February 4, 2021

Daily Market Commentary

NEWS

Canadian Headlines

1. Canadian equity markets extended their gains into third day, helped by outperformance in pot stocks. The S&P/TSX Composite index rose 0.2% in Toronto, bringing its climb in the last three days to 3.3%. Marijuana stocks in the health care sector led the gains after GW Pharmaceuticals agreed to be acquired by Jazz Pharmaceuticals for $7.2 billion in cash and stock. Aphria, Canopy Growth and Cronos were among the best performers on the TSX. Meanwhile, Bank of Canada Deputy Governor Lawrence Schembri said the central bank’s research suggests any adjustments to the inflation targeting mandate should be incremental. “Maybe there’s an opportunity to overshoot the target a little bit or tolerate an overshoot if we want to be aggressive in reducing the risk of being at the effective lower bound,” Schembri said. “We might be willing to tolerate a small overshoot or, like the Fed has done, actually aim for an overshoot. And that’s a question we are pondering right now.”
2. Job losses in Canada probably slowed last month in another sign the nation’s economy is handling the current wave of lockdowns better than it did last year. Statistics Canada is expected to report a 42,900 employment decline on Friday, according to the median forecast in a Bloomberg survey, less severe than the 52,700 jobs lost in December. While the recovery has clearly stalled due to new restrictions, job losses this time around have been nowhere near levels seen last March and April, when employment fell by 3 million. That’s despite what has been a second wave of serious crack downs.

World Headlines

1. European shares extended this week’s rise on a busy earnings day, and as U.K. officials said the country has passed the peak of its latest coronavirus wave. The Stoxx 600 Index was up 0.3% at 9:05 a.m. in London, with travel and leisure and energy stocks leading gains. Bayer AG was up 5%, one of the best-performing stocks on the benchmark, after it announced a plan to resolve future lawsuits. In the U.K., as the country reached the point of vaccinating 15% of its population, attention may turn later today to the Bank of England and its latest policy decision for clues on the economic outlook. More broadly as the European market rises for a fourth day this week, investors are looking to corporate profits for signs of the strength of the economic recovery and roadblocks ahead.
2. Stocks ticked higher with U.S. equity futures and bonds halted their recent slide as corporate earnings rolled in. The dollar rose. S&P 500 futures were steady after the gauge closed little changed on Wednesday. Traders are renewing reflation bets amid signs the economic recovery is gathering pace and the imminent passage of $1.9 trillion of pandemic aid by U.S. lawmakers. Friday’s payroll report may provide fresh impetus after the private sector added more jobs than forecast in January.
3. Asian stocks fell, posting their first decline this week, weighed down by drops in technology companies. Samsung Electronics was the biggest contributor to the MSCI Asia Pacific Index’s drop, falling after Qualcomm warned it was struggling to meet rebounding demand for chips. TSMC, SK Hynix and Xiaomi were also among the biggest drags. South Korea led declines among national benchmark gauges. Japanese stocks dropped, with losses in personal-care products maker Kao contributing most after it gave guidance that trailed analyst estimates. Sony shares surged to their highest level since 2000 on positive earnings.
4. Oil prices continued their surge in the world’s major trading centers, fortified by shrinking stockpiles and continued investor optimism the market will strengthen in the coming months. Brent crude, which was about $35 a barrel as recently as three months ago, surged to $59.04 on Thursday. Multiple trading gauges suggest a market that’s getting tighter, a move with global ramifications including boosting oil-rich economies and lifting gasoline prices at the pump. Crude inventories at a key storage hub in the U.S. are now below their five-year average, and nationwide inventories continue to slump, an early indication that Saudi Arabia and allied producers are succeeding in their efforts to eliminate a glut. They’re also dropping in China, where oil major Royal Dutch Shell Plc says its sales in January were up significantly on a year earlier, meaning that the world’s two most-important demand centers are experiencing a notable tightening.
5. Silver declined as it settled into a calmer trading pattern after the wild ride fueled partly by a retail-investor buying frenzy. Gold headed for the lowest close in two months, facing pressure from the rising dollar and high Treasury yields. The excitement over silver is abating for now. Last week, posts on Reddit’s WallStreetBets forum initially called for a “short squeeze” of the metal, and that snowballed into a buying frenzy through exchange-traded funds and physical markets. But sentiment shifted after CME Group raised margins, causing prices to swiftly decline, and the volatility is being scrutinized by U.S. regulators.
6. The Bank of England told banks to start preparing for negative interest rates, while saying that message shouldn’t be taken as a signal that the policy is imminent. The BOE also said it will start its own work on a tiered rate system that could be used if it cuts below zero. Officials have been reviewing the case for negative rates for almost a year as they examine their options to help to pull the U.K. out of its worst slump in three centuries. Consultations with banks found that implementing negative rates within six months would pose increased operational risks.
7. Saudi Arabia kept oil pricing unchanged for its main market of Asia, defying expectations of a cut after a key OPEC+ committee expressed confidence that crude supply and demand are re-balancing. State oil producer Saudi Aramco left its Asia pricing for March at the highest levels since at least September. It raised prices for all crude grades for buyers in the U.S. and Europe, according to a statement. An OPEC+ committee said Wednesday that global oil inventories will drop this year to their five-year average. Commercial inventories, a gauge of whether markets are oversupplied, include barrels held in storage in developed economies that provide regular data.
8. The University of Oxford is set to begin a trial combining Covid-19 vaccines from AstraZeneca Plc and Pfizer Inc. that could provide greater flexibility in the use of scarce supplies. Confirmed cases in the Netherlands reached 1 million, according to data collected by Johns Hopkins University. Sweden plans to roll out a “digital vaccination certificate” and has asked three government agencies to develop the infrastructure. President Joe Biden said he was open to tightening the eligibility for his proposed $1,400 stimulus checks, but any move to cut the payments’ base amount would mean starting his presidency with a broken promise.
9. Online used-car dealer Auto1 Group SE surged as much as 49% in its Frankfurt trading debut after its initial public offering raised 1.8 billion euros ($2.2 billion), the first in what is shaping up to be a busy year for German listings. The stock’s jump at the open is the biggest in Europe among $1 billion-plus listings since Polish retailer Allegro.eu SA started trading 51% above its IPO price in October, according to data compiled by Bloomberg. Shares in Auto1, which is backed by SoftBank Group Corp., climbed 39% to 52.75 euros at 9:47 a.m., compared with the IPO price of 38 euros. This is the largest offering in Germany since TeamViewer AG’s in September 2019.
10. Daimler AG’s Ola Kallenius is making a dramatic move to win over investors who have knocked the manufacturer for keeping its luxury-car and commercial-vehicle operations under one roof. The Mercedes-Benz maker plans to distribute a majority of its Daimler Truck unit to shareholders by year-end, expecting it will quickly qualify for Germany’s benchmark stock index. Its most iconic brand also will become the name of the auto company, a move that underscores the chief executive officer’s desire for a clear separation of the two businesses. For Kallenius, it’s a split in more ways than one. The decision to fundamentally change the company’s structure marks a major break from his predecessor, Dieter Zetsche, who was pressured in the wake of Daimler’s divorce from Chrysler to make deeper changes. Zetsche rejected the car-truck separation idea, arguing that a broader industrial presence would offer more protection against swings in individual market segments.
11. Nokia shares fluctuate after results, trimming early gains to fall as much as 2.7%, with analysts saying that the telecom equipment maker’s fourth-quarter earnings were helped by one-time items, while some noted that the company’s guidance for 2021 fell shy of expectations. Nokia shares have seen volatile trading recently as the stock was touted in a Reddit trader forum, surging last week before quickly falling back. Citi said that the recent influence on Nokia shares from retail traders could lead to some volatility following the company’s call later Thursday.
12. Merck & Co. said Kenneth Frazier plans to retire as chief executive officer after almost a decade leading the drugmaker. Frazier, who will continue as executive chairman, will step down as CEO effective June 30, the company said in a statement. Frazier will be succeeded by Robert M. Davis, Merck’s current executive vice president, global services and chief financial officer. Davis was unanimously selected by Merck’s board for the post. He will also be Merck’s new president, effective April 1. Also Thursday, the drugmaker issued a stronger-than-expected outlook for the coming year, though its fourth-quarter revenue and earnings missed Wall Street expectations. Its shares were up 0.2% in premarket trading.
13. Treasury Secretary Janet Yellen’s plan to oversee a snap meeting of top regulators to discuss recent market volatility signaled the new administration’s focus on consumer financial protection after years of emphasis on deregulation. The gathering on Thursday puts the newly installed Treasury chief in the spotlight after populist politicians from both sides of the aisle called for investigation of recent events. While the Securities and Exchange Commission is investigating for signs of fraud behind sudden surges in stocks including GameStop Corp., others have drawn attention to trading curbs that some platforms imposed for smaller, retail investors. The session will give the administration the chance to demonstrate that it’s attuned to the complaints about potential manipulation after two congressional committees moved to hold hearings, yet it’s unclear what action — if any — will result from the gathering. The Treasury hasn’t released an agenda for the meeting.
14. President Joe Biden’s nominee for Commerce secretary Gina Raimondo said she knows of “no reason” why Huawei Technologies Co., ZTE Corp. and other Chinese companies shouldn’t remain on a restricted trade list. Raimondo, in written questions from Senate Republicans, was asked about the two companies, as well as Semiconductor Manufacturing International Corp. and the Hangzhou Hikvision Digital Technology Co. and others. They are on a list that requires U.S. firms to obtain government licenses if they want to sell American tech and intellectual property to the companies. Raimondo when asked about the issue during her Jan. 26 Senate confirmation hearing didn’t specifically commit to keeping Huawei on the list. That prompted several House Republicans to ask their Senate counterparts to delay her confirmation. The Senate Commerce, Science and Transportation Committee voted 21-3 on Wednesday to advance her nomination.
15. Every time Italy is about to go off the rails, there’s always been the same solution: call in the technocrat. Former European Central Bank President Mario Draghi is the latest in a long list of fixers. That’s when you know things are really bad, either because the finances are in such disarray that bond markets are panicking or because the usual bickering among parties has turned into complete political gridlock. It’s a peculiar way for a western democracy to function, especially since the outsider brought in to solve the most intractable of problems is not elected by the people. “After a lot of troubles Italy is in very good hands and not in populist hands,” former Prime Minister Matteo Renzi, who prompted ex-Premier Giuseppe Conte’s resignation by withdrawing his small Italy Alive party from the ruling coalition, said in an interview Thursday. “Mario Draghi is the best man, he saved the euro and will save Italy.”
16. The energy transition is taking its toll on one of Spain’s largest utilities. Naturgy Energy Group SA, the leading operator of large scale gas generation in Spain, announced Thursday, a 1.02 billion-euro ($1.2 billion) writedown of its Spanish conventional power generation assets. The second major impairment in less than three years, as the market for fossil fuels suffers. Spain’s government wants to add about 60 gigawatts of green power over the next decade. The plan is to boost renewables in the generation mix to 70% by 2030, and to 100% before 2050, from about 50% now. The clean power push is reducing the role gas plants have to play in meeting demand.
17. Royal Dutch Shell Plc deepened the disappointment of Big Oil’s fourth quarter, reporting net income that fell short of expectations and weak cash flow. The company added to the evidence from its peers that much of the industry is still living beyond its means, even after deep cuts to dividends and spending. Oil prices have recovered from last year’s lows — rising to a one-year high this week — but Covid-19 lockdowns in countries around the world are still depressing fuel sales and refining margins. The weakness of Shell’s cash flow meant net debt rose from the prior quarter, but the company reiterated its commitment to growing the dividend again, saying its dollar payout for the first quarter will increase by about 4%.
18. Turkey’s sovereign wealth fund plans to invest $15 billion in industries including energy, petrochemicals and gold mining as part of a program designed to reduce the economy’s vulnerabilities. The investor is focusing on those areas where Turkey constantly runs a deficit in foreign trade, according to Chief Executive Officer Zafer Sonmez. The fund, known as TWF, is now beginning with the projects that will span over the next five years, he said.
19. Robinhood Markets’s options-trading platform, barely three years old, is charting a meteoric rise in the Covid-19 pandemic, establishing the firm as the venue of choice for throngs of retail investing enthusiasts. New disclosures show the app’s monthly volume of options executed tripled last year, making the firm the second-most active among peers behind Charles Schwab Corp., a 50-year-old stalwart that just bought TD Ameritrade. Offering options is so lucrative that they accounted for two-thirds of Robinhood’s reported revenue from order flow, a significant source of income. A single contract can generate more money than handling 100 shares.
20. House Democrats are heading into a showdown with Republicans Thursday over GOP Representative Marjorie Taylor Greene’s past promotion of conspiracies that threatens to provoke an escalating cycle of political retaliation. The conflict over Greene is one of two that had been festering for House Republicans and reflect tension in the party over its future direction and former President Donald Trump’s continued influence even after he was voted out of office. GOP lawmakers Wednesday night decided to stand with both Trump loyalists and the old-line establishment. They rejected pressure from Democrats to take steps on their own to punish Greene, who has aligned herself closely with the former president, and voted to keep Representative Liz Cheney of Wyoming as one of their leaders despite scathing criticism over her vote to impeach Trump after a mob of his supporters stormed the Capitol on Jan. 6.
21. The U.S. is on pace to vaccinate 75% of its population against Covid-19 this year, while Canada would need almost a decade to reach that coverage level, according to Bloomberg’s Covid-19 Vaccine Tracker. The starkly different trajectories show how unevenly countries around the world have kicked off the largest mass vaccination drive in history. The U.K. and Israel are also on a path to administer a two-dose vaccine regimen to three-quarters of people this year — reaching a rough estimate for when herd immunity might kick in — while much of Europe would need a few years for that. Though overall the U.S. is faring relatively well compared with other countries, the picture varies by individual states. Hawaii is headed for the key coverage level this year, with New York currently looking at summer 2022.
22. Imagine ripping out the dashboard of your 20-year-old minivan and replacing it with the high-tech controls from a Tesla. That’s pretty much what United Parcel Service Inc. is doing to squeeze two more decades of life from dozens of aging Airbus SE freighters by revamping their cockpit computers. It’s all part of new Chief Executive Officer Carol Tome’s strategy to “sweat the assets” by increasing efficiency while reducing investment. The 52 Airbus A300-600 jets were purchased beginning in 2000 and the flight computer has such limited memory that it can’t store full navigational maps, forcing UPS to divide the U.S. into five regions to hold the information. Each update takes 45 minutes and has to be done each time a plan needs to fly to a different area.
23. Clorox Co. reported better-than-expected results and boosted its full-year sales guidance in its new chief executive officer’s first full quarter at the helm. Organic sales, which exclude the impact of items like acquisitions and currency swings, grew by 26% in the second quarter, the company said Thursday. Clorox’s total revenue of $1.84 billion surpassed analysts estimates of $1.75 billion. As a result, it boosted its outlook: It now expects sales to accelerate by 10% to 13% in 2021, up from the previous outlook of 5% to 9%.
24. Consumer DNA-testing company 23andMe Inc. has entered into a deal to merge with VG Acquisition Corp., a special purpose acquisition company founded by billionaire Richard Branson. The deal values the Silicon Valley company at $3.5 billion, with Chief Executive Officer Anne Wojcicki and Branson each investing $25 million into a $250 million private investment in public equity (PIPE) offering. Other investors include Fidelity Management & Research Company LLC, Altimeter Capital, Casdin Capital and Foresite Capital. Current shareholders of 23andMe will own 81% of the combined company. Co-founded in 2006 by Wojcicki, 23andMe sells direct-to-consumer genetic testing kits. The company launched with the aim of using genetics to kick start a personalized health-care revolution, with a $1,000 test that could alert customers to potential health risks.

“Even the worst moments and the weariest journeys must come to an end.” – Baroness Orczy

*All sources from Bloomberg unless otherwise specified