January 14th, 2021

Daily Market Commentary

Canadian Headlines

  1. Canadian equities fell Wednesday as traders began to assess corporate earnings and global stimulus measures. The S&P/TSX Composite Index dropped 0.3%, with consumer staples and materials leading the declines. Health care shares advanced with Bausch Health Companies Inc. rising 10.3%. The French government is opposed to Alimentation Couche-Tard Inc. buying France’s Carrefour SA, Finance Minister Bruno Le Maire said, casting doubt on prospects for a $20 billion trans-Atlantic retail deal. Couche-Tard shares fell 10.2% Wednesday. Prime Minister Justin Trudeau’s government criticized moves by Canada’s largest airlines to cut jobs and routes amid tightening restrictions on travel to curb the spread of Covid-19.
  2. Four months ago, Alimentation Couche-Tard Inc. founder Alain Bouchard gave an update to investors about the company’s hunt for a major acquisition. The convenience store chain was on the lookout for deals, he said, but not at any cost. “As you know, Couche-Tard doesn’t seek to make a splash,” Bouchard said during the Canadian company’s Sept. 16 annual meeting. “Up to now, our patience and rigor have served us well.” He may not want a splash, but Bouchard’s company is making one with its $20 billion move for French grocer Carrefour SA. The acquisition would be about five times the size of its biggest purchase to date and thrust Quebec-based Couche-Tard into large supermarkets, a low-margin corner of the food industry in which it has little experience. The two sides are still negotiating, but the potential deal is already running into opposition from the French government and skepticism from investors. Couche-Tard shares fell 9.2% on Wednesday in Toronto, and Carrefour’s slumped 6% in Paris early on Thursday.
  3. Kimmeridge Energy Management Co. said it’s prepared to nominate directors to the board of Ovintiv Inc. if the oil and gas producer fails to take the necessary steps to improve its performance and restore investor confidence. The private equity firm, which said it owns a 2.4% stake in Ovintiv, argues in a new 18-page presentation that the company is falling behind its peers as a result of its misguided spending, expensive acquisitions, poor governance and inadequate environmental stewardship. Kimmeridge also outlines a strategy to address investor concerns by better aligning executive compensation with performance, selling non-core assets and shifting spending to the Permian Basin, among other measures.
  4. Barrick Gold Corp. produced more of the precious metal with lower costs in the fourth quarter than the previous period as it met its full-year gold guidance amid the global pandemic. Production in the quarter matched analysts’ expectations, while all-in sustaining costs are expected to be 3% to 5% lower than the third quarter, Toronto-based Barrick said Thursday in a statement.

World Headlines

  1. European stocks rose for a third day, with cyclical sectors outperforming as U.S. President-elect Joe Biden prepares to unveil a pandemic relief package that may amount to $2 trillion. The Stoxx Europe 600 Index was up 0.4% as of 10:16 a.m. in London, with a clear pattern of economically sensitive industry groups advancing the most, led by automotive stocks. Peugeot SA propelled gains in the sector after unveiling a plan to improve profitability, while its German peers also climbed.
  2. Treasury yields rose with stocks on Thursday after a report suggested President-elect Joe Biden plans Covid-19 relief of about $2 trillion. Biden’s advisers recently told allies in Congress about the cost of the package, according to the report. Biden is expected to announce his economic support plans later in the day. Futures on the small-cap Russell 2000 Index jumped, while contracts on the tech-heavy Nasdaq underperformed. Investors are betting on an economic recovery this year are tolerating stretched stock valuations, in part on expectations of further U.S. fiscal spending and better control of the pandemic with vaccines. With Biden due to take office within days, the transfer of power promises more turbulence. Earlier, the House of Representatives voted to impeach President Donald Trump for a second time, though a Senate trial for Trump likely won’t get underway before his term ends on Jan. 20.
  3. Asia stocks extended gains after climbing to a fresh record, with Hong Kong leading the advance on Tencent Holdings Ltd.’s rally. Tencent was the single largest contributor to the MSCI Asia Pacific Index’s gain Thursday. The Chinese internet giant’s shares jumped to a record following media reports that U.S. officials ultimately decided against banning American investment in Alibaba Group Holding Ltd. and Tencent. Japan’s Nikkei 225 Stock Average was among the lead gainers, trading around its highest since 1990. Intel supplier Nikon was among the biggest winners, rising 7.2%. The Topix benchmark rose for a sixth day, following positive data on the country’s machinery orders. Philippine stocks rebounded, reversing morning losses of as much as 0.9% afterthe government detected the nation’s first case of the new variant of the coronavirus that first appeared in the U.K.
  4. Oil in New York was steady, after frigid temperatures and Saudi Arabia’s promised output cuts helped push prices to a 10-month high. Futures traded near $53 a barrel after snapping a six-day gain on Wednesday. There are signs that physical markets are softening in Asia, with Abu Dhabi’s Murban crude at a discount to its benchmark despite continued OPEC+ cuts and the Saudi plan to slash output next month. Crude’s rally is also stalling with the global Brent benchmark on its longest run of overbought days since 2012.
  5. Gold declined as investors awaited details of a stimulus package from President-elect Joe Biden and potentially critical Federal Reserve commentary, both of which may influence the trajectory of Treasury yields and appetite for risk. Biden will lay out plans for fiscal support Thursday, and his advisers have told allies in Congress the cost is likely to be about $2 trillion, CNN reported, citing people briefed on the matter. Meanwhile, Fed Chair Jerome Powell takes part in a webinar, with traders watching for statements on tapering, inflation and the recovery.
  6. The World Health Organization’s mission to trace the origins of Covid-19 got off to a difficult start with two members of the delegation denied entry to China. China recorded its first Covid-19 death since April as new clusters continued to expand. The African Union has secured 270 million Covid-19 vaccine doses, South African President Cyril Ramaphosa said. Japanese Prime Minister Yoshihide Suga was advised to consider expanding the state of emergency to cover the entire nation. Finland reported a slight drop in infections.
  7. The German economy stagnated at the end of last year, probably avoiding a double-dip recession that is engulfing the euro area. The statistics office predicted that the country’s renewed pandemic lockdown won’t have the same severe impact as restrictions earlier in 2020. It estimates output remained flat in the fourth quarter, capping a year that saw an economic contraction of 5%. The government ran a budget deficit of 4.8% of gross domestic product, the biggest since 1995.
  8. PTT Oil & Retail Business Pcl, the retail unit of Thailand’s biggest energy company, plans to raise as much as 47 billion baht ($1.57 billion) from an initial public offering to finance expansion of its retail business. The nation’s biggest gas station operator, owned by PTT Pcl, set a price range of 16 baht to 18 baht for its 2.61 billion share offering, according to its filing with Securities and Exchange Commission on Thursday. The company will sell an additional 390 million new shares should a so-called greenshoe option be exercised in full, the company said. PTT Oil’s initial share sale is set to be Thailand’s largest IPO since Central Retail Corp.’s $2.5 billion offering in February last year and SCG Packaging Pcl’s $1.3 billion sale in October. The offering comes as Southeast Asia’s second-biggest economy faces a resurgence of coronavirus infections in recent weeks after some success in controlling the pathogen for most of 2020.
  9. Taiwan Semiconductor Manufacturing Co. expects to spend as much as $28 billion this year to expand its technological lead and construct a plant in Arizona to serve key American customers. Capital spending for 2021 is targeted at $25 billion to $28 billion, compared with $17.2 billion the previous year, Chief Financial Officer Wendell Huang said on a conference call. About 80% of the outlay will be devoted to advanced processor technologies — namely 3nm, 5nm and 7nm — suggesting TSMC anticipates a surge in business for cutting-edge chipmaking. Intel Corp., which on Wednesday announced a new CEO, is said to be contemplating a departure from tradition and outsourcing manufacture to the likes of TSMC. The Asian giant expects revenue of $12.7 billion to $13 billion this quarter, powering mid-teens sales growth this year.
  10. Kuaishou Technology, the main rival to ByteDance Ltd., has received approval from the Hong Kong stock exchange for an initial public offering of about $5 billion, according to people familiar with the matter, paving the way for one of the city’s biggest listings of the year. The Tencent Holdings Ltd.-backed short video startup plans to begin gauging demand for its IPO as soon as next week, one of the people said, asking not to be identified as the information isn’t public. Kuaishou is angling for a valuation of $50 billion, almost twice the recent estimate, Bloomberg News has reported. Kuaishou, which means “fast hand” in Chinese, is set to win the race against larger rival ByteDance in going public. The owner of the wildly popular apps TikTok and Douyin is in discussions to raise $2 billion privately before listing some of its businesses in Hong Kong, Bloomberg News reported last year.
  11. The owner of the animal supply chain store Petco raised $864 million in an initial public offering, returning the retailer to the public market 15 years after it was taken private. The company, which is changing its name to Petco Health and Wellness Co.in conjunction with the listing, sold 48 million shares for $18 each, according to a statement. The private equity-backed company had marketed the shares for $14 to $17. After the IPO, Petco will continue to be controlled by its current owners, which include CVC Capital Partners and Canada Pension Plan Investment Board. They acquired Petco for $4.6 billion from TPG and Leonard Green in 2016, a decade after those two firms took Petco private.
  12. BlackRock Inc.’s assets under management soared to a record $8.68 trillion in the fourth quarter as it saw heavy inflows into all areas of its business. The new record was 11% higher than the $7.81 trillion BlackRock reported at the end of September. The New York-based firm also benefited from the rally in markets gaining further momentum. While other asset managers struggled in 2020, BlackRock went from strength to strength. Amid the turmoil caused by the Covid-19 pandemic, and market swings not seen in years, investors poured in cash across its business units, including its actively managed offerings.
  13. Donald Trump’s second impeachment trial will be the first ever to extend beyond a president’s time in office, creating a novel legal question that ultimately could require Supreme Court resolution. The answer isn’t settled but history has bad news for Trump: a sparse but consistent line of lower-level impeachments in the past suggests the Senate retains power to put him on trial even after his term ends. If it convicts him, the Senate could take a second vote to bar him from running for office again.
  14. U.S. officials deliberated but ultimately decided against banning American investment in Alibaba Group Holding Ltd. and Tencent Holdings Ltd., a person familiar with the discussions said, removing a cloud of uncertainty over Asia’s two biggest corporations. The Treasury Department blocked a Pentagon effort to add the two internet firms on grounds they aided the military, the person said, asking not to be identified discussing private talks. Officials also debated blocking search leader Baidu Inc. but dropped the plan, the person added. Alibaba’s Hong Kong stock climbed as much as 3.9% while Tencent rose almost 5% on news of the reprieve, which was first reported by the Wall Street Journal. Their dollar bond spreads tightened Thursday morning.
  15. Renault SA set conservative goals to gradually return to pre-pandemic levels of profitability, reflecting the challenges Chief Executive Officer Luca de Meo will have turning around the struggling French carmaker. The company is targeting an operating margin of more than 3% by 2023 and at least 5% by mid-decade, according to a statement Thursday. This compares with a 4.8% return in 2019, before the manufacturer racked up record losses in the midst of the health crisis. De Meo, 53, faces the difficult task of rationalizing a bloated cost structure and excess production capacity while pacifying the French state, Renault’s largest shareholder. The CEO said the expense reductions the company laid out just before he joined from Volkswagen AG in July will be achieved ahead of schedule and set fresh objectives for four years from now while avoiding any new job cuts.
  16. The largest exchange-traded fund tracking the Hang Seng Index will resume buying shares of Chinese companies included in a U.S. investment ban, marking a U-turn by State Street Corp. after it was criticized by Hong Kong’s former central bank chief. The $13 billion Tracker Fund of Hong Kong, the city’s most actively traded ETF, said in a statement late Wednesday that it reversed a decision announced just two days earlier to stop making new investments in companies included in the U.S. ban. The about-face boosted shares of China Mobile Ltd., which has swung wildly over the past week on confusion over how global investment funds would respond to the U.S. order. State Street’s initial decision had attracted scrutiny from the Hong Kong Monetary Authority and was criticized by former HKMA chief Joseph Yam in interviews with local media. U.S. banks and money managers are responding to President Donald Trump’s ban on investment in companies deemed to be owned or controlled by China’s military.
  17. SK Hynix Inc. sold the biggest-ever dollar bond offering by a non-financial company from South Korea after announcing a $9 billion acquisition of Intel Corp.’s Nand memory and storage business in stages through 2025. The Korean chipmaker raised $2.5 billion selling three-year and five-year bonds and 10-year green notes. Investor demand for the securities was huge, with orders totaling almost five times the notes on offer. South Korean corporate bonds have been popular in general due to the market perception they are a relatively safe bet with the nation having one of the highest sovereign credit ratings in Asia. Yield premiums on Korean dollar company notes have tightened 9 basis points this year, while those for Chinese high-grade bonds have widened 4 basis points, and Asia investment-grade debt is little changed.
  18. New York City apartment tenants are more than $1 billion in debt from missed rent payments during the coronavirus pandemic, according to a new survey measuring the depth of the rent crisis brought on by Covid-19. The debt figure is the most recent indicator that unemployment benefits and federal stimulus packages have so far been inadequate to alleviate the growing financial burden of missed rent payments across thousands of city households. Both landlord and tenant advocacy groups have lobbied heavily for more government rental assistance during the pandemic. The survey, conducted by the Community Housing Improvement Program, a landlord trade group, focused on New York buildings subject to the city’s rent-regulation laws. These apartments account for about half of the city’s total rental apartments. Tallying responses from landlords, the group estimated that as many as 185,000 households living in these apartments are more than two months behind on rent, with an average debt of more than $6,000.
  19. Goldman Sachs Group Inc. is one step closer to offering checking accounts for Main Street consumers. The Wall Street giant will work with the digital-payments upstart Marqeta on the offering, which it will debut later this year, according to a statement Thursday. Marqeta Chief Executive Officer Jason Gardner said Goldman plans to use the firm’s technology to issue debit cards into mobile wallets, and for offerings that provide customers with real-time access to spending data.
  20. Americans rushing to get vaccinated against Covid-19 are encountering limited supplies, balky technology and communication failures, highlighting the challenges states face as they try to scale up and deliver shots to millions more people. In the U.S., 10.8 million doses have been given, according to Bloomberg’s vaccine tracker. Many states are moving into the next phase of the campaign, offering shots to those 65 and older and people with compromised health as infections soar and the federal government pushes for a speedier process. With expanded eligibility announced this week, another 128 million Americans can potentially get shots, and many are dialing their doctors and searching the web to answer the question: Where and when can I get a vaccine?
  21. President Xi Jinping called on Starbucks Corp. to help improve China-U.S. ties, striking a business-friendly tone as the Biden administration prepares to take over in Washington. “I hope Starbucks will make active efforts to promote China-U.S. economic and trade cooperation and the development of bilateral relations,” Xi said in replyto a letter from Chairman Emeritus Howard Schultz. Xi’s letter was dated Jan. 6 and published Thursday by the official Xinhua News Agency. “China has embarked on a new journey of comprehensively building a modern socialist country, which will provide a broader space for companies from all over the world, including Starbucks and other American companies, to develop in China,” Xi wrote.
  22. Delta Air Lines Inc. stood by a projection that it would stop bleeding cash in the spring, as a speedier pace of Covid-19 vaccinations starts containing the disease and months of pent-up demand for vacation travel turn into bookings. The carrier burned through an average $12 million in cash a day in the fourth quarter, according to an earnings statementThursday. Delta had projected a daily deficit of as much as a $14 million.

*All sources from Bloomberg unless otherwise specified