July 28, 2021

Daily Market Commentary

Canadian Headlines

  • Canadian stocks were mixed Tuesday as investors digested corporate earnings. The S&P/TSX Composite Index was mostly unchanged, with real estate and industrials rising, while cannabis and energy lagged. Pot investors will gain some color this week as Tilray is set to report earnings after combining with Aphria. Shopify Inc. has entered the ranks of one of the biggest Canadian companies ever, passing $200 billion in stock market value last week. It’s a sign of the market’s upbeat view of its prospects — even as its growth rate begins to soften. Bank of Canada officials need to “temper their enthusiasm” that strong inflation readings will be short-lived, according to one former governor.
  • Prime Minister Justin Trudeau is stepping in to aid a long-delayed, over-budget hydroelectric project in the province of Newfoundland and Labrador, according to the Canadian Broadcasting Corp. The Canadian government will buy an equity stake in the Muskrat Falls project and provide debt guarantees as part of a “multi-billion dollar” financial restructuring agreement with the Atlantic province, the CBC reported Tuesday evening, without providing specific amounts. Trudeau is scheduled to appear with Newfoundland Premier Andrew Furey in St. John’s, the provincial capital, at 12:30 p.m. local time on Wednesday. Spokespeople for the prime minister and Finance Minister Chrystia Freeland declined to comment. The expected announcement would mark another intervention by Trudeau in the 824-megawatt dam on the lower Churchill River in the sparsely-populated Labrador region. In November 2016, the government guaranteed nearly C$3 billion ($2.4 billion) in debt for the project after costs had ballooned to more than C$11 billion from an initial C$7.4 billion.
  • Shopify Inc. posted second quarter results that beat expectations, with adjusted profit per share more than twice what analysts had forecast, and said operating earnings for 2021 should exceed last year’s. The Canadian e-commerce company said it earned $2.24 per share on an adjusted basis. Analysts had expected earnings of 98 cents. The U.S. government’s stimulus package and “sustained momentum of digital commerce trends” help Shopify generate better-than-expected revenue with lower operating costs, the company said in a statement. “As a result, we now expect full-year 2021 adjusted operating income to be above the level we achieved in 2020.”

World Headlines

  • European stocks advanced on Wednesday, paring this week’s losses, as a volley of blue-chip earnings boosted sentiment across sectors, while reports of looser U.K. travel restrictions helped lift travel shares. The Stoxx Europe 600 Index was up 0.4% by 10:50 a.m. London time, with retail shares among the biggest advancers, as Gucci owner Kering SA jumped after its flagship brand exceeded growth expectations. Barclays Plc climbed after announcing a share buyback and as investment bankers brought in a record haul. Equities across the region are regaining their footing after a two-day retreat from last week’s record high. The decline followed China’s expansion of a regulatory crackdown to the education sector, which had been drawing heavy foreign investment, adding to existing unease over inflation and rising infections from the Covid delta variant.
  • U.S. futures drifted and stocks were mixed as investors weighed earnings from technology heavyweights. Treasuries fell ahead of the Federal Reserve’s rate decision. Contracts on the Nasdaq 100 Index and the S&P 500 fluctuated as Alphabet Inc. gained in premarket on strong sales, while Apple Inc.dropped on concern over slower growth. Pfizer Inc. rose after raising its revenue outlook, driven by Covid-19 vaccines. European shares trimmed gains, while a gauge of Asia-Pacific shares fell to its lowest this year. While strong earnings are boosting confidence in the corporate recovery, this week’s China selloff added to investor worries about the threat to global growth from the delta variant and the potential for tighter policy. Treasuries fell ahead of today’s Fed decision, at which officials are expected to discuss how and when to taper stimulus.
  • Asian equities fell for a fourth day, with Japan and the Philippines among the biggest losers on concerns related to coronavirus infections. Stocks in China halted a three-day selloff. The MSCI Asia Pacific Index slipped 0.3%, with SoftBank Group the biggest drag. China’s CSI 300 Index edged higher — after earlier fluctuating on the brink of a bear market — as state media tried to bolster investor confidence shaken by Beijing’s escalating regulatory campaign. The Hang Seng Index reversed losses to gain 1.5%. Renewed Covid-19 worries add to headwinds in Asia as investors continue to weigh China’s crackdown on the tech sector. The region’s equities have already been underperforming their global peers, with the MSCI Asia Pacific Index wiping out all its gains for 2021 just as the S&P 500 and the Stoxx Europe 600 hit all-time highs in recent days.
  • Oil rose in New York after an industry report pointed to a decline in U.S. fuel and crude stockpiles, while the dollar erased gains. West Texas Intermediate futures added 1.2% to trade above $72 a barrel after slipping for a second session on Tuesday. The American Petroleum Institute reported a 6.23 million-barrel weekly drop in gasoline inventories, according to people familiar with the figures. That would be the biggest draw in motor fuelstockpiles since March if confirmed by government data later Wednesday. Global inventories are expected to tighten through the rest of the year as key energy consumers continue to rebound from the pandemic, although the latest Covid-19 resurgence is raising concerns about the short-term demand outlook. The fast-spreading delta variant has led to renewed restrictions in some regions, putting crude on track for its second monthly loss since October.
  • Gold traded sideways and base metals were mixed as investors wait for more clues on tapering and inflation from a two-day Federal Reserve meeting that ends Wednesday, and also digested the International Monetary Fund’s latest growth outlook. With the delta variant posing a growing risk to the U.S. economy, Fed Chair Jerome Powell and his colleagues are likely to emphasize patience on scaling back the central bank’s massive policy support. The Federal Open Market Committee is all but certain to hold interest rates near zero and repeat a vow to keep buying bonds at the current $120 billion monthly pace. The panel will release a statement at 2 p.m. in Washington and Powell will hold a press briefing 30 minutes later. The IMF maintained its outlook for the biggest jump in global economic growth in four decades, although it changed its regional forecasts due to unequal access to vaccines hampering the recovery in developing nations. World output will grow 6% in 2021 following last year’s 3.2% drop, the fund said in an updated World Economic Outlook released Tuesday.
  • Tokyo is set to report more than 3,000 new cases of coronavirus Wednesday, Kyodo News reported, citing an unidentified government official. Sydney’s month-long lockdown will be extended by at least another four weeks. South Korea and Thailand both announced record daily infections as the coronavirus continues to spread in Asia. U.S. health officials returned to tighter guidelines for the use of masks, advising that fully vaccinated individuals wear them in public indoor settings in places where the virus is spreading rapidly. President Joe Biden said he’s weighing a requirement for federal workers to get vaccinated. AstraZeneca Plc’s vaccine doesn’t raise the risk of a rare blood clotting disorder after a second dose, suggesting people who didn’t have trouble with the first shot shouldn’t hesitate to get another.
  • Analysts are forecasting the four biggest European oil companies will boost buybacks by 22% this year and 176% next year, with surging crude prices leaving them plenty of cash to return to shareholders. Royal Dutch Shell Plc, TotalEnergies SE, BP Plc and Equinor ASA are forecast to conduct $5 billion in buybacks this year and $13.8 billion next year, the consensus of analysts surveyed by Bloomberg shows. That’s up from $4.1 billion in 2020. Analysts also see them increasing dividends, though at a slower pace.  BP, Shell, Equinor and Total — which report earnings this week — are forecast by analysts to lift buybacks in both 2021 and 2022, before they settle just below pre-pandemic levels in the following years.
  • Citizens Financial Group Inc. agreed to buy Investors Bancorp in a $3.5 billion deal that will give it a bigger presence in New York City and Philadelphia. The cash and stock transaction is expected to be completed in the first half of next year, the banks said in a statement Wednesday. The purchase will add about $27 billion of total assets, which would bring Citizens above $200 billion. Citizens, based in Providence, Rhode Island, is already among the 20 biggest U.S. banks and has been growing through acquisitions. Earlier this year, it agreed to buy 80 of HSBC Holdings Plc’s U.S. branches, picking up about $9 billion in deposits and $2.2 billion in loans as part of the deal.
  • President Joe Biden promised a “summer of joy” on July 4 as he declared America’s independence from Covid-19. Three weeks later that sense of victory is evaporating in the face of a resurgent pandemic. The U.S. now faces a surge in cases fueled by vaccine holdouts and the highly transmissible delta variant, prompting the federal government and companies on Tuesday to weigh mandatory vaccinations of workers and a return to widespread mask wearing. That reversal of fortune could bring back restrictions many Americans had hoped were gone for good — a bitter setback for Biden, who has counted on defeating the pandemic as a cornerstone of the nation’s economic recovery. As the seven-day rolling average of new infections approached 52,000 on Tuesday, more than four times the level just three weeks ago, the Centers for Disease Control and Prevention issued new guidance recommending Americans resume wearing masks in indoor public places in many parts of the country — regardless of whether they’re vaccinated.
  • The U.K. government is set to allow visitors from the U.S. and the European Union to travel to England without needing to quarantine on arrival if they have been fully vaccinated. The plan will allow American visitors, along with travelers from most EU countries, to enter the U.K. on the same basis as Britons who have received two Covid shots. U.K. residents are are no longer required to self-isolate when returning from most medium-risk countries. Prime Minister Boris Johnson and his senior team are due to discuss and finalize details of the policy at a meeting Wednesday, people familiar with the matter said. The change in policy could come into force as soon as next week, they added.
  • European natural gas futures climbed to an all-time high on Wednesday amid heightened concerns over a supply crunch. Liquefied natural gas imports into the U.K. are at the lowest in almost two years, with just one tanker arriving at Britain’s shores this month as cargoes head to Asia where prices are more attractive. Norway’s Troll gas field will run at reduced capacity through most of August and early September, affecting one of Europe’s largest production facilities and exacerbating demand to restock supplies before winter.
  • Spotify Technology SA added fewer users in the three months through June than investors had expected, as the audio streaming giant blamed the pandemic for its second straight quarter of sluggish growth. The company added nine million monthly active users in the period, bringing the total to 365 million. That fell short of the company’s own forecast, as well as those of Wall Street, which estimated 372 million by the end of June.
  • U.K. house prices fell unexpectedly in July, signaling a loss of momentum in the property market after a tax break on purchases began to be phased out. The average value of a home fell 0.5% to 244,229 pounds ($338,800), the first decline in four months, Nationwide Building Society said Wednesday. It followed an average gain of 1.6% between April and June. The annual pace of increase slowed to 10.5% from a 17-year high of 13.4%. The figures represent a return to more normal conditions after a frenzied yearthat saw the housing market defy the worst economic slump in more than 300 years. Demand was driven by the prospect of thousands of pounds of savings for purchases completed by June 30 and a pandemic-induced quest for homes with more space away from built-up urban areas.
  • Spain will sell its inaugural green bond in September, joining a flurry of other governments making debuts to fund environmental projects this year. The Spanish Treasury’s first such bond will have a 20-year maturity, Economy Minister Nadia Calvino said on Wednesday. She didn’t specify how much it plans to raise, though the government has identified 13.6 billion euros ($16.1 billion) of projects to finance with green debt, such as sustainable transportation and waste water treatment. In addition, Spain will invest around 20 billion euros on other environmental programs through 2023 that will be financed by the European Union’s executive arm. The bloc is also expected to make its green bond debut later this year and ultimately become the world’s biggest seller, channeling those funds to member states as part of its pandemic recovery package.
  • Swiss staffing company Adecco Group AG agreed to buy Akka Technologies, a provider of consulting services on high-tech engineering projects, for 1.5 billion euros ($1.8 billion). Akka investors will receive 49 euros a share, Adecco saidWednesday, almost double Tuesday’s closing price. The main shareholders, the Ricci family and Belgium’s Cie. Nationale a Portefeuille SA, have irrevocably accepted the terms. They own 60% of the company, which has operations in Europe, predominantly in France and Belgium.
  • Pfizer Inc. significantly increased its forecast for Covid-19 vaccine sales, saying it now expects the shots to bring in $33.5 billion this year, higher than the previous estimate of $26 billion. The New York drugmaker now expects full-year revenue of $78 billion to $80 billion, compared with $70.5 billion to $72.5 billion previously. Adjusted earnings per share are projected to reach $3.95 to $4.05, up from the previous forecast of $3.55 to $3.65.
  • Credit Suisse Group AG failed to properly monitor tens of billions of dollars of exposure that piled up while handling trades for Archegos Capital Management that generated relatively little revenue, according to people briefed on the findings of the bank’s internal inquiry. The report into how the bank lost about $5.5 billion tied to the collapse of Bill Hwang’s family office paints a picture of due diligence failings as employees chased business that made little economic sense, the people said, asking not to be identified because the conclusions aren’t yet public. Credit Suisse will probably post findings alongside earnings on Thursday. Despite the report’s withering assessment of how the lender got burned when the U.S. hedge fund collapsed earlier this year, it doesn’t allege criminality inside the Swiss bank, the people said. A spokesperson for Credit Suisse declined to comment.
  • McDonald’s Corp. posted sales that topped analysts’ estimates as U.S. diners proved willing to pay higher prices and international markets saw fewer pandemic-related closures. Comparable-store sales rose almost 41% globally from a year earlier, outpacing the 39% gain that analysts expected. By the same measure, McDonald’s also beat Wall Street projections in the U.S. and its international markets. The results underscore how McDonald’s has emerged from the pandemic stronger, underpinned by drive-thru orders, carryout and, increasingly, delivery. McDonald’s said that online and mobile orders in its top six markets climbed 70% year-to-date, showing that the Chicago-based company’s investment in the area appears to be paying off.
  • With the delta variant posing a growing risk to the U.S. economy, Federal Reserve Chair Jerome Powell and his colleagues are likely to emphasize patience on scaling back the central bank’s massive policy support. The Federal Open Market Committee is all but certain to hold interest rates near zero at the conclusion of a two-day policy meeting on Wednesday and repeat a vow to keep buying bonds at the current $120 billion monthly pace. The panel will release a statement at 2 p.m. in Washington and Powell will hold a press briefing 30 minutes later. No forecasts are scheduled to be released at this meeting.
  • Stocks in China and Hong Kong halted a three-day rout as the Chinese state media sought to reassure investors shaken by the government’s regulatory crackdown. The CSI 300 Index ended 0.2% higher after a volatile session that saw it swing between gains and losses more than a dozen times. The Hang Seng Index closed up 1.5% after falling 1% earlier in the day and briefly entering a bear market. Both gauges are down about 18% from their February peaks. Chinese state media talked up the market after a wave of selling that had seen nearly $1.5 trillion of market value wiped off Hong Kong and mainland shares in the three trading days through Tuesday, according to Bloomberg-compiled data. Investors have dumped stocks in the crosshairs of Beijing’s sweeping regulatory crackdowns, with selling also spreading to bond and currency markets.
  • Singapore is aiming for a feat no country has achieved so far: reopen to the world and emerge from the pandemic with a death toll still in the double digits. While the U.S. and U.K. have plowed headlong into reopening their economies, their failure to contain the virus early on resulted in hundreds of thousands of fatalities. Vaccine hesitancy is also providing a reality check for strategies that treated inoculation as the magic bullet. At the other end of the spectrum, places like Australia and New Zealand managed to avoid the pathogen almost entirely, but slow progress with shots means they’re unable to lift the border controls and quarantines that keep them isolated. Singapore is seeking to succeed at both. In a plan laid out by officials this week, the tiny city-state that relies on being globally connected is eyeing the resumption of some international travel by September. To do that, it’s trying to snuff out an outbreak driven by the delta variant and reach a vaccination level — 80% — that few countries have achieved, but which the government says will put Singapore in a position where it can live with the virus without carnage.
  • Real estate focused investment firm GCP said it closed a $2.3 billion fund that will be used to buy and operate warehouses tied to logistics and e-commerce. The fund has already acquired about 25 million square feet of real estate and will will look to buy about 25 million more, GCP Chief Executive Officer Alan Yang said in an interview. Los Angeles-based GCP is aiming to own about 100 properties in the fund. GCP spun out of Singapore-based investment manager GLP in 2019 following Blackstone Group Inc.’s $18.7 billion acquisition of GLP’s U.S.-based assets. Yang, who was GLP’s chief investment officer, founded GCP after it took on $1.1 billion of GLP assets that weren’t part of the Blackstone deal.
  • While U.S. homeowners may be celebrating their good fortune as home prices surge higher at a blistering 17% year-over-year clip, history suggests the end of quantitative easing will cool things off. A healthy housing market wouldn’t exhibit the out-sized price increases seen of late. No mature market behaves this way unless an unusual exogenous factor is at work. In the case of housing, there are two of them. First is the Federal Reserve’s massive QE4 program, which in size and pace is a behemoth compared to the mortgage bond purchase programs seen during QE1 and QE3. This current QE alone now accounts for almost $2.3 trillion in mortgage bond purchases since March 2020, while the previous two QEs combined took down $2.75 trillion. The Fed now holds about 31% of the entire agency mortgage market on its balance sheet

“Expect the best. Prepare for the worst. Capitalize on what comes.”– Zig Ziglar

*All sources from Bloomberg unless otherwise specified