The move comes several days after a Wall Street Journal report, citing people familiar with the matter, described a secret $3 million payment McMahon made to a female former employee with whom he allegedly had an affair, as well as non-disclosure agreements with other employees. The investigation is also looking into similar arrangements with John Laurinaitis, a former wrestler who manages talent relations for WWE.
- In an email, Gwynne Shotwell, SpaceX’s president, said the letter had made other employees “feel uncomfortable, intimidated and bullied.” SpaceX, the private rocket company, on Thursday fired employees who helped write and distribute an open letter criticizing the behavior of chief executive Elon Musk, said three employees with knowledge of the situation. Some SpaceX employees began circulating the letter, which denounced Mr. Musk’s activity on Twitter, on Wednesday. The letter called the billionaire’s public behavior and tweeting “a frequent source of distraction and embarrassment” and asked the company to rein him in. Mr. Musk is currently closing a $44 billion deal to buy Twitter. By Thursday afternoon, SpaceX had fired some of the letter’s organizers, according to the three employees and an email from Gwynne Shotwell, SpaceX’s president and chief operating officer. In her email, which was obtained by The New York Times, she said the company had investigated and “terminated a number of employees involved” with the letter.
“Do what is right, not what is easy nor what is popular.” —Roy T. Bennett
*All sources from Bloomberg unless otherwise specified