October 14, 2021

Daily Market Commentary

Canadian Headlines

• The maturing Canadian technology sector has caught the eye of the world’s largest asset manager. BlackRock Inc.’s private equity unit is one of the lead investors in a new “continuation fund” set up by Inovia Capital, the Montreal-based firm said Thursday.  Inovia will use the $334 million it raised to invest more capital in nine growth companies already in its portfolio, helping those businesses bridge the gap “between the time horizon of funds and the time horizon of building global companies,” it said in a statement.  Nine portfolio companies were singled out, including AlayaCare, a software provider for the home-care industry, and Vidyard, a platform companies use to host and record marketing and sales videos.
• Rogers Communications Inc. Chairman Edward Rogers had a plan that would have seen as many as nine of 11 senior executives leave, but it was blocked by members of his own family who feared the move would create chaos just as the Canadian company tries to close a $16 billion takeover.  The plan to remove Chief Executive Officer Joe Natale and most of the company’s senior team was shot down at a Rogers board meeting last month, leaving a fractured family that pits Edward Rogers against his sisters, Melinda Rogers-Hixon and Martha Rogers, the children of late founder Ted Rogers, and Loretta Rogers, Ted’s widow.  Now the family is trying to resolve their dispute before a board meeting that’s scheduled to take place prior to the company’s third-quarter results on Oct. 21, according to people familiar with the matter.
• The world’s second-largest bullion producer continued to ramp up production last quarter — just at a slightly slower pace than expected. Barrick Gold Corp. reported preliminary gold output of 1.09 million ounces in the third quarter, up from second quarter levels on improvements in the U.S. and Argentina. But it was just below the average analyst estimate. Copper production also trailed estimates. Barrick said in a statement Thursday it remained on track to achieve annual guidance, with both the Africa & Middle East and Latin America & Asia Pacific regions continuing to trend to the higher end of their regional gold guidance and North America at the lower end

World Headlines

• European stocks advanced as the start of the earnings season reassured investors that the economic recovery is able to weather inflation pressures, while gains in commodities boosted miners and energy. The Stoxx 600 Europe Index was up 0.9% by 10:28 a.m. in London, led higher by miners and technology shares. Chip stocks gained, with ASML Holding NV climbing after Asian bellwether Taiwan Semiconductor Manufacturing Co.’s quarterly profit beat expectations. Oil’s advance and a rally in base metals gave energy and miners a lift. The FTSE 100 climbed as much as 0.8% to its highest level since mid-August, as stocks in the benchmark continued to benefit from the recent rise in commodities.
• U.S. futures pushed higher after Wall Street snapped a three-day losing streak, with contracts on the tech-heavy Nasdaq 100 outperforming those on the S&P 500. The Treasury 10-year yield ticked lower to about 1.5%.  In the premarket, Bank of America Corp. shares rose as much as 2.5% after reporting better-than-expected third-quarter results. Boeing Co. shares fell more than 1% after a Dow Jones report said the plane maker is dealing with a new defect on its 787 Dreamliner. Investors continue to evaluate the resilience of economic reopening to supply chain disruptions, a jump in energy prices and the prospect of reduced central bank support. In the earnings season so far, executives at S&P 500 companies mentioned the phrase “supply chain” about 3,000 times on investor calls as of Tuesday — far higher than last year’s then-record figure.
• Asian stocks advanced, boosted by a rebound in technology shares as traders focused on the ongoing earnings season and assessed economic-reopening prospects in the region. The MSCI Asia Pacific Index gained as much as 0.7%, as a sub-gauge of tech stocks rose, halting a three-day slide. Tokyo Electron contributed the most to the measure’s climb, while Taiwan Semiconductor Manufacturing Co. closed up 0.4% ahead of its earnings release. India’s tech stocks rose following better-than-expected earnings for three leading firms in the sector.
• Oil surged past $81 a barrel after the International Energy Agency said shortages of natural gas in Europe and Asia are boosting demand for crude. WTI crude futures were up 1.1% and trading near their highest level since 2014. Record gas prices are boosting consumption of other fuels and could add about 500,000 barrels a day of oil use over the next six months, the IEA said. Saudi Arabia’s energy minister meanwhile reiterated the need for producers to take a gradual, phased approach to supply hikes. He said the oil market will be balanced by the end of the year, but reiterated that OPEC and its allies will face a challenging 2022.
• Gold prices hit a one-month high on Thursday, as the dollar and U.S. bond yields eased while investors assessed how strong inflation data could shape monetary policy. Spot gold rose 0.4% to $1,799.30 per ounce by 1100 GMT, having earlier hit its highest since Sept. 15 at $1,799.95. U.S. gold futures gained 0.4% to $1,801.30.
• The European Union and the U.K. braced for a new round of negotiations over trade barriers in Northern Ireland, after a British challenge and fresh concessions from the bloc signaled glimmers of progress in defusing tensions. The two sides will talk in London over the coming days, with Maros Sefcovic, the EU’s chief Brexit negotiator, voicing optimism that in the next weeks the two sides “will jointly arrive at an agreed solution that Northern Ireland truly deserves.” Sefcovic unveiled a set of proposed adjustments to the Northern Ireland protocol on Wednesday that would slash customs checks into the territory by half and cut sanitary inspections on many retail goods including ham and sausages by 80%.
• IHS Holding Ltd. priced shares at the bottom of the expected range ahead of its New York listing later on Thursday, valuing the global telecom-tower operator at almost $7 billion. The owner of more than 30,000 phone masts across Africa, the Middle East and South America will sell stock at $21 each, compared with a range of $21 to $24, according to a statement. The deal will raise $378 million for the company to fund growth plans. IHS is based in Mauritius, making the initial public offering the largest in the U.S. by an African business. The company has been expanding to take advantage of improved connectivity in emerging markets, while wireless operators have been selling off their masts to specialist firms to raise cash.
• A European Union envoy met with Iranian officials Thursday to try to revive efforts to resurrect the 2015 nuclear accord with world powers, the first major signal in months that negotiations could resume soon. Enrique Mora, the EU envoy who’s helped mediate six rounds of indirect talks between Iran and the U.S. with the help of Russian and Chinese diplomats, was greeted in Tehran by Iran’s new Deputy Foreign Minister Ali Bagheri Kani, according to the official government website, dolat.ir.  Mora will call the next round of big-power talks in Vienna “if all parties to the accord are ready for it” European Commissionspokesman Peter Stano told reporters at a briefing in Brussels, emphasizing the “urgency” of the negotiations.
• The U.S. and the Philippines are planning to return to full-scale military drills in 2022 after two years and will invite Australia and the U.K. as observers, in another sign of the Biden administration’s push to deepen ties in the Indo-Pacific and counter China’s assertiveness. America wants “to increase the complexity and scope” of its military exercises with the Philippines, and plans to invite new partners to join the drills, Admiral John Aquilino, the U.S. Indo-Pacific Command chief, said at a briefing in Manila. The U.K., Australia and Japan are among the “like-minded” countries that could rejoin the drills as observers, Philippine military chief Jose Faustino said at the same briefing.
• New home sales in London leaped to their strongest levels in a year in the third quarter as confidence in the capital rebounded, but a slump in completed projects due to labor and material shortages clouded the outlook. Purchases of newly built homes in developments tracked by data company Molior jumped 21% from the previous three months, according to a preliminary report seen by Bloomberg. The number of completed homes, however, fell 30% and construction programs are being delayed, the report said. Builders have joined the growing number of U.K. companies citing a shortage of workers as a concern for the months ahead, just as London’s apartment market shows signs of a revival. Slack demand for units that weighed on prices and rental values is reversing as lockdown restrictions ease and people return to live and work in the city center.
• The European gas benchmark surged back above 100 euros a megawatt-hour as traders shrugged off Russia’s pledge to deliver as much as the continent needs. Europe’s largest gas supplier is raising deliveries in line with requests from customers and is “prepared to discuss any additional steps” to stabilize the market, President Vladimir Putin said on Wednesday. He blamed the region’s energy crisis on flawed policies rather than a lack of supply. Despite Putin’s assurances, European gas prices continued to rise. The Dutch front-month contract climbed as much as 10% on Thursday to 102.96 euros a megawatt-hour, exceeding 100 euros for the first time since last Friday. The U.K. equivalent jumped as much as 9.9%.
• The local units of Foxconn Technology Group and Nokia Oyjwere among companies selected for an output-linked incentive program to start manufacturing in India, the communications ministry said on Thursday. The five-year plan, retrospectively effective April 1 this year, offers subsidies on investment for domestic handset and other telecom equipment production, according to a statement from the government. Local companies including Tejas Networks Ltd., ITI Ltd. and HFCL Technologies were also selected for the program.  Prime Minister Narendra Modi has launched an ambitious Make-in-India plan, that encourages companies to produce locally, as the government tries to lure manufacturing plants away from China. The selected companies under the telecom plan are expected to invest 33.45 billion rupees ($444 million) in the next four years, generating an additional 40,000 jobs, the government said.
• Bank of America Corp. beat analysts’ earnings estimates as fees climbed at the company’s dealmaking unit, boosted by a record-breaking period for mergers and acquisitions. Investment-banking advisory fees rose 65% to $654 million in the third quarter as firms leaned on Bank of America to handle their debt and equity financing, and a combination of cheap financing for buyers and attractive valuations for sellers spurred a wave of takeovers. “The economy continued to improve and our businesses regained the organic customer growth momentum we saw before the pandemic,” Chief Executive Officer Brian Moynihan said in a statement Thursday. “Deposit growth was strong and loan balances increased for the second consecutive quarter, leading to an improvement in net interest income even as interest rates remained low.”
• China’s factory-gate prices grew at the fastest pace in almost 26 years in September, potentially adding to global inflation pressure if local businesses start passing on higher costs to consumers.  The producer price index climbed 10.7% from a year earlier, beating forecasts and reaching the highest since November 1995, as coal prices and other commodity costs soared, data from the National Bureau of Statistics showed Thursday.  There’s little evidence yet that consumer goods factories are passing on higher input costs to customers, with consumer pricesgrowing at a slower pace of 0.7% last month. However, that could change as producers see their profits squeezed and China braces for higher electricity prices amid an energy crunch.
• Walgreens Boots Alliance Inc. reported fiscal fourth-quarter earnings that beat estimates as the Covid-19 pandemic and the U.S. immunization campaign continued to have a powerful effect on the drugstore giant’s results. Profit for the quarter was $1.17 a share with sales of $34.3 billion, Walgreens said in a statement. Analysts had expected adjusted earnings of $1 a share and revenue of $33.1 billion, according to estimates compiled by Bloomberg. Walgreens provided 13.5 million Covid vaccinations in the quarter bringing its total to 34.6 million in fiscal 2021. The chain has been giving shots in stores, nursing homes and other locations.
• Shortages of natural gas in Europe and Asia are boosting demand for oil, deepening what was already a sizable supply deficit in crude markets, the International Energy Agency said.  Crude has surged above $80 a barrel, the highest in three years, as traders anticipated that record gas prices would stimulate consumption of other fuels, particularly for power generation. That’s already happening and could add about 500,000 barrels a day to oil use on average over the coming six months, the IEA said on Thursday.  “An acute shortage of natural gas, LNG and coal supplies stemming from the gathering global economic recovery has sparked a precipitous run-up in prices for energy supplies and is triggering a massive switch to oil products,” the IEA said. “Provisional August data already indicates that there is some unseasonably high demand for fuel oil, crude and middle distillates for power plants across a number of countries, including China.”
• Boeing Co. is dealing with a new defect on its 787 Dreamliner, the latest in a series of production slip-ups that have delayed aircraft deliveries and drawn increased U.S. government scrutiny. The new problem involves certain titanium parts that are weaker than they should be on 787s built over the past three years, people familiar with the matter said. The discovery is among other Dreamliner snafus that have left Boeing stuck with more than $25 billion of the jets in its inventory. The finding is fresh evidence that the plane maker is still trying to fix its manufacturing operations, despite a nearly two-year push by Chief Executive David Calhoun to restore Boeing’s reputation for building quality jets. In addition, the Federal Aviation Administration is investigating Boeing’s quality controls. The company acknowledged it hasn’t solved the problem of junk left over from the production process, such as two empty tequila mini-bottles found in September on a new Air Force One jet under construction.
• Base metals surged, led by zinc, which spiked to the highest since 2007 after European smelters became the latest casualties in a global energy crisis that’s knocking supply offline and heaping pressure on manufacturers. Zinc rose as much as 6.9% on the London Metal Exchange, and a gauge of six industrial metals closed in on an all-time high. Aluminum, one of the most energy-intensive commodities, is at the highest since 2008. Copper bounced closer to the $10,000-a-ton mark, and spreads are pointing to a sharply tighter market — spot copper contracts are trading at the biggest premium over futures in nearly a decade as global inventories shrink. Metal supply cuts are spreading from China to Europe, as energy shortages drive up costs for electricity and natural gas, threatening more inflationary pressure from rising commodity prices. The latest big catalyst came on Wednesday when Nyrstar — one of the biggest zinc producers– said it will cutoutput at three European smelters by up to 50% due to rising power prices and costs associated with carbon emissions.
• Joe Biden has embraced climate action as no other U.S. president has, with promises to rapidly cut carbon from power grids and shift to electric cars. That would—potentially—put the country responsible for more than a quarter of greenhouse gas on the brink of dramatic decarbonization. But U.S. negotiators arriving in Glasgow for COP26 could turn up with almost nothing to show other than earnest pledges of action. A $2.5 billion down payment in funding to help poor countries fight climate change, one of the high-stakes objectives of this year’s talks, is unlikely to clear Congress by the start of the summit. There could be little tangible evidence on the global stage to prove Biden can lead the way forward. Back at home, other initiatives aren’t yet looking much greener. Federal regulations to stifle emissions from automobiles, oil wells and power plants are moving slowly. And lawmakers are still deliberating so-called budget reconciliation legislation that would devote hundreds of billions of dollars to spurring renewable energy, propelling clean transportation, and weaning utilities off fossil fuels.
• UnitedHealth Group Inc. beat Wall Street’s expectations for third-quarter earnings and raised its outlook for the year. The health-care giant reported adjusted earnings of $4.52 a share, compared with $4.39 in the average of analyst estimates compiled by Bloomberg. UnitedHealth said adjusted per-share earnings for 2021 would be in the range of $18.65 to $18.90. Its previous forecast was $18.30 to $18.80. The company’s views on effects of the Covid-19 pandemic were unchanged.

“The good life is a process, not a state of being. It is a direction not a destination.” – Carl Rogers

*All sources from Bloomberg unless otherwise specified