January 18th, 2021

Daily Market Commentary

Canadian Headlines

 

1. Alimentation Couche-Tard Inc. founder Alain Bouchard hoped to salvage a $20 billion offer for Carrefour SA when he arrived at the French Finance Ministry, whose headquarters juts out over the Seine like a beached aircraft carrier in eastern Paris. After being kept waiting for a brief audience with Finance Minister Bruno Le Maire, Bouchard got the message: The proposed deal was dead on arrival, torpedoed by French political opposition. The meeting Friday capped a tumultuous week for Couche-Tard and Carrefour. Bouchard, a self-made billionaire who had transformed an obscure Canadian gas-station operator into an empire of 14,200 retail sites through acquisitions, wanted to take the next step. Buying the French grocer would have turned Couche-Tard into a global retail giant, alongside the likes of Walmart Inc. However, the overture ended only four days after it came to light, and the companies said they’ll seek a looser alliance instead, sending Carrefour shares as much as 7.6% lower on Monday. Ceding one of France’s biggest supermarket owners to foreign ownership was impossible at a time when Covid-19 lockdowns underlined the strategic importance of the country’s food supply, Le Maire said.

World Headlines

1. 1. European stocks were broadly neutral on Monday, as investors took a breather following last week’s rally, ahead of key decisions on the path out of lockdowns and the U.S. government handover. The Stoxx Europe 600 Index was flat as of 12:19 p.m. in London. Technology stocks outperformed, led higher by chip maker Infineon Technologies AG after an analyst upgrade. Meanwhile, utilities dragged on the gauge as Veolia Environnement SA faced a challenge to its takeover bid for rival Suez SA. The recovery of European equities reached a new high last Thursday, followed by a 1% slump on Friday. Economically sensitive sectors, the stars of a rally sparked by Pfizer Inc. and BioNTech SE’s vaccine breakthrough last November, have led declines amid concerns that U.S. pandemic relief spending could be watered down or delayed.
   2. Markets were mildly risk-off on Monday as investors weighed strong economic data from China, U.S. President-elect Joe Biden’s stimulus plans and surging coronavirus trends. The dollar ticked higher, while S&P 500 futures were little changed. U.S. financial markets were closed Monday for the Martin Luther King holiday. After a strong start to the year, global stock markets are losing steam as investor focus shifts to the upcoming earnings season and the difficult negotiations facing Biden’s $1.9 trillion Covid-19 relief plan. His proposals could be watered down under congressional opposition, and there’s the possibility that some taxes could rise.
   3. Asia Pacific stocks traded broadly lower as investors took a breather following a three-week rally that saw the regional benchmark hit fresh records. Indexes in China and Hong Kong bucked the selloff and rose as data showed the Chinese economy expanded a better-than-expected 6.5% in the last quarter of 2020 from a year earlier. South Korea’s Kospi was the hardest hit, sliding more than 2% due to losses in Samsung Electronics. Shares of the conglomerate slid the most since August after heir Jay Y. Lee was sentenced to a 2.5-year jail term for bribery. Overall, financials were the biggest drag on the MSCI Asia Pacific Index. Technology stocks were also weak after Reuters reported that the U.S. government revoked several companies’ licenses to work with China’s Huawei Technologies.
   4. Oil futures held steady, despite a stronger dollar and physical prices in Asia continuing to trade at weaker levels than a month ago. Premiums for Russia’s ESPO have fallen by more than $1 since last month, according to traders who asked not to be identified. It follows a flurry of new Covid cases in China, potentially menacing demand, and flare ups in other regional oil consumers like Japan. Indian energy demand was also off to a shaky start to the year, with sales of transport and cooking fuels dropping from a month earlier.
   5. Gold steadied, recovering from an almost seven-week low, amid caution in markets as investors assessed the outlook for the dollar and the timeline for a U.S. stimulus package. Meanwhile, former Federal Reserve Chair Janet Yellen is expected to affirm the U.S.’s commitment to market-determined exchange rates when she testifies on Capitol Hill Tuesday, and she’ll make clear the U.S. doesn’t seek a weaker dollar for competitive advantage, the Wall Street Journal reported, citing people familiar with the matter. A gauge of the greenback climbed in the past two weeks, putting pressure on gold.
   6. World Health Organization Director-General Tedros Adhanom Ghebreyesus claimed the “world is on the brink of a catastrophic moral failure” by allowing younger, healthier adults in rich countries to become vaccinated before health workers and old people in poorer countries. German Chancellor Angela Merkel and state leaders appear likely to extendlockdown measures and may impose a curfew in hotspots, as the country tries to contain the latest virus surge. The U.K. will step up its mass vaccination program this week as the country shuts its borders to anyone who hasn’t tested negative, and may begin to relax restrictions as early as the first half of March. Irish coronavirus hospitalizations hit a record as the nation grapples with one of the worst outbreaks in the world. Global coronavirus cases topped 95 million, while the U.S. death toll from Covid-19 neared 400,000. Australia and Thailand raised concerns over vaccine safety after Norway reported several dozen elderly people died after receiving the Pfizer Inc. shot.
   7. Joe Biden will take the oath of office as president in a ceremony dramatically reshaped by the coronavirus pandemic and still-simmering threats of violence in Washington, casting a pall over the quadrennial celebration of American democracy. His swearing-in at the U.S. Capitol on Wednesday will come amid an unprecedented cordon of security, with strict physical distancing measures in place as well. A sea of 200,000 flags on the National Mall will stand in for the normally vast crowd cheering a new commander in chief. And while Biden is using his inauguration to highlight “America United,” he faces a nation where many Republicans still reject his victory, including outgoing President Donald Trump — who Biden’s fellow Democrats and a handful of Republicans impeached for a second time last week despite Biden’s misgivings about the message it would send as he ascended to the presidency.
   8. Goldman Sachs Group Inc. economists raised their growth forecasts for the U.S. this year and beyond after President-elect Joe Biden unveiled a sweeping revival plan calling for $1.9 trillion in spending. In a weekend report to clients, economists led by Jan Hatzius predicted the economy would expand 6.6% this year, faster than the 6.4% previously expected. The unemployment rate for the end of 2021 is now seen at 4.5%, down from the prior estimate of 4.8%. The upgrade is fueled by expectation that Biden, aided by a Democratic-controlled Congress, will deliver ample amounts of state fiscal aid, education and public health spending, as well as unemployment insurance benefits, to counter harm from a pandemic now in its most devastating stage to date. Goldman’s estimate for 2021 economic growth is the second highest in a Bloomberg survey of 84 economists; the median estimate is 4.1%.
   9. China Evergrande Group plans to redeem a $2 billion convertible bond early, passing a test of liquidity and avoiding a premium pay out to investors as the developer looks to substantially cut debt. The residential builder said it will redeem the remaining principal of HK$16.1 billion ($2.1 billion) in advance on Feb. 10, according to a filing on Monday. The company has arranged internal funds of HK$16.5 billion to pay the principal and interest, and the bond will be canceled. The developer, saddled with a debt pile of almost $120 billion last year, said the early repayment shows its cash strength, and reiterated its pledge to cut debt by 150 billion yuan ($23 billion) this year. China developers are under increased pressure to lower debt under new requirements imposed by China’s regulator known as the “three red lines.” Evergrande’s latest financial figures suggest it breached all three debt metrics under the new rules.
   10. Chinese e-cigarette maker RLX Technology Inc. is looking to raise as much as $1.17 billion from a U.S. initial public offering, highlighting how American stock exchanges remain attractive fund-raising avenues for mainland firms despite heated tensions between the world’s two biggest economies. RLX Technology, backed by Sequoia Capital China, is selling 116.5 million American Depositary Shares at $8 to $10 each, according to a U.S. filing. Each ADS represents one ordinary share and will be listed on the New York Stock Exchange. Tensions between Beijing and Washington have ratcheted up in the past few weeks as the New York Stock Exchange moved to delist three Chinese telecommunications firms following two earlier U-turns where the bourse flip-flopped between removing and keeping the shares.
   11. Indian billionaire Gautam Adani is raising $2.5 billion from a deal that includes the sale of a minority stake in his renewables business to French energy giant Total SE, a transaction that may help the tycoon cut group debt. Paris-based Total will acquire 20% of Adani Green Energy Ltd. and a board seat as well as a 50% stake in a portfolio of operating solar assets with 2.35 gigawatts capacity, the company said Monday in a statement, confirming an earlier report by Bloomberg News. But shares of Adani Green have more than quadrupled in value in the past year in Mumbai, giving the company a market value of about $20 billion.
   12. Samsung Electronics Co. heir Jay Y. Lee was sentenced to two years and six months in prison over bribery charges, concluding a years-long graft trial that inflamed outrage over the cozy relationships between government and business. Monday’s sentencing lands the top decision maker at the world’s biggest electronics company behind bars at a time of unprecedented global uncertainty. The Seoul High Court first jailed Lee in 2017 after convicting the billionaire for his role in a corruption scandal that toppled former president Park Geun-hye. The Samsung Group’s de facto leader served a year in prison but was released in February 2018 after his original five-year term was halved and suspended. The Supreme Court overturned that verdict and ordered a retrial in 2019.
   13. Citrix Systems Inc. is in advanced talks to buy the work-management platform company Wrike Inc. for more than $2 billion, according to people familiar with the matter. A deal for Wrike, owned by the technology-focused buyout firm Vista Equity Partners, could be reached as soon as this week, the people said, asking not to be identified because the information was private. It would be the largest acquisition to date for Citrix. A deal topping $2 billion would likely deliver a substantial return on Vista’s investment. It would also be the largest acquisition to date for Citrix, according to data compiled by Bloomberg.
   14. Italian Prime Minister Giuseppe Conte urged lawmakers to rally behind him and back his program to continue governing, as he struggles to bolster his coalition after the defection of a junior ally. “It is possible to find once again among parliamentary forces an agreement on reforms to relaunch the country,” Conte said in Rome on Monday. “Help us, help us to restart as fast as possible.” Conte, who’s in his second term as premier, made his appeal in the lower house ahead of a confidence vote due Monday evening. He sought to recruit pro-European centrists, unaffiliated lawmakers and even potential defectors from the small Italy Alive party headed by ex-premier Matteo Renzi, who ditched the ruling coalition last week.
   15. President-elect Joe Biden’s team of financial regulators is taking shape, with progressive favorites being chosen for the top jobs at the Securities and Exchange Commission and the Consumer Financial Protection Bureau — moves that mean Wall Street should prepare itself for a new era of tougher oversight and stricter rules. Biden’s SEC pick, former Commodity Futures Trading Commission Chairman Gary Gensler, 63, is known for sparring with the industry as the nation’s top derivatives watchdog during the Obama administration and for his deep knowledge of finance as an ex-partner at Goldman Sachs Group Inc. That means he not only knows how to mobilize a bureaucratic federal agency but also understands the often impenetrable ways that Wall Street makes money — and how firms use that complexity to turn regulation in their favor.
   16. China’s economy roared back to pre-pandemic growth rates in the fourth quarter as its industrial engines fired up to meet surging demand for exports, pushing the full-year expansion beyond estimates and propelling its global advance. Gross domestic product climbed 6.5% in the final quarter from a year earlier, pushing growth to 2.3% for the full year. That leaves the world’s second-largest economy driving global growth and potentially passing U.S. GDP sooner than previously expected. The V-shaped recovery from the biggest slump on record was engineered by getting Covid-19 under control and deploying fiscal and monetary stimulus to boost investment. Growth accelerated as the nation’s factories revved up tomeet demand for medical equipment and work-from-home devices in an export bonanza that saw it ship 224 billion masks from March through December — almost 40 for every man, woman and child on the planet outside of China.
   17. In an unprecedented move, California utilities are warning they may need to cut power to more than 280,000 homes and businesses to prevent live wires from sparking wildfires as high winds are set to sweep through the drought-weary state. Edison International’s Southern California Edison said 277,078 customers in multiple counties including Los Angeles face blackouts within 48 hours due to a forecast of a strong Santa Ana wind event. None of its customers that had been affected by earlier cuts are facing power outage as of Sunday afternoon, according to Southern California Edison’s website. PG&E Corp. said that it notified 6,100 customers living in the southern part of the state’s Central Valley and Sierra Nevada foothills about a possible shutoff, down from an earlier estimate of about 21,000.
   18. Bitcoin rose to $37,000 on Monday, back toward a level that strategists at JPMorgan Chase & Co. see as an inflection point for the digital coin. The cryptocurrency could be hurt by an exodus of trend-following investors unless it can “break out” above $40,000 soon, a team including Nikolaos Panigirtzoglou said. The pattern of demand for Bitcoin futures and the $22.9 billion Grayscale Bitcoin Trust will help determine the outlook, they added. “The flow into the Grayscale Bitcoin Trust would likely need to sustain its $100 million per day pace over the coming days and weeks for such a breakout to occur,” the strategists wrote in a note on Friday. Traders seeking clues about investor appetite for risk have been gripped by Bitcoin’s stunning rally and turbulent 12% slide from a record of almost $42,000 on Jan. 8. The cryptocurrency boom since March has reflected the ebullience of financial markets awash in stimulus — as well as concern over whether gains will ultimately prove fleeting.

 

*All sources from Bloomberg unless otherwise specified