August 3, 2021

Daily Market Commentary

Canadian Headlines

  • Bausch Health Companies Inc. today announced that it plans to pursue an initial public offering (IPO) of its Solta Medical business (“Solta”). Solta is a leading global provider in medical aesthetics with innovative and effective skin rejuvenation and body contouring solutions, including the Thermage® RF systems, Fraxel® laser, Clear + Brilliant® laser and VASER® ultrasonic systems. The timing of the anticipated IPO, which will be tied to certain conditions and approvals and the Company’s completion of several important actions, is anticipated to occur in the fourth quarter of 2021 or first half of 2022, subject to market conditions.

World Headlines

  • European stocks pulled ahead to reach a fresh record high as positive earnings updates from banks and energy firms outweighed worries over the spread of coronavirus and China’s widening online crackdown. The Stoxx Europe 600 Index rose 0.2% at 9:14 a.m. London time, hitting a record of 465.97 points following a shaky start to the day’s trading. Positive updates from some of the region’s big hitters propelled indexes higher, with France’s CAC 40 climbing 0.8% to its highest level since September 2000, and the Swiss Market Index at an all-time high. Societe Generale SA was the top gainer, rising 5.3% after raising its outlook, followed by Bank of Ireland Group Plc’s 4.9% rally as the lender swung to a profit and boosted its guidance. Carmaker Stellantis NV climbed 4.3% after raising its full-year profitability forecast, and BP Plc was another big riser, jumping 2.8% after the oil major boosted its dividend and announced a buyback.
  • S&P 500 contracts edged higher and those on the Nasdaq 100 were little changed after the spread of the delta Covid-19 variant and signs of robust but softer U.S. manufacturing growth contributed to an S&P 500 dip on Monday. The 10-year U.S. Treasury yield edged higher after falling as low as 1.15%. The dollar slipped against major peers. The months-long advance in Treasuries for some commentators points to worries that a weaker period lies ahead for the economic reopening from the health crisis, though second-quarter corporate earnings have been robust for the most part. Traders are awaiting key U.S. jobs data this week to gauge the recovery and monitoring the impact of price pressures sparked by pandemic-related disruption and bottlenecks.
  • Asian stocks were mixed as a selloff in Tencent offset gains in chip shares, with concerns about the delta variant’s spread also weighing on broader sentiment. The MSCI Asia Pacific Index was little changed, with Samsung and TSMC climbing after strong monthly sales data for the industry overnight. Indian shares also boosted the benchmark, with the country’s key gauges setting fresh record highs as investors bet that Asia’s third-largest economy will keep the stimulus taps flowing to recover from a deadly wave of the virus. Tech stocks listed in Hong Kong including Tencent felt the heat after a state media commentary ignited fears that online entertainment could be Beijing’s next target amid a crackdown on the nation’s internet giants.
  • Oil reversed earlier losses as sentiment improved in broader markets even though the spread of the delta coronavirus variant, including in the key market of China, continues to pose a risk to demand. West Texas Intermediate futures rose 0.9%, after slumping by the most in two weeks on Monday. Equities in Europe gained on Tuesday with positive earnings reports helping offset concerns over the virus. Covid-19 is forcing governments to reimpose or extend curbs, with residents in Beijing advised not the leave the capital as flights are being canceled. Some cities and townships have been sealed by local authorities.
  • Gold steadied as investors awaited a key U.S. jobs report this week that may offer clues on the Federal Reserve’s monetary policy path. Traders will closely monitor the non-farm payrolls data due Friday after the Fed last week held interest rates near zero and said it would maintain its $120 billion monthly pace of asset purchases until “substantial further progress” had been made on employment and inflation. Bullion has been trading around $1,800 an ounce in recent weeks. It barely budged when 10-year Treasury yields tumbled as the spread of the Covid-19 delta variant and signs of solid-but-softer U.S. manufacturing growth soured sentiment. The real yield on 10-year Treasuries — which strips out the expected impact of inflation — was close to a record low.
  • Never mind banker burnout, return-to-office headaches, and new pandemic waves. A simple reality stands out for the biggest global investment banks: they’re minting money like never before. As the dust settles over earnings season, a total profit of $170 billion from a dozen of the biggest firms in the past four quarters shows how far the industry’s come from the frazzled early stages of the pandemic. JPMorgan Chase & Co. was the standout, earning the equivalent of $131 million a day. A string of trading wins certainly helped the sector in the early days of Covid-19, and as last year’s market volatility faded, investment bankers were ready to fuel the boom in takeovers and fundraisings via special purpose acquisition vehicles. Banks with wealth and asset management units enjoyed buoyant equity markets as the world economy began to recover, aided by unprecedented government support programs. The same trend also proved a boon to retail units, long seen as a drag on earnings, as they started to unwind loan loss provisions.
  • A large part of Sweden’s population is likely to be offered a third vaccine dose in 2022, while Greece’s health minister said the country may start giving boosters for vulnerable groups in September. China’s outbreak continued to spread with additional infections in various areas including Wuhan, where the pandemic first emerged. The capital city of Beijing will ban train passengers from 23 regions considered high risk, and the Haidian district were many tech companies are based recommended that people work from home. Meanwhile, Hong Kong will allow vaccinated tourists from all but 10 places to enter the city starting next week, a significant relaxation of some of the world’s tightest border curbs.
  • FinAccel Pte, the parent company of Indonesian fintech startup Kredivo, agreed to go public in the U.S. through a merger with a blank-check firm that values the combined companies at $2.5 billion. FinAccel is merging with VPC Impact Acquisition Holdings II, a special purpose acquisition company sponsored by Chicago-based Victory Park Capital Advisors LLC, the companies said in a statement on Tuesday. The deal will include a private investment in public equity, or PIPE, of $120 million from investors including Marshall Wace, Corbin Capital, SV Investment, Maso Capital and Victory Park Capital. Separately, existing backers Naver Corp. and Square Peg Capitalagreed to invest $55 million of equity.
  • Smiths Group Plc has struck a deal to sell its medical division to a subsidiary of private-equity firm TA Associates LLP for an enterprise value of $2.3 billion. The group will also take a 30% stake valued at $200 million in the holding company in order to benefit from improved future performance at the device and equipment unit, according to a statement. The holding company could also receive a further $200 million, depending on the unit’s performance. One of five divisions at the British industrial group, Smiths Medical employs about 22,000 people in 50 countries. Its products, which include catheters, syringe pumps and tracheotomy tubes for hospitals, have taken center stage in the U.K.’s fight against the pandemic, as the government ordered ventilators to treat severely ill Covid-19 patients.
  • President Joe Biden has a tough decision in choosing the next Federal Reserve chair: Play it safe by giving Jerome Powell a second term or take a chance on a liberal like Lael Brainard, who would please progressives in Congress yet potentially agitate Wall Street. Either path offers speed bumps for the White House. Powell would likely sail to Senate confirmation, giving the Biden administration a significant bipartisan win. Financial markets would likely remain calm, but Biden would likely disappoint some progressive Democrats he needs for other issues. A liberal nominee, like Fed Governor Brainard, who hews more closely to Biden’s economic agenda and is far more of a hawk on banking regulations, would likely keep Democratic senators like Elizabeth Warren and Banking Chair Sherrod Brown happy. Yet it would presage a bruising confirmation fight, potentially even a 50-50 vote with Vice President Kamala Harris the tie-breaker.
  • Pepsico Inc. is to sell Tropicana, Naked and other juice brands to private equity firm PAI Partners for about $3.3 billion as it seeks to bolster its balance sheet and focus on healthier snacks and zero-calorie drinks. The U.S. drinks giant will retain a 39% non-controlling interest in a new holding company for the brands and has also granted PAI an irrevocable option to buy certain juice businesses in Europe, according to a statement Tuesday. Pepsico said it plans to use the proceeds from the deal to strengthen its balance sheet and invest in the wider business, it said.
  • KKR & Co. gathered a record amount of money in the second quarter, helping the alternative asset manager inch closer to its capital-raising target as demand surges among yield-hungry investors. The firm raked in about $59 billion in the three months ended June 30, driven largely by the initial closings of the latest North America buyout fund, global infrastructure fund and core private equity fund, New York-based KKR said in a statement Tuesday. The haul exceeded the record of $44 billion raised for all of last year and blew past its previous quarterly peak of $16.4 billion in the second quarter of 2020.
  • Member nations approved the biggest resource injection in the International Monetary Fund’s history, with $650 billion meant to help countries deal with mounting debt and the fallout from the Covid-19 pandemic. The creation of the reserve assets — known as special drawing rights — is the first since the $250 billion issued just after the global financial crisis in 2009, with Managing Director Kristalina Georgieva billing it as “a shot in the arm for the world” that will help boost global economic stability. The SDR allocation will be effective on Aug. 23, the IMF said in a statement Monday.
  • The U. S. is expanding air strikes against members of a group affiliated to al-Qaeda who’ve intensified attacks in Somalia since hundreds of American troops exited the country earlier this year. The latest strike occurred close to the central towns of Bacadweyne and Geedaley on Aug. 1, hitting a position held by al-Shabaab militants who were engaging members of the Danab, an elite Somali commando force trained by the U.S., Somalia’s Information Ministry said. The remote attack was the third in less than two weeks and marked an escalation in counter-terrorism operations in the Horn of Africa nation since President Joe Biden took office in January.
  • Senate Majority Leader Chuck Schumer’s plan to pass a $550 billion infrastructure bill this week hit a potential obstacle from a surprising source when a key Republican announced he tested positive for Covid-19 and would quarantine for 10 days. South Carolina Senator Lindsey Graham, one of 10 Republicans who helped negotiate the infrastructure package and provided crucial votes to move it forward in the Senate, said he was tested on Monday after experiencing flu-like symptoms on Saturday. He said he was vaccinated. But the positive test for Graham highlights the surge in Covid-19 cases across the U.S. brought on by the fast-spreading delta variant and the risks for lawmakers.
  • Zurich Insurance Group AG is nearing a deal to buy Deutsche Bank AG’s Italian financial promoters network, according to people familiar with the matter. Zurich has emerged as the leading candidate to buy DB Financial Advisors in a deal that would value the asset at about 350 million euros ($415 million), said one of the people, who asked to not be identified because the matter isn’t public. No final decision has been made and discussions could still fall through, the people said. Chief Executive Officer Mario Greco is looking to expand one of Europe’s biggest insurers via bolt on deals. Last year, he struck a deal with Deutsche Bank to extend a distribution agreement that lets the Swiss company sell pension and property & casualty insurance through all of the lender’s retail branches in Germany.
  • Ant Group Co.’s profit fell to $2.1 billion in the March quarter after Chinese regulators thwarted its record initial public offering and told it to overhaul its sprawling operation. Billionaire Jack Ma’s fintech giant contributed nearly 4.5 billion yuan ($696 million) to Alibaba Group Holding Ltd.’s earnings, a company filing showed Tuesday. Based on Alibaba’s one-third stake in Ant, that translates to 13.6 billion yuan in profit, down 37% from the previous three months. Ant’s earnings lag one quarter behind Alibaba’s. Ant declined to comment. The fall in profit underscores the challenges facing Ant following a widespread crackdown on China’s most powerful technology corporations. In response, the country’s largest fintech is folding its financial business into a holding company that will be regulated more like a bank. Regulators have also issued a battery of proposals that threaten to curb Ant’s dominance in online payments and scale back its expansion into consumer lending and wealth management.
  • Struggling nuclear power reactors would get a $6 billion lifeline under the bipartisan infrastructure bill heading for a vote in the U.S. Senate — a move supported by the Biden administration, but opposed by some environmentalists. A program to evaluate nuclear reactors that are at risk of being shut down and provide them with aid would be created within the Energy Department under terms of the $550 billion, bipartisan infrastructure package. The senators negotiating the package completed the text Sunday, moving the chamber a crucial step closer to likely passage this week. Final congressional action won’t come until after the House returns from a recess in September.
  • Treasury auction size cuts are likely coming, but there’s no agreement among Wall Street dealers on when. Of the 24 primary dealers of U.S. government securities, just three expect smaller auctions during the August-October quarter, details on which are slated to be unveiled Wednesday at 8:30 a.m. in Washington. More expect the cuts to start in the November-January period, and for this week’s quarterly refunding announcement to set the stage with guidance on the government’s thinking.
  • Alibaba Group Holding Ltd. reported revenue that missed estimates, suggesting plans to hike spending in pursuit of growth have yet to gain traction. Revenue for the three months ended June climbed from a year earlier to 205.7 billion yuan ($31.8 billion), compared with the 209.4 billion yuan average of analyst estimates. Net income was 45.1 billion yuan, rebounding from a loss in the previous quarter following the firm’s record antitrust penalty. The company announced it was boosting its share buyback program by 50% to $15 billion. Alibaba shares were up slightly in pre-market trading. Alibaba, among the first of China’s internet giants to feel the heat from Beijing, has been closely watched for clues to the real-world impact of the upheaval that’s ensued since regulators went after industries from online commerce to ride-hailing and edtech. Months after swallowing a $2.8 billion fine for violations such as forced exclusivity with merchants, Jack Ma’s flagship e-commerce firm is plowing money into areas like its bargains platform and community commerce to offset slowing growth, at a time when rivals like Pinduoduo Inc. and Inc. are eroding its dominance in China’s e-commerce sales.
  • The Federal Reserve purchased the least amount of bonds in July since the beginning of this round of quantitative easing, at least in dollar terms. This isn’t due to any tapering on the part of the central bank, but the result of the recent slowdown in the prepayments seen in the $2.4 trillion already on their balance sheet. As the Fed isn’t only adding $40 billion each month to their holdings, but reinvesting all these paydowns back into mortgages as well, a slowdown in prepayments leads to a drop in support for the sector, albeit with a lag. Last month saw the Fed purchased just $98.2 billion in mortgage bonds, the lowest amount for any calendar month since QE4 began in March 2020. Overall gross supply for Fannie Mae, Freddie Mac and Ginnie Mae came in at $249.9 billion in July, down 7% from June and the third straight month of decline, according to data from Bloomberg’s Collateral Performance Research tool.
  • Sanofi will buy its messenger-RNA development partner Translate Bio Inc. for $3.2 billion as the French drugmaker plays catch-up in deploying the technology behind some of the world’s top-selling Covid-19 vaccines. Sanofi agreed to pay $38 in cash for each of Translate Bio’s shares. While the price is 30% above Monday’s closing price, the company is getting a potential bargain “in a very hot therapeutic area,” said Wimal Kapadia, an analyst at Bernstein. Ordinarily a giant in the vaccines space, Sanofi has lagged behind upstarts BioNTech SE and Moderna Inc. in the pandemic as they raced ahead with mRNA shots that have now been injected into arms more than a billion times. Those two companies have been lavishly rewarded for their pioneering work, with Moderna’s market valuation rocketing toward $140 billion as of Monday and BioNTech’s valuation now exceeding $80 billion.
  • Under Armour Inc. shares gained after the company raised its full-year earnings outlook and reported second-quarter sales that surpassed analysts’ expectations, with demand for athletic-wear, sneakers and comfortable clothes staying strong even while people return to offices. Under Armour expects full-year adjusted earnings of 50 cents to 52 cents a share, compared with its previous projection of 28 cents to 30 cents, it said Tuesday in a statement. Analysts had estimated 34 cents.

“I was 12 when I started and 34 before I achieved my dream. That should give people hope.”– Kelly Holmes, 2 time Olympic Gold Medalist

*All sources from Bloomberg unless otherwise specified