April 14, 2021

Daily Market Commentary

Canadian Headlines

• Royal Bank of Canada and Bank of Nova Scotia have signed on to help provide the C$19 billion ($15.2 billion) bridge loan raised by Rogers Communications Inc. to buy a smaller rival, according to a person familiar with the matter. Bank of America Corp., which was initially the sole lender on the transaction, carried out a first round of the syndication with the two Canadian banks, said the person who asked not to be named as the matter is private. The banks plan to carry out another general syndication round, the person said. Bank of America continues as the larger lender on that transaction, the person said. Representatives for Rogers, Bank of America, RBC and Scotiabank declined to comment. Toronto-based Rogers said last month it agreed to buy Shaw Communications Inc. for about C$20 billion in one of the largest merger and acquisition deals in Canada. The transaction was announced as the country’s telecom carriers are getting ready for an auction of 5G airwaves, for which bidding is expected to start June 15.
• Canaccord Genuity Group Inc. is willing to raise its takeover price for RF Capital Group Inc. “substantially” but can’t get its rival to discuss a deal, Chief Executive Officer Dan Daviau said. A merger would unite two of Canada’s largest independent firms in wealth management, which together have more than C$110 billion ($87.7 billion) in client assets. Canaccord said last month it offered C$2.30 a share for RF and was rejected by the board. “We’re prepared to increase our price substantially, but we don’t know what price they’re looking for because they won’t talk to us,” Daviau said in an interview. The updated proposal would include improved terms for RF Capital’s investment advisers, Daviau said in an interview. He declined to say what price Canaccord would be willing to pay for RF Capital. The current proposal values the firm at C$367 million.

World Headlines

• European shares traded slightly higher on Wednesday as investors focused on the earnings season amid the gradual economic reopening. The Stoxx 600 Index was up 0.2% of 12 p.m. in London, as technology and basic resources stocks climbed, although telecom shares dropped. Luxury-goods giant LVMH jumped 2.6% after saying first-quarter sales soared. As the market hovers near record highs after recovering from the losses triggered by the pandemic, investors are scrutinizing earnings reports for signs of strength in the economic recovery. Tesco Plc was among the weaker performers, falling 2% after the U.K. grocer signaled growth may decelerate as lockdown restrictions ease. But German software giant SAP SE climbed 3.5% after raising the lower end of its guidance.
• U.S. futures were steady, while European and Asian stocks advanced as investors weighed earnings from companies including some of the world’s biggest banks. Treasury yields edged higher. Contracts on the S&P 500 Index were little changed, with JPMorgan Chase & Co. down 0.6% in pre-market trading after warning that loan demand remained tepid. Discovery Inc. declined after Credit Suisse Group AG unloaded about $2 billion of stocks tied to the Archegos Capital Management blowup, including those of the media company. With global equities hovering near all-time highs, investors are looking to the earnings season for further catalysts. Expectations of a strong profit rebound have helped markets rally, setting the bar high as reporting gets underway. More broadly, investors are monitoring vaccine developments for any threats to the economic recovery, while also keeping an eye on rising inflation.
• Asian stocks gained Chinese technology giants climbed in Hong Kong following an overnight decline in U.S. Treasury yields. Meituan and Tencent were among the biggest boosts to the MSCI Asia Pacific Index, which rose for a second day, as well as the Hang Seng Index. A gauge of tech shares in Hong Kong jumped as much as 3.2%. Meituan and other tech firms issued pledges to obey antitrust laws, a day after Beijing gave them a month to conduct internal reviews and comply with guidelines. Japanese stocks fell on virus concerns amid the nation’s slow vaccine rollout and as four more prefectures were reported to be seeking stricter control measures.
• Oil advanced for a third day after the IEA lifted its forecasts for demand and an industry report pointed to another decline in U.S. crude stockpiles. Futures rose 1.6% in New York and are heading for the longest run of gains in over a month. The International Energy Agency lifted its forecasts for oil consumption this year by 230,000 barrels a day amid a stronger outlook for the U.S. and China. It follows an upbeat outlook for demand from OPEC on Tuesday. The American Petroleum Institute reported crude inventories fell by 3.61 million barrels last week, according to people familiar with the data. It will be a third straight draw if confirmed by government data Wednesday.
• Gold held gains as investors weighed the combination of an uptick in U.S. inflation, a weaker dollar and steadying Treasury yields. U.S. consumer prices climbed in March by the most in nearly nine years as the end of pandemic lockdowns triggered a rebound in the cost of gasoline, according to data on Tuesday. Still, Federal Reserve policy makers have said that they see price pressures as temporary due to on-year distortions. Bullion has traded in a narrow range in recent weeks, with shifts largely driven by movements in the dollar and bond yields. Treasuries held a rally following a successful sale of 30-year bonds, which resolved concerns that poor demand could spark another bout of volatility. The drop in yields Tuesday aided the non-interest-bearing precious metal as the U.S. currency weakened.
• Goldman Sachs Group Inc. is doubling down on its bullish outlook for copper, with the bank forecasting prices will hit $15,000 a ton by 2025 as the global green-energy transition propels demand. Copper has been treading water at around $9,000 in recent weeks, but much higher prices will be needed to replenish supplies as usage in electric vehicles and renewable-energy projects surges, Goldman analysts Nicholas Snowdon, Daniel Sharp and Jeffrey Currie said in a note titled “Copper is the new oil.” Goldman joins leading metals trader Trafigura Group in betting that copper will attain all-time highs above $10,100 a ton, and push substantially higher from there. At the center of both forecasts is a warning that the market will run drastically short of copper in the next few years unless prices rise sharply to spur supply.
• A White House plan to rapidly shore up the security of the U.S. power grid will begin with a 100-day sprint, but take years more to transform utilities’ ability to fight off hackers, according to details of a draft version of the plan confirmed by two people. The plan is the policy equivalent of a high-wire act: it provides incentives for electric companies to dramatically change the way they protect themselves against cyber-attacks while trying to avoid political tripwires that have stalled previous efforts, the details suggest. Among its core tenets, the Biden administration’s so-called “action plan” will incentivize power utilities to install sophisticated new monitoring equipment to more quickly detect hackers, and to share that information widely with the U.S. government.
• Amazon, Google, G.M. and Starbucks were among those joining the biggest show of solidarity by businesses over legislation in numerous states. Amazon, BlackRock, Google, Warren Buffett and hundreds of other companies and executives signed on to a new statement released on Wednesday opposing “any discriminatory legislation” that would make it harder for people to vote. It was the biggest show of solidarity so far by the business community as companies around the country try to navigate the partisan uproar over Republican efforts to enact new election rules in almost every state. Senior Republicans, including former President Donald J. Trump and Senator Mitch McConnell, have called for companies to stay out of politics.
• Nasdaq Inc., an exchange that has never hosted a major direct listing, is about test its hand on the most valuable company to go public using one. Coinbase Global Inc., the largest U.S. cryptocurrency exchange, is set to debut on Wednesday through a direct listing, an alternative to a traditional initial public offering that has only been deployed a handful of times. WhileSlack Technologies Inc., Palantir Technologies Inc. and most recently Roblox Corp. all listed on the New York Stock Exchange, Coinbase picked the younger bourse known for tech-oriented companies. Nasdaq on Tuesday set a reference price of $250 a share for Coinbase’s direct listing, a number that’s a requirement for the stock to begin trading, but not a direct indicator of the company’s potential market capitalization. Investors will have a better sense of valuation once shares start trading Wednesday.
• Pfizer Inc. and BioNTech SE expect to deliver more vaccines to the European Union this quarter than currently targeted, offering good news to the bloc after deliveries of Johnson & Johnson’s shot were paused. South Africa is facing delays to vaccine supplies because of “unreasonable terms” being demanded by manufacturers including J&J. Germany’s rate of infections climbed further beyond a key threshold, a day after the government approved legislation that mandates tougher restrictions in virus hotspots. President Emmanuel Macron will meet with ministers to prepare the rules for reopening businesses next month.
• The European Union set out its blueprint to raise nearly $1 trillion of debt over five years as it seeks to fund its recovery from the coronavirus pandemic. The bloc is aiming to issue the first debt under its NextGenerationEU stimulus as early as July and will use a “state of the art” platform to begin selling bonds and bills via a network of primary bank dealers by September, according to the bloc’s executive branch. Almost a third of the roughly 800 billion euros ($957 billion) will be in green bonds, using a framework of rules to be published in early summer, with issuance as early as the fall. It highlights the ambition of the EU’s first meaningful entry into bond markets, which will see the total of outstanding bonds closing in on that of Spain’s this decade. It also lays the foundation to challenge U.S. Treasuries in coming years as a haven asset, providing a boost to integration in the region and for its common currency.
• Federal Reserve officials are just as worried about an inflation rate that runs too cold as one that runs too hot. While rising prices are in the spotlight now as the economy reopens and demand surges, the longer-run trends that have suppressed costs globally could re-emerge as the pandemic ends, some policy makers warn. That would make it harder to deliver on their new strategy of running inflation above their 2% target for a time in order to achieve that goal over the longer run. “We are probably more likely to be successful with the new monetary policy regime than if we didn’t have it,” Boston Fed President Eric Rosengren said in a Bloomberg News interview this week. But based on the experience of the last decade “you have to take seriously the idea that it is not going to be that easy to get 2% inflation.”
• JPMorgan Chase & Co.’s dealmakers just helped usher in the firm’s best first quarter on record, but shares fell as the bank warned that loan demand remains tepid. Investment-banking fees soared 57%, beating analysts’ estimates and boosting net income to $14.3 billion, the most JPMorgan has ever earned for the first three months of the year. A larger-than-expected reserve release added to the windfall as the bank determined it didn’t need as much socked away for future loan losses. Chief Executive Officer Jamie Dimon said loan demand “remained challenged,” but he said government stimulus and potential infrastructure spending mean “the economy has the potential to have extremely robust, multiyear growth.”
• Credit Suisse Group AG unloaded about $2 billion of stocks tied to the Archegos Capital Management blowup in the second such block sale since the bank wrote down the bulk of its exposure in the first quarter. The stock offerings included Discovery Inc. and Iqiyi Inc., adding to some $2.3 billion worth of shares tied to the debacle that the bank sold last week, according to people familiar with the matter. The trades follow a torrent of similar transactions that had already erased about $194 billion in market value as banks from New York to Zurich and Tokyo unwound leveraged equity bets by Bill Hwang’s family office. Shares of Credit Suisse fell as the sale adds to evidence that the Archegos collapse could impact the bank beyond the first quarter, when it took a 4.4 billion franc ($4.8 billion) writedown, its worst trading hit in more than a decade. While the Swiss bank has substantially reduced its exposure, transactions since the end of March weren’t included in the first-quarter results, a person familiar with the matter has said.
• Saudi Arabia is celebrating one of the biggest foreign-investment windfalls in its history after netting more than $12 billion by selling off a stake in the oil pipelines that traverse the desert kingdom. But the country may also be facing an uncomfortable reality as a result. As carefully cultivated relationships with firms such as BlackRock Inc. and SoftBank Group Corp. have yet to draw in the desired investment, it’s turning to the jewels of its energy industry to attract new money. Last week’s sale of the stake to EIG Global Energy Partners LLC shows how reliant Saudi Arabia is on its traditional mainstay and the challenges Crown Prince Mohammed bin Salman faces in diversifying the country away from oil and gas to achieve his Vision 2030 goal. The likes of BlackRock and SoftBank haven’t invested back into the country as much as the government might have hoped, while foreigners favor revenue-rich energy assets over tourism and entertainment.
• Grupo Televisa SAB and Univision Holdings Inc. will merge their content and media assets in a deal valued at $4.8 billion, deepening ties between the two giants of Spanish-language TV. Televisa, Mexico’s top broadcaster, will remain the largest shareholder in the new Televisa-Univision, with an equity stake of about 45%, according to a statement Tuesday. Under the terms of the agreement, Televisa will receive $3 billion in cash and $1.5 billion in Univision equity. Teaming up with Televisa will help bolster Univision’s push into streaming. Though Univision is the largest provider of Spanish-language TV and radio content in the U.S., it hasn’t become as big a force online. Less than 10% of the Spanish-speaking population currently uses a streaming service, compared with 70% in the English-speaking market.
• The pause in the rollout of Johnson & Johnson’s Covid-19 vaccine marks another setback for the world’s inoculation campaign, just as it was picking up speed in Europe and other regions where immunizations have lagged. The drugmaker suspended shots in Europe after U.S. officials urged pausing vaccinations to review rare cases of deadly brain clots, similar to those seen with AstraZeneca Plc’s vaccine. Several countries in Asia were on the verge of deciding whether to approve J&J’s inoculation before the safety issue arose, while Australia had already ruled out any purchases. In the European Union, which is struggling to quell a fresh wave of the pandemic, the suspension came as the bloc was finally accelerating vaccinations after trailing far behind the U.S. and U.K. Without J&J’s one-dose shot, it would take until December to inoculate three-quarters of the EU population, according to Airfinity Ltd., a London-based research firm.
• The residents of Irkutsk, one of Russia’s coldest regions, are used to harsh winters. But when the temperature dropped to negative 60 degrees Celsius (-76 Fahrenheit) last January, even they had to submit to the elements. “Please stay at home unless absolutely necessary,” Governor Igor Kobzev pleaded on Instagram. With the cold came the heaviest snowfall in 25 years. It blanketed Siberia, the Far East and central Russia. When temperatures starting rising at the end of March, the Ministry of Emergency Situations warned that the melting snow may cause dangerous floods.  Russia is one of the countries most vulnerable to climate change. A significant part of its territory is in the Arctic, which is warming more than twice as fast as the rest of the world. That’s manifested in Siberia’s unusually high 2020 temperatures, two consecutive years of record wildfires and thawing permafrost—the frozen ground that covers vast swaths of the country.
• Zhejiang Geely Holding Group Co. is considering raising about $1 billion to help expand its iconic British sports and racing automotive business Lotus Cars into the electric vehicles market in China, according to people familiar with the matter. Geely is working with advisers to sound out potential investor interest in a funding round that could value Lotus’s EV operations at about $5 billion, the people said, asking not to be identified because the matter is private. Separately from the fundraising, the Chinese company is also weighing an initial public offering of Lotus Cars, or just the British carmaker’s EV business, as soon as next year, the people said. A listing could value the entire business, including its combustion-driven sports and racing cars, at more than $15 billion, the people said.
• The U.K.’s Competition and Markets Authority has provisionally approved the U.K. tie-up of Liberty Global Plc’s Virgin Media and Telefonica SA’s O2 division, saying competition won’t be adversely affected. “The deal is unlikely to lead to higher prices or a reduced quality of mobile services,” Martin Coleman, chair of the inquiry, said in a statement. “Customers should continue to benefit from strong competition.” The 31.4 billion-pound ($43.3 billion) deal will create the U.K.’s largest phone and internet operator, becoming a major competitor to BT Group Plc in offering fixed and wireless phone, broadband and television.
• Ryanair Holdings Plc lost three more court challenges to Covid-19 bailouts for rival carriers after a European Union court said support for Finnair Oyj and SAS AB didn’t break the bloc’s state-aid rules. In two cases concerning SAS, the EU General Court ruled Wednesday that Swedish and Danish aid “does not amount to unlawful discrimination.” In a third case, the judges said a 600 million-euro ($718 million) loan guarantee for Finnair is also in line with EU law. Ryanair, which earlier this month warned that it will struggle to return to profit this year, has filed more than a dozen lawsuits contesting EU approvals for pandemic aid doled out by governments to carriers including Deutsche Lufthansa AG and Air France-KLM. The Irish low-cost carrier argues that the aid for selected airlines creates an unfair advantage and will help rivals to emerge stronger, slash fares and swallow up others.
• Toshiba Corp. said Chief Executive Officer Nobuaki Kurumataniwill be replaced by Chairman Satoshi Tsunakawa, an abrupt leadership reshuffling that casts doubt on potential buyout offers for the $20 billion Japanese icon. Toshiba said the changes are effective immediately in an announcement Wednesday. The company will soon begin considering successors for Tsunakawa, who returns to the CEO job he held previously, said Osamu Nagayama, chairperson of the board, during a press conference in Tokyo. The decision came as factions within the conglomerate mounted resistance to a preliminary buyout offer from CVC Capital Partners — where Kurumatani previously worked as Asia chief. Some executives felt the offer undervalued a storied Japanese corporation that still held valuable energy and semiconductor assets, according to people familiar with matter, who declined to be identified discussing internal issues. Separately, private equity firm KKR & Co. is exploring a rival offer for Toshiba, Bloomberg News reported.
• Egypt seized the giant container vessel that blocked the Suez Canal last month as part of an effort to get more than $900 million in compensation. A court in the city of Ismailia granted a seizure request regarding the Ever Given vessel at the behest of the Suez Canal Authority. Egypt’s move underscores the legal complications following the container vessel’s grounding on March 23, which closed the canal for six days and roiled shipping markets. Logjams are expected to continue in the coming weeks at major ports such as Singapore and Rotterdam because of disruptions to schedules, according to supply-chain data provider project44.
• China criticized the U.S. for sending a group of former officials to Taiwan, saying the move will only add to mounting tensions. Two former deputy secretaries of state, Richard Armitage and James Steinberg, and former Senator Christopher Dodd arrived in Taipei Wednesday afternoon as part of a White House delegation marking the 42nd anniversary of the Taiwan Relations Act, the U.S. law governing Washington’s unofficial relationship with Taipei. The delegation had to undergo multiple tests for Covid-19 before and after arriving at Taiwan and will have to maintain social distancing and wear masks at all times, the Taipei-based Central News Agency reported, citing Central Epidemic Command Center spokesperson Chuang Jen-hsiang. He said it is the same “diplomatic bubble” that was used during U.S. Health and Human Services Secretary Alex Azar’s visit to Taiwan last August.
• The International Monetary Fund said the Bank of Japan still has scope to shift its yield target to a shorter maturity to mitigate side effects on the financial system even after its policy review last month, according to an IMF official in charge of monitoring the world’s third-largest economy. “The new adjustments taken by the BOJ are good innovations for the monetary policy framework, which should make the framework more sustainable and flexible,” Ranil Salgado, the IMF mission chief for Japan, said in an interview with Bloomberg. “If in the future further adjustments are needed, one option we suggested last year could be shifting the yield curve target to 5 years.”
• China is taking more direct steps to mend relations with U.S. investors, ramping up its communication with businesses in an environment of heightened economic tensions between the two nations. Officials from the National Development and Reform Commission, the government’s top economic planning body, met Tuesday with representatives of companies like Tesla Inc., Qualcomm Inc. and Dell Technologies Inc. — the first of possibly more similar meetings planned with U.S. firms. Separately, Premier Li Keqiang spoke to U.S. business leaders Tuesday on a video conference hosted by former U.S. Treasury secretary Henry Paulson, saying economic “decoupling” between the two nations serves no good. And next week high-profile American executives like Apple Inc.’s Tim Cook and Tesla Inc.’s Elon Musk will participate in China’s Boao Forum for Asia.
• Bed Bath & Beyond Inc.’s higher shipping and e-commerce costs eroded profitability in the fourth quarter, although the home-furnishings retailer reported a stronger-than-expected same-store sales gain. The increase in online sales and freight expenses led to higher costs for the company, contributing to a gross margin of 31.5%, which was below the estimate compiled by Bloomberg. Those costs aren’t being passed on to consumers, Chief Executive Officer Mark Tritton said in an interview. “We’re absorbing those costs and we’ve been able to have it offset with some of the benefits in the business,” he said. Some of the impact has been countered by a focus on more profitable products and optimizing the retailer’s strategy on markdowns, he said.

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*All sources from Bloomberg unless otherwise specified