October 1, 2021

Daily Market Commentary

Canadian Headlines

  • Canadian stocks fluctuated between gains and losses Thursday, reflecting a volatile month as investors rotated out of pricey growth stocks and into value.  The S&P/TSX Composite was unchanged as of 10:45 a.m. in Toronto, putting the benchmark on track for a monthly and quarterly drop. A measure of 10-day historical volatility spiked to the highest since July amid a selloff in tech stocks and a surge in Treasury yields. Six out of the 11 major industry groups rose, with materials and consumer staples leading gains, while health care and consumer discretionary stocks fell. Lithium Americas Corp. was the top-performing stock Thursday, rising as much as 9.2% after JPMorgan initiated coverage on the stock with a buy-equivalent rating. About 105 of 234 shares rose, while 125 fell.

World Headlines

  • European stocks headed for their worst week since January as concerns over a continent-wide energy crunch and stretched valuations weighed on sentiment. The Stoxx 600 Europe Index slid 0.7% as of 11 a.m. in London, and poised for a 2.5% drop this week. Energy and banks were among the biggest losers, while utilities outperformed, led by a 4.6% rise in Electricite de France SA shares. After six consecutive quarters of gains — the longest winning streak since 2006 — momentum has faded for the main European equities benchmark, which is 5% below its August high. The outlook has been clouded by surging energy prices, fears of a Chinese slowdown, rising bond yields, a looming wind-down of central bank stimulus, and persistent supply bottlenecks.
  • U.S. equity-index futures rose, erasing earlier losses, as the dollar resumed declines. Oil’s rally stalled and Treasuries were steady. The turnaround came after declines during early European hours as investors balked at the growing wall of worry from Federal Reserve tapering to stagflation and setbacks for U.S. President Joe Biden’s big spending plans. Futures on the S&P 500 Index rose 0.1% after the underlying gauge ended September with the biggest retreat since March 2020. Nasdaq 100 contracts were 0.2% higher. European stocks were still lower, though the benchmark gauge pared its drop. Merck jumped 7% in premarket trading after saying its Covid drug cut hospitalizations.
  • Asian stocks fell on the first day of the new quarter amid concerns over a vote on a U.S. infrastructure bill and China’s order to top state-owned energy companies to secure supplies for this winter. The MSCI Asia Pacific Index slid as much as 1.3%, with tech stocks weighing most on the gauge. Taiwan Semiconductor Manufacturing, Samsung Electronics and Nintendo were among the biggest contributors to the drop. Markets in China and Hong Kong were closed for a holiday. Futures on the S&P 500 and Nasdaq 100 slumped during Asia trading hours after losses on Wall Street and as House Democrats delayed a vote on a bipartisan infrastructure deal.
  • Oil dipped as risky assets started the fourth quarter on a downbeat note. Futures in New York were down 0.6%, mirroring weakness in stock markets. Attention is shifting to an OPEC+ meeting early next week, where a production hike of more than a planned 400,000 barrels a day is a live option, RBC Capital Markets analyst Helima Croft wrote in a note.
  • Gold futures on Friday were trading slightly lower to start trade in October, even as the U.S. dollar and government bond yields slipped, factors that should be supportive for bullion prices. Futures for the precious metal were holding on to a small weekly gain of about 0.2% though, though yields for the 10-year Treasury climbed for the week and as the dollar, as gauged by the ICE U.S. Dollar Index , rallied to the highest level in nearly a year. On Friday, December gold was trading down $2, or 0.1%, to $1,755 an ounce, following a 2% rise on Thursday. On Thursday, the most-active gold contract posted a 3.4% loss for the month, its sharpest monthly decline since June, and a 0.8% decline for the quarter, according Dow Jones Market Data.
  • Inflation in the euro area accelerated more than expected to the highest level in 13 years, adding fuel to a debate over how long the post-crisis spike will last. Consumer prices rose 3.4% in September, compared with an estimate for a 3.3% gain, according to figures released by Eurostat on Friday. A measure stripping out volatile components such as food and energy climbed to 1.9%, a rate not seen since 2008. Price growth is driven mainly by effects related to the pandemic and the reopening of economies after long stretches of virus shutdowns. The European Central Bank expects a peak only later this year, before a slowdown in 2022.
  • House Speaker Nancy Pelosi plans to try again Friday for a vote on bipartisan infrastructure legislation that’s been held up by a battle between moderate and progressive Democrats over President Joe Biden’s economic agenda. Lawmakers will pick up where they left off late Thursday night, when Pelosi sent them home after hours of negotiations failed to produce an agreement in a setback for Biden. Top White House officials had spent the evening shuttling around the Capitol to meet with the warring factions yet fell short of a breakthrough. Progressives are vowing to stall the $550 billion infrastructure bill if the House and Senate don’t first vote on a tax-and-spending package worth as much as $3.5 trillion. That measure forms the bulk of Biden’s agenda and funds a broad expansion of social programs, including child care, elder care and paid family leave.
  • Zoom Video Communications Inc. and Five9 Inc. scrapped their $14.7 billion merger agreement after a steep decline in Zoom’s shares slashed the deal’s value by almost a third, leading Five9 shareholders to reject the offer. Zoom sought to buy Five9, a call-center software provider, to bolster its popular videoconferencing app in the face of stiffening competition. Five9 investors were offered 0.5533 shares of Zoom for each Five9 share, valuing the deal at $14.7 billion based on Zoom’s July 16 closing price of $361.97. Since then, Zoom’s stock has dropped 28%, ending Thursday at $261.50.
  • Keurig Dr Pepper Inc.’s board has approved a share buyback program worth as much as $4 billion, according to people familiar with the matter. The program, set to be announced at an investor event on Friday, will run from January 2022 through December 2025, said the people, who asked not to be identified discussing the information before it’s public. The company hasn’t set a minimum number of shares to repurchase, and future movements in its stock price and changes in market conditions could affect the size of the buyback, the people said.
  • Coty Inc. is selling an additional 9% stake in its haircare brand Wella to private equity firm KKR & Co. in a deal valued at $426.5 million. Coty will redeem about half of KKR’s outstanding convertible preferred shares and accrued dividends as payment, according to a statement Friday that confirmed a Bloomberg News report. After the deal, KKR’s stake in Coty will drop to about 5.2%. The value of the deal represents a 50% jump since Coty originally sold a controlling stake in Wella to KKR in December. The transaction values the whole unit at about $4.5 billion, according to people familiar with the matter, who asked not to be identified discussing confidential information.
  • India’s Oyo Hotels & Homes filed preliminary documents for an 84.3 billion rupee ($1.1 billion) initial public offering, joining the rush of technology unicorns seeking to list on the country’s exchanges after a world-beating stock rally. The hotel-booking service, backed by SoftBank Group Corp. and Airbnb Inc., plans to raise 70 billion rupees through the sale of new shares, according to the filing. The rest will be secondary shares or those sold by existing stockholders. The startup was last valued at about $9 billion, according to CB Insights, making it India’s third most valuable startup.
  • Lordstown Motors Corp. agreed to partner with Foxconn Technology Group in a $280 million deal that has the startup selling its former General Motors Co. factory in Ohio to the Taiwanese company in exchange for cash while also receiving an equity investment. Under terms of the transaction, Lordstown Motors will sell the Lordstown factory to Foxconn for about $230 million after buying it from GM for just $20 million two years ago. The maker of Apple’s iPhone will buy $50 million worth of common stock in its new partner and plans to assemble its Endurance electric pickup truck. The deal is contingent on the two sides reaching an agreement on manufacturing the pickup.
  • Merck & Co Inc. said its Covid-19 antiviral pill molnupiravir reduced the risk of hospitalization or death by 50% in an interim analysis of a late-stage trial, while Israel’s Health Ministry said that the third vaccine produced fewer side effects than the first two doses. Meanwhile, European drug regulator EMA’s safety and risk committee concludes there is a possible link to rare cases of venous thromboembolism with J&J’s Covid-19 vaccine Janssen. It may be no comfort for millions of workers and businesses, but the U.K.’s coronavirus recession was no longer the worst in three centuries, revisionsshow. Virgin Atlantic is doubling the number of flights to the U.S. as restrictions ease.
  • Foxconn Technology Group’s planned purchase of embattled startup Lordstown Motors Corp.’s auto plant in Ohio may make it a stronger contender to assemble cars for Apple Inc., but success with the endeavor is far from guaranteed. The Taiwanese company is the largest maker of iPhones, giving it a potential edge as Apple explores the automotive sector. Foxconn agreed to spend $280 million on the Lordstown deal, one of the top vehicle-related investments it has made over the past two years. Foxconn’s early moves into cars have yielded few tangible results, and Apple is set to require solid proof of vehicle-manufacturing expertise before it settles on a partner — if the iPhone maker decides to make the leap into autos at all. Shares of Foxconn’s flagship unit, Hon Hai Precision Industry Co., fell in Taipei trading on Friday in a sign of investor doubt the plant purchase will be a game changer for the electronics giant.
  • Comcast Corp. cable-TV customers in New Jersey and Connecticut lost access to MSG Networks after the two companies were unable to reach a new agreement for the regional sports channel’s programming, including NBA and NHL games. “We don’t believe that our customers should have to pay the millions of dollars in fees that MSG is demanding for some of the most expensive sports content in the country with extremely low viewership in our markets,” Philadelphia-based Comcast said in an email, adding it’s “disappointed that MSG decided to pull their content rather than reach a fair agreement.” The two companies are tussling over how much Comcast should pay to carry games featuring the New York Knicks, New York Rangers and other area sports teams. Comcast says the games are lightly watched. MSG says the cable company is demanding terms it would never accept for its own sports networks. Their old contract expired Sept. 30.
  • The slump in the stock market is having ripple effects in mergers and acquisitions. Zoom Video Communications Inc.’s deal to use its stock to acquire Five9 Inc. collapsed Thursday after a plunge in the buyer’s share price. The agreement, which valued Five9 at more than $14 billion when it was announced, is now worth only $9.5 billion. Now investors will be watching the stock prices of other buyers to see if more deals are at risk, especially in technology, where some high-flying shares have been hit especially hard. Companies globally have announced nearly $890 billion of acquisitions this year involving some form of stock payment, with $547 billion of those deals still pending, according to data compiled by Bloomberg.
  • The deepening global energy crunch has pushed natural gas in Europe and Asia to the equivalent of about $190 a barrel, something the oil market has never seen. Both regions saw fresh records in the heating and power-generation fuel this week as utilities rush to restock lower-than-average inventories ahead of winter in the northern hemisphere, while alternatives — like coal — are also in short supply.  Dutch front-month gas hit 100 euros a megawatt-hour early Friday, its highest ever, before retreating later. That’s about $190 per barrel of oil equivalent, more than double the value of the energy in a barrel of Brent crude oil the same day. The benchmark oil contract had its record of $147.50 a barrel in July 2008.
  • U.K. motorists will have to wait weeks for fuel supply to return to normal, prolonging a shortage that has caused chaos across the country. More than a quarter of the nation’s service stations have no fuel, and another 20% have only one grade in stock, according to the U.K. Petrol Retailers Association. Around London, many service stations were still closed, while those that did have supplies were surrounded by long lines of cars waiting to fill up. “It will take a number of weeks to get it back to more normal running levels” with no lines or shortages at service stations, Gordon Balmer, executive director of the PRA, said in an interview with Bloomberg Radio on Friday.
  • Japanese utilities are stepping in to help ease China’s fuel crisis, selling excess liquefied natural gas at sky-high prices as Beijing ordersits top energy companies to secure supplies at all costs. Vessels typically chartered by Japanese companies including Jera Co., Tokyo Gas Co. and Kyushu Electric Power Co. delivered as many as six spot cargoes to Chinese ports in September, said BloombergNEF analyst Lujia Cao. State-owned Chinese firms are among the buyers that have negotiated purchases, including Sinopec, which called a tender for November to March supplies earlier last week.
  • Bitcoin jumped, rising in a matter of minutes to its biggest daily gain since July, and other digital currencies surged in a shock rally that followed the biggest monthly decline since May. The largest cryptocurrency gained as much as 9.9% to $47,742 early in New York trading. Ethereum, Litecoin and EOS also jumped, with the Bloomberg Galaxy Crypto Index rising as much as 8.3%. Bitcoin had slumped 7.6% in September amid concern about increasing regulatory pressure in China and the U.S.  Trades offered a variety of possible reasons for the gains, while noting that the fractionalized market leaves digital assets vulnerable to volatile price swings. Some pointed to comments early Thursday by Federal Reserve Chair Jerome Powell, while other cited price levels closely watched by technical analysts.
  • The global energy crunch could help propel oil prices above $100 a barrel for the first time since 2014 and spur a global economic crisis, according to Bank of America. Natural gas prices have already surged to almost double that level in oil equivalent terms, and BofA says a spike in demand for diesel could push crude into similar territory. With monetary and fiscal policy stretched to the limit and energy costs rising as a share of economic output, higher oil prices could in turn create a macro crisis, the bank said Friday in a note. The boost to crude would be driven by three factors: gas-to-oil switching as a result of high gas prices, a jump in crude consumption over a cold winter and higher aviation demand as the U.S. reopens its borders.
  • With markets becoming increasingly risk averse, one of the first places investors are turning their back on is high growth tech stocks. Cathie Wood’s flagship, the ARK Innovation ETF (ticker ARKK), has almost certainly just recorded its biggest ever quarter of outflows, with about $1.97 billion leaving the popular exchange-traded fund through to late September. ARKK flow data arrives with a one-day time lag, meaning the final trading day for last month has yet to be logged. Yet a second straight quarter of outflows for the fund looks assured, while anything less than a $125 million inflow will make September the product’s worst month for outflows since it launched in 2014.
  • European gas surged to a record 100 euros as China stepped up a global fight for energy supplies, in a move that threatens to derail the economic recovery. Prices later retreated. In volatile trading, benchmark futures gained as much 2.3% on Friday before retreating. China ordered its state-owned energy companies to secure supplies for this winter at all costs, according to people familiar with the matter. That will intensify a battle for liquefied natural gas and coal cargoes just as flows into Germany via a key Russian pipeline tumbled.  Energy prices are rising from the U.S. to Europe and Asia as the economy recovers from the global pandemic and people return to the offices. Europe is struggling to secure enough gas and coal ahead of the winter, with rising prices forcing some of industrial giants from fertilizer producers CF Industries to Yara International ASA and chemicals giant BASF SE to shut plants or curtail output.
  • China’s leadership has told the country’s state-owned miners to produce coal at full capacity for the rest of the year even if they exceed annual quota limits as they struggle with the deepening power crisis. The directive, along with other measures to secure energy supplies for this winter at all costs, was emphasized during emergency meetings this week in Beijing, according to people familiar with the matter. Boosting domestic thermal coal production is critical, said the people, asking not to be named as the discussions aren’t public. The government has been holding a series of meetings with company executives this week in a sign of how serious the situation in China has become. Many regions have had to curtail the supply of electricity to the industrial sector, while some residential areas have lost power due to the energy crisis that’s gripped the world’s second-biggest economy.
  • The pound is breaking the time-honored tradition that higher interest rates will mean a stronger currency, as growth and inflation fears take their toll.  U.K. two-year yields climbed this week to the highest since the start of the pandemic, buoyed by traders’ ramped-up expectations for Bank of England rate hikes in 2022. Yet the pound fell to a year-to-date low and suffered the most volatility since March — a sign that soaring energy prices, falling business confidence and the end of the government’s furlough scheme outweigh any boost from a hawkish monetary policy outlook.

“He who can copy can do.” ― Leonardo Da Vinci  

*All sources from Bloomberg unless otherwise specified