February 18, 2021

Daily Market Commentary

Canadian Headlines

• Canadian equities fell for the first time in three sessions after marijuana and mining companies underperformed. The S&P/TSX Composite index fell 0.6% in Toronto. Materials and health care companies were the worst performers after the price of gold fell on a stronger dollar and pot stocks declined after Tuesday’s rally. On the IPO front, electric jet-ski maker Taiga Motors plans to go public via a merger with a blank-check company sponsored by Canaccord Genuity Group Inc.. It will be taking advantage of investor demand for companies that can burnish their environmental credentials.
• Barrick Gold Corp., the most profitable major bullion producer in the past year, delivered a sixth straight earnings beat after lifting production and reducing costs. The Toronto-based miner navigated the pandemic to meet its full-year gold guidance, with the fourth-quarter bringing higher output and a 3.8% decline in costs. Barrick said last month it expected all-in sustaining costs for gold in the fourth quarter would be 3%-5% lower than the $966 an ounce reported in the third quarter. Costs came in within that range for the October-to-December period, at $929 an ounce.

World Headlines

• European shares erased earlier gains and dropped Thursday, as investors assessed a batch of earnings from banks to grocers. The Stoxx 600 Europe Index was down 0.4% as of 11:35 a.m. in London, with the basic resources and retail sectors climbing the most, while banks and health care retreated. Among the biggest individual movers, Temenos AG jumped 17% on guidance and mid-term targets that pleased analysts, while Acciona SA rose 11% after announcing it will study taking its renewables unit public. Varta AG dropped 13%, the biggest fall on the index, as analysts said guidance was weak. Still, European stocks climbed to a one-year high earlier this week and strategists see the equity rally continuing, fueled by optimism that Covid-19 vaccines will help an economic recovery, with the Stoxx 600 Index poised for 2% upside this year, according to a Bloomberg survey. Coronavirus infections in England are falling sharply, stirring hopes for a re-opening of the economy.
• U.S. equity futures slumped amid disappointing earnings, while bonds resumed a selloff. Contracts on the tech-heavy Nasdaq 100 slumped 0.8% and S&P 500 futures dipped. Walmart Inc. dropped in U.S. pre-market trading after saying it will increase spending on worker salaries and automation. Yields on 10-year Treasuries climbed to 1.28%. Concern is growing across markets that higher borrowing costs could sap a rally that’s driven values to historic highs. Technology companies that derive much of their cash flows in the future are especially vulnerable to inflation pressures.
• Brent crude briefly surpassed $65 a barrel for the first time in a year as a cold blast that’s pummeled U.S. oil production escalated into a global supply shock. More than 4 million barrels a day of U.S. oil output — about 40% of crude production — is now offline, according to traders and executives, amid an unprecedented cold snap that’s frozen well operations and led to widespread power cuts. A spate of refinery outages has curbed demand for crude in the country, however, while gasoline consumption is also down as the icy conditions keep many Americans off the roads.
• Gold climbed from near the lowest in more than two months as the dollar weakened, having been pummeled by further signs of a strong economic recovery. Bullion capped a five-day slide on Wednesday, the longest run of losses since March, as U.S. data showed retail sales and factory production surged more than expected in January, indicating the recovery was well under way. Demand for the haven has also been hurt by a small revival in the dollar, based on expectations that more stimulus and a swifter Covid-19 vaccine rollout will see the American economy outperform its peers.
• Encouraging signs in the fight against the Covid-19 pandemic are emerging, with new global infections slowing sharply, according to data from Johns Hopkins University. In a lab study, Pfizer Inc. and BioNTech SE’s Covid-19 vaccine stimulated lower levels of neutralizing antibodies against the South African coronavirus variant. Indonesia will mandate vaccinations, the government said Thursday, while New Zealand has made masks compulsory on most forms of public transport. The United Nations is pushing for a worldwide vaccination effort. Vaccine-makers will begin trialling their shots with pregnant women, in a bid to provide reassurance that they are safe for expectant mothers.
• The Biden administration is pressing ahead with efforts to develop a successor to a failed missile interceptor project that cost $1.2 billion, awarding an initial contract as soon as this month to two of the three biggest U.S. defense contractors. The decision to proceed is one of the first procurement decisions under new Defense Secretary Lloyd Austin. The Pentagon’s Missile Defense Agency plans to choose two winners for five-year design and development contracts from teams led by Northrop Grumman Corp., Lockheed Martin Corp. and Boeing Co. The agency “continues to adhere to established source selection processes as they evaluate each of the proposals and anticipates being ready for contract award this month,” Pentagon spokeswoman Jessica Maxwell said in an email. The Defense Department’s independent cost analysis unit must complete its program estimate before the award, she said.
• Investors in GameStop Corp. face another test when the House Financial Services Committee holds a hearing on retail trading Thursday afternoon. The video-game retailer has shed $30.5 billion in value from an intraday peak last month as its meteoric 2,728% stock surge met with a sharp correction earlier this month. Wall Street leaders including Citadel Securities founder Ken Griffinand Melvin Capital Management Chief Executive Officer Gabriel Plotkin will testify on the wild swings in GameStop shares and other companies.
• Weibo Corp., China’s largest micro-blogging service, is planning a second listing in Hong Kong as soon as this year, people familiar with the matter said, joining a growing cohort of U.S.-traded Chinese firms in seeking a trading foothold in the financial hub. The Asian nation’s answer to Twitter Inc. is working with advisers on the potential share sale, the people said, asking not to be identified as the information is private. Weibo’s American depositary receipts have climbed 41% in the past year through Wednesday, giving the company a market value of $13.3 billion. They climbed 2.8% to $60.50 at 5:55 a.m. New York time in premarket trading.
• Texas Governor Greg Abbott is banning sales of the state’s natural gas beyond its borders in the latest sign the crisis roiling energy markets and leaving millions in the dark is far from abating. Top U.S. liquefied natural gas exporter Cheniere Energy Inc. said it’s temporarily cutting natural gas and electricity consumption to help the Texas power grid, and that its decision was made ahead of Abbott’s order. While many households in the Lone Star state have been struggling to stay warm and get potable water, some natural gas and power providers are poised to make billions of dollars from skyrocketing energy prices.
• The U.S. economy is starting to display pockets of price pressures, further stoking the debate among economists and market participants over the future path of inflation. Among reports Wednesday, retail sales powered ahead with the strongest advance in seven months, topping all estimates and indicating hearty consumer demand at the start of the year. Meanwhile, a measure of producer prices surged last month by the most in records dating back to 2009, while a private survey of homebuilders showedgrowing concern about soaring costs of building materials after a robust year for home sales.
• Walmart Inc. will increase spending on worker salaries, automation and other technology by billions of dollars after reporting one of its best holiday sales quarters on record. For the year, earnings per share will decline slightly, though will be flat or up when excluding divestitures. Comparable-store sales, a key retail metric, increased 8.6% for U.S. Walmart stores in the holiday period ended Jan. 31, well above the 5.7% average estimate compiled by Consensus Metrix. Still, it cautioned there’s a slowdown ahead: Although U.S. comparable sales will stay positive this year, they’ll rise in the low-single-digits, below the recent breakneck rate but on pace with estimates.
• President Joe Biden’s top economic adviser, Brian Deese, has sought the Taiwanese government’s help resolving a global semiconductor shortage that’s idling U.S. car manufacturing plants, according to a letter reviewed by Bloomberg News. In the letter, Deese thanked Taiwan’s minister of economic affairs, Wang Mei-hua, for her personal engagement on the microchips shortage and relayed concerns from U.S. automotive companies. Deese’s letter shows that top White House officials have become involved in trying to resolve the shortage, which has presented an early challenge to Biden’s administration. Deese, the director of the National Economic Council, as well as National Security Adviser Jake Sullivan are both personally engaged in the effort to address bottlenecks in auto companies’ supply chains, a White House spokesperson said.
• The U.K. airline industry stepped up a campaign to persuade Prime Minister Boris Johnson that travel should be included in his plan to reopen the economy, calling for a clear road map to ease travel restrictions ahead of the crucial summer season. In a webinar organized by lobby group Airlines UK, heads of carriers including EasyJet Plc and Virgin Atlantic Airways Ltd. stressed the importance of the sector to the economy and employment. Without measures to reopen, the industry would need a support package to survive and protect jobs, EasyJet Chief Executive Officer Johan Lundgren said. Overseas trips are effectively banned for most British people under lockdown rules, while incoming travelers are forced to take multiple Covid-19 tests and, in many cases, mandatory hotel quarantines.
• Goldman Sachs Group Inc. may be getting wary of the boom in blank check companies, but Credit Suisse Group AG says it’s ready to ride the wave. The chief executive officers of two of the top IPO underwriters struck different tones at the end of a year marked by a surge in offerings of the special purpose acquisition vehicles, or SPACs. Credit Suisse Group’s Thomas Gottstein, whose firm seized on the boom to climb to the top of the rankings and triple fourth-quarter stock underwriting fees, says SPACs are here to stay and demand is increasing in areas such as Asia. Goldman Sachs’s boss, David Solomon, has warned the market be a little too enamored and that there could be a pullback this year.
• U.S. life expectancy plunged by a full year in the first half of 2020, the biggest drop since World War II, as the Covid-19 pandemic ravaged the country. Life expectancy at birth dropped to 77.8 years from 78.8 in 2019, according to provisional data from the National Center for Health Statistics. The report also showed widening disparities along racial and gender lines. Black men saw a three-year decline in life expectancy, while the gap between the sexes rose to 5.4 years, the most in more than two decades.
• Apollo Global Management Inc. has appointed former Securities and Exchange Commission chairman Jay Clayton as lead independent director, part of a corporate governance overhaul following a probe into the firm’s links to convicted sex offender Jeffrey Epstein. Clayton will join Apollo in the newly-created role on March 1 after stepping down from the regulator at the end of last year, according to a company statement. He will also return to law firm Sullivan & Cromwell LLP, where he worked before joining the SEC. Clayton’s appointment at Apollo follows an investigation into ties between founder Leon Black and Epstein, which found that Black paid $158 million to Epstein for various financial services. While the report concluded Apollo itself had no ties to Epstein, the firm said in early February it would appoint a lead independent director who will engage directly with management and the board.
• Apple Inc. launched its first iPhones with 5G wireless speeds a few months ago. Now it’s looking to start work on sixth-generation cellular connectivity, or 6G, indicating it wants to be a leader in the technology rather than relying on other companies. The Cupertino, California-based company this week posted job ads seeking wireless system research engineers for current and next-generation networks. The listings are for positions at Apple’s offices in Silicon Valley and San Diego, where the company works on wireless technology development and chip design. “You will have the unique and rewarding opportunity to craft next generation wireless technology that will have deep impact on future Apple products,“ according to the job announcement. “In this role you will be at the center of a cutting-edge research group responsible for creating next generation disruptive radio access technologies over the next decade.”
• WeWork Cos. cut prices across the U.S. in the past few months, indicating that a post-pandemic recovery will come slowly for office rentals. The New York-based company reduced the price of most rental units—from individual desks to small offices—in early November and again in January, according to data compiled for Bloomberg by an independent researcher. The average price reduction overall was about 10%, the data show. Some locations declined by as much as 25%. The pricing information was contained within the source code of WeWork’s website but wasn’t displayed to visitors through a web browser, said James Harring, who compiled and analyzed the data. Harring runs a large-scale data analysis consultancy called Audeff Research. A WeWork spokeswoman declined to comment.
• Mexico is preparing a significant tax break for its state-owned oil firm while the constitution blocks it from taking on debt to increase social spending during the pandemic, Finance Minister Arturo Herrera said in an interview. Lowering the state’s demands on Pemex, its biggest taxpayer, could help the oil giant reorder its finances as it struggles with a $110.3 billion debt load, sinking production, and some of the highest tax obligations of any oil company in the world. During the past two years Mexico adjusted its tax policy to compensate for a reduction in oil revenue from royalties and other contributions, Herrera said. Pemex’s euro-denominated bonds gained on the news.
• Marriott International Inc. reported fourth-quarter results that were slightly better than expected, as the world’s largest hotel company seeks to move on from the pandemic without its longtime leader. Adjusted earnings per share were 12 cents, according to a statement Thursday. That beat the average analyst estimate of 11 cents. The release followed the death of Chief Executive Officer Arne Sorensonon Feb. 15 at age 62, after a battle with pancreatic cancer.
• Facebook Inc.’s decision to block news sharing on its Australian platform is an unprecedented show of force that escalates a legal standoff with the government and flashes a warning to regulators worldwide. The tech giant imposed the restrictions early Thursday, an unexpected riposte to a proposed law that will force the company and Google to pay Australian publishers for news content. Facebook’s algorithmic ambush switched off the main news source for almost one in five Australians. It also disabled — accidentally, the company said — a raft of government Facebook pages carrying public health advice on the coronavirus, warnings from the weather bureau and even the site of a children’s hospital.
• New York lawmakers will seek to curb the sweeping emergency powers afforded to Governor Andrew Cuomo in the wake of the Covid-19 pandemic after backlash widened over how his administration handled nursing-home deaths. Democratic leaders in the state Senate said late Wednesday that they plan to put out a proposal that would curtail some of Cuomo’s powers ahead of a planned April 30 expiration of the law, which was passed last March and gives Cuomo a blank check to issue by executive order any directive necessary to respond to the health emergency. The state enacted the law just as the state’s second confirmed Covid case was reported in Westchester last March. The proposal could be voted on as early as next week and could include setting up an advisory panel to approve Cuomo’s directives, according to the office of the Senate Majority. It’s unclear whether the Democrats in the state Assembly will back the measure as well. Without support in that chamber, the Senate’s one-house bill would effectively serve as a slap on the wrist.
• President Joe Biden’s proposed immigration overhaul will be introduced in Congress on Thursday, kicking off what will likely be one of his most difficult legislative challenges. The legislation, known as the U.S. Citizenship Act of 2021, hews closely to the outline that Biden sent to Congress on his first day in office. The proposal includes an eight-year path to citizenship for most of the roughly 11 million immigrants living illegally in the U.S., bolsters the nation’s refugee and asylum systems and calls for additional technology to be used to help secure the southern border, administration officials told reporters late Wednesday. The citizenship path is not explicitly tied to the implementation of border security measures, a trade-off included in past immigration bills designed to earn Republican support.

“He is a man whom it is impossible to please because he is never pleased with himself.“ – Johann Wolfgang von Goethe

*All sources from Bloomberg unless otherwise specified