It’s a key week for the stock market. If you’re not nervous, you should be, this global strategist warns.
Investors have got the jitters as a big week unfolds — several central bank meetings including the Fed, earnings from Apple and Amazon.com, and jobs data. Yikes.
Any investor out there who isn’t nervous, perhaps should recheck his gut, says our call of the day, from Standard Chartered’s global head of research, Eric Robertsen.
“We do not expect an extreme economic hard landing, but we think the proverbial Goldilocks scenario is too optimistic,” Robertsen told clients in a Sunday note, adding that they are “now turning cautious on risky assets.”
Robertsen explains the two sides of an important market debate right now — the just-right Goldilocks crowd and the “recessionist” bears.
The former is growing confident with their view that inflation and central bank tightening is nearing a peak and any recession will be “shallow and short-lived,” he explains. The reduction of that “central-bank driven left-side tail risk” matters more to markets than any slowdown, that side also says.
“A central bank pause, declining inflation, and attractive yields and valuations will prompt investors to reduce their underweight exposure and increase their allocation to risky assets, the Goldilocks camp argues,” he said.
He says the varied year-to-date performance across asset classes reveals 2022’s laggards are 2023’s outperformers so far. “This suggests that short-covering may be a significant contributor to performance so far, rather than overwhelming faith in the Goldilocks economy.
“The outperforming sectors are distinctly pro-cyclical – which is surprising with recession themes all the rage,” he says, noting that “ominous message about the health of the labor market” from tech job cuts.
On the other side, the bears say investors are overstating a decline in volatility and understating economic risks, writes Robertsen, who is on board here, hence his caution on riskier assets. The so-called fear gauge, the CBOE Volatility Index, or VIX
didn’t register new highs last year when stocks tumbled, leading some to say it was a broken indicator.
“Real-time indicators are showing a loss of economic momentum, while others – such as the U.S. labor market – have yet to reflect growing economic headwinds,” he said. “Underlying the bear case is the view that we have yet to feel the full cumulative impact of the most aggressive monetary tightening cycle in decades.”
He says “volatility measures have fallen too far and the improvement in risky assets is due for a pause.” The catalyst for this pause could be any number of things: aggressive rate cuts priced into the U.S. money-market curve that will be unwound, a too-tight move from the European Central Bank or even an actual tightening from Bank of Japan, for example, said Robertsen.
Risk assets may also struggle with the Fed’s message this week if it fails to reassure the rate-hiking cycle is complete, says Robertse,n who expects the central bank will push back on “aggressive easing priced into the money-market curve.”
Read: Wall Street’s ‘fear gauge’ flashes warning that stocks might be headed off a cliff
have trimmed losses, but all are down, led by those for the Nasdaq-100
creeping up and oil
pulling back. The China CSI
rose slightly as the market reopened after a week off. The Hang Seng
slumped 2.7% as Alibaba fell (more in buzz) and Taiwan’s index
surged 3.7% as Taiwan Semi
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The A-listers of earnings are lining up this week, with not just Apple
but Alphabet’s Google
Read: Could Big Tech layoffs keep growing? Apple, Amazon, Facebook and Google may give hints in biggest week of earnings.
are tracking a slump in Hong Kong amid speculation the company will shift headquarters to Singapore. Alibaba dismissed the rumors. And shares of Baidu are bucking a weaker landscape for tech, with reports the China tech group is developing its own AI search engine.
Russia’s invasion of Ukraine will lead to lower oil and gas demand and a move to greener sources, says BP
The data calendar is quiet for Monday, but the week is busy with updates on the housing market, manufacturing, unit labor costs and nonfarm payrolls.
A 25-basis point hike is forecast from the Fed this week, while a 50-basis point cut is expected from the ECB and Bank of England, which could narrowing the differential between the two sides.
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Rogers-Shaw deal approved — with ‘unprecedented’ conditions. Here’s what to know – Global News
Rogers Communications Inc.’s proposed takeover of Shaw Communications Inc. will go ahead after it received the final sign-off it needed from Industry Minister Francois-Philippe Champagne.
He called the merger a “watershed moment” for the telecom sector that he claimed would drive wireless prices down for Canadians while growing the combined firm’s overall headcount.
The merger, a union between two Canadian telecom giants valued at $26 billion, including debt, has changed significantly in response to political and industry pressure since it was first announced in March 2021.
The final permutation of the merger will see Shaw sell its Freedom Mobile business and transfer wireless spectrum to Quebecor’s Videotron as the latter seeks to expand outside Quebec.
“We are at a crossroad for the telecom sector in Canada,” Champagne said in his announcement.
Rogers takeover of Shaw approved by Ottawa: Minister Champagne
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Champagne’s approval came on the companies’ March 31 deadline to close the transaction.
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Rogers, Shaw and Quebecor released a joint statement Friday morning saying they have agreed to extend that closing date to April 7 in order to give enough time to finalize the agreement and meet other closing conditions.
While shares of Shaw were up slightly in trading on the Toronto Stock Exchange on Friday, Rogers’ stock price had dropped 2.8 per cent on the day.
Rogers CEO Tony Staffieri called the merger “transformative” in a statement on Friday, and said the combined companies “will invest substantially to bring more choice, more value, and more connectivity to Canadians across the country.”
Brad Shaw, the CEO of Shaw, said in a statement that “the merger will provide the scale necessary for the future success and competitiveness” of the Calgary-based company.
Shaw Communications and Corus Entertainment, the parent company of Global News, are owned by the Shaw family based in Calgary.
Pierre Poilievre, leader of the federal Conservative Party, fired a shot at the government’s approval of the deal in Question Period on Friday.
‘Liberals love to suck up to big oligopolistic corporations’: Poilievre opines on Rogers-Shaw deal approval
“When will they start standing up for consumers instead of standing up for price raising and high cost corporate oligarchs?” he asked.
Brian Masse, the NDP’s industry critic, said Friday’s approval was a “cave” to the big telcos that would see Canadian consumers continue to pay some of the highest wireless prices in the world.
“We’re going to see less competition. We’re going to see higher prices and we’re going to see continued frustrations for Canadians as things go forward,” he said.
Pierre Karl Péladeau, president and CEO of Videotron-owner Quebecor Inc., said in a statement Friday that the company would bring its competitive force to bear on the national market.
“Just as Videotron has done in the Québec market, Freedom will promote competition by competing aggressively with Canada’s wireless carriers in order to lower prices for the benefit of consumers,” he said.
‘Unprecedented’ conditions added to the deal
In an effort to get ahead of criticisms that the merger would hurt competition, Champagne said Friday his approval is subject to 21 “unprecedented and legally enforceable” conditions.
Videotron’s wireless prices in Quebec, which tend to be 20 per cent lower than other parts of the country, must be expanded out of the province and into Western Canada as part of Champagne’s stated goal of creating a fourth-national player to drive down Canadians’ phone bills.
“The way to drive down prices is through competition. Having a fourth, strong national player does lead to lower prices,” he told reporters Friday.
Rogers is also expected to keep a headquarters in Calgary and add 3,000 new jobs in Western Canada, both of which are expected to be maintained over the next 10 years. Champagne did not say whether any job protections are extended to Rogers’ operations in Eastern and Central Canada.
The newly merged telecom giant is also expected to spend $5.5 billion expanding 5G network coverage and invest $1 billion in connections for rural, remote and Indigenous communities.
The $6.5 billion in spending and promises to add jobs and maintain the western HQ were included in the original announcement from Rogers and Shaw in March 2021.
Violating the conditions would come with “significant” penalties of up to $200 million in fines for Videotron and up to $1 billion in charges for Rogers, Champagne said.
He added that all of these conditions are set out in a legal undertaking he called a “contract with Canadians” and are subject to arbitration if the companies violate the agreement.
Champagne said he would watch the telcos “like a hawk” on Canadians’ behalf.
Michael Geist, Canada Research Chair in Internet and E-commerce Law at the University of Ottawa, argues that the significant number of conditions placed on the deal amount to a tacit confession from the federal government that what they’ve approved won’t benefit consumers.
“It’s largely illusory,” he tells Global News.
“Let’s recognize we’re talking about a 10-year horizon. We don’t even know who’s going to be in the government at that stage, much less what the environment will look like.”
The NDP’s Masse, too, was skeptical of Champagne’s conditions and critical of the proposed penalties, which he said would end up being paid by Rogers and Videotron’s customers on their bills, not by the companies or their executives.
“He may be watching them like a hawk, but I mean, he’s left Canadian consumers to be basically open to the buzzards,” Masse said.
Champagne’s office confirmed in a statement to Global News on Friday that the companies’ agreement is signed with the Government of Canada, not the minister himself, and will remain in force even if the Liberals leave office over the next decade.
Minister threatens more regulation if prices don’t drop
The industry minister also announced a freeze on the transfer of large amounts of spectrum from major carriers for an indeterminate period and a comprehensive review of Canada’s spectrum transfer rules for the first time in a decade to ensure the framework is appropriate for the modern telecom landscape.
If prices do not materially lower following the completion of this deal, Champagne threatened that he might seek more legislative powers to force companies to offer Canadians better deals.
What Rogers purchase of Shaw will mean for Canadian consumers
“Everything is on the table,” he said.
Michael Osborne, a competition lawyer with Cozen O’Connor in Toronto, says the conditions imposed on the deal largely amount to “political theatre” but they are “real.” He says the conditions reinforce actions Rogers already said it would take, like maintaining a presence in Western Canada.
He says the introduction of Videotron, which will be incentivized on its own to offer cheaper rates to compete in the market, will result in less concentration in Canada, rather than more.
As for Champagne’s suggestion that he could seek more powers to force telecom prices lower in the years to come, Osborne says the impulse to regulate the market rather than letting competition run its course is misguided.
“There seems to be a bit of a view out there that we should regulate prices charged by businesses in our economy. We’re seeing that in telecom. We’re seeing that from people in relation to groceries,” he says.
“Having the government decides what prices are going to be is not historically a winning formula for having an efficient, competitive, strong economy that grows.”
How did we get here?
Champagne’s sign-off was the final regulatory hurdle needed to get the deal across the finish line.
The Competition Tribunal approved the deal on Dec. 30, 2022.
The Competition Bureau had appealed the tribunal’s decision, citing what it claimed were legal errors in the judgment. But a Federal Court of Appeal judge ruled last month that the Bureau’s arguments did not meet the threshold needed to overturn the ruling.
The Bureau had lobbied against the merger, saying the transaction would hurt competition in the telecom industry in Canada.
The Competition Tribunal concluded that the merger was not likely to result in higher prices for wireless customers in Western Canada, and that the Tribunal was satisfied the plan to sell Shaw’s Freedom Mobile to Videotron was adequate to ensure competition isn’t substantially reduced.
Osborne believes that if Champagne had shut down the deal — disagreeing with the call made by a judicial body — Canada’s reputation as a good place to do business could be at risk.
“It would be catastrophic for merger review in this country,” Osborne says.
“It would mean that instead of a system which is governed by law and by an objective, measurable standard … that in fact, merger review in this country is based on how many letters the minister got opposing the deal.”
But Keldon Bester, co-founder of the Canadian Anti-Monopoly Project, tells Global News that the deal’s approval reflects the “poor state of Canada’s competition laws” and called for a boost in oversight that would prevent industry consolidation like this in the future.
While he says it’s “entirely possible” that Videotron will become a strong national competitor, there are many questions about the effectiveness of the conditions imposed on the deal and whether the long-term drop in prices described by Champagne will come to pass.
Finance Minister Chrystia Freeland said Friday that, like the 2023 budget tabled earlier in the week, the Liberal government’s focus is on “affordability” for consumers.
“Our focus is very much on Canadians. It’s on Canadian consumers. It’s on imposing tough conditions to ensure that Canadian consumers get the services they need at prices they can afford,” she said.
— with files from Global News’s Anne Gaviola, David Baxter
Liberals pitch their ‘fiscally responsible’ budget
Why it matters that Canadian banks have dodged the deposit exodus plaguing some U.S. banks
The immediate panic around bank runs in the United States may have eased, but the flood of deposits that have exited regional banks over the past year has prompted a tightening of lending standards and raised the odds that the U.S. economy will tip into recession.
For now, at least, that cycle is much less of a concern in Canada.
As of March, overall deposits at U.S. banks shrank 2.4 per cent from the previous year, the steepest decline since the country’s savings and loan crisis in the 1990s.
When regional U.S. banks are drained of deposits by households and businesses worried about the safety of their money or seeking higher interest elsewhere, those banks make fewer loans to buy houses and fund small business. That, in turn, can lead to a credit crunch and recession.
The picture in Canada is different, with deposits continuing to rise, as Stephen Brown at Capital Economics noted this week.
While lending to businesses has tightened significantly in the U.S., he wrote, on balance Canadian banks have made loans only marginally more restrictive.
Canada’s banking sector “does not face the same immediate risks as in the U.S., since it is far more concentrated, limiting the chance that problems at small lenders will trigger a broader crisis of confidence,” he wrote.
Still, he warned, “indirect risks” from international bank problems will likely lead Canadian banks to be more cautious in their lending here, “particularly as their U.S. operations come under strain.”
Stocks Shake Off Bank Woes, Set for Quarterly Gain: Markets Wrap
(Bloomberg) — US equity futures edged higher after a key measure of US inflation stepped down last month by more than expected, and consumer spending stabilized, suggesting the Federal Reserve may be close to the end of its rate-hiking campaign. The dollar pared an advance.
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Excluding food and energy, the Fed’s preferred inflation gauge — the personal consumption expenditures price index — rose 0.3% in February, slightly below the median estimate of 0.4% in a Bloomberg survey of economists. The overall PCE climbed by the same amount, Commerce Department data showed Friday.
Contracts on the S&P 500 rose 0.2%, while those on the tech-heavy Nasdaq 100 were little changed, with the underlying index set for its strongest March since 2010.
Digital World Acquisition Corp., the blank-check firm taking Donald Trump’s media company public, rallied in premarket trading after he became the first former president to be indicted. Other Trump-linked stocks also gained.
If equities “end the week in the green, that’s a big deal considering how almost disastrous the rest of the month was,” said Craig Erlam, a senior market analyst at Oanda. “Confidence is easily shattered and difficult to restore and a positive end to the week would send a strong signal that investors are feeling reassured by the lack of turmoil recently.”
Treasury yields drifted following Friday’s US data at the end of a quarter of wild swings. Investors have struggled to adjust for banking collapses and the shifting outlook for interest rates amid high inflation and threats to economic growth. The two-year yield was around 4.11% Friday while the 10-year maturity was about 3.53%.
Traders remained on guard for any choppiness amid quarter-end rebalancing from pension funds and options hedging activity. And they continue to debate the extent to which policy makers may cut interest rates this year. Several strategists have said markets are wrong to expect easing by the Fed this year as the labor market remains robust, though US unemployment claims ticked up for the first time in three weeks.
A round of Fed speakers on Thursday suggested more monetary tightening was necessary to quell inflation, even after the collapse of three US banks this month. Boston Fed President Susan Collins said tightening was needed, while Richmond Fed President Thomas Barkin said the Fed can raise rates more if inflation risks persist.
In Europe, euro-area inflation plunged by the most on record, but a new high for underlying price gains highlighted the tricky task facing the European Central Bank as it decides how far to lift interest rates. Consumer prices rose 6.9% from a year ago in March — down from 8.5% in February and less than the 7.1% median estimate of economists, but core inflation quickened to 5.7%.
Elsewhere in markets, oil headed for a weekly surge of more than 7% amid ongoing disruption to Iraqi exports. Gold was little changed. And Bitcoin was set to end its best quarter since March 2021 with a gain of about 70%.
Key events this week:
- ECB President Christine Lagarde speaks, Friday
- New York Fed President John Williams speaks, Friday
Some of the main moves in markets:
- S&P 500 futures rose 0.2% as of 8:49 a.m. New York time
- Nasdaq 100 futures were little changed
- Futures on the Dow Jones Industrial Average rose 0.3%
- The Stoxx Europe 600 rose 0.5%
- The MSCI World index rose 0.7%
- The Bloomberg Dollar Spot Index rose 0.1%
- The euro fell 0.2% to $1.0882
- The British pound was little changed at $1.2381
- The Japanese yen fell 0.2% to 132.95 per dollar
- Bitcoin fell 0.3% to $28,060.63
- Ether rose 0.5% to $1,804.69
- The yield on 10-year Treasuries declined two basis points to 3.53%
- Germany’s 10-year yield declined four basis points to 2.33%
- Britain’s 10-year yield advanced one basis point to 3.53%
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