January 22, 2021
Daily Market Commentary
- Canadian stocks fell on Thursday, while tech shares led U.S. stocks to all-time highs. The S&P/TSX Composite index fell 0.6% in Toronto. Health care and industrials were the worst performers, while utilities and communication services were the only sectors in the green. Ontario Municipal Employees’ Retirement System almost quadrupled its stock holdings in Asia-Pacific last year and plans to keep boosting its exposure to the fast-growing region over the next several years. The pension manager, known as Omers, deployed almost C$4 billion ($3.17 billion) in the region, up from about C$1 billion.
- European shares fell as the U.K.’s warning of a lockdown extension spurred worries of a longer-lasting economic impact from the pandemic, with travel and leisure shares leading losses. The Stoxx Europe 600 Index was down 1.1% as of 11:39 a.m. London time, as cyclical and value shares came under pressure. All sectors were in the red, with miners and energy shares among the biggest decliners. In Italy, the FTSE MIB slipped 2% after reports that Prime Minister Giuseppe Conte is considering early elections. European stocks are sliding from an almost 11-month high as current virus concerns overshadow longer-term bets on the rollout of vaccines. U.K. Prime Minister Boris Johnson signaled that the country’s restrictions could last into summer. In the euro area, PMI data showed services remained in contraction, while manufacturing expanded in line with estimates.
- U.S. equity futures slid along with stocks in Europe as restrictions to curb escalating coronavirus cases dented some of the optimism over earnings and plans for additional stimulus. The dollar strengthened for the first time this week. S&P 500 and Nasdaq 100 futures signaled a down day for U.S. stocks after the underlying indexes eked out records on Thursday on the back of gains for tech companies. This week’s global equity rally, spurred by expectations of economic support and the rollout of vaccines, is pausing as traders weigh still-troubling Covid-19 trends. President Joe Biden, who is pushing for $1.9 trillion in additional spending, unveiled a strategy to combat the virus while warning the pandemic will worsen before it improves. Restrictions intensified from Germany and the U.K. to Hong Hong, and the European Central Bank cautioned that the euro area is headed for a double-dip recession.
- Asian stocks fell as investors paused for breath following a recent string of climbs to fresh record highs amid concerns over the latest coronavirus-related restrictions. TSMC was the biggest drag on the MSCI Asia Pacific Index after Intel’s incoming CEO pledged to regain the company’s lead in chips, aiming to move the majority of manufacturing internally by 2023. Hong Kong stocks fell 1.6% after the South China Morning Post reported the government will lock down tens of thousands of residents in parts of Kowloon in an effort to limit the spread of Covid-19.
- Oil fell near $52 a barrel as pessimism over demand spread with the coronavirus forcing more lockdowns, while a stronger dollar reduced the appeal of commodities priced in the currency. Consumption remains precarious with parts of Hong Kong being locked down, some Shanghai residents banned from leaving the city and the U.K. prime minister signaling restrictions in the country may last for months. Traffic in New York reduced from a month earlier. Despite the concerns over day-to-day demand, physical crude buying for the coming months has firmed in recent days. A flurry of purchases by Chinese, Indian and Thai refiners have supported prices while key swaps tied to the North Sea market are at the strongest level in 10 months. That’s keeping the futures curve in a bullish structure known as backwardation.
- Gold declined as the dollar gained and equities fell amid tightening restrictions to curb the spread of coronavirus. Holdings in exchange-traded funds backed by silver expanded again to a record. Equities fell on Friday after a report that part of Hong Kong would face lockdown for the first time triggered risk-off mood in markets. Restrictions on movement were also put in place in Shanghai and Beijing, while the latter closed schools. Meanwhile, President Joe Biden unveiled a national strategy to combat the coronavirus while issuing a sobering warning that the pandemic is likely to claim another 100,000 lives over roughly the next month and will worsen before it improves. A gauge of the U.S. dollar gained after four days of losses, pressuring gold.
- Senate GOP leader Mitch McConnell challenged House Speaker Nancy Pelosi to delay triggering an impeachment trial for Donald Trump until next month, a timetable that may cool some of the bipartisan outrage that erupted over the former president’s stoking of the mob that stormed the Capitol two weeks ago. McConnell laid out his proposal Thursday as a matter of fairness to the former president who is still assembling a defense team. But it also comes as negotiations he’s holding with Majority Leader Chuck Schumer on power sharing in a 50-50 Senate drag on and most of President Joe Biden’s cabinet nominees are still waiting for confirmation. Schumer said Thursday night through a spokesman that he would review McConnell’s proposal “and discuss it with him.” Pelosi hasn’t revealed when she plans to send the single article of impeachment to the Senate, which would start the march toward a trial. Officials in her office didn’t immediately respond to requests for comment.
- Bank of America Corp. strategists warned the “extreme rally” on Wall Street that has pushed stocks to record highs, fueled by strong U.S. policy stimulus, is forming a bubble in asset prices. “D.C.’s policy bubble is fueling Wall St’s asset price bubble,” strategists led by Michael Hartnett wrote in a note on Friday. “When those who want to stay rich start acting like those who want to get rich, it suggests a late-stage speculative blow-off.” Soaring market prices as investors boost inflation-linked trades will drag “Main St inflation” higher, risking a taper tantrum, tighter financial conditions and volatility events, the strategists warned. They highlighted past bubbles including that of the dot-com era and the housing market in 2007-2008.
- President Joe Biden will mark his third day in office with executive actions to boost food assistance for impoverished Americans and use federal contracts as a step toward his proposed nationwide minimum-wage hike, seeking immediate help for an economy struggling to cope with Covid-19. The executive actions Biden is set to sign Friday at the White House also include a restoration of rights for federal workers that were stripped by his predecessor Donald Trump. While consequential for those affected, the measures offer a shadow of the relief included in Biden’s $1.9 trillion Covid-19 aid plan. That package faces challenges in Congress after moderate Republicans this week said they saw no need to rush on another big spending bill after last month’s $900 billion effort. Senator Susan Collins of Maine on Thursday became the latest to express opposition to the idea of a big new package, while Senator Roy Blunt, a member of GOP leadership, called it a “non-starter.”
- European Central Bank officials have asked staff to propose new ways to measure financial conditions in the euro area, potentially assisting future decisions on how much stimulus the region’s pandemic-hit economy needs. The central bank’s Monetary Policy Committee was tasked with making proposals in time for the March policy meeting, according to people familiar with the debate. Some officials want new ways to measure the impact of the ECB’s record-low interest rates and asset purchases on credit conditions, the people said, who asked not to be identified as the discussions were private. The ECB ramped up its monetary policy support to the economy in December and partly justified the decision with the need to preserve “favorable” financing conditions for businesses and households. As the meaning of that term hasn’t been made clear yet, investors have little insight into what conditions would prompt further action from the Frankfurt-based central bank.
- Hungary became the first nation in the European Union to purchase Russia’s Covid-19 vaccine, buying 2 million doses as the country seeks to ramp-up inoculations that are slowing because of the slow delivery of western versions. The Russian Sputnik V vaccines will arrive in three tranches, Foreign Minister Peter Szijjarto said on Friday before meeting Foreign Minister Sergei Lavrov. The first will include enough doses to vaccinate 300,000 people, the second 500,000 and the third 200,000 people, Szijjarto said. Each person needs two shots.
- The U.K.’s third coronavirus lockdown looks set to endure as the government warned it’s too early to contemplate easing restrictions. Prime Minister Boris Johnson and Home Secretary Priti Patel did not repeat previous assurances that the U.K. will be getting back to normal by April, even as the mass vaccination program continued to expand to reach 5 million people. Instead, the government focus shifted to reinforcing compliance with the current restrictions, amid concerns that too many people are still flouting the rules, making it harder to control the spread of the disease.
- The total market value of negative-yielding debt worldwide dropped $479.3 billion to $16.76 trillion in the week to Jan. 22, according to data compiled by Bloomberg. That’s 8.4% higher than a year previously. There were a total of 3,963 negative-yielding debt instruments on Jan. 22, compared with 4,239 a week earlier. The outstanding amount of this debt dropped $381.5 billion to $15.35 trillion in the past week, or 13.6% of the total outstanding debt of $112.37 trillion.
- European nations are grappling with delays to coronavirus vaccination programs, with Italy warning of a sharp slowdown next week and Germany expecting vaccine shortages to last six to eight weeks. Slow vaccine deliveries are making it difficult for Europe, already lagging behind the U.S. and the U.K. in the race to inoculate citizens, to catch up. The World Health Organization said it sees no evidence that Pfizer Inc. and BioNTech SE’s vaccine contributed to the deaths of elderly people and urged that the shot still be used. The U.K.’s third lockdown looks set to endure as the government warned it’s too early to contemplate easing restrictions. The nation is now looking at paying people to stay home if they test positive for coronavirus, in order to slow the rate of infections. Hong Kong is preparing to lock down thousands of residents in a bid to contain a worsening virus outbreak, local media outlets reported Friday, citing unidentified people.
- Volkswagen AG said a robust sales recovery in the second half of last year led to strong annual earnings despite fallout from the Covid-19 pandemic. Operating profit before special items related to the diesel-emissions scandal fell to around 10 billion euros ($12.2 billion) last year, VW said in a statement Friday, from 19.3 billion euros in 2019. Automotive net cash flow shrank almost in half to about 6 billion euros. Robust demand in China, VW’s largest market, helped the German manufacturer rebound from the coronavirus outbreak forcing the most widespread shutdown of global car production since World War II. Worldwide vehicle deliveries fell 15% to 9.3 million vehicles, but the group gained a small amount of market share as some peers were hit even harder.
- Tencent Holdings Ltd., the creator of the messaging platform WeChat, is in talks with banks for a $6 billion loan, according to people familiar with the matter. That would be the biggest dollar loan syndicated in Asia for a Chinese firm since 2019, according to data compiled by Bloomberg. It would also mark a flurry of potential debt financings by tech giants after people familiar said earlier this month that rival Alibaba Group Holding Ltd. was looking to sell up to $8 billion of bonds. Under the terms being discussed, Tencent’s five-year deal would pay an interest margin of 80 basis points over Libor and offer all-in pricing of 85 basis points, the people said, asking not to be identified as they aren’t authorized to speak publicly. The proceeds are for general corporate purposes, they added.
- EVgo Services LLC, a charging network for electric vehicles that’s entirely powered by renewable energy, is nearing a deal to go public through a merger with Climate Change Crisis Real Impact I Acquisition Corp., according to people with knowledge of the matter. A transaction is set to value the combined entity at more than $2 billion, said one of the people, who asked not to be identified as the information is private. An announcement could come as soon as Friday, the people said. Shares of Climate Change Crisis, which is a special purpose acquisition company, jumped as much as 117% in pre-market trading Friday. They were up 65% to $22 at 4:36 a.m. in New York.
- It may be the oil market’s worst-kept secret: millions of barrels of Venezuelan heavy crude, embargoed by the U.S., have been surreptitiously going to China. The cat-and-mouse games that avoid detection and sanctions include ship-to-ship transfers, shell companies and silenced satellite signals. But there’s another aspect to the dodge. It involves “doping” the oil with chemical additives and changing its name in the paperwork so it can be sold as a wholly different crude without a trace of its Venezuelan roots. Invoices and emails reviewed by Bloomberg show the lengths to which some traders will go to disguise the crude’s origin and get it to Asia, making Chinese refineries an essential lifeline for Venezuela’s battered oil industry. U.S. officials, of course, can’t ban Chinese or any international companies from buying Venezuelan oil. They can financially squeeze them, though, by prohibiting them from then doing any business with American companies. That is why such intricate steps are taken to disguise the origin of the crude.
- Samsung Electronics Co. is considering spending more than $10 billion building its most advanced logic chipmaking plant in the U.S., a major investment it hopes will win more American clients and help it catch up with industry leader Taiwan Semiconductor Manufacturing Co. The world’s largest memory chip and smartphone maker is in discussions to locate a facility in Austin, Texas, capable of fabricating chips as advanced as 3 nanometers in the future, people familiar with the matter said. Plans are preliminary and subject to change but for now the aim is to kick off construction this year, install major equipment from 2022, then begin operations as early as 2023, they said. While the investment amount could fluctuate, Samsung’s plans would mean upwards of $10 billion to bankroll the project, one of the people said.
- President Joe Biden will seek a five-year extension of the New Start arms control treaty with Russia, reversing the Trump administration’s hard-line stance in negotiations barely two weeks before the deal was set to expire. The new administration planned to inform Russia about the decision sometime Thursday, according to two people familiar with the matter who asked not to be identified discussing private deliberations. Diplomats at embassies in NATO countries were also instructed to tell their counterparts, one of the people said. Spokespeople at the State Department and the National Security Council declined to comment on the decision, which was reported earlier by the Washington Post.
- Iran has started ramping up its oil production and expects to reach pre-sanctions levels in one to two months, Deputy Oil Minister Amir Hossein Zamaninia said. The oil market will be able to accommodate Iran’s maximum oil output of around 3.9 million to 4 million barrels a day, Zamaninia told reporters on the sidelines of an oil conference in Tehran on Friday. Subject to punitive U.S. sanctions, the country is barely pumping around half that amount currently, according to Bloomberg data. Iran has been subject to tough U.S. sanctions since 2018, when the administration of then-President Donald Trump unilaterally withdrew from an international deal that restricted the Middle Eastern country’s nuclear activities.
- The sharp selloff in Bitcoin this week is stoking fresh questions about the sustainability of the cryptocurrency boom. Prices for the digital asset have tumbled 14% this week, marking the steepest decline since March. Bitcoin was steady on Friday, holding near $31,000 and commentators have cautioned that a sustained drop below $30,000 could presage further losses. “Being Bitcoin, a 10% range intraday is a mere flesh wound to the digital asset, in a world where tradable versus investible is seriously blurred,” said Jeffrey Halley, senior market analyst at Oanda Asia Pacific Pte. The digital coin could “easily be $35,000 again tomorrow or could drop through $30,000 and test notional support at $27,000.”
- Apple Inc. is working on a thinner and lighter version of the MacBook Air, the company’s mass-market laptop, according to people with knowledge of the matter. The new computer is planned to be released during the second half of this year at the earliest or in 2022. It will include Apple’s MagSafe charging technology and a next-generation version of the company’s in-house Mac processors. Apple has discussed making the laptop smaller by shrinking the border around the screen, which will remain 13-inches. The current model weighs 2.8 pounds and is just over half an inch at its thickest point. The company considered building a larger version of the MacBook Air with a 15-inch screen, but Apple isn’t moving forward with this for the next generation, said the people, who asked not to be identified discussing private matters. An Apple spokeswoman declined to comment.
*All sources from Bloomberg unless otherwise specified