April 12, 2021

Daily Market Commentary

Canadian Headlines

• Bank of Montreal agreed to sell its Europe, Middle East and Africa asset-management unit to Ameriprise Financial Inc. for 615 million pounds ($847 million), marking Chief Executive Officer Darryl White’sbiggest move yet to trim the bank’s portfolio of non-core businesses. The sale also includes the opportunity for some U.S. clients to move to Ameriprise’s Columbia Threadneedle Investments unit, subject to their consent, Toronto-based Bank of Montreal said in a statement Monday. White, who took the reins of Canada’s fourth-largest lender in 2017, said in January that BMO was looking to “harvest investments” in businesses where the returns weren’t good enough or where the bank didn’t see a path to a leadership position, and then redeploy that capital toward better opportunities. Increased competition on fees and a shift to passively managed investments have hampered profitability in the fund industry, prompting banks including Societe Generale SA and Wells Fargo & Co. to sell their asset-management operations.
• Magna International Inc. will develop a modular electric vehicle with Israeli startup REE Automotive, helping the Canadian auto supplier and contract manufacturer muscle further into a growing field of EV players. The companies agreed to jointly design, engineer and build the EVs using REE’s platform, the skateboard-like base that supports different vehicle designs on top. The EVs can be built to the exact specifications of “global technology companies and e-mobility players” while speeding their entry into the market, Magna and REE said in a statement. “Many big tech companies are very much interested in creating mobility services and solutions that are global, big. But they don’t exist today,” REE Chief Executive Officer Daniel Barel said in an interview Sunday. “That vehicle can have any brand that the brand owner wants, but it’s powered by REE.”

World Headlines

• European stocks retreated from a record high as miners, travel shares and banks dropped, while deals triggered some large individual price moves. The Stoxx 600 Index was down 0.4% at 9:22 a.m. London time, with the U.K.’s FTSE 100 Index falling 0.8%, even as lockdown measures eased in England. M&A was in focus, with Suez SA up as much as 8.5% and Veolia Environnement SAgaining 6.8% after agreeing to buy its rival, ending a bitter takeover battle. DiaSorin SpA was also a standout, jumping as much as 11% after agreeing to buy Covid-19 test maker Luminex Corp. for about $1.8 billion. European stocks have made fresh headway in April, touching a series of record highs as investors bet on an economic recovery. Industry groups that could benefit under such a scenario have been favored, with autos, travel & leisure and banks among the top sectoral performers this year.
• Futures followed stocks lower Monday as investors braced for a flood of earnings amid doubts about an uneven economic recovery. U.S. equity futures slipped across the board following a third straight week of gains and fresh records for the S&P 500 Index. The yield on 10-year Treasuries steadied before a round of auctions that will be widely watched for their potential to extend the rate surge that’s shaken stocks to commodities to emerging markets this year. The U.S. sells three-, 10- and 30-year Treasuries at the start of the week. While the U.S. recovery is accelerating, parts of Europe and South America are beset by rising Covid-19 cases and troubled vaccination rollouts. The rotation toward cyclical and small-cap stocks appears to have stalled as well, prompting worry about the strength of the U.S. economic comeback at the start of earnings season.
• Asian stocks fell for a second day, with India and China leadinga broad decline in regional equities. India’s key stock gauges slumped more than 3% as the nation battled with a record surge in coronavirus cases. The CSI 300 Index fell more than 1.5%, with materials stocks tumbling after the Chinese government vowed to tighten controls on commodities. While Alibaba rallied in Hong Kong as a record penalty on the group was seen lifting a regulatory overhang on its stock, shares of peers including Tencent and Meituan slid, weighing on the Hange Seng. Japanese stocks dropped as the slow pace of domestic vaccinations weighed on investor sentiment, while Australian stocks declined as the nation abandoned its vaccine timeline amid delays.
• Oil gained, nearing $60 a barrel, as investors continued to assess the recovery in consumption globally. Futures in New York rose as the dollar fell, making commodities priced in the U.S. currency more attractive. Federal Reserve Chair Jerome Powell said that the U.S. economy was poised for stronger growth, but he cautioned that the pandemic remains a threat. That’s been highlighted in other regions including parts of Europe, while another wave of infections in India is overwhelming the health system. Yemen’s Houthis said they attacked oil facilities in Saudi Arabia, as the group steps up strikes on the kingdom, a reminder of political tensions in the Middle East. While such attacks have increased this year, they rarely claim lives or cause extensive damage.
• Gold declined for a second day before a slate of bond auctionsthat will retest appetite for U.S. Treasuries and could push yields higher again. The U.S. sells three-, 10- and 30-year Treasuries at the start of the week, after a spike in rates last month sent gold prices to the lowest in 11 months. Bullion has been trading in a narrow range in recent weeks, largely driven by movements in the dollar and bond yields. Investors remain focused on the economic prospects, with Federal Reserve Chairman Jerome Powell reiterating his optimistic outlook in an interview with CBS’s “60 Minutes”. He warned the main risk to the economy was a resurgence in the coronavirus
• Investors added money to exchange-traded funds that buy emerging market stocks and bonds last week. This was the 23rd 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 $1.3 billion in the week ended April 9, compared with gains of $3.45 billion in the previous week, according to data compiled by Bloomberg. So far this year, inflows have totalled $23.2 billion.
• Australia abandoned a vaccine rollout target amid delays, while Japan’s inoculation process kicks into gear Monday. England reopened shops, pub gardens, gyms and hair salons. Federal Reserve Chair Jerome Powell said the U.S. economy is at an “inflection point” with stronger growth and hiring ahead but that Covid-19 remains a threat. Singapore reported a positive test in a fully vaccinated worker and India tallied a record number of new cases. A study in Brazil showed that Sinovac Biotech Ltd.’s vaccine is slightly more than 50% effective.
• Angela Merkel’s Christian Democratic Union signaled its broad support for party chairman Armin Laschet to run as the conservative bloc’s candidate for chancellor in September’s election. The party’s leadership committee unanimously backed Laschet at a meeting Monday in Berlin, Hesse State Premier Volker Bouffier told reporters. The decision sets up a potential clash with the CDU’s smaller Bavarian sister-party, the CSU, whose chairman Markus Soeder also wants to run to replace Merkel. The CSU leadership is meeting later on Monday, and Soeder will hold a news conference after that in Munich. Handing the candidacy to Laschet, the premier of North Rhine-Westphalia, could be a risky move. Opinion polls suggest Soeder is significantly more popular among voters and would garner more support for the conservative bloc in the election.
• Bitcoin neared an all-time high on Monday as bullish sentiment gathered steam ahead of a listing by the largest U.S. cryptocurrency exchange. The token rose as much as 2.6% to $61,229, the highest in nearly a month, before falling back to trade little changed. On March 13, Bitcoin reached a record of $61,742. The cryptocurrency is up almost ninefold in the past year, a return that towers above that of more familiar assets like equities or bullion. Against the backdrop of Wall Street’s growing embrace of crypto, the direct listing of digital-token exchange Coinbase Global Inc. is fanning interest. Coinbase is due to go public on the Nasdaq on April 14, the first listing of its kind for a major cryptocurrency company and a test of investor appetite for other start-ups in the sector.
• BP Pipelines, a transportation and delivery arm of BP Plc, has sold a 49% stake in a U.S. affiliate to investment firm Sixth Street, according to a person familiar with knowledge of the matter. The sale of the stake in the affiliate, which includes pipelines tied to Whiting, the energy giant’s largest refinery, fetched about $700 million, the person said. It forms the basis of a joint venture for future midstream investments, the person said, asking not to be identified discussing confidential information. Last week, BP said it had reached a $35 billion net debt reduction target thanks in part to receiving proceeds from asset disposals earlier than expected. These included $700 million from the sale of a 49% stake in a controlled affiliate that held certain U.S. onshore “refined product and crude logistics assets”.
• The downfall of Archegos Capital Management LP will result in $10 billion of losses to banks, according to analysts at JPMorgan Chase & Co. JPMorgan’s banking analysts had previously given a range of $5 billion to $10 billion in the days after the collapse of Archegos, and settled on the higher figure after tallying disclosures from Credit Suisse Group AG and Nomura Holdings Inc. and estimates of the fund’s leverage. “While Archegos was a family office, the leverage applied seems to be hedge-fund like,” wrote analysts led by Kian Abouhossein in a note. That suggests $10 billion in equity with six to eight times leverage on positions of $60 billion to $80 billion, they said.
• MTN Group Ltd. is valuing its mobile-money arm at about $5 billion, joining African wireless carriers planning to list these businesses in a region that has more mobile-money accounts than anywhere else in the world. MTN’s valuation of its unit follows Mastercard Inc. and TPG Holdings LPinvesting $300 million in Airtel Africa’s mobile-money business at a $2.65 billion value. Mobile money, where users store and manage cash in an account linked to a mobile phone, is one of the fastest-growing sources of income for wireless-network operators like MTN and Vodafone Group. Sub-Saharan Africa, which struggles with limited banking infrastructure, has more mobile-money accounts than anywhere else in the world, with about 548 million at the end of 2020, or 54% of all customers, according to the GSMA, the global mobile-operator industry group.
• Huawei Technologies Co. will invest $1 billion on researching self-driving and electric-car technologies, accelerating plans to compete with Tesla Inc. and Xiaomi Corp. in the world’s biggest vehicle arena. Huawei’s autonomous-driving technology has already surpassed Tesla’s in some spheres, for instance by allowing cars to cruise for more than 1,000 kilometers (621 miles) without human intervention, Rotating Chairman Eric Xutold analysts in Shenzhen Monday. The Chinese telecom giant will partner with three automakers initially to make self-driving cars that carry the Huawei name as a sub-brand, said Xu, one of three executives who take turns to fill the post. It will keep its circle of partners small and get its logo onto cars — not unlike how Intel Corp. calls attention to its microprocessors on PCs — that adopt its autonomous driving technology, he added. The mobile giant has so far agreed to team up with BAIC Group, Chongqing Changan Automobile Co. and Guangzhou Automobile Group Co.
• Italian diagnostics company DiaSorin SpA agreed to acquire Luminex Corp. for about $1.8 billion, gaining the maker of Covid-19 testing kits and a greater foothold in the U.S. market. DiaSorin agreed to pay $37 a share in the all-cash transaction, according to a statement Sunday. That’s about 12% more than Luminex’s closing share price on April 9. DiaSorin shares rose as much as 11.4% in Milan trading, the most ever. Austin, Texas-based Luminex makes Covid-19 laboratory tests along with a suite of other biological testing technologies. In late March, it applied to the U.S. Food and Drug Administration for emergency approval of a lab test that combines tests for Covid-19 and the flu.
• European mall landlord Hammerson Plc is in talks to sell its retail parks to Brookfield Asset Management Inc. The company confirmed the discussions in response to a Sunday Times report that it had agreed to sell seven properties to Brookfield for 350 million pounds ($479 million). There was no certainty that a sale would take place or about its terms, Hammerson said in a statement Monday. “The company continues to make asset disposals in liquid markets to further strengthen the balance sheet, with gross proceeds of 73 million pounds achieved to date in 2021,” the firm said in the statement.
• China’s banks lent a record amount in the first quarter as the rebounding economy spurred demand for credit, prompting the central bank to step in and warn financial institutions to curb lending. Banks extended 7.67 trillion yuan ($1.2 trillion) in new loans in the first three months of the year, with a third of that in March, data from the People’s Bank of China showed Monday. That was 8% more than for the same period last year, when authorities flooded the market with cheap liquidity to help companies through the initial Covid-19 lockdown. With the recovery now strengthening, the central bank is raising concerns about the amount of credit still being added into the economy. The PBOC last month asked banks to curtail loan growth in the coming months and keep it at roughly the same level as last year, Bloomberg reported last week.
• Iran blamed Israel for an attack on the power network at its largest uranium enrichment plant, raising geopolitical tensions around Iran’s nuclear program as diplomats try to revive the international deal that contained it. “Various sources have confirmed Israel was behind the attack” at the Natanz facility in central Iran, Foreign Ministry spokesman Saeed Khatibzadeh said at a press conference on Monday, without giving further details. IR-1 centrifuges were damaged but it is too soon to assess how badly, he said. The assault, which cut off power to the site, didn’t disrupt enrichment operations and the plant is still running on emergency electricity backup, state-run IRIB news cited Ali Akbar Salehi, the head of the country’s atomic energy agency, as saying. The main power supply will be restored in the coming days, he said.
• United Airlines Holdings Inc. is tapping the junk bond market for $5.5 billion to refinance debt, including a loan from the U.S. government to help the company through the pandemic. The airline will sell secured bonds in two parts split evenly between five- and eight-year maturities, according to a person with knowledge of the matter. United will use the proceeds, together with its credit facilities, to refinance its existing revolver, a 2017 term loan and its CARES Act loan. Barclays Plc, JPMorgan Chase & Co., Bank of America Inc., Citigroup Inc., Deutsche Bank AG, Goldman Sachs Group Inc., Morgan Stanley, Credit Suisse Group AG, BNP Paribas SA, and Credit Agricole SA are managing the bond sale, said the person. Pricing is expected April 15.
• China told Ant Group Co. to become a financial holding company that will be regulated more like a bank, directing an overhaul that was set in motion when the fintech giant’s record initial public offering was abruptly halted last year. At a meeting on Monday, the central bank ordered Ant to rectify its business in five areas, including eliminating unfair competition in its payments business, managing liquidity risks in its major fund products, ending a monopoly on information and improving corporate governance, according to a government statement. It also told the firm to cut the outstanding value of its money-market fund Yu’ebao. The overhaul creates a definitive supervision framework for the biggest player in the country’s sprawling fintech sector. The government shocked markets in November by suspending billionaire Jack Ma’s planned IPO of Ant, citing a changed regulatory environment, days before its trading debut.
• The Biden administration is stepping up scrutiny of China’s plans for a digital yuan, with some officials concerned the move could kick off a long-term bid to topple the dollar as the world’s dominant reserve currency, according to people familiar with the matter. Now that China’s digital-currency efforts are gathering momentum, officials at the Treasury, State Department, Pentagon and National Security Council are bolstering their efforts to understand the potential implications, the people said.
• Apple Inc. has been a laggard in the smart-home space, but a versatile new device in early development could change that. The company is working on a product that would combine an Apple TV set-top box with a HomePod speaker and include a camera for video conferencing through a connected TV and other smart-home functions, according to people familiar with the matter, who asked not to be identified discussing internal matters. The device’s other capabilities would include standard Apple TV box functions like watching video and gaming plus smart speaker uses such as playing music and using Apple’s Siri digital assistant. If launched, it would represent Apple’s most ambitious smart-home hardware offering to date.
• BancorpSouth Bank agreed to buy Houston’s Cadence Bancorporation in an all-stock deal with an equity value of about $2.8 billion. Investors in BancorpSouth, based in Tupelo, Mississippi, will own about 55% of the combined company and Cadence shareholders will hold roughly 45%, the two companies said in a statement Monday. Regional banks have been combining forces to counter low interest rates, tepid loan demand and the need for greater technology spending. The mergers are aimed at helping smaller firms compete against giants such as JPMorgan Chase & Co., which is moving into new states and spending billions annually on digital offerings.

“Education is the kindling of a flame, not the filling of a vessel.”― Socrates

*All sources from Bloomberg unless otherwise specified