April 21, 2021

Daily Market Commentary

Canadian Headlines

• Canadian equities extended their drop Tuesday to their lowest level since April 5. The S&P/TSX Composite Index fell 0.9%, with marijuana stocks leading the drop. Industrials were also weak with Canadian National Railway dropping 6.3% after a deal offer. CN’s offer of $30 billion to snatch Kansas City Southern from rival Canadian Pacific Railway has analysts weighing whether the latter will boost its bid. Meanwhile, Toronto health authorities will order workplaces across Canada’s biggest city to close if they have more than five confirmed cases of Covid-19.
• Rogers Communications Inc. said first-quarter revenue rose 2% to C$3.49 billion ($2.77 billion), compared with a year earlier, beating analysts’ average estimates of C$3.35 billion. The revenue beat was driven by a 5% boost in cable revenue, even as average wireless revenue per user fell 7% to C$49.09. Roaming revenue took a hit as lockdowns and stay-at-home orders persisted across the country.

World Headlines

• European stocks rebounded from their biggest decline since December, boosted by positive earnings updates and optimism about the region’s vaccine rollout. The Stoxx Europe 600 Index rose 0.4% as of 10:15 a.m. in London. ASML Holding NV lifted tech stocks after forecasting a revenue jump in 2021, while Roche Holding AG buoyed health-care shares after its executives were upbeat about the sales outlook. Value sectors such as banks and energy shares also outperformed. While Europe’s main equity benchmark tumbled from last week’s record levels on worries about a Covid-19 resurgence from India to Japan, there’s some optimism on the domestic front. Vaccinations from Germany to Spain are picking up pace this month, raising hopes of a faster economic reopening. In the near term, the ongoing earnings season may trigger market moves.
• U.S. futures were mixed as underperformance in the Nasdaq 100 signaled the rotation away from pandemic favorites is gaining ground. Treasury yields halted a slide that had taken them to a five-week low. Contracts on the tech-heavy Nasdaq were paced by a decline of 8% in Netflix Inc. in premarket trading after the company reported its worst quarter in eight years. S&P 500 contracts were steady, with the U.S. benchmark this week staging an abrupt reversal from recent peaks. Stocks near record highs are coming under pressure from the threat of new lockdowns, sapping optimism that growth is set to roar back from pandemic-induced recessions.
• Asia stocks tumbled as concerns over a new surge in infections around the world and the economic impact of potential lockdowns weighed on markets. Japanese shares were the worst performers for a second straight day, with the Topix sinking 2% to its lowest level in more than six weeks. Tokyo and Osaka are preparing to ask the Japanese government to declare a state of emergency as cases surge. Hong Kong’s Hang Seng Index slid 1.8%, while China’s CSI 300 Index’s defied the broader selloff in the region and rose 0.3%. The MSCI Asia Pacific Index fell 1.5%, on course for its steepest drop since March 24, with most major national benchmarks in negative territory. All sectors were in the red, with IT and industrials leading losses. Markets in India and Vietnam were closed for local holidays.
• Oil fell amid concern that a resurgent virus will hurt demand in some economies, while industry data showed a slight build in U.S. inventories. West Texas Intermediate retreated 1.1%, extending Tuesday’s decline. The renewed spread of Covid-19 in countries such as India is casting a pall over the global economic rebound, even as signs of an improvement in energy demand elsewhere continue to mount. Prices also responded to a stronger dollar, which reduces the appeal of commodities priced in the currency. Oil’s value has risen by more than a quarter this year as vaccines are rolled out, paving the way for a relaxation of lockdowns, greater economic activity and increased mobility. Against that backdrop, the Organization of Petroleum Exporting Countries and its allies plan to start easing deep supply cuts from May. But the dramatic flare-up in cases in India is undermining the narrative that there’ll be an uninterrupted rebound in global consumption.
• Gold traded flat as bond yields stabilized, with the metal gaining technical support amid concerns about a deteriorating virus situation. Market sentiment turned more cautious with 10-year Treasury yields steadying near the lowest in five weeks. Lower yields lift the appeal of bullion, which doesn’t offer interest. New Covid-19 infections have accelerated in some parts of the world, raising the prospects of new lockdowns, which could hurt the rebound in growth. Bullion is stabilizing after Treasuries pared losses earlier in the year. Investors are also focusing on a possible revival in Chinese consumption after March imports surged to a 14-month high. The technical picture brightened after gold broke through a former support at $1,765 an ounce.
• Netflix Inc. credited the pandemic with delivering record growth in 2020. Now it’s blaming the pandemic for the worst first quarter in eight years. The streaming service added far fewer new customers than Wall Street expected in the first three months of 2021, even missing its own forecast by millions of subscribers. And the current quarter will be more challenging, Netflix said Tuesday, predicting a gain of just 1 million new customers — or a fraction of the 4.44 million projected by analysts. The dismal growth sent shares plunging as much as 13%.
• The World Health Organization said coronavirus cases are rising in all regions except Europe, with India driving a surge in Asia. India reported a record of more than 2,000 deaths on Wednesday, while cases rose by nearly 300,000. Some nations are returning to tighter measures. Tokyo and Osaka will ask the Japanese government to declare a state of emergency, looking to contain surging cases ahead of the Olympics. The United Arab Emirates is considering restrictions on people who haven’t taken a vaccine despite being eligible for one. In Germany, the lower house of parliament is set to approve Chancellor Angela Merkel’s controversial lockdown law later on Wednesday, as officials struggle to check a fresh wave of infections. Roche Holding said its test of a pill for people with mild or moderate Covid has been delayed after the U.K.’s vaccine drive made it harder to find sick people to try it on.
• President Joe Biden said the conviction of former Minneapolis police officer Derek Chauvin was “a giant step forward in the march toward justice in America,” and called on lawmakers to ensure the legacy of George Floyd wasn’t his murder, but lasting law-enforcement reform. “No one should be above the law and today’s verdict sends that message, but it’s not enough,” Biden said Tuesday evening at the White House. “This takes acknowledging and confronting head-on systemic racism and the racial disparities that exist in policing.” Hours earlier, a jury had convicted Chauvin of second-degree murder and lesser charges for cutting off Floyd’s air supply last May 25 as he lay handcuffed and begging for his life. The conviction, which stood out against decades of impunity for most police excessive-force cases, could mean decades in prison for the 45-year-old Chauvin, who will face sentencing in eight weeks. It also could lend momentum to congressional legislation named for Floyd that would set limits on aggression by police officers.
• Apple Inc. and Alphabet Inc.’s Google will come under close antitrust scrutiny Wednesday from lawmakers concerned about the way both companies run the marketplaces that give consumers around the world access to millions of apps on handheld devices. Senators Amy Klobuchar of Minnesota and Mike Lee of Utah, the chair and ranking Republican on the Judiciary Committee’s antitrust subcommittee, are leading the panel’s inquiry into potential anticompetitive practices in Apple’s App Store and in Google Play. Klobuchar, a Democrat, said apps represent a “humongous market” at the mercy of companies like Apple and Google. She added that she’ll be asking about fees — she called them a tax — that developers must pay to be included in app stores, as well as companies self-preferencing their own products and banning consumers from finding out about better deals.
• Microsoft Corp. and video-game chat company Discord Inc.have ended takeover talks after Discord rejected a $12 billion bid, according to people familiar with the matter. Discord is now focused on a potential public listing in the long term, the people said, asking not to be identified because the deliberations are private. Twitter Inc. also expressed interest in buying Discord, people with knowledge of the matter said. Other companies discussed a takeover or investment in Discord in recent weeks, with some talks valuing the chat company as high as $15 billion to $18 billion, two people said.
• Wood, paper and packaging producer Segezha Group set a price range for its initial public offering in Moscow that values the company at as much as 152.4 billion rubles ($2 billion). That’s the top end of the 7.75 rubles to 10.25 rubles per share range offered to investors, Segezha, owned by billionaire Vladimir Evtushenkov’s Sistema PJSFC, said in a statement on Wednesday. The valuation of the company is given on a post-money basis, with pricing expected around April 28. Russian companies have joined the global IPO rush this year but the momentum may slow after the U.S. imposed fresh sanctions including restrictions on buying new sovereign debt. Political tensions are mounting over Moscow’s troop buildup on the Ukraine border, while supporters of jailed opposition leader Alexey Navalny plan protests across Russia on Wednesday as President Vladimir Putin gives his annual state-of-the-nation address.
• Governance scores for Credit Suisse Group AG and Nomura Holdings Inc. boards were deteriorating relative to U.S. rivals well before both banks suffered the worst losses from Archegos Capital Management’s failure. The Swiss bank, which reports quarterly earnings Thursday and already announced a $4.8 billion writedown, fired its top investment banker and senior risk officer, as well as two prime-brokerage heads. Antonio Horta-Osorio will replace Chairman Urs Rohner after an April 30 annual meeting at which investors may seek further changes. Nomura, which initially estimated its loss at $2 billion, so far stood by its leadership.
• Abu Dhabi is weighing the sale of a stake in its biggest state-owned utility, as the oil-rich emirate continues to bring in international investors to some of its marquee assets, people familiar with the matter said. The government is working with an adviser as it considers selling about 10% of Abu Dhabi National Energy Co., according to the people, who asked not to be identified because the information is private. The stake in the company, known as Taqa, could be worth more than $4 billion based on its current market price, data compiled by Bloomberg show. Shares of Taqa have fallen 5.6% this year, giving it a market value of about $42 billion. The sale could attract interest from large global utility companies and other financial investors, the people said. Initial non-binding bids are expected to be submitted in May, according to the people.
• The United Arab Emirates went on its biggest Treasury-buying spree on record in February, purchasing more of the safe-haven securities than China in one of the worst months for U.S. debt markets in years. The Gulf nation, OPEC’s third-biggest crude producer, raised its stockpile by about $17 billion to $50.6 billion, making it the largest buyer after the U.K. that month, according to U.S. Treasury Department data. A spokesperson for the UAE central bank declined to make any immediate comment Wednesday. Though the UAE, whose capital Abu Dhabi accounts for almost 6% of the world’s oil reserves, may have built up enough of a buffer to commit more if its dollar earnings to the $21 trillion Treasuries market, it came as prices tumbled amid growing expectations of a global economic rebound. U.S. debt dropped 1.8% in February, according to a Bloomberg Barclays Index, with the yield on the benchmark 10-year note climbing about 34 basis points, its sharpest increase since November 2016.
• Chinese leader Xi Jinping accepted an invitation from U.S. President Joe Biden to join a summit on climate change, one area where the two countries are cooperating despite frosty ties on other issues. Xi will attend via video link on Thursday, China’s Foreign Ministry said in a statement Wednesday. China hopes the conference promotes “a global joint response to climate change,” ministry spokesman Wang Wenbin said at a regular briefing in Beijing. He repeated that the Asian nation is ready to cooperate with the U.S. on the basis of mutual respect. Washington and Beijing are at odds over a range of issues, from allegations of forced labor in Xinjiang and China’s tightening political grip over Hong Kong to U.S. efforts to curb China’s role in supply chains. Xi used a speech Tuesday to the Boao Forum on Asia to challenge Washington’s global leadership, saying the world needed “justice, not hegemony.”
• Greensill Bank AG’s German offices and the homes of board members were raided by prosecutors in the city of Bremen investigating accounting irregularities linked to the demise of the lender. Searches in the bank’s offices started last week and are continuing, said Frank Passade, a spokesman for prosecutors. Investigators on Tuesday also raided the homes of some of the five suspects in the probe. Greensill collapsed in March in one of the most spectacular financial blow-ups of recent years after key backers walked away over concerns about the valuation of its accounts. In Germany, a group of lenders that runs a deposit insurance fund is seeking 2 billion euros ($2.4 billion) from Greensill Bank. Uninsured depositors such as municipalities also want their money back.
• Europe’s rebel soccer league crumbled just days after its launch as teams pulled out amid fury from the sport’s authorities, politicians and fans. Juventus Chairman Andrea Agnelli, one of the leading architects of the European Super League, said the project will no longer go ahead, according to a spokesman. Earlier the league had said it was considering “appropriate steps to reshape the project.” The collapse was inevitable after all six English clubs involved pulled out of the project late on Tuesday. The Premier League is home to some of the world’s most marketable clubs, and generates billions in sponsorship and broadcasting revenue. On Wednesday morning Atletico Madrid and Inter Milan also announced their departure.
• The vaccination drive has made U.S. airlines optimistic about a summer travel rebound, but their upbeat outlook is clouded by international markets that remain out of reach and raging infections in countries like India and Brazil. Just this week, the U.S. State Department said it would declare about 80% of the world’s nations no-go zones. That’s made it harder for airlines to claw back overseas travel that includes more lucrative business-class seats. American Airlines Group Inc. and Delta Air Lines Inc. are among the carriers that have added capacity in recent weeks, based on a Bloomberg analysis of data from flight-tracking specialist OAG. American is planning to fly more than 90% of its 2019 domestic seat capacity and 80% of international this summer, even as new virus variants threaten the recovery. Delta says travelers are “beginning to reclaim their lives.” United Airlines Holdings Inc. is showing more caution but still expects to fly more than half its pre-pandemic schedule this quarter.
• U.K. house prices stalled in February for the first time since the start of the coronavirus pandemic, indicating the market may be losing momentum after a surge last year. Prices were virtually unchanged following nine consecutive monthly increases, the Office for National Statistics said on Wednesday, citing Land Registry data. Prices rose 8.6% from a year earlier, up from 8% annual growth in January, mainly because of base effects from 2020 when lockdowns to control the coronavirus kept potential buyers at home. Britain’s housing market has taken a softer tone after a boom in 2020 fueled by a tax break on purchases and historically low borrowing costs. Buyers also are bidding up properties outside city centers, anticipating more of them can work from home and avoid a five-day-a-week commute after the pandemic finishes.
• China is considering a plan that would see the central bank assume more than 100 billion yuan ($15 billion) of assets from China Huarong Asset Management Co., helping the state-owned company clean up its balance sheet and refocus on its core business of managing distressed debt, people familiar with the matter said. Under a proposal that’s still being finalized and could change, a unit of the People’s Bank of China would assume assets from some of Huarong’s unprofitable operations, the people said, asking not to identified as the discussions are private. Further details on how the arrangement would work couldn’t immediately be learned. Separately, China Huarong International Holdings Ltd., the offshore unit that issues or guarantees most of Huarong’s dollar bonds, is in the process of transferring distressed assets worth tens of billions of yuan into a separate offshore entity called China Huarong Overseas Investment Holding Co., one of the people said. The move is aimed at improving the financial health of China Huarong International, the group’s main link to overseas funding, the person said.
• SoftBank Group Corp. is looking to increase a recently closed margin loan to $10 billion from $8.125 billion, according to people familiar with the matter. Shares in Alibaba Group Holding Ltd. have been pledged as collateral for the financing, said the people, who aren’t authorized to speak publicly and asked not to be identified. SoftBank is the biggest shareholder in Alibaba. The $8.125 billion facility has already overtaken SoftBank Group’s $8 billion margin loan raised in 2018, which was also secured by Alibaba shares, as among the company’s largest dollar loans, according to data compiled by Bloomberg. The development comes as SoftBank Group continues on a global investing spree, after the recent collapse of Greensill Capital, in which it had invested $1.5 billion. SoftBank recently bought a stake in a Norwegian grocer and led a $1.15 billion investment in U.S. genetic-testing company Invitae Corp. Its Vision Fund 2 recently provided $450 million in funding to India’s food delivery startup Swiggy.
• The latest refinance applications index release offers a warning to mortgage bond investors — American homeowners are watching rates, and will leap at any chance to lower their mortgage payments. The aggregate Mortgage Bankers Association refinance index jumped 10.4% for the week ending April 16, its first weekly increase since February 26 and the most in percentage terms since January 29. To keep things in perspective, the index is back to the same level is was at just two weeks ago. The Freddie Mac 30-year mortgage rate has dropped two weeks in a row to 3.04%, its lowest level since March 4, and should it continue to fall mortgage prepayment speeds could accelerate, just when it appeared that wave had finally crested.
• As the global pandemic intensifies the boom in ethical investing, Citigroup Inc. now projects ESG stock ETFs in the U.S. alone will boast more than $1 trillion in assets by 2030. Analysts at the bank reckon the global pandemic has stirred investor demand for companies doing good, especially those with strong labor practices. Add the frenzy for tech-focused thematic funds — many of which fall within the environmental, social and governance category — and the sustainability boom is smashing Wall Street projections. A little over a year ago Citigroup expected $65 billion of assets in equity ESG exchange-traded funds by 2024 and $300 billion by the end of the decade. Both projections looked ambitious at the time. But the total is already at $112 billion, according to the U.S. bank.
• As Apple Inc. was revealing its newest line of iPads and flashy new iMacs on Tuesday, one of its primary suppliers was enduring a ransomware attack from a Russian operator claiming to have stolen blueprints of the U.S. company’s latest products. The ransomware group REvil, also known as Sodinokibi, published a blog on its darkweb site early on Tuesday in which it claimed to have infiltrated the computer network of Quanta Computer Inc. The Taiwan-based company is a key supplier to Apple, manufacturing mostly Macbooks. It similarly produces goods for the likes of HP Inc., Facebook Inc. and Alphabet Inc.’s Google.
• President Vladimir Putin warned rival nations not to cross Russia’s “red line” in their actions or face a tough reaction. “Russia’s response will be asymmetric, quick and harsh,” Putin said in his annual state-of-the-nation speech on Wednesday. “They will regret it more than ever before.” Putin didn’t single out any rivals for criticism, saying Russia would decide where its red line lies on a case-by-case basis. Touting Russia’s new nuclear weapons, he renewed an offer for talks on increasing strategic stability. The ruble gained against the dollar at the end of the speech, which some observers had feared might include major new confrontational foreign-policy moves. Putin devoted most of the address to domestic issues, promising expanded government benefits and more spending on infrastructure to boost flagging living standards.
• Legal settlements usually aim at ending litigation, but Bayer AG has entered into a deal that essentially pays a Georgia man to keep fighting the company in court. Bayer’s goal is to force a case to the U.S. Supreme Court and get a ruling that would undercut a key claim in thousands of lawsuits alleging its Roundup weed killer causes cancer, according to its public statements. The gambit could, if successful, save the German drug maker potentially hundreds of millions of dollars. Bayer has agreed to pay as much as $11.6 billion to resolve existing Roundup lawsuits from about 125,000 consumers and farmers in the U.S. and yet-to-be filed claims. The litigation has been a lingering obstacle for Bayer from its 2018 purchase of Monsanto Co. More lawsuits are filed almost daily.

“You have power over your mind – not outside events. Realize this, and you will find strength.”― Marcus Aurelius

*All sources from Bloomberg unless otherwise specified