January 15th, 2021
Daily Market Commentary
Canadian Headlines
- Canadian Headlines
- Canadian equities managed to post a gain Thursday after a drop the previous day. The S&P/TSX Composite Index advanced 0.1%, led by health care stocks, while industrials dropped. Cannabis producers including Aphria Inc., Hexo Corp., and Aurora Cannabis Inc. all rallied. On the M&A front, Couche-Tard co-founder Alain Bouchard gave an update to investors four months ago about a hunt for a major acquisition. The convenience store chain was on the lookout for deals, he said, but not at any cost. He may not want a splash, but Bouchard’s company is making one with its $20 billion move for French grocer Carrefour SA. Canada’s three largest cities — Toronto, Montreal and Vancouver — saw a sharp jump in the number of citizens moving to suburbs, smaller towns and rural areas, according to Statistics Canada data released Thursday.
- Alimentation Couche-Tard Inc.’s top executives are in Paris seeking to salvage a $20 billion bid for Carrefour SA with investment plans and employment commitments as the French government escalates its objections. The Canadian convenience-store operator plans to pump 3 billion euros ($3.6 billion) into the French supermarket operator over five years, according to a person familiar with the situation. Other pledges include preserving jobs for two years, keeping Carrefour’s headquarters in France and maintaining stock listings in France as well as Canada, said the person, who asked not to be identified because the information isn’t public. Carrefour shares gave up some of this week’s gains after French Finance Minister Bruno Le Maire said Friday that he was prepared to give a “clear and definitive no” to a deal. The stock fell as much as 5.7% in Paris.
- Canada’s health-care system, long a source of national pride for being more equitable than the U.S., has struggled so hard to deliver Covid vaccines that some of its citizens are heading to Florida to get their jab. At Century Village East, a retirement community in Deerfield Beach packed with Canadian residents, medics vaccinated 4,000 people over eight days this month. Therese Gagnon, a retired school teacher from Quebec, and her husband got theirs Thursday morning in Fort Lauderdale. Like other Canadians, she took advantage of Florida Governor Ron DeSantis’s policy of vaccinating anyone 65 or older — regardless of their nationality or where they live.
World Headlines
- European equities eased on Friday, cooling after a three-day winning streak propelled stocks to their highest level since February 2020. The Stoxx 600 Index fell 0.5% at 10:49 a.m. in London, with energy stocks leading losses as a stronger dollar weighed on the oil price. Cyclicals like miners and construction firms also declined as investors mulled President-elect Joe Biden’s coronavirus relief package. Italy’s FTSE MIB Index rose 0.3% as Prime Minister Giuseppe Conte raced to forge a new majority to stay in power. European stocks have risen in January as cyclical sectors like mining, energy and construction have been boosted by hopes of more stimulus to support an economic recovery. The region’s equities attracted $2.2 billion of inflows in the week through Jan. 13, the most since June, Bank of America strategists said in a note. However, the pandemic and its impact on businesses remains the main focus in the short term.
- U.S. stock futures fell, erasing early gains, as investors assessed the details of President-elect Joe Biden’s $1.9 trillion spending-bill proposal that includes $350 billion in aid to states. Contracts on the S&P 500 Index were down 0.4% as of 11:36 a.m. in London, after rising as much as 0.2% earlier. The underlying index lost 0.4% in the cash session, with investors growing concerned about the path for Federal Reserve policy now that signs of faster inflation are emerging. The Fed’s largesse and prior federal spending packages worth almost $3 trillion have powered a 70% gain in U.S. stocks from the pandemic lows in March. Biden’s plan — long telegraphed since his election in November — is more than double the package approved in late December, and proposes sending $1,400 to qualified individuals. It also calls for increasing the federal minimum wage to $15 an hour.
- Japanese stocks declined as investors weighed the recent rally’s sustainability and the latest U.S. economic data. Automakers were the biggest drag on the Topix amid continued output disruptions due to semiconductor supply trouble and Covid-19. Fast Retailing Co. declined, dragging down the Nikkei 225 Stock Average despite earnings that beat market expectations, following a 40%-plus surge in its shares over the past year to a record high. Chip equipment suppliers including Tokyo Electron Ltd. and Advantest Corp. bucked declines, climbing after Taiwan Semiconductor Manufacturing Co. unveiled a plan for as much as $28 billion in capital spending this year, up from $17.2 billion in 2020. Canon Inc. also jumped, after it reported preliminary full-year earnings that topped analysts’ estimates.
- Oil declined from a 10-month high as the dollar strengthened, taking the steam out of a recent rally, while investors assessed what impact a potential U.S. stimulus package will have on driving fuel demand higher. Futures in New York slid 1.6% to trade near $53 a barrel as a stronger dollar reduced the appeal of raw materials like oil that are priced in the currency. President-elect Joe Biden will ask Congress for $1.9 trillion to fund immediate relief for the economy that has been pummeled by the Covid-19 pandemic.
- Gold climbed as yields pared some of the gains made after President-elect Joe Biden unveiled his stimulus package, while U.S. Federal Reserve Chair Jerome Powell pointed to sustained monetary support. Biden will ask Congress for $1.9 trillion to fund immediate relief for the pandemic-wracked U.S. economy, a package that risks swift Republican opposition over big-ticket spending on Democratic priorities, including aid to state and local governments. The proposal unveiled Thursday will be followed by a second, broader economic recovery plan next month. Treasury yields gained on the news, but have since pared, while inflation expectations held their gains.
- The world’s about to hit a frightening Covid-19 benchmark, with 2 million people dead and few expectations for infections to start dropping any time soon. The U.S. is leading all countries in deaths, with Brazil, India, Mexico and the U.K. next in line. In Germany, Chancellor Angela Merkel wants to tighten the lockdown as the country reported a record number of daily Covid deaths. A British WHO team member, initially denied entry into China, is now allowed in after a negative test to join a mission into the origins of the virus. President-elect Joe Biden has called U.S. vaccine efforts a “dismal failure” and vowed to accelerate them. China’s northeastern Covid clusters are growing as an outbreak expands to at least eight other provinces.
- Xiaomi Corp. plunged a record 10% after the Trump administration blacklisted China’s No. 2 smartphone maker and 10 other companies, broadening efforts to undercut the expansion of the country’s technology sector. The U.S. has targeted scores of Chinese companies for the stated purpose of protecting national security, but going after Xiaomi was unexpected. The Beijing-based company has been viewed as China’s answer to Apple Inc., producing sleek smartphones that draw loyal fans with each new release. The company, which vies with Huawei Technologies Co. for the title of China’s No. 1 mobile device brand, also makes electric scooters, earphones and smart rice cookers.
- After four quarters under the shadow of the pandemic, the biggest U.S. bank is hardly missing a beat. JPMorgan Chase & Co. posted record profit in the fourth quarter after a surge in trading and investment-banking fees helped its Wall Street unit close out its most profitable year ever. The bank also released loan-loss reserves for the second quarter in a row, a sign that defaults won’t take as big a toll as previously expected. “While positive vaccine and stimulus developments contributed to these reserve releases this quarter, our credit reserves of over $30 billion continue to reflect significant near-term economic uncertainty and will allow us to withstand an economic environment far worse than the current base forecasts by most economists,” Chief Executive Officer Jamie Dimon said in a statement Friday.
- The timing for both President Donald Trump’s impeachment trial and legislation to provide Americans with more Covid relief now largely depends on maneuvering by three of the most veteran legislative tacticians in Congress. The first indication of how it will unfold may come Friday when House Speaker Nancy Pelosi holds her weekly news conference. Pelosi signed the single article of impeachment shortly after it was passed by the House on Wednesday. But she’s given no public clue since then about when it will be formally transmitted to the Senate, a step that triggers the trial. Senate Majority Leader Mitch McConnelland his Democratic counterpart, Chuck Schumer, have been publicly silent about how the Senate, which will be in nominal Democratic control after Inauguration Day, will handle the unprecedented case of trying a president after he leaves office while juggling legislative business.
- Utility dealmaking is poised to pick up in 2021 as companies shake off a dour year that saw the least activity in more than a decade. While energy powerhouses including NextEra Energy Inc. are on the hunt for their next big acquisition, others may look to shed their natural gas arms or other assets to simplify their businesses and meet climate goals. “We believe 2021 will be a volatile and intense year, with incredible pace,” said George Bilicic, vice chairman of investment banking and the global head of Power, Energy & Infrastructure at Lazard Ltd. “It is completely possible to see a couple or more very large transactions, whether of a merger-of-equals type or otherwise.”
- The new rules for the bankers who made London financial capital of Europe are still uncertain after Brexit, but one outcome is already clear: a stream of dealmakers across the English Channel. While thousands of traders and salespeople have already made the move, the next wave is likely to include the high-flyers who advise on strategy, mergers and capital raising, say more than a dozen officials at global institutions. Goldman Sachs Group Inc., for one, is moving senior investment bankers out of London to the continent. The prospect of losing a highly paid cadre of taxpayers is particularly bad news for the U.K., since it relies so much on financial services for revenue. The industry employs more than one million people, makes up about 7% of the economy, and accounts for more than a 10th of all tax revenue.
- Royal Dutch Shell Plc’s Nigeria unit has declared force majeure on exports of the country’s flagship Forcados crude oil, after the grade’s pipeline was halted in the wake of leaks. The measure — a clause in contracts that allows deliveries to be suspended — took effect at 10 a.m. local time Thursday, a Shell spokesman said. Pipeline operator Heritage Oil began to shut the line a few days ago for repairs, according to the company.
- The full effect of the pandemic crisis on euro-area banks has yet to be felt as policy support so far has masked losses, several European Central Bank officials warned. “The crisis is not over, and its economic impacts have still to fully emerge,” Irish governor Gabriel Makhlouf said on a panel Friday. “Euro-area banks are likely to face significant losses and further pressure on their already weak profitability prospects” and must be “extremely prudent” on issuing dividends and ensure their capital is able to absorb those losses, he added. Makhlouf spoke alongside several of his Governing Council colleagues, including Lithuania’s Vitas Vasiliauskas, who warned of similar risks. The comments reflect greater unease over the outlook than expressed by ECB President Christine Lagarde this week, who said the year was starting on a more positive basis “than some would like to look at.”
- North Korea held its second major military parade in three months to mark a rare party meeting, showing off nuclear advances including a new submarine-launched ballistic missile as Donald Trump leaves office. Kim Jong Un’s regime held the parade in Kim Il Sung Square in central Pyongyang on Thursday evening to mark the end of its first Party Congress in five years, the state’s Korean Central News Agency said. The delegates approved plans to bolster a sanctions-hit economy that last year likely headed to its biggest contraction in two decades. The parade, broadcast on state television Friday afternoon, appeared to be smaller than an October military march, at which North Korea unveiled what was likely the world’s largest road-ready intercontinental ballistic missile, designed to carry multiple nuclear warheads to the U.S.
- The Trump administration’s surprising blacklisting of Xiaomi Corp. is costing its top executives big bucks. Lei Jun, the chief executive officer who co-founded the smartphone maker about a decade ago, lost almost $3 billion as the stock tumbled a record 10%, according to the Bloomberg Billionaires Index. Lin Bin, the company’s vice chairman, is down $1.5 billion, and the fortune of at least five other billionaire shareholders has also dropped. While China’s tech sector has been hit by the nation’s increased government scrutiny and other Trump blacklistings, Xiaomi was thriving. The Beijing-based company surpassed Apple Inc.’s smartphone sales in the third quarter and grabbed market share from Huawei Technologies Co., which got marred by U.S. sanctions. Xiaomi’s shares closed at a record high just last week, and in December the the firm’s market value surpassed $100 billion, finally reaching the goal it had for its 2018 listing.
- Midmarket private-equity firm Roark Capital Group is pitching its sixth flagship fund after closing a new restaurant-focused fund on nearly $1.4 billion last year, according to people familiar with the offering. The Atlanta-based firm has set a fundraising target of $5 billion for the new fund, the people said. That would make the fund the same size as its predecessor, Roark Capital Partners V LP, which closed on its upper limit of $5 billion in 2018. At that time the firm also raised a separate $1.5 billion fund to invest alongside its fifth flagship fund. The firm invests in franchise and multilocation business models in restaurant, health, wellness and beauty, specialty retail, and consumer and business services. Its equity investments typically range from $50 million to $1 billion or more in companies with revenue of between $20 million and $5 billion and earnings before interest, taxes, depreciation and amortization of between $10 million and $500 million, according to the firm’s website.
- Amazon.com Inc. is opening warehouses and shipping hubs in the U.S. at the rate of about one every 24 hours. The ultimate aim is to ensure that virtually every product the company sells is a van ride—and eventually a drone flight—away from customers’ homes. And yet, last week Amazon announced it was buying 11 Boeing 767-300 jets for its air-cargo division, mostly to get products to Prime subscribers. Despite creating algorithms to anticipate shoppers’ needs and opening all those warehouses, Amazon can’t meet its one- and two-day shipping pledge to customers without an ever-expanding fleet of pricey jets. That reality has become clearer since the pandemic fueled a surge in online shopping that has strained the resources of United Parcel Service Inc., FedEx Corp. and the U.S. Postal Service—forcing Amazon to pick up the slack.
- JPMorgan kicked off bank earnings with a record quarterly profit, but cautioned of near-term economic uncertainty, even with the vaccine rollout and stimulus developments. It’s already a strong year for rising stars with $13.2 billion poised to be upgraded out of junk, according to Citigroup strategists. JPMorgan released loan-loss reserves for the second quarter in a row, a sign that defaults won’t take as big a toll as previously expected
- Apple Inc. is planning upgraded MacBook Pro laptops this year with much faster processors, updated displays and the return of its magnetic charger, according to a person with knowledge of the plans. The new laptops are planned to come in two screen sizes, a 14-inch model codenamed J314 and a 16-inch version internally dubbed J316. Both will use next-generation versions of Apple’s in-house Mac processors, upgraded with more cores and enhanced graphics, the person said, asking not to be named as the products are not yet announced. These devices will mark Apple’s first high-end laptops to move away from Intel Corp. components. The company updated its base 13-inch MacBook Pro with its own M1 chip in November, to broadly positive reviews.
- When Boeing Co. ended a long commercial drought last month by handing over 737 Max jets to two top customers, the transactions marked a little-noticed break with tradition. The planes were built in 2019 but recorded as 2020 models when they were delivered, having sat dormant during the longest jetliner grounding in U.S. history. The seemingly innocuous distinction could provide some financial relief for the beleaguered aerospace giant, which lobbied appraisers to accept the new approach. Hundreds of Max jets valued at about $20 billion are poised for similar age-defying treatment as they emerge from storage lots to join the fleets of such carriers as American Airlines Group Inc. and United Airlines Holdings Inc. Their vintage will be based on when they’re delivered, even if that doesn’t happen for another year or two while air travel inches back from the coronavirus pandemic.
- Brazilian President Jair Bolsonaro’s government, which embraced both the Trump administration and its core ideals, wants President-elect Joe Biden to know that it’s not about to reverse course in response to the change of U.S. leadership. Instead, it expects Biden to realize that Brazil and the U.S. have many shared interests, including promoting democracy and security in Latin America, and are not on opposite sides regarding the environment, according to Foreign Minister Ernesto Araujo. “We hope that the new U.S. administration perceives our government for what it really is, for what the Brazilian people are and stand for,” Araujo said in an interview at his office in Brasilia on Thursday. “Both sides must make an effort for mutual understanding.”
*All sources from Bloomberg unless otherwise specified