November 19, 2021

Daily Market Commentary

Canadian Headlines

  • Prime Minister Justin Trudeau said he raised a number of trade concerns in his bilateral meeting with President Joe Biden, including a proposed tax credit for the purchase of electric vehicles made in the U.S. Trudeau was speaking to reporters after a summit with Biden and Mexican President Andrés Manuel López Obrador.
  • Mountains of wheat and canola are stranded in Canada after storms blocked access to the Port of Vancouver during peak shipping season. There’s no rail access to Canada’a biggest port after days of torrential rain and landslides. About 20 vessels are waiting for deliveries, while a couple hundred thousand tons of grain are stuck in transit, according to Quorum, a company that monitors Canada’s grain transportation system. It’s so bad that some exporters may even be forced to declare force majeure to avoid penalties as they won’t be able to make deliveries on time, said Wade Sobkowich, executive director of the Western Grain Elevator Association.
  • Health Canada is expected to approve the use of Pfizer-BioNTech’s Covid-19 vaccine for kids between the ages of five and 11 tomorrow, the Globe & Mail reported, citing sources it didn’t identify. The decision comes as data from the Public Health Agency of Canada shows Covid-19 cases are now highest among children who haven’t yet been able to get vaccinated.
  • The Royal Canadian Mounted Police have intervened to end a blockade of work camps at a TC Energy Corp. gas pipeline-construction site in British Columbia. The RCMP is mobilizing for a “rescue mission” as the blockade of two crew lodges by opponents of the Coastal GasLink project left several hundreds of workers isolated and in danger of running out of supplies, according to a release issued by the law enforcement agency. Members of the Gidimt’en Clan of the indigenous Wet’suwet’en community began their blockade on Sunday, demanding that the workers leave the area and the pipeline not be built through their territory.
  • Australian medical lab company Sonic Healthcare Ltd. and French rival Biogroup-LCD are among bidders for Unilabs, the diagnostics firm being sold by Apax Partners, according to people familiar with the matter.  Private equity house TPG and Belgian investment firm Groupe Bruxelles Lambert SA have also submitted offers for the Swiss business, the people said, asking not to be identified discussing confidential information. A sale could value Unilabs at about $5 billion, one of the people said. Brookfield Asset Management Inc. is considering teaming up with one of the bidders, the people said. Deliberations are ongoing, and Apax could decide to keep Unilabs if bids don’t meet its expectations, according to the people.
  • Air Canada says it is withdrawing from further financial support from the Canadian government, citing improved liquidity position and ongoing recovery. Company will cancel the remaining C$3.975b unused government facilities. Canadian government provided Air Canada with access to up to C$5.375b in interest bearing loans and $500m in equity.

World Headlines

  • The Stoxx 600 Europe Index was down 0.3% as of 12:25 p.m. in London, after reversing earlier advance on the news that Austria is imposing a lockdown and Germany may follow suit. Cyclical sectors that are more sensitive to the economy, including banks, travel and leisure and automakers, led the declines, while Spanish stocks underperformed other regions.
  • Global stocks continue to hover near records, propped up by robust U.S. corporate earnings growth. Many major asset managers expect markets to continue climbing into next year, albeit at a less enthusiastic and more volatile pace, as inflationary pressures gradually ease. A resurgence of the pandemic, however, could stall the economic recovery. Yields on government bonds across the region sank, with those on German bunds falling to the lowest in two months. Treasury yields dropped five basis points to trade around 1.5%. Brent futures fell below $79 a barrel. A gauge of the dollar traded near the highest in more than a year.
  • Austria will again enter a nationwide lockdown and Germany is no longer ruling out a similar move as Europe grapples with a brutal wave of the coronavirus pandemic. Austria will become the first western European country to impose widespread restrictions after curbs on unvaccinated people failed to stem a surge in new infections. It will also become the first European country to mandate Covid-19 shots as it seeks to exit the crisis.
  • Joe Biden’s economic plan was delayed again. Wrangling over the $1.64 trillion bill will resume at 8 a.m. ET after House GOP leader Kevin McCarthy delayed a vote with a more than eight-hour floor speech that lasted into the early morning. The CBO said it will add $367 billion to the deficit in a decade, countering Biden’s claims it will pay for itself. Moderate Democrats said they’re ready to back it.
  • Gold was steady after Federal Reserve officials offered little clarity for investors on how the central bank will manage rising price pressures.  Bullion has traded in a range of less than $30 an ounce this week after a steady flow of contrasting views on inflation and monetary policy. Chicago Fed President Charles Evans said price increases will diminish and the labor market would be vibrant next year, but made no comments on his preferred pace of policy tightening.
  • The oil market has fully priced in releases from national reserves, Goldman said. The U.S. may tap at least 20 million to 30 million barrels from the SPR and reports suggest a total 30 million from other nations. But the recent drop in prices reflects expectations for north of 100 million barrels, the bank said. WTI fell an average 12% in the 90 days after the two prior releases, BloombergNEF said.
  • House Speaker Nancy Pelsoi hailed President Joe Biden’s roughly $2 trillion economic agenda as “historic, transformative and larger than anything we have done before,” as the chamber was poised to pass the legislation Friday morning. The House reconvened for the vote Friday after Republican leader Kevin McCarthy delayed action with a more than eight-hour floor speech that lasted into the early morning.  McCarthy used his privilege as minority leader to camp out on the House floor just after 8:30 p.m. Thursday in a speech criticizing the tax and spending bill in particular — and Democrats in general — that stretched until just past 5 a.m.
  • Volatility in the currency markets is back with a bang, stoked by Europe coming face to face with lockdowns all over again. The component currency-weighted three-month volatility index of the dollar has shot up to levels last seen in March, when markets were roiled by surging Treasury yields. At current levels, traders are bracing themselves for average daily moves of about 0.42% on the Dollar Index over the next three months.
  • Bitcoin has lost almost 20% in less than two weeks, proving that extreme volatility remains a hallmark of crypto investing. Yet in the world of Bitcoin, it’s largely business as usual with bullish conviction intact — in contrast to traditional markets where moves on this scale are met with alarm. The largest cryptocurrency slipped 0.5% to around $57,280 in early London trading on Friday, a sixth day of declines.  “Bitcoin correction is not a big deal,” wrote Craig Erlam, senior market analyst at Oanda. While a break to $50,000 “would represent a large correction from the highs, it would still be relatively minor considering how far it’s come in recent months.”
  • U.K. retail sales rose 0.8% in October, the first increase in six months and better than forecast. Shops that don’t sell food drove the increase with a 4.2% rise in volumes. Fuel sales fell, returning to more normal levels after panic buying. Public sector net borrowing ex. banking groups fell to 18.8 billion pounds in October, versus the 14 billion-pound estimate.
  • Sun Life Financial Inc., after shelling out almost $4 billion in the past two years to build up its U.S. and asset-management businesses, is now poised to focus its dealmaking on Asia. Chief Executive Officer Kevin Strain, who took the reins in August, said that Asia’s growing middle class and the company’s goals for increasing earnings in the region by 15% a year make it a more likely target for acquisitions in the years ahead. The comments come about two weeks after the Toronto-based life insurer and asset manager unveiled a four-point strategy that enshrines dealmaking as a key pillar of its plans.
  • French unemployment rose to 8.1% in the third quarter from 8%. It had been expected to decline to 7.9%. Norway’s mainland GDP rose 2.6% in the period from the second quarter, in line with consensus. That supports the view Norges Bank will raise rates next month, analysts said.  German PPI accelerated more than anticipated to 18% year-on-year in October.
  • Treasuries rally across the curve, following wider gains across EGB’s and gilts as investors weigh the impact of further European lockdowns amid a fourth wave of Covid-19. Flight-to-quality pushes Treasury yields lower by up to 5bp across front- and belly of the curve, which slightly outperform.
  • Gemini Trust, the crypto exchange founded by the Winklevoss twins, said it raised $400 million in a round of funding that values the company at $7.1 billion.
  • General Atlantic and Coatue Management led a $1.4 billion investment in Sierra Space, valuing it at $4.5 billion, its CEO said. Moore Strategic Ventures and BlackRock are among new investors in the space transportation company.
  • An arm of JPMorgan will buy Getec, the German energy services firm backed by EQT. JPMorgan’s Infrastructure Investments Fund reached a deal with EQT and Getec founder Karl Gerhold’s family holding company. The transaction values Getec at about 3.5 billion euros, people familiar said.
  • Goldman and Morgan Stanley were hit with a proposed class action in a court in New York by a Tencent Music shareholder. Kai Chen alleged the banks used insider information to dump shares of the company in March.
  • Ford expects to be the second-largest maker of EVs within the next two years, CEO Jim Farly said on Twitter. It now expects to produce 600,000 EVs annually by the end of 2023, before Blue Oval City and other EV sites begin operations.
  • Private equity firms stand to be particularly exposed to a new FTC requirement that companies get agency approval before flipping certain assets. The Federal Trade Commission’s rule change requires companies to get agency approval for at least 10 years before they can resell assets bought from merging companies that sold them as the agency’s condition for merger approval. The requirement would apply regardless of the divested asset’s size. The “prior approval” rule update is the FTC’s latest step, under the Biden administration, to increase its review of small and midsize mergers and acquisitions that largely had fallen off the agency’s oversight in recent years.
“Price is what you pay. Value is what you get.” -Warren Buffet

*All sources from Bloomberg unless otherwise specified