May 10, 2021
Daily Market Commentary
- Ninepoint Partners LP is seeking to lessen apprehension about the energy usage of Bitcoin by dedicating a portion of its crypto ETF’s management fee to offset the fund’s carbon footprint. “For some investors who are concerned about the carbon footprint of mining, they may be wary of investing in a Bitcoin ETF,” said Alex Tapscott, managing director of digital assets at the Toronto-based firm, referring to the vast array of computers worldwide that compete to confirm Bitcoin transactions. “What we’re doing is creating what we hope is a solution to that problem and giving them the choice that they want and, frankly, that they need.” The effort comes as critics say Bitcoin’s environmental record has worsened while its price has skyrocketed. Bank of America, for instance, said recentlythe energy used by the network of computers that power the digital coin is comparable to that of many developed countries and rivals the emissions from major fossil-fuel users and producers.
- European equities were little changed on Monday, giving up early gains after touching a record high as losses for technology and travel stocks outweighed a surge in mining shares. The Stoxx 600 Index was flat at 11:15 a.m. in London after rising as much as 0.3% to a new peak of 446.19. Tech stocks slid as surging commodity prices stoked concern about whether inflation will derail a growth rebound in the U.S., while travel stocks also weakened as the U.K.’s “green list” of travel destinations disappointed. By contrast, the basic resources sector gained as much as 2.9% to reach its highest level since February 2011 amid booming metals prices. The Stoxx Energy Index rose 0.1% after a cyber attack knocked out Colonial Pipeline Co. in the U.S., sending the price of crude oil higher.
- Nasdaq futures fell as surging commodity prices stoked concern about whether inflation will derail a growth rebound in the world’s largest economy and spoil a record stock rally. The tech-heavy index has been whipsawed by the prospect of inflation which can threaten longer-horizon revenues typical of the industry. Contracts on the S&P 500 Index posted a modest gain. Treasury yields steadied as traders brace for a busy week of auctions. The run-up in raw materials is intensifying debate ahead of a U.S. CPI report Wednesday that is forecast to show price pressures increased in April. The data will be closely watched by policy makers at the Federal Reserve trying to gauge the speed of the recovery after job growth significantly undershot forecasts.
- Asian stocks climbed, with key indexes in South Korea and Australia reaching new record highs, as prices of energy and other commodities surged. The materials group gave the biggest boost to the MSCI Asia Pacific Index, reaching its highest level in 13 years, helped by surging metals prices and strong company earnings. Energy stocks gained after a cyberattack put the largest U.S. oil-products pipeline out of action. Equities in Asia also got a lift from U.S. peers climbing to fresh records as weak jobs data bolstered the case for continued stimulus in the world’s largest economy.
- Crude oil climbed along with gasoline in New York after a cyberattack put the largest oil-products pipeline in the U.S. out of action. West Texas Intermediate and Brent both rose as gasoline surged as much as 4.2% to the highest since May 2018, before paring gains. Colonial Pipeline Co., a supplier of gasoline, diesel and jet fuel to the eastern U.S., was forced to halt operations late Friday, and said Sunday that it is still working toward a restart of the key artery that’s vital to energy flows across the country. In addition to the unpredictability about when the pipeline’s full capacity will be restored, the fallout will be determined by the geography of the company’s U.S. network and the progress in tackling the pandemic as gasoline and jet fuel demand picks up before summer. While a rush for replacement products could emerge on the East Coast — leading traders to source cargoes from Europe or Asia — Gulf Coast refiners may have to trim runs, hurting U.S. crude demand.
- Gold steadied near the highest level in almost three months as investors weighed weaker-than-expected U.S. job growth figures, which supported the case for continued economic stimulus and low interest rates. Non-farm payroll numbers showed the U.S. added 266,000 jobs in April, according to a Labor Department report Friday, representing one of the largest downside misses on record. Economists in a Bloomberg survey projected a 1 million hiring surge. The labor market remains in a “deep hole” and needs aggressive support to speed its healing from the Covid-19 pandemic, Federal Reserve Bank of Minneapolis President Neel Kashkarisaid Sunday.
- Iron ore futures surged more than 10% and copper jumped to a record amid increasing bets they’ll be among the biggest winners from a commodities boom that’s stoking concerns about inflation around the world. While market participants struggled to pinpoint a trigger for Monday’s gains in iron ore, they cited several ongoing trends including optimism that central banks will retain supportive policies even as the global economy recovers. Expectations China will tighten environmental rules have added to the bull case for copper — seen as vital to the green energy transition — and fueled speculation that steelmakers may front-load iron ore purchases before new curbs kick in. The gains add to a more than yearlong surge in raw-materials prices that’s shifted into overdrive in recent weeks, with the Bloomberg Commodity Spot Index rising for 14 of the past 15 days to the highest level in almost a decade.
- BioNTech SE selected Singapore as its Southeast Asia headquarters and could have an operational Covid-19 vaccine production facility in the city by 2023. Earlier, Shanghai Fosun Pharmaceutical Group Co. said it will set up a joint venture with BioNTech, a sign that the highly effective inoculation is moving closer to getting approved for general use in China. The U.K. confirmed plans to allow indoor mixing from May 17, while the Czech Republic opened all shops, museums and galleries on Monday. India’s capital New Delhi extended its lockdown for another week amid a deadly wave of infections.
- Investors added money to exchange-traded funds that buy emerging market stocks and bonds last week. This was the 27th straight week of inflows. Inflows to U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $325.6 million in the week ended May 7, compared with gains of $341.6 million in the previous week, according to data compiled by Bloomberg. So far this year, inflows have totalled $24.7 billion.
- Philippine food maker Monde Nissin Corp. is in talks with Singapore state investment fund GIC Pte and Hong Kong insurer AIA Group Ltd.to become cornerstone investors in what could be the country’s biggest-ever initial public offering, according to people familiar with the matter. Fidelity International and Capital Group Cos. are also in discussions to buy stock in the offering for the Makati-based company, said the people, who asked not to be named as the information is private. Monde Nissin set a final price of 13.50 pesos per share for its IPO, according to a stock exchange filing. That would put the Philippine food maker on track to raise 48.6 billion pesos ($1 billion), according to data compiled by Bloomberg. Deliberations are still ongoing and the investor lineup could change, said the people. An external representative for Monde Nissin and representatives for AIA, Capital Group and Fidelity International declined to comment. A representative for GIC didn’t immediately respond to requests for comment.
- Malaysia’s 1MDB and a former unit have filed suits against entities including JPMorgan Chase & Co. and Deutsche Bank AG as the nation seeks to recover assets worth more than $23 billion linked to the scandal-plagued state-owned investment fund. 1MDB, whose full name is 1Malaysia Development Bhd., filed six suits against nine unnamed entities, including two foreign financial institutions, and 25 individuals for various wrongdoings including fraud and conspiracy to defraud the fund, the Finance Ministry said on Monday. SRC International Sdn. filed additional suits. The global firms were JPMorgan and Deutsche Bank, according to a person familiar with the matter who declined to be identified discussing non-public information. JPMorgan declined to comment while Deutsche said it hasn’t been served any papers on 1MDB and isn’t aware of any basis for a legitimate claim. The banks were named earlier today by the Edge newspaper
- Vice Media Group’s plan to go public later this year is coming into focus. Under a proposed deal to merge with blank-check company 7GC & Co Holdings Inc., Vice would remove one of the biggest obstacles it has faced, onerous financial obligations to private-equity investor TPG, people familiar with the matter said. The proposed transaction, valued at nearly $3 billion including debt, would leave existing shareholders–including TPG, Walt Disney Co., A&E Networks Group, merchant bank Raine Group and founder Shane Smith–with a combined 75% ownership of the company, the people said. The rest of the company would be owned by Vice’s new investors. The nearly $3 billion valuation under consideration would be a discount compared with the $5.7 billion valuation set in Vice Media’s last major equity-investment round, a $450 million infusion from TPG in 2017.
- The European Union may change tack in its plan to expand in the western Balkans and start entry talks with Albania only as North Macedonia’s efforts remain blocked by another member state. EU foreign ministers are meeting in Brussels on Monday and are expected to discuss the situation in the western Balkans. Accession talks with the two candidates were expected to start as early as next month. “Our goal remains unchanged: We’d like to start accession talks with Albania and North Macedonia,” EU Enlargement Commissioner Oliver Varhelyi told Hungarian daily Magyar Nemzet on Monday. “If we can’t solve the North Macedonia issue, then we must think about starting with Albania alone. We must make progress with enlargement. There is no more time to lose.”
- Crude oil climbed along with gasoline in New York after a cyberattack put the largest oil-products pipeline in the U.S. out of action. West Texas Intermediate and Brent both rose as gasoline surged as much as 4.2% to the highest since May 2018, before paring gains. Colonial Pipeline Co., a supplier of gasoline, diesel and jet fuel to the eastern U.S., was forced to halt operations late on Friday, and said Sunday that it is still working toward a restart of the key artery that’s vital to energy flows across the country. In addition to the unpredictability about when the pipeline’s full capacity will be restored, the fallout will be determined by the geography of the company’s U.S. network and the progress in tackling the pandemic as gasoline and jet fuel demand picks up before summer. While a rush for replacement products could emerge on the East Coast — leading traders to source cargoes from Europe or Asia — Gulf Coast refiners may have to trim runs, hurting U.S. crude demand.
- UBS Group AG will pay a $40,000 one-time bonus to its global banking analysts when they are promoted, doubling what some competitors are offering, as lenders seek to reward younger employees weighed down by a surge in dealmaking. Starting as soon as this month the Swiss bank will pay the sign-on bonus to analysts promoted to associates on top of any regular salary increases, said people familiar with the move who asked not to be identified because the information is private. The amount represents about 30% of the annual base pay of a newly promoted associate, one of the people said. Banks are raising pay for junior employees to prevent defections and ease discontent amid a jump in deals and an intensifying focus on work-life issues sparked by the pandemic. Wall Street was set abuzz earlier this year by a leaked presentation from junior analysts at Goldman Sachs Group Inc. that detailed their grueling workload and punishing hours.
- Self-driving truck startup Plus agreed to merge with special purpose acquisition company Hennessy Capital Investment Corp. V, becoming the latest developer of autonomous vehicles to seek a public listing via a blank-check firm. The combined company is set to have a market value of about $3.3 billion, Plus said in a statement Monday, confirming an earlier Bloomberg News report. It is raising $150 million from investors including BlackRock Inc. and D.E. Shaw & Co. through a so-called private investment in public equity, or PIPE deal. Plus’s existing shareholders will roll over all their holdings and are expected to own a combined 80% stake when the deal closes. The combined company will trade on the New York Stock Exchange under the ticker PLAV. Goldman Sachs Group Inc. acted as exclusive financial adviser to Plus. Barclays Plc was financial adviser and capital markets adviser to the Hennessy SPAC, while Goldman Sachs and Barclays acted as joint placement agents.
- Parabolic jumps in digital tokens such as Ether, Dogecoin and Binance Coin are outshining Bitcoin, prompting more questions about whether that segment of the cryptocurrency sector is ripe for a reckoning. The rallies have contributed to a slump in Bitcoin’s share of the $2.6 trillion crypto market to 43% from about 70% at the start of 2021, a metric that for strategists at JPMorgan Chase & Co. and DataTrek Research LLC may be a warning sign of investor excess in a range of digital tokens. Bitcoin’s waning dominance carries echoes of “froth” to the extent it’s being fueled “by a rally in other cryptocurrencies driven more by retail demand,” a JPMorgan team led by Nikolaos Panigirtzoglou wrote in a note Friday. DataTrek’s co-founder Nicholas Colas has indicated that history suggests tokens outside Bitcoin can drop “pretty quickly” when Bitcoin’s share hits 40%.
- Inflation continues to brew in America’s industrial heartland as growing materials shortages cascade into record-long delivery times and leave manufacturers struggling to keep pace with an energized economy. As producers attempt to navigate supply-chain pitfalls for the commodities necessary to produce their wares, wage growth is beginning to percolate. A recent Labor Department report showed the largest quarterly increase in worker pay at companies since 2003. This combination of higher labor and materials costs will probably lead to a bigger pickup in consumer inflation at a time when monetary and fiscal policies are conducive to faster economic growth. Colgate-Palmolive Co., food and beverage maker Mondelez International Inc. and Kimberly-Clark Corp. are among a growing number of companies raising prices.
- President Joe Biden is preparing for his first face-to-face meeting with the top two congressional Republicans, Mitch McConnell and Kevin McCarthy, just as the GOP is ramping up opposition to his $4 trillion economic plan, a rallying point for the party amid infighting over allegiance to former President Donald Trump. After McConnell declared last week that he’s “100%” focused on blocking Biden’s agenda and with McCarthy aligning himself with the faction in his party that questions the legitimacy of the 2020 election, there’s little expectation of a breakthrough. The White House session, which also includes House Speaker Nancy Pelosi and Senate Majority Leader Chuck Schumer, will take place the same day a Senate committee attempts to advance a bipartisan China-focused manufacturing bill widely seen as a test case for deal-making.
- Societe Generale SA plans to rely less on trading as Chief Executive Officer Frederic Oudea attempts to turn the firm’s investment bank around following steep trading losses on complex derivatives last year. The Paris-based lender on Monday said the business will focus more on corporate banking, allocating more capital to financing, advisory and transaction banking. The firm expects revenue growth from those areas to help lift returns at the investment bank above 10% by 2023. Oudea, a staunch defender of the markets business, is joining peers in emphasizing corporate banking to reduce earnings volatility, though his plan stops short of more radical measures such as Deutsche Bank AG’s exit from stock trading. SocGen’s equities business, which plunged the bank into its first annual loss in more than three decades, rebounded last quarter with its best performance since 2015, easing pressure on Oudea to implement a more far-reaching overhaul.
- The pound strengthened after the Scottish National Party’s election showing pushed back the risk of a near-term vote on independence, yet traders are bracing for further clashes over the U.K.’s future down the road. Sterling climbed as much as 0.7% to $1.4097 on Monday, its highest level since February, after the SNP fell one seat short of a parliamentary majority, damping chances of an imminent vote on independence. Strategists from Rabobank International to Credit Agricole SA cite the push for a referendum — which U.K. Prime Minister Boris Johnson opposes — as a headwind that could create volatility in the months to come. “There are a lot of voices in the market that see the lack of a majority for the SNP combined with Johnson’s refusal to hold a referendum as meaning that the risks to the union are a non-issue for the pound,” said Jane Foley, head of foreign-exchange strategy at Rabobank. “I would be more cautious on this.”
- BioNTech SE boosted its Covid-19 vaccine sales estimate to 12.4 billion euros ($15.1 billion) for this year, issuing a new target for the shot it sells with Pfizer Inc. as countries increase orders to spur their inoculation campaigns. The partners have contracted for about 1.8 billion doses this year and started clinching deals for 2022 and beyond, the Mainz, Germany-based company said Monday. BioNTech had previously predicted 9.8 billion euros in 2021 revenue from the shot, its first marketed product.
- UBS Group AG is in the early stages of planning to offer wealthy customers digital currency investments, joining U.S firms in seeking to give broader access in response to client demand. The Swiss firm is exploring several alternatives for offering the asset class, people familiar with the plan said. Any investment offering would be a very small portion of the clients’ total wealth because of the volatility, while options include investing through third party investment vehicles, one of the people said, declining to be identified as the details are private. More global securities firms are offering cryptocurrency services. Goldman Sachs Group Inc. is pushing deeper into the $1 trillion Bitcoin market and opened up trading with non-deliverable forwards, a derivative tied to Bitcoin’s price that pays out in cash. Morgan Stanley plans to give rich clients access to three funds that will enable ownership of crypto and Bank of New York Mellon Corp. is developing a platform for traditional and digital assets. Citigroup is also considering crypto services.
- A pandemic plunge in Manhattan’s real estate tax revenue threatens New York City’s ability to finance everything from schools and hospitals to firefighters and police unless office workers return in force starting this summer, officials are warning. “We have to bring back the city this year,” Mayor Bill de Blasio said at a briefing late last month to unveil his $98.6 billion budget aimed at creating 400,000 jobs, spending millions on investments, and bringing back tourists. “It’s not optional. This is the recovery moment.” Workers fled cities last year at the height of the pandemic, triggering a plummet in commercial real estate and rental markets not seen in four decades as office supply soared to record levels. Short-term federal aid has helped, but a sustained sluggish commercial market, which accounts for more than half of the city’s revenue, could create lasting fiscal harm if unreversed quickly.
- The Pentagon is sticking with a plan developed in the early days of the Covid-19 pandemic to speed progress payments to defense contractors, even as evidence mounts that major companies appear financially healthy and are stepping up stock buybacks. Under the accelerated payments plan, the Defense Department provided $4.6 billion to defense contractors as of March 31, department spokeswoman Jessica Maxwell said in a statement. About $2.4 billion of that total was paid to top contractors Lockheed Martin Corp., Boeing Co., Raytheon Technologies Corp., Northrop Grumman Corp. and the Lockheed-Boeing United Launch Alliance LLC joint spacecraft venture, Maxwell said. Pentagon officials say the Biden administration’s Feb. 24 order extending former President Donald Trump’s emergency declaration as the pandemic exploded indicated that companies should still benefit from the program, which boosted the percentage of periodic progress payments a contractor would receive for incurred costs.
- China is expanding its far-reaching tech campaign into online education, issuing the maximum penalties to two of the country’s fastest-growing tutoring apps for violating competition and pricing laws. The State Administration for Market Regulation imposed fines of 2.5 million yuan ($389,000) each on Yuanfudao, backed by Tencent Holdings Ltd., and Zuoyebang, which has received funding from Alibaba Group Holding Ltd., according to a statement Monday. The firms were penalized for making misleading claims about their businesses from falsifying the qualifications of teaching staff to faking user reviews, the antitrust watchdog said.
- Coty Inc.’s profitability improved in the third quarter as surging cosmetics demand in China countered sluggish sales in some other markets, boosting Chief Executive Officer Sue Nabi’s effort to rejuvenate the company. Adjusted gross margin rose to 62.2% in the period ending March 31 from 57.7% a year prior, Coty said Monday in a statement. Analysts expected a margin of 59.1%, according to the average of estimates compiled by Bloomberg. Sales fell 3.3% to $1.03 billion, in line with Wall Street’s estimates, as the beauty industry continues to be hurt by mask mandates and lockdowns. Still, net revenue jumped 28% in the Asia-Pacific region, or nearly 20% on a like-for-like basis, with particularly strong performance in China, the company said.
“Markets can remain irrational longer than you can remain solvent.” — John Maynard Keynes
*All sources from Bloomberg unless otherwise specified