March 3, 2022

Daily Market Commentary

Canadian Headlines
• Toronto-Dominion Bank, which earlier this week announced a $13.4 billion acquisition to expand in the U.S., got a lift from loan growth at home. Total revenue for the bank’s Canadian retail unit rose to C$6.72 billion ($5.32 billion) in the fiscal first quarter, up 5.9% from a year earlier, the Toronto-based company said Thursday. Overall profit topped analysts’ estimates. Toronto-Dominion has staked much of its future on expanding its U.S. retail-banking business. On Monday, it announced an agreement to buy First Horizon Corp. — its largest acquisition ever — to fill in its footprint in the Southeast. The deal was struck as Toronto-Dominion benefits from stronger borrowing trends among domestic consumers and businesses, with total average personal loans rising 7.8% in the three months through January while business loans increased 14%.
• Toronto home sales surged in the lead-up to the Bank of Canada’s interest-rate hike this week, with the prospect of higher borrowing costs seeming to spur more buyers to try to get in the market while they can. Canada’s largest city saw about 10,500 properties change hands in February, the most in almost a year, and a 5.9% gain from last month, according to data released Thursday by the Toronto Regional Real Estate Board. The seasonally adjusted average sale price rose 1.3% to C$1.3 million ($1 million). “We have seen a slight balancing in the market,” Jason Mercer, the real estate board’s chief market analyst, said in a statement. “However, because inventory remains exceptionally low, it will take some time for the pace of price growth to slow. Look for a more-moderate pace of price growth in the second half of 2022 as higher borrowing costs result in some households putting their home purchase on hold.”
World Headlines
• European stocks retreated on Thursday as investors considered the risks to economic growth in the region from soaring commodity prices amid the war in Ukraine. The Stoxx Europe 600 was down 0.4% by 9:18 a.m. in London. Utilities led the declines and travel and leisure shares were under pressure. In the meantime, miners jumped with metals and energy surged as oil soared to the highest level since 2008 as buyers continued to shun Russian crude following its invasion of Ukraine. European stocks are down about 10% from this year’s record high due to concerns from increasingly hawkish central banks and soaring inflation. Russia’s invasion of Ukraine has added to investor worries, particularly as the war sent commodity prices surging and as sanctions risk hurting European economic recovery.
• U.S. futures fell with European stocks on Thursday as the war in Ukraine entered its second week and investors weighed the impact of volatile commodity prices on inflation and economic growth. Commodities markets have been upended by the Ukraine crisis as big companies withdraw from Russia, lenders pull back from financing deals and the threat of new sanctions deters buyers. Zinc reached its highest since 2007 and aluminum surged to an all-time high. Treasuries were little changed after sharp losses on Wednesday, though the U.S. 10-year yield remains below the 2% levels seen before Russia’s invasion. The dollar and gold advanced.
• Asian stocks advanced as comments by Federal Reserve Chair Jerome Powell gave investors some relief amid concerns over the Russia-Ukraine war. The MSCI Asia Pacific Index rose as much as 0.9%, lifted by financial and industrial shares. Japan and South Korea equities were among the best performers, getting boosts from electronics and auto makers. In his testimony to U.S. lawmakers, Powell backed a quarter-point rate increase later this month while vowing to combat inflation in light of global political risks. The modest increase helped ease investor fears of aggressive Fed policies to control the pace of price increases even as oil continued to surge due to the war.
• Oil extended a streak of extreme volatility, with Brent nearing $120 at one point Thursday, as buyers continued to shun Russian crude following the invasion of Ukraine. The global benchmark was trading near $115, after earlier adding as much as 6.1%. West Texas Intermediate touched its highest since 2008. Buyers are continuing to avoid Russian crude as they try and navigate financial sanctions, and traders are betting prices will keep rising. There is also turmoil in markets for refined products, where prices are soaring. Surging oil costs are adding to the inflationary pressures on the global economy, boosting the prices of everything from gasoline at the pump to diesel used by industrial consumers.
• Gold held a decline as Federal Reserve Chair Jerome Powell backed a quarter-point interest-rate rise later this month, prioritizing the fight against inflation over the economic risks from Russia’s invasion of Ukraine. Bullion is consolidating above $1,900 an ounce amid concern Russia’s increasing isolation will stoke inflation and dim the outlook for global growth. The U.S. central bank may have to take tougher action if price pressures don’t start to ease, Powell said. Treasury yields rebounded on Wednesday, reducing the appeal of the non-interest bearing precious metal.
• Wheat prices extended their meteoric rally, soaring past $11 a bushel to the highest level in 14 years, as Russia’s invasion of Ukraine brings shipments from one of the world’s biggest growing areas to a virtual standstill. The war and the implications of sweeping U.S. and European sanctions on Russia have upended Black Sea supplies at a time when global stockpiles are already tight. Ukraine and Russia ship more than a quarter of the world’s wheat exports, and the fighting has closed ports, halted transport and severed logistics. The war also threatens planting this year in Ukraine as farmers could be involved in the fighting, and seeds and fertilizer will be in short supply. The shortages are likely to spill over to next season, or potentially even longer. Bumper harvests in North America and other parts of Europe will be critical this summer to curb more price increases. With flows from the Black Sea region snarled by the war, buyers are considering forward contracts for Australian grain as far out as the third quarter, said top shipper CBH Group.
• The White House is asking Congress for $32.5 billion in emergency funding to boost its response to Russia’s invasion of Ukraine and tackle the ongoing fight against the coronavirus at home. President Joe Biden’s administration is asking for $10 billion for Ukraine, money that will be used to address the mounting humanitarian crisis as well as assist its defense against Russia. Of that, $4.8 billion would go to the Pentagon and $5 billion to the State Department. For the fight against Covid-19, the administration asked for $22.5 billion for new investment in testing, anti-viral treatments and improved vaccines in anticipation of a possible new variant and subsequent wave of infections. That’s less than the $35 billion the White House had initially suggested it might seek for Covid aid.
• European stocks with business exposure to Russia have lost more than $100 billion in market value since the war risks surged. Still, with the impact of sanctions on Moscow remaining uncertain, few are ready to snap them up just yet. “Nobody knows where this ends and we are in a maximum uncertainty environment that requires a rethinking for most investors,” said Peter Garnry, head of equity strategy at Saxo Bank AS. From gold miner Polymetal International Plc to tire maker Nokian Renkaat Oyj and Austria’s Raiffeisen Bank International, the selloff of European companies with Russian exposure has been severe. Some stocks have lost three-quarters of their value since Feb. 18, when concerns over a Russian invasion of Ukraine began to take hold. Popular names such as Renault SA and Wizz Air Holdings Plchave also fallen more than 20%.
• Perfect Corp., an Asian startup that makes software for the beauty and fashion industries, agreed a deal to go public by merging with U.S.-listed blank-check company Provident Acquisition Corp. The transaction gives the business an enterprise value of about $1 billion, according to a statement confirming an earlier Bloomberg News report. The combined company plans to use the funds from the deal to enhance its augmented reality and artificial intelligence solutions, extend its market reach beyond beauty and fashion and to accelerate its global expansion.
• As U.S. investigators scrutinize how banks and hedge funds trade large blocks of stock, Goldman Sachs Group Inc. is pulling back from at least one money manager whose communications have drawn interest from authorities, according to people with knowledge of the matter. The investment bank is cutting business ties with Joseph Samuels’s Islet Management, the people said, asking not to be identified discussing private dealings. The reason for the decision — and whether it relates to the investigation — couldn’t immediately be determined. Neither Goldman nor Islet have been accused of any wrongdoing in the inquiry touching a wide range of firms.
• Singapore’s weekly infection growth rate is falling for the first time since early January. Malaysia and Indonesia are adding fewer cases each day after a February spike, an early sign that the omicron wave may have peaked. The omicron strain is at least 40% more lethal than seasonal flu, according to a Japanese analysis. Western Australia finally reopened its borders to vaccinated travelers on Thursday, after almost two years of closures that were intended to stamp out the coronavirus. That means the entire continent is now once again open to tourists and foreign workers.
• The rush into Treasuries sparked by Russia’s war in Ukraine has exposed fresh signs of weakness in the world’s biggest bond market, adding to pressure on U.S. regulators to detail a reform plan. The latest indications of poor trading conditions include a deterioration in the ability to buy or sell a security without moving its price, market participants say. There’s also a slump in the volume of trading of non-benchmark Treasuries, according to Bloomberg Intelligence. The past several days’ trading, with two-year yields abruptly tumbling before ricocheting back, also suggests to some a degree of volatility that goes beyond normal reaction to new developments.
• The steady drumbeat of retaliatory actions against Russia for its invasion of Ukraine comes with some U.S. signaling that it doesn’t want the crisis to spiral out of control. The U.S. and European allies have led efforts to sanction Russian banks, target politically connected oligarchs, bolster Ukraine’s defenses and rally international opinion against President Vladimir Putin’s war. But the Biden administration has also held off in responding to what it sees as overt provocations from Moscow meant to inflame tensions further. In the days after Putin announced on national television that Russia’s nuclear arsenal was on a “special regime of high-alert combat duty,” U.S. officials repeatedly said they saw little to justify a response. And the Biden administration went a step further Wednesday, postponing a Minuteman-III intercontinental ballistic missile test planned for this week.
• Donald Trump adviser John Eastman’s emails may have evidence the former president and his associates committed crimes in attempting to prevent Congress from certifying the 2020 election results, a House committee investigating the Jan. 6 insurrection said in a court filing. It’s the first public signal that the committee is looking into criminal activity by those within Trump’s inner circle. The committee says the emails may contain evidence of obstruction of an official proceeding — a felony that carries a maximum sentence of 20 years in prison — a conspiracy to defraud the U.S. and common law fraud.
• French customs officials have taken control of a giant yacht owned by Rosneft Chief Executive Officer Igor Sechin as part of the European Union’s sanctions against Russia, French Finance Minister Bruno Le Maire said on Thursday. The Amore Vero was confiscated overnight in the Mediterranean port of La Ciotat, near Marseille, on the French Cote d’Azur as it was preparing an urgent departure, according to the French Finance Ministry.
• Snowflake Inc., a software company that helps businesses organize data in the cloud, plunged 22% in early trading on Thursday after projecting that annual product sales growth would slow from its previous triple-digit-percentage pace. Executives said improvements to the company’s data storage and analysis products will let customers get the same results by spending less, which will hurt revenue in the short term, but attract more clients in the future. Product sales will increase as much as 67% to $1.9 billion in the current year, the company said Wednesday in a statement. While in line with estimates, the forecast represents a significant decline in Snowflake’s revenue growth, which has more than doubled year-over-year in each of the past six quarters.
• European natural gas prices whipsawed on Thursday, soaring to an all-time high and then erasing those gains just as quickly. Benchmark Dutch futures declined 1.9% to 162.42 euros a megawatt-hour by 1:16 p.m. in Amsterdam, after nearly climbing to 200 euros for the first time on record. The U.K. equivalent fell 1.7%. The price swing occurs against the backdrop of already inflated energy prices, due to historically low gas inventories in Europe. The war in Ukraine and related sanctions targeting Moscow have upended commodities markets, with the world in the grip of inflation amid the recovery from the pandemic.
• With a naval fleet reported near the Ukrainian city of Odesa and the city of Kherson taken, it’s increasingly clear that Russia’s invasion is gaining pace in the country’s open and hard-to-defend coastal plains, even as its advance is slowed in the north. Along with Russia’s shift to more aggressive artillery and aerial attacks on urban centers, that is tempering optimism over Ukraine’s ability to sustain its so far effective organized resistance against a superior force. “We are now in for the long haul and Russia is reorganizing itself to ensure that it wins this war,” according to Keir Giles, senior consulting fellow for the Russia and Eurasia program at Chatham House, who spoke on a webinar. “So the implications of the Russian way of war is that we need to prepare now for humanitarian catastrophe.”
• Elon Musk continued his months-long effort to get U.S. President Joe Biden to credit Tesla Inc. for its electric vehicle leadership by sending a message to the United Auto Workers union. The Tesla chief executive officer tweeted Thursday that the UAW was welcome to hold a vote at the company’s San Francisco Bay area factory. The company “will do nothing to stop them,” Musk said of the union. Musk isn’t so much offering a concession to the UAW as he is trying to make a point. U.S. labor law encourages collective bargaining and protects private-sector employees from being retaliated against for organizing. But the world’s richest man is betting a vote held by the union — a key ally of Biden’s — would fail because of how Tesla treats and compensates its workers.
• The rapid wage growth U.S. workers have come to enjoy — and left businesses scrambling to keep up — likely isn’t retreating any time soon. The February jobs report on Friday is forecast to show average hourly earnings advanced another 0.5% last month, pushing the year-over-year gain to 5.8%. Excluding two pandemic-distorted prints in 2020, the annual increase would be the strongest in data back to 2007. While some slowing is expected, wage growth is poised to remain exceptionally strong in 2022. Along with soaring commodities prices since Russia’s invasion of Ukraine, high labor costs are yet another factor the Federal Reserve will have to contend with as it prepares to raise interest rates to tamp down inflation.
• Best Buy Co. predicted a decline in its operating margins amid pressure from rising costs and investments to differentiate its business model. Operating profit will amount to only 5.4% of sales in the current fiscal year, excluding some items, down from 6% in the year just ended, the electronics retailer said in a statement Thursday as it reported earnings. The forecast trailed the 5.7% average of analyst estimates compiled by Bloomberg. The outlook points to a challenging year for Best Buy as it contends with soaring inflation and the end of a demand surge for its gadgets and services that had been sparked by the coronavirus pandemic. The company expects that by 2025, it will be seeing strong revenue growth and operating margin expansion “well beyond” what it reported last year.
• The sanctions the U.S. and Europe are slapping on Russia’s economy and the billionaires around President Vladimir Putin are unprecedented in scope. Some experts wonder if these powers have made clear what actually needs to happen to get those restrictions lifted. With each day bringing new punishments—against Russia’s central bank, the airline sector, and more—President Joe Biden’s focus has been on inflicting as much pain as possible and slowing Russia’s invasion of Ukraine. The broad reach of the measures, and the coordination among the U.S. and other powers, has also demonstrated the international community’s united anger at the invasion of the sovereign country. But there’s concern that the administration isn’t thinking hard enough about how to bring the conflict to an end. That’s spurring fears even among Biden supporters, because it suggests his team is committing some common mistakes when it comes to sanctions: imposing them as a purely punitive measure to assert U.S. disapproval rather than to push Putin into a certain behavior. Once the sanctions are turned on, they fret, they could be impossible to switch off unless Putin is overthrown.
• When Verizon, AT&T, and T-Mobile introduced the first 5G mobile services in the U.S. three years ago, they promised 10-times faster connection speeds that would unlock a new era of technological advancements. Although no one expected doctors to immediately turn their scalpels over to robots, the telecommunications industry has loudly trumpeted an array of business opportunities such as using augmented reality as a way for online shoppers to try on clothes remotely. The three big U.S. carriers have spent more than $100 billion on 5G airwaves and network upgrades, but they have little to no revenue or major new businesses to show for it. Moreover, the arrival of the technology has gone largely unnoticed by consumers, and the future fortunes the industry is banking on are far from certain. “There isn’t an immediate payoff,” says Tammy Parker, an analyst with GlobalData Plc. From the start, there have been challenges with the technology, like when AT&T Inc. confusingly branded 4G as “5G E.” Conspiracy theorists have tagged 5G as a source of harmful radiation and a spreader of the coronavirus. More recently, airlines have complained that some frequencies could interfere with radar and jeopardize air safety. To date, the biggest knock against 5G is that it’s been a nonevent. And, by the time it’s in full force, big tech companies including Amazon, Microsoft, and Google may have beaten the wireless carriers to the kinds of data-hungry applications that superfast 5G networks have been expected to spawn.

*All sources from Bloomberg unless otherwise specified