November 8, 2021

Daily Market Commentary

Canadian Headlines

• FirstEnergy Corp. agreed to sell a stake in its transmission businesses to Brookfield Asset Management Inc. for $2.4 billion. The Akron, Ohio-based utility will sell a 19.9% stake in FirstEnergy Transmission to Brookfield’s infrastructure group, according to a statement Sunday. Separately, FirstEnergy will issue $1 billion in common stock to Blackstone Inc.at $39.08 per share. Blackstone will get a seat on FirstEnergy’s board as part of the transaction. The statement confirms an earlier Bloomberg News report on the deal. The “transformative strategic equity financings” will “be key catalysts to fulfill our long-term strategy and drive smart grid and clean energy initiatives,” Steve Strah, FirstEnergy’s president and chief executive officer, said in the statement.
• Valerie Plante won a second term as mayor of Montreal, fending off predecessor Denis Coderre’s attempt to climb back to power after a campaign dominated by housing costs, gun violence and transportation issues. Plante, 47, the first woman to lead Canada’s second-most populous city, had received 52% of the vote in Sunday’s municipal ballot with nearly all polls counted according to the city’s election website. She has vowed to buy more land to build affordable housing, cap a property tax increase at 2% next year and boost the size of the police force. Coderre, 58, who spent most of his career in politics and was defeated by Plante in 2017 despite stronger support among the business community, came second with 38%. In the last days of the campaign, he came under fire for refusing — at first — to reveal the names of companies he worked for as a consultant.

World Headlines

• European equities were little changed near a record high as investors prepared for the last busy week of corporate earnings in this reporting season. The Stoxx Europe 600 index was down less than 0.1% by 9:39 a.m. in London. Energy outperformed, while retail and retail traded lower.  European stocks have gained for five weeks in a row, rising to a record high on the optimism that corporate growth is strong enough to weather rising input costs and overcome supply chain issues. Central banks around the world, meanwhile, have downplayed the chances of a sudden, sharp tightening of monetary policy.
• Stocks and the dollar were steady Monday as investors keep watch on how price pressures impact monetary policy and the pace of economic recovery. Treasury yields rose. U.S. futures were little changed after all major U.S. equity benchmarks climbed to records Friday and the S&P 500 posted its fifth consecutive weekly rally. Markets will closely watch a measure of U.S. consumer prices on Wednesday after gains in U.S. payrolls last week also showed a jump in average hourly earnings. The reading is expected to show price pressures running at the hottest pace in three decades amid supply-chain bottlenecks and higher energy, according to Bloomberg Intelligence.
• Asian equities were mixed as investors sold off healthcare stocks along with Covid-19 vaccine makers in the region while buying cyclical shares. The MSCI Asia Pacific Index erased a decline of as much as 0.4% as of 5:35 p.m. in Singapore, with consumer discretionary stocks also among the biggest drags. Vaccine maker CanSino Biologics tumbled the most on the regional gauge, sliding 17%, after Pfizer announced its pill reduced Covid-19 hospitalizations and deaths substantially.  South Korean and Japanese health stocks also fell, while Hong Kong’s Hang Seng Index was the worst-performing benchmark in Asia on Monday. Indian stocks rose.
• Oil rallied above $82 a barrel as sharp price hikes from Saudi Arabia offered the latest signal that stockpiles globally are declining sharply and firing prices higher.  West Texas Intermediate rose 1.4% and is up almost 5% over the last two trading sessions. Saudi Arabia made some of the biggest increases to its official selling prices in decades late-last week, a move enabled by low global stockpiles and tight supplies, according to Vitol Group. In a further sign of robust demand, Asian buyers will probably take their full contractual volumes of oil next month, despite the higher costs. With crude prices climbing again, there is little sign of the bullish sentiment changing in the market. Money managers still hold more than ten bullish bets for every bearish one in WTI, while nearby timespreads are in a backwardation of more than $1 a barrel, indicating tight supply.
• Gold steadied near the highest since early September, after drawing support from a strong U.S. jobs report on Friday and upbeat trade data from China over the weekend. The U.S. labor market got back on track last month with a larger-than-forecast jump in payrolls, indicating greater progress filling millions of vacancies as the effects of Covid-19’s delta variant fade. In China, export growth beat expectations, bolstering a more positive picture for the global economy. Bullion has gained this quarter as traders shift to a view that central banks are in no hurry to raise interest rates even in the face of persistent inflation. That’s put pressure on bond yields, with the U.S. 10-year Treasury yield dropping below 1.5%, making gold more attractive as an alternative investment.
• The U.S. is lifting entry restrictions for more than 30 countries, allowing fully vaccinated travelers to fly from places including Europe, China and India. In the U.K., a return to lockdown measures is still under consideration, the Guardian reported, as Europe confronts a new wave of infections. Japan reported zero Covid deaths for the first time in 15 months, as the country begins to ease border controls. New Zealand further loosened restrictions in Auckland. Travel and tourism shares rose, while vaccine makers slumped, after Pfizer Inc. announced its antiviral pill reduced Covid hospitalizations and deaths substantially.
• Before Covid-19, there was the $1 billion connection. That’s the revenue that British Airways generated each year linking its London Heathrow hub and New York John F. Kennedy International Airport, where a healthy mix of tourist and business customers made it the most lucrative route on the planet. More than 18 months after aviation was plunged into crisis, the corridor finally reopened to Europeans, marking a major step in the return of long-haul travel. British Airways is commemorating the milestone with a one-off revival of the BA001 flight moniker that once reserved for supersonic Concorde trips, arguably the classiest way to fly across the Atlantic. The likes of Deutsche Lufthansa AG and United Airlines Holdings Inc. also stand to benefit from a more robust trade between London, Paris and Frankfurt at one end and New York, Chicago and Los Angeles at the other.
• Investors added money to exchange-traded funds that buy emerging market stocks and bonds last week. This was the fourth straight week of inflows. Inflows to U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $241 million in the week ended Nov. 5, compared with gains of $701.9 million in the previous week, according to data compiled by Bloomberg. So far this year, inflows have totalled $39.6 billion.
• Shares of China’s electric-vehicle battery makers extended this quarter’s surge on Monday after two industry leaders announced plans to expand production and authorities pledged further industry support.  Eve Energy Co. raced toward a new record high with a jump of as much as 18% after signing an agreement to invest 6.2 billion yuan ($969 million) in two battery production projects in Hubei province. It’s the second-best performer on the CSI 300 Index this quarter, with a gain of 34%. Contemporary Amperex Technology Co., the world’s largest manufacturer of electric-car batteries, was on track to continue its record-breaking rally on its plan to build two plants. It’s up almost 26% this quarter.
• Masayoshi Son said his SoftBank Group Corp. will buy back as much as 1 trillion yen ($8.8 billion) of its stock after a decline in the value of its portfolio companies led to a record loss in its Vision Fund investment unit. The Tokyo-based company said Monday it would repurchase up to 14.6% of its outstanding stock and retire the shares in a program that will run for a year. Son said that if the buyback isn’t completed in the next year, it could be extended. The SoftBank founder is returning to a familiar strategy after an unprecedented 2.5 trillion yen buyback program last year helped more than triple the company’s valuation from its pandemic low. The company’s shares have slid more than 40% from their peak in mid-March after the repurchase program ran out.
• Tesla Inc. declined after Elon Musk’s Twitter followers voted in favor of selling 10% of his stake in a poll set up by the electric-car chief. A majority of 3.5 million Twitter users — 58% — said they’d support such a sale in a Twitter poll that Musk ran during the weekend. The stake would be valued at about $21 billion based on 170.5 million Tesla shares he holds.  Tesla fell as much as 7.2% in pre-market trading compared with Friday’s close of $1,222 in New York, tracking an earlier indication from Germany’s Tradegate.
• European gas and power prices surged on signs Russia won’t deliver the boost in supplies President Vladimir Putin promised. At least not on Monday. Benchmark gas futures traded in the Netherlands surged as much as 9.7% as orders via a key Russian pipeline signaled shipments will remain well below normal on Monday. To make matters worse, gas was flowing eastward from Germany to Poland early in the morning, the reverse of the normal direction. Power contracts were also up, with concerns there won’t be enough fuel to feed thermal plants in winter. Europe’s biggest supplier of the fuel had promised to send more gas to the region starting Monday, with Putin ordering Gazprom PJSC to fill its European storage sites following the completion of Russia’s domestic stockpiling campaign. Instead, the company said it won’t sell any spot fuel via its sales platform this week and there was also no extra capacity booked to send more supplies to Europe on Monday in auctions over the weekend.
• U.K. Prime Minister Boris Johnson is battling a mounting backlash over his attempt to protect a Conservative lawmaker found to have broken lobbying rules, with Parliament set to hold an emergency debate on Monday. Johnson was forced to perform a U-turn following widespread condemnation — including from fellow Tories — of his decision to try to tear up Parliament rules rather than accept the suspension of Owen Paterson, who was found guilty of paid advocacy on behalf of two companies. The maneuver was attacked by Tory-leaning newspapers, and John Major, a former Conservative prime minister, accused the Johnson government of being “politically corrupt.” The opposition Labour Party is expected to repeat its call for Johnson to apologize when lawmakers in the House of Commons debate the Paterson case and standards later today.
• Investor concerns over China Evergrande Group’s debt are shifting to the country’s stronger property companies as a selloff across the industry’s dollar bonds hits higher-quality borrowers. The fear of contagion comes as holders of dollar notes sold by Evergrande unit Scenery Journey Ltd. are yet to receive payment for coupons that were officially due Saturday. The unit had two dollar bond coupons due Nov. 6: $41.9 million on a 13% note and $40.6 million on a 13.75% bond. China investment-grade dollar notes weakened further on Monday and some Chinese real-estate developers’ debt fell as investors eyed possible contagion from the property industry. Market participants were also on high alert to the risk of more policy change as the Communist Party kicks off a major convention this week.
• Viasat Inc. has agreed to purchase Inmarsat Group Holdings Ltd for $4 billion, creating the world’s biggest geostationary satellite company. Carlsbad, California-based Viasat will buy Inmarsat in a $4 billion cash-and-stock deal, alongside $3.4 billion in debt, according to a statement from the companies Monday. Bloomberg reported Wednesday that Inmarsat’s private equity owners were exploring a sale. The satellite industry is responding to an unprecedented challenge from Starlink, a fleet of more than 1,500 spacecraft launched in the last two years by Elon Musk’s Space Exploration Technology Inc. Starlink and other well-funded low-earth orbit constellations like OneWeb and Amazon.com Inc.’s Project Kuiper promise faster connections from a lower orbit than traditional satellite firms.
• Regeneron Pharmaceuticals Inc.’s antibody cocktail cut the risk of contracting Covid-19 by 82% for up to eight months, according to a company-sponsored study that could pave the way for its broader use.  The monoclonal antibody cocktail, known as REGEN-COV, is available under an emergency use authorization in the U.S. to treat outpatients at risk of developing severe symptoms. It’s also allowed as a preventive therapy for certain people who aren’t fully vaccinated or who are immunocompromised, and have known or likely exposure to the virus. The company has asked the U.S. Food and Drug Administration to expand the authorization so the drug can be used to prevent infections, even when it’s given before a person has been exposed. The shares gained 3.7% as of 7:21 a.m. New York time in pre-market trading.
• U.S.-listed Chinese education stocks rallied in premarket trading Monday after Dow Jones reported that Beijing plans to issue more than a dozen licenses that would allow companies to offer after-school tutoring, citing people familiar with the matter. New Oriental Education & Technology Group Inc. surged as much as 37% in early U.S. trading and Tal Education Group jumped 33%, while Gaotu Techedu Inc.soared 48%. Under the new licensing agreement, education companies will be required to operate after-school tutoring on a nonprofit basis while being allowed to make a profit on other businesses, such as tutoring adults for professional exams, Dow Jones reported. The reported move by China could cap months of market volatility on the once-thriving online education sector after the government has tightened regulations on the industry since July, when Beijing prohibited after-school tutoring outfits from making money off teaching the compulsory curriculum. New Oriental’s shares have slumped 61% this year and Tal Education’s stock has wiped out 71.
• President Joe Biden and his party notched a huge economic victory late Friday with passage of a bipartisan public works bill. Now he seeks to sell Americans on the merits of $550 billion in new spending even as they face rising prices for fuel, food and housing. The president plans an infrastructure tour over the next several weeks to promote the legislation, including a visit to the Port of Baltimore on Wednesday. While ports have been the focus of supply-chain logjams, Biden also faces immediate pressure this week to decide how to address a surge in gasoline prices. Officials will be looking to new energy price data on Tuesday as a guidepost while weighing a release from the Strategic Petroleum Reserve as foreign oil producers such as Saudi Arabia put Biden in a bind.
• The cryptocurrency market is now worth more than $3 trillion. As of 7:38 a.m. in London, the overall market cap of cryptocurrencies hit $3.01 trillion, according to CoinGecko pricing. The third- and fourth-biggest tokens, Binance Coin and Solana, have added more than 20% in the past seven days; all of the seven biggest coins are up over the last week. Bitcoin rose as much as 5.5% on Monday to $66,339, nearing its previous record of about $67,000. Ether advanced as much as 3% to a new high of $4,768. Of course, crypto is notoriously volatile. The last time Bitcoin reached these levels, it fell back several thousand dollars, and it’s undergone multiple corrections that take it down by half or more. Other coins are even more volatile — the memecoins bounce back and forth wildly at times — and scams and hacks occur with some frequency.
• Chinese electric-vehicle maker Leapmotor has picked three banks to work on its planned Hong Kong initial public offering of more than $1 billion, according to people familiar with the matter. China International Capital Corp., Citigroup Inc. and JPMorgan Chase & Co. are working on the listing, the people said, asking not to be identified as the information isn’t public. Leapmotor is considering a Hong Kong listing as soon as next year, Bloomberg News reported in October. Representatives for CICC, Citigroup and JPMorgan declined to comment. A representative for Leapmotor didn’t immediately respond to requests for comment.
• Shareholder advisory group ISS has recommended that investors in Blue Prism Group Plc back Vista Equity Partners’s proposed 1.1 billion-pound ($1.5 billion) takeover of the U.K. automation software developer. In a note to clients ahead of a vote on the deal on Nov. 19, ISS said Vista’s cash offer of 11.25 pounds a share provides “certainty of value” without the risks of a protracted turnaround at the company. While Blue Prism recommended Vista’s bid to shareholders in September it’s faced strong opposition from activist Coast Capital, which has said the offer “vastly undervalues” the company. Coast owns about 3 million Blue Prism shares. Hawk Ridge Capital Management, another Blue Prism shareholder, has also said it’s not happy with the Vista price.
• MTN Group Ltd. recently made a takeover approach for Telkom SA SOC in a deal that would have combined South Africa’s second and third largest telecommunications operators, according to people familiar with the matter. Telkom has so far shown no interest in a sale, said the people, who asked to remain private as the talks are confidential. It remains unclear whether the larger rival will continue its pursuit, the people said. Following a multi-year asset-disposal program, MTN is flush with cash and looking to strengthen its hand in core African markets. A combination with Telkom would help close the gap with crosstown rival Vodacom Group Ltd., South Africa’s market leader, though a number of competition issues would have to be worked through, said the people.
• Sydney Airport agreed to sell itself to a consortium of funds for A$23.6 billion ($17 billion), just as Australia reopens its borders to international travel. The airport’s board accepted an offer of A$8.75 per share from a group led by IFM Investors Pty, and unanimously recommended shareholders vote to approve the deal early next year, the company said in a statement Monday.  The agreement is the latest among a spate of recent take-private transactions involving infrastructure assets and Australia’s retirement funds. The announcement follows the government’s Nov. 1 move to allow vaccinated travelers from overseas into the country’s two biggest states without the need for quarantine for the first time since March 2020, while letting millions of Australians freely travel abroad.

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*All sources from Bloomberg unless otherwise specified