February 10, 2021

Daily Market Commentary

Canadian Headlines

• Canadian stocks gained for a seventh straight session Tuesday, with Canopy Growth Corp.’s earnings sparking a rally in marijuana companies. The S&P/TSX Composite Index rose 0.4%, with health-care and information technology leading the way. Horizons Marijuana Life Sciences Index ETF jumped 13%, most since February 2018. Shopify Inc. rose 6.1%, leading tech stocks higher after expanding Shop Pay to merchants selling on Facebook and Instagram. Democratic Senator Joe Manchin asked President Biden to reconsider his decision to cancel the Keystone XL oil pipeline and warned against other energy policy moves that could hinder “safety, jobs and energy security.”

World Headlines

• European stocks climbed, boosted by positive earnings reports, even as gains were tempered by a slide in energy shares. The Stoxx Europe 600 Index added 0.2% as of 9:26 a.m. in London. Miners led gains as base metal prices rose, while Thyssenkrupp AG’s earnings buoyed steelmakers. French lenders outperformed, with Societe Generale SA up 2% after its results beat expectations, while Natixis SA jumped 7.3% after BPCE SA was said to be considering making a formal offer for the stake it doesn’t already own in the firm. European shares are rising in February, nearing a record high, as fading worries about retail-trading speculation gives way to optimism about an economic recovery and prospects of more U.S. stimulus.
• Global stocks pushed forward on an eight-day winning streak on the heels of positive corporate news, improving virus trends and U.S. stimulus plans. Outside of equities, the moves were more muted. Oil prices ticked higher, with Brent futures climbing above $61 a barrel. The dollar was steady ahead of a report on U.S. consumer prices due later on Wednesday. While the reading is expected to be tepid, inflation has quickly become the biggest issue in markets on speculation the Federal Reserve will let the economy run hot out of the pandemic.
• Asian stocks rose for a fourth day, with the benchmark gauge extending gains after reaching yet another record high on Tuesday. Volumes dwindled ahead of the Lunar New Year holidays. The Hang Seng Index rallied 1.9%, with Tencent Holdings among the biggest boosts, after the company won Chinese regulators’ approval to roll out a blockbuster game. Equity benchmarks in China also jumped. Consumer discretionary and communication services were the best-performing sectors on the MSCI Asia Pacific Index, which climbed 0.7%. In Japan, automakers jumped on signs of an improving outlook. Honda Motor rallied 5.1% after boosting its operating profit target for the current fiscal year on Tuesday, while Nissan rose 3.7% after the company trimmed its loss forecast for the fiscal year. Toyota Motor gained 1.7% after raising its profit outlook by more than 50%.
• Oil rose again to extend the longest run of gains in two years with a industry report showing falling U.S. crude stockpiles the latest sign of tightening globally supplies. While prices continue to surge, some of the biggest moves in the past day have come at the front of the futures curve. Brent’s nearest timespread has surged — a key sign of market tightness — while key swaps tied to the physical North Sea market have also increased amid frenzied trading of derivatives late Tuesday. Crude’s rise on Wednesday was supported by the American Petroleum Institute reporting inventories fell by 3.5 million barrels last week, according to people familiar with the numbers. If confirmed by official data, it would be an eighth decline in nine weeks.
• Hong Kong will allow restaurant dining-in services until 10 p.m. and relax other social-distancing rules after the Chinese New Year as the city tries to move past a winter coronavirus wave that’s throttled the economy. German Chancellor Angela Merkel also wants a gradual reopening starting next month. U.S. President Joe Biden’s push to reopen schools is running into his pledge to support teachers, who are demanding more testing, vaccinations and other safety measures before returning to classrooms. Passengers traveling to the U.K. will face tougher quarantine measures, including enforced stays in hotels, repeated tests and the threat of fines as authorities seek to get a grip on the pandemic. The country’s transport secretary said it’s “too soon” for people to start booking summer holidays.
• Piraeus Bank SA, Greece’s third-largest lender, is preparing for a capital increase next month that will reduce the state’s stake and represent a step toward normalization for the rescued lender. The head of Greece’s bank recapitalization fund, which currently holds a 61.3% stake, said in an interview in Athens Tuesday that Piraeus would issue a prospectus this month and tap the market within the first quarter. Separately, people familiar with the matter said the lender will seek to raise as much as 1 billion euros ($1.2 billion). They asked not to be named as the details aren’t final yet.
• SF Holding Co., one of the largest Chinese package-delivery services, is seeking to acquire control of tycoon Robert Kuok’s Kerry Logistics Network Ltd. in a HK$17.6 billion ($2.3 billion) deal. The Chinese courier plans to buy a 51.8% stake in Hong Kong-listed Kerry Logistics at HK$18.8 per share, according to a joint statement to the Hong Kong stock exchange on Wednesday. Bloomberg News reported last week that SF Holding was exploring a potential investment in the company. Kerry Logistics also plans to sell some warehouse assets for HK$13.5 billion and its Taiwan business for NT$4.5 billion ($161 million) to its parent company, the statement said. Kerry Logistics proposes a special dividend of HK$7.28 per share conditional on the completion of the warehouses sale. Shareholders who accept the SF’s offer will receive HK$26.08 including the special dividend, representing an 11% premium to the last closing price.
• House Democrats used searing video footage from last month’s deadly rampage at the U.S. Capitol to begin Donald Trump’s second impeachment trial on a dramatic note, yet the prosecution remains far from winning enough GOP votes to convict the former president. The proceedings enter a second full day Wednesday, when Democratic impeachment managers will present their opening arguments for convicting Trump for his role in encouraging a mob of loyalists to disrupt the election tally by both chambers of Congress. A conviction would require 17 Republican GOP votes — a tall order for the nine prosecutors. The prosecution team previewed their strategy Tuesday as the Senate considered constitutional questions about the trial with a 13-minute video montage juxtaposing Trump’s fiery speech to the crowd before the attack with scenes of his supporters overwhelming barriers, smashing windows, fighting police, even trapping one officer in a door while he cried out in pain.
• Macquarie Group Ltd.’s green investment arm raised 1.6 billion euros ($1.94 billion) for a renewable energy fund. The company’s Green Investment Group Renewable Energy Fund 2 closed after exceeding its target of 1 billion euros and received commitments from 32 pension funds and insurers from largely the U.K. and Germany, as well as from some sovereign wealth funds, according to a statement. Renewables and the green transition has been identified as one of the biggest areas for global economic growth. Everyone from niche technology companies to energy majors are stepping into the field, as countries around the world pledge to reach net-zero.
• ABN Amro Bank NV scrapped its dividend for 2020 and posted its first annual loss in a decade as the pandemic weighed on lending income and the lender restructured its investment bank. An unexpected profit of about 54 million euros ($65 million) in the fourth quarter wasn’t enough to save the Dutch lender from its first negative result since 2010. The bank last year was hit by losses at its clearing business and the meltdown of Singapore oil trading giant Hin Leong Trading Ltd., where it is one of the failed company’s biggest creditors. ABN Chief Executive Officer Robert Swaak, who took over in April, is retreating from large parts of the investment banking business as he focuses on cost cutting and digitization. Even before the pandemic threw markets and economies into turmoil, the bank was facing higher costs to bolster client vetting amid an ongoing money-laundering probe in the Netherlands.
• Germany would demand stakes in airports in exchange for bailout funds, a government official said, underscoring the state’s growing intervention in a sector upended by the coronavirus pandemic. The country’s hubs are set to lose a combined 3 billion euros ($3.6 billion) across 2020 and 2021, according to the ADV airport association, whose head Ralph Beisel says terminals are “on the verge of collapse” and wants the government to provide non-repayable grants. Germany’s finance ministry would rebuff those calls and instead seek taxpayer holdings in airports or their owners, said the official, who asked not to be named discussing a private matter. The ministry declined to comment.
• A.P. Moller-Maersk A/S, the world’s largest container carrier, unveiled an outlook that disappointed the market amid signs freight rates are close to peaking. Shares in the Copenhagen-based company slumped about 8% when trading started in the Danish capital. Underlying Ebitda for 2021 is expected to rise to between $8.5 billion and $10.5 billion, the Copenhagen-based company said on Wednesday. That compares with an average estimate of $10.46 billion in a Bloomberg survey of analysts. Ebitda came in at $8.3 billion last year, shy of the $8.6 billion expected by analysts.
• The corporate world’s zeal for selling long-dated debt is hitting bondholders as long-feared interest rate risks finally break out. Bonds with at least 10 years left to maturity have produced losses of around 3.2%, the worst start to a year since 2018 and more than twice the broader credit market’s decline, according to Bloomberg Barclays indexes. In the euro market, long bonds have fallen 0.8% in total-return terms against a broadly stable market. As issuers rush to borrow for longer and the reflation trade guides yields higher, those losses may mount. Medical devices producer Becton Dickinson and Co. sold a 15-year euro-denominated note Tuesday, on the heels of long-maturity sales from the likes of Apple Inc. and Bayer AG since the start of the year.
• In the race to get people immunized in the U.S., pharmacists made a key discovery — that vials of Pfizer Inc.’s Covid-19 vaccine contain an extra dose. Extracting that extra bit of vaccine, however, hinges upon the availability of a specialized syringe that is in short supply. When a medication or vaccine is injected, some amount of it can linger in the syringe in what’s known as the “dead space” between the plunger and needle. Low-dead space syringes are designed to minimize that, and with it, waste. That makes them a crucial tool in extracting six doses, instead of the five that were expected, from each Pfizer vial. The pressing need for low-dead space syringes is relatively new. The specialized syringes are considered a niche product, used when dealing with drugs like fertility treatments, where medication waste can be especially costly.
• UBS Group AG’s private credit unit is seeing plenty of room for growth in the nearly $890 billion asset class, especially in pockets of the market that lack lenders. The O’Connor Capital Solutions unit expects to increase its number of team members to 12 by the end of this quarter, double the size from a year ago, according to co-head Rodrigo Trelles. That comes on the heels of the group investing close to $800 million in 2020, essentially twice the amount from typical years, he said. “This is going to be a great vintage for private credit and from a market point of view, this is the best opportunity set that we have seen since the global financial crisis,” Trelles said in an interview. The team, which oversees more than $2 billion, sees a “clear differentiation between the haves and have nots,” where mid-sized businesses that have complex financing needs struggle to secure debt as banks have retreated, he said. The group is seeing appealing private credit deals in the specialty finance space, including fintech, and deals that are heavily collateralized, like real estate transactions, Trelles said.
• One dose of the Pfizer-BioNTech vaccine offers two-thirds protection against coronavirus, data seen by the U.K. government suggests. Early findings from the U.K.’s vaccination program, due to be released within days, show that the first dose reduced the symptomatic infection risk among patients by 65% in younger adults and 64% in over-80s, a person familiar with the matter said. The data, first reported by The Sun newspaper, showed that two doses of the Pfizer vaccine saw protection rise to between 79% and 84%, depending on age. The AstraZeneca vaccine offers similar protection, the newspaper said.
• Microsoft Corp. Chief Executive Officer Satya Nadella said social-media services like Facebook, Twitter and YouTube need clearer laws and rules to govern whether controversial accounts, like former U.S. President Donald Trump’s, have a place on their services, rather than being asked to make free-speech decisions themselves. “Unilateral action by individual companies in democracies like ours is just not long-term stable—we do need to be able to have a framework of laws and norms,” Nadella said in a wide-ranging interview with Bloomberg Television’s Emily Chang. “Depending on any one individual CEO in any one of these companies to make calls that are going to really help us maintain something as sacred and as important as our democracy in the long run is just no way that at least I, as a citizen, would advocate for.”
• The first House committee has advanced its portion of the $1.9 trillion stimulus bill, with the Education and Labor Committee overnight giving its stamp of approval to a minimum wage increase coupled with funds for school reopenings and new Covid-related labor standards. Five more panels plan to act Wednesday on their parts of the stimulus bill, with another six joining in the coming days — a schedule that likely sets up a House floor vote the week of Feb. 22. Late Tuesday, the Energy and Commerce Committee released its draft bill with big changes for drug makers that do business with Medicaid.

“It is usually the reply that causes the fight.” – Japanese Proverb

*All sources from Bloomberg unless otherwise specified