May 19, 2021

Daily Market Commentary

Canadian Headlines

  • Canadian shares rose for second day this week, after tech and health-care stocks outperformed. The S&P/TSX Composite index rose 0.2% in Toronto, after rebounding from earlier loss of as much as 0.3%. Tech stocks were the best performers, led by Shopify after Google announced e-commerce shopping partnership with the company. On the M&A front, Canadian National Railway’s sixth largest holder TCI Fund Management said the company should drop its Kansas City Southern bid, according to a letter seen by Bloomberg.
  • Montrealers will soon be able to dine at restaurants again, stay out as late as they wish, and visit one another under Quebec’s plans to lift some of the continent’s toughest Covid-19 restrictions. The Canadian province estimates 75% of adults will have received a first vaccine shot by June 15, making it possible to ease the lockdown, Premier Francois Legault said during a news conference on Tuesday. “We’ve exceeded our goals with the vaccination campaign,” he said. “Thanks to your efforts, we can now announce a reopening plan.” A curfew in place since January will be lifted on May 28. Three days later, restaurants will be able to reopen in most regions, including Montreal, followed by bar patios on June 11. The government also shared a timeline for allowing visits inside private homes, starting June 14.

World Headlines

  • European equities slid on Wednesday amid concerns about Covid-19 flareups in some nations and supply constraints, and as the European Central Bank warned about “remarkable exuberance” in markets. The Stoxx Europe 600 Index dropped 1.3% as of 9:40 a.m. in London, tracking Asian stocks lower. All sectors were in the red, with miners leading declines after iron ore futures halted a two-day rebound. A gauge of energy stocks fell 1.8% after a report showed a rise in U.S. crude stockpiles and oil headed for a back-to-back loss. The ECB’s view on markets, highlighted in its Financial Stability Review, shows mounting concerns that the flood of fiscal and monetary stimulus needed to fight the pandemic is also building up dangerous imbalances. If more upward surprises in U.S. inflation prompts investors to bet on earlier monetary tightening, driving up bond yields without an accompanying improvement in economic growth, “spillovers from U.S. equity market repricing could be substantial,” the central bank said Wednesday.
  • U.S. futures fell with stocks Wednesday as concerns about faster inflation and Covid-19 flareups in some nations rattled investors. Treasuries and oil also dropped. Contracts on the Nasdaq 100 Index led declines in U.S. futures, signaling more losses for technology shares. Tesla Inc. slipped in U.S. premarket trading after data showing a slowdown in China sales. Target Corp. climbed after predicting a more profitable year as quarterly sales soared. The Stoxx Europe 600 Index fell the most in a week, with commodity and leisure shares down the most. Asian shares also slid.
  • Asian stocks declined, set to end a three-day win streak, as commodities-heavy Australia paced losses. The Australian benchmark dropped almost 2%, the most since February and leading declines across the region. Materials and energy shares paced the selloff, as oil dropped on a rise in U.S. stockpiles and hopes for progress on an Iran nuclear deal.
  • Oil fell for a second day amid a spate of weakness in wider markets and as traders tracked talks between world powers on a revival of the Iran nuclear deal. West Texas Intermediate for June delivery tumbled 1.4%, while global benchmark Brent — which topped $70 a barrel briefly in early Tuesday trade — also declined. Stock markets fell on inflation fears, while the dollar climbed, hampering prices. There was also an increase in U.S. crude stockpiles last week, the American Petroleum Institute reported. Attention is steadily shifting back to the Iran nuclear deal, after the nation’s deputy foreign minister told state TV that good progress had been made in the talks. Some key issues remain, he said, as traders eye the potential for a recovery in the nation’s exports. It comes as just as the OPEC+ alliance loosens output curbs.
  • Gold slipped from the highest level in more than three months as the dollar strengthened before the release of minutes from the Federal Reserve’s meeting in April. Fed minutes due later Wednesday may offer more insight into how policy makers view growing price pressures, and any hints of a timeline for tapering stimulus. In Bank of America Corp.’s latest fund manager survey, inflation topped the list of the biggest tail risks, followed by a bond market taper tantrum and asset bubbles, while Covid-19 was in fourth place.
  • Wheat dropped to the lowest in almost a month in Chicago amid better weather forecasts for growing regions in the U.S. and Europe. Other crop prices also retreated. Prospects for rain have dampened the grains rally, taking the heat out of a market where robust Chinese demand and dwindling global stockpiles pushed prices to multiyear highs. The positive weather outlook may offer some relief to markets worried about food inflation, already tracking higher at a time when consumption is returning to post-pandemic normalcy. In the U.S., wheat yields in Kansas could end up exceeding government forecasts, according to a crop tour. Good seeding progress in the country is also easing supply concerns, with 80% of corn planted, a little more than a year earlier, while soybean planting is well ahead of last year.
  • The Elon Musk-propelled rally in Bitcoin just evaporated. The world’s largest cryptocurrency has erased all the gains it clocked up following Tesla Inc.’s Feb. 8 announcement that it would use corporate cash to buy the asset and accept it as a form of payment for its vehicles. Now traders are bracing for more pain as the token breaches a key technical level. Bitcoin sank to $37,500 as of 7:30 a.m. in New York Wednesday, a level last seen before the EV-maker disclosed its investment. It’s now down around 40% from its record of almost $65,000 set in April. Fueling the volatility is Tesla CEO Musk himself, whose social-media utterances have whipsawed the crypto community. A statement from the People’s Bank of China on Tuesday reiterating that digital tokens can’t be used as a form of payment added to the sell-off.
  • India’s daily virus deaths reached a record, even as new infections reported in the country have declined from the highs of early May. Taiwan extended a soft lockdown island-wide as case numbers climb. The coronavirus continued its rampage through Thailand’s prisons, accounting for close to half the country’s latest infections. Staff at DBS Group Holdings Ltd. and HSBC Holdings Plc are among Singapore’s newest cases as mystery infections in the city-state persist. French President Emmanuel Macron said that the epidemic numbers are “well oriented” as cafe and restaurant terraces, as well as museums and cinemas, opened on Wednesday after a months-long lockdown. In North America, Quebec’s months-long curfew will be lifted on May 28, ending some of the continent’s toughest coronavirus restrictions.
  • Imports to Ireland from Great Britain slumped in March, as Brexit continued to impact business between the two countries. Goods imports from Great Britain, which does not include Northern Ireland, fell 31% in March compared to a year ago to 992 million euros ($1.2 billion), Ireland’s statistics office said in a statement, continuing a trend since the U.K. left the EU. Goods imports dropped 48% in the first three months of the year. Exports to Great Britain from Ireland increased 13% during March compared to a year ago. Still, exports dipped 3% in the first quarter compared to the same period in 2020.
  • Austrian landlord Immofinanz AG offered to buy the shares it doesn’t already own of cross-town rival S Immo AG after getting regulatory approval for the bid, the latest twist in a long history of efforts to consolidate Austria’s real-estate industry. The Vienna-based commercial property firm offered to buy S Immo shares for 22.25 euros ($27.24) apiece, a 40% premium over the 6-month average before plans were first announced, and compared with a 21.90 euro closing price on Tuesday. Shareholders have until July 16 to respond to the proposal worth $1.4 billion. Immofinanz first flagged the bid in March and later raised the offer price to the amount now formally confirmed. Its own shares, equivalent to 26% of the outstanding, as well as S Immo’s treasury shares aren’t eligible, meaning the offer is for as many as 51.7 million shares, or 70% of the total. At least half of those need to accept for the offer to go through, and S Immo needs to lift rules that limit voting rights in the company.
  • Israeli airstrikes battered the Hamas-ruled Gaza Strip early Wednesday and rocket barrages from the isolated enclave thudded into Israel as a frenzy of diplomacy sought to end the devastating conflict. Israeli aircraft struck about 40 underground military targets belonging to Hamas overnight, as well as rocket-launching sites and other military facilities of the Islamic Jihad militant group, the Israeli army said. The strikes sent the Palestinian death toll climbing to 219. Rockets fired into Israel have killed 12 people since fighting began on May 10. Israel’s Channel 12 TV reported late Tuesday that Egypt, which has played a key role in ending previous bouts of violence in Gaza, had proposed a cease-fire that would start Thursday at 6 a.m., and that Hamas had agreed to comply. The report could not be confirmed. An Israeli government spokesman declined to comment while officials from the Palestinian Islamist group variously declined to confirm or deny it outright.
  • Lowe’s Cos Inc. posted sales that beat analysts’ expectations in the first quarter, a sign that the yearlong home-improvement boom during the pandemic isn’t over. But there are hints the growth may start to fade. Same-store sales in the U.S., a key metric in retail, rose 24.4% in the period ending April 30, Lowe’s said Wednesday in a statement. That compares with the 21.2% average of estimates compiled by Bloomberg.
  • New York Attorney General Letitia James said her investigation of the Trump Organization, which had been civil, has morphed into a criminal probe. The disclosure means that former president Donald Trump’s company is under criminal investigation by two state officials, James and Manhattan District Attorney Cyrus Vance Jr. ”We have informed the Trump Organization that our investigation into the organization is no longer purely civil in nature. We are now actively investigating the Trump Organization in a criminal capacity, along with the Manhattan DA. We have no additional comment at this time,” Fabien Levy, a spokesman for James, said in a statement issued late Tuesday. One focus of James’ investigation had been the appraisal of Seven Springs, a Trump property on 212 acres in Westchester County, outside New York City. James’ investigators have been trying to determine whether Trump’s company gave an accurate valuation for the property when it served as the basis for about $21.1 million in tax deductions for donating a conservation easement for the 2015 tax year.
  • The first handful of trades in the U.K.’s new carbon market on Wednesday morning indicates that polluting will be more expensive for everyone from power plants to factories than it is under the European scheme. The launch of the U.K.’s own carbon system is a replacement for the country’s participation in a nearly identical EU program that’s been going since 2005. Putting a price on carbon raises the dilemma for a British government of how to be a world leader on climate issues, but also make sure its businesses can compete globally.
  • Ireland will increase a tax on the bulk buying of homes, amid growing outrage over investment funds hoovering up real estate and squeezing out first-time buyers. The government will raise stamp duty to 10% on purchases of 10 or more residential houses, Finance Minister Paschal Donohoe said late on Tuesday in Dublin. The current levy is 1% on homes of below 1 million euros ($1.2 million) and 2% above that level. The decision comes amid growing tensions over investors buying up homes to lease out. The recent mass purchase of nearly 80% of a development by Round Hill Capital LLC set off a storm, prompting the government to act in a bid to quell political criticism led by Sinn Fein. So-called cuckoo funds are viewed as amplifying a housing crisis driven by lack of supply.
  • Ryanair Holdings Plc notched up the first wins in its campaign to topple billions of euros of Covid-19 bailouts for rival carriers after European Union judges faulted EU regulators for failing to properly check whether aid was justified. The EU General Court, the bloc’s second-highest tribunal, on Wednesday overturned the European Commission’s approval of a 3.4 billion-euro ($4.2 billion) Dutch subsidy to Air France-KLM and 1.2 billion euros offered by Portugal to TAP SGPS SA. But rather than order the repayment of subsidies, judges gave regulators the chance to re-examine the cases and fix any procedural flaws. Ryanair on Wednesday lost a separate challenge to a 10 billion-euro Spanish fundfor local carriers.
  • Macquarie Group Ltd. and Dutch pension fund manager PGGM have started reaching out to prospective bidders for a potential sale of rail freight operator One Rail Australia, according to people familiar with the matter. Macquarie Infrastructure & Real Assets and PGGM sent out marketing materials this week on the former Australian arm of Genesee & Wyoming Inc., the people said. A deal could value the rail freight service provider at more than A$2.5 billion ($1.9 billion), said one of the people, who asked not to be identified discussing confidential matters. The company is expected to generate revenue of about A$475 million in 2021 and earnings before interest, taxes, depreciation and amortization of about A$235 million, the person said.
  • Adani Green Energy Ltd. said it has agreed to buy SoftBank Group Corp.’s renewable power business in India, as it seeks to accelerate efforts to expand capacity. The firm, controlled by billionaire Gautam Adani, signed pacts for the acquisition of a 100% interest in SB Energy India from SoftBank and partner Bharti Group, according to a statement. Adani didn’t give details of the transaction, but said the deal gives SB Energy an enterprise valuation of $3.5 billion. Adding the unit moves Adani Green closer to its goal of having 25 gigawatts of renewable power capacity by 2025, as it targets a role as one of the world’s largest suppliers of clean energy. The firm has been seeking acquisitions to bolster its roster of assets, after being faced with delays in starting some large projects.
  • European Union lawmakers will vote to formally halt an investment agreement with China in response to sanctions against members of the bloc, Politico reported, adding to growing tensions between Brussels and Beijing. The motion freezing the Comprehensive Agreement on Investment is expected to pass Thursday, the news outlet said, citing a draft of the document. It will demand China lift sanctions before any progress is made on the deal, which took seven years to negotiate, and urge the bloc to better cooperate with the U.S., Politco reported. The agreement is balanced and mutually beneficial, and both parties should work toward its early ratification, Chinese Foreign Ministry spokesman Zhao Lijian said in a regular briefing Wednesday in Beijing.
  • Target Corp. said it expects wider 2021 margins than it had foreseen earlier this year, boosted by a shift in demand toward more profitable items like apparel and home decor. The shares jumped in premarket trading. The retailer said its full-year operating profit margin will be “well above” last year’s 7% level, and possibly reach 8% or more. It also expects comparable-store sales to remain positive in the last two quarters of the year — even though it will be facing very difficult comparisons with last year’s pandemic-fueled boom. First-quarter sales growth, bolstered by both in-store and online purchases, came in at more than double the estimate compiled by Bloomberg. Chief Executive Officer Brian Cornell said in a statement Wednesday that the first quarter was “outstanding on every measure,” and included more than $1 billion in market-share gains. “We’re confident in continued comp growth in the second quarter and through the remainder of the year, as well as a healthy full-year operating margin rate.”
  • The new entity that will house the merged AT&T Inc. media assets with Discovery Inc.’s reality-TV empire is starting to market a series of loans to help fund the transaction, according to people with knowledge of the matter. The facilities include a $31.5 billion 364-day bridge loan, which is expected to be refinanced with longer-term bonds, and a $10 billion term loan in two tranches. In high yield, roofing company SRS Distribution is holding an investor call Wednesday for a $1.25 billion, dual-tranche offering which will help repay debt and fund a dividend.
  • Shortages in the semiconductor industry, which have already slammed automakers and consumer electronics companies, are getting even worse, complicating the global economy’s recovery from the coronavirus pandemic. Chip lead times, the gap between ordering a chip and taking delivery, increased to 17 weeks in April, indicating users are getting more desperate to secure supply, according to research by Susquehanna Financial Group. That is the longest wait since the firm began tracking the data in 2017, in what it describes as the “danger zone.”
  • The European Central Bank is relatively upbeat on the economic outlook as it prepares for a crucial monetary policy meeting next month, despite mounting risks to financial stability from overvalued asset prices. The risks to the economic outlook “are much more balanced than in the past,” ECB Vice President Luis de Guindos said in an interview with Bloomberg Television. “Vaccinations are gaining momentum everywhere in Europe, and we are catching up, we are bridging the gap.” The ECB’s Governing Council will meet on June 10 to review updated forecasts and judge whether it should start to scale back its emergency bond-buying program. Purchases were stepped up this quarter to counter rising borrowing costs driven by the faster U.S. recovery.
  • Inc. reported sales that beat analysts’ estimates as the Chinese e-commerce operator benefited from a recovery in consumer spending in the world’s second-largest economy. Revenue for the March quarter jumped to 203.2 billion yuan ($31.6 billion), compared with the 192 billion yuan average of estimates. Net income more than tripled to 3.6 billion yuan, rebounding from the Covid-hit year-earlier period. Consumer spending in China recovered strongly in the first quarter as the economy roared back from the pandemic, though retail sales have since seen a tapering. E-commerce operators like are seeking to capitalize on the sustained shift to online shopping — estimated to account for more than half of total retail sales this year — even as antitrust regulators step up scrutiny over anti-competitive practices in the tech industry such as forced exclusivity agreements.

Cash combined with courage in a time of crisis is priceless.” — Warren Buffet

*All sources from Bloomberg unless otherwise specified