July 23, 2021

Daily Market Commentary

Canadian Headlines

  • Magna International Inc. will acquire Veoneer Inc.for $3.8 billion in cash, bolstering its business supplying advanced driver-assistance systems to automakers. The $31.25-a-share offer represents a 57% premium to Veoneer’s closing price on Thursday. The transaction is expected to close toward the end of this year, according to a statement. Veoneer was spun off by leading auto-safety supplier Autoliv Inc. in 2018. The shares lost more than half their value after the split as orders slumped and the company racked up losses. Automakers and their large suppliers have struggled to commercialize autonomous-driving technology due to high costs and engineering challenges.
  • Funds managed by BlackRock Inc. and Canaccord Genuity Group Inc. are in advanced talks to buy Bridging Finance Inc., the private lender that was seized by Canadian regulators amid an investigation of its top executives, according to people familiar with the matter. BlackRock funds and Canaccord have reached out to regulators to put in a bid for the firm, which had about C$2 billion ($1.6 billion) under management as of December, the people said, speaking on condition they not be identified because the matter is private. Bridging would continue as a going concern and the new owners would manage the existing funds on behalf of its clients, the people said. There are other bidders interested in the company and there is no guarantee that a deal with BlackRock and Canaccord will be reached, they said.

World Headlines

  • European stocks climbed for a fourth day, nearing a record high as investors focused on positive earnings and reassurance of loose monetary policy in the region. The Stoxx Europe 600 Index was up 0.6% by 9:41 a.m. London time, about 0.4% away from a record high, with a broad advance across sectors that included both cyclicals and technology. Vodafone Group Plc climbed after its quarterly sales beat estimates. European equities have regained momentum after Monday’s concerns over the spike in virus cases fueled the biggest selloff of this year. The market has been buoyed by the European Central Bank’s reassurance that it won’t withdraw support too quickly. The Stoxx 600 is up 1% this week, with investors focusing on signs of corporate profit recovery.
  • U.S. equity futures climbed Friday amid earnings optimism that’s pushing global stocks back toward all-time highs despite mixed economic data and concern about the spread of coronavirus variants. Contracts on the S&P 500 and Nasdaq 100 were higher after the S&P 500 advanced closer to a new peak on Thursday and the Nasdaq 100 reached a record. Twitter Inc. climbed more than 5% in pre-market trading after strong results, which also buoyed shares of Facebook Inc. and Alphabet Inc.. Intel Corp. slipped as supply constraints overshadowed robust earnings. The 10-year Treasury yield ticked higher and the dollar strengthened marginally against a basket of major peers, on track for a second straight weekly gain.
  • In Asia, Hong Kong stocks slid as potential penalties for ride-hailing giant Didi Global Inc. sapped sentiment toward Chinese tech firms. Regulators are considering serious, perhaps unprecedented, penalties after Didi’s controversial initial public offering last month. Japan’s market was shut for a holiday. Global stocks are on course for a modest weekly advance, bolstered by robust corporate profits and stimulus support. At the same time, July’s decline in 10-year U.S. Treasury yields may signal concern over a possible peak in economic growth, in part as the delta coronavirus strain curbs mobility in some nations.
  • Oil was set to end the week roughly where it started, having recouped most of a rout on Monday with three days of gains driven by signs of recovering demand. West Texas Intermediate futures were steady near $72 a barrel of Friday after rallying about 8% in the past three sessions. Crude plunged on Monday as fears over the delta coronavirus variant’s spread triggered a selloff across financial assets. But prices have since rebounded on expectations that the oil demand recovery hasn’t been derailed, and will soon strain global inventories. Crude has rallied more than 40% this year as the rollout of vaccines stokes energy demand and drains the glut that built up during the worst of the pandemic. Data this week showed gasoline demand is essentially back to normal in many of the biggest consuming countries. Meanwhile, crude inventories at the U.S. storage hub in Cushing, Oklahoma, are falling fast.
  • Gold steadied as investors weighed the European Central Bank’s reassurances on monetary policy against mixed U.S. economic data. ECB president Christine Lagarde said Thursday that the central bank has learned from the errors of past crises and won’t derail the current economic recovery by withdrawing emergency support too early. It revised guidance on interest rates, tying policy shifts more tightly to hitting its new 2% inflation goal, and said it won’t necessarily react immediately if price growth exceeds that target for a “transitory” period.
  • Russia’s central bank delivered its biggest interest-rate hike since the 2014 ruble crisis and warned there could be more to come as it struggles to contain surging inflation. The benchmark rate was raised 100 basis points to 6.5% on Friday, the Bank of Russia said in a statement. That’s the biggest increase since an emergency hike of 650 basis points in December 2014, in the wake of an oil-price rout and Russia’s annexation of Crimea. Friday’s move was forecast by a majority of economists polled in a Bloomberg survey. The ruble briefly extended gains on the decision, while bond yields climbed.
  • Pfizer Inc. and BioNTech SE’s Covid-19 vaccine provided a strong shield against hospitalization and more severe disease in cases caused by the delta variant in Israel in recent weeks, even though it was just 39% effective in preventing infections. Britain’s economy showed signs of slowing in July as euphoria following the easing of restrictions eased and a resurgence of the virus caused staff shortages. Meanwhile, Europe’s post-lockdown economic surge strengthened, but businesses warned shortages of raw materials, delivery delays and rising costs threaten the outlook. Japan’s Olympics organizers reported a record number of new infections, including three athletes, bringing the total to 110 just hours before the opening ceremony is scheduled to start in a nearly empty stadium in Tokyo. New Zealand suspended its quarantine-free travel bubble with Australia as new infections hit a record in Sydney.
  • When Twitter Inc. and Snap Inc. posted quarterly revenue that blew past analysts’ expectations, the results bumped up the shares of two of their larger rivals: Facebook Inc. and Alphabet Inc. While Facebook and Google parent Alphabet don’t report their numbers until next week, the tech giants are also in the digital advertising business, and the reports from Twitter and Snap answered some lingering investor questions. The pandemic, which caused businesses to sell more of their products online, has started to subside in some parts of the world, but it turns out advertisers are still increasing their budgets. “The results from Twitter and Snapchat today are a part of the trend of brands and other big advertisers trying to get back to their spending levels before the pandemic, and so there is a strong appetite for digital ads, especially for video products,” said Nazmul Islam, an analyst at EMarketer. “We are currently expecting Facebook and Google to also show pretty decent growth levels in revenue next week.”
  • Carlyle Group Inc. is seeking to raise as much as $27 billion for its latest flagship fund, in what would be the industry’s largest-ever private equity pool. The firm is in discussions with investors about the size of the fund, according to people familiar with the matter, and the total could change. Should it meet its goal, Carlyle would surpass Blackstone Group Inc.’s $26 billion record from 2019. The fund would also be 46% larger than its previous flagship pool from 2018. Private equity firms are gathering billions of dollars as demand for alternative assets surges among yield-hungry investors. This month, Hellman & Friedman raised $24.4 billion for its latest flagship fund, the firm’s biggest to date. Private equity funds took in $514 billion in the first half of this year, 70% more than the same period in 2020, according to data provider Preqin.
  • The Federal Reserve will start scaling back asset purchases next year with an emphasis on mortgage-backed securities, according to economists surveyed by Bloomberg, who see the central bank raising interest rates at a quicker pace through 2024 than previously thought. Slightly more than half expect MBS tapering will happen proportionally faster than for Treasuries. Several regional Fed presidents are advocating for that approach to cool the housing market, though Chair Jerome Powell and New York Fed chief John Williams have sounded lukewarm to the suggestion. The economists also see two quarter-point rate hikes by the end of 2023 — matching the median projection of Fed officials published in June — with three more increases in 2024. That’s more than predicted in the June survey. A large majority of them continue to expect President Joe Biden will renominate Powell as chair.
  • General Motors Co. is introducing its hands-free driving software to more vehicles and adding new features such as automatic lane change capability, a sign of the increased competition among carmakers for the latest driver-assist technology. The Detroit-based automaker said it is expanding Super Cruise beyond its Cadillac luxury line and Bolt EUV to six 2022 model year vehicles, including its full-size Chevrolet Silverado, GMC Sierra and upcoming electric GMC Hummer trucks. The new functions also will be available on select 2021 model year vehicles through over-the-air updates. Semi-autonomous features like hands-free driving and crash-avoidance technology have become hotly contested battle grounds, as automakers seek to boost prices, best rivals with options that command a premium, and give drivers high-tech bragging rights.
  • The White House on Friday announced plans to expand aid for mortgage borrowers who have fallen behind on payments during the coronavirus pandemic. Enhanced assistance will be provided to homeowners with government-backed mortgages who have been negatively impacted by the pandemic, with the aim cutting some monthly payments by roughly 25%, according to a White House fact sheet. The move is designed to more closely align options for mortgages backed by the Department of Housing and Urban Development, the USDA, and the Veterans’ Affairs Department with those offered for mortgages backed by Fannie Mae and Freddie Mac, the White House said.
  • Negotiations between the European Union and the U.S. torecognise each other’s vaccination passes are struggling to make headway due to the absence of a federal certification system in America, according to a diplomatic memo seen by Bloomberg. EU ambassadors were told at a meeting on Thursday that the European Commission is, however, in an advanced stage of talks with the U.K., and in contact with Japan, Australia and Canada. Discussions with Ottawa were described as promising and officials are hoping that the EU’s Covid certificates will be recognised in September when Canada is due to reopen travel to vaccinated non-U.S. travelers, the memo says. The talks are taking place as Europe and much of the western world starts to gradually open up air travel after it ground to a near halt during the pandemic. But with the delta variant becoming dominant in much of the EU, and vaccination and infection rates varying significantly across countries, rules remain patchy. Some countries require people to quarantine while others only allow vaccinated arrivals.
  • HSBC Holdings Plc and Bank of China Ltd.’s Hong Kong unit are reconsidering their decisions to halt mortgages for China Evergrande Group’s unfinished residential properties in Hong Kong, after the city’s de facto central bank questioned the moves, according to people familiar with the matter. The Hong Kong Monetary Authority on Thursday asked some banks to explain the situation, questioning whether staff and homebuyers had been told that new loans for two of Evergrande’s under-construction projects were being suspended, the people said, asking not to be identified as the matter is private. One bank official interpreted the HKMA’s questions as a subtle request to rethink the decision. At least four of Hong Kong’s top lenders — including HSBC, Bank of China’s local unit, Hang Seng Bank and Bank of East Asia — decided on the mortgage halts earlier this week after re-evaluating the risks of such loans, according to people familiar with the matter. It’s unclear whether Hang Seng Bank and Bank of East Asia have joined their peers in rethinking the halts.
  • Vitol Group has paid a record $2.9 billion to its executives and staff through share buybacks so far this year after the world’s largest independent oil trader notched up its best ever results in 2020. The share buyback — Vitol’s main way of rewarding about 350 top employees who own the privately-held company — means the trading house has distributed a total of nearly $19 billion in the past 17 years to its partners, according to the company’s audited annual accounts, seen by Bloomberg News. The results highlight the bonanza enjoyed by commodity traders in the midst of the coronavirus pandemic as oil prices gyrated wildly. They also show how the riches of the commodities trading industry have accrued to a small cadre of senior executives who have surfed the ups and downs of the energy markets over the past two decades.
  • Honeywell International Inc.’s profit topped analyst estimates as the company’s aerospace and energy businesses started to recover from the pandemic-induced slump, adding to robust growth from factory-automation and building-safety products. The company raised its profit and sales outlook. Adjusted second-quarter earnings rose to $2.02 a share, soaring from $1.26 last year when airlines slashed services and oil prices dropped as people stopped traveling to stem the spread of Covid-19. Analysts had expected a profit of $1.94, according to the average of estimates compiled by Bloomberg. Sales jumped 18% to $8.81 billion, while Wall Street projected $8.65 billion.
  • Arabica coffee traded above $2 per pound for the first time in more than six years, extending a blistering rally after severe frost ravaged fields in top grower Brazil. The variety, used in high-end beverages by coffee makers like Starbucks Corp., has soared more than 27% this week — the biggest jump since 1999 — after the worst frost in two decades destroyed some trees in the South American nation. The damage wrought by the cold spell is especially deadly for young trees, which could hamper production for years. Wild weather in the country adds to the threat of food inflation, with a United Nations index of global costs already hovering near a decade high. Adverse conditions in some major agricultural producers have drawn down crop stockpiles in the past year, and an import spree in China added to the crunch.
  • The battle to win affluent customers is paying off for American Express Co. The credit-card giant added a record number of new customers to its tony Platinum card in the period. That helped revenue surge 33% to $10.2 billion in the second quarter, topping the $9.6 billion average estimate of analysts in a Bloomberg survey. “Demand for our premium, fee-based products continued to be robust,” AmEx Chief Executive Officer Steve Squeri said in a statement announcing the results, noting the firm also retained card customers at rates above pre-pandemic levels.
  • McDonald’s Corp. is expecting its corporate workers to be in the office three days a week, extending them an extra flexible workday compared with before the pandemic. The world’s biggest restaurant chain by sales will allow office staff to be at home two days a week instead of just one, which was the policy before Covid-19 upended work and life across the globe last year. Meanwhile, Chief Executive Officer Chris Kempczinski is planning five international trips beginning in August through the end of the year, he said in an interview for a forthcoming episode of “The David Rubenstein Show: Peer-to-Peer Conversations” on Bloomberg TV.
  • China is considering asking companies that offer tutoring on the school curriculum to go non-profit, according to people familiar with the matter, as part of a sweeping set of constraints that could decimate the country’s $100 billion education tech industry. Shares sank. In rules currently being mulled, the platforms will likely no longer be allowed to raise capital or go public, the people said, asking to not be identified because the information is not public. Listed firms will also probably no longer be allowed to invest in or acquire education firms teaching school subjects while foreign capital will also be barred from the sector, one of the people said. Local regulators will stop approving new after-school education firms seeking to offer tutoring on China’s compulsory syllabus and require extra scrutiny of existing online platforms, the people said. Vacation and weekend tutoring on school subjects will also be banned, they said. Changes may still occur as the rules haven’t been published. The 21st Century Business Herald earlier reported the bans on IPOs and investments by listed firms.

“It’s all about the journey, not the outcome.”– Carl Lewis, 9 time Olympic Gold Medalist, 1 time Olympic Silver Medalist

*All sources from Bloomberg unless otherwise specified