January 11, 2022

Daily Market Commentary

Canadian Headlines

  • Rogers Communications Inc. said it’s appointing Tony Staffieri to lead the company through its takeover of Shaw Communications Inc., a move that may widen the rift between members of the Rogers family. Canada’s largest wireless and cable company named Staffieri as its president and chief executive officer in a statement Monday. He had been given the role on a temporary basis in November following a courtroom fight that left Edward Rogers, son of late founder Ted Rogers, in control of the board. It was Edward Rogers’s push to install Staffieri as a replacement for former CEO Joe Natale that kicked off a huge struggle for control within the company in September. The move came as the company tries to buy Calgary-based Shaw for $16 billion in a deal that is certain to receive heavy scrutiny from Canadian antitrust regulators because it reduces the number of competitors in the wireless industry.
  • The world’s second-biggest gold miner is confident prices will hold firm this year, if not rise, as investors use the metal rather than cryptocurrencies to hedge against inflation and jewelry demand picks up. “The risk is on the upside,” Barrick Gold Corp. Chief Executive Officer Mark Bristow said in an interview in Riyadh, Saudi Arabia. “I don’t think there’s very much risk on the downside.” The mostly likely scenario is that gold trades between $1,750 and slightly above $1,800 an ounce, he said. Spot bullion gained 0.4% to $1,809 by 8:45 a.m. in London, paring its loss this year to 1.1%.
  • Taiwan and Canada held “exploratory discussions” about ways to boost trade ties, in Taipei’s latest move to reduce its economic reliance on China. Mary Ng, Canada’s minister for international trade, met with Taiwanese minister without portfolio John Deng about a deal to promote investment, according to an emailed statement from the Canadian government. Ng “highlighted Taiwan is a key trade and investment partner as Canada broadens its trade links and deepens its economic partnerships in the Indo-Pacific region,” according to the statement dated Monday, which added that Taiwan is Canada’s sixth-largest trading partner in Asia.

World Headlines

  • European stocks advanced, recovering from their biggest decline in six weeks, as investors bought the dip in risk assets after higher bond yields fueled volatility. The Stoxx Europe 600 Index gained 1.1% as of 10:33 a.m. in London, with technology stocks leading the advance after the tech-heavy Nasdaq 100 rallied on Monday following four negative sessions. Travel & leisure and consumer products outperformed, while autos trailed. Stocks in the region have kicked off the year on a volatile note as investors worry about tightening monetary policy and possible economic damage from the omicron variant. Rising bond yields have fueled a shift out of frothier parts of the market, such as technology, and into cheaper so-called value shares, helping Europe outperform U.S. stocks.
  • Mega-cap U.S. technology stocks edged higher in premarket trading, hinting at a return of dip-buyers after last week’s selloff wiped $1.1 trillion from the value of the Nasdaq Composite Index. Nasdaq 100 futures gained 0.6% at 4:52 a.m. in New York, with Tesla Inc. rising 1.8% and Apple Inc. climbing 1%. Microsoft Corp. and Meta Platforms Inc. were among other names moving higher. The move extends Monday’s biggest rebound since March 23, 2020 when the Nasdaq wiped out a drop that reached 2.7% at its worst to finish higher by 0.1%. Optimism that a more hawkish Federal Reserve will seek to avoid hampering growth and signs that the omicron virus variant may be peaking is helping investor sentiment.
  • Asian stocks were poised to halt a two-day gain as investors sold high-growth technology shares amid uncertainty over U.S. monetary policy. The MSCI Asia Pacific Index fell 0.1% after dropping as much as 0.7% as information-technology firms slid, while gains in financial shares helped limit the gauge’s loss. China’s CSI 300 and Japan’s Nikkei 225 Stock Average were among the worst performers in the region. Asia’s benchmark is struggling to pull itself from last year’s 3.4% slump amid lingering concerns over U.S. tightening, China’s weak technology shares and the possibility of new restrictions to contain the pandemic.
  • Oil recovered as European equities bounced back, with crude continuing to follow the fortunes of wider markets in the first weeks of 2022. West Texas Intermediate added 1.7% as stock markets in Europe rallied and the dollar weakened. The industry-funded American Petroleum Institute will release its weekly U.S. oil inventories report later Tuesday, while the Energy Information Administration is set to publish its monthly market outlook. Oil has made a positive start to 2022 on expectations demand will continue to expand as the pandemic evolves, tightening the market. Supply halts in Libya and Kazakhstan have also aided prices, though crude has largely followed movements in wider markets at the start of the year.
  • Gold rose for a third day as investors assessed comments by the Federal Reserve Chair that the central bank will prevent inflation from getting entrenched amid rising expectations for an interest rate hike in March. Jerome Powell also cautioned that the post-pandemic economy might look different than the previous expansion and Fed policy may need to take the changes into account. His comments came in a brief opening statement prepared for delivery at his confirmation hearing before the Senate Banking Committee Tuesday. The U.S. consumer price index — set to be released Wednesday — is anticipated to rise less rapidly in December than the month before. The rate will still likely be high in comparison to previous years, adding pressure on the Fed to tighten policy.
  • Nickel rallied to the highest in more than seven years as surging sales of electric vehicles leave carmakers racing to lock in supplies of the critical battery metal. Prices of the metal jumped as much as 3.4% to $21,500 a ton, the highest since May 2014, as Tesla Inc. moved to secure future supplies from Talon Metals Corp. That added fresh impetus to a rally built on surging sales of electric vehicles, which has also pushed other battery metals including lithium and cobalt sharply higher. In other major investments in the battery sector, chemicals maker LG Chem also said Tuesday it will spend 500 billion won ($420 million) by 2025 to build a battery materials plant, while BHP Group on Monday said it will pay $100 million to take a stake in an early-stage nickel project in Tanzania.
  • The amount of government bonds hitting the private sector is set to swell in 2022, adding pressure on yields to rise further as investors across most major markets absorb much larger helpings of debt. While governments are set to pare borrowings as fiscal outlays ease, the $2 trillion drop in central banks’ net demand will provide a risky real-world test of how much private demand exists. With inflation driving most policy makers to err on the side of tighter settings — some central banks already plan to start trimming their balance sheets — investors will need to absorb an increase in effective supply of about $230 billion. “The inflation genie may well be out of the bottle, and in that case the extra bond supply threatens to become part of a vicious cycle that sends yields grinding higher because price pressures will force central banks to go on trimming QE,” said Stephen Miller, an investment consultant at GSFM, an arm of Canada’s CI Financial Corp.
  • Spanish Prime Minister Pedro Sanchez said Europe should consider the possibility of treating Covid-19 as an endemic illness instead of a pandemic, moving monitoring closer to the model used for flu. The arrival of the omicron variant has seen lower rates of hospitalizations and deaths than previous strains even as infections have soared, prompting authorities across the continent to rethink their policies.  China imposed its second city lockdown in as many months after detecting the presence of omicron, underscoring the commitment to eliminating Covid. The shutdown was imposed on Anyang, a city of five million people in the central province of Henan.
  • President Joe Biden will work to rally public support Tuesday for passage of voting rights legislation that Senate Republicans vow to block, even as some allies complain he hasn’t done enough to advance the measure. Biden will make the case for a bill to prevent states from curbing access to balloting during a trip to Atlanta, which includes a visit to Ebenezer Baptist Church and remarks alongside Vice President Kamala Harris at Morehouse College. The president will evoke the legacies of civil rights leaders Martin Luther King Jr. and John Lewis and cast the vote as “the most bedrock of American rights,” according to the White House. “Will we choose democracy over autocracy, light over shadow, justice over injustice?” Biden will say, according to an excerpt of his prepared remarks released by the White House. “I know where I stand. I will not yield. I will not flinch. I will defend your right to vote and our democracy against all enemies foreign and domestic. And so the question is, where will the institution of United States Senate stand?”
  • The London Metal Exchange said electronic trading was back to normal after the world’s biggest base-metals exchange suffered a more-than-five-hour interruption caused by a power failure at a third-party data center. The market had been due to open at 1 a.m. London time and eventually resumed at 6:15 a.m., after the exchange migrated its systems to a backup data center. Traders were still able to trade via phone during the outage, according to a person familiar with the matter — the LME has a large phone-based market that’s popular with banks, brokerages and institutional clients needing to place large and complex trades. While electronic trading only accounts for about a third of overall volumes on the LME, traders rely on that part of the market for live price quotes. The electronic platform is also used to set daily closing prices, although the interruption late Monday started about an hour after the pricing windows had closed.
  • KKR & Co. has reached out to Saudi Arabia’s sovereign wealth fund as it seeks co-investors to join its proposed acquisition of Telecom Italia SpA, people with knowledge of the matter said.  KKR approached the Public Investment Fund, which is chaired by Saudi Crown Prince Mohammed bin Salman, to gauge its interest in providing capital for the bid, according to the people. It has also held talks with other sovereign wealth funds and infrastructure investors about teaming up, the people said, asking not to be identified because the information is private. The PIF would take a passive role in any deal, the people said. Discussions are ongoing, and the Saudi fund hasn’t decided yet whether to join the KKR consortium, the people said.
  • Jamie Dimon issued a warning to the vaccine holdouts among JPMorgan Chase & Co.’s staff in New York. “To go to the office you have to be vaxxed and if you aren’t going to get vaxxed you won’t be able to work in that office,” Dimon said Monday in an interview on CNBC. “And we’re not going to pay you not to work in the office.” The warning comes after the lender implemented a vaccine mandate at nine Manhattan office buildings last month. Dimon said that 97% of the firm’s employees in New York are already vaccinated. Rival Citigroup Inc. is threatening unvaccinated employees with terminationas soon as this month.
  • Things are about to get worse — but after that, they should steadily get better. That’s roughly how economists envisage the path of U.S. inflation in the year ahead. Data on Wednesday may show that consumer prices climbed 7.1% in December from a year earlier — the fastest annual pace in four decades, according to the Bloomberg survey median forecast. That may prove to be the high-water mark, or close to it, as the forces that have driven inflation up during the pandemic are expected to weaken. Supply networks are seen becoming somewhat more orderly by later in the year. There’s unlikely to be a repeat of the lockdown-era splurge on big-ticket goods, which sent those prices soaring. Some key commodities including oil are already off pandemic highs, the Federal Reserve is hitting the monetary-policy brakes, and statistical quirks will tip the scales toward lower inflation prints.
  • Top U.S. and Russian diplomats agreed to keep talking even as they acknowledged a first round of security discussions did little to resolve their differences over Russia’s troop buildup near Ukraine or Moscow’s concern about the possibility that NATO may expand its presence further east. Deputy Foreign Minister Sergei Ryabkov repeated Russia’s insistence it has no plans to invade Ukraine, even as it masses more than 100,000 troops on the border. He described the talks as “businesslike and professional,” while U.S. Deputy Secretary of State Wendy Sherman called them “frank and forthright.” The Russian delegation engaged substantively in the talks and there were no shouting matches, according to a diplomat briefed on the meeting. While a low bar, it could have been a lot worse, they said.
  • Turkish grocery delivery app Getir is looking to raise capital at a valuation of $12 billion in a funding round started by its existing investors, according to a person with knowledge of the matter. Getir, valued at $7.7 billion last year, is aiming to raise over $1 billion to finance expansion overseas, said the person, who asked not to be named because the deliberations are confidential. It’s previously won the backing of firms including Silver Lake, Tiger Global, Sequoia Capital and Mubadala Investment Co. The Istanbul-based company, which raised $1.1 billion in total through several rounds from investors last year, has grown to become one of the most valuable rapid delivery startups. U.S. rival GoPuff is valued at $15 billion.
  • Airbus SE Chief Executive Officer Guillaume Faury raised a note of caution on the planemaker’s outlook for this year, citing the spread of omicron in China, its biggest market for aircraft deliveries. The European jet manufacturer is closely watching the situation in China, the destination for every fourth aircraft in 2021, Faury said. With the Winter Olympics in Beijing just a month away, the country has imposed increasingly strict local lockdown measures, mirroring its response to containing earlier coronavirus waves. Intensifying clampdowns to contrain omicron could potentially impede Airbus’s ability to supply its customers in China, as well as to blunt demand for more planes. An outbreak has caused authorities to clamp down on movement in the port city of Tianjin, where the planemaker has a final assembly facility for its A320 family of single-aisle jets. Production hasn’t yet been impacted, Faury said.
  • Boris Johnson is facing opposition calls for his resignation over an alleged drinks party in his Downing Street office while pandemic curbs were in place, renewing a sense of crisis around the U.K. premier. The prime minister’s hopes of a reset after a torrid end to 2021 were ruined after it emerged officials in his team were invited to a drinks party in his office garden in May 2020, when such gatherings were banned during the first wave of Covid-19 infections, according to an email seen by ITV News. The Metropolitan Police is aware of allegations of rule-breaking on that date and is liaising with the government, according to a police spokesperson.
  • Germany is stepping up efforts to reduce emissions that contribute to global warming in an attempt to get Europe’s biggest economy back on track to achieve climate neutrality by 2045. Germany has a “drastic deficit” when it comes to climate protection and will likely miss its goals both this year and next, the country’s new Economy Minister Robert Habeck, who is a co-leader of the Greens, said Tuesday in Berlin. Habeck was presenting his first broad assessment of Germany’s program to tackle climate change since the Greens joined the new ruling coalition with Chancellor Olaf Scholz’s center-left Social Democrats and the pro-business Free Democrats at the end of last year.
  • More than half of Europe’s population may be infected with omicron within weeks at current transmission rates, a World Health Organization official said. The fast-spreading variant represents a “west-to-east tidal wave sweeping across the region,” said Hans Kluge, the regional director of the WHO for Europe at a briefing Tuesday. He cited forecasts by the Institute for Health Metrics and Evaluation that the majority of Europeans could catch it in the next six to eight weeks. The latest Covid surge has so far resulted in fewer symptomatic cases and lower death rates than in previous waves, fueling optimism the pandemic may be easing. However, the WHO has repeatedly warned against underestimating the omicron strain as mild. Kluge said hospitalization rates are increasing in Europe, which is putting pressure on health systems.
  • International Business Machine Corp. has acquired Envizi Pty Ltd, an Australian analytics provider that automates the collection of emissions data, expanding its investments in artificial intelligence to help companies make their operations more sustainable and socially conscious. Envizi allows businesses with environmental, social and governance goals to monitor their progress on sustainability reporting requirements. It will integrate with IBM’s physical asset management and supply chain software. The company has more than 180 clients, including Microsoft Corp., Uber Technologies Inc. and IBM itself. Financial terms of the deal weren’t disclosed in an announcement on Tuesday. Business leaders are pushing for further adoption of ESG themes as regulators, lenders and asset managers are scrutinizing companies with heavy carbon footprints. ESG incentives vary from extra interest in a corporate checking account to lower interest rates for borrowers if certain targets are met, but critics say that companies aren’t going far enough to reduce emissions and that penalties aren’t harsh enough for missed goals.
  • Aptiv Plc agreed to buy software provider Wind River for $4.3 billion to gain an edge in the fast-growing intelligent vehicle applications space. Aptiv, a vehicle-component manufacturer, will acquire the company through a mix of cash and debt, it said Tuesday. Wind River, owned by private equity group TPG Capital, generated about $400 million in revenues last year. The transaction is expected to close by mid-year with Goldman Sachs & Co. LLC serving as an adviser to Aptiv and Morgan Stanley & Co. LLC as adviser to Wind River.
  • Credit Suisse Group AG is poised to promote investment bankers within its senior ranks as the Swiss lender seeks to stabilize a business that saw dozens of departures last year after scandals engulfed the firm. David Wah and Jens Welter are set to be appointed co-heads of banking, which includes M&A, industry and country coverage, while Harold Bogle is poised to be named chairman of investment banking and capital markets, according to people familiar with the matter. Jens Haas and Giuseppe Monarchi are set to be named co-heads of EMEA coverage, the people said, requesting anonymity discussing moves that aren’t yet public. The Zurich-based bank is seeking to stem turmoil after blow-ups in its stock trading businesses cost billions in losses and an asset management scandal called into question the bank’s ability to manage risk. The Archegos Capital Management and Greensill Capital scandals prompted an exodus of talent even before plans the lender presented plans to restructure its business that were met with muted reactions from investors.
  • CVS Health Corp. raised its forecast for full-year 2021 adjusted earnings per share ahead of a presentation at the JPMorgan Healthcare Conference. The pharmacy-benefit manager and drugstore chain said earnings for the year will be in a range of $8.33 to $8.38 a share, according to a filing. The company had earlier forecast at least $8.00 a share. Financial closing procedures for the full year 2021 are not yet complete, the company said in the filing. Analysts surveyed by Bloomberg had estimated 2021 earnings of $8.04 a share, on average. The average estimate for the fourth quarter’s adjusted earnings is $1.61 a share, with revenue estimated at $74.8 billion.
  • Huawei Technologies Co. is continuing to move up the list of companies getting the most U.S. patents, according to a new study of patenting activity that shows Chinese firms are increasingly responsible for a greater share of the world’s innovation. Huawei received 2,770 U.S. patents last year, putting it at No. 5 behind perennial top patent-getter International Business Machines Corp. according to the study by Fairview Research’s IFI Claims Patent Services. Huawei’s success in obtaining patents comes even as its networking equipment is shut out of the American market and it’s been cut off from procuring components needed for its phones by the Biden administration. The U.S. government has accused the Shenzhen-based company of being a security threat, charges that Huawei denies.
  • Chicago Public Schools are poised to reopen for students on Wednesday after the teachers’ union leadership voted to approve a deal with city officials to restart in-person classes in the nation’s third-largest school district.  Schools have been closed since Jan. 5 after Chicago teachers voted to shift back to remote learning, demanding that the district put in place more stringent protections amid a Covid-19 surge driven by the omicron variant. On Monday, the House of Delegates voted to suspend the union’s remote action, and the members must now ratify the agreement. The district said classes are canceled Tuesday but that the district’s 330,000 students can return on Wednesday

“I don’t know where I’m going from here, but I promise it won’t be boring.” – David Bowie

*All sources from Bloomberg unless otherwise specified