December 2, 2021

Daily Market Commentary

Canadian Headlines

• Toronto-Dominion Bank’s Canadian operation got another boost from the country’s surging housing market. Profit in the Canadian retail segment rose 19% to C$2.14 billion ($1.7 billion) in the fiscal fourth quarter, the Toronto-based bank said Thursday in a statement. Overall profit topped analysts’ estimates. Toronto-Dominion has seen its balances of mortgages and home-equity lines of credit swell throughout the pandemic as Canadian home prices soared and sales volumes remained strong. That has helped make up for more tepid gains or even declines in other loan categories. The bank — freed last month from industrywide restrictions on boosting its dividend and buying back stock — also raised its quarterly dividend 13% to 89 cents a share and said it would repurchase 50 million shares, or 2.7% of shares outstanding, which would cost roughly C$4.6 billion at the current price.
• Canadian Imperial Bank of Commerce is having a harder time keeping costs in check as inflation picks up and the lender invests in its domestic consumer franchise. Non-interest expenses rose 7.4% from the third quarter to C$3.14 billion ($2.5 billion), the Toronto-based bank said Thursday in a statement. That’s an acceleration from the previous 5.9% quarter-over-quarter gain it reported in August. Overall profit trailed analysts’ estimates.  CIBC has been spending on its Canadian personal and business banking unit to sustain the growth in mortgages and client retention it has seen in recent quarters. But those investments haven’t been cheap as labor costs rise and banks battle to retain talent.
• The billionaire dynasty behind Selfridges & Co. agreed to sell the British department store operator to Thai conglomerate Central Group, according to a person familiar with the situation. The Weston family has agreed terms on a deal, which could be announced this month, the person said, requesting not to be identified because the information is private. Central Group is owned by the Chirathivats, one of Asia’s wealthiest families. Trophy assets in the U.K. have attracted interest even as retail business on major shopping streets suffers. Retail property values have declined in recent years, and the industry was recently hammered by the pandemic and the shift to online shopping.

World Headlines

• European stocks fell as investors once again attempted to price in risks from the omicron Covid-19 variant after a case surfaced in the U.S. The Stoxx Europe 600 Index was down 1.1% at 11:02 a.m. in London, following overnight losses on Wall Street. Almost all sectors fell, with technology and telecoms the worst performers. Apple Inc. suppliers declined after the company was said to tell suppliers that demand for its iPhone 13 lineup has weakened. Markets have bounced between gains and losses since last week’s selloff triggered by news of the omicron variant, as investors assess the impact it may have on the economic recovery. Strategists are more sanguine about the strain’s longer-term threat to markets, on average expecting the Stoxx 600 to rise more than 9% in 2022, according to Bloomberg’s latest survey.
• U.S. index futures rallied on Thursday as investors assessed the outlook for monetary policy and the risks posed by the omicron virus variant, with some seeing an opportunity to buy the dip after the S&P 500’s worst two-day slump in more than a year. Contracts on the S&P 500 and Nasdaq 100 advanced, with Boeing Co. jumping in pre-market trading on news Jet Aiways India Ltd. is in talks to upgrade its fleet. Apple declined after telling component suppliers it’s seeing slowing iPhone sales. Moderna Inc. dropped after losing a patent ruling, which could make its Covid-19 vaccine vulnerable to infringement suits. Treasury yields rose after a rally that sent the benchmark 30-year rate to the lowest since early January. The dollar slipped against a basket of peers, with investors looking to jobs data later Thursday for more clues on the trajectory of the economy and monetary policy.
• Asian stocks erased an earlier loss to trade slightly up, as traders continued to assess the potential impact of the omicron virus strain and the Federal Reserve’s efforts to keep inflation in check. The MSCI Asia Pacific Index rose 0.2% after falling 0.4% in the morning. South Korea led regional gains, helped by large-cap chipmakers, while Japan was among the worst performers after the government dropped a plan for a blanket halt to all new incoming flight reservations. Asia’s equity benchmark is still down about 4% so far this year after rebounding in the past two sessions from a one-year low reached earlier this week. Despite the region’s underperformance against the U.S. and Europe, cheap valuations and foreign-investor positioning have prompted brokerages including Credit Suisse Group AG and Nomura Securities Co. Ltd. to turn bullish on Asia’s prospects next year.
• Oil climbed ahead of an OPEC+ meeting at which the alliance will decide on its output plans for January.  The group meets amid one of the most volatile trading periods ever. With oil prices already in a bear market, as the omicron variant imperils the demand outlook, traders widely expect the Organization of Petroleum Exporting Countries and its allies to defer a modest increase in output. West Texas Intermediate futures rose by as much as 2.7%. The recent selloff has stretched all the way along the futures curve. The key Dec.-Red-Dec. spread, a gauge used by traders to bet on the health of the market, is at its weakest since February. Options markets have been roiled too, with volatility soaring to its highest since May last year.
• Gold fell as Treasury yields rebounded and traders continued to assess the threat of the omicron variant to the economic recovery ahead of a key jobs report on Friday. Markets were roiled Wednesday after the first case of the omicron mutation was reported in the U.S. as countries around the world rushed to tighten travel curbs. The S&P 500 posted its worst two-day selloff since October 2020, while U.S. bond yields sank as investors sought havens. Those moves partly reversed on Thursday, putting pressure on non-interest bearing gold. The metal has been whipsawed recently by statements from health authorities and vaccine makers on the level of risk posed by the new variant, as well as more hawkish comments from Federal Reserve Chair Jerome Powell.
• Major League Baseball team owners have initiated a lockout after failing to reach a new collective bargaining agreement with players. “Despite the league’s best efforts to make a deal with the Players Association, we were unable to extend our 26 year-long history of labor peace and come to an agreement with the MLBPA before the current CBA expired,” the MLB said in a statement, referring to a collective bargaining agreement. “Therefore, we have been forced to commence a lockout of Major League players, effective at 12:01am ET on December 2.” The lockout for now is largely symbolic given that spring training isn’t scheduled to commence until February. The regular season is slated to start March 31.
• Alibaba Group Holding Ltd.’s U.S.-listed shares have never been this cheap and yet investors keep bailing. On a reported earnings basis, Alibaba’s American depositary receipts trade at a multiple of 18.7. That’s the lowest since its 2014 debut, and the widest discount to the Nasdaq 100 Index’s average multiple on record. The ADRs slumped 4% on Wednesday to a level not seen since May 2017. Its Hong Kong shares closed 2.5% lower on Thursday. A rout that’s wiped $526 billion in value in 13 months is deepening amid concern over the company’s outlook. Some of Alibaba’s biggest growth drivers — fintech, data, online advertising and content — are under scrutiny from regulators in Beijing. The company missed estimates for quarterly sales at its latest earnings update last month and predicted slowing revenue growth for 2022.
• Razer Inc. slid more than 13% after its co-founder and CVC Capital Partners proposed taking the gaming gear maker private for about $3.2 billion, less than some investors had anticipated. The group, which includes Chief Executive Officer Min-Liang Tan and board member Kaling Lim, proposed taking Razer private for HK$2.82 ($0.37) a share, about a 5.6% premium to its previous close. The consortium will evaluate a possible relisting of the company in the U.S. if the privatization goes through, Bloomberg News reported in November. Razer’s slide on Thursday suggested investors had been holding out for a better offer price. The company, which makes laptops and gaming accessories from mice to headphones, recorded its first annual profit since 2014 last year after the coronavirus pandemic drove demand for gaming.
• Abrdn Plc has agreed to buy investment platform Interactive Investor Ltd. for 1.5 billion pounds ($2 billion). The Edinburgh-based asset manager agreed to acquire 100% of the holding company of Interactive Investor from its shareholders, according to a statement Thursday. As part of the deal, Richard Wilson, chief executive officer of Interactive Investor will join abrdn and continue to lead the platform. The firm is one of the largest “do-it-yourself” investment platforms in the U.K. with about 55 billion pounds of assets under administration and more than 400,000 customers, according to its website. The firm, and peers including Hargreaves Lansdown Plc and AJ Bell Plc, offer retail clients a pathway to buying and selling funds and other assets. It is majority-owned by U.S. private equity firm J.C. Flowers & Co., according to the investment platform’s website.
• Five months after President Joe Biden declared the U.S. to be on the verge of defeating Covid-19, the virus threatens a winter resurgence across the country. Biden on Thursday will sketch out his latest plan to quell the pandemic that’s dogged his presidency, a day after the first U.S. case of the omicron variant was identified in California. His latest measures include stricter testing requirements for air travelers arriving from abroad, extending a mask mandate and requiring private insurers to reimburse the cost of at-home tests. Cases are already building in cold-weather states where Americans have begun to retreat indoors, where schools have been linked to outbreaks and where public health officials say they face widespread exhaustion with measures intended to prevent infections. Biden’s response is further complicated by omicron, which features mutations scientists believe could make it more transmissible and virulent.
• Lone Star Funds is considering a sale of its Chinese gas company Sino Gas & Energy Pty, according to people familiar with the matter. The Dallas-based private equity firm is working with a financial adviser on the potential transaction, the people said, asking not to be identified because the matter is private. The owner is seeking about $1 billion for the company, the people said. Lone Star has started sounding out prospective buyers, including other Chinese energy companies, the people said.
• Blackstone Inc. was finally given access to the accounts of troubled Australian casino operator Crown Resorts Ltd.after last month increasing its takeover offer to A$8.5 billion ($6 billion). While the latest bid “does not represent compelling value,” Crown will let the U.S. buyout firm see private information as part of non-exclusive due diligence, Crown said Thursday. This will allow Blackstone to work on a fresh offer “that adequately reflects the value of Crown,” the company said. Blackstone in late November offered A$12.50 for each Crown share, a 26% premium to the previous close. That’s now proven enough for Crown to open its door to the U.S. suitor, albeit tentatively, after rejecting two previous proposals as too low.
• Apple Inc., suffering from a global supply crunch, is now confronting a different problem: slowing demand. The company has told its component suppliers that demand for the iPhone 13 lineup has weakened, people familiar with the matter said, signaling that some consumers have decided against trying to get the hard-to-find item. Already, Apple had cut its iPhone 13 production goal for this year by as many as 10 million units, down from a target of 90 million, because of a lack of parts, Bloomberg News reported. But the hope was to make up much of that shortfall next year — when supply is expected to improve. The company is now informing its vendors that those orders may not materialize, according to the people, who asked not to be identified because the discussions are private.
• China is on the cusp of lifting an almost three-year grounding of Boeing Co.’s 737 Max, after the nation’s civil aviation body on Thursday issued an airworthiness directive for the single-aisle workhorse. The document, posted on the website of the Civil Aviation Administration of China, removes the last safety related obstacle to bringing the Max back, and outlines steps airlines must take to begin flying it again. The notice marks an “important milestone toward safely returning the 737 Max to service in China,” a Boeing representative said in an email. The company continues to work with regulators and customers to restart flying, it said.
• Pfizer Inc. expects its Covid-19 vaccine to hold up against the omicron variant, an executive said, and data on how well it protects should be available within two to three weeks. “We don’t expect that there will be a significant drop in effectiveness,” Ralf Rene Reinert, vice president of vaccines for international developed markets, said in an interview with Bloomberg Television. “But again, this is speculation. We will check this. We will have the data in the next couple of weeks.” A growing chorus of companies and public-health officials have sought to reassure the public about vaccines even as scientists rush to answer open questions about omicron’s severity, transmissibility and potential ability to evade current treatments. The number of mutations clustered on the variant’s spike protein, which the virus uses to lever its way into cells, has fueled worries around the world.
• The European Union’s threat to hit renegade nations Poland and Hungary in the pocket for backsliding on democratic standards got a boost after an adviser to the bloc’s top court backed the legality of the crackdown. The EU had the right to award itself new powers to withhold budget distributions from nations backsliding on the rule of law, Advocate General Manuel Campos Sanchez-Bordona of the EU Court of Justice said in a non-binding opinion on Thursday. Poland and Hungary should lose their court challenges to the so-called conditionality mechanism because the EU acted “on an appropriate legal basis,” he said.
• Royal Dutch Shell Plc is starting as much as $1.5 billion of share buybacks, the first tranche of the $7 billion of planned payouts from the sale of its Permian business in the U.S.  The Anglo-Dutch oil major said in September that shareholders would get the payouts after promising to give them three-quarters of the proceeds from the sale of Permian shale oil fields to ConocoPhillips. The energy giant is working hard to regain the faith of investors after making a historic cut to shareholder distributions last year in the depths of the Covid-19 pandemic. The form and timing for distributing the remaining $5.5 billion — together with any unpurchased amount of the $1.5 billion of shares under the current tranche — will be announced in early 2022, Shell said Thursday. The payouts are in addition to the company’s prior pledge to distribute 20% to 30% of cash flow from operations to investors.
• U.S. employment growth is projected to exceed a half million for a second month in November, though such momentum may be tested by a new Covid-19 strain that could keep potential workers sidelined for longer. The median projections in a Bloomberg survey of economists are for a roughly 545,000 increase in payrolls — which would be the most since a 1 million-plus surge in July — and for the unemployment rate to fall slightly to 4.5%. While the job market is starting to make greater strides, labor supply remains well short of demand. The November figures could be crucial in determining whether Federal Reserve officials will decide later this month to accelerate the wind-down of emergency pandemic stimulus — a possibility flagged by Chair Jerome Powell in congressional hearings this week — to help contain the most rampant inflation in decades.
• Germany is poised to clamp down on people who aren’t vaccinated against Covid-19 and drastically curtail social contacts to ease pressure on increasingly stretched hospitals. In one of her final acts as chancellor, Angela Merkel will hold talks with Germany’s 16 regional premiers later on Thursday at which they’re expected to agree on new curbs including allowing only people who are vaccinated or recovered into restaurants, theaters and non-essential stores. According to a draft agreement prepared by Merkel’s office, there will also be tighter contact restrictions for non-vaccinated people, nightclubs will be closed in places with high infection rates and there will be strict limits on the number of spectators at large public events.
• The launch of the debt package to finance private equity firm CD&R’s buyout of Wm Morrison Supermarkets, Britain’s biggest take-private deal in more than a decade, has been postponed due to volatile market conditions. Lenders including Goldman Sachs Group Inc. and BNP Paribas were due to start marketing a 6.4 billion-pound ($8.5 billion) syndicated bond and loan financing in November, but that has now been pushed back until next year, according to a person familiar with the matter. The U.K. grocer’s financing package is set to include a 2.4 billion pound bond sale which is expected to become one of the biggest in the British currency after Asda Group Ltd issued the largest on record at 2.7 billion pound deal in February. Yields on junk-rated sterling bonds are at one-year highs as investors begin to demand more compensation for risks associated with the currency.
• Wheat extended a rebound from a three-week low in Chicago on lingering concerns about crops in Australia. Corn and soy also rose on signs of more demand from nations including China. While major wheat grower Australia expects a record harvest, crops there have been hit by flooding. The quality of the country’s grain remains a major issue amid persistent downpours, farm adviser Agritel said in a note. Wheat futures climbed as much as 2.3% on Thursday. Crop futures dropped earlier this week as broader markets were pressured by concerns that the omicron coronavirus variant may hurt the economic recovery. While the strain continued to pop up in countries around the world, Australia’s chief medical officer said there’s no indication omicron is deadlier than other variants, and the World Health Organization’s chief scientist said vaccines will likely protect against severe cases

*All sources from Bloomberg unless otherwise specified