May 28, 2021

Daily Market Commentary

Canadian Headlines

  • When Chrystia Freeland became Canada’s minister of finance in August, she had a mandate from Prime Minister Justin Trudeau to aggressively pursue economic growth. She was already Trudeau’s deputy and had led the government’s international trade and foreign ministries, making her a leading candidate to eventually succeed Trudeau even though she’d been a politician for less than a decade. She’s spent plenty of time thinking and writing about economics and government as a journalist at the Financial Times, the Globe and Mail, and Thomson Reuters Corp. and as the author of books about Russia and the rise of the global super rich.
  • A Canadian advisory body said Justin Trudeau’s government should relax its stringent border rules for vaccinated travelers and drop a requirement that international air passengers quarantine in a hotel when they arrive. In a report released Thursday, the Covid-19 Testing and Screening Expert Advisory Panel said it’s time for Canada to adopt different entry rules for travelers who’ve been vaccinated. People who have received two shots should be exempt from quarantine and pre-departure virus tests, said the panel, which was created in November by the government. Right now, most people entering Canada have to endure a 14-day quarantine, and those arriving through airports are supposed to spend as much as three days in an approved hotel while they wait for test results — though hundreds have opted to skip the hotels and pay fines instead.
  • Canadian regulators handed a major victory to BCE Inc., Rogers Communications Inc. and other large telecommunications firms by reversing a decision that would have slashed the prices they can charge internet resellers. The big carriers will be able to charge rates similar to the prices originally set in 2016 for wholesale access to their broadband networks, the Canadian Radio-television and Telecommunications Commission said Thursday. The decision overturns a controversial 2019 ruling that would have forced large telecom companies to cut their wholesale ates sharply and make retroactive payments to small companies that lease space on their networks. Canadian Imperial Bank of Commerce analyst Robert Bek estimated last year those payments could amount to C$469 million ($389 million), with BCE and Rogers paying more than 70% of that amount. The telcos would have also seen an ongoing impact to their profitability, as lower wholesale prices would allow resellers to offer less expensive home internet plans to consumers.
  • National Bank of Canada is getting a boost from its home market of Quebec, where strong housing demand is supporting mortgage lending, and the third wave of Covid-19 has had a less severe impact than in other provinces. Profit in National Bank’s personal and commercial banking business, which is highly focused on Quebec, increased more than five-fold to C$321 million ($265 million) in the fiscal second quarter. Overall profit topped analysts’ estimates. National Bank, which gets a larger portion of its profit from capital markets than any of Canada’s six biggest banks, is well-positioned for the current environment of surging equity markets and increased dealmaking. Net income from the financial-markets unit rose 50% to C$238 million.

World Headlines

  • European equities rose on Friday, boosted by expectations that the European Central Bank won’t hit the brake on stimulus measures next month, despite mounting evidence of robust economic rebound. The Stoxx Europe 600 Index climbed 0.4% as of 10 a.m. in London, hitting a fresh record high, led by banks and insurers, with HSBC Holdings gaining 2.2% and Allianz SE up 1.1%. Clean energy stocks including Vestas Wind Systems and Siemens Gamesa also rose as the U.S. Senate Finance Committee is set to advance a $259.5 billion package of clean energy tax credits. The Stoxx 600 is up 0.9% this week, on course for its fourth consecutive month of gains, as vaccinations against the coronavirus progress, while a coordinated fiscal and monetary stimulus boost the region’s growth outlook. The benchmark is set to hit a second record high in as many days.
  • U.S. equity futures advanced on Friday after solid economic data and President Joe Biden’s federal spending plans spurred a Wall Street rally in cyclical shares. Treasuries were steady and the dollar strengthened. U.S. data included a drop in jobless claims to a fresh pandemic low. Biden is reportedly set to unveil a budget that would take federal spending to $6 trillion in the coming fiscal year. Investors will watch data on personal spending and the Federal Reserve’s preferred inflation measure later Thursday for further clues on the outlook for prices.
  • Asian stocks advanced, with the regional benchmark index heading for its best week in three months, as favorable U.S. economic data bolstered investors’ appetite for cyclical shares. The MSCI Asia Pacific Index climbed as much as 1.2%, extending its gains for the week to more than 2%. A gauge of consumer discretionary companies provided the biggest boost for the regional benchmark, with Japanese automakers Toyota Motor and Honda Motor among top contributors. Japan and Taiwan were among the day’s best performers in the region. The bluechip Nikkei 225 Stock Average rallied more than 2% to a near three-week high, while Chinese and New Zealand stocks underperformed.
  • Oil traded near the highest close in more than two years as optimism over burgeoning U.S.-led demand outweighed concern that Iranian supplies will jump should sanctions on official exports be lifted. West Texas Intermediate edged higher after settling at the strongest since October 2018 on Thursday. With prices stuck within a $10 range since March, market volatility has taken a hit, falling to its lowest level since August on the global Brent benchmark.
  • Bullion is one of the best-performing commodities this month, erasing almost all of this year’s losses. Investors have been lured back by gold’s appeal as an inflation hedge, while the Federal Reserve maintains its monetary stimulus and says price pressures should prove temporary. Spot gold fell 0.3% to $1,890.62 an ounce on Friday and is up about 6.9% in May.
  • Bitcoin slumped to wipe out most of this week’s advance as Bank of Japan Governor Haruhiko Kuroda warned about token’s volatility and speculative trading. The digital currency lost 7% to trade around $35,700, recalling levels seen in last week’s crypto meltdown. Bitcoin is now flat for the week after a run that’s seen prices swing between $33,000 and $39,000.
  • Japanese Prime Minister Yoshihide Suga extended a state of emergency that includes Tokyo and other major cities, in a last-ditch effort to rein in Covid infections ahead of the capital hosting the Olympics in less than two months. Germany plans to expand inoculations to children aged 12 and older starting June 7 as Europe’s largest economy seeks a way out of the pandemic. Singapore announced S$800 million ($605 million) in additional support for businesses and individuals affected by restrictions imposed this month as it confronts a recent uptick in cases. Taiwan’s death toll surged by almost a third as authorities reported hundreds more infections.
  • Evercore Inc., the investment bank founded by Roger Altman, announced a new chief financial officer as it continues to elevate the next generation of leaders who will help plot the future of the firm. Celeste Mellet Brown, most recently CFO of Fannie Mae, will take over on Sept. 1 with Bob Walsh planning to retire after 14 years, Evercore said Friday in a statement. The hire comes after the firm promoted three senior managing directors late last year to be co-heads of U.S. advisory. “We have a very large number of very talented people, and we’re trying to make sure we’re giving people who have the interest in leading the opportunity to develop those skills,” John S. Weinberg, co-chief executive officer and co-chairman, said in an interview.
  • Boeing Co. halted deliveries of its 787 Dreamliner again, as the planemaker works with regulators to resolve quality issues with the model. The company is providing the Federal Aviation Administration with added analysis and documentation related to proposed fixes to quality issues with undelivered planes, the company said Friday in a emailed statement. Boeing shares slipped 1.2% in pre-market U.S. trading from Thursday’s closing price of $250.70. The stock is up 17% this year, on rising optimism for a recovery in aviation as vaccination rates rise across the globe.
  • When Bill Gates and Melinda French Gates announced their surprise split after 27 years of marriage, they said there would be no changes to their $50 billion foundation. Now, about three weeks later, after revelations that Melinda considered divorce years earlier partly because of Bill’s ties to Jeffrey Epstein, and amid reports of his dubious behavior at Microsoft Corp., there are signs change is coming to one of the world’s most powerful philanthropic organizations. Mark Suzman, the Gates Foundation’s chief executive officer, has told employees that he’s in talks to strengthen “the long-term sustainability and stability of the foundation.”
  • JD Logistics Inc. rose as much as 18% on its first day of trading after raising $3.2 billion in Hong Kong’s second-largest initial public offering this year. Shares of the delivery arm of Chinese e-commerce giant Inc.climbed to as high as HK$47.75 in Hong Kong on Friday, before giving up some of their gains. The stock had been priced at HK$40.36, the lower end of its offered range, fueling concern that demand for new listings in the Asian financial center has cooled after the blockbuster coming-out party of Kuaishou Technology earlier this year. was little changed.
  • Morgan Stanley moved closer to take full control of its securities and fund management ventures in China as it ramped up investments in the world’s second-largest economy. The U.S. bank is buying an additional 39% of the securities joint venture for 569.6 million yuan ($89.5 million), according to an exchange filing from Shanghai Chinafortune Co, the parent company of its partner China Fortune Securities Co. on Friday. It also won a bid to buy a further 36% stake in the fund management venture with China Fortune for 389 million yuan, according to a separate statement. The moves come as China last year allowed foreign banks to gain full control of their local ventures. Financial groups including Morgan Stanley, Goldman Sachs Group Inc. and UBS AG are rushing to capitalize on the opening of China’s $54 trillion financial industry by adding staff and expanding their footprint in everything from investment banking to asset management.
  • Renesas Electronics Co. will raise $2 billion from a stock sale to fund its purchase of Apple Inc. supplier Dialog Semiconductor Plc. The 218.5 billion yen share sale, including over-allotment, will be used to partially fund its all-cash offer of about 4.9 billion euros ( $6 billion) for Dialog. Shareholder Innovation Network Corp. of Japan will be offering some its shares for the sale. Renesas shares are being offered at a 3% to 5% discount to the previous close, according to terms of the deal obtained by Bloomberg. Renesas’s February agreement to buy the British chipmaker came at a time of growing shortages of key components like semiconductors. The supply crunch has idled factories and slowed production at global carmakers from Ford Motor Co. to General Motors Co. Renesas and Dialog have been partnering for over a decade, including on car computing platforms.
  • Germany selected more than 60 proposals from companies including ArcelorMittal and Thyssenkrupp AG for a new cross-border hydrogen project in the European Union to help promote the nascent technology. Europe is pinning its green hopes on hydrogen in an unprecedented economic overhaul that aims for the region to reach climate neutrality by 2050. The goal is to increase sixfold the capacity to produce renewable hydrogen by 2024, driving down the costs of the fuel. Germany, which is targeting climate neutrality by 2045, wants to subsidize the projects with 8 billion euros ($9.8 billion) to promote the technology and speed up the nation’s transformation toward a greener economy, German Economy and Energy Minister Peter Altmaier said on Friday at news conference in Berlin.
  • Entire cities lie in ruins, the economy is collapsing and more than half the population has been displaced, but Bashar al-Assad has emerged as the last man standing from Syria’s decade of war, having played off friend and foe to restore his grip over most of the country. In power since 2000, Assad won a fourth seven-year term in Wednesday’s presidential election, claiming 95.1% of the vote. Though the ballot’s been dismissed by the U.S. and European nations as a sham, the Syrian leader’s been bolstered by moves to woo him back into the Arab fold, part of a broader realignment that’s seen Saudi Arabia work to ease tensions with Iran and tamp down conflicts across the Middle East. Western sanctions on Syria mean Gulf countries are unlikely to invest significantly in reconstruction expected to cost $120 billion or more, at least for now, but even a diplomatic rapprochement would signal a remarkable shift in regional faultlines that once saw Iran and Saudi Arabia engaged in proxy conflicts from Syria, to Lebanon to Yemen.
  • Hong Kong’s legislature approved a sweeping, Beijing-drafted overhaul of the city’s elections, dramatically curtailing the opposition’s ability to participate in government on the same day that authorities banned a massive pro-democracy vigil. The Legislative Council voted 40-2 to approve measures Thursday creating a review committee to vet candidates for elected office and ensure they’re “patriots.” All candidates must also be approved by national security officials in the Hong Kong police force to determine whether they can be trusted to uphold local laws and “respect” the ruling Communist Party. The bill’s passage marks the culmination of Beijing’s efforts to take control of how the former British colony chooses its leaders, giving it a veto over candidates for office following historic and sometimes violent unrest in 2019. It effectively ends China’s only experiment with open elections, a vestige of the democratic system implemented during last years of colonial rule.
  • China is taking another step to shape up state firms with a new fund aimed at reforming a sector that has emerged as the nation’s biggest source of credit risk. China Reform Holdings Corp., a state-run investment firm, and a group of local state asset regulators have launched a suite of equity investment funds totaling 70 billion yuan ($11 billion) to help improve state-owned enterprises’ corporate governance and turn them more market oriented, the company said in a statement Thursday. The announcement marks the latest move by Beijing to make the country’s cumbersome and inefficient SOEs, especially those at the local level, more commercially viable and financially healthier. A wave of bond defaults by state-linked firms since late last year and the ongoing debt saga at China Huarong Asset Management Co., a top bad-loan manager, have challenged long-held assumptions of government support for such firms.
  • Last August, when Brazil had emerged as among the worst hit nations by Covid, Pfizer Inc. offered the health ministry to set aside as many as 70 million doses of the vaccine it was developing. It got no answer. So it made the offer again. And then a third time. The next month, the company’s former Brazil head, Carlos Murillo, told congress, Pfizer’s global chief put the offer in writing to President Jair Bolsonaro with copies to the vice president, chief of staff, ministers of health and economy and ambassador to the U.S. He never heard back. The severity of Covid in Brazil, with 16 million cases and 450,000 lives lost, has often been attributed to Bolsonaro, who still wades unvaccinated and maskless into crowds. A congressional probe is making clear, however, that his neglect has been matched by incompetence at nearly every level of government in key processes — negotiations with drug companies, relations with other countries and supply chain management.
  • President Joe Biden’s push for the first major federal tax increase since 1993 now rests on the shoulders of Richard Neal, who joined the key tax-writing House committee that he now chairs during the battle for that last wave of increases. Neal says he learned a key lesson during the 1993 effort: Ensure that the tax increase that you vote for actually gets enacted, or you’re left politically all the more vulnerable, with no result to point to. When he and other House Democrats back then voted for an innovative tax on energy, it ended up dying in the Senate. The episode serves as background to Neal’s current work figuring out what tax increases he can shepherd through a Democratic caucus that has razor-thin control of the House and Senate. While progressives are determined to boost levies on wealthy Americans and corporations to fund more spending on social programs, moderates, including Senator Joe Manchin of West Virginia, have expressed concerns.
  • Amtrak’s proposed $11.6 billion passenger-rail tunnel between New York and New Jersey has received long-delayed environmental clearance from U.S. officials, according to people familiar with the action. The decision — the project’s biggest step forward in years — is crucial to start the next phase of work and secure billions of federal dollars for what’s considered one of the most vital U.S. infrastructure needs. The Federal Railroad and Federal Transit administrations plan to release a final environmental impact statement on Friday, the people said. Gateway Program Development Corp., which is overseeing the project, then can acquire real estate and start advanced design and pre-construction work. Progress on those tasks will increase Gateway’s chances of securing half the total cost from President Joe Biden’s administration, which is pledging hundreds of billions of dollars to major infrastructure nationwide after former President Donald Trump opposed Gateway. New York and New Jersey officials have called the new tunnel crucial for the U.S. economy because the existing one cannot handle growing capacity and needs to be shut for major repairs. That tunnel is key to the Northeast Corridor, the nation’s busiest passenger-rail route, servicing a region from Boston to Washington that contributes 20% of U.S. gross domestic product.
  • A century after automakers showed the world the value of assembly-line manufacturing, a shortage of semiconductors is teaching the industry a painful new lesson in what it takes to build a car. For most of its history, the industry has relied on a distinct approach to buying car parts, procuring components from suppliers right at the moment they’re needed. It’s referred to as just-in-time manufacturing and is designed to streamline production and eliminate the costs of keeping warehouses stocked with parts waiting to be used. But the shortcomings of that system were made starkly clear this year as the automakers confronted a dearth of the chips they need to build advanced functions into their vehicles, and found themselves near the bottom of chipmakers’ customer lists because of their just-in-time approach. That shortage is threatening to cut $110 billion in sales from the industry, and forcing auto manufacturers to overhaul the way they get the electronic components that have become critical to contemporary car design.
  • Kinder Morgan Inc., the pipeline giant that made almost $1 billion selling natural gas during the Texas freeze, now plans to also trade fuels like gasoline to squeeze more profits from its vast shipping and storage network. The company, which gets most of its revenue from pipeline and storage fees, will seek to also gain from buying and selling petroleum products, a person with direct knowledge of the matter said, asking not to be named because the plan isn’t public. In a job post on LinkedIn, the company is looking for someone with at least seven years of experience in marketing and trading refined petroleum products who will be “responsible for developing profitable commercial opportunities.” The shift means that one of the most powerful companies in the U.S. fuel business is poised to gain even more clout. Co-founded by billionaire Rich Kinder, the Houston-based firm operates about 3,000 miles of refined-product pipelines from Texas and California to Oregon and Washington.
  • There’s no sign that the meme-stock frenzy that propelled AMC Entertainment Holdings Inc. up 1,150% this year is going away. The shares jumped 23% in U.S. pre-market trading on Friday, adding to a week that’s already doubled the value of the company. On social media, traders banded together with the aim of squeezing out short sellers, adopting hashtags like #AMCSTRONG and #AMCSqueeze. AMC has taken advantage of the enormous rally to raise money and pay down debt. The cinema chain “will carefully examine the raising of additional capital in whatever form we think is most attractive” and is focused on de-leveraging, Chief Executive Officer Adam Aron said on a callto discuss fourth-quarter results in March.

“When you know better, you do better.” – Maya Angelou

*All sources from Bloomberg unless otherwise specified