November 23, 2021
Daily Market Commentary
- After languishing for months while Wall Street, by comparison, charged back to the office, Toronto’s financial district is finally starting to stir. Many of Canada’s large financial firms say they have a growing portion of their workforces back in the office and the numbers are expected to swell in the New Year. Bank of Nova Scotia has said it will begin a phased return-to-office plan on Jan. 17 and Manulife Financial Corp. will reopen its Canadian offices Jan. 24. CI Financial Corp. is planning to bring its Canadian employees back in January as well.
- Developers of Keystone XL are seeking to recoup more than $15 billion in damages connected to President Joe Biden’s decision to yank a permit for the border-crossing oil pipeline even after construction began. With a request for arbitration filed Monday, Calgary-based TC Energy Corp.formally opened one of the largest trade appeals ever against the U.S. and asked to put its long-running dispute over Keystone XL in front of an international arbitration panel. The legal claim is being mounted under provisions of the North American Free Trade Agreement that allow foreign companies to challenge U.S. policy decisions. The proposed pipeline, which would have transported up to 900,000 barrels per day of Canadian crude to U.S. refineries, was rejected by then-President Barack Obama after he concluded it would exacerbate climate change. Keystone XL was later revived by President Donald Trump, only to have Biden reject it again, on his first day in office.
- European stocks fell the most in three weeks as the prospects of a withdrawal of monetary stimulus and the region’s Covid-19 spike fueled an exit from risk assets. The Stoxx Europe 600 Index dropped 0.8% by 12:05 p.m. in London, the sharpest intraday slump since Oct. 29 and paring earlier declines of as much as 1.6%. The technology sector was the worst performer on the gauge as investors fretted over tapering and higher bond yields. The MSCI Europe Growth Index fell as much as 2.1%. Investors are assessing the impact Jerome Powell’s renomination to head the Federal Reserve as bets rise that monetary stimulus will be reduced quicker than expected, potentially hurting asset prices. Meanwhile, the European Central Bank is “serious” about ending its emergency bond-buying program in March, according to a governing council member.
- Treasury yields jumped and U.S. index futures signaled a continued selloff in technology shares as traders pruned bets for a dovish-for-longer Federal Reserve after the renomination of Jerome Powell as its chair. Contracts on the Nasdaq 100 Index fell 0.3% after Monday’s last-hour selloff in technology stocks. The subgroup was the worst performer in Europe Tuesday, sending the region’s benchmark to a three-week low. A currency crisis deepened in Turkey, with the lira weakening past 12 per U.S. dollar. Oil slid with countries from the U.S. to India looking to tap their strategic reserves. Zoom Video Communications Inc. lost 9% in premarket trading on slowing growth.
- Asian stocks fell toward a three-week low as Jerome Powell’s renomination to head the Federal Reserve boosted U.S. yields, putting downward pressure on the region’s technology shares. The MSCI Asia Pacific Index declined as much as 0.5%, as the reappointment sent Treasury yields higher and buoyed the dollar amid concerns monetary stimulus will be withdrawn faster. Consumer discretionary and communication shares were the biggest drags on Asia’s benchmark, with Tencent and Alibaba slipping on worries over tighter regulations in China. Asia shares have struggled to break higher as the jump in yields weighed on sentiment already damped by a lackluster earnings season and the risk of accelerating inflation. The region’s stock benchmark is down about 1% this year compared with a 16% advance in the MSCI AC World Index.
- Oil fell after the U.S. announced a release from its emergency reserve — in tandem with several of the world’s biggest consumers — in a bid to cool gasoline prices and tame surging inflation. The world’s largest economy is tapping its Strategic Petroleum Reserve after energy prices soared to multiyear highs, with a global energy crisis exacerbating the tightness in the oil market. China, India, Japan, South Korea and the U.K. will also make announcements, according to the White House. Over the past month, U.S. President Joe Biden has urged other oil-consuming countries to tap their oil reserves after the OPEC+ coalition rejected requests to increase production. The U.S. will be releasing 50 million barrels, of which 18 million will be accelerated pre-approved sales, while 32 million will be exchanges over the coming months.
- Gold extended its biggest slide in more than two months following the renomination of Jerome Powell to head the Federal Reserve. Prices touched a fresh two-week low on Tuesday, adding to the previous day’s 2.2% slide after the White House announcement on the Fed chair, who is considered slightly more hawkish than the other prospective candidate. The dollar and bond yields rose in response on Monday, weighing on bullion’s appeal for investors. The metal remains under pressure as Treasury rates edge higher. Investors are now pricing in a faster pace of tapering bond purchases by the Fed and the potential for rate hikes in June.
- The European Central Bank’s markets chief and the Dutch National Bank governor urged an end to emergency stimulus, highlighting inflation risks while insisting the recovery can weather new pandemic restrictions. Executive Board member Isabel Schnabel and Governing Council member Klaas Knot both suggested increasing vigilance to the threat of surging prices, just weeks before a crucial decision on the future of asset purchases. “The risks to inflation are skewed to the upside,” Schnabel said in an interview. That was the most hawkish comment yet from one of institution’s top team of six officials before the December meeting, prompting investors to resume bets on an interest-rate hike next year. The plan to terminate emergency bond buying in March is “still valid,” she added.
- Deaths in Europe from Covid-19 will reach 2.2 million by March based on current trends, the World Health Organization warned, pushing for more vaccinations. European Union officials are trying to agree on how to manage vaccine rollouts. Meanwhile, Germany’s top health official reiterated that the country can’t rule out any measures to contain the fourth wave, and France’s prime minister has tested positive. The White House’s coronavirus response coordinator said the U.S. would skirt the extreme measures being imposed in parts of Europe. In Indonesia, half of the population has now received at least one dose, and the country posted its lowest number of cases since April 2020.
- Advent International and Centerbridge Partners offered to buy Aareal Bank AG, the German commercial real estate lender that’s been under pressure from activist investors. The private equity firms offered 29 euros per share, valuing the company at 1.74 billion euros ($1.96 billion), Aareal said. The bank’s management and supervisory boards support the offer “on the basis of an investment agreement for a long-term partnership.” Aareal has been criticized by activist investors including Petrus Advisers and Teleios Capital Partners for high costs and lack of a sustainable strategy, with the investment firms pushing for a potential separation of the bank’s software arm, called Aareon. Aareal complied with some demands but resisted a full divestment of the unit after selling a minority stake to Advent last year.
- Cevian Capital AB has sold just under half of its holding in Thyssenkrupp AG, cashing in on a recovery in the steelmaker’s shares after years of stalled attempts at restructuring. The Swedish activist investor offloaded a stake worth about 443 million euros ($498 million), whittling down a difficult investment as Thyssenkrupp’s initial attempts to streamline its steel-to-submarines business foundered. Since acquiring its first stake in 2013, Cevian has consistently pushed for Thyssenkrupp to restructure, demands that were resisted by past management and powerful labor unions. Cevian will retain a stake of about 8.2% after the stock offering at 10.30 euros a share, representing an 8.8% discount to Monday’s close, according to terms of the deal obtained by Bloomberg News. Cevian first acquired its stake in 2013 when the German company’ shares averaged 16.58 euros.
- A $12 billion liquefied natural gas investment approved in Australia leads a wave of projects betting demand will rise as the world shuns more polluting alternatives like coal. The development of the Scarborough field, Pluto onshore processing facility and a 430-kilometer (267-mile) subsea pipeline led by Woodside Petroleum Ltd. will supply as much as 8 million tons annually for at least 20 years, with first cargoes expected from 2026. It’s a project that cuts straight to a key debate in the energy transition: the role of natural gas as nations aim to both curb greenhouse gas emissions and avoid supply crunches that triggered recent power shortages in Asia and record prices in Europe.
- Lael Brainard, picked to be vice chair of the Federal Reserve, is expected to be a critical defender of its commitment to maximum employment across demographic groups at a time when other U.S. central bankers are more worried by inflation. Her promotion from Fed governor is also the latest step in a career — spanning top echelons of the federal government and academia — that may eventually see her move even higher. She was interviewed by President Joe Biden for the post of chair before he opted to keep Jerome Powell at the helm and offer her the No. 2 slot instead. Brainard is also co-author of the “broad-based and inclusive” language describing the Fed’s full employment mandate in the framework Powell unveiled in 2020 — language was also in the last line of her acceptance remarks Monday. While Brainard sought to strike a balance with the Fed’s goal of controlling prices in her remarks Monday, she’s widely seen as someone firmly committed to spreading job gains as far and wide as possible.
- JPMorgan Chase & Co. once again stands alone as the world’s most systemically important bank after global financial regulators recommended a higher capital burden for the firm. The U.S. lender rose one rung on the Financial Stability Board’s annual rankings Tuesday, the FSB said in a statement. The ranking, which is based on data from the end of 2020, largely reflects the effects of changes in underlying activity of banks. Goldman Sachs Group Inc. and BNP Paribas SA also increased one level in this year’s assessment, which lists 30 firms deemed global systemically important banks. The lenders included remain the same as the 2020 list.
- The U.S. is pursuing a British man over allegations he helped hijack an American citizen’s identity to steal $8.5 million in crypto assets while he was a teenager. Corey De Rose, who is facing extradition to the U.S., is accused of helping hack into the man’s crypto wallet and transferring the digital currency to him and his alleged co-conspirators in 2017, lawyers for the U.S. said at the start of a London court hearing. He received 108.18 Bitcoins, valued at around $300,000 at the time. The group conspired to hack numerous individuals through SIM hijacking, a technique where a person’s identity is stolen by gaining control of their mobile phone number with the objective of stealing crypto, prosecutors allege.
- India plans to sell about 5 million barrels of oil from its strategic petroleum stockpiles as part of a coordinated move with the U.S. and other nations, according to a person familiar with the situation. The release may come within a week, and India and other countries may look at selling more crude later, the person said, asking not to be identified as the matter is private. Oil will be supplied to refineries located near where the inventories are held, such as those owned by Mangalore Refinery and Petrochemicals Ltd. and Hindustan Petroleum Corp., the person said. The volume of the initial release is about a day’s worth of India’s crude consumption, but its significance may be more symbolic. It shows major oil consumers are willing to work together to challenge the OPEC+ alliance’s sway over global markets. The United Arab Emirates said Tuesday there was no need for OPEC+ to raise production any faster, despite pressure from major consumers.
- The U.S. imposed sanctions on a ship involved in the construction of the Nord Stream 2 gas pipeline as the Biden administration looks to exert more pressure on Russia without antagonizing Germany. In a report sent to Congress on Monday, the administration designated Transadria Ltd., a Cyprus-based entity believed to be a Russian shell company, over pipeline work done by one of its ships, the Marlin, according to a statement from Secretary of State Antony Blinken. Another vessel, the Blue Ship, was cited for its work on the pipeline but not sanctioned because it belongs to an entity affiliated with the German government, according to a U.S. official who asked not to be identified.
- BlackRock Inc. is trimming its investments in Indian equities and becoming more optimistic on China on attractive valuations amid expectations that policy hurdles will ease next year. “Valuations are key right now,” Belinda Boa, head of active investments for Asia Pacific at the world’s biggest asset manager, said at a briefing. “Because of the outperformance we’ve seen in India this year, on a relative basis, we are starting to take profits” and becoming more positive on Chinese growth stocks, she said. After a world-beating rally, sentiment on Indian shares has soured due to broker downgrades and concerns about tightening liquidity, worsened by a poor showing for the nation’s biggest initial public offering. By contrast, there is growing belief among investors that Chinese stocks could bounce back as the worst is probably over for Beijing’s regulatory scrutiny of private enterprises.
- Samsung Electronics Co. has decided to build an advanced U.S. chip plant in Texas, a win for the Biden administration as it prioritizes supply chain security and greater semiconductor capacity on American soil. South Korea’s largest company has decided on the city of Taylor, roughly 30 miles (48 kilometers) from its giant manufacturing hub in Austin, a person familiar with the matter said. Samsung and Texas officials will announce the decision Tuesday afternoon, according to people familiar with the matter, asking not to be identified because the news hasn’t been made public. A Samsung representative said it hadn’t made a final decision and declined further comment. Samsung is hoping to win more American clients and narrow the gap with Taiwan Semiconductor Manufacturing Co. Its decision, which came months after de facto leader Jay Y. Lee was released from prison on parole, follows plans by TSMC and Intel Corp. to spend billions on cutting-edge facilities globally. The industry triumvirate is racing to meet a post-pandemic surge in demand that has stretched global capacity to the max, while anticipating more and more connected devices from cars to homes will require chips in future.
- The Turkish lira’s freefall is shattering all kinds of records as President Recep Tayyip Erdogan’s renewed campaign for lower interest rates pushes the country deeper into crisis. The currency fell 10% on Monday, plunging past 12 per dollar for the first time ever. The lira’s 11-day losing streak is now the longest in 20 years, and in November alone, it’s wiped out almost a third of its value. The latest selloff came after Erdogan defended a renewed push for lower borrowing costs that’s driven up prices and frustrated investors who complain that Turkey’s monetary policy is becoming increasingly irrational and unpredictable. While most central banks are talking of tightening policy as the global recovery fuels inflation, Turkey has slashed 4 percentage points off borrowing rates since September.
- Zoom Video Communications Inc. shares were down almost 10% in early trading Tuesday after the video-conferencing company reported a smaller-than-projected number of large customers for a second straight quarter, stoking concerns about growth as more workplaces and schools open back up. The company had 512,100 customers with more than 10 employees in the third quarter, an increase of 18% from a year earlier, according to a statement from San Jose, California-based Zoom. That missed the average analyst estimate for 516,174, according to data compiled by Bloomberg. Gains in this closely watched measure have been narrowing — last quarter, Zoom also missed predictions for big clients, which increased 36% for that period. The quarter before that, Zoom’s number of large customers jumped 87%, and in last year’s third quarter, still in the height of Covid-19 lockdowns, the increase was 485%.
- The U.S. government will pay $127.5 million to families of students and staff killed and survivors of a 2018 shooting at a South Florida high school, a person familiar with the matter said, settling lawsuits over the FBI’s failure to investigate tips warning the shooter had guns and planned to attack. The settlement resolves claims made by 40 survivors and families of 16 of the 17 people killed in the shooting at Marjory Stoneman Douglas High School in Parkland, Fla., the person said. The victims’ lawsuits focused on the Federal Bureau of Investigation’s failure to act on tips it received before the massacre, one of the deadliest school shootings in U.S. history. A court filing and the person familiar with the talks noted that details of the settlement were still being finalized. The Justice Department said there had been a settlement but declined to comment on its terms. FBI spokespeople didn’t immediately respond to requests for comment on Monday.
- Fund managers are more concerned with climate change than any other parameter in environmental, social and governance investing, but also lack the tools to properly address the challenge, according to a survey by Macquarie Asset Management. In a global study of real asset investors managing a combined $21 trillion, 55% identified climate change as the ESG risk they give the highest priority. By comparison, just 5% said they prioritized diversity and inclusion. At the same time, the survey also revealed that only 47% actually track portfolio emissions, while 16% said they don’t even plan to do so.
- Longfor Group Holdings Ltd. is considering an initial public offering for its property management business in Hong Kong that could raise as much as $1 billion, people with knowledge of the matter said. The Chinese real estate developer is working with China International Capital Corp., HSBC Holdings Plc and JPMorgan Chase & Co. on the proposed first-time share sale, said the people. The listing could take place as soon as first half of 2022, the people said, asking not to be identified as the information is private. Deliberations are ongoing and details such as timing and fundraising size could change, the people said. Representatives for CICC, HSBC, JPMorgan and Longfor declined to comment.
*All sources from Bloomberg unless otherwise specified