September 30, 2021

Daily Market Commentary

Canadian Headlines

  • Canadian stocks fell for a second day as tech companies dragged the benchmark index lower. The S&P/TSX Composite declined to 20,158.14 in Toronto, putting it on track for its biggest monthly decline since October.  Lightspeed Commerce contributed the most to the index decline and had the largest move, decreasing 12% after Spruce Point Capital Management said it sees as much as 80% downside risk to the stock. Today, 123 of 234 shares fell, while 107 rose. Five of 11 sectors were lower, led by information technology, healthcare and material stocks. Consumer staples, energy and utility companies rose.
  • Rogers Communications Inc. said Chief Financial Officer Tony Staffieri has stepped down, leaving the company without one of its longest-serving senior executives as it pursues a $16 billion takeover of a rival firm. Toronto-based Rogers, Canada’s largest wireless provider by subscribers, gave no reason for Staffieri’s departure in a statementreleased Wednesday evening. The move is effective immediately. Staffieri will be succeeded on an interim basis by Paulina Molnar, a senior vice-president who’s been at Rogers for 16 years. Rogers said the planned takeover of Shaw Communications Inc.“continues to move forward as previously expected.” The deal, announced in March, would unite the country’s two largest cable providers but must get through a series of regulatory hurdles in Canada, including an antitrust review. It’s not expected to close until the first half of 2022.

World Headlines

  • European equities edged higher, trimming their first monthly drop in eight, as renewed optimism over the economic recovery spurred risk appetite and outweighed concerns over rising bond yields. The Stoxx Europe 600 Index was up 0.2% at 12:40 p.m. in London, having pared an earlier rise of as much as 1%. Miners were among the leading sectors as iron ore climbed, while media and health care outperformed and travel and utility stocks slipped. European equities are rebounding after a slump earlier in the week fueled by concerns around rising bond yields. Macroeconomic statistics painted a mixed picture on Thursday, with U.K. growth stronger than previously estimated, while labor data from Germany suggested fading momentum in the country’s reopening boom.
  • U.S. index futures advanced as optimism grew Washington will avoid a government shutdown and central bankers reiterated elevated inflation is transitory. December contracts on the S&P 500 Index rose 0.4% as dip buyers returned to equity markets after Tuesday’s worst selloff since May 12. Oil-and-gas companies were in focus as Pioneer Natural Resources Co. and Valero Energy Corp. led premarket gains in New York. The dollar erased losses and Treasury yields edged higher. An agreement among U.S. lawmakers to extend government funding removes one uncertainty from a litany of risks investors are contenting with, ranging from China’s growth slowdown to Federal Reserve tapering. Fed Chair Jerome Powell and his European counterpart Christine Lagarde have reiterated their view elevated inflation is transitory, seeking to allay a key concern that’s boosted bond yields and depressed equity valuations.
  • Asian stocks were poised to cap their first quarterly loss since March 2020 as Chinese technology names fell and as investors remained wary over a recent rise in U.S. Treasury yields. The MSCI Asia Pacific Index is set to end the September quarter with a loss of more than 5%, snapping a winning streak of five straight quarters. A combination of higher yields, Beijing’s corporate crackdown and worry over slowing economic growth in Asia’s biggest economy have hurt sentiment, bringing the market down following a brief rally in late August. The Asian benchmark rose less than 0.1% after posting its worst single-day drop in six weeks on Wednesday. Consumer discretionary and communication services groups fell, while financials advanced. The Hang Seng Tech Index ended 1.3% lower as Beijing announced new curbs on the sector, while higher yields hurt sentiment toward growth stocks.
  • Oil traded near $75 as the potential boost to demand caused by the global energy crunch countered the impact of the crisis on the wider economy. Futures in New York pared earlier gains as the dollar erased losses, making commodities priced in the currency less attractive. The market still is likely to be in a deficit of 1.5 million barrels a day over the next six months, according to Citigroup Inc., a figure that could grow even larger should soaring natural-gas prices spur a shift to petroleum fuels. A tighter market is offsetting economic concerns, stoked by a contraction in China’s factory activity in September. Crude is heading for a monthly gain, helped by supply disruptions in the Gulf of Mexico and robust demand. The global energy squeeze likely will feature in OPEC+ talks when the group meets Monday to discuss production policy, with banks including Goldman Sachs Group Inc. and Bank of America Corp. already predicting higher prices this winter.
  • Gold futures on Thursday morning were bouncing between small gains and losses, as the precious metal tried to halt a two-session skid, as a rise in Treasury yields paused, but continued buoyancy in the U.S. dollar seemed set to keep bullion values under pressure. December gold was trading $1.10, or less than 0.1%, higher at $1,724 an ounce, following a 0.8% drop for the precious metal that took it to the lowest most-active contract settlement since March 31, FactSet data show. The dollar was up 0.1% on the session, and up 1.2% on the week, headed for its sharpest weekly gain since June, as measured by the ICE U.S. Dollar Index , while the 10-year Treasury yields fell to 1.525% from 1.54% on Wednesday. A stronger dollar can make assets priced in the currency comparatively more expensive to overseas buyers and rising yields can make the precious metals, which don’t offer a coupon less attractive than bonds.
  • The 2022 Winter Olympics in Beijing will only allow spectators who live in mainland China, setting looser virus restrictions than the no-fans policy at the Tokyo summer games. G-7 health and transport ministers, meanwhile, will meet Thursday to discuss ways to restart international travel. Tokyo will lower its Covid-19 alert from the highest level for the first time in nearly 10 months as infections decline, public broadcaster NHK reported. Daily cases remained elevated in Singapore, again topping 2,200, and a surge of infections in Australia was linked to gatherings to watch a football game. China appears to have brought its latest delta outbreaks under control and Bangkok is set to begin easing restrictions. Vietnam’s commercial hub of Ho Chi Minh City will also start relaxing its tough lockdown. The measures have taken a hefty toll on the nation’s economy, with the statistics office forecasting gross domestic product will rise by just 2.5% this year.
  • The U.K. economy emerged from the winter lockdown more strongly than previously estimated, but the recovery is already running into trouble. Gross domestic product rose rose 5.5% in the second quarter instead of the 4.8% previously estimated, Office for National Statistics figures published Thursday show. The increase, which reflected the reopening of stores and the hospitality sector, left the economy 3.3% smaller than it was before the pandemic struck. Government spending, exports and business investment were all stronger than previously estimated by the ONS.
  • Merck & Co. agreed to buy Acceleron Pharma Inc. in a deal valuing the drugmaker at $11.5 billion, building out its portfolio of therapies to treat cancer and rare diseases. Acceleron shareholders will get $180 a share in cash, the companies said in a statement.  The deal represents a 34% premium over the price at the end of last month, when the shares traded at $133.88. They began soaring in mid-September, and Bloomberg reported Sept. 24 that the company was in advanced sale talks.
  • DNA-sequencing company Oxford Nanopore Technologies Ltd. was valued at 3.4 billion pounds ($4.6 billion) in a London share sale that capitalized on a pandemic boost and strong demand for fast-growing tech stocks in the U.K. Shares in the initial public offering priced at 425 pence each, in the top half of an initial range, according to a statement Thursday. Oxford Nanopore raised 350 million pounds selling new stock, while its backers offloaded existing shares worth 174 million pounds. The University of Oxford spinoff’s holders sold more shares in the IPO than planned due to high demand. The Oracle Corp.-backedcompany provides Covid-19 test kits to Britain’s National Health Service, and its sequencing technology has been used by researchers to characterize the genome of the SARS-CoV-2 virus to identify and track variants.
  • Lordstown Motors Corp., the electric-truck maker running low on cash, is near an agreement to sell its highly politicized Ohio factory to Taiwan’s Foxconn Technology Group, people familiar with the matter said. The companies are set to announce the pact as soon as this week, said the people, who asked not to be named as the plan isn’t yet public. They didn’t disclose the value of the transaction. Lordstown Motors struck a deal with General Motors Co. in late 2019 to buy the plant the automaker opened in 1966. The sale will bring in much-needed funds and potentially help Lordstown Motors realize the benefits of large-scale manufacturing faster by building multiple models in the same facility along with Foxconn. For the biggest assembler of Apple Inc.’s iPhone, the plant would establish the company’s auto manufacturing footprint in the U.S. as it pushes into electric vehicles.
  • Sumco Corp., a maker of silicon wafers for the semiconductor industry, will raise as much as 128 billion yen ($1.1 billion) from a new offering of shares, according to a filing to Japan’s Finance Ministry. The new funding will go to capital expenditure, helping to develop new manufacturing facilities in Japan, the company said on Thursday. Sumco has been one of the beneficiaries of the global surge in demand for chips and resulting push for expanding manufacturing volume as industries from automaking to consumer electronics compete for production capacity. Sumco plans a 228.7 billion yen expansion in response to mounting demand for 300mm wafers. It has been gradually ramping up production already, but its existing facilities are “running out of space,” the company said, and therefore it intends to set up a new plant.
  • President Joe Biden is poised to avoid a disruptive shutdown of the federal government, but deal-making continues on his economic agenda before a planned Thursday vote on an infrastructure package that underscores deep divisions among Democrats.  The Senate will vote Thursday morning — the eve of the new fiscal year — to extend government funding until Dec. 3, sending the package to the House and ultimately to Biden’s desk for signature with just hours to spare. Stripped of Republican-opposed language suspending the debt ceiling, the stopgap funding bill is expected to pass both chambers with bipartisan support. That will be the easiest item on Biden’s legislative to-do list.
  • Investors overseeing more than $4 trillion are banding together to standardize data on environmental, social and governance performance of portfolio companies, in an effort led by the largest pension and one of the largest private-equity funds in the U.S. The California Public Employees’ Retirement System and Carlyle Group Inc. helped rally a group of more than a dozen investors to share and privately aggregate information related to emissions, diversity and the treatment of employees across closely held companies. More firms and institutions are expected to join. “We need to start a common language across all these participants so we can actually, in a sustained way, make some progress,” Carlyle Chief Executive Officer Kewsong Lee said in an interview. “By honing in on a set of common standards and common metrics, we start to standardize the conversations so we can really track progress. It’s really hard to do that right now.”
  • KKR & Co. is ramping up plans to target the ultra-rich by building a global team focused on boosting allocations to its funds by wealth managers, private banks and family offices. The New York-based investment firm recently hired former Blackstone Inc. principal Andrew Cocks and Mark Tucker, previously a managing director at HSBC Alternative Investments, to lead a new London-based private-wealth team for Europe, the Middle East and Africa. UBS Group AG veteran Markus Egloff also joined this year to oversee KKR’s Asia-Pacific wealth unit. The company now has about 30 people working to deliver its products to rich individuals, according to KKR.
  • European natural gas and power prices jumped to records, signaling the supply shortage will only get worse just as the winter season starts on Friday. Stockpiles of everything from gas to coal and water for electricity production are in short supply and there are few signs the situation will improve anytime soon as demand continues to roar back from a pandemic-driven lull. Russian gas flows to Germany’s Mallnow terminal dropped, paring yesterday’s partial recovery. Supplies via the major transit route are about a third less than at the beginning of the week. And European utilities seeking to buy more coal from Russia will also be disappointed as any exports are likely to be limited.
  • China Evergrande Group started returning a small portion of the money owed to buyers of its investment products, weeks after people protested against missed payments. The distressed developer paid the first 10% installment of wealth management products due September on Thursday, in line with a repayment plan announced earlier, according to a statement on its website. Payments have been deposited into investors’ accounts, it said.  The cash installment plan is one of three repayment options offered by Evergrande earlier this month to assuage angry buyers of the high-yield products. The other choices are for investors to receive heavily discounted properties or offset payables remaining on residential units they have already purchased, Bloomberg reported earlier.
  • Bed Bath & Beyond Inc. reported second-quarter sales that missed expectations after the delta Covid-19 variant eroded store traffic, causing the home-goods retailer to reduce its full-year outlook. Revenue in the quarter ended Aug. 28 fell 26% from a year earlier to $1.99 billion, short of the $2.06 billion estimate from analysts compiled by Bloomberg. The closely watched retail metric of same-store sales fell 1%, while Wall Street had projected a gain of 1.8%. For the company’s self-titled stores, same-store sales fell 4%. Bed Bath & Beyond said that store traffic slowed significantly in August amid renewed Covid concerns — especially in large states such as Texas, Florida and California. Those states make up about a third of volume for the retailer. “Therefore, sales did not materialize as we had anticipated,” Chief Executive Officer Mark Tritton said in a statement.
  • A Chinese driver has successfully sued Tesla Inc. for fraud over his purchase of a second-hand Model S, adding to a run of setbacks for Elon Musk’s electric-car pioneer in one of its most important markets. A Beijing court found Tesla had misrepresented the condition of the car bought by Han Chao for 379,700 yuan ($58,700) on the automaker’s official used-car platform, according to a copy of the verdict Han posted to his Weibo account. The car was found to have undergone major repairs following an earlier accident, with the court dismissing Tesla’s defense that signs of welding indicated no “structural change.” Tesla was ordered to refund the cost of the car and pay damages of three times the purchase price — taking the total payout to more than 1.5 million yuan, according to the copy of the ruling Han posted. It’s the first time Palo Alto, California-based Tesla has been hit with such a large penalty in China, local media outlet Caijing reported. Calls to the ruling court, Beijing No. 2 Intermediate People’s Court, went unanswered.
  • Built Technologies, a construction industry-focused financial-technology startup, has more than tripled its valuation to $1.5 billion after raising $125 million in an equity funding round led by TCV. Brookfield Technology Partners, 9Yards Capital, HighSage Ventures and XYZ Venture Capital participated in the fundraising, Chase Gilbert, chief executive officer of Nashville, Tennessee-based Built, said in an interview. Existing investors including Lee Fixel’s Addition, Fifth Wall and Index Ventures also took part. “We’re starting to get a lot of traction, with $74 billion annually transacted through Built,” said Gilbert, who co-founded the company in 2014. Construction lenders U.S. Bancorp, Fifth Third Bancorp and Regions Financial Corp., as well as companies such as D.R. Horton Inc., Discovery Land Co. and Laramar Group, are among the startup’s customers.
  • Investors overseeing more than $4 trillion are banding together to standardize data on environmental, social and governance performance of portfolio companies, in an effort led by the largest pension and one of the largest private-equity funds in the U.S. The California Public Employees’ Retirement System and Carlyle Group Inc. helped rally a group of more than a dozen investors to share and privately aggregate information related to emissions, diversity and the treatment of employees across closely held companies. More firms and institutions are expected to join. “We need to start a common language across all these participants so we can actually, in a sustained way, make some progress,” Carlyle Chief Executive Officer Kewsong Lee said in an interview. “By honing in on a set of common standards and common metrics, we start to standardize the conversations so we can really track progress. It’s really hard to do that right now.”
  • Google parent Alphabet Inc., which earlier this year shut down its moonshot project to beam internet service from high-altitude balloons, is passing the baton to Masayoshi Son’s SoftBank Corp. Alphabet has transfered about 200 patents from its Loon project to the telecoms unit of SoftBank Group Corp., the Japanese company said in a statement on Thursday. SoftBank is developing its own wireless technology that uses fixed-wing autonomous aircraft as a flying base station. Google launched Loon in 2013 as an ambitious effort to blanket the globe with internet connectivity using giant balloons drifting on currents high in the stratosphere, but was forced to close itafter the unit failed to develop a viable business model. SoftBank, one of Japan’s largest wireless operators, invested $125 million in Loon in 2019 for an undisclosed minority stake.
  • Car and motorbike maker Honda Motor Co. is positioning itself for a vertical takeoff. The Tokyo-based company is embarking on efforts to field a new electric-hybrid air taxi, a robot with human-like hands that may one day toil on the moon and a reusable rocket to carry small satellites into space more economically. Honda’s vision of how people will work, travel and spend leisure time in the future will help expand its business beyond cars, lawn mowers and motorcycles. The efforts are a key component of Honda’s “2030 Vision” to broaden the definition of mobility and to improve peoples’ daily lives

“All you need in this life is ignorance and confidence; then success is sure.” —Mark Twain

*All sources from Bloomberg unless otherwise specified