January 6th, 2021

Daily Market Commentary

Canadian Headlines

  1. Canadian shares climbed on Tuesday, extending Monday’s gains as energy stocks surged with oil prices. The S&P/TSX Composite index rose 0.9% to 17,682.51, edging closer to its all-time high of 17,944.06 reached last Feb. 20. Energy stocks were the main drivers as Saudi Arabia pledged to voluntarily cut oil output by an extra 1 million barrels a day from next month, while most of the OPEC+ alliance agreed to hold output steady. Meanwhile, Canada’s vaccine rollout has been slower than expected and the laggardly pace could prompt a reassessment of how robust the country’s economic recovery will be, according to Bank of Montreal. Only 0.32% of the Canadian population had been inoculated as of Monday, making it a “relative underperformer” versus peers such as the U.S. and the U.K., which have both vaccinated 1.4%, Doug Porter, chief economist at the Toronto-based lender, said Tuesday in a report to investors.
  2. Toronto home prices reached a record in 2020, with the Covid-19 pandemic driving demand for larger homes and low rates making it easier for people to afford them. The average price for homes sold in Canada’s largest city last year hit C$930,000 ($734,000), the highest on record and up 13.5% from 2019, the Toronto Regional Real Estate Board said Wednesday in a release. The buying frenzy was led by demand for ground-level homes in the suburbs, which more than offset weakness in condominiums in the city’s core, the board said. The pandemic has caused home prices to soar across the developed world, as the low borrowing costs used to stimulate locked-down economies also increase property buyers’ budgets. A Canadian bank offered a mortgage rate of less than 1% for the first time last year. In Toronto, the prospect of new taxes on vacant homes and concerns about a potential bubble have done nothing to stem bidding wars. In fact, its housing market appears to be picking up pace.

World Headlines

  1. European equities gained as investors weighed the Democrats’ chances of winning the Georgia Senate race, giving a boost to cyclical sectors on the optimism that economic stimulus could be increased. The Stoxx Europe 600 Index rose 0.8% at 11:23 a.m. in London. Banks surged as much as 4.5% as the U.S. 10-year yield rose above 1% for the first time since March. Miners and construction stocks were also among the biggest climbers, with energy rising with oil after Saudi Arabia pledged to cut an extra 1 million barrels a day of crude output in February and March.
  2. Benchmark Treasury yields touched 1% for the first time since March while investors rotated out of technology and into cyclical stocks on speculation Democrats are on the cusp of taking control of U.S. Congress. Democrat Raphael Warnock ousted Republican Kelly Loeffler in a runoff race, leaving control of the Senate hinging on the state’s other election, which remains too close to call. If the party prevails, analysts say it could usher in more stimulus spending to drive economic growth and inflation, but also lead to tougher antitrust scrutiny of the technology giants. In contrast, technology companies suffered. Apple Inc., Microsoft Corp., Intel Corp. and Cisco Systems Inc. fell more than 2% in U.S. pre-market trading. Nasdaq 100 Index futures sank 2.3% and the contracts on the S&P 500 slipped 0.5%.
  3. Asia’s benchmark stock gauge swung between gains and losses as traders awaited the outcome of Senate runoff elections in Georgia that could have implications for U.S. President-elect Joe Biden’s agenda. Equities in Southeast Asia and Australia were among the biggest losers. Benchmarks in the Philippines and Indonesia slid more than 1% on concerns over a potential resurgence in coronavirus infections and tighter government control measures. The broader MSCI Asia Pacific Index was little changed after an eight-day winning run.
  4. Oil touched a 10-month high above $50 a barrel after Saudi Arabia pledged to cut an extra 1 million barrels a day of crude output in February and March. Futures in New York added 0.9% after the kingdom’s surprise move drove prices up 4.9% on Tuesday. OPEC+’s agreement, which will see most producers keep output steady while the Saudis cut, prompted a sharp rally in the structure of the oil futures curve as traders anticipated lower supply in the coming months. The Saudi decision, which Russia’s deputy prime minister called a “new year gift” to the market, comes as governments enforce more stay-at-home orders and travel restrictions to curb a surge in virus infections. Goldman Sachs Group Inc. said the Saudi move reflects expectations for weaker oil demand, cutting its consumption forecasts for January and February.
  5. Gold reached an eight-week high as benchmark U.S. Treasury yields topped 1% for the first time since March, with investors tracking elections in Georgia that will determine control of the Senate. The haven held in a narrow range as the 10-year yield rose as much as six basis points. Democrat Raphael Warnock ousted Republican Kelly Loeffler, according to the Associated Press, leaving control of the Senate hinging on the other Georgia runoff. The move steepened the yield curve, reflecting expectations for a spending surge. Rising inflation expectations have muted increases in real yields, which remain negative. Gold has prospered in the new year, aided by a weaker dollar and declining real yields, to build upon the biggest annual advance in a decade. Should Democrats win control of the Senate, it’ll result in a unified government, clearing the way for President-elect Joe Biden to enact his agenda to revive the world’s largest economy from the ravages of the pandemic.
  6. Moderna Inc.’s Covid-19 vaccine won the backing of a key European Union panel, clearing the way for a second weapon in the bloc’s fight to stem the pandemic. The recommendation was announced by the European Medicines Agency on Wednesday. A sign-off by the European Commission would mark the final step in approval. EU leaders are facing growing pressure to speed up clearance and deployment of vaccines to tame a virus resurgence across the continent. The 27-nation bloc began immunizations last week with the vaccine developed by Pfizer Inc. and BioNTech SE, but the pace of the rollout has been uneven, prompting unfavorable comparisons with the U.K. and U.S.
  7. Germany’s daily Covid-19 death toll exceeded 1,000 for only the second time, and Chancellor Angela Merkel called an emergency meeting to accelerate the vaccine rollout. Britain is also racing to get shots to the most vulnerable after more than 1 million people were infected in England. Denmark moved to its maximum Covid-19 alert level, citing the risk of new variants, and Israel said it is running low on vaccine supplies. Meanwhile, the World Health Organization’s director-general complained about China’s delay in granting visas to a team seeking to investigate Covid-19’s origins. In Asia, Japan’s daily cases topped 5,000 for the first time as it prepares to declare a state of emergency, with critics calling for broader steps. Malaysia reported record daily cases, and Singapore’s government defended the use of contact tracing data in police investigations.
  8. UnitedHealth Group Inc. agreed to purchase Change Healthcare Inc. in a deal that values the health technology company at about $8 billion. UnitedHealth will pay $25.75 per share in cash, the companies said Wednesday, a 41% premium over Change Healthcare’s closing price Tuesday of $18.24. Including more than $5 billion in debt owed by Change Healthcare, the deal amounts to $13 billion. The deal will combine Change Healthcare with UnitedHealth’s OptumInsight unit to offer software, data analytics, technology and other services to the health-care industry.
  9. National Grid Corp. of the Philippines is planning an initial public offering that could raise as much as $1 billion, according to people with knowledge of the matter. The high-voltage electricity network operator, commonly known as NGCP, has invited several banks to submit proposals for the share sale in Manila, said the people, who asked not to be identified as the information is private. NGCP has always been preparing for the IPO with compliance to its franchise, Mutya Alabanza, its head of external affairs, said in response to Bloomberg News query. “We were previously advised that market conditions may not be ideal at the moment, but we continue to take steps to prepare for an eventual IPO,” she said.
  10. Almost two months after President Donald Trump said he’s cutting off U.S. investment in companies tied to China’s military, confusion reigns on Wall Street over how to interpret his order. One certainty: Savers are losing billions. The New York Stock Exchange is considering reversing course a second time to delist three major Chinese telecommunications firms after conferring further with senior authorities on how to interpret an executive order Trump issued Nov. 12, according to people familiar with the matter. Lawyers said the drama, whipsawing markets in recent days, is exposing the ambiguities of the government’s instructions.
  11. London Stock Exchange Group Plc wants the government to ease listing rules to attract technology firms and other high-growth companies, the Financial Times reported. The exchange supports allowing dual-class structures and loosening the requirement for a company to list a minimum 25% of its equity, the FT said, citing a person familiar with the LSE’s submission to a government review. Such changes could help attract tech startups whose founders are reluctant to cede voting control or part with large chunks of their companies. The LSE’s view contrasts with that of corporate-governance advocates, who want only minimal relaxations, the FT said.
  12. The disruptive threats Herbert Diess saw coming for big, incumbent automakers soon after he took over the top job at Volkswagen AGare playing out as predicted — only faster and in more dramatic fashion. In an interview, the chief executive officer said additional cost reductions and a speedier overhaul of the German industrial giant are vital to withstand new rivals with superior financial firepower. He’s been reflecting not only on trying to keep pace with Tesla Inc. but on the risk that Apple Inc. adds another mighty competitor with almost unlimited resources to the automotive arena. In the almost 2 1/2 years since Diess told investors VW needed to aim for valuation levels more in line with Apple, Amazon.com Inc. and Google to still be around for another two decades, the gap has only grown. Elon Musk has beaten him to the punch by fetching an almost $700 billion market capitalization with Tesla, making the company worth more than the next six most-valuable carmakers combined.
  13. Michelin aims to cut as many as 2,300 jobs in France over three years as part of a plan to make the business simpler and more competitive. The stock gains as much as 1.2%. No factories to be closed, and jobs to be cut by retirements or on a voluntary basis
  14. Julian Assange was denied bail by a U.K. judge Wednesday, two days after the court blocked the WikiLeaks founder’s extradition to the U.S. on mental-health grounds. The ruling means the 49-year-old will remain in London’s high-security Belmarsh prison, where he’s been for nearly two years. He will be held while the U.S. government tries to appeal the extradition ruling after the judge deemed him to still be a flight risk. On Wednesday, an attorney for the U.S., Clair Dobbin, reminded the court that Assange spent seven years in the Ecuadorian embassy rather than face questioning in a sexual assault probe and that countries, including Mexico, have already offered him asylum rather than allow him to face American espionage charges.
  15. Bitcoin jumped to another all-time high on Wednesday as extreme swings continued to buffet the world’s largest cryptocurrency. The famously volatile digital coin advanced as much as 6% to $35,842, surpassing the previous high set Jan. 3, and was trading at $34,988 as of 6:47 a.m. in New York. It had plunged as much as 17% on Monday. Bitcoin quadrupled in 2020. A range of factors have been cited for Bitcoin’s ascent, showing how hard it is to pinpoint the proximate cause for the latest bout of volatility. Some traders pointed to a JPMorgan Chase & Co. long-term price forecast of as much as $146,000, while others cited the overall risk-on mood in global financial markets.
  16. Iran said the U.S. owes it $70 billion compensation for income lost as a result of sanctions on its oil exports, the state-run Islamic Republic of Iran Broadcasting reported on its website, quoting an adviser to the Supreme Leader. The payment is a prerequisite for President-elect Joe Biden’s return to the nuclear deal that Donald Trump abandoned in 2018, Kamal Kharrazi, chairman of the Strategic Council on Foreign Relations, which advises Ayatollah Ali Khamenei, said. The U.S. suspended sanctions waivers for purchases of Iranian oil in 2019. Exports, as high as 2.6 million barrels a day in 2017, dropped to 355,000 barrels a day last month, according to data compiled by Bloomberg. Almost all of Iran’s shipments go to China.
  17. Britain must build up its electric-vehicle battery industry in the coming years or it will lose out to the European Union in the intensifying race to build plug-in cars, the country’s automotive trade group warned. The Brexit deal reached late last year gives carmakers and their suppliers little time to localize production, Mike Hawes, the chief executive officer of the Society of Motor Manufacturers and Traders, said in a briefing with reporters. It’s a tall order for an industry coming off the steepest annual drop in vehicle sales since 1943. Battery packs have to have 30% of their content sourced from the U.K. or EU at first to trade tariff free as part of the agreement, and those requirements get stricter starting in 2024. Hybrid and electric vehicles also will be subject to rules of origin that start out easier relative to combustion cars, taking account a lack of local production of batteries now. But they too will get tougher three years from now.
  18. CropIn, an artificial intelligence and data-based agritech startup, has raised $20 million in a funding round led by Temasek Holdings Pte-backed ABC World Asia, as the coronavirus pandemic accelerates the adoption of digital technologies in farming. The Bangalore-headquartered agricultural AI startup provides software-as-a-service, or SAAS, products to farms and development organizations globally to improve predictability, efficiency and sustainability of crops. Additional new investors in the Series C funding include Infosys Ltd. billionaire co-founder Kris Gopalakrishnan’s family office and a fund of the U.K. government, CDC Group. CropIn has raised $33.1 million so far.
  19. Alibaba Group Holding Ltd. is looking to raise as much as $8 billion selling dollar bonds as early as next week, according to people familiar with the matter. The e-commerce giant aims to raise at least $5 billion but could wind up with more depending on the reception, said the people who aren’t authorized to speak publicly and asked not to be identified. The deal will be a multi-tranche offering, with specific tenors yet to be determined, they said. Alibaba declined to comment. Reuters earlier reported the planned sale. Pulling off the sale at a time when Jack Ma’s empire is facing intense government pressure back home would be a sign of global investor confidence in the company. In recent months, officials blocked Ant Group Co.’s $35 billion IPO, proposed new rules to curb the dominance of internet giants and fined Alibaba over acquisitions from years before. Closer scrutiny of mergers and acquisitions could add uncertainty over the growth of large internet firms.
  20. Box office collections by foreign films in China more than halved in 2020, posing a tough challenge for Hollywood in one of the few major markets to be recovering from the pandemic. In the year China took the crown from the U.S. as the world’s No. 1 movie market with a revenue of 20.4 billion yuan ($3.2 billion), overseas films accounted for only 16% of the ticket receipts. That compares with 36% in 2019, according to data from local ticketing platform Maoyan Entertainment. After China aggressively contained the virus within months, movie theaters on the mainland reopened as early as mid-July, offering a bevy of local fare including the world’s top-grossing movie last year, “The Eight Hundred,” a historical war drama. In contrast, the U.S. and Europe are still struggling to contain the pandemic. Lockdowns are back in many countries as infections and deaths surge, keeping cinema halls shuttered and delaying Hollywood productions and releases.
  21. India is considering a proposal to create a bank to help fund port, road and power projects as Prime Minister Narendra Modi’s administration aims to lift Asia’s third-largest economy out of the recession. The new entity, likely to be part of the budget announcement in February, may have an equity capital of 1 trillion rupees ($13.7 billion), people with knowledge of the matter said, asking not to be identified as the matter isn’t public. The existing India Infrastructure Finance Co., which has a 20 billion rupee corpus, will be merged with the bank, they said. Initially, the institution will be funded by the government, which will later invite investors, the people said. It could be on the lines of state-run National Investment and Infrastructure Fund Ltd., which counts the Canada Pension Plan Investment Board, Asian Development Bank and Abu Dhabi Investment Authority among its investors.
  22. Freezing weather that’s gripped large parts of the northern hemisphere is delivering a winter blessing for oil, gas and coal prices as suppliers meet a surge in heating demand. Temperatures across much of Europe and Asia are well below normal and forecasters expect them to stay there for most of January. The chill is supporting oil prices, which are holding above $50 a barrel, while the profit from turning crude into diesel climbed in Europe to the most since August in recent weeks as consumers — many stuck working from home because of a resurgent virus — burn more heating fuel. The weather is especially severe in northeast Asia. In Japan, a major refiner said December demand was expected to be 7% ahead of last year, and South Korea last week considered a plan to tap state reserves to meet soaring consumption. In China, heating demand has so stretched power supply, factories have bought diesel generators to keep the lights on.
  23. AmerisourceBergen will buy Walgreens Boots Alliance’s Alliance Healthcare business for about $6.5 billion, the companies reported in a press release. Deal represents $6.275 billion in cash and 2 million shares of AmerisourceBergen common stock at closing.

*All sources from Bloomberg unless otherwise specified