October 7, 2021

Daily Market Commentary

Canadian Headlines

• Canada is moving painfully slowly to set the market and regulatory conditions required to transition to a cleaner economy, according to a report by the Institute for Sustainable Finance. To date, Canada has made “significant” progress in only one of 15 recommendations made by a panel of experts including the current Bank of Canada governor Tiff Macklem in 2019. In another six, progress has been “moderate,” while the remaining eight have shown either a “marginal” or “minimal” advance, the report said. The last group includes a directive to help the oil and gas sector, representing roughly a fifth of Canada’s exports, transition toward cleaner technologies. Also included in the minimal or marginal progress categories were recommendations to encourage institutional investors to finance Canada’s future energy grid, to align the country’s infrastructure strategy with sustainable growth objectives, and to implement recommendations set by the Task Force on Climate-Related Financial Disclosures, or TCFD.

World Headlines

• European stocks gained as concerns over the energy crisis eased and investors were reassured by the European Central Bank considering fresh support to prevent market turmoil when emergency aid is phased out. The Stoxx 600 Europe Index was 1.2% higher as of 12:04 p.m. in London, tracking gains in the U.S. and Asia, with all sectors advancing, led by autos and basic resources equities. Spanish utilities climbed after a report that the country is considering suspending the mechanism that reduces their revenue. Energy shares underperformed as oil extended losses.  Bloomberg News reported Wednesday that the ECB is studying a new bond-buying program to prevent turbulence when emergency purchases get phased out next year, citing officials familiar with the matter. Also boosting sentiment Thursday, Chinese technology stocks recovered and progress was made on the debt-ceiling impasse in Washington. President Vladimir Putin’s comments on Wednesday that Russia is ready to help stabilize global markets cooled a rally in natural gas and power prices.
• U.S. equity futures rose with stocks Thursday, bolstered by progress on U.S. debt-ceiling talks and Russia’s offer to ease Europe’s energy crunch. Treasuries were steady ahead of key jobs data.  Nasdaq contracts led gains among U.S. gauges, with Apple Inc. and Facebook Inc. up in premarket trading. Markets have been buffeted in the past month by worries about the energy crisis, elevated inflation, reduced stimulus and slower growth. The prospect of a deal to boost the U.S. debt limit into December is easing concern over political bickering, while Friday’s payrolls report may shed light on the the Federal Reserve’s timeline to cut bond purchases.
• Asian stocks rallied, boosted by a rebound in technology shares and optimism over the progress made toward a U.S. debt-ceiling accord. The MSCI Asia Pacific Index climbed as much as 1.3%, on track for its biggest jump since Aug. 24. Alibaba, Tencent and Meituan were among the biggest contributors to the benchmark’s advance. Equity gauges in Hong Kong and Taiwan led a broad regional gain, while Japan’s Nikkei 225 also rebounded from its longest losing run since 2009. Thursday’s rally in Asia came after U.S. stocks closed higher overnight on a possible deal to boost the debt ceiling into December. Focus now shifts to the reopening of mainland China markets on Friday following the Golden Week holiday, and also the U.S. nonfarm payrolls report due that day.
• Oil extended losses after Russia offered to ease Europe’s natural gas crisis and traders weighed the prospect of the U.S. releasing crude from its strategic reserves. Futures in New York fell 2.4%, after closing 1.9% lower on Wednesday. Russian President Vladimir Putin said record volumes of natural gas could potentially be exported to Europe this year as the continent faces an energy crunch. Gas prices fell further on Thursday after his remarks, and lower rates could potentially mean less incentive for consumers to shift to oil. Russian Deputy Energy Minister Pavel Sorokin also spoke directly to the oil market on Thursday, saying OPEC+ shouldn’t allow the market to overheat, according to Interfax. The group, which includes Russia, on Monday agreed to continue with its plan to raise supply gradually, ignoring some calls to boost output faster to help calm prices. The oil market is balanced at a price of $45 to $60 a barrel, he said.
• Gold steadied as investors weighed progress on the U.S. debt-ceiling impasse and rising inflation risks, while waiting for a key jobs report due Friday. Bullion is likely to trade in a narrow range before the U.S. labor market data, which could provide more clues on the Federal Reserve’s monetary policy path. A report Wednesday by the ADP Research Institute said U.S. companies added 568,000 jobs last month, more than forecast by economists. Initial jobless claims due later Thursday will provide the final preview before payrolls.
• Apple Inc., whose CarPlay interface is used by millions of motorists to control music, get directions and make phone calls, is looking to expand its reach within cars. The company is working on technology that would access functions like the climate-control system, speedometer, radio and seats, according to people with knowledge of the effort. The initiative, known as “IronHeart” internally, is still in its early stages and would require the cooperation of automakers. The work underscores the idea that cars could be a major moneymaker for the tech giant — even without selling a vehicle itself. While plans for an Apple car have faced setbacks, including the defection of key executives this year, the company has continued to make inroads with CarPlay. It lets customers link up their iPhones with a vehicle to handle so-called infotainment features. Seven years after its launch, CarPlay is now offered by most major automakers.
• Immunity provided by the Covid-19 vaccine made by Pfizer Inc. and BioNTech SE weakens significantly within months, research shows, while another study found that heart damage from Covid-19 can last a year. Sydney is set to reopen after a 107-day lockdown, while Vietnam faces a labor shortage due to a worker exodus. Singapore daily infections rose to another record as the city-state prepares to ease young students back to school.  Hong Kong’s strict quarantine measures are forcing many European companies to move their employees out of the city. ‘Golden Week’ travel was down by a third as more Chinese shoppers stayed home for the holiday. In Europe, Sweden and Denmark decided to stop vaccinating younger people with Moderna Inc.’s shot because of potential side effects. Meanwhile, Norway recommended that young men choose the Pfizer shot instead.
• Japan’s Eneos Holdings Inc. will buy Japan Renewable Energy Corp. from Goldman Sachs Group Inc. for about 200 billion yen ($1.8 billion), the Nikkei newspaper reported. The deal could be announced as soon as next week, the Nikkei reported, without attribution. The move underscores the pressure on oil majors to invest in clean energy sources like wind and solar and out of fossil fuels, the report said.  A spokesperson for Eneos said that it’s exploring all options to expand its renewable energy business but nothing has been decided.
• Record quarterly results from Samsung Electronics Co. Friday could help revitalize a stock caught up in a global tech selloff spurred by fears of economic disruptions and soaring bond yields. The world’s largest memory, display and electronics company has tumbled more than 20% from its Jan. 11 peak, giving up all of its gains in 2021 and then some. That’s despite rising semiconductor prices during a severe shortage of chips that’s expected to persist till well into 2022 and likely beyond. The Suwon, South Korea-based company is expected to post a 27% jump in operating profit when it reports preliminary September quarter results on Friday before the market opens, thanks to its resilient flagship semiconductor division and the launch of its Galaxy Fold smartphones, which have shown initial signs of strong demand as the industry heads into the critical holiday season. Net income, which Samsung will report later in October, is expected to hit a quarterly record of 11.5 trillion won.
• The Senate is nearing a deal on a short-term increase in the debt ceiling that would pull the U.S. from the brink of a payment default but threatens to exacerbate year-end clashes over trillions in government spending.  After weeks of stalled talks, Democrats appeared to be on the verge of accepting a proposal from Senate Republican leader Mitch McConnell to raise the debt limit by a specific amount that would be sufficient to tide the Treasury over until December, when Congress would have to vote again to avoid a default.
• President Joe Biden’s selection of a new Federal Reserve chair grew more complicated in the last week as Congress quarrels over spending, taxes and debt, while a scandal over stock trades by some top officials under Jerome Powell’s leadership could damage his prospects. What once seemed like an easy potential renomination for Powell — a favorite of Treasury Secretary Janet Yellen, moderate Democrats and Republicans on the Senate Banking Committee — has morphed into a problem for the White House as Senator Elizabeth Warren, a Massachusetts Democrat, and progressive groups call into question the trading activity. The central bank is under fire following revelations about equities trades by Vice Chair Richard Clarida and regional officials in Dallas and Boston in 2020 as the bank fought to shelter the U.S. economy from the coronavirus.
• China’s Xi Jinping has plenty of pressing reasons to arrange a meeting with U.S. President Joe Biden and dial back tensions between the world’s two largest economies. The announcement Thursday of a virtual summit before the year’s end between Xi and Biden comes as China grapples with a series of domestic challenges and looming political milestones. Beijing is navigating fears over the potential collapse of indebted real estate firm China Evergrande Group, preparing to host a pandemic Olympics, battling an energy shortage and coping with signs of cautious consumers. With the ruling Communist Party gearing up for a twice-a-decade party congress next year — when Xi is expected to seize a landmark third term — it makes sense for China to stop tensions with the U.S. spiraling. The challenge will be doing so without appearing to retreat from an assertive foreign policy posture that’s satisfied nationalist sentiment at home.
• The Federal Reserve needs employee trading policies that guard against potential conflicts of interest, former New York Fed Bank President William Dudley said after personal investments by three senior officials drew fire. “It is important that the Fed has an investment regime in place for policy makers and other employees that sufficiently restricts what people are allowed to do, so that there is never any question about the potential for conflict of interest,” Dudley, who’s also a senior adviser to Bloomberg Economics, said in response to emailed questions following an event hosted by the Bank of Singapore. “When such questions arise, regardless of whether there is a good reason for concern or not, this does have negative consequences for how the Fed is perceived by the public,” he said.
• A Marathon Petroleum Corp. oil refinery on the Texas Gulf Coast continued to leak crude into to the surrounding area hours after the spill first began, a regulatory filing from the company showed. The incident at the Galveston Bay facility in Texas City was caused by a failure of a valve flange and led to crude oil being released into a containment dike, the filing with the Texas Commission on Environmental Quality showed. The storage tank holding the oil is being emptied as quickly as possible to minimize pollution. The leak is being contained within an earth dike and foam is being applied to reduce vapors. Equipment to remove the oil for processing and disposal is being deployed.
• European natural gas and power edged lower on Thursday, after swinging wildly the day before, as traders weighed fuel-shortage fears against signals from Russia it may increase supplies to the continent. Energy-price volatility has soared in recent days, fanning inflation concerns and threatening to cripple major industries. President Vladimir Putin’s suggestion on Wednesday that Russia could help stabilize global markets cooled a rally that saw Dutch and U.K. gas futures surge 60% in just two days. Putin said Russia could potentially ship record volumes of gas to Europe this year, without specifying when the ramp-up may start. With deliveries in 2021 so far failing to keep up with recovering demand, the region’s stockpiles are at their lowest seasonal level in over a decade just as the weather turns colder.
• The U.K. had more than a million people on furlough in the final month of the government program that paid the wages of those whose workplaces were closed during the pandemic. The Office for National Statistics estimated that 5.3% of the business workforce was receiving the benefit in early September, the equivalent of 1.1 million to 1.6 million people. Separate figures from Her Majesty’s Revenue and Customs, the U.K. tax authority, put the figure at 1.32 million at the end of August. There were just 263,300 fewer jobs furloughed than at the end of July, according to the HMRC figures, which showed the scale of the workforce depending on the program as it prepared to wind down. Chancellor of the Exchequer Rishi Sunak ended furlough payments on Sept. 30, and the Bank of England is watching carefully to see how many of those people end up unemployed.
• The European Union is drafting proposals to address British concerns about trade flows between Northern Ireland and the rest of the U.K. to be presented as early as next week. The EU will offer greater flexibility in shipping pharmaceuticals into Northern Ireland and the process for inspecting food products while simplifying customs checks and providing a bigger role for local institutions, according to a senior EU official.  Maros Sefcovic, the top EU negotiator with the U.K., broadly confirmed those areas Thursday in remarks at an event hosted by the Institute of International and European Affairs, saying the bloc is trying to address difficulties that people in Northern Ireland are facing after Brexit.
• The U.K. ended a probe into British Airways and Ryanair Holdings Plc over their refusal to reimburse customers who were barred from flying because of ever-changing pandemic travel rules. The Competition and Markets Authority decided to close the investigation because the law isn’t clear enough about a right to a refund “in these unusual circumstances,” according to a statement Thursday. Ryanair welcomed the decision. The probe was launched in June to determine whether the airlines broke consumer laws by failing to offer customers their money back when Covid-19 rules made it illegal for them to fly. BA, a unit of IAG SA, instead offered ticket holders vouchers or a different flight, while discounter Ryanair opted for rebooking, the CMA said.
• Eskom Holdings SOC Ltd., the world’s biggest emitter of the pollutant sulfur dioxide, said retrofitting about half of its coal-fired plants with pollution cutting equipment would cost more than 300 billion rand ($20 billion) and boost electricity costs. The state-owned South African utility said it has applied for an exemption from complying with national emission limits for its power plants that are scheduled to close by 2030 and asked for a higher limit for six of its stations that will operate beyond 2030. Of its two newest plants, so-called flue-gas desulfurization equipment has been installed at Kusile and will be retrofitted at Medupi. “Eskom’s power stations with the exception of Medupi and Kusile were built at a time where there was no legal requirement for the installation of sulfur dioxide reduction technologies,” the Johannesburg-based company said in a response to queries Wednesday.
• BNP Paribas SA is weighing an increase in shareholder returns as part of a new strategic plan, seeking to reward investors after the end of a cap on dividends. The Paris-based lender is exploring scenarios including raising its payout ratio to 60% of annual profit next year, from 50% in 2021, according to people familiar with the plans. That level is seen as likely to meet market expectations while remaining acceptable for other stakeholders, one person said, asking not to be identified because the bank is still discussing its policy. The payout ratio could even be lifted above 60%, another person said. No final decision has been made and the policy could still change, the people said.
• Mexico’s annual inflation accelerated to double its target in September, stoking pressure on the central bank to keep tightening monetary policy. Consumer prices jumped 6% compared with a year earlier, more than the 5.59% seen in August and in line with economist forecasts in a Bloomberg survey. Monthly inflation accelerated to 0.62% after a 0.19% rise in August, the national statistics institute reported Thursday. Annual core inflation, which excludes volatile items such as fuel, reached 4.92% in comparison with 4.78% in August.
• The three biggest money losers among large listings in 2021 are all Chinese, thanks to the country’s widening tech crackdown. Investors who bought Kuaishou Technology after the TikTok rival went public in Hong Kong have notched the widest peak-to-trough slump among global initial public offerings this year. New York-listed DiDi Global Inc., which was hit by a data security probe in July, has fallen 54% while video-app firm Bilibili Inc. is down by nearly half from peaks touched this year. Kuaishou, which runs a video streaming app on the mainland, is down about 80% since it hit a Feb. 17 peak less than two weeks after it raised $5.4 billionin Hong Kong’s largest float in 2021. That is the largest plunge from a high among the 36 companies that raised more than $1.5 billion worldwide in 2021 from IPOs, Bloomberg data show.
• Wireless Internet provider Starry Inc. has agreed to go public through a merger with a blank-check company in a deal valued at $1.66 billion. Starry will combine with FirstMark Horizon Acquisition Corp., according to a statement confirming an earlier Bloomberg News report.  The special purpose acquisition company, or SPAC, is sponsored by founders and executives of the New York-based venture capital firm FirstMark, which was an investor in Starry. The transaction includes $130 million from a fully committed private investment in public equity, or PIPE, with participation by Fidelity Management & Research Co., Tiger Global Management and affiliates of FirstMark, among others.

“Folks are usually about as happy as they make up their minds to be.”– Abraham Lincoln

*All sources from Bloomberg unless otherwise specified