August 17, 2021
Daily Market Commentary
- Canadian equity markets fell on Monday, after cannabis and materials sectors declined. The S&P/TSX Composite index dropped 0.2% in Toronto. Health care was the worst performing sector, led by a decline in pot stocks, while communication services stocks were the best performers. Canada’s housing market posted its fourth month of sales declines as the number of people looking to sell their homes saw a precipitous decline despite prices near record levels.
- Canada Pension Plan Investment Board is nearing a deal to acquire a stake in CeramTec GmbH, the German technical ceramics maker owned by buyout firm BC Partners, people with knowledge of the matter said. The transaction is set to value CeramTec at about 3.8 billion euros ($4.5 billion) including debt, the people said, asking not to be identified because the information is private. BC Partners and Canada Pension Plan will each own about half of CeramTec along with their co-investors after the deal, which could be announced as soon as Tuesday, according to the people. Canada Pension Plan will contribute about 800 million euros of equity as part of the deal, the people said.
- BHP Group unveiled the most sweeping change to its business since the world’s biggest miner was created two decades ago, as it plans an escape away from fossil fuels to shift toward what it calls “future facing” commodities and clears up some longstanding questions facing investors. BHP will sell its oil and gas operations to Woodside Petroleum Ltd. in exchange for shares that it will distribute to its own investors, it announced Tuesday. The company also approved $5.7 billion of spending to build a massive new fertilizer mine in Canada and said it will unify its dual-listed structure and shift to a single primary listing in Australia. The shares in London jumped as much as 9.8% after the flurry of announcements. The decisions — which come alongside record free-cash flow for the year through June and a $10.1 billion final dividend — represent a pivotal moment for Chief Executive Officer Mike Henry, who took the helm in January last year. Investors have been waiting years for a decision on Jansen, while the company has said previously its dual listing was up for discussion after coming under pressure from activist investor Elliott Management Corp., which also pushed for an exit from oil and gas.
- Canadian real-estate-investment giant Oxford Properties Group has agreed to buy a 14.5 million-square-foot portfolio of industrial property from KKR & Co. for $2.2 billion, a deal that indicates that the online-shopping boom continues to whet investor appetite for warehouses and distribution facilities. Oxford, a subsidiary of the Ontario Municipal Employees Retirement System, is buying the 149 buildings close to population centers — mostly in high-growth Sunbelt states — as part of its four-year-old effort to muscle into the U.S. market. Oxford also has made big investments in cold-storage facilities and U.S. regional distribution centers as large as one million square feet. The KKR deal is Oxford’s first purchase of U.S. industrial real estate in “infill” locations close to population centers. These properties typically are used by online retailers as the last distribution points before goods are delivered to homes.
- European stocks were broadly neutral Tuesday as concern mounted about the impact of the delta coronavirus variant, weighing on economically sensitive sectors that had been driving the summer rally. The Stoxx Europe 600 Index pared earlier losses of as much as 0.6% and was 0.1% lower as of 10:47 a.m. in London, with cyclical sectors including travel & leisure, energy and automotive declining the most. Basic resources outperformed, boosted by a surge in BHP Group Plc after the miner announced that it would merge its oil & gas operations with Woodside Petroleum Ltd. Equities got a boost from better-than-expected corporate earnings during July and early August, rallying for 10 straight days through the end of last week. They started to retreat from record levels on Monday as coronavirus cases in Asia cast doubt on a continued demand recovery. Closer to home, the Telegraph reported overnight that U.K. hospitalizations are at the highest since March.
- Global stocks dropped for a second day and U.S. equity-index futures tumbled amid concern more economic shutdowns are becoming necessary to contain a fast-spreading pandemic. A stronger dollar and a slide in Treasury yields underscored the risk-off mood Tuesday as New Zealand discovered a positive case and announced a lockdown. Gold rose for a fifth day and oil declined. Contracts on the S&P 500 and Nasdaq 100 gauges lost at least 0.3% each. Home Depot Inc. fell in premarket trading after sales missed estimates. Treasury yields declined, with the 10-year rate trading around 1.22%, eight basis points below its 200-day moving average. Powell’s town hall may act as a precursor to the Jackson Hole symposium in late August where some investors expect an announcement about tapering to come.
- Asia stocks fell for a fourth straight day, weighed down by declines in Chinese tech shares on lingering concerns about Beijing’s clampdown on internet giants. The MSCI Asia Pacific Index declined as much as 1.3%, with Tencent and Alibaba the biggest drags. The Hang Seng Tech Index slid as much as 3.7% as China’s market regulator released draft rules banning unfair competition among online platform operators. South Korea’s Kospi dropped for an eighth day, set for the longest losing run in three years, as foreign investors continued to sell local shares. Asian equities are falling further behind their U.S. and European peers as investors fret over the economic impact of the delta variant of Covid-19, while also grappling with the uncertainty brought upon by China’s regulatory campaign. Tencent lost as much as 4.6% ahead of its earnings report due Wednesday.
- Oil fell for a fourth day, heading for the longest run of losses since March, on the threat to demand from the delta coronavirus variant. West Texas Intermediate futures declined 0.4% after losing almost 3% over the previous three sessions. U.S. gasoline consumption fell for a third week, according to a survey by Descartes Labs, while data from China on Monday revealed a slowdown in the economy last month. Further downside pressure came as a strengthening dollar made commodities priced in the currency more expensive. After a vigorous rally in the first half of the year, crude’s advance has been checked in recent weeks. The delta variant has spurred fresh curbs on mobility in many nations including China, harming energy consumption. Against that backdrop, JPMorgan Chase & Co. has been among banks reducing oil price forecasts.
- Gold advanced for a fifth day as Treasury yields ticked lower amid concern the spread of the highly contagious delta coronavirus variant threatens the global economic recovery. Chinese economic activity slowed in July, data showed on Monday, with retail sales taking a hit after tough new virus restrictions were introduced toward the end of the month. The number of people dying with Covid-19 in U.S. hospitals, meanwhile, is hitting previous highs in some hot-spot states with low-to-average vaccination rates. The renewed demand for haven assets is helping bullion to claw back recent losses that were driven by strong U.S. jobs data. Investors are waiting for a speech by Federal Reserve Chair Jerome Powell on Tuesday and the Jackson Hole symposium in late August for clues on the timeline for tapering stimulus. Fed Bank of Boston President Eric Rosengren said he expects to see enough employment growth to merit announcing plans for a reduction in bond buying at the central bank’s policy meeting next month.
- New Zealand will enter a lockdown after reporting its first community transmission since February. South Africa expects a fourth wave of infections to start in early December and assumes a new variant will have emerged by then. Hong Kong announced it will hike quarantine for medium-risk places to 14 days. Business groups in the city are already opposing measures announced on Monday that curbed travel. Meanwhile Singapore, which has been mulling opening its borders, said it’s considering a plan to allow groups of vaccinated travelers to enter the country on carefully controlled itineraries. The U.S. government is poised to offer booster shots as soon as next month.
- President Joe Biden’s administration is sending 488,370 Pfizer Inc. Covid-19 vaccine doses to Rwanda, including the first shipments that are part of a pledge he made at a Group of Seven summit to donate 500 million doses worldwide. The U.S. will ship the doses this week to Rwanda through Covax, the global vaccine sharing initiative, according to an official familiar with the plan. The shipment includes 188,730 doses that are the first installment under an agreement Biden struck at the G-7 meeting, and another 300,000 from surplus U.S. government supplies, which the U.S. has been shipping off steadily. The shipments will provide a steep boost to Rwanda’s inoculation campaign, which has given out 1 million shots so far, enough for 4.3% of the population, data compiled by Bloomberg show.
- Walmart Inc. posted second-quarter results that topped expectations and raised its sales forecast for the year, showing continuing momentum for the retail giant even as it faces tough comparisons from last year’s pandemic-fueled stockpiling. Comparable sales gained 5.2% for Walmart stores in the U.S., excluding fuel, the company said Tuesday in a statement. That surpassed an expected 3.1% increase, according to the average of estimates compiled by Bloomberg. The company also boosted its full-year outlook for that metric to as much as 6% from a prior expectation of low single-digits. The results show demand isn’t disappearing following a sales boom last year, when Walmart and rival Target Corp. benefited from elevated purchases of groceries and household goods during the early days of the pandemic. Despite renewed concerns over consumer sentiment amid the spread of the delta variant, the world’s largest retailer has momentum heading into the crucial back-to-school and holiday shopping seasons.
- The recent slump in video streaming giant Kuaishou Technology’s shares has awoken investors to the risk of expiring lockups for Hong Kong’s newly-listed stocks. More than $6 billion worth of cornerstone investment lockups are due to expire within the next five months for this year’s IPOs, according to Bloomberg calculation based on stock exchange filings. The companies that face the biggest potential selling pressure include JD Logistics Inc., Bairong Inc., China Youran Dairy Group Ltd. and Linklogis Inc. — a cohort of 10 companies with lockups accounting for more than 8% of their combined market capitalization. Kuaishou fell the most on record on Aug. 5 after a post-listing lockup on sales of its shares expired, allowing some of its backers to finally dump their stock amid fears of China’s widening online crackdown. With many recent IPOs also in the regulatory crosshairs, traders will be watching closely for similar selling pressure around the time lockups expire.
- SenseTime Group Ltd., China’s largest artificial intelligence company, is working with HSBC Holdings Plc to arrange its planned Hong Kong initial public offering that could raise at least $2 billion, according to people familiar with the matter. China International Capital Corp. is also arranging the share sale for the SoftBank Group Corp.-backed company, said the people, who asked not to be identified as the information is private. The company isn’t tapping any U.S. banks for the offering because it is on the U.S. Bureau of Industry and Security’s entity list, strictly limiting its ability to do business with American firms, the people said. The AI startup has been exploring a dual listing in Hong Kong and China, Bloomberg News reported last year. The Hong Kong share sale could even raise as much as $3 billion depending on the valuation the company is seeking, the people said. SenseTime plans to file for its Hong Kong IPO as soon as the coming weeks, they added.
- JPMorgan Chase & Co.’s asset-management arm invested in Plaid Inc., joining a fundraising round that previously valued the data company at $13.4 billion. JPMorgan Private Capital Growth Equity Partners, along with American Express Co.’s venture-capital arm, invested as part of Plaid’s Series D fundraising round, the company said Tuesday. The round was originally announced in April and led by Altimeter Capital and Silver Lake Partners. AmEx counts itself as a previous investor in Plaid. JPMorgan’s investment was overseen by Christopher Dawe, who joined the firm earlier this year from Goldman Sachs Group Inc., where he also invested in Plaid.
- Cathie Wood, the superstar fund manager who has for months been paring holdings tied to Chinese technology giants, said a country that catapulted past the U.S. in innovation seems to now be in a state of retreat. “I think that China-U.S. saber rattling, which has intensified under this administration — a surprise to me — is bringing more activity back home,” Wood said in a Bloomberg Television interview taped on Aug. 13. “The supply-chain reorganization is going to be a positive for the U.S., and it’ll be somewhat of a negative for China.” Wood’s flagship Ark Innovation ETF is now sitting with no exposure to shares of companies in the world’s second-biggest economy. Her firm had dumped Chinese stocks in July as Beijing’s clampdown on sectors ranging from education to technology wiped about $1 trillion off shares listed on the mainland, Hong Kong and the U.S.
- The National Highway Traffic Safety Administration’s investigation into the involvement of Tesla Inc.’s Autopilot in car accidents signals a more activist approach to regulating auto safety by the Biden administration — particularly new technologies. NHTSA, which announced the Tesla probe Monday, opened 26 probes into various auto and highway safety issues so far this year — more than in all of 2020 or 2019, according to its website. NHTSA is on pace to launch about 66% more investigations than the 25 it began last year. Since President Joe Biden was inaugurated in January, NHTSA also has stepped up its pace of investigations into Tesla crashes. Nine probes into Tesla accidents have been opened since March; the most recent occurred in San Diego last month.
- A group of senior leaders in Afghanistan is seeking to take charge of talks with the Taliban around the formation of a new government after the militants seized control of the country, with a delegation traveling to Doha, Qatar. The move follows chaos at the airport in the capital, Kabul, as thousands of desperate Afghans attempted to leave in the face of the Taliban advance. The situation at the airport remained volatile on Tuesday with Al-Jazeera reporting shots were heard in the area amid attempts to disperse crowds. The Associated Press reported several military evacuation flights had managed to take off. The Taliban on Tuesday urged women to join a government led by the group, AP reported. There are signs in parts of the country at the same time that the militants are already reimposing fundamentalism, including banning women from work.
- U.K. wage growth hit a record as companies posted more than 1 million new job vacancies for the first time in an unprecedented scramble for staff following the loosening of lockdown rules. Average earnings in the three months through June surged a record 8.8% from a year earlier, the Office for National Statistics said Tuesday. While the figure partly reflects distortions created by the pandemic, underlying wage pressures are also gathering pace. The pickup underscores the scale of the recovery from the deepest economic slump in 300 years. Although the Bank of England expects strains in the labor market to prove temporary, policy makers warned this month that meeting the 2% inflation target will require a modest withdrawal of monetary stimulus.
- Japan expanded its current virus emergency now in place for Tokyo and other areas to seven more prefectures as well as extended it to Sept. 12, trying to stem a delta variant-fueled surge that has sent infections to records. Prime Minister Yoshihide Suga announced the measures Tuesday, which bring a total of 13 areas under the state of emergency, a week ahead of the opening of the Paralympics. The global sports spectacle runs from Aug. 24 to Sept. 5 and is set to be held without spectators — like the recently ended Tokyo Olympics. The move comes as the number of patients in hospitals nationwide soared to a level more than twice previous peaks, and severe cases have also climbed to a record, putting strain on the health-care system. The government had previously planned to lift the measure Aug. 31.
- Home Depot Inc. posted weaker-than-expected results in the second quarter, joining the trend of early pandemic winners coming back to earth after outsize gains over the past year. Same-store sales, a key metric in retail, rose 4.5% in the period ended Aug. 1, the Atlanta-based company said Tuesday in a statement. That missed the 5.6% average of analysts estimates. The shares headed for their eighth straight decline the day of an earnings report, slumping 3.2% to $324.51 in early trading. The retailer’s historic revenue gains during the pandemic have been anchored by Americans fixing up their homes. Now, with the economy reopening, major renovations done by professionals are becoming a larger business. That led to an 11% gain in the average purchase price, but overall transactions fell 5.8%, not enough to sustain the momentum.
- Afghanistan’s acting central bank governor departed the country as Taliban fighters took control of the capital, with the political turmoil pushing the nation’s currency to a record low. The Afghani fell as much as 1.7% on Tuesday to 83.5013 per dollar, a fourth day of decline, according to data compiled by Bloomberg. The central bank was told there would be no more dollar shipments on Friday, which curtailed its ability to supply currency and led to more panic, acting Governor Ajmal Ahmady wrote in a Twitter thread. Ahmady boarded a military plane at Kabul airport, where thousands sought to leave as the Taliban’s rapid territorial advance led to the collapse of the government. There was no evacuation plan, and President Ashraf Ghani’s departure without creating a transitional government contributed to the chaos, Ahmady wrote.
- E-commerce startup Tiendanube reached a $3.1 billion valuation after it raised $500 million to accelerate its expansion in Latin America, securing its spot as one of the region’s fastest-growing players in the sector. The Argentine company, which provides online platforms for entrepreneurs to operate their own stores, got the money in a Series E funding round led by Insight Partners and Tiger Global Management. Other investors included Alkeon and Owl Rock, Tiendanube said in a statement. The investment, the company’s largest since an $89 million funding round in March, will be used to complete an expansion in Colombia this year and launch in Chile and Peru in 2022, according to Chief Executive Officer Santiago Sosa. Tiendanube, which currently has 600 employees, looks to hire another 1,500 by the end of next year.
- The U.K.’s blue-chip FTSE 100 Index will lose its second-biggest stock by market value and the world’s biggest mining company, after BHP Group announced plans to simplify its listing structure. BHP will move to a primary listing in Australia after collapsing a dual arrangement that dates back to the company’s creation 20 years ago when Australia’s BHP Ltd. merged with rival Billiton. The change, one of several announced Tuesday that also included a plan to exit the oil and gas business, means BHP can be more nimble in pursuing deals, Chief Executive Officer Mike Henry told reporters. However, the deletion from the FTSE 100 will also prompt asset managers and exchange-traded funds which track the benchmark to sell their holdings in BHP. And the loss will be a blow to the index — the London Stock Exchange is seeking to attract new listings as the U.K. maps its future outside the European Union. It still includes several of the world’s other huge mining companies though, including No. 2 Rio Tinto Group, another dual-listed stock.
- Stanley Black & Decker Inc. agreed to buy the remaining 80% of MTD Holdings Inc., the family-led maker of Cub Cadet and Troy-Bilt lawn tractors and power tools. The cash transaction will complete a relation that began when New Britain, Connecticut-based toolmaker Stanley bought 20% of MTD in 2019, the companies said in a statement Tuesday. The purchase is expected to close this year pending regulatory approvals. Stanley said it decided to buy the rest of the company because of its strong brands and trends among consumers to focus more on lawn and garden care, and a push toward electrification in tools. MTD is run by Chief Executive Officer Robert Moll, whose grandfather founded the company 90 years ago. MTD, with some 7,500 employees, had $2.5 billion in revenue over the past 12 months
“Opportunities don’t happen. You create them.”— Chris Grosser
*All sources from Bloomberg unless otherwise specified