October 29, 2021
Daily Market Commentary
- Canadian heavy crude’s price collapsed at the U.S. trading hub of Cushing as refiners shun heavy and higher-sulfur crude for lighter grades that are less expensive to process in refineries. Western Canadian Select’s discount for December to West Texas Intermediate widened to $9 a barrel at Cushing as of Wednesday, the steepest in about two years, according to NE2 Group data. The discount is about $7 a barrel smaller than the price at the Canadian oil hub at Hardisty, Alberta. Refiners are seeking oil that’s less dense and has less sulfur to avoid processing it through units that run on hydrogen that’s made with natural gas, the price of which has surged in recent weeks and added as much as $6 per barrel to the cost of processing more sulfurous crudes, according to the International Energy Agency. The price has also weakened at Cushing after a newly-built oil export pipeline called Line 3 increased shipments of Canadian oil to the U.S
- The Bank of Canada is now likely to begin raising rates in January rather than July, based on newly hawkish messaging Wednesday, according to Goldman Sachs Group Inc.’s Daan Struyven and Sid Bhushan. “We now expect liftoff to happen at the January 2022 meeting (vs. July previously), followed by three quarterly 25bp hikes. We assume four 25bp rate hikes in 2022 (vs. 1 previously), 3 hikes in 2023 (vs. 2), and 2 hikes in 2024 (vs. 4),” Struyven and Bhushan wrote in a research note Wednesday. The change came after Canada’s central bank signaled they have a lower than previously thought tolerance for inflation, the strategists wrote BoC projects liftoff timing as the “middle quarters of 2022″
- European equities slipped Friday, trimming their best monthly gain since March, as investors focused on earnings prospects of higher inflation. The Stoxx Europe 600 Index was down 0.6% as of 9:41 a.m. in London with technology and utility shares declining the most, while energy firms and banks gained. Data on Friday showed a jump in inflation in France, while statistics for the euro area are also due to be published. Europe’s equities are less than 1% away from a record high after gaining about 4% in October. Investors have focused on corporate profit growth, offsetting concern about the impact of a rise in input costs.
- U.S. futures fell Friday along with European stocks, while traders weighed bond-market gyrations sparked by concerns over inflation and monetary tightening. Contracts on the S&P 500 and Nasdaq 100 retreated as Amazon.com Inc. and Apple Inc. declined in pre-market trading after reporting disappointing results on Thursday, signaling a possible drop of around $180 billion in combined market value when the U.S. reopens.
- The U.S. 10-year Treasury yield climbed. The curve between 20- and 30-years has inverted for the first time since the U.S. government reintroduced a two-decade maturity in 2020. Inflation pressures and the prospect of interest-rate hikes are whipsawing bond markets.
- Oil is on course for a monthly gain of about 10% on sustained signs that consumption is outpacing supply, draining stockpiles. West Texas Intermediate was little changed after a volatile week that saw prices register a seven-year high above $85 a barrel on Monday. China is canvassing its oil refiners for solutions to its energy crisis, according to people familiar with the discussions. Among the questions asked were whether processors have the ability to ramp up their fuel production.
- OPEC+ technical experts downgraded their expectations for how tight global oil markets will be this quarter. The global oil-supply deficit will be just 300,000 barrels a day on average in the fourth quarter, the Joint Technical Committee concluded, according to delegates. That’s much smaller than the 1.1 million barrel daily shortfall shown in figures initially presented to the panel.
- Gold headed for a monthly gain on rising demand for havens amid concerns over the global recovery and gyrations in bond markets. Bullion has gained 2.1% in October amid an intensifying debate surrounding the prospects of monetary tightening as inflation risks from supply-chain snarls and costlier raw materials dim the economic outlook. Gold may hit a fresh record high in the next 12 months as investors seek to hedge against a buildup of price pressures which are likely to be “sticky,” said Agnico-Eagle Mines Ltd. Chief Executive Officer Sean Boyd. Spot gold slipped 0.3% to $1,793.94 an ounce at 6:02 a.m. in London. The Bloomberg Dollar Spot Index rose 0.1% after falling 0.4% in the previous session. Silver and platinum dropped, while palladium advanced.
- Iron ore futures are on track to cap a record fourth month of declines as lower steel output and risk-off sentiment from broader commodity markets hit the steelmaking material. A pledge from China, the world’s top steelmaking nation, to cap volumes this year has greatly affected ore demand in the year’s second half. Output curbs, including the latest restrictions from Tangshan city in a bid to reduce emissions, will see iron ore trace back toward $100 a ton, according to bank forecasts. A drawn-out energy crisis, which has led to high volatility in coal prices, has also impacted sentiment in iron ore and metal markets.
- European Central Bank President Christine Lagarde acknowledged inflation will last longer than anticipated, though her bid to drive home a commitment to ultra-loose monetary policy fell short on Thursday as investors kept alive bets for interest-rate hikes as soon as next year. Focus turns to the Federal Reserve’s Nov. 2-3 meeting, where policy makers are expected to announce they will begin winding down the bond-buying program.
- Money markets brought forward the timing of an ECB rate hike. Traders now expect it to raise its deposit rate by 20 bps in October 2022 to -0.3%. Yesterday, Christine Lagarde failed to shift pricing for December 2022. Less than 24 hours later, traders brought it forward again. Markets are calling her bluff, CredAg said.
- Janet Yellen said Biden’s spending proposal will slow inflation by reducing several costs important for households. The package will lower what people pay for health care, for child care, she told CNBC. “It’s anti-inflationary in that sense.”
- Europe’s economy sped up, but so did inflation. GDP rose 2.2% in the third quarter, slightly more than consensus, reflecting stronger-than-expected growth in France and Italy, propelled by surging consumer spending and sturdier industry and services output. Inflation accelerated way more than expected to 4.1%, fueled by energy prices. The core print picked up to 2.1%.
- Apple Inc. and Amazon.com Inc. reported disappointing quarterly results in a sign that the global supply-chain crisis is hobbling even the mightiest companies, erasing hundreds of billions of dollars from their combined market valuations. Amazon, the world’s largest e-commerce company, said its entire fourth quarter profit could be wiped out because of a surge in the cost of labor and fulfillment. Apple, meanwhile, said it lost $6 billion in sales because it can’t meet demand for its products, and could lose more next quarter. But added together, the tech giants delivered a clear message to investors: This holiday season is going to be difficult. As the economy emerges from the worst pandemic in a century, getting enough products to consumers is a daunting challenge for nearly everyone.
- Goldman sees a spending spree from S&P companies, with shareholders benefiting. Strategists expect $872 billion in gross buybacks in 2022, an 8% increase from this year, while dividends are also set for a boost. S&P earnings are seen 25% above pre-pandemic levels at the end of 2021.
- Evergrande made another 11th-hour bond payment. Some holders of a 9.5% dollar note were told they’d been paid before today’s expiry of a 30-day grace period, people familiar said. The clock began ticking when the company missed the Sept. 29 due date for a $45.2 million coupon. It’s the second time this month Evergrande has avoided default by a whisker. Chinese dollar junk bonds rebounded.
- A domestic shortage of rare earths is looming in China, exacerbated by the power crisis. Rare-earth grades used to make permanent magnets have almost doubled this year to the their highest level in over a decade, according to Shanghai Steelhome E-Commerce.
- Coca-Cola is close to buying a controlling stake in BodyArmor in a deal valuing the sports-drink maker at about $8 billion, people familiar said. Coca-Cola already has a minority stake.
- Udemy raised $421 million in an IPO priced at the top of a marketed range. The SF-based education platform sold 14.5 million shares for $29 each. It was valued at $3.3 billion in a private investment last year, according to PitchBook.
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*All sources from Bloomberg unless otherwise specified