May 20, 2021

Daily Market Commentary

Canadian Headlines

  • A cloud of methane was detected by satellite over a natural gas field in Canada, identifying a hidden source of pollution from one of North America’s most prolific production basins. The emissions rate was estimated at 79 metric tons an hour on April 20, according to geospatial analytics company Kayrros SAS, which found the plume by analyzing European Space Agency data. If the release lasted an hour it would trap roughly the same amount of heat as more than 300,000 cars driving at 60 miles an hour, according to the Environmental Defense Fund. The satellite data didn’t show the duration of the leak. It’s the most severe methane cloud detected in Canada via the satellite data dating back to 2019, and the third-highest rate of emissions identified in North America this year, according to Kayrros. It said the gas was spotted at the south end of the Duvernay shale play, which is part of the Western Canadian Sedimentary Basin. Public and private satellite data has also helped spot methane plumes in countries such as Bangladeshand Turkmenistan.

World Headlines

  • European shares pared gains as U.S. futures extended drops, with miners and oil stocks falling as Brent crude extended declines. The Stoxx Europe 600 Index was up 0.3% as of 11:10 a.m. in London, after earlier advancing as much as 0.7%. Technology and food shares gained the most, while the Stoxx 600 Basic Resources Index dropped more than 1%. After Wednesday’s risk-off rout, some optimism has returned to European markets as expectations of an economic recovery lifts risk assets. May has been a volatile month, with the Stoxx 600 Index reaching a fresh high and then dropping amid concerns that inflation will lead to monetary tightening. The index is still up about 10% this year as vaccinations programs advance, stimulus efforts remain in place and earnings generally beat expectations.
  • U.S. futures fell and stocks were mixed Thursday as investors weighed the prospect of reduced stimulus against signs of economic progress. Treasuries rose and oil slid. Contracts on key U.S. benchmarks declined, signaling a fourth day of losses for the S&P 500 Index. Cisco Systems Inc. fell after its profit forecast missed estimates. Investor worry that faster inflation will prompt authorities to ease back on stimulus has weighed on risk assets in recent sessions. Stocks have been volatile since a record reached in early May, and commodities have dropped from multi-year highs. Minutes from the Federal Reserve’s last meeting showed some officials were open to a debate at “upcoming meetings” on scaling back bond purchases if the U.S. economy continued to progress rapidly.
  • Asian stocks fell for a second day, weighed down by losses in materials shares as investor focus switched back to concerns on inflation. Australian miner BHP Group and Korean steelmaker Posco were among the biggest drags on the MSCI Asia Pacific Index. Energy fell the most among the regional benchmark’s 11 industry groups. Commodities prices weakened amid continued worry over inflation and as Federal Reserve meeting minutes revealed the central bank could be considering tapering its asset purchases as soon as next month. The Chinese government added to the pressure as it signaled concern over the impact of rising commodity prices on consumers.
  • Brent crude extended declines after Iran’s president said the broad outline of a deal to end sanctions on its oil had been reached. Futures in London lost 1.8%, after slumping 3% on Wednesday. President Hassan Rouhani struck an optimistic tone in comments released by Iranian state television, saying the deal would see oil, shipping, insurance and central bank sanctions lifted. But he noted there are still some issues to be discussed, and his remarks largely echoed those from European Union officials on Wednesday. The prospect of a return of supply from the OPEC member state is being reflected in Brent’s prompt timespread, with its backwardation narrowing to just a few cents, a sign that market tightness may be easing.
  • Gold steadied near the highest level in more than four months as investors assessed the minutes from the Federal Reserve’s April meeting that flagged the possibility of a debate on scaling back asset purchases. Rising inflation expectations and the Fed’s pledge to keep rates low for longer has revived interest in gold, with a rebound seen in holdings in bullion-backed exchange-traded funds. While U.S. policy makers have signaled they intend to maintain an accommodative stance for a prolonged period, any hints of a timeline for paring back exceptional stimulus could weigh on the precious metal.
  • Morgan Stanley Chief Executive Officer James Gorman unveiled his biggest leadership shakeup in more than a decade, positioning a small group of lieutenants — and two in particular — as his most likely successors. Ted Pick, the architect of Morgan Stanley’s trading revival, and Andy Saperstein, who built the company into a wealth-management powerhouse, were tapped as co-presidents and given expanded roles atop the Wall Street bank that’s been gaining ground on rivals. Among a slate of others changes: Investment management chief Dan Simkowitz will gain clout as co-head of strategy alongside Pick, and Chief Financial Officer Jon Pruzan will become chief operating officer.
  • The Group of Seven nations will next month discuss ways to recognize Covid-19 vaccination certifications internationally, supporting a system for the mutual recognition of inoculation documents. The organizers of the Shangri-La Dialogue, which usually draws in top military officials and diplomats, scrapped next month’s event in Singapore following an increase in cases, coming on the heels of the cancellation of the World Economic Forum in the city state. Data from the U.S., Israel, Qatar and Malta suggest messenger RNA vaccines developed by Moderna Inc. and the Pfizer Inc.-BioNTech SE partnership are more effective in quelling transmission of the virus.
  • The Biden administration’s $4 trillion economic agenda is at risk of getting tangled up in the calculations of Congress’s budget scorekeepers. Where the Treasury Department sees improved tax collection generating $700 billion in new revenue over a decade to help pay for programs, the Congressional Budget Office’s guidelines and own estimates may result in the legislative agency projecting nowhere near that. And while that gap may seem modest by the gargantuan numbers of Washington spending, it threatens a host of political difficulties, not least of which is making it harder for the White House to pass the plan without the support of Republicans. GOP lawmakers have said raising taxes and repealing parts of the 2017 tax overhaul are non-starters.
  • Apollo Global Management Inc. is known for its no-holds-barred dealmaking. But not long ago, the private equity firm pitched itself to pension funds and other wealthy institutions as an emerging force in “impact” investing, the movement to make money while also turning the world into a better place. Exhibit A: higher education. In 2017, Apollo led a $1 billion takeover of the company that owns the University of Phoenix. Before the acquisition, the for-profit college chain “came under fire for aggressive marketing practices and lower-quality degree programs,” Apollo said in a confidential October presentation. But the firm said it was working to transform the school into a “trusted education provider” that helps working adults achieve their dreams. Apollo said this earlier deal showed its social responsibility bona fides as it raised money for its first-ever impact fund.
  • Inside the imposing beige and white limestone-walled federal courthouse in downtown Oakland, lawyers clad in face masks and plastic shields and armed with cartloads of corporate documents are brawling daily over tech arcana — the Byzantine rules that govern Apple Inc.’s App Store. The contours of Epic Games Inc.’s complaint are widely known: the game developer alleges that Apple keeps too much of the revenue raised by businesses selling wares in the marketplace and that its rules are unfair and anticompetitive. Apple Chief Executive Officer Tim Cook will take the stand as soon as Friday to argue that Apple’s rules ensure a secure and seamless user experience and that developers make bank through the App Store. Should Apple’s defenses fail to persuade Judge Yvonne Gonzalez Rogers, a ruling in Epic’s favor would loosen Apple’s grip on its store and could upend the way millions of developers distribute apps to handheld device users the world over.
  • It took a pandemic to halt smoking inside more than 1,000 U.S. gambling venues. Now that the economy is reopening, tobacco opponents are urging elected officials and casino operators to make the restriction permanent. In New Jersey, the casino smoking ban — like indoor masking, capacity restrictions and other statewide emergency rules– will be lifted next month, so long as hospitalization and vaccination trends continue. Many state officials say they’re not ready to advocate for a smoke-free Atlantic City. The pandemic has given anti-tobacco activists new ammunition in the U.S., where 75% of states have some form of smoking ban. Current and former smokers are more likely to get severely ill from Covid-19, according to the Centers for Disease Control and Prevention. The Food and Drug Administration on April 29 said it will seek the prohibition of menthol cigarettes and flavored cigars, citing their disproportionate impact on Black smokers, 85% of whom choose menthols. Similar efforts had failed in the past, but that was before the arrival of a virus that disproportionately killed people of color.
  • Russia kicked off sales of its longest euro-denominated bond just a month after the U.S. slapped sanctions on its local debt and as the two nations discuss a summit of their leaders. The Finance Ministry is selling 15-year bonds in the common currency and offering a tap of an existing 750 million euro ($915 million) note due in 2027. Russia set initial price guidance in the 2.875% area for the 2036 bond and no less than 1.3674% for the 2027 note, according to a person familiar with the matter who asked not to be identified because the details aren’t public.
  • Broker app Trade Republic Bank GmbH, founded by former Merrill Lynch banker Christian Hecker, has become one of Germany’s biggest fintech firms by valuation. The Berlin-based company finished a $900 million financing round with investors including Sequoia, TCV, Thrive Capital, Founders Fund and others, it said in a statement on Thursday. The round valued Trade Republic at more than $5 billion. Trade Republic lets customers trade stocks, ETFs, crypto currencies and other financial products on its app, mostly without order commissions or other fees. It was founded in Germany in 2015 and has recently expanded into Austria and France. Hecker toldBloomberg earlier this month the company is looking to offer its services all over Europe.
  • EasyJet Plc predicted an uneven recovery this summer as European destinations relax coronavirus curbs only gradually, prompting the discount airline to chart a more cautious path to rebuilding its service. The U.K. company expects to add flights in earnest from June, a month later than planned, it said Thursday after posting a 701 million-pound ($990 million) loss for the first half through March. Uncertainty over travel restrictions will force late changes, hurting booking visibility, while costs are set to rise as pilots return from furlough. European airlines are trying to gauge how quickly they can bring back flights as governments move toward relaxing their borders while guarding against a surge in infection rates. London-based EasyJet said it’s frustrated over the approach being taken by Britain, where only 12 locations are on a so-called green list that still requires travelers to take costly tests, and Prime Minister Boris Johnson has urged people not to fly to “amber” nations.
  • Blackstone Group Inc. has confirmed it will offer 1.2 billion pounds ($1.7 billion) to buy St. Modwen Properties Plc despite opposition from a shareholder insisting the price is too low. A deal would swell the private equity giant’s vast U.K.’s warehouse portfolio, adding land for future development. Blackstone is offering 542p per share in cash, according to a statement Thursday. The money manager announced its intention to bid earlier this month and was met with resistance from J O Hambro Capital Management Ltd., which owns just over 9% of St. Modwen. Blackstone’s offer has secured the support of St. Modwen’s board and the family of its founder Stanley Clarke, giving it the backing of holders with a 6.59% stake. The offer will be put to a shareholder vote next month.
  • Telefonica SA and Liberty Global Plc won approval to combine their U.K. operations O2 and Virgin Media, clearing the way for the creation of a 31.4 billion-pound ($44.4 billion) powerhouse that will reshape the nation’s phone markets. The tie-up was scrutinized over concerns the combination could lead to higher prices and poorer wholesale services, the Competition and Markets Authority said Thursday. The CMA concluded, however, that was not likely. Telefonica SA, O2’s Spanish parent company and John Malone’s Liberty Global Plc had been looking to strike a deal for years, with Liberty’s Virgin Media a longstanding favorite deal-target gossip topic of European telecom bankers. The companies valued the deal at 31.4 billion pounds when it was announced a year ago.
  • South Korean President Moon Jae-in is set to make a last-ditch attempt to bring the U.S. and North Korea together under his watch when he meets Joe Biden at the White House on Friday, trying to revive dormant nuclear talks in his final year in office. But Pyongyang, which has displayed disdain for both leaders, has shown no interest in their diplomacy. That raises the stakes for the Friday summit as Moon tries to find fresh enticements to lure his neighbor back to table and the Biden administration undertakes a new strategy to end a nuclear program it sees as a serious threat to America and the world. A key part of Biden’s foreign policy has been turning to allies for support in addressing the security risks posed by the likes of China and North Korea, trying to mend relations strained by his predecessor Donald Trump and placing a greater emphasis on the Indo-Pacific region. The summit with Moon is emblematic of that, being Biden’s second White House meeting with a foreign leader since coming to office, after an April summit with Japanese Prime Minister Yoshihide Suga.
  • China’s blockchain-linked stocks are a rare quantity: a corner of the cryptocurrency market that’s relatively unscathed amid the rout in digital tokens. A Bloomberg-curated basket of eight Chinese A-share equities with ties to the blockchain technology behind cryptocurrencies — such as Shenzhen Forms Syntron Information Co., Ygsoft Inc. and Brilliance Technology Co. — is down less than 2% as of 2 p.m. in Singapore on Thursday. That compares with a more than 5% average plunge for a basket of 24 global crypto stocks outside China. The contrast owes a lot to China’s prior crackdowns on crypto trading, such as a ban on transactions between fiat and cryptocurrencies. As a result, while there are listed Chinese specialists in the digital-ledger technology backing virtual currencies, there isn’t a cohort of coin miners and trading platforms.
  • It started in Montana. The governor, desperate to fill record numbers of new weekly job postings, announced plans to scrap the payment of beefed-up federal unemployment benefits. Two days later, South Carolina followed. Then, in a rapid-fire rush, so too did about 20 other states, including Texas on Monday. The governors — all Republicans — are inserting themselves in the middle of what has become the hottest debate surrounding the biggest economy in the world: Are the enhanced benefits, which can swell unemployed workers’ monthly checks to near or even above their pre-pandemic wages, discouraging millions of Americans from looking for jobs as Covid-19 restrictions ease? To these governors and their supporters, the answer is an emphatic yes. The $300 weekly bonus payments need to be eliminated to keep the recovery humming along and to prevent labor shortages from further fanning inflation, they say.
  • UBS Group AG and Nomura Holdings Inc. and UniCredit SpAwere fined a total of 371 million euros ($452 million) by the European Union for colluding on euro government bond trading during the region’s sovereign debt crisis. UBS was fined 172 million euros and Nomura will have to pay 129.6 million euros for a traders’ cartel that swapped commercially sensitive information from 2007 to 2011 when eurozone bond yields soared. UniCredit was fined 69 million euros. It was “unacceptable, that in the middle of the financial crisis, when many financial institutions had to be rescued by public funding these investment banks colluded in this market at the expense of EU member states,” Margrethe Vestager, the EU’s antitrust chief, said in an emailed statement.
  • Tencent Holdings Ltd. pledged to sharply increase investments this year after posting a 25% gain in quarterly revenue, aiming to fend off ByteDance Ltd. and sustain its pandemic-era boom in gaming and cloud. China’s three largest tech corporations are vying to entice users in the fast-growing arenas of online grocery and video. Tencent said Thursday it plans to invest a larger portion of its incremental profits this year in areas including cloud services, games and shortform video content, joining Alibaba Group Holding Ltd. and Meituan in pledging to boost spending. Tencent is trying to sustain growth in revenue, which climbed to 135.3 billion yuan ($21 billion) in the three months ended March, roughly in line with analyst estimates. The results affirmed the resilience of the world’s largest game publishing business as the pandemic recedes. Tencent has shed roughly $200 billion in market value since its January peak, part of a broader Chinese tech selloff. But Pony Ma’s company has largely escaped Beijing’s antitrust crackdown for now — despite its ubiquitous WeChat app offering unrivaled insights into all aspects of Chinese life and a commanding lead in gaming, music and social media markets.
  • Crypto markets are showing signs of recovery after Wednesday’s dramatic selloff. Bitcoin hovered near the $40,000 mark and Ether rebounded in early U.S. trading as investors tried to make sense of the crash that wiped away billions and shattered the notion of crypto as a maturing asset class. Volatility has dominated crypto markets, with Bitcoin plunging and surging more than 30% within a few hours on Wednesday. The carnage kicked off last week, when Tesla Inc. billionaire Elon Musk criticized Bitcoin for wasting energy and backtracked on a decision to allow crypto transactions. Losses accelerated after China warned that digital tokens can’t be used for payments.
  • Jam City Inc., the developer behind mobile games including “Cookie Jam” and “Disney Pop Town,” has agreed to go public in a deal with a blank-check company. As part of the transaction, Jam City is acquiring Montreal-based game publisher Ludia Inc., according to a statement Thursday, which confirmed an earlier Bloomberg News report. The two companies will combine with DPCM Capital Inc., the special purpose acquisition company set up by a former Uber Technologies Inc. executive, Jam City said in the statement. Nearly all gaming companies benefited from the home-entertainment surge during the coronavirus pandemic. With more people stuck indoors, the companies’ user bases exploded, and are expected to stay high even as life returns to normal. Attracted by the companies’ explosive growth, investor interest in gaming stocks has also been high. Earlier this year, game-maker Roblox Corp. went public via a direct listing, another alternative to an initial public offering.

Successful investing is about managing risk, not avoiding it .” — Benjamin Graham

*All sources from Bloomberg unless otherwise specified