January 13th, 2021

Daily Market Commentary

Canadian Headlines

1. Canadian equities rose Tuesday after falling Monday. The S&P/TSX Composite Index gained 0.3%, with energy, financials and materials rising. Consumer staples fell. Oil rose to a fresh 10-month high with a weaker dollar providing support to a market already boosted by expectations for tightening global supply. Justin Trudeau’s decision to shuffle his cabinet is the strongest sign yet that he could soon send Canadians to the polls. Separately, Trudeau said his government has ordered another 20 million doses of the Pfizer Inc.-BioNTech SE coronavirus vaccine.
2. Alimentation Couche-Tard Inc., the Canadian owner of Circle K convenience stores, is exploring a takeover of French grocer Carrefour SA in a roughly $20 billion deal that would create a trans-Atlantic retail giant. Couche-Tard’s initial proposal values the French company at about 20 euros per share, people with knowledge of the matter said. That would represent a roughly 29% premium to its Tuesday closing price. Shares of Carrefour rose 14% in Paris on Wednesday, trading shy of 18 euros. Couche-Tard slipped 2.2% after a Bloomberg report on the talks, valuing the company at almost C$46 billion ($36 billion). Couche-Tard confirmed Tuesday that it has started “exploratory discussions” on a friendly deal with Carrefour. There’s no certainty the talks will lead to a transaction, the Quebec-based company said. Both parties see room for negotiation on the final price, according to people familiar with the situation.

World Headlines

1. European stocks swung between modest gains and losses Wednesday as investors prepared for the earnings season and assessed virus news along with the market’s recent rally. The Stoxx Europe 600 Index was little changed as of 11:34 a.m. in London, after rising as much as 0.3% and sliding 0.2%. Banks, autos and travel and leisure were the worst-performing sectors, while telecom and real estate gained. Among individual stocks, Telefonica SA jumped as much as 11% after it sold its towers division, while Carrefour SA soared 16% following an approach from Alimentation Couche-Tard Inc. In Europe, as investors await a vaccine-led recovery, more restrictions could be imposed, with Germany’s Chancellor Angela Merkel warning that the country may need to extend its lockdown until Easter because of the risks posed by the fast-spreading U.K. strain. However, The European Central Bank will maintain favorable monetary conditions for as long as needed, governing council member Francois Villeroy de Galhau said today.
2. Future contracts on major U.S equity indexes edged lower on Wednesday as investors assessed valuations after equities hit a record high last week. Dollar steadied. Traders are weighing stimulus prospects, while awaiting big bank earnings later in the week. Federal Reserve officials Bank of St. Louis President James Bullard and Boston Fed chief James Bullard pushed back on the possibility of tapering bond purchases anytime soon, easing concern among nervous investors that the Fed might be headed for a repeat of the so-called taper tantrum in 2013.
3. Asia’s benchmark stock index headed for another record close amid a broad risk-on rally in global markets on hopes of an economic recovery. Technology stocks contributed the most to the MSCI Asia Pacific Index’s gain as Lenovo Group surged 9.7% in Hong Kong. That’s after its board approved a preliminary proposal to list shares on the Shanghai Stock Exchange through the issuance of Chinese depositary receipts. Taiwan’s equity benchmark climbed 1.7% to lead the advance in Asia. Malaysian stocks were among the other top performers as investors snapped up local shares following a two-day slide of 1.3% in the benchmark on new emergency and lockdown measures.
4. Oil crept higher, with a demand increase from cold weather the latest addition to a rally that has pushed crude to a 10-month high. Demand could get a boost of at least 1 million barrels a day, Goldman Sachs Group Inc. said, as frigid temperatures in Asia and Europe send other energy markets booming. In Japan, power generators have been buying several cargoes of low-sulfur fuel oil for the purpose of direct burning, according to traders. The market outlook has already been tightening. Saudi Arabia trimmed February supplies to at least 11 refiners in Asia and Europe after announcing surprise production curbs last week. U.S. inventories are also expected to decline in government data later, after the American Petroleum Institute reported crude stocks dropped by 5.82 million barrels last week.
5. Gold fluctuated as the dollar edged higher and traders weighed signs that Federal Reserve officials are beginning to split over when they may need to curb monetary stimulus. The metal has had choppy start to 2021, following its best year in a decade, after Democrats took control of the Senate, raising expectations for fiscal stimulus and boosting Treasury yields. Several Fed policy makers recently raised the prospect they may discuss reducing bond buying by year-end, though others have called the debate premature. While the dollar’s recovery from a mulityear low in the past week has pressured bullion, higher inflation expectations are providing some support. President-elect Joe Biden is seeking a deal with Republicans on another round of Covid-19 relief.
6. Copper pared early gains in London as the dollar strengthened and investors across financial markets mulled the prospects for additional stimulus in the world’s top economies. The dollar has rallied over the past week, putting pressure on commodities priced in the currency, as investors weigh a potential tightening in U.S. fiscal policy. With some Federal Reserve officials raising the prospect of cutting bond purchases, investors are now awaiting input from Chairman Jerome Powell, who’s due to make his first policy comments of the year on Thursday.
7. Germany agreed on stricter rules for travelers arriving from high-risk nations, while Austria may extend its third lockdown on concern a more infectious Covid-19 strain is spreading in the country. Japan expanded its state of emergency beyond the Tokyo region, encompassing an area that accounts for more than half of its economy. The worsening outbreak is casting doubt on the fate of the postponed Olympics, which are set to be held in the nation’s capital in less than 200 days. U.S. President-elect Joe Biden will seek a deal with Republicans on another round of virus relief, rather than attempt to ram a package through without their support. U.S. deaths from the virus climbed by a record 4,610 on Tuesday.
8. Telefonica SA’s sale of telecommunication masts to American Tower Corp. opens a new front in the race to control Europe’s fast-growing tower industry. American Tower is paying 7.7 billion euros ($9.4 billion) cash for about 30,700 tower sites in Spain, Germany, Brazil, Peru, Chile and Argentina held by Telefonica unit Telxius Telecom. This marks the biggest threat yet to Cellnex Telecom SA, Europe’s biggest independent tower operator. Cellnex has snapped up assets across the region without much interference from U.S. rivals, including CK Hutchison Holdings Ltd.’s European masts for around 10 billion euros ($11.8 billion) in November. American Tower, which along with U.S. operator Crown Castle International Corp. had largely stayed away from Europe, enters just as carriers are spinning off tens of thousands of masts to cut debt and pay for costly 5G rollouts.
9. Zoom Video Communications Inc. is raising $1.75 billion through a stock offering, capitalizing on enduring demand for the video-conferencing platform during the pandemic. Zoom is selling about 5.15 million shares at $340 apiece, representing a 4.7% discount to its last close, according to a statement on Tuesday. The offering is expected to close on or about Jan. 15. It has given its underwriter a 30-day option to buy as much as an additional 735,294 shares of its Class A stock at the public offering price, excluding underwriting discounts and fees, the statement shows. JPMorgan Chase & Co. is the sole bookrunner for the sale.
10. Advent International plans to list Polish postal locker provider InPost SA on Euronext Amsterdam amid an online shopping boom accelerated by lockdowns imposed to contain the coronavirus outbreak. The company plans to seek an equity valuation of about 7 billion to 8 billion euros ($8.5 billion to $9.7 billion), according to people familiar with the transaction. It has secured 1.03 billion euros of cornerstone investments from Blackrock Inc., Capital World Investors and Singapore’s sovereign wealth fund GIC, according to a statement. The online retail boom last year spurred e-commerce companies THG Holdings Plc and Allegro.eu SA to list in the U.K. and Poland, respectively. Virtual greeting-card retailer Moonpig Group Plc announced plans for a London listing Tuesday.
11. Russia will restart regular purchases of foreign currency for the first time in almost a year after crude prices climbed back toward pre-pandemic levels. The Finance Ministry will buy 106.3 billion rubles ($1.4 billion) worth of foreign currency between Jan. 15 and Feb. 4, according to a statement published Wednesday. That means it will return to building up reserves in its National Wellbeing Fund, after spending a total of $22.7 billion on protecting the ruble during an oil price slump last year. Under a budget rule designed to curb ruble volatility, the central bank buys foreign currency when Russia’s Urals crude blend is above about $43 a barrel, and sells when it falls lower. Global oil prices have surged since the beginning of the year after Saudi Arabia pledged to deepen production cuts.
12. Affirm Holdings Inc., which provides installment loans to online shoppers, priced its U.S. initial public offering above its marketed range to raise $1.2 billion. In the first major U.S. technology listing this year, Affirm sold 24.6 million shares for $49 each, according to a statement on Wednesday, confirming an earlier Bloomberg News report. The San Francisco-based company had marketed the shares for $41 to $44 apiece, a range that it had raised Monday from $33 to $38. The IPO gives Affirm a market value of $11.9 billion based on the outstanding shares listed in its filings with the U.S. Securities and Exchange Commission. The company’s fully diluted valuation, including options and restricted stock units, is about $15 billion.
13. The U.S. government wants states to offer vaccines to millions more Americans as Covid-19 infections continue to soar, in a bid to bolster an immunization campaign that’s off to a rocky start. In recommending that states start immunizing all residents 65 and older, along with all those between 16 and 64 with medical conditions that make them more vulnerable to serious disease, U.S. health officials are clearing a path for about 128 million more Americans to be vaccinated. About 10 million people have received the first dose of a Covid vaccine since immunizations started in late December, according to Bloomberg’s vaccine tracker. The rapid shift in strategy has raised worries that an accelerated rollout, for which many states may not be ready, could lead to new shortfalls down the road.
14. Two months after Donald Trump issued an executive orderbanning U.S. investments in Chinese military-linked companies –- and more than a day after it took effect — the financial industry is still struggling to figure out what it can and can’t do under the new rules. The lack of clarity has prompted some Wall Street firms to err on the side of caution, meaning the ban could have a broader market impact than initially envisioned. Two bond fund managers in Asia said it has become increasingly difficult to sell notes of affected companies because many brokers have pulled back from dealing in the names. The managers asked not to be identified discussing private information. Among the questions still hanging over America’s biggest securities firms is whether Trump’s order forces them to stop facilitating investments in restricted companies for all clients, or just those in the U.S. Some firms have determined they should implement the ban globally, while others believe they can continue to trade for non-U.S. clients, people familiar with the matter said. Brokers have also come to differing conclusions on whether they’ll continue to handle sell orders.
15. Apple Inc.’s Taiwanese manufacturing partner Foxconn Technology Group is setting up a car venture, strengthening its automotive capabilities at a time when technology companies including its California ally are looking to expand in vehicles. Foxconn is joining forces with Chinese carmaker Zhejiang Geely Holding Group Co. to provide production and consulting services to global automotive enterprises, according to a statement from the companies Wednesday. Amid reports of Apple considering making its own electric vehicles, Foxconn has been bulking up its automotive muscles swiftly. Such moves may help the company become a major contender to make cars for its largest customer.
16. Blend Labs Inc., the digital-lending startup that counts Wells Fargo & Co. and Fannie Mae as clients, said it’s now valued at $3.3 billion after raising $300 million from venture capital firms. The valuation has nearly doubled in five months, San Francisco-based Blend said Wednesday in a statement. Blend provides back-end software for lenders to make more of their products available online and easier to process internally, and the firm’s technology facilitated $1.4 trillion of home mortgages and consumer loans last year. Blend’s latest round — led by Coatue Management and Tiger Global Management — comes amid a flood of U.S. home financing fueled by record-low mortgage rates. Consumers also flocked to banks’ digital offerings as the coronavirus pandemic prompted many banks to shutter branches to stem the spread of the virus. Blend’s software handles about 30% of new U.S. mortgages, Chief Executive Officer Nima Ghamsari said in an interview.
17. Bitcoin resumed declines Wednesday as the digital coin heads for its worst week since March last year, a drop that’s raised questions about the outlook for the cryptocurrency boom. Bitcoin fell as much as 6.8% to about $32,359 before paring some losses. The largest cryptocurrency whipsawed investors over the past few days, hitting a record near $42,000 on Jan. 8 and then tumbling to a low around $30,300. The price swings evoke memories of Bitcoin’s December 2017 bubble that was followed by a rapid collapse. They also test recent narratives, such as the argument that Bitcoin is maturing into a hedge against dollar weakness and inflation risk, and attracting longer term investors.
18. The U.S. House prepared to vote on a history-making second impeachment of Donald Trump as lawmakers seethed over his role inciting last week’s mob attack on the Capitol and the president’s once-firm control over the Republican party began to break down. Trump’s impeachment appeared inevitable in a vote Democrats anticipated would come Wednesday with the resolution’s sponsors claiming broad support from Democrats and public backing from several Republicans, including Liz Cheney, the No. 3 House GOP leader and daughter of former Vice President Dick Cheney. The House is set to begin debate shortly after 9 a.m. with the vote on the impeachment resolution expected by mid- to late afternoon, according to House Rules Chairman Jim McGovern. Under rules in place because of the coronavirus pandemic, members will vote in staggered groups on the House floor, and some by proxy, concluding before 5 p.m.
19. Three major companies are suspending donations and another is seeking a refund from a Republican attorneys general group after an offshoot participated in last week’s march on the U.S. Capitol that turned into a violent raid, a newsletter reported. Facebook Inc., Lyft Inc., and DoorDash Inc. are suspending their contributions to the Republican Attorneys General Association, the Popular Information newsletter said. The University of Phoenix, which donated over $50,000 to the group in 2020, is demanding its money back, the report said. The newsletter from Judd Legum said it contacted 63 corporations that made large donations to the association last year and asked if they would continue to support the group in light of recent events. Several firms said they were reviewing their contributions or expressed concerns about RAGA’s activities, without saying if they would continue making donations.
20. Germany’s economy is limping into 2021 heavily bruised by the pandemic, deeply reliant on government aid — and in better shape than most of the euro zone. The nation will probably say on Thursday that gross domestic product contracted less than 6% last year, and may signal that it actually grew in the final quarter. In contrast, economists estimate full-year declines of around 9% for France and Italy and more than 11% for Spain. While the first quarter of this year has started poorly, with lockdowns extended and the euro zone as a whole headed into a double-dip recession, Germany’s Bundesbank is staying optimistic that a steady recovery will kick in as vaccinations rise.

*All sources from Bloomberg unless otherwise specified