February 12, 2021

Daily Market Commentary

Canadian Headlines

• Prime Minister Justin Trudeau is rejecting calls for a more combative response to U.S. protectionism, hoping a conciliatory approach will mend relations damaged during Donald Trump’s presidency. Trade Minister Mary Ng said in an interview this week she is focusing her efforts with the new Biden administration on mutual U.S.-Canada interests despite early policy hiccups that risk further fracturing ties between the two nations, whose commercial relationship is worth $725 billion a year. The rocky start began when President Joe Biden canceled permits for the Keystone XL pipeline, a move that prompted the leader of oil-rich Alberta to threaten a challenge under the old North American free-trade pact. Tensions grew when the new administration strengthened “Buy American” provisions for government procurement contracts.
• The bidding war for U.K. security firm G4S Plc is heading to a final auction between suitors Allied Universal Security Services LLCand Garda World Security Corp. The auction is expected to start on Saturday, Feb. 20, according to statement from the U.K. Takeover Panel. The British body that oversees acquisitions announced the auction because both Allied and Garda have kept their previous offers open to shareholders. G4S management in December recommended a 3.8 billion-pound ($5.2 billion) takeover bid from U.S. firm Allied Universal, but Canadian rival Garda has refused to pull its existing takeover proposal. The auction will give both parties an opportunity to boost their offers again.

World Headlines

• European shares erased earlier declines and traded steady, heading for another weekly gain that was helped by strong earnings. The Stoxx 600 Europe Index was up less than 0.1% as of 12:10 p.m. London time, with media shares in the lead. Mining and autos shares fell the most. ING Groep NV gained as much as 6% on better-than-expected earnings and as it signaled possible buybacks. L’Oreal SA also advanced after reporting an increase on sales in the fourth quarter. European equities are about 5% away from a record high reached before the pandemic-spurred selloff last year. The earnings season has boosted the market so far, although there’s still caution as lockdowns persist. As coronavirus vaccinations continue, investors are weighing the strength of the region’s economic recovery.
• The global stock rally stalled in subdued trading at the end of a week that notched new records. Oil futures fell for a second day, while the dollar rose for the first day in five. In the U.S., Treasuries edged up and S&P 500 futures dipped after the benchmark closed at an all-time high on Thursday. Most markets in Asia were closed for the Lunar New Year holiday. Part of the reason behind the rally is that investors believe President Joe Biden’s Covid-19 relief package will deliver plenty of aid to the U.S. economy. On Thursday, the House Ways and Means Committee advanced legislation that would provide $593.5 billion in benefits, most of which is made up of $1,400 stimulus payments.
• Oil slipped below $58 a barrel in New York as a recent rally fizzled on strength in the dollar. Futures fell for a second session, after their longest rally in two years. The enduring pandemic continues to crimp fuel consumption from China to the U.S., with the International Energy Agency cutting its demand forecast for 2021 and describing the market as fragile. The U.S. government earlier this week also predicted the nation’s petroleum demand will likely need much more time to recover. Despite the bearish sentiment, oil is still set to eke out a weekly gain and some are optimistic on the longer term outlook, including the IEA. Bank of America became the latest institution to add to a chorus of bullish voices, saying that demand could rise at its fastest pace since the 1970s over the next three years.
• Gold dropped as the dollar advanced but is on track for its first weekly gain in three as mixed economic data hurt risk sentiment. Global stocks slid Friday as gauges of economic activity painted a mixed picture of the global recovery. Jobs data released Thursday underscored an uneven labor market revival in the U.S. Meanwhile, the dollar strengthened, snapping five days of losses and pressuring bullion. The U.S. House Ways and Means Committee on Thursday approved measures providing $593.5 billion in benefits, most of which is made up of $1,400 stimulus payments. A dozen committees are working on different elements of President Joe Biden’s rescue proposal, with the full House voting on the overall package the week of Feb. 22.
• A Japanese panel signed off on the approval of Pfizer Inc. and BioNTech SE’s coronavirus vaccine for emergency use, according to broadcaster NHK, paving the way for the nation to launch an inoculation effort. The European Union’s drugs regulator started an early review of CureVac NV’s experimental Covid-19 vaccine, potentially accelerating its path to the market. European Commission President Ursula von der Leyen admitted that mistakes were made during the rollout process of vaccines to the European Union. Australia’s second-most populous state will enter a five-day lockdown after a spike in cases, with movements in Victoria to be restricted from late Friday night. Iran’s coronavirus cases surpassed 1.5 million on Friday. U.S. hospitalizations for the coronavirus plunged about 16% so far in February, dropping to the lowest since mid-November.
• Donald Trump’s lawyers begin their defense of the former president in his Senate impeachment trial on Friday, after House Democrats spent two days portraying him as a lawless, unrepentant inciter of the Jan. 6 insurrection at the U.S. Capitol who shouldn’t hold public office again. Lawyers for the former president are expected to argue that he didn’t provoke the violence and will show video footage of prominent Democrats using fiery language in political speeches to highlight what they say is a double standard being applied to him. Trump attorney David Schoen said the defense might need only three or four hours on Friday for an opening argument. A person familiar with the strategy said the lawyers decided to slim down their presentation based on what they heard Thursday as House managers concluded their case. Schoen said the trial “could be over Saturday.”
• Investors poured a record amount of money into equity funds, especially technology stocks, prompting strategists at Bank of America Corp. to warn that the exuberance may precede a correction. Stock funds had inflows of $58 billion in the week through Feb. 10, led by investments into U.S. equities and the tech sector, according to BofA and EPFR Global data. Market players pulled almost $11 billion from cash funds and about $800 million from gold, while bonds got a $13 billion inflow, according to the Feb. 11 note. BofA’s gauge of market sentiment– the so-called Bull & Bear indicator– is approaching levels of extreme bullishness, which can trigger a sell signal that hasn’t been set off since January 2018, according to the note. Since 2000, the median three-month return for global equities has been a 9% loss following 12 such sell signals, BofA strategists led by Michael Hartnett said.
• Credit Suisse Group AG agreed to pay $600 million to settle a lawsuit over mortgage securities that collapsed in the 2008 financial crisis, an accord that locks in an expected hit to its profit. The plaintiff, MBIA Insurance Corp., said late Thursday that it had reached an agreement, after a post-trial court decision that ordered the Swiss bank to pay about $604 million in damages. The settlement means there will be no appeal trial. Credit Suisse is expecting to post a fourth-quarter loss when it reports earnings on Feb. 18, after setting aside $850 million for U.S. legal cases including MBIA and booking a $450 million impairment on a hedge fund investment.
• Five weeks of stumbles by Microsoft Corp. on New Jersey’s Covid-19 vaccine-booking software have left the state pushing for daily fixes on almost every part of the system and doubting it will ever operate as intended, according to members of Governor Phil Murphy’s administration. The glitches — and attempted fixes that forced one megasite to go off-line temporarily — have led New Jersey to rely more on the county- and hospital-operated websites that are working well and have helped schedule more than 1.2 million doses in the most densely-populated state in the country. Officials say those systems are successfully booking thousands of people. They fear the state’s booking portal, run on Microsoft software and functioning for just a limited number of residents, won’t withstand broad demand as eligibility eventually is opened to millions of more people.
• A group of more than 60 economists urged President Joe Bidento create a path to citizenship for undocumented immigrants in his forthcoming economic and infrastructure plan, arguing it would raise U.S. wages, productivity and tax revenue. The economists, including President Barack Obama’s former top economist Jason Furman and David Kallick of the Fiscal Policy Institute, which champions liberal economic policies, made the proposal in a letter to the White House obtained by Bloomberg News. Legalizing millions of immigrants — especially those in jobs considered essential during the pandemic — would strengthen the economy while providing them with workplace protections, they argued. “Offering them the chance to earn citizenship will help to ensure that the economic recovery reaches all corners of society, including those that have disproportionately been on the front lines of the pandemic and yet left out of prior relief bills, and establishes a more stable and equitable foundation on which future economic success can be built,” the economists wrote in the letter, which was sent to the White House on Thursday.
• ESG Core Investments BV rose in its Amsterdam trading debut Friday after raising 250 million euros ($303 million) in the first initial public offering of a sustainability-focused blank-check company in Europe. ESG Core climbed 3% to 10.3 euros at 11:40 a.m. in Amsterdam from the offering price of 10 euros per unit. The listing is the first in Europe this year by a special-purpose acquisition company, and only the third such offering since the blank-check craze took Wall Street by storm in 2020. The SPAC is eyeing acquisitions in the energy transition and water technology sectors, especially those with “differentiated and scalable technology,” said Frank van Roij, managing director at ESG Core Investments. The company sees the “possibility” of raising more capital once a target has been identified, he said.
• Germany is planning a 900 million-euro ($1.1 billion) bailout of the country’s airports, adding to a multibillion-euro outlay already aimed at helping the aviation sector survive the coronavirus. The government will offer Berlin-Brandenburg, Cologne-Bonn and Munich a package of loans, grants and stake purchases worth more than 400 million euros, according to a transport ministry document seen by Bloomberg News, which didn’t specify the breakdown. A further 12 airports, including Deutsche Lufthansa AG’s Frankfurt hub, will get 200 million euros, provided the sum is matched by regional finance ministries. DFS Deutsche Flugsicherung GmbH, the air-traffic control authority, would receive a 300 million euro capital injection in exchange for a stake. The packages must be agreed with local governments and other airport owners, although is unlikely to be rejected.
• Goldman Sachs Group Inc. is creating a joint venture in its investment bank focused on catering to auto technology clients like Tesla Inc. and the new class of companies trying to take on the top electric-vehicle maker. The bank named San Francisco-based technology banker Chris Buddin and New York-based industrial banker Fausto Monacelli as the co-heads of the autotech effort. The venture formalizes a partnership between Goldman’s industrial and technology, media and telecommunications teams that had been collaborating already on deals for years, David Friedland, head of the Americas cross-markets group, said in an interview.
• Investors bullish on the green transition have sent clean-energy stocks to unprecedented levels. But behind the skyrocketing valuations of electric-vehicle and battery makers is a sobering reality: companies hemorrhaging money. The Wildherhill Clean Energy Index, which tracks the clean-energy sector, has seen its value surge more than 300% to $1.3 trillion during the past year. Its 56 member companies posted combined net losses of $6.4 million in the 12 months ending in September 2020, according to data compiled by Bloomberg. Even the 10 companies with the least revenue have a combined market value of around $22 billion. Four of them — Lordstown Motors Corp., Lithium Americas Corp., Fisker Inc. and Ayro Inc. — posted no revenue at all in recent years.
• The House Ways and Means Committee advanced legislation that would infuse households with hundreds of billions of dollars of cash through direct payments and tax credits, a key plank of President Joe Biden’s Covid-19 relief package. The panel on Thursday approved measures providing $593.5 billion in benefits, most of which is made up of $1,400 stimulus payments, along with advance tax credits for children that will be sent to households on a monthly basis. The measures passed on a 24-18 party-line vote. A dozen House committees are working on different elements of Biden’s $1.9 trillion rescue proposal, and Thursday’s component is one of several under the jurisdiction of the Ways and Means panel. The committees plan to complete their work on Friday, with the full House voting on the overall package the week of Feb. 22.
• Walt Disney Co. posted a surge in Disney+ subscribers and lower losses at its Covid-crippled theme parks, helping the world’s largest entertainment company return to profit in the latest quarter. Subscribers to the family-oriented video service grew to 94.9 million in the period, Disney said Thursday. That exceeded the 90.7 million average of Wall Street estimates compiled by Bloomberg. Sales and earnings also topped projections, sending the shares up as much as 4.1% in late trading. Chief Executive Officer Bob Chapek pointed to more than 21 million new Disney+ streaming customers as a sign that the shift away from traditional media is paying off. The service has benefited from high-profile programming, including the second season of the Star Wars spinoff “The Mandalorian” and the Christmas debut of “Soul,” a Pixar movie originally scheduled for theaters. The company plans to raise the price in the U.S. by a dollar to $8 a month in March.
• The Bank of Russia signaled it won’t consider further monetary easing after it kept interest rates on hold for a fourth straight policy meeting as sanctions risks clouded the outlook for the ruble and inflation. The benchmark rate was held at 4.25% on Friday, as forecast by all 39 economists in a Bloomberg survey. Governor Elvira Nabiullina will hold an online news briefing at 3pm Moscow time. The central bank will “determine the timeline and pace of a return to neutral monetary policy” if the situation develops in line with the baseline forecast, the central bank said in a statement. “Disinflationary risks no longer prevail over a one-year horizon.”
• ING Groep NV posted fourth-quarter profit that topped analysts’ estimates and joined peers across Europe in signaling more payouts to shareholders once the European Central Bank removes restrictions. The Dutch lender reported net income for the final three months of last year of 727 million euros ($881 million), compared with estimates of 499 million euros. The bank set aside much less than expected to cover the cost of loans going bad amid the pandemic and also saw a strengthening of its key capital buffers. The results are a bright spot for Chief Executive Officer Steven Van Rijswijk, who took over last year and must now steer ING through one of Europe’s deepest recessions in decades. He’s joining a growing number of bank executives in the region who are trying to bolster their depressed share prices by promising capital returns that the ECB froze earlier in the pandemic.
• The Biden administration slowly will begin to admit into the U.S. asylum seekers who were turned away by the Trump administration under the so-called Remain in Mexico policy, according to Department of Homeland Security officials. The estimated 25,000 migrants waiting at the southern border who have active cases under the Migrant Protection Protocols program, or MPP, will be the first processed into the U.S. Other asylum seekers, such as those who arrived once the U.S. stopped processing asylum applications at ports of entry because of the Covid-19 pandemic, must continue to wait. The Trump administration began the MPP program in January 2019, turning around asylum seekers and making them stay in Mexico for the duration of their U.S. immigration court proceedings. The new policy marks a change of approach under President Joe Biden, who has sought to undo President Donald Trump’s strict immigration policies.

“Few things are more dangerous than a leader with an unexamined life” – John C. Maxwell

*All sources from Bloomberg unless otherwise specified