February 8, 2021
Daily Market Commentary
- Drax Group Plc plans to acquire Canadian biomass generator and fuel supplier Pinnacle Renewable Energy Inc. to continue its transformation away from coal-fired power. The 436 million-pound ($597 million) deal will more than double Drax’s biomass production capacity and reduce its fuel costs, the U.K power producer said Monday in a statement. Pinnacle has as much as C$6.7 billion of long-term supply contracts in Asia and Europe out to 2026. The acquisition is also yet another step away from its old fossil-fuel past when its six coal units made up the biggest power plant in Britain. The facility in Yorkshire has already converted four of its six units to burn biomass. Drax will stop producing power at its two remaining coal burners by the end of March, with formal closure at the end of 2022.
- European stocks rose on Monday, buoyed by positive news that coronavirus infections are slowing globally, with cyclicals advancing and deal-making boosting the region’s tech sector. The Stoxx 600 Index was up 0.4% by 8:09 a.m. London time, led higher by basic resources, travel stocks and the technology sector. Dialog Semiconductor Plcwas a standout, with the chipmaker surging 17% after agreeing to a $6 billion takeover by Japan’s Renesas Electronics Corp. Elsewhere, Akzo Nobel NV was in focus after abandoning a bid for paint firm Tikkurila Oyj. European stocks have pulled ahead in February, following a dip at the end of last month, as worries over volatility related to retail investors have ebbed, while the rollout of coronavirus vaccines across Europe has gathered pace. However, some investors remain cautious, given many countries still have lockdown restrictions.
- Global stocks rose to a record and commodities rallied as Janet Yellen’s support for rapid U.S. stimulus and slowing infection rates paved the way for reflation bets. Treasuries slipped. S&P 500 Index futures received a boost from comments by Treasury Secretary Yellen on Sunday talk shows that the U.S. can return to full employment in 2022 if it enacts a robust enough relief package. The 30-year Treasury yield breached 2% for the first time in almost a year, while the pace of U.S. inflation implied by the bond market accelerated to the fastest since 2014. The dollar edged higher.
- Asian stocks climbed, extending gains after their best week since November. The MSCI Asia Pacific Index rose 0.7%, as Japanese shares led the rally. The Topix jumped 1.8% to its highest close since 1991, with SoftBank Group contributing most to the gains. The shares closed up 4.5% as the group reported a record profit in its Vision Fund. The Nikkei 225 index climbed more than 2% to top the 29,000 mark for the first time since 1990. Meanwhile, South Korea’s Kospi fell 0.9%, dragged down by Hyundai Motor companies after they said they weren’t holding any discussions with Apple on developing self-driving cars.
- Oil in London rose above $60 a barrel for the first time in more than a year as stockpiles tighten and the demand outlook improves amid the global rollout of Covid-19 vaccines. It’s another milestone in a stellar comeback from the biggest demand destruction in a generation after the pandemic forced countries to lock down, devastated economies and grounded planes. The revival is a boost for global energy companies and petro-states whose budgets were ravaged last year. Global stockpiles in onshore tanks and floating storage are estimated by the International Energy Agency to have shrunk by about 300 million barrels since OPEC and its allies made deep production cuts in May. Reduced supply and the vaccine-driven demand boost have entrenched Brent’s futures price curve in a bullish backwardation structure, which encourages the draining of more oil from tanks.
- Gold steadied as investors weighed rising inflation expectations against higher bond yields, with U.S. Treasury Secretary Janet Yellen talking up the prospects of a return to full employment in 2022. Yellen told Sunday talk shows that while the $1.9 trillion stimulus plan isn’t specifically aimed at job creation, it would bolster demand for workers and without such support, it could take until 2025 for the labor market to recover. Congress is set up to pass the bill before expanded jobless benefits expire March 14, House Speaker Nancy Pelosi said last week following key votes. Bullion rebounded from the lowest level in two months after disappointing payrolls data supported the case for more stimulus to combat the fallout from the pandemic. The pace of U.S. inflation over a 10-year horizon that’s implied by the bond market has surged to the highest level since 2014, possibly rekindling demand for gold as an inflation hedge. Still, Treasury yields have risen faster this year, diminishing the appeal of bullion, which pays no interest.
- China has pushed back a target to inoculate 50 million people against Covid-19 by almost two months amid concerns over supply and hesitancy among the population around vaccines. President Joe Biden also said it’s unlikely the U.S. will reach herd immunity before the end of the summer due to a shortfall in vaccine availability. Coronavirus infections continued to slow across the globe, with India reporting fewer than 100 fatalities for the third day in a row. Germany is likely to lengthen its lockdown by two weeks even as cases slow, while Indonesia is extending restrictions to focus on specific regions as it continues to battle the worst outbreak in Southeast Asia. France will probably face a tough March and April as variants spread.
- Bumble Inc., the dating app where women make the first move, is targeting to raise as much as $1.8 billion from its U.S. initial public offering after boosting the size of the deal. The company plans to sell 45 million shares for $37 to $39 apiece, it said in a filing Monday with the U.S. Securities and Exchange Commission. Bumble previously indicated it would look to sell 34.5 million shares at $28 to $30. Austin, Texas-based Bumble was founded in 2014 by Chief Executive Officer Whitney Wolfe Herd. It plans for its shares to begin trading on Feb. 11, the Thursday before Valentine’s Day, Bloomberg News has previously reported. The offering is being led by Goldman Sachs Group Inc., Citigroup Inc., Morgan Stanley and JPMorgan Chase & Co. Bumble plans to list its shares on the Nasdaq Global Select Market under the symbol BMBL.
- The U.S. Senate is a day away from starting former President Donald Trump’s second impeachment trial with many of the details still to be ironed out even as the outcome — an acquittal — is all but assured. “We have no agenda, we have no rules, we’ve been waiting, waiting, waiting,” said David Schoen, one of the lawyers representing Trump in the trial. “We’re planning as well as we can based on the briefs in the case, but we don’t know how it’s going to proceed at all.” Trump’s defense team, led by Schoen and Bruce L. Castor Jr. is due to file its trial brief on Monday. They previewed their case in an initial response to the Jan. 13 House impeachment that argued the trial is unconstitutional because Trump is no longer in office, and said his fiery Jan. 6 speech to a crowd of supporters near the White House didn’t incite the violence and is protected by the First Amendment.
- L Catterton, the private equity firm backed by luxury French fashion house LVMH, is starting to pull ahead in the bidding for iconic German sandal maker Birkenstock, people with knowledge of the matter said. Birkenstock’s owners are currently focusing on negotiations with L Catterton as they prefer the investment firm’s track record buying and expanding family-backed consumer brands, according to the people. They also see the potential to grow in Asia with L Catterton’s network in the region, the people said, asking not to be identified because the information is private. L Catterton is competing with buyout firm CVC Capital Partners, which had approached Birkenstock earlier, the people said. The German firm’s family owners are seeking a valuation for the company of about 4 billion euros ($4.8 billion) to 4.5 billion euros including debt, the people said. L Catterton is conducting due diligence as it works to finalize its bid, according to the people.
- The reflation trade driving a sell-off in Treasuries will have investors watching to see if this results in a spike in emerging-market yields. The pace of any such yield surge carries far more weight for developing-nation bonds than the levels reached. Bonds from Indonesia, Mexico and Malaysia are the most vulnerable to sudden surges, because they historically have fiscal and/or current-account deficits, or both, according to a Bloomberg study of 15 emerging markets. In contrast, sovereign securities from South Korea, the Czech Republic, Poland and Thailand — all of which have open capital accounts and a relatively high dependence on trade — were found to be the most sensitive to a gradual move higher in U.S. rates.
- Investors added money to exchange-traded funds that buy emerging market stocks and bonds last week. This was the 14th 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 $1.28 billion in the week ended Feb. 5, compared with gains of $1.18 billion in the previous week, according to data compiled by Bloomberg. So far this year, inflows have totalled $8.55 billion.
- Renesas Electronics Corp. of Japan has agreed to acquire Apple Inc. supplier Dialog Semiconductor Plc, the latest U.K.-based chipmaker being sold to Asian investors. Dialog accepted the all-cash offer of about 4.9 billion euros ($5.9 billion), at 67.50 euros per share, the companies said in statements Monday. Dialog shares rose as much as 18% in early trading in London on Monday. Renesas shares dropped as much as 6.9% in Tokyo. The offer price is a 20% premium to Dialog’s Friday close of 56.12 euros. Shares of the company — headquartered near London but listed in Frankfurt — have risen around 25% since the start of the year, boosted by strong demand for Apple’s 5G handsets as well as takeover speculation.
- Turkey’s state-owned oil and gas company is considering partnerships and plans to raise funding this year to carry out work on the biggest natural gas discovery in the Black Sea, according to people with knowledge of the matter. Turkish Petroleum Corp. has made preliminary contact with several international oil firms, including some of the majors, to jointly produce gas from the offshore field, said the people, who asked not to be identified because deliberations are confidential. The negotiations may not result in any ventures and the Ankara-based company may still go it alone, they said.
- Rolls-Royce Holdings Plc plans to shutter civil aerospace production for two weeks this summer, cutting pay for 19,000 staff or 40% of the workforce as the coronavirus crisis stunts demand for airliner engines. The measures will affect sites worldwide, though the main impact will be in the U.K., where Rolls is based and where 12,500 people will be affected, said a spokesman. The salary hit will be spread over the year to ease the burden. Air travel has tumbled to historically low levels as new forms of Covid-19 trigger fresh lockdowns. Long-distance flights have been hardest hit, crushing demand for the twin-aisle planes the company helps power. Airbus SE, which uses Rolls engines on all of its wide-body jets, has postponed a planned production increase, warning that aviation remains in the “eye of the storm.”
- China plans to allow some stranded Australian coal shipments to unload despite ongoing curbs on imports, a move aimed at showing goodwill to countries with seafarers stuck on the vessels, a person familiar with the situation said. The measure doesn’t mean China is loosening its ban on Australian coal imports and it’s uncertain if the deliveries will be cleared by customs, said the person, who asked not to be identified because the information is private. Some ships may be allowed to change crews when they unload, an action that’ll help seafarers from nations including India who’ve been stranded at sea for months, said the person. China’s customs administration didn’t immediately respond to a fax seeking comment and Foreign Ministry spokesman Wang Wenbin told a daily briefing on Monday that he wasn’t aware of the situation.
- The Reserve Bank of India will seek to buy more than 3 trillion rupees ($41 billion) of sovereign bonds in the next fiscal year to support the government’s borrowing plans, according to a person with knowledge of the matter. That will exceed the 3 trillion rupees the RBI is expected to spend for the current year ending March, the person said, asking not to be identified as the deliberations are private. The intention is to cap the benchmark bond yield under 6%, while narrowing its spread with the repo rate to around 150 basis points, the person said. This is the first time there’s a clear signal on how much the RBI would spend on bond purchases, as recent market selloffs test its patience. The schism between traders and the central bank had widened on Friday when Governor Shaktikanta Das’s assurances on providing liquidity fell short of expectations and led to the partial cancellation of a debt auction.
- For years, Renaissance Technologies was among the most exalted names in high finance, as close to a sure-thing as Wall Street had. But recent months have battered its reputation, and investors are now streaming to the exits. Renaissance has seen at least $5 billion in redemptions since Dec. 1 — a once-unthinkable rebuke from clients after unprecedented losses from the East Setauket, New York-based firm. The walkout comes after three funds open to the public fell by double digits last year, their computer models flummoxed by the rapid stock market crash and even faster rebound.
- GameStop Corp. rebounded from its worst week on recordas the video-game retailer’s roller-coaster ride continued to lose momentum. The stock was up 11% at 5:40 a.m. in New York premarket trading, after falling 80% last week, a drop that followed three weeks of dizzying gains. GameStop has stabilized since Robinhood Markets Inc.’s move late last week to end buying limits it imposed in the wake of the stock’s January surge. Inflated levels of short interest that triggered a squeeze on the shares have declined after a number of hedge funds closed positions and incurred huge losses.
- Bitcoin is back near $40,000 on the heels of a global market rally as investors grow increasingly confident in reflation and fresh U.S. stimulus. The world’s largest cryptocurrency was up 1.1% to $39,012 as of 9:57 a.m. in London after briefly surpassing $40,000 on Saturday. It’s now about 7% below an all-time high set in early January. After a brief dip this month, Bitcoin is climbing once again as enthusiasts tout the digital asset as a hedge against inflation and store of value in a world awash with stimulus and rampant central-bank money printing. Prominent economists including Lawrence Summers have recently raised concerns that President Joe Biden’s $1.9 trillion virus relief package may risk overheating the economy.
- Hyundai Motor Co. and its affiliate Kia Motors Corp. said that they aren’t in talks with Apple Inc. to develop an autonomous vehicle, responding to intense speculation about the potential new product by the maker of the iPhone. Apple paused discussions with Hyundai and Kia weeks ago about building an electric vehicle, people familiar with the matter told Bloomberg late last week. The Cupertino, California-based company has discussed similar plans with other auto manufacturers, the people added, asking not to be identified because the information isn’t public.
- Palantir Technologies Inc. and International Business Machines Corp. are uniting in a partnership that will dramatically expand the reach of Palantir’s sales force while making IBM’s own artificial-intelligence software easier for non-technical customers to use, the companies plan to announce Monday. The global partnership is the largest of its kind for Palantir, the maker of data-analysis software whose shares have more than quadrupled since its September debut on the New York Stock Exchange. Palantir gains access to a sales team of more than 2,500 people, up from its current 30. The relationship is the payday for the project Palantir started more than a year ago to break its data integration and analysis software into smaller, less pricey modules. The Denver-based company mainly mainly sells to companies with revenue in excess of $500 million — many of which already have relationships with IBM.
“It is our choices that show what we truly are, far more than our abilities.” – JK Rowling
*All sources from Bloomberg unless otherwise specified