July 29, 2021

Daily Market Commentary

Canadian Headlines

  • Canadian equities edged higher for a third session, led by a rally in cannabis producers following Tilray’s earnings. The S&P/TSX Composite Index rose 0.3%. Technology giant Shopify fell despite strong results. Inflation decelerated in Canada for the first time this year, but price pressures continue to run at some of the hottest levels in nearly a decade. Meanwhile, oil advanced to the highest level in two weeks after declining stockpiles of U.S. crude, gasoline and distillate signaled healthy demand during the nation’s summer driving season.
  • Clarios International Inc., the car battery maker backed by Brookfield Asset Management Inc., has postponed an initial public offering that was scheduled for Thursday, according to people familiar with the matter. The IPO, which was planned to raise as much as $1.8 billion, was delayed indefinitely because of market conditions, the people said, asking not to be identified because the information was private. The Milwaukee-based company had offered 88.1 million shares for $17 to $21 apiece. At the top end of that range, it would have been valued at $10.7 billion based on the outstanding shares listed in its filings with the U.S. Securities and Exchange Commission.
  • Suncor Energy Inc. cut its full-year production guidance at its Fort Hills oil sands mine to between 45,000 and 55,000 barrels a day from a previous 65,000 to 85,000 barrels a day because of additional required work on the mine. Instability on the south side of the mine requires so-called overburden removal to occur, which is to be completed by the end of the year, the company said in its second-quarter earnings release. Fort Hills will continue at the current production level for the remainder of the year and “transition to both primary extraction trains” by late 2021 to reach full production in early 2022. Fort Hills cash operating costs have also been updated to between C$37 and C$42 a barrel from C$25 to C$29 a barrel.
  • North American lumber producers are expected to post another quarter of record profits this week, but most attention will be on the outlook, with prices for wood products stumbling and do-it-yourself renovations slowing. Producers are building and expanding sawmills in the southern U.S., where costs are low and timber is plentiful, while boosting output on expectations that the surge in homebuilding will continue. Some analysts warn that an oversupply may be building up, even with bottlenecks and supply constraints in British Columbia, Canada’s biggest lumber exporter to the U.S. Lumber companies including West Fraser Timber Co. Ltd., Canfor Corp. and Weyerhaeuser Co. have been swimming in cash during the last year due to an unexpected boom in homebuilding and renovations that caused wood prices to quadruple in 12 months and hit record highs in May. That’ll result in “the mother of all quarterly returns with record profitability” and revenues that exceed first-quarter results, said Greg Kuta of Westline Capital Strategies Inc.

World Headlines

  • European shares rose to a fresh record on Thursday after a cascade of corporate earnings that mostly offered reassurance to investors that growth continues. The Stoxx 600 Europe Index was 0.3% up as of 10:21 a.m. in London, with miners and energy stocks gaining the most. Royal Dutch Shell Plc and TotalEnergies SA both advanced after announcing buybacks, while Airbus SA climbed 4.7% after upgrading earnings and cash-flow targets. Travel stocks were weak, led lower by hotelier Accor SA after its results. Markets in Europe have rallied back from losses earlier this week as China’s selloff eases after authorities took steps to ease market fears about Beijing’s crackdown on the private education industry. Investors are also evaluating comments from central banks on stimulus programs, with the Federal Reserve reassuring Wednesday there is some way to go before it starts reducing its support to the economy.
  • U.S. futures were steady and stocks rose on positive earnings reports and optimism that the Federal Reserve won’t start tapering stimulus imminently. Treasuries fell. Contracts on the S&P 500 and the Nasdaq 100 were steady. Ford Motor Co. rose in premarket trade after a surprise profit as Facebook Inc. fell on a cautious outlook. European shares hit a fresh record, boosted by updates from Royal Dutch Shell Plc and Airbus SE.  While Fed officials are moving closer to when they can start reducing the massive bond purchases that have helped keep markets buoyant, Chair Jerome Powell’s reassurance that there’s still some way to go is boosting sentiment, along with an earnings season that’s signaling a strong corporate recovery. Still, investors will watch for data on U.S. economic expansion due later today, particularly in light of the threat to global growth from the delta virus variant.
  • Stocks in China and Hong Kong jumped Thursday, after authorities intensified efforts to calm fears about a crackdown on the private education industry and as the central bank pumped liquidity into the financial system. The CSI 300 Index closed 1.9% higher, led by materials and industrial stocks. Hong Kong’s Hang Seng Index rallied 3.3%, as Meituan and Tencent Holdings Ltd. both climbed at least 9%. Technology shares extended gains after a report said China will continue to allow its companies to go public in the U.S. as long as they meet listing requirements, following Didi Global Inc.’s controversial debut.
  • Oil extended gains from a two-week high after U.S. crude and fuel stockpiles posted strong declines, signaling peak summer demand remains robust despite a resurgence of Covid-19. Futures in New York traded near $73 a barrel after climbing 1% on Wednesday. Crude inventories dropped more than expected last week to the lowest since January 2020, while supplies of distillates — a category that includes diesel — slid the most since April, government data showed. Oil has also been supported as a weaker dollar boosts the appeal of commodities priced in the currency. The U.S. Federal Reserve indicated on Wednesday that it wasn’t quite ready to wind down economic support measures, which not only pressured the dollar but pushed up equities.
  • Gold rose as real yields held near a record low and the dollar eased after the Federal Reserve said that while it’s moving closer to reducing stimulus, the U.S. central bank wants to see more progress toward its goals first. Chair Jerome Powell said there was still some way to go to meet the conditions for tapering and officials had discussed how to scale back bond buying when the time came. He spoke after the Federal Open Market Committee held interest rates near zero and maintained asset purchases at $120 billion a month. Bullion remains trapped within a range its held in recent weeks, despite a decline in inflation-adjusted bond yields to an all-time low. The metal has failed to find a catalyst for a fresh move upwards and investor demand is still weak, with exchange-traded funds set for a second consecutive monthly outflow.
  • AstraZeneca Plc won’t seek a U.S. license for its Covid-19 vaccine until the autumn at the earliest, according to its chief executive officer, falling further behind rivals that secured emergency authorizations for their shots. The organizing committee for the Tokyo Olympics found 24 new cases related to the event while Australia’s track and field team is in isolation after exposure to a confirmed infection. The Japanese city found a third consecutive record of new cases on Thursday. South Africa is ramping up its vaccination program even as a study found more than half the country’s population say they are unlikely to get immunized.
  • China’s central bank broke out of its usual pattern of daily liquidity operations, as it boosted a cash injection into the financial system, soothing market nerves frayed by regulatory crackdowns. The People’s Bank of China added 30 billion yuan ($4.6 billion) of liquidity into the financial system with seven-day reverse repurchase agreements, raising it from 10 billion yuan of injections for the first time since June 30. The move also came amid seasonal tightness in liquidity ahead of the month-end. The cash injection is seen as a signal that regulators are seeking to restore calm in financial markets after reforms in China’s after-school eduction sector and unverified rumors that U.S. funds are offloading China and Hong Kong assets induced a sharp selloff. Interbank borrowing costs dropped Thursday, with the overnightrepurchase rate falling the most in nearly a month. The yield on China’s 10-year government bonds declined for the first time in three days.
  • President Joe Biden’s ambitious economic plans got a major push forward with the Senate voting to begin work on a $550 billion infrastructure bill and Democrats uniting behind a plan to muscle through a broader budget resolution to carry the party’s priorities. The twinned proposals — which Senate Majority Leader Chuck Schumer said he hopes to get through his chamber before the upcoming August recess — set the stage for some $4.1 trillion in new spending if they ultimately became law, amounting to the biggest overhaul of domestic programs in decades. Biden, who has been heavily involved in Senate negotiations, had to give in order to get. He had originally pitched a $2.25 trillion infrastructure proposal, but had to scale that back in negotiations with Republicans. Democrats hope to recoup some elements that didn’t make the Senate infrastructure deal in the Democrat-only legislation that will follow the budget resolution.
  • Robinhood Markets Inc. priced its initial public offering at the low end of a marketed range to raise $2.1 billion in a muted showing for one of the year’s most highly anticipated listings. The trading app company and some of its investors sold 55 million shares Wednesday for $38 each, according to a statement. Shares of the company at the center of this year’s meme stock frenzy had been offered for $38 to $42 each. The company has a market value at the IPO price of just under $32 billion based on the outstanding shares listed in its filings. Accounting for employee stock options and similar holdings, Robinhood’s fully diluted value would be closer to $33 billion. That compares of a diluted valuation of more than $36 billion that it would have had at the top end of its price range.
  • Krafton Inc. set the price for its initial public offering at the top of a revised range, on track to make the second-largest debut on record in Seoul. The Tencent Holdings Ltd.-backed game developer behind hit game PlayerUnknown’s Battlegrounds and some of its shareholders will raise 4.3 trillion won ($3.8 billion), after setting the price for its 8.65 million share sale at 498,000 won apiece, according to a filing on Thursday. The startup said the offering was 243 times subscribed by institutional investors, after a local financial watchdog asked the company to revise its prospectus last month following concerns its valuation was too high. The final share price values the 14-year-old startup, which derives nearly all of its sales from PUBG, at 24.35 trillion won, larger than NCSoft Corp., the biggest game developer listed in South Korea.
  • Royal Dutch Shell Plc raised its dividend by almost 40% and said it will buy back $2 billion of shares, continuing an effort to win back investors as stronger oil prices and a buoyant chemicals market lifted earnings. The move comes more than a year after Shell slashed its dividend by two-thirds. Modest increases to the payout since then did little to boost the company’s appeal, with its shares still about 40% lower than pre-pandemic levels despite a full recovery in oil prices. The big increases to shareholder returns announced on Thursday show a concerted effort to restore the Anglo-Dutch company’s reputation with investors as a cash machine.
  • TotalEnergies SE will resume share buybacks as soaring oil and gas prices boosted profits and drove down debt of the French energy giant in the second quarter. After enduring a historic slump due to the coronavirus pandemic, the world’s largest energy producers are seeing cash flow in again. The French company was the only European oil major not to cut its dividend during the downturn. Its rivals have been playing catch up in recent months, with Royal Dutch Shell Plc on Thursday boosting the dividend and restarting share repurchases. The increased returns comes as the biggest oil companies seek to revive appetite for their stocks, while investors are growing cautious on the industry amid growing global warming concerns. While oil in London has surged 45% this year, TotalEnergies shares and the Stoxx Europe 600 Oil & Gas Index have gained about 6%.
  • Nokia Oyj added more than $2 billion to its market value on Thursday after surprising investors with a bigger profit upgrade than expected. Shares in the Finnish maker of 5G equipment soared as much as 8.7%, making it one of the day’s best performers in the Stoxx Europe 600 index. Chief Executive Officer Pekka Lundmark said Nokia would have unveiled an even more ambitious outlook, had it not been for supply issues caused by the global shortage of semiconductors. Nokia now sees an operating margin of 4-7% for Mobile Networks this year, compared with earlier guidance that had left room for a loss. Overall sales and profit will also be bigger than previously guided, it said.
  • Trendyol, an e-commerce company backed by Alibaba Group Holding Ltd., is close to raising fresh funding at a $16.5 billion valuation, making it Turkey’s biggest startup, people with knowledge of the matter said. The company is in talks to raise about $1.5 billion from investors including General Atlantic and could complete the deal as soon as next week, the people said, asking not to be identified because the transaction isn’t yet public. SoftBank Group Corp. is also in talks to invest in the round, and proceeds will be used to expand the business in Turkey and abroad, they said. The e-commerce company has benefited from a surge in online buying in Turkey, which jumped 66% last year, according to the trade ministry. Trendyol’s gross merchandise value, a measure of the products it sells on its platform, has grown by about 20 times in the past three years and is on track to hit $10 billion this year, people familiar with the company said in April. The company may sell shares in two years through an initial public offering, the people said at the time.
  • Carlyle Group Inc. is collecting more money from investors as it posts gains across its business units. The firm brought in more than $10 billion in the second quarter, a period in which its global private equity and investment solutions funds rose 12%, Washington-based Carlyle said Thursday in a statement. Solid performance and an increase in fundraising helped lift assets under management to $276 billion, higher than analysts’ estimates. Carlyle is drawing from existing groups like global credit and private equity to hit a $130 billion fundraising target by 2024. The firm 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, Bloomberg reported earlier this month. Carlyle’s multiyear plan to supercharge growth includes bigger deals that focus on technology and health-care bets, such as the recent multibillion-dollar investment in Medline Industries Inc.
  • Nestle SA and Budweiser maker Anheuser-Busch InBev NV became the latest companies to report that their rebound in sales is clouded by pressure from rising raw material and transport prices that they’re struggling to pass on to consumers. Nestle Chief Executive Officer Mark Schneider reversed his guidance for an improvement in its key margin, and now is forecasting a slight decline to about 17.5%. AB InBev said Thursday it faced higher currency and raw materials costs in important markets such as Mexico, Brazil and Colombia, which weighed on profit. The world’s food and beverage giants have been caught up in the inflation gripping commodity markets even as revenue returns to more normal levels. As Covid vaccinations accelerate and countries around the world lift virus curbs, consumers are returning to offices and eating out at restaurants. That’s boosting demand for coffee, beer bottled water and ice cream, products that had suffered from lockdowns.
  • The European soccer market contracted for the first time since the financial crisis in the 2019/2020 season, as the coronavirus pandemic disrupted some of the region’s biggest competitions. Revenue fell by 13%, or 3.7 billion euros ($4.4 billion), to 25.2 billion euros as matches were postponed or canceled amid social distancing measures, according to a report from Deloitte released Thursday. The pain was felt across Europe’s largest leagues, with the so-called “big five” seeing revenue decline 11% in the season. “We’re now beginning to see the scale of the financial impact that the pandemic has had on European clubs,” Dan Jones, partner and head of the Sports Business Group at Deloitte, said in a statement. “It will be a number of years before the full financial impact of the Covid-19 pandemic on European football is known.”
  • The number of jobs supported by the U.K. government furlough program fell to the lowest level since the start of the pandemic as the economy took a further step toward normality. At the end of June, the number of people getting support from the Coronavirus Job Retention Scheme was 1.86 million, almost 600,000 fewer than a month earlier, the U.K. tax authority said Thursday. A survey-based estimate by the Office of National Statistics suggested the decline continued into July. How quickly furloughed workers return to work is a key question that will determine the speed of the U.K.’s economic recovery this year and beyond. Bank of England policy makers are also closely watching the figures as they consider when to start withdrawing the monetary stimulus deployed to fight the coronavirus recession.
  • Didi Global Inc. surged after the Wall Street Journal reported the firm is considering going private to placate Chinese regulators and compensate investors for losses. The Beijing-based company has been in discussions with bankers, regulators and key investors about ways to resolve regulatory woes since its troubled listing, the newspaper said, citing people with knowledge of the matter. One of the options could involve a tender offer for the publicly traded shares, according to the report. Its shares soared as much as 49% but later pared gains, and were up about 16% after Didi said on its social media account that reports about its privatization were untrue. Bloomberg News reported last week that Chinese regulators were considering serious, perhaps unprecedented, penalties for Didi, including forcing it to delist. Beijing is likely to impose harsher sanctions on the ride-hailing company than on Alibaba Group Holding Ltd., which swallowed a record $2.8 billion fine after a months-long antitrust investigation and agreed to initiate measures to protect merchants and customers, people familiar with the matter have said. Regulators are weighing a range of potential punishments, including a fine, suspension of certain operations or the introduction of a state-owned investor, they said.
  • Citigroup Inc. attracted close to $15 billion in net new money across its Asia Pacific wealth management business in the first six months of 2021, as hundreds of new hires helped the lender mark one of its strongest half years on record for the unit. The U.S. bank added $8 billion in the second quarter, with assets under management up 21% during the first half from a year earlier, according to a statement on Thursday. Citi added several hundred wealth professionals in Hong Kong and Singapore this year, part of its plan to hire 2,300 staff in the Asia Pacific region to grow client assets by $150 billion by 2025. “We are capturing market share as Asian clients increasingly require portfolio advice, design and allocation geared toward diversification of asset types and geographic exposures,” Peter Babej, chief executive officer for Citi Asia Pacific, said in the statement.
  • As Credit Suisse Group AG tried to explain to investors how the Archegos Capital Management crisis happened, the bank’s earnings showed the aftershocks are still rippling through its key businesses. Second-quarter profit plunged on a slump in trading that was exacerbated by a $653 million loss related to the implosion of the U.S. family office, while in Asia the bank turned away billions of dollars in assets as it cut exposure to risky clients. In a separate report, the firm blamed key personnel for failing to prevent the Archegos hit, saying they “systemically ignored” build up of risks. Credit Suisse is reeling from the Archegos and Greensill Capital hits that angered investors, damaged its reputation and precipitated a flood of departures. New chairman Antonio Horta-Osorio is undertaking a strategic review, leading to more uncertainty about the bank’s future.
  • Citigroup Inc. has gone back to requiring employees — regardless of their vaccination status — to don masks when they’re in the office, according to a person familiar with the matter. Workers can remove their masks when at their desks or while eating in the cafeteria, according to the person, who asked not to be identified discussing personnel information. The U.S. Centers for Disease Control and Prevention advised fully vaccinated individuals to once again start wearing masks in public indoor settings in places where the coronavirus is spreading rapidly. Most major U.S. urban areas fall under the scope of that advisory, including New York City, where Citigroup is headquartered.
  • Merck & Co. narrowed its revenue forecast and missed Wall Street profit expectations as the pandemic continued to drag on the drugmaker’s performance. Revenue for 2021 will be from $46.4 billion to $47.4 billion, Merck said. It now expects 2021 adjusted earnings of $5.47 to $5.57 a share for the year. The company said in April that, after spinning off its Organon unit, sales for the year from continuing operations would be between $45.8 billion and $47.8 billion.
  • T. Rowe Price Group, the investment firm with $1.62 trillion in assets under management, said Chief Executive Officer Bill Stromberg will retire after 35 years at the company, and be succeeded by President Rob Sharps. Stromberg, also chairman of the Baltimore-based firm, will leave his positions on Dec. 31, T. Rowe Price said in a statement Thursday. Sharps will keep his role of president, take over as chair of the management committee and join the company’s board. “Rob’s appointment as CEO is the culmination of a thoughtful and planned transition and is a testament to the confidence we have in him as a steward of our culture and the right leader to guide T. Rowe Price through its next chapter of growth,” Alan D. Wilson, T. Rowe Price’s lead independent director, said in the statement.
  • SoftBank Group Corp. is selling $2.1 billion of its stake in Uber Technologies Inc. in a block trade through Goldman Sachs, according to people familiar with the matter. SoftBank, Uber’s largest investor, is trimming its stake in the ride-hailing giant from 184 million shares as of March 31. SoftBank is also a significant investor in Chinese ride-hailing giant Didi Global Inc., which saw its share price tumble following Beijing’s regulatory crackdown. SoftBank aims to sell 45 million shares with a price range of $44.15 to $46.14, according to people familiar with the details who asked not to be identified discussing private information. Uber shares fell 5.1% in post-market trading, while rival ride-hailing firm Lyft Inc.fell 0.9% in an apparent sympathy trade.

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*All sources from Bloomberg unless otherwise specified