February 11, 2021

Daily Market Commentary

Canadian Headlines

• Canadian equities gained for an eighth session Wednesday, their longest rally since November 2019, as cannabis stocks surged. The S&P/TSX Composite Index closed 0.3% higher after briefly trading in the red. Marijuana stocks led the charge while energy and tech also gained. Oil extended its longest winning streak in two years in New York as a decline in U.S. crude inventories further showcased how global supplies are shrinking. Brookfield Asset Management Inc. plans to raise at least $7.5 billion for a new climate-focused fund, as the Canadian investment firm builds out an ESG business led by former Bank of England Governor Mark Carney.
• Bombardier Inc will stop making Learjet aircraft and cut 1,600 jobs as part of a wide-ranging plan to boost profitability and reduce costs. Production of the iconic Learjet, which came onto the market almost six decades ago, will cease in the fourth quarter of this year, the Canadian planemaker said in a statement on Thursday. That will allow the company to focus on its more lucrative Challenger and Global aircraft groups. The moves will go toward a cost-saving target of $400 million annually by 2023, Bombardier said, including $100 million this year. Planemakers globally are having to scale back to cope with a drop-off in demand during the coronavirus pandemic, which has upended global travel.
• Canadians appear to be in no rush to draw down about C$150 billion ($118 billion) in extra savings accumulated during the pandemic, a potential drag for the nation’s already lagging economic performance. Almost seven in 10 Canadians say they expect to maintain or increase current savings levels over the next year, according to a survey by Nanos Research Group for Bloomberg. Only 27% anticipate they will have less savings. The poll adds to a growing list of indicators casting doubt on whether the nation’s households will ever spend government checks, among the most generous in the developed world, they received at the height of the pandemic.
• Pot stocks extended their record-setting rally to a fourth day Thursday as Reddit-inspired traders continued to pump up the sector to multiyear highs. Sundial Growers Inc. led the pack, surging 49% premarket to add to its 161% gain over the first three trading days of the week. FSD Pharma Inc. rose 21%, Organigram Holdings Inc. added 25%, Aurora Cannabis Inc. gained 13% and Tilray Inc. climbed 14%. The ETFMG Alternative Harvest ETF, known by its ticker MJ, rose 7.1%. The moves are reminiscent of late 2018 when Canada was about to become the first large economy to legalize recreational marijuana use, sending cannabis stocks surging. Tilray’s three-day gain to start the week was its biggest ever, although it’s still well below the intraday high of $300 it hit in September 2018.

World Headlines

• European stocks advanced on Thursday as traders weighed signs of an improving coronavirus situation in the region against a muted picture from the U.S. Federal Reserve late on Wednesday. The Stoxx Europe 600 Index was up 0.3% as of 10:39 a.m. in London, with technology, health care and media shares outperforming while banks fell the most. Energy stocks declined after Brent crude oil futures broke an eight-day rally on Wednesday. A rebound in European equities since the start of the month has plateaued this week, as the region’s largest companies posted strong year-end earnings but voiced caution about the new year, with torpid vaccination efforts casting doubt on a quick return to normality.
• Nasdaq 100 Index futures rose and technology stocks led the advance in Europe as investors took stock of recent market gains and weighed the implications of soft U.S. inflation data. After a sharp run-up in equities at the start of February, traders now seem to be taking a more subdued stance, especially after data on Wednesday showed the core consumer price index was unchanged last month. In the background, there’s still a debate over whether more U.S. stimulus, the vaccine rollout and the government’s determination to kickstart growth will cause the American economy to overheat. In a speech Wednesday, Federal Reserve Chair Jerome Powell said the U.S. job market remains a long way from a full recovery and called on both lawmakers and the private sector to support workers. He also said it will require more than supportive monetary policy to achieve and sustain maximum employment.
• Oil edged lower after capping the longest run of gains in two years, as the IEA cautioned that the recovery in the market is still fragile. Futures in New York have surged more than 12% over the past eight sessions as crude stages a robust rebound from the depths of the Covid-19 pandemic amid a tightening market. The rapid gain has driven prices to the highest level in a year, but also pushed crude’s 14-day relative strength index to its most overbought level in more than 20 years, signaling a correction is due. But there have been mixed views on the health of the market in recent days. The International Energy Agency cut its estimates for consumption this year and said last year was also weaker than previously thought. Still, Citigroup Inc. predicted the global benchmark Brent will reach $70 a barrel by the end of the year while JPMorgan Chase & Co. called a new supercycle for commodities.
• Gold steadied after advancing for four days, with investors weighing Federal Reserve Chair Jerome Powell’s dovish comments as measures of inflation remained muted. Platinum traded near a six-year high. In a speech to the Economic Club of New York, Powell called on lawmakers and the private sector to support a return to higher employment, playing down concerns about inflation. A key measure of prices paid by consumers was unchanged in January for a second month, underscoring the pandemic’s lingering restraint on inflation, which markets see heating up. Bullion is heading for its first weekly advance in three as traders assess the outlook for inflation, with President Joe Biden pushing for a $1.9 trillion Covid-19 relief plan. Markets may be relatively quiet on Thursday as Lunar New Year holidays begin in nations across Asia, with China starting a week-long break.
• Joe Biden’s immigration overhaul seeks to allow more skilled foreign workers into the U.S. without stirring widespread protest from labor groups, whose opposition would all but ruin prospects for what is already one of the president’s most precarious priorities. The sweeping proposal Biden sent to Congress on his first day in office drew quick Republican opposition over its centerpiece: a faster path to citizenship for 11 million undocumented immigrants in the U.S. Another provision would allow more foreign students and workers to enter the U.S. by increasing the number of employment-based green cards. Business groups view the proposal as a way to increase the supply of coders and other skilled tech workers for U.S. companies without raising caps on programs such as the H-1B visa for high-skilled workers.
• Drugmakers Teva Pharmaceutical Industries Ltd., Merck & Co. and Panacea Biotec Ltd. pursued negotiations with rivals to help produce and distribute vaccines approved by regulators. A World Health Organization panel recommended AstraZeneca Plc’s vaccine for all adults over 18, paving the way to speed up inoculations in developing countries. Mexico approved emergency use of two Chinese vaccines. Malaysia included non-citizens in a free vaccination drive. New U.S. cases stayed below 100,000 for a third straight day for the first time since the week of Nov. 2. Former President Donald Trump’s disdain for science, cuts to health programs and agencies impeded the response to the pandemic, causing tens of thousands of unnecessary deaths, a report in the British medical journal The Lancet said.
• PTT Oil & Retail Business Pcl, the retail unit of Thailand’s biggest energy company, jumped in its trading debut after raising about $1.57 billion in the country’s biggest initial public offering in almost a year. Shares surged 63% to close at 29.25 baht in Bangkok, ranking the debut as Thailand’s best on record for an IPO raising more than $500 million, according to data compiled by Bloomberg. The company sold 2.61 billion shares to the public at 18 baht each, the top end of the marketed price range. The company also has a so-called greenshoe option of 390 million shares. PTT Oil is the third mega Thai IPO in the past year after Central Retail Corp.’s record $2.5 billion offering in February last year and SCG Packaging Pcl’s $1.3 billion share sale in October. PTT Oil’s IPO drew more than 500,000 subscriptions from retail investors, the highest ever booking by number of investors, the company said in a statement.
• Kimbal Musk, the younger brother of Elon Musk and a Tesla Inc. board member, sold $25.6 million of shares in the electric carmaker, according to a filing with the U.S. Securities & Exchange Commission. The 48-year-old sold 30,000 shares on Feb. 9 at an average price of $852.12, according to the filing. Tesla shares dropped 5.3% Wednesday to close at $804.82. Tesla soared 743% in 2020 and is up a further 14% this year. The transaction reduced his holding to 599,740 Tesla shares, which amounts to $483 million. Tesla insiders hold a 19.6% stake in the company, according to data compiled by Bloomberg.
• Bitcoin is largely hanging onto gains from its run to a record above $48,000 thanks to the endorsement of Elon Musk and Tesla Inc.’s $1.5 billion investment. The largest digital currency was holding at about $45,000 as of 10:06 a.m. in London. Bitcoin has jumped roughly 20% this week, breaking through the prior top of almost $42,000. The wider Bloomberg Galaxy Crypto Index also touched a record recently. Musk, the world’s richest person, has emerged as a central figure for crypto faithful who think Wall Street and the mainstream are becoming more receptive to digital coins. Others maintain speculators are behind Bitcoin’s rise and the bubble will once again burst. Interest in cryptocurrencies has accelerated yet again as Musk, the world’s richest person, emerged as a central figure for the crypto faithful, supporting arguments among proponents that Wall Street and the mainstream are becoming more receptive to the asset class. Detractors maintain speculators are behind Bitcoin’s rise and the bubble will once again burst.
• CVS Health Corp. has revamped its website where customers can book appointments to get Covid-19 shots, hoping to avoid the confusion and technical snafus that have bedeviled the early phases of the U.S. vaccine rollout. The nation’s largest pharmacy chain, with about 9,900 locations, added a feature Tuesday that displays a map of the U.S. highlighting the states where it’s offering vaccines. When a user clicks on a state, a window pops up showing who is eligible for immunization, which CVS stores are offering vaccines, whether appointments are available and when the data was last updated.
• The European Union rebuffed the U.K.’s call to reset the two sides’ relationship, saying Britain needs to honor the promises it made on Northern Ireland as part of the Brexit deal. In a letter to Cabinet Office Minister Michael Gove, European Commission Vice-President Maros Sefcovic gave a cool response to Britain’s request to delay the implementation of border checks on some goods entering the province, saying that measures the U.K. previously signed up to “urgently need to be fully and faithfully implemented.” The letter, published ahead of a meeting between the two men in London on Thursday, is likely to inflame tensions between the two sides that escalated dramatically on Jan. 29 when the commission briefly threatened to trigger an emergency clause in the Brexit divorce deal to curb vaccine exports to Northern Ireland.
• Royal Dutch Shell Plc said its carbon emissions and oil production have peaked and will decline in the coming years as the company laid out a detailed plan for its transition to cleaner energy. In a sign of how much the petroleum industry has shifted away from its mantra of growth and exploration, Shell said its oil production will fall by 1% to 2% a year. Assuming an annual reduction on the upper end of that range, the oil major’s production would fall by 18% by the end of the decade. Output of “traditional fuels” will be 55% lower by 2030.
• Britain’s three pandemic lockdowns have cost retailers that have been ordered to close about 22 billion pounds ($31 billion) in lost sales, according to a trade group. In a sign of the mounting toll Covid-19 is taking on one of the country’s biggest employment sectors, the British Retail Consortium says 2020 was the worst year on record, with in-store non-food sales declining by 24%, compared with 2019. Foot traffic in stores was down more than 40% in 2020 as Covid-wary consumers avoided malls and town centers and turned to online shopping instead, the group said in a statement. Underlining the extent of weakness, Ted Baker Plc said Thursday that its sales plunged by 47% in its final quarter as pandemic restrictions limited demand for party outfits over the Christmas season. Even when stores were open between lockdowns, many consumers stayed away, said the British fashion retailer.
• The European Union is considering building an advanced semiconductor factory in Europe in an attempt to avoid relying on the U.S. and Asia for technology at the heart of some of its major industries. The EU is exploring how to produce semiconductors with features smaller than 10 nanometers, and eventually down to 2 nanometer chips, according to people familiar with the project. The aim is to curtail dependence on countries such as Taiwan for chips to power 5G wireless systems, connected cars, high-performance computing, and more. Taiwan Semiconductor Manufacturing Co. and Samsung Electronics Co. of South Korea, the two leaders making the most innovative processors in the sector, could be involved in the EU project but nothing has been decided, a French Finance Ministry official said in a press briefing on Thursday, following the report from Bloomberg.
• House prosecutors used the second day of Donald Trump’s impeachment trial to detail a months-long campaign by the former president to stoke hatred and encourage violence over the election results that they said culminated in the mob attack on the U.S. Capitol that he then did little to stop. Using previously unreleased videos and audio, the Democratic lawmakers vividly showed senators how close the rioters who ransacked the Capitol came to reaching them, as well as then-Vice President Mike Pence. Senators in the chamber listened in rapt silence as the recordings played. The impeachment managers, who will wrap up their case on Thursday, depicted the assault as not only foreseeable but the intended result of a multitude of actions calculated to incite Trump’s followers. The strategy appeared designed to rebut defense efforts to cast his fiery speech before the assault as normal political hyperbole, and persuade the public that his actions were premeditated and cynical.
• Hormel Foods Corp. agreed to buy the Planters snack brand from Kraft Heinz Co. for $3.35 billion in cash, expanding the Skippy peanut butter maker’s portfolio of pantry staples as the pandemic drives demand for packaged food. The transaction provides a tax benefit of about $560 million, Hormel said in a statement Thursday. The acquisition bolsters Hormel’s catalog of brands, which already includes household names like Skippy, Spam and its eponymous deli meats. While packaged foods have benefited during the pandemic as Americans have stocked their pantries, food-service revenue has taken a hit with restaurants and shopping centers closed or operating with limited capacity. The purchase will be Hormel’s largest to date, according to data compiled by Bloomberg News. Analysts have anticipated more deals by Hormel following several acquisitions in recent years, including buying Justin’s nut-butter brand in 2016.
• Joe Biden, in his first conversation as president with the Chinese leader Xi Jinping, spoke of his concern about China’s “coercive and unfair economic practices” as well as human rights abuses in the Xinjiang region, according to a White House account of their telephone call. Biden also expressed misgivings about the country’s growing restrictions on political freedoms in Hong Kong and “increasingly assertive actions in the region, including toward Taiwan,” in the call, which took place Thursday morning Beijing time. Biden, who wished Xi a happy Lunar New Year, was “committed to pursuing practical, results-oriented engagements when it advances the interests of the American people and those of our allies,” the White House said.
• London took a major hit to its dominance of euro swap trading after Brexit, with business fleeing the U.K. capital to both the European Union and Wall Street. That’s according to a new analysis by IHS Markit, which found London trading venues’ share of the euro interest rate swap market slipped to 10% last month from nearly 40% in July. In the same period, EU platforms’ market share increased to a quarter from less than 10%. Wall Street venues’ share doubled to 20%, while trades done off-venue remained relatively steady. The findings are the latest sign of the repercussions from the Brexit trade deal, which cut off access to most London trading from the bloc. U.K.-based executives are hopeful they can repatriate some of that business with a deal recognizing British and EU regulations as equivalent, arguing that existing U.S. equivalence arrangements will just push trading to Wall Street instead of Europe.
• Burger King operator Restaurant Brands International Inc.reported quarterly comparable sales that missed estimates as renewed lockdowns in parts of the world continue to hit dining. All three of the company’s brands reported a drop in same-store sales, though some were hit harder than others. Same-store sales fell 7.9% at Burger King for the period ended Dec. 31, the company said Thursday, worse than the 4% drop that had been expected, according to Consensus Metrix. Popeyes also logged bigger drop than analysts had been anticipating.

“Problems are messages” – Shakti Gawain

*All sources from Bloomberg unless otherwise specified