February 8, 2022

Daily Market Commentary

Canadian Headlines

  • Canadian equities fell slightly, ending a mixed trading session lower as companies in the technology and industrials sectors dropped. The S&P/TSX Composite fell 0.2% at 21,235.50 in Toronto. The move follows the previous session’s increase of 0.8%. Shopify Inc. contributed the most to the index decline, decreasing 2%. Ballard Power Systems Inc. had the largest drop, falling 5.1%.
  • Prime Minister Justin Trudeau took a hard line against trucker protests that have paralyzed Canada’s capital city and have now halted commercial traffic to the U.S. at the busiest border crossing between the two countries. The Ambassador Bridge that connects Windsor, Ontario, with Detroit was shut down in both directions late Monday, according to a Canadian government website and the Michigan transportation department. It’s the most important land crossing for goods between Canada and its largest trading partner and a crucial artery for auto parts suppliers and manufacturers. About 1.4 million trucks entered the U.S. through Detroit last year, almost all of them via the bridge, according to data from the U.S. Department of Transportation and an association of bridge and tunnel operators. Protesters on tractors and trucks blocked access to another major U.S.-Canada bridge about 65 miles northeast of Detroit on Sunday.
  • Canadian quantum computer maker D-Wave Systems Inc. is merging with a blank-check firm created by former Uber Technologies Inc. executive Emil Michael in a transaction giving the combined company an implied market value of as much as $1.6 billion, according to people close to the deal. The transaction includes $300 million from DPCM Capital Inc., a special purpose acquisition company, or SPAC, the people said, asking not to be identified because the information was private. The deal also provides additional funding of $40 million from a private investment in public equity, or PIPE, from investors including Goldman Sachs Group Inc. and Canada’s PSP Investments, the people said.

World Headlines

  • European stocks erased earlier gains as rising bond yields weighed on technology shares amid increasingly hawkish central banks. The Stoxx Europe 600 Index was little changed by 11:56 a.m. in London, erasing earlier advance of as much as 0.8%. Technology sector, which is sensitive to rising bond yields, led the decliners, along with real estate and consumer products, while miners and banks outperformed. European equities have been hit by five weeks of losses, with market participants positioning for the reduction of monetary stimulus as central banks in the U.S. and Europe expect to raise interest rates as they tackle inflationary pressures. European Central Bank President Christine Lagarde said any adjustment to monetary policy will be “gradual.”
  • U.S. futures edged lower and Treasury yields rose as investors weighed prospects for economic growth and corporate earnings amid expectations of monetary tightening. Futures on the S&P 500 and the Nasdaq 100 fluctuated before turning lower after Wall Street stocks on Monday ended a choppy session in the red, hurt by the technology sector. Pfizer Inc. declined in premarket trading after its 2022 revenue forecast missed estimates. Nvidia Corp. dropped after abandoning a proposed acquisition of chip designer Softbank Group Inc. The 10-year Treasury yield climbed close to 1.95%, a level last seen in December 2019, with some investors betting it’s heading for 3% this year as the Federal Reserve battles red-hot inflation. The dollar edged higher against a basket of peers.
  • Asian equities fluctuated, as a broad selloff in Chinese stocks countered gains in financials along with rising bond yields. The MSCI Asia Pacific Index rose as much as 0.6% before erasing that gain and dipping 0.1%. Indexes dropped in China and Hong Kong while Australia and Singapore shares rose. Wuxi Biologics was the biggest drag on Hong Kong’s benchmark gauge, plunging by a record before trading was halted as the U.S. added the firm and other entities to its “unverified” list. The latest tensions between Beijing and Washington further cloud the outlook for China stocks after the CSI 300 Index entered a bear market just before the Lunar New Year holidays.
  • Oil fell sharply as traders weighed the risks to the market’s recent rally, including a potential de-escalation in tension over Ukraine and the resumption of Iran nuclear talks. Futures in New York declined as much as 2.5%. French President Emmanuel Macron said that he got assurances from his Russian counterpart Vladimir Putin that there would be no “escalation.” He didn’t elaborate, and the Kremlin didn’t confirm Macron’s assessment. The crisis over Ukraine has contributed to surging prices of oil, natural gas and metals in recent weeks after Western nations warned of a possible invasion. Russia has repeatedly denied any such plans.
  • Gold held its biggest daily gain in more than two weeks, as tensions between Russia and the West over Ukraine heighten geopolitical risk and bolster demand for the haven asset. The precious metal has risen above $1,800 an ounce this month, as investors track potential risks for global markets should tensions escalate further in Eastern Europe. Gold is traditionally a safe harbor for investors in times of major economic or political disruptions. On Monday, talks between French President Emmanuel Macron and his Russian counterpart Vladimir Putin ended with no major breakthrough, according to the Kremlin, while U.S. President Joe Biden said the Nord Stream 2 gas pipeline won’t move forward if Russia invades Ukraine. Moscow has denied having any such plans, even as Russian troops amass at the neighbor’s border.
  • European electricity prices jumped after the region’s biggest producer cut its nuclear output target for a second time in a month, the latest sign that this winter’s energy crisis is far from over. Electricite de France SA said its nuclear production could fall this year to levels not seen since 1990, and Morgan Stanley says there’s a “meaningful likelihood” of a production cut for 2023. The shortfall has forced France to import electricity at times, tightening supplies in neighboring countries used to relying on the French nuclear giant to keep the lights on. EDF’s reactors are the backbone of an increasingly integrated European power system, but the fleet is getting more unreliable because of long periods of planned and unplanned maintenance. A slew of recent outages has worsened the energy crisis in Europe just as Russia is flowing less natural gas to the continent and tensions over Ukraine are running high.
  • JPMorgan Chase & Co. strategists have identified what they say is a near bulletproof indicator to strengthen their argument that stock markets are poised to rally. The buy signal is triggered when the Cboe Volatility Index (VIX) rises by more than 50% of its 1-month moving average, which it last did Jan. 25, according to the strategists led by Mislav Matejka. The indicator has proven 100% accurate outside of recessions over the last three decades. “We believe that equities still offer upside, and that the cycle is far from over,” the London-based strategists wrote in a Feb. 7 note. In addition to the VIX signal they look for more gains in earnings, a bottoming in Chinese activity and say investor sentiment has become too negative of late.
  • Pfizer Inc. forecast 2022 sales and profit that fell short of Wall Street estimates as its expectations for its Covid-19 vaccine and recently cleared oral therapy disappointed investors. The New York-based drugmaker sees adjusted 2022 earnings of $6.35 to $6.55 a share, according a statement Tuesday, while analysts had estimated $6.65. Revenue will top out at $102 billion, Pfizer said, compared with the average analyst estimate of $106 billion. Through late January, Pfizer said it has clinched $32 billion in 2022 contracts for the vaccine, Comirnaty, and $22 billion for its Covid pill, Paxlovid. Analysts had estimated $34 billion in Comirnaty revenue and $25 billion in sales for Paxlovid.
  • Credit Suisse Group AG is cutting its 2021 bonus pool by about 10% after Swiss regulators pushed back on higher pay following the bank’s worst year since the financial crisis, people with knowledge of the matter said. The Swiss lender was forced to reverse plans to boost variable compensation after financial markets watchdog Finma asked the bank to consider significant reductions to the pool, the people said, asking not to be identified discussing internal matters. The final overall bonus number may still vary slightly and individual pay will depend on the business unit, they said. Credit Suisse was able to avoid deeper cuts after it changed its bonus structure, including the ability to claw back cash if employees leave within three years, they said. Those payments can be booked as loans and were a more palatable solution for the regulator, the people said.
  • Hong Kong will limit gatherings on private premises for the first time, as it fights an unprecedented virus outbreak. Authorities are turning to increasingly strict measures, using a Covid Zero strategy that’s been abandoned in much of the rest of the world. Hong Kong residents are also facing a shortage of fresh food and rising prices as controls in mainland China leave truck drivers unable to enter the city. In contrast, Europeans’ increasing confidence that the omicron wave is fading sent summer bookings at package holiday giant TUI AG surging. Sweden joined the list of nations discontinuing most covid-related curbs, with Austria also announcing further easing.
  • Peloton Interactive Inc. Chief Executive Officer John Foley will step down and become executive chair in a victory for activist investor Blackwells Capital LLC, which had campaigned for his departure. Barry McCarthy, former chief financial officer at Spotify Technology SA, will become CEO and president, Peloton said in a statement Tuesday. The Wall Street Journal reported the departure earlier. Peloton also said about 2,800 global jobs would be cut, affecting around 20% of corporate positions. Peloton’s shares have tumbled more than 80% from their all-time high a year ago, as the gradual easing of Covid-era restrictions fueled concern that growth of the stay-home fitness company will slow. Although the stock increased 31% on Monday after reports that it’s exploring takeover options, the stock was volatile in premarket trading, and was down 11% to $26.47 at 7:09 a.m. New York time.
  • Abu Dhabi Ports rose as much as 17% on its trading debut after a 4 billion dirham ($1.1 billion) share sale, underscoring the strong demand for new listings in the Middle East even as deals from the U.S. to Europe struggle. The port operator climbed to 3.75 dirhams on Tuesday, up from the offer price of 3.20, before paring gains to 3.61 by 1:10 p.m. in Abu Dhabi. The company, controlled by Abu Dhabi sovereign wealth fund ADQ, sold 1.25 billion shares. The Middle East enjoyed a boom in initial public offerings last year, as rising oil prices and an easing of coronavirus restrictions fueled investor hunger for equities. Bankers are expecting that to continue in 2022, even as spiking volatility causes companies in other markets to postpone deals.
  • BP Plc boosted share buybacks after higher oil and gas prices delivered a big rise in fourth-quarter profit.  The London-based company followed its Big Oil peers Exxon Mobil Corp., Chevron Corp. and Shell Plc, all of which are pouring money back to investors after years of paltry returns. BP will repurchase another $1.5 billion of shares using surplus 2021 cash flow before it announces first-quarter results later this year. The results show how far BP has come since the start of the pandemic, having paid off more than $8 billion of net debt over the past year and also increased its dividend. The company also pledged to moderately increase investments, albeit from a historically low level. By 2025, BP plans to devote more than 40% of its capital expenditure to energy-transition businesses.
  • Harley-Davidson Inc. reported a surprise profit in the fourth quarter as strong demand in its home market and higher motorcycle prices padded earnings and shipping delays eased. The shares rose in early trading. The motorcycle manufacturer posted an adjusted profit of 15 cents a share, a significant improvement from the 44-cent loss a year earlier, the Milwaukee-based company said in a statement Tuesday. Analysts had expected a loss of 32 cents, the average of estimates compiled by Bloomberg. Revenue from motorcycles and related products rose to $816 million. Two years into his tenure as chief executive officer, Jochen Zeitz has slashed costs, exited unprofitable markets and tightened inventory to raise motorcycle prices. His turnaround plan, dubbed “Hardwire,” paid off in the quarter as shipments of motorcycles replenished U.S. inventory that had been drained by shipping delays and parts shortages.
  • Cathie Wood stepped up selling of social media platform Twitter Inc. shares days before its earnings. Wood’s firm ARK Investment Management LLC sold nearly 4 million Twitter shares on Monday, the most in one day since at least May, according to trading data from ARK compiled by Bloomberg. The social-media company is set to announce its earnings on Thursday. Wood’s flagship ARK Innovation ETF dumped 3.66 million shares of Twitter on Monday, while the ARK Next Generation Internet ETF sold more than 280,000 shares, according to the asset manager’s daily trading updates. That amounted to about $142 million based on Monday’s closing level.
  • President Joe Biden and Tritium DCFC Ltd. Chief Executive Officer Jane Hunter will announce Tuesday that the Australian electric vehicle charging company is planning to build its first U.S. manufacturing facility in Tennessee. The facility in Lebanon, east of Nashville, is expected to produce as many as 30,000 electric vehicle chargers annually and create 500 jobs, the White House said. Hunter said her company decided to invest more heavily in its American operations after seeing demand surge following the passage of the Biden administration’s infrastructure law last year. That eventually accelerated both plans to open a North American plant as well as expectations for how many chargers could be produced annually.
  • KKR & Co.’s distributable earnings surged 158% in the fourth quarter, beating Wall Street estimates, as the private equity giant took advantage of swelling asset prices to cash out of investments. Asset exits totaled $919 million in the three months ended Dec. 31 and a record $2.1 billion for the full year, the New York-based company said Tuesday in a statement. The cut of profits awarded to KKR dealmakers surged 78% to $1.2 billion in 2021.  It was a banner year for KKR and its publicly traded peers, with private equity exits in the U.S. reaching $850 billion, according to Pitchbook data. Carlyle Group Inc.’s dealmakers quadrupled their share of the profits, while those at Blackstone Inc. reaped twice as much as they did in 2020.
  • Blackstone Inc. is in talks about a potential merger of its European building materials retailer with a similar business owned by CVC Capital Partners, people with knowledge of the matter said. New York-based Blackstone is discussing a possible combination of the business, known as Building Materials Europe BV, with CVC’s Stark Group A/S, the people said. It has also been studying other potential partners alongside concurrent preparations for a listing of BME, they said, asking not to be identified because the information is private. Exploratory talks on a potential merger have taken on increased importance, as the recent market turmoil makes it more difficult for BME to pursue an initial public offering, according to the people. Blackstone is seeking to value the business at about 6 billion euros ($6.9 billion) in any deal, the people said.
  • U.S. President Joe Biden said the controversial Nord Stream 2 natural gas pipeline between Russia and Germany would be stopped if President Vladimir Putin orders an invasion of Ukraine. “We will bring an end to it,” Biden said at a joint news conference at the White House on Monday with German Chancellor Olaf Scholz in a short answer to a question about whether he had received assurances from Scholz. “The notion that Nord Stream 2 is going to go forward with an invasion by the Russians — that’s not going to happen.”
  • What do Unilever Plc, Alphabet Inc.’s Google and Amazon.com Inc. have in common? Their net-zero promises do not add up to net zero, a new report says. It’s not just these three companies, either. The report, published by the New Climate Institute and Carbon Market Watch, finds that 25 of the world’s most valuable companies, which together accrued $3.2 trillion in revenues in 2020 and accounted for 5% of global greenhouse-gas emissions in 2019, have climate plans that are weaker than how they’ve been marketed so far. The report says that nearly half of the 25 businesses, including Nestle SA andJBS SA, don’t have specific commitments to reduce emissions by their target net-zero year. The remaining 13 plan to cut emissions across the value chain by 40% on average, rather than fully axe them as their pledges suggest. A.P. Moller-Maersk A/S, Vodafone Group Plc and Deutsche Telekom AG are the only ones on track to near-complete decarbonization, the authors find.
  • Merck & Co. said that it had provided about 3.1 million courses of its Covid-19 pill to the U.S. government, fulfilling the terms of a federal pact that the drugmaker and partner Ridgeback Biotherapeutics LP agreed to last year. The companies said in a statement on Tuesday that they have completed manufacturing of 10 million courses of the therapy and are on track to make at least 20 million courses this year. The surge in coronavirus infections in the U.S. spurred by the omicron variant has caused demand for treatments to soar. However, some monoclonal antibodies are ineffective against the new strain. While Merck’s pill and another oral Covid treatment called Paxlovid made by Pfizer Inc. work against omicron, supplies of the recently authorized therapies have been tight in some places.
  • Barclays Plc is building a platform to give clients the chance to profit indirectly from hedge funds, catering to growing demand for alternative investments. The bank’s prime brokerage team is working on the project that will provide derivatives and swaps on hedge fund strategies, according to people with knowledge of the matter. The initiative, which is at an early stage, will provide access to more than a dozen hedge funds initially, said the people, who asked not to be identified because the details are private.  Such arrangements are an indirect way of accessing the returns generated by hedge funds, which may require large commitments and close monitoring to invest directly. Clients typically buy swaps or notes from the bank and juice their gains by adding some leverage

“All our dreams can come true – if we have the courage to pursue them.” – Walt Disney

*All sources from Bloomberg unless otherwise specified