May 10, 2022

Daily Market Commentary

Canadian Headlines

  • Canadian equities plunged the most in nearly two years as energy and materials stocks plunged amid slumping crude oil, fertilizer and metals prices. The S&P/TSX Composite fell for the third day, dropping 3.1%, or 633.6 to 19,999.69 in Toronto. The benchmark index hit its lowest point since July 2021. Nutrien Ltd. contributed the most to the index decline, decreasing 9.6%. Bausch Health Cos. had the largest drop, falling 18.9%.
  • In the first quarter of 2022, Suncor generated the highest quarterly adjusted funds from operations in the company’s history of $4.1 billion, or $2.86 per share, including record adjusted funds from operations from our Oil Sands assets, as commodity prices increased,” said Mark Little, president and chief executive officer. “Our increased cash flows enabled us to reduce net debt by $728 million and return over $1.4 billion of value to shareholders through $827 million in share repurchases and payment of $601 million in dividends.”

World Headlines

  • European stocks gained on Tuesday as traders returned to risk assets, encouraged by cheaper valuations following four straight days of steep declines amid fears of a recession and tighter monetary policy. The Stoxx Europe 600 Index was up 1% by 9:22 a.m. in London after slumping on Monday to its lowest level in two months. Construction and automaker sectors were among the biggest gainers, while healthcare and energy underperformed.  The European gauge has been roiled this year as central banks begin to tighten policy at a time when inflation is surging, fueling concerns of a sharp economic slowdown. The war in Ukraine has been accelerating the surge in commodities, further weighing on the sentiment. The selloff this month has again pushed the index into oversold territory, with the relative strength index of the Stoxx 600 hitting 27 on Monday, the lowest since March. When this happened during the past four times in recent months, the level has been a precursor to a small rebound in the equities gauge, and in March the Stoxx 600 gained 12% from lows.
  • U.S. equity-index futures climbed as dip buyers emerged from the ruins of Monday’s rout, even though sentiment remained fragile over concerns about inflation and economic growth. Contracts on the Nasdaq 100 Index rose 1.4% a day after valuations on the equity gauge plummeted to the lowest in two years. S&P 500 futures were up 1%. The dollar erased a loss and Treasuries edged higher, signaling the return of some haven demand amid nervousness over the path of Federal Reserve policy. Traders are caught between stubbornly high inflation that erodes asset values and central-bank tightening that threatens to slow economic growth, or even push some nations into recession. Recent U.S. data suggesting the Federal Reserve will stay on an aggressive rate-hike path have sparked the latest bout of risk-off trades. Fresh outbreaks of Covid in China, and the nation’s stringent measures to control them, have worsened sentiment.
  • Asian stocks extended their decline to a seventh day as the specter of rapid credit tightening in the U.S. and protracted lockdowns in Chinese cities prompted some investors around the region to reduce holdings of riskier assets.  The MSCI Asia Pacific Index fell as much as 2.1% to its lowest level since July 2020, weighed down tech shares after a three-day selloff in the Nasdaq 100. Hong Kong’s Hang Seng Index ended 1.8% lower as the market reopened after a holiday, though benchmarks in mainland China rebounded from early-trading lows on hopes for easier monetary conditions.
  • Oil fell for a second day as European Union members continue to discuss Russian oil sanctions, while broader sentiment remained weak over inflation and economic growth concerns.  West Texas Intermediate futures fell near $101 a barrel after sliding 6% on Monday. French President Emmanuel Macron and Hungarian Prime Minister Viktor Orban discussed energy security on Tuesday as the European Union seeks to persuade Budapest to drop its opposition to proposed sanctions on Russian oil imports. The EU also postponed a planned video call with Hungary and its neighbors.  In the U.S., retail gasoline and diesel prices hit fresh records, potentially further fanning inflation in the world’s largest economy. Investors will be keenly watching the April U.S. consumer-price index data later Wednesday as central banks tighten monetary policy to rein in prices that’s been fanned by Russia’s war on Ukraine.
  • Gold held its biggest drop in a week as Treasury yields edged lower ahead of a raft of inflation data due in the coming days. Bullion edged higher after falling 1.6% on Monday, extending its slide since mid-April as the Federal Reserve and other central banks tighten monetary policy to fight accelerating consumer inflation. That’s helped push bond yields higher and fueled a run of five weekly gains in the dollar, making non-interest bearing gold less attractive.
  • Spring wheat futures climbed back toward a 14-year high as storms in North America are set to further delay plantings. U.S. farmers had sown 27% of fields with the variety by May 8, a time when almost half is usually planted, government data showed Monday. More rain in the northern Plains and northwest Midwest will keep sowing slow, and the Canadian Prairies are also due for widespread showers, forecaster Maxar said. The sluggish start to the season adds to weather risks facing global growers, with parts of Europe facing dryness and a drought subduing U.S. winter-wheat conditions. Plus, Ukrainian shipments have been stalled by Russia’s invasion. That’s keeping grain futures elevated, contributing to near-record global food prices and putting more focus on supply prospects for other key shippers.
  • The rout in global equity markets that erased $11 trillion since the end of March may be reaching a floor for now as battered valuations, particularly among tech stocks, attract dip buyers.  For some, the argument rests on technical indicators, while others are looking at what corporates are offering, such as strong balance sheets and high dividend yields. Plus, investors have already priced in a lot of concerns, according to Peter Oppenheimer, chief global equity strategist at Goldman Sachs Group Inc., including about inflation and growth, central bank policy tightening and the war in Ukraine. “Equities are starting to look attractive for medium-to-longer term buyers,” he told Bloomberg Television on Tuesday. While the downside risks still lurk, “all of that really is absorbed into the market already.”
  • Swedish Match AB shares soared after Philip Morris International Inc. said it’s in talks to buy the maker of smokeless tobacco products in a deal that would accelerate the Marlboro producer’s push beyond cigarettes. Swedish Match surged as much as 28% in early trading in London Tuesday, giving the company a market capitalization of more than $14 billion. Both companies confirmed the discussions in statements, saying talks are ongoing and there’s no certainty that an offer will be made.  If the deal occurs, it will become one of the largest transatlantic transactions this year and could value Swedish Match at more than $16 billion including debt, according to people familiar with the matter.
  • The Indian partner of global money manager Schroders Plc is under investigation by the country’s capital markets regulator for alleged front-running by two of its officials, according to people familiar with the matter. The Securities and Exchange Board of India is scrutinizing funds that Viresh Joshi and Deepak Agarwal managed at Axis Asset Management Co., the people said, declining to be named as they aren’t authorized to speak to the media. Axis AMC is India’s seventh-largest asset manager with 2.5 trillion rupees ($32 billion) in assets.
  • KuCoin, one of the world’s most popular crypto-exchanges, has raised $150 million from investors led by Jump Crypto, boosting its valuation to $10 billion. Circle Ventures, IDG Capital and Matrix Partners took part in the pre-Series B financing, the Seychelles-based startup said in a statement. It will use the proceeds to expand in decentralized finance and non-fungible tokens via its own venture investment arms. Its fundraising coincides with turbulence in global crypto markets as tightening monetary policy to combat runaway inflation curbs liquidity, turning investors away from speculative assets. Bitcoin dropped below $30,000 on Tuesday for the first time since July, bringing its decline from a November record high to about 55% amid a global flight from riskier investments.
  • Pfizer Inc. said it will acquire Biohaven Pharmaceutical Holding Co. for $11.6 billion in cash to gain an approved treatment for migraine headaches.  Pfizer will pay $148.50 a share for all of New Haven, Connecticut-based Biohaven’s outstanding stock, according to a statement Tuesday. Biohaven shareholders, including Pfizer, will receive 0.5 a share of New Biohaven, a new company that will retain some compounds in development.  With billions in hand from sales of its Covid-19 vaccine and treatment, Pfizer has the resources to diversify beyond pandemic products that may have limited demand as the outbreak winds down. Pfizer will gain the drug rimegepant, sold as Nurtec ODT in the U.S. and Vydura in the European Union, along with another compound under investigation as a migraine nasal spray and soft gel.
  • Nintendo Co. announced a 10-for-1 stock split after revealing lackluster results on Tuesday, as slowing demand for the aging Switch console overshadowed blockbuster sales of a new Pokémon game and a weaker yen. The Kyoto-based company said operating profit rose 0.6% to 120.2 billion yen ($922 million) in the quarter ended March, with sales growing 6% to 375.13 billion yen. Analysts had expected about 120.1 billion yen in profit and 373.4 billion yen in revenue. Nintendo projected full-year operating income of 500 billion yen and Switch sales of 21 million units, versus projections for 612.7 billion yen.
  • As Ronald Reagan might have put it: Here we go again. Forty-two years after inflation helped sweep the former California governor into the White House and return the Senate to GOP control, surging prices threaten once again to upend a Democratic administration. President Joe Biden and his fellow Democrats in Congress are desperate to avoid the fate of President Jimmy Carter, ousted after one term. But Biden so far has had little success in either figuring out how to douse inflation that’s running at a four-decade high or even convincing voters that it wasn’t his $1,400 stimulus check that acted as kindling. Inside the administration, there’s a sense of frustration, doom, and some say magical thinking about inflation, but no clear path on the best way for the White House to grapple with an economic phenomenon that’s been more severe and lasted longer than officials expected. Unfortunately for Biden and Democrats, the lesson from the 1970s and ’80s is that U.S. presidents are quite limited in what they can do on their own to tamp down price pressures.
  • U.S. retail gasoline and diesel prices rallied to a record just ahead of the nation’s summer driving season, a challenge for President Joe Biden and the Federal Reserve as it combats the fastest inflation in decades. Average gasoline prices hit $4.374 a gallon, according to the American Automobile Association. Diesel also hit a record at $5.55. The surge is set to add to inflationary pressures gripping the world’s biggest economy. The U.S. summer driving season starts in about three weeks. Fuel consumption is being monitored closely, with Americans expected to drive more this summer than in 2021 even as pricier gasoline limits some travel. The nation’s motorists are expected to use 9.2 million barrels of gasoline a day from April to September, up by 0.8% from the same period last year, the Energy Information Administration’s summer outlook showed last month.
  • Peloton Interactive Inc. reported a deeper loss than analysts predicted, cut its revenue guidance, and signed a deal with JPMorgan Chase & Co and Goldman Sachs Group to borrow $750 million in five-year term debt, marking the latest setbacks for the onetime pandemic darling. The shares tumbled about 20% in premarket trading. The results suggest Peloton’s comeback effort is still a long way from taking hold, despite a shake-up earlier this year. In February, co-founder John Foley was ousted as chief executive officer after sales slowed and Peloton struggled to manage its production. He was replaced by former Spotify Technology SA and Netflix Inc. Chief Financial Officer Barry McCarthy, who vowed to cut costs and generate more of Peloton’s revenue from subscriptions.  The fitness technology company reported revenue of $964.3 million in the fiscal third quarter on Tuesday, missing a Wall Street estimate of $971.6 million. The net loss was $757.1 million, excluding some items, compared with an average estimate of $132.1 million.
  • The outsized gain that turned Cathie Wood into one of the world’s most-famous proponents of active fund management is quickly evaporating as some of her favorite stock picks tumble. After years of trouncing the market and just days after Wood issued a broadside against passive investing, her flagship ARK Innovation ETF (ticker ARKK) has given up all the outperformance it once enjoyed against the S&P 500 Index. Wood’s strategy of picking stocks involved in “disruptive innovation” has fallen victim to the tech meltdown as investors flee high-priced growth shares in an environment of rising interest rates and high inflation. ARKK’s almost 10% slump on Monday as the S&P 500 slid 3.2% means the fund’s total return since its 2014 debut has dropped to about 122%, according to data compiled by Bloomberg. The U.S. benchmark boasts a total return of around 128% over the same period.
  • Bitcoin rebounded from a swoon below $30,000 as a selloff in stocks eased and a bout of calm washed across global markets. The world’s largest digital token added as much as 5.4% on Tuesday and traded at $31,904 at 10:15 a.m in London. Ether at one point climbed 6.4%, while coins like Solana and Avalanche were also in the green. The crypto recovery came as equities advanced across Europe, highlighting how the two asset classes are trading in tandem. Bitcoin’s recent plunge has taken it to levels last seen in the middle of 2021, reversing a bull market that peaked in November. Whether the calm will last is an open question. Tightening monetary policy to combat runaway inflation is curbing liquidity, creating a formidable obstacle for speculative assets like cryptocurrencies.
  • Russia is facing the deepest economic contraction in nearly three decades as pressure from sanctions imposed by the U.S. and its allies mounts, according to an internal forecast by the Finance Ministry.  Gross domestic product is likely to shrink as much as 12% this year, deeper than the 8% decline expected by the Economy Ministry, according to people familiar with the estimates who spoke on condition of anonymity to discuss internal deliberations. The government hasn’t released a public forecast since the invasion of Ukraine. The Finance Ministry issued a statement Tuesday saying the report of the forecast was inaccurate. “Preparation of official macroeconomic forecasts does not fall under the Finance Ministry’s authority,” it said, noting that it “expects that the measures taken by the government and the Bank of Russia will make it possible to ease to a large extent the negative consequences of sanctions and ensure stable economic development.”
  • Boris Johnson vowed to ramp up pressure on Vladimir Putin’s “cronies” by driving dirty money out of the U.K., as the prime minister set out an agenda that is also heavy on electoral priorities including cutting pandemic-hit hospital waiting lists and boosting disadvantaged regions. In an opening of Parliament full of symbolism on Tuesday, heir to the throne Prince Charles stood in for the the first time for 96-year-old sovereign, Queen Elizabeth II, who was unable to attend due to “mobility issues.” For Johnson, the new legislative session is a chance to get his administration back on track, after months of bruising scandals including becoming the first sitting premier found to have broken the law. The row over “partygate” threatened to cost him his job, with the pressure subsiding only after Russia’s war in Ukraine shifted his ruling Conservative Party’s focus.
  • JPMorgan Chase & Co. is launching a platform to help buy-side firms sort through data in a bid to take on more functions for money managers swamped with information and facing fee pressure. Fusion by JPMorgan will be offered through the biggest U.S. bank’s securities services business within the corporate and investment bank. Helmed by Teresa Heitsenrether, the unit provides services including custody, fund administration, agency lending and collateral management. It had $31.6 billion in assets under custody as of the end of March. Fusion launches Tuesday as an interface, allowing clients to sort through data. At first it’ll first offer JPMorgan proprietary data and then will expand to include other sources. The firm’s approach will be “partner-intensive,” Heitsenrether said in an interview.
  • Boeing Co. said customers for its much delayed 777X jet are standing by orders for the wide-body model even after it was revealed that the program has slipped five years behind schedule. While Boeing has held talks to update buyers, feedback so far has stopped short of moves to walk away from the 777X, Darren Hulst, the manufacturer’s vice president for commercial marketing, said Tuesday in an interview. “Each one of our discussions with customers, obviously, is between us, but I haven’t heard of any specific desire to cancel,” Hulst said. That’s partly because many customers are buying the 777X in preparation for fleet-renewal programs that will become more pressing later in the decade, he said.

“It is not in the stars to hold our destiny but in ourselves.” –  William Shakespeare

*All sources from Bloomberg unless otherwise specified