September 1, 2021

Daily Market Commentary

Canadian Headlines

• Canada’s main stock index rose for a seventh straight month in August, the longest winning streak since 2017, as technology shares continued their torrid gains. The S&P/TSX Composite index gained 1.5% this month, helped by strong performances by tech stocks including Shopify Inc. The benchmark was flat on Tuesday but rose 83% since hitting pandemic low on March 2020. The S&P/TSX Composite Information Technology index rose 5.8% in August, climbing to highest levels since Jan. 2001. Payments companies Nuvei Corp.and Lightspeed POS Inc. led the monthly advance within the tech index, both of which posted better-than-expected revenue in the second quarter.
• Canadian Prime Minister Justin Trudeau is set to release an election campaign platform promising tens of billions in spending on new initiatives that would be fully financed by a tax revenue windfall from an expanding economy. The document, to be released on Wednesday, will include measures of at least C$50 billion ($39.6 billion) over the next five years, some of which have already been announced, according to an official with Trudeau’s Liberal Party, speaking on condition they not be identified because the platform has not yet been released. Even with the new spending, Trudeau’s party is promising a downward trajectory in Canada’s debt levels because revenue is seen coming in much stronger than what was projected in Finance Minister Chrystia Freeland’s budget in April, the person said.
• Centerra Gold Inc. is claiming a Kyrgyz open-pit mine it once ran has flooded and poses safety and environmental risks, although the government-appointed administrator says the water has always been there. There may be at least 40 meters (131 feet) of water at the bottom of the Kumtor central pit, the Canadian mining company said Tuesday in a statement, citing photos on Kumtor Gold Co.’s website and a company video posted mid August on Facebook. Kumtor’s administrator said in response that the amount of water has always been present and it’s used for the mine’s needs, according to a statement Wednesday. It added that the information presented by Centerra “doesn’t correspond with reality” and is an effort to “undermine the reputation” of the administrator.

World Headlines

• European equities advanced the most in a month on Wednesday as investors bet the global economic rebound would persist even as central banks prepare to scale back support. The Stoxx Europe 600 Index was up 0.9% at 9:50 a.m. in London to be within 0.3% of an historical peak. Retail and travel and leisure were among the best performers, while technology followed Chinese peers higher. Miners underperformed as iron ore futures slid. After hitting a record high a few weeks ago, European shares have struggled for direction as economic statistics pointed to a more sluggish rebound than forecast and as monetary policymakers on both sides of the Atlantic suggested stimulus may be tapered. Still, August was the Stoxx 600’s seventh positive month in a row — the longest winning streak since 2013.
• U.S. equity futures rose with European stocks Wednesday as investors bet on a resilient economic recovery from the pandemic. Treasury yields rose. S&P 500 and Nasdaq 100 futures were in the green following a month in which the S&P 500 notched up a dozen record closes. Investors continue to demonstrate faith in central bankers’ support even as they move away from pandemic-era stimulus programs. Markets appear to have digested hawkish comments from European Central Bank officials signalling they’re laying the groundwork to scale back stimulus.
• Asian stocks climbed for a fourth straight day as Chinese technology heavyweights extended their rebound from the massive rout seen earlier this year.  The MSCI Asia Pacific Index rose as much as 0.5%, with Tencent and Meituan the biggest individual contributors to the gauge’s advance. The financials sector gave the biggest boost, helped by Ping An Insurance’s bounce back from Tuesday’s losses. Equity benchmarks in China, Singapore and Japan were among the region’s biggest gainers. The Hang Seng Tech Index rallied for a third day as more investors grow confident that a bottom may have been reached following the selloff sparked by Beijing’s regulatory crackdown on private industry. A gauge of Asia’s software technology firms including Tencent also rose after capping its first monthly advance since April.
• Oil was little changed ahead of an OPEC+ meeting that should see further output added to a market that the group sees as needing extra supply. West Texas Intermediate was up 0.2% after losing more than 7% in August, the biggest monthly decline this year. The Organization of Petroleum Exporting Countries and its allies including Russia are expected to ratify a plan to add 400,000 barrels a day in October, wagering that the market can absorb the extra flows as demand recovers from the coronavirus pandemic. The extra supply from OPEC+ comes as one key member – Iran – dashed hopes of a quick return to nuclear talks. The longer that process draws out, the further it pushes back larger volumes of Iranian supply returning to the market.
• Gold steadied as investors considered hawkish comments from some European Central Bank officials on the prospects for reducing monetary stimulus ahead of a U.S. jobs report. Investors are on the lookout for signs of a pullback in the massive stimulus programs unleashed by central banks, even as the delta variant poses a continued risk to the economic recovery. Gold got a boost last week after Federal Reserve Chair Jerome Powell made relatively dovish remarks to the Jackson Hole symposium, and traders are now watching U.S. payrolls data due Friday, which could influence the Fed’s tapering timeline.
• South Africa may limit the use of public amenities to people who have been vaccinated, a path already trodden by countries such as France and Italy.  Europe’s top soccer clubs spent less during the summer transfer window as the pandemic continued to hit their finances. Australia’s Covid-Zero policy is under renewed pressure after a second state indicated it was abandoning attempts to eliminate the delta variant. Businesses around the world are signaling that innovative new communications tools are making many pre-pandemic-era trips history. A Bloomberg survey of 45 large companies in the U.S., Europe and Asia shows that 84% plan to spend less on travel.
• The Taliban and other Afghan leaders have reached a “consensus” on the formation of a new government and cabinet under the leadership of the group’s top spiritual leader, and an announcement could come in a few days, an official said. Taliban supreme commander Haibatullah Akhundzada will be the top leader of any governing council, Bilal Karimi, a member of the group’s cultural commission said. Mullah Abdul Ghani Baradar, one of Akhundzada’s three deputies and the main public face of the Taliban, is likely to be in charge of the daily functioning of the government.
• Cathie Wood is getting ready to debut a new exchange-traded fund focused on transparency. Ark Investment Management’s Transparency ETF will closely follow an index that excludes industries including alcohol, banking, gambling and oil and gas, Wood’s company said in a filing on Tuesday. The top holdings in the 100-company gauge are largely tech and consumer firms such as Salesforce.com Inc., Microsoft Corp., Apple Inc., Nike Inc. and Chipotle Mexican Grill Inc. An old Ark favorite, Elon Musk’s Tesla Inc., also makes the cut. “This is kind of Ark’s version of ESG,” said Eric Balchunas at Bloomberg Intelligence, referring to products that reflect higher environmental, social and governance standards. “It’s intriguing because it doesn’t have a moralizing vibe to it, it’s like they’re saying if you go after transparency, you’re probably going to buy good companies.”
• Billionaire Bernard Arnault, the world’s third-richest person, sold his remaining holding in Carrefour SA for 724 million euros ($854 million), ending a 14-year largely unsuccessful investment in the French supermarket chain. The head of luxury giant LVMH SE, Arnault exited the 5.7% stake he owned through investment vehicle Agache Group at a 5% discount to Carrefour’s closing share price of 16.85 euros on Tuesday, according to terms obtained by Bloomberg. Shares in Carrefour fell as much as 5.3% in Paris early Wednesday. Carrefour’s shares traded, on average, at around 47 euros apiece when the billionaire first bought a stake in 2007, making the investment a rare misstep for Arnault, who skillfully built the fashion giant LVMH through a series of strategic acquisitions. The stake he sold would have been worth about 2.1 billion euros at the time he purchased it.
• Siam Makro Pcl surged as much as 24% after Thailand’s biggest operator of cash-and-carry stores announced a plan worth about 218 billion baht ($7 billion) to take control of retailer Lotus from other affiliates of the Charoen Pokphand Group. The share-price gain was the biggest since August 2013, with the deal leading to Siam Makro taking a 76% stake in the Lotus chain in Thailand, which has about 2,000 outlets, and Malaysia, with a much smaller footprint. Lotus runs outlets ranging from grocery stores, hypermarkets and convenience shops. The deal involves purchases of new shares of Lotus’s parent, closely held C.P. Retail Holding Co., by current owners including listed firms CP All Pcl and Charoen Pokphand Foods Pcl, according to a statement to the Stock Exchange of Thailand. That will trigger a mandatory tender, and after existing owners buy the new shares, they will then sell them to a unit of Siam Makro, the statement said.
• Private equity firm Bain Capital is nearing an agreement to acquire a significant stake in e-commerce company Berlin Brands Group, people with knowledge of the matter said. Bain could announce a deal as soon as Wednesday to buy Ardian’s holding of more than 40% in the business, the people said, asking not to be identified because the information is private. The transaction is set to value the firm at more than 1 billion euros ($1.2 billion) including debt, one of the people said. Berlin Brands Group is among a number of companies that have been raisingbillions of dollars from investors to buy up direct-to-consumer businesses selling products on Amazon.com and other online platforms. The company, founded in 2005, has a stable of 14 brands including home sports gear maker Capital Sports, home appliance firm Klarstein and gardening brand Blumfeldt, according to its website.
• Intuit Inc., the maker of TurboTax and QuickBooks software, is in talks to buy email marketing firm Mailchimp for more than $10 billion, according to people familiar with the matter. No final decision has been made and discussions could fall through, said the people, who asked to not be identified because the matter isn’t public. Another buyer could also emerge for the company and others are interested, they added. The deal would unite two providers of services for small businesses. Intuit has offered QuickBooks accounting software to clients for decades, supplementing it with services such as Credit Karma, which it acquired last year. Mailchimp is focused on digital marketing services, including social advertising, so-called shoppable links and automation products.
• President Joe Biden will seek to reassure Ukrainian President Volodymyr Zelenskiy that the U.S. is committed to countering Russian expansion in the region as the leaders meet for the first time on Wednesday at the White House. The two plan to discuss Ukraine’s national security as it relates to Russia and ways the U.S. can provide assistance, according to a senior Biden administration official. They will also discuss the Ukraine’s anti-corruption efforts. Zelenskiy has had a complicated relationship with the U.S. A phone call with former President Donald Trump became central to his first impeachment after a whistle-blower complained that Trump held up military aid to pressure Zelinskiy to investigate Biden’s son. Trump defended the call as “perfect.”
• U.K. house prices rebounded strongly in August, suggesting underlying demand and a shortage of homes for sale are underpinning the market as a tax break on purchases is withdrawn. The 2.1% increase, the second-largest gain in 15 years, followed a 0.6% decline in July, when the tapering of a yearlong stamp-duty holiday landed buyers of more expensive homes with a significant tax bill. The annual pace of growth accelerated to 11% from 10.5%, the figures from Nationwide Building Society show. The increase was far stronger than predicted by economists, who assumed the phasing out of the stamp-duty holiday in July would continue to weigh on prices in August. However, other drivers of the boom remain intact. These include low borrowing costs, supply shortages, savings accumulated during lockdowns and pandemic-inspired demand for larger homes away from big cities.
• Royal Dutch Shell Plc is making a push to expand its network of electric vehicle chargers in the U.K. to drivers who don’t have private parking. Shell’s Ubitricity unit will install 50,000 on-street charging posts by 2025, according to a statement published Wednesday. It already has about 3,600 chargers in the country in existing infrastructure like street lamps. The U.K.’s Climate Change Committee has said the country needs 150,000 public chargers by the middle of the decade. The U.K. has banned the sale of new petrol and diesel cars from 2030, which will require a swift build out of the charging network. The easiest way to replenish a car battery is at home, but about two-thirds of households in cities and urban environments don’t have off-street parking, according to the National Audit Office.
• The U.K.’s accounting watchdog filed a disciplinary complaint against KPMG LLP, a former partner and current and former employees of the accounting firm over past audits of two U.K. companies. KPMG and the individuals cited provided “false and misleading information” and documents to the Financial Reporting Councilduring its review of two KPMG audits, the regulator said in a statement. One was a 2016 audit of now defunct contractor Carillion Plc and the second a 2014 audit of Regenersis Plc, the regulator said. KPMG said the firm took the matter “extremely seriously” and had alerted the regulator itself when it discovered the issues in 2018 and 2019. The people involved were suspended, it said.
• OPEC and its allies will meet today to review its plans for reviving halted oil production, with delegates expecting the group will ratify another increase in October. With crude prices mostly recovered from their mid-August slump and the supply outlook relatively tight for the rest of the year, the group has little reason to change the established schedule of gradual monthly supply hikes. The delegates, who spoke on condition of anonymity, predicted ministers would approve October’s 400,000 barrel-a-day supply increment at Wednesday’s online meeting. The Organization of Petroleum Exporting Countries and allies including Russia are in the process of rolling back the deep output cuts implemented at the depths of the Covid-19 crisis last year. About 45% of the idle supply has already been revived, and in July the group laid out a plan for gradually returning the remainder through to September 2022.
• Democrats on the House committee in charge of turning Joe Biden’s tax plan into legislation are at odds over how high to increase levies on investment gains, a key part of the president’s agenda. Most House Ways and Means Democrats support Biden’s plan to raise the capital gains rate on those earning above $1 million to 39.6% from 20%, to make it equal with president’s proposal for the top rate on income, according to a lawmaker and a House aide familiar with the talks. About a third of Democrats on the panel, however, are advocating for a lower rate on investments, potentially around 28%, according to the people, who requested anonymity because the discussions are private. Some Democrats on the panel are also balking at Biden’s plan to end a tax preference, known as “step-up-in-basis,” that allows appreciated assets to be passed to heirs tax-free, the people said. Various lawmakers have expressed concern that requiring taxes to be paid when the owner dies would hurt family farms and small businesses.
• A security guard stands at the entrance to every mall in Saudi Arabia’s capital, ready for a pandemic routine shoppers are getting used to: proving their vaccination status on a government phone app that tracks their location at all times. A dystopia for opponents of vaccine requirements from the United States to France is already a reality in Saudi Arabia, which enacted what amount to some of the strictest immunization rules in the world on August 1. As the highly-contagious Delta variant of Covid-19 sends other countries back into lockdown, officials in the world’s largest crude exporter are counting on a strategy that makes vaccination all-but mandatory to keep their economy open. That’s made the nation of 35 million a test case in what happens when people who are reluctant to get inoculated are pushed into a corner.
• Chinese electric carmaker Nio Inc. has become the latest automaker to succumb to supply chain constraints saying Wednesday it will trim its third-quarter delivery outlook due to “continued uncertainty and volatility of semiconductor supply.” Nio now sees deliveries coming in at between 22,500 to 23,500 vehicles for the quarter ending Sept. 30, down from 23,000 to 25,000 previously. Its U.S.-listed stock tumbled 4.9% in premarket trading. Shanghai-based Nio last month posted a narrower net loss of 587.2 million yuan ($91 million) in the three months ended June 30 and said it’s communicating with semiconductor suppliers to mitigate the impact on production from the global chip shortage.
• Hurricane Ida wrecked transmission lines and left New Orleans in darkness, but infrastructure advocates see an opportunity in the destruction for the region to rebuild a grid that’s more resilient to the increasingly violent storms from the warming waters of the Gulf of Mexico. “If we are going to make our country more resilient to natural disasters wherever they are we have to start preparing now,” Louisiana Republican Senator Bill Cassidy said on CNBC. “We can’t look in the rear view mirror and say ‘boy I wish we were prepared.’” Hurricane Ida, which packed some of the most powerful winds ever to hit Louisiana when it made landfall Sunday, took down more than 2,000 miles (3,200 kilometers) of transmission lines owned by Entergy Corp. and 216 substations, plunging more than a million homes and businesses into the dark.
• Higher-yielding emerging-market government bonds outperformed their global peers in August, defying the prospects for higher borrowing costs as the Federal Reserve moves toward reducing monetary stimulus. Fixed-income securities issued by South Africa, Turkey, Indonesia and India posted the biggest gains among 46 sovereign markets tracked by Bloomberg, returning at least 1.2% last month, excluding currency fluctuations. An index of global government debt lost 0.5%, while Treasuries fell 0.2%. Concern about a possible rerun of the 2013 taper tantrum may have been overblown given the resilience shown by high-yielding emerging-market bonds even as Fed Chair Jerome Powell said last week the U.S. central bank could start slowing asset purchases this year. Goldman Sachs Group Inc. sees a smaller reaction in the U.S. bond market than in 2013 as the policy change is being well telegraphed.
• The largest global franchisee of Restaurant Brands International Inc. has picked Citigroup Inc. and HSBC Holdings Plcfor an initial public offering of its Chinese and Turkish outlets on the Borsa Istanbul, people with knowledge of the matter said, marking its latest attempt to sell stakes in its fast-food businesses. TAB Food Investments is working with the banks on a potential first-time share sale for the restaurants that could raise about $250 million and could take place as soon as this year, said the people, who asked not to be identified as the information is private. The firm, which operates U.S. chain outlets such as Burger King and Arby’s in China and Turkey, was weighing a potential IPO in Istanbul, Bloomberg News reported in March.
• The European Central Bank shouldn’t over-interpret the spike in euro-area inflation as it prepares for a policy decision next week, according to Governing Council member Yannis Stournaras. “According to most estimates, the recent jump in inflation is due to temporary factors related to various supply-side bottlenecks caused by the pandemic,” Stournaras, the Bank of Greece governor, said in a Bloomberg interview on Wednesday in the aftermath of August data showing the fastest annual price growth since 2011.  With the ECB’s next decision due on Sept. 9, officials are laying out arguments for the future course of stimulus. Their differing views signal a potentially heated debate between hawkish-leaning members of the Governing Council and those who insist that surging infections and supply-chain bottlenecks could still derail the rebound

 

“Without continual growth and progress, such words as improvement, achievement, and success have no meaning.” – Benjamin Franklin 

*All sources from Bloomberg unless otherwise specified