July 19, 2021

Daily Market Commentary

Canadian Headlines

• Canada has fully vaccinated 48.8% of its population against Covid-19, overtaking the U.S. rate for the first time after a delayed start caused by procurement troubles and distribution bottlenecks. In the U.S, where vaccinations are plateauing in some regions, 48.5% of the population is fully inoculated. Of those old enough to get the vaccine in Canada, 55% have now received two doses, according to calculations by CTV News based on provincial and federal government data. Health authorities have approved the Pfizer Inc. shot for children 12 years and older. Rapid progress in the vaccine campaign — Canada had fully vaccinated only 3% of its population as of the middle of May — is paving the way for Prime Minister Justin Trudeau’s government to relax travel restrictions on the eve of a likely election campaign.

World Headlines

• European equities slid on Monday to the lowest level since the end of May as investors exited cyclical sectors amid risks to profit and economic recovery from inflation and Covid-19 outbreaks. The Stoxx Europe 600 Index dropped 1.6% by 10:18 a.m. London time, its fourth straight drop since a record high reached last Tuesday, putting it on course for the longest streak of losses since October. Energy stocks declined after an OPEC+ deal to ramp up output sent oil prices lower, and travel and leisure stocks tumbled after the U.K. government tightened quarantine rules for travelers from France. The U.K.’s FTSE 100 Index dropped 1.8% and the FTSE 250 Index declined 1.7% as Covid-19 cases in the U.K. rose the most in the world amid an end to pandemic restrictions in England on Monday.
• U.S. equity futures fell on Monday and stocks in Europe headed for a seven-week low as the spread of the delta variant around the world threatens the global economic recovery. Treasuries gained along with the dollar. The resurgence of Covid-19 is stoking a risk-off mood as investors consider whether new lockdown restrictions will sap the economic rebound and reverse an equity rally that had driven stocks to record highs. The decline in Treasury yields may be a signal of cracks in the global recovery, putting the onus back on monetary and fiscal authorities to support ailing economies even as inflation remains elevated. Data at the end of last week showed retail sales remained robust in the U.S. but consumer sentiment unexpectedly declined as mounting concerns over rising prices led to a deterioration in buying conditions for big-ticket items.
• Asian stocks were headed for their worst decline in a month amid a selloff in Chinese technology names and concerns over rising coronavirus cases in various countries across the region. Alibaba and Tencent were the biggest drags on the MSCI Asia Pacific Index, which slid as much as 1.4%. The Hang Seng Index was among the region’s worst performers, with a subgauge of tech shares losing as much as 2.7%. The Asian stock benchmark managed a gain last week following a sharp two-week decline sparked by China’s moves to probe some of the country’s biggest companies and regulate overseas IPOs. The S&P 500 fell Friday as U.S. consumer sentiment unexpectedly dropped to a five-month low in early July, and as President Joe Biden warned U.S. firms about the risks of doing business in Hong Kong.
• Oil in London declined to the lowest level in five weeks after OPEC+ agreed to boost production into 2022, while a surge of the delta coronavirus variant threatened the rebound in the global economy. Brent futures lost as much as 2.9%. OPEC and its allies will add 400,000 barrels a day each month from August until all halted output is revived. A surge in virus cases from Asia to the U.S. drove equities lower. The dollar climbed, making commodities like oil that are priced in the U.S. currency less appealing. The OPEC+ deal, announced over the weekend after Saudi Arabia and the United Arab Emirates resolved their differences, gives traders a better view of how quickly the cartel will restore the 5.8 million barrels a day it’s still withholding. Saudi Arabia, the UAE, Iraq, Kuwait and Russia all got higher baselines against which cuts will be measured from May 2022.
• Gold declined, extending its retreat from a one-month high, as the dollar strengthened amid a deterioration in risk sentiment across markets. Bullion is back trading near $1,800 an ounce as investors weigh the outlook for stimulus, the global recovery and the rally in Treasuries, which sent 10-year yields further below 1.3%. Southeast Asia — a key gold-buying center — continues to reel from a wave of infections, while Prime Minister Boris Johnson’s plan to get the U.K. back to normal is at risk from soaring cases.
• Investors added money to exchange-traded funds that buy emerging market stocks and bonds last week. Inflows to U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $1.24 billion in the week ended July 16, compared with losses of $62 million in the previous week, according to data compiled by Bloomberg. So far this year, inflows have totalled $33.6 billion.
• For two decades Chinese tech firms have flocked to the U.S. stock market, drawn by a friendly regulatory environment and a vast pool of capital eager to invest in one of the world’s fastest-growing economies. Now, the juggernaut behind hundreds of companies worth $2 trillion appears stopped in its tracks. Beijing’s July 10 announcement that almost all businesses trying to go public in another country will require approval from a newly empowered cybersecurity regulator amounts to a death knell for Chinese initial public offerings in the U.S., according to long-time industry watchers.
• Zoom Video Communications Inc., whose online conferencing services took off during the Covid-19 pandemic, agreed to acquire Five9 Inc.for $14.7 billion, using its surging stock to expand into an adjacent market that could bolster revenue as lockdowns end. The value of the all-stock offer is $200.18 a share based on the closing price for Zoom’s common stock on Friday, compared with Five9’s $177.60 price on Friday, the companies said a statement Sunday. The target firm will become an operating unit of Zoom’s after the deal, which is subject to shareholder approval and slated to close in the first half of 2022. Zoom has been looking for ways to keep growing as workers begin to return to the office and students go back to school. Five9 specializes in contact centers, a market the companies estimate at $24 billion. Together, Zoom and Five9 aim to better compete with the likes of Cisco Systems Inc., RingCentral Inc. and Amazon.com Inc. in letting clients provide customer service via the internet. One beneficiary could be Zoom Phone, a cloud-based calling service.
• Tencent Holdings Ltd. has agreed to buy the rest of Sumo Group Plc it doesn’t already own, adding to a string of gaming investments by Chinese social media and gaming giant. The shares jumped the most on record. Asia’s most valuable firm is offering 513 pence per share for Sumo, a 43% premium to the British company’s previous close. On a fully diluted basis, the offer values Sumo at about 919 million pounds ($1.26 billion). Tencent had previously purchased a 9.96% stake in Sumo in 2019. Tencent is the world’s largest gaming company, with stakes in giants such as Riot Games and Epic Games Inc. The company has said it plans to plow a larger portion of its incremental profits this year into cloud services, games and video content, to fend off competition from the likes of ByteDance Ltd. and growing scrutiny from Beijing.
• U.S. Treasury Secretary Janet Yellen expressed doubts about last year’s trade deal with China, the first clear statement from the Biden administration detailing its thinking about the future of the agreement between the world’s two largest economies. “My own personal view is that tariffs were not put in place on China in a way that was very thoughtful,” she told the New York Times in an interview as she returned to the U.S. last week. “Tariffs are taxes on consumers. In some cases it seems to me what we did hurt American consumers, and the type of deal that the prior administration negotiated really didn’t address in many ways the fundamental problems we have with China.” The agreement signed between the Trump administration and China in January 2020 was meant to put a stop to a damaging trade war that triggered tariffs on billions of dollars worth of goods. The Biden administration has to decide whether to keep the deal, scrap it, or seek to replace it with something new.
• Germany’s devastating flood damage has shifted the dynamic in the country’s election campaign, potentially redrawing political lines in the contest to succeed Chancellor Angela Merkel. Images of battered cars piled up in swollen gullies and floodwater surging through sleepy half-timbered villages have shocked German voters. With the authorities looking ill-prepared and climate concerns back on top of the public agenda, the Green party has gained an opening. Conservative front-runner Armin Laschet hampered his bid by jesting in the midst of the catastrophe, which has galvanized the German government into action. Merkel’s cabinet will meet on Wednesday to approve emergency aid for the worst-hit regions.
• Boris Johnson’s plan to get the U.K. back to normal is at risk of being derailed amid a public outcry over his attempt to dodge pandemic isolation rules, as Covid-19 cases soar the most in the world. Coronavirus restrictions expired in England on Monday, a moment that was meant to herald the full reopening of an economy battered by its deepest recession in 300 years. But the lifting of curbs came against a fraught backdrop of surging infections and political strife for Johnson. The U.K. added more than 54,000 new cases Saturday, and over 47,600 on Sunday, more than Indonesia, the current pandemic epicenter, according to data compiled by Johns Hopkins University.
• The U.S., U.K. and allies formally attributed the Microsoft Exchange hack to actors affiliated with the Chinese government, and the U.S. and other nations are joining in that assessment, escalating last week’s tensions between the White House and China. The U.S. and a group of allies said Monday that the Chinese government has been the mastermind behind a series of malicious ransomware, data theft and cyber-espionage attacks against public and private entities, including the sprawling Microsoft Exchange hack earlier this year. The European Union’s foreign policy chief Josep Borrell said that the cyberattack was conducted from China and “resulted in security risks and significant economic loss for our government institutions and private companies.” The activities were linked to the hacker groups Advanced Persistent Threat 40 and Advanced Persistent Threat 31, according to an EU statement on Monday.
• Robinhood Markets Inc. is planning to raise more than $2 billion in its initial public offering expected later this summer. The trading app company at the center of this year’s meme stock frenzy said in a filing Monday with the U.S. Securities and Exchange Commission that it will market 55 million shares for $38 to $42 each. Robinhood’s shares are expected to trade on the Nasdaq Stock Market under the symbol HOOD. Robinhood’s appeal caught on during the coronavirus pandemic as homebound young people turned to online trading to pass the time and make money. Its monthly active users have more than doubled in the past year, with 17.7 million as of the first quarter, up from 8.6 million in the same period last year.
• Bill Ackman will buy a stake in Universal Music Group with his hedge fund rather than his blank-check company after U.S. regulators looked set to block the planned deal and investors balked at its complexity. Ackman’s special purpose acquisition company, Pershing Square Tontine Holdings Ltd., will withdraw its offer for a 10% stake, he said in a letter on Monday. His hedge fund, Pershing Square Holdings Ltd., will assume the share purchase agreement, and buy 5% to 10% of the music label, UMG’s owner Vivendi SE said in a separate statement. Pershing Square Tontine had planned to distribute the Universal Music shares to its investors after a public listing of the music business in Amsterdam later this year. Investors would’ve also gotten the right to acquire a stake in a new vehicle known as a special purpose acquisition rights company, or SPARC. The deal would’ve effectively shrunk the size of Ackman’s blank-check company, allowing it to go after smaller targets.
• Singapore’s online real estate firm PropertyGuru Pteis nearing a deal to go public through a merger with Bridgetown 2 Holdings Ltd., the blank-check company backed by billionaires Richard Li and Peter Thiel, according to people with knowledge of the matter. A transaction could value the combined entity at about $1.8 billion, the people said, asking not to be identified because the matter is private. The deal will also include a private investment in public entity, or PIPE, of about $100 million to $150 million, anchored by institutional investors including Australia’s REA Group Ltd., the people said. The parties are hammering out the final details and an announcement could come as early as this week, the people said. Discussions could still face delays or even fall apart, they added. Representatives for PropertyGuru and Bridgetown 2 declined to comment, while a representative for REA Group didn’t immediately respond to requests for comment.
• OPEC and its allies struck a deal to inject more oil into the recovering global economy, overcoming an internal split that threatened the cartel’s control of the crude market. An unusually public dispute that tested the group’s unity was resolved in a classic compromise — with Saudi Arabia meeting the United Arab Emirates halfway in its demand for a more generous output limit. The deal, agreed at a hastily convened Sunday meeting ahead of a long Islamic holiday, allows for monthly supply hikes of 400,000 barrels a day. It puts OPEC+ back in control of the market after two volatile weeks, in which traders considered the possibility that the alliance could unravel.
• Kin Insurance Inc., an insurance-technology startup that counts golfer Rory McIlroy among its investors, has agreed to go public through a merger with Omnichannel Acquisition Corp., a blank-check firm led by Matt Higgins, a longtime investor who has appeared as a “Shark Tank” judge. “We were searching for a digitally fueled business that was going to disrupt a change-resistant industry,” said Higgins. He cited his team’s expertise with customer acquisition — such as with the use of micro-influencers — as a mechanism to accelerate growth at Kin, which benefited from increased e-commerce adoption throughout the pandemic. The transaction is a way to “pour gas on” the company’s expansion plans, Kin co-founder and Chief Executive Officer Sean Harper said in an interview. The combined company is set to have an enterprise value of about $1 billion, and the transaction includes commitments for an $80 million private investment in public equity, or PIPE, at $10 a share.
• Congress is aiming to hobble China’s ability to recruit scientists and academics in the U.S. as part of broader moves in Washington to confront the Asian nation’s growing clout. A recently passed House bill to bolster American research and development would bar scientists and academics from participating in U.S.-funded research projects if they are also receiving support from Beijing. “For years, Congress, federal research agencies, the national security agencies and universities have been working to root out malign foreign talent recruitment,” Iowa Republican Representative Randy Feenstra, who introduced the measure, said during a committee hearing on the legislation. “The time has come to simply prohibit them from receiving U.S. taxpayer dollars.”
• The father and son that smuggled Carlos Ghosn out of Japan in a large musical-equipment case were sentenced to time in prison for their role in helping Nissan Motor Co.’s former chairman flee trial in 2019. Michael Taylor, 60, the father and a former U.S. Green Beret, received a sentence of two years from the three-judge panel on Monday in a hearing in Tokyo that lasted about 20 minutes. His 28-year-old son, Peter Taylor, was handed a 20-month sentence. Both pleaded guilty last month to charges of aiding Ghosn’s escape to Beirut, a development that was just as shocking as the November 2018 arrest of the auto executive for alleged financial crimes. With Ghosn out of reach — Lebanon doesn’t extradite its citizens — the pair has become a proxy for Ghosn and his case. So has Greg Kelly, a former Nissan director who was detained on the same day as his boss and is facing trial in Japan. Ghosn and Kelly have denied allegations of understating the auto executive’s compensation.
• Looking to tackle a host of challenges that are hindering the U.S.’s economic recovery, the White House has put the housing supply shortage in the spotlight during a meeting with leaders from across the homebuilding industry. Biden administration officials including Commerce Secretary Gina Raimondo and Secretary of Housing and Urban Development Marcia Fudge sat down Friday with representatives from across the supply chain, including builders, housing advocates, lumber companies, real estate firms, loggers and labor unions, the White House said. Builders cite high materials prices, scarce supplies and a dearth of skilled workers as ongoing challenges in the race to complete new homes. Low mortgage rates and demand for properties in the suburbs spurred by remote work because of the pandemic have fueled the U.S. housing market for more than a year. A lack of homes for purchase helped to push prices higher, with the S&P CoreLogic Case-Shiller index climbing more than 14% from a year earlier in April, the most in data going back to 1988.
• The U.S. cannabis industry had eagerly awaited a federal legalization bill that executives, investors and interest groups had hoped would be a panacea for the partisan divide over a hotly contested issue. What they saw last week from Senate Majority Leader Chuck Schumer left many underwhelmed. Cannabis stocks flagged after the bill was unveiled, and critics piled on from all directions. It’s not a surprise that the legislation wouldn’t please everyone, given the controversies around cannabis. Even the bill’s own authors acknowledge shortcomings, saying in a summary of the proposal that there’s still no standard to measure drugged driving, or research on how marijuana affects fetal health, and that limits their ability to be as comprehensive as they’d like. The plan is to fund more research on those and other topics, but that could take years

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*All sources from Bloomberg unless otherwise specified