August 26, 2021

Daily Market Commentary

Canadian Headlines

• Canadian shares extended their rally as big banks including RBC topped estimates. The S&P/TSX Composite Index gained 0.2%, with financials and tech leading the charge. Oil rose for a third session after a U.S. government report showed that crude and gasoline inventories fell despite fears that the delta variant’s spread would sap demand. Prime Minister Justin Trudeau took a populist turn in Canada’s election campaign, pledging to impose a 3% surtax on the nation’s big banks and insurers.
• Toronto-Dominion Bank’s focus on consumer banking paid off last quarter, with a reopening of the economy in Canada boosting lending results. Net income in the lender’s Canadian retail segment rose 68% to C$2.13 billion ($1.69 billion), helped by a 7.7% gain in person loans, according to a statement Thursday. Overall profit for the fiscal third quarter topped analysts’ estimates. The comeback of the Canadian economy in recent months, even as the Covid-19 pandemic lingers, has spurred mortgage growth amid a thriving housing market and an uptick in other personal loans. That disproportionately benefits Toronto-Dominion, which has a major retail presence in both the U.S. and its home market of Canada. The widespread vaccination campaigns on both sides of the border have also allowed banks to set aside less capital to cover a potential wave of defaults or even release some of their earlier provisions. Toronto-Dominion released C$37 million of set-asides for potential loan losses in the three months through July, compared with C$377 million of releases in the previous quarter.
• Canadian Imperial Bank of Commerce joined peers in getting a lift from the economic reopening in its home market. Profit in the lender’s Canadian personal and business banking division rose 40% to C$642 million ($509 million) in the fiscal third quarter, helped by gains in mortgages and personal loans. Overall profit for the three months through July topped analysts’ estimates. CIBC followed some of its rivals in releasing the stockpile of capital it built up to protect against a wave of pandemic-induced defaults that failed to materialize. The bank recovered C$99 million in provisions for credit losses in the third quarter, compared with set-asides of C$32 million in the second quarter.

World Headlines

• European stocks fell Thursday as investors prepared for fresh signals on the timing of the Federal Reserve’s tapering at the Jackson Hole symposium. The Stoxx Europe 600 Index was down 0.5% at 10:46 a.m. in London, paring a decline of as much as 0.7%. Cyclical industries such as mining and travel and leisure led losses, while technology stocks underperformed after disappointing earnings pushed U.S. and Chinese peers lower. Vivendi SE’s gains helped media stocks outperform the region’s other 19 sectors. Fears about an impending end to ultra-loose monetary policy, resurgent coronavirus cases and China’s regulatory crackdown have pumped the brakes on European stocks’ latest rally. The Stoxx 600 is down 1.3% since hitting an all-time high in mid-August, the latest in the benchmark’s longest streak of records since the dotcom era.
• Stocks dropped on Thursday amid a retreat in technology shares and commodities as markets remained cautious ahead of a Federal Reserve gathering that may provide more clues about its approach to paring stimulus. The dollar rose. Futures on the Nasdaq 100 declined and contracts on the S&P 500 were little changed following another record close for the underlying indexes. The 10-year U.S. Treasury yield held this week’s advance. Traders are looking ahead to the Jackson Hole policy symposium, which may offer fresh insight on how the Fed intends to scale back bond purchases.
• Asian stocks declined, halting a three-day advance, as traders awaited further signals on China’s regulatory crackdown and the Federal Reserve’s plans to start scaling back stimulus. The MSCI Asia Pacific Index fell 0.5%, with consumer discretionary and healthcare the biggest drags among industry groups. Chinese technology shares dropped as earnings from a number of firms missed analyst targets, while investors also offloaded shares of liquor makers including Kweichow Moutai. South Korean stocks slid after the Bank of Korea raised interest rates. China’s clampdown on industries from fintech to education to property has already started to hurt the nation’s economy, and Beijing has signaled there’s more regulation for businesses in years to come.
• Brent oil dropped following its biggest three-day gain since November, with the latest Covid-19 resurgence still clouding the outlook for fuel demand. Futures in London fell below $72 a barrel after adding more than 10% over the past three sessions. Shrinking U.S. stockpiles, a rebound in Indian demand and China’s containment of its latest outbreak are providing some positive signs for the market, but restrictions on mobility still remain in place in many regions due to the fast-spreading delta variant of the coronavirus. Investors will also be keenly watching the Jackson Hole meeting from Thursday for insights on how the Federal Reserve will ease stimulus. The dollar edged higher, making raw materials such as oil that are priced in the U.S. currency more expensive for investors.
• Gold declined for a third day as the dollar strengthened before the start of the annual Jackson Hole symposium, with investors awaiting clues on the Federal Reserve’s tapering plans. Bullion slipped back below $1,800 an ounce this week as an uptick in 10-year Treasury yields weighed on the non-interest bearing precious metal and as holdings in exchange-traded funds continued to decline. It remains trapped in a range its held since mid-August, with investors waiting for Powell’s speech before committing to new positions. Spot gold fell 0.4% to $1,784.58 an ounce at 9:23 a.m. in London, after dropping 0.7% on Wednesday. The Bloomberg Dollar Spot Index edged higher. Silver, palladium and platinum all fell.
• European nations began winding down evacuations from Afghanistan, after the U.S. and U.K. governments warned their citizens to avoid traveling to the airport in Kabul because of the risk of attacks. Denmark, the Netherlands and Belgium announced they were no longer organizing flights from the Hamid Karzai International Airport. With U.S. President Joe Biden sticking to his Aug. 31 withdrawal deadline, the window for airlifts was already closing. Asked about the potential for terrorist acts, British Prime Minister Boris Johnson cited Islamic State Khorasan, an Afghan affiliate of the extremist group which has fought against the Taliban. “I can’t go into the details, clearly. But we have to be mindful of the security of our personnel, but also of the Afghan people who are trying to get out,” he said.
• Policy makers should “get started” and begin to slow asset purchases even though the delta variant poses a risk to the U.S. economic outlook and to job growth, Federal Reserve Bank of Kansas City President Esther George said.  “I don’t think it changes my own calculus that it is time to begin to make those adjustments given the gains we have seen so far,” George said in a Bloomberg TV interview with Michael McKee conducted Wednesday evening, prior to the bank’s annual symposium on Friday, which will be held virtually this year for a second year because of the Covid-19 pandemic. The Kansas City Fed leader, who is not a voter this year on the policy-setting Federal Open Market Committee, later suggested she might have some flexibility on when the taper should actually be implemented, saying “I think we should get started this year so that we can begin to pare the amount of accommodation.”
• Sydney’s outbreak of delta variant cases is worsening, with new daily infections in New South Wales state passing 1,000 for the first time. India recorded the highest daily tally in more than a month. Singapore is set to welcome Thursday the first short-term visitors from Hong Kong under the air travel pass program, even as its reopening plan is tested by rising cases. Some doses of Moderna Inc.’s Covid vaccine in Japan were halted after reports of foreign particles in the vials. The European Union will discuss whether to reimpose curbs on visitors from the U.S. as new coronavirus cases soar. The World Health Organization has backed a proposal to set up a $10 billion fund to plug the financial gap in the global health-care system exposed by the pandemic.
• Shares of China Evergrande Group’s electric vehicle unit are collapsing in Hong Kong, wiping about $80 billion from what was the property developer’s most valuable listed asset. China Evergrande New Energy Vehicle Group Ltd. sank as much as 22% Thursday after its parent said the unit lost 4.8 billion yuan ($740 million) in the first half. The EV business’s market value was about $87 billion at its April 16 peak, greater than that of Ford Motor Co. and almost four times the capitalization of China Evergrande itself at the time. Evergrande NEV shares are down 92% since, the worst performance in the Bloomberg World Index and lagging even China’s tutoring stocks.
• Having already dashed plans for Federal Reserve officials to meet in person in Jackson Hole this week, rising coronavirus cases are now limiting what Jerome Powell can say about what comes next for U.S. monetary policy. The Fed chair will speak at 10 a.m. Washington time Friday and is expected to reinforce the message that it will probably be appropriate to begin scaling back the Fed’s $120-billion-a-month bond-buying program by the end of the year. But the abrupt change of conference plans — the Wyoming gathering’s host shifted the format on Aug. 20 — underscores the uncertainty officials face as they debate when to begin winding down the stimulus measures they rolled out last year at the outset of the pandemic.
• America’s media giants in March hitched their wagons to the NFL for another decade. Next month, they’ll find out whether that $105 billionwas money well spent. The new NFL season, which begins Sept. 9, will provide a crucial stress test of the popularity of TV’s biggest attraction. Last year, NFL regular season viewership fell 7%, marking the first drop in three years. But it was hard to tell if fewer people watched because of declining interest in the sport or due to Covid-related disruptions, including an unusually crowded sports calendar, games played without fans and players sidelined by the coronavirus. Now, CBS, NBC, Fox, ESPN and Amazon.com Inc. will get a clearer picture of what they will be paying for through 2033: an entertainment property largely immune to the pressures facing the rest of TV or one that’s also starting to slip.
• Japan suspended the use of 1.63 million doses of Moderna Inc.’s Covid-19 vaccine after receiving reports of foreign particles in the vials from several vaccination sites. Takeda Pharmaceutical Co Ltd., which is the local distributor of the vaccine, and Japan’s health ministry agreed to stop using doses from three lots after discussing the matter, they said in separate statements Thursday. There have been no safety concerns tied to the affected vials, and vaccinations using Moderna’s other shots in Japan will progress as usual, Takeda said. An issue with one production line at Moderna’s contract manufacturing site in Spain may be responsible and an investigation is underway, a spokesperson for the Cambridge, Massachusetts-based company said.
• President Joe Biden and Israeli Prime Minister Naftali Bennett plan to discuss what both countries consider to be an alarming acceleration of Iran’s nuclear program as the leaders meet Thursday at the White House. Biden plans to emphasize his strong support for Israel, U.S. officials said, speaking on condition of anonymity, in a meeting that may reveal divergent approaches on Iran: the U.S. favors a diplomatic pact to halt the Islamic Republic’s nuclear program and Israel has said it may use secret attacks to disable Iranian facilities. Bennett is looking to reset Israel’s ties with the U.S., after an era dominated by former Prime Minister Benjamin Netanyahu and former President Donald Trump, though the new Israeli government has carried over some policies of its predecessor. It also seeks to advance a strategic plan for Iran; fulfill its $1 billion request for replenishing Iron Dome missile interceptors; and visa-free entry to the U.S., local Channel 12 news reported, citing an official traveling with the prime minister.
• Billionaire Kjell Inge Rokke’s Aker ASA and SalMar ASA will create an offshore fish farming company to open new waters for producing salmon. Aker will contribute as much as 1.65 billion kroner ($190 million) in cash in three tranches to SalMar Aker Ocean, which will comprise SalMar’s interests in its semi-offshore and offshore farming operations, the companies said in a statement on Thursday. SalMar will eventually own 66.6% of the joint company, while Aker will own 33.4% through Aker Capital AS. Salmon farmers in Norway, the biggest producer of the red-fleshed fish, traditionally are limited to licensed areas in the fjords and close to the coastline. The development of farms in the open ocean will enable an expansion of production to new areas as demand for sustainable protein food sources grows.
• Airwallex Cayman Ltd. is raising new funding to accelerate its expansion in global payments, according to people familiar with the matter. The Australian company is seeking to raise funds at a valuation in the range of $3.5 billion to $4 billion, the people said, requesting not to be named because the matter is private. Airwallex declined to comment.  The fundraising would come just months after a round in March that gave the firm a valuation of $2.6 billion and make it the latest startup to tap investors keen to fund the fast-growing global fintech industry.
• Contemporary Amperex Technology Co. Ltd. is considering buying a minority stake in Chinese miner Jinchuan Group International Resources Co., in the hopes of securing supplies of key battery metals, people with knowledge of the matter said. Ningde, Fujian-based CATL, which is the world’s biggest electric vehicle battery maker, is in initial discussions with Jinchuan International about acquiring a roughly 10% stake in the miner, said the people, who asked not to be identified as the information is private. CATL could offer more than one and a half times Hong Kong-listed Jinchuan’s share price, the people said.
• Lordstown Motors Corp., the electric-truck maker struggling to produce its first battery-powered commercial pickup, hired a former Icahn Enterprises executive as its new boss. Daniel Ninivaggi, whose automotive experience includes stints at Lear Corp. and as co-chief executive officer of the former Federal Mogul Holdings Corp., is taking the reins at the Lordstown, Ohio-based EV maker from the temporary management installed after founder Steve Burns resigned under pressure in June. Lordstown has been running low on cash as it tries to build its first few production vehicles by the end of September. The company has been under investigation by the Securities and Exchange Commission and the Justice Department because of comments made by Burns and other executives that may have inflated the number of orders for its Endurance pickup.
• A supply chain crunch that was meant to be temporary now looks like it will last well into next year as the surging delta variant upends factory production in Asia and disrupts shipping, posing more shocks to the world economy. Manufacturers reeling from shortages of key components and higher raw material and energy costs are being forced into bidding wars to get space on vessels, pushing freight rates to records and prompting some exporters to raise prices or simply cancel shipments altogether.  “We can’t get enough components, we can’t get containers, costs have been driven up tremendously,” said Christopher Tse, chief executive officer of Hong Kong-based Musical Electronics Ltd., which makes consumer products from Bluetooth speakers to Rubik’s Cubes.
• An end to the global currency market’s four-year quest to crack down on a controversial trading practice that allows dealers to back out of transactions if prices move against them looks further away than ever. The committee overseeing a voluntary code of conduct in a market worth nearly $7 trillion a day released new guidelines on so-called last look earlier this month, but these principles have only stoked a new wave of push back from traders frustrated at their framing. Liquidity provider XTX Markets, a member of the Global Foreign Exchange Committee’s working group on last look, critiqued the consultative process and labeled the paper a missed opportunity to settle the issue. Last look is akin to trying to pay for food at a grocery store, but being told the store won’t sell it to you at the price listed on the shelf. In foreign exchange, the bedrock of global finance and commerce, dealers sometimes say they’ll buy or sell a currency at a certain price, but after a trader accepts that bid or offer, the dealer backs out.
• Pfizer Inc. and BioNTech SE announced a deal with a Brazilian manufacturer to produce 100 million doses of their Covid-19 vaccine annually for Latin America. Under the terms announced Thursday, the Brazilian pharmaceutical company Eurofarma Laboratorios SA will perform the so-called fill-and-finish process in which the vaccine is put into sterile vials. Eurofarma will begin manufacturing finished doses at its facility in Sao Paulo in 2022. In the interim, Pfizer and BioNTech will help facilitate a technology transfer, on-site development and equipment installation. The vaccine substance will be sent to Brazil from facilities in the U.S., and the finished doses will be distributed by Eurofarma exclusively throughout Latin America.
• Cosmetics maker Coty Inc. reported sales that outpaced Wall Street’s estimates, a sign that many consumers started using makeup again last quarter as pandemic restrictions eased around the world.  Revenue in the company’s fiscal fourth quarter, ended June 30, was $1.06 billion, Coty said in a statement Thursday. That topped projections compiled by Bloomberg. Sales of $471.4 million in Europe, the Middle East and Africa in particular beat expectations. The stronger-than-expected results are a step in the right direction for New York-based Coty almost a year after Chief Executive Officer Sue Nabi took the helm. As the pandemic has progressed, the company has leaned into changing consumer tastes, including the addition of “clean” beauty brands under the CoverGirl brand and product launches to meet growing interest in skin-care products.
• JD.com Inc. is in advanced talks to acquire a controlling stake in China Logistics Property Holdings Co., according to people familiar with the matter. The Chinese e-commerce giant is close to an agreement to acquire the stake in the Hong Kong-listed firm from the major shareholders, China Logistics chairman Li Shifa and RRJ Capital, the people said.  Shares of China Logistics surged more than 13% before they were suspended Thursday pending inside information, according to an announcement. China Logistics has a market value of about HK$14.7 billion ($1.9 billion) as of the time of the suspension.

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“If a good man thrive, all thrive with him.”– George Herbert

*All sources from Bloomberg unless otherwise specified