March 28, 2022
Daily Market Commentary
- Canadian consumer sentiment tumbled to its lowest level in more than a year as Russia’s invasion of Ukraine and surging inflation cloud the economic outlook, weekly polling data suggest. The Bloomberg Nanos Canadian Confidence Index, a measure of sentiment based on weekly polling, fell to 56.3 last week, the lowest reading since January last year. The gauge is down more than three points since the end of February. For the first time since 2020, the share of Canadians who believe the economy will weaken over the next six months surpassed 50%. The numbers suggest the combination of higher inflation, rising interest rates and uncertainty surrounding the war is starting to weigh on consumers, with potentially deleterious impacts on spending and growth.
- Vermilion Energy agreed to buy oil and natural gas company Leucrotta Exploration for a net cash purchase price of C$477 million. Vermilion will acquire all of the issued and outstanding Leucrotta shares for C$1.73 per share in cash. A portion of the Leucrotta land base and approximately C$43.5 million of cash will be transferred to a new company, called ExploreCo, which will be managed by the existing team
- Ontario, Canada’s largest province, is set to announce a deal with the federal government to fund new, subsidized C$10-per-day childcare spaces, Canadian Press reports, citing unnamed officials. The cost of the program has been pegged at C$10.2 billion ($8.2 billion) over five years, the news service said. Prime Minister Justin Trudeau and Ontario Premier Doug Ford have scheduled an announcement for 11 a.m. Toronto time on Monday. Ford told reporters Sunday to “stay tuned” for a potential childcare announcement but declined to say when a deal might be announced. Ontario is the last of Canada’s 10 provinces to announce a deal with the national government on subsidized childcare, which was a Trudeau election campaign promise last year.
- European equities gained at the start of the week as investors weighed the risks from rising bond yields against bets that economic growth can continue. The Stoxx Europe 600 was up 1.1% by 12:21 p.m. in London, with automotive and insurance stocks leading gains, while basic resources and energy stocks underperformed. European stocks snapped a two-week rising streak last week as investors fretted over slowing growth amid surging bond yields and the war in Ukraine. The steepest global bond rout of the modern era extended Monday, with Treasuries sliding and the gap between 5- and 30-year yields inverting for the first time since 2006.
- U.S. futures were little changed, while Europe’s Stoxx 600 advanced. Most Asian shares lost ground, with Chinese stocks falling as a virus flareup raised worries over disruptions to business operations and the toll on economic growth. The overall picture suggested a pause in the equity rally from war-induced lows. Yields on two-year Treasuries surged as much as 14 basis points to 2.41% to lead increases across the curve, as traders priced in two full percentage points of Federal Reserve increases over the remainder of this year. Yields on five-year notes rose above those on 30-year bonds, suggesting some investors anticipate an economic downturn and perhaps even a recession. Shares in big U.S. energy companies declined in premarket trading as oil fell on concerns about demand in China, the world’s biggest crude importer. Cryptocurrency-exposed stocks gained as Bitcoin turned positive for 2022. Gold retreated.
- Asian stocks fell for a third consecutive day, as a Covid-related lockdown in Shanghai and increasing infections in Taiwan renewed investor concern about the fallout of the virus on global supply chains and manufacturing. The MSCI Asia Pacific Index lost as much as 1%, with Taiwan Semiconductor Manufacturing Co. and Sony Group the biggest contributors to the retreat. Taiwan’s Taiex was among the biggest decliners among major regional gauges, while China’s CSI 300 index fell to the lowest in two weeks as Shanghai announced plans for mass coronavirus testing. Still, Asian stocks are headed for their third-straight monthly loss, the worst stretch since early 2020, as concerns from China’s regulatory crackdowns to U.S. interest rate hikes and Russia’s war in Ukraine weigh on sentiment.
- Oil retreated as China’s worsening virus resurgence raised concerns about demand in the world’s biggest crude importer, and as worries spread over a broader economic slowdown. West Texas Intermediate and Brent futures fell more than 4% each after authorities in Shanghai said they will lock down half of the city in turns for mass Covid-19 testing. Growth risks from inflation and tightening monetary policy also hit sentiments, pushing down sovereign bonds and equity markets were mixed. Russia’s invasion of Ukraine continues to disrupt supplies of key commodities — oil is heading for a fourth month of gains despite starting lower this week — and that is stoking inflation. Russian oil supply is getting squeezed as many western buyers shun purchases. The country’s exports from March 17-23 fell by more than a quarter from the previous week, according to industry data.
- Gold dropped as Treasury yields rose amid a global rout in sovereign debt, sapping demand for the safe-haven asset after last week’s gain. Bullion fell as much as 1.6% as the sell-off in bonds continued, driven by expectations the Federal Reserve will lead an aggressive wave of global central bank tightening. The U.S. 10-year Treasury yield climbed past 2.5%, above a technical trend-line that has served as a ceiling since the late 1980s, weighing on non-interest bearing gold. On Monday, the Bank of Japan said it will purchase an unlimited amount of 10-year bonds at a fixed rate, the second such move in less than two months in a bid to keep rising yields in check. The yen weakened against the stronger U.S. dollar, hurting demand for bullion as it’s priced in the greenback.
- Wheat futures fell the most in more than a week as officials in Russia and Ukraine are due to start fresh talks in an effort to end the war. Negotiating teams from the two nations are planning to meet in Turkey this week, with large differences remaining on terms for a potential cease-fire deal, after more than a month of fighting. Both sides will arrive on Monday, and discussions are expected to start Tuesday morning, news agency Interfax reported. Russia’s invasion of Ukraine has spurred tumult for global grains trade, stalling crop flows from Ukrainian ports and disrupting the outlook for spring plantings that will be shortly underway. Sales from a few countries are helping to offset the impact to near-term supplies, including potential all-time high wheat exports from India. Some cargoes are also still flowing from Russia.
- Nickel opened lower in extremely illiquid trading in London, leaving the market stuck in limbo once again in the wake of this month’s massive short squeeze. Just 420 contracts changed hands in the first four hours of trading, as prices slumped to track overnight losses on the Shanghai Futures Exchange. Nickel, which is used in stainless-steel and electric-vehicle batteries, has dropped about 10% over two days. However, prices are still headed for the biggest monthly gain since 1988, following an unprecedented 250% spike over two days earlier this month that prompted the LME to close the market for a week. An extreme lack of liquidity since the market reopened has left nickel exposed to erratic price moves, raising questions about the role and future of the LME as the place where benchmark prices are set for some of the world’s most important industrial metals. There’s been spillover into other metals too, with volumes and open interest falling sharply since the LME reopened the nickel market.
- Russia signaled its intention to make coupon and principal payments for bonds due in next month and in April 2042, according to filings with the National Settlement Depository. The nation filed notifications for “interest payment” and “principal repayment” on $2 billion of dollar-denominated debt maturing on April 4. In addition, it also filed a notification for “interest payment” on bonds due in April 2042. Holders of the latter were due to receive an $84 million coupon payment on April 4.
- Ukrainian and Russian negotiating teams plan to meet in Turkey this week with big differences remaining on terms for a potential cease-fire deal after more than a month of fighting. Ukraine halted all humanitarian corridors Monday, citing information pointing to planned Russian “provocations.” Heavy explosions were heard in several Ukrainian cities overnight, including Lutsk in the west, where Russian rockets hit an oil facility, according to regional Governor Yuriy Pohulyayko. Kremlin spokesman Dmitry Peskov said that President Joe Biden’s remarks calling for the removal of Vladimir Putin were “alarming.” The White House insisted the U.S. isn’t seeking regime change after Biden said the Russian president “cannot remain in power.”
- Apple Inc. looks set to snap its longest win streak this year after a report that the iPhone maker is cutting production of its entry-level smartphone by a fifth amid lower demand for consumer electronics. After nine straight sessions of gains, the stock fell 2% as of 6:36 a.m. in New York premarket trading, moving it further away from fully erasing its year-to-date drop. As of Friday’s close, the stock was down just 1.6% in 2022. The Cupertino, California-based company plans to reduce output of iPhone SEs by about 20% next quarter compared with its original plan because of signs that consumer-electronics demand is being hurt by the war in Ukraine and rising inflation, Nikkei reported, citing unidentified people. The company told multiple suppliers it was lowering production orders by 2 million to 3 million units for the quarter, according to the report.
- Tesla Inc. gained in early trading after the carmaker said it plans to seek shareholder approval for a move that would enable its second stock split in roughly two years. The company said in an oddly worded tweet early Monday that it will ask shareholders at this year’s annual meeting to authorize additional stock. In a follow-up regulatory filing, Tesla said increasing its amount of common shares will enable a split in the form of a stock dividend. Tesla share surged as much as 6.5% to $1,076.12 in premarket trading, erasing earlier declines after Chief Executive Officer Elon Musk announced on Twitter that he again has Covid-19 and is experiencing “almost no symptoms.”
- Tobacco stocks dipped after the Wall Street Journal said Walmart Inc. is ending sales of cigarettes in some stores, spurring concern other retailers may do the same. Altria Group Inc., which sells Marlboro cigarettes in the U.S., dropped 1.6% in pre-market trading. British American Tobacco Plc was little changed in London after previously trading 1.2% higher. Walmart is exiting cigarettes in some stores in states such as California, Florida, New Mexico and Arkansas after an internal debate at the retailer, the newspaper said, citing people close to the situation it didn’t name. In some shops, the cigarette shelves are being replaced with self-checkout registers and offers of candy and food.
- Investors added money to exchange-traded funds that buy emerging market stocks and bonds last week. This was the second straight week of inflows. Inflows to U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $2.79 billion in the week ended March 25, compared with gains of $1.54 billion in the previous week, according to data compiled by Bloomberg. So far this year, inflows have totalled $14.3 billion.
- Ted Baker Plc’s board rejected two bids from private equity fund Sycamore Partners Management LP, the most recent one for about 254 million pounds ($334 million). Sycamore offered 130 pence a share on March 18 and raised that to 137.5 pence a share on March 22, Ted Baker said Monday. The second bid was 9% higher than Friday’s closing price. The shares fell as much as 6.2% on Monday, erasing an initial gain. “The share move makes this look more like a walkaway situation,” said Eleonora Dani, an analyst at Shore Capital in London, one of Ted Baker’s brokers. “Perhaps the market doesn’t think Sycamore will come back with a higher offer that will satisfy the board.”
- HP Inc. has agreed to buy Plantronics Inc. in a $3.3 billion deal that will help the laptop-maker further capitalize on the pivot to hybrid work. The all-cash transaction gives Plantronics’ shareholders $40 a share, a 53% premium to its closing share price Friday, the two companies said in a statement Monday. The $3.3 billion price tag refers to Plantronics’ enterprise value, which includes debt. HP aims to tap a growing demand for technology that connects remote workers to office staff, as companies around the world accommodate employees accustomed to Covid-era flexibility. The acquisition comes as the PC giant also works to diversify beyond personal computers and printers into ancillary businesses. Acquiring Plantronics, which sells phone headsets and audio and video accessories, will help HP better meet customer demand, according to HP Chief Executive Officer Enrique Lores.
- As the worst quarter for emerging-market dollar bonds in 24 years comes to an end, a deep divide is opening up between commodity haves and have-nots, with investors focusing their hopes on exporters in the Middle East and Latin America. The rapid rise in energy and food costs as the war in Ukraine persists is weighing on the more vulnerable markets while boosting commodity producers. It’s the latest jolt for money managers who went into 2022 expecting inflation to peak as the Federal Reserve embarked on its tightening cycle. This is becoming an important moment for investors who found themselves caught off guard by the conflict in Eastern Europe, just two years after the coronavirus first sent seismic waves through financial markets.
- Barclays Plc expects to take a 450 million-pound ($591 million) hit and will delay a share buyback after mistakenly issuing about $15 billion more structured notes and exchange traded notes than it had registered for sale. The firm issued about $36 billion of investment products after registering with U.S. regulators in August 2019 to sell up to $20.8 billion, according to a statement Monday. The error will require the firm to repurchase affected securities — a so-called rescission offer — at their original price. The error was called “basic”, “bizarre” and “embarrassing” by analysts, and Barclays said it was investigating the cause and fielding questions from regulators. Major banks typically file for blanket registrations that allow them to regularly issue notes that give clients a chance to bet on everything from market volatility to the performance of Tesla Inc. shares.
- Huawei Technologies Co.’s net profit surged 76% in 2021 despite deep revenue declines across its business, reflecting efforts to shave costs and rely on homegrown components to weather the fallout from American sanctions. The Chinese networking and smartphone giant unveiled its annual results at a briefing presided over by Chief Financial Officer Meng Wanzhou, who meets media for the first time since her September release from three years of house arrest in Canada. The eldest daughter of billionaire founder Ren Zhengfei was arrested and held in Vancouver over fraud allegations. She will now help oversee a company grappling with a series of U.S. technology export and investment restrictions — most imposed by former President Donald Trump — that have severely undermined its business from the U.K. to India.
- he United Arab Emirates endorsed the continued role of Russia in OPEC+, even as governments condemn Moscow’s invasion of Ukraine and buyers shun its cargoes. “Russia is an important member” of the Organization of Petroleum Exporting Countries and its allies and is likely to remain in the group, United Arab Emirates Energy Minister Suhail Al-Mazrouei said Monday at a conference in Dubai. “This is an alliance to stay; this is an alliance we need.” OPEC+ leader Saudi Arabia has so far resisted pressure to break ties with Moscow by pumping more to partially replace Russian crude supplies affected by the international boycott. The comments from the UAE, that come just days before the group is due to meet, are another signal that it will remain united despite geopolitical turmoil over the invasion of Ukraine.
- Taiwan Semiconductor Manufacturing Co. and Samsung Electronics Co. urged the U.S. to allow foreign companies to participate in a $52 billion federal program aimed at boosting chip production on American soil. The world’s top two contract chipmakers are already both planning to spend billions of dollars to build new cutting-edge plants in the U.S. The Biden administration has made it a priority to bulk up domestic manufacturing capacity, aiming to ensure supply after chronic shortages of semiconductors over the past two years. Intel Corp. at one point suggested that U.S. taxpayers’ money should only go to domestic companies, though Chief Executive Officer Pat Gelsinger has refrained from repeating the point in his more recent remarks. Intel’s technology is at least one generation behind that of its Taiwanese and South Korean rivals.
- European natural gas prices fell as the region boosts plans to increase imports of liquefied natural gas, easing concerns of shortages next winter. Benchmark futures declined as much as 8.2%, extending losses for a third session. Russian flows to the continent also remain high. France is looking to build a new floating LNG import terminal in Le Havre, Les Echos reported Monday. Croatia plans to expand its existing facility, while others from Germany to Italy to Estonia are pushing for more plants to access LNG and sever links to Russian gas.
- consortium including units of AXA SA and Credit Agricole SAbought a 3 billion-pound ($3.9 billion) stake in the world’s largest operational offshore wind farm off the coast of the U.K. from Orsted A/S. The companies will take a 50% share of the Hornsea 2 wind farm that Orsted has nearly completed off the east coast of England. The green power plant will be able to produce enough electricity for 1.3 million homes. Offshore wind farms are a main pillar of the U.K.’s push to cut fossil fuels. Denmark’s Orsted is the world’s largest developer of the technology and has its biggest fleet in the U.K.
- The Japanese yen plunged by the most since March 2020 against the U.S. dollar as the Bank of Japan continued to ease monetary policy aggressively, diverging further from the Federal Reserve’s increasingly hawkish stance. The yen fell as much as 2.4% to 125.09 against the greenback on Monday, the weakest since August 2015. The BOJ offered for the first time to buy an unlimited amount of 10-year government bonds over the next three days, capping yields amid a global debt sell-off and eroding the currency’s appeal. The Fed raised interest rates for the first times since 2018 earlier this month and signaled more tightening would follow to curb soaring inflation. BOJ Governor Haruhiko Kuroda’s commitment to continue with stimulus has pushed the spread between U.S. and Japanese benchmark yields to the widest since 2019. The yen is down more than 7% against the dollar so far this year, by far the most among major peers, and analysts say the widening interest-rate differential stands to weaken the currency further.
- HSBC Holdings Plc will allow 30% of Hong Kong employees to work in the office from Friday, as banks in the city begin to ease Covid measures amid declining virus cases. Staff in the office must wear face masks in all areas of premises and return a voluntary negative rapid antigen test before coming into the office that day, the bank said Monday in an internal memo seen by Bloomberg News. “With the implementation of HSBC Safe Pass and further reduction in positive cases across the territory, HSBC will adjust its pandemic control measures,” the bank said in the note, referring to the vaccine mandate it laid down for staff earlier this month.
- The recovery of the second black box from the wreckage of a China Eastern Airlines Corp. jet potentially gives investigators their best opportunity to find out why the plane carrying 132 people entered a high-altitude nosedive and speared into the ground. The flight-data recorder, which was buried some 40 meters from the main crash site near Wuzhou in southern China, was unearthed Sunday morning. State media reported the device has been sent to Beijing for analysis. Much now depends on how well the black box withstood the impact of the March 21 crash. The Boeing Co. 737-800 NG appears to have largely disintegrated, and more than 36,000 pieces of debris have been recovered. Chinese state media said the crash left a crater 20 meters deep.
- Indian state-owned oil companies neither have any contract to buy oil from Russia or other countries in rupees nor are there any proposals under consideration, Rameswar Teli, junior oil minister, says in a reply to questions in parliament. Earlier this month, India’s Oil Minister Hardeep Singh Puritold lawmakers the govt was looking into issues relating to insurance, freight and payment arrangement for buying Russian oil or from other new supply sources
- As a global bond selloff gathers pace, equity strategists from Goldman Sachs Group Inc. to JPMorgan Chase & Co. reassured stock investors that there’s no need to fret about U.S. treasury yield curve’s inversion just yet. “Recessions don’t typically start ahead of the curve inverting, and the lead-lag could be very substantial, as long as 2 years,” JPMorgan strategists led by Mislav Matejka wrote in a note. “Further, over this timeframe, equities tended to beat bonds handsomely,” they said, adding that the peak in equity markets historically takes place around a year after the inversion. Goldman Sachs’s chief global equity strategist Peter Oppenheimer is of a similar view. “As the shift in the risk moves much more towards inflation, equities are at least relatively speaking more attractive, they’re a real asset, the dividends will grow over time with inflation,” Oppenheimer said in a Bloomberg TV interview on Monday.
- Mexico’s central bank gave traders an inch by shutting the door to a slowdown in the pace of rate hikes, only for them to take a mile and ask for an even more aggressive tightening. The nation’s swap rates, known as TIIE, surged on Friday as traders started to bet policy makers may increase the pace of tightening as expectations on Federal Reserve hikes and domestic inflation keep rising. Two-year TIIE climbed almost 17 basis points to 8.925%, the highest since November 2008. The curve now prices in almost 300 basis points in hikes through the end of the year — taking Mexico’s policy rate toward 9.5% — from 250 basis points before Thursday’s decision. For the rate decision in May, odds are roughly split between 50 and 75 basis points.
- A measure of credit risk is tightening while a key part of the Treasury curve inverted for the first time since 2006. Wall Street syndicate desks are projecting as much as $25 billion of fresh high-grade supply this week. Meanwhile, Barclays expects to take a $591 million hit after issuing about $15 billion more securities than it had registered for sale.
“Coming together is a beginning; keeping together is progress; working together is success.” – “Henry Ford
*All sources from Bloomberg unless otherwise specified