February 22, 2021

Daily Market Commentary

Canadian Headlines

  • G4S Plc dropped the most in more than nine months after two rival security firms offering to acquire the U.K. company decided against pursuing a bidding war any further. The U.K. Takeover Panel, the British body that oversees acquisitions, called off an auction for G4S, with closely held Allied Universal Security Services LLC emerging as the highest bidder with its 245 pence-a-share offer made in December. G4S shares fell as much as 10% to 242 pence. Garda World Security Corp. concluded it would need sizable resources to successfully integrate G4S and hasn’t had enough engagement with G4S to address issues, the Canadian company said in a statement Monday. Allied Universal’s offer values G4S at about 3.8 billion ponds ($5.3 billion). Although G4S management had backed Allied Universal’s proposal, the contest had moved to the takeover panel auction to give both parties an opportunity to boost their offers. Allied’s shareholders include Canadian pension fund Caisse de Depot et Placement du Quebec and Warburg Pincus. It had been seeking to woo G4S’s board and only wanted to proceed with a firm offer if it could win their recommendation.

World Headlines

  • European stocks fell in a broad retreat as worries about a selloff in bonds outweighed optimism about easing lockdown restrictions in the U.K. The Stoxx Europe 600 Index was down 0.7% as of 10:37 a.m. London time, with defensive and growth sectors such as tech and consumer staples leading losses. The U.K.’s FTSE 100 Index fell 0.7%, tracking the market lower, even as the government planned to speed up its vaccination program and reopen schools in England from March 8. Travel and leisure shares bucked the trend, the only sector to rise, while lockdown beneficiaries including meal-kit maker HelloFresh SE and online food delivery firm Delivery Hero SE were among the worst performers. European equities are declining after three straight weeks of gains. After climbing to a one-year high last week, the Stoxx 600 is sliding further away from a record high reached just before the pandemic-fueled rout. While strategists on average still see some upside, concerns over inflation and interest-rate policy may make for a bumpier ride from here on. A key part of the Treasuries yield curve steepened to the most since 2014, while a report Tuesday is estimated to show the fastest euro-area inflation in almost a year.
  • U.S. equity futures dropped alongside shares in Europe and most of Asia as the bond selloff extended Monday and U.S. benchmarks traded near record highs. Contracts on the S&P 500 for March lost 0.8% as of 9:32 a.m. in London, after declining as much as 1.1% earlier. Futures for the Nasdaq 100 and Dow Jones retreated 1.3% and 0.6%, respectively. Ten-year Treasury yields spiked to the highest in about a year as metals prices jumped, fueling concerns about the economic recovery if price pressures keep rising. Among commodities, oil futures rose in New York and London while copper hit the highest in over nine years.
  • Asian shares reversed an early gain and were set to finish the day lower as a continued decline in Chinese and Indian stocks weighed. China’s stock benchmark, the CSI 300 fell 3.1%, dragged down by consumer staples, which had their biggest drop since July. Losses in Indian shares also weighed, with the S&P BSE Sensex dropping for a fifth day. A measure of Asia’s health care companies underperformed. A group of materials stocks bucked the day’s trend, with the MSCI Asia Pacific Materials Index climbing 1.3% to its highest level since Aug. 2011 as copper and nickel prices surged. In Australia, travel-related stocks rose as the nation’s Covid-19 vaccination program kicked off, and after a draft study showed that the Pfizer-BioNTech shot was 89.4% effective at preventing laboratory-confirmed infections.
  • Brent oil resumed gains, with Goldman Sachs Group Inc. predicting prices will advance into the $70s in the coming months. Futures in London rose back above $63 a barrel after the gradual resumption of some U.S. output following frigid weather put prices under pressure on Friday. A robust recovery in demand from the Covid-19 pandemic had pushed prices to the highest settlement in more than a year last Wednesday, and Goldman sees the rally accelerating as consumption outpaces supply from OPEC+ and shale. Crude oil stored at sea fell to an 11-month low last week, according to Vortexa, another sign of dwindling supplies.
  • Gold extended a rebound from a seven-month low on rising inflation concerns, while traders awaited comments from Federal Reserve Chair Jerome Powell for monetary policy guidance. The metal rose a second day as investors priced in bets for inflation and stocks dropped amid worries that strong economic growth may spur a tightening on stimulus measures. Bullion slipped 2.2% last week as a rally in U.S. Treasury yields and signs that the recovery from the Covid-19 pandemic is well under way hurt the haven’s allure. Investors will be monitoring Powell’s testimony to Congress this week for any sign that he’s troubled by steeper long-term borrowing costs. He’s set to echo remarks that policy makers are fully committed to supporting the economy.
  • Copper rose above $9,000 a ton for the first time nine years, taking another step closer to an all-time high set in 2011 as investors bet that supply tightness will increase as the world recovers from the pandemic. Copper is surging amid a broad rally in commodities from iron ore to nickel, while oil has gained more than 20% this year. The bellwether industrial metal has doubled since a nadir in March, boosted by rapidly tightening physical markets, prospects for rebounding economic growth and the expectation that a years-long era of low inflation in key economies may be ending. Investors are also piling into copper on a bet that demand will surge in the coming years as governments unleash unprecedented stimulus programs targeting renewable energy and electric-vehicle infrastructure, which will require huge volumes of copper.
  • U.K. Prime Minister Boris Johnson will announce that all schools in England will reopen from March 8, as he outlines how the national coronavirus lockdown will be lifted over the coming months. The U.S. is poised to reach 500,000 Covid-19 deaths, though the pace of fatalities has slowed dramatically. The Pfizer Inc.-BioNTech SE vaccine appeared to stop the vast majority of recipients in Israel becoming infected, according to a study, providing the first real-world indication that the immunization will curb transmission of the coronavirus. Germany needs to further slow the spread of the virus before the government can consider additional steps to loosen restrictions on Europe’s largest economy, the country’s health minister said. Anthony Fauci said U.S. vaccinations slowed by bad weather should be back on track by midweek.
  • M&T Bank Corp. is set to acquire People’s United Financial Inc.in an all-stock deal valued at more than $7 billion, according to a person familiar with the matter. The deal could be announced as soon as Monday morning, the person said, who asked to not be identified because the matter isn’t public. Buffalo, New York-based M&T’s Chief Executive Officer Rene Jones will lead the combined company, which will have about $200 billion in assets, the person said. Representatives for M&T and People’s United declined to comment. The Wall Street Journal reported on the talks earlier. The tie-up between M&T and People’s United marks the latest in a string of recent deals among regional banks as they seek size to counter low interest rates, tepid loan demand and the need for greater technology spending.
  • Egypt and Israel said they may build an undersea natural-gas pipeline connecting the two countries, as they seek to collaborate on exporting the fuel to Europe. The pipeline would link Israel’s huge Leviathan field to Egypt’s liquefied natural gas plants, the countries’ energy ministries said Sunday. Egypt added that the two sides would work on a governmental framework for the pipeline. The announcement comes as nations in the eastern Mediterranean ramp up investments in offshore gas fields. Egypt is seeking to become a major hub for exporting LNG to Europe, where demand is growing as governments transition from dirtier fossil fuels such as coal and oil.
  • Investors added money to exchange-traded funds that buy emerging market stocks and bonds last week. This was the 16th straight week of inflows. Inflows to U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $1.13 billion in the week ended Feb. 19, compared with gains of $885.2 million in the previous week, according to data compiled by Bloomberg. So far this year, inflows have totalled $10.6 billion.
  • Lucid Motors Inc. is nearing a deal to go public through a merger with a blank-check company started by investment banker Michael Klein that could be announced early this week, according to people familiar with the matter. The combined entity will be valued at as much as $15 billion, the people said, asking not to be identified because the matter is private. Shares of Churchill Capital Corp IV, the special purpose acquisition company, surged as much as 21% to $64 in premarket trading Monday. The SPAC has been in talks to raise between $1 billion and $1.5 billion in funding from institutional investors to support the transaction, said the people, who asked not to be identified because the information isn’t public. The valuation and the amount of additional funding could still change based on investor demand.
  • A sell-off in Brazil’s state-controlled oil firm Petroleo Brasileiro SA is likely to deepen on Monday after a group of analysts downgraded the stock within 24 hours, following the government’s decision to replace the company’s chief executive officer. Bradesco BBI, BTG Pactual, Credit Suisse, JPMorgan, Santander, Scotiabankand XP Investimentos cut their ratings on the shares after Brazilian President Jair Bolsonaro on Friday decided to fire the oil company’s CEO following a spat over hikes in fuel prices and moved to appoint Joaquim Silva e Luna, a former army general, as a replacement. Company’s board still needs to confirm the decision. Shares in Petrobras’ sold off on Friday, erasing 28.2 billion reais ($5.2 billion) in market cap. The company’s American Depositary Receipts were down 15% premarket Monday in New York.
  • Sasol Ltd., the South African chemicals and fuel maker, called off a potential $2 billion share sale and announced first-half profit more than tripled. The shares hit the highest in a year. The company has raised enough cash through asset disposals and cost savings to reduce debt and avoid a rights offer. “A decision was made not to pursue a rights issue given the current macroeconomic outlook, and the significant progress made on our response plan initiatives,” Sasol said in a statement Monday. “The balance sheet deleveraging pathway will continue to be prioritized to ensure that we operate within our financial covenants.”
  • Xos, a maker of electric commercial vehicles, has agreed to go public through a merger with a blank-check company, NextGen Acquisition Corp., according to a statement viewed by Bloomberg News. The deal values the combined equity at $2 billion, the companies added. To support the transaction, the special purpose acquisition company will raise $220 million from investors including Janus Henderson Group Plc and a group of truck dealers led by Thompson Truck Centers.
  • Democrats begin the final push for President Joe Biden’s $1.9 trillion stimulus bill this week, dropping any pretense of bipartisanship to quickly pass the package before an earlier round of benefits runs out. This will be the first real test for Democrats’ full control of government since former President Donald Trump’s impeachment trial, with implications for the rest of Biden’s agenda and the pandemic-battered economy. The House plans to vote as soon as Friday on Democrats’ stimulus package, setting up a Senate vote as soon as next week. Resolving the final hurdles, especially disagreement among Senate Democrats about a provision phasing in a $15 per hour federal minimum wage, would clear the way for Biden to give his first address to a joint session of Congress in March outlining his next policy goals, including a multi-trillion dollar infrastructure bill.
  • Airlines grounded dozens of older Boeing Co. 777 aircraft after the failure of a Pratt & Whitney engine showered debris into a Denver suburb and prompted U.S. regulators to order emergency inspections. United Airlines Holding Inc. halted operations of 24 of its planes in the wake of the incident involving one of its fleet over the weekend, after the U.S. Federal Aviation Administration ordered fan-blade checks on PW4077 engines. Japan’s transport ministry grounded planes with the engine variant on Monday, while Korean Air Lines Co. and Asiana Airlines Inc. idled theirs. The incident on United Airlines Flight 328 from Denver to Honolulu took place shortly after it took off on Saturday with 231 passengers and 10 crew members on board. The Boeing 777 landed safely back at Denver and nobody was injured by the falling debris. Footage of the burning engine was filmed by a passenger, while people on the ground captured scenes of the plane overhead and scattered aircraft parts near houses.
  • Aegon NV is exploring a sale of its Transamerica business in Asia as it pushes ahead with plans to exit non-core markets, according to people familiar with the matter. The Netherlands-based insurer has asked an adviser to help find a buyer for the unit, which offers a range of insurance and savings products to high-net-worth clients in Hong Kong, Singapore and elsewhere, the people said. The Asia operation could fetch at least $700 million in any sale, the people said, asking not to be identified discussing confidential information. A formal process could begin as soon as the coming weeks, one of the people said. Deliberations are in the early stages and Aegon could still decide to keep the business, according to the people. A representative for Aegon declined to comment.
  • Egyptian billionaire Nassef Sawiris agreed to accept a sweetened $4.7 billion takeover offer for Signature Aviation Plc, a step toward ending the fight for control of the private-jet company. NNS, the investment vehicle of Sawiris, is set to sell its 7.42% stake to a bidding consortium led by Blackstone Group Inc. and Global Infrastructure Partners, according to a statement Monday that confirmed an earlier Bloomberg News report. Sawiris is Signature’s third-biggest shareholder. The move helps end a months-long takeover battle for the world’s biggest operator of private-jet bases. Rival bidders GIP and Blackstone earlier this month teamed up and increased their takeover bid to $5.62-per-share. That bump won the backing of Signature’s management.
  • China’s leaders plan to curb the influence of Hong Kong opposition groups on a body that selects the city’s top official, taking seats away from pro-democracy politicians and handing them to pro-Beijing loyalists, according to people familiar with the proposal. At an annual legislative session in March, Chinese lawmakers are expected to vote on the proposed changes to the composition of a 1,200-member committee that picks Hong Kong’s chief executive, the people said. The revisions would drastically reduce, or potentially eliminate, the 117 seats assigned to Hong Kong’s district councilors, a bloc now dominated by opposition groups, they said. These seats would be given to some of the more than 200 Hong Kong-resident members of China’s top political advisory body, the Chinese People’s Political Consultative Conference, the people said.
  • India’s Supreme Court stopped regulatory approval for the Future Group’s $3.4 billion asset sale to Reliance Industries Ltd., halting the deal for now and handing a legal win to Amazon.com Inc., which wants to scuttle the transaction in its bid to dominate the country’s retail sector. Agreeing with the American e-commerce giant’s petition, the top court on Monday overturned a lower court’s ruling and said the company tribunal can continue hearing the case but must not give a final nod till further orders. The court also sought written statements from Future Retail Ltd. and said it will hear the case after five weeks. Future’s stocks and bonds fell. The latest verdict restores the legal advantage for Jeff Bezos-founded Amazon that secured an interim stay on the deal from a Singapore arbitration tribunal in October. It accused the Future Group of violating a partnership contract when it agreed to sell assets to billionaire Mukesh Ambani’s conglomerate last year. The Monday order, however, endangers Future Retail, which is struggling to pay debt and has warned of insolvency.​
  • Pump prices are so high in India that some of the gasoline and diesel exported to neighboring countries is being smuggled back through porous land borders. A large oil truck loaded with 1,360 liters (359 gallons) of diesel that was being smuggled to India, where pump prices are at a record, was held last week in Nepal, the police said in a statement. Pump prices of gasoline, which have breached the 100 rupee a liter mark in several parts of India, are the highest in the South Asian region, according to data compiled by GlobalPetrolPrices.com. That’s resulting in illegal trade as Indians grapple with soaring fuel prices. Ironically, Nepal gets all its petroleum fuels from India, which also exports to neighbors Bangladesh and Sri Lanka.
  • From money managers at BlackRock and T. Rowe Price, to analysts at Goldman Sachs, to the credit shops run by Blackstone and KKR, a new economic reality is prompting Wall Street’s most powerful forces to adjust their investment strategies. The rise in inflation set to accompany the post-pandemic economic boom is threatening to reverse the four-decade decline in U.S. interest rates, sparking a rush to protect the value of trillions of dollars of debt-market investments. The first signs of this shift have already emerged: These firms and others are moving money into loans and notes that offer floating interest rates. Unlike the fixed payments on most conventional bonds, those on floating-rate debt go up as benchmark rates do, helping preserve their value.
  • The Pfizer Inc. and BioNTech SE Covid-19 vaccine appeared to stop the vast majority of recipients in Israel becoming infected, providing the first real-world indication that the immunization will curb transmission of the coronavirus. The vaccine, which is being rolled out in a national immunization program that began Dec. 20, was 89.4% effective at preventing laboratory-confirmed infections, according to a copy of a draft publication that was posted on Twitter and confirmed by a person familiar with the work. The companies worked with Israel’s Health Ministry on the preliminary observational analysis, which wasn’t peer-reviewed. Some scientists disputed its accuracy.
  • The millions of people who struggled to keep warm in Texas, with blackouts crippling life inside a dominant energy hub, have laid bare the desperate state of U.S. electricity grids. To fix nationwide vulnerabilities, President Joe Biden will have to completely reimagine the American way of producing and transmitting electricity. Biden wants to overhaul the nation’s grids so they derive all electricity from carbon-free sources by 2035—a major step toward zeroing out net emissions of greenhouse gases by mid-century. Realizing that goal will require building billions of dollars worth of new transmission lines, a challenge that might prove just as difficult as getting his climate agenda through Congress. The existing network just isn’t sufficient to achieve the scale of wind and solar power that Biden needs, says Jesse Jenkins, an assistant professor at Princeton University. Getting to a fully green grid “would require a new nation-building mode like we haven’t seen since probably the post-war period, when we built the highways and did rural electrification.” He estimates that the U.S. needs to expand its transmission grid by as much as 60% for wind and solar to make up half of U.S. electricity capacity by 2030.
  • Chancellor Angela Merkel’s government is weighing as much as 50 billion euros ($61 billion) in additional debt spending to fight the fallout from the coronavirus crisis. Germany’s coronavirus cabinet on Monday discussed the financing for Covid-19 tests and other measures to support Europe’s largest economy. The funding — equivalent to about 1.5% of German gross domestic product — reflects an initial estimate, and it’s still unclear if the money will be needed in the end, according to people familiar with the discussions. The government will likely spend aggressively next year as well. Finance Minister Olaf Scholz plans to propose a draft 2022 budget, which will call for suspending the constitutional debt brake for a third straight year, the people said.
  • Goodyear Tire & Rubber Co. agreed to buy Cooper Tire & Rubber Co. for about $2.8 billion to strengthen its offering and expand its distribution channels. Cooper shareholders will receive $41.75 a share in cash and 0.907 shares of Akron, Ohio-based Goodyear, or about $54.36 a share in total, according to a statement Monday. That’s 24% above Cooper’s closing price as of Feb. 19. Cooper, founded in 1914, is the fifth largest tire manufacturer in North America by revenue, with about 10,000 employees worldwide. Goodyear shareholders will own about 84% of the combined tire company.
  • Bitcoin gave up all its gains from weekend trading as analysts questioned whether the cryptocurrency is overheated. Prices dropped as much as 8.2% during the European session, falling back to around $53,000. The world’s largest cryptocurrency has been on a tear this month, propelled by purchases from Tesla Inc. and institutional investors who say Bitcoin is an attractive alternative to gold and the dollar. In February alone, Bitcoin is up more than 60%, prompting commentary that the run-up is excessive. The digital token hit a new all-time high on Sunday and came close to surpassing $59,000. It’s widely believed that volatile weekend swings are driven by individuals trading the cryptocurrency at home. So it’s also possible that prices fell on Monday as institutional crypto traders, who follow normal business hours, responded to Elon Musk’s Saturday tweet that Bitcoin prices “seem high.”

“If you just set out to be liked, you will be prepared to compromise on anything at any time, and would achieve nothing. – Margaret Thatcher

*All sources from Bloomberg unless otherwise specified