August 4, 2021
Daily Market Commentary
- Canadian stocks reached a record high on Tuesday as consumer staples and tech shares advanced. The S&P/TSX Composite index rose 0.4% to 20,365.85, an all-time high for the close. Consumer staples stocks were the best performers, led by grocery retailers. Health care and real estate were the worst performers. Meanwhile, Canada’s securities regulators plan to merge two industry groups that oversee financial advisers into a single organization, a move intended to address years of complaints about the overlapping roles and higher costs of the groups.
- Vale SA, the world’s largest commercial producer of nickel, will start resuming operations at Sudbury in Canada after workers accepted a proposal to end a two-month strike. About 85% of members of USW Local 6500 voted in favor of the five-year contract offer, the union said by email. The two sides resumed talks July 19 after two previous offers were rejected. The resolution will come as a relief to metals markets. Sudbury is one of the world’s few producers of nickel pellet, which is used to make alloys for the aerospace, electronic and nuclear industries. The disruption drove consumers to tap battery-grade nickel briquette as an alternative, raising its premium and shortening inventories.
- Huawei Technologies Co.’s chief financial officer faces long odds as her extradition fight enters its final phases, more than two and a half years after her arrest triggered an unprecedented diplomatic impasse between China, the U.S. and Canada. A team of lawyers for Meng Wanzhou, 49, will seek to convince a Vancouver judge in hearings that begin Wednesday that the U.S. request to extradite her from Canada is deeply flawed, that her rights were abused, and that she should be released. If history is any guide, that argument will be tough — of the 798 U.S. handover requests received since 2008, Canada has only refused or discharged eight, according to Canada’s Department of Justice. Forty cases were withdrawn by the U.S.
- Canaccord Genuity Group Inc.’s dealmakers posted their best quarter ever, with a boom in merger-and-acquisition advisory fees helping the securities firm’s profit more than double. Net income rose to C$73.1 million ($58.3 million) in Canaccord’s fiscal first quarter, which ended June 30, up from C$29 million a year earlier, the company said Tuesday. Excluding some items, profit was 73 Canadian cents a share. Driving the surge was a record C$76 million in advisory revenue, more than double the figure a year earlier, as the firm handled a flood of deals in the mining, health-care and technology industries in both the U.S. and Canada. Chief Executive Officer Dan Daviau said the broad-based boom is being fueled by high prices for sellers, cheap financing for buyers and a market that’s been rewarding companies for making acquisitions.
- European equities printed yet another record high as a rebound in corporate profits diverts focus away from market risks like Covid-19 mutations, rapidly rising prices and China’s regulatory crackdown. The Stoxx Europe 600 index was up 0.6% at 10:39 a.m. in London, with technology and travel and leisure among the best performers. Defensive sectors like health care and staple goods underperformed. Europe’s stocks have marched higher despite lingering worries about the spread of the delta coronavirus variant and concern that China’s crackdown on sectors like technology and education could see the world’s second largest economy become more isolated.
- Stocks rose Wednesday as concerns over China’s gaming and technology clampdown eased, while reassurance on central-bank stimulus countered lingering worries about the spread of the Covid-19 delta strain and its effect on the global recovery. U.S. equity contracts were steady in the wake of a record S&P 500 close on robust earnings, with more to come Wednesday from the likes of Ford Motor Co. Ltd. and General Motors Co.. The 10-year U.S. Treasury yield held its retreat, and the dollar was steady against a basket of major peers.
- Asian stocks advanced as investors snapped up cheaper shares of China’s tech giants and digested the spread of the delta variant of Covid-19 in the region. The MSCI Asia Pacific Index rose 0.4%, buoyed by communication services shares such as Tencent and other tech stocks as Chinese state media toned down criticisms of the video-game industry. Tencent rebounded by 2.4%, recouping some of Tuesday’s loss. South Korea led gains in the region as foreigners piled into chip stocks such as Samsung. Shares in Singapore also rallied, boosted by optimism over bank earnings, while indexes in India and Australia traded at record highs. Malaysian equities, however, fell as political woes deepened.
- Oil erased earlier declines as improving sentiment in other risk assets countered coronavirus outbreaks in key consumer China. West Texas Intermediate futures traded little changed, having retreated 4.6% in the previous two sessions. Stocks in Europe rose for a third day, shrugging off the threat of the latest spread of the virus. The delta strain of Covid-19 has been detected in almost half of China’s 32 provinces in just two weeks, and at least 46 cities have advised residents not to travel unless strictly necessary.
- Gold steadied as investors waited for a key U.S. jobs report due this week amid jitters over the spread of the delta Covid-19 variant and how it may impact the global economic recovery. Traders will scrutinize the nonfarm payrolls data due Friday for clues on the Federal Reserve’s monetary policy path after the U.S. central bank said last week it wants to see more progress on employment and inflation before paring stimulus. An outbreak of delta in China, meanwhile, is unnerving investors and prompting analysts to revise their growth forecasts for Asia’s largest economy. The delta strain has pushed the threshold for herd immunity to well over 80%, according to an Infectious Diseases Society of America briefing on Tuesday. That’s a “much higher” bar than previous estimates of 60% to 70%, said Richard Franco, an assistant professor at the University of Alabama at Birmingham.
- On Wall Street, investors are banking on another four years for Jerome Powell as chair of the Federal Reserve — introducing a potential risk for President Joe Biden should he opt to replace him. “My view is that he would be the right choice and I think that the financial markets also believe that he would be the right choice,” said Bob Diamond, chief executive officer and founder of Atlas Merchant Capital and the former head of Barclays Plc. “I don’t believe there is another candidate who kind of has a consensus around him.” Diamond’s take aligns him with the bulk of Fed watchers. Forty among the 50 economists Bloomberg surveyed on the question last month anticipated that Biden will restore a decades-long tradition of reappointing a presidential predecessor’s Fed chief. Donald Trump broke the pattern in elevating Powell, then a Fed governor, to chair in 2018.
- Israel, one of the world’s most vaccinated nations, called on employers to switch to work-at-home and warned that it may have to impose new lockdowns. The government urged the public to stop shaking hands, embracing and kissing and avoid non-essential gatherings in closed spaces. Beijing reported more virus cases and Indonesia’s death toll surpassed 100,000, making it the second country in Asia to breach that grim threshold. Vaccines targeting the delta variant may now be needed given the strain’s ability to infect people with fading immunity, researchers leading a large English study of Covid shots said.
- CVC Capital Partners will invest 2.7 billion euros ($3.2 billion) in La Liga, the Spanish soccer league that’s home to Lionel Messi and other superstars of the world’s favorite sport. The private equity firm’s investment values La Liga at about 24.3 billion euros, according to a statement Wednesday, and comes at a crucial time for the league, which like others around Europe has seen finances badly hurt by the impact of Covid-19. Stadium closures and rebates to broadcasters during the pandemic combined to drag La Liga revenue down 8% to 3.1 billion euros in the 2019/2020 season, according to Deloitte’s latest annual review of the sport, with lockdowns having extended into the more recent campaign.
- President Joe Biden quelled for now a brewing confrontation with progressive Democrats with a new moratorium on evictions during the pandemic, but the order invites a legal fight with high-stakes consequences for public health that the government may well lose. The Centers for Disease Control and Prevention’s order on Tuesday, following several days of legal wrangling within the administration, aims to keep tenants who are in arrears from losing their homes until Oct. 3. White House officials hope that’s enough time to stand up a long-delayed $47 billion rental assistance program. The ban came after Biden’s White House failed to anticipate outrage and finger-pointing from its own party after he called Thursday for Congress to extend a previous moratorium set to expire just two days later. Lawmakers in the House, under lobbying by landlords, failed to act before leaving town for the rest of the summer.
- Apollo Global Management Inc. beat analysts’ estimates for second-quarter profit as it took advantage of rising markets to sell assets. The firm handed $9 billion to investors in the three months through June, the most of any quarter in at least eight years, the New York-based company said Wednesday in a statement. Apollo’s buyout business drove most of the activity with $7 billion in distributions. The results mark a turnaround for Apollo from this time in 2020, when its holdings in sectors such as energy, travel and retail took a hit because of the Covid-19 pandemic. This year, the firm and its peers have sought to capitalize on a robust market for selling assets. Private equity firms sold or took public 253 companies in the U.S. during the second quarter, double the amount from a year ago, according to data compiled by PitchBook.
- CVS Health Corp. second-quarter adjusted earnings beat Wall Street’s expectations and the company raised its 2021 forecast as Americans got vaccinated and returned to drugstores. CVS’s quarterly profit was $2.42 a share, the company said Wednesday, compared with analysts’ expectation of $2.07, the average of estimates collected by Bloomberg. Revenue of $72.6 billion also beat estimates.
- Iran’s oil comeback, already taking longer than many traders expected, will be further complicated by shipping attacks in the past week, including a deadly drone strike on a tanker near the Gulf of Oman that the U.S., U.K. and Israel all blamed on Tehran. With talks held up by a change of presidency in Tehran, the incidents add friction to a process that could return 1 million barrels of oil a day to the global market within months. Even if the allies decide against a military response, Washington may be less willing to ease sanctions on the Islamic Republic’s energy exports.
- Natural gas prices in Europe resumed their advance toward record highs amid reduced supplies from Norway and Russia, heightening concerns of a supply crunch in the run-up to winter. The drop in gas imports makes it even harder for Europe to refill storage levels at the lowest level in more than a decade for the time of the year. Cargoes of liquefied natural gas arriving at European ports are below average as shipments head to Asia where prices are higher. The total amount of gas entering the U.K. network plunged Wednesday with incoming flows about 25% below the five-year seasonal average. Total Russian gas supplies to Europe have dropped 20% since the start of July, while Norway’s supplies are curbed through September due to summer maintenance.
- Chinese media including the Communist Party’s flagship newspaper toned down their criticism of the games industry on Wednesday, helping Tencent Holdings Ltd. and its peers recoup some of their losses from a market rout a day earlier. Instead of calling video games “spiritual opium,” as a Tuesday article in the Economic Information Daily had, the People’s Daily published an editorial in its overseas edition that stressed the need for government, schools, families and society to work together to better protect children from excessive gaming. Controlled by the Party’s Central Committee, its positions on issues are widely seen as reflecting the views of China’s most senior leaders.
- Honda Motor Co. boosted its operating income forecast for the full year but gave guidance that missed analyst estimates, a disappointment for investors as the Japanese automaker embarks on an ambitious plan under Chief Executive Officer Toshihiro Mibe to go all electric by 2040 and make highly autonomous cars a reality. Operating income for the 12 months ending March should touch 780 billion yen ($7.1 billion), up from previous expectations for 660 billion yen, Honda said in a filing Wednesday. Analysts had been looking for around 803 billion yen. For the first quarter ended June, Honda reported operating income of 243.2 billion yen, more than double the average analyst estimate of 100.8 billion yen.
- For the second week in a row, the recovery in global air traffic has taken a step back. Airline seat capacity declined about a quarter of a percentage point to 68% of the amount offered in the same week of 2019, before the Covid-19 pandemic disrupted a multi-year travel expansion fueled by the rising number of middle-class tourists from China and Southeast Asia. The latest setback, attributed largely to the spread of the delta variant, follows an almost 1-point decline the prior week, according to Bloomberg’s weekly flight tracker, which uses data from aviation specialist OAG to monitor the pulse of the comeback.
- VICI Properties Inc. is acquiring MGM Growth Properties LLC, including MGM Resorts International’s stake in the real estate investment trust, in a deal that values the takeover target at $17.2 billion. Under the terms of the agreement, VICI will redeem a majority of the MGM Growth operating partnership units held by MGM Resorts for $43 each, or a total of about $4.4 billion, in cash, and acquire the rest of MGM Growth in a stock-for-stock transaction. The total MGM Growth value includes about $5.7 billion of pro rata debt, MGM Resorts said in a statement Wednesday. The deal is part of MGM Resorts’ efforts “to become asset light,” Chief Executive Officer Bill Hornbuckle said in the statement. “We are well positioned and remain focused on pursuing growth opportunities in our core business, with significant financial flexibility to continue to deploy capital to maximize shareholder value.”
- Jamie Dimon said he’s unlikely to be running JPMorgan Chase & Co. in 10 years, but he does see himself staying for another five years. “I’m not going to go play golf and smell flowers,” Dimon said in an interview with Fox Business that aired Wednesday. JPMorgan’s board last month awarded the bank’s billionaire chief executive officer a special gift to stay on for another “significant number of years.” Dimon, 65, has long joked that his retirement is five years away, no matter when he’s asked. In the wide-ranging interview, the CEO also reiterated his prediction that the U.S. economy is poised to boom, something he wrote about extensively in his annual shareholder letter in April.
- The company behind the largest cryptocurrency fund is building out its ETF team, despite dimming odds that U.S. regulators will approve the structure this year. Grayscale Investments LLC has tapped David LaValle, former chief executive officer of custom index provider Alerian, as its global head of exchange-traded funds. He will drive the effort to convert the $25 billion Grayscale Bitcoin Trust (ticker GBTC) into an ETF — a process that CEO Michael Sonnenshein has said the asset manager is “100% committed” to. Grayscale has been ramping up its ETF arm even as the U.S. Securities and Exchange Commission drags its feet on allowing cryptocurrencies into the structure. In addition to LaValle’s hire, the firm is seeking to fill at least 10other ETF-related roles.
- U.S. stock market returns may suffer as economic recovery and possible monetary tightening are set to fuel a surge in Treasury yields, according to Citigroup Inc. strategists. Citi downgraded U.S. stocks to neutral from overweight on Wednesday due to the large prevalence of tech companies, which are vulnerable to higher rates. The recent rally in government bonds will be temporary before macro growth fuels a rise in 10-year yields to 2% into 2022, according to Robert Buckland and his colleagues. Bonds have been rebounding in recent months, pushing the 10-year yield down to 1.18% amid a resurgence in Covid-19 cases and concerns that the global recovery isn’t as strong as expected. With the S&P 500 trading at record highs, a possible resumption of the ascent in yields could make the stock market, and growth shares in particular, vulnerable to selloffs.
- Saudi Arabia raised oil for prices for buyers in Asia and the U.S. for September in a sign the world’s largest crude exporter sees demand continuing to recover despite a surge in coronavirus cases in some of the world’s main energy importers. OPEC+, the oil-producers’ group led by the Saudis and Russia, agreed last month to ramp up production over the rest of the year and supply a market that most analysts see as facing a dearth of barrelsamid a global economic recovery from the worst of the pandemic. Saudi Aramco will increase its key Arab Light grade for Asia by 30 cents from August to $3 a barrel above the state company’s benchmark, according to a statement. That’s slightly less than the 50-cent increase seen in a Bloomberg survey. Aramco is raising pricing for other grades to the region by between 20 and 60 cents.
“Never put an age limit on your dreams.”– Dara Torres, 12 time Olympic Medalist, American Swimmer
*All sources from Bloomberg unless otherwise specified