November 30, 2021

Daily Market Commentary

Canadian Headlines

  • The turnaround at Bank of Nova Scotia’s Latin America-focused international division is picking up steam. The unit’s adjusted profit rose 74% to C$614 million ($480 million) in the fiscal fourth quarter, Toronto-based Scotiabank said Tuesday. Overall profit in the three months through Oct. 31 topped analysts’ estimates. Scotiabank’s international division is rebounding after a period in which the unit had lagged the Canadian segment because of slower consumer lending growth. The Latin America-focused operation saw business loans rise from the previous quarter as well as continued growth in mortgage loans. The bank — which, along with Canada’s other large lenders, had been temporarily prohibited by regulators from boosting its dividend or buying back shares — also raised its quarterly payout by 11% to C$1 a share and announced a plan to repurchase 24 million in shares. At current share prices, that works out to about C$1.95 billion.

World Headlines

  • European stocks declined to the lowest level in more than six weeks as investors fretted over the economic impact from Covid-19’s omicron strain amid doubts about vaccine efficacy. The Stoxx 600 fell 1.5% by 9:24 a.m. in London. The benchmark had gained 0.7% on Monday, partially paring its Friday slump that was the biggest since June 2020. More cyclical sectors, such as automakers and travel, were among the worst performers. Energy shares tumbled with oil’s declines. Risk-off mood returned to equities trading on Tuesday after Moderna Chief Executive Stephane Bancel said in an interview with the Financial Times that the plethora of mutations in the omicron variant are likely to help it evade protection provided by existing vaccines.
  • U.S. stock futures retreated on Tuesday, signaling that declines aren’t over as the risk-off mood returned amid concerns over existing vaccines’ efficacy at tackling Covid-19’s omicron variant. December contracts on the S&P 500 fell as much as 1.5% before trading 0.9% lower by 8:15 a.m. in London. The U.S. benchmark had bounced 1.3% on Monday, partially paring the Friday slump that was the worst since February. Nasdaq futures were 0.5% lower. Nasdaq 100 futures were 0.6% lower and Dow futures retreated 1.2% on Tuesday. Comments by Moderna Inc. Chief Executive Officer Stephane Bancel that the plethora of mutations in the omicron variant are likely to help it evade the protection provided by existing vaccines sparked declines in risk assets on Tuesday, with stocks and oil taking a hit.
  • Asian stocks erased early gains to head for a third day of losses on fresh concerns that existing Covid-19 vaccines will be less effective at tackling the omicron variant. The MSCI Asia Pacific Index extended its fall to nearly 1% after having risen as much as 0.8% earlier on Tuesday. The current crop of vaccines may need to be modified next year, Moderna Chief Executive Officer Stephane Bancel said in an interview with the Financial Times, adding that it may take months before pharmaceutical firms can manufacture new variant-specific jabs at scale. U.S. futures also reversed gains. Property and consumer staples were the worst-performing sectors on the regional benchmark. Key gauges in Hong Kong and South Korea were the biggest losers in Asia, with the Kospi index erasing all of its gains for this year. The Hang Seng China Enterprises Index lost 1.5% to finish at its weakestlevel since May 2016.
  • Oil headed for the biggest monthly loss since the early days of the coronavirus pandemic as investors weighed risks posed by the new omicron variant. West Texas Intermediate plunged 3.6% and Brent also tumbled, with the price structure of the global benchmark crumbling. Crude’s losses formed part of a broad retreat in risk assets as equities and copper also sank, while gold rose. Moderna Inc. Chief Executive Officer Stephane Bancel said the world may now need new vaccines as current shots won’t provide the same level of protection against omicron as they do against delta, according to an interview with the Financial Times.
  • Gold climbed as fresh concerns about the efficacy of existing vaccines against the omicron coronavirus strain sent markets back into a bearish mood, stoking demand for havens. Bullion is set to end November slightly higher than where it started the month, as traders assess the hugely uncertain outlook for growth. Economists are warning that possible new restrictions on activity risk derailing plans to withdraw monetary stimulus, while reinforcing the same imbalances that have fueled the current wave of surging consumer prices.
  • Euro-area inflation surged to a record for the era of the single currency and exceeded all forecasts, adding to the European Central Bank’s challenge before a crucial meeting next month on the future of monetary stimulus.  Consumer prices rose an annual 4.9% in November, topping all 40 predictions in a Bloomberg survey of economists, where the median was for 4.5%. A measure that strips out volatile components such as food and energy also reached a record. The euro and bond markets were little changed after the publication of the data.  Anticipating a spike in inflation this month, ECB officials have redoubled efforts in recent days to reassure citizens that they are facing a once-in-a-generation cost-of-living squeeze that won’t endure, driven by energy and a series of one-time factors.
  • Omicron won’t derail the rally for global stocks, according to JPMorgan Chase & Co. strategists, adding another voice to the tone of cautious optimism in the market after the recent sharp pullback. “Sporadic setbacks,” such as the emergence of omicron should be viewed “in the context of higher natural and vaccine-acquired immunity, significantly lower mortality, and new antiviral treatments,” strategists led by Dubravko Lakos-Bujas and Mislav Matejka wrote in a note. “We expect post-Covid normalization to continue to assert itself globally in 2022,” they said.
  • Greenpeace and other environmental groups filed a court interdict to block Royal Dutch Shell Plc from conducting a seismic survey off South Africa’s east coast. The move follows escalating protests against the exploration activity by environmental organizations as Shell prepares to start the study from Dec. 1. The papers were filed on an urgent basis late Monday, the groups said.  A Shell spokesperson said the company is committed to safety and compliance, and has met all of its regulatory obligations. “South Africa has already had many similar surveys safely completed off our coastline by Shell and other operators,” the person said.
  • Germany’s incoming vice chancellor threw his weight behind harsher curbs on unvaccinated people, as tougher restrictions sweep across Europe to check the latest surge in Covid-19 infections. Ahead of talks between German federal and regional officials on Tuesday, Robert Habeck, a co-leader of the Greens, said only people who are inoculated or recovered should be allowed into non-essential stores and “public settings” across the country, rather than just in virus hotspots. The latest surge in infections appears to have caught German authorities by surprise, and the transition to a new administration under Social Democrat Olaf Scholz has complicated pandemic coordination with Chancellor Angela Merkel’s outgoing government.
  • India will bolster Covid-19 genome sequencing efforts, hoping early detection of the newly-emerged omicron variant will help avoid a repeat of the delta-fueled wave of infections that brought its health system close to collapse earlier this year. Public health officials aim to analyze positive tests from airports within 48 hours and more than a dozen state-funded laboratories may be added to the current 38 that are part of the Indian SARs-COV-2 Genomics Consortium, or INSACOG, according to Priya Abraham, director of India’s National Institute of Virology. After opening up its borders to foreign tourists in recent weeks following dwindling infection rates, India on Wednesday will reimpose airport testing and home quarantine for fully vaccinated arrivals from countries that have registered omicron cases. The variant, which was first identified in southern Africa last week, is feared to be more transmissible and able to evade vaccine barriers than the predominant delta strain that emerged in India.
  • The U.K.’s antitrust watchdog said that Facebook parent Meta Platforms Inc. must sell Giphy to address competition concerns, the first time the regulator has forced a Big Tech firm to unwind an already completed deal. The Competition and Markets Authority concluded its in-depth probe into the tie up and found the deal with the GIF search engine would reduce competition between social media platforms, it said in a statement Tuesday. It had initially come to this conclusion in provisional findings published in August. The $315 million deal for Giphy, completed last year, raised concerns from U.K. regulators from the beginning. The antitrust probe was initially delayed after officials ordered Facebook to pause plans to integrate the company, sparking a lengthy court battle.
  • U.S. banks decline in premarket trading following comments from Federal Reserve Chair Jerome Powell that may push back bets on when the central bank will raise rates. Citigroup (C US) -2.4%, JPMorgan (JPM US) -2.2%, Morgan Stanley (MS US) -2.6%
  • Vaccine manufacturers mixed in U.S. premarket trading after rallying in recent days and following further comments from Moderna about treating the new omicron Covid-19 variant. Pfizer (PFE US) +1.6%, Novavax  (NVAS US) +1.3%, Moderna (MRNA US) -3.8%
  • U.S. airline and cruiseliner stocks dropped in premarket trading Tuesday, after vaccine maker Moderna’s top executives reiterated that the omicron variant of the coronavirus may require new vaccines. Alaska Air (ALK US) -5%, United (UAL US) -3.2%, American (AAL US) -3%
  • If the drop in government bond yields on Friday signaled how skittish markets were, fresh declines are leaving them looking no less nervous. Yields on U.S. 10-year Treasuries tumbled eight basis points to a three-week low Tuesday, while those on U.K. gilts and German bunds fell to their lowest since September. Money markets pared back their expectations for policy-tightening, with traders pushing back bets on the Federal Reserve’s next rate hike to 2023 from 2022. The drop in yields underscores how investors around the world are scrambling for safety amid renewed concern that the emergence of the omicron Covid-19 variant will derail the recovery as governments impose new lockdown restrictions. After rallying Monday on optimism the variant may induce only mild sickness, markets were back in re-set mode 24 hours later after a Financial Times report suggested existing vaccinations may not offer sufficient protection against omicron.
  • Lackluster deals and scarce inventory kept Cyber Monday sales flat compared with a year ago, the latest indication that shoppers made purchases earlier in the season due to concerns about global shipping logjams. U.S. shoppers spent $7.1 billion on Cyber Monday as of 9 p.m. New York time, according to Adobe Inc. It’s too early to determine if Cyber Monday breaks last year’s online spending record of $10.8 billion. Spending peaks during the final few hours of the big sale day since shoppers fear prices will only rise between now and Christmas. Adobe releases final Cyber Monday sales estimates on Tuesday morning. It earlier predicted sales will rise 4% to $11.3 billion. Hot sellers so far included L.O.L. Surprise dolls, Lego sets and Star Wars toys, Adobe said. Discounts were weak compared with a year earlier. For instance, electronics had average discounts of about 12% compared with 27% last year, according to Adobe, which tracks 1 trillion visits to retail websites and monitors sales of more than 100 million products.
  • Electric vehicles will account for about half of auto sales in the world’s major markets by 2030 as sticker prices reach parity with gasoline-fueled cars, according to a survey of automotive executives. EVs will make up 52% of the U.S., Japanese and Chinese markets and 49% of Western Europe, according to average estimates in the survey of more than 1,000 global automotive leaders released Tuesday by consultant KPMG. The significant uptake from less than 10% of the global market now will be driven by battery-powered models achieving a cost equal to vehicles propelled by traditional internal combustion engines, the executives predicted. Despite the bullish outlook on EV growth, the market-share predictions varied widely, leading KPMG to conclude there is no consensus yet on exactly how dominant plug-in models will become. Beyond price, a key to enticing consumers to go electric is reducing charging times to under 30 minutes, from more than 3 hours now, three quarters of the executives said.
  • The U.S. and U.K. warned Russia against any military incursion into Ukraine, warning it would be a strategic mistake that would be met with serious diplomatic and economic consequences. Any Russian attack “will trigger serious consequences,” U.S. Secretary of State Antony Blinken said Tuesday at a news conference in Latvia ahead of a NATO meeting, adding that he will have additional remarks about Moscow on Wednesday.  Boris Johnson’s government issued its own warning that the U.K. would use “all diplomatic and economic levers at our disposal” to avert the threat.
  • President Joe Biden promises cheaper and more accessible care for children, the elderly and disabled once his $2 trillion social spending package passes Congress, yet it will take years to set up programs to help struggling families. To deliver on the heart of Biden’s economic agenda, policy makers will have to address worker shortages worsened by the pandemic and scale up business sectors that already struggle with lengthy waiting lists. They also must galvanize state bureaucracies that face their own political and financial constraints. The risk of delay in delivering tangible results hangs over Biden and Senate Democrats, who return this week to continue deliberations on the tax-and-spending legislation with next year’s midterm congressional elections fast approaching.
  • In the second year of a pandemic that began by wiping out 20 million jobs, American workers are doing surprisingly well. It’s just that American business is doing even better. In the past two quarters, U.S. corporations outside of the finance industry posted their fattest margins since 1950 — one reason why stock markets keep hitting all-time highs. On earnings calls, plenty of executives complained about the squeeze from rising costs of labor as well as materials. But overall, profitswere up 37% from a year earlier, according to data out last week from the Commerce Department.  Businesses have been paying out more cash to their employees too, with total compensation up 12% in the last quarter from a year earlier. That’s partly because millions of Americans went back to work — but also because many got a raise when they did so. Hourly earnings broadly kept up with the fast-rising cost of living, and in some low-pay industries like leisure and hospitality they comfortably outpaced it.

“Do not go where the path may lead, go instead where there is no path and leave a trail.” —Ralph Waldo Emerson

*All sources from Bloomberg unless otherwise specified