February 23, 2021

Daily Market Commentary

Canadian Headlines

• Bank of Montreal posted fiscal first-quarter profit that topped analysts’ estimates, helped by an improving credit outlook that allowed it to reserve less to protect against potential loan losses. Canada’s fourth-largest lender by assets set aside C$156 million ($124 million) in provisions against loan losses in the three months through January, down 64% from the fourth quarter. Bank of Montreal’s capital-markets unit continued to post strong results, helped by rising and volatile stock markets. Profit in the unit rose 36% from a year earlier, driven by higher trading revenue.
• Bank of Nova Scotia reported fiscal first-quarter earnings that topped analysts’ estimates as the recovering Canadian economy allowed it to set aside less for potential loan losses. Scotiabank set aside a total of C$764 million ($605 million) in the three months through January to protect against souring loans. That’s down from C$1.13 billion in the fourth quarter, signaling that Canada’s third-largest lender by assets is confident that government programs and a recovering economy will keep consumers and businesses afloat. Scotiabank’s Canadian banking division has held up even as the Covid-19 pandemic lingers on. Profit in the unit rose 6.9% last quarter as lower provisions and non-interest expenses helped results.
• President Joe Biden will seek to repair relations with Canada that have been strained by disputes over trade and an oil pipeline as he meets virtually with Prime Minister Justin Trudeau on Tuesday. The two leaders plan to unveil a road map on how to improve cooperation on a range of topics, from global alliances to the coronavirus, according to a senior U.S. official, who requested anonymity to preview the meeting. As part of that effort, Biden and Trudeau will announce a forthcoming ministerial meeting on climate and the resumption of the Cross-Border Crime Forum, an annual gathering of top law enforcement officials from each country to examine ways to collaborate on counterterrorism and efforts to combat smuggling, and organized crime. There are also plans for additional announcements related to Canada coming this week from the U.S State Department and Department of Transportation according to the official, who didn’t discuss the substance of those plans.

World Headlines

• Europe’s stock benchmark fell the most in more than three weeks as pandemic winners and companies with frothier valuations retreated. The Stoxx 600 index slid as much as 1.5%, while a benchmark tracking technology shares slumped 3.6%. Some travel shares gained on reopening hopes while energy stocks rose amid continued gains for oil. U.K. domestic shares outperformed on accelerated plans to kickstart the British economy. Yet the FTSE 250 index of mid-cap shares gave up most of its earlier gain the day after Prime Minister Boris Johnson pledged to ease lockdown rules in stages over the next four months, including the possibility of international trips restarting as soon as May 17. BlackRock Investment Institute, meanwhile, debuted an overweight call on British equities. More broadly, a rally in European stocks has stumbled in recent days, with the main gauge falling in four of the past six sessions. After equities reached a one-year high, investors are contemplating valuations, particularly those of companies deemed to have been winners during the pandemic. Meal-kit maker HelloFresh SE and Delivery Hero SE, dropped as much as 8.5% and 5.9%, respectively on Tuesday, extending Monday’s declines.
• U.S. equity futures slid with European stocks on Tuesday as the jump in bond yields and commodity prices continued to hammer technology shares. Nasdaq futures slumped 1.6% a day after the tech-heavy gauge posted its longest losing streak in four months. Tesla Inc. dropped 6% in pre-market trading as investors continued to punish stocks that have led the rally from the depths of the pandemic a year ago. Budding inflation bets spurred by the global economic recovery are adding to pressure on equities. Treasuries steadied on Tuesday after the gap between 5- and 30-year yields touched the highest level in more than six years. Copper extended gains, while WTI crude rose toward $63 a barrel.
• Oil rose near $62 a barrel with investment banks and traders predicting the market’s rally can go further. Futures in New York gained 0.8% on Tuesday and are up almost 30% so far this year. The market is heading toward what could be the tightest quarter since at least 2000, according to Morgan Stanley, while Socar Trading SA sees global benchmark Brent hitting $80 a barrel this year as the glut of inventories built up during the Covid-19 pandemic is drained by the summer. The loss of oil output after the big freeze in the U.S. will also help the market firm as much of the world emerges from lockdowns, according to Trafigura Group. Fuel flows from Asia to the U.S. have gained after the cold blast left some of the biggest refineries facing a slow and messy restart.
• Gold eased after two days of gains as investors awaited testimony from Federal Reserve Chair Jerome Powell, and weighed the prospect of a large U.S. stimulus package moving closer to approval. Powell’s semi-annual report at the Senate Banking Committee Tuesday and Wednesday at the House Financial Services panel will be monitored for further policy guidance and his assessment of the recovery. Meanwhile, the House Budget Committee advanced President Joe Biden’s $1.9 trillion pandemic-relief legislation, paving the way for it to pass the lower chamber by the end of this week.
• President Joe Biden’s $1.9 trillion relief plan, plus the prospect of more stimulus later this year, is setting the stage for a shift away from historically low Treasury yields that’s likely to lead to a pickup in volatility in currency markets. U.S. yields have marched higher even before the plan’s arrival — offering an inkling of what may be in store. BlackRock Inc. sees as much as $2.8 trillion in additional fiscal spending this year and the risk of a further rise in long-term rates. BNY Mellon’s John Velis says a 2% 10-year Treasury yield is possible by April as part of a “tantrum without the taper” of Federal Reserve bond purchases. And volatility in currencies is so low that it’s all but certain to go up, says Harley Bassman, creator of a widely watched gauge of Treasury-market movements.
• The U.K.’s finance minister is planning more economic aid after pandemic curbs pushed up unemployment, while Prime Minister Boris Johnson has declared that the end of the pandemic is in sight for England. There is growing evidence on the effectiveness of vaccines, and AstraZeneca Plc’s antibody cocktail showed promising signs against variants in early testing. The U.S. also outlined a faster path for drugmakers developing shots or boosters against new strains. Hong Kong will relax its limit on gatherings, and Thailand may waive quarantines for vaccinated visitors to help revive tourism. A half-million Americans have died from the coronavirus, and President Joe Biden marked the “heartbreaking milestone” in a ceremony at the White House.
• Wells Fargo & Co. is selling its asset management business to two private equity firms. The U.S. bank agreed to sell Wells Fargo Asset Management to GTCR LLC and Reverence Capital Partners for $2.1 billion, according to a statement Tuesday. The unit has $603 billion of assets under management and employs more than 450 investment professionals. Chief Executive Officer Charlie Scharf, who took the reins at Wells Fargo in late 2019, has been looking to sell some units as he streamlines the company. The bank agreed to divest its $10 billion private student loan book to a group including Apollo Global Management Inc. and Blackstone Group Inc., and has been exploring selling its corporate trust and private-label credit cards business, Bloomberg has reported.
• Apollo Global Management Inc. and Global Infrastructure Partners are among suitors that bid for a roughly $10 billion stake in Saudi Aramco’s oil pipelines, people familiar with the matter said. Canada’s Brookfield Asset Management Inc., BlackRock Inc., sovereign wealth fund China Investment Corp. and Beijing-backed Silk Road Fund Co. have also made non-binding offers, the people said, asking not to be identified as the matter is private. Pension funds in Abu Dhabi and Saudi Arabia have separately submitted initial bids, the people said. Aramco is studying the proposals before deciding which companies will be invited to make binding offers, the people said. Bidders may team up later in the process, the people said. Some prominent family-owned groups in Saudi Arabia are also considering partnering with other investors, according to the people.
• Aviva Plc agreed to sell its French business for 3.2 billion euros ($3.9 billion), the largest deal so far in Chief Executive Officer Amanda Blanc’s push to streamline the U.K. insurer. The unit was sold to French mutual insurer Aema Groupe, which was recently created by the merger of Aesio and Macif, according to a statement from Aviva Tuesday. The cash sale is a key deal among about 6 billion euros of divestments that Aviva has been pursuing. “The sale of Aviva France is a very significant milestone in the delivery of our strategy,” Blanc said in the statement. “The transaction will increase Aviva’s financial strength, remove significant volatility and bring real focus to the group.”
• Bitcoin’s losses accelerated, with prices tumbling below $50,000, as investors started to bail on the market’s frothiest assets. The cryptocurrency was down 15% on Tuesday and traded around $46,000. While the selloff only puts Bitcoin prices at the lowest in about two weeks, investors will be wondering whether it marks the start of a bigger retreat from crypto or simply represents volatility in an unpredictable market. Bitcoin has been battered by negative comments this week, with long-time skeptic and now Treasury Secretary Janet Yellen saying at a New York Times conference on Monday that the token is an “extremely inefficient way of conducting transactions.” Microsoft Corp. co-founder Bill Gates also weighed in. In an interview with Bloomberg Television’s Emily Chang, the billionaire said he’s not a fan of Bitcoin and warned against retail investors being swept up in speculative manias.
• Tesla Inc. shares fell in premarket trading, plunging below the level at which the electric-car maker entered the S&P 500 in December. The stock dropped as much as 9% to $650 in New York, after falling a similar amount on Monday. Through Monday’s close, the stock was down 21% from its Jan. 25 record intraday high. Tesla’s early-week decline amid a wider market sell-off also was fueled in part by Chief Executive Officer Elon Musk’s comments over the weekend that the prices of Bitcoin and smaller rival Ether “do seem high.” The concerns over the value of the cryptocurrency helped erase some of Bitcoin’s gains, which had rocketed to new highs after Tesla announced two weeks ago it added $1.5 billion in Bitcoin to its balance sheet.
• The jet engine fan blade that broke loose on a United Airlinesplane Saturday near Denver, triggering a massive failure leading to the grounding of dozens of Boeing Co. 777s, resulted from metal fatigue, according to National Transportation Safety Board Chairman Robert Sumwalt. A preliminary examination of fragments found after the episode that sent metal chunks raining on a suburban neighborhood suggested a crack that grew gradually over time prompted the failure, Sumwalt said Monday night. NTSB investigators have begun reviewing maintenance records, interviewing the crew and examining the two crash-proof recorders recovered from the plane, Sumwalt said. They are also reviewing the potential similarity to other failures.
• Facebook Inc. backed down from its news blackout in Australia after the government agreed to amend world-first legislation forcing the tech giant and Google to pay local publishers for content. The social-media platform switched off news sharing in Australia last week in opposition to the proposed law, and Mark Zuckerberg and government officials have been locked in talks to find a compromise. Among key concessions, the government said Tuesday it would take into account commercial deals Google and Facebook reach with news companies before deciding whether they are subject to the law, and would also give them one month’s notice. The platforms also won more time to strike deals with publishers before they’re forced into final-offer arbitration as a last resort.
• HSBC Holdings Plc will shift billions of dollars of investment from developed markets to Asia’s faster growing economies as it looks to become the go-to bank for the region’s wealthy. Announcing full-year profits that beat analysts’ estimates, Europe’s largest bank said it would spend more than $6 billion over the next five years to expand its Asian operations, in particular its wealth management arm. It will scale back some of its investment bank. Adjusted pretax profit slid 50% to $2.2 billion in the fourth quarter, compared with a $1.8 billion estimate, the bank said. HSBC will resume paying a dividend of $0.15 after British regulators relaxed a ban intended to preserve capital last year after the virus outbreak.
• U.K. holidaymakers reappeared with a roar, showering airlines with summer bookings after Prime Minister Boris Johnson outlined a roadmapfor air travel to return. EasyJet Plc ticket sales more than quadrupled in the hours after Johnson said Monday that international trips may restart as soon as May 17. Tour operator TUI AG said holiday bookings to Spain, Turkey and Greece jumped sixfold overnight, while Ryanair Holdings Plc cited Italy as another popular destination. Airline shares advanced for a second day as evidence mounted of burgeoning customer demand for the crucial summer season. While travel could open as soon as late May or June, travelers are hedging their bets, with the uptick concentrated on July and August. Price-comparison site Skyscanner said that flight bookings on Monday increased by 69% compared with the previous day.
• Macy’s Inc. reinstated guidance after withdrawing it last March as Covid-19 shutdowns hit the retail sector, predicting this will be a “recovery and rebuilding year” for the department store after a difficult 2020. It now sees net sales of between $19.75 billion and $20.75 billion this year, compared to an average estimate of $20.1 billion. “The company’s annual guidance contemplates continued pandemic-related challenges in the spring season with momentum building in the back half of 2021,” the company said in the statement.
• Weeks before the White House said it would keep tariffs in place on more than $350 billion in Chinese goods, Katherine Tai previewed the bad news to a group of U.S. business leaders. Tai, who is President Joe Biden’s pick for U.S. Trade Representative, told executives at a private meeting hosted by the Business Roundtable last month that lobbying for the duties to be removed wouldn’t work, according to people familiar with her remarks. Instead, companies keen to keep the so-called phase one trade deal — struck by the Trump administration and Beijing — should be prepared to live with the tariffs too, Tai said. Her frank assessment offers a glimpse of the methodical approach she’ll take as America’s top trade official, as well as the hard line she’s expected to pursue in U.S.-China negotiations. Biden is banking on Tai’s low profile — she’s not as well-known as some of his other economic advisers – and her pragmatic style to distance him from the chaos that defined the Trump administration’s trade agenda.
• Home Depot Inc. signaled demand is still strong for home-improvement projects a year into Covid-19, but customer trends from the latter part of 2020 indicate that sales growth may be slowing down a bit. Same-store sales in the U.S., a key measure in retail performance, rose 25% in the quarter ended Jan. 31, better than the estimate of 19.1% from Consensus Metrix.

“Be kind to unkind people; they need it the most.“ – Chinese Proverb

*All sources from Bloomberg unless otherwise specified