June 3, 2021

Daily Market Commentary

Canadian Headlines

• Canadian stocks failed to hold onto their earlier gains after a rally in cannabis stocks was offset by declines in consumer discretionary companies. The S&P/TSX Composite index was little changed in Toronto, after rising as much as 0.3%. Tilray and Cronos were among the best-performing pot stocks. Westport Fuel Systems fell the most in the TSX. Energy stocks advanced with oil prices as signs of a summer demand recovery stoked optimism among producers and analysts.
• Toronto’s housing market recorded its second consecutive month of slowing sales in May, as reduced supply and a lingering lockdown to contain the coronavirus helped to cool off the market. The number of homes that traded hands in Canada’s largest city fell 8.9% in May from the month before, according to data released Thursday from the Toronto Regional Real Estate Board. The seasonally-adjusted average selling price for a home in the Toronto region still rose 1.1% from April, to C$1,061,987 ($882,300). With the price of a home in Toronto still near record levels, buyers and sellers both seem to be taking a pause. For most of April and May, the city endured some of the strictest lockdown measures of the pandemic to combat a surge of infections. Vancouver, however, where infections are less widespread and lockdown rules less severe, also saw a slowdown in home sales last month. Canada’s immigration-driven population growth has been choked off with international travel restricted.
• Chevron Corp. would consider selling its 20% stake in a Canadian oil sands mine as its faces investor pressure to do more to curb emissions and fight climate change. The oil producer’s stake in Canadian Natural Resources Ltd.’s Athabasca oil sands project generates “pretty good cash flow” without needing much capital “but I wouldn’t deem it a strategic position,” Chief Executive Officer Michael Wirth said at Bernstein’s 37th Annual Strategic Decisions Conference. Oil sands are among the most challenged energy assets because of the volume of emissions created when producing crude from mines and from underground wells that require steam injection.

World Headlines

• European equities snapped two days of gains, dropping from a record, as traders weighed prospects of a stimulus reduction. The Stoxx Europe 600 index was down 0.2% as of 11:05 a.m. in London, as traders also watched developments in U.S.-China trade ties. Itilities and real estate shares led losses as carmakers gained. While stocks rallied to fresh records in recent sessions, investors are keeping a close eye on signs of economic improvement after Federal Reserve Bank of Philadelphia President said officials should begin discussing the time frame for paring back the bond-buying program.
• U.S. equity futures dropped with European stocks on Thursday as fresh geopolitical tensions added to investor concerns over a potential reduction in stimulus by the Federal Reserve. S&P 500 and Nasdaq 100 contracts fell to session lows after Russia said it will eliminate the dollar from its National Wellbeing Fund in an attempt to reduce exposure to U.S. assets amid threats of sanctions. The greenback pared gains, and European stocks also dropped. With global equities locked in a tight range for the past month, investors are on the lookout for any signs that central banks may start to withdraw emergency support. While Fed officials have mainly stuck to the message that stimulus will remain in place, the U.S. central bank said it plans to begin gradually selling a portfolio of corporate debt purchased through an emergency lending facility launched last year. Friday’s payrolls data could add another twist to the debate in the wake of Harker’s remarks.
• Earlier, Asian shares traded mixed after President Joe Biden unveiled plans to amend a U.S. ban on investments in companies linked to the Chinese military, which may expand scrutiny to a wider set of enterprises.
• Oil traded near its highest since October 2018 as an industry report pointing to a decline in U.S. crude inventories reinforced optimism over the demand recovery. Futures in New York pared earlier gains. The American Petroleum Institute reported stockpiles fell by 5.36 million barrels last week, said people familiar. That would be the biggest draw in a month if confirmed by official data. So far this week, crude has undergone a stellar rally as optimism around rising fuel demand is growing, particularly in the west. The U.S., China and Europe are rebounding strongly from the pandemic, and upbeat comments from OPEC+ and the International Energy Agency added to the positive outlook. The Covid-19 comeback across Asia and Latin America, however, is a reminder that the recovery is likely to be uneven and bumpy.
• Gold eased from its highest level in almost five months as investors digest the latest comments from U.S. Federal Reserve officials for clues on the potential time frame for tapering stimulus and as the dollar strengthened. Philadelphia Fed President Patrick Harker said Wednesday it’s appropriate “to slowly, carefully move back” on bond purchases at a suitable time. Officials have said they will begin scaling back buying when the economy has made “substantial further progress” toward their goals, a condition many Fed-watchers believe will be met later this year.
• New infections in India held near the lowest level since early April as the country ordered 300 million vaccine doses from local manufacturer Biological-E. Japan led contributions totaling $2.4 billion aimed at closing a funding gap that has hampered the distribution of doses to poorer nations. Bahrain started giving Pfizer Inc. boosters to vulnerable citizens who’ve been inoculated with the Sinopharm vaccine, Dow Jones reported, raising concern about the effectiveness of the Chinese shot. The U.S. is poised to announce which countries will receive the first donations of vaccines from its stockpile. The Philippines said it got a commitment from Russian President Vladimir Putin for more deliveries of the country’s Sputnik V vaccination. Apple Inc. Chief Executive Officer Tim Cook said employees should begin returning to offices in early September for at least three days a week.
• Chinese artificial intelligence-chip startup Horizon Robotics Inc.is considering a U.S. initial public offering which could raise as much as $1 billion, according to people with knowledge of the matter. The Beijing-based company, which is backed by investors including Intel Capital, Hillhouse Capital and Jack Ma’s Yunfeng Capital, is working with advisers on preparations for the share sale, the people said. A listing could happen as soon as the end of this year, they said, asking not to be identified as the information is private. Details of Horizon Robotics’ IPO plans including venue and timing are preliminary as deliberations are ongoing, the people said. A representative for the company declined to comment.
• The meme-stock frenzy is back — and bigger than ever. On Wednesday, shares of AMC Entertainment Holdings Inc. skyrocketed to an all-time high in a wild trading session as the Reddit retail-trading army came back in force, leaving many Wall Street pros wondering, yet again, what on Earth had become of the U.S. stock market. The money-losing movie-theater chain rose 95% and closed at a record high at $62.55. At one point the stock rose as much as 127%, pushing its total gains for the year to 3,000% as its market value briefly soared past the $33 billion mark. The shares continued their advance postmarket, rising 5%, and were up a further 9% in early trading on the Tradegate platform.
• Global food prices extended their rally to the highest in almost a decade, heightening concerns over bulging grocery bills as economies struggle to exit the Covid-19 crisis. A United Nations gauge of world food costs climbed for a 12th straight month in May, its longest stretch in a decade. The continued advance risks accelerating broader inflation, complicating central banks efforts to provide more stimulus. Drought in key Brazilian growing regions is crippling crops from corn to coffee, and vegetable oil production growth has slowed in Southeast Asia. That’s boosting costs for livestock producers and risks further straining global grain stockpiles that have been depleted by soaring Chinese demand. The surge has stirred memories of 2008 and 2011, when price spikes led to food riots in more than 30 nations.
• Economists, blindsided by a major miss in April’s U.S. employment report, are now ready for any number of surprises. Estimates for May payrolls growth are wide-ranging — from 335,000 to 1 million, according to a Bloomberg survey. After the previous month’s disappointment, in which employment fell short of all projections, some forecasters have tweaked their models ahead of Friday’s Labor Department report. It’s no wonder experts are stumped considering how uneven the recovery has been. On one hand, warmer weather across the U.S., large swaths of fully-vaccinated adults eager to resume travel and socializing, as well as fewer pandemic restrictions suggest a boon for hiring in the hospitality industry. What’s more, schools are reopening and more people are headed back to the office.
• At first glance, U.S. President Joe Biden’s plans to revamp a Trump-era ban on investing in certain Chinese companies could put potentially thousands of additional firms at risk. In reality, the impact will hinge on the overall state of ties between the world’s biggest economies. Under Biden’s amended order, expected to be signed later this week, the investment ban will no longer be linked to a U.S. Defense Department report on companies owned or controlled by China’s military, which had been challenged in court. Instead, the Treasury Department will create a list of companies that could face financial penalties for their connection to China’s defense and surveillance technology sectors, Bloomberg News reported Wednesday. So far, it’s unclear how exactly American officials will decide which companies to target within those broad groups. A person familiar with the situation said the administration would keep a large number of previously listed entities, while Treasury’s Office of Foreign Assets Control will add others.
• Budapest will rename the streets surrounding the planned campus of a Chinese university to protest against the project, which Hungary’s opposition says is emblematic of Prime Minister Viktor Orban’s drift from western democratic values. The streets in the capital’s industrial south, where Fudan University plans to set up a campus, will be renamed Uighur Martyrs street, Dalai Lama street and Free Hong Kong street, among others, Budapest Mayor Gergely Karacsony said at a briefing on Wednesday. The multi-billion dollar private campus, which Orban’s government plans to finance via a loan from China, has become a hot topic before parliamentary elections due early next year. The European Union member’s allies, including the U.S., have taken China to task for its record on human rights, Hong Kong and Taiwan, and other issues.
• Workspace Group Plc, which provides flexible office space across central and suburban London, said that pressure on rents would remain despite early signals of a recovery in demand for space. Rents are likely to stay subdued in the coming months as the firm seeks to boost occupancy levels, which slumped 12% in the year through March to 82%, it said in its full-year earnings statement on Thursday. Vacancies stabilized in the fourth quarter, while leasings and enquiries are back to pre-Covid levels as the easing of restrictions encourages more businesses, it said.
• Russia will eliminate the dollar from its National Wellbeing Fund, shifting to euros, yuan and gold, Finance Minister Anton Siluanov said, as the Kremlin seeks to reduce exposure to U.S. assets amid threats of sanctions. The transfer, which affects about $119 billion in liquid assets, will take place within the central bank’s huge reserves. As a result, its market impact — if there is one — could be hard to trace. The Bank of Russia has steadily reduced holdings of dollars in the last several years as sanctions pressures from the U.S. and European Union have grown.
• United Airlines Holdings Inc. is jumping into the potential market for supersonic travel with the first firm order for Boom Technology Inc.’s Overture aircraft, wagering that business flyers will pay top dollar for speedier trips across oceans. The airline will buy 15 of the supersonic jets, which are expected to carry passengers in 2029, the companies said in a statement Thursday. At $200 million a plane, the deal is valued at $3 billion at list prices and Boom doesn’t offer discounts, said Blake Scholl, the aircraft developer’s founder and chief executive officer. United also took purchase options for 35 more planes. United plans to be the debut operator of the Overture, which will be able to seat as many as 88 people. The airline’s coastal hubs in leading business-travel markets make the jet “uniquely useful” for United, said Mike Leskinen, vice president of corporate development. While supersonic flight is banned over land in the U.S., United sees three and-a-half hour jaunts to London from Newark, New Jersey, and six-hour trips to Tokyo from San Francisco.
• China is allowing Jack Ma’s Ant Group Co. to start operations at its consumer finance company, the first sign of progress after a regulatory crackdown torpedoed the fintech giant’s record listing. The unit, registered in Chongqing, will be allowed to lend to individuals, issue bonds and borrow from domestic financial institutions, according to a notice from the China Banking and Insurance Regulatory Commission on Thursday. The approval marks an important step in Ant’s overhaul as it transitions to become a financial holding company that will be regulated more like a bank. The new unit will allow Ant to continue with consumer lending, its most lucrative operation, though it’s unclear how it would affect the scale of that business.
• Housing prices worldwide are rising the most since before the global financial crisis, following a market frenzy seen in places from New Zealand to Canada to Singapore during the pandemic. Average prices jumped 7.3% in the 12 months to March, the fastest pace since the fourth quarter of 2006, Knight Frank’s Global House Price Index report showed Thursday. Turkey topped the list, registering 32% growth, followed by New Zealand at 22.1%. The U.S. took fifth spot at 13.2%, its steepest increase since December 2005.
• Carmakers’ new-vehicle inventory has dropped to a record low in the U.S. as the global chip shortage hampers efforts to keep up with voracious auto demand. Inventory on dealer lots stood at just 23 days’ supply at the end of May, down from 33 days a month earlier, JPMorgan analysts led by Ryan Brinkman wrote in a report Thursday. The industry norm is around 60 days. At $38,225, the average price of new vehicles set another all-time monthly high, Brinkman wrote. He expects cars to keep getting costlier as supply-starved automakers slash sales incentives until semiconductor availability improves.
• Global talks to revamp the international tax system and impose a worldwide minimum corporate rate have gotten fresh life in recent months, and this week’s Group of Seven finance ministers’ meeting may provide additional momentum toward a broader deal in July or October. Key details remain unresolved in the negotiations — led by the Organization for Economic Cooperation and Development — to re-imagine how the world’s richest corporations, including Facebook Inc. and Apple Inc., should be taxed. The ultimate goal is to make the biggest companies pay more of their tax in the countries where they have sales, not headquarters, and stop competition among countries to attract business with low rates.
• Hong Kong will deploy 7,000 police to prevent protests on the anniversary of the Tiananmen Square crackdown, local media said, as human rights groups urged authorities to let residents express their views peacefully. The operation included dispatching some 3,000 officers near Victoria Park on Friday, Radio Television Hong Kong reported, referring to the site of an annual vigil commemorating the 1989 incident. The deployment was expanded due to calls for gatherings in various locations after police banned the usual event citing coronavirus measures, RTHK said, citing people familiar with the matter.
• Apple Inc. Chief Executive Officer Tim Cook said Wednesday employees should begin returning to offices in early September for at least three days a week. The iPhone maker is pushing staff to return on Mondays, Tuesdays and Thursdays at a minimum, with remote work still an option for Wednesdays and Fridays, Cook said in a memo obtained by Bloomberg News. In pushing for staff to return, Cook cited the availability of vaccinations and declining coronavirus infection rates. Some employees of the Cupertino, California-based technology giant have worked from Apple offices on certain days throughout the Covid-19 pandemic. Thousands of others have been away for more than a year.

“Emotions are your worst enemy in the stock market.” – Don Hays

*All sources from Bloomberg unless otherwise specified