April 22, 2021

Daily Market Commentary

Canadian Headlines

• Canadian equities rose amid corporate earnings reports after dropping in the previous two session. The S&P/TSX Composite Index gained 0.5%, with eight of 11 sectors higher. Shaw Communications jumped 6.8% after earnings, while Trulieve Cannabis and Canopy Growth Gorp. both rose more than 6%. Oil fell for a second day with an increase in U.S. crude inventories compounding concerns around a choppy global demand recovery. The Bank of Canada took the biggest step yet by a major economy to reduce emergency levels of monetary stimulus as it hailed a stronger-than-expected recovery from the pandemic.
• Canadian Pacific Railway Ltd.’s top executive said a rival’s takeover bid for Kansas City Southern is “fool’s gold” because it has little prospect of winning approval from U.S. regulators. Chief Executive Officer Keith Creel devoted the first 25 minutes of his company’s first quarter conference call to picking apart Canadian National Railway Co.’s unsolicited $30 billion bid for the Kansas City-based railway. The offer is about 20% higher than Canadian Pacific’s bid. “It’s fantasy money. It’s fool’s gold,” Creel said of the CN offer, which is for $325 per Kansas City Southern share. From a regulatory perspective, that deal is “not achievable, so you never get to the value. It’s worth zero,” Creel said. Canada’s two biggest railroads are battling for a rail network that links their country with the U.S. and Mexico, taking advantage of a reworked North American trade alliance. Kansas City Southern’s network connects farms in the U.S. Midwest to ports along the Gulf of Mexico and reaches deep into Mexico.

World Headlines

• European equities advanced ahead of the European Central Bank policy meeting on Thursday, as strong corporate earnings outweighed lingering investor concerns over rising infections in Asia. The Stoxx Europe 600 Index climbed 0.5% as of 10:42 a.m. in London. Technology and food and beverage sectors were among the biggest gainers. Nestle SA jumped after the company reported sales growing more than twicethe rate analysts had expected. Hermes International gained after revenue soared 44% in the first quarter, well ahead of analysts’ estimates. The Stoxx 600 Index has reached record highs this month, as vaccinations progress and fiscal and monetary policy across the region remains loose. The gauge is up almost 10% this year, buoyed by expectations of a rapid economic and profit recovery from the steepest recession in living memory after pandemic-induced restrictions on activity are eased.
• U.S. futures fluctuated as investors weighed reflation bets against the outlook for earnings and a resurgence in virus cases across the globe. Treasury yields steadied near a five-week low. Underperformance in contracts on the Russell 2000 Index signaled the rotation toward growth-friendly cyclical stocks was slowing. The benchmark U.S. 10-year yield fell below its 50-day moving average for the first time since November. Concerns are mounting that a flare-up in coronavirus cases could derail the global growth rebound after investors piled into trades that benefit from re-opening economies. Corporate results are also being scoured for clues on the speed of the recovery.
• Asian stocks rebounded from their biggest two-day drop in a month as investors appeared to look past surging virus cases around the world and focus on an economic recovery. Japanese shares led gains, recovering from being the worst performers in the region for two straight days. Electronics makers were the biggest boost to the Topix index, which rose 1.8%. The recent slump in shares prompted the Bank of Japan to step in and buy exchange-traded funds for the first time since March on Wednesday. Stocks in India rose after initial declines, shrugging off the country’s grim distinction of posting the world’s biggest one-day jump in coronavirus cases. Sentiment was down in China, however, as some companies announced weak first-quarter earnings. The benchmark CSI 300 index dropped 0.2%, with Great Wall Motor and Wens Foodstuffs among the worst performers on the gauge.
• Oil fell for a third day as a deadly wave of Covid-19 in India showed no sign of abating. West Texas Intermediate slipped 0.6% following a 2.1% decline on Wednesday, when U.S. government data showed the first increase in crude stockpiles in a month. In India, coronavirus cases have topped 300,000 a day, the biggest jump globally, endangering consumption. While demand remains robust in some parts of the world — notably the U.S. — the market is increasingly concerned about the scale of the Indian outbreak. And on the supply side, traders are watching the potential for a relaxation of American sanctions on Iran, though the U.S. has talked down the prospect of an imminent deal. These factors have helped push WTI back down toward $60.
• India posted the world’s biggest one-day jump in coronavirus cases, with the number surging beyond 300,000 as a deadlier second wave shows no signs of abating in the South Asian country and leaves hospitals crammed with patients and short of oxygen. Singapore and Hong Kong called off plans to announce an air travel bubble, people familiar said, while the southeast Asian city state is putting more than 1,100 migrant workers into quarantine as more virus cases were discovered there. Tokyo asked the Japanese government to declare a state of emergency in the capital, as it prepares to host the Olympics this year. The European Union’s executive arm is preparing a legal case by the end of the week against AstraZeneca Plc over its failure to deliver its promised number of doses to the bloc. The Biden administration is weighing whether to accelerate global access to Covid-19 vaccines by supporting a waiver of intellectual-property protections.
• Credit Suisse Group AG is raising $2 billion from investors and cutting the hedge fund unit at the center of the Archegos Capital Management losses as Chief Executive Officer Thomas Gottstein seeks to recover from one of the most turbulent periods in the bank’s recent history. Credit Suisse, which has exited about 97% of its exposure to Archegos, expects a related 600 million-franc ($654 million) loss in the second quarter, taking the total hit from the collapse to about $5.5 billion. In response, it’s cutting about a third of its exposure in the prime business catering to hedge fund clients, while strengthening capital with the sale of notes converting into shares.
• President Joe Biden will pledge to cut U.S. greenhouse gas emissions in half by 2030 as he convenes 40 world leaders in a virtual summit intended to demonstrate renewed American resolve to fight climate change and pressure wary nations to raise their own ambitions. Biden will announce in the two-day summit that begins Thursday that the U.S. will reduce its own greenhouse gas emissions 50%-52% from 2005 levels by the end of the decade — nearly doubling a commitment made under former President Barack Obama that was scrapped by former President Donald Trump. The new U.S. pledge is aimed at encouraging industrializing countries including China, India and Brazil that account for much of the world’s carbon output to set their own aggressive emissions-reductions targets. But Biden is likely to face a cool reception from leaders worried about committing to emissions cuts that could slow economic growth.
• Japan will strengthen its 2030 emissions reduction commitments under the Paris Agreement, amid an effort to become carbon neutral by the middle of the century. The country aims to reduce greenhouse gas emissions by 46% by 2030 compared with 2013, Prime Minister Yoshihide Suga said Thursday ahead of the global climate summit hosted by U.S. President Joe Biden. Japan had previously targeted a 26% reduction. The revision comes after Suga pledged in October that the world’s fifth-largest emitter and third-biggest economy will become carbon neutral by 2050. Meanwhile, the U.S. administration is pushing some of the world’s biggest contributors of greenhouse gases to more aggressively curb emissions.
• Unable to retrieve their investments, users of Turkish crypto exchange Thodex have filed a complaint alleging fraud, with their lawyer saying hundreds of millions of dollars may have been stolen. The head of the exchange has been unreachable and allegedly fled the country. “We’ve filed a legal complaint on Wednesday,” Oguz Evren Kilic, who represents an unspecified number of Thodex users, said by phone on Thursday. With active users numbering about 390,000, assets that remain “irretrievable” may be worth hundreds of millions of dollars, he said. A prosecutor in Istanbul has launched an investigation, the state-run Anadolu Agency reported. Kilic alleged that Faruk Fatih Ozer, Thodex’s chief executive officer and founder, fled the country Wednesday evening via a commercial flight from Istanbul. Ozer hasn’t responded to multiple calls to his mobile phone. Demiroren News Agency said he’s gone to Albania, publishing what it said was a photo of Ozer at the airport.
• The Norwegian Petroleum Safety Authority rebuked Equinor ASA, the country’s biggest oil producer, after an investigation revealed that the company broke several rules leading to a fire at its Melkoya liquefied natural gas plant in September. “The PSA’s investigation has identified serious breaches of the regulations,” the watchdog said on its website Thursday. It ordered Equinor to come up with short- and long-term plans to improve compliance with safety rules at the facility. The blaze, which the PSA previously described as one of the most serious incidents in the nation’s 50-year history of oil and gas production, forced Equinor to shut the plant near Hammerfest for as much as a year for extensive repairs. The facility isn’t expected to start operations again until October.
• The heirs of billionaire Heinz Hermann Thiele may owe German authorities more than 5 billion euros ($6 billion) in inheritance taxes, potentially the largest such bill in the country’s history, according to ManagerMagazin. Thiele’s assets were supposed to be folded into a foundation to reduce tax risks, but that wasn’t set up at the time of his unexpected death in February, the magazine reported Thursday, citing unidentified people close to the family. Thiele, who was 79 when he died, amassed a manufacturing empire that included a 59% stake in brake-system manufacturer Knorr-Bremse AG and half of railroad-equipment maker Vossloh AG. His fortune was valued at $20.2 billion at the time of his death, according to the Bloomberg Billionaires Index.
• Japanese Prime Minister Yoshihide Suga recommended placing Tokyo, Osaka and other areas under a state of emergency to stem a surge in coronavirus infections just three months before the capital hosts the Olympics. Suga was looking to also place Hyogo and Kyoto prefectures, which border Osaka, under a state of emergency, telling reporters Thursday he will make a formal decision after consulting with experts. Suga has previously approved measures within a day of issuing a recommendation on stepped up virus restrictions, with local media saying the declaration was expected to come Friday. The emergency is likely to be in place from April 25 to May 11, covering the “Golden Week” string of national holidays, Jiji Press said.
• AT&T Inc. exceeded Wall Street profit estimates while continuing its gains in wireless customers and scoring strong growth in subscribers to its HBO Max video service, easing concerns over mounting costs for new entertainment productions and the expansion of its 5G network. The Dallas-based company said Thursday that it added 2.7 million more U.S. HBO and HBO Max subscribers in the first quarter, for a total of 44.2 million. AT&T reported about 64 million worldwide subscribers to the premium channel and the streaming platform and has said it will have 67 million to 70 million by the end of 2021. The company didn’t disclose an updated HBO Max activation figure; about 17.2 million subscribers had activated their accounts at the end of the fourth quarter.
• Blackstone Group Inc. is doubling down on a post-Covid 19 economic recovery, investing heavily in businesses that will benefit from a world that’s gradually reopening. New York-based Blackstone invested $17.7 billion in the first three months of the year, buying hotels including Extended Stay America Inc., private-jet operator Signature Aviation Plc and U.K. travel company Bourne Leisure. Investors continued to bet solidly on Blackstone, which saw its assets under management swell to a record $648.8 billion, the company said Thursday in an earnings report. Even as credit markets recovered and the stock market kept soaring, travel- and entertainment-related assets were struggling as people continued social distancing and local restrictions limited capacity at hotels and other venues. Blackstone says the firm is now seeing signs across its portfolio of companies that people’s behavior is shifting: At the Cosmopolitan hotel of Las Vegas, money going into slot machines was at record levels. Forward bookings for travel in the U.K. were also at a high.
• The renewed surge in Covid-19 infections is threatening to further divide the world economy between the rich and poor, potentially damaging overall global growth if the fresh outbreaks spread or if key sources of demand falter. More people were diagnosed with Covid-19 last week than any other since the pandemic began. The World Health Organization this week warned that new infections are increasing everywhere except Europe, led by rocketing numbers in India with cases also rising in Argentina, Turkey and Brazil. That’s casting a shadow over a previously vigorous global economic rebound given that failure to control the virus or get vaccines distributed evenly risks driving new mutations, first in emerging markets and then on to developed nations that had been beating the pandemic back.
• Apple Inc. is readying a major revamp of its mobile software that will include an upgrade to how users handle notifications, a redesigned iPad Home Screen, an updated Lock Screen, and additional privacy protections for its flagship devices, according to people with knowledge of the matter. The in-development changes are planned to be included in iOS 15 and iPadOS 15, forthcoming major software updates for the iPhone and iPad. The Cupertino, California-based technology giant will announce the software updates, codenamed Sky, at its upcoming Worldwide Developers Conference beginning June 7, the people said. They asked not to be identified discussing internal matters. Apple rolls out major software updates for all of its key devices annually as a way to keep people glued to its ecosystem, sell more devices and encourage developers to create new apps. Apple typically releases the upgrades around September, near the launch of new iPhones. Given that WWDC is several weeks away, the company could still choose to alter features or delay them to a later update. An Apple spokeswoman declined to comment.
• Bitcoin mining is often decried for its intensive energy demands. But Cathie Wood’s ARK Investment Management LLC has done new research that maintains it doesn’t need to be as environmentally damaging as feared. The argument is that Bitcoin mining could be tied into power-producing systems, enabling renewables to fulfill a higher percentage of demand from the energy grid at a constant cost of electricity. According to a post from ARK research director Brett Winton and co-authors Yassine Elmandjra and Sam Korus, by producing the largest cryptocurrency energy providers could play the arbitrage between electricity prices and Bitcoin prices, as well as sell surplus solar — and supply almost all grid power demands without lowering profitability.
• Technology giants led by Apple Inc. and Microsoft Corp. disclosed more than $100 billion in profit outside the U.S. in their last fiscal years, making them prime targets of President Joe Biden’s proposals to boost taxes on earnings stashed overseas. The tax proposals, unveiled this month to help foot the bill for massive infrastructure plans, target common tactics used by U.S. multinationals such as stashing income-generating assets in low-tax offshore jurisdictions. The techindustry is particularly adept at shifting profits to tax-friendly locales because its main assets — software code, patents and other intellectual property — are relatively easy to move around compared to factories and other physical assets. Former President Donald Trump’s 2017 Tax Cuts and Jobs Act was supposed to crack down on offshore tax maneuvering, but Republicans neutered the rules by adding extra deductions and other benefits, according to Andrew Silverman, a tax policy analyst at Bloomberg Intelligence.
• Amazon.com Inc. is poised to bring its automated checkout technology to full-size supermarkets, a significant milestone in the race to revolutionize how people buy their groceries. Planning documents for a store under construction in Brookfield, Connecticut, contain all the hallmarks of an Amazon Fresh grocery store: a two-word logo on dark gray panels above the store’s entrance, online order pickup counter and such full-service departments as a butcher. The plans also identify a dozen entry and exit gates as well as ceiling-mounted racks to run wiring to camera arrays, a setup that until now has only appeared in Amazon Go convenience stores. Shoppers enter those locations by swiping a smartphone at the entry gate. Inside, they’re tracked by cameras, software algorithms and shelf sensors—then charged for what they take when exiting through the designated gates.
• American Airlines Group Inc. reported a smaller-than-expected loss, bucking the pattern set by its two largest rivals, and predicted a “continued recovery” from an unprecedented collapse in demand. The company’s adjusted loss of $4.32 a share in the first quarter was slightly better than the $4.34 deficit expected by analysts. Revenue tumbled 53% to $4.01 billion, American said in a statement Thursday. Wall Street expected $4.04 billion, according to the average of analyst estimates compiled by Bloomberg. American’s performance offered investors a measure of relief after the disappointing results of Delta Air Lines Inc. and United Airlines Holdings Inc., which cooled enthusiasm about the industry after a stock rally earlier this year. American announced plans earlier this month to ramp up its summer schedule and restart pilot hiring as flying rebounds.
• U.S. high-yield debt sales may set a new April record Thursday should Jazz Pharmaceuticals price a $2.7 billion offering. AT&T’s leverage ticked higher thanks to borrowing for spectrum purchases, and American Airlines expects to increase its liquidity in the current quarter.
• Mortgage bond investors will closely watch Thursday’s existing home sales release for hints on future bond supply. Home sales are a major determinant of mortgage bond issuance, especially in a time of inflating home prices, as buyers usually need to take on ever greater debt to purchase a home. This can lead to increased supply of mortgages in dollar terms. The latest report saw a 6.6% drop from the previous month, the largest decline since May. The 6.22 million annualized run rate for sales was a six-month low, with a lack of inventory fingered as the culprit. Over the last half decade, sales have averaged 5.5 million on an annualized basis. The median price of an existing home sale is at a record $313,000 as of February, up 15.8% compared to the same point in 2020. JPMorgan analysts increased their agency mortgage-bond net supply forecast for this year to $500 billion from $300 billion, citing strong housing demand as one of the factors behind its decision. Last year saw $508 billion in agency mortgage net supply, highest since 2007.

“Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.”― Paul Samuelson

*All sources from Bloomberg unless otherwise specified