January 25, 2021

Daily Market Commentary

Canadian Headlines

1. 1. Canada is uneasy about President Joe Biden’s planned “Buy American” provisions and will press the case against moves that would harm the countries’ $725 billion trade relationship, according to Canada’s top diplomat. Biden is expected to sign an executive order this week urging federal agencies to buy goods and services from U.S. companies. Marc Garneau, Canada’s foreign minister, said he expects the new administration will discuss the measures with Justin Trudeau’s government. “President Biden is aware of it and the Prime Minister made that very clear that we are concerned about Buy American policies, because it actually harms our bilateral trading relationship which is so tightly integrated,” Garneau said in a television interview with CBC News.

World Headlines

1. 1. European stocks were steady Monday as optimism around government stimulus and corporate earnings was offset by short-term concerns around Covid-19 restrictions. The Stoxx Europe Index was little changed as of 10:38 a.m. in London, with technology, health care and basic resources at the top of the leaderboard and energy, real estate and financials falling. The Stoxx 600 Travel & Leisure index lost 1.4% as countries ramped up controls on international movement. Europe’s stocks are trading near their highest since February last year, but have remained in a range in recent weeks as pandemic restrictions temper the mood. France may go into another lockdown, the U.K. is considering tightening border controls and Israel will bar foreign flights from entering the country. International Consolidated Airlines Group S.A. and Ryanair Holdings Plc fell 6.9% and 5.4%, respectively, on Monday, while hotelier Accor dropped 3.9%.
2. 2. Markets started the week in the green, with tech shares climbing and investors continuing to focus on the U.S. administration’s $1.9 trillion Covid-19 relief plan. Futures on the Nasdaq 100 Index added almost 1%, outperforming contracts on the Russell 2000 Index of small-cap shares. GameStop Corp. extended its extreme rally, surging 46% in premarket trading. After ending last week on a rocky note, global stocks are resuming their march upward, seemingly confident that Democratic lawmakers will be able to push forward their sweeping stimulus package in the face of Republican pressure. Just as important for the market this week will be the parade of earnings, with the biggest U.S. tech giants including Apple Inc., Tesla Inc. and Facebook Inc. scheduled to release results.
3. 3. Asian stocks rose to a new record as benchmark gauges in Hong Kong and South Korea climbed more than 2% each. Tencent was the biggest boost to the MSCI Asia Pacific Index, which was headed for a fresh all-time high. Tencent climbed as a company it backs, Kuaishou Technology, announced plans for a $5.4 billion IPO in Hong Kong. Hong Kong stocks rebounded from a two-day loss after the government lifted its first lockdown, which was successful in detecting 13 new cases of coronavirus.
4. 4. Oil in New York inched higher with investors assessing the impact of supply curbs from Iraq and Libya on the near-term outlook. Iraq pledged to cut output in January and February after pumping more than its OPEC+ quota last year, and Libyan guards halted some crude exports after a pay dispute. Crude was also buoyed by a renewed climb in global equity markets as investors focused on the prospect of additional stimulus.
5. 5. Gold gained as traders looked to further progress on U.S. stimulus talks and awaited the Federal Reserve’s first meeting of the year. Bullion climbed as the week opened, with President Joe Biden and advisers engaging lawmakers on why more fiscal stimulus is needed to help the economy. Republican opposition to the $1.9 trillion plan remains staunch, with a proposed increase in the minimum wage proving a sticking point. The gold market may get more direction after the Fed’s two-day gathering, which starts Tuesday. Market watchers are looking for Chair Jerome Powell to provide reassurance that $120 billion of monthly bond purchases won’t be tapered any time soon.
6. 6. 7-Eleven Inc. is considering a bond offering that may total $10.95 billion, people familiar said, in what would be the world’s biggest corporate dollar note sale so far this year. The money would be used to help pay for parent Seven & i Holdings Co.’s $21 billion acquisition of Speedway gas stations in the U.S. from Marathon Petroleum Corp., according to a company spokesman. Shares in Seven & i rose 1.4% in Tokyo, while the broader Topix index gained 0.3%. A debt issuance of the size 7-Eleven is considering would be the biggest in the corporate dollar note market globally since a $12 billion sale from Verizon Communications Inc. in November, data compiled by Bloomberg show. It would also add to 350 billion yen ($3.4 billion) that the convenience-store operator raised in a Japanese debt offering in November for the Speedway deal.
7. 7. President Joe Biden will escalate appeals for Congress to back his top priority, $1.9 trillion in pandemic relief, seeking to overcome Republican opposition to the plan as he enters his first full week in office. Biden’s top economic adviser, Brian Deese, spent more than an hour on Sunday discussing the proposal with a bipartisan group of lawmakers. Some asked the White House to further justify what would be the second-largest emergency spending measure in U.S. history and expressed interest in a much narrower bill focused on accelerating coronavirus vaccine distribution, according to Senator Angus King of Maine and people familiar with the matter. Deese and other officials provided details and context in response to the senators’ questions, according to an administration official. Senior White House aides plan to keep talking with lawmakers in both parties this week to hear their concerns but also press for urgent action, the official said.
8. 8. Investors added money to exchange-traded funds that buy emerging market stocks and bonds last week. This was the 12th 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 $462.3 million in the week ended Jan. 22, compared with gains of $3.55 billion in the previous week, according to data compiled by Bloomberg. So far this year, inflows have totalled $6.1 billion.
9. 9. Dr. Martens owner Permira Holdings and other shareholders are looking to raise as much as 1.3 billion pounds ($1.8 billion) in an initial public offering of the shoemaker on the London Stock Exchange, betting on the enduring popularity of its cult leather boots. The company doesn’t plan to raise any money itself in the IPO. Private equity firm Permira and other investors are selling as many as 350 million shares at 330 pence to 370 pence apiece, according to terms seen Monday by Bloomberg News. Soon after opening the order book, the IPO had enough investor demand to cover all the shares on offer throughout the price range, terms showed. The sale of the 35% stake at that price range values Dr. Martens at 3.3 billion pounds to 3.7 billion pounds, which is more than 10 times the 300 million pounds Permira paid for the bootmaker in 2014. The Griggs family, directors of the company, employees and former employees also own stock, according to the terms.
10. 10. Merck & Co. is discontinuing development of its two experimental Covid-19 vaccines after early trial data showed they failed to generate immune responses comparable to a natural infection or existing vaccines. The U.S. drug giant, which has a long history of successfully developing vaccines, had adopted a different strategy from rivals Pfizer Inc., Moderna Inc. and Johnson & Johnson, using a more traditional approach of focusing on shots based on weakened viruses. One, called V590, borrowed technology from Merck’s Ebola inoculation, while the other, V591, is based on a measles vaccine used in Europe. Both V590 and V591 were laggards in the vaccine-development race. Merck finished recruiting the first participants for early-stage safety studies near the end of 2020, when front-runners Pfizer and Moderna were preparing to report late-stage data on their shots’ effectiveness. Merck received interim results from its trials this month.
11. 11. Sunlight Financial LLC, which provides loans to homeowners for rooftop solar panels, has agreed to go public through a merger with a special purpose acquisition company backed by Apollo Global Management Inc., according to people familiar with the matter. The deal with blank-check company Spartan Acquisition Corp. II gives Sunlight an implied equity value of about $1.3 billion, according to people familiar with the matter who weren’t authorized to speak publicly. Apollo and Sunlight declined to comment.
12. 12. Cryptocurrency enthusiasts counting on Bitcoin to bounce back above the $40,000 level face a challenge due to faltering demand for the biggest fund tracking the digital asset, according to JPMorgan Chase & Co. The pace of flows into the $20 billion Grayscale Bitcoin Trust “appears to have peaked” based on four-week rolling averages, JPMorgan strategists led by Nikolaos Panigirtzoglou said in a note Friday. The fund slid 22% over the past two weeks through Jan. 22, outpacing a 17% drop in Bitcoin in the same period. Bitcoin’s red-hot rally lost momentum after the largest cryptocurrency reached a peak of almost $42,000 on Jan. 8. Proponents argue institutional interest has helped bolster Bitcoin’s use as a hedge against dollar weakness and inflation, while skeptics maintain the latest surge is yet another speculative bubble, akin to the 2017 mania that preceded a rapid collapse.
13. 13. With Brexit agreed, currency traders betting on a rally in sterling are seizing on the next big divide between the U.K. and the European Union: vaccine rollouts. Britain has immunized around five times as many people as a proportion of its population than the European Union, a divergence that helped drive the U.K currency to an eight-month high versus the euro in the past week. It’s one of the reasons why sterling will continue to outperform, according to James Athey, an investment director at Aberdeen Standard Investments in London.
14. 14. Saudi Arabia replaced its central bank governor and said it would more than double the size of its sovereign wealth fund by 2025 as Crown Prince Mohammed bin Salman sets the stage for a flagship investment conference this week. Ahmed Alkholifey was removed from his position heading the monetary authority. He is being replaced by Fahad Al-Mubarak, who was central bank governor from 2011 to 2016. The reason for the change wasn’t given. The central bank and the $400 billion Public Investment Fund are set to play an increasingly important role in powering the domestic recovery as the government looks to boost an economy hit by the twin shocks of the coronavirus pandemic and low oil prices. The central bank’s mandate was recently expanded to include supporting economic growth, while the crown prince has said the wealth fund would invest $40 billion a year domestically.
15. 15. HSBC Holdings Plc’s Chief Executive Officer is set to be grilled by British lawmakers about the lender’s moves to freeze accounts of activists in Hong Kong, the latest sign of the political tensions buffeting Europe’s largest bank. Noel Quinn is set to appear before the U.K. Parliament Foreign Affairs Committee Tuesday. Quinn is listed as a participant, along with Colin Bell, the bank’s chief compliance officer, at a private and public hearing on Tuesday, according to a parliament schedule. The London-based bank, which counts Hong Kong as its largest market, has been caught in the midst of growing tension as China tightens control over the former British colony. The bank has faced criticism — and lost business — in China for cooperating with the investigation into Huawei, and been reprimanded in Washington and London after its top executive in Asia publicly endorsed a controversial security law imposed on the city. A local church has also accused the bank of freezing its account.
16. 16. Indian and Chinese soldiers have clashed along their contested Himalayan border in the first outbreak of violence in seven months, even as senior military commanders from both sides met in an attempt resolve the ongoing standoff. Several soldiers from both sides were injured in the fresh outbreak of violence along the border that runs through the northeastern state of Sikkim, ANI reported. The Indian Army confirmed in a statement there was was a “minor face-off” at Nakula area of North Sikkim on Jan. 20 that was resolved by local commanders.
17. 17. AMC Entertainment Holdings Inc. said it was no longer at risk of a bankruptcy filing after assembling $917 million of fresh financing, continuing its fight to fend off the effects of Covid-19 on its theater business. The world’s largest cinema chain’s shares soared as much as 50% in premarket trading and were up 36% to $4.76 at 7:39 a.m. in New York. The Leawood, Kansas-based company has raised $506 million of equity, after securing $100 million of additional first-lien debt and converting $100 million of second-lien debt into equity, it said in a statement Monday. It also said it executed commitment letters for $411 million of new debt through mid-2023.
18. 18. Blackstone Group Inc.’s Alight Solutions has agreed to go public via a merger with a blank-check special acquisition firm backed by investor Bill Foley, according to the companies. The deal by Foley Trasimene Acquisition Corp would value Alight, a benefits administrator business, at about $7.3 billion including debt, the companies said in a statement Monday. Based in Lincolnshire, Illinois, Alight provides human-resource support services such as payroll, health benefits and employee communications for large companies in 188 countries, according to its website. The company was a division of Aon Plc until Blackstone bought it in 2017 in a transaction valued as much as $4.8 billion. Since then, Alight has acquired several other human-resources and technology companies.
19. 19. The suit against Mr. Giuliani, a lawyer for former President Donald Trump who pushed to overturn the election results, accuses him of carrying out “a viral disinformation campaign.” Dominion Voting Systems filed a defamation lawsuit on Monday against Rudolph W. Giuliani, the lawyer for Donald J. Trump and former mayor of New York City who played a key role in the former president’s months long effort to subvert the 2020 election. The 107-page lawsuit, filed in the Federal District Court in Washington, accuses Mr. Giuliani of carrying out “a viral disinformation campaign about Dominion” made up of “demonstrably false” allegations, in part to enrich himself through legal fees and his podcast. The suit seeks damages of more than $1.3 billion and is based on more than 50 statements Mr. Giuliani made at legislative hearings, onTwitter, on his podcast and in the conservative news media, where he spun a fictitious narrative of a plot by one of the biggest voting machine manufacturers in the country to flip votes to President Biden.
20. 20. Morgan Stanley strategists are looking for the ebb-and-flow of U.S. Treasury bill issuance to push funding rates lower this year. The U.S. Treasury is likely to run down its $1.6 trillion cash pile at the Federal Reserve, which will probably mean a sharp reduction in bill supply through the second quarter, strategists including Kelcie Gerson wrote in a Jan. 23 note. This will have a knock-on impact on where money market funds park their cash, they said. The crux of their strategy lies in how prime funds tend to behave. When there’s more Treasury bills being sold, the funds tend to buy them. When supply dries up, they switch to purchasing more commercial paper, where the rates are closely tied to the benchmark Libor.
21. 21. Mexican President Andres Manuel Lopez Obrador said he tested positive for Covid-19, after a weekend trip that took him to two states amid a record climb in the nation’s cases and deaths in the past week. The 67-year-old president announced his diagnosis in a tweet late Sunday, saying his symptoms were mild and that he’s receiving treatment. He’s also expected to stay on top of the country’s affairs, and will take a scheduled call with Russian leader Vladimir Putin on Monday. The peso was little changed against the dollar in Asia trading.
22. 22. European banks probably failed to live up to U.S. peers’ record fourth-quarter profits as they set aside more money for troubled loans and missed out on the rally in equities trading. Ten of Europe’s biggest lenders probably set aside $15 billion for doubtful credit in the fourth quarter, taking the year’s total to $61.5 billion, the highest since 2012, according to analyst estimates compiled by Bloomberg. Many of the top U.S. banks, by contrast, bolstered profit by releasing reserves made earlier in the year.

 

*All sources from Bloomberg unless otherwise specified