November 15, 2021

Daily Market Commentary

Canadian Headlines

  • First Quantum Minerals Ltd. said Tristan Pascall will take over as chief executive officer in May from co-founder Philip Pascall, who will remain as the company’s chairman. Tristan Pascall became the Vancouver-based miner’s chief operating officer in January after joining First Quantum in 2007. He held senior operational roles in Africa and Latin America, before becoming director of strategy in 2020. Philip Pascall built the company into the world’s sixth-largest copper producer after co-founding it in 1996, according to a statement from First Quantum on Monday. “The board believes his ongoing involvement as chairman will be a significant competitive advantage and form a uniquely complementary combination with Tristan’s hands-on, collaborative leadership style,” said Robert Harding, an independent director and chair of the company’s nominating and governance committee.
  • Canada has halted imports from Malaysian glove-maker Supermax Corp. weeks after a similar move from the U.S. amid allegations of forced-labor practices. Canada barred additional deliveries from the company’s unit, Supermax Healthcare Canada, to the government until an audit report on the matter mandated by the firm is reviewed by authorities, Public Services and Procurement Canada said in a statement on Nov. 10. The audit report is expected by the middle of this month, according to the statement. Shares of Supermax reversed early losses of as much as 3.8% to end the day at a one-week high, mirroring the gains in its rivals. Despite Monday’s gains, the key Malaysian glove makers such as Top Glove Corp., Hartalega Holdings Bhd.and Supermax, which are bellwethers for the industry, have more than halved in market value this year after being among the hottest trades during the pandemic in 2020.

World Headlines

  • European stocks steadied at a fresh record high as investors considered risks for the continuation of the rally following a robust earnings season. The Stoxx 600 Index was up 0.1% at 10:11 a.m. in London as retailers, travel stocks and energy shares rallied, while miners declined. Shares in Royal Philips NV slumped following a U.S. Food and Drugs Administration inspection report. Banco Bilbao Vizcaya Argentaria SA dropped after seeking to take full control of its Turkish unit, while shares in Remy Cointreau SA rose after Barclays upgraded the French distiller. Accommodative central banks and a strong results season have helped push European equities to record highs, though investors are questioning whether the gains can last. Hani Redha, a portfolio manager at PineBridge Investments, said that he has been reducing risk into what he sees as the final leg of the rally.
  • S&P 500 futures posted modest gains with Nasdaq 100 contracts. Bonds across Europe rose with U.S. Treasuries. Strong corporate earnings are helping drive investors into rallying markets and overshadowing fears about the hottest U.S. inflation print in three decades. The sentiment found its way into calmer bond markets, where these fears had played out in the highest volatility since the onset of pandemic. Yet these headwinds will be a bigger force against U.S. stock returns next year, according to Morgan Stanley strategists who prefer peers in Europe and Japan. They forecast the S&P 500 will end 2022 at 4,400 — some 6% below current levels. For bonds, they expect 10-year yields to rise to 2.10% by the end of next year on improving growth and higher real rates, up from 1.54% on Monday.
  • Shares fluctuated in Hong Kong and dipped in China, where traders weighed stronger-than-expected retail sales and industrial output, central bank liquidity support and a drop in home prices. Beijing’s crackdown on real-estate leverage is among the headwinds for the world’s second-largest economy. Biden will meet virtually with Chinese President Xi Jinping on Monday. Tensions between the two countries have been building over issues including Taiwan and restrictions on sales of U.S. technology to China.
  • Oil fell as U.S. President Joe Biden faced more calls to tap the Strategic Petroleum Reserve to tackle surging gasoline prices. West Texas Intermediate sank 1% Monday, while Brent also fell. Senate Majority Leader Charles Schumer, a fellow Democrat, urged Biden at the weekend to release oil from the nation’s emergency reserves, saying consumers needed immediate relief at the gas pump. A top administration aide, Brian Deese, reiterated that “all options are on the table.” As the U.S. mulls a crude-supply release, Saudi Arabia and the United Arab Emirates signaled that OPEC+ will continue to be cautious in its plans to raise output. The group has been adding 400,000 barrels a day of production each month on paper, but so far its members have failed to pump that much.
  • Gold steadied as investors mulled what’s next for inflation and monetary policy, while scrutinizing better-than-expected economic data from China. Bullion finished last week at its highest since June as accelerating price pressures rocked bond markets and fueled demand for the traditional haven. Treasury yields eased on Monday as investors await public appearances by Federal Reserve officials and other central bankers in coming days. In China, a flurry of figures on everything from industrial output to retail sales showed the country’s economy stabilizing as spending improved and power supply picked up. That may ease concerns of an impending slowdown that could dampen global economic growth.
  • Investors added money to exchange-traded funds that buy emerging market stocks and bonds last week. This was the fifth 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 $513.1 million in the week ended Nov. 12, compared with gains of $242.6 million in the previous week, according to data compiled by Bloomberg. So far this year, inflows have totalled $40.2 billion.
  • Heineken NV agreed to buy South African wine and spirits maker Distell Group Holdings Ltd. for 2.2 billion euros ($2.5 billion), creating a new regional group to compete with larger rival Anheuser-Busch InBev SA and spirits giant Diageo Plc. The Dutch brewer made an offer of 180 rand a share that’s been recommended by Distell’s board, according to a statement on Monday. Heineken will also look to buy a majority stake in the owner of Namibia Breweries Ltd., a regional partner, the company said. The result will be a Heineken majority-owned entity with a total valuation of about 4 billion euros. The firm will produce the brewer’s signature lager and Namibia’s Windhoek, plus Distell staples such as Klipdrift brandy and Savanna cider and a number of wines for export and local consumption.
  • Banco Bilbao Vizcaya Argentaria SA is seeking full control of its Turkish unit in a deal valued at as much as 25.7 billion liras ($2.56 billion), increasing its bet on the country amid a slump in the nation’s currency. The Spanish lender will offer 12.20 liras per share for the 50.15% it doesn’t own in Turkiye Garanti Bankasi AS, according to a statement from the bank on Monday. That represents a premium of about 15% over Garanti’s closing price on Nov. 12. BBVA first bought a stake in Garanti about a decade ago and then boosted its position to just under 50% in 2017. Turkey is currently the third-largest market for BBVA in terms of profit contribution and executives have repeatedly defended their focus on the emerging market, even amid increasingly unorthodox monetary policy that’s pushing the lira to record lows.
  • Emirates and some of its units may join a flurry of initial public offerings on Dubai’s stock exchange as the Middle East business hub seeks to catch up with Abu Dhabi and Riyadh. “Emirates airline and entities belonging to Emirates airline could take part in the role of entering the financial market,” Chairman Sheikh Ahmed Bin Saeed Al Maktoum told Asharq TV in Dubai. The city is hosting the Dubai Airshow this week.  Dubai announced plans this month to list 10 state-owned companies on its stock market. Those include DEWA — likely to be the city’s biggest IPO — and its Salik road toll-collection system. Private and family-owned businesses are also being encouraged to sell shares on the local bourse.
  • U.S. President Joe Biden and Chinese leader Xi Jinping have plenty to discuss during their first virtual summit — from sanctions to Taiwan — even as expectations for a breakthrough on major issues are low. A Biden administration official said the U.S. expects the virtual summit at 7:45 p.m. on Monday night in Washington to last several hours, a time frame that includes translation for both leaders in their third conversation this year. It comes as the world’s two biggest economies spar regularly over the origin of Covid-19, human rights in Hong Kong and Xinjiang, and the status of Taiwan. While those issues aren’t going to be resolved in the meeting, the U.S. says it wants to put “guardrails” on the relationship so it doesn’t get worse. The U.S. official, who asked not to be identified, told reporters that Biden will press Xi to abide by established international norms.
  • Financial markets are fixated on how the world’s central banks will adjust monetary policy as they grapple with inflation. But it’s fiscal tightening — the withdrawal of pandemic spending — that will likely have more impact on the global economy next year. Public programs to support households and businesses have been the most powerful engine of recovery from the Covid slump — and now governments are hitting the brakes. The money they’ll pull out of their economies in 2022 amounts to some 2.5 percentage points of the world’s gross domestic product, five times bigger than anything that happened during the turn to austerity after the 2008 crisis, according to UBS estimates.
  • Pfizer Inc. and BioNTech SE’s Covid-19 shot yielded the strongest immune response among four vaccines tested in a study, which found people getting Sinopharm’s inoculation may be particularly susceptible to a breakthrough coronavirus infection. Levels of protective antibodies to the part of the coronavirus that SARS-CoV-2 uses to infect human cells varied widely across each of the four vaccine groups. “Relatively low” antibody concentrations were stimulated by the Sinopharm and Sputnik V vaccines, intermediate levels for the AstraZeneca Plcvaccine, and the highest values for the Pfizer-BioNTech vaccine, a study in the journal Cell Host and Microbe showed. The reasons for the differences in immune responses between vaccine types are the subject of intense research. They are likely to include factors such as the amount of active ingredient in each dose and the interval between getting the first and second shots, said the authors from Stanford University, the Onom Foundation, and the National Center for Zoonotic Diseases in Ulaanbaatar in the paper published Thursday.
  • Saudi Arabia and the United Arab Emirates signaled OPEC+ will continue raising oil output cautiously and won’t bow to U.S. pressure to pump faster. President Joe Biden, concerned that gasoline prices at a seven-year high are stoking inflation in America, has called on the 23-nation alliance to turn on the taps and bring down crude prices. OPEC+, led by Saudi Arabia and Russia, is currently increasing daily output by 400,000 barrels per month.
  • Prime Minister Boris Johnson will convene a meeting of the U.K.’s emergency committee Cobra after police declared a blast in Liverpool, northern England a terrorist incident. Counter-terrorism police are investigating an explosion at a hospital that killed one person and injured another. Merseyside Police were called to reports of a blast involving a taxi at Liverpool Women’s Hospital at 10.59am on Sunday, just one minute before annual remembrance services for those who died in World War I. Three men were arrested in Liverpool. Footage circulated online shows the black cab pulling up in the car park of the hospital. There was a blast, followed by the driver running out from the vehicle. “It does look as though the taxi driver in question did behave with incredible presence of mind and bravery,” Johnson told reporters on Monday.
  • Russia signaled it has little appetite in increasing natural gas shipments to Europe next month as the winter heating season gets underway. Gazprom PJSC didn’t book any of the additional capacity offered in Ukrainian pipelines next month at auctions held Monday, and only a fraction was allocated to unspecified buyers on the Ukrainian-Slovakian border. This means Gazprom will export only what’s already agreed in the transit contract with its neighbor, cooling the prospect of increased volumes amid a supply crunch. Russia also didn’t book any of capacity offered to send gas to Germany via Belarus and Poland. That’s a further decline from previous months, when only 35% of the gas capacity was booked for November and October at the Mallnow compressor station, where Russia’s Yamal-Europe pipeline ends.
  • Chinese property developers are putting their own shares under pressure as they look to raise cash to pay debt and ride out a historic funding squeeze. Shares of Sunac China Holdings Ltd. declined almost 12% after the company raised about $953 million through the sale of new stock and a stake in its property-management unit. China Aoyuan Group Ltd. tumbled more than 11% after it said it would sell Hong Kong properties at a loss. Other developers also retreated. The moves underscore how Chinese property companies are increasingly prioritizing debt-servicing over protecting their share valuations as they look to ease a liquidity crunch that’s roiled global markets. Bonds rallied Monday even as data showed declines in the country’s home prices quickened.
  • There’s a reason India and China defended coal’s future at the Glasgow climate summit: no nations have added more coal-fired power-plant capacity in the past decade than these two major emitters. China and India are currently mining a combined 14 million tons a day of the dirtiest fossil fuel. Coal not only remains crucial to their current energy needs but it looks set to have a role for decades to come. That’s even as the two Asian giants install huge volumes of renewables and chase targets to zero out greenhouse gas emissions. The global pipeline of coal power under development rose last year, the first advance since 2015, driven by a wave of proposed new facilities in China, according to Global Energy Monitor. India’s government forecasts coal plant capacity to grow to 267 gigawatts by 2030 from 208 gigawatts now.
  • The Japanese government said it will make an aggressive push to help domestic semiconductor companies expand globally, with a goal of increasing their annual revenue to more than 13 trillion yen ($114 billion) by 2030. The ambitious goal, roughly three times 2020’s total of 4.5 billion yen, was presented to a group of industry experts summoned by the Ministry of Economy, Trade and Industry (METI) at a meeting to map out the national strategy in semiconductors and digital transformation. METI plans to use input from such regular meetings to determine budgets and legislative proposals in next spring’s Diet session. Japanese officials expect the global chip market will double to 100 trillion yen by 2030 relative to 2020 due to the expanding adoption of technologies like 5G wireless networking and autonomous driving. Each of those applications drastically increases the demand for silicon, and chronic shortages of production capacity over recent months have prompted chipmakers all around the world to spend heavily on expansion.
  • European Central Bank policy makers are conducting stimulus with an operational ceiling of just under 50% of each country’s debt issuance, according to officials familiar with the matter, an extent never previously revealed. The overall bond-buying restriction being followed is higher than the 33% limit applied to normal quantitative easing via the Asset Purchase Program, said the officials, who declined to be identified discussing confidential market matters. The ceiling for supranational debt is 60%, compared with a 50% maximum for the APP, they said. The figures hint at the scale of support the central bank has been willing to provide to the euro-area economy since the start of the Pandemic Emergency Purchase Program in March 2020. Such ceilings guide bond-buying operations without amounting to any formal limit to the ECB’s freedom of action.
  • Elon Musk, the world’s wealthiest person, directed a series of insults at Bernie Sanders on Twitter after the U.S. senator repeated his call for billionaires to pay more in taxes. Musk even raised the notion of selling more of his Tesla Inc. shares, which would require him to pay capital gains taxes. The 80-year-old Sanders, who unsuccessfully sought the Democratic Party presidential nomination in 2016 and 2020, on Saturday tweeted that “we must demand that the extremely wealthy pay their fair share.” He didn’t mention Musk by name.
  • Royal Dutch Shell Plc announced a major overhaul of its legal and tax structure that will see the company walk away from the Netherlands amid deteriorating relations with what’s been its home country for a century. The changes come as Shell is battling activist investor Dan Loeb, who’s demanding the company split itself into two to attract shareholders leaving the energy sector because of concerns over climate change. Shell said Monday that it planned to eliminate its current dual share structure, drop “Royal Dutch” from its name, relocate its tax residence to the U.K. and move its top executives from The Hague to London. The Dutch government immediately said it was “unpleasantly surprised” by the announcement.
  • Huawei Technologies Co., whose smartphone business has been devastated by U.S. sanctions, is planning to license its handset designs to third parties as a way to gain access to critical components, people with knowledge of the matter said. The Shenzhen-based tech giant is considering licensing its designs to a unit of state-owned China Postal and Telecommunications Appliances Co., or PTAC, which will then seek to buy parts barred under the Trump-era blacklisting, said one of the people, asking not to be identified discussing internal matters. The unit, known as Xnova, is already selling Huawei-branded Nova phones on its e-commerce site and the partnership will see it offer self-branded devices based on the larger company’s designs.
  • An offshore unit of Credit Suisse Group AG goes to court Monday in a case that could lift the lid on how a rogue Geneva employee got away with defrauding some of the firm’s richest clients for nearly a decade. Georgian billionaire and former prime minister Bidzina Ivanishviliaccuses Credit Suisse Life (Bermuda) Ltd. of failing to stop the late Patrice Lescaudron from losing $400 million of his fortune. Ivanishvili is one of at least five wealthy victims of Lescaudron who together lost hundreds of millions before the Frenchman’s fraud was exposed in 2015.


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*All sources from Bloomberg unless otherwise specified