August 30, 2021

Daily Market Commentary

Canadian Headlines

• Centerbridge Partners and Caisse de dépôt et placement du Quebec are nearing a deal to buy Medical Solutions, a travel nurse staffing firm backed by TPG, according to people familiar with the matter.  The deal could be announced within days and would value the company at about $2.3 billion including debt, the people said, asking not to be identified discussing confidential information. No final decision has been made and the deal could still fall apart, they said. TPG Growth acquired Medical Solutions in 2017 for about $500 million, according to media reports at the time, and the private equity firm had hired advisers earlier this year to explore a sale of the Omaha, Nebraska-based company.

World Headlines

• European shares traded little changed Monday with investors weighing the latest dovish messaging on scaling back stimulus from the U.S. Federal Reserve as the U.K. market remains closed for a public holiday. Stocks in Europe are trading near a record with the Stoxx 600 Index set for its seventh straight monthly gain, its longest monthly winning streak since 2013. Market participants are looking for further guidance on tapering from central banks after Chair Jerome Powell used his speech at the Jackson Hole policy forum to signal that while the Fed may start paring bond purchases this year, it’s in no hurry to raise interest rates.
• Stocks in Europe and U.S. futures drifted as traders awaited fresh catalysts after Jerome Powell’s signal that pandemic-era Federal Reserve policy support will be withdrawn cautiously and gradually. Contracts on the S&P 500 were little changed and those on the Nasdaq 100 edged higher after a record Wall Street close in the wake of Chair Powell’s Jackson Hole speech on Friday, while the Stoxx Europe 600 index hovered close to an all-time high. Powell said the Fed may start paring bond purchases this year but is in no hurry to raise interest rates and will be guided by data on Covid-19 risks. The dollar was steady against a basket of peers after Friday’s drop, the biggest since May. The 10-year Treasury yield held at around 1.3%, with no cash trading taking place in London as markets are closed for a public holiday. Traders are awaiting U.S. jobs data this week to assess whether the economic recovery merits an earlier tapering, after Powell gave no timeline for scaling back stimulus. Strong figures could extend the first weekly steepening of the Treasury yield curve since July.
• Asian stocks extended gains after their best weekly advance since early February as technology shares climbed and investors took comfort in Federal Reserve Chairman Jerome Powell’s remarks at an annual policy forum in Jackson Hole. The MSCI Asia Pacific Index climbed as much as 1% on Monday, adding to last week’s 3.3% gain. Alibaba Group Holding and Taiwan Semiconductor Manufacturing were among tech giants providing the biggest boosts to the gauge. Fortescue Metals Group and some industry peers rose after the world’s No. 4 iron-ore exporter said annual profit more than doubled to a historic high.
• U.S. gasoline futures jumped after Hurricane Ida barreled ashore in Louisiana, disrupting processing facilities. Oil reversed early gains as local rigs may have escaped significant damage and the OPEC+ producers’ cartel is expected on Wednesday to endorse a supply increase. Gasoline for October spiked more than 4% in New York before paring its advance, while West Texas Intermediate crude fell around 1%. Last week, WTIrallied 10% as investors wagered global demand would recover from the setback posed by the spread of the delta coronavirus variant.  Both crude oil and gasoline have been hit by volatile trading this month as investors weighed the challenge to consumption posed by the resurgence of the pandemic in parts of Asia, the U.S. and Europe. This week, traders will focus on the fall-out from Ida, as well as the likelihood that the Organization of Petroleum Exporting Countries and its allies will go ahead with an increase in output when they meet.
• Gold held near the highest level in more than three weeks after Federal Reserve Chair Jerome Powell signaled a cautious approach to the withdrawal of stimulus from the U.S. economy. The central bank could begin reducing its monthly bond purchases this year, although it won’t be in a hurry to start raising interest rates, Powell said Friday in a virtual speech to the Jackson Hole symposium. The dollar and 10-year Treasury yields fell after the address, while bullion closed up 1.4%.
• South Africa has told the World Health Organization that a new variant of the coronavirus may be circulating in the country, according to a report from news website New Frame. Australia’s daily case numbers hit a record, while New Zealand extended a lockdown of Auckland. China said the U.S. should stop politicizing the tracing of Covid-19’s origins. Japan’s health minister said it will be difficult to lift the state of emergency in Tokyo and other areas when the current order expires on Sept. 12. Cases in Thailand fell to the lowest in a month. U.S. public health advisers meet Monday to discuss Covid-19 vaccine booster shots, with the White House eager to start a nationwide rollout by Sept. 20. A third dose appeared to curb a delta-led surge in cases and prevent severe disease in a study in Israel, the first country to offer boosters to seniors.
• U.S. President Joe Biden has been briefed on a rocket attack at Kabul’s Hamid Karzai International Airport on Monday morning, according to a press statement from the White House. National Security Adviser Jake Sullivan and Chief of Staff Ron Klain informed the president “that operations continue uninterrupted at HKIA, and has reconfirmed his order that commanders redouble their efforts to prioritize doing whatever is necessary to protect our forces on the ground,” the statement said.  The rocket attack comes a day after a U.S. drone blew up a vehicle heading for Kabul airport that officials say was carrying several suicide bombers, according to U.S. Central Command, which said it’s still assessing results of the strike following reports of civilian casualties.
• Investors added money to exchange-traded funds that buy emerging market stocks and bonds last week, ending two weeks of outflows that reached $456.5 million. Inflows to U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $840.1 million in the week ended Aug. 27, compared with losses of $111.7 million in the previous week, according to data compiled by Bloomberg. So far this year, inflows have totalled $35.2 billion.
• EQT AB is weighing an initial public offering for skincare business Galderma that could value the former Nestle SA unit at more than 15 billion euros ($17.7 billion), according to people familiar with the matter. The investment firm is speaking with potential advisers about listing the maker of brands including Cetaphil moisturizers and Dysport muscle relaxants, the people said, asking not to be identified because the details aren’t public. With stock markets at records, a slew of companies in the region plan to carry out IPOs on the heels of the busiest half-year ever for listings globally. EQT is also lining up its chemicals business Azelis for an initial share sale this year, people familiar told Bloomberg.
• Ride-hailing startup Ola has selected banks including Citigroup Inc. and Kotak Mahindra Bank Ltd. to manage its Mumbai initial public offering that could raise about $1 billion, according to people familiar with the matter. The company, backed by SoftBank Group Corp. and Tiger Global Management, has also picked Morgan Stanley for the listing, said the people, who asked not to be named as the information is private. The Bangalore-based startup could seek a valuation of more than $8 billion in the IPO and could lodge a filing as soon as October, one of the people said.
• Baxter International Inc. is in advanced talks to acquire Hill-Rom Holdings Inc. for about $10 billion, Dow Jones reported, citing people familiar with the matter. The deal values the medical equipment maker at around $150 a share, Dow Jones reported. That’s a 13% premium to the stock’s closing price of $132.90 on Friday. The transaction is expected to be reached in the middle of the week, and the talks may still fall apart, it said.  The new offer comes a month after Hill-Rom rejected a $9.6 billion takeover offer from Baxter, Bloomberg News reported earlier. Hill-Rom saw Baxter’s proposal of about $144 per share as too low, according to people with knowledge of the matter. Baxter was expected to return with a higher bid, the people said.
• Tropical Storm Ida pummeled New Orleans and the Louisiana coast overnight with lashing rain and ferocious gusts, leaving much of the region without electricity and bracing for widespread floods. The storm, wielding some of the most powerful winds ever to hit the state, drove a wall of water inland when it thundered ashore Sunday as a Category 4 hurricane and reversed the course of part of the Mississippi River. All of New Orleans was without power when evening fell on Sunday. As Ida moves north, it’s expected to unleash as much as 2 feet (61 centimeters) of rain.
• China will forbid minors from gaming more than three hours most weeks of the year, imposing their strictest controls yet over entertainment for youths in a blow to the world’s largest mobile gaming arena. Gaming platforms from Tencent Holdings Ltd. to NetEase Inc. can henceforth only offer online gaming to minors from 8 p.m. to 9 p.m. on Fridays, weekends and public holidays, state news agency Xinhua reported, citing a notice by the National Press and Publication Administration. The new rules, which limit teen playing time to three hours most weeks of the year, is a major step-up from a previous restriction set in 2019 of 1.5 hours per day, most days.
• A commentary published widely in Chinese state-run media described President Xi Jinping’s regulatory crackdown as a “profound revolution” sweeping the country and warned that anyone who resisted would face punishment.   “This is a return from the capital group to the masses of the people, and this is a transformation from capital-centered to people-centered,” the commentary said, adding that it marked a return to the original intention of the Communist Party. “Therefore, this is a political change, and the people are becoming the main body of this change again, and all those who block this people-centered change will be discarded.” The opinion piece was originally published by a WeChat blogger who goes by the name “Li Guangman Ice Point Commentary.” In an unusual move that indicated official support, it was reposted online by major state-run media outlets including Communist Party mouthpiece People’s Daily, Xinhua News Agency, PLA Daily, CCTV, China Youth Daily and China News Service.
• Confidence in the euro-area economy slipped for the first time this year, suggesting that supply disruptions and the resurgent pandemic risk damping the recovery. Sentiment eased in services, industry and among consumers, with a European Commission gauge falling to 117.5 in August from an all-time high the previous month. At the same time, an increase in selling-price expectations suggests inflation pressures are building across the bloc. The region’s economic outlook has clouded in recent weeks. A shortage of raw materials, quickly climbing costs and transportation bottlenecks are disrupting manufacturing, while quickly rising coronavirus infections threaten new restrictions on services, which took over as a growth driver this month.
• China Huarong Asset Management Co.’s long-delayed 2020 results showed a record loss, with leverage hitting 1,333 times and capital buffers far short of the regulatory minimum, emphasizing the difficult task ahead for the bad-debt manager that recently secured a government bailout. Huarong reported a 102.9 billion yuan ($15.9 billion) loss for all of last year, slashing shareholder equity by nearly 85%, according to a Sunday exchange filing. The company booked 107.8 billion yuan in impairments and suffered a 12.5 billion yuan loss on financial assets. While it returned to a small profit in the first half this year, Chairman Wang Zhanfeng said the firm will apply to the regulator for temporary tolerance with key capital measures below requirements as of June.
• Some of this year’s best-performing emerging-market currencies are falling out of favor as traders trim back bets on further interest-rate hikes. The Brazilian real and the Russian ruble, which outpaced most of their peers in the first half amid policy tightening, have now gone into reverse. The real has slumped about 4.5% since the end of June, more than any other major currency tracked by Bloomberg. The tightening cycle was in full force in emerging markets long before the Federal Reserve started laying out a timeline for scaling back its bond-buying program, which Chair Jerome Powell said on Friday could begin as soon as this year. The early hikes in Russia and Brazil have helped stem flows from emerging markets, though policy makers are still balancing the need to battle inflation with the desire to support economies battered by Covid-19.
• The huge rally for Covid-19 vaccine makers has stalled as Wall Street waits for the U.S Centers for Disease Control and Prevention to weigh in on whether Americans should get a third shot. On Monday, a meeting of outside advisers to the agency could finally give investors a sense of clarity. Moderna Inc., which became the best performer in the S&P 500 Index after its stock price more than tripled this year, has slid 21% from its record high in early August. BioNTech SE, which has surged more than four-fold in 2021, has fallen almost as much over the past three weeks, while its U.S. partner, Pfizer Inc., is off more than 7% from its peak.
• Toyota Motor Corp. reported an increase in sales and output for July, showing that it has managed industrywide supply-chain snarls relatively well despite warning of imminent production cuts.  Strong demand for sports utility vehicles and hybrids in the U.S. boosted Toyota’s sales by 15% from a year earlier to 858,569 units, a record for July. Total output rose 12% to 773,135 units, the company said in a statement. Emerging from a pandemic-induced slowdown, Toyota has capitalized on strong global demand for cars — July was the 11th straight month sales and output have risen on a year-on-year basis. It was a different picture for Nissan Motor Co., which reported a 9.7% drop in sales to 307,100 units and a 17% decline in production to 260,336 units.
• Ethereum has weathered a bug that split the world’s most-used blockchain and opened up the risk of counterfeit Ether tokens. Outdated software last week caused the fork in the digital ledger, which is popular for blockchain-based financial services and transactions in online collectibles. Users minimized the damage by rapidly updating a key programand the deviant fork should wither, said Joseph Lubin, founder and CEO of Consensys Systems, and a co-founder of Ethereum. “This chain fork opened up a single minor vulnerability: a greater likelihood of perpetrating a double-spend and getting the money out of the system before it is corrected naturally by the protocol,” Lubin said in an email Sunday. He said there had been an attempt to exploit the bug, but added that the issue is rapidly being solved by people making the needed updates.
• The port of New Orleans has halted container terminal and break-bulk operations as Hurricane Ida lashes the Louisiana coast with torrential rain and heavy winds. New Orleans Terminal and Ports America, ceased loading and unloading at the terminals on Monday, the port authority said on its website. Other companies involved in break-bulk, or the moving of cargo onto smaller ships, will also stop work the same day. Hurricane Ida barreled into the Louisiana coast on Sunday, packing winds more powerful than Hurricane Katrina and a “catastrophic” storm surge that left New Orleans without power and facing mass flooding and destruction.

 

“Leaders are made, they are not born.” – Vince Lombardi, Green Bay Packers / Washington Redskins

*All sources from Bloomberg unless otherwise specified