January 20th, 2021

Daily Market Commentary

Canadian Headlines


  1. Joe Biden will cancel the Keystone XL oil pipeline hours after becoming president on Wednesday, killing once again a cross-border project that had won a four-year reprieve under his Republican predecessor, Donald Trump. In one of his first major environmental actions, Biden will revoke TC Energy Corp.’s pipeline permit via an executive order because it doesn’t “serve the U.S. national interest,” according to fact sheet from his transition team. The move brings Keystone’s fate full circle, repeating a decision made in 2015 by President Barack Obama to keep the pipeline from crossing the border. Trump reversed that in 2017 on his fourth full day in office over the objections of environmental groups. Environmentalists are counting on the latest rejection — coming more than a dozen years since the pipeline was first proposed — to stick. They argue the project would provide an outlet for heavy Canadian oil sands crude extracted in Alberta through particularly energy-intensive processes that ratchet up its carbon footprint.
  2. TD Bank says it expects Schwab’s 4Q earnings to translate to about C$169m reported equity in net income of Schwab investment for the bank’s 1Q. Adjusted equity in net income figure excludes acquisition-related charges of about C$37m after-tax and amortization of acquired intangibles of about C$35m after-tax.


World Headlines

    1. European stocks gained as investors weighed earnings reports and assessed prospects for more U.S. stimulus. The Stoxx Europe 600 Index added 0.5% as of 9:24 a.m. in London, led by tech shares after ASML Holding NV posted results that beat forecasts and announced a share buyback plan. Luxury-goods makers also climbed as Richemont reported a surge in Chinese revenue and Burberry Group Plc said it was encouraged by a strong performance in full-price sales. After rallying about 20% since the end of October on vaccine bets and Joe Biden’s U.S. election win, European stocks have traded near their highest level in almost 11 months. While tighter coronavirus-spurred restrictions have tempered bullishness, investors are seeking clues about the longer-term recovery as the earnings season picks up pace. Also boosting sentiment, U.S. Treasury Secretary nominee Janet Yellen has called on lawmakers to “act big” on stimulus.
    2. U.S. equity futures rose with European stocks on Wednesday, buoyed by earnings and hopes for more stimulus. The dollar edged lower alongside Treasuries. Nasdaq futures rallied and tech shares led gains in the Stoxx 600 Index following strong earnings from Netflix Inc. and chipmaker ASML Holding NV. Procter & Gamble Co. jumped in pre-market trading after boosting its sales and profit outlook on at-home demand. S&P 500 contracts edged higher a day after Janet Yellen unveiled a $1.9 trillion Covid-19 relief proposal to lawmakers. Investors are counting on more spending to help propel economic growth under incoming President Joe Biden, who is to be sworn in at noon Wednesday in Washington and is planning a flurry of executive orders on his first day. Still, it won’t be all smooth sailing, with Yellen encountering early Republican resistance to Biden’s relief plan in her confirmation hearing to become Treasury secretary.
    3. Asian stocks continued to set records, with benchmarks surging in Hong Kong and Indonesia. The MSCI Asia Pacific Index was set for its 15th gain in 19 sessions dating back to Christmas. Chipmaker TSMC and online gaming giant Tencent provided the biggest boosts. Hong Kong shares extended recent gains, with the Hang Seng Index hovering just under the 30,000-point level as mainland traders continued to flood the market with cash. Indonesia stocks rose as the government readied removing restrictions on foreign investment in the energy, communications and tourism sectors. Financial stocks led gains in Malaysia after the central bank kept its benchmark interest rate unchanged.
    4. Brent oil extended gains above $56 a barrel, rising with other assets on hopes of more U.S. economic stimulus and a weaker dollar. While crude prices have largely undulated with the American currency in recent days, the oil market’s structure is also pointing to renewed strength. U.S. crude’s closest contract is near the most expensive versus those for six months out in more than a year. There’s a similar picture in the Brent market. The structure, known as backwardation, indicates tight supply. The International Energy Agency this week said it expects inventories to fall by 100 million barrels this quarter, despite a surge in Covid-19 outbreaks.
    5. Gold gained as the dollar eased following comments from President-elect Joe Biden’s cabinet nominees on the greenback, the merits of massive stimulus, and the outlook for trade. U.S. Treasury Secretary nominee Janet Yellen told the Senate Finance Committee that a slew of state spending was needed to fight the coronavirus pandemic, while playing down concerns about the debt it creates. U.S. bond yields eased from Tuesday’s high and inflation expectations rose as she spoke, and held near those levels on Wednesday. Both have climbed since the start of the year.
    6. Procter & Gamble Co. boosted its sales and profit outlook on expectations that surging at-home demand for its toilet paper and laundry detergent will continue, even as the rapid pace of growth took a slight dip in the latest quarter. The maker of Charmin, Tide and other household staples now expects organic revenue to grow as much as 6% in fiscal 2021, an increase from the previous outlook of no more than 5%. P&G also sees core earnings per share rising as much as 10%, according to a statement Wednesday, up from a range of 5% to 8%. The forecast boost shows there’s still room to grow for companies making in-demand products during the pandemic. Cleaning supplies, along with items such as loungewear and packaged food, have been hot sellers for months, though investors are keeping a close eye on whether manufacturers and retailers can hang onto the new customers once the pandemic begins to subside.
    7. UBS Group AG’s board members are backing Chief Executive Officer Ralph Hamers as he faces a lengthy Dutch legal battle over his role in a money laundering scandal at his previous employer that has complicated efforts to put his stamp on the business. The new CEO, hit with a probe by the Dutch public prosecutor barely a month after taking over in November, faces an investigation that’s expected to drag on at least a year once the process formally starts next month, according to people familiar with the matter who requested anonymity. UBS’s directors — who before Christmas had gone as far as discussing possible contenders to replace Hamers in a worst case scenario — for now are putting their weight behind him, arguing the probe isn’t an immediate threat, a person briefed on the discussions said.
    8. Joe Biden will unveil sweeping action to combat climate change hours after becoming president, moving to rejoin the Paris accord and imposing a moratorium on oil leasing in the Arctic National Wildlife Refuge. Environmentalists said Biden’s actions — some of which could take years to be implemented — will renew the U.S. commitment to safeguarding the environment and signal to the world that America has returned to the global fight against climate change. On Paris alone, Biden is directly reversing Trump’s decision to yank the U.S. from the accord. Trump labeled the pact “a total disaster” that would harm American competitiveness by enabling “a giant transfer of American wealth to foreign nations that are responsible for most of the world’s pollution.”
    9. Danish utility Orsted A/S took a final investment decision on its first hydrogen project as it expands beyond wind power. The world’s biggest producer of electricity from turbines at sea will use the technology at its Danish demonstration project H2RES to produce green hydrogen. It’s a small, but concrete step for the company that could help it stand out in the upcoming competition for billions of euros of government subsidies to scale up the industry. Hydrogen made from wind or solar is essentially a fossil-free fuel. It’s seen as crucial by governments and utilities to help cut carbon from industrial and transport sectors. The technology has a central place in the European Union’s Green Deal package, with investment in the bloc expected to reach as much as 470 billion euros ($570 billion) in the coming decades.
    10. Germany’s coronavirus deaths reached a record and Chancellor Angela Merkel extended restrictions, warning of possible travel curbs to keep out new strains. A study on the South African variant raised concern about the efficacy of vaccines as well as a new class of therapies. Scientists found that half of the blood samples from a handful of patients who already had Covid-19 don’t have the antibodies needed to protect against the new strain, which is spreading around the globe. U.S. deaths topped 400,000, the world’s worst Covid-19 toll. An appointee of President-elect Joe Biden said the U.S. is preparing to join Covax, a World Health Organization-led coalition aiming to distribute vaccines to poorer nations. Daily fatalities in Mexico hit a record.
    11. China blew past its previous record for renewable energy installations last year with a massive — and surprising — addition of wind power. The National Energy Administration said in a press release on Wednesday that China added almost 72 gigawatts of wind power in 2020, more than double the previous record. The country also added about 48 gigawatts of solar, the most since 2017, and about 13 gigawatts of hydropower. The wind and solar installations were unexpectedly high, especially as they imply massive additions in the last weeks of 2020. The China Electricity Council had previously reported that, as of the end of November, China had installed 24.6 gigawatts of wind and 25.9 gigawatts of solar for the year.
    12. Jack Ma resurfaced for the first time since China’s government began clamping down on his business empire nearly three months ago, appearing in a live-streamed video that sent Alibaba Group Holding Ltd.’s stock soaring but left plenty of unanswered questions about the billionaire’s fate. Ma spoke briefly on Wednesday during an annual event he hosts to recognize rural teachers. In one video of the event circulated online, China’s most famous entrepreneur can be seen touring a primary school in his hometown of Hangzhou. Ma, who had stayed out of public view since regulators suspended the initial public offering of his fintech company Ant Group Co., told the teachers he’ll spend more time on philanthropy. He didn’t mention his run-ins with Beijing. Ant confirmed the authenticity of the video, first posted on an online blog, but declined to comment further. Shares of Alibaba, the e-commerce giant co-founded by Ma that owns about a third of Ant, jumped 8.5% in Hong Kong and were up almost the same level in pre-market U.S. trade.
    13. Compute Health Acquisition Corp., a blank-check company set up by Intel Corp. Chairman Omar Ishrak, filed for a $750 million initial public offering to raise funds for dealmaking in the health technology sector. The special purpose acquisition company plans to sell 75 million units at $10 apiece, it said in a filing Wednesday, confirming an earlier Bloomberg News report. Each unit consists of one share of Compute Health’s class A common stock and one-quarter of a redeemable warrant. Medical device giant Medtronic Plc has expressed interest in buying 1.5 million units in the offering, according to the filing. The SPAC plans to pursue investment opportunities “that are emerging at the intersection of computation and health care,” it said.
    14. Aldar Properties PJSC climbed the most in almost three months after Abu Dhabi signed off on deals worth $12.3 billion. The company will take on management of 30 billion dirhams ($8.2 billion) in developments and provide oversight for projects worth 10 billion dirhams in education, health-care and infrastructure. Aldar will also manage 5 billion dirhams of projects that were awarded by the government in 2019. The shares rose as much as 15% shortly after trading started and closed 8.1% higher at 3.60 dirhams, the highest level since 2014. Abu Dhabi’s benchmark index gained 0.3%.
    15. President-elect Joe Biden plans to begin immediately unwinding President Donald Trump’s policies on immigration, climate and other issues on Wednesday with at least 15 executive actions, including moves to reverse U.S. withdrawals from the Paris Agreement and the World Health Organization, and stop construction of a border wall. Biden will also sign orders revoking a permit for the controversial Keystone XL pipeline, imposing a mask mandate on federal property to combat the coronavirus pandemic and ending Trump’s travel ban against some predominantly Muslim and African countries. While some of the orders roll back unilateral measures Trump imposed, others — including an extension of moratoriums on student loan payments, foreclosures and evictions — are intended to address the health and economic crisis wrought by the pandemic.
    16. Serviced office provider IWG Plc is planning another raft of closures as the latest wave of the pandemic squeezes demand for flexible workspace. The owner of the Regus brand has provided for a further 160 million pounds ($219 million) of costs related to closures for 2020, according to a trading update Wednesday. The firm, which leases offices in global capitals from New York to London, had already booked 155.8 million pounds of net charges related to the pandemic back in August. The outbreak has hit serviced office operators hard, as clients that switched to home working took advantage of their short-term contracts by vacating. That’s forced operators to negotiate with landlords for rent cuts and holidays, or to walk away completely. IWG rival WeWork has also sought to cut costs, agree lower rents or close some centers in a bid to survive the crisis and turn its first profit.
    17. Airlines around the world are slashing more flights into the new year as the worst crisis to hit the industry shows no sign of letting up. Europe remains the region hardest hit by curbs on travel, with carriers operating at about a quarter of their capacity before the start of the Covid-19 pandemic, according to John Grant, an analyst at aviation data group OAG. Even China, which spent the latter part of last year flying more or less as normal, has seen a 12% reduction in flights as of Jan. 18, he said. “It’s not looking good, and if anything it’s moving backward,” Grant said at a webinar on Wednesday. “We’ve just got to stoically accept that if you want to travel internationally you have to get some sort of certification.”
    18. President-elect Joe Biden on Wednesday will begin reversing Donald Trump’s immigration policies, part of an aggressive push to roll back some of the most controversial actions of his predecessor and chart a new course for the nation. In one of his first acts as president, Biden will sign an executive action ending restrictions on travel and immigration from some predominantly Muslim countries. The measure directs the State Department to resume visa processing for those countries and develop a plan to address people affected, such as those who were denied entry to the U.S.
    19. Semiconductor stocks are on track for their best January in nine years amid surging demand for chips that’s helping bolster prices and support higher spending on production equipment. The Philadelphia Semiconductor Index has gained 11%, on track for the best start of any year since 2012. The rally has dwarfed gains in the broader market, where the S&P 500 Index is up just 1.1% over the same period. The companies that provide materials and equipment used in chip manufacturing are leading the advance, while chipmakers such as Nvidia Corp. and Advanced Micro Devices Inc. that doubled last year are now lagging. Applied Materials Inc., MKS Instruments Inc., Lam Research Corp. and KLA Corp. have each climbed more than 21% in the first 11 trading days of 2021. Nvidia and AMD have lost value over that span.
    20. Of the biggest U.S. oil and gas companies, EOG Resources Inc. is the least prepared for a low-carbon economy, according to BloombergNEF. That’s based on an analysis of the company’s business-model transition risk. The overall research focuses on which companies are developing low-carbon revenue streams by investing in renewables; whether (or not) they’re expanding their fossil-fuel operations; and how threatened their current business is to the potential decline in oil demand. EOG, the largest shale-focused independent oil company, scored the worst, partly because pure exploration and production companies face more transition risk, according to BNEF. Integrated companies tend to have stronger financial positions and a greater variety of skills that enable them to invest in and develop low-carbon businesses.
    21. With penny stocks all the rage in Reddit forums and across the Robinhood trading platform, U.S. retail investors are pulling money from microcap funds just to support the habit. Managed by BlackRock Inc., the $1 billion IShares Micro-Cap ETF, known by its ticker symbol IWC, has seen nearly $26 million of net outflows over the past 12 months. The $129 million First Trust Dow Jones Select MicroCap Index Fund, or FDM, has seen withdrawals of $19 million. “Given the rally in small caps, you might not expect that to be the case,” said Ryan Issakainen, a strategist with First Trust Advisors LP. Investors have been favoring more sector-themed funds, such as those tied to the hot segments of clean energy and cyber security, he said.
    22. People in the U.S. finally are traveling again, though not all these trips are for business or rest and relaxation. Instead, some are engaging in vaccine tourism. Frustrated by crashing appointment websites, shortages of Covid-19 shots and a patchwork of confusing eligibility rules, people with time and money are heading out of town in pursuit of a potentially life-saving inoculation. Former Citigroup chairman Richard Parsons is among them. He and his wife flew to Miami from New York this month when he found out that Florida was vaccinating people 65 and older “no questions asked,” said Parsons, 72, who initially didn’t qualify to receive the shot in New York.
    23. UnitedHealth Group Inc. beat analysts’ estimates for fourth-quarter earnings as its costs of care declined compared to the previous year, although the company said Covid-19 costs rose in the quarter amid the surging pandemic. The insurer reported adjusted earnings per share of $2.52 for the quarter, beating the $2.41 average of analysts’ estimates compiled by Bloomberg.
    24. Netflix Inc. ended its biggest year in company history with a bang, adding more customers than expected and saying it no longer needs to borrow money to build its entertainment empire. The world’s leading paid streaming service attracted 8.51 million new subscribers in the final three months of the year, helped by the popularity of hit shows such as “Bridgerton” and “The Queen’s Gambit.” That outpaced Netflix’s own forecast and the 6.06 million projected by Wall Street, and its shares rose 14% in pre-market trading. The earnings report included two key milestones for Netflix: The companypassed the 200 million-subscriber mark for the first time and said its cash flow will allow it to stop relying on debt to fuel its growth. With $8.2 billion in cash — and a credit line that hasn’t been drawn down — Netflix said it no longer needs external financing. It’s also considering stock buybacks, something it hasn’t done in about a decade.
    25. Pfizer Inc. and BioNTech SE built the case that their Covid-19 vaccine will protect against the new variant of the coronavirus that emerged in the U.K. with results of another lab trial. Like previous work out of the University of Texas Medical Branch, the results published on Wednesday showed that antibodies in the blood of people who had been vaccinated were able to neutralize a version of the mutant virus that was created in the lab. The study was published on preprint server BioRxiv prior to peer review. Unlike the earlier study, which focused on one crucial mutation, the new research tested all 10 mutations located on the virus’s spike protein, which helps it bind to cells in the host.


*All sources from Bloomberg unless otherwise specified