November 17, 2021

Daily Market Commentary

Canadian Headlines

  • Rogers Communications Inc. named Tony Staffieri as its interim chief executive officer, giving Chairman Edward Rogers the leadership change he’s craved but setting off a new round of fighting with his mother and sisters. The Canadian wireless and cable company announced the decision Tuesday to replace Joe Natale in a statement, adding the board has begun a search for a permanent CEO and Staffieri is a candidate. The move — coming just days after Edward Rogers won a court battle for control of the board following weeks-long bickering within the Rogers family — was immediately denounced by his siblings and the matriarch, who said Natale should have stayed.
  • Northleaf Capital Partners is launching a growth fund that targets Canadian technology and health-care companies, adding to the $4 billion the firm has raised over the past year for other products, its managing partner said.  Toronto-based Northleaf co-invests in later-stage growth companies as part of its venture capital program and “returns have been very strong from that direct investment portfolio,” Stuart Waugh said in an interview. Canadian investors have expressed particular interest in the strategy, he said. Northleaf has made direct investments in technology companies such as FreshBooks, a seller of cloud accounting software, and Ecobee, which makes connected thermostats and other home devices. It’s also acquired stakes in numerous other health-related and tech companies through its secondaries business, which buys interests in existing funds run by other managers.

World Headlines

  • European stocks were little changed, with gains muted by worries over higher inflation and rising Covid-19 cases. The Stoxx 600 Index was up less than 0.1% by 10:24 a.m. London time, with travel and leisure leading the decliners as gambling firm Evolution AB slumped after an anonymous competitor accused the Swedish firm of operating illegally in some markets. Siemens Healthineers AG gained after raising its medium-term growth targets, while Sage Group Plc boosted the tech sector after results. European equities have been on a tear heading into the end of the year, rallying since the start of October to fresh records as investors took comfort in a robust company earnings season, while central banks are seen remaining accommodative. Inflation, surging energy prices, supply crunch and Covid-19 remain the key concerns for investors going forward. Germany and the Czech Republic reported record cases.
  • U.S. equity futures were calm as fears about inflation and Europe’s fourth virus wave simmered under the surface. Contracts on the Nasdaq 100 posted a slight gain while those on the S&P 500 were little changed. Tesla Inc. rose as much as 2.4% in U.S. pre-market trading, extending a bounce from the previous session after CEO Elon Musk disclosed more stock sales. Even as global stocks trade near all-time highs, worries are risingthat growth could be derailed by inflation, the resurgent virus, or both. The question remains whether the jump in costs will prove transitory or become a bigger challenge that forces a sharper monetary policy response, roiling both shares and bonds.
  • Asian stocks fell, halting a four-day rally, as investors factored in higher Treasury yields and the outlook for U.S. monetary policy to assess whether the region’s recent gains were excessive. The MSCI Asia Pacific Index slid as much as 0.7%, pulling back from a two-month high reached Tuesday. The banking sector contributed the most to Wednesday’s drop as the Commonwealth Bank of Australia reported cash earnings that were below some estimates. South Korea led the region’s decline, with the Kospi falling more than 1%, weighed down by bio-pharmaceutical firms. Asia’s stocks are taking a breather from a run-up driven by expectations for earnings to improve and economies to recover from quarters of pandemic-induced weakness. The benchmark is coming off a two-week gain of 1.5%.
  • Oil retreated as investors weighed the chances of the U.S. and China tapping their strategic reserves, and an industry report showed an increase in American stockpiles. West Texas Intermediate crude declined 1.2%. During a virtual summit this week, the U.S. asked China to release oil reserves, the South China Morning Post reported. Beijing is open to the request but hasn’t committed to specific actions, it said. President Joe Biden is seeking to quell discontent over rising fuel costs. Japan, another major consumer that has voiced concern about high prices, is unlikely to release oil from its reserves due to a law that only allows it to release stocks in the event of supply disruptions, a government official said.
  • German cases rose to a record and deaths from Covid-19 reached the highest level in six months. The country will delay some vaccine donations earmarked for low-income nations to make sure it has a sufficient supply of boosters. An adviser to China’s government said he hopes the country will gradually loosen its strict approach to battling the coronavirus after Beijing hosts the 2022 Winter Olympics. The capital is tightening curbs further even after new infections in the latest outbreak fell to single digits. GlaxoSmithKline Plc and Vir Biotechnology Inc. will supply $1 billion worth of their antibody treatment to the U.S. in the next month. The companies announced a contract that brings the number of doses ordered to 750,000 worldwide.
  • Elon Musk sold Tesla Inc. stock for a seventh consecutive trading day, bringing him almost halfway to his promise to unload 10% of his stake in the electric car-maker. The chief executive officer on Tuesday disposed of 934,091 shares worth about $973 million, according to regulatory filings. That follows $7.8 billion of sales he’s carried out since he asked his Twitter followers on Nov. 6 whether he should pare his stake. Musk also exercised 2.1 million of equity options on Tuesday, and part of the share sales were to help pay taxes on that. To reach the threshold of selling 10% of his Tesla stake, Musk would need to sell some 17 million shares, which is equal to about 1.7% of the company’s outstanding stock. So far, he’s gotten rid of about 8.2 million shares. If his exercisable options are factored in, he’d need to sell even more.
  • Volkswagen AG’s charge into the electric future may not be all it’s cracked up to be. Analysts are becoming increasingly negative on the prospects for VW, with Exane BNP Paribas on Wednesday cutting the stock to underperform, following a downgrade at Jefferies last week. “As new entrants and legacy players pile into the growing electric segment, we believe VW is finding the competition tougher than anticipated,” analyst Dorothee Cresswell wrote, with a crowded market in China among concerns. Europe’s largest carmaker took the investment community by storm back in March, when shares soared on its plans to take Tesla Inc.’s crown in the EV market. Analysts were overwhelmingly positive about the German company’s transition and it spent the next seven months without a single sell rating among analysts tracked by Bloomberg.
  • Federal Reserve Chairman Jerome Powell’s inflation dashboard is starting to show some signs of overheating. From spreading price increases to rising wages, it’s signaling more caution on the inflation front than when Powell unveiled the benchmarks less than three months ago. In a speech to the Fed’s annual Jackson Hole conference, held virtually in late August, Powell sketched out five ways of assessing the outlook for inflation and argued that each of them suggested there was no cause for alarm.
  • Goldman Sachs Group Inc. Chief Executive Officer David Solomon said that markets could face a rocky time ahead as the global economy seeks to emerge from the abrupt impact of the pandemic.  “When I step back and think about my 40-year career, there have been periods of time when greed has far outpaced fear — we are in one of those periods,” Solomon said in an interview at the Bloomberg New Economy Forum in Singapore. “My experience says those periods aren’t long lived. Something will rebalance it and bring a little bit more perspective.”
  • Lowe’s Cos. raised its sales forecast for this year and reported stronger-than-expected revenue, the latest sign that home-improvement spending is outlasting the pandemic amid climbing U.S. home prices. The company on Wednesday raised its sales outlook to about $95 billion, up from a prior guidance of $92 billion for the year. Same-store sales in the U.S., a key retail metric, increased 2.6% in the third quarter. Analysts surveyed by Bloomberg had anticipated a decline.
  • The U.S. Air Force’s next-generation B-21 stealth bomber program will likely cost taxpayers at least $203 billion to develop, purchase and operate 100 aircraft over 30 years, according to new service estimates. The figure represents the most complete estimate to date for the heavily classified program won by Northrop Grumman Corp. in 2015. It’s also an attempt by the Air Force to make good on a vow to help prevent sticker shock among lawmakers by providing more transparency on cost data as the secretive aircraft proceeds through development. According to figures provided to Bloomberg News, the total cost, priced in fiscal year 2019 dollars, includes $25.1 billion for development, $64 billion for production, and $114 billion for 30 years of sustaining and operating a fleet of 100 bombers.
  • Foreign-exchange traders are betting on bigger price swings as markets attempt to second-guess the conclusions of a clutch of central bank meetings toward the end of the year. The Federal Reserve, European Central Bank and the Bank of England will give monetary policy decisions within a mere 24 hours come mid-December. The cost of hedging against volatility in the euro against the dollar over the next month has already climbed the most this week since the pandemic struck in March 2020, and options markets suggest the moves are far from over. Hotter-than-expected inflation and more positive retail sales in the U.S. have spurred a gauge of the dollar’s strength to hit a one-year-high as traders anticipate the Fed embarking on a faster pace of tightening. While gauges of price swings remain well below historical peaks, one-month volatility in the greenback against the yen has climbed to the highest in a year, and for the pound to the most since March.
  • Inc. will stop accepting purchases made with Visa Inc. credit cards issued in the U.K. starting next year, the latest attempt by the online giant to push back against transaction fees charged by payment networks. Amazon users were told of the changes this week. After making purchases they received a notification from the company saying that from Jan. 19, 2022 “we will no longer accept Visa credit cards issued in the U.K.” due to the high fees charged to process transactions. An Amazon spokesperson said “the cost of accepting card payments continues to be an obstacle for businesses striving to provide the best prices for customers.”
  • The U.K. warned the European Union not to start a trade war if Boris Johnson’s government suspends part of the Brexit settlement over Northern Ireland, saying a strong retaliation would exacerbate problems. “I hope everyone can step back from that,” U.K. Brexit Minister David Frost told BBC Radio on Wednesday. “I don’t see why it would help for the response to that from the European Union to be sanctions, retaliation and making trade more difficult.” Both sides are again locked in talks to resolve the thorny question of how Northern Ireland fits into post-Brexit rules on commerce, with Frost calling for a fundamental overhaul of the U.K.’s divorce deal with the EU because it has caused a decline in trade between the region and mainland Britain. The bloc has proposed concessions, including reducing the burden of customs checks, but Frost has said they don’t go far enough.
  • U.K. inflation climbed faster than expected to the highest in a decade, heaping pressure on the Bank of England to raise interest rates and tightening a squeeze on living standards for households. Consumer prices rose 4.2% from a year ago in October, driven by energy prices and the impact of broad-based supply shortages across the economy. That was the fastest pace since November 2011 and up sharply from 3.1% in September. Economists and the BOE had expected 3.9%. The BOE has warned that it’s likely to lift borrowing costs in the coming months to keep inflation in check, estimating that prices may leap 5% early next year, more than double its target.
  • A consortium led by Alibaba Group Holding Ltd., has emerged as the frontrunner to take over Tsinghua Unigroup Co., a deal that could fetch more than 50 billion yuan ($7.8 billion) to help keep China’s indebted chip champion afloat. The Chinese central government is leaning towards the Alibaba-led offer given the e-commerce giant’s financial heft and the potential synergies with its own cloud and semiconductor business, people familiar with the matter said. The consortium, which includes funds backed by the Zhejiang government, is edging out several competitors for Beijing-based Unigroup, several other people said, asking not to be identified as the information is private. A successful deal could help avert one of China’s biggest potential corporate failures, while securing for Alibaba valuable chip know-how and a supply of semiconductors to fuel the country’s largest cloud computing platform. While the transaction is expected to be completed as soon as December, negotiations are ongoing and details on timeline, deal size and a final buyer could still change, they said.
  • China plans to let property companies resume issuance of asset-backed securities, ending a three-month market freeze as authorities move to insulate higher-rated developers from an industrywide funding crunch. Financial regulators recently told Chinese exchanges that “high quality” developers can apply to issue new ABS to repay outstanding debt, people familiar with the matter said, asking not to be identified discussing private information. A unit of state-owned developer China Resources Land plans to issue 520 million yuan ($81.5 million) of ABS this week. No developers have sold ABS since August after the government began restricting approvals in the second quarter, one of the people said. Outstanding ABS issuance by the industry reached the equivalent of $152 billion in April, according to GF Securities Co.
  • Target Corp. reported third-quarter sales that outpaced expectations and projected a brisk pace through the end of year while warning that cost pressures are creeping up. The shares slipped in early trading. Comparable sales may post growth as high as the low-double digits during the fourth quarter, Target said in a statement Wednesday. The company previously forecast expansion in the high-single digits for the second half of the year. For the third-quarter, comparable sales rose 12.7%, exceeding the 8.3% average of analyst estimates compiled by Bloomberg.
  • The U.S. intends to initiate a new economic framework for the Indo-Pacific in 2022, Commerce Secretary Gina Raimondo said, as the Biden administration aims to reinvigorate America’s standing in the region. “We’re likely to launch a more formal process in the beginning of next year which will culminate in a proper economic framework” in Asia, Raimondo said at the Bloomberg New Economy Forum in Singapore Wednesday. “I am here in the region beginning the discussions, laying the groundwork.” It’s clear that many people in the region want the U.S. to rejoin the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, Raimondo said, while adding that “for various reasons that is not going to happen now.”
  • President Joe Biden is still deciding whether to reappoint Federal Reserve Chair Jerome Powell or replace him with Fed governor Lael Brainard, as key senators wade in with their views on the choice. Biden told reporters on Tuesday to expect the announcement of a nominee for Fed chair in “the next four days.” The president has ruled out other possible contenders for the job, said a person familiar with the matter, cautioning that the announcement may slip until next week.
  • The buzz around the metaverse is taking the technology sector by storm. Chipmaker Nvidia Corp. and gaming company Roblox Corp. are just two of the stocks to have surged since Facebook co-founder Mark Zuckerberg renamed his company to highlight a shift in focus to virtual reality. In that brief three-week period, dozens of tech stocks have added hundreds of billions dollars in market capitalization. Between Nvidia, Roblox and the re-christened Meta Platforms Inc., that equates to a combined $230 billion. Nvidia has gained 18% in November and Roblox is up 38%.
  • U.S. junk bonds are showing more signs of strain as CCC yields, the riskiest segment of the market, rose for the fifth straight session to an almost 10-month high of 6.79% and posted losses for four consecutive days, the longest losing streak in four months.
  • Turkish President Recep Tayyip Erdogan vowed to continue fighting for lower interest rates, sending a clear signal to investors a day before the central bank sets its policy. The lira weakened. “I cannot be on the same path with those who defend interest,” Erdogan said in speech at parliament in Ankara. “We will lift the interest rate burden from citizens,” he said, repeating his unorthodox mantra that interest rates are the cause of inflation rather than a brake on price gains. Amid allegations of intense political pressure on the central bank to lower rates, Erdogan on Wednesday told reporters the authority would decide its policy independently.
  • Vietnamese conglomerate Vingroup JSC’s auto unit VinFast will invest as much as $6 billion in its planned U.S. electric vehicle factory as it aims for a U.S. initial public offering within the next two years, according to Vice Chairwoman Le Thi Thu Thuy. The company initially will allocate $1.5 billion to $2 billion for the plant’s first phase as the company ramps up global sales of its electric SUVs, Thuy said at a Bloomberg Television interview at the Bloomberg New Economy Forum in Singapore. VinFast expects to launch the EV factory during the second half of 2024. It has narrowed the factory’s location to “five, six sites,” Thuy said.
“The Fed is the greatest hedge fund in history.” -Warren Buffett

*All sources from Bloomberg unless otherwise specified