August 31, 2021
Daily Market Commentary
- Canadian equity markets dropped as cyclical stocks such as materials, financials and health care companies underperformed. The S&P/TSX Composite fell 0.2% in Toronto, following on the previous session’s increase of 0.7%. Materials stocks were the worst performers, led by miners. Consumer staples and tech stocks were the best performers. Royal Bank of Canada contributed the most to the index decline, decreasing 0.9%. Westport Fuel Systems Inc. had the largest drop, falling 5.6%. The national election next month raises the possibility Canada could imposefive-year targets to reduce the oil industry’s greenhouse gas emissions or switch to synchronizing rules with those of economic partners, depending on who among the top political parties forms the country’s next government.
- Canada’s economy sprang back to life over the summer as vaccine-led reopenings spurred a return to growth, though a new wave of cases is beginning to chip away at some of the optimism. On Tuesday, Statistics Canada is expected to report the nation’s economy bounced back in June and July after slowing sharply in the second quarter following a series of strict lockdowns earlier in the year. The turnaround over the summer sets the stage for a strong rebound in the second half of this year that will bring economic activity well above pre-pandemic levels. It all represents another instance of resiliency for an economy hit by a succession of Covid waves over the past year, fueling confidence it could easily survive another surge in cases. That’s why economists anticipate the expansion will accelerate to about a 7% annualized pace in the final half of this year, according to the median estimate of a Bloomberg survey earlier this month.
- European equities turned lower on Tuesday amid worries over potential curbs to the pandemic aid, trimming the longest monthly winning streak since 2013. The Stoxx 600 Index was down 0.4% at 11:53 a.m. London time. The gauge turned negative following comments from European Central Bank Governing Council member Robert Holzmann that the central bank should discuss at its next meeting how it will transition from emergency stimulus provided during the coronavirus crisis to monetary support. Investors are mulling what’s next for equity markets trading near record highs as Covid-19 stimulus measures have been an instrumental driver of the rally. A reduction in monetary support could mean there’s more volatility ahead for risk assets.
- U.S. equity futures erased gains Tuesday as traders assessed the risks of frothy valuations and the path of ECB and Fed policy against rebounding corporate earnings. S&P 500 and Nasdaq 100 futures pared earlier gains after the 12th all-time high for the S&P 500 in August. The dollar weakened and Treasuries wavered with the yield on the 10-year benchmark holding just below 1.3%. Among notable pre-market moves, Zoom Video Communications Inc. dropped 11% as the video-conferencing company’s forecasts signalled growth may flag with remote meetings losing allure as people return to offices.
- Asian stocks climbed, reversing earlier declines and heading for their first monthly gain since May, with Hong Kong technology shares leading the advance. The MSCI Asia Pacific Index jumped as much as 1.2%, erasing an earlier loss of 0.7%. The Hang Seng Tech Index surged more than 3%, with Meituan rising after reporting better-than-expected quarterly sales. Samsung Electronics boosted South Korea’s Kospi Index, while Sony and Keyence lifted Japan’s benchmark. The Asian gauge is poised to climb more than 2% in August. Hardware technology stocks, led by chipmakers, have been in the spotlight as China’s regulatory onslaught casts a shadow over hot software names. Southeast Asian shares are set for their first monthly gain since April as some concerns ease over the delta variant’s spread.
- Oil headed for the biggest monthly loss since October as investors weighed the prospect of additional OPEC+ production and the restoration of crude output in the U.S. after Hurricane Ida. West Texas Intermediate fell 0.8% in New York and is down about 7% this month. While Gulf of Mexico crude producers are expected to gradually resume service after Ida crashed ashore in Louisiana, local refineries may be slower to return. Economic data from China, meanwhile, showed the impact from the delta variant outbreak in August. The Organization of Petroleum Exporting Countries and its allies will meet on Wednesday to assess the global market and prospects for demand as the pandemic grinds on. With expectations that the delta variant’s hit to consumption will fade, the alliance is on course to restore another 400,000 barrels a day. OPEC+ has already restarted roughly 45% of the unprecedented volume shuttered when the pandemic erupted.
- Gold climbed to near a four-week high as the dollar weakened amid a buoyant mood in markets following a dovish speech by Federal Reserve Chair Jerome Powell. The precious metal is set to end the month little changed after paring losses that followed strong U.S. employment data. With inflation at the Fed’s target, nonfarm payrolls data due Friday will again be watched for clues on the strength of the labor market, which could influence the central bank’s tapering timeline.
- Aluminum charged to a 10-year high in London, extending a year-long rebound as demand surges and supply of the usually abundant metal comes under pressure. Prices rallied as much as 2.9% to $2,726.50 on the London Metal Exchange, hitting the highest since 2011 and moving closer to an all-time high above $3,300 a ton. That’s fueling wider inflation concerns with Goldman Sachs Group Inc, Citigroup Inc. and Trafigura Group among those forecasting further gainsas the industry braces for a potentially seismic shift into deepening deficits. Supply is increasingly challenged, particularly in top producer China. The energy-intensive aluminum industry has come into Beijing’s crosshairs during a crackdown on pollution, while a seasonal power crunch has also dented output. That drive continued this week as Guangxi province, an aluminum hub in the southwest, moved to cut production.
- Israel, an early leader in Covid-19 inoculations, reported a record number of daily infections, giving fresh impetus to the vaccine booster drive it began at the start of August. Singapore sent 500,000 vaccine doses to Australia in a swap deal that would provide the city-state with booster shots in December, even as the island nation battles a current outbreak. In Ireland, the cabinet meets Tuesday to discuss a proposal to end most pandemic restrictions. GlaxoSmithKline Plc and South Korean drugmaker SK Bioscience Co. are starting final trials for another vaccine candidate. Taiwan bought 20 million vaccine doses from Moderna Inc. and signed a non-binding agreement with AstraZeneca Plc for more purchases as it diversifies suppliers in case of delivery hiccups.
- The European Central Bank should start debating how it will phase out its pandemic-era stimulus and focus on tools that would help achieve its 2% inflation target sustainably, according to Governing Council member Robert Holzmann. The euro-area economy is recovering broadly as expected, allowing policy makers to consider slowing down bond purchases under the emergency program, he said in an interview in Alpbach, Austria on Tuesday. Supply-chain bottlenecks that have disrupted industrial production are unlikely to derail the recovery. “We are now in a situation where we can think about how to reduce the pandemic special programs — I think that’s an assessment we share,” Holzmann, who heads Austria’s central bank, said ahead of the Governing Council meeting next week. “We have the opportunity to discuss how do we close the pandemic part and focus on the inflation part.”
- Norway’s $1.4 trillion sovereign wealth fund is lining up more deals for its unlisted real estate after buying a stake in U.S. office property last week, a sign that the pandemic-hit market is on the mend. “We are still seeing a bit less activity on the unlisted side of the portfolio, but we do have a good pipeline now, which also consists of a few more disposals than what we’ve seen recently,” Mie Holstad, who took over as chief real assets officer in October, said in an interview. Norges Bank Investment Management, as the Oslo-based fund is known, paid $391.9 million last week for a 47.5% stake in a joint venture with MetLife Investment Management holding the One Memorial Drive office property in Cambridge, Massachusetts.
- BMW AG’s China unit is close to a deal to buy various assets from Brilliance Auto Group Holdings Co., the parent of the German automaker’s main joint venture partner in the country that has defaulted on its obligations, according to people familiar with the matter. The deal, worth around 1.63 billion yuan ($252 million), includes assets related to Brilliance Auto’s Zhonghua brand of cars, as well as a production unit, the people said, asking not to be identified because the details are private. Any transaction is still awaiting sign-off from creditors, they said. An official at the administrator dealing with Brilliance Auto’s restructuring wasn’t immediately able to comment when reached by phone. BMW’s China unit said in a email that it wants to “support the restructuring of Brilliance with concrete actions” and is committed to further development in Liaoning province, where its factory is based.
- Arkema SA agreed to buy Ashland Global Holdings Inc.’s performance-adhesives business for $1.65 billion, expanding its product range in the U.S. market. The all-cash deal is expected to close by the end of the year, Ashland said in a statement Tuesday. Arkema expects the business to boost net earnings in the first year and add one euro per share by 2026. Ashland’s business includes decorative, protection and signage films for the automotive and building segments. Arkema said these operations will complement Bostik, the adhesives maker it acquired in 2015, and enable the company to sell a more complete set of offerings in the pressure-sensitive adhesives sector.
- The Taliban called for friendly ties with the U.S. hours after the last American soldiers flew out of Kabul to end 20 years of war, with the militant group now facing a host of fresh challenges. “The Islamic Emirate wants a good and diplomatic relationship with the Americans,” Zabihullah Mujahed, the Taliban’s main spokesman, told reporters on Tuesday from the Hamid Karzai International Airport, which was the last place under American control. Key Taliban leaders took a symbolic victory lap, walking across the tarmac to mark their victory. The U.S. officially ended its longest war around midnight Monday Afghan time, a mission that began soon after the terrorist attacks on Sept. 11, 2001. The Taliban’s swift advance to Kabul prompted a rushed U.S. withdrawal of more than 123,000 people since Aug. 14, which was marred by a suicide bombing that killed 13 U.S. service members and more than 169 Afghans.
- More than a million customers in New Orleans and beyond face days or even weeks without electricity during the summer heat after Hurricane Ida devastated the power infrastructure. More than 25,000 workers from at least 32 states are mobilized to assist with power restoration efforts and officials have warned it could take weeks before normal service resumes in some areas. The widespread outages mean spoiled food in the fridge, no air conditioning and limited ability to recharge devices. Gas stations without power won’t be able to pump. By Tuesday, almost 1.1 million customers in Louisiana and Mississippi lacked power according to PowerOutage.us. As difficult as the days ahead will be, many local officials expressed relief that the situation wasn’t worse. New Orleans’ levees, flood gates and pumps held fast even as Ida dumped more than a foot of rain on the region, passing their biggest test since a $14.5 billion restoration after Hurricane Katrina devastated the city.
- Apple Inc.’s push to bring satellite capabilities to the iPhone will be focused on emergency situations, allowing users to send texts to first responders and report crashes in areas without cellular coverage. The company is developing at least two related emergency features that will rely on satellite networks, aiming to release them in future iPhones, according to a person with knowledge of the situation. Apple has been working on satellite technology for years, with a team exploring the concept since at least 2017, Bloomberg has reported. Speculation that the next iPhone will have satellite capabilities ramped up this week after TF International Securities analyst Ming-Chi Kuo said the phone will probably work with spectrum owned by Globalstar Inc.
- Prosus NV has agreed to acquire Indian online payments service BillDesk for 345 billion rupees ($4.7 billion), making its largest global acquisition to date in the Asian nation. The European investment powerhouse’s PayU unit has struck a deal to buy the 11-year-old startup, creating a digital payments giant with a total volume of $147 billion. It will take Prosus’s investment in India to more than $10 billion to date, the company said in a statement. Prosus, whose biggest investment is Tencent Holdings Ltd., will be getting in on an Indian payments arena on the cusp of taking off. More than 200 million more people will adopt digital payments there over the next three years, fueling a 10-fold increase in annual transactions per person to 220, Prosus said, citing Indian central bank estimates.
- European airlines hoping to extend the holiday season are running up against the start of the school year that’s denting family bookings, while the spread of the delta variant of Covid-19 prompts new travel curbs. Carriers including Ryanair Holdings Plc are keeping prices low to prolong leisure demand through October. The airline is also beefing up winter timetables in a bet that the yearning for a vacation will sustain sales even in what’s normally the quietest period for European travel. Tour operator TUI AGsays it’s ready to add capacity in Mediterranean resorts if the opportunity arises. At the same time a surge in coronavirus cases that’s led to renewed lockdowns in Asia and a flatter travel market in the U.S. is threatening to strangle off a European tourism revival that’s seen capacity in the region recover to two-thirds of 2019 levels. The U.K. last week kept Turkey on its red list, dashing hopes for a reopening, and downgraded Thailand, a popular luxury destination during colder months. The European Union on Monday moved to tighten curbs again for American arrivals.
- Chinese President Xi Jinping chaired a high-level meeting that “reviewed and approved” measures to fight monopolies, battle pollution and shore up strategic reserves, all areas that are crucial to his government’s push to improve the quality of life for the nation’s 1.4 billion people. Few details were released about the guidelines discussed on Monday at the meeting of the central committee for deepening overall reform, which includes some of China’s most powerful leaders and has wide powers to shape government policy. Xi in particular stressed the importance of strengthening anti-monopoly regulations, a push that has already cost tech giants hundreds of billions of dollars in market value over the past year.
- President Joe Biden’s choice of who will lead the Federal Reserve may come down to a debate about regulating Wall Street. Jerome Powell is viewed as the favorite to get the nod for another term leading the central bank, but progressive Democrats like Massachusetts Senator Elizabeth Warren and New York Representative Alexandria Ocasio-Cortez have lambasted the Republican chair for easing regulations on big banks. And some have praised Fed Governor Lael Brainard — widely seen as the leading rival to Powell for the top spot — for opposing those efforts. That means Powell and Brainard’s approach to regulation is poised to be at the center of debate about the bank’s future ahead of the expiration of the former’s term as chair in February. Biden’s advisers are consideringrecommending Powell for chair and Brainard as vice chair of supervision, the agency’s top regulatory role, people familiar with the matter told Bloomberg last week.
- John Kerry, the U.S. special presidential envoy for climate, began a tour that takes him to Japan and China to discuss commitments as the international summit in Scotland later this year draws nearer, the State Department said. The trip, which started with meetings in Japan on Tuesday, is intended to involve the two Asian powers in the international campaign to combat global warming, the department said in a statement Monday night. China confirmed Kerry would visit from Tuesday to Friday and hold meetings with counterpart Xie Zhenhua. The visits to Tokyo and Tianjin in China take place a few weeks after the release of a report by the world’s top climate scientists, who warned the Earth would warm by 1.5 degrees Celsius in the next two decades without drastic efforts to eliminate greenhouse gas pollution.
- Euro-area inflation jumped to the highest in a decade in August, testing policy makers’ insistence that a post-crisis spike in cost pressures should prove temporary. Consumer prices rose 3%, exceeding the predictions of all 37 economists in a Bloomberg survey. A measure of core inflation that strips out volatile items such as energy and food reached 1.6%, the highest since 2012. The data will heighten the European Central Bank’s communication challenge as a global supply squeeze and one-time factors drive up costs, while the pandemic threat persists. Viewing faster inflation as temporary, officials are keeping monetary policy looser than counterparts such as the Federal Reserve, which expects to wind down stimulus soon.
- China plans to tighten oversight of e-commerce companies like Alibaba Group Holding Ltd. and Pinduoduo Inc., including by holding them accountable for intellectual property violations. E-commerce platforms will be restricted from online business operations or even have their licenses revoked if they fail to deal with serious violations of IP rights by vendors on their platforms, according to a draft revision of the country’s e-commerce law posted by the State Administration for Market Regulation. The market watchdog is seeking opinions on the draft revision until Oct. 14. Chinese companies have long struggled with allegations that they allowed pirated or counterfeit goods to be trafficked through their websites. In 2019, the U.S. government added PDD to its Notorious Markets list for hosting pirated good, joining Alibaba and other Chinese firms under that label.
- Cathie Wood has been increasing her stake in Japanese construction machinery bellwether Komatsu Ltd. almost every day since the middle of this month. Wood’s Ark Autonomous Technology and Robotics ETF (ARKQ) bought American depository receipts of the excavator maker in most trading sessions since August 17, after selling some of the stock in May, according to Ark Investment Management’s daily trading data compiled by Bloomberg. Ark’s move into the company comes with the stock down more than 20% from its year-to-date high in March, even as earnings upgrades continued and as the U.S. moves closer to passing the $550 billion bipartisan infrastructure bill. Komatsu gets about 37% of its revenue from the Americas
“The true competitors, though, are the ones who always play to win.” – Tom Brady, New England Patriots, Tampa Bay Buccaneers
*All sources from Bloomberg unless otherwise specified