January 24, 2022

Daily Market Commentary

Canadian Headlines

  • TCV and Inovia Capital are leading a $50 million funding round for a Canadian biomedical software startup that has some of the world’s largest pharmaceutical companies as clients. The investment in BenchSci Analytics Inc. will be used to expand its software platform and hire hundreds of new employees. The Toronto-based company has developed a way to use artificial intelligence to help researchers sort through millions of scientific papers, speeding the process of developing drugs and treatments. BenchSci’s customers include Moderna Inc., Bristol Myers Squibb Co., AstraZeneca Plc and Sanofi. The company has doubled its revenue and the size of its team over the past three years, according to TCV General Partner Matt Brennan.
  • Enerflex says it will buy Exterran in an all stock transaction that values Exterran at about $735 million. Enerflex will acquire all outstanding common shares of Exterran on the basis of 1.021 Enerflex common shares for each Exterran common share. Deal represents an implied combined enterprise value of about $1.5b. Combined co. will operate as Enerflex Ltd. and will remain headquartered in Calgary

World Headlines

  • European stocks retreated to the lowest in a month as investors weighed Russia-linked geopolitical tensions and braced for the Federal Reserve’s meeting, when policy makers are expected to signal their first interest-rate hike since 2018. The Stoxx Europe 500 fell 2% by 10:32 a.m. in London, lowest since Dec. 20. Travel and leisure as well as technology stocks led the declines. More defensive personal care and telecom shares outperformed.  The Fed kicks off its two-day meeting on Tuesday, where it’s forecast to pave the way for a March interest-rate increase. The expectation of an aggressive tightening cycle from the Fed has pressured European stocks this year, as rising bond yields have fueled a retreat in frothier sectors, such as technology.
  • U.S. futures slipped and stocks extended declines amid concerns over the Federal Reserve’s imminent rate liftoff. Bonds rose as Russia-Ukraine tensions exacerbated the risk-off mood. U.S. equity futures reversed early gains, dimming hopes of some respite after one of the worst stretches for global shares last week since the pandemic began. Contracts on the tech-heavy Nasdaq 100 turned lower after climbing as much as 1% earlier. The Treasury 10-year yield dipped along with rates on most European bonds. A dollar gauge ticked higher. The Fed on Wednesday is expected to signal a March hike in interest rates and balance-sheet reduction later this year to help fight inflation. Ebbing stimulus is forcing a rethink about the economic and market outlook.
  • Asian stocks headed for their lowest close in about a month, amid expectations that the Federal Reserve will signal at a meeting Wednesday that it will kick off monetary tightening in March. The MSCI Asia Pacific Index lost as much as 1%, set for the seventh day of declines in eight sessions. Consumer discretionary and financials sectors contributed the most to the slide, with Alibaba Group and Tencent Holdings among the biggest drags. India and Vietnam were the day’s worst performers. Major benchmarks in Asia are approaching new milestones following recent declines. Japan’s Topix Index is hovering near, while New Zealand has entered, technical correction territory on Monday. Measures for mainland China and South Korea are close to entering a bear market.
  • Oil in London traded near $88 a barrel as increasing geopolitical risks vied with broadly weaker equities markets. International benchmark Brent crude gained 0.3% after earlier climbing as much as 1.2%. Equities in Europe declined on Monday amid concerns over the U.S. Federal Reserve’s imminent rate liftoff, but oil continues to trade near its highest level since 2014. Crude’s rally has been buoyed by a combination of robust demand in the face of the omicron variant, while disrupted supply in countries including Libya has also tightened the market. That is now being compounded by heightened political risk as Russia amasses troops near Ukraine, and the United Arab Emirates comes under attack from Yemen’s Houthi rebels.
  • Gold futures on Monday were headed modestly higher, amid a period of factors — including brewing international tensions and a downturn in risk assets — that were supporting buying in the precious metal that is perceived as a haven. The early move for gold comes as the Federal Reserve was slated to kick off an important gathering on Tuesday and Wednesday to lay out the framework for tightening monetary policy to combat rising inflation pressures. February gold was trading up $6.20, or 0.3%, to $1,838.10 an ounce, following a 1.1% weekly advance for the precious metal.
  • The Chinese city of Xi’an lifted a monthlong lockdown after a Covid outbreak was stamped out. Shops, supermarkets and restaurants in the city of 13 million can resume business, a local government statement said. President Joe Biden’s chief medical adviser Anthony Fauci expressed optimism that the omicron surge will soon peak, but said the decline won’t be uniform throughout the U.S India’s current wave of infections may have peaked, according to a note by Cambridge University’s India Covid-19 tracker. Cathay Pacific said its monthly cash burn will widen as the highest number of daily cases in about a year in Hong Kong brings tighter restrictions.
  • U.K. Prime Minister Boris Johnson faces the most critical week of his premiership, as he braces for the outcome of an investigation that could lead to his own colleagues ousting him. Allegations are also mounting over the conduct of his government whips — the Conservative Party lawmakers responsible for maintaining party discipline — with member of Parliament Nusrat Ghani claiming on Sunday that she was fired as a minister in 2020 partly because of her Muslim faith. Several Conservative MPs and ministers rallied round her. Following a conversation between Johnson and Ghani on Sunday evening, the premier on Monday morning announced a Cabinet Office inquiry into the allegations.
  • Unilever Plc rose after Nelson Peltz built a stake in the maker of Dove soap, putting pressure on Chief Executive Officer Alan Jope to accelerate a revamp. Peltz’s Trian Fund Management has amassed a holding in London-based Unilever over the past few months, according to people familiar with the matter, who asked not to be identified because the plans are private. The exact size and Peltz’s intentions couldn’t be immediately learned. Jope was already reeling from a failed bid for GlaxoSmithKline Plc’s consumer-health unit and faces growing calls to chart a new course. Billionaire Peltz is turning his attention to Unilever after retiring from Procter & Gamble Co.’s board in August after nearly four years that brought several dramatic changes aimed at improving that consumer-goods giant’s performance.
  • Investors added money to exchange-traded funds that buy emerging market stocks and bonds last week. This was the fourth 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 $875.9 million in the week ended Jan. 21, compared with gains of $2.98 billion in the previous week, according to data compiled by Bloomberg. So far this year, inflows have totalled $4.34 billion.
  • Chinese electric vehicle startup Hozon New Energy Automobile Co. is seeking to raise about $500 million before a potential listing in Hong Kong this year, people with knowledge of the matter said. Hozon is working with advisers on the fundraising, the people said, asking not to be identified as the information isn’t public. The current round would value the Zhejiang-based firm at around 45 billion yuan ($7.1 billion), they said. The company could seek to launch its initial public offering as soon as the second half of this year, the people said. Bloomberg News reported in November that Hozon is considering a first-time share sale in Hong Kong that could raise about $1 billion.
  • The investment approaches of Cathie Wood and Warren Buffett couldn’t be more different. But over the past two years, their investors have ended up with almost exactly the same results. Wood’s ARK Innovation ETF and Buffett’s Berkshire Hathaway Inc. have both delivered returns of about 35% over the past 24 months, excluding the contribution from dividends. But the two — which might be the ultimate example of opposing investment styles — took very different paths to get there. ARK’s focus on dynamic growth stocks has been full of highs and lows, while Berkshire’s classic value approach has achieved slower and steadier gains.
  • Boeing Co. is plowing $450 million into Wisk, an air-taxi startup with Google roots, as the century-old titan looks to Silicon Valley to expand its stake in futuristic, self-flying aircraft that may one day zip over city centers. The Chicago-based planemaker will provide engineering resources along with funding for an electric four-seater aircraft that Wisk aims to eventually certify with U.S. regulators, according to Marc Allen, Boeing’s chief strategy officer. The money will also help the Mountain View, California-based venture prepare to scale up manufacturing. Boeing held on to its stake in Wisk while paring other futuristic investments to conserve cash, dissolving an internal investing unit in 2020 and spinning off its venture-capital portfolio last year. The manufacturer co-owns the startup with Kitty Hawk Corp., a flying-taxi pioneer that is financed by Google co-founder, Larry Page, and headed by Sebastian Thrun. The German-American entrepreneur helped create Google’s self-driving auto initiative.
  • KKR & Co. agreed to purchase Dutch bicycle maker Accell Group NV for 1.56 billion euros ($1.8 billion) amid a cycling boom spurred by the pandemic. Investors will get 58 euros in cash for every Accell share, the companies said in a statement Monday, indicating a 26% higher price than Friday’s closing. Teslin, one of Accell’s largest shareholders with about a 10.8% stake, is part of KKR’s consortium. Hoogh Blarick, which holds about 7.5% of the shares, also supports the transaction. Axeco Corporate Finance is advising Accell, while KKR is working with Goldman Sachs Group Inc.
  • As the U.S. and Europe mount increasingly frantic efforts to deter Russia from any invasion of Ukraine, it’s Chinese President Xi Jinpingwho may have the biggest influence on Vladimir Putin’s timetable. The Russian president has said he will join Xi at the opening ceremony Feb. 4 of the Beijing Winter Olympics, where the Chinese leader has lavished billions of dollars to showcase his nation’s superpower status to the world. The last thing Xi would need is for Putin to overshadow China’s big moment by triggering a global security crisis with the U.S. and Europe, analysts say. That’s especially the case given Xi is looking to bolster his prestige at home as he seeks endorsement for an unprecedented third term later this year.
  • Mowi ASA, the world’s biggest producer of Atlantic salmon, plans to buy competitor NTS ASA in a deal that values the shares at 13.8 billion kroner ($1.55 billion) as the traditional Norwegian industry is consolidating.  The combined cash and stock offer of 110 kroner per share will be settled 50% in cash and 50% in Mowi shares, according to a statement on Monday. The acquisition would add another 84,000 metric tons to Mowi’s existing harvest of 466,000 tons of Atlantic salmon a year. Norwegian salmon and trout exports have more than doubled in value since 2012 as the red-fleshed fish gains in popularity. Conditions in the fjords are difficult to replicate outside of the region, supporting a sector that’s one of Norway’s top exports.
  • The U.K.’s relations with China may be at a low ebb but China Construction Bank Corp.’s City of London outpost is banking on ever closer financial flows between the two countries. The branch is the sole renminbi clearing bank in the U.K., making it an essential conduit to potentially staggering flows of Chinese money and investment. It has cleared some 64 trillion yuan ($10 trillion) of transactions since 2014 — the largest volume outside of Asia — and its top U.K. executive is planning for growth. Yang Aimin, who has run the U.K. operations of China’s second-largest lender since 2018, said in an interview last week he is targeting double-digit clearing volume growth in 2022 after it grew 18% last year to 11.9 trillion yuan. He’s also expecting the business of servicing Chinese companies listed in London to grow.
  • Singapore state-owned investor Temasek Holdings Pteis nearing a deal to buy testing company Element Materials Technologyfrom buyout firm Bridgepoint Group Plc for almost $7 billion, people familiar with the matter said. Temasek, which is already a minority owner in the business, could announce an agreement as early as Monday, said the people, who asked not to be identified because discussions are private. U.K.-listed private equity firm Bridgepoint began exploring a sale late last year, Bloomberg News previously reported. Temasek preempted a bidding process that was expected to draw interest from other buyout firms as well as strategic investors. Cinven Ltd. and the Canada Pension Plan Investment Board were among parties reported to be interested.
  • JPMorgan Chase & Co. said it hired Tanya Barnes, the former head of Blackstone Inc.’s impact platform, as co-managing partner of its sustainability-focused growth equity investing effort. Barnes will co-lead the group, which sits within JPMorgan Private Capital, alongside Osei Van Horne. New York-based JPMorgan will provide as much as $150 million to anchor the group’s first fund, which may begin investing as soon as this quarter. It’ll focus on companies in real estate, industrials and manufacturing, transportation and supply-chain logistics as well as food and agriculture.
  • The selloff in cryptocurrencies gained momentum on Monday, with Bitcoin tumbling to a six-month low and other digital tokens seeing even bigger losses.  Bitcoin sank as much as 6.6% and fell below the $34,000 mark, continuing a six-day downturn. Ether retreated 7.6% and touched $2,201, also the lowest since July.  Across the crypto spectrum, markets were in a sea of red with Solana’s SOL and Cardano’s ADA plummeting 19% and 13%, respectively, according to data compiled by CoinGecko.
  • Wall Street firm Jane Street, known for its dominance in established financial markets such as exchange-traded funds and corporate bonds, is becoming a major player in a fast-growing field: cryptocurrency trading.  The New-York based company, which executed its first crypto trade in 2017, provides liquidity for a range of digital assets from Bitcoin and Ethereum to some of the meme coins popular on social media. It is one of the market makers that power Robinhood Markets Inc. customers’ free crypto trades. It’s also exploring working with emerging platforms, such as decentralized finance exchanges, a crypto Wild West where computer codes known as smart contracts provide quotes and execute trades automatically on blockchain. Crypto trading has been “a clear growth area” in the past 16 months, said Turner Batty, a trader at Jane Street who helped start the desk. The number of people at Jane Street working on cryptocurrency has “never been higher,” he said. Now, dozens of employees globally have jobs focusing on crypto trading or have some part of their work, such as tax and accounting, that’s related to digital coins.
  • Peloton Interactive Inc. has received a letter from an activist investor demanding that it fire its chief executive officer and pursue a sale. Blackwells Capital LLC, which has a stake of less than 5%, has called for the departure of CEO and co-founder John Foley, and wants Peloton to explore a sale of the business. Peloton could be an attractive acquisition target for larger technology or fitness firms, according to an investor letter seen by Bloomberg. Peloton’s shares have tumbled more than 80% from their all-time high a year ago, as the gradual easing of pandemic-era restrictions fueled concern that growth of the stay-home fitness company will slow. The stock touched a nearly two-year low last week after CNBC reported that Peloton was temporarily halting production of its bikes and treadmills.

“I’ll go anywhere as long as it’s forward.” – David Livingstone

*All sources from Bloomberg unless otherwise specified