November 16, 2021

Daily Market Commentary

Canadian Headlines

  • Canadian equities slumped on Monday, dragged down by technology and industrial companies. The S&P/TSX Composite fell 0.4% at 21,683.08 in Toronto, retreating from the previous session’s record high. Shopify Inc. contributed the most to the index decline with a 1.1% drop. Canopy Growth Corp. had the largest drop, falling 5.5%. Nine of 11 sectors were lower, led by financials stock; 142 of 233 shares fell, while 88 rose.
  • Manulife Financial Corp. is freeing up C$2 billion ($1.6 billion) of capital, much of which it plans to devote to stock buybacks, as part of a deal to reinsure the majority its U.S. variable-annuity business. Venerable Holdings Inc. will reinsure the legacy U.S. variable-annuity block, consisting primarily of policies with guaranteed minimum withdrawal benefits, Toronto-based Manulife said Monday in a statement. Manulife said it plans to deploy “a significant portion” of the capital to buy back shares, without providing a precise figure. Manulife is reducing its exposure to the variable annuities as it focuses on higher-growth businesses like its wealth- and asset-management operations and the Asian division. Analysts including National Bank of Canada’s Gabriel Dechaine have said such a deal could help the insurer’s shares, which have underperformed those of peers this year.
  • Cboe Global Markets Inc. is expanding its Canadian operations with a deal to buy Aequitas Innovations Inc., parent of Toronto-based NEO Exchange. The acquisition will help Chicago-based Cboe build its presence in North America by adding the registered Canadian securities exchange and related products, the companies said in a statement Monday. Terms weren’t disclosed. Cboe already owns MATCHNow, the Toronto-based alternative-trading system it acquired in 2020. With both businesses, Cboe will have a combined market share in Canadian equities of more than 16.5%, along with market-data feeds, access services, listings and distribution services for non-listed securities, according to the statement.

World Headlines

  • European stocks advanced to a fresh record as risk appetite remained strong amid a positive earnings season that reinforced investor optimism that growth will continue. The Stoxx 600 Europe Index was 0.2% higher by 10:25 a.m. in London, with energy and telecom sectors leading the gains. Diageo Plc rose after saying it will emerge from the pandemic with stronger-than-expected growth in the medium term. Vodafone Group Plc climbed after its revenue beat estimates and it raised forecasts. Markets in the region are sustaining this year’s rally, with the main benchmark 23% higher, as investors keep a positive view on equities on bets that robust corporates results and supportive monetary policy can continue powering economic growth.
  • U.S. equity futures fluctuated and Treasuries climbed as traders awaited a decision from the White House on who the next Federal Reserve head will be. Contracts on both the S&P 500 Index Nasdaq 100 erased an earlier loss while bonds were lifted by chances that Fed policy tightening could be slowed down under another chair. Both current Chair Jerome Powell and Fed Governor Lael Brainard have been interviewed for the top job, and a decision is expected imminently, according to the Senate Banking Chairman.
  • Asian stocks rose for a fourth day, led by gains in Hong Kong, with investors closely watching the U.S.-China summit for fresh cues. The MSCI Asia Pacific Index climbed 0.2%, on track for its longest string of gains since early September. Consumer discretionary and technology sectors gave the biggest boost to the benchmark. Hong Kong’s Hang Seng Index jumped more than 1%: shares of Macau casino operators surged on hopes of better-than-expected outcomes from Macau’s public consultation on a proposed gaming law amendment. The Asian stock benchmark is heading for its highest close in two months, buoyed by optimism over reopening economies that’s helping outweigh worries over inflation. Singapore said Monday that it will open its borders to five more countries as the city-state presses on with plans to live with Covid.
  • Oil rose above $81 a barrel in New York as investors waited to see whether the U.S. will release crude from emergency reserves to cool prices. West Texas Intermediate climbed 0.6%, after earlier adding as much as 1.2%. Prices have rebounded this year as the global economic recovery bolsters demand, and with gasoline now hitting a record in California, President Joe Biden is under pressure to tap the country’s Strategic Petroleum Reserve. Calls increased for a response from the U.S. after the OPEC+ group of producers refused to step up the pace of output hikes, citing a continuing need for caution. Yet some consuming nations have questioned whether a co-ordinated sale of strategic reserves by major oil users would help. And the International Energy Agency said Tuesday that market tightness is in fact starting to ease.
  • Gold climbed to the highest since June as the dollar weakened ahead of a slate of speeches by Federal Reserve officials and economic data. Bullion is up more than 4% this month — set for its best since May — having broken through key technical barriers after U.S. consumer prices rose the fastest since 1990. The data has sparked growing pressure on the Fed to speed up the pace of monetary tightening amid fears it could lose control of inflation. Traders will monitor speeches by St Louis Fed President James Bullardand San Francisco Fed President Mary Daly for any comments on how the central bank should react to October’s CPI print. Minneapolis Fed President Neel Kashkari told Bloomberg Television on Monday an overreaction by the Fed to inflation could “lead to a worse long-term outcome for the economy.”
  • Pfizer Inc. reached an agreement that will let generic-drug makers produce inexpensive versions of its Covid-19 pill for lower-income nations, following a similar move by Merck & Co. Germany’s coronavirus deaths spiked the most since May as lawmakers debate how to control the pandemic’s fourth wave. Hong Kong defended a decision to exempt JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon from quarantine during his visit, saying the risk is manageable. Meanwhile, the city postponed the Hong Kong Sevens rugby tournament as it tightens virus rules in an effort to reopen borders with China.
  • Thyssenkrupp AG is pushing ahead with plans for an initial public offering of a unit that helps to build hydrogen plants, according to people familiar with the matter. The German engineering group is looking to list Uhde Chlorine Engineers as soon as the first quarter of 2022 to capitalize on surging interest in hydrogen-based technologies, the people said. An IPO could value the business at as much as 5 billion euros ($5.7 billion), they said, asking not to be identified discussing confidential information. Thyssenkrupp has been working with Citigroup Inc. to explore options for Uhde. It previously considered taking the business public via a merger with a special purpose acquisition company before opting for the traditional IPO route, the people said. Thyssenkrupp could appoint more banks in the coming weeks, according to the people.
  • Elon Musk exercised options and offloaded more Tesla Inc. shares, continuing a streak of sales that helped tank the stock last week by the most since March 2020. The world’s richest person disposed of more than 934,000 shares on Monday for about $930 million, according to regulatory filings. That adds to the $6.9 billion he already sold last week, just after he took an unusual Twitter poll asking whether he should dispose of 10% of his Tesla stake. Part of Monday’s sales were to help pay taxes on the exercise of 2.1 million options. Musk’s survey and $7.8 billion worth of sales come as the U.S. debates whether the rich are paying enough taxes. In a weekend tweet, U.S. Senator Bernie Sanders said “We must demand that the extremely wealthy pay their fair share,” to which the Tesla boss replied, “Want me to sell more stock, Bernie? Just say the word…”
  • A consortium led by Razer Inc.’s top executives plans a takeover offer that values the gaming gear company at as much as HK$35 billion ($4.5 billion), Reuters reported, citing two people with knowledge of the offer. The group plans to offer up to HK$4 a share to take Razer private, Reuters said, about a 49% premium to its price before the report. Shares in the company surged more than 22% in Hong Kong afternoon trading before paring much of those gains. Razer co-founder Min-Liang Tan and board member Kaling Lim are in talks with investors including CVC Capital Partners on a takeover and privatization of the company, known for making gaming accessories from mice to keyboards and laptops. The group is evaluating a possible relisting of the company in the U.S. once a buyout is complete, Bloomberg News has reported.
  • With expectations low heading into the first face-to-face summit between Joe Biden and Xi Jinping, they appeared to accomplish as much as politically possible: An agreement to keep on talking, without letting tensions over Taiwan and other disputes derail the U.S.-China relationship. The virtual meeting lasted longer than expected, running for more than three hours as the leaders covered a range of topics including trade, the pandemic, climate change, Taiwan and other hotspots. Although the two sides didn’t issue a joint statement at the end, both leaders separately stressed the need for more talks between their governments. A senior administration official afterward described the tone as respectful and open, even as a statement afterward said Biden told Xi the U.S. “opposes unilateral efforts to change the status quo” regarding Taiwan. China likewise called the meeting “positive” and said it increased “mutual understanding,” while mentioning that Xi warned those playing with fire around Taiwan “would inevitably burn themselves.”
  • Home Depot Inc. posted stronger-than-expected results in the third quarter, a sign that increased North American spending on home improvement is outlasting the pandemic. Comparable-store sales, a key metric for retailers, increased 6.1% in the period. That’s above the 1.5% average estimate of analysts surveyed by Bloomberg.
  • Banks are poised to hand investment bankers and traders their biggest bonuses since the financial crisis, with hopes the cash will stem the high levels of turnover sweeping across Wall Street. Equity and debt underwriters will be the biggest winners, with a jump of as much as 35% from a year earlier, according to a report Tuesday by compensation consultant Johnson Associates Inc. Equity traders and M&A bankers may see a 25% increase. Fixed-income traders could be the lone losers, with their bonuses potentially sinking as much as 5%.  The Covid-19 pandemic was a boon for Wall Street, first with a trading surge on wild market swings and then a dealmaking boom. Goldman Sachs Group Inc., for example, has already posted enough revenue through September to give the firm its best year ever. Rival JPMorgan Chase & Co.’s revenue haul for the first nine months of the year was the highest it’s ever been for that period.
  • Cryptocurrencies fell on Tuesday, with Bitcoin sliding toward the $60,000 level and Ether close to its lowest levels this month. The largest digital token dipped as much as 5.5% to $60,369. Second-ranked Ether tumbled as much as 6.8%. Global crypto market cap has dropped some 7% in the past 24 hours to $2.8 trillion, according tracker CoinGecko. Some analysts attributed the broad market dip to new tax-reporting requirements for digital currencies that are part of the $550 billion infrastructure bill, which President Joe Biden signed into law Monday.
  • Airbus SE padded the lead it built over rival Boeing Co. during the first two days of the Dubai Airshow, winning an order for 28 narrow-body jets from Kuwait’s Jazeera Airways. Still, the U.S. planemaker’s shares advanced the most since March on Monday after it signaled optimism that it will soon be logging Chinese orders and deliveries of its 737 Max.  Elsewhere, Saudi Arabian Airlines is contemplating an order that could total well above 100 jets as part of a push to lure more tourists, Emirates is installing more premium economy seats on its A380s and 777 wide-bodies as it prepares to go public, and General Electric Co.’s top aviation executive is on the prowl for post-split acquisitions.
  • Richard Branson sold another $300 million in Virgin Galactic Holdings Inc. stock, tapping his biggest listed asset again to prop up a business empire that’s been suffering during the coronavirus pandemic. The billionaire offloaded 15.6 million shares — about 6% of the space-travel company — through a company he controls, leaving him with an 11.9% interest, according to a regulatory filing. The proceeds will support Branson’s travel and leisure businesses, as well as help develop new and existing ventures, a Virgin Group representative said. The 71-year-old billionaire remains Virgin Galactic’s biggest shareholder with a stake worth almost $600 million, based on its closing share price Monday.
  • Russia’s controversial Nord Stream 2 pipeline faces another delay after Germany suspended a key step in the approval process, sending European gas prices surging as much as 12%. German energy regulator halted the certification process necessary before the new link from Russia can start, it said in a statement. The move comes as Nord Stream 2 AG, the operator of the pipeline, decided to set up a German subsidiary in a bid to meet European Union rules requiring gas producers to be legally separate from entities transporting the fuel. Russia’s Gazprom PJSC is the owner of Nord Stream 2. The announcement sent benchmark European gas prices surging as traders fear the decision means Europe won’t get much needed gas to ease tight supplies this winter. The continent is facing an energy crunch, having started the winter season with the lowest stockpiles in more than a decade, leaving the regional vulnerable when cold spells hit.
  • Poland may seek to derail the European Union’s climate package Fit for 55 because it needs more help with transforming its coal-dependent power industry than other member states, ruling-party leader Jaroslaw Kaczynski said. The warning from Poland’s most powerful politician amplifies the country’s appeal to the EU to analyze all the elements of Fit for 55 that can have a negative impact on energy prices and consider their revision or postponement. It also comes amid a tense standoff over the Polish government’s defiance of the EU’s legal order, which is holding up billions of euros in pandemic recovery funds for the nation. Most of the draft laws need qualified majority support from national governments to be approved, a process that means that Poland would have to find allies and build a coalition to put a halt to the Fit for 55 reforms.
  • Ericsson, one of the largest employers in Sweden, is redesigning and cutting desk-space in its 400 offices in an attempt to shift half of its workforce to remote working. “It became very clear during the spring of 2020, that we are never going back to the old way of working,” Peter Laurin, head of Managed Services at Ericsson, said in an interview. “It should be ok to work from home. Over the long run, we are aiming for a hybrid model, a vision of fifty-fifty between the office and remote working.” Before the pandemic hit, the roughly 102,000 employees at the Swedish telecommunication equipment maker spent an average of one day a week working remotely. Despite the progress made with vaccinations, about 85% of the work force at Ericsson globally are still working from home.
  • U.S.-listed Chinese technology shares that have staged a rebound this month are facing a reality check in the coming weeks as they disclose the earnings hit from Beijing’s regulatory clampdown. Over 30 members accounting for more than half of the Nasdaq Golden Dragon Index’s weighting are slated to release quarterly results in the remainder of November. They include search engine Baidu Inc., which is estimated to log a 82% year-on-year drop in net income, and e-commerce giant Alibaba Group Holding Ltd, whose earnings are expected to fall 17%, Bloomberg-compiled data show.  The reports are set to test traders’ confidence in holding on to a sector beleaguered by China’s regulatory storm, cooling economic growth there and the delisting threat in the U.S. The Nasdaq Golden Dragon Index slumped 52% from this year’s peak in February to October’s trough, compared with a 7% gain in a gauge of S&P 500 tech shares during the same period.
  • The whole automobile supply chain is embracing sustainability-linked debt, ranging from Ford Motor Co.’s $15.4 billion loan in October to Faurecia SE’s $1.7 billion bonds this month. That adds force to COP26 carbon-neutral pledges, since broken promises mean higher borrowing costs. Total sustainability debt issuance almost doubled this year to $1.4 trillion, of which $337 billion was sustainability-linked loans and $92 billion sustainability-linked bonds. Ford’s loan has interest rates tied to its success cutting supply-chain emissions from energy to manufacturing to tailpipes. Unlike Ford green bonds sold this month to make electric vehicles, the debt doesn’t stipulate use of proceeds. Ford joined Volvo Car AB — which issued a green bond in September and signed an emissions-linked loan in January — in pledging at the COP26 climate conference to phase out fossil-fuel vehicle production by 2040. Many leading automakers chose not to sign, but nearly all have 2050 carbon-neutral targets of varying stringency. Volkswagen AG’s target includes “our supply chains” and a 55% cut in CO2 emissions from 1990 levels by 2030 as part of a “joint effort” across all sectors.
  • Goldman Sachs Group Inc. strategists lifted their outlook for U.S. stocks, saying the rally that has pushed the country’s benchmark index to successive record highs will continue into next year.  “We forecast the S&P 500 index will climb by 9% to 5,100 at year-end 2022, reflecting a prospective total return of 10% including dividends,” strategists led by David J. Kostin wrote. Goldman had previously forecast a 4% rise to 4,900 points by the end of next year. The prediction joins other bullish Wall Street outlooks for U.S. and European equities, following a solid earnings season and as concerns about rising inflation and rate hikes recede. Global fund managers in Bank of America Corp.’s November survey are ending the year with the biggest overweight in U.S. stocks since August 2013, while JPMorgan Chase & Co. strategists said they remain bullish on equities on the expectation that central banks will remain dovish.
  • Walmart Inc. surpassed Wall Street’s expectations and lifted its outlook again, signaling that the retail giant is weathering global supply-chain snarls and rising inflation. Comparable sales in the third quarter climbed 9.2% at Walmart’s U.S. stores after excluding fuel, the company said in a statement Tuesday. That surpassed the 7% average of analyst estimates compiled by Bloomberg. The company now expects adjusted earnings this year of about $6.40 a share, up from a prior range of no more than $6.35. The results underscore Walmart’s ability to navigate scarce transportation capacity, a labor squeeze and rising fuel costs that are combining to spur the fastest growth in U.S. consumer prices in three decades. That points to upbeat prospects for the crucial holiday shopping season despite intensifying consumer anxiety amid the rising inflation rate.
  • OPEC said the global oil market will switch from being under- to over-supplied as early as next month as the economic rebound from the coronavirus pandemic falters. That outlook means OPEC is justified in only raising production gradually, according to Secretary-General Mohammad Barkindo. The comments are another signal that OPEC and its partners will continue resisting U.S. pressure to pump faster, and will stick to their strategy at their next meeting early next month. “It’s a very fragile recovery,” Barkindo told reporters in Abu Dhabi on Tuesday. “All this uncertainty further buttresses our commitment that we keep our hands firmly on the steering wheel.”

“Money and success don’t change people; they merely amplify what is already there.” — Will Smith

*All sources from Bloomberg unless otherwise specified