June 2, 2021

Daily Market Commentary

Canadian Headlines

  • Canada’s main stock index rose above 20,000 for the first time Tuesday, aided by a gain in energy shares, a rotation to value stocks and global economies emerging from the depths of Covid-19 lockdowns. The S&P/TSX Composite Index jumped as much as 1.5% before paring those gains to close up 1.2% at 19,976.01. It was the biggest gain in two months. Energy shares led the way, with Inter Pipeline Ltd. gaining almost 8% after Pembina Pipeline Corp. agreed to acquire the Calgary-based pipeline company. The index has risen 14.6% this year, with banks, oil producers and health-care companies at the helm. Canada’s technology sector, led by e-commerce star Shopify Inc., shone through the early months of Covid-19 lockdowns, but have lagged behind in 2021 as investors have turned away from growth stocks to capitalize on economic reopenings.
  • Canaccord Genuity Group Inc. posted record earnings for its fiscal fourth quarter as clients seeking to take advantage of soaring equity markets turned to the company to arrange a flood of share sales. The firm also announced that it’s abandoning the pursuit of wealth manager RF Capital Group Inc. Net income in the three months through March surged more than fivefold from a year earlier, to C$139.4 million ($115.6 million), or 93 cents a share, the company said Tuesday. The average of three analysts’ estimates compiled by Bloomberg was 61 cents a share. Rising equity markets and investors’ demand for tech stocks are spurring more and more companies to go public or sell additional shares, pushing Canada’s market for initial public offerings to its best first quarter in 15 years. Canaccord’s investment-banking revenue advanced more than sixfold, while total revenue more than doubled to a record C$706.5 million.

World Headlines

  • European stocks headed for another closing record amid continued hopes of an economic rebound as pandemic restrictions are removed. The Stoxx Europe 600 index added 0.2% as of 10:50 a.m. in London, with energy companies leading the advance as oil rose further after OPEC+ provided an upbeat assessment of the demand outlook. Real estate and consumer staples shares also gained, while technology underperformed following a small decline for U.S. peers Tuesday. Turkey’s Borsa Istanbul 100 index was a laggard, losing 0.4% as the lira dropped to a record low against the dollar following renewed calls by President Recep Tayyip Erdogan for lower interest rates. Stocks exposed to the country including BBVA S.A. and Italy’s UniCredit S.p.A. were in focus, though both managed small gains.
  • U.S. equity futures fluctuated and European stocks rose on Wednesday as the tussle between economic optimism and inflation concern continues to play out in markets. The dollar ticked up. Contracts on the S&P 500 and Nasdaq 100 gauges were little changed as traders await fresh catalysts in economic data due later this week. AMC Entertainment Holdings Inc. extended gains in pre-market trading after earlier raising $230.5 million in a stock sale to Mudrick Capital Management. As economies continue to claw their way back from the pandemic, traders are looking for fresh signals on whether that growth translates into inflation that ultimately prompts central banks to withdraw support. Up next is Friday’s U.S. payrolls data, which will provide a clearer view of the state of the labor market — and hints on whether the Federal Reserve is likely to scale back its monthly asset purchases.
  • Asian stocks slipped, poised to snap a three-day winning streak, as inflation concerns offset a positive outlook for earnings growth. The MSCI Asia Pacific Index fell 0.1% as of 5:46 p.m. in Singapore, paring an advance of as much 0.4%, as tech stocks declined. China’s CSI 300 Index slid 1%, after the state-run Securities Times reported that regulators are against analysts’ practice of setting specific targets for market gauges. China’s IT sector pulled back from a near-three-month peak. Meanwhile, Philippine stocks were the biggest gainers, with the benchmark closing at its highest since March 5, after a media report said the government increased allowable capacity for restaurants and personal care shops, while allowing venues for conferences and exhibits to open.
  • Oil extended gains after OPEC+ provided an upbeat assessment of the demand outlook and prospects waned for a speedy return of Iranian barrels to the market. Futures in New York rose 1% after closing at the highest since October 2018. Brent also climbed after settling above $70 a barrel. Saudi Energy Minister Prince Abdulaziz bin Salman on Tuesday said demand “has shown clear signs of improvement” as the alliance rubber-stamped an output boost for July. Road traffic in the U.K. was higher than pre-pandemic levels for the first time last week, the latest indicator of an uptick in consumption. The markets structure has rallied, with the spread between the nearest two December contracts for West Texas Intermediate heading for the strongest close since 2019. That gauge indicates growing expectations for market tightness.
  • Gold slipped from the highest level in almost five months as strong economic data from the U.S. diminished demand for haven assets. Data released Tuesday showed a gauge of U.S. manufacturing quickened in May, propelled by stronger growth in orders. That boosted yields on 10-year Treasuries, which weighed on demand for non-interest-bearing bullion. Meanwhile, Federal Reserve Governor Lael Brainard said there were risks on both sides of monetary policy right now as the U.S. economy surges ahead in a post-pandemic boom. Inflation readings are coming in higher than Fed officials expected and are stirring discussions among policy makers about when they should scale back their $120 billion in monthly asset purchases.
  • Israel has found a probable link between the Pfizer Inc.-BioNTech SE vaccine and cases of heart inflammation in young men. JPMorgan Chase & Co. warned Asia will lag behind if vaccines don’t pick up. In Hong Kong, HSBC Holdings Plc is among banks offering days off and other vaccination perks to staff. Nomura Holdings Inc. and other Japanese companies are considering providing shots for their workers. China, meanwhile, is rolling out vaccines at a furious pace, but is in no hurry to signal plans to ease border curbs. Melbourne extended its lockdown, and Vietnam is limiting domestic flights amid a case surge.
  • Volvo Group shareholders are in line for a big payout, with the truckmaker planning to pass along all of the proceeds from the sale of a Japanese business unit earlier this year. The company announced plans to distribute to investors all of the roughly 19 billion Swedish kronor ($2.3 billion) it received from the sale of UD Trucks to Isuzu Motors, sending shares up as much as 3.6% shortly after the open of regular trading Wednesday. Under Chief Executive Officer Martin Lundstedt, the former head of Volkswagen Group’s Scania, Volvo has sought to become better prepared to withstand market downturns by cutting costs and increasing service sales, which are less sensitive to demand swings. While sales slumped due to the pandemic last year, Volvo posted an operating margin of 8.4%, not far off its 10% target over a business cycle.
  • AMC Entertainment Holdings Inc. is climbing in premarket trading, extending Tuesday’s gains after raising $230.5 million in a stock sale to Mudrick Capital Management. The movie-theater operator’s stock were up about 25% to $40.10 as of 6:49 a.m. in New York. AMC, a favorite among the retail crowd, also rose in extended trading Tuesday after closing 23% higher in the regular session. The agreement with New York-based Mudrick is for 8.5 million shares of common stock at $27.12 apiece, 3.8% more than Friday’s closing price, AMC said in a statement. While Mudrick quickly turned around and dumped its entire stake, the shares continue to advance as retail investors rally to the meme stock. Chief Executive Officer Adam Aron also addressed the deal in a series of tweets on Tuesday.
  • JBS SA, the world’s largest meat producer, has made “significant progress” to resolve the cyberattack that hit its global operations and will have the “vast majority” of its plants operational on Wednesday. “Our systems are coming back online and we are not sparing any resources to fight this threat,” JBS USA Chief Executive Officer Andre Nogueira said in a statement late Tuesday. A union Facebook post said a shift at Greeley in Colorado was set for a regular production day on Wednesday. The cyberattack forced the shutdown of all of JBS’s U.S. beef plants, which account for almost a quarter of American supplies, according to an official with the United Food and Commercial Workers International Union, which represents workers at the company’s plants in the U.S. All other JBS meatpacking facilities in the country experienced some level of disruption, according to the official.
  • President Joe Biden is pushing to close a tax break that helped his predecessor amass a fortune. The Democrat has proposed narrowing a tax code provision that allows real estate investors to avoid capital gains taxes when they sell property, as long as they use the gains to buy more. Former President Donald Trump’s most valuable investment, which traces back to his $95 million purchase of a west-side Manhattan development site, has benefited from the rule. In 2005, when Trump’s partners agreed to sell the site for $1.8 billion — a deal Trump resisted — his cut was about $500 million. Because the partners then used the capital gains from the sale to purchase two office towers, they and Trump didn’t owe any tax on their gains. Today, Trump’s stake in the buildings is worth about $1.2 billion before accounting for debt. Biden’s plan would eliminate that kind of maneuver for Trump and thousands of others with real estate investments.
  • Etsy Inc., the online marketplace for crafts and vintage items, is buying second-hand fashion app Depop for $1.63 billion as it seeks to expand its customer base and attract younger users. The deal will create “significant opportunities for shared expertise and growth synergies” between the two e-commerce sites as the trend for trading recycled clothing continues to grow, New York-based Etsy said in a statement on Wednesday. The deal, which is primarily cash, is expected to close in the third quarter. Depop was set up in 2011 as a “community-powered marketplace” to buy and sell used fashion and has become one of the most popular e-commerce sites, particularly among younger, environmentally conscious consumers. About 90% of Depop’s active users are under the age of 26 and Depop is the 10th most visited shopping site among “Gen Z” consumers in the U.S., according to Etsy, whose average users tend to be older.
  • World powers will adjourn their talks in Vienna later on Wednesday as differences between Iran and the U.S. over how to restore the 2015 nuclear deal seem likely to delay the Islamic Republic’s return to oil markets. Iran’s lead negotiator in the talks and Deputy Foreign Minister Abbas Araghchisaid in a statement on Telegram that diplomats from China, Russia and the European Union will hold a meeting of the accord’s Joint Commission before returning to their capital cities to consult with their governments over remaining sticking points. Sounding a note of optimism, Araghchi said those differences “have reached a point where everyone believes that they’re not unsolvable,” according to comments he made to Iranian state TV.
  • Member nations of a Pacific regional trade deal agreed Wednesday to allow the U.K. to begin the process to join in a potential boost for the country’s trade following Brexit. Japanese Economy Minister Yasutoshi Nishimura said the move would strengthen economic ties between the U.K. and Japan, as well as making the zone covered by the deal equal to the EU in terms of economic size. He spoke to reporters after hosting an online meeting of ministers and officials from the 11 countries who make up the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. While the grouping was at one point seen as a way for the U.S. and Japan to counter the growing economic might of China, former President Donald Trump withdrew from negotiations when he took office in 2017 and his successor Joe Biden hasn’t indicated any reversal is likely.
  • Orsted A/S, the biggest developer of offshore wind farms, plans to spend 350 billion Danish kroner ($57 billion) by 2027 to be the world’s leading green energy provider. The Danish firm faces increasing pressure from utilities as well as oil majors that aim to be major players in the transition to clean energy, an area it pioneered when it ditched its fossil-fuel business for an all-renewable strategy. As green energy grows from a niche to a key way the world gets electricity, Orsted is speeding up investment to keep its edge. The new spending target is an average annual increase of about 50% from the company’s last strategy update in 2018, it said Wednesday.
  • U.K. mortgage approvals rose unexpectedly in April after the Treasury extended a tax holiday on home purchases, fueling a surge in property prices. The Bank of England said Wednesday 86,921 new loans were approved in April, up from a revised 83,400 the month before. Economists had expected a slight drop to 81,000. The value of those loans fell to 3.3 billion pounds ($4.7 billion) from a record 11.5 billion pounds. The figures add to signs of strength in the housing market, which Nationwide Building Society said recorded its first dose of double-digit price growth 2014. Jon Cunliffe and Dave Ramsden, who both serve as deputy governors for the central bank, said policy makers were watching the house prices carefully as they weigh whether to pare back stimulus for the economy.
  • HSBC Holdings Plc is giving some of its French staff two options to work from home part-time, joining peers in adapting its working week after the Covid-19 pandemic. Employees can decide between occasional remote working, with as many as 30 days per year away from the office, and frequent remote work, with either 8 or 12 days per month at home, according to a spokeswoman for the bank. Some staff, for example those within retail branches and traders, are not eligible for frequent remote work. The bank will review the program after a year, the spokeswoman said.
  • SoftBank Group Corp. has increased its margin loan backed by shares in Alibaba Group Holding Ltd. to $10 billion from $8.125 billion, people familiar with the matter said. At least 14 banks have joined the financing for the Japanese conglomerate, according to the people, who asked not to be identified because the details are private. Shares in Chinese tech giant Alibaba have been pledged as collateral for the loan, the people said. SoftBank is the biggest shareholder in Alibaba.
  • Tyson Foods Inc. appointed Donnie King as chief executive officer, replacing Dean Banks who has been in the top job at the largest U.S. meat producer for just eight months. Banks is leaving Tyson for “personal reasons,” the Springdale, Arkansas-based company said Wednesday in a statement. King, most recently chief operating officer, becomes CEO with immediate effect. Banks succeeded Noel White as CEO in October. White, now vice chairman at Tyson and who saw the company through the disruption caused by the pandemic, took the role in 2018 after the departure of Tom Hayes, who lasted less than two years in the job.
  • Global warming is the world’s biggest market failure, so the solution might just be better trading. On one side of the trade would be the companies clogging the atmosphere with heat-trapping gases; on the other countless projects to eliminate the problem by planting trees or building machines that capture carbon dioxide. Create a market that turns a ton of removed carbon into a commodity just like corn or copper, and money will flow from the emitters to the fixers. That’s the theory behind the new carbon-offset market being conceived by Mark Carney, a former governor of the Bank of England, and Bill Winters, the chief executive of Standard Chartered Plc. The two financial veterans late last year set up a rule-making taskforce populated by hundreds of bankers, airline executives, sustainability experts, commodities traders, scientists and other business leaders.
  • Elon Musk said the chip shortage is wreaking havoc on Tesla Inc.’s supply chain and blamed companies ordering more microcontrollers than they need, much like consumers hoarded toilet paper in the early days of the pandemic. “Our biggest challenge is supply chain, especially microcontroller chips. Never seen anything like it,” the chief executive officer tweeted Wednesday. “Fear of running out is causing every company to overorder – like the toilet paper shortage, but at epic scale.” Musk, 49, said during Tesla’s first-quarter earnings call in April that the chip shortage was a “huge problem” and one of the most difficult supply-chain challenges the company had ever experienced. Last month, the consulting firm AlixPartners estimated automakers will lose about $110 billion of sales this year due to the dearth of semiconductors, almost double an earlier projection.
  • MorphoSys enters into a definitive agreement to acquire Constellation Pharmaceuticals for $34 per share in cash, which represents a total equity value of $1.7 billion, according to statement.
  • Just weeks after its debut as a public company, Endeavor Group Holdings Inc. has added a big new client to the roster of stars repped by its talent agents: the Olympics. Endeavor’s On Location division has been hired to sell hospitality packages for three Olympic Games, starting with Paris in 2024, according to a statement Wednesday. On Location will provide concierge support, accommodations, on-call guest services, transportation and dining options for the fans who buy its packages. The company already handles these services for the Super Bowl and the PGA Championship. The Olympics are the largest sporting event in the world. More than 10,000 athletes competed in the 2016 games in Rio de Janeiro, while hundreds of thousands of tourists traveled to the city. The International Olympic Committee postponed the 2020 games due the coronavirus, but plans to proceed with the summer games next month in Tokyo.

“Stop spending your time; start investing your time.” – Al Duncan

*All sources from Bloomberg unless otherwise specified