April 4, 2022

Daily Market Commentary

Canadian Headlines

• Shopify’s 50% Slump Proves That It’s No Amazon. “They are two different businesses,” said David Trainer, chief executive officer and founder of research firm New Constructs. “Even with the recent stock price decline, shares remain priced for Shopify to be bigger than Amazon. Shopify remains significantly overvalued.” Trainer has one of two sell ratings on it, according to data compiled by Bloomberg. Both stocks received a huge lift when the pandemic hit in 2020 and consumers turned en masse to online shopping. But Shopify has given back most of those gains as investors take a closer look at the fundamentals. The company’s growth, while still impressive, is slowing. In its last earnings report, Ottawa-based Shopify warned that sales growth will be lower in the first quarter of this year. For the year, analysts expect sales to increase 31%, down from 57% last year.
• Intact Financial’s RSA Insurance to sell ~50% stake in RSA Middle East to National Life & General Insurance, according to statement.  The transaction follows the acquisition of RSA by Intact Financial Corporation in June 2021, and a subsequent strategic review of operations by Intact and the RSA Board. The transaction is expected to complete by the end of Q3 2022.
• Cenovus Energy says it is will suspend its crude oil price risk management activities related to West Texas Intermediate. Given the strength of Cenovus’s balance sheet and liquidity position, the company has determined these programs are no longer required to support financial resilience. Realized losses on all risk management positions for the three months ending March 31, 2022 are expected to be about $970 million. Actual realizations for the first quarter of 2022 will be reported with Cenovus’s first-quarter results. Based on forward prices as of March 31, 2022, estimated realized losses on all risk management positions for the three months ending June 30, 2022 are currently expected to be about $410 million.

 

World Headlines

• European equities started the week on a slightly positive note, as China’s move to ease a dispute with the U.S. over corporate audits buoyed global risk appetite and investors weighed the risk of additional sanctions targeting Russia. The Stoxx 600 Europe Index rose 0.4% as of 10:38 a.m. in London, reversing losses earlier in the day. Defensive sectors like health care were among the biggest gainers, while energy and industrials dropped.
• U.S. index futures advanced along with stocks in Europe as corporate news took some of the focus off developments in the Ukraine war. Contracts on the Nasdaq 100 were up about 0.4% and those on the S&P 500 posted a more modest gain. Twitter Inc. climbed as much as 26% in premarket trading after Tesla Inc. Chief Executive Elon Musk took a 9.2% stake in the company.
• Chinese tech shares in Hong Kong climbed over 4% after Beijing sought to modify a rule that restricts offshore-listed firms from sharing sensitive financial data with foreign regulators. That may allow the U.S. to gain full access to audits, reducing the risk of Chinese firms losing Wall Street listings.
• Oil swung between gains and losses to trade near $100, with an ongoing supply deficit due to the war in Ukraine weighed against efforts by consumers to tame prices. West Texas Intermediate was trading up 0.1%, switching between gains and losses. Vitol Group, the world’s biggest independent oil trader, said at the weekend that oil prices could be higher given the risk of supply disruption from Russia, but that the market is still trying to establish exactly how many barrels have been lost.
• Gold was steady as investor concerns over the war in Ukraine offset the prospects for monetary policy tightening by the U.S. Federal Reserve. Concerns over the economic fallout from Russia’s war in Ukraine are supporting demand for the haven asset. Some European Union members are pushing for the bloc to impose new sanctions after reports that Russian troops executed unarmed civilians in Ukrainian towns. Spot gold edged 0.2% higher to $1,929.79 an ounce at 12:17 p.m. in London, after dropping 1.7% last week. The Bloomberg Dollar Spot Index was steady. Palladium, platinum and silver also advanced.
• Iron Ore Gains as Signs of Consumption in China Pick Up. Blast furnace operations around Tangshan, China’s top steel-making city. increased 0.3% in the week ending April 1, indicating a likely resumption of some operations even amid a lockdown due to a coronavirus outbreak. Adding to signs of a better-than-expected consumption rate, weekly iron ore stockpiles in main ports surveyed by Mysteel fell 0.8% to 153.9 million tons. Overall market sentiment remains strong after special bonds amounting to 1.25 trillion yuan ($196 billion) were sold at a record pace for the first quarter of the year. That’s a sign infrastructure investment could soon pick up and provide a boost to an economy under strain from Covid lockdowns.
• Zinc Heads for Highest Close Since 2006 as Supply Strains Mount. Orders to withdraw zinc from warehouses tracked by the LME jumped by a third to reach 59,550 tons, the highest level since November. Freely available stocks have been tumbling on the bourse in recent weeks, putting pressure on consumers who have seen supplies dwindle as high power prices force smelters to cut back production.
• Russian and Ukrainian negotiators are set to resume video talks on Monday, after the European Union condemned Russia for atrocities by its military in several Ukrainian towns, saying that the bloc will “as a matter of urgency” work on additional sanctions against Moscow.
• Morgan Stanley’s Wilson Says ‘Bear Market Rally’ Is Now Over. Wilson’s thesis is that the economy is heading for a sharp slowdown, due to a “payback in demand from last year’s fiscal stimulus, demand destruction from high prices, food and energy price spikes from the war that serve as a tax, and inventory builds that have now caught up to demand.” This less forgiving macroeconomic backdrop will become increasingly harder for investors to ignore, as it eats away at corporate profits.
• Hungarian PM Viktor Orban scored a crushing election victory to clinch a fourth term, overcoming criticism about democratic backsliding and close ties with Vladimir Putin. In Serbia, President Aleksandar Vucic won a second term and his ruling party is in position to form a majority government.
• Carrie Lam won’t run for a second term as Hong Kong’s chief executive. Candidates for the position have two weeks to step forward to compete in the May 8 vote of 1,500 mostly Beijing loyalists. Here are some of the potential contenders.
• Infections in Shanghai rose by more than 9,000 yesterday, with the entire city now under some form of movement restriction. Tesla’s factory there entered a second week of disruptions. And one patient in a city some 40 miles away was diagnosed with an apparently new sub-type of omicron BA.1.1, Global Times reported.
• KKR will drop its 10.8 billion-euro takeover proposal for Telecom Italia if the former phone monopoly doesn’t grant it the due diligence it requested, people familiar said.
• Peloton Cuts Price of New Guide Strength-Training Device by $200. The new Guide product, originally announced last November, goes on sale at $295. That’s $200 less than the planned price when Peloton unveiled the device– part of a bid to decrease its reliance on exercise bikes and reverse a sales slowdown.
• Elon Musk took a 9.2% passive stake in Twitter, a 13G filing showed. Shares surged premarket. Tesla delivered a record 310,048 cars worldwide in the first quarter, slightly edging out expectations.
• Starbucks fell after suspending stock buybacks with immediate effect to invest in staff and stores. In October, Starbucks said it would spend $20 billion on dividends and buybacks over three years, a decision that’s now been partially revoked. Schultz’s return, announced last month, comes at a challenging time for the global coffee chain, which faces a growing unionization effort at stores across the U.S. and a resurgent Covid-19 virus in the key growth market of China

*All sources from Bloomberg unless otherwise specified