August 12, 2021

Daily Market Commentary

Canadian Headlines

  • Canadian equities rose for a second session as value sectors including materials, real estate, and financials rose. The S&P/TSX Composite Index gained 0.3%, with 7 of eleven sectors higher. Gold rose the most in three months as the dollar fell after data showed U.S. inflation moderated, easing fears that the Federal Reserve may soon pare back stimulus. Canada Goose Holdings, in the midst of a move away from third-party retailers, says its strategy is working and the payoff is coming soon. Wall Street, however, remains skeptical.
  • The joint venture that runs the Chinese locations of iconic Canadian coffee shop chain Tim Hortons is nearing a deal to go public through a merger with blank-check company Silver Crest Acquisition Corp., people familiar with the matter said. A transaction could value the combined entity at about $1.8 billion and an announcement could come as early as this week, the people said, asking not to be identified because the matter is private. Silver Crest Acquisition, led by chairman Leon Meng, is a U.S.-listed special purpose acquisition company backed by Greater China-focused private equity firm Ascendent Capital Partners. Shares of Silver Crest Acquisition rose as much as 3.7% in pre-market trading Thursday in New York.
  • China denounced Canadian Prime Minister Justin Trudeau’s comments as “extremely unreasonable, absurd and arrogant,” as Beijing ramped up an 11th-hour effort to prevent a Huawei Technologies Co.executive’s extradition to the U.S. The Chinese Embassy in Ottawa expressed its “great indignation and strongest condemnation” in a statement Thursday protesting Trudeau’s criticism of an 11-year prison sentence of Canadian national Michael Spavor. The prime minister had condemned the verdict in Spavor’s politically charged spying trial Wednesday as “absolutely unacceptable and unjust.” The embassy also pushed back against allegations that the prosecutions of Spavor and fellow Canadian Michael Kovrig were arbitrary detentions intended to pressure Ottawa to block the extradition of Huawei Chief Financial Officer Meng Wanzhou. The Chinese government views the case as a politically motivated attack on one of its chief technology champions.

World Headlines

  • European stocks were little changed on Thursday following eight days of record highs as investors weighed earnings updates and risks to growth from the delta virus variant. The Stoxx Europe 600 Index was up less than 0.1% by 10:17 a.m. in London, with insurance and telecoms leading the gains and mining stocks underperforming as iron ore futures dropped. Euro-area large-caps are continuing their rise for a ninth straight day, with the Euro Stoxx 50 Index up 0.2%, on track for the second-longest winning streak in its history.
  • Global equity markets fluctuated on Thursday, with European shares taking a pause after an eight-day rally on a mixed batch of earnings. While the market action has been subdued, European equities have steadily made their way higher as investors put their faith in the economic reopening story. The blue-chip Euro Stoxx 50 Index is up for nine straight days and on track for the second-longest winning streak in its history.
  • Asian stocks dropped for the first time in four days, hurt by losses in heavyweight chipmaking companies. The MSCI Asia Pacific Index fell as much as 0.5%. Technology was the worst-performing sector, with Samsung Electronics and SK Hynix among the biggest drags, as Morgan Stanley lowered its view on memory-chip makers. Gains in industrial and materials shares cushioned the benchmark index’s downside. Rising virus cases across the region and China’s moves to regulate businesses continue to be a risk for equity investors in Asia. China released a five-year blueprint calling for greater regulation of vast parts of the economy, providing a sweeping framework for the broader crackdown on key industries that has left markets reeling. The benchmark CSI 300 Index fell 0.8% in a second day of losses.
  • Oil steadied after a two-day advance as traders tried to assess how the latest virus wave will impact world fuel demand during the rest of the year. Futures in New York traded near $69 a barrel after rising more than 4% over the previous two sessions. The International Energy Agency cut its global consumption forecasts “sharply” for the rest of this year and predicted a new surplus in 2022. Yet Goldman Sachs Group Inc. estimated the net impact of the delta virus variant on oil demand is likely to be moderate.
  • Gold held its biggest gain in three months, after moderating U.S. inflation eased concerns of earlier-than-expected stimulus tapering by the Federal Reserve. U.S. consumer prices climbed at a slower pace last month than in June, data showed on Wednesday. That triggered a move higher for bullion as worries about the Fed’s urgency to tighten monetary policy softened, though prices are still lower this week after a flash crash on Monday. Bullion slid to the lowest since March at the start of the week after a report showed the U.S. labor market recovering faster than expected. The jobs gains have led to a slew of Fed officials raising the prospect of tapering its massive bond-buying program soon, including Kansas City Fed President Esther George. More U.S. data on producer-price inflation and jobless claims are due Thursday.
  • Reddit Inc. is raising a new round of funding that will value the social media business at $10 billion, the company said. It represents a significant increase from six months ago. The new financing will bring in as much as $700 million in a round led by Fidelity Management, Reddit said in a statement. The company’s valuation was $6 billion in February. If the deal were completed in full, it would bring Reddit’s total fundraising haul for the year to nearly $1 billion. The website, which hosts message boards on a wide variety of interests and lets users vote on the posts they like, saw a surge of interest this year after a forum on the site, WallStreetBets, jolted the stock market. The trading frenzy whipsawed the prices of GameStop Corp., AMC Entertainment Holdings Inc. and silver.
  • Australia is struggling to control outbreaks after months of lockdown in its main cities, as the delta variant spreads across Asia. Japan’s serious cases continued to rise, with an adviser to the local government sayingthe spread of infections in the capital was out of control. By contrast, easing restrictions across Europe translated into faster economic growth in the U.K. and higher earnings at one of eastern Europe’s biggest banks. China partly shut the world’s third-busiest container port after a worker became infected with Covid. Internet search giant Baidu Inc. delivered a conservative outlook for the current quarter as the resurgent outbreak in China overshadowed its push into newer arenas.
  • China is halting private equity funds from raising money to invest in residential property developments, turning off the spigot on one of the last stable funding resorts for the struggling sector. The government-endorsed Asset Management Association of China, or AMAC, has verbally informed private equity firms it would no longer be accepting the required registrations to set up funds to invest in projects, people familiar with the decision said, requesting not to be named because the matter is private. Applications that have already been made would also be denied, while existing funds wouldn’t be affected, the people said. The suspension adds to the challenges for Chinese property developers after regulators tightened funding channels including bank loans and trust funding as part of a campaign over the past years to reduce risks. Some of the nation’s largest developers, such as China Evergrande Group, are struggling under massive debt loads built up during boom years in China’s property market and the sector is now driving a record surge in defaults in China’s bond market.
  • Nu Pagamentos SA, the Brazilian fintech backed by billionaire Warren Buffett’s Berkshire Hathaway Inc., is planning an initial public offering of more than $2 billion on the Nasdaq for the end of this year, according to people familiar with the matter. Nubank, as the firm is known, may seek a valuation of more than $40 billion, the people said, asking not to be identified because the transaction details aren’t yet public. Deliberations are ongoing, so the details may change. Nubank declined to comment. Banks handling the share sale include Morgan Stanley, Goldman Sachs Group Inc., Citigroup Inc. and UBS Group AG. Representatives for the firms declined to comment. David Velez, Nubank’s co-founder, has said in recent months that the company was considering a public listing, without disclosing details.
  • Aviva Plc plans to return at least 4 billion pounds ($5.6 billion) to investors using proceeds from the recent sale of non-core businesses. The U.K.-based insurer and asset manager will start with an immediate 750 million pound share buyback, and the balance will be returned to investors by the end of the first half of 2022, Aviva saidin an earnings statement Thursday. Since joining Aviva just over a year ago, Blanc has focused the firm on its U.K., Ireland and Canada businesses while selling off eight units in other markets. The firm has retained operations in China, India and Singapore.
  • Novozymes A/S, the world’s largest maker of industrial enzymes, is betting on more growth in the plant-based meat market. The Danish company said Thursday it will invest 2 billion kroner($316 million) in a new production line north of Omaha, Nebraska, after entering into a long-term contract with an unidentified “key player in the plant-based industry.” The firm raised the low end of its full-year forecasts after second-quarter earnings beat estimates, driven in part by growth in its food and beverage business.
  • Beijing Capital Group Co. is exploring a sale of its waste management unit in New Zealand for about $1 billion, people with knowledge of the matter said. The state-owned firm has asked investment banks for proposals on the potential divestment of Beijing Capital Waste Management NZ Ltd., said the people, who asked not to be identified as the information is private. Beijing Capital Group could also consider selling a partial stake in the business, one of the people said. Deliberations are at an early stage and Beijing Capital could decide to keep the business, the people said. Beijing Capital did not respond to requests for comment.
  • The central pieces of President Joe Biden’s $4.1 trillion economic agenda are now moving through Congress on a precarious two-track path that’s further complicated by a September showdown over the debt ceiling. Funding for the government will expire and the Treasury will approach the limit of its borrowing authority just as congressional Democrats try to make the administration’s massive infrastructure and social spending plans a reality. The convergence will test the limits of how well House Speaker Nancy Pelosi and Senator Majority Leader Chuck Schumer can manage their narrow — and often fractious — majorities and Biden’s ability to bargain with dissenters.
  • The International Energy Agency cut forecasts for global oil demand “sharply” for the rest of this year as the resurgent pandemic hits major consumers, and predicted a new surplus in 2022. It’s a marked reversal for the Paris-based agency, which just a month ago was urging the OPEC+ alliance to open the taps or risk a damaging spike in prices. The oil cartel heeded calls to hike supply, which is now arriving just as consumption slackens. The analysis also jars with Wednesday’s call from the U.S. — the IEA’s most influential member — for the Organization of Petroleum Exporting Countriesand its allies to ramp production up faster.
  • Poland risks undermining relations with the U.S. and further antagonizing the European Union after the ruling party pushed through a controversial media law in 24 hours of political drama. Parliament’s lower chamber voted 228-216 late on Wednesday to approve the legislation, which ostensibly is designed to protect broadcasters from non-European takeovers. Yet it targets Discovery Inc., the American owner of Poland’s largest private television network, and would force it to sell. The bill now goes to the Senate. The move has been criticized by U.S. senators, the State Department and the EU as an attempt to muzzle independent media. Before the vote, Prime Minister Mateusz Morawiecki fired his deputy, Jaroslaw Gowin, the leader of a smaller party in the governing coalition and an increasingly vocal opponent of the Law & Justice leadership.
  • With Spain’s top soccer clubs battling to raise much-needed new financing, one clear winner is already emerging: Goldman Sachs Group Inc. The U.S. lender will lead a 1 billion-euro ($1.2 billion) syndicated credit facility to fund CVC Capital Partners’ investment in Spain’s top soccer league. The deal shortly follows a Goldman Sachs-led private placement for FC Barcelona, one of the most storied clubs in LaLiga and an opponent of the CVC plan because of concern about the loss of broadcasting money. The pandemic has brought European soccer clubs to their knees, hit by a sudden drop in revenues while still paying players hefty salaries. Barcelona shocked the sports world last week when its most-famous player, Lionel Messi, left the Catalan club because it could no longer keep him financially.
  • The U.K. economy grew more than expected in June as lighter coronavirus restrictions led to renewed strength in nation’s dominant services. Gross domestic product rose 1%, more than the 0.8% predicted by economists, the Office for National Statistics said Thursday. That made growth for the second quarter at 4.8%, close to the 5% pace the Bank of England predicted last week. A sharp recovery from the worst recession in three centuries has left the economy 2.2% smaller than before coronavirus lockdowns, the ONS said. Statisticians said health services and a resurgence in hospitality were the main drivers of growth in June. Education surged during the quarter after schools reopened.
  • Royal Dutch Shell Plc’s Nigerian unit agreed to pay a local community $111 million to resolve a long-running dispute over an oil spill that occurred more than half a century ago. The Anglo-Dutch energy giant will pay the Ejama-Ebubu people 45.7 billion naira ($111 million) in compensation to end a legal case that began in 1991, the community’s lawyer, Lucius Nwosu, said by phone. Shell approached a Nigerian court on Wednesday to disclose the development, he said. The payment “is for full and final satisfaction” of a court judgment issued against the company 11 years ago, a spokesman for Shell’s Nigerian subsidiary said by email.
  • Tesla Inc.’s Elon Musk has touched down in Berlin before the electric-car maker hosts one of the front-runners to succeed Angela Merkel as chancellor. The Tesla chief executive officer’s jet landed in the German capital Wednesday afternoon, according to a Twitter account that tracks the movement of his plane. Merkel’s Christian Democratic Union announced earlier this week that Armin Laschet, the party’s chairman, will visit the company’s unfinished car and battery factory on Friday. Germany’s next chancellor will come under pressure to accelerate the pace of technological progress to ensure Europe’s biggest economy modernizes and remains competitive in the digital age. While the country scored a major victory when Musk announced plans to build a factory near Berlin, the project has fallen months behind schedule, with Tesla bemoaning an “irritating” process of obtaining regulatory approvals.
  • India is set to allow Boeing Co.’s 737 Max jets to resume flights in the country within days, according to a person familiar with the matter, clearing one of the last remaining hurdles for the U.S. planemaker as it seeks to get the model flying again worldwide. The South Asian nation has been satisfied with the plane’s performance since it was un-grounded in the U.S., Europe and a number of other nations, and Boeing has met India’s own requirements, which included setting up a Max simulator there, the person said, asking not to be identified because the matter is confidential. Rajeev Jain, a spokesman for India’s aviation ministry, said a decision on un-grounding the Max is awaited. A representative for Boeing said the company continues to work with global regulators to safely return the Max to service worldwide, adding that more than 170 out of 195 global regulators have opened their airspace for the model.
  • China released a five-year blueprint calling for greater regulation of vast parts of the economy, providing a sweeping framework for the broader crackdown on key industries that has left investors reeling. The document, jointly issued late Wednesday by the State Council and the Communist Party’s Central Committee, said authorities would “actively” work on legislation in areas including national security, technology and monopolies. Law enforcement will be strengthened in sectors ranging from food and drugs to big data and artificial intelligence, the document said. “The people’s growing need for a better life has put forward new and higher requirements for the construction of a government under the rule of law,” it said. “It must be based on the overall situation, take a long-term view, make up for shortcomings, forge ahead, and promote the construction of a government under the rule of law to a new level in the new era.”
  • Baidu Inc. delivered a conservative outlook for the current quarter as a resurgent pandemic outbreak in China overshadowed the internet search giant’s push into newer arenas like cloud and smart devices. The stock slid in pre-market trading. Revenue for the three months ended June climbed 20% from a year earlier to 31.35 billion yuan ($4.8 billion), compared with the 30.9 billion yuan of estimates. The company predicted sales of 30.6 billion yuan to 33.5 billion yuan for the September quarter, versus the 33.1 billion yuan seen by analysts.
  • A member of a Tokyo Metropolitan Government coronavirus advisory panel of experts said it was now impossible to control the spread of Covid-19 in the capital. “Infections are raging at disaster level — it’s an emergency,” Norio Omagari said at a Thursday panel meeting with Tokyo Governor Yuriko Koike. “It’s impossible to control the situation.” His comments came as the city and national governments consider whether to extend a state of emergency in Tokyo, which is experiencing its worst-ever wave of virus cases as it has joined the list of countries battling surges attributed to the delta variant. The emergency is currently set to be lifted at the end of August.
  • Apple Inc.’s main assembly partner Hon Hai Precision Industry Co. projected sales of gadgets like smartphones will drop sequentially this quarter, spurring concerns that chip and component shortages may affect iPhone production before the holiday season. Sales at the Taiwanese manufacturer’s consumer electronics business, which includes the iPhone, will decline this quarter compared with the previous three months, the company said Thursday. The downbeat projection caught analysts by surprise, given the third quarter is often the peak production season for a global electronics industry that scrambles every year to get devices in front of shoppers before the year ends

“Financial peace isn’t the acquisition of stuff. It’s learning to live on less than you make, so you can give money back and have money to invest. You can’t win until you do this.” — Dave Ramsey

*All sources from Bloomberg unless otherwise specified