April 19, 2021

Daily Market Commentary

Canadian Headlines

• Justin Trudeau is set to unveil a vision for Canada’s post-pandemic recovery that will double as an election platform, heavy on new spending and assurances the mounting debt is affordable. The April 19 budget, the prime minister’s first full fiscal plan since before Covid-19 hit, is an opportunity to lay out longer-term aspirations he’ll be able to campaign on in a national vote that could see him regain his parliamentary majority. Trudeau’s government has signaled as much as C$100 billion ($80 billion) in additional money over the next three years for initiatives from childcare to green energy. Expectations are being set so high that an even more ambitious plan can’t be ruled out. Finance Minister Chrystia Freeland has described the budget as “among the most significant of our lifetime.” To help business while the pandemic still rages, the government will extend wage and rent subsidies until September and implement a new program to temporarily subsidize new hiring, at C$1,100 per month for every new employee, according to a person familiar with the budget’s contents who requested anonymity before its release.
• Nutrien Ltd., the world’s largest fertilizer maker, named Mayo Schmidt its new chief executive officer, replacing Chuck Magro, who stepped down to pursue new opportunities. Magro will be available to the company until May 16 to facilitate a smooth transition, the Saskatoon, Saskatchewan-based company said in a statementSunday night. For Schmidt, who briefly played for the Miami Dolphins in the 1980s, it’s his third opportunity to run a public company in Canada. He took over agricultural company Saskatchewan Wheat Pool and rebuilt it after a wrenching restructuring under a new name, Viterra Inc., before it was bought by Glencore Plc in 2012. Later he became CEO of Hydro One Ltd., an electrical utility in Ontario.

World Headlines

• European equities edged higher to extend a record high as travel stocks, miners and autos rallied, fueled by optimism over the earnings season and an economic recovery. The Stoxx 600 Index was up 0.1% by 8:21 a.m. London time, touching an intraday peak as cyclical sectors climbed. Shares of French auto parts maker Faurecia SA rallied 1.5% after its first-quarter revenue beat analyst estimates. ABN Amro Bank NV gained 2.5% after the lender agreed to pay 480 million euros ($574 million) to end a Dutch probe. European stocks have been buoyant so far in April, with the Stoxx 600 Index up over 3% this month and 11% year-to-date, hitting new heights recently. While worries remain over the pace of the vaccine rollout, investors are betting on an economic rebound and hopes that countries will soon be able to ease lockdown restrictions.
• U.S. equity futures slipped while European stocks held steady on Monday as investors awaited a fresh round of corporate earnings with global shares sitting at record highs. The dollar slid. S&P 500 Index contracts dropped modestly from a record chalked up last week as earnings season continued, with IBM and United Airlines Holdings Inc. due to report. Shares in the Coca-Cola Company rose in pre-market trading after comparable earnings per share beat analyst estimates. The risk of another destabilizing increase in borrowing costs has also subsided, as bond yields have pulled back from recent highs. This week traders will look for further confirmation of the private sector’s recovery from the pandemic as the earnings season gathers pace.
• Chinese stocks outperformed amid easing concerns about the health of state enterprise China Huarong Asset Management Co., a distressed-debt manager. China’s financial regulator on Friday said Huarong had ample liquidity, the first official comments since the company missed a deadline to report earnings. Ebbing fears of contagion drove a rally in Huarong bonds. Robust economic data from China and the U.S. last week helped push the MSCI All-Country World Index to another record despite concerns surrounding the spread of Covid-19 variants. New infections in the past week surpassed 5.2 million, the most since the pandemic began.
• Oil steadied near $67 a barrel as the benefits of a weaker dollar were offset by the sweep of the coronavirus pandemic across key importer India. Brent futures traded little changed, paring an earlier decline as the dollar slipped, making commodities priced in the currency more attractive. Yet India reported record Covid-19 infections on Monday in a further blow to fuel demand. Last week, crude futures were boosted by a wave of positive economic datafrom the U.S. and China, a drawdown in stockpiles, and optimistic assessments of the prospects for consumption over 2021 from both the Organization of Petroleum Exporting Countries and the International Energy Agency.
• Gold climbed to the highest in seven weeks as the dollar and Treasury yields continued to pare first-quarter gains. U.S. bonds rallied on Monday, bringing yields down further from the peak reached at the end of March and easing the pressure on non-interest bearing gold. The dollar has suffered from the brightening outlook, further boosting the precious metal. Bullion has broken out of its recent narrow trading range, with prices rising above the 50-day moving average as 10-year Treasury yields and the dollar trend lower. While last week’s robust U.S. and Chinese economic data signal a recovery from the pandemic, potentially weighing on demand for the haven asset, the Federal Reserve’s dovish monetary policy stance is underpinning support for gold.
• Emerging-market bulls who’ve benefited from moderating U.S. Treasury yields are bracing for a relapse as political risks pile up. MSCI Inc.’s developing-nation stock gauge extended a three-week winning streak on Friday, while a basket of currencies capped its biggest weekly advance since early February. The risk premium on emerging-market sovereign debt also narrowed to 339 basis points over U.S. Treasuries, its lowest since February 2020, according to data compiled by JPMorgan Chase & Co. Yet the rally is prompting some traders to reassess their bets. Russian shares, which led last week’s equity advance, may come under pressure as the Biden administration evaluates its options to escalate sanctions. South Africa’s rand, the top currency performer in the developing world, is particularly exposed to a potentially stronger dollar, Andres Jaime, a New York-based strategist at Morgan Stanley, wrote in a note. There’s also concern that Treasury yields, which have declined for two straight weeks, will revert back to their trend in the first quarter, when U.S. bonds suffered their worst rout since 1980.
• Global covid-19 cases hit a weekly record despite vaccine rollouts, topping 5.2 million worldwide. The European Union exercised its option for a further 100 million doses of Pfizer Inc. and BioNTech SE’s Covid-19 vaccine, boosting its order from the companies to 600 million doses. U.K. Prime Minister Boris Johnson canceled a visit to India next week amid soaring coronavirus cases in the country and the emergence of a new variant. The Philippines will resume the use of AstraZeneca Plc’s coronavirus vaccines on individuals under 60 years old. Quarantine-free travel kicked off between Australia and New Zealand.
• President Joe Biden is asking congressional Democrats to vote for a tax increase that will test a long-held liberal article of faith: that many wealthy Democrats won’t mind paying more in taxes if they can be convinced the money would lead to greater prosperity for everyone. Democrats now represent 65% of taxpayers with a household income of $500,000 or more, according to pre-pandemic Internal Revenue Service statistics. And as Congress begins considering Biden’s $2.25 trillion spending and tax proposal, Democrats are being explicit with their constituents about how much it’ll cost them — and how much they say it will begin to address issues like income inequality. The sales pitch reflects their theory that wealthy Democrats will support paying higher taxes because of a changed economy and a political realignment that’s put cultural issues ahead of traditional pocketbook issues in voters’ minds.
• Coca-Cola Co.’s sales beat expectations in the first quarter as the soda maker said it saw early signs of recovery in demand, particularly in areas with stronger rates of vaccination against Covid-19. Organic revenue climbed 6% in the quarter ended April 2, compared with the estimated 0.5% growth analysts had been expecting, according to forecasts compiled by Bloomberg. Global unit case volume — a key metric for beverage companies — was flat, according to a statement Monday, showing the beverage giant has stabilized from the pandemic-induced slump.
• Investors added money to exchange-traded funds that buy emerging market stocks and bonds last week. This was the 24th straight week of inflows. Inflows to U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $749.3 million in the week ended April 16, compared with gains of $1.3 billion in the previous week, according to data compiled by Bloomberg. So far this year, inflows have totalled $23.9 billion.
• Chinese delivery giant Meituan is seeking about $10 billion from the sale of new stock and convertible bonds as it works to strengthen its lead in meal delivery while expanding in new areas such as groceries and ride-hailing. The nation’s third-largest internet company is selling about 187 million shares at HK$265 to HK$274 in a top-up placement, as well as raising $400 million from shareholder Tencent Holdings Ltd, according to terms of the deal obtained by Bloomberg News. It is also selling about $3 billion in zero-coupon convertible bonds. The price range for the placement represents a discount of 5.3% to 8.4% to Monday’s closing price of HK$289.20. The convertible bonds are divided in two tranches, with Meituan selling as much as $1.48 billion in six-year notes and as much as $1.5 billion in seven-year paper, the terms show.
• Gulf Energy Development Pcl, Thailand’s biggest power producer by market value, offered to acquire Intouch Holdings Pcl that control’s the nation’s largest mobile phone operator for as much as 169 billion baht ($5.4 billion). Intouch shares surged the most in more than two years. The Bangkok-based company, controlled by billionaire Sarath Ratanavadi, offered to buy 2.6 billion shares, or about 81% of Intouch, that it doesn’t already own at 65 baht each, it said in an exchange filing. The offer price is 11% higher than Intouch’s close on Friday. While Intouch shares jumped 7.7% on Monday, the most at close since January 2019, Gulf Energy tumbled 1.5% to close at a five-month low. Gulf Energy will also tender for 100% of Advanced Info Service Pcl, Thailand’s biggest mobile phone company controlled by Intouch, at 122.86 baht each. The Advanced Info offering will be subject to Gulf Energy securing at least 50% of Intouch, it said.
• Peloton Interactive Inc. shares slumped 5.7% premarket Monday after U.S. regulators warned consumers to stop using the exercise equipment maker’s Tread+ machine if there are young children or pets at home. The advisory follows a series of accidents involving the treadmill and the U.S. Consumer Product Safety Commission (CPSC) said Saturday it is continuing to investigate incidents of injury or death related to the Tread+. Peloton said in a statement that it was “concerned” by the commission’s warning, which it termed “misleading and inaccurate.” There’s no reason to stop using the Tread+ as long as all warnings and safety instructions are followed, it said.
• GameStop Corp. shares jumped after the retailer said Chief Executive Officer George Sherman will leave before the end of July, ending a tenure marked by a struggle to reverse declining sales and missed performance targets. The company’s board is looking for a replacement to “accelerate the next phase of the company’s transformation,” Grapevine, Texas-based GameStop said in a statement Monday. Sherman has held the position since April 2019. The video-game retail chain has become a favorite of Reddit-reading day traders this year, sending the stock soaring several-fold. But it has struggled to pull out of a sales slump as the industry makes more games available for download and customers increasingly order gear online. GameStop missed both sales and profit estimates in its most recently reported quarter, despite getting a bump from new consoles.
• Citigroup Inc. is pushing ahead to set up new investment banking and trading operations in China after the lender announced it would be exiting retail banking in the world’s second-largest economy. The New York-based bank plans to submit an application for a securities license to allow it to underwrite yuan-denominated shares and conduct trading for clients, as well as a license for futures brokering within the next two months, said a person familiar with the matter, who asked not to named because the information is confidential. The aim is to get the businesses up and running in 12 to 18 months, the person said. A chief executive officer will soon be named for the business and 50 people will be hired initially with a plan to grow to about 100 over time, the person said. The bulk will be external hires but it will also transfer bankers from other mainland businesses to fill the gap, the person said. The U.S. bank is a late entrant into China’s securities market after the country lifted foreign ownership restrictions and allowed full control starting last year, as it was in the process of unwinding a venture with Orient Securities Co.
• A new poll out Monday said half of New York voters think Andrew Cuomo should continue leading the state despite the multiple scandals surrounding him, although an overwhelming majority of those surveyed don’t want the embattled Democratic governor to run for re-election in 2022. Cuomo’s approval rating in the Siena College poll has sunk to its lowest point since he took office in 2011, with only 40% of New York registered voters having a favorable view of him. That’s down from 56% in February and a high of 77% reached last year during the early days of the coronavirus pandemic, according to the poll.
• Investors betting against Treasuries — or even just hiding out in cash waiting for lower prices — just suffered a rough week, even after a robust slate of economic figures showed the rebound from the pandemic is gaining steam. The debate over the long-term outlook for the $21 trillion market is far from over. The bearish view has dominated in 2021, but it was just dealt a blow as Treasuries posted their biggest weekly rally since August. And some strategists see potential for yields to stage a brief foray to even lower levels. Ten-year yields tumbled to just above 1.5% Thursday, a stunning turnaround after the specter of a 2% breach swirled just a few weeks ago. The bond rally gained speed as evidence of robust international demand spurred some investors to exit short bets, a move that seemed to defy logic as it came amid an array of strong economic data. Treasuries climbed again Monday.
• China Evergrande New Energy Vehicle Group Ltd.’s expansive pop-up showroom sits at the heart of Shanghai’s National Exhibition and Convention Center. With nine models on display, it’s hard to miss. The electric car upstart has one of the biggest booths at China’s 2021 Auto Show, which starts Monday, opposite storied German automaker BMW AG. Yet its bold presence belies an uncomfortable truth — Evergrande hasn’t sold a single car under its own brand. China’s largest property developer has an array of investments outside of real estate, from soccer clubs to retirement villages. But it’s the recent entry into electric cars that’s captured investors’ imaginations. Shareholders have pushed Evergrande NEV’s Hong Kong-listed stock up more than 1,000% over the past 12 months, allowing it to raise billions of dollars in fresh capital. It now has a market value of $87 billion, greater than Ford Motor Co. and General Motors Co.
• The Bitcoin rollercoaster is back. The cryptocurrency fell by as much as 15% Sunday with rival coins like Ether and XRP also plunging.  The retreat came after Bitcoin hit a record high of more than $64,000 Wednesday as the stock-market debut of the U.S.’s largest exchange for the tokens, Coinbase Global Inc., stoked enthusiasm for all things crypto. While prices steadied on Monday with Bitcoin holding just below $57,000, that’s still down about 12% from last week’s intraday peak.
• NASA conducted its first flight on another planet early Monday morning, a short hop for a small chopper named Ingenuity which demonstrated technology that could prove critical to the future of space exploration. The four-pound vehicle ascended to about 10 feet above the surface of the red planet for about 40 seconds, before descending back to the ground. The helicopter arrived on Mars along with the Perseverance rover on Feb. 18 in a dramatic, high-definition landing. As the U.S. and other nations prepare to return humans to the moon, and eventually land on Mars, using drones to closely assess the surrounding landscape will become ever-more important.
• President Joe Biden’s balancing act on the politically fraught issue of immigration moves to the U.S. Supreme Court in a case that finds the new administration at odds with Democratic lawmakers and progressive allies. In an argument set for Monday, the administration will defend the government’s policy of blocking permanent-residency applications from thousands of immigrants who’ve been living legally in the U.S. for years. The case underscores the challenges for Biden in navigating a polarizing subject and fending off criticism from both sides. It comes as his team eases away from the most hard-line policies of former President Donald Trump while trying to manage the rising influx of migrants at the southern border.
• Harley-Davidson Inc. reported better-than-expected first-quarter profit and raised a key sales outlook for the year, bolstering Chief Executive Officer Jochen Zeitz’s plans to revive the struggling motorcycle maker. Harley generated adjusted earnings per share of $1.68 in the first three months, almost twice as much as analysts had expected, it said Monday in a statement. The company expects revenue at its motorcycles segment to grow 30% to 35% this year, up from a previous forecast of 20% to 25%, mainly due to a strong recovery in North America.
• President Joe Biden aims to prove to the world this week that the U.S. has rejoined the international fight against climate change by vowing cuts in greenhouse gas emissions that are both ambitious and achievable. Whether those cuts will be either ambitious enough to reassure skeptical alliesor achievable given myriad domestic obstacles is far from a sure thing. The Biden administration  is expected to unveil the country’s new pledge under the Paris climate agreement, known as a nationally determined contribution, before the international climate summit set to begin this Thursday. He’ll have to overcome the major trust deficit run up by former President Donald Trump, who withdrew from the Paris agreement and dismantled domestic policies key to driving the country’s promised emissions cuts. The past four years revealed how tenuous pledges of U.S government action can be.
• Record-breaking bond offerings from big banks may not be over yet after Bank of America sold $15 billion on Friday in the largest-everbank deal. JPMorgan kicked off a senior two-part sterling transaction on Monday. We may potentially see Citi as well,” said Bloomberg Intelligence analyst Arnold Kakuda. Banks have to hold more debt the bigger they are, he added. JPMorgan and Citi were among those that benefited the most from SLR relief, making them more likely to tap debt markets in its absence, he said.

“I don’t look to jump over seven-foot bars; I look around for one-foot bars that I can step over.”― Warren Buffett

*All sources from Bloomberg unless otherwise specified