April 30, 2021

Daily Market Commentary

Canadian Headlines

• Canadian stocks fell on Thursday, after tech and materials stocks underperformed. The S&P/TSX Composite index fell 0.5% in Toronto. Tech stocks were the worst performers, while energy outperformed. Meanwhile, lumber demand is so strong that Resolute Forest Products Inc.’s order book exceeds its inventory, according to Chief Executive Officer Remi Lalonde.
• Prime Minister Justin Trudeau’s government named a respected former Supreme Court of Canada justice to lead a review of sexual misconduct in the nation’s military. Louise Arbour, who was chief prosecutor at the international war crimes tribunals for Rwanda and Yugoslavia before her five-year term on Canada’s top bench, will examine harassment in the defense department and the Canadian Armed Forces, and make recommendations on how to fix systemic issues within the ranks. Her appointment, announced Thursday, comes as Trudeau faces scrutiny over his office’s handling of a 2018 complaint against retired General Jonathan Vance, then the nation’s top military commander. Vance’s replacement, Art McDonald, stepped aside two months into his appointment earlier this year after a misconduct allegation prompted an investigation into his own conduct.
• Lumber demand is so strong that Resolute Forest Products Inc.’s order book exceeds its inventory, according to Chief Executive Officer Remi Lalonde. After trucking and railcar shortages hampered shipments during the first quarter, Resolute is now holding extra inventories at a time of record wood prices, Lalonde said during a conference call Thursday. Still, even those stockpiles aren’t enough to satisfy the North American building boom, so Resolute is ramping up output. Full-year production is expected to rise by 7%. Lumber futures have surged 85% this year amid sky-high demand from homebuilders and remodelers. The price touched an all-time high of $1,334.60 per thousand board feet two days ago and on Thursday surged by the $32 maximum allowed under Chicago Mercantile Exchange rules.

World Headlines

• European equities traded lower on Friday as mining shares declined after iron ore retreated in the wake of data from China and Barclays Plc dropped following its earnings update. The Stoxx Europe 600 Index was down 0.3% as of 12:03 p.m. in London. Barclays fell as much as 7.5% after the bank warned that costs are rising and reported a quarterly bad debt provision, despite peers releasing funds this week. Anglo American Plc and Rio Tinto Plc were down with iron ore after data from China pointed to signs of stress in demand for the steel-making material. In contrast, healthcare shares rose after AstraZeneca Plc reported better-than-projected profit. European equities are set for their third monthly advance, with some gains dwindling after the Stoxx 600 surged to a fresh record in mid-April. Dragging on sentiment are a Covid-19 spike in Asia, supply disruptions, President Joe Biden’s tax proposal and concerns over whether much of the anticipated recovery is already priced in. While the earnings season so far has signaled robust corporate profits, only the strongest results are yielding positive share moves.
• U.S. stock-index futures retreated as traders took a month-end breather amid a record high for the S&P 500 Index and some earnings disappointments. The dollar pared April losses. June contracts on the Russell 2000 declined 1.1% and Nasdaq 100 futures dropped 0.8% after China’s antitrust crackdown weighed on Asian technology shares. Twitter Inc. plunged 13% in premarket trading after forecasting second-quarter revenue below some expectations. The 10-year Treasury yield was steady and on course for the biggest monthly decline since July. European stocks erased gains. Confidence in the U.S. economy has surged amid a string of positive data culminating in a report Thursday that showed quarterly growth at an accelerated 6.4%. Given the Federal Reserve’s dovish resolve, that emboldened investors to stay bullish on stocks despite concern about high valuations. Some speculated Fed Chair Jerome Powell will come under pressure later this year to reassess the extent of accommodation.
• Japanese stocks fell as the government’s slow distribution of vaccines and China’s antitrust crackdown on technology companies hurt investor sentiment despite Wall Street’s climb to a record. Electronics makers and automobile companies weighed most on the Topix, causing losses to accelerate toward the close. Sony Group Corp. was among the heaviest drags on the Nikkei 225 Stock Average after the company’s quarterly earnings and forecast for the current year missed analyst expectations. Tech shares also fell after China’s regulators imposed wide-ranging restriction son the financial divisions of 13 companies, including Tencent Holdings Ltd. and ByteDance Ltd., in a broadening effort to rein in that nation’s tech giants.
• Oil declined as a recent rally in equities and commodities paused. Futures in New York dropped 1.1% on Friday as raw materials cooled from a scorching rally, while the dollar climbed making commodities priced in the currency less attractive. Prices remain on track for a weekly gain after topping $65 a barrel on Thursday for the first time since mid-March. The prospects for higher fuel consumption from the U.S., China and the U.K have brightened the outlook with traders betting that a steady reopening of economies will continue to boost demand. Still, a resurgent virus, especially in India, remains a threat to the recovery.
• Gold headed for its first weekly decline in four, as the metal’s April rebound stalled under pressure from rising bond yields and a firmer dollar. U.S. 10-year yields rose to the highest in more than two weeks, weighing on gold because the precious metal doesn’t offer interest, as investors again focused on inflationary pressures as the world economy recovers. On Friday bullion was little changed amid a stronger dollar. Gold had staged a partial comeback this month as central banks stick to dovish monetary policies. It rose earlier this week after the Federal Reserve said signs of inflation were transitory, assuaging fears of an early rate hike, but strong U.S. economic data continued to put pressure on havens.
• Credit Suisse Group AG Chairman Antonio Horta-Osorio said he plans a thorough assessment of the bank’s “strategic options” after the twin hits from the collapse of Archegos Capital Management and Greensill Capital eroded confidence. While he backed Chief Executive Officer Thomas Gottstein at the bank’s annual general meeting, the new chairman left little doubt about his appetite for change. The recent missteps at the Swiss lender, he said, went beyond any crises he had lived through over three-and-a-half decades working at banks. “We will take the time required for an in-depth assessment of the bank’s strategic options,” said Horta-Osorio, who succeeded Urs Rohner on Friday. “Then we will decide on a course of action and closely oversee the execution.”
• Nomura Holdings Inc.’s most senior trader at its U.S. unit is stepping down from his role, the latest shakeup at the Japanese bank after it lost almost $3 billion on trades with Archegos Capital Management. Jonathan Raiff, deputy head of global markets who oversees trading in the Americas, will focus on other projects, according to people familiar with the matter, who requested anonymity as the details aren’t public. His duties will be assumed by Samir Patel, Gordon Sweely and Richard Volpe, also senior traders at the division, the people said. Nomura, Japan’s biggest brokerage, is reeling after losing the equivalent of about $2.9 billion on transactions with Archegos, a family office set up tomanage the fortune of trader Bill Hwang. The Tokyo-based lender has already suspended a trio traders and its global head of credit risk has also stepped aside from his role, echoing similar turmoil at Credit Suisse Group AG, which lost even more.
• Global cases of the coronavirus topped 150 million, with India remaining at the epicenter of the pandemic after reporting record new infections Friday. Brazil’s fatalities exceeded 400,000 as the country recorded more Covid-19 deaths in the first four months of the year than in all of 2020. New York City is moving to fully reopen on July 1. France said it found initial cases of the variant first detected in India, while Sweden postponed its vaccination target after pausing the use of Johnson & Johnson’s vaccine. Hong Kong will quarantine residents of an apartment building after a person was found with what the government called the first local untraceable infection with Covid-19 variants. Singapore’s daily community cases climbed to the highest in more than nine months on Thursday.
• After years of debate and negotiation, Florida Governor Ron DeSantis signed a new compact giving the state’s Seminole tribe a lock on one of the fastest-growing businesses in the U.S.: sports betting. The deal, announced last week, gives the tribe exclusive rights to offer sports betting in the state — with some provisions. The Seminoles, who operate the Hard Rock brand, are being encouraged to contract with other gambling operators, including horse tracks and jai alai frontons. But the computer servers that support the wagering will remain on Indian land, and the tribe gets a 40% cut of the betting even on competing sites, well more than is typical in such deals. It’s a big market, with 17 million adult residents and tens of millions more who visit each year for vacation or business. Within three years, Florida could see $10 billion annually in sports wagers, estimates PlayFL.com, an industry news site.
• JD Logistics Inc. has received the green light from the Hong Kong stock exchange for its planned initial public offering of about $4 billion, according to a person familiar with the matter, the latest multi-billion-dollar deal to hit the city which is having its best start to the year on record for first-time share sales. The logistics business of e-commerce giant JD.com Inc. plans to start gauging investor demand for the listing as soon as next week, the person said, asking not to be identified as the information isn’t public. JD spent billions of dollars building JD Logistics, one of China’s largest courier services, to ensure on-time delivery and retain control over its transportation network. That in-house operation, which spanned more than 800 warehouses across the country as of Sept. 30, has been credited with speeding up JD.com’s recovery from early Covid-19 disruptions.
• Fear and caution in European boardrooms may be fading, as a pick-up in buybacks shows rising confidence that more cash can be returned to shareholders instead of shoring up balance sheets. Just as blue chips including LVMH, L’Oreal SA and BP Plc announce large buybacks, Societe Generale SA strategists estimate that European companies will spend 150 billion euros ($180 billion) to purchase their own shares next year. That’s a 25% jump from the average of 120 billion euros in the five years before the pandemic. A combination of companies’ survival instincts and political pressure meant that cash distributions almost completely dried up during the pandemic. In the equities rally that followed initial vaccine breakthroughs last November, stocks with high buyback ratios outperformed, while “dividend aristocrats,” value investors’ long-time favorites, lagged behind the broader market.
• Ogury Ltd. has selected Bank of America Corp. and BNP Paribas SA to advise on an initial public offering that could value the advertising firm at as much as 2 billion euros ($2.4 billion), people familiar with the matter said. Ogury is planning to list in Paris as early as this year, the people said, asking not to be identified as the information isn’t public. More banks could get added to the IPO roster in the coming weeks, the people said. No final decisions have been made and the eventual timing and valuation could change based on investor appetite, according to the people. Representatives for Bank of America and BNP Paribas declined to comment, while a spokesperson for Ogury didn’t immediately respond to requests for comment.
• Ping An Insurance Group Co. has agreed to acquire a majority stake in the newly-established Founder Group for as much as 50.75 billion yuan ($7.9 billion). The Chinese insurer plans to buy a 51.1% to 70% stake in the new Founder Group, whose assets include Founder Securities Co., Founder Technology Group Corp. and China Hi-Tech Group Co., according to a statement to Shanghai stock exchange on Friday. The size of the deal could range from 37.05 billion yuan to 50.75 billion yuan, the statement said. Peking University Founder Group Corp. has been in court-led restructuring proceedings since early last year and has defaulted $3 billion of dollar bonds and 34.5 billion yuan of onshore bonds, according to data compiled by Bloomberg. In January, Ping An Insurance was introduced as one of the investors as Founder Group continues with its restructuring plans.
• Chevron Corp. generated the most free cash flow since the pandemic emerged as economies clawing their way out of more than a year of lockdowns and paralysis burn more fuel. The oil, natural gas and refining titan posted $3.4 billion in first-quarter cash flow on Friday, more than enough to cover its recently increased dividend, which is a closely watched metric for the oil supermajors. A key driver of the bonanza was a 43% spending cut as Chevron retreats from costly mega-projects to focus on less-risky endeavors such as shale drilling.
• Lodging startup Sonder, which decks out apartments and hotel rooms as hip short-term rentals, has agreed to merge with special purpose acquisition company Gores Metropoulos II Inc. The deal will give the combined entity an enterprise value of about $2.2 billion, according to a statement Friday that confirmed an earlier Bloomberg News report. It includes a $200 million private placement led by an affiliate of Gores Group, the investment firm founded by the SPAC’s chief executive officer, Alec Gores. The fundraising will also be joined by Fidelity Management & Research Co., funds and accounts managed by BlackRock Inc., Atreides Management, entities affiliated with Moore Capital Management, Principal Global Investors and Senator Investment Group.
• Apple Inc. got a European Union complaint over app payment rules, drawing one of the world’s toughest antitrust enforcers into a global battle over fees for downloads on smartphones and tablets. The European Commission sent a so-called statement of objections to Apple on Friday, laying out how it thinks Apple abused its power as the key provider of music-streaming apps on its App Store. The case backs complaints from Spotify Technology SA which accuses Apple of imposing its in-app purchase system to take a cut of its subscription fees. The move signals the start of another Apple showdown with Vestager, more than four years after she ordered the company to pay billions of dollars in back-taxes to Ireland. Apple’s regulatory woes have intensified in recent months as software developers criticize the the levies Apple and Alphabet Inc.’s Google charge outside developers for using their digital distribution platforms.
• Nestle SA agreed to buy vitamin maker Bountiful Co. for $5.75 billion, becoming a world leader in the field of minerals and supplements as the pandemic boosts demand for pills for health-conscious consumers. Nestle Health Science Chief Executive Officer Greg Behar said the purchase — from private equity firms KKR & Co. and Carlyle — should double e-commerce revenue from supplements to about $1 billion this year. Chief Executive Officer Mark Schneider dove into the field of vitamins and supplements in his first year as CEO in 2017 with the $2.3 billion acquisition of Atrium Innovations Inc. He has focused on developing larger brands in the competitive, fragmented segment, seeing a market in high-spending health-conscious consumers.
• DoorDash Inc., the largest food-delivery company in the U.S., is seeking acquisitions in Europe, adding another well-capitalized competitor to an already crowded market. The company has made inquiries about potential food delivery targets in Europe, according to people familiar with the matter, who asked not to be named discussing private information. Germany and the U.K. specifically are countries on DoorDash’s radar, one of the people said. DoorDash is also interested in expanding in the grocery delivery space in Europe, one person said. The U.S. company may decide not to do a deal, and has also considered going it alone, two of the people said.
• AstraZeneca Plc confirmed it plans to apply for U.S. emergency authorization of its Covid-19 vaccine in the first half of 2021 after it missed an original target this month that raised questions over whether the company would pursue the clearance at all. The drugmaker, which has pledged not to profit from its Covid shot during the pandemic, said the product it developed with the University of Oxford recorded sales of $275 million in the first quarter, a fraction of its $7.3 billion in revenue. Astra’s results exceeded analyst estimates as the company benefited from strong growth in its cancer drugs portfolio. Astra’s peers meanwhile stand to make billions in revenues from their Covid shots. Pfizer Inc. has forecast $15 billion in sales this year from its vaccine, while Moderna Inc. expects to make about $18 billion.
• Singapore banks are pressing on in their transition away from the discredited London interbank offered rate as financial centers around the world are facing deadlines to move off Libor-priced loans and securities. After Friday, lenders and borrowers must stop using the Singapore dollar swap offer rate (SOR), computed using Libor, for new loans and other so-called cash products and use a new benchmark. That’s the guidance that’s been in place since last year from a steering committee formed by the city-state’s central bank. The amount of such financial instruments — including business and syndicated loans as well as retail mortgages — stood at about S$170 billion ($128 billion), according to a survey conducted by the Monetary Authority of Singapore in the first half of last year. While banks don’t yet need to migrate any of those outstanding contracts to a new pricing benchmark they will ultimately need to do so, unless the contracts expire before SOR is axed for good. There were also some S$2.1 trillion in derivatives tied to SOR, and the committee proposed last year that banks substantially reduce exposure to them by the end of September 2021.
• Before his bet on cryptocurrency exchange Coinbase Global Inc.became a multi-billion-dollar exit, Union Square Ventures co-founder Fred Wilson compared Bitcoin to science fiction. “We may be completely wrong, it may be a fantasy,” he said at a marketing conference in May 2013. That was shortly after he had invested $2.5 million in Coinbase, the U.S.’s biggest cryptocurrency exchange, where people can buy and sell Bitcoin and other digital tokens such as Ethereum and Litecoin. “It’s straight out of a sci-fi novel, but sci-fi novels are the best things you can read if you want to invest,” Wilson said. “It’s a gut bet.”
• President Joe Biden told voters in an Atlanta suburb that his proposed tax increases on the wealthy would finance tax cuts for many more Americans, as he took to the road to sell his plans to build infrastructure and invest in education, child care and other priorities. “This is a tax cut for more than two million families in Georgia,” Biden said of his proposals during a drive-in rally in Gwinnett County, marking his first 100 days in office. Biden traveled to the state — a political battleground after major Democratic victories in November and January — following his first address to a joint session of Congress on Wednesday. In the speech, he unveiled a sweeping $1.8 trillion proposal that would expand educational opportunities and child care for families, financed in part by the largest tax increases on wealthy Americans in decades.
• Amazon.com Inc., which benefited from a surge in online shopping during the pandemic, expects the trend to continue even as consumers get back to work and resume the vestiges of normal life. This time a year ago, Amazon Chief Executive Officer Jeff Bezos warned investors that the spread of Covid-19 was going to be costly, in new facilities to meet demand from homebound shoppers and precautions to keep its operations running safely. Amazon hired hundreds of thousands of workers and continued to open warehouses at a rate of one every 24 hours. Quarterly results released on Thursday show those big bets continue to pay off. The pandemic has supercharged the retailer’s business, enabling the Seattle-based company to more profitably deliver packages, cloud-computing services and streamed movies.

“Wealth isn’t primarily determined by investment performance, but by investor behavior.” — Nick Murray

*All sources from Bloomberg unless otherwise specified