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BlackRock is changing its investment strategy because of climate change

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BlackRock, the massive asset manager in charge of $7 trillion, will ditch investments that it considers a sustainability risk, including thermal coal producers — part of an effort to put sustainability at the center of its approach to investing.
“Awareness is rapidly changing, and I believe we are on the edge of a fundamental reshaping of finance,” CEO Larry Fink said in his widely-read letter to other chief executives released Tuesday.
Fink predicted that significant changes to how capital is allocated globally are coming, and “sooner than most anticipate.”
Other pledges: BlackRock told clients that it intends to double its offering of exchange-traded funds that track companies that meet certain environmental metrics. It’s also asking the companies it invests in to disclose plans for operating in a world in which the Paris Agreement’s goal of limited global warming to less than 2 degrees Celsius “is fully realized.”
“We will be increasingly disposed to vote against management and board directors when companies are not making sufficient progress on sustainability-related disclosures and the business practices and plans underlying them,” Fink said.
BlackRock has faced growing pressure to do more to promote sustainability given its clout. “I think the large passive managers have a real difficult decision to make,” former US Vice President Al Gore told the Financial Times in December. “Do they want to continue to finance the destruction of human civilization, or not?”
Earlier this month, BlackRock joined Climate Action 100+, a group of roughly 370 global investors that now represents more than $41 trillion in assets. Its members lobby companies to lower their carbon emissions in line with the Paris Agreement.
What it means: An industry leader, BlackRock’s actions turn up the heat on other big asset managers. Fink’s 2018 letter arguing that companies need to “serve a social purpose” resonated widely.
BlackRock (BLK) reports earnings for the final three months of 2019 on Wednesday.

Yuan rises as US lifts China’s currency manipulator label

The Chinese yuan strengthened Tuesday to its highest level since mid-2019 as the United States removed China from its currency manipulator list, my CNN Business colleague Laura He reports.
Yuan rises as US lifts China's currency manipulator label
The US Treasury Department on Monday stripped away its designation of China as a currency manipulator, days before US President Donald Trump and senior Chinese officials are expected to sign an initial trade deal.
Deutsche Bank analysts said in a note to clients that the move is “a positive sign ahead and beyond the signing of the Phase 1 deal tomorrow.”
The Chinese central bank continued to guide the yuan higher on Tuesday. The yuan’s daily reference rate against the US dollar increased to the strongest level since last August.
Market response: On the onshore market in Shanghai, the yuan rose to 6.884, up 0.1% but below a six-month high it notched earlier in the day. In offshore trading, where the yuan moves more freely, the currency hit its strongest level in five months before losing those gains.

The world is drowning in debt

The world’s already huge debt load smashed the record for the highest debt-to-GDP ratio in the third quarter of last year, my CNN Business colleague Anneken Tappe reports.
Global debt, which comprises borrowings from households, governments and companies, grew by $9 trillion to nearly $253 trillion during that period, according to the Institute of International Finance.
That put the global debt-to-GDP ratio at over 322%, the highest level on record.
Watch this space: The IIF thinks that “spurred by low interest rates and loose financial conditions,” global debt will surpass $257 trillion in the first quarter of 2020.
Delta Air Lines (DAL), Citigroup (C), JPMorgan Chase (JPM) and Wells Fargo (WFC) report earnings from the final three months of 2019 before US markets open.
Also today: US inflation data for December arrives at 8:30 a.m. ET.
Coming tomorrow: Earnings continue with BlackRock, Bank of America (BAC), Goldman Sachs (GS) and PNC (PNC).

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Oil rises as investors focus on OPEC+ decision amid growing Omicron fears

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Oil prices rose on Thursday, recouping the previous day’s losses, as investors adjusted positions ahead of an OPEC+ decision over supply policy, but gains were capped amid fears the Omicron coronavirus variant will hurt fuel demand.

Brent crude futures rose 85 cents, or 1.2%, to $69.72 by 0402 GMT, having eased 0.5% in the previous session.

U.S. West Texas Intermediate (WTI) crude futures gained 85 cents, or 1.3%, to $66.42 a barrel, after a 0.9% drop on Wednesday.

“Investors unwound their positions ahead of the OPEC+ decision as oil prices have declined so fast and so much over the past week,” said Tsuyoshi Ueno, senior economist at NLI Research Institute.

Global oil prices have lost more than $10 a barrel since last Thursday, when news of Omicron shook investors.

“Market will be watching closely the producer group’s decision as well as comments from some of key members after the meeting to suggest their future policy,” Ueno said.

The Organization of the Petroleum Exporting Countries and its allies, together known as OPEC+, will likely decide on Thursday whether to release more oil into the market as previously planned or restrain supply.

Since August, the group has been adding an additional 400,000 barrels per day (bpd) of output to global supply each month, as it gradually winds down record cuts agreed in 2020.

The new variant, though, has complicated the decision-making process, with some observers speculating OPEC+ could pause those additions in January in an attempt to slow supply growth.

“Oil prices climbed as some investors anticipate that OPEC+ will decide to maintain the current supply levels in January to cushion any damage on demand from the Omicron spread,” said Toshitaka Tazawa, an analyst at Fujitomi Securities Co Ltd.

Fears over the impact of the Omicron variant of the coronavirus rose after the first case was reported in the United States, and Japan’s central bank has warned of economic pain as countries respond with tighter containment measures.

U.S. Deputy Energy Secretary David Turk said President Joe Biden’s administration could adjust the timing of its planned release of strategic crude oil stockpiles if global energy prices drop substantially.

Gains in oil markets on Thursday were capped as the U.S. weekly inventory data showed U.S. crude stocks fell less than expected last week, while gasoline and distillate inventories rose much more than expected as demand weakened. [EIA/S]

Crude inventories fell by 910,000 barrels in the week to Nov. 26, the Energy Information Administration (EIA) said, compared with analyst expectations in a Reuters poll for a drop of 1.2 million barrels.

(Reporting by Yuka Obayashi; Editing by Tom Hogue)

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Toronto market hits 7-week low on Omicron uncertainty

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Canada‘s main stock index fell on Wednesday to its lowest level in over seven weeks as the United States reported its first case of the Omicron variant that investors fear could impede economic recovery, with the index giving back its earlier gains.

The Toronto Stock Exchange’s S&P/TSX composite index ended down 195.39 points, or 0.95%, at 20,464.60, its lowest closing level since Oct. 12.

Wall Street also closed lower as the U.S. Centers for Disease Control and Prevention said the country had detected its first case of the new COVID-19 variant, which is rapidly becoming dominant in South Africa less than four weeks after being detected there and has spread to other countries.

It might take longer than expected for supply chain disruptions to abate, “especially if we have renewed shutdowns in Asia,” said Kevin Headland, senior investment strategist, Manulife Investment Management.

Still, Headland does not expect the new variant to lead to an economic recession or a bear market for stocks in 2022, saying: “Reaction to headline news provides opportunities for those that have a longer-term timeframe to add in the equity markets.”

The TSX will add to its recent record high over the coming year as the domestic economic recovery helps underpin corporate earnings, but gains are expected to slow from 2020’s breakneck pace, a Reuters poll found.

The technology sector fell 2.7%, while energy ended 1.9% lower as oil was unable to sustain an earlier rally. U.S. crude oil futures settled 0.9% lower at $65.57 a barrel

The materials group, which includes precious and base metals miners and fertilizer companies, lost 2.2%.

Financials were a bright spot, advancing 0.4%, helped by gains for Bank of Nova Scotia as some analysts raised their target price on the stock.

Bombardier Inc was among the biggest decliners. Its shares sank 10.4%.

 

(Reporting by Fergal Smith; Additional reporting by Amal S in Bengaluru; Editing by Peter Cooney)

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Canada’s TSX to extend record-setting rally; pace of gains to slow: Reuters poll

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Canada‘s main stock index will add to its recent record high over the coming year as the domestic economic recovery helps underpin corporate earnings, but gains are expected to slow from 2020’s breakneck pace, a Reuters poll found.

The median prediction of 26 portfolio managers and strategists was for the S&P/TSX Composite index to rise 9.1% to 22,540 by the end of 2022.

That’s a move that would eclipse last month’s record high of 21,796.16 and compares with an August forecast of 22,000. It was then expected to edge up to 23,150 by the middle of 2023.

The index had advanced 18.5% since the start of the year, putting it on track for its second biggest gain since 2009.

“We think the economy and markets will continue to progress further into the mid-cycle phase next year,” said Angelo Kourkafas, investment strategist at Edward Jones. “We are past the strongest point of the cycle, but there is plenty of runway ahead, especially from an economic standpoint.”

Canada‘s economy https://www.reuters.com/world/americas/canadian-economy-posts-annualized-gain-54-q3-october-gdp-seen-up-08-2021-11-30 grew at an annualized rate of 5.4% in the third quarter, beating analyst expectations, and growth most likely accelerated in October on a manufacturing rebound.

“Banks can continue to benefit from an improving economy and reducing loan loss provisions and resource companies can benefit from higher commodity prices,” said Colin Cieszynski, chief market strategist at SIA Wealth Management.

Combined, the financial services and resource sectors account for 55% of the Toronto market’s valuation.

Nearly all participants that answered a separate question on the outlook for corporate earnings expected earnings to improve. But the pace of growth could slow.

“We expect a decelerating pace of (earnings) growth,” said Chhad Aul, chief investment officer & head of multi-asset solutions at SLGI Asset Management Inc. “In particular, we expect the recent strong earnings growth in the energy sector to begin to moderate.”

The price of oil, a key driver of energy sector earnings, has tumbled 24% since October, pressured by rising coronavirus cases in Europe and the detection of the possibly vaccine-resistant Omicron variant.

Another risk to the outlook could be a reduction in policy support, say investors.

With inflation climbing, the Bank of Canada https://www.reuters.com/world/americas/bank-canada-signals-it-could-hike-rates-sooner-than-expected-2021-10-27 has signaled it could begin hiking interest rates as soon as April and the Federal Reserve https://www.reuters.com/markets/us/powell-yellen-head-congress-inflation-variant-risks-rise-2021-11-30 is mulling whether to wrap up tapering of bond purchases a few months sooner.

“The key is the pace of both fiscal and monetary policy normalization,” said Ben Jang, a portfolio manager at Nicola Wealth. “This process will likely lead to more volatility in markets, potentially returning to an environment where we will see drawdowns of more than 10%.”

Asked if a correction was likely over the coming six months, nearly all respondents said yes.

 

(Reporting by Fergal Smith; polling by Mumal Rathore and Milounee Purohit; editing by David Evans)

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