April 13, 2021

Daily Market Commentary

Canadian Headlines

  • Air Canada reached a deal with the Canadian government for loans and equity worth nearly C$5.9 billion ($4.7 billion), a package to help the airline get through the pandemic and restore flights to remote parts of the country. The state, which sold off its ownership interest in the 1980s, will once again own a piece of Canada’s largest airline, buying C$500 million of shares at a discount. Prime Minister Justin Trudeau’s government also negotiated warrants as part of a broad financing agreement that makes Air Canada eligible for five new credit facilities totaling C$5.38 billion, according to a company statement. In return for the money, Air Canada agreed to restrict share buybacks and dividends, keep employment at April 1 levels and follow through on a deal to buy 33 Airbus SE A220s made at a factory in Quebec. Executives won’t be allowed to earn more than C$1 million. And the airline will resume service on routes its suspended to distant locations such as Gander, Newfoundland and Yellowknife, in the country’s far north.
  • For the first time since the pandemic began, Canada has passed a grim milestone, with more new Covid-19 cases per capita than the U.S. There have been roughly 22 new recorded cases per 100,000 people in the country over the past 7-days. Ontario is being hit the hardest with hospitals coming under increasing strain, especially in Toronto, the country’s largest city. Ontario has ordered all but emergency surgeries canceled across most of the province, for the first time since March 2020. Patients scheduled for cancer, cardiac and brain surgeries are being told to wait as intensive care units fill with Covid-19 patients. Toronto’s Hospital for Sick Children has opened an overflow unit to treat adults.

World Headlines

  • European shares edged up on Tuesday, sitting just below record highs as investors look toward corporate earnings and weigh-up potential risks following the recent rally. The Stoxx 600 Index added 0.3% as of 9:34 a.m. in London after slipping on Monday, with technology shares gaining as semiconductor stocks benefitted from a positive read-across from U.S. specialist chip firm Nvidia Corp., which jumped in after-hours trading as it announced an expansion into more generalist semiconductors. Miners outperformed, too, after China’s copper concentrate imports hit a record last month. Defensive sectors including communications and health care lagged behind the broader market. The U.K.’s exporter and commodities-heavy FTSE 100 index was little changed, underperforming as the dollar and crude oil futures trimmed gains.
  • U.S. stock futures turned lower and Treasuries erased losses after a report that the U.S. will seek to pause Johnson & Johnson vaccines amid health concerns, potentially dealing a blow to efforts to reopen the world’s largest economy. Futures on the S&P 500 fell and small cap contracts lost almost 1% after the New York Times reported that Federal health agencies on Tuesday will call for an immediate pause in use of Johnson & Johnson’s single-dose coronavirus vaccine to investigate safety issues over blood clots. Bond yields steadied before consumer-price index numbers due at 8:30 a.m. New York time. Fund managers across the world now see inflation, a taper tantrum and higher taxes as bigger risks than Covid-19, according to the latest Bank of America Corp. survey.
  • Asian shares were slightly higher in late afternoon trading, sharply paring an earlier advance as gains by Chinese tech firms in Hong Kong almost evaporated on mounting regulatory concerns. Food delivery giant Meituan was the biggest drag as the Hang Seng pared a 1.5% gain to about 0.2%. In a meeting with Meituan and other companies, Chinese regulators said they will crack down on information leaks, abuse of market dominance and other violations by internet platforms. Tencent and JD.com also declined. China imposed a record $2.8 billion antitrust fine on e-commerce giant Alibaba late last week, raising concerns that the country’s other tech firms would also be in its sights.
  • Oil rose with traders looking for the next catalyst to shake the market out of a recent tight trading range. Futures were near $60 a barrel in New York, a level around which they have gyrated for almost four weeks. Trade data in China signaled strong momentum in March, despite missing estimates. In the U.S., government figures showed miles traveled on highways over the Easter holiday period were the highest since March 2020, another sign of the rebound in activity in the world’s largest economy. Pockets of higher oil consumption are emerging worldwide as vaccinations climb. But a flare-up of Covid-19 cases is leading to renewed restrictions in countries like India, where streets are emptying again as the nation tackles a new wave on infections.
  • Gold extended its decline as investors eye demand for government debt and the release of data on U.S. consumer prices as the inflation debate picks up. Yields rose only slightly Monday after the U.S. Treasury’s auctions of three- and 10-year notes attracted decent demand. The next test for investor appetite will be the 30-year bond auction later Tuesday. Higher yields weigh on the appeal of bullion, which doesn’t offer interest. Gold has retreated 9% this year amid rising bond yields, a resilient dollar and prospects for a recovery after the pandemic. Traders are also watching for signs of inflation as a growing number of consumers see it rising to the highest levels in years. The White House has said inflation is likely to settle back down after a temporary acceleration in the next few months as the Biden administration seeks to address Republican criticism that its stimulus plans will overheat the economy.
  • Bitcoin jumped to an all-time high as the mood in cryptocurrencies turned bullish ahead of Coinbase Global Inc.’s listing this week. The token rose as much as 5.3% to $63,179, exceeding the previous peak in March. Cryptocurrency-exposed stocks such as Riot Blockchain Inc. and Marathon Digital Holdings Inc. also advanced in U.S. premarket trading. Crypto bulls are out in force as growing list of companies embrace Bitcoin, even as skeptics doubt the durability of the boom. In one of the most potent signs of Wall Street’s growing acceptance of cryptocurrencies, Coinbase will liston the Nasdaq on April 14 at a valuation of about $100 billion.
  • Europe’s top financial watchdog has asked some of the bloc’s largest banks for additional information on their exposure to hedge funds after the recent collapse of Archegos Capital Management. The checks by the European Central Bank on lenders such as Deutsche Bank AG and BNP Paribas SA are standard practice after such a disruptive event for the industry, according to people familiar with the matter. All banks supervised by the ECB that have a significant hedge fund business are likely to face these questions, they said, asking not to be identified discussing the private information. The collapse of Archegos, a secretive family office that had made highly leveraged bets on stocks, could cause as much as $10 billion of losses for banks, analysts at JPMorgan Chase & Co. estimate. Swiss lender Credit Suisse Group AG alone has put the expected hit at 4.4 billion Swiss francs ($4.7 billion) in the first quarter.
  • The U.K. economy rebounded in February as a mass vaccination program and the prospect of a loosening of coronavirus restrictions lifted consumer confidence. Gross domestic product rose 0.4% following a revised 2.2% decline in January, the Office for National Statistics said Tuesday. All the main sectors of the economy saw output rise. The economy remains 7.8% smaller than it was before the pandemic hit Britain in February 2020. Britain is emerging from its third national lockdown with consumers and businesses increasingly optimistic about a rapid recovery from the worst recession in three centuries. The outlook depends on the willingness of households to spend an estimated 150 billion pounds ($206 billion) of savings accumulated when swathes of the economy were closed.
  • U.S. health officials recommended a pause in the use of Johnson & Johnson’s vaccine on concerns about rare and severe blood-clotting side effects. German Chancellor Angela Merkel’s cabinet approved a law setting nationwide rules on virus restrictions after some regions failed to impose curbs despite rising cases. Italy is in talks to set up vaccine production hubs as the government seeks to build domestic capacity amid concern it risks missing its targets. Meanwhile, the U.K. hit a goal to offer a shot to all over 50s three days early. Vaccination bookings jumped in Hong Kong. The government plans to only allow inoculated people to fly to Singapore and said it could ease social-distancing rules for the vaccinated. India overtook Brazil as the country with the second-most cases.
  • Vingroup JSC is considering a U.S. initial public offering of its car unit VinFast that could raise about $2 billion, according to people familiar with the matter. The biggest carmaker in Vietnam is working with advisers on the potential offering that could take place as soon as this quarter, the people said. An offering could raise as much as $3 billion, said the people, who asked not to be identified as the information is private. The company is seeking a valuation of at least $50 billion after a listing, one of the people said. At $2 billion, VinFast’s IPO would be the biggest ever by a Vietnamese company after Vinhomes JSC’s $1.4 billion first-time share sale in 2018, according to data compiled by Bloomberg. The carmaker could also become the first Vietnamese company to list in the U.S. if successful.
  • Grab Holdings Inc., Southeast Asia’s most valuable startup, is going public in the U.S. through a merger with blank-check company Altimeter Growth Corp. in what is the largest-ever deal of its kind. The Singapore-based startup is set to have a market value of about $39.6 billion after the combination with the special purpose acquisition company of Brad Gerstner’s Altimeter Capital Management, the firms said in a statement Tuesday. Grab is raising more than $4 billion from investors including BlackRock Inc., Fidelity International and T. Rowe Price Group Inc. as part of the biggest U.S. equity offering by a Southeast Asian company. The deal would make the ride-hailing and food-delivery giant the first Southeast Asian tech unicorn to go public through a SPAC and give it funds to expand. Grab is trying to take advantage of a U.S.-led SPAC listing boom even though it’s showing signs of slowing amid increased scrutiny by regulators.
  • Global markets may have reached an inflection point with value shares set to outperform growth ones for a significant period, according to JPMorgan Chase & Co. chief global markets strategist Marko Kolanovic. The rebound in value driven by the recovery from the pandemic, falling volatility and fiscal and monetary policy support is set to last for some time as the various factors work their way through the system, Kolanovic said in an interview. These could trigger a long-term investment shift toward being more cyclical and reflationary, he said. “We might be at a more significant turning point rather than just historically what were blips that reverted back to the growth investing style,” New York-based Kolanovic said April 9. “We think this recovery can last longer and be more profound and have more of an impact on investor styles and flows than people appreciate.”
  • Crosspoint Capital Partners LP, a private equity firm led by executives including ex-Symantec Corp. Chief Executive Officer Greg Clark and former Bain Capital dealmaker Ian Loring, raised $1.3 billion for its debut fund. The firm, which focuses on security, privacy and infrastructure software investments, won backing from institutional investors including endowments and family offices to exceed an original $1 billion target for the vehicle, Crosspoint Capital Fund I. “We’re pursuing a twist on the private equity industry,” Loring said in an interview, referring to Crosspoint’s narrow sector focus within the vast technology universe, and its team of senior industry executives. “We start with a view that there’s too much capital out there chasing too few opportunities, so to create great companies and returns for our investors, we have to know an area better than anyone else and add value post-deal,” he said.
  • Ukraine and Russia ratcheted up their rhetoric as U.S. Secretary of State Antony Blinken arrived in Brussels to discuss the escalating tensions with his European partners. Meeting with NATO chief Jens Stoltenberg, Ukrainian Foreign Minister Dmytro Kuleba said Russia, which has amassed troops near the two countries’ border, is threatening to destroy his country. Kremlin spokesman Dmitry Peskov said Russia poses no threat and urged Ukraine’s Western allies to stop it carrying out “provocative actions.” The region is on edge over a Russian military buildup in recent weeks around the conflict that began after President Vladimir Putin annexed Crimea in 2014. With Putin’s intentions unclear, the fear is that even a low-level skirmish could reignite more serious fighting. The war over the status of two breakaway regions in Ukraine’s east has already cost more than 13,000 lives.
  • China’s yuan is unlikely to escape its current bout of weakness, even with help from U.S. Treasury Secretary Janet Yellen. While Yellen’s decision not to name China as a currency manipulator removes a flash point, analysts say that tension between the two countries have moved to strategic issues such as technology leadership. The yuan is also weighed down by other factors including slowing capital flows and a narrowing yield spread with the dollar. “It takes away one source of pressure, but other areas of tensions with the U.S. remain,” said Dariusz Kowalczyk, chief China economist at Credit Agricole CIB. “The headline will likely provide only temporary support, given that other factors are in the driver’s seat for now.”
  • Vladimir Putin wants to get Russia’s economy growing again after the pandemic with a burst of spending. His government is working overtime to find the money to pay for it. Just what the Kremlin leader has in mind is being kept secret until his annual address to the nation on April 21. But officials led by Prime Minister Mikhail Mishustin are already considering several possible ways to come up with the cash, according to people familiar with the deliberations. Options include tapping the government’s $182 billion rainy-day fund, easing spending restrictions under a self-imposed fiscal rule, diverting money from other projects and raising taxes, one person said. The efforts are so hush-hush that much of the work is being done in a high-tech basement war room across the Moscow River from Russia’s White House government headquarters jokingly known among insiders as “the bunker.” Requiring digital face-recognition for entry, the facility lets Mishustin and his team collect vast amounts of data from across the government and break down bureaucratic silos to speed decision-making, these people said. Putin is scheduled to visit the facility, located in a converted conference center, Tuesday, his spokesman said.
  • Credit Suisse Group AG slashed the amount of money set aside for employee bonuses by hundreds of millions of dollars and used the savings to limit the financial hit from the implosion of Archegos Capital Management. Cuts to accruals for staff compensation and other one-off items added about $600 million to underlying profit before tax for the first quarter, which is expected to be just over $3.7 billion, a person familiar with the matter said, asking for anonymity to discuss internal information. A spokesperson for Credit Suisse declined to comment on the numbers, which were reported earlier by the Financial Times. Bonuses are accrued every quarter on a pro-rata basis, so the bank could set aside more in the remainder of the year to make up for the cuts.
  • Investors should keep an eye on credit trends, capital markets, potential share buybacks and expenses when banks report first-quarter earnings this week, according to Wells Fargo analyst Mike Mayo. Climate issues are also moving toward the spotlight for the first time in addition to to the yield curve and the mortgage market, Mayo said in a phone interview. He cited getting his first-ever question on climate from a banks investor, not an ESG-oriented investor, in recent weeks, and added that Citigroup Inc.’s new Chief Executive Officer Jane Fraser spoke about climate on her first day on the job. The Federal Reserve and others are also making new regulatory efforts in the space. JPMorgan Chase & Co., Goldman Sachs Group Inc. and Wells Fargo & Co. report before the bell on Wednesday, with Bank of America Corp. and Citigroup following on Thursday and Morgan Stanley on Friday. Bank stock outperformance hasn’t been this strong at this point in the year since 2010, with the KBW Bank Index surging 27% to date, topping the S&P 500’s 9.9% gain. The bank index advanced 0.6% on Monday to close at an all-time high.
  • Online travel platform Trip.com Group Ltd. has raised about HK$8.5 billion ($1.1 billion) in its Hong Kong second listing after pricing the shares at HK$268 each. The company sold 31.6 million shares in the Hong Kong offering, according to a statement on Tuesday. The price represents a discount of about 2% to Trip.com’s closing price of $35.20 on Monday on the Nasdaq. Trip.com’s U.S. shares have risen about 4% this year, giving the firm a market capitalization of $21 billion. It is part of a wave of U.S.-listed Chinese companies seeking a trading foothold in Hong Kong which has seen some of the country’s biggest tech giants such as Alibaba Group Holding Ltd. and JD.com Inc. raise over $36 billion since late 2019, data compiled by Bloomberg show.

“An investment in knowledge pays the best interest.”Benjamin Franklin

*All sources from Bloomberg unless otherwise specified