November 29, 2021

Daily Market Commentary

Canadian Headlines

  • The omicron variant of Covid-19, first identified in South Africa, has been detected in locations from Australia to Germany and Canada, showing the difficulties of curtailing new strains. Most infections stem from travelers carrying the disease across borders. Israel, for instance, said a confirmed case who arrived from Malawi rode on a bus from Tel Aviv. Italy’s first case traveled around the country for days before testing positive.  Researchers worldwide are racing to understand the full impact of the new strain, and governments have banned travelers from South Africa and nearby countries on concerns omicron could evade the protection of vaccines and fuel new surges.
  • Enbridge Inc. plans to explore several alternatives, including the extension of its previous commercial agreement, for its Mainline pipeline network after Canada’s top energy regulator rejected the company’s proposal to use long-term contracts. The Calgary-based company will explore with stakeholders a modified version of Competitive Tolling Settlement, as the most recent commercial framework that expired in June is known, according to a statement Sunday. It also will explore a new incentive rate-making agreement, or a cost of service rate-making structure. The Canada Energy Regulator, or CER, ruled Nov. 26 that “the package of tolls, terms and conditions in the service offering would result in a distribution of benefits and negative impacts that is uneven and disproportionate.” The decision dealt a blow to North America’s largest pipeline company as it upgrades a vast system that ships more than 3 million barrels of crude a day from Alberta to the U.S. Midwest and Gulf Coast, as well as Ontario and Quebec. The network includes the Line 3 and Line 5 conduits that have faced opposition in the U.S.

World Headlines

  • European stocks rallied after their worst drop in more than a year as traders weighed the threat of the new Covid-19 variant to economic recovery. The Stoxx 600 index was up 0.9% as of 12:24 p.m. in London, trimming Friday’s 3.7% slump. Travel and leisure led the rebound, having been the worst decliner on Friday on fears that the spread of the omicron mutation would halt the industry’s reopening. Energy stocks jumped as oil rallied. Companies that benefited from prior lockdowns underperformed, including Just Eat N.V., mealpack subscription firm HelloFresh SE and work-from-home software group Logitech International S.A.
  • U.S. equity futures rose along with stocks in Europe and Treasury yields as a semblance of calm returned to global markets while investors reconsidered their worst-case scenarios for the omicron coronavirus strain. S&P 500 and Nasdaq 100 contracts climbed, with Moderna Inc. surging more than 9% in pre-market trading after saying a new vaccine to fight the omicron strain could be ready early next year, if needed. WTI oil rallied back above $71 a barrel and the 10-year U.S. Treasury yield rose past 1.50%. The euro slipped and a dollar gauge was steady. Investors are trying to work out if the omicron flareup will a relatively brief scare that markets rebound from, or a bigger blow to the global economic recovery. Much remains unanswered about the new strain: South African scientists suggested it’s presenting with mild symptoms so far, though it appears to be more transmissible, but the World Health Organization warned it could fuel future surges of Covid-19 with severe consequences.
  • Asian stocks fell for a second day as investors remained concerned about the potential economic impact of the omicron virus strain. The MSCI Asia Pacific Index slid as much as 1.1%, weighed by consumer and financial shares. Japan led declines in the region, with the Nikkei 225 Stock Average falling as much as 2% after the nation decided to shut its borders to foreign visitors. Hong Kong stocks also slumped as Chinese food delivery giant Meituan slumped as much as 8.8% after posting a wider quarterly loss. Asian stocks are still reeling from their worst day in more than three months on Friday, when news of the omicron variant first rattled global financial markets. The regional gauge is headed for its lowest level since Oct. 6 and is down 4% this year, trailing the U.S. and Europe.
  • Oil rebounded from one of its biggest ever daily drops as traders assessed the risks to global demand from the Omicron variant of Covid-19 and the potential response by OPEC and its allies. Brent rallied as much as 5.2%, climbing along with West Texas Intermediate. The World Health Organization warned the new strain could have severe consequences, while South Africa has said it appears to be more infectious, but with mild symptoms. OPEC and its allies have already moved technical meetings in order to give themselves time to review the rout on Friday. The group is scheduled to gather later this week and decide on its output plan for January, with a pause in supply hikes on the cards, according to Morgan Stanley.
  • Gold prices traded lower with spot gold prices at COMEX fell by more than 2% to $1802 per ounce for the week. Gold December futures at MCX declined by 2.55% at Rs. 47585 per 10 gram despite of rupee depreciation. The spot rupee ended 0.86% lower to 74.87 against the dollar for the week. Gold ETF holdings witnessed inflows as holdings at SPDR Gold Shares rose to 993 tonnes from previous week’s 985 tonnes.
  • Investors withdrew money from exchange-traded funds that buy emerging market stocks and bonds last week, ending six weeks of inflow that reached $3.92 billion. Outflows from U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $854.1 million in the week ended Nov. 26, compared with gains of $798 million in the previous week, according to data compiled by Bloomberg. So far this year, inflows have totalled $39.9 billion.
  • Resurgent virus fears and likely new lockdowns in Europe are lashing the world’s biggest ETF tied to international travel. The $3.6 billion US Global Jets exchange-traded fund (ticker JETS) plunged 6.7% in early trading as of 8:15 a.m. in New York, set for the biggest decline since June last year. It’s a bitter blow for JETS, which has struggled for traction this year. Air travel has been slow to revive, and related equities have been left behind as other areas of the market rallied. Now, the sector is slumping in premarket trading on growing concern about a new Covid-19 variant identified in southern Africa. The European Union is proposing to halt air travel from the area.
  • Moderna Inc. shares extended Friday’s surge in U.S. premarket trading after the company said a new vaccine to fight the omicron strain of the coronavirus could be ready by early 2022 if required. The stock gained 9.9% after rising 21% during Friday’s selloff, reclaiming its place as top performer on the S&P 500 year-to-date. The company mobilized hundreds of workers on Thanksgiving Day last Thursday in order to start work on omicron, Chief Medical Officer Paul Burton said over the weekend. Moderna’s mRNA technology is ideally suited to adapting vaccines to new variants, according to Piper Sandler analyst Edward A. Tenthoff, who has an overweight rating on the stock.
  • Impala Platinum Holdings Ltd. revived its pursuit of Royal Bafokeng Platinum Ltd., seeking control of the smaller South African miner in an escalating battle with Northam Platinum Holdings Ltd.  Implats, as the miner is known, offered 150 rand in cash and shares to RBPlat shareholders, valuing the company at about 43.4 billion rand ($2.7 billion). That comes after Northam Platinum Holdings Ltd. earlier this month agreed to pay 180 rand a share for a 32.8% stake in RBPlat, thwarting Implats’ initial approach. Implats has long wanted to own Royal Bafokeng’s low-cost mechanized assets, which are key to prolonging the life of its own deep-level operations in the adjacent Rustenburg mining complex. While Northam swooped to buy out RBPlat’s biggest shareholder, Implats Chief Executive Officer Nico Muller is still determined to gain majority control.
  • China’s stressed developers face nearly $1.3 billion of bond payments in December, including a unit of China Evergrande Group, which will see a grace period end in the middle of next month. Fantasia Holdings Group Co. meanwhile won approval to delay early redemption of a local bond by two years. Evergrande plunged 8.8% in Hong Kong Monday, extending the biggest two-day drop in more than four months, after its billionaire chairman sold shares last week at a discount. The developer’s 8.75% note maturing in 2025 was indicated little changed at 23.9 cents on the dollar. A gauge of real estate stocks slipped 1.6%, extending losses this year to 31%.
  • Governments across the globe stepped up restrictions on travel, as the World Health Organization warned that the new omicron variant of the Covid-19 virus could fuel a fresh surge in infections with severe consequences. Cases of the variant, first identified in South Africa, have cropped up in locations from Australia to the U.K. and Canada. South African researchers said omicron appears to be more transmissible than its predecessors but existing vaccines are still likely to offer good protection against severe illness and death. Meanwhile, economists reassessed their outlooks for the global recovery, while markets in Europe and Asia retraced some of the losses suffered on Friday as the first cases of the variant were said to induce only “mild” infection.
  • OPEC and its allies will discuss the impact of the Omicron variant of the coronavirus on oil markets at their meeting this week, according to Russia’s Deputy Prime Minister Alexander Novak. The comments from one of the architects of OPEC+ are the latest sign the group may reconsider its planned January production increase. While Novak said earlier on Monday that there shouldn’t be any hasty decisions, according to Tass news agency, he made clear that the group was poised for thorough discussions about its strategy. A meeting of the OPEC+ Joint Ministerial Monitoring Committee meeting “was postponed to get more information about the current events, including the new virus strain,” Novak said in a statement. The alliance will discuss “the need for measures” to address the situation in the market, he said.
  • Royal Dutch Shell Plc faces a growing campaign against its plans to conduct a seismic survey of potential oil and gas reservoirs off South Africa’s rugged coastline. The standoff is the latest example of environmental groups’ push to halt oil and gas developments before they even get going — an effort that has been buoyed by an International Energy Agency report saying no new fields can be tapped if the world wants to prevent damaging climate change.  In the U.K. North Sea, Shell’s Jackdaw project last month failed to get environmental approval from the regulator. Another, the Cambo oil development operated by Siccar Point Energy Ltd. and co-owned by Shell, had to delay works earlier this year while waiting for regulatory consent following pressure from Greenpeace on the government to block the field.
  • World powers prepared to kick off their latest efforts to save the ailing 2015 nuclear deal with Iran in Vienna Monday, with rival diplomats far apart over how to rescue an accord that has major repercussions for Middle Eastern security and oil markets. While there’s no expectation of any significant breakthroughs, the meeting will be the first attended by officials representing hardline Iranian President Ebrahim Raisi, elected in June. Negotiations between Iran, the European Union, China and Russia will start at the historic Palais Coburg at 2 p.m. in the Austrian capital. The U.S., having all but collapsed the deal when the Trump administration exited three years ago, won’t be in the room but will take part indirectly through EU mediators.
  • The new coronavirus variant appears to be more transmissible than its predecessors although most cases have been mild so far, according to scientists advising the South African government. In South Africa, where omicron was first detected, officials said most new hospital admissions are unvaccinated, and anecdotal evidence suggests they are presenting with similar illnesses as before. At a briefing Monday, health experts said existing vaccines are still likely to offer good protection against severe effects.
  • A measure of U.S. corporate credit risk, CDX IG, eased as investors reconsidered the threat from news of the omicron coronavirus strain which upended global markets Friday. The firmer backdrop should pave the way for a busy week in new bond sales. The spread on the Bloomberg U.S. Investment Grade Index widened 4 basis points Friday to 98 basis points, its widest level since March, amid a broad market selloffn
  • President Joe Biden plans to meet Monday with the CEOs of Walmart Inc, CVS Health Corp and other retailers as part of his efforts to tackle supply chain bottlenecks and inflation ahead of Christmas. The session, which coincides with this weekend’s start to the holiday shopping season, will include executives from the grocery, electronics, and pharmacy sectors, and address efforts to make sure shelves are stocked during the busy holiday shopping season, according to a White House official. The CEOs of Best Buy, Food Lion, Samsung North America, Qurate Retail Group, Todos Supermarket, Etsy, Mattel and Kroger are scheduled to attend in person, while Walmart CEO Doug McMillon and CVS CEO Karen Lynch are among those planning to attend remotely, the official said.
  • Russia’s ambassador to Washington said more than 50 diplomats and their family members will have to leave the U.S. by mid-2022, in the latest sign of tensions between the former Cold War enemies. “Our diplomats are being thrown out,” Ambassador Anatoly Antonov said in an interview on a Russian state television anchor’s YouTube channel.  “We are facing serious staff shortages.”  Twenty-seven diplomats and family members have to leave by Jan. 30 and an additional 28 by June 30, the Foreign Ministry said. With U.S.-Russian relations at the most fraught in decades, the two sides have been feuding over the number of diplomats at each other’s embassies. In April, Russia banned the U.S. from employing its citizens, forcing the embassy in Moscow to cut consular staff by 75% and suspend most visa services. after dismissing almost 200 local employees and other contractors.
  • Energy prices in Europe surged on Monday after weather forecasts showed colder temperatures for the next two weeks that will lift demand for heating. Benchmark Dutch natural gas for next month climbed as much as 9.7%, German month-ahead power surged 11% and carbon futures jumped to a record. Widespread below-average temperatures are seen through most of Europe for the next two weeks with the lowest levels expected in the Nordic region, according to Maxar Technologies LLC. As winter approaches, energy markets are set to get increasingly sensitive to the prospect consumption will increase amid lower temperatures in the northern hemisphere. European gas prices have been under pressure since demand recovered during the summer and new supplies have dried up, with more liquefied natural gas diverting to Asia and Russia focusing on filling up its own storage sites.

“Everything you’ve ever wanted is on the other side of fear.”- George Addair

*All sources from Bloomberg unless otherwise specified