December 30, 2021

Daily Market Commentary

Canadian Headlines

• Canadian equities rose for the fifth straight day, with consumer discretionary, real estate and energy stocks advancing. The S&P/TSX Composite index climbed 0.5%, or 114.97 to 21,344.65, its highest closing level since Nov. 25. Brookfield Asset Management Inc. contributed the most to the index gain, increasing 2.1%. Interfor Corp. had the largest percentage increase, rising 13.5%, trailed by competitor Canfor Corp., up 9.5%.
• The U.K. and Canada offer enticing opportunities to leverage access to powerful neighbors and exposure to commodities as global growth shifts from recovery to early phase. Developed-market stocks put in powerful performances in 2021, and the attention now shifts to relative value and alpha via active management. That creates opportunities in markets that have underperformed in the recovery and offer unique exposure to sectors likely to be in demand. The FTSE 100 has yet to top pre-crisis highs, trading down 0.8% since the start of last year, measured in euro terms. That compares with a gain of ~15% for the Euro Stoxx 50, and it underscores the U.K.’s relative value. Brexit woes must now be fully discounted, and talk should shift to the opportunities the government has so long promised.

World Headlines

• European stocks climbed in one of the final sessions of 2021 as investors weighed the risks from omicron to the economic recovery. The Stoxx Europe 600 Index rose 0.3% as of 9:53 a.m. in London, hovering near a record reached in November. Technology and consumer products stocks advanced. The volume of trading was 66% below the 30-day trading average. European stocks are set to post the seventh consecutive quarter of gains in the longest such winning streak since 1998, bolstered by solid earnings and economic growth. Investors are now closely monitoring developments related to the omicron variant to assess its potential impact on the very factors that have supported stocks.
• U.S. stocks rose in thin trading as the slump in tech stocks abated amid speculation the economic recovery can weather the surge in coronavirus cases. Treasuries fell along with the dollar. After spending much of the session little changed, the S&P 500 rose to reach the 70th record close of the year. The Dow Jones Industrial Average also ended the day at an all-time high, while the Russell 2000, a proxy for the reopening trade, rebounded. The tech-heavy Nasdaq 100, too, staged a comeback, erasing earlier losses.
• Asian stocks edged lower on the last trading day this year for several markets as investors weighed the spread of the coronavirus. The MSCI Asia Pacific Index fell as much as 0.3%. The consumer discretionary sector was the biggest drag on the measure, with Alibaba and Sony among those contributing the most to the drop. Japan, South Korea, Taiwan, Thailand and Indonesia will be shut Friday for new year holidays. Cathay Pacific Airways said it plans to scrap some passenger flights to and from Hong Kong as the city tightens quarantine rules for aircrew. Australia’s most populous state posted a record number of daily infections, while severe cases reached a high in South Korea.
• Oil edged lower after its longest run of gains since February, as the market weighed a series of supply outages against smaller quotas in China, the world’s largest crude importer. West Texas Intermediate traded near $76 a barrel after a 12% jump over six sessions. Global benchmark Brent is heading into the end of the year near $80 a barrel, though volumes over the holiday period have been subdued. Crude was pressured Thursday as China cut the amount of import quota awarded to private refiners and favored complex processors as it seeks to reform the sector. Beijing granted 109 million tons, 11% less than last year, in the first batch for 2022, according to officials from companies that received notification of the allowances. The dollar also climbed, making commodities priced in the currency relatively more expensive.
• Gold edged lower as the dollar strengthened and as investors continued to assess the implications of the omicron coronavirus variant on the global recovery. The metal declined 0.3% after the dollar recouped much of Wednesday’s losses. Benchmark 10-year Treasury yields also retreated after surging overnight, adding to gold’s appeal. Bullion is heading for its first annual loss in three years, after rallying to an all-time high in 2020, as central banks start to dial back pandemic-era stimulus to fight inflation. The emergence of the omicron variant is clouding the outlook as investors try to gauge its effect on the path of monetary policy.
• Iron ore halted a three-day decline and resurfaced above $120 a ton on potential support from restocking by China’s steel mills. Futures for the steelmaking ingredient in Singapore climbed as much as 5% on Thursday, clawing back some of their declines over the previous three days. The commodity is heading to the end of a volatile year with investors awaiting clarity on China’s plans to support an economy suffering from a property-led economic slowdown.
• Goldman Sachs Group Inc. held on to the top spot in dealmaking during a record year. The investment bank was the No. 1 adviser on mergers and acquisitions for the fifth year in a row, as measured by the total dollar value of transactions it handled, according to data compiled by Bloomberg. Goldman’s dominance comes as global M&A and related deals surpassed $5 trillion in volume for the first time. The bank advised on more than $1 trillion worth of deals, giving it a market share of more than 24%, the data show. The fees Goldman collected from that work — more than $4 billion for the first nine months of 2021 — easily topped the earnings of each of its closest rivals, JPMorgan Chase & Co. and Morgan Stanley, according to filings by the banks. The fees don’t include those for work completed in the fourth quarter, which will be disclosed in later filings.
• Didi Global Inc. disclosed a $4.7 billion loss after revenues shrank in the September quarter, revealing the rising cost of a series of regulatory actions that will force China’s ride-sharing leader to shift its listing to Hong Kong next year. Didi, one of the highest-profile targets of a broad Beijing campaign to rein in the country’s giant tech sector, reported $6.6 billion of sales, down more than 13% from the June quarter and 1.6% from a year earlier. The surprise disclosure comes as the company prepares to delist from New York. The ride-hailing giant is planning to work with Goldman Sachs Group Inc., CMB International and CCB International on the shift, which could be a so-called listing by introduction, people familiar with the matter said. That arrangement, which doesn’t involve any fundraising, requires little marketing and would allow U.S. investors to swap their shares for the new stock in Hong Kong.
• Russian President Vladimir Putin sought a phone call with U.S. President Joe Biden as a prelude to planned security negotiations at the start of the year, the Kremlin said. “The purpose of the call is very clear — to continue discussing all the issues that were on the agenda” at Dec. 7 talks between the two leaders and before the negotiations in January, Kremlin spokesman Dmitry Peskov told reporters. “From President Putin’s viewpoint, there is a need for another phone discussion ahead of the start of the negotiations,” he said, without elaborating. The phone call planned for 11:30 p.m. in Moscow takes place amid U.S. and European alarm over a possible Russian invasion of Ukraine as early as next month. The Kremlin denies any intention to invade its neighbor, while also demanding binding security guarantees from the West that include a halt to North Atlantic Treaty Organization expansion and withdrawal of NATO forces in Europe to positions they held in 1997.
• Ghislaine Maxwell was found guilty of engaging in a 10-year sex-trafficking scheme with Jeffrey Epstein, a verdict that offers long-delayed justice for his victims. The British socialite was convicted Wednesday in Manhattan federal court after the jurors deliberated for about five days. They found her guilty of five of the charges against her, including sex-trafficking of a minor, which carries a possible prison sentence of up to 40 years. Maxwell, 60, didn’t appear to have any reaction to the verdict, at one point brushing her hair aside and taking a drink of water. Before, while waiting for the jury to return to the courtroom, she looked down with her hands clasped, as if praying.
• Bitcoin is continuing its December retreat and testing a key technical level that over the past two years has tended to act as a floor for the world’s largest cryptocurrency. The digital asset fell as much as 2.7% in Asia on Thursday and was trading at about $46,700 as of 2:15 p.m. in Singapore. It’s down some 18% this month amid a broader retreat in the crypto sector. Bitcoin’s drop has taken the token to its 55-week moving average, a level it effectively held after a December flash crash and during the mid-year embers of a crypto rout. The technical study suggests a decisive break below the average would put a slide to $40,000 in play.
• Global Covid-19 infections rose by almost a third to a record 1.73 million, making Wednesday the third consecutive day the world has recorded more than a million new cases in 24 hours. Countries including Italy and Australia are dialing back their Covid curbs even as omicron advances, in an effort to keep essential services running. The U.K. began setting up care hubs to prepare for a potential surge in admissions. More evidence is emerging that omicron may be less dangerous, particularly in vaccinated people. Virus deaths in the U.S. declined and a study showed a booster shot of Johnson & Johnson’s vaccine significantly reduces hospitalization.
• Antonio Horta-Osorio’s tenure as Credit Suisse Group AG chairman has been focused on moving the firm past scandals. But the lender’s latest headache stems from his own conduct. The Portuguese banker attended the Wimbledon tennis finals in London in early July, a period when arrivals from Europe were obliged to undergo a period of quarantine, according to a report by Reuters, citing unidentified people familiar with the matter. The allegation comes weeks after Horta-Osorio was forced to apologize for “unintentionally” breaking Swiss quarantine rules earlier this month by flying to the Iberian peninsula aboard a private jet. Horta-Osorio, who was appointed as chairman in April, has been trying to steer Zurich-based Credit Suisse past a disastrous year when the collapse of Archegos Capital Management and the freezing of funds tied to Greensill Capitalcaused billions of dollars in losses and led to the departure of numerous senior managers. The chairman has repeatedly cited the need to revamp the bank’s culture with a focus on individual responsibility.
• U.K. house prices rounded off their strongest year since 2006 with a bigger-than-expected increase in December and buyers shrugging off concerns about growing coronavirus infections. The average price of a home rose 1% to 254,822 pounds ($334,090) this month, which is typically one of the quietest of the year, Nationwide Building Society said Thursday. That was double the pace expected by economists. The annual rate of growth climbed to 10.4%, the fastest in 15 years. Buyers weary of lockdowns during the pandemic are snapping up more spacious properties outside urban areas with room to work from home. That trend is likely to get tested in 2022 as rising borrowing costs, stretched affordability and pinched household finances restrain the ability of consumers to keep paying more.
• U.S. Secretary of State Antony Blinken urged Chinese authorities to stop arresting Hong Kong journalists, a day after the biggest remaining pro-democracy news organization shut down under a probe. Blinken’s comments Thursday came in response to Stand News’s decision to lay off all its staff and cease operations. The move came hours after more than 200 police raided the outlet’s newsroom, froze some HK$61 million ($7.8 million) of assets and arrested seven people connected to it on a colonial-era sedition law.
• Biogen Inc. shares fell after Samsung Group denied a Korean media report that the U.S. drugmaker was in talks to sell itself to the company.  The stock dropped 5.9% in trading before U.S. exchanges opened. It erased earlier gains spurred by an article from the Korea Economic Daily, which said that the Cambridge, Massachusetts-based biotechnology company had approached Samsung about a takeover. Biogen has struggled to push its controversial Alzheimer’s treatment in recent months. The company gained U.S. approval for the drug, Aduhelm, in June over the objections of experts who said there wasn’t enough clear evidence that it worked. Since then, patients and payers have balked at the treatment’s cost and the scientific debate.
• Robinhood Markets Inc. is working to let more traders use a feature for its mobile app that rolls options contracts, a mechanism that allows traders to extend their options.  Options are contracts providing the right to buy or sell a stock at a specific price by a future date. They can be lucrative financial instruments for brokerage firms. At Robinhood, options activity brought in about 61% of the firm’s third-quarter trading revenue. Options rolling allows a trader to close out a position and simultaneously open a new one with another date and price.
• Europe has never paid so much for electricity as in 2021. The average cost of power for delivery in the short-term is on track to end the year at a records levels, rising over 200% in Germany, France, Spain and the U.K. In the Nordic region — where vast supplies of hydro power tend to cap prices — costs surged 470% from a year earlier. The crunch is leaving consumers and heavy industrial users with rising bills heading into 2022. Metals smelters from France to Spain have already been forced to curb output, while some fertilizer producers were forced to halt output altogether. Norsk Hydro’s majority-owned plant in Slovakia was the latest casualty, announcing on Thursday that it would further curb production.

Happy Holidays

*All sources from Bloomberg unless otherwise specified