November 24, 2021

Daily Market Commentary

Canadian Headlines

• Canadian equities quelled a four-day losing streak, edging higher as companies in the energy and financials sectors climb. The S&P/TSX Composite rose 0.2 percent at 21,453.77 in Toronto. The gain follows the previous session’s decrease of 0.6 percent. Today, energy stocks led the market higher, as 7 of 11 sectors gained; 97 of 233 shares rose, while 134 fell. Toronto-Dominion Bank contributed the most to the index gain, increasing 2.4 percent. Organigram Holdings Inc. had the largest increase, rising 8.9 percent.
• Canada’s westernmost province and home to its biggest port is bracing for more rainstorms after a deluge damaged transportation links, largely cutting it off from the rest of the country. Parts of British Columbia remain flooded more than a week after the extreme weather forced evacuations, washed away parts of major highways and blocked main transportation routes with mud slides. Several routes have reopened for essential travel only and railways are opening up to bring goods such as lumber and grain to the Port of Vancouver, but several areas remain short on supplies such as gasoline due to the damaged infrastructure. Environment and Climate Change Canada has forecast a series of storms over the next 10 days, raising the threat that main transportation routes could again be shut or repairs slowed just as roads and rail tracks reopen.

World Headlines

• The recovery in European equities came to a halt amid lingering worries about tighter Covid-19 restrictions and their impact on economic recovery. The Stoxx 600 index was down less than 0.1% by 10:33 a.m. in London, erasing earlier gains of as much as 0.5%. Travel and leisure shares slipped the most as Germany is considering tougher Covid-19 restrictions. Tech shares were also under pressure after slumping yesterday. European equities have fallen further from their record high this week as several European countries warned that restrictions may be needed to stem the latest Covid-19 wave. Investors are also concerned by the pace at which central banks may withdraw stimulus due to inflation worries. Today’s report showed business confidence in Germany took another hit in November.
• U.S. Treasuries rose as traders tempered their expectations for monetary-policy tightening after New Zealand’s measured approach to rate hikes. Markets awaited cues from upcoming data including growth in the world’s largest economy. Signals from the stock market were muted, with the European benchmark erasing a modest gain while U.S. index futures edged lower. The two-year U.S. yield shed two basis points. The dollar extended its rising streak against a basket of peers to a fourth day. Investors are on the edge as they face a wall of worry from a resurgence of Covid-19 in Europe to signs of persistent consumer-price growth. Damping inflation is now center-stage for policy makers, with ultra-loose, pandemic-era stimulus set to be wound down. The slew of U.S. data as well as Federal Reserve minutes due today may provide the next catalysts for market moves.
• Asian equities declined, on track for a third-straight session of losses, as higher U.S. Treasury yields continued to weigh on technology stocks in the region.  The MSCI Asia Pacific Index slid as much as 0.6%, with Japan stocks leading losses as traders returned from a holiday to access the prospect of tighter U.S. monetary policy to curb inflation. TSMC and Tencent were among the biggest drags on the regional gauge. The renomination of Jerome Powell as Federal Reserve chair earlier this week has sent U.S. 10-year Treasury yields to about levels near 1.65%, implying higher borrowing costs. That’s adding to concerns about weak earnings growth in Asia as well as ongoing supply-chain constraints.
• Oil held on to Tuesday’s surge following the announcement of a coordinated release of strategic petroleum reserves, but the additional supply is unlikely to solve ongoing strength in some pockets of the oil market. Brent futures traded around $82 a barrel after climbing 3.3% on Tuesday. The total SPR release by the U.S., China, Japan, India and South Korea was smaller than many analysts and traders expected. The U.S. also confirmed Tuesday that its barrels — which make up the bulk of the release — will be mostly sour, or high in sulfur. That does little to solve an underlying problem of a shortage of sweet crudes, which are low in sulfur content. As a result, a key time spread that measures the health of those markets has surged markedly.
• Gold steadied above the lowest in more than two weeks ahead of important U.S. data and Federal Reserve minutes, which may throw further light on the state of the economic recovery and monetary policy outlook. Prices have slipped almost 3% so far this week after the White House announced the renomination of Fed Chair Jerome Powell, who is considered slightly more hawkish than the other prospective candidate. Bullion is now trading back below $1,800 an ounce on a stronger dollar and rising bets that the Fed may step up the pace of scaling back pandemic-era monetary stimulus to better cope with inflation. Among U.S. data due Wednesday are figures for consumer income, new home sales, economic growth and initial jobless claims. Also coming later are minutes from the central bank’s last meeting, which may provide new insights into the outlook for monetary policy.
• Italy and France are debating new measures to cope with Covid’s resurgence while Germany isn’t ruling out fresh curbs. Italy’s government could impose restrictions on unvaccinated people. France may start a testing campaign in schools as more classrooms close. In Germany, Angela Merkel held an emergency meeting last night with political leaders likely to form the next coalition government to discuss tougher steps as cases reach new highs. One of the highest vaccination rates in the world and growing natural immunity could protect Singapore from the kind of surge currently engulfing Europe and the U.S., Health Minister Ong Ye Kung said in an interview.
• Jamie Dimon’s eyebrow-raising joke about JPMorgan Chase & Co. outlasting China’s Communist Party has so far been met by public silence from officials in Beijing. But with nearly $20 billion of exposure in the world’s second-largest economy — and big ambitions to expand even further — the U.S. bank has a lot riding on maintaining cordial relations with a government that’s sensitive about anything that might be construed as questioning its legitimacy. In a sign that JPMorgan is attuned to the risk of blowback, members of the bank’s government relations team and China offices had internal discussions about Dimon’s remarks after he spoke at a panel discussion on Tuesday, according to a person familiar with the matter.
• Elon Musk resumed selling shares in Tesla Inc. and passed the halfway point toward making good on a plan to offload 10% of his stake in the electric-car maker. The billionaire offloaded another 934,091 shares for $1.05 billion, according to regulatory filings posted late Tuesday. The sales were carried out to cover taxes related to Musk exercising an additional 2.15 million stock options, the documents show. With the most recent disposals, Musk now has sold 9.2 million shares worth about $9.9 billion since he conducted a Twitter poll asking whether he should sell 10% of his Tesla holding. A chunk of that money will go to taxes. To reach the 10% threshold, Musk would need to sell some 17 million shares, or about 1.7% of the company’s outstanding stock. If his exercisable options are factored into his overall ownership, he’ll need to sell even more.
• 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.
• Cathie Wood stepped up buying of Zoom Video Communications Inc. after the stock slumped as earnings failed to address concerns over growth amid economic reopening. ARK Investment Management, which is already one of the largest shareholder of the video conferencing company, bought about $133 million worth of shares on Tuesday as they closed 15% down to their lowest since June 2020.  The flagship Ark Innovation ETF bought 538,573 shares of Zoom while Ark Next Generation Internet ETF bought 106,537 shares, according to the asset manager’s daily trading updates. Ark has been accumulating Zoom’s shares this month.
• Buyout firms Blackstone Inc. and KKR & Co. are among suitors weighing bids for data center company Global Switch Holdings Ltd., as the battle for digital infrastructure assets heats up, according to people familiar with the matter. Data center investor DigitalBridge Group and operators Digital Realty Trust Inc.and Equinix Inc. have also expressed preliminary interest in London-based Global Switch, the people said, asking not to be identified discussing confidential information. Global Switch, controlled by Chinese steelmaker Jiangsu Shagang Group Co. and backed by Avic Trust Co., has been exploring a sale that could value it at 8 billion pounds ($10.7 billion) or more, Bloomberg News reported earlier this year.
• Samsung Electronics Co. outlined plans for a $17 billion U.S. semiconductor plant that will add more than 2,000 jobs, widen the South Korean giant’s foothold in Texas, and bolster its role as a vital supplier in the global manufacturing supply chain. “Increasing domestic production of semiconductor chips is critical for our national and economic security,” U.S. Commerce Secretary Gina Raimondo said in a statement Tuesday lauding the deal. White House officials also said they welcomed the investment, saying in a statement that it would help “protect our supply chains” and boost domestic manufacturing.  The project will create more than 2,000 jobs, Texas Governor Greg Abbott said at a press conference announcing the plans. Samsung also said that the plant would indirectly create thousands of additional jobs once it was operational. “The implications of this facility extend far beyond the boundaries of Texas,” Abbott said. “It’s going to impact the entire world.”
• The Biden administration included Taiwan among the 110 invitees to its upcoming democracy summit, the State Department announced on Tuesday night, a move that’s intended to show solidarity with a key regional partner but risks angering China. Taiwan was invited to join nations, including the U.K. and Japan, at the Dec. 9-10 virtual summit, the State Department said on its website Tuesday. The online gathering is an event Joe Biden vowed to host while a candidate for president last year, with the goal of rallying like-minded countries around efforts to fight corruption and authoritarianism and advance human rights. The final list leaves out several ostensible U.S. partners such as Turkey, a member of NATO, underscoring the challenge the administration faced in pinning down the invitees.
• KKR & Co. is considering boosting its offer for Telecom Italia SpA after top investor Vivendi SE said the 10.8 billion-euro ($12.2 billion) bid was too low, according to people familiar with the matter. The U.S. buyout firm is in the early stages of discussing with advisers how much it would need to increase its proposal to win over reticent shareholders, the people said, asking not to be identified because the information is private. Telecom Italia said Sunday it had received a preliminary bid of 50.5 euro cents per share from KKR. The private equity firm is debating whether it may need to eventually increase its offer to around 70 to 80 cents per share to seal a deal, the people said.
• European gas futures held steady on Wednesday, as uncertainty surrounding the controversial Nord Stream 2 pipeline to Germany remains a focus point for the market. Prices rose the most in a week on Tuesday after the U.S. imposed sanctions relating to a pipeline to transport Russian gas to Europe. “New sanctions from the White House on Nord Stream 2 look to have limited physical effect, but compound the political issues the European supply system is facing ahead of an uncertain winter,” Alfa Energy said in a note.
• President Joe Biden sounded deeply frustrated. Inflation was heading toward a 30-year high and Americans, rich and poor, could see the price of gasoline going up almost daily. Politically, oil was toxic for the White House. “The idea that Russia and Saudi Arabia and other major producers are not going to pump more oil so people can have gasoline to get to and from work, for example, is not right,” Biden said in late October. First in private and later more publicly, American envoys had spent weeks trying to convince the Saudis to pump more crude — and quickly, according to officials on both sides. The diplomatic pressure was ultimately directed at a 36-year-old man who has the capacity to change the price of oil — and the fortune of politicians in consuming nations — on a whim: Saudi Crown Prince Mohammed bin Salman.
• Deere & Co.’s financial outlook for the next year signals that global supply chain delays and higher labor costs following a monthlong strike in the U.S. won’t significantly dent profits at the world’s largest farm equipment maker. Deere expects record net income for fiscal 2022 of between $6.5 billion and $7 billion, compared to the average estimate of $6.66 billion by 17 analysts, the Moline, Illinois-based company said Wednesday in a statement. The tractor maker posted fourth-quarter profit that topped analysts’ estimates, though revenue for the period fell short of expectations for the first time in more than two years. “Looking ahead, we expect demand for farm and construction equipment to continue benefiting from positive fundamentals, including favorable crop prices, economic growth, and increased investment in infrastructure,” Chief Executive Officer John May said in the statement. “At the same time, we anticipate supply-chain pressures will continue to pose challenges in our industries.”
• The Fed’s preferred inflation gauge, the PCE deflator, is set to touch 5.0% year-over-year in October, with further acceleration into year-end. But spending remains robust, even as personal income dips. Those factors will return monthly household savings to the pre-pandemic level and will accelerate the pace at which many households draw down accumulated excess savings. Smaller buffers may promote more job-seeking, meaning labor-market conditions are likely headed toward levels that would be consistent with the Fed’s definition of maximum employment, allowing officials to hike rates around the middle of 2022 if inflation stays elevated.
• Mexico’s consumer prices rose more than expected in early November, bringing the annual inflation rate to the fastest pace in 20 years. Consumer prices rose 7.05% in the first half of the month, the national statistics reported Wednesday, more than the 6.86% median estimate of economists surveyed by Bloomberg. The result adds pressure on the central bank to hike its key interest rate once more at its last meeting of 2021 next month amid uncertainty over who its next leader will be. The quickening of inflation in Latin America as economies recover from the pandemic has prompted an aggressive monetary policy response across the region. Banco de Mexico has made only small adjustments at each meeting since June, but some analysts say a larger hike is now possible.
• Westlake Chemical Corp. is acquiring Hexion’s global epoxy business for about $1.2 billion, the company said in a statement.  The transaction is anticipated to be completed in the first half of 2022. Houston-based Westlake will significantly expand its integrated business by adding a downstream portfolio of coatings and composite products to its leading chloro-vinyls businesses
• ByteDance Ltd. is in discussions with external investors on a cash infusion for its Zillow-like real estate listings and deals service, aiming to spin off and create an independent business that can tap the booming Chinese market. ByteDance is seeking to raise funds and spin off Xingfuli — loosely translated as “Happy Lane”– as one of a growing line-up of apps alongside TikTok and news platform Toutiao, a company representative said. The spinoff will help ByteDance streamline its operations and focus on core businesses as growth slows, Chinese online outlet The Paper reported earlier on Wednesday. Launched about three years ago, Xingfuli is one of a slew of online platforms ByteDance operates in areas from automobiles to health care, in hopes of replicating its first breakout hit Toutiao. The app features a personalized feed of rental home and property price information, plus a function for users to exchange views and tips on the real-estate market. One of ByteDance co-founder Zhang Yiming’s earliest ventures was in fact an online portal for home-seekers.
• Neptune Energy Group Ltd.’s owners are weighing plans to sell the U.K. oil and gas explorer, according to people familiar with the matter. Advisers to the company’s private equity backers, Carlyle Group Inc. and CVC Capital Partners, have requested takeover bids from interested parties next month, the people said, asking not to be identified discussing confidential information. A sale could give Neptune an equity value of about $5 billion, the people said. Deliberations are ongoing and Neptune’s owners could still decide against a sale, according to the people. A listing of the company also remains a possibility, the people said.

*All sources from Bloomberg unless otherwise specified