May 4, 2022

Daily Market Commentary

Canadian Headlines

• Natural resources stocks surged and led a 1% rise for Canada’s S&P/TSX Composite index to 20,905.28 in Toronto, snapping a two-day losing streak. Nutrien Ltd. contributed the most to the index gain, increasing 6.0%. SSR Mining Inc. had the largest percentage increase, rising 7.5%.
• Toronto home prices declined for the second straight month as higher borrowing costs start to bite in what has been one of the world’s hottest housing markets. The average price of a home in Canada’s largest city declined 6.4% in April from the month before on a seasonally-adjusted basis, to C$1.2 million (about $936,000), according to the Toronto Regional Real Estate Board. That was the biggest monthly drop since April 2020, when the market was largely frozen because of Covid-19 lockdowns.  Buyers slammed on the brakes last month. The number of houses sold in Toronto declined 26% in April compared with March, according to the board’s seasonally-adjusted data. Vancouver home sales also dropped sharply. The declines are happening as the Bank of Canada embarks on what’s expected to be one of the most aggressive campaigns to raise borrowing costs in the institution’s history. Since the beginning of March, the central bank has lifted the benchmark interest rate from 0.25% to 1%, and markets expect the rate to rise to at least 1.5% on June 1.
• Barrick Gold Corp., the second-biggest gold producer, delivered better-than-expected earnings and doubled its quarterly dividend as price gains helped counter higher costs and lower output. Adjusted earnings came in at 26 cents a share for the first quarter, the Toronto-based producer reported Wednesday, down from 29 cents a year earlier, but ahead of the 24-cent average analyst estimate. In its earnings report, Barrick forecast a stronger performance in the second half of the year and said it remains on track to meet its annual production guidance. The company’s all-in sustaining costs rose to $1,164 an ounce from $1,018 a year ago.

World Headlines

• European equities fell as investors awaited a key Federal Reserve meeting later in the day for more clarity on the path of monetary tightening, while also assessing the latest earnings releases and the impact of a proposal to phase out Russian oil imports. The Stoxx 600 Europe Index was down 0.6% at 11:32 a.m. in London. Retail and real estate stocks were the biggest drag on the gauge, while travel and leisure and media outperformed. Energy shares also gained as oil prices rose following a plan by the European Union to impose an embargo on Russian oil imports and curb Moscow’s ability to sell globally. The main European equities benchmark has struggled this year, even as quarterly earnings keep beating estimates. While the gauge has retreated from the records set in January amid concerns over an economic slowdown, record inflation readings and aggressive monetary tightening plans, it has still weathered the turmoil in global markets better than U.S. stocks, despite Europe’s vulnerability to the fallout from the war in Ukraine.
• Bonds fell Wednesday and U.S. equity futures rose slightly as investors braced for the biggest Federal Reserve interest rate-hike since 2000 and awaited more clues on how aggressively it will tackle inflation. Lyft tumbled in premarket trading after the ride-hailing company’s second-quarter outlook disappointed Wall Street. Didi Global slumped with Chinese technology shares as the U.S. Securities and Exchange Commission investigates the ride-hailing giant’s chaotic 2021 debut in New York.  The Fed is expected to raise rates by 50 basis points Wednesday and detail plans for the reduction of its balance sheet. Key for markets will be whether Chair Jerome Powell’s commentary contains any hawkish surprises that could stoke concerns about the threat of U.S. slowdown as borrowing costs climb.
• Asia stocks are poised to decline for a third straight day, with the Federal Reserve’s upcoming policy decision and a U.S. regulatory probe into Didi Global weighing on sentiment. The MSCI Asia Pacific Index fell by as much as 0.5%, with Chinese internet giants Tencent and Alibaba the biggest drags. The sector declined on news that the U.S. regulators are investigating Didi’s 2021 trading debut in New York. India’s stock measures fell the most in the region as the domestic central bank hiked a key policy rate in an unscheduled decision. Benchmarks in Hong Kong and Vietnam also fell as some markets returned from holidays, while Japan and China remained closed. All eyes are now on the Fed’s interest-rate decision on Wednesday, with policy makers expected to hike by 50 basis points, the biggest increase since 2000.
• Oil advanced as the European Union proposed to ban Russian crude over the next six months and refined products by the end of the year. Brent futures rose as much as 3.8% to trade near $109 a barrel. The EU’s plan is the most significant energy response from the bloc to the war in Ukraine as it seeks to cut reliance on Moscow. Traders have been keenly focused on just how much the war will affect output from Russia, one of the biggest producers. In addition to the ban on crude and refined products, the proposal will hit all services linked to the transportation of Russian oil as well as insurance, according to people familiar with the matter.
• Gold traded near its lowest level since February ahead of what’s expected to be a larger-than-usual Federal Reserve interest-rate hike. The market is waiting for the conclusion of the meeting on Wednesday after Fed Chair Jerome Powell potentially endorsed two or more 0.5 percentage-point increases. Economists are forecasting that the U.S. central bank will boost rates by 50 basis points to tackle the hottest inflation in four decades, with investors on the cusp of pricing in a 75-basis-point jump in June. Bullion has fallen about 10% from a peak in early March as expectations for U.S. monetary tightening pushed up Treasury yields to the highest levels since late 2018, damping demand for the non-interest-bearing precious metal. Still, the war in Europe and rampant global inflation is supporting demand for haven assets and providing a floor for gold.
• The U.S. Securities and Exchange Commission is investigating Didi Global Inc.’s chaotic 2021 debut in New York, when the ride-hailing giant raised $4.4 billion days before revelations of a Chinese probe into data security tanked the stock. Didi’s shares were down 7% in U.S. pre-market trading, deepening an 85% loss since its initial public offering in the summer of last year. The Chinese company said it’s cooperating with the probe, without providing further details.  U.S. lawmakers had called last year for an investigation into Didi’s controversial IPO — the biggest by a Chinese firm since Alibaba Group Holding Ltd. China’s cybersecurity watchdog stunned investors by announcing its investigation into Didi two days after the listing, suspending the internet giant’s main apps from domestic stores.
• The brutal selloff in Covid-19 lockdown winners may not be over yet. After losing more than $218 billion in combined market value since their pandemic-driven boom, shares of Peloton Interactive Inc., Zoom Video Communications Inc. and DocuSign Inc. are at risk of even more losses, if this earnings season is any guide.  First-quarter results for stay-at-home stocks kicked off with an alarm bell when Netflix Inc. plunged 35% after saying it had lost customersfor the first time in a decade. And last week, shares in telemedicine company Teladoc Health Inc. had their worst day ever, tanking 40% after the company slashed its forecast amid a slowdown in sales.
• Shares of U.K. warehouse companies are among the latest pandemic-era winners to head south. Analysts are blaming Amazon.com Inc.  Segro Plc, Europe’s biggest warehouse landlord, has fallen 14% in the last two sessions after Amazon flagged last week that there was “too much space right now.” That view from the U.S. e-commerce giant was a blow to Segro and its peers, who added warehouse capacity as the pandemic fueled online shopping. “This kind of comment may add some jitters to the logistics market,” wrote Kepler Cheuvreux analyst Frederic Renard, adding that Amazon was Segro’s largest tenant, accounting for 7% of headline rent. Renard downgraded his rating on the stock to reduce from hold on Tuesday.
• North Korea launched what appeared to be a medium-range ballistic missile Wednesday, as Kim Jong Un ramps up his nuclear program ahead of U.S. President Joe Biden’s first visit to Seoul.  The regime fired off a ballistic missile just after noon local time Wednesday from an area near Pyongyang Sunan International Airport, according to the South Korean Joint Chiefs of Staff. The missile flew about 780 kilometers (480 miles) into space and fell into the sea about 470 kilometers away, giving it a possible reach consistent with an MRBM. South Korea said it was still analyzing details of the launch and North Korean state media often don’t reveal details of such exercises until at least the next day. Kim’s regime is on pace for its busiest testing year ever, after launching at least 14 ballistic missiles since Jan. 1, including its first intercontinental ballistic missile test since 2017.
• Uber Technologies Inc. delivered a positive outlook for earnings in the current period, signaling the company plans to capitalize on robust ride demand without compromising profits by focusing on product changes, rather than incentives, to address the driver shortage. The ride-sharing and delivery company projected gross bookings of $28.5 billion to $29.5 billion in the second quarter and adjusted earnings before interest, tax, depreciation and amortization of $240 million to $270 million. The top end of both ranges beat the average analyst estimate. Uber’s rosy results contrasted with rival Lyft Inc., which delivered a disappointing outlook on Tuesday and signaled the shortage of drivers that has plagued both ride-hailing companies for the past year would spill over into the second quarter. Shares plummeted as much as 27% in extended trading after Lyft said it would ramp up spending on driver incentives to bring the number of drivers on its marketplace back into balance with resurgent rider demand.
• India is trying to get deeper discounts on Russian oil to compensate for the risk of dealing with the OPEC+ producer as other buyers turn away, according to people with knowledge of the matter. The South Asian nation is seeking Russian cargoes at less than $70 a barrel on a delivered basis to compensate for additional hurdles, such as securing financing for purchases, in high-level talks between the two countries, said the people, asking not to be identified as discussions are confidential. Global benchmark Brent is currently trading near $108 a barrel. State-owned and private refiners in the world’s third-biggest oil importer have bought more than 40 million barrels of Russian crude since the invasion of Ukraine in late February, the people said. That’s 20% more than Russia-to-India flows for the whole of 2021, according to Bloomberg calculations based on trade ministry data.
• Volkswagen AG expects the protracted shortage of semiconductors to ease during the second half of the year and contribute to a surge in output, offsetting months of curtailments. VW confirmed a projection that deliveries will rise by as much as 10% this year, it said Wednesday, even after production slumped by 12% during the first three months. Strong prices and demand for high-end premium cars helped to offset lower production, it said.  The company warned its upbeat forecast hinged on further developments from the war in Ukraine and China’s strict coronavirus policies weighing on the global economy. The company has managed to navigate the shortages of chips and wire harnesses from suppliers in Ukraine by reallocating resources between its main markets in Europe, China and North and South America, it said.
• The surging dollar is turning into yet another headache for U.S. companies already contending with soaring inflation, rising interest rates and the war in Ukraine.  The greenback is coming off its best month in a decade, and by one measure is the highest in almost 20 years. With about 30% of S&P 500 Index revenue coming from overseas, the U.S. currency’s gains are a key reason this reporting period has seen the lowest percentage of earnings beats in seven quarters, according to JPMorgan Asset Management.  Alphabet Inc., Bristol-Myers Squibb Co. and Johnson & Johnson are among firms that have cited the dollar as an earnings headwind, and Corporate America is about to get a stark reminder that the currency drag may not let up any time soon. The Federal Reserve is widely expected to deliver a half-point rate hikeon Wednesday, the largest since 2000, and signal further tightening is ahead.
• Jamie Dimon said the Federal Reserve should have moved quicker to raise rates as inflation hits the world economy. “We’re a little late,” the JPMorgan Chase & Co. chief executive officer said in an interview Wednesday with Bloomberg Television in London. “The sooner they move the better.” The U.S. economy is “very strong,” he said, although there was a one third chance of the Fed’s actions leading to a soft landing and a one third chance of a mild recession. Federal Reserve Chair Jerome Powell is poised to unleash the U.S. central bank’s most aggressive action to battle inflation in decades. The Federal Open Market Committee is expected to raise interest rates by a half point at the conclusion of its two-day policy meeting on Wednesday, its largest hike since 2000, and also announce plans to reduce the size of its $8.9 trillion balance sheet.
• Bitcoin fluctuated near $39,000, testing the high end of the range that the largest cryptocurrency has traded in for much of this year.  Crypto assets, just like other riskier areas of the market, have all been weighed down as the Federal Reserve and other global central banks raise interest rates to fight red-hot inflation. In this environment, Bitcoin hasn’t been able to break out in any meaningful way beyond the highs it came into the year with.  Bitcoin rose as much as 3.4% to $39,055 in early New York trading. The digital currency swung within a 5% band for the previous seven trading sessions in a prolonged calm not seen since Jan. 19. Bitcoin continued to mirror U.S. equity futures, which rose slightly as investors braced for the biggest Fed interest rate-hike since 2000 and awaited more clues on how aggressively it will tackle inflation.
• Lyft Inc. is poised to lose more than a quarter of its market value on Wednesday after the ride-hailing company’s second-quarter outlook disappointed Wall Street, highlighting investors’ willingness to dump growth stocks at the first hint of trouble.  The San Francisco-based company’s shares were down 26% to $22.80 in premarket trading. If the decline continues into the regular session, it would represent the stock’s steepest-ever drop in a single session, and mark a descent of 71% from the record-high of $78.29 touched in March 2019.
• Marriott International Inc. reported first-quarter earnings that beat expectations as avid vacationers bid up room rates, advancing the lodging recovery. Marriott reported adjusted earnings per share of $1.25, according to a statement Wednesday. The average estimate in a Bloomberg-compiled survey of analysts was 92 cents. In most travel recoveries, occupancy rates have recovered faster than room prices. The opposite has been true this time, with Marriott reporting that March average daily rates were 5% higher than the same month in 2019, before the pandemic.
• Nearly 10 weeks into the war and with its troops making only marginal gains in Ukraine’s east, Russia is focused on cementing both military and political control over the territory it has taken so far. The Kremlin is installing occupation governments, ordering locals to use rubles for transactions and, according to three people involved in the efforts, planning hastily organized referendums in some areas to open the way for full annexation. The people spoke on condition of anonymity given the risk of retribution discussing sensitive information. The Kremlin did not respond immediately to a request for comment. Though far short of President Vladimir Putin’s original aims of ousting President Volodymyr Zelenskiy and installing a pro-Russian regime in most of Ukraine, the latest efforts pose a new obstacle for already-stalled peace talks, in which Kyiv has insisted Russia give up the ground it has taken since invading on Feb. 24. Zelenskiy’s military, backed by infusions of heavy weapons from the U.S. and its allies, plans a push to retake territory.

*All sources from Bloomberg unless otherwise specified