March 9, 2021

Daily Market Commentary

Canadian Headlines

• Canadian equities rose as investors rotated away from technology stocks. The S&P/TSX Composite Index gained 0.4%, with nine of 11 sectors advancing. Tech and materials lagged. Oil fell the most in a week as the dollar strengthened and investors shrugged off an attack on the world’s largest crude terminal in Saudi Arabia. A rapid souring in financial markets on Monday highlights how even the most positive news for the world economy is no fillip to risk assets weighed down by the anchor of the global bond market.
• More voters trust Justin Trudeau’s party to manage Canada’s finances after the pandemic than any other, a boost of polling confidence that could tempt him to trigger an election. The governing Liberals earned 33% support in a Nanos Research Group survey for Bloomberg News asking Canadians which party is best suited to manage the public purse. The result gives the prime minister a strong edge over his main rival, Erin O’Toole, whose Conservatives were chosen by 24% of respondents. Canada’s economy suffered an historic 5.4% contraction last year despite hundreds of billions in debt-financed spending from Trudeau’s government. But a surprisingly strong start to 2021 combined with a string of good news on vaccines leave the Liberals well positioned.

World Headlines

• European stocks advanced for a second day as technology shares recovered from a recent selloff and investors returned to risk assets after the Treasury yield climb came to a halt. The Stoxx Europe 600 Index was up 0.7% at 11:21 a.m. in London, with tech shares outperforming as the U.S. Nasdaq 100 was set to climb following a technical correction. Utilities advanced the most, while energy stocks were supported by oil’s rise. Banks trimmed Monday’s gain and miners fell amid a slump in iron ore futures. Europe’s equities climbed the most since November on Monday as rising bond yields accelerated a rotation away from growth stocks and into cheaper value stocks and cyclical shares, which stand to benefit from economies reopening as vaccine rollouts progress. The gains in the Stoxx 600 continued on Tuesday as Treasury yields fell, boosting rates-sensitive sectors, such as tech and utilities.The Nasdaq 100 Index led a surge in U.S. equity futures and bonds rebounded from Monday’s selloff. Contracts on the tech-centric Nasdaq 100 rose 2.5% while those on the S&P 500 advanced more than 1%. Shares in Tesla were up 5.7% in premarket trading, while Cathie Wood’s flagship exchange-traded fund Ark Innovation ETF, which has Tesla as its largest holding, gained 4.9%. Both are set to open higher after five straight days of declines. Markets have been gripped by volatility in tech stocks this week and the Nasdaq 100 has fallen 11% from an all-time high. Tuesday’s moves veered back to risk-on, with the dollar weakening and stocks from Asia and Europe also notching gains.
• Japanese stocks rose, with advances in automakers and banks helping to offset declines in the electronics sector. The Nikkei 225 reversed an early loss to close with a gain, with SoftBank Group the biggest boost. Terumo climbed after a report that it has developed a syringe that can extract more doses from a Pfizer Covid-19 vaccine vial than currently used models. Panasonic Corp. fell after the Nikkei reported that it is acquiring software developer Blue Yonder in a deal worth about $6.5 billion. The yen extended its recent loss through 109 to the dollar, to its weakest level since June. In U.S. trading on Monday, the Nasdaq 100 fell to its lowest since November as investors rotated into cyclical stocks amid a rise in Treasury yields.
• Oil reversed an earlier decline to trade above $65 as the dollar slipped. Futures in New York bounced between gains and losses on Tuesday, with a deteriorating greenback making commodities priced in the currency more valuable and bond markets rallying. In a bullish indicator for consumption, the OECD revised up its forecasts for global economy on stimulus plans and vaccine efficacy. Oil had started the week strongly — surging to the highest level since October 2018 — after an attack on a major Saudi Arabian crude export terminal, but crude eventually wiped out those earlier gains. Oil has rallied this year amid output cuts from Saudi Arabia and OPEC+, and an improving demand outlook with the rollout of Covid-19 vaccines. Prompt timespreads have firmed in a bullish backwardation structure, helping to unwind bloated inventories built up during the coronavirus pandemic, while investment banks continue to raise their crude price forecasts.
• Gold rebounded from a nine-month low as a weaker dollar boosted the metal’s appeal and investors weighed fluctuations in bond yields. The greenback fell from the highest since November and government bonds across developed markets rose before a series of Treasury auctions that could renew volatility. Bets on an economic recovery and higher Treasury yields have weighed on non-interest-bearing bullion so far this year. Gold has tumbled about 18% from a record closing high in August — nearing the 20% threshold that’s the common definition of a bear market — on expectations that the rollout of vaccines will help stoke global growth. That’s prompted investors to sell from gold-backed exchange-traded funds, with holdings falling to the lowest since June, data compiled by Bloomberg show.
• Bitcoin rallied above $54,000 as the digital currency rides a wave of investor demand for crypto assets. Prices jumped 4.6% in early U.S. trading, reaching the highest in two weeks. While high-flying bets like Tesla Inc. and the ARK Innovation ETF have cratered recently, Bitcoin has steadily climbed on news of more institutional involvement in crypto. On Monday, NYDIG, a provider of Bitcoin-related financial services, announced that it raised $200 million from investors including Stone Ridge Holdings Group, Morgan Stanley, New York Life, MassMutual and Soros Fund Management. NYDIG said Bitcoin adoption among institutions is accelerating, citing data that insurers have more than $1 billion in Bitcoin-related exposure on its platform.
• The vaccine from Pfizer Inc. and BioNTech SE showed a high ability in lab experiments to neutralize coronavirus strains first detected in Brazil, the U.K. and South Africa. Norway became the latest European country to add AstraZeneca Plc’s vaccine to its immunization program for the elderly, while the shot was also cleared for emergency use in Indonesia. Hotels in Thailand are seeking a quarantine waiver for vaccinated tourists. Russia is pushing ahead with plans to make its Covid-19 vaccine in Europe. In the U.S., airlines are urging the Biden administration to develop virus passports as infections spread at the slowest pace since the pandemic began almost a year ago. Global cases, meanwhile, are picking up speed again after dropping to the lowest level since October a few weeks ago.
• President Joe Biden’s soon-to-be-unveiled longer-term economic stimulus package is set for far tougher obstacles in Congress than the pandemic-relief bill that’s on the verge of squeaking through without a single Republican’s backing. The “build back better” program that the White House says will be announced after Biden signs the $1.9 trillion aid bill — heading for final passage as soon as Tuesday — will be far more expansive than its predecessor. Spanning measures to address infrastructure, climate, health care, inequality and much more, and costing trillions of dollars over a decade, the initiative is far more complex. And Republican opposition to tax hikes will make it all the harder to fund the initiative.
• Vodafone Group Plc is looking to raise 2 billion euros ($2.4 billion) from an initial public offering of its European mobile-phone towers unit in Frankfurt, in what will be one of the region’s biggest stock market listings this year. The U.K. telecommunication giant plans plans to sell shares in Vantage Towers AG at 22.50 euros to 29 euros apiece, according to a statement Tuesday. Vodafone is targeting maximum proceeds of 2.8 billion euros from the offering, which would include an option to increase the deal size and an over-allotment. The final number of shares sold will depend on where the IPO prices. Vodafone shares climbed 2% to 128.60 pence at 11:18 a.m. in London.
• Goldman Sachs Group Inc. is exploring a sale of its majority stake in Japan Renewable Energy Corp. that could raise about $2.5 billion, according to people familiar with the matter. Goldman is working with Bank of America Corp. on the potential sale of its 75% stake in Japan Renewable, the people said, asking not to be identified because the matter is private. The sale has drawn preliminary interest from buyers including other renewable companies, infrastructure and pension funds, the people said. Discussions are ongoing and the owner could still decide against a sale, the people said. Representatives for Bank of America and Goldman declined to comment.
• CVC Capital Partners is nearing a deal to acquire European over-the-counter drugmaker Cooper for about 2.2 billion euros ($2.6 billion), people familiar with the matter said. The private equity firm is negotiating detailed terms of an agreement with Cooper’s owner, Charterhouse Capital Partners, according to the people. CVC beat out rival suitors including a consortium led by PAI Partners, the people said, asking not to be identified because the information is private. No final agreements have been signed yet, and talks could still fall apart, the people said. Representatives for Charterhouse, CVC and PAI declined to comment.
• Cairn Energy Plc reshuffled its portfolio, selling $460 million of assets in the U.K. North Sea and buying projects in Egypt’s Western Desert from Royal Dutch Shell Plc. Both deals, announced Tuesday and seen completing in the second half of 2021, follow a pickup in oil and gas acquisitions after 2020’s pandemic-driven slump. Cairn’s retreat from the North Sea comes after several other international producers have withdrawn from the aging region. Meanwhile its purchase in Egypt enables Shell to chalk up proceeds in an ongoing divestment program. The deal in Egypt, back on after delays last year, consists of Shell’s interest in 13 onshore concessions and in Badr El-Din Petroleum Co. The U.K.’s Cairn, together with Cairo-based Cheiron Petroleum Corp., will buy the assets for $646 million and make additional payments of as much as $280 million by 2024, “contingent on the oil price and the results of further exploration,” Shell said in a statement.
• Panasonic Corp. slid 6.6% after the Nikkei reported it will buy U.S. AI software developer Blue Yonder for 700 billion yen ($6.5 billion). The acquisition would be Panasonic’s largest to date, surpassing a 1990 investment of roughly $6.1 billion in Universal Studios Inc., according to data compiled by Bloomberg. The Japanese company, which was sitting on about $13 billion of cash at the end of 2020 and slightly more in debt, could turn to capital markets to bankroll the deal, the Nikkei reported, citing people familiar with the matter. Its shares fell in Tokyo by their most since July. Panasonic, which makes batteries for Tesla Inc., intends to twin Blue Yonder’s AI with its own hardware, the newspaper said. The American firm, founded in 1985, makes supply-chain management software and uses artificial intelligence to predict product demand. Its 3,300 worldwide customers include Unilever Plc and Walmart Inc., the paper said.
• Thanks to the pandemic, U.S. banks won a long-sought regulatory break that let them expand their balance sheets by as much as $600 billion without adhering to profit-denting safeguards. Now, firms are frantically lobbying to extend that relief before it expires at month’s end. The reprieve from what’s known as the supplementary leverage ratio — granted a year ago as Covid-19 rocked markets and the economy — gave lenders free rein to load up on Treasuries and deposits, while avoiding a requirement that they hold more capital as a buffer against losses. The Federal Reserve and other agencies eased the rules because they said they wanted excess capital deployed to struggling businesses and households. As watchdogs mull letting the relief continue, Wall Street isn’t shying away from offering arguments and even warnings. Executives point out that the pain from coronavirus is far from over, and JPMorgan Chase & Co. has cautioned that it might have to shun customer deposits if tougher rules are reinstated. Analysts have also said recent bouts of wild trading in the $21 trillion Treasury market could be tied to concerns that banks will be forced to hold less government debt, even selling some of their holdings.
• Pentagon officials are crafting a fiscal 2022 budget plan that assumes the military will receive $704 billion to $708 billion, essentially a flat budget instead of the increase anticipated under former President Donald Trump, according to three current or former defense officials. The previous administration had announced that it would propose about $722 billion for the Defense Department in the year that begins Oct. 1, although lawmakers of both parties have predicted less would be available amid competing spending demands and rising deficits from Covid-19 relief packages.
• China must boost military spending to prepare for a possible confrontation with the U.S., top generals said, in an unusual acknowledgment of the risk of a clash between the world’s two largest economies. The two generals — members of the Central Military Commission led by President Xi Jinping — made the comments during the annual national legislative session in Beijing. CMC Vice Chairman Xu Qiliang, China’s top uniformed officer, said the country needed to brace for a “Thucydides Trap,” an inevitable conflict between a rising power and an established one. “Facing the ‘Thucydides Trap’ and border disturbances, the military must step up its efforts to improve its capabilities,” Xu said Friday, although the transcript wasn’t released until later. “The most important thing is internal unity and cohesion and improvement of overall capabilities. If you are strong, you will have long-term stability, as well as invincibility.”
• A world-beating rally in Chinese stocks has turned into the biggest rout globally, shocking investors with the severity of its reversal and evading state efforts to slow the pace of losses. In just 14 trading days, the nation’s benchmark CSI 300 Index has plummeted 14% from a 13-year high. That compares with a 3.3% drop by the MSCI All-Country World Index. The plunge has wiped out more than $1 trillion of value and hammered the holdings of retail investors who piled in at the peak, betting that the new lunar year of the Ox, or bull, would be auspicious. State intervention on Tuesday briefly arrested the tumble, before losses resumed. The question on traders’ minds now is how far the slump will go, given the CSI 300 is only a couple of bad days away from entering its first bear market in two years, and whether authorities will do more to calm sentiment. The hand of the state has become less obvious since 2018, when the government reportedly liquidated a handful of mutual funds it had formed three years earlier to purchase stocks during a crash.
• It’s always been easier to spend than save money. Until the pandemic flipped that idea on its head, at least for some people. Shorn of opportunities to spend on everything from holidays to commuting, higher-income earners who kept their jobs suddenly had spare cash. In all, consumers in the world’s largest economies amassed $2.9 trillion in extra savings during Covid-related lockdowns, according to estimates by Bloomberg Economics.  At some point later this year though, if the vaccine rollout goes to plan and the pandemic abates, frugality will become an option again, rather than the default. Predictions for a new “roaring twenties” are rife. Pent-up demand could drive a huge consumer spending boom.
• China’s global attack on Microsoft’s popular email software revealed last week and an equally sprawling Russian attack discovered three months ago have created a two-front war that threatens to overwhelm cybersecurity’s emergency responders, according to former U.S. officials and private security firms. The coincidence of two far-reaching hacking campaigns launched by Russia and China, discovered just weeks apart, is now rippling across the global economy — swamping insurers, IT staff, and firms that specialize in hunting and ejecting hackers. The twin hacking campaigns involve the U.S.’s two most powerful cyberspace adversaries, and both have led to emergency meetings of the White House National Security Council, in part because of the unusually wide net cast by the attackers.
• A U.S. recovery turbocharged by President Joe Biden’s stimulus package will help power a faster than expected global economic upswing that risks leaving Europe behind, according to OECD forecasts. The Paris-based organization said it now expects global output to rise above pre-pandemic levels by mid-2021 after major economies showed greater resilience at the end of 2020, and as evidence of vaccine efficacy grows and governments add extra demand stimulus. It raised its world growth forecast for 2021 to 5.6% from 4.2% and more than doubled its prediction for the U.S. to 6.5%. OECD models indicate that Biden’s measures will raise output around 3% to 4% on average in the first full year of the package and add a full percentage point to world economic output.
• Ambulnz Inc., a provider of mobile medical services and patient transportation, has agreed to go public through a merger with Motion Acquisition Corp. The special purpose acquisition company is raising $125 million in new equity from investors including Light Street Capital and Moore Strategic Ventures to support the transaction, which is set to value the combined entity at about $1.1 billion, according to a statement Tuesday, following an earlier Bloomberg report. Ambulnz, to be renamed DocGo Inc., is led by Chief Executive Officer Stan Vashovsky. The New York-based company, which operates in 23 U.S. states and the U.K., offers non-critical medical services to patients at home including vaccinations, blood work and testing, according to the statement.
• Sanjeev Gupta’s GFG Alliance is in talks to negotiate a reprieve on its debt obligations to Greensill Capital and prevent a rapid collapse of the metals group that’s been shaken by the unraveling of its biggest lender. A standstill agreement with Greensill, GFG’s largest lender which filed for administration on Monday, would help the metal magnate’s group stave off insolvency and avoid an asset fire sale, according to people familiar with the matter, who asked not to be named because the talks are private. Gupta is separately seeking to raise new financing to replace Greensill’s loans, they said. Greensill stopped lending to GFG at the beginning of March, according to court documents. Since then, the filing stated, GFG has “started to default on its obligations.” Greensill had a $5 billion exposure to GFG, one of the people said.

“We laugh at honor and are shocked to find traitors in our midst“ – C.S. Lewis

*All sources from Bloomberg unless otherwise specified