January 27, 2021

Daily Market Commentary

Canadian Headlines

1. Canadian equities fell Tuesday amid weakness across multiple sectors. The S&P/TSX Composite Index lost 0.7%, the most since Dec. 14, with seven of 11 sectors lower. Marijuana stocks rallied with Canopy Growth Corp. and Aphria Inc. each gaining at least 7.5%. Prime Minister Justin Trudeau said his government is preparing to unveil new travel measures soon to help protect Canadians from new Covid-19 variants.
2. With U.S. lumber prices at fresh record highs, construction companies and wood wholesalers are buying just enough to get by, threatening to make price swings even bigger. Lumber futures in Chicago reached a record $855.10 per 1,000 board feet on Tuesday, having surged more than 30% since Jan. 12. This price surge during what is typically a winter lull has surprised the industry, raising homebuilding costs and forcing many buyers to purchase only their immediate needs. That may filter through to housing prices, while also boosting earnings at lumber companies such as Weyerhaeuser Co. and West Fraser Timber Co. Record-low borrowing rates and an exodus from major cities triggered a homebuilding spree, with U.S. home construction starts in December reaching the fastest pace since 2006, while lockdowns also spurred demand for home renovations. At the same time, mills couldn’t ramp up fast enough to keep available supplies from drawing down.
3. Russia’s tougher wheat-export restrictions could spell good news for its North American rivals. There are already signs that importers are starting to balk at higher Russian prices before an export tax is introduced in mid-February, and then raised for four months starting in March. With low stockpiles in the European Union and near-term cargoes in Australia booked, that’ll likely increase demand for U.S. and Canadian grain, according to Chicago-based consultant AgResource. Russia, the top wheat shipper, is imposing stricter-than-expected export measures after President Vladimir Putin demanded action to cool domestic food inflation. That helped global wheat prices extend a rally to a six-year high, and Moscow plans permanent duties when the new season starts in July.

World Headlines

1. European stocks fell with miners on Wednesday, while the region’s most-shorted shares surged in an echo of similar moves in the U.S. The Stoxx Europe 600 Index slumped 0.8% as of 11:07 a.m. in London, with miners and energy shares falling the most. Heavily shorted stocks including Klepierre SA and Pearson Plc jumped, after U.S. videogame retailer GameStop Corp. surged almost 700% this year, boosted by Reddit-driven day traders. European shares have been rangebound since reaching an almost 11-month high on Jan. 14, as investors weigh rising Covid-19 cases and tightening restrictions against the prospects of a vaccine-fueled economic recovery later in the year. European Union officials are seeking to resolve a standoff with AstraZeneca Plc that threatens to keep its vaccination program in the slow lane.
2. U.S. equity futures dropped with stocks on Wednesday as investors weighed earnings reports and awaited the conclusion of the first Federal Reserve policy meeting of the year. S&P 500 contracts extended their losses throughout the European session, though Nasdaq futures outperformed following a strong fiscal second-quarter sales report from Microsoft Corp. Apple Inc., Facebook Inc. and Tesla Inc. are all due to report earnings later on Wednesday. Meanwhile, GameStop Corp. continued its meteoric rise in U.S. premarket trading after an Elon Musk tweet fanned the flames of its rally. While attention is focused on tech earnings and the Fed, new coronavirus variants that sparked fresh lockdowns are also weighing on the so-called reflation trade that bets on an end to curbs. The International Monetary Fund downgraded Europe’s 2021 growth outlook on Tuesday, in part on its late and stumbling vaccination campaign. Data showed global coronavirus cases surpassed 100 million, with the U.K. becoming the first nation in Europe with 100,000 deaths.
3. Japanese stocks rose, boosted by gains in electronics and chemicals makers, as corporate earnings started to pour in from the nation’s manufacturers. Machinery and automakers also bolstered the Topix. Nitto Denko, which makes chemical products for tech applications, was the biggest boost to the Nikkei 225 after it raised its full-year profit outlook. Shares of freight operator Nippon Express gained after a report it plans to sell its headquarters building in Tokyo. The Nikkei 225 closed above the 28,000 level for the 13th straight session. The gauge is up 4.3% in 2021, extending last year’s 16% rally, possibly tempting some investors to take profits as results come out. Chip equipment maker Disco Corp. declined Wednesday, one the latest stocks to see a notable selloff despite beating earnings expectations.
4. Oil rose as signs of tightening supplies around the world offset concerns over the pandemic’s latest hit to demand. U.S industry data pointed to a sharp drop in the nation’s crude stockpiles last week. If confirmed by government figures due Wednesday it would a sixth draw in seven weeks, compounding signals of reduced supply from other regions. Saudi Arabia and Iraq are throttling back supplies next month as the OPEC+ coalition seeks to shore up prices against resurgent virus infections and new lockdowns. Russia is reducing seaborne exports and Libya has seen shipments interrupted by internal turmoil.
5. Gold’s in limbo before the conclusion of the Federal Reserve’s first policy meeting of the year, with investors waiting to hear the tone Chair Jerome Powell strikes on the outlook for the U.S. economy and need for sustained monetary support. Bullion has been confined to a tight range this week before the two-day gathering of the Federal Open Market Committee, which is expected to keep policy ultra-easy. When he speaks at a press conference later Wednesday, Powell is likely to sound more cautious about curbing massive asset purchases — even though the outlook has brightened further thanks to an expected big budgetary boost from President Joe Biden.
6. A European Commission official says a crunch call with AstraZeneca Plc over vaccine-delivery delays is finally going ahead on Wednesday. A spokeswoman for the European Union’s executive arm had earlier told reporters in Brussels that Astra had pulled out of the call. The drugmaker’s spokesperson denied this is the case. The official, who asked not to be named, said Astra executives had sent an email to the Commission’s Directorate-General for Health and Food Safety on Tuesday evening, saying they are pulling out of the call “because there are too many moving parts.” The official added that the EU’s executive arm is happy that the drugmaker changed its mind.
7. JPMorgan Chase & Co. is planning to expand its consumer business beyond U.S. borders for the first time, beginning with a digital-only retail bank in the U.K. The New York-based bank will start with a mobile checking account for U.K. customers this year, followed by a full slate of products potentially including credit cards, mortgages and auto loans, according to people briefed on the plans. If all goes well, the debut will serve as a model for expansion into other countries, said the people, who asked not to be identified because the information isn’t public. The step marks the culmination of two years of planning as part of a project JPMorgan kept so closely guarded that even some executives were left wondering about the details. It’s a dramatic development for the biggest U.S. bank, which gets almost 50% of its revenue from a consumer business that has operated only in the U.S., though the firm has long deliberated whether to bring its offerings to the rest of the world.
8. Sanofi agreed to produce millions of doses of BioNTech SE and Pfizer Inc.’s coronavirus vaccine in an unusual collaboration to speed vaccination efforts. The French drugmaker will give BioNTech access to a production facility in Frankfurt, which will start to deliver doses this summer, Sanofi said in a statement Wednesday. The deal will produce more than 125 million doses of the messenger RNA vaccine for the European Union. Sanofi’s own effort to develop a vaccine with another big pharma firm has stumbled, meaning it won’t be ready by summer as expected. The agreement allows the region to make up for some of the loss, accelerating the complex process of packaging and distributing a vaccine that needs to be kept at ultra-cold temperatures. Such deals may become more common as a way to scale up manufacturing.
9. Japan has raised concerns about British proposals to invite Australia, India and South Korea to a meeting of Group of Seven foreign ministers and have them sign up to a joint charter with the forum, according to a diplomatic cable seen by Bloomberg. Prime Minister Yoshihide Suga’s government “pushed back strongly,” the note says, arguing that the aim of the summit should be to rebuild the G-7 after a difficult year, and not “institutionalize” a relationship with the invited guests. The forum’s European members –- France, Italy and Germany –- hold similar views, and some of its diplomats have expressed concerns that the U.K. is attempting to reshape the G-7 by the back door, by establishing a coalition of 10 leading democracies to counter China and other authoritarian states.
10. GameStop Corp.’s wild ride continued in premarket trading as the stock whipsawed following reports that Melvin Capital had closed out its short position. The shares were up 66% at $245 as of 6:37 a.m. New York time, having earlier more than doubled from the last close of $147.98. That followed Tuesday’s 93% surge, which meant GameStop has risen more than eightfold this month in a dizzying rally fueled by Reddit-charged day traders. Following a frenzied session on Tuesday, the stock’s gains reached new extremes outside regular hours after Tesla Inc. chief Musk tweeted a linkto a Reddit thread about the company. Famed fund manager Michael Burry warned that the manic rally has gotten out of hand, calling the stock’s rise “unnatural, insane, and dangerous.” Gabe Plotkin’s Melvin Capital closed its short position Tuesday afternoon, CNBC’s Squawk Box reported.
11. Tesla Inc.’s quarterly revenue may have crossed the $10 billion mark for the first time in the last three months of 2020, yet investors already have their sights on the end of this year. When the electric-vehicle maker reports fourth-quarter results after the market closes Wednesday, Wall Street’s main focus will be on how many more cars it expects to deliver in 2021 above the half million shipped last year. The financial results will likely show a sixth consecutive quarter of profits and draw the curtains on an incredible year in Tesla’s history. The company cemented its position as a viable, income-producing enterprise, sending its stock price skyrocketing and earning it a place in the prestigious S&P 500 Index. In the process, Tesla also helped fuel a frenzy for all electric-car-related stocks that boosted valuations of several startups in the space.
12. InPost SA soared in Amsterdam trading after its shareholders raised 2.8 billion euros ($3.4 billion) in Europe’s biggest initial public offering since 2018 amid an online shopping boom that’s driving up demand for the Polish company’s automated parcel lockers. Stockholders including Advent International, Templeton Strategic Emerging Markets Fund and PZU Fundusz sold 175 million existing shares at 16 euros each, the top end of an initial range, the company said. The IPO of the 35% stake values InPost, which didn’t raise any money in the offering, at 8 billion euros. InPost jumped 26% to 20.22 euros at 10:08 a.m. in Amsterdam.
13. ByteDance Ltd.’s revenue more than doubled to about $35 billion last year, defying heightened global competition and Trump’s attempt to ban its signature video service TikTok in the U.S. The Chinese company managed to grow operating profit to roughly $7 billion in 2020 from less than $4 billion the prior year, a person familiar with the matter said. That’s in a year when former U.S. president Donald Trump sought to ban TikTok and force its sale to American investors led by Oracle Corp. With Joe Biden in office, the company is moving closer toward listing part of its social media empire in Hong Kong. The Information first reported on ByteDance’s 2020 financials. ByteDance’s phenomenal growth stems from the global success of teen phenom TikTok and its Chinese twin Douyin, which helped pioneer a new form of social video and undercut rivals from Facebook Inc. to Tencent Holdings Ltd. Last valued at about $180 billion, the company is said to be exploring an initial public offering for some of its businesses in Hong Kong, including Douyin. A ByteDance spokesperson declined to comment.
14. Blackstone Group Inc. deployed a record $25.4 billion in the fourth quarter, as the world’s biggest alternative asset manager sealed large deals and found opportunities in an economy ravaged by the Covid-19 pandemic. New York-based Blackstone spent $11.7 billion on real estate in the three months ended Dec. 31, and its private equity unit invested $8.2 billion, the firm said in a statement Wednesday. The moves show that company’s leaders are making big bets after sitting out the early stages of the pandemic. It’s a strategy that echoes Blackstone’s approach in 2009 when it invested amid the financial crisis and pulled off deals that helped power its rise over the past decade. While the U.S. stock market has been soaring, assets from commercial real estate to travel are struggling as lockdowns and social distancing rules have changed the patterns of everyday life from Los Angeles to Shanghai.
15. Drugmaker AstraZeneca Plc pushed back against the European Union on Covid-19 vaccinations, reacting to threats to its business and saying the bloc must take responsibility for delays to the rollout of the shot. The comments from AstraZeneca Chief Executive Officer Pascal Soriot came as EU governments and company executives prepare to discuss the issue of a hold-up in shot deliveries on Wednesday evening. The European Commission wants “fundamental” information about delivery plans for the first half of the year, according to an EU official with knowledge of the situation, though there’s now a risk that the call could be canceled. Tensions over the rollout have escalated since Astra warned late last week of delays at a production plant in Belgium. The EU said it would start monitoring exports of shots, and Germany signaled support for imposing limits on sales outside the bloc.
16. Airport Authority Hong Kong is considering raising as much as $1.5 billion in its second dollar bond offering in two months, according to people familiar with the matter. The airport operator kicked off a series of investor calls Wednesday for the potential offering, said the people who are not authorized to speak publicly and asked not to be identified. The sale, to be launched as early as Thursday, would consist of 10-year and 30-year tranches, they said. The borrower last tapped the dollar bond market in December, drawing strong demand for its $1.5 billion debut perpetual bond even as passenger air traffic plunged in the wake of the coronavirus pandemic. Hong Kong is currently battling the fourth wave of Covid-19 cases in the city.
17. U.S. Chief Justice John Roberts’s refusal to preside over Donald Trump’s second impeachment trial is giving Republicans an opportunity to focus on the Senate’s process rather than the specifics of the insurrection charge against the former president. The Constitution calls for the Supreme Court’s top jurist to preside over impeachment trials of sitting presidents but is silent on what should happen for one who is no longer in office. Roberts’s decision to skip the current trial without any public explanation leaves a Democrat already on the record as favoring conviction, Senator Patrick Leahy of Vermont, overseeing the trial when it gets underway the week of Feb. 8. That opens it up to accusations of being a more partisan — and less judicial — process than in Trump’s 2020 impeachment.
18. AT&T Inc. fell in early trading even though it scored fourth-quarter gains in wireless customers and subscribers to its HBO Max video service, as concerns continue over looming costs for new entertainment productions, a new 5G network, debt service and dividends. Adjusted earnings rose to 75 cents a share, the company said Wednesday, beating estimates of 73 cents. While losses continued on the pay-TV front, with a net 617,000 customers canceling service, AT&T added 1.2 million regular wireless customers. Analysts expected a loss of 609,800 TV customers and a gain of 625,300 mobile subscribers. HBO Max reached 17.2 million activated accounts, up from 12.6 million last month.
19. The Western world’s largest oil explorers are sailing into earnings season on the tailwind of strong commodity prices after a 2020 they would rather forget. With crude prices and refining margins buoyed by the rollout of Covid-19 vaccines and the prospect of an economic rebound, investors will be watching for signs in Big Oil’s fourth-quarter earnings that higher crude prices will translate into much-needed increased cash flows this year. Some optimism is already priced in. Exxon Mobil Corp. and BP Plc, both of which last year weathered their worst stock-price slumps in decades, are up more than 10% in 2021. Still, the supermajors are largely out of favor: The combined market value of Exxon, Chevron Corp., Royal Dutch Shell Plc, Total SE and BP is now less than that of Tesla Inc.
20. After months of bullish projections on Wall Street about sales of Apple’s newest iPhones, the technology giant will reveal on Wednesday afternoon whether the devices lived up to expectations. Apple Inc. hasn’t given a formal revenue forecast in three quarters, leaving investors to sift through surveys and supply chain data to get a read on the iPhone 12 since the phones were released late last year. By most accounts, sales were brisk during the critical holiday period, helping fuel a 20% gain in the stock since the end of November. Cupertino, California-based Apple is expected to have shipped 74.3 million iPhones in its fiscal first quarter ended in December, according to data compiled by Bloomberg Consensus. That could result in total iPhone revenue of $60.3 billion, up from $56.0 billion in the same period a year ago, according to analyst estimates.

“He who lives on illusions, dies of disillusion.” – South American Proverb

*All sources from Bloomberg unless otherwise specified