December 20, 2021

Daily Market Commentary

Canadian Headlines

  • Bank of Montreal agreed to buy BNP Paribas SA’s Bank of the West unit for $16.3 billion, extending its presence in the U.S. and giving the French seller a windfall before its new strategic plan. BMO will fund the transaction, which should add 1.8 million customers upon closing next year, in cash and mainly with excess capital, according to a statement on Monday. Bloomberg had previously reported the Canadian bank’s interest. BMO’s largest acquisition ever extends its retail footprint into the western U.S. while also bulking up its already-sizable commercial business. The bank, Canada’s fourth-largest by assets, already has a significant presence throughout the Midwest from its acquisition of Harris Bankcorp in the 1980s and a takeover of Marshall & Ilsley a decade ago.
  • Lundin Mining Corp. agreed to acquire Josemaria Resources Inc., a copper-gold project in Argentina, for C$625 million ($483 million). The acquisition will expand Lundin’s copper-mining operations in South America, with a projected annual average output of 130,000 tons over Josemaria’s 19-year mine life, Lundin said Monday in a statement. Production should start in five years. Miners and investors are bullish on the outlook for copper due to its crucial role in global decarbonization efforts. The purchase in shares and cash represents a 29% premium to Josemaria’s average trading price in Toronto in the 10 days through Dec. 17, Lundin said.
  • The Israeli cabinet approved recommendations by health officials to add the U.S., Canada and eight other countries to a list of banned travel destinations due to the spread of the omicron variant. The decision is slated to take effect at midnight Tuesday, subject to approval by a Knesset committee. Other countries on the list include Italy, Belgium, Germany, Hungary, Morocco, Portugal, Switzerland and Turkey.


World Headlines

  • Just as investors were wrapping up this year’s trading, the threat of new lockdowns sent shock waves through markets across the world. Sentiment in stocks and bonds remained on the back foot, though U.S. stock index futures and 10-year Treasury yields pared declines after Moderna Inc. said a third dose of its Covid-19 vaccine increased antibody levels against the omicron variant. Lockdown risks are rising, with the U.K. Health Secretary Sajid Javid refusing to rule out stronger measures before Christmas and the Netherlands said Saturday it’s going to a full lockdown until at least Jan. 14. Senator Joe Manchin’s rejection of the U.S. spending package at the heart of President Joe Biden’s economic agenda also weighed on sentiment. Volatility surged, with the Euro Stoxx 50 Volatility VSTOXX Index and the VIX Index both jumping to the highest in two weeks. S&P 500 e-mini futures fell 1.2% as of 6:01 a.m. in New York, after earlier sliding as much as 1.8%.
  • European stocks dropped the most in over two weeks as investors fretted over the risk of lockdowns and travel restrictions as the omicron coronavirus variant continued spreading. The Stoxx Europe 600 was 1.3% lower by 11:59 a.m. in London, paring declines of as much as 2.6% after the Moderna news. Travel and leisure stocks were especially under pressure, while miners and energy underperformed with commodities.
  • Asian stocks were set for the biggest drop since March, as the spread of the omicron variant and a surprising setback to U.S. President Joe Biden’s economic agenda forced traders to take bets off the table. The MSCI Asia Pacific Index sank as much as 2%, headed for its lowest close since November 2020, with tech and consumer shares the biggest drags. Sentiment was hurt by countries around the world considering restrictions as virus cases climb headed into the holiday season, as well as U.S. Senator Joe Manchin’s rejection of Biden’s roughly $2 trillion spending package. Relatively thin trading ahead of the year-end exacerbated declines in the region, as investors grapple with fresh outbreaks of Covid-19 and monetary policy tightening globally. The MSCI Asia Pacific Index is down about 15% from a peak in February, compared with an 18% gain in the S&P 500
  • A third dose of Moderna Inc.’s Covid-19 vaccine increased antibody levels against the omicron variant, results the company described as reassuring while it works on a shot tailored to the new strain. A 50 microgram booster dose – the authorized amount, which is half the dose used for primary immunization – saw a 37-fold increase in neutralizing antibodies, the company said in a statement Monday. The company also tested a 100 microgram dose, which increased antibody levels 83-fold compared with the primary two-dose course. The results add to a growing body of evidence that three shots will be needed to neutralize the fast-spreading omicron. Pfizer Inc. and BioNTech SE said earlier this month that a third shot of their vaccine restored protection to a level similar to the initial two-dose regimen against the original virus.
  • President Joe Biden faces the unexpected task of quickly rewriting his policy agenda in a crucial election year after a key Senate Democrat abruptly rejected his signature $1.75 trillion economic plan. Senator Joe Manchin stunned the White House and fellow Democrats Sunday by announcing his opposition to a tax-and-spending package tailored to win his support after months of courtship by Biden and other administration officials. The move effectively torpedoes Biden’s campaign promises to address climate change, health-care costs and child-care needs. Losing support from Manchin, a moderate from West Virginia, is essentially fatal in a 50-50 Senate where Republicans uniformly oppose the plan, known as Build Back Better. Biden and top congressional Democrats must now regroup at once on those priorities, with little more than 10 months before midterm races that will decide control of Congress.
  • Europe’s biggest countries are introducing more curbs to fight a surge in Covid-19 infections, from another lockdown in the Netherlands to stricter travel restrictions at the height of the holiday period. Germany designated the U.K. as a virus variant area from Monday, the highest risk category, requiring incoming travelers to undergo a mandatory 14-day quarantine, regardless of their vaccination status. France is considering health passes at work, and Israel added the U.S. and other countries to a list of banned travel destinations. As omicron cases surge in the U.K., the country faces the politically perilous decision whether to tighten restrictions. Health Minister Sajid Javid has declined to rule out such a move before Christmas, but Prime Minister Boris Johnson — who previously called the end of curbs “irreversible” — would likely face further rebellion from his own ranks should such steps come into effect.
  • The World Economic Forum postponed its annual meeting in Davos next month, thwarted for a second year by the fresh waves of coronavirus across Switzerland and the globe. Having intended to hold the meeting Jan. 17-21, the Forum said in a statement that “continued uncertainty” over the omicron variant had forced a rethink and it now planned to host the meeting in early summer. As recently as last week, WEF officials were expressing confidence that they could host the conference given Switzerland was open to international travel and that regular testing would be provided. But the emergence of rapidly spreading omicron meant those plans were put under threat.
  • Oil extended declines — falling more than 5% — hampered by the rapid spread of the omicron virus variant and turmoil for President Joe Biden’s economic plans. Futures in London tumbled below $70 a barrel, as wider markets also retreated. Infections are rising from the U.S. to Europe as authorities struggle to tame the spread of omicron. That’s led to restrictions on air travel and stricter curbs on movement, creating fears that will flow through to weaker energy demand, though there’s no sign of the massive hit seen early last year just yet.
  • Gold held onto its first weekly advance since mid-November as investors weighed concerns over the spread of the omicron virus variant against tightening monetary policy. While bullion capped a weekly gain Friday as omicron clouded the outlook for a global recovery, prices are still on track for the first annual loss in three years as central banks cut pandemic-era stimulus to fight inflation.
  • Zinc fell with base metals on signs supply is rising at the same time the omicron variant threatens to derail the global economic recovery and hurt broader metals demand. China’s refined zinc output rose to 572,000 tons last month, the highest level this year, as a power shortage that had hurt production eased. Mine output is set to increase at a faster pace than demand, narrowing a global zinc ingot shortfall to about 5,000 tons next year from 54,000 tons, according to state-backed researcher Beijing Antaike Information Development Co. That will drive prices lower to $3,100 from the current level of around $3,370, it said. Zinc fell 1.6% to $3,334.50 a ton on the London Metal Exchange at 7:43 a.m. local time, declining a second day. Prices jumped 4.6% on Thursday as surging European power costs led to some production curbs. Aluminum declined 1% and copper dropped 0.8%.
  • Chinese banks lowered borrowing costs for the first time in 20 months, foreshadowing more monetary support to an economy showing strain from a property slump, weak private consumption and sporadic virus outbreaks. The one-year loan prime rate was set at 3.8% versus 3.85% in November, the first reduction since April 2020, according to a statement from the People’s Bank of China on Monday. The five-year loan prime rate, a reference for mortgages, was unchanged at 4.65%.
  • Deutsche Bank Replaces Spain CEO Amid Revamp of Europe Units. Inigo Martos will replace Antonio Rodriguez-Pina in July, the bank said in an internal memo seen by Bloomberg and confirmed by a spokesman. Martos will also become head of the lender’s retail and wealth management unit in the country in January. Rodriguez-Pina will now “focus” on his role as chairman of the Spanish subsidiary. “We have found an outstanding chief executive officer to take our business in the Iberia region to the next level,” Deutsche Bank’s head for Europe, the Middle East and Africa, Claudio de Sanctis, said in the memo. “He possesses all the skills and attributes needed to run our business as we strive to become the leading financial institution for entrepreneurs and their families.”
  • Emerging Market ETF Inflows Hit $1.81 Bln, Most in 8 Months. Inflows to U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $1.81 billion in the week ended Dec. 17, compared with gains of $933.4 million in the previous week, according to data compiled by Bloomberg. This was the biggest weekly inflow since April 2. So far this year, inflows have totaled $42.9 billion.
  • Europe’s Energy Prices Soar as a Deep Freeze Arrives. Temperatures are forecast to fall below zero degrees Celsius in several European capitals this week, straining electricity grids already coping with low wind speeds and severe nuclear outages in France. To make matters worse, Russia intends to keep natural gas flows through a major transit route to Germany limited on Monday after capping supplies over the weekend.
  • Lira Slides After Erdogan Says Islam Demands Lower Rates. The lira tumbled to another record low after Turkish President Recep Tayyip Erdogan pledged to continue cutting interest rates, referring to Islamic proscriptions on usury as a basis for his policy. The currency weakened more than 6% to trade as low as 17.624 per dollar in early Asian trading Monday, heading for a fifth day of declines. It’s lost almost half its value over the past three months, the biggest retreat of any currency in the world over that period
  • Militias Shut Down Libya’s Biggest Oil Field Ahead of Election. Libya’s oil production has been hit after militias shut down the OPEC member’s biggest field days before an election. Members of the Petroleum Facilities Guard, a paramilitary force meant to protect the country’s energy facilities, closed a valve on a pipeline taking crude from Sharara to Zawiya port, a person familiar with the matter said. It is unclear how long it will take to reopen the valve and the field. Zawiya, near the capital of Tripoli, is still operating and workers can load oil in storage onto tankers, said the person.

“Forgiveness is the final form of love.” – Reinhold Niebuhr

*All sources from Bloomberg unless otherwise specified