April 28, 2021

Daily Market Commentary

Canadian Headlines

  • Canadian shares were little changed as a rally in energy stocks were matched by a decline in mining companies. The S&P/TSX Composite index was flat in Toronto. Energy stocks were the best performers as oil climbed with the OPEC+ alliance and BP Plc pointing to signs of a robust demand recovery taking shape in parts of the world. Materials stocks, including miners, were the worst performers as gold prices fell. Meanwhile, the lumber market has clearly entered its “frenzied stage.” Prices in Chicago rose to previously uncharted heights before plunging Tuesday. The wild swings — which touched exchange limits in both directions — are coming as peak home-building season in the U.S. clashes with a lumber supply chain that’s being dogged by everything from trucking delays to worker shortages.
  • Shopify Inc. posted much higher-than-expected revenue and adjusted earnings and reiterated that it expects continued strong sales growth in 2021 but at a slower pace. Its shares were up 4% in premarket trading in New York. “Shopify’s momentum continued into 2021 as digital commerce tailwinds remained strong and merchants took advantage of the range of capabilities offered by our platform,” Amy Shapero, Shopify’s CFO, said in a written statement.
  • In the U.S., Covid-19 infections are shrinking by the day. In France, officials are preparing to ease lockdown restrictions and jump-start air travel. In the U.K., workers are returning to offices in numbers not seen since the start of the pandemic as the vaccination rollout continues and cases fall. Not so in the oil sands of western Canada, where thousands of roughnecks have descended upon barracks in work camps and have turned the area, which accounts for more than half of America’s oil imports, into a hot spot for a resurgence of the pandemic. It’s the latest blow to the oil-rich province of Alberta that in the past years has struggled with two crude-market crashes, rising unemployment, plus devastating wildfires and floods. Now, the pandemic that’s led scores of restaurants and other businesses to shut in urban centers like Calgary is hitting the industry that accounts for 16% of the economy.

World Headlines

  • European shares traded little changed as bond yields rose ahead of the Federal Reserve’s policy decision, while better-than-forecast earnings gave banks a boost. The Stoxx Europe 600 Index was less than 0.1% lower as of 10:49 a.m. in London, with health-care and personal-care sectors leading declines. Banks bucked the trend as Deutsche Bank AG jumped after raising its outlook, while Lloyds Banking Group Plc and Banco Santander SA posted results that beat estimates. Europe’s benchmark has moved in a narrow range in recent sessions after dropping from an all-time high last week. With stocks rallying hard in anticipation of an earnings recovery, only strong beats are spurring investor cheer. Yields on 10-year Treasuries advanced, with the focus on the Fed’s rate decision later today as market players awaited more clarity on the timing of stimulus tapering.
  • Longer-dated Treasury yields extended their advance and the dollar strengthened as investors awaited clues on the timing of stimulus tapering by the Federal Reserve. U.S. stock-index futures were mixed as Americans braced for President Joe Biden’s tax plans. The 10-year rate traded at a two-week high, extending a bounce-back from its 50-day moving average. Russell 2000 Index futures fell, while June contracts on the S&P 500 gauge added 0.1%. The dollar headed for its first back-to-back gain this month. Alphabet Inc., Google’s parent, jumped more than 5% in pre-market trading as analysts raised price targets for the stock after strong results. Global markets are searching for new catalysts with stocks trading near record highs. Traders may need further assurance that policy makers will overlook stronger economic data to keep rates ultra-low and bond purchases at pace. Amid looming tax increases, they can ill-afford any hint of tapering.
  • Asian stocks moved in a narrow range before a policy decision by the Federal Reserve, while a rebound in U.S. yields hurt technology shares. The MSCI Asia Pacific Index fell as much as 0.3% before erasing losses and closing almost unchanged. Taiwan Semiconductor Manufacturing, Xiaomi and Samsung Electronics were among the heaviest drags on the index’s technology gauge. South Korean benchmarks led declines in Asia with chip makers contributing most to the drop. SK Hynix slid 3.7% to its lowest in more than two weeks on the view that its solid first-quarter earnings were already priced in.
  • Oil swung between gains and losses after OPEC+ confirmed it would proceed with plans to add more barrels to the market, despite a virus resurgence in some regions clouding the demand outlook. Futures in New York held steady near $63 a barrel, after earlier adding 0.6%. An OPEC+ committee agreed the group should stick to its roadmap for boosting supply in the coming months, reflecting confidence in the prospects for global consumption. But a surge of coronavirus cases in India and Brazil shows the recovery remains uneven. Crude prices have risen this year on a global recovery driven by China and the U.S., with positive signs also emerging from parts of Europe. Goldman Sachs Group Inc. is forecasting an unprecedented jump in demand over the next six months as vaccination rates rise, with benchmark Brent crude seen reaching $80 in the third quarter. But virus flare-ups in some regions and prospects for higher supply from OPEC+, including potentially Iran, are tempering optimism.
  • Gold extended declines after a renewed rise in Treasuries before the close of the Federal Reserve’s policy meeting later Wednesday. Investors are watching the Fed gathering for any signs of a shift on interest rates or asset purchases as the U.S. economy gathers pace. Bonds fell, and the return of 10-Year Treasury yields above 1.6% pressured bullion, which offers no interest. The Federal Open Market Committee is all but certain to hold interest ratesnear zero, and repeat a vow to keep buying bonds at the current $120 billion monthly pace.
  • Federal Reserve Chair Jerome Powell is expected to maintain aggressive U.S. economic support, even as faster vaccinations have brightened the outlook for recovery. The Federal Open Market Committee is all but certain to hold interest rates near zero at the conclusion of a two-day policy meeting Wednesday, and repeat a vow to keep buying bonds at the current $120 billion monthly pace. The panel will release a statement at 2 p.m. in Washington and Powell will hold a press briefing 30 minutes later. No quarterly forecasts are published at this meeting. “The Fed is trying to convey a very dovish tone as long as the pandemic remains a threat,” said Stephen Stanley, chief economist at Amherst Pierpont Securities LLC. “Until we get to that point, they are going to continue to say the economy is getting better but we need to see more evidence. We are not out of the woods yet.”
  • Bank of America Corp., Credit Suisse Group AG and Credit Agricole SA were fined a total of about 28.5 million euros ($34 million) by European Union regulators for colluding on trading of U.S. supra-sovereign, sovereign and agency bonds. Bank of America got the largest individual penalty of 12.6 million euros. Credit Suisse was fined 11.9 million euros and Credit Agricole was ordered to pay more than 3.9 million euros. Deutsche Bank AG participated in the cartel but wasn’t fined because it was the first to inform the EU about the illegal behavior. “Traders colluded on trading strategies, exchanged sensitive pricing information and coordinated on prices,” said Margrethe Vestager, the EU’s competition commissioner in an emailed statement on Wednesday. “The behavior of the investment banks restricted competition in a market in which investment and pension funds regularly buy and sell bonds on behalf of their investors and pensioners.”
  • Vietnam’s Deputy Prime Minister warned the country faces a “very high” threat of a new outbreak after reporting its first domestic virus case in a month on Tuesday. As the latest outbreak spreads, Sri Lanka saw a record number of cases, while Malaysia extended its conditional lockdown in Kuala Lumpur and four other states. At least eight provinces in Thailand have declared a nighttime curfew. Australia said it will give about 2,050 athletes and support staff bound for the Tokyo Olympics early priority access to Covid-19 vaccines. Elsewhere, flightsfor the initial phase of the Hong Kong-Singapore travel bubble have sold out in both directions. Fully vaccinated Americans don’t have to wear masks when exercising, dining and socializing outdoors in small groups, federal health officials said. Two new cases of blood clots linked to Johnson & Johnson’s Covid-19 vaccine are being investigated by U.S. health officials.
  • Saudi Arabia’s crown prince said the kingdom is in talks to sell a 1% stake in state oil giant Saudi Aramco to a “leading global energy company” as he forecast an economic rebound after the coronavirus pandemic. The kingdom is looking at the potential sale — which could be worth about $19 billion, based on the company’s market value — as a way to lock in customer demand for the country’s crude, Crown Prince Mohammed Bin Salman said in a rare interview on a Saudi television channel late Tuesday. While providing few details on which company is involved in the talks, he said the sale could take place in the next two years. “I don’t want to give any promises about deals finalizing, but there are discussions happening right now about a 1% acquisition by one of the leading energy companies in the world,” Prince Mohammed, the country’s de facto ruler, said. “I cannot mention the name but it’s a huge company. This deal could be very important in strengthening Aramco’s sales in the country where this company resides.”
  • President Joe Biden will unveil on Wednesday a sweeping $1.8 trillion plan to expand educational opportunities and child care for families, funded in part by the largest tax increases on wealthy Americans in decades — the centerpiece of his first address to a joint session of Congress. Called the American Families Plan, Biden’s third major legislative proposal combines $1 trillion in spending with $800 billion in tax cuts and credits for middle- and lower-income families. The plan would make pre-kindergarten and community college free across the country, extend the child tax credit through 2025 and make permanent an expansion of the earned income tax credit to childless adults with low incomes, provide direct support to families for child care, finance teacher training and create a national paid family leave program.
  • China Vanke Co., the country’s largest developer by market value, is working with an adviser to prepare for a listing of its property management business in Hong Kong that could raise about $2 billion, according to people with knowledge of the matter. The Shenzhen-based company is holding talks with several other banks for the offering, which could take place as soon as the end of this year, the people said. The use of technology in its real estate management could help boost the unit’s valuation, the people said, asking not to be identified as the information is private. Vanke would join other Chinese developers such as China Resources Land Ltd. and Country Garden Holdings Co. in spinning off their management units, which are less vulnerable to government policy changes and economic cycles. Bloomberg News in 2019 reported Vanke’s plans, which was later delayed by the Covid-19 pandemic.
  • Masayoshi Son has run almost all the way through $23 billion allocated to buy back SoftBank Group Corp. shares, raising concerns that his stock’s bull run will end without rapid intervention. The Tokyo-based company purchased more than $20 billion worth of its own shares over the past year through March, according to SoftBank filings, an unprecedented effort that more than doubled the value of the stock. Now, with only about 10% of the committed capital left, the program may run out as soon as next month, Bloomberg’s calculations show. Already, there are signs the buybacks are losing their power to lift SoftBank’s stock. Shares declined 5.7% in March, their worst monthly performance since the pandemic low a year earlier. They fell even as more money was spent on re-purchases, the overall markets advanced, and SoftBank’s profit for the March quarter is expected to hit a record.
  • U.S. private equity firm Platinum Equity is in exclusive talks to buy Urbaser SA in a deal that could value the Spanish waste management company at about 3.5 billion euros ($4.2 billion) including debt, according to people familiar with the matter. China Tianying Inc., Urbaser’s owner, has agreed to negotiate with the buyout firm led by billionaire Tom Gores to finalize the details of a transaction, the people said, asking not to be identified because the matter is private. Platinum has emerged as the preferred buyer for the asset after beating out other investment funds including Stonepeak Infrastructure Partners, the people said. An agreement could still be a few weeks away, giving Platinum time to finish due diligence and financing arrangements, they said.
  • The stock rally for America’s traditional automakers may face a reality check with companies starting to report results amid an industrywide semiconductor shortage and an uncertain outlook heading out of the pandemic. Ford Motor Co. and General Motors Co. have drawn renewed interest from investors as they join the race to capture more of the electric-vehicle market dominated by Tesla Inc., the world’s most valuable car company. But quarterly earnings — beginning with Ford on Wednesday and followed by General Motors next week — will leave investors and analysts balancing the companies’ gas-car-fueled performance at the start of the year against their outlook for the future, all against the backdrop of a global shortfall of computer chips.
  • The U.K., seeking to put a value on the environment, said nature contributed 12 billion pounds ($17 billion) to tourism and outdoor leisure in the latest year for which data is available. The figure from the Office for National Statistics is the result of a 30% increase in spending enabled by the natural environment from 2011 to 2019 in England, and a drop of 55% in Scotland and 37% in Wales over the same period. It covers the value of trips and activities that rely on the outdoors. The data mark the first figures covering the tourism industry in a new thread of research aiming to set out Britain’s “natural capital accounts.” Prime Minister Boris Johnson, who is hosting United Nations talks on climate change later this year, has put the issue at the heart of his political agenda.
  • Zomato Ltd., an Indian food delivery startup backed by Jack Ma’s Ant Group Co., has filed an initial prospectus with Indian market regulator for an initial public offering that could raise as much as 82.5 billion rupees ($1.1 billion). The company plans to issue new shares to raise a maximum 75 billion rupees, while its major shareholder Info Edge India Ltd. will offer 7.5 billion rupees worth of shares in the offering, according to documents filed with the Securities & Exchange Board of India on Wednesday. The filing confirmed a Bloomberg News report last month. Zomato is also considering raising as much as 15 billion rupees before filing the red herring prospectus, which could potentially reduce the amount it plans to raise through selling new shares in the IPO, the company said.
  • The debate over the traditional 60/40 portfolio seems endless, but for pensions at least, it’s over — and bonds won. The retirement funds of the top 100 U.S. public companies, with combined assets of about $1.8 trillion, have ratcheted up their fixed-income allocations to a record level. At the end of their last fiscal year, they held 50.2% of assets in debt, while slashing money parked in equities to an all-time low of 31.9%, according to a recent report from pension advisory firm Milliman Inc. The shift, part of a longer-term transition spurred by federal legislation that made fixed-income more appealing, is gaining momentum even though asset class returns have gone in opposite directions with stocks surging to record highs while a four-decade rally in U.S. bonds is in jeopardy. Analysts see the emphasis on debt by the funds accelerating, and maybe most significant, potentially helping to blunt any move higher in yields.
  • Enjoy Technology Inc., a startup that operates mobile retail stores focused on selling and helping users set up technology products, is going public through a merger with blank-check company Marquee Raine Acquisition Corp. The merger with the special purpose acquisition company, or SPAC, will give Enjoy an enterprise value of $1.2 billion and about $450 million in growth capital, with $80 million of that coming from private investors. Enjoy, started by former Apple Inc. executive Ron Johnson, plans to announce the deal with Marquee on Wednesday, confirming an earlier Bloomberg News report on the talks.
  • Half-way through his restructuring of Deutsche Bank AG, Chief Executive Officer Christian Sewing took a big step toward convincing investors that Germany’s largest lender is no longer just a “show-me” case. The bank on Wednesday raised its outlook after beating Wall Street traders for a third straight quarter. The performance handed Sewing the strongest profit in seven years and fueled the biggest jump in the shares in almost a year. And in a quarter that left many competitors blindsided by the collapse of Archegos Capital Management, Deutsche Bank — once infamous for lapses in controls — steered clear of the carnage. Even long-term skeptics were impressed.
  • The U.S. Environmental Protection Agency accused Tesla Inc. this month of failing to prove it’s complying with hazardous air-pollutant rules related to the surface coatings of its electric cars. Tesla disclosed the allegations Wednesday in a quarterly filing. The company said it refutes the allegations, is responding to the EPA’s information requests and doesn’t expect the matter to have a material adverse impact on its business. The EPA’s rules aim to limit emissions from hazardous pollutant materials used in carmakers’ coating operations. The regulator also restricts emissions from volatile organic compounds used in coating activities.
  • Google’s results, showing a surge in ad sales related to travel and retail, offered a glimpse of online spending in a post-pandemic world: Businesses are boosting digital marketing to capture a public eager to resume something resembling normal life again. Google parent Alphabet Inc. said first-quarter revenue, excluding payments to distribution partners, came in at $45.6 billion, pummeling Wall Street estimates. The company also unveiled a big new share buyback, sending the stock up more than 4% in premarket trading Wednesday.

“The next Bill Gates will not start an operating system. The next Larry Page won’t start a search engine. The next Mark Zuckerberg won’t start a social network company. If you are copying these people, you are not learning from them.” — Peter Thiel

*All sources from Bloomberg unless otherwise specified