July 7, 2021

Daily Market Commentary

Canadian Headlines

• Canadian stocks pared earlier losses and ended the session in the green, after tech sectors outperformed. The S&P/TSX Composite index was up slightly in Toronto. Tech stocks were the best performers, led by Shopify’s 5.6% gain. Consumer staples and energy were the worst performing stocks. Oil fell the most since late May as a stronger dollar spurred a broad sell-offacross the commodities complex while uncertainty over OPEC’s next move loomed large in the markets.
• Hundreds of rail cars have been halted by wildfires that damaged tracks in western Canada during the region’s severe heat wave, creating a bottleneck of exports and delaying imports. A fire that burned down a village in British Columbia last week damaged two nearby tracks operated by Canadian Pacific Railway Ltd. and Canadian National Railway Co., the two companies that account for the bulk of train transportation to the country’s biggest port in Vancouver. Grains, lumber, containers and other goods move along these lines. It’s the latest hit to supply chains after a year full of snarls that have ranged from a global container shortage to a six-day blockage of the Suez Canal in March. Transportation problems have increased the cost of everything from gasoline to bread and, at times, threatened to leave stores short of key goods.
• West Fraser Timber approved the commencement of a substantial issuer bid; company will offer to purchase up to C$1.0 billion of outstanding shares. Offer by modified Dutch auction with a tender price range from C$85.00 to C$98.00 per share.

World Headlines

• European stocks were within sight of a record, as miners led a broad rally ahead of minutes from the latest Federal Reserve meeting. The Stoxx Europe 600 Index rose 0.6% as of 12:13 p.m. in London, about a point away from last month’s all-time closing high. Miners climbed the most amid a broad recovery in metals prices. Tech shares also outperformed following overnight gains in the Nasdaq 100 Index. Investors are weighing reopening optimism and an earnings recovery against the risks of the fast-spreading delta variant of Covid-19, inflation and the possibility of tighter monetary policy. Minutes from the Fed’s last meeting, due after the European close, may offer clues on when the U.S. central bank may begin tapering asset purchases.
• U.S. equity-index futures rose along with stocks in Europe as investors awaited minutes from the Federal Reserve’s latest meeting for clues on policy makers’ thinking on interest rates and stimulus. Bonds stabilized after a rally. Ten-year Treasury yields were steady after hitting February lows in U.S. hours, while those on core European bonds dipped. The dollar was flat against a basket of major currencies. Oil extended gains amid the OPEC+ crisis, which has stymied efforts to raise production and buffeted prices. Markets are stabilizing after Tuesday’s risk-off move, sparked by concerns about the outlook for the global economy as new virus variants emerge. Investors are taking some heart from soft U.S. data that suggests the Fed will continue offering monetary support for now. But with global stocks near all-time highs and inflationary pressures in focus, they’ll pay close attention to the wording of the minutes from the central bank’s last meeting for clues on the policy path.
• Asian equities declined, hurt by China’s widening corporate crackdown and a selloff in cyclical shares. Tencent and Alibaba were the biggest drags on the MSCI Asia Pacific Index, while the Hang Seng Tech Index fell for a sixth straight day. The losses came after China issued a warning to its biggest firms, vowing to tighten oversight of data security and overseas listings. The deepening selloff in Chinese tech stocks comes as Asian equities continue to lag their peers in the U.S. and Europe this year. That’s even as the MSCI Asia Pacific Index capped a fifth straight quarter of gains last week. The regional benchmark is down about 1.3% so far in July.
• Oil rose in New York, recouping some of the previous day’s losses, as prices remain volatile while an impasse prevents OPEC+ from boosting output. West Texas Intermediate futures have been whipsawed as a dispute between Saudi Arabia and the United Arab Emirates stymies OPEC+ plans to revive halted supplies. The grade hit a six-year high early on Tuesday before easing back. White House Press Secretary Jen Psaki said U.S. officials have been speaking to both sides, and OPEC+ delegates say consultations are ongoing to find a compromise. Refiners have reaffirmed their appetite for barrels, with at least five Asian oil processors planning to seek their full contractual volumes from Saudi Arabia, even as the kingdom jacked up prices for August. Companies have been unable to source cheaper alternatives.
• Gold climbed above $1,800 an ounce again as investors took a risk-off turn before the release of Federal Reserve meeting notes that should bring fresh insight on U.S. monetary policy. Minutes from the Fed’s June gathering will be combed for more clues on the bank’s thinking around rates, bond-purchasing and the economic outlook. Gold is eyeing its highest close in three weeks as softer inflation-adjusted Treasury yields boost the metal’s appeal following its worst month since 2016 in June.
• Germany’s health minister stepped up his plea for as many people as possible to get a Covid-19 shot amid signs the country’s inoculation drive is losing steam. He floated the idea of a “vaccination weekend” to reach more people. The Japanese government plans to declare a fresh state of emergency for Tokyo that would cover the entirety of the Olympics, NHK reported. Indonesia recorded more than 1,000 daily deaths for the first time as cases surge. Singapore announced plans to move toward a bigger reopening once at least half of the population is fully vaccinated, while Sydney extended a lockdown for another week to stem the latest outbreak.
• President Joe Biden will take on the rapidly growing threat of ransomware against companies and localities by convening key officials to discuss administration strategy in the wake of a high-profile attack by hackers. Biden will meet with various agency leaders behind closed doors on Wednesday to discuss ransomware and ways to combat it, the White House said in a statement on Tuesday night that called the risk a “national security and economic security priority for the administration.” The discussions will follow a similar meeting held on Tuesday by Anne Neuberger, the deputy national security adviser for cyber and emerging technologies, discussed vulnerabilities and strategies with the U.S. Conference of Mayors.
• The record of the Federal Reserve’s meeting last month, which surprised investors with a hawkish pivot, will be scrutinized on Wednesday for any hints on when the central bank will pare back its support for the economy. The Fed delivered a double-whammy at the June gathering after its quarterly economic forecasts showed officials expect two rate hikes in 2023 and Chair Jerome Powell announced the central bank was getting the taper debate into gear. Analysts will be combing through the minutes for details on tapering, including when it could start and what the pace might be — though that level of discussion might be more likely at upcoming Fed meetings, including its gathering later this month.
• Regulators in Beijing are planning rule changes that would allow them to block a Chinese company from listing overseas even if the unit selling shares is incorporated outside China, closing a loophole long-used by the country’s technology giants, according to people familiar with the matter. The China Securities Regulatory Commission is leading efforts to revise rules on overseas listings that have been in effect since 1994 and make no reference to companies registered in places like the Cayman Islands, said the people, asking not to be identified discussing a private matter. Once amended, the rules would require firms structured using the so-called Variable Interest Entity model to seek approval before going public in Hong Kong or the U.S., the people said.
• China’s technology giants have seen a combined $827 billion wiped from their market value since a February peak, with Beijing’s expanding crackdown on the sector fueling investor concern that the selloff is far from over. Authorities on Tuesday issued a sweeping warning to the nation’s biggest companies, vowing to tighten oversight of data security and overseas listings just days after Didi Global Inc.’s contentious decision to go public in the U.S. That has put further selling pressure on China’s biggest technology names including Tencent Holdings Ltd., Alibaba Group Holding Ltd., JD.Com Inc., Baidu Inc. and Meituan. “The selling will continue in the third quarter,” said Paul Pong, managing director at Pegasus Fund Managers Ltd. He says he sold two thirds of his technology stock holdings, including in Tencent and Alibaba, in May. “The measures from authorities will keep coming.”
• Royal Dutch Shell Plc promised to make further amends with investors for last year’s historic dividend cut by boosting returns. The pledge, which comes as the company will also keep paying down debt, shows how the oil and gas industry is getting stronger thanks to a recovery in energy demand and rising prices. The Anglo-Dutch giant will raise total distributions to shareholders to between 20% and 30% of cash flow from its operations, starting when it announces second-quarter results on July 29, the company said in a statement on Wednesday.
• Planet Labs Inc., which uses a network of satellites to photograph the daily happenings on Earth, plans to become the latest private space company to go public. On Wednesday, Planet revealed that it will join with dMY Technology Group IV, Inc., a special purpose acquisition company (SPAC), with the hopes of trading on the NYSE by the fourth quarter under the ticker symbol “PL.” Through this arrangement and additional investments from Marc Benioff’s TIME Ventures and Google, Planet expects to raise about $545 million to put toward its business of manufacturing, launching and operating hundreds of satellites in Low Earth Orbit. Based in San Francisco, Planet reported more than $100 million in revenue during its last fiscal year and is being valued at $2.8 billion for the SPAC deal.
• The heatwave that broke temperature records in North America made last month the hottest June ever for the region, according to Europe’s Earth observation agency Copernicus. Europe also experienced extreme heat in northern and eastern areas, posting its second-warmest June on record, the agency said in its monthly report on Wednesday. June 2021 was the fourth-warmest on record globally, tied with June 2018, with temperatures 0.21 degrees Celsius warmer than the average from 1991 to 2020.  High June temperatures extended from Europe’s north-east toward the south-west to hit North Africa, and toward the south-east as far as Iran and Pakistan, Copernicus said. The region was 1.5°C warmer than the average between 1991 and 2020 for June.
• Russian government hackers breached the computer systems of the Republican National Committee last week, around the time a Russia-linked criminal group unleashed a massive ransomware attack, according to two people familiar with the matter. The government hackers were part of a group known as APT 29 or Cozy Bear, according to the people. That group has been tied to Russia’s foreign intelligence service and has previously been accused of breaching the Democratic National Committee in 2016 and of carrying out a supply-chain cyberattack involving SolarWinds Corp., which infiltrated nine U.S. government agencies and was disclosed in December.
• U.K. house prices fell for the first time in five months in June, an indication the property market may have lost momentum as a tax incentive was due to come to an end. The average value of a home declined 0.5% to 260,358 pounds ($359,000), mortgage lender Halifax said Wednesday. The drop followed a 1.2% increase in May and left prices 8.8% higher than a year earlier. The figures underscore tensions upending Britain’s housing market and contrast with a report by Nationwide Building Society, which recorded the strongest growth since 2004 last month. The two major mortgage lenders have slightly different customers and reporting periods that mean their readings occasionally diverge.
• The European Union is stepping up its fight against countries that don’t adhere to democratic standards, warning Hungary that it could start a process in the fall to withhold funding from the bloc’s budget. “Measures must be taken if it’s established that breaches of the rule of law in member states affect or seriously risk affecting the sound financial management of the Union budget or the financial interests of the European Union,” European Commission President Ursula von der Leyen told lawmakers Wednesday in Strasbourg. While she didn’t cite the specific grounds for holding back financing, she blasted a law Hungary passed last month outlawing content for minors that can be deemed to “promote homosexuality,” saying it flies in the face of EU values.
• Japan is planning to declare a new state of emergency in Tokyo throughout the Olympics as virus cases increase, NHK reported, raising the possibility that most of the events will be held without spectators. A state of emergency is unlikely to trigger the cancellation of the Olympics, set to start on July 23, with officials from the organizing committee having said previously they’re prepared to hold events without spectators if the Japanese government puts emergency measures in place during the Games. The Japanese government is planning to make the declaration for Tokyo as well as continue an existing emergency in Okinawa, NHK said on Wednesday evening without citing where it got the information. A panel of experts is expected to meet tomorrow to make the final decision.
• Xiaomi Corp. is marketing a dollar bond deal to global investors as Chinese technology companies face fresh scrutiny in an new era of tighter oversight from Beijing. The smartphone maker is looking to raise about $1 billion from the debt sale, people familiar with the matter said. That would include a rare green bond tranche from the nation’s tech firms. The borrower has received a bond sale quota of $1.2 billion from China’s National Development and Reform Commission, according to the people who asked not to be identified because they’re not authorized to speak about it. Xiaomi may choose whether or not to use the entire quota.
• Labor markets in developed nations have recovered only half of the loss of employment they suffered in the pandemic, with the young and low-skilled hurt most. That’s the conclusion of a 400-page study by the Organization for Economic Cooperation and Development, which found that about 22 million jobs disappeared by the end of 2020 in industrial nations. The Paris-based institution said a full recovery to pre-pandemic levels of employment won’t come until the end of next year. The findings indicate that the coronavirus crisis accelerated a number of trends that started over the past decade, including growing income inequality, a shift toward more technically demanding jobs and fewer secure employment opportunities for lower-skilled workers.
• Heliogen Inc. is merging with a special-purpose acquisition company to go public in a combination that values the concentrated solar power company at about $2 billion, the companies said. Founded in 2013, Heliogen uses mirrors that are positioned with artificial intelligence to reflect sunlight at a small receiver, generating an intense heat. That sunlight can be collected and processed to generate electricity even when the sun goes down, the company says. The renewable energy can also be used to power industrial processes needed to make materials like steel and to produce hydrogen fuel. The company’s CEO is angel investor and entrepreneur Bill Gross — sometimes confused with the bond investor Bill Gross, who co-founded investment giant Pacific Investment Management Co. Heliogen’s Mr. Gross has made a fortune backing internet startups through his Idealab incubator and is now focusing on renewable energy companies. The firm expects to install its first commercial project in 2023.
• China, the world’s top commodities consumer, pledged to release more base metals from its state reserves after completing a first batch of sales in its latest effort to rein in surging raw material costs. More sales will be arranged in the near term to ensure market stability, the National Food and Strategic Reserves Administration said in a statement on its website Wednesday. The first release of metals in over a decade included 20,000 tons of copper, 30,000 tons of zinc and 50,000 tons of aluminum and was concluded via a public auction conducted on Monday. The reserves agency didn’t reveal the prices at which the metals were sold.
• Now’s a great time to get into Bitcoin mining. That is, if you can find a place to plug in. A crackdown in China has taken out a vast number of machines in the global network used to perform the calculations that verify transactions and create new Bitcoins. Now profitability for miners has surged as the amount of energy needed to solve for a Bitcoin block plummets. That’s great if your equipment is already up and running. But the hunt for space in Bitcoin-friendly data centers has become so frenzied that bounties are being offered for referrals leading to new homes for stranded miners.

“It is better to offer no excuse than a bad one.”– George Washington

*All sources from Bloomberg unless otherwise specified