The yield on the two-year Treasury note plunged in its biggest one-day slump in decades, while tech stocks rebounded from last week’s rout as the collapse of Silicon Valley Bank reverberated across trading desks.
In Monday’s chaotic session, yield on the two-year plunged by more than a half-percentage point logging the biggest three-day retreat since Black Monday of October 1987, as investors poured into haven assets. Some money managers have been taking profits in what may be a Treasuries short squeeze. The 10-year yield fell to a six-week low, while the dollar erased its gains for the year.
The turmoil has caused a swift reassessment over the direction of Fed policy. Swaps traders are now pricing in a roughly 50 per centchance the Fed will hike by another quarter percentage-point later this month. Goldman Sachs Group Inc. economists as well as asset managers at the world’s largest actively managed bond fund from Pacific Investment Management Co. are saying the Fed could take a breather on the policy rate following the collapse of SVB. Nomura economists took it one step further, saying the Fed could cut its target rate next week.
Expectations had weighed a hike of as much as 50 basis points after Chair Jerome Powell addressed lawmakers last Tuesday.
The S&P 500 closed the day down 0.2%, after bouncing between gains and losses amid a rout in bank shares while the policy-sensitive Nasdaq climbed 0.8%, the most in over a week. The fallout from SVB’s collapse prompted President Joe Biden to promise stronger regulation of U.S. lenders, while reassuring depositors that their money is safe.
First Republic Bank plunged 62 per centas heightened worries about the state of U.S. regional banks triggered trading halts across the sector. The KBW Bank Index logged its biggest one-day drop since the start of the Covid-19 pandemic.
“Problem is that nobody wants to be the last one in a room turning off the light. In other words, as soon as there is a problem in one bank, fear is real. Immediately everybody starts to say, ‘wait a minute, should I also have my deposits at bank ABCD etc.?,’” Mayra Rodriguez Valladares, managing principal at MRV Associates said on Bloomberg TV.
“Bond yields go up, which signal to the rest of the market that there is an increasing probability of default and loss severity. Even if the bank is well capitalized,” she added.
Treasury Secretary Janet Yellen said her office would protect “all depositors” at SVB. The government actions will also include a new lending program that Fed officials said would be big enough to protect uninsured deposits in the wider U.S. banking sector. Still, the sudden closure of New York’s Signature Bank by state regulators Sunday underscored the urgency of stabilizing the financial system.
“Warren Buffett said once, when a tide goes out, we find out who’s not wearing swimming suits and we found out already three folks that weren’t wearing swimming suits,” Ralph Schlosstein, Evercore ISI’s chairman emeritus told Bloomberg Television. “Over the weekend, the Fed showed up at the beach and started handing out swimming suits to everyone.”
Wall Street’s so-called “fear gauge” spiked, with the Cboe Volatility Index rising above 30 for the first time since October.
Monday’s market moves come after risk assets got pummeled last week, with the U.S. stock benchmark suffering its worst week since September. Anxiety is also running high ahead of Tuesday’s consumer price index report.
Wall Street weighs in on the Fed’s next move:
We forecast a 25bp Fed hike, but Powell talk and high CPI point to close call. The threat to our views comes from Fed Chair Powell. While Powell opened the door to a large March hike, he did not walk through it, noting that the upcoming decision will be determined by “the totality of the data.”
The Fed decision will incorporate two additional factors. First, this week’s CPI report. Second, the Fed will consider the potential for financial stress to build.
— Marko Kolanovic, JPMorgan Chase & Co. strategist
The Fed has to be off the table for now. They pushed on rates until something cracked, well guess what? Something cracked.
To see QT stop would not be surprising, and maybe something to support the market. I think we’re back in crisis mode, and remember, to me, bank runs are way way way more important than inflation, so that’s what they’ve got to be arresting.
— Peter Tchir, head of macro strategy at Academy Securities
Pressure on banks dampens the rate outlook some, but decisive action on financial stability gives the Fed latitude to continue with rate hikes; 50 in March is not impossible as it would have been under a weak financial stability response and ongoing runs but looks very implausible – we still see 25 with a high bar to pause.
— Krishna Guha, Evercore ISI head of central bank strategy
Led by ex-Federal Reserve chair after the financial crisis, Janet Yellen, the comprehensive set of measures has helped to ensure that doubts over systemic issues in the U.S. banking system have been put to bed. With a speedy response to the crisis delivered, the Fed can get back to its day job of raising interest rates to deal with inflation.
— James Lynch, fixed income investment manager at Aegon Asset Management
Speculation about what the Fed’s going to do before we even see CPI is probably ill-founded. But if you look at the fed funds futures, they’re pricing in cuts in the fourth quarter and they’re pricing in the credible potential — like a 50 per centchance — that the Fed does nothing at the March meeting. So there’s too much noise around what else happens, what does this mean for monetary policy.
— Arthur Hogan, chief market strategist at B. Riley Wealth
Elsewhere in markets, oil dipped while gold rose on its allure as a haven.
Some of the main moves in markets:
Stocks
The S&P 500 fell 0.2 per centas of 4:01 p.m. New York time
The Nasdaq 100 rose 0.8%
The Dow Jones Industrial Average fell 0.3%
The MSCI World index fell 0.4%
Currencies
The Bloomberg Dollar Spot Index fell 0.7%
The euro rose 0.8 per centto US$1.0730
The British pound rose 1.3 per centto US$1.2184
The Japanese yen rose 1.3 per centto 133.33 per dollar
Cryptocurrencies
Bitcoin rose 14 per centto US$24,393.75
Ether rose 8.1 per centto US$1,684.29
Bonds
The yield on 10-year Treasuries declined 17 basis points to 3.53%
Germany’s 10-year yield declined 25 basis points to 2.26%
Britain’s 10-year yield declined 27 basis points to 3.37%
Commodities
West Texas Intermediate crude fell 3 per centto US$74.41 a barrel
Gold futures rose 2.8 per centto US$1,918.70 an ounce
TOKYO (AP) — Japanese technology group SoftBank swung back to profitability in the July-September quarter, boosted by positive results in its Vision Fund investments.
Tokyo-based SoftBank Group Corp. reported Tuesday a fiscal second quarter profit of nearly 1.18 trillion yen ($7.7 billion), compared with a 931 billion yen loss in the year-earlier period.
Quarterly sales edged up about 6% to nearly 1.77 trillion yen ($11.5 billion).
SoftBank credited income from royalties and licensing related to its holdings in Arm, a computer chip-designing company, whose business spans smartphones, data centers, networking equipment, automotive, consumer electronic devices, and AI applications.
The results were also helped by the absence of losses related to SoftBank’s investment in office-space sharing venture WeWork, which hit the previous fiscal year.
WeWork, which filed for Chapter 11 bankruptcy protection in 2023, emerged from Chapter 11 in June.
SoftBank has benefitted in recent months from rising share prices in some investment, such as U.S.-based e-commerce company Coupang, Chinese mobility provider DiDi Global and Bytedance, the Chinese developer of TikTok.
SoftBank’s financial results tend to swing wildly, partly because of its sprawling investment portfolio that includes search engine Yahoo, Chinese retailer Alibaba, and artificial intelligence company Nvidia.
SoftBank makes investments in a variety of companies that it groups together in a series of Vision Funds.
The company’s founder, Masayoshi Son, is a pioneer in technology investment in Japan. SoftBank Group does not give earnings forecasts.
Shopify Inc. executives brushed off concerns that incoming U.S. President Donald Trump will be a major detriment to many of the company’s merchants.
“There’s nothing in what we’ve heard from Trump, nor would there have been anything from (Democratic candidate) Kamala (Harris), which we think impacts the overall state of new business formation and entrepreneurship,” Shopify’s chief financial officer Jeff Hoffmeister told analysts on a call Tuesday.
“We still feel really good about all the merchants out there, all the entrepreneurs that want to start new businesses and that’s obviously not going to change with the administration.”
Hoffmeister’s comments come a week after Trump, a Republican businessman, trounced Harris in an election that will soon return him to the Oval Office.
On the campaign trail, he threatened to impose tariffs of 60 per cent on imports from China and roughly 10 per cent to 20 per cent on goods from all other countries.
If the president-elect makes good on the promise, many worry the cost of operating will soar for companies, including customers of Shopify, which sells e-commerce software to small businesses but also brands as big as Kylie Cosmetics and Victoria’s Secret.
These merchants may feel they have no choice but to pass on the increases to customers, perhaps sparking more inflation.
If Trump’s tariffs do come to fruition, Shopify’s president Harley Finkelstein pointed out China is “not a huge area” for Shopify.
However, “we can’t anticipate what every presidential administration is going to do,” he cautioned.
He likened the uncertainty facing the business community to the COVID-19 pandemic where Shopify had to help companies migrate online.
“Our job is no matter what comes the way of our merchants, we provide them with tools and service and support for them to navigate it really well,” he said.
Finkelstein was questioned about the forthcoming U.S. leadership change on a call meant to delve into Shopify’s latest earnings, which sent shares soaring 27 per cent to $158.63 shortly after Tuesday’s market open.
The Ottawa-based company, which keeps its books in U.S. dollars, reported US$828 million in net income for its third quarter, up from US$718 million in the same quarter last year, as its revenue rose 26 per cent.
Revenue for the period ended Sept. 30 totalled US$2.16 billion, up from US$1.71 billion a year earlier.
Subscription solutions revenue reached US$610 million, up from US$486 million in the same quarter last year.
Merchant solutions revenue amounted to US$1.55 billion, up from US$1.23 billion.
Shopify’s net income excluding the impact of equity investments totalled US$344 million for the quarter, up from US$173 million in the same quarter last year.
Daniel Chan, a TD Cowen analyst, said the results show Shopify has a leadership position in the e-commerce world and “a continued ability to gain market share.”
In its outlook for its fourth quarter of 2024, the company said it expects revenue to grow at a mid-to-high-twenties percentage rate on a year-over-year basis.
“Q4 guidance suggests Shopify will finish the year strong, with better-than-expected revenue growth and operating margin,” Chan pointed out in a note to investors.
This report by The Canadian Press was first published Nov. 12, 2024.
TORONTO – RioCan Real Estate Investment Trust says it has cut almost 10 per cent of its staff as it deals with a slowdown in the condo market and overall pushes for greater efficiency.
The company says the cuts, which amount to around 60 employees based on its last annual filing, will mean about $9 million in restructuring charges and should translate to about $8 million in annualized cash savings.
The job cuts come as RioCan and others scale back condo development plans as the market softens, but chief executive Jonathan Gitlin says the reductions were from a companywide efficiency effort.
RioCan says it doesn’t plan to start any new construction of mixed-use properties this year and well into 2025 as it adjusts to the shifting market demand.
The company reported a net income of $96.9 million in the third quarter, up from a loss of $73.5 million last year, as it saw a $159 million boost from a favourable change in the fair value of investment properties.
RioCan reported what it says is a record-breaking 97.8 per cent occupancy rate in the quarter including retail committed occupancy of 98.6 per cent.
This report by The Canadian Press was first published Nov. 12, 2024.
