October 21, 2021

Daily Market Commentary

Canadian Headlines

• Canadian stocks rallied for an 11th straight day as positive earnings reports outweighed any inflation concerns. The S&P/TSX Composite gained 0.5% in Toronto. Financials stocks led the market higher, as 7 of 11 sectors gained; 140 of 233 shares rose, while 86 fell. Canadian National Railway contributed the most to the index gain, increasing 5%. Capstone Mining Corp. had the largest increase, rising 7.1%.
• Rogers Communications Inc. has formed a new committee to establish rules for how Chairman Edward Rogers can interact with senior executives after he tried and failed to fire Chief Executive Officer Joe Natale. The Toronto-based telecommunications company said the new group is made up of three directors, including Edward’s sister Melinda Rogers-Hixon. She joined forces with other directors to block the move to replace Natale. The committee will “advise and assist” Edward Rogers and Natale “and establish clear protocols for interactions between Chair and members of management,” Rogers said in MD&A documents accompanying its third-quarter results. The committee also includes independent directors John Clappison and John MacDonald.
• CI Financial to Buy Mccutchen Group, according to a press release. CI Financial Corp. and McCutchen Group LLC today announced an agreement under which CI will acquire McCutchen Group, an ultra-high-net-worth focused wealth management firm with US$3.4 billion in assets under management.

World Headlines

• European stocks slipped from a six-week high as some earnings reports disappointed, adding to investor unease about inflation and supply constraints. The Stoxx Europe 600 Index was down 0.2% at 10:30 a.m. in London, with basic resources and retail stocks dropping the most. ABB Ltd. slumped 5.2% after it said margins are set to decline further, and Anglo American Plc fell 4.4% as it expects production to be at the lower end of its guidance range. Unilever Plc climbed after quarterly earnings. Shares in the region are having a strong month, with the main regional benchmark only about 1% away from its August high. Earnings are in focus as investors look for signs of strength in the economic recovery, while keeping an eye on China, inflation and bond yields.
• Most stocks fell Thursday as investors weighed corporate earnings, elevated inflation and the outlook for China’s property sector. Treasuries and the dollar were little changed. U.S. futures declined, with Tesla Inc. falling in pre-market trading after the carmaker beat analysts’ profit estimates, but fell short on revenue. European autos also dropped after Volvo Group warned that the global semiconductor shortage and supply-chain challenges will continue to cap truckmaking. Unilever Plc pushed rising raw material costs onto consumers, increasing prices by the most in almost a decade. Meanwhile, Hermes International said sales surged last quarter, showing resilience compared to rival luxury-goods makers.
• Asian equities fell in late-afternoon trading as investors sold Japanese and Hong Kong-listed tech shares, which helped trigger broader risk aversion among investors. The MSCI Asia Pacific Index slid as much as 0.8%, with Japanese equities slumping by the most in over two weeks as the yen — typically seen as a safe haven — strengthened against the dollar, likely boosted by technical factors. Toyota Motor and Alibaba were the biggest drags on the regional benchmark as higher bond yields weighed on sentiment toward the tech sector. Bucking the downtrend were Chinese developers, which shrugged off China Evergrande Group’s scrapping of a divestment plan and climbed after regulators said risks in the real estate market are controllable and reasonable funding needs are being met. China was one of the region’s top-performing equity markets.
• Oil fell amid a broad-based retreat in industrial commodities, though trader focus was glued to a surging market structure as inventories decline in the U.S. Futures in New York lost 1%, declining from their strongest closing price since 2014. Commodities including copper and iron ore slid as the prospect for headwinds to China’s economy grows, while the dollar climbed, making energy and metals priced in the currency less attractive. Behind weaker headline prices, the structure of the U.S. crude market was soaring as stockpiles continue to drain at the key hub of Cushing, Oklahoma. The closely watched spread between the nearest December contracts topped $10 a barrel Thursday, the strongest since 2013, while nearby spreads have surged to a three-year high.
• Gold steadied after a two-day advance as investors weighed comments from Federal Reserve officials indicating that interest-rate hikes aren’t imminent. Increases to U.S. interest rates aren’t coming “any time soon,” Cleveland Fed President Loretta Mester said Wednesday, though the central bank will act if warranted by inflation expectations. Governor Randal Quarles said he favors an initial move to slow stimulus next month and is concerned by a broadening of price pressures that could require a policy response. Bullion has fluctuated recently as traders attempt to gauge the pace at which pandemic-era stimulus will be reined in by central banks. Rising energy and commodities costs and disrupted supply chains are creating inflation headaches for the global economy, boosting expectations for earlier rate hikes that can curb the allure of non-interest bearing gold.
• Industrial commodities including copper and iron ore slid as high energy costs threaten global growth and on headwinds for China’s economy.  Prices reversed early gains, with copper dropping back below $10,000 a ton, iron ore tumbling as much as 8.7% and aluminum also declining. Concerns about the inflationary impact of rising commodity prices have increased in recent days, with everyone from Federal Reserve officials to Tesla Inc. weighing in on cost pressures. In China, troubled developer China Evergrande Group failed to offload a stake in its property-management arm in talks to ease a cash crisis that’s become one of the biggest risks to the Chinese economy. The property sector accounts for about a third of steel demand.
• Moscow will implement its harshest lockdown since the early days of the pandemic, last year, more severe than the “non-working days” announced by President Vladimir Putin across Russia. Among other eastern European countries battling a resurgence, Ukraine also reported a record number of new daily infections and deaths. India reached the milestone of 1 billion Covid vaccines administered, though its inoculation campaign still faces major challenges.
• U.S. ports are full of goods, U.S. yards and warehouses are full of goods, hardly anyone wants to drive a truck to pick up and deliver those goods and those who do sit waiting in lines, often unpaid. And Americans continue to buy more stuff from abroad than ever. A supply-chain crunch that stretches from overseas manufacturers into American ports and retail stores threatens the U.S. holiday shopping season. President Joe Biden and his administration have been working for months to smooth out bottlenecks, but his power to influence what is almost entirely a private-sector problem is limited. While Republicans point to the supply chain as further evidence the president is mismanaging the economy, the issues are deep-rooted. Overwhelming volume generated by record, pandemic-induced consumer demand is swamping a system that was already creaking under the weight of high demand, low investment, labor shortages and regulatory battles.
• Pent-up demand for the first U.S. Bitcoin exchange-traded fund has driven assets held in the investment vehicle to more than $1 billion in just two days. The ProShares Bitcoin Strategy ETF (ticker BITO) ended Wednesday with $1.1 billion under management after trading volume topped $1.2 billion, according to a press release. That’s the quickest that an ETF has reached the $1 billion mark, Bloomberg Intelligence data show.  BITO’s launch Tuesday was met with almost off-the-charts demand, ranking as the second heaviest-traded ETF debut on record. Data overnight showed inflows of $567 million in its first trading session. The product’s settlement arrangements mean official flows arrive with a one-day lag.
• An Indian railway company shed $3 billion in market valuation over just two days, spurring an online blitz of memes from frantic traders. Shares of Indian Railway Catering and Tourism Corporation Ltd., a state-run firm with a monopoly on online booking of rail tickets, plunged 25% over Tuesday and Wednesday. The selloff was sparked in part by a downgrade at IIFL Securities Ltd. after the stock had tripled since the start of the year. IRCTC’s stock has surged 13-fold since its market debut in October 2019, helped by the government’s move to open Indian Railways’ routes to private players. Now investors are eying risks including a gradual selldown of the government’s 67% stake and a recovery in air travel as Covid-19 fades.
• Former President Donald Trump on Wednesday announced a deal that would enable him to regain a social media presence after he was kicked off Twitter Inc. and Facebook Inc.platforms.  The former president’s new enterprise will be in operation by the first quarter of 2022, according to a press release from the Trump Media and Technology Group. It says it plans to start a social media company called Truth Social. The moves, if all goes according to plan, would occur well ahead of the 2022 mid-term elections. The release added that the company would be publicly traded through a merger with another firm called Digital World Acquisition Corp. Trump has long signaled aspirations to start a social media company after he was booted from Twitter and Facebook. Earlier this year, he abandoned a website blog where he posted statements after it attracted relatively few readers.
• It’s difficult to separate Adam Neumann from WeWork, the shared-workspace company he co-founded — despite how hard some investors have tried. As WeWork completes its second attempt to go public — this time through a SPAC valuing the combined company at $9 billion — Neumann’s name is peppered 197 times throughout the business combination filing, even though he’s no longer an employee or board member. Many of those mentions relate to his acrimonious split from the company and subsequent litigation with its largest investor, SoftBank Group Corp., after its first failed IPO attempt in 2019.  There’s the $185 million charge for a non-compete agreement for Neumann, $106 million for a settlement payment, and $578 million for shares sold by his We Holdings LLC to SoftBank. There’s also an extension on a $432 million loan from the Japanese firm, secured by some of his WeWork stake.
• The U.S. Food and Drug Administration cleared a path for millions more Americans to receive Covid-19 vaccine booster shots, as the nation looks to bolster its defenses and prevent another virus surge. The agency said in a statement on Wednesday that Moderna Inc. vaccine recipients 65 and over can receive a third shot, as can adults 18 and up who are at high risk of severe Covid or with frequent institutional or occupational exposure to the virus that causes the disease. Additionally, all J&J recipients 18 and older are eligible for a booster shot at least two months after receiving their first dose.
• Tesla Inc. reported third-quarter revenue that fell short of Wall Street estimates but managed to beat profit projections, overcoming a semiconductor shortage and supply-chain challenges that have stymied competing automakers. The results mark the ninth straight quarter of profit for the 18-year-old electric carmaker and came despite obstacles that included backups at ports and even rolling blackouts in China that made it tough to keep factories operating at full capacity. Revenue at Elon Musk’s electric-vehicle and clean-energy company rose 57% to $13.8 billion, missing estimates of $13.9 billion. Earnings came to $1.86 a share on an adjusted basis, the Palo Alto, California-based automaker saidWednesday. That beat the $1.67 a share average of analysts’ estimates.
• Optimism about digital assets stoked by Bitcoin’s run to a record high has helped push the overall value of cryptocurrencies to an all-time peak of more than $2.7 trillion. That’s a climb of about $200 billion from the last high in May for a sector that now spans almost 10,000 coins, according to data from tracker CoinGecko. The ascent shows how bets on cryptos are spreading beyond Bitcoin amid enthusiasm about more mainstream adoption of digital assets following the launch of the first Bitcoin-linked exchanged-traded fund in the U.S.
• Blackstone Inc.’s assets under management reached $731 billion at the end of the third quarter, a record for the firm and another sign of the private-equity industry’s increasing clout. The New York-based company said it saw several records and near-records over the three-month period, including a 28% rise on fee-related earnings. Blackstone’s stock price has doubled so far this year. Investor appetite for alternative assets appears endless: Blackstone is currently fundraising for at least two vehicles that could hit $40 billion in assets combined.
• The U.K. spent 69 billion pounds ($95 billion) paying the wages of furloughed workers by the time the program came to an end last month, according to government figures. The total cost of subsidizing lost earnings touched 97 billion pounds when grants to self-employed workers hit by the pandemic are included, the Office for National Statistics data published Thursday show. The job support programs were the centerpiece of a government response to the Covid-19 crisis, which is estimated to have cost taxpayers more than 370 billion pounds. That’s drove the budget deficit to levels not seen during British peacetime.
• Soaring energy prices are exacerbating divisions in the European Union as national leaders brace for heated talks about how to protect the most vulnerable and avoid a backlash against the bloc’s ambitious climate change plan. The unprecedented spike in power and gas prices is the first topic for EU leaders in their two-day summit starting Thursday in Brussels, but the bloc’s ability to act is extremely limited. Most countries have already cut taxes or approved subsidies to help households and companies, and there are few remaining tools that are technically possible and politically palatable.  EU leaders are set to give the green light to immediate rescue plans by national governments and will pledge to “swiftly consider medium- and long-term measures that would ensure energy at a price that is affordable for households and companies,” according to the most recent version of the summit communique seen by Bloomberg News.
• Unilever Plc accelerated price increases to the highest rate in years, offsetting rising raw material costs and a decline in shipments in southeast Asia due to Covid-19 outbreaks. The maker of Lifebuoy soap and Oxo beef stock said it increased pricing by 4.1% in the third quarter, the fastest in at least seven years. That offset an unexpected decline in shipments. Rivals, ranging from Procter & Gamble Co. to Nestle SA to Danone SA, have all warned of strained supply chains and soaring commodity costs. The risk is that price increases may lead consumers to switch to cheaper products from rivals. Unilever Chief Executive Officer Alan Jope forecast at least another 12 months of inflationary pressure.
• BlackRock Inc. and UBS Group AG have turned positive on China’s beaten-down equities, citing investors’ growing comfort with Beijing’s crackdown and an improving earnings outlook. The upgrade to overweight by the world’s biggest asset manager and UBS, which had a bearish view for 16 months, adds to the belief that the worst for the underperforming market may be over. It comes at a time when a gauge for global equities is less than 1% away from setting a new record high. Fidelity International Ltd. is also preparing to seize some “deep value opportunities.” “We are dipping our toes back in, and we think there is more room for tactical upside,” Ben Powell, chief investment strategist for Asia Pacific at BlackRock Investment Institute, said in an interview with Bloomberg Television. “The market has got a much higher degree of comfort” about the level of regulatory scrutiny that is here to stay, he added.
• AT&T Inc. exceeded Wall Street’s expectations for profit and wireless subscriber growth, easing concerns about the costs of free-phone promotions and the expansion of its fiber and 5G networks. Third-quarter earnings, excluding some items, were 87 cents a share, the company said Thursday, surpassing the 80-cent estimate by analysts. Revenue fell to $39.9 billion due to the separation of the DirecTV business. AT&T added 1.2 million regular wireless customers. Analysts expected a gain of 705,461. Of those, 928,000 were new phone subscribers.
• New York City’s securities industry reaped another windfall in the first half of the year as it benefited from the pandemic-induced boom in markets — and that’s projected to boost Wall Street bonuses. The industry’s pretax profits surged about 13% from a year earlier to $31 billion, helped by strong trading, underwriting and advisory activities, state Comptroller Thomas DiNapoli said Thursday in a report. While it was the industry’s second-most profitable first half on record, DiNapoli cautioned that profits will subside as interest rates rise and monetary stimulus fades. “Wall Street’s success during the pandemic has benefited New York’s economy and finances during a difficult time,” he said in a statement. “As we prepare for an eventual slowdown in Wall Street’s record activity, we need to ensure New York’s Main Street, and its other vital sectors, are also recovering.”
• Before the game-changing launch of the first ever Bitcoin-linked ETF in the U.S., plenty on Wall Street cautioned the derivatives-powered trade was no free lunch, given the holding costs. But after just two days of trading, JPMorgan Chase & Co. strategists warn pent-up demand for Bitcoin exchange traded-funds risks distorting the futures market — ramping up ETF investors’ costs along the way. It’s a pressing issue, as the ProShares Bitcoin Strategy ETF (ticker BITO) has amassed a whopping $1.1 billion in just two days after one of the most successful launches in history.
• American Airlines Group Inc. posted a loss that was narrower than expected while warning that costs this quarter will continue to pinch earnings as revenue remains below pre-pandemic levels.  The carrier reported a third-quarter loss of $641 million, or 99 cents a share, while analysts expected a $1.03-a-share loss, based on the average of estimates compiled by Bloomberg. Revenue nearly tripled from a year earlier to $8.97 billion, while Wall Street projected $8.94 billion. The carrier released preliminary results for the quarter on Oct. 12. American joined other carriers in warning about higher costs this quarter. It expects to pay as much as $2.48 a gallon for fuel, up from an average $2.07 in the third quarter.
• Southwest Airlines Co. trimmed its flight schedule for the second time since August, cutting back on fourth-quarter flying as it struggles to hire enough workers and recover from customer anger over widespread delays. ourth-quarter capacity will decline 8% from pre-pandemic levels in 2019, compared with a prior plan for a 5% drop, the Dallas-based carrier said Thursday as it released third-quarter financial results. Southwest’s December flying will be about 12% lower than it was two years ago, following “aggressive” expansion in the third quarter. The airline doesn’t expect to be profitable this quarter as costs to fly each seat a mile rise as much as 12%, Southwest said. Higher labor rates and airport costs, stepped-up hiring, employee incentives for coronavirus vaccinations and lower productivity are driving up the measure, an industry gauge of efficiency.
• Tata Chemicals Ltd. is considering selling its soda ash business in the U.S., according to people familiar with the matter, joining a string of rivals looking at similar options. The India-based chemicals giant is in early discussions about the disposal, the people said, asking not to be identified discussing confidential information. It’s seeking $1 billion or more for the asset, the people said. Tata Chemicals has reached out to private equity firms and some industry groups to gauge interest, one of the people said. Deliberations are ongoing and Tata Chemicals could still decide against a sale, according to the people. A representative for Tata Chemicals declined to comment.

The commercial real estate market in low-Earth orbit is heating up as Voyager Space Holdings Inc.’s Nanoracks plans a new private space station to help replace NASA’s existing orbital laboratory. The planned Starlab station from Nanoracks will serve government and private customers. It’s at least the third such project announced to date, following commercial station plans by Axiom Space Inc. and Sierra Space. The U.S. government wants to be one of multiple customers for orbital research space and has begun a Commercial Low-Earth Orbit Destination, or CLD, program to support development of private stations. NASA wants to have provisions for at least two astronauts to live and work in orbit continuously and to have a station ready when the International Space Station is retired, which is expected to be sometime between 2028 and 2030

“Invest for the long haul. Don’t get too greedy and don’t get too scared.” -Shelby M.C. Davis

*All sources from Bloomberg unless otherwise specified