February 15, 2022

Daily Market Commentary

Canadian Headlines

  • Demonstrators against vaccine mandates halted traffic at two major border crossings in Western Canada and some vowed to stay even as Prime Minister Justin Trudeau used a law giving his government emergency powers to end blockades. The main border posts in Alberta and Manitoba were closed Monday, with commercial traffic to the U.S. blocked by semi-trailers and farm equipment driven there by people opposed to Covid-19 vaccine rules. The crossings — one of which leads to Pembina, North Dakota and the other to Sweet Grass, Montana — are the second- and third-busiest for freight trucks along the western border of the two countries. They saw a combined 392,000 trucks enter the U.S. from Canada last year, according to data from the U.S. Department of Transportation. Both were still closed to commercial vehicles as of 12:14 a.m. New York time on Tuesday, according to Canada’s border agency.
  • Canadian Prime Minister Justin Trudeau invoked sweeping emergency powers Monday to quell protests against vaccine mandates and other Covid-19 restrictions, including measures to choke off the flow of money to demonstrators. Banks and financial institutions will be required to review their relationships with anyone involved in an illegal blockade and report them. They’ll have the authority to stop providing services to those suspected of using their accounts to help the protesters and to freeze accounts without getting a court order.  The government is also broadening its anti-money-laundering rules to cover crowdsourcing sites such as GoFundMe that have been used to funnel donations to them, as well as cryptocurrency platforms.

World Headlines

  • European stocks gained after Russia’s pullback of some forces following drills fueled optimism about reduced geopolitical risks. The Stoxx Europe 600 Index was up 1% by 9:59 a.m. in London, with autos, chemicals and industrial goods sectors outperforming. Glencore Plc jumped after saying it will pay $3.4 billion in dividends and announced a new $550 million share buyback. Geopolitical concerns roiled markets on Monday, sinking the European benchmark to the lowest in three weeks, after tensions ratcheted higher around Ukraine as U.S. officials signaled a Russian invasion could be imminent. Stocks surged after Russia’s Defense Ministry said some units would begin returning to their permanent bases after completing exercises, while German Chancellor Olaf Scholz is due to meet President Vladimir Putin for talks in Moscow.
  • U.S. futures climbed after Russia announced the start of a pullback of some forces after drills that raised alarm about a possible military assault on its neighbor. Diplomatic efforts are continuing, with German Chancellor Olaf Scholz meeting Russian President Vladimir Putin. Intel Corp. rose in premarket trading after agreeing to buy Israel’s Tower Semiconductor Ltd. for $5.4 billion. Big U.S. technology companies including Apple Inc., Tesla Inc. and Microsoft Corp. also rose, along with cryptocurrency-exposed stocks as Bitcoin extended its recent rebound back above the $44,000 level.
  • Asian stocks extended losses for a third day, checked by the prospect of higher U.S. interest rates and concern Russia’s fallout with Ukraine will lead to conflict. The MSCI Asia Pacific Index fell as much as 0.8%. Financial and industrial sectors were the biggest drags while consumer staples and healthcare names provided support. Equities in mainland China bucked the trend, climbing after the central bank stepped up support for the slowing economy. The CSI 300 rose more than 1% after the People’s Bank of China injected a net 100 billion yuan ($15.7 billion) into the banking system with its medium-term lending facility, while leaving the borrowing rate unchanged. The key China stock gauge is still down nearly 7% this year, hurt by concerns over the economy.
  • Oil retreated from the highest since 2014 as traders weighed a possible cooling in the Ukrainian crisis. Brent futures fell as much as 2.1% to trade below $95 a barrel while futures in New York also slumped. Some Russian military units will start returning to their permanent bases on Tuesday after completing drills, Interfax reported, citing the Defense Ministry. Crude has swung wildly this week amid a flurry of reports about the tensions over Ukraine. While the U.S. has warned an invasion may be imminent, Moscow is now calling for a diplomatic approach and has repeatedly denied it plans an assault.
  • Spot gold fell roughly $11 to trade near $1,860/oz and other precious metals followed suit after the Russia’s Defense Ministry announced the start of a pullback of some forces after drills. Earlier, bullion rose to the highest level in eight months as traders sought haven assets amid tensions. This reinforces the belief that gold is typically seen as a hedge, and indicates that the recent precious metal rally was aided by geopolitical tensions.
  • Iron ore plummeted as Beijing ramped up a campaign to stop prices overheating, prompting BHP Group Ltd. — one of the world’s top producers — to caution that supply and demand will determine prices. Prices tumbled as much as 13% in Singapore on signs that authorities in China will intensify efforts to quell a big rally since mid-November. Several iron ore companies received a warning about speculation and hoarding at a meeting with regulators in Beijing, while the official China Daily newspaper railed against what it called “guerrilla war” by speculators in China and outside. The fresh regulatory attention highlights a difficult balancing act for Beijing, which wants to steady the economy — boosting steel consumption — without reprising last year’s damaging bout of commodity inflation. Iron ore’s demand prospects look robust, according to Mike Henry, Chief Executive Officer of BHP, the No.3 global iron ore supplier.
  • Germany is set to join other European countries in phasing out Covid-19 restrictions over the coming weeks, according to a proposal published in local media. Hong Kong’s leader said the outbreak of the omicron variant has overwhelmed the city’s government, but denied she plans to impose a total lockdown like those in mainland Chinese cities.
  • U.S. authorities are scrutinizing how Wall Street firms including Morgan Stanley handle block trades, as part of a long-running probe into stock transactions typically big enough to move markets, according to people with direct knowledge of the matter. The behind-the-scenes inquiry has been looking into how banks execute the trades with help from outside market makers, the people said. The Securities and Exchange Commission began investigating in 2018, and after initial inquiries and what appeared to some outsiders as a lull in the case, officials sought more information, with the Justice Department opening its own probe, the people said. It’s unclear what evidence prompted the additional inquiry.
  • Fund managers are the most underweight on technology stocks in almost 16 years as they brace for aggressive Federal Reserve policy tightening, the latest Bank of America Corp. survey shows. Net allocation to the tech sector fell to the lowest since August 2006, according to the poll conducted from Feb. 4-10. Most of the participants sent their responses before Thursday’s red-hot U.S. inflation print that prompted investors to price in about seven Fed rate hikes in 2022. Nervous investors have been rapidly reducing their bets on growth stocks that fueled the S&P 500’s rally over the last decade as central bankers prepare to tackle inflation. Higher interest rates hurt pricier tech stocks that are valued on future growth expectations.
  • Elon Musk gifted almost $6 billion worth of Tesla Inc. stock to charity late last year in one of the largest philanthropic donations in history. The world’s richest man donated more than 5 million shares in the electric-car maker from Nov. 19 to Nov. 29, according to a filing with the Securities and Exchange Commission. The gift was worth about $5.7 billion, based on average prices the days he sold the securities. The filing doesn’t name the charity and shows an unidentified trust was involved in the transaction. The donation occurred as Musk, Tesla’s chief executive officer, sparred with politicians including Bernie Sanders and Elizabeth Warrenover inequality and a proposed wealth tax. In the weeks leading up to the gift, Musk suggested he’d sell stock if the United Nations proved $6 billion would help solve world hunger, after the head of the organization’s World Food Programme called for billionaires like Musk to “step up.”
  • Sea Ltd. lost more than $16 billion of value in its biggest daily market drop after India abruptly banned its most popular mobile gaming title. Investors are growing concerned the ban may just be the start of the company’s troubles. Singapore-based Sea went public in 2017 and quickly became the most valuable company in Southeast Asia, based on its potential to expand its offering of gaming, e-commerce and financial services beyond its home turf. New Delhi’s decision to ban Free Fire — a lucrative title for the company — highlighted Sea’s challenges from geopolitical tensions as well as mounting competition from rivals like Alibaba Group Holding Ltd.’s Lazada. India has banned hundreds of Chinese apps over the past two years, but the expansion of that policy to Sea took management and investors by surprise. The startup was founded by Forrest Li, who was born in China but is now a Singaporean citizen. Its biggest shareholder is Tencent Holdings Ltd., the Chinese social media giant.
  • Blackstone Inc. is recapitalizing its European last-mile logistics company, in what will be the biggest private real estate deal in the region ever. Existing investors in Mileway, a company that owns urban warehouses designed to cut delivery times of food and goods, have agreed to a deal that values the business at 21 billion euros ($24 billion), according to a statement Tuesday. The deal allows the U.S. private equity company and those investors in its funds that want to hang on to their highly prized warehouse assets to keep them for the long-term, while allowing other early investors to cash out. Some large pension and sovereign wealth funds that were invested in funds owning Mileway have opted to increase the size of their commitments, according to James Seppala, head of real estate for Europe.
  • Hozon New Energy Automobile Co., a startup that makes affordable electric vehicles, has picked banks including China International Capital Corp. and Citic Securities Co. for an initial public offering in Hong Kong, according to people familiar with the matter. The Chinese EV firm is also working with Morgan Stanley and UBS Group AG on the first-time share sale, which could take place as soon as this year, the people said. The IPO could raise about $1 billion, the people said, asking not to be identified as the information is private. Deliberations are ongoing, details such as the fundraising amount and timing could still change and other banks may be added to the lineup, the people said.
  • Intel Corp. agreed to acquire Tower Semiconductor Ltd. for about $5.4 billion, part of Chief Executive Officer Pat Gelsinger’s push into the outsourced chip-manufacturing business. Intel will pay $53 per share in cash for Tower, according to a statement Tuesday. The companies’ boards have approved the transaction, which they expect will close in about 12 months. Shares of Tower were up 43% during premarket trading in Tel Aviv on Tuesday. Intel advanced less than 1% in New York. Gelsinger, who took the CEO job a year ago, is betting he can compete with Taiwan Semiconductor Manufacturing Co. in the chip-foundry market — the contract manufacturing of semiconductors for other companies. His comeback plan for Intel involves modernizing its factories and building new ones aimed at restoring its leadership in chip technology.
  • The Federal Reserve is likely to raise interest rates even faster than markets are pricing in, given inflationary pressures are stronger than central bankers expected and policy settings are extremely loose, according to Vimal Gor, head of Alternative Duration at Pendal Group Ltd. U.S. central bankers look to be concerned to avoid a repeat of the 1960s, when the Fed got so far behind the curve it was forced into a series of hikes and cuts that ultimately allowed inflation to get out of control, said the manager at Pendal, an investment house that manages some A$135 billion ($96 billion). There’s a chance the central bank starts with a 50 basis point hike and then adds another outsized increase straight after, he said.
  • Talks between Monster Beverage Corp., the maker of energy drinks, and Corona brewer Constellation Brands Inc. about a combination are progressing, according to people familiar with the matter. A merger agreement could be reached in the coming weeks if negotiations proceed smoothly, the people said, asking not to be identified discussing private information. The similarly sized companies have a combined market value of about $90 billion. Shares of Monster, which counts Coca-Cola Co. as a major shareholder, have fallen about 8% through Monday since Bloomberg News reported in November that it had held discussions with advisers about a potential tie-up with Constellation, whose Class A stock is flat during that period.
  • Thailand will allocate about 43 billion baht ($1.3 billion) through 2025 to promote domestic use of electric vehicles as part of the government’s efforts to make the country a major EV production hub. Taxes and excise tariffs will be cut on imports and buyers will be offered subsidies, according to a statement after the Cabinet approved a series of measures on Tuesday. The incentives should help the country meet a target that at least 30% of total car output in 2030 will be EVs, it said. “The measures approved will help propel Thailand into becoming a major EV production hub, like the Detroit of Asia,” Government Spokesman Thanakorn Wangboonkongchana said after the meeting in Bangkok. “This will increase the competitiveness of EVs domestically, promote use of sustainable automotive products that don’t cause pollution and allow for faster EV adoption nationally.”
  • The Biden administration plans to spend more than $9 billion on a series of initiatives to boost the use of hydrogen as part of its effort to reduce emissions in U.S. manufacturing. The White House said the U.S. Department of Energy will spend $8 billion to create regional hubs to expand the use of hydrogen in industry. Another $1 billion will go toward reducing the cost of hydrogen produced from clean electricity, and $500 million for initiatives to support equipment manufacturing and domestic supply chains. When produced from renewable energy sources, so-called green hydrogen is a carbon-free gas that can be burned or used in fuel cells for power generation or transportation.
  • South Korea isn’t able to immediately divert liquefied natural gas shipments to Europe due to a lack of domestic supply, according to government officials. The Korean government told the U.S. that it doesn’t have spare shipments to send to Europe due to strong winter demand, according to two government officials with knowledge of the matter. Still, the nation may be able to divert some spare cargoes to Europe once the winter supply crunch eases, they said, requesting to remain anonymous to discuss private details. Earlier this month, the Biden Administration asked Asian countries to be prepared to ship their natural gas to Europe to help avert any new tightening of energy supplies, if tensions between Russia and Western nations over Ukraine escalate further. The U.S. has struggled to get Asian LNG importers to commit to the strategy as the region seeks to refill inventories drained during the winter.
  • Hungary’s economy grew at the pace fastest in 30 years in 2021, a boost to Prime Minister Viktor Orban, who’s increasingly focusing on the economy as he campaigns for a fourth consecutive term in April general elections. The economy expanded 7.1% in 2021 after gross domestic product grew 7.2% in the fourth quarter, exceeding the 5.7% median estimate in a Bloomberg survey. The services sector played the biggest role in year-end growth, the statistics office said Tuesday. Orban is campaigning on his economic record after launching a pre-election spending spree that includes wage and pension hikes and almost $2 billion in family-tax rebates distributed this month. He has also capped the prices of household energy, fuel and some staple foods to ease the pain of the fastest inflation in almost 15 years.
  • Japan’s Denso Corp., the world’s second-biggest automotive parts supplier by sales, is joining a project led by Taiwan Semiconductor Manufacturing Co. to build its first chip plant in Japan with Sony Group Corp. The Toyota group company will invest $350 million in a joint venture between TSMC and Sony set up for the plant in Kumamoto prefecture, southwestern Japan, it said in a statement Tuesday. Japanese newspaper Kumamoto Nichinichi Shimbun reported on the funding earlier, saying that Denso will be a major customer for the new plant. A lack of semiconductor and parts shortages have caused output delays for consumer electronics to automobiles across the globe. Shoppers looking to buy new cars have been forced to wait for weeks or months as automakers struggle to produce vehicles, and the price of used cars have surged. The shortage is even threatening automakers’ plans to push electric cars.
  • Bitcoin rose to more than $44,000 for the first time since the end of last week as optimism over an easing of tensions around Ukraine renewed investors’ appetite for riskier assets. The largest cryptocurrency by market value strengthened as much as 5.2% to $44,449. Other digital tokens also increased, with Ether jumping almost 7%, Solana up more than 9% and DeFi favorite Aave up around 7%. U.S. equity futures rallied and stocks climbed in Europe as Russia said Tuesday that some troops are starting to return to their regular bases after completing drills. U.S. warnings of a possible Russian attack on Ukraine had reached their most urgent level yet this week.
  • Cathie Wood took advantage of a record slump in Sea Ltd., snapping up more of the gaming firm’s shares after India banned one of its products. Wood’s thematic investing firm ARK Investment Management LLCbought more than 145,000 Sea shares on Monday, with the Ark Next Generation Internet ETF buying up the bulk, according to the firm’s daily trading updates compiled by Bloomberg. Sea closed 18% lower in New York on Monday after India banned its marquee game Free Fire, extending a selloff in its shares to 65% from an Oct. 19 peak. It’s on pace to rebound Tuesday, rising as much as 4.5% in premarket trading.
  • Marriott International Inc. reported fourth-quarter earnings that beat expectations as demand for leisure travel powered the hotel recovery. The company reported adjusted earnings per share of $1.30, according to a statement Tuesday. That beat the average analyst estimate of 99 cents. Hotel demand remains below pre-pandemic levels. Avid vacationers have crowded into hotels, helping owners increase weekend room rates. But high-end business travel remains stuck, even as the most recent wave of Covid-19 cases fades.
  • The White House and top Democratic lawmakers are beginning to weigh a new push for a federal gas tax holiday, potentially pausing fees at the pump as part of a broader campaign to combat rising prices. The early deliberations come days after a group of vulnerable Senate Democrats introduced a bill that would suspend the gas tax of roughly 18 cents per gallon for the rest of the year, which party lawmakers are expected to discuss at a lunch Tuesday. Asked about the proposal, the White House signaled that “all options are on the table,” as the administration tries to ease the growing financial burdens facing Americans during a period of high inflation. For now, the White House has not offered any official, explicit endorsement of the policy. Behind the scenes, top aides have debated whether it would provide meaningful relief — or ultimately serve to benefit the producers of gas more than the consumers of it. Some senior officials also fear the policy might be difficult to end later, since no politician would want to be seen as raising prices, according to two people familiar with the matter who spoke on the condition of anonymity to describe the discussions.
  • Virgin Galactic shares jump 15% in premarket trading on Tuesday, after the space tourism company said ticket sales to reserve one of its initial spaceflights will open to the general public starting on Feb. 16. Spaceflight reservations are a total price of $450,000; following an initial deposit of $150,000, customers will make their final payment before their flight, SPCE said. SPCE plans to have its first 1,000 customers on board at the start of commercial service later this year

“Spread love everywhere you go. Let no one ever come to you without leaving happier.” – Mother Teresa

*All sources from Bloomberg unless otherwise specified