April 8, 2021

Daily Market Commentary

Canadian Headlines

• Canadian equities posted a slight rise Wednesday as investors digested global vaccinations along with comments from the U.S. Federal Reserve. The S&P/TSX Composite Index rose 0.1% with seven of 11 sectors higher. Consumer staples led the charge while health care retreated. Bank of Montreal’s CEO said Canada’s policy makers should work on preparing measures that could rein in the country’s surging home prices, but hold off on implementing solutions for at least a few weeks. Ontario is forcing most retailers to temporarily close or operate under a new set of restrictions as the province fights an accelerating wave of Covid-19.
• Royal Bank of Canada is giving employees an extra paid day off this year, and its top executive acknowledged that staff are more burned out now than at any time during the Covid-19 pandemic. Chief Executive Officer Dave McKay said in companywide memo on Thursday that many employees have said they’re exhausted and that the bank needs to “eliminate the stigma associated with asking for time to focus, concentrate, and in some cases, log off and recharge.” Burnout has become a more pressing issue for financial firms as the pandemic moves into its second year and some lines of business, including mergers and acquisitions, see a sustained boom in activity.
• Canada’s publicly-traded companies are running behind European and U.K. peers when it comes to disclosing their greenhouse gas emissions, according to a study from the Institute for Sustainable Finance. Around two-thirds of the S&P/TSX Composite Index disclose greenhouse gas discharges, according to the report written by Sean Cleary and Andrew Hakes. While that’s broadly in line with percentages seen the U.S., it falls below 79% for European and 99% for U.K. listed firms. The ISF, whose founding contributors are Canada’s largest banks, is releasing the report four months after the heads of eight large Canadian pension funds urged companies to improve their environmental, social and governance disclosure by giving investors “consistent and complete” data. Also, last month the Supreme Court of Canada ruled that Prime Minister Justin Trudeau’s national carbon tax is constitutional.
• Enbridge Inc. is moving forward with upgrades to its pipeline network serving the northeastern U.S. to ship more shale gas from the prolific Appalachian Basin as opposition to new conduits mounts in the region. The Canadian company’s plan includes a connection to a UGI Utilities facility in Pennsylvania and compression boosts that will allow it to move an additional 18 million cubic feet per day along its Texas Eastern system. In a second phase, similar links will be built for other customers in the Northeast. The incremental approach comes at a time when Appalachia’s growth potential is being capped by limited gas-shipping capacity after major pipeline projects got stalled by environmental opposition. Several vessels brought liquefied natural gas to Boston this winter because of insufficient ability to transport the heating fuel from shale fields.

World Headlines

• European equities resumed gains on Thursday as investors cheered further evidence that Federal Reserve officials remain dovish, brushing off lingering uncertainty over the continent’s vaccination campaign. The Stoxx Europe 600 Index climbed 0.3% as of 9:40 a.m. in London, on course to break a record set earlier this week, while France’s CAC 40 Index flirted with its highest level since 2000. A rotation into cyclicals paused, with defensives such as utilities and health-care shares leading gains. Insurers and travel shares fell. European equities have risen for four straight quarters, erasing all their pandemic-fueled losses earlier this week. The gauge is up by 9.2% this year, buoyed by expectations that as economies reopen, consumers will spend mass savings accumulated during months in home-confinement, while governments keep their purse strings loose and central banks tolerate higher prices. Investors are looking to the upcoming earnings season for clues on the outlook for corporate health.
• U.S. equity futures gained with European stocks on Thursday as the Federal Reserve’s commitment to supportive policy helped boost sentiment. Contracts on the S&P 500 rose after the benchmark’s record close on Wednesday following minutes from the latest Fed meeting, in which officials indicated it would likely be “some time” before they scaled back their asset-purchase program. Treasuries gained while the dollar slipped. Fed officials were united on the need to see more progress on the recovery before scaling back their massive bond-buying program, according to minutes from last month’s meeting released Wednesday. Policy makers have downplayed inflation risks, maintaining that the recent surge in Treasury yields reflects stronger growth prospects. Traders have pared back aggressive positioning for interest rates to start rising by the end of next year.
• Asian stocks advanced, erasing earlier losses with Hong Kong among leading gainers with AIA Group providing the biggest boost. The Hang Seng Index advanced more than 1% to the highest closing level since Mar. 18. Insurance giant AIA was the largest contributor to both the Hong Kong benchmark and the MSCI Asia Pacific Index. AIA rallied 6.2% as Morgan Stanley said the life insurer’s expansion in China is key to maintaining its “premium” valuation. The brokerage lifted its target on the company by 46%. Earlier, Asian stocks were dragged down by losses in Japan as Tokyo considered a return to stricter coronavirus measures amid rising infections.
• Oil fell as bearish virus news from India to Japan underpinned the outlook for a staggered recovery in consumption. West Texas Intermediate slid 0.6%, though remains within the $5 range it has traded in since mid-March. India, the world’s No. 3 oil importer, reported a record number of daily coronavirus cases, with states facing a vaccine shortage. In Ontario, officials issued a stay-at-home advisory, while the Tokyo government is weighing stricter curbs as a more contagious variant spreads. Crude has been stuck in a narrow band around $60 in recent weeks. While a string of positive economic figures, particularly from the U.S., has buoyed sentiment, fresh Covid-19 outbreaks and renewed lockdowns have acted as a counterweight. Against that mixed backdrop, the Organization of Petroleum Exporting Countries and its allies have announced a roadmap to ease output curbs over three months, restoring more than 2 million barrels a day.
• Gold rose as the dollar weakened after dovish rhetoric from the Federal Reserve, which gave no indication a tightening of monetary policy was imminent. Risk sentiment was broadly improved after minutes from the Fed’s March 16-17 meeting showed officials were united on the need to see more progress on the recovery before scaling back their massive bond-buying program. European equities and U.S. stock futures rose on Thursday, while the dollar weakened, boosting gold. Traders will look for further comments from Chair Jerome Powell, who is due to take part in a panel about the global economy on Thursday. His persistently accommodative stance on monetary policy has helped cool a rise in Treasury yields, which has harmed non-interest bearing gold.
• President Joe Biden’s plan to eliminate subsidies claimed by oil and gas companies and raise levies on corporate polluters would increase government receipts by $35 billion over the coming decade. The benefits of these subsidies are currently concentrated “within a handful of large firms,” the Treasury said in the Made In America Tax Plan released Wednesday. The report expands on tax proposals in Biden’s $2.25 trillion economic package unveiled last week. The plan is likely to meet stiff resistance from the oil and gas industry and its supporters on Capitol Hill. Biden already surprised many executives in the first few months of his presidency by canceling the Keystone XL crude pipeline and restricting drilling on federal land.
• India recorded its highest-ever number of daily Covid-19 cases as its fight to curtail a renewed wave of infections is beset by vaccine shortages in several states and cities, including Mumbai. Tokyo is eyeing a return to stricter measures as infections in the city hit a two-month high. The European Union failed to unify in responding to links between AstraZeneca Plc’s Covid-19 vaccine and a rare type of blood clots. EU Health ministers say they’ll continue talks on the issue. The variant of the coronavirus first found in the U.K. has overtaken the initial form of the virus in the U.S. and is now the country’s most common strain. President Joe Biden will offer vaccine shipments to all of the nation’s community health centers. To the north, Canada’s largest province, Ontario, declared a state of emergency.
• Russian tycoon Andrey Komarov is setting his sights on precious metals mining after selling ChelPipe PJSC, the pipe maker that made him a billionaire. Komarov is talks to purchase the Kumroch gold deposit in Russia’s Far East from Zoloto Kamchatki, according to people familiar with the matter, who asked not to be identified as it’s private. He’s also interested in investing in the Fedorova Tundra platinum and palladium project in the Murmansk region, the head of the company that owns the deposit said in March. While demand for steel pipes fell during the coronavirus crisis, platinum-group metals prices rallied on supply disruptions and stricter emissions rules that boost usage in autocatalysts. Even though gold has been pressured in recent months on bets for a economic recovery, prices are still historically high amid ultra-loose monetary policies around the world.
• KKR & Co. is in talks to invest $500 million in Box Inc. in a deal that will see one of its representatives join the board of the cloud software company, according to people familiar with the matter. The private equity firm will get preferred convertible stock in Box as a result of the transaction, said the people, who asked not to be identified as the details aren’t public. While Aaron Levie will continue as Box’s chief executive officer after the deal, he plans to step down as chairman, the people said. Technology executive Bethany Mayer will take his place.
• Before he lost it all—all $20 billion—Bill Hwang was the greatest trader you’d never heard of. Starting in 2013, he parlayed more than $200 million left over from his shuttered hedge fund into a mind-boggling fortune by betting on stocks. Had he folded his hand in early March and cashed in, Hwang, 57, would have stood out among the world’s billionaires. There are richer men and women, of course, but their money is mostly tied up in businesses, real estate, complex investments, sports teams, and artwork. Hwang’s $20 billion net worth was almost as liquid as a government stimulus check. And then, in two short days, it was gone. The sudden implosion of Hwang’s Archegos Capital Management in late March is one of the most spectacular failures in modern financial history: No individual has lost so much money so quickly. At its peak, Hwang’s wealth briefly eclipsed $30 billion. It’s also a peculiar one. Unlike the Wall Street stars and Nobel laureates who ran Long-Term Capital Management, which famously blew up in 1998, Hwang was largely unknown outside a small circle: fellow churchgoers and former hedge fund colleagues, as well as a handful of bankers.
• Apple Inc. plans to argue at a trial that developers and consumers will suffer if Epic Games Inc. succeeds in upending how the iPhone maker’s app marketplace is run. Apple presented a California federal judge on Thursday with a road map of how it will push back against Epic in a high-stakes antitrust fight over how much the App Store charges developers. The filing comes ahead of a May 3 trial before the judge with no jury. In a summary of its legal arguments, Apple contends the 30% commission it charges most developers isn’t anticompetitive as it’s a typical fee across other mobile and online platforms. Moreover, the company argues taking a share of the revenue is justified by the billions of dollars it has invested in developing the proprietary infrastructure that underpins its App Store, including software development kits and application programming interfaces.
• Denmark wants to spend 106 billion kroner ($17 billion) by 2035 on transport infrastructure projects that will have a combined neutral impact on emissions even as the Nordic nation is struggling with its ambitious climate targets. New projects include highways and tunnels across Denmark and improved public transportation such as battery-driven trains, the government said, adding the plan won’t cut or increase emissions. Cities will also get an option to ban vehicles on the road on Sundays. Financing elements include a previously agreed extra tax revenue from company activities in the North Sea. Denmark, which has fared better economically through the pandemic than most European peers, has pledged to reduce its carbon emissions with 70% by 2030 compared to 1990-levels, while the country’s climate watchdog says it risks falling far short of the goal. One element in the government’s plan includes an ambition to have 1 million electric vehicles on the roads by 2030.
• Anglo American Plc will separate its South African coal mines into a new business this year, as the company accelerates its response to investor pressure over the most-polluting fuel. Anglo has been plotting an exit from thermal coal for more than a year and has always said separating its South African business was the most likely outcome. Anglo will still own a coal mine in Colombia that it’s also planning to sell and coking coal mines in Australia, used to make steel rather than burned for power. The new business, called Thungela Resources Ltd., will be listed in Johannesburg and London in June, the miner said in a statement on Thursday. Investors will receive one Thungela share for every ten Anglo American shares that they hold. Anglo executive July Ndlovu has been named chief executive officer.
• HSBC Holdings Plc plans to allow up to 50% occupancy in its offices starting on April 12 as local virus infections abate in the financial hub. “Businesses and functions can have a maximum of 50% of employees by teams working from the offices starting 12 April provided there is no deterioration in the local situation before then,” the bank said in an internal memo. It had previously said only critical staff should come to the office. The city has managed to contain a recent surge in cases after an outbreak at a gym popular with expatriates. The cluster — the city’s second-biggest of the pandemic — prompted HSBC to close its main Hong Kong office for a short period. Other firms, including Goldman Sachs Group Inc. and UBS Group AG, also had more of their people work from home.
• India’s Mohalla Tech said that it raised $502 million from investors led by Lightspeed Ventures and Tiger Global, increasing its valuation to more than $2.1 billion. Mohalla Tech, founded in 2015, has developed products including the social media platform ShareChat and the short-video app Moj. Their user community numbers 280 million combined, the company said. India’s startups have scored a flurry of new fundings this year, with at least five reaching a valuation of $1 billion or more — unicorn status in the tech industry — just this week. They include the social commerce firm Meesho Inc., financial-technology provider Cred, Indian investment platform Groww and API Holdings Pvt., one of India’s largest digital pharmacies.
• Warren Buffett’s Berkshire Hathaway Inc. priced yen-denominated bonds on Thursday, as yield premiums in the Japanese market have tightened to the least in over two years. The conglomerate sold 160 billion yen ($1.5 billion) of notes in a three-part deal. The U.S. firm, which is sitting on $138 billion of cash, will usethe funds for general corporate purposes including refinancing of debt. The fundraising comes after the company said last year it purchased stakes of about 5% in Itochu Corp., Marubeni Corp., Mitsubishi Corp., Mitsui & Co. and Sumitomo Corp. The amount raised in the debt issuance is theoretically “just enough” to raise by 1% Buffett’s stakes in the five Japanese trading houses, Jefferies Financial Group Inc. analysts Thanh Ha Pham and Sangin Yun wrote in a note. Berkshire had said last year that it may increase its holdings in any of the firms up to a maximum of 9.9%.
• Low-income Americans bore the brunt of job losses when the pandemic arrived. Now they’re getting hit hardest by price increases as the economy recovers. The headline consumer inflation rate in the U.S. remains subdued, at 1.7% — but it masks large differences in what people actually buy. Some of the biggest price hikes of recent months, for example, have come in gasoline. A gallon of regular is up 75 cents since late last year –- adding more than $60 a month to the budget of someone who fills up with 20 gallons a week. Food-price inflation is running at more than double the headline rate, and staples like household cleaning products have also climbed.
• GameStop Corp. rose in premarket trading after saying it intends to elect Ryan Cohen as its next chairman, cementing the activist investor’s influence at the video-game retailer. Kurtis Wolf resigned effective April 5, GameStop said in a filing Thursday. The company said the resignation didn’t result from a disagreement over operations, policies or practices. Cohen will stand for election as chairman at the annual meeting June 9, GameStop said in a statement. GameStop shares rose as much as 3.8% to $184.80 in New York premarket trading. The stock has been on a wild, Reddit-driven ride, surging 845% this year.
• Twitter Inc. held talks in recent months to acquire Clubhouse, the buzzy audio-based social network, according to people familiar with the matter. The companies discussed a potential valuation of roughly $4 billion for Clubhouse, the people said, asking not to be identified because the matter is private. Discussions are no longer ongoing, and it’s unclear why they stalled, the people added. A Twitter spokesman declined to comment. A Clubhouse representative didn’t immediately respond to a request for comment.
• U.S. companies are leveraging their influence against the next wave of Republican-backed bills that tighten state voting rules, after a more conciliatory response failed to stop a similar law last month in Georgia. Texas and Arizona lawmakers face blowback from top corporate citizens over measures such as a provision being considered in Austin that would allow partisan poll watchers to videotape voters. Activists and Democratic politicians are pushing businesses to oppose the measures now, instead of waiting until they become law. The clash has Republicans, who for decades have championed tax cuts and expansive rights for corporations, criticizing companies as they try to avoid boycotts and criticism from significant portions of their customer base.
• U.S. exports of vehicles and parts dropped in February to the lowest level in eight months, underscoring the negative impact the global semiconductor shortage is having on auto production. That’s according to Commerce Department data released Wednesday, which also showed the U.S. trade deficit widened to a record high as a 2.6% decline in exports outweighed a slight drop in imports. Automakers shut down plants and slashed production early in the pandemic while demand plummeted, but imports and exports of autos started to pick up again in July as factories reopened and buyer interest accelerated.
• Mortgages are offering a bounty of spread over investment-grade corporates rarely seen over the last half decade. The yield offered by the Fannie Mae 30-year par coupon index compared to that offered by an index of AA rated corporate bonds with five-year tenors stands at 0.83%, well above its trailing one- and five-year averages of 0.72% and 0.60%, respectively. In fact, over the last five years — or 1,259 trading days — a spread differential at or above 0.83% has been seen only on 54 days, or about 4% of that period, according to data compiled by Bloomberg.

“The object of life is not to be on the side of the majority, but to escape finding oneself in the ranks of the insane.” – Marcus Aurelius

*All sources from Bloomberg unless otherwise specified