January 5th, 2021

Daily Market Commentary

Canadian Headlines

  1. Agnico Eagle Mines agreed to buy TMAC Resources for about C$286.6 million in cash, according to a press release. Agnico Eagle Mines plans to acquire all of the outstanding common shares of TMAC at a price of C$2.20 per share in cash, a 40% premium to its closing price on Monday, and higher than the C$1.75 offered by Shandong under an earlier agreement

World Headlines

  1. European stocks fell as the U.K. went back into a lockdown and other countries mooted extending or tightening restrictions to halt the increase in Covid-19 infections. The Stoxx Europe 600 Index dropped 0.3% as of 12:15 p.m. in London, with gains in energy shares offset by losses in utilities and chemical stocks. The U.K.’s FTSE 100 Index dropped 0.1%, while the midcap FTSE 250 Index climbed after Chancellor of the Exchequer Rishi Sunak announced 4.6 billion pounds ($6.3 billion) of emergency support to help U.K. businesses survive a third lockdown. European equities are down for the third time in four sessions, losing the momentum that had pushed them to the highest level since the end of last February. Optimism over the start of vaccinations and an economic recovery has been tempered by the introduction of new restrictions in major economies including Germany and Italy. U.K. Prime Minister Boris Johnson has shut England’s schools and ordered people across the country to stay at home.
  2. U.S. equity futures fluctuated as traders braced for a key Senate run-off election and weighed the impact of rising coronavirus cases. The dollar fell with Treasuries. S&P 500 contracts pointed to little change at the open after the benchmark suffered its worst drop at the start of a year since 2016. Tuesday’s run-off election for two U.S. Senate seats in Georgia is set to determine whether Democrats take effective control of Congress, seen as a tailwind to reflationary trades built around fiscal stimulus.
  3. Japanese shares declined as investors remained wary over the adoption of stricter restrictions to rein in coronavirus cases and upcoming U.S. runoff elections. Automakers contributed most to the Topix’s drop, while technology shares were the biggest support. Reports say a state of emergency could be declared for the Tokyo area as soon as Jan. 7. Japan is considering suspending all foreign arrivals from China and South Korea, the Asahi newspaper reported.
  4. Oil edged higher ahead of a resumption of OPEC+ talks that were unexpectedly suspended due to a disagreement over whether to raise output in February as the coronavirus continues to surge. Futures in New York gained toward $48 a barrel after dropping the most in 2 weeks on Monday. Discussions will restart on Tuesday after a majority of members, including Saudi Arabia, opposed Russia’s proposal for another supply hike. The talks are happening against a shaky short-term demand backdrop. England was ordered into a third lockdown until mid-February, Germany is set to extend its curbs and Japan is considering another state of emergency for the Tokyo area. Several Asian refiners won’t be getting into long-term supply contractsfor fuel sales this year, a sign the region’s energy consumption recovery is far from certain, although a cold snap in the northern hemisphere is aiding demand for heating fuels.
  5. Gold continued its strong start to the year as lower U.S. real yields and a weaker dollar combined with surging coronavirus cases to boost demand for the haven asset. Bullion traded near an eight-week high as U.S. 10-year inflation expectations topped 2% for the first time since 2018 on hopes that monetary stimulus and government aid policies will drive demand in the post-vaccine world. The higher expectations boost gold’s appeal over havens like treasuries, which have seen their inflation-adjusted yields turn negative.
  6. Boris Johnson pinned his hopes for a national recovery on a plan to deliver 2 million coronavirus vaccinations a week, as the U.K. went back into lockdown in an attempt to prevent hospitals being overwhelmed. Amid dire warnings that the National Health Service could fail to cope with soaring infection rates, the prime minister shut England’s schools and ordered people across the country to stay at home. U.K. Chancellor of Exchequer Rishi Sunak on Tuesday pledged new support to help companies and Johnson will give a news conference at 5 p.m. London time. Johnson warned of hard weeks ahead but announced a target to give shots to 13.9 million people at the highest risk from the disease by mid-February. Once they have all been vaccinated, the restrictions can begin to be eased, he said.
  7. OPEC+ will gather for a second day, following an unexpected suspension of talks on Monday when a majority of members, including Saudi Arabia, opposed Russia’s proposal for a February supply hike. Ministers need more time to resolve differences over how much extra oil the market can take as the accelerating coronavirus pandemic leads to tighter lockdowns. The extension of the negotiations casts doubt on the production increase of 500,000 barrels a day the market had been expecting for February. It also calls into question similar supply boosts traders had penciled in for March and April. The split between Saudi Arabia and Russia, the two de-facto leaders of OPEC+, reflected different priorities. Riyadh has shown it’s worried about undermining the oil-market recovery, while Moscow has said it doesn’t want to create space for a rebound in rival production.
  8. The outcome of Tuesday’s Georgia Senate runoff elections will shape Joe Biden’s presidency even before it officially begins on Jan. 20, setting the scope of his agenda and the pace of his nominees’ confirmations — and previewing whether Republicans can launch robust investigations into him and his family. Biden won the November election with bold pledges to amplify the federal response to the coronavirus pandemic, release billions more in economic stimulus and raise taxes on corporations and people who make more than $400,000 a year. Those and many others will require legislation. If Democrats Jon Ossoff and Raphael Warnock both win, the Senate will be divided 50-50 between the parties and Vice President-elect Kamala Harris can cast a tie-breaking vote to help advance that agenda. If Republicans David Perdue or Kelly Loeffler win one of the seats, Republicans will have 51 votes — enough to block any Biden initiative, from approving his cabinet onward.
  9. While the relentless spread of the coronavirus drove the equity market lower on Monday, there were also signs investors are preparing for a greater possibility that Democrats will gain control of the U.S. Senate. A Goldman Sachs basket tracking stocks that should benefit from Democratic Party policies performed better than those expected to be harmed. And even as the S&P 500 dropped, the Invesco Solar ETF — thought to benefit from President-elect Joe Biden’s energy policy — rose more than 2%. Bond-market inflation expectations climbed to the highest since 2018, and options traders piled into protection against rising yields. Underlying the moves was the belief that if Democrats prevail in Tuesday’s runoff elections in Georgia and take control of the Senate, Congress will deliver a bigger emergency aid package than it would under a divided government. That scenario could drive inflation higher, the thinking goes, pushing up Treasury yields and breathing life into economically sensitive stocks. Though all major indexes fell on Monday, cyclical sectors like energy and consumer discretionary stocks outperformed.
  10. The New York Stock Exchange said it will no longer delist China’s three biggest state-owned telecommunications companies, backtracking on a plan that had threatened to escalate tensions between the world’s largest economies. The U-turn came with scant explanation just four days after the NYSE said it would remove the shares to comply with a U.S. executive order. President Donald Trump — who now has just over two weeks left in office — signed an order in November barring American investments in Chinese firms owned or controlled by the military in a bid to pressure Beijing over what it views as unfair business practices. The about-face, described as “bizarre” by a Jefferies Financial Group Inc. analyst, whipsawed investors who on Monday had sold shares of the Chinese telecom companies and raced to bet on which stocks might be delisted next. China Mobile Ltd., China Telecom Corp. and China Unicom Hong Kong Ltd. all rallied on Tuesday.
  11. The Chinese owners of Global Switch Holdings Ltd. are exploring options including a sale that could value the London-based data center operator at 8 billion pounds ($10.9 billion) or more, according to people with knowledge of the matter. Global Switch, controlled by Chinese steelmaker Jiangsu Shagang Group Co. and backed by Avic Trust Co., is working with advisers to solicit interest from prospective suitors, said the people, who requested anonymity because the talks are private. The potential sale of Global Switch follows an aborted Hong Kong initial public offering in 2019. In August of that year, Shagang bought another 24% stake in a 1.8 billion-pound deal from British billionaire brothers David and Simon Reuben, who had begun to whittle down their ownership in 2016. Shagang then became the largest shareholder.
  12. Indonesia’s ride-hailing and payments giant Gojek is in advanced discussions about merging with local e-commerce pioneer PT Tokopedia, ahead of a planned initial public offering of the combined entity, according to people with knowledge of the matter. The country’s two most valuable startups have signed a detailed term sheet to conduct due diligence of each other’s business, said the people, who asked not to be named as the discussions are private. Both sides see potential synergies and are keen to close the deal as soon as possible in coming months, they said. The merged entity would create an Indonesian powerhouse with a valuation of about $18 billion, with Gojek and Tokopedia pegged at around $10.5 billion and $7.5 billion respectively in the talks, according to the people involved. Their businesses range from ride-hailing and payments to online shopping and delivery — a local mashup of Uber Technologies Inc., PayPal Holdings Inc., Amazon.com Inc., and DoorDash Inc. It plans to go public in the U.S. and Indonesia.
  13. Nykaa E-Retail Pvt is planning an initial public offering as soon as this year that could value the Indian online cosmetic retailer at a minimum $3 billion, according to people familiar with the matter. The startup founded by Falguni Nayar, a former investment banker, is working with advisers to prepare for the share sale in Mumbai, the people said. Nykaa is leaning toward a domestic listing, though an overseas share sale is also under consideration, said the people, who asked not to be named as the information is private. Deliberations are ongoing and details of the offering including the size and timeline could change, the people said. A representative for Nykaa declined to comment.
  14. Bitcoin has the potential to reach $146,000 in the long term as it competes with gold as an asset class, according to JPMorgan Chase & Co. Bitcoin’s market capitalization of around $575 billion would have to rise by 4.6 times — for a theoretical price of $146,000 — to match the total private sector investment in gold via exchange-traded funds or bars and coins, strategists led by Nikolaos Panigirtzoglou wrote in a note. But that outlook depends on the volatility of Bitcoin converging with that of gold to encourage more institutional investment, a process that will take some time, they said. “A crowding out of gold as an ‘alternative’ currency implies big upside for Bitcoin over the long term,” the strategists wrote Monday. However, “a convergence in volatilities between Bitcoin and gold is unlikely to happen quickly and is in our mind a multiyear process. This implies that the above-$146,000 theoretical Bitcoin price target should be considered as a long-term target, and thus an unsustainable price target for this year.”
  15. Iran’s able to produce 8 to 9 kilograms of uranium enriched to 20% each month, a top official said Tuesday, in the first detailed account of a major extension to the country’s nuclear program that’s stoked tensions in the region. Ali Akbar Salehi, the head of the Atomic Energy Organization of Iran, told state TV the agency would be able to stockpile the annual target of 120 kg (265 pounds) set by parliament. Iran restarted production of the more highly enriched uranium on Monday as it pushes back against sweeping U.S. economic penalties, alarming European signatories to the 2015 deal that had curbed Tehran’s enrichment activities in return for sanctions relief.
  16. Chancellor of the Exchequer Rishi Sunak announced 4.6 billion pounds ($6.2 billion) of emergency support to help U.K. businesses survive a third lockdown that threatens to plunge the economy into a sharp double-dip recession. Retail, hospitality and leisure businesses will be entitled to one-off grants of as much as 9,000 pounds to tide them over until the spring, the U.K. finance minister said in a statement Tuesday. That’s on top of existing funds of as much as 3,000 pounds per month for those required to shut their doors because of coronavirus restrictions. “This will help businesses to get through the months ahead — and crucially it will help sustain jobs, so workers can be ready to return when they are able to reopen,” Sunak said. In a video message on Twitter, he said the budget in early March will “set out the next stage in our economic response.”
  17. China condemned the former chairman of China Huarong Asset Management Co. to death on charges of malfeasance, one of the most severe sentences to stem from President Xi Jinping’s anti-corruption drive. Lai Xiaomin, who was chairman of Huarong before he came under investigation in 2018, was sentenced to death for taking bribes as well as bigamy, according to a local court. He was found guilty of receiving 1.79 billion yuan ($277 million) in bribes between 2008 and 2018, according to the court of Tianjin City. All his personal assets will be confiscated, the ruling said. Capital punishment is unusual for corruption in China, though a former vice mayor in the Shanxi province was sentenced to death in 2018. The move underscores the ruling Communist Party’s increasingly tough stance on corruption among government cadres and corporate executives, which has seen more than 1.5 million government officials punished. In 2016, China raised the threshold for capital punishment related to corruption to 3 million yuan from 100,000 yuan, but the penalty has seldom been used.
  18. The European Union is negotiating with Pfizer Inc. and BioNTech SE on a deal that could double their supply of Covid-19 vaccine to the region, according to people familiar with the talks. The new contract would include 100 million doses, as well as an option for as many as 200 million more, said the people, who asked not to be identified because the talks are private. Governments across the EU face growing questions over the slow pace of their vaccine rollouts, and shots from other drugmakers such as AstraZeneca Plc won’t be available for weeks at the earliest.
  19. Bill Ackman’s Pershing Square Capital Management reported a second straight record performance in 2020, as a bet in the early days of the pandemic helped the fund return 70% on investments. The billionaire investor said Pershing Square had a net return of 4.6% in December alone. The annual results eclipsed the 16% gain in the S&P 500, and surpassed Ackman’s 2019 record of about 58%. Back-to-back wins mark an impressive return for Ackman, whose hedge fund previously racked up three consecutive years of losses after a disastrous bet on Valeant Pharmaceuticals Ltd. and an ill-fated short-selling campaign at Herbalife Nutrition Ltd., among other challenges. The year marked a return for human-run hedge funds, after years of being outclassed by computer-driven quantitative strategies.

*All sources from Bloomberg unless otherwise specified