August 25, 2021

Daily Market Commentary

Canadian Headlines

  • Canadian equities advanced for a third straight session as broader markets continued their rebound. The S&P/TSX Composite Index rose 0.3%, with tech, health care, and energy leading the charge. Shopify rose after the New York Times reported that the e-commerce company would partner with TikTok. Meanwhile, Oil extended gains from the biggest jump in five months. Earnings at Bank of Nova Scotia and Bank of Montreal got some help from Canada’s economic reopening.
  • Royal Bank of Canada benefited from a continued strong performance in its capital-markets business. Net income in the division rose 19% to C$1.13 billion ($897 million) in the fiscal third quarter, helped by record corporate and investment-banking revenue, according to a statement Wednesday. Overall profit topped analysts’ estimates. The Toronto-based bank’s RBC Capital Markets benefited from a boom in trading as the pandemic roiled markets early last year and kept that momentum going by advising on a flood of equity- and debt-financing transactions for companies seeking to stockpile cash. More recently, Royal Bank’s dealmakers have capitalized on a boom in acquisitions spurred by cheap financing for buyers and high valuations that have proven enticing for sellers.
  • National Bank of Canada is benefiting from economic strength in its home market of Quebec, helping loan growth accelerate faster than at some peers. Average loans and acceptances for personal loans rose 9.6% from a year earlier to C$86.5 billion ($68.6 billion), while commercial loans increased 14% to C$42.5 billion. Overall profit topped analysts’ estimates. The bank’s capital-markets division held up even amid a trading slowdown from last year’s boom. Net income from the bank’s financial-markets unit rose 21% in the fiscal third quarter to C$227 million, helped by mergers-and-acquisitions advisory fees and underwriting revenue.

World Headlines

  • European stocks held steady as investors weighed economic optimism against the Covid-19 variant spread and awaited central-bank guidance. The Stoxx Europe 600 Index rose less than 0.1% as of 12:05 p.m. in London. Travel and leisure shares led gains, on track for their biggest three-day advance in a month, while defensives such as drugmakers and utilities underperformed. After a strong earnings season that pushed equities to successive records, the Stoxx 600 is on track to climb for a seventh month, its longest winning streak since 2013. Now, investors are turning more cautious as they assess risks from the delta variant and await policy cues from the Federal Reserve’s Jackson Hole Symposium that starts Thursday.
  • Stocks and U.S. futures were steady as a rebound in Chinese technology shares stalled and markets settled into a holding pattern ahead of the Federal Reserve’s Jackson Hole policy symposium later this week. Company earnings, expanding vaccinations and support from monetary policy have partially repaired sentiment after a bout of jitters over economic prospects caused by the delta strain. The next key read on the central-bank outlook is due later this week when Fed Chairman Jerome Powell speaks at the virtual Jackson Hole get-together on Friday. Investors are hoping the Jackson Hole event will provide more clarity on the Fed’s thinking on monetary stimulus amid a takeoff in inflation but still-mixed economic data. This week’s reports from purchasing managers worldwide showed the return of concern about the outlook for growth, with U.S. business activity slowing to the weakest in eight months.
  • Asian stocks swung between gains and losses, as investors paused for breath following the best two-day rally since early November. The MSCI Asia Pacific Index added 0.3%, having swung between a gain of 0.5% and loss of 0.1%. Financials were the biggest drag on the regional benchmark, while technology stocks gave the most support to the gauge, which gained 3.5% over the previous two sessions. Chinese tech shares listed in Hong Kong fluctuated after a two-day jump on bargain hunting. A number of observers have said the selloff sparked by Beijing’s multipronged crackdown went far enough, although uncertainty will likely remain until Chinese authorities provide more clarity on the regulatory campaign.
  • Oil clung to the gains from its biggest two-day advance since November, with prices continuing to fluctuate amid concerns about the impact of the coronavirus on global consumption. Futures in London climbed above $70 on Tuesday, and were little changed near $71 on Wednesday. Top crude importer China has brought its latest virus outbreak under control, though Covid-19 continues to make its presence felt in other big oil consumers, with Japan expected to announce an expansion of its state of emergency. Oil has had a volatile August so far. The stellar year-to-date rally cooled in the first half of the month as concerns grew that the virus’s delta variant would hit consumption, while the Federal Reserve flagged plans to taper stimulus measures. Since then prices have recovered, with banks from Goldman Sachs Group Inc. to UBS Group AG underlining bullish calls on the market.
  • Gold fell below $1,800 an ounce as traders geared up for the annual Jackson Hole symposium that’s expected to provide more clues on the Federal Reserve’s tapering outlook. Bullion’s decline accelerated after breaching the key support level, as the dollar strengthened earlier in the day. The symposium will take place from Thursday to Saturday, with Fed Chair Jerome Powell speaking on Friday. Three-quarters of economists expect a signal of when tapering could start to be shared either at Jackson Hole or at the Fed’s Sept. 21-22 meeting, when the committee updates its quarterly forecasts, according to a Bloomberg survey of 51 participants conducted in July.  Bullion received a boost earlier this week amid speculation that the Fed may delay scaling back asset purchases as the spread of the delta variant threatens the economic recovery. Data on jobless claims, consumer confidence and inflation due later this week will provide the latest gauges on the rebound.
  • U.S. President Joe Biden received a classified report from intelligence services that was inconclusive about the origins of the virus, the Washington Post reported. China vowed to retaliate against those questioning whether the virus escaped from its labs, days before the U.S. plans to release the findings. Vice President Kamala Harris said Wednesday that the U.S. would donate an additional 1 million Pfizer Inc. vaccines to Vietnam, which will start arriving within the next 24 hours, bringing the total to 6 million so far. China reopened a terminal at its second-busiest port following a two-week Covid-related shutdown. The country is on the cusp of reaching 2 billion vaccine shots administered. Japan expanded its state of emergency to eight more prefectures.
  • The U.S. and its allies have debated the kinds of steps Taliban leaders must take before the new rulers can earn political recognition or aid would be unblocked.  Tuesday’s G-7 meeting was mostly focused on evacuations and security, but leaders also discussed withholding the foreign assistance that Afghanistan is so dependent on, as a way to pressure the Taliban regime into guaranteeing the security of foreigners and Afghan citizens. With the U.S. sticking to its Aug. 31 withdrawal deadline, evacuations must end within the next few days to allow enough time to get remaining troops out. Fears for people whose ties to outside powers leave them vulnerable are growing after more reports of reprisals and a threat by the Taliban to stop Afghans from traveling to the airport.
  • Delhivery Pvt, an Indian logistics and supply chain startup, plans to file a draft prospectus as soon as October for its initial public offering that could raise about $1 billion, according to people with knowledge of the matter. The company, backed by SoftBank Vision Fund and Carlyle Group Inc., is targeting a Mumbai listing before March next year, said the people, who asked not to be identified as the information is private. The offering could include both new and existing shares, one of the people said. Founded in 2011, Delhivery handles more than 1.5 million packages a day through its 43,000-strong team across India, according to its website. The company completed a series H funding round in June led by Fidelity. It also counts Fosun International Ltd., Tiger Global and Times Internet Ltd. among its backers.
  • A contingent of Wall Street veterans and high-level Chinese government officials are seeking to open up talks again, as business leaders work outside of the Biden administration for greater access to the world’s most populous country. An influential group conceived during escalating strains between the U.S. and China in 2018 is preparing a new round of meetings before the end of the year, according to a person with knowledge of the matter. The talks, featuring emissaries from U.S. finance as well as senior Chinese regulatory officials, had taken a backseat amid the raging pandemic. The U.S. and China are grappling with protracted standoffs on issues such as market access, data security and international stock listings. China’s most recent crackdown on a number of its own companies burned international investors, further puzzling the U.S. business community, which is seeking more clarity on the recent moves from Beijing.
  • American companies would face steeper penalties for shifting profits abroad in a plan from Senate Democrats that offers the clearest picture yet of the higher levies that big firms could be paying from next year. In draft legislation released Wednesday, Senate Finance Committee Chairman Ron Wyden is outlining his vision for how to reform the global tax system for multinational corporations, which Democrats say have been subject to lax rules that for decades have allowed them to shift profits and jobs outside the U.S. “Overhauling the international tax code is central to our efforts to restore fairness,” Wyden said in a statement on the legislation, which was co-authored by fellow Finance Committee members Sherrod Brown and Mark Warner. Increased corporate-tax levies will “fund critical investments like the paid leave and the expanded child tax credit—Social Security for our children” Democrats are planning, he said.
  • China Evergrande Group is seeking to sell a residential project in Hong Kong, people familiar with the matter said, as it ramps up divestments to avert a cash crunch. The debt-laden developer is looking to sell the site in the Yuen Long area of the New Territories for HK$8 billion ($1 billion), one of the people said, asking not to be identified because the matter is confidential. That’s lower than the HK$8.9 billion it paid to acquire the project. The world’s most indebted developer is facing mounting pressure to curtail its borrowings, fueling concerns that it may rush to offload assets cheaply. Regulators last week issued a rare public rebuke of the company, urging it to address its debt woes. With more than $300 billion of liabilities, the conglomerate’s fate has broad implications for China’s financial system.
  • President Biden is expected to host executives from major technology, financial and energy companies on Wednesday for a summit on national cybersecurity, a gathering that comes amid heightened fears about proliferating disruptive attacks on American businesses and infrastructure. Top Silicon Valley chief executives, including Apple Inc.’s Tim Cook, Amazon.com Inc.’s Andy Jassy, Microsoft Corp.’s Satya Nadella and Alphabet Inc.’s Sundar Pichai are scheduled to attend the White House meeting, according to a list of participants shared by an administration official. Also expected are JPMorgan Chase & Co. CEO Jamie Dimon and Brian Moynihan, president and CEO of Bank of America Corp., among other representatives of the financial industry.
  • Polish President Andrzej Duda criticized legislation that would oust a broadcaster run by Discovery Inc. from the country, opening the door to him potentially vetoing a draft law that has undermined relations with the U.S. The lower house of parliament passed a bill in August that — if implemented — will force Discovery to sell more than 50% in TVN, the country’s most popular private television broadcaster. The bill has raised concern about media freedom in the eastern European Union nation and drew condemnation from U.S. Secretary of State Antony Blinken.
  • Nord Stream 2 AG, the controversial gas pipeline project owned by Gazprom PJSC, lost a German court fight to sidestep European Union rules separating production from transportation, a decision that may delay the start of the operations. The Dusseldorf Higher Regional Court on Wednesday dismissed a bid by Gazprom to overturn the German Network Agency’s decision to impose the EU measures, a spokesman for the tribunal said by phone. While the ruling means that Nord Stream 2 could be fined if it fails to comply with the EU regulation once gas flows, it doesn’t have an impact on the construction of the project, which was licensed under a different set of rules and is expected to be concluded this month. Technically, the EU measures also don’t bar starting the flow of gas, but Gazprom would need to restructure Nord Stream 2, a step that could cost time.
  • Johnson & Johnson said a booster of its Covid-19 vaccine provided a rapid and strong increase in antibodies, supporting use of a second shot among people who previously received its single-dose immunization. A second dose of the J&J vaccine led to a ninefold increase in Covid-fighting antibodies compared with the levels participants had 28 days after getting their first shot, the health-care giant said Wednesday, citing interim data from an early-stage trial. Trial participants were given the booster six months after the first shot, according to J&J. Significant increases in antibody responses were seen in subjects ages 18 to 55 years old, and among those 65 or older who were given a lower dose of the booster. The data are being submitted to a preprint medical publication, MedRxiv.
  • Cathie Wood’s ARK Investment Management LLC now has a nearly 11% stake in a blank-check company backed by former Hollywood executive Harry Sloan. Between the holdings of its flagship ARK Innovation ETF (ticker ARKK) and the ARK Genomic Revolution ETF (ARKG), the firm overall owns nearly 18.5 million shares of Soaring Eagle Acquisition Corp. The special-purpose acquisition company run by Sloan agreed in May to a $17.5 billion merger with cell-engineering company Ginkgo Bioworks Inc. The deal is expected to close in the third quarter, at which point Ginkgo’s stock will be listed on the New York Stock Exchange under the ticker symbol “DNA,” according to an Aug. 11 statement.
  • Credit Suisse Group AG has pushed back the date from which it will require all U.S. staff to return to the office to Oct. 18, as the delta variant of Covid-19 continues to spread, according to a memo sent to staff and seen by Bloomberg. A Sept. 7 return-to-office date remains in place for vaccinated workers, with those who have already returned told they should continue to come in, according to the memo which was signed by managers including investment bank division head Christian Meissner, Jay Kim and David Miller who head up trading and investment banking activities respectively. Employees that are not yet vaccinated are expected to work remotely until they receive the shot. The memo didn’t specify that employees would be obliged to get vaccinated.
  • Japanese Prime Minister Yoshihide Suga will expand a state of emergency to eight more areas and cover about 70% of the population as a delta-variant fueled surge sends cases to records and puts strains on the medical system. Suga said Wednesday the eight areas that include the northern island of Hokkaido and the central industrial prefecture of Aichi would be placed under a state of emergency from Friday that runs until Sept. 12. When the expansion takes effect, 21 areas that make up 79% of Japan’s economy will be under a state of emergency, including the Tokyo and Osaka metro regions.
  • The 50-day moving average for the U.S. 10-year note’s yield crossed below the 200-day trendline Wednesday, reflecting the market’s improving performance in recent months. The 200-day indicator had been the higher trendline since November, when the results of the U.S. presidential election helped unleash a selloff that culminated in March with the 10-year yield reaching 1.774%.
  • Mexico’s economy grew solidly in the second quarter, as domestic demand and the country’s reopening helped spur the services sector while U.S. growth drove manufacturing. Gross domestic product rose 1.5% from the previous three-month period, lower than the 1.6% median estimate of analysts surveyed by Bloomberg. From a year ago, GDP rose 19.6%, according to final data from the national statistics institute published Wednesday. Latin America’s second-largest economy has gained steam since last year, spurred first by U.S. demand and later by domestic consumption, especially in the services sector. The central bank boosted the recovery by cutting its interest rate to a multiyear low before spiking inflation forced it to reverse course in June. Analysts in a Citibanamex survey see the economy growing 6.1% this year.
  • Trove Recommerce, a maker of online platforms for brands such as Lululemon and Patagonia to sell used goods, raised $77.5 million from investors trying to get in on the hottest part of the apparel market. The Series D round, led by G2 Venture Partners, brings the company’s total funding to $122.5 million, Trove said. The investment increases the company’s valuation to between $200 million and $300 million, according to a person familiar with the deal who asked not to be identified. Trove declined to comment on the valuation or other financial metrics. However, it did say that in 2020 more than 1 million items were sold on its platform, triple the total from a year earlier.

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“In the middle of every difficulty lies opportunity.”– Albert Einstein

*All sources from Bloomberg unless otherwise specified