January 19th, 2021

Daily Market Commentary

Canadian Headlines

 

1. Canada‘s stock market rose, led by tech and health care firms, amid low trading volume with U.S. markets shut in observance of Martin Luther King Jr. Day holiday. The S&P/TSX Composite index rose 0.2% in Toronto on Monday. The tech sector was the biggest winner with Shopify Inc. contributing the most to to the rally. Health care stocks came in second, led by Aurinia Pharmaceuticals. Energy was the only group in red on Monday, as oil prices fell. On the M&A front, executives at Alimentation Couche-Tard Inc. defended a failed bid for Carrefour SA and said they would still like to buy the French grocer some day, but will turn their focus to other potential deals.
2. The Canadian province that invested $1.1 billion of taxpayers’ money in the controversial Keystone XL project is now considering the sale of pipe and materials to try to recoup some funds. “If the project ends, there would be assets that could be sold, such as enormous quantities of pipe,” Alberta Premier Jason Kenney said in a press conference Monday. “That would offset construction costs.” With Joe Biden set to be sworn in this week, the U.S. president-elect’s campaign promise to cancel the crude pipeline’s license is haunting the Canadian oil sands industry. The decision may come via executive action on his first day in office, CBC News reported on Sunday, citing people it didn’t identify. Alberta, home to the world’s third-largest crude reserves, has struggled for years with a lack of pipeline capacity to ship its crude to the U.S. Gulf Coast and other markets. TC Energy Corp.’s Keystone XL was one of the possible pipelines the industry was counting on to solve that.
3. The International Energy Agency lowered forecasts for global oil demand as renewed lockdowns to contain the pandemic temper the recovery expected this year. “The global vaccine roll-out is putting fundamentals on a stronger trajectory for the year, with both supply and demand shifting back into growth,” the agency said in a monthly report. “But it will take more time for oil demand to recover fully as renewed lockdowns in a number of countries weigh on fuel sales.” The IEA cut its consumption estimate for this quarter by 600,000 barrels a day, projecting a slight decline from the end of last year. Still, the world’s swollen oil inventories stand to abate by 100 million barrels in the three-month period as Saudi Arabia and other OPEC+ nations curb supplies.

World Headlines

1. 1. European stocks inched higher ahead of a busy events calendar, with Italy’s prime minister facing a confidence vote, U.S. Treasury Secretary nominee Janet Yellen appearing before Congress and major American banks reporting. The Stoxx Europe 600 Index was up 0.2% as of 11:33 a.m. in London, with the health care, technology and the construction sectors leading gains, as retail and media slipped lower. Expectations for this year’s earnings season are running high after the Stoxx 600 benchmark accumulated gains of about 20% since the end of October. Investors are also awaiting progress on U.S. President-elect Joe Biden’s $1.9 trillion Covid-19 relief plan with comments from Yellen at a confirmation hearing today.
   2. U.S. stock index futures rose, as most European and Asian equities climbed, amid bullish sentiment a day before President-elect Joe Biden’s inauguration. March contracts on the S&P 500 advanced 0.7% as of 8:15 a.m. in London. Futures added 0.6% on the Dow Jones Industrial Average and 1% for the Nasdaq 100 Index. An Asia-Pacific share gauge gained the most in more than a week. The Stoxx Europe 600 climbed 0.4%, extending a 0.2% increase on Monday. The spike in U.S. futures is being driven by risk-on sentiment in the run-up to the inauguration of Biden as president, said Alan Richardson, portfolio manager at Samsung Asset Management (HK) Ltd.
   3. Asian stocks shook off recent doldrums and rose, with key indexes in South Korea and Hong Kong climbing more than 2% each. Tech stocks including Samsung Electronics and TSMC were the biggest boosts to the MSCI Asia Pacific Index, which was set to close at a new record high. The Hang Seng Index advanced to its highest level since May 2019, helped by continued inflow from Chinese investors buying national firms that had been sold off on U.S. restrictions. Benchmarks in China slid as investors rotated into Hong Kong. In Seoul, the Kospi surged as domestic and foreign institutional investors snapped up cyclical stocks. Samsung group shares rebounded from sharp declines on Monday after the billionaire heir of the controlling family was ordered back to prison.
   4. Brent oil rose past $55 a barrel — with some assistance from a weaker dollar — even as the International Energy Agency cut its demand outlook for the rest of the year. Consumption in the first quarter of 2021 will be 600,000 barrels a day lower than previously thought, the agency said as the coronavirus outbreak continues to impede people’s movements. In China, there are government calls for citizens not to travel over the Lunar New Year holidays, stoking concern that Asian demand will take a near-term hit, while vast swathes of Japan are in a state of emergency and several European nations are still locked down. Despite the reduction in demand estimates though, global oil stockpiles stand to fall by 100 million barrels in the first quarter and the agency expects much steeper declines during the second half of the year. It comes as traders have been rushing back to the market on expectations of a recovery in global growth later this year.
   5. Gold steadied and copper edged higher before commentary from Treasury Secretary nominee Janet Yellen on the dollar and stimulus when she testifies on Capitol Hill a day ahead of Joe Biden’s inauguration as president. Yellen’s Senate confirmation hearing is likely to feature foreign-exchange policy, and will also serve as the first congressional forum where lawmakers will vet Biden’s $1.9 trillion Covid-19 relief plan, parts of which have already drawn opposition. Earlier, the Wall Street Journal reported Yellen is expected to affirm the U.S.’s commitment to market-determined exchange rates. Bullion has fallen about 3% this year as benchmark Treasury yields and the dollar climbed on forecasts that coronavirus vaccines and stimulus packages will aid the economic recovery. That’s cast a shadow over a metal that had its biggest gain in a decade last year.
   6. German Chancellor Angela Merkel is holding talks on a possible extension of the country’s virus measures, with curfews under consideration. European Union member states will be warned by the bloc’s executive arm on Tuesday that they aren’t doing enough to track dangerous virus mutations. Hong Kong will extend social-distancing measures, expand mandatory testing and introduce restrictions in certain neighborhoods as cases surge. The city will also ban travelers from Ireland and Brazil. Indonesia reported its deadliest day of the pandemic, and Singapore postponed reopening some nightclubs and karaoke outlets until further notice. President-elect Joe Biden’s incoming administration rejected a move by President Donald Trump to rescind travel bans for non-American citizens arriving from the EU, the U.K. and Brazil. Japan confirmed three patients infected with the variant first detected in the U.K., who have no travel history to the country.
   7. Boris Johnson’s plan to host an expanded Group of Seven summit in June is worrying some other members who fear the U.K. may be trying to reshape the forum of wealthy nations via the back door. The British prime minister has invited South Korea, India and Australia as guests to this year’s meeting as he tries to establish a so-called D-10 coalition of democracies to counter China and other authoritarian states. Johnson wants to champion global action and democratic values, and project the U.K. as a force for good after leaving the European Union. While it is standard practice for a G-7 host to invite more countries to the summit, the involvement of guest nations is typically limited. According to a person familiar with Johnson’s plans, that will change this year with the three countries set to take part from the get-go, from preparatory meetings of the leaders’ diplomatic emissaries early next month through to ministerial gatherings before the summit.
   8. U.S. Treasury Secretary nominee Janet Yellen on Tuesday steps into a new role following more than a quarter-century in government: salesperson for economic policy after years of defending Federal Reserve thinking and actions. The Senate Finance Committee’s 10 a.m. hearing Tuesday is likely to feature topics from foreign-exchange policy to taxes, but it will also serve as the first congressional forum where lawmakers will vet President-elect Joe Biden’s $1.9 trillion Covid-19 relief plan. Yellen will tell them that low borrowing costs mean it’s time to “act big,” according to her prepared remarks. Yellen, 74, will need to sell a package that includes a minimum-wage hike and substantial expansion in family and medical leave — social safety-net programs that have already triggered Republican opposition. Democratic lawmakers, who will soon enjoy majority control of the chamber, are set to press for their own priorities.
   9. Bank of America Corp. said it plans to repurchase $2.9 billion worth of stock this quarter, the most it can under new Federal Reserve guidelines. The buybacks come on top of its 18-cent dividend and $300 million in repurchases that offset stock awards, the bank said Tuesday in a statement that came ahead of its fourth-quarter results. Bank of America said it had $36 billion more in capital than was needed to meet its minimum requirements. The biggest banks are restarting share buybacks after winning Fed approvallast month. Executives hope bigger capital returns can win over investors who largely left the industry out of 2020’s stock rally. Critics say firms should hold off on buybacks and build capital to support lending during the pandemic.
   10. Norwegian investment firm Aker ASA bought most of Mainstream Renewable Power Ltd. in a deal that values the Dublin-based clean-energy developer at about $1 billion. Aker Horizons, the Norwegian company’s investment arm, will take a 75% stake in Mainstream, it said in a statement. The unit is also in the process of preparing for a near-term private placement and an initial public offering within 12 months. Developers such as Mainstream are increasingly in demand from energy companies and investors that want to expand their footprint in green energy. Rather than buying into a single asset, acquiring an established developer allows Aker to tap into a pipeline of future projects and a team that will keep originating new ones.
   11. China Evergrande Group shares have had their best start to a year since 2012 after the developer said it plans to redeem a $2 billion convertible bond early, passing a liquidity test as it 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 Monday. The company will tap internal funds of HK$16.5 billion to pay the principal and interest, and the bond will be canceled. Evergrande closed 16% higher in Hong Kong to HK$17.26 Tuesday, the biggest gain since Sept. 30. The stock is also up 16% on the year, the best start in nine years, according to Bloomberg data. Rival developers including Sunac China Holdings Ltd. also surged in Hong Kong after data on Monday showed the nation’s residential sales reached a record last year.
   12. Investors added money to exchange-traded funds that buy emerging market stocks and bonds last week. This was the 11th straight week of inflows. Inflows to U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $3.56 billion in the week ended Jan. 15, compared with gains of $2.08 billion in the previous week, according to data compiled by Bloomberg. This was the biggest weekly inflow in over a year. So far this year, inflows have totalled $5.65 billion.
   13. Citrix Systems Inc. has agreed to buy Wrike Inc. for $2.25 billion in cash to add collaboration software to its products serving remote workers. The deal, expected to close in the first half of the year, will be “modestly dilutive” to Citrix’s earnings in 2021, Citrix said in a statement on Tuesday, confirming an earlier Bloomberg News report. Secure work-collaboration software has grown in popularity as businesses have increasingly relied on remote work since the onset of the coronavirus pandemic. That trend has fueled growth at Wrike and its competitors including Asana Inc., Atlassian Corp.’s Trello and Slack Technologies Inc. Citrix will fund the deal with new debt and cash. It’s secured a $1.45 billion bridge loan from JPMorgan Chase & Co. JPMorgan advised Citrix on the deal while San Jose, California-based Wrike worked with Goldman Sachs Group Inc.
   14. The European Union will unveil its plan on Tuesday to strengthen the international role of the euro as it seeks to erode the dominance of the U.S. dollar and to insulate the bloc from financial risks, including U.S. sanctions. The European Commission blueprint will outline how the region can fortify its economic and financial resilience by bolstering the single currency’s architecture and through growing markets like green finance, according to a draft of the plan seen by Bloomberg. Calls to boost the bloc’s autonomy have been growing for years and gained steam after the U.S. imposed sanctions against Iran that would also punish European banks, companies and people who do business with the Islamic republic. The commission’s plan reflects increasing pressure by member states for the EU to adopt tools that will allow it to pursue its foreign-policy goals with less recourse to an unpredictable U.S. ally.
   15. Qatar has urged Gulf Arab nations to enter a dialog with Iran, saying the time was right for Doha to broker negotiations now the neighbors have begun to patch up their own differences. Qatari Foreign Minister Sheikh Mohammed bin Abdulrahman Al Thani, who’s long called for a summit between leaders of the six-member Gulf Cooperation Council and the Islamic Republic, said his government was “hopeful that this would happen and we still believe this should happen.”
   16. Beijing Enlight Media Co., one of China’s largest film and television studio, has selected Hollywood-based Legacy Entertainment to design a part of its 16.4 billion yuan ($2.5 billion) theme park. The project — called “Enlight Movie World” — being built over 651 acres in the eastern Chinese city of Yangzhou is the studio’s first foray into entertainment destinations. In a statement Tuesday, Legacy said it will design “Enlight Epicenter,” which will feature key attractions based on Enlight’s popular animated films as well as retail and dining experiences. The proposed park, larger than the Disneyland in California, shows Enlight’s ambitions to follow the model of Walt Disney Co. and create a portfolio of assets by leveraging its film library, including the 2019 hit “Ne Zha” — China’s highest-grossing animated movie. China, which emerged as the world’s largest film market last year, is rebounding quickly from the pandemic while western nations are still struggling to contain the outbreak.
   17. Pakistan is facing a natural gas shortage as the nation struggles to secure enough overseas supply to meet its booming consumption. The country is considering issuing a tender for liquefied natural gas supplies for late-February delivery, according a person with knowledge of the matter, who asked not to be identified discussing private details. Pakistan has been unable to secure enough LNG for next month from the spot market as a jump in North Asian demand curbed the amount of available supply and boosted prices. Pakistan has been a key focus for the LNG industry, quickly becoming one of the fastest growing importers amid dwindling domestic production. However, its dependence on overseas shipments — and exposure to a volatile spot market — has revealed a crack in its strategy to adopt the super-chilled fuel.
   18. The London Metal Exchange will propose permanently closing its open-outcry trading floor, putting an end to the century-old practice of setting the world’s metals prices in a daily shouting match. The iconic trading floor known as “the Ring” is one of the last of its kind in the world, where deals take place face-to-face, in a chaotic daily ritual of barked commands and arcane hand gestures. It’s been closed since the U.K.’s first Covid-19 lockdown in March, when the LME switched to an electronic system for establishing the world’s benchmark prices for industrial metals including copper, aluminum and zinc.
   19. Office Depot rebuffed an unsolicited takeover offer from Staples but indicated it is open to an alternative deal, the latest twist in a yearslong dance between the office-supply retailers. Staples on Jan. 11 proposed to buy Office Depot’s parent, ODP Corp., for more than $2 billion or $40 a share. Staples said it would pursue a public tender offer for ODP’s shares in March if the companies don’t reach agreement on a deal. ODP has concluded that a sale of its retail and consumer-facing e-commerce operations to Staples or a joint venture is preferable to a full takeover, according to a letter sent by ODP’s chairman to an official of the private-equity firm that controls Staples. It said in the letter, seen by The Wall Street Journal, that such a deal would afford the same cost savings as a full-company sale but be less likely to attract prolonged regulatory scrutiny.
   20. President-elect Joe Biden is set to arrive in Washington on Tuesday, the eve of his inauguration, with the usual backdrop of celebrations and political comity replaced by a military lockdown. Biden will spend the night at Blair House, the guest residence across the street from the White House — one of just a few traditions being honored during the most extraordinary transfer of power in most Americans’ lifetimes. Outgoing President Donald Trump doesn’t plan to invite the Bidens to the White House before the inauguration — denying them the customary gesture of goodwill the Obama family afforded him four years ago. Trump will also become the first president since Andrew Johnson to skip his successor’s swearing in — he’ll instead leave Washington Wednesday morning for Florida, where he plans to reside.
   21. For the first time since 2017, Bank of America Corp. clients with $561 billion combined say Bitcoin is the world’s most crowded trade as speculative euphoria hits Wall Street. Investors surveyed by the investment bank this month see signs that long positions in the largest digital currency are reaching unprecedented levels, while retail traders and institutional names join the crypto boom. The BofA poll doesn’t necessarily mean that more fund managers own Bitcoin. But it’s another temperature check on the token’s 400% rally over the past year that’s dividing some of the biggest names in finance. The survey also shows investor positioning is booming across reflation strategies from small caps and value companies to emerging markets. Stock allocations have spiked to the highest level in three years as conviction on an early-cycle economy rises to the highest in more than a decade.
   22. When Netflix Inc. reports fourth-quarter results after markets close Tuesday, it may have little time to celebrate the fact it’s on the verge of crossing the 200 million mark for subscribers. With its pandemic-fueled boom fading and the streaming market getting more crowded with rivals, including Walt Disney Co., AT&T Inc., Comcast Corp. and Amazon.com Inc., investors have become more concerned about Netflix maintaining its growth. A price increase in the U.S. also could weigh on Netflix’s results in its home market in the latest quarter, though growth overseas may help offset that sluggishness.
   23. Europe’s aviation safety regulator is poised to clear the Boeing Co. 737 Max for a return to service in the region next week, marking a major step in the jet’s global comeback from two deadly crashes. The final airworthiness directive will spell out required changes and include added pilot training requirements, European Union Aviation Safety Agency Executive Director Patrick Ky said Tuesday in an online roundtable with reporters.
   24. Brazilian fintechs raised more than $1.9 billion in 2020, making it a record year for the budding industry, a sector report showed. The amount is 73% higher than in 2019, according to the Inside Fintech Report, a survey from Distrito Dataminer. It counts 876 financial startups in the country, which raised the money in 115 investment rounds. Wall Street banks and private equity funds are among investors who have injected capital into financial sector startups in Latin America’s largest economy despite the Covid-19 pandemic. Fintechs have been gaining market share from major financial institutions and need to grow.

 

*All sources from Bloomberg unless otherwise specified