September 7, 2021

Daily Market Commentary

Canadian Headlines

  • Enbridge Inc., the Canadian pipeline giant, agreed to acquire Moda Midstream Operating LLC for $3 billion to add U.S. Gulf Coast oil export capacity. Enbridge is buying Moda for cash from EnCap Flatrock Midstream, it said Tuesday in a statement. The deal will connect Enbridge with oil produced in the Permian and Eagle Ford shale basins. It also includes Ingleside Energy Center, near Corpus Christi, Texas, North America’s largest crude export terminal, which loaded 25% of all U.S. Gulf Coast crude exports last year.

World Headlines

  • European stocks edged lower Tuesday as investors assessed how soon pandemic stimulus could potentially be withdrawn. The Stoxx Europe 600 Index slipped 0.2% as of 9:46 a.m. in London, weighed down by utilities, media and chemicals shares. The telecoms sub-index outperformed, partially propelled by Deutsche Telekom AG’s rally after agreeing to sell a unit for $6.1 billion. European equities are hovering near a record reached mid-August on the back of strong earnings and growth potential. The focus has now shifted to monetary policy, with investors awaiting a meeting on Thursday when the European Central Bank will decide if it will dial down emergency stimulus.
  • Futures on the S&P 500 and Nasdaq 100 indexes were little changed as the U.S. markets reopened after the Labor Day holiday. Equity gains in China and Japan were followed by losses in Europe as investors speculated euro-zone policy makers may get ready to roll back stimulus. Vertex Pharmaceuticals fell in premarket trading after Morgan Stanley downgraded the stock.
  • Asian stocks climbed, driven by Japanese shares that extended a rally after the prime minister’s resignation announcement and a surge in Hong Kong-traded tech names. The MSCI Asia Pacific Index advanced as much as 0.5%, led by the communication-services and consumer-discretionary sectors. Japan’s Nikkei 225 Stock Average briefly broke above the 30,000 level for the first time since April as a reshuffle of the blue-chip gauge added to optimism stoked by potential policy changes that could come under a new national leader. Meanwhile, tech stocks jumped in Hong Kong as Tencent repurchased shares and regulatory announcements related to crackdowns on the sector appeared to take a breather.
  • Brent oil erased gains as the dollar rose, even as Chinese trade data added to positive economic signs emerging from key energy users. Crude in London held steady, after earlier climbing as much as 0.8%, with the dollar’s gain making commodities priced in the currency less attractive.
  • Gold slipped as Treasury yields advanced after the Labor Day break, ahead of auctions that will test appetite for U.S. government debt. Rates on the bonds had already surged following last Friday’s weaker-than-expected jobs report, limiting the upside for non-interest bearing gold. The metal climbed to the highest since mid-July as the dollar retreated in the wake of the data, which pushed back expectations of when the Federal Reserve will taper its massive bond-buying program. Economic turbulence caused by Covid-19’s delta variant is testing expectations for the economic rebound and the pullback of central bank stimulus, supporting bullion. Goldman Sachs Group Inc. cut its forecast for U.S. growth this year, citing a “harder path” ahead for American consumers than expected.
  • Some Asia Pacific economies are easing Covid-19 restrictions. Hong Kong will start letting visitors from China skip the strict quarantine process required for most arrivals, Thailand is reopening for tourism, and much of New Zealand exited lockdown. The European Union’s drug regulator is reviewing the application from Pfizer Inc. and BioNTech SE for an extra dose of their vaccine six months after the second shot. In the U.S., officials are discussing the timing and efficacy of booster shots. Scientists in South Africa said the spread of a new variant there slowed in August, suggesting it’s not likely to become a dominant strain. The Chilean government approved Sinovac Biotech’s vaccine for use on children as young as 6, with shots being administered beginning this month.
  • U.K. Prime Minister Boris Johnson will announce his long-awaited plan to reform social care on Tuesday, risking a major row with his own party over a potential tax rise that could hit young people hardest. The government is likely to confirm plans to go ahead with a 10 billion-pound ($14 billion) tax increase — despite pledging not to in the Conservative Party’s 2019 election manifesto. Johnson’s office has so far skirted around reports that national insurance, a payroll tax, could be raised by at least 1% to both reform social care and tackle the National Health Service backlog that built up during the Covid-19 pandemic. The prime minister will make a statement to the House of Commons Tuesday afternoon, followed by a joint press conference with Chancellor of the Exchequer Rishi Sunak and Health Secretary Sajid Javid.
  • President Joe Biden needs Democrats in Congress to give him a political boost by passing his $4 trillion economic agenda, but deepening divisions in the party threaten the chances of that happening any time soon. Lawmakers are attempting to craft one of the most complex tax and spending bills ever contemplated, with virtually no area of the budget or tax code left untouched, during just a handful of work days this month. The tax-writing House Ways and Means Committee is set to start working on its portion of Biden’s $3.5 trillion plan this week as other committees plow through their components, including education, health care and climate.
  • Carlyle Group Inc. is expanding its diversity push in Europe with a new credit facility that links borrowing costs to boardroom targets. The $276 billion private equity manager has secured an environmental, social and governance-linked credit line of 2.3 billion euros ($2.7 billion) for its European portfolio. It will be Carlyle’s main line of credit for Europe, and includes terms allowing portfolio companies to pay less in interest if they hit certain diversity and climate change metrics, Megan Starr, the firm’s global head of impact, said in an interview.
  • The governors of New York and New Jersey said the Biden administration has approved financial relief for areas devastated by recent floods during storms in the aftermath of Hurricane Ida. The funds, part of the expedited major disaster declaration approved by President Joe Biden, will cover individual and public assistance in Bronx, Queens, Kings, Richmond and Westchester counties in New York, Governor Kathy Hochul said Monday in a press release. New York County is included for public assistance only.
  • State Street Corp. agreed to buy Brown Brothers Harriman & Co.’s investor-services business for $3.5 billion in cash, adding an operation with $5.4 trillion in assets under custody. The deal includes the unit’s custody, accounting, fund-administration, global-markets and technology-services businesses, the companies said Tuesday in a statement. Boston-based State Street said it’s now targeting a pretax margin of 31% because of expected earnings growth from the acquisition. “The investment-servicing industry enjoys strong fundamentals as worldwide growth in financial assets drives industry revenues,” Ron O’Hanley, State Street’s chairman and chief executive officer, said in the statement. “BBH Investor Services brings us strong talent, including industry leading service excellence and quality execution.”
  • KKR & Co. is considering a counteroffer for Zooplus AG, in another potential challenge to Hellman & Friedman’s 2.8 billion-euro ($3.3 billion) bid for the German online pet supply retailer, people with knowledge of the matter said.  The New York-based buyout firm has held talks with Zooplus about a potential deal, the people said, asking not to be identified because the information is private. Zooplus said last week that EQT AB is in discussions about a potential takeover bid, confirming a Bloomberg News report on the European private equity firm’s interest. In August, Hellman & Friedman offered to buy Zooplus for 390 euros per share in cash in a deal backed by the company’s management and supervisory boards.
  • Deutsche Telekom AG agreed to sell its Dutch unit to Warburg Pincus and Apax Partners for 5.1 billion euros ($6.1 billion), one of its largest divestments of recent years. The funds will purchase T-Mobile Netherlands from Deutsche Telekom and venture partner Tele2, which owns a 25% stake, the companies said Tuesday. Bloomberg reported on Monday that the German company could announce a sale of the unit soon. The value of Tele2’s stake is about 860 million euros. The  deal would be one of the largest transactions in the European telecom sector this year, according to data compiled by Bloomberg. Warburg Pincus and Apax previously teamed up in 2019 to take U.K. satellite company Inmarsat Plcprivate in a $3.4 billion buyout deal.
  • China’s export growth unexpectedly surged in August as suppliers likely boosted orders ahead of the year-end shopping season, offsetting any port disruptions due to fresh outbreaks of the delta virus. Exports rose 25.6% in dollar terms from a year earlier to a record $294.3 billion, more than $10 billion above any previous month. Imports grew 33.1% to $236 billion, also the highest level ever, leaving a trade surplus of $58.3 billion for the month, the customs administration said Tuesday. The pickup came despite disruptions at China’s second-largest port last month due to fresh virus outbreaks, which caused congestion and pushed up shipping costs. Global demand remained resilient, especially from the U.S. and Europe, as retailers probably brought forward their Christmas shopping orders.
  • Hong Kong will start allowing visitors from China to skip the strict quarantine process required for most arrivals, a key first step toward reopening the border with the mainland and reviving a flow of visitors that’s long been crucial to the local economy. The city will start a “Come2hk” travel program on Sept. 15 that will allow up to 2,000 non-Hong Kong residents per day from the mainland and Macau to visit the city, Hong Kong Chief Executive Carrie Lam said at a regular press briefing on Tuesday morning.  The program would mark a significant opening of Hong Kong’s pandemic era travel policies — some of the strictest in the world with mandatory hotel quarantines lasting as long as 21 days. The loosened requirements could give an added boost to the city’s economy, since mainland arrivals have long accounted for the majority of tourists and visitors to Hong Kong.
  • China is opening up its market for trading green energy, making it easier for multinationals from BMW AG to Airbus SE to buy wind and solar power and reach aggressive emissions goals. The country is significantly expanding green power trading centers that facilitate contracts between renewable energy companies and electricity users or distributors, the National Development and Reform Commission said Tuesday, as part of moves to deepen reform of its power system across more provinces.  The changes in electricity trading will allow some power users “to take more social responsibilities” to trade directly with wind and solar power projects, with the profit used to support more green power development and production, the NDRC said. China leads the world in renewable energy, but its electricity grid still runs mostly on coal.
  • JPMorgan Chase & Co. has committed more of its balance sheet to European junk bonds and loans than ever before as it bets on continued easy money and transitory inflation. The bank has underwritten around 43 deals so far in 2021, the most on record, while its bridge loan book is the highest since the global financial crisis, according to Ben Thompson and Daniel Rudnicki Schlumberger, co-heads of leveraged finance for Europe, Middle East and Africa. JPMorgan is upping the ante even as strategists at HSBC Holdings Plc warn that euro credit markets have become over-priced and buffers too thin to weather shocks. U.S. and European junk bonds are leading returns in fixed-income markets tracked by Bloomberg this year, up 4.7% and 4.5% as investors plow record amounts of cash into the market.
  • Solid Power, a maker of solid-state batteries for electric vehicles, is expanding its factory outside Denver to scale production so it can deliver test cells to Ford Motor Co. and BMW AG in early 2022. The startup, which counts both carmakers as investors, is building a new facility at the Colorado site to increase output of sulfide-based solid electrolytes — a material that helps shuttle ions back and forth in a battery to generate power. It’s also building a new pilot line to produce 100 ampere battery cells, the capacity required by its automotive partners. Solid Power and rivals such as QuantumScape Corp. and SES Holdings Pte are developing solid-state batteries, an innovation that, if successful, holds the promise of dramatically speeding up EV adoption by providing automakers with a safer, cheaper alternative to lithium-ion batteries.
  • Credit Suisse Group AG said it made a $400 million payment to investors in its supply-chain finance funds that invested in Greensill products, its fourth such disbursement to clients hit by the liquidation. The Aug. 6 payment takes the total paid to investors in the funds to about $5.9 billion, according to an updated Q&A on the bank’s website on Tuesday. The funds’ total cash position is about $7 billion, or about 70% of assets under management when they were suspended, it said. The collapse of Greensill marked an early reversal in Chief Executive Officer Thomas Gottstein’s tenure, before the bank was hit by the even bigger meltdown at hedge fund client Archegos Capital. After Greensill, Gottstein replaced asset management head Eric Varvel and removed the business from direct oversight of wealth management.
  • First Abu Dhabi Bank PJSC has kicked off the sale of a stake in its payments business Magnati, in a potential deal that could value the unit at about $1 billion, people familiar with the matter said.  The banking group is working with Morgan Stanley to reach out to potential investors, according to the people, who asked not to be identified because the information is private. The sale could attract interest from companies in the financial industry as well as private equity firms, the people said.  FAB is considering keeping a stake in Magnati after any deal, the people said. Deliberations are ongoing, and no final decisions on the scope of the potential disposal have been taken, according to the people.

“People who are crazy enough to think they can change the world, are the ones who do.”- Rob Siltanen

*All sources from Bloomberg unless otherwise specified