June 25, 2021

Daily Market Commentary

Canadian Headlines

  • Dye & Durham’s special committee appointed JPMorgan and Scotiabank to act as independent financial advisers after the company started a strategic review, as previously announced, in response to the receipt of a takeover proposal from a shareholder group led by certain members of management.
  • BlackBerry Misses Estimates Amid Auto Companies’ Chip Woes. BlackBerry Ltd. reported lower-than-expected earnings and revenue for the fiscal first quarter. The shares rose slightly in extended trading in New York. “This quarter we aligned the business around the two key market opportunities — IoT and Cyber Security,” Chief Executive Officer John Chen said in a statement. “In IoT we are pleased with the strong progress of the auto business, despite global chip shortage headwinds.

World Headlines

  • Global equity markets are generally having a quiet end to the week, with Wall Street banks rising in pre-market trading as their passing of the Fed stress test paves the way for dividend payouts. Overnight the MSCI Asia Pacific Index rose 0.9% while Japan’s Topix index closed 0.8% higher. In Europe the Stoxx 600 Index was broadly unchanged as travel stocks were hit by EU leaders’ comments. S&P 500 futures pointed to a small move higher at the open, the 10-year Treasury yield was at 1.494%, oil held above $73 a barrel and gold gained
  • U.S. personal income and spending data for May is at 8:30 a.m., with incomes expected to decline due to the end of stimulus payments. University of Michigan sentiment for June is at 10:00 a.m. The latest baker Hughes rig count is at 1:00 p.m. Paychex Inc. and CarMax Inc. are among the companies reporting results
  • President Joe Biden announced an agreement on infrastructure spending of $579 billion with a group of bipartisan senators. The package, a carve-out from Biden’s $2.25 trillion American Jobs Plan unveiled in March, is heavy on road upgrades, with rail also a winner — getting more spending than broadband. While the plan will still face opposition in Congress, the big prize for Democrats will be to get the rest of Biden’s spending plans through under budget reconciliation procedures that would not require Republican support
  • President Biden warned of the risks posed by the delta variant and urged Americans to get shots as the pace of inoculations faltered. Royal Caribbean said two unvaccinated children tested positive on a cruise ship. More than a half-million Sydney residents will go into lockdown for a week after a fresh outbreak
  • Big banks are keeping the pressure on their employees to get vaccinated, with JPMorgan Chase & Co. asking staff with client-facing roles in Hong Kong to have at least one shot by June 30. In Europe, the leaders of Germany and France expressed alarm that tourism-dependent countries like Greece are accepting visitors that have been vaccinated with non-EU approved doses such as the Sputnik shot. More than half a million Sydney residents are in lockdown for a week after an outbreak of the delta variant there. Biden warned of the risks that strain poses as he urged more Americans to get vaccinated.
  • Russia and China Make War-Gaming Fashionable Again in the West. ven as Russia massed over 100,000 troops on Ukraine’s borders in April, Andriy Zagorodnyuk felt sure President Vladimir Putin wouldn’t go to war. The former defense minister in Kyiv, who’d also spent years on projects to modernize Ukraine’s military, reasoned that Putin knew an invasion would be no walk in the park for Russia this time. “Our task has been to make sure we can inflict unacceptable damage, a damage level so high that they will be demotivated to advance,” Zagorodnyuk said in a video interview from the Ukrainian capital. That was a bold bet, though Ukraine had made dramatic improvements to its armed forces since a few thousand Russian troops, in uniforms with no identifiable markings, annexed Crimea without firing a shot in 2014. It could potentially have been catastrophically wrong.
  • Wells Fargo, BofA, JPMorgan and Citi rose in extended trading after banks easily cleared the Fed’s stress tests. Lenders are officially free from dividend and buyback curbs and can announce plans for handing out capital on Monday. Goldman’s cushion was slimmer than peers and it may return less to shareholders
  • Nike surged premarket after forecasting sales will top $50 billion this year for the first time, led by gains in North America. Growth in China cooled. Profit crushed the estimate
  • Apple’s Car Obsession Is All About Taking Eyes Off the Road. At first glance, the forays Apple Inc., Google and other technology giants are making into the world of cars don’t appear to be particularly lucrative. Building automobiles requires factories, equipment and an army of people to design and assemble large hunks of steel, plastic and glass. That all but guarantees slimmer profits. The world’s top 10 carmakers had an operating margin of just 5.2% in 2020, a fraction of the 34% enjoyed by the tech industry’s leaders, data compiled by Bloomberg show. But for Apple and other behemoths that are diving into self-driving tech or have grand plans for their own cars, that push isn’t just about breaking into a new market — it’s about defending valuable turf.
  • Rockwell Buys Plex for $2.22 Billion in Industrial-Cloud Deal. The acquisition will be financed with a combination of cash and debt and is expected to close in the quarter ending in September, Rockwell said Friday in a statement. The Milwaukee-based company will bring on more than 500 employees from closely held Plex.
  • Amazon and Google are facing formal probes into possible violations of U.K. consumer protection rules over a failure to shield their users from an onslaught of fake reviews. The CMA opened investigations to gather more information and decide whether the tech giants broke the law.
  • MSCI cut Argentine stocks from EM status citing the country’s ongoing capital controls. The change to “standalone” status will take effect in the November 2021 semi-annual index review
  • EU leaders rejected an appeal from Germany and France to hold formal talks with Vladimir Putin. The proposal was dropped from the final communique after diplomats said that some countries in Eastern Europe opposed the plan
  • The ECB will start overseeing “systemic” investment firms. Firms with more than 30 billion euros of assets that underwrite or trade financial instruments on their own account will now have to apply for banking licenses under new legislation that takes effect this week
  • Most Southeast Asian countries aren’t expected to return to pre-pandemic growth levels for several years, with the Philippines seeing the largest decline. Singapore is the lone country in the region to buck the trend, with ABN Amro predicting 1.7% average growth in 2020-2022, against 1.3% in 2019
  • OPEC+ producers are expected to try to balance the market’s need for more supply against a fragile recovery in demand at their meeting next week, ANZ said. Global diesel demand centers may not be able to absorb the current wave of seaborne shipments, with flows this month poised to hit a record high above 8 million barrels a day, Vortexa said.
  • China’s zinc inventories slumped 30% as a price pullback spurred buying from fabricators. That’s mainly due to rising demand from downstream users after a price correction, Shanghai Metals Market said. Copper and aluminum holdings also dropped. Iron ore stockpiles in the country rose 0.7% to 121.8 million tons in the week ending June 25, Mysteel Global data showed.
  • SoftBank revised governance and investment guidelines to take ESG into account. Such factors will be considered in pre-investment evaluations and post-investment monitoring, including for its Vision Fund.
  • Copper resumed gains after a bipartisan $579 billion U.S. infrastructure deal bolstered economic optimism, while nickel headed for the biggest weekly increase since 2019 amid supply concerns. President Joe Biden celebrated the bipartisan plan, which is expected to move through Congress alongside a separate bill that would spend trillions more on what he called “human infrastructure.” It’s not yet assured that either measure will get enough wider lawmaker support given the political splits in the U.S.
  • Gold gained as the dollar weakened after a U.S. infrastructure deal was agreed, while investors continue to weigh comments by Federal Reserve officials on inflation. The metal is heading for its first weekly increase since May, with the greenback touching a one-week low. European stocks were steady, after U.S. equities moved higher on Thursday on the bipartisan $579 billion infrastructure deal that President Joe Biden said would create millions of jobs.
  • Commodities are on course for a fifth quarterly rise next week, the best run for the complex since 2008, and the coming days will provide early clues on whether that can be sustained. Crude oil is in boisterous form heading into the second half, and banks including Goldman Sachs Group Inc.are making the case that more gains are in store for raw materials. An OPEC+ meeting will be the main event in energy. The alliance will decide on production policy amid signs of an ever-tighter market as economies reopen and coronavirus vaccines pave the way for increased mobility. Elsewhere, agricultural traders will be treated to a critical snapshot of U.S. planting acreages that’ll shape the global supply outlook. And in Asia, macro data from key consumer China will provide a read on conditions on the ground.

“What the wise man does in the beginning, the fool does in the end.” – Howard Marks

*All sources from Bloomberg unless otherwise specified