August 18, 2021

Daily Market Commentary

Canadian Headlines

• Canadian stocks fell Tuesday amid concern that the global economic recovery will lose momentum as the delta variant prompts further shutdowns to contain the renewed spread of the pandemic. The S&P/TSX Composite dropped 0.6%, the most since July 19. Seven of eleven sectors retreated.  A Statistics Canada report due Wednesday is expected to show that price inflation accelerated in July to almost the fastest rate in two decades. Economists estimate that consumer prices jumped 3.4% last month on an annual basis, from 3.1% in June. Copper led most industrial metals lower amid ongoing concerns over the spread of the coronavirus delta variant in top consumer China, while a firmer dollar reduced their appeal to foreign investors.
• Manulife Financial Corp. said it will expand operations in China as the Canadian insurer seeks to capture increasing demand from the world’s second-largest economy as it prepares for virus restrictions to ease. The company is planning to build customer service centers in the Greater Bay Area, Damien Green, chief executive officer for Manulife Hong Kong and Macau said, while the return of tourists from the mainland in the future could also boost the life insurance industry, he said. “All the indications are if the border restrictions are eased, Mainland Chinese Visitor business will return to Hong Kong,” Green said at a media briefing on Wednesday. “Hong Kong is the premier destination for mainlanders seeking health and retirement insurance solutions.” The city’s sixth-largest life insurer is seeking to expand its local market share while tapping into new opportunities in China’s Greater Bay Area, which connects Hong Kong and Macau with nine cities in mainland China. ManuLife’s due-to-open 7,300 square foot Manulife Prestige Center located in Tsim Sha Tsui, the heart of the city, is the latest manifestation of how the company plans to drive sales from mainland visitors – which traditionally have not been target clientele – when Hong Kong reopens its border.

World Headlines

• European stocks were little changed Wednesday, hovering near a record, as investors consider whether the spread of the delta Covid-19 variant might derail the economic rebound. The Stoxx 600 index added less than 0.1% at 12:25 p.m. in London, with defensive sectors leading gains, such as utilities and health care, while cyclicals such as miners, autos and retail underperformed. Following a run of 10-straight record highs for the Stoxx 600, European stocks have mostly edged lower this week as the variant blurs the economic picture and monetary policy path, while the Taliban’s takeover of Afghanistan added geopolitics to the list of risks on investors’ radars.
• U.S. equity-index futures fluctuated between gains and losses, while the dollar halted a two-day rally, as investors assessed the outlook for economic recovery and awaited the latest Federal Reserve minutes to gauge the direction of monetary policy. Contracts on the S&P 500 Index slipped less than 0.1%, while Nasdaq 100 futures rose. The 10-year Treasury yield increased one basis point. Oil rebounded from a four-day slump a U.S. industry report pointed to a drop in domestic crude stockpiles. Viacom CBS climbed in premarket trading. A sense of caution was visible in markets, with most assets posting small moves, amid the relentless spread of the delta virus variant, the prospect of reduced stimulus support and elevated inflation. While the Fed minutes Wednesday may give some clues about the timeline for tapering stimulus, the next catalyst for markets may not come before the central bank’s Aug. 26-28 conference at Jackson Hole, Wyoming.
• Asian stocks rebounded, led by cyclicals, after a four-day selloff dragged the regional benchmark to its lowest level in almost eight months. The MSCI Asia Pacific Index rose as much as 0.8%, with financials and information technology sectors being the top performers. Chinese tech shares gave up gains after bouncing back following a five-day rout while a gauge of Southeast Asian equities jumped the most in about a month. Wednesday’s respite comes after the MSCI Asia Pacific Index slumped 1.3% in the previous session to close at its lowest level since Dec. 28. Investors are assessing the economic impact from the spread of the delta variant of the coronavirus while also waiting for the release of the latest Federal Reserve minutes.
• Oil snapped a run of declines as a U.S. industry report pointed to a drop in domestic crude stockpiles. West Texas Intermediate rose 0.5% after a four-day losing run that was the longest since March. The American Petroleum Institute reported that crude inventories fell 1.16 million barrels last week, including a draw at the key storage hub in Cushing, Oklahoma, according to people familiar with the data. The dollar also weakened, making commodities priced in the currency more attractive. Crude’s rally had been knocked off course in recent weeks, after surging in the first half of the year as vaccination programs and economic activity gained traction. Now data from the U.S. and China suggesting the recovery may be faltering as the spread of the delta coronavirus variant threatens demand. Since closing in mid-July at the highest since 2018, the U.S. oil benchmark has shed more than 10%, with banks paring price forecasts.
• Gold steadied as the dollar held an advance, with investors on the sidelines before the release of minutes from the Federal Reserve’s latest policy meeting. Bullion slipped Tuesday to snap four days of gains amid mixed U.S. economic data and lingering concerns over the global recovery as the delta coronavirus strain spreads. U.S. retail sales fell in July by more than forecast, while production at factories strengthened by the most in four months. Traders are turning their focus to the Fed minutes due Wednesday and next week’s Jackson Hole symposium, which may offer clues on the timing of the central bank’s tapering. In a town hall meeting Tuesday, Fed Chair Jerome Powell flagged that the pandemic is “still casting a shadow on economic activity” but didn’t discuss the outlook for monetary policy or make specific comments on growth and the risks from the delta variant.
• New Zealand found six additional cases of Covid-19 as it began a nationwide lockdown, all connected to a single delta infection discovered Tuesday with a link to Australia. The country’s finance minister said he doesn’t expect a “very prolonged” outbreak. Australia’s New South Wales state saw a surge in infections as the virus spreads throughout Sydney despite the nation’s largest city being in lockdown for almost two months. South Korea wants 70% of its population vaccinated by the end of September, the premier said, speeding up one of the lowest inoculation rates among major Asian economies. As governments debate whether to authorize booster doses, Moderna Inc. co-founder Noubar Afeyan envisions a time when coronavirus shots could become routine. Meanwhile, Texas Governor Greg Abbott, who has been a foe of mask mandates and other measures, tested positive in a breakthrough infection.
• Norway’s $1.4 trillion sovereign wealth fund, the world’s biggest, generated a 9.4% return in the first half of the year after its investments in energy, finance and technology companies helped drive double-digit gains in its stock portfolio. Oslo-based Norges Bank Investment Management returned almost 14% on stocks, with energy investments up nearly 20%, it said on Wednesday. Investments in bonds and renewable energy infrastructure slipped, while real-estate holdings grew. Its total return, equivalent to roughly $110 billion, was marginally higher than that of the benchmark against which it measures itself. Chief Executive Officer Nicolai Tangen, a former hedge-fund manager who’s been running Norway’s giant sovereign investment vehicle for almost a year, has previously cautioned against expecting continued bumper returns. Earlier this week, he said that inflation is now emerging as the biggest threat to returns with both stocks and bonds potentially vulnerable. That’s amid an ongoing debate as to whether price growth is “transitory” or becoming more entrenched. U.S. inflation has been above 5% for the past two months, the highest in over a decade.
• Tencent Holding Ltd.’s revenue increased at its slowest pace since 2019 after China’s expanding tech crackdown hit its mobile gaming empire, overshadowing newer businesses from cloud to social ads. Beijing’s months-long crackdown has ignited a trillion-dollar selloff in Chinese equities, up-ended online education and also pumped the brakes on growth across a swath of industries from advertising to car-sharing. This month, Alibaba Group Holding Ltd. reported revenue that missed estimates for the first time in more than two years. Tencent’s sales rose 20% to 138.3 billion yuan ($21.3 billion) for the three months ended June, in line with the 138.2 billion yuan average forecast. Growing scrutiny from Beijing and stiffening competition with the likes of ByteDance Ltd. has prompted China’s most valuable corporation to join arch-foe Alibaba in a spending spree, plowing a larger chunk of its profit into areas like cloud services, games, and short videos. While Tencent itself isn’t the target of any probe, its outsized influence in the modern Chinese economy has left it vulnerable as the crackdown quickly expanded from antitrust and e-commerce to data security and online content.
• The first big test of Joe Biden’s lofty clean-power ambitions may not be sweeping climate legislation that needs congressional approval, but managing a solar supply chain that’s being shaken by the seizure of imported Chinese panels. Multiple companies have now had solar components detained at U.S. ports in the aftermath of a Biden administration ban on equipment that may have used raw materials originally from Hoshine Silicon Industry Co., according to people familiar with the situation who asked for anonymity while discussing sensitive trade issues.  The seizures come amid a new push by some U.S. solar manufacturers to extend tariffs to China-linked factories in Vietnam, Malaysia and Thailand, the U.S.’s largest panel suppliers. Together the developments threaten to disrupt the U.S. solar market, potentially jeopardizing Biden’s goal of a carbon-free power sector by 2035.
• Wildfires in drought-stricken California threatened towns, severely injured two people and forced the evacuation of more than 21,000 residents Tuesday, with the state bracing for an early-season wind storm that could send flames raging out of control. The fast-moving Caldor Fire, which swelled to 6,500 acres (2,600 hectares) Tuesday in the hills east of Sacramento, was blazing with zero containment and injured two people who had to be air-lifted to medical facilities, according to the California Department of Forestry and Fire Protection, or Cal Fire. The department didn’t describe the nature of their injuries. California is struggling through one of its worst fire seasons on record, and conditions could deteriorate further in coming days. Strong, dry winds were expected to hit the northern half of the state late Tuesday, prompting utility PG&E Corp. to start cutting power to about 51,000 homes and businesses to prevent its electrical lines from sparking more blazes. The company said it would continue blacking out customers in small parts of 18 counties throughout Tuesday evening.
• European natural gas prices edged back up toward a record high, as flows via a key Russian gas pipeline to Germany remain capped and Norwegian shipments declined. Deliveries into Mallnow, Germany, via the Yamal-Europe pipeline slipped after gaining on Tuesday, and remain at less than half the normal capacity. Shipments slumped after a fire at a facility in Siberia earlier this month. Norwegian supplies to Europe also declined. Gas prices advanced to a record on Monday amid tighter supplies, and traders are watching if Russia, Europe’s biggest gas supplier, will raise shipments at a time when storage sites need to be filled both at home and across Europe. At the same time, most of Gazprom PJSC’s facilities in Europe are struggling to refill ahead of the next heating season.
• U.K. inflation eased in July in what is widely seen as a blip on its way to double the Bank of England’s target this year. Consumer prices fell back to the 2% goal for the first time since April, easing from a 2.5% increase in June, the Office for National Statistics said Wednesday. It’s the first time in four months that inflation rose less than economists had expected. The slowdown partly reflects a sharp rise in prices in July last year, when some of the restrictions deployed during the first coronavirus lockdown were eased. With the economy mostly reopen except for overseas travel, inflation is expected to accelerate quickly, driven largely by the cost of energy and shortages of both goods and labor. The Bank of England plans to reduce its stimulus to ease pressure on prices.
• Taliban fighters have ringed Afghanistan’s international airport with security checkpoints, raising concerns the group will prevent citizens from leaving the country after the U.S.-backed government collapsed. The checkpoints at Hamid Karzai International Airport in Kabul, the last place under U.S. control, are only to ensure security and prevent people from rushing in after several people died in chaotic scenes on Monday, according to a senior Taliban official. Earlier German defense officials had said the Taliban had sealed off the airport and were only letting through members of the international community. Iran said it will bar Afghans from entry at its eastern border, citing instability in Afghanistan and efforts to prevent the spread of Covid-19.
• Piecing together President Xi Jinping’s recent speeches and a barrage of new regulations that have roiled markets, one savvy internet user this month created a satirical image of what passes for an ideal youth in today’s China.  “The socialist successor of the new era does not attend after-school tutoring, does not play video games, does not chase celebrities,” said the post, which was shared widely before it was censored. “They finish all their homework at school, read President Xi’s selected works for one hour everyday, go to sleep before 10 p.m., take the initiative to do chores, urge their parents to have more children and help look after them.” The description highlights how Xi’s push for “common prosperity” and wealth redistribution is about more than just reining in tech billionaires: The flurry of rules and state-media missives targeting industries from after-school tutoring to online gaming and entertainment are also aimed at ensuring the younger generation — some of whom are starting to embrace a minimalist lifestyle known as “lying flat” — turns into motivated, patriotic and productive workers.
• China Huarong Asset Management Co. is poised to receive about 50 billion yuan ($7.7 billion) of fresh capital as part of an overhaul plan that would shift control of the embattled company to state-owned conglomerate Citic Group, people familiar with the matter said. The plan, some details of which are still being finalized and could change, calls for Citic to assume the Chinese government’s controlling stake in Huarong from the Ministry of Finance, the people said, asking not to be identified discussing a private matter. The capital injection would come from a Citic-led consortium, two of the people said. Broad outlines of the plan have been approved by China’s State Council and could be announced as soon as this week, the people said. REDD reported some details of the proposed overhaul earlier this week.
• President Joe Biden is set to unveil a plan to give more Americans coronavirus vaccine booster shots to head off the delta variant, a move that is stoking criticism that the U.S. is hoarding doses while poorer nations continue to languish under the pandemic. Under Biden’s plan, which he’s set to discuss in a speech Wednesday about the broader Covid-19 response, high-risk groups including health-care workers and the elderly may be able to get a third dose of Pfizer Inc. and Moderna Inc.vaccines as soon as September, or eight months after they received their second shot.  The Food and Drug Administration already has signed off on boosters for those with weakened immune systems and would need to clear them for other groups. It isn’t clear how soon, or whether, boosters will be made available to all adults.
• Just months after rivals Goldman Sachs Group Inc.and Morgan Stanley embraced diverging strategies for returning staff to their towers, they’re suddenly in agreement: More stringent precautions are probably needed. Goldman, the first major Wall Street bank to require employees to return to U.S. offices, is working on new measures to prevent outbreaks in the workplace, according to people with knowledge of the discussions. Plans under development include asking staff to wear masks inside offices and stepping up testing to spot infections before they can spread, the people said. Across town, Morgan Stanley just informed staff they must soon provide proof of vaccinations against Covid-19 to enter its buildings. The firm broke with competitors in June by requiring shots, but it enforced the rule on an honor system, asking people to attest to their status.
• Skeptics of superstar fund manager Cathie Wood are increasing and becoming more vocal. High-profile hedge fund investors such as Michael Burry, made famous by “The Big Short” movie, have disclosed short positions against Wood’s flagship exchange-traded fund, while some appear to be trying to spar with her on social media and an anti-Ark ETF is also in works. Semper Augustus Investments Group LLC’s Chief Investment Officer Chris Bloomstran took to Twitter overnight to make some observations on what he makes of Wood’s Ark Innovation ETF and the shorts against it. He offered as many as 37 tweets of unsolicited advice on the nuances of valuations and return ratios in some of his posts.
• Lowe’s Cos. Inc. raised its full-year forecast after beating Wall Street’s quarterly sales expectations, as gains in its professional business helped counter a slowdown in demand from the do-it-yourself customers that fueled last year’s early-pandemic boom.  The home improvement company expects revenue of about $92 billion in the fiscal year, which is ahead of a previous “robust market scenario” forecast of $86 billion which it laid out in December. Same-store sales, a key metric in retail, fell 1.6% in the period ending July 30, Lowe’s said Wednesday in a statement. That compares with a predicted decline of 1.9%, according to the average of analyst estimates compiled by Bloomberg.
• Robinhood Markets Inc. captured what one analyst calls “lightning in a bottle” with the meme-stock craze. Yet the glow from those flashes is fading. And when the company reports earnings on Wednesday for the first time since going public three weeks ago, the pioneer of commission-free trading apps will likely be pressed to explain how it can spark enough growth to justify valuations far above peers. Payment for order flow, the controversial practice in which brokerages sell users’ trades to market makers, represented about 80% of Robinhood’s first-quarter revenue. Preliminary data for last quarter show those payments are shrinking industrywide and Robinhood is lagging competitors like Charles Schwab Corp. and E*Trade Financial Corp.
• T-Mobile US Inc. said an investigation confirmed about 7.8 million current users had information stolen along with more than 40 million records from past or prospective customers who’d applied for credit in a cyberattack. The stolen information included customers’ full names, dates of birth, social security numbers, and IDs such as drivers licenses, the Bellevue, Washington-based company said in a statement on Wednesday. The hack doesn’t appear to have included credit card details or other financial information, it said.  The company said earlier this week that it was investigating claims that a widescale data breach had exposed customer details to hackers who were selling information online. The company is offering people affected by the attack two years of identity protection services and boosting security protocols on accounts that make it more difficult for fraudsters to take control.
• Target Corp.’s sales growth slowed in the second quarter, hinting that the heightened consumer demand ushered in by the pandemic may be waning. Same-store sales, a key measure of retail performance, rose 8.9%, narrowly beating a consensus estimate of 8.2% compiled by Bloomberg. Still, that was less than half the gain from a year ago. Meanwhile, profit margins tightened and e-commerce revenue rose by 10% after nearly tripling a year ago. Target has been arguably the biggest winner among major retailers during the pandemic, with its stock surging more than 40% this year and nearly as much last year as demand soared for groceries, home goods and more. But as the chain goes up against the strong performance from 2020, it hasn’t outperformed expectations to the extent it did last year.

Global trade in goods might be close to plateauing — albeit at a record level — amid an outlook clouded by regional imbalances and coronavirus outbreaks that slow economic activity, the World Trade Organization said. The Geneva-based trade body’s goods trade barometer rose to 110.4 in March, the highest in records going back to 2016, according to a statement on the WTO website on Wednesday. It said that while the index is still above its longer-term average, the gains are decelerating, “which could presage a peaking of upward momentum in trade.” Each of the gauge’s components — such as air freight, container shipping, raw materials and automotive products — showed above-trend growth. But the export orders index “has slowed more definitively, providing a further indication that the pace of recovery is likely to decelerate in the near term,” the organization said

“Success is simple. Do what’s right, the right way, at the right time.”— Arnold H. Glasgow

*All sources from Bloomberg unless otherwise specified