August 23, 2021
Daily Market Commentary
- Canadian stocks bounced back on Friday amid a broader equity-market relief rally. The S&P/TSX Composite index rose 0.6% in Toronto, after falling last six days. All 11 sectors finished in the green, with real estate and financials leading the advance. New Gold was the best performing stock as prices of the precious metal advanced. Meanwhile, wood products producer Interfor was the worst performer as peer Conifex temporarily curtailed some lumber output amid a price slump. Separately, Toronto-Dominion Bank, Canadian Imperial Bank of Commerce and Bank of Montreal joined other major financial firms in requiring staff to be fully vaccinated against Covid-19 before coming back to the office.
- Ontario Teachers’ Pension Plan said equity gains helped offset fixed income and currency losses in the first half of the year, giving the Toronto-based retirement fund manager a 3.8% return for the period. “We saw strong performance in our private and public equity, innovation and inflation-sensitive asset classes,” Chief Investment Officer Ziad Hindo said Monday in a statement. “Gains were partially offset by losses in fixed income and currency.” The fund manager, which has C$228 billion ($179 billion) in assets, trimmed exposure to debt last year by cutting back on sovereign markets with negative interest rates and reducing exposure to markets such as the U.S., which has seen a significant economic impact from Covid-19. Fixed income accounted for 20% of the portfolio in the first half, up from 16% at the end of December, with bonds representing 15%.
- European equities rallied on Monday, rebounding from last week’s pullback as investors picked up cyclical stocks, while deal-making was also in focus. The Stoxx 600 Index was up 0.5% by 12:10 p.m. London time, with retailers, energy and travel stocks among sectors leading the advance. The benchmark gave up some earlier gains as PMI readings showed that supply bottlenecks were holding back manufacturing activity in the region. European stocks are bouncing back after posting their worst weekly loss in almost six months, as worries over policy tightening, the spread of the delta variant and a regulatory crackdown in China weighed on sentiment.
- U.S. futures rose Monday along with stocks in Europe as concerns about China’s wealth crackdown faded and traders took advantage of last week’s selloff to pick up equities at favorable valuations. Bonds declined as demand for havens eased. Contracts on the S&P 500 and Nasdaq 100 rose after the underlying indexes started to rebound late last week. The Stoxx Europe 600 index climbed for a second day, with luxury stocks leading the advance. Retailers outperformed after a report of a takeover bid for J. Sainsbury Plc sent the grocer’s shares up more than 11%. Treasury yields rose along with those on core European bonds, and the dollar slipped for the first day in six. Investors are looking ahead to the Jackson Hole symposium Thursday, which may offer insights into how and when the Federal Reserve plans to taper bond purchases.
- Asian stocks were set for their biggest gain in three weeks, led by strong rebounds in Hong Kong, Japan and Taiwan following steep selloffs last week. The MSCI Asia Pacific Index jumped as much as 1.7%, driven by tech stocks, with almost all industry groups in the green. TSMC, Toyota and Tencent were the biggest contributors to the regional benchmark’s advance. Gains were strong across Asia Pacific, even as Beijing continued a regulatory campaign that has sent shockwaves through the region’s markets. On the coronavirus front, meanwhile, China brought its daily number of news cases back down to zero.
- Brent oil climbed amid a broader market rebound after capping the longest run of declines in more than three years. Futures in London rose 3.2% on Monday, rallying with equities and other commodities, after earlier slipping below $65 a barrel. In addition to more positive sentiment in financial markets, China has made progress in containing the fast-spreading delta variant, bringing local cases down to zero. Oil’s scorching rally over the first half of the year has run into stiff headwinds recently, and the broader virus resurgence may prompt OPEC+ to reassess its pledge to keep boosting output each month. The group next meets on Sept. 1. The market will also be looking toward the Federal Reserve’s annual Jackson Hole symposium from Thursday — being held virtually — which may offer insights into how the central bank plans to taper bond purchases.
- Gold edged higher as the dollar weakened and investors awaited the annual Jackson Hole event later this week for more insight into the Federal Reserve’s policy outlook. Fed Chair Jerome Powell is expected to hint at prospects for an eventual reduction of monetary stimulus when he gives a speech on Friday. The address gives him an opportunity to shed light on officials’ intentions after minutes of the July meeting showed most of them judged it appropriate to start slowing bond purchases later this year. The symposium, being held virtually again amid a coronavirus outbreak, will take place from Thursday to Saturday.
- U.S. Labor Secretary Marty Walsh sees the delta variant’s aggressive path shaking his expectations for a rapidly recovering labor market. China reported no new locally transmitted daily Covid-19 infections. New Zealand extended its nationwide lockdown as it battles an outbreak of delta variant cases. Taiwan President Tsai Ing-wen received her first shot of a domestically developed vaccine. Vice President Kamala Harris, on a trip to Singapore, called the city-state’s pandemic response “commendable.” Sweden’s health agency warned that Covid-19 cases are set to rise during the fall, saying current restrictions will be maintained for some time to come.
- Some militants wanted by Islamabad have been freed from jail in Afghanistan, Pakistan’s interior minister said. Islamabad has been in contact with the Taliban about this. Minister Sheikh Rasheed Ahmed said the militants are from Tehrik-e-Taliban Pakistan (TTP), a group that has previously carried out attacks in Pakistan. “TTP will in no way be allowed to use Afghan soil,” Ahmed said. The U.K. said it had evacuated 1,800 people in 24 hours from Afghanistan and Prime Minister Boris Johnson will push President Joe Biden to delay the departure of U.S. troops beyond the end of August to allow for more and safer evacuations of foreign nationals and their Afghan staff, a person familiar with the matter said.
- President Joe Biden’s $4.1 trillion economic agenda, after early progress in the Senate, now faces a crucial test this week in the U.S. House, where Speaker Nancy Pelosi must keep her fractious Democratic majority moving in lockstep. Biden’s plan has momentum in the Senate. But the House votes have Pelosi fighting to keep tension between progressives and centrists among her narrow majority from derailing the strategy that she, Biden and Senate Majority Leader Chuck Schumer have crafted for moving the president’s two-part project through Congress. On Monday, the House is set to take a procedural vote on rules for debate on three measures: a $3.5 trillion budget resolution that sets up work on a Democrats-only package of social spending and tax increases; the $550 billion bipartisan infrastructure bill that passed the Senate; and a separate voting-rights measure.
- Investors withdrew money from exchange-traded funds that buy emerging market stocks and bonds last week. This was the second straight week of outflows. Outflows from U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $111.6 million in the week ended Aug. 20, compared with losses of $344.9 million in the previous week, according to data compiled by Bloomberg. So far this year, inflows have totalled $34.4 billion.
- China’s market regulator halted 42 initial public offerings in Shanghai and Shenzhen after starting a probe into an investment bank, a law firm and other parties involved in the deals. The news of the shelved IPOs was reported by Shanghai Securities News, which cited disclosures by the exchanges and company filings. China Securities Regulatory Commission started a probe of China Dragon Securities Co., Beijing-based law firm Tian Yuan, Carea Assets Appraisal Co. and Zhongxingcai Guanghua Certified Public Accountants LLP, according to Shanghai Securities News. The halts come amid a broader crackdown on the private sector in China, which has roiled capital markets. Regulators have also tightened controls over IPOs as firms flocked to raise capital amid a fast economic recovery and an earlier streamlining of regulations.
- In June 2017, months after General Motors Co. beat Tesla Inc.to market with an affordable, long-range electric vehicle, it took out full-page newspaper ads touting how long its Chevrolet Bolt could travel between charges. The tagline: “Begin a long-distance relationship, now.” Four years later, the long-distance relationship between GM and its battery partner, LG Energy Solution, is being tested like never before. At issue: who will pick up a roughly $1 billion tab. GM last week recalled Bolt EVs for the third time in nine months because of risk their batteries could catch fire. The Detroit-based company will replace modules in more than 73,000 additional vehicles and said it’s trying to get LG to pay for the fix. LG, headquartered some 6,600 miles away in Seoul, said the expense will be divvied up depending on the results from a joint investigation into the root cause of the problem.
- China Evergrande Group sank to an almost six-year low and its electric-vehicle unit lost more than a quarter of its value amid mounting concern that shareholders will bear the brunt of the developer’s liquidity crisis. Shares of Evergrande slid 12% on Monday in Hong Kong to close at the lowest since September 2015. China Evergrande New Energy Vehicle Group Ltd. tumbled 27%, the most since October 2015. The group’s property services unit dropped 9%. Shenzhen-based Evergrande is selling assets including stakes in units to avoid a cash crunch following a regulatory crackdown on leverage in the property industry. Its shares and bonds have tumbled in recent weeks as investors question whether the company can cope with its $300 billion in liabilities without external support.
- Pfizer Inc., maker of a top-selling Covid vaccine, will buy all the shares of Trillium Therapeutics Inc. it doesn’t own, gaining the immune cancer drugmaker for an equity value of $2.26 billion. Pfizer will pay $18.50 a share for Cambridge, Massachusetts-based Trillium, the companies said Monday in a statement. The price represents a 118% premium to the stock’s 60-day weighted average price. Shares of Trillium nearly tripled in trading before U.S. markets opened, while Pfizer rose 3.7%. Pfizer invested $25 million in Trillium in September as part of its Breakthrough Growth Initiative, when Jeff Settleman, senior vice president of Pfizer’s oncology research and development group, was named to Trillium’s scientific advisory board.
- Citigroup Global Markets says Treasury yields are set to rise, and there’s a way to screen out one of the main risk factors that may push them lower by betting against the yuan. he U.S. brokerage recommends its clients position for higher U.S. rates and also use options to wager against any strength in China’s currency. The rationale is that a slowdown in Chinese economic growth that would drag down Treasury yields, will also cause the dollar to appreciate versus the yuan.
- Turkey is in the final stages of negotiating a new deal for an advanced Russian air defense system, RIA Novosti reported Monday, citing Russia’s state-run arms exporter. A new contract for S-400 Triumph missiles will be signed soon, Rosoboron export head Alexander Mikheyev said at a briefing, according to the report. The U.S. strongly opposes NATO ally Turkey’s purchase of the missile system, which Washington says could be used to collect intelligence on the stealth capabilities of the F-35 fighter jet that Turkey has helped to build and wants to purchase.
- The amount of food wasted by British households has returned to pre-pandemic levels as the reopening of the economy means families backtrack on food-saving habits and opt for more take-away meals. Three in 10 U.K. citizens are classified as “high food wasters,” up from 20% in April 2020, according to the latest survey by WRAP, a charity promoting environmental sustainability and recycling. The spike in reported food waste coincided with lockdown restrictions easing in June and July, it said Monday. That’s a reversal of last year’s trend when positive behaviors like planning, batch cooking and freezing led to a 43% drop in food waste. Now these good habits are at risk as people face the return of time pressures while replacing food with more take-outs.
- India plans to raise 6 trillion rupees ($81 billion) from selling state-owned infrastructure assets over next four years to help bolster the government’s finances and plug its budget deficit, according to people familiar with the matter. The plan will include sale of road and railway assets, airports, power transmission lines and gas pipelines, said the people who asked not to be identified as they aren’t authorized to share the details. Finance Minister Nirmala Sitharaman is scheduled to make the road-map public later Monday. The planned sales are in line with Prime Minister Narendra Modi’s strategic divestment policy, under which the state will retain presence in only a few identified sectors with the rest privatized. The government has budgeted as much as 1.75 trillion rupees from such sales in the year through March 2022 to make up for the pandemic-linked drop in tax revenue.
- One of China’s most high-profile bankers Bao Fan is ramping up private investments in China, even as global funds reel from government crackdowns targeting everything from tech to education. China Renaissance Holdings Ltd., which made its name in investment banking, is pouring more resources in private equity, betting that a long-term commitment in the country will continue to pay off. To address the shifting tides, the firm is focusing on companies in health care, consumer brands and enterprise technology, founder Bao said. “If you take China as a corporation, the challenge, problems the company has been facing in the past 40 years versus the challenges that it’s facing for the next 40 years are very different,” Bao said in an interview. “It’s a paradigm shift; what it really requires is new thinking.”
- Bitcoin topped $50,000 for the first time since May as crypto prices continued an ongoing recovery from a disorderly rout just three months ago. The largest virtual coin advanced 3.8% to $50,272 as of 6:53 a.m. in New York, with other tokens including Ether and Cardano’s ADA also rising. The revival in virtual currencies has excited the animal spirits of the crypto faithful, putting predictions of $100,000 or more for Bitcoin back in vogue. Others see the volatile asset carving out a wider trading range for now.
- U.S. Labor Secretary Marty Walsh had high hopes for September: Receding Covid-19 risk, easing restrictions and steadily improving jobs numbers. But the delta variant’s aggressive path has shaken his expectations for a rapidly recovering labor market. The resurgence of coronavirus cases has already pushed back a return to the office for many Americans and slowed down consumer activity. Walsh’s own department is delaying a partial return until at least October.
- European businesses are rushing to list in the U.S. at the fastest pace in two decades, just as a Beijing-led crackdown brings the boom in Chinese initial public offerings to an abrupt halt. Cryptocurrency miner Argo Blockchain Plc filed Friday for a U.S. initial public offering, while Swiss sneaker brand On, backed by tennis star Roger Federer, is reportedly looking to list in New York imminently. U.K. fintech firm Wise Plc plans to sell American depositary receipts. They’ll add to the $9.5 billion raised by European companies through New York IPOs this year through Monday, the most for this period since 2000, data compiled by Bloomberg show. The trend is boosted by dizzying first-day pops and Wall Street investors’ willingness to spend big on new stocks, particularly in hot or novel sectors.
- SoftBank Vision Fund 2 led a $400 million funding round for OPay, valuing the Nigerian mobile-payments platform at $2 billion and marking the investment vehicle’s first bet in Africa. Also participating in the round were Sequoia Capital China, DragonBall Capital, the venture arm of Chinese food-delivery giant Meituan, Redpoint China, Source Code Capital, SoftBank Ventures Asia and 3W Capital, according to OPay. “We want to be the power that helps emerging markets reach a faster economic development,” OPay Chief Executive Officer Yahui Zhou said in an emailed statement.
- The big end-of-summer event will be the Jackson Hole symposium later this week, and investors will be alert to any policy statements from Federal Reserve Chair Jerome Powell about the timeline for a reduction in the central bank’s bond purchases. Over the long run, however, it’s important to keep in mind that this is the fourth round of quantitative easing, and it is a safe bet that it won’t be the last. What was once considered extraordinary is now considered a normal, unobjectionable part of the central bank’s tool kit. A look at what the relative pace of tapering may be for mortgage and Treasury purchases was given in the FOMC minutes release from the July meeting, which read, “most survey respondents appeared to expect the timing and pace of tapering of net purchases of agency MBS and Treasury securities to be similar.” This would mimic the taper executed to end the third round of quantitative easing, when on December 18, 2013 the FOMC announced a $5 billion reduction for both mortgage and Treasury purchases beginning the following month.
- Richard Branson’s Virgin Orbit will get an investment from Boeing Co. as it goes public through a reverse merger with blank-check firm NextGen Acquisition Corp. II that values the satellite-launch company at $3.2 billion. Boeing, AE Industrial Partners and other investors have committed to invest $100 million in the Virgin Orbit deal, according to a statement Monday, part of a wave of mergers with special-purpose acquisition companies this year. The merger is expected to close around year-end, keeping the Virgin Orbit name, and it will begin trading on the Nasdaq Stock Market under the ticker symbol VORB.
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*All sources from Bloomberg unless otherwise specified