April 26, 2021

Daily Market Commentary

Canadian Headlines

• Canadian Pacific Railway Ltd. won a petition for its proposed tie-up with Kansas City Southern to be exempt from tougher merger rules that the regulator had established in 2001, lowering the burden for winning approval of the deal. The Surface Transportation Board, which is the final authority on rail acquisitions, said it approved the petition in part because a combination of CP and Kansas City would remain the smallest of the large North American railroads. The board also said that the combination would “result in the fewest overlapping routes” when compared to a Kansas City Southern merger with any other large railroad. “The interrelationship between the CP and KCS networks in fact appears to be end-to-end in nature,” the board said, “which likely raises fewer competitive concerns than a transaction that is not end-to-end.”
• BCE Inc. made a $16 billion bid for Shaw Communications Inc. in February, but the two sides couldn’t agree on other conditions, opening the way for Rogers Communications Inc. to seal a takeover of its rival. BCE, Canada’s largest telecommunications firm by stock market value, said it’s the unnamed company Shaw mentions in a regulatory filing on Friday. The documents outline a bidding war that unfolded in the weeks before Rogers announced a deal March 15 to buy Shaw for C$40.50 a share. The filing says that on Jan. 6, Shaw Chief Executive Officer Bradley Shawheld talks with “the Chief Executive Officer of a third party (referred to as Party A),” who outlined the potential benefits of a merger. That unnamed CEO was BCE’s Mirko Bibic, according to two people familiar with the matter.
• Kansas City Southern said a proposal by Canadian National Railway Co. may lead to better terms than an offer by Canadian Pacific Railway Ltd., potentially escalating a bidding war in one of the industry’s biggest potential deals in decades. Kansas City Southern said Saturday it will begin talks with Canadian National Railway, confirming an earlier Bloomberg News report. The negotiations could yield a “superior proposal” than one reached last month with Canadian Pacific Railway, it said. The U.S. rail operator remains bound by the earlier merger agreement and there’s no assurance that talks with the rival bidder would result in a transaction, it added. The two biggest Canadian railroads are battling for ownership of the U.S. company, seeking to extend their rail links not just within the two countries, but also through Mexico to take advantage of a reworked North American trade alliance called the United States-Mexico-Canada Agreement or USMCA.
• Tier1 Financial Solutions, a provider of customer relationship management and compliance software for banks and capital markets firms, is buying Satuit Technologies Inc. to accelerate its expansion into the investment management industry. The acquisition of Satuit will bolster Toronto-based Tier1’s client list to more than 300 firms worldwide, up from 200, which include six out of the eight largest Canadian banks by assets. Terms of the deal weren’t disclosed. Earlier this year, Tier1 bought Alessa, an industry-recognized software product used by firms including banks, credit unions, money services businesses and casinos for compliance to anti-money laundering regulations.

World Headlines

• European stocks were little changed on Monday as investors monitored the earnings season and energy stocks came under pressure, while miners surged. The Stoxx 600 Index was down less than 0.1% at 9:42 a.m. London time, with about half of the benchmark’s sectors advancing. Miners rose as iron ore and copper prices jumped following a robust update on the health of China’s economy. Travel stocks got a boost after the head of the European Commission said the EU will let vaccinated U.S. tourists visit the bloc this summer. Among top gainers, IMI Plc shares jumped as much as 7.8% after a guidance increase and a new buyback, while Pearson Plc gained 2.3% after its update. Deal-making was also in focus, with Nestle SA declining 0.6% after confirming it’s in talks to acquire vitamin maker Bountiful Co., while Tate & Lyle Plc rose 6.4% after saying it could sell a controlling stake in its primary products business.
• U.S. Treasury yields rose amid confidence the Federal Reserve will remain accommodative even as robust growth takes the world’s largest economy back to pre-pandemic levels. Stock-index futures were mixed. Havens including the dollar and government bonds were under pressure while copper, seen as a barometer of growth, surged to the highest in a decade. The U.S. 10-year rate bounced back from its 50-day moving average, underscoring the reflation trade is still alive, but remained below the 1.60% level, sustaining a risk-on bid for global assets including emerging markets. Investors will focus on corporate earnings and U.S. economic data this week even as the Fed primes them to expect no change to policy at their two-day meeting ending Wednesday. While emerging economies from India to Brazil are grappling with a Covid-19 surge or renewed curbs, the developed world is on a firmer recovery path with a faster pace of vaccination.
• Asia stocks rose as investors continued to keep a close eye on the ongoing earnings season globally and U.S. data for clues on economic recovery. India shares were among the biggest gainers with the S&P BSE Sensex Index up about 1%. As the index on Friday capped its third consecutive weekly decline amid a surge in Covid-19 infections, funds such as Fidelity International and Invesco were seeking opportunities to add stocks, seeing India’s vaccination campaign and less-disruptive lockdown measures as offering some support. Meanwhile, China’s CSI 300 Index closed down 1.1% after rising as much as 0.9%, as investors await a key gathering of the country’s top leaders expected to take place this week for signals on liquidity policies.
• Oil fell as India’s worsening Covid-19 crisis weighed on the near-term outlook for demand ahead of a key OPEC+ meeting later this week. Futures in New York slid 1.7% toward $61 a barrel. Signs of strain on India’s refiners are starting to emerge. Mangalore Refinery & Petrochemicals Ltd. has cut processing rates, while Indian Oil Corp. has so far failed to issue an expected tender to purchase West African crude. IOC is also looking to sell gasoline, in a rare offer that points to the weakening state of demand in the country. The risk in India comes despite China and the U.S. recovering strongly from the pandemic and some positive signs emerging from Europe. It could also pose a problem for the Organization of Petroleum Exporting Countries and its allies, which has agreed to start adding more supply from May.
• Gold steadied as investors turned their focus to a Federal Reserve meeting and more U.S. economic data due later this week, while the dollar weakened. Fed Chair Jerome Powell will deliver his latest view on the outlook for U.S. interest rates on Wednesday, after the central bank’s policy makers meet. They have primed investors to expect no major change in the bank’s language on inflation and rate expectations. Economists surveyed by Bloomberg expect the Fed to begin trimming its $120 billion in monthly asset purchases before the end of the year as the U.S. economy recovers from Covid-19.
• Copper climbed to the highest in almost a decade as the global recovery from the pandemic extended a rally in metals markets. Aluminum is surging and iron ore jumped to a fresh high as commodities advance toward the highs of the last supercycle. Metals are benefiting as the world’s largest economies announce programs to build back greener from the coronavirus shock. The U.S. recovery is accelerating and President Joe Biden’s $2.25 trillion infrastructure plan will highlight sectors like electric cars, driving further gains in commodities critical to the green-energy transition. That’s coming alongside a continued economic boom in China, where a push to reduce emissions is filtering through to supply cuts for some metals just as demand is picking up.
• Apple plans to accelerate its U.S. investment, contributing $430 billion to the U.S. economy over the next five years and adding 20,000 new jobs. The amount covers direct spending with American suppliers, data center investments, capital expenditures in the country, and other domestic spend. Apple continues to expand its teams across California and now expects to grow its San Diego team to more than 5,000 employees by 2026.
• The German government has raised its growth forecast for this year to 3.5%, from a 3% prediction made in January, according to a person familiar with the updated outlook for Europe’s biggest economy. Expansion is expected to accelerate slightly next year to 3.6%, said the person, who asked not to be identified as the information won’t be available publicly until Tuesday. Economy Minister Peter Altmaier is due to present the government’s updated outlook at a news conference Tuesday at 11:30 a.m. in Berlin.
• Bitcoin rallied back Monday as investors took advantage of the lowest levels in seven weeks to pile back in. The largest cryptocurrency headed for its biggest gain since Feb. 8 at around $52,700 as of 9:35 a.m. in London. At one point it rose as much as 10.4%. The digital asset had been mired in a two-week slump after reaching a record on April 14, buoyed by enthusiasm from the Coinbase Global Inc. listing. Technical warnings from Wall Street, coupled with the collapse of two crypto exchanges in Turkey at the end of last week, had depressed sentiment amid fears over a growing bubble.
• The Federal Reserve is expected to begin trimming its $120 billion in monthly asset purchases before the end of the year as the U.S. economy recovers strongly from Covid-19, according to economists surveyed by Bloomberg. That’s a bit earlier than forecast in the March survey but leaves Fed asset purchases untouched for several more months, with the first interest-rate increase still not expected until 2023. In contrast, the Bank of Canada said last week it would scale back its purchases of government debt and accelerate the timetable for a possible rate increase, though the European Central Bank meeting on April 22 left its crisis-fighting tools unchanged. In the survey, about 45% of the economists expect the Federal Open Market Committee to announce tapering in the fourth quarter with 14% seeing that happening in the preceding three months. The survey of 49 economists was conducted April 16-21. The result is a hawkish shift from March when slightly more viewed tapering as a 2022 event.
• U.S. tourists who have been fully vaccinated will be allowed to travel to Europe this summer, more than a year after nonessential travel was shut down, the New York Times reported. A combination of nailing the virus and rolling out vaccines at one of the fastest rates in Asia saw Singapore top Bloomberg’s Covid Resilience Ranking this month, dethroning New Zealand for the first time in the measure of best and worst places to be in the pandemic era. The highly anticipated two-way travel bubble between Hong Kong and Singapore will open May 26, about six months after an initial plan for quarantine-free travel was shelved. Singapore also proposed setting up a travel bubble with Taiwan and mutual recognition of vaccination certificates, Taipei-based Central News Agency reported.
• President Joe Biden is poised to unveil a plan that would raise taxes on the income, investments and estates of the wealthiest Americans to levels not seen in more than four decades, a move that will trigger intense debate in Congress about whether and how to address income inequality. Biden’s “American Families Plan,” itself featuring the biggest expansion of federal support for lower-income and middle-class Americans in decades, will be offset by a series of tax increases on the wealthy, administration officials say. The president will unveil his program in a Wednesday night speech to Congress. To pay for a bill that could top $1 trillion, Americans earning over $400,000 will face higher marginal income tax rates. Those taking in $1 million or more will get hit with a levy of up to 43.4% on their capital gains. The last time rates got close to that, Jimmy Carter was president.
• Investors added money to exchange-traded funds that buy emerging market stocks and bonds last week. This was the 25th 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 $81.1 million in the week ended April 23, compared with gains of $754 million in the previous week, according to data compiled by Bloomberg. So far this year, inflows have totalled $24 billion.
• One of Toshiba Corp.’s largest investors is calling on the Japanese conglomerate to run a strategic review after private equity firm CVC Capital Partners proposed taking the company private for $21 billion. 3D Investment Partners, which owns a 7.2% stake in Toshiba, said in a letter to the company’s board that it believes running a full and fair sales process was essential to rebuilding trust with investors after a tumultuous period that has included an investor revolt and the resignation of former CVC dealmaker Nobuaki Kurumatani as chief executive officer. “To conduct a fair and proper process, Toshiba should explicitly indicate that it is open to alternative ownership structures and correct media speculation that Toshiba’s management team and board have a strong preference for remaining a listed company,” 3D Investment said in the letter, a copy of which was obtained by Bloomberg.
• A United Arab Emirates sovereign wealth fund plans to buy a stake in an Israeli natural-gas field for as much as $1.1 billion, in what would be one of the first major business deals since the nations normalized ties last year. Abu Dhabi’s Mubadala Investment Co., a fund with $232 billion of assets, signed a memorandum of understanding to buy Delek Drilling LP’s 22% stake in the Tamar offshore field. Israel and the UAE’s deal in August was a historic breakthrough hailed by leaders including then-U.S. President Donald Trump as a crucial step toward forging peace in the Middle East. The UAE was the first Arab nation after Egypt and Jordan to recognize Israel.
• Blackstone Group Inc. has offered to buy a controlling stake in Indian IT outsourcing services provider Mphasis Ltd. for as much as 82.6 billion rupees ($1.1 billion) as demand for cloud computing surges amid the pandemic. Funds managed by the private equity firm have teamed up with long-term investors including Abu Dhabi Investment Authority and UC Investments to take a majority stake in Mphasis, the private equity firm said in a statement on Monday. That agreement triggered an open offer for an additional 26% stake in the Indian firm at 1,677.16 rupees apiece, or a 1.1% discount to the closing share price on Friday. The stock gained as much as 6.5% in Mumbai after the offer. Blackstone’s move to increase its stake in Mphasis is in sync with the U.S. asset manager’s plans to boost investment in the South Asian nation. India is the strongest performer in the world for Blackstone and the firm intends to continue deploying large investments in the nation, Blackstone Chief Executive Officer and co-founder Stephen Schwarzman said during his visit to Mumbai in 2020.
• China Three Gorges Renewables Group Co. is set for an initial public offering that could be the biggest in the country this year after securing regulatory approval. The unit of China Three Gorges Corp. plans to sell up to 8.57 billion shares in Shanghai, it said in a prospectus filed to the Shanghai stock exchange, without giving the value of the funds to be raised. The state-owned company has received written approval from China’s securities regulator, according to a China Securities and Regulatory Commission statement Friday. China Three Gorges Renewables announced last year it was seeking to raise 25 billion yuan ($3.85 billion) in an IPO. The listing could easily be the largest debut in China in 2021 if it starts trading this year, according to data compiled by Bloomberg, topping Tianneng Battery Group Co.’s $697 million listing in January.
• JPMorgan Asset Management and BlackRock Inc. are betting that a strong economic recovery in the U.S. and elsewhere may start hurting parts of the bond market despite the recent slide in benchmark Treasury yields. They are looking at duration, a measure of the sensitivity of a bond’s price to interest rate changes. JPMorgan says it’s trimming that gauge due to concern global economic growth will push benchmark yields back up and hurt notes including Asia investment-grade dollar securities. BlackRock says it’s short or underweight on duration for the U.S. and U.K., while Amundi SA, Europe’s largest asset manager, has also urged a prudent stance against the “improving economic backdrop”.
• Sanofi will help make up to 200 million doses of Moderna Inc.’s Covid-19 vaccine, the French drugmaker’s third agreement to throw its weight behind another company’s shot during the pandemic. Sanofi will perform “fill-and-finish” work for Moderna’s messenger RNA shot in New Jersey starting in September, it said in a statement Monday. That entails putting already prepared vaccine solution into vials and packaging it — a key step that Sanofi is also performing for the vaccines from the Pfizer Inc.-BioNTech SE alliance and Johnson & Johnson. Vial-filling capacity has been a bottleneck for Moderna. Earlier this month, the U.S. Food and Drug Administration revised the company’s authorization to let it ship more doses of the vaccine in each vial. The Sanofi contribution could be particularly useful if booster shots are needed. Moderna is testing boosters at half the dose of its existing 100-microgram shot, which would increase supplies but still require more vials.
• Cybersecurity company Darktrace Plc is targeting a valuation of as much as 1.9 billion pounds ($2.6 billion) in a London initial public offering, boosting confidence in the City’s ability to attract technology listings post-Brexit and after Deliveroo Holdings Plc’s recent flop. Darktrace is marketing shares in the offering at 220 pence to 280 pence apiece, according to terms of the deal seen by Bloomberg News. The company plans to sell 51.1 million to 65.1 million new shares and looks to raise proceeds of $200 million. Management and employees are seeking to sell about $45 million of existing shares, with no sales by board members or the company’s top shareholders. Some former holders of its convertible loan notes could consider offering as much as $75 million to enable additional IPO liquidity, subject to price, the terms showed.
• South Korean energy supplier SK Innovation Co. and SK IE Technology Co. have raised 2.25 trillion won ($2 billion) in the battery material unit’s initial public offering, the country’s biggest in four years. SK IE Technology has priced the offering at 105,000 won per share, the top of a marketed range, according to an exchange statement on Monday. The portion for institutional investors was 1,883 times oversubscribed. At $2 billion, the IPO of the maker of battery separators will be South Korea’s largest since mobile game-maker Netmarble Corp. raised $2.4 billion in 2017, according to data compiled by Bloomberg. The shares had been marketed at 78,000 won to 105,000 won each, with SK Innovation selling 12.8 million shares and SK IE Technology selling another 8.6 million.
• China’s government has expanded its antitrust crackdown beyond Jack Ma’s technology empire, launching an investigation into suspected monopolistic practices by food-delivery behemoth Meituan. The State Administration for Market Regulation announced the investigation, which began recently, in a statement Monday. The antitrust watchdog is looking into alleged abuses including forced exclusivity arrangements known as “pick one of two.” The company said it will actively cooperate with the probe and step up efforts to comply with regulations. Its businesses are currently operating normally, it added in a statement.

“Courage taught me no matter how bad a crisis gets… any sound investment will eventually pay off.”― Carlos Slim Helu

*All sources from Bloomberg unless otherwise specified