January 28, 2021

Daily Market Commentary

Canadian Headlines

  1. Canadian equities fell the most since late October on Wednesday as part of a broad-based decline that pushed the benchmark index to its lowest since mid-December and erased the New Year’s advance. The S&P/TSX Composite Index retreated 2%, with ten of eleven sectors falling. Materials and industrials led the decline. Amid increased signs of market euphoria, there’s plenty of investor nerves out there — but also a reluctance to forgo gains. That favors complex options trades that protect against crashes but keep investors in the market, according to RBC strategists. Gold traded little changed, paring the day’s steepest losses, as a retreat in equities and lower U.S. Treasury yields diminished the allure of a stronger dollar.
  2. Rogers Communications Inc. reported its fourth-quarter profit edged lower compared with a year earlier as its wireless revenue fell. The cable and wireless company says it earned $449 million or 89 cents per diluted share for the quarter ended Dec. 31, down from $468 million or 92 cents per diluted share a year earlier. Revenue for the quarter totalled $3.68 billion, down from $3.95 billion in the fourth quarter of 2019. The company says the drop was largely due to an eight per cent drop in wireless service revenue which fell because of global travel restrictions and lower overage revenue as customers continued to adopt unlimited data plans. Cable revenue rose three per cent, while media revenue fell 23 per cent due to the postponement of the start of the 2020-2021 NHL and NBA seasons and softness in the advertising market.
  3. PSP Investments, which manages pensions for Canadian public servants including the Royal Canadian Mounted Police, is making a bet on single-family rentals. The Ottawa-based pension fund has teamed up with investment firm Pretium to launch a joint venture that will initially invest $700 million into single-family rental properties across major markets in the southeastern and southwestern U.S., including Atlanta, Charlotte, Nashville, Phoenix and Raleigh. Single-family rentals have become a hot commodity in recent months as the Covid-19 pandemic accelerates demographic shifts to the suburbs. With hotels, offices and shopping malls taking a hit from social distancing, institutional investors are betting on demand for homes from American renters.
  4. One of Canada’s top hedge fund managers parlayed the pandemic-fueled turmoil of 2020 into its best performing year in the firm’s history. Timelo Investment Management Inc. sees even more opportunity ahead. The firm oversees Timelo Strategic Opportunities Fund, a seven-year-old fund whose 29% gain last year outperformed the 5.6% total return of Canada’s benchmark S&P/TSX Composite Index. Timelo took advantage of market volatility in the early days of Covid-19 to invest in companies best positioned to weather the pandemic. Now, says portfolio manager Jean-Francois Tardif, the Toronto-based firm is betting on a post-pandemic revival that others aren’t seeing yet. “Things are getting better from here,” Tardif said in an interview. “When Covid is 90% or 95% over, which is probably going to be the case by summer, most of the economic damage should be behind us, so I’m looking at stocks that haven’t yet fully recovered and should fully recover.”

World Headlines

  1. European equities slumped to the lowest level in a month amid growing investor unease about earnings, the patchy roll-out of vaccines and stock volatility fueled by retail traders. The Stoxx Europe 600 Index fell as much as 2.1% before paring declines to trade 0.6% lower by 11:22 a.m. in London, with energy, banks and insurance sectors falling the most. Wartsila Oyj Abp slumped as much as 10% after fourth-quarter net sales missed estimates. EasyJet plc declined 4.8% before paring the retreat after Europe’s second-largest discount carrier posted a sharp drop in revenue for the period. With the European benchmark trading near an 11-month high, investors are weighing whether concerns over valuations, earnings and Covid-19 restrictions outweigh the prospects of a vaccine-fueled economic recovery later in the year. Adding to the gloomy news today, economic confidence in the euro area fell in January, after governments extended restrictions to contain the spread of the coronavirus and vaccination campaigns got off to a slow start.
  2. U.S. equity futures recovered their footing on Thursday after a panoply of concerns unnverved investors and waylaid the new year rally. The dollar rose. Contracts on the S&P 500 Index pared an earlier decline sparked by earnings disappointments and the fallout from frenzied retail trading. On Wednesday, the benchmark slumped 2.6% in its worst rout since October as retail traders piled into heavily-shorted companies, sparking losses at hedge funds and causing turmoil in parts of the market. Stocks have stumbled after a prolonged rally that spurred talk of possible asset bubbles and predictions of a pullback given a raging pandemic and patchy rollout of vaccines. Adding to investor anxiety is a wave of retail traders bidding up heavily-shorted shares, whipsawing stocks around the globe.
  3. Asian stocks fell for a third day as risk-off sentiment heightened following a slew of disappointing earnings in Asia and the U.S.. The MSCI Asia Pacific Index dropped the most since November, and was headed for its biggest three-day decline in more than seven months. Traders turned cautious after a series of earnings disappointments from global technology giants, while in Asia, Samsung’s quarterly profit missed estimates with the company warning of weaker results for the current quarter. Every equity index in Asia declined. Vietnam was the worst-performing market in the region, with its benchmark gauge falling below its key 50-day moving average. China was also among the lagging markets, as its central bank withdrew short-term liquidity from the financial system at the fastest pace in three months.
  4. Oil declined as a slide across financial markets overshadowed the positive signal from the biggest draw in U.S. crude stockpiles in six months. Futures in New York slid 0.4% as negative sentiment rippled through markets amid concerns over earnings, the resurgence of the pandemic, and a cautionary outlook on the U.S. economy from the Federal Reserve. A stronger dollar also reduced the appeal of commodities priced in the U.S. currency. The bearish tone eclipsed an almost 10 million-barrel decline in American crude stockpiles and shrinking inventories at the key storage hub of Cushing. There are also signs that the Covid-19 outbreak is continuing to crimp fuel consumption. China’s flight and road travel has declined ahead of the Lunar New Year, which typically sees a seasonal boost to fuel consumption, while traffic in Los Angeles slumped over the past month.
  5. Gold fell after the Federal Reserve left its benchmark interest rate unchanged and stuck with the current pace of bond-buying, aiding the dollar and putting bullion on course for the worst start to a year in a decade. The Fed repeated it would maintain bond-buying at $120 billion per month until “substantial further progress” toward employment and inflation goals has been made. After the Federal Open Market Committee’s first meeting of 2021, Chair Jerome Powell said it would take “some time” to achieve the threshold for altering purchases, making clear the central bank’s not close to tapering them.
  6. Iron ore proved to be one of the most bullish commodity trades of 2020; this year’s turning out a little different. Futures tumbled on Thursday, erasing year-to-date gains, after a vow by China to roll back steel production sent a shudder through the global market. Futures in Singapore fell for the fourth day in five, set for the lowest close in six weeks, as investors questioned whether the robust demand that’s hoisted prices to multi-year highs would be sustained. This week, China reinforcedplans to ensure steel output will fall this year. The salvo came just as mills face a slump in profit margins, the dollar rose, and top miners plan to add supplies.
  7. Stock volatility is making a comeback amid worries about tech profits, unhinged retail trading and tepid economic growth. The Cboe Volatility Index, known as the VIX, jumped to 37 on Wednesday — the biggest one-day move since the pandemic-spurred market crash in March. The gauge was trading at 31 as of 7:24 a.m. New York time on Thursday, near the highest since November. The bulk of yesterday’s gain came in after-hours trading, when Tesla Inc., Apple Inc. and Facebook Inc. all fell after reporting results. The futures curve of the VIX, which measures the 30-day implied volatility of the S&P 500 Index, flipped to “backwardation” — indicating investors expect more volatility in the near-term.
  8. The European Union failed to resolve its dispute with AstraZeneca Plc over vaccine supplies, raising the risk of additional delays to inoculations. The quarrel could add another thorn to the tumultuous post-Brexit ties between Britain and the EU. Pfizer Inc. and BioNTech SE said results of studies indicate their vaccine is effective against both the U.K. and South Africa variants. Hong Kong is setting up a network of vaccination centers while Beijing is tightening entry requirements to the city ahead of major Chinese political meetings. The International Olympic Committee remains “fully concentrated and committed” to holding the Tokyo Olympic games in July. Governor Andrew Cuomo lifted restrictions in most hot spots across New York state, declaring an end to the post-holiday surge in cases and hospitalizations.
  9. President Joe Biden will make it easier for Americans to buy health insurance during the pandemic, reopening the federal Obamacare marketplace with an order Thursday that’s a step toward reinvigorating a program his predecessor tried to eliminate. Another directive Biden will issue Thursday will immediately rescind the so-called Mexico City Policy, which prohibits international non-profits from receiving U.S. funding if they provide abortion counseling or referrals. The Obamacare executive order will create a special enrollment period for plans sold in the federal Healthcare.gov market from Feb. 15 to May 15, offering a path to health care for people who’ve found themselves without insurance coverage after losing their jobs. The order also directs agencies to look for ways to strengthen Medicaid, the federal health program for low-income people, and the Affordable Care Act more broadly.
  10. Uber-like Chinese startup Full Truck Alliance is preparing for a U.S. initial public offering that could raise at least $1 billion as soon as this year, after eking out a slim 2020 profit thanks to a pandemic-era shipping surge. The startup backed by Tencent Holdings Ltd. is working with Morgan Stanley and China International Capital Corp. on its American debut, people familiar with the matter said. The talks are preliminary and details could still change but the company aims to raise $1 billion to $2 billion, they said, asking not to be identified because the discussions are private. China’s economy roared back to pre-pandemic growth rates in the fourth quarter after its industrial engines fired up to meet surging demand for exports. That boom is straining a domestic logistics network already taxed by a Covid 19 resurgence in e-commerce.
  11. GameStop Corp. resumed its rally in early U.S. trading, momentarily pushing the stock above $500, as day traders moved on from limits to the Reddit forum whose users have fueled the stock’s meteoric ascent. The shares were up 40% at $490 at 7:13 a.m. New York time. They have advanced more than 1,700% this year, fueling a rally in retail trading across the board and leading some short sellers to throw in the towel. Trading has remained volatile since the last regular U.S. session, in which the stock rose 135%. Gains were briefly pared postmarket after the Reddit page that has fueled this month’s surge was made private and then later reopened by the group’s moderators. In the time the original WallStreetBets board was down, an alternate forum called Wallstreetbetsnew topped 350,000 members.
  12. Qualtrics International Inc., the customer-survey software business being spun off by SAP SE, is poised to raise about $1.55 billion after boosting the amount of stock in its initial public offering for a second time. The company increased the size of the offering to 51.7 million shares, from 50.4 million shares, Qualtrics said in a filing Thursday. It plans to sell the shares for $30 apiece, above the top end of an earlier range, according to the filing. Bloomberg News reported earlier that Qualtrics had priced the offering at about $30 per share, above the latest range of $27 to $29. It initially offered the shares at $20 to $24 each.
  13. Prudential Plc may raise as much as $3 billion in a share sale as the insurance giant prepares to ramp up its focus on Asia and split off its U.S. operation. Prudential is considering raising equity in Hong Kong or London, or both, as part of its plan to increase the group’s investor base in Asia, the company said in a statement Thursday. It’s also decided to pursue the separation of Jackson Financial Inc. in a demerger, rather than an initial public offering, and distribute shares in the unit to Prudential investors.
  14. Tesla Inc. reported lower-than-expected profit and record revenue, mixed results that disappointed investors used to razzle-dazzle from the newly minted member of the S&P 500 Index. The electric-vehicle market leader reported an adjusted fourth-quarter profit of 80 cents a share Wednesday, falling short of analysts’ consensus for $1.03 and well below the blowout result a year earlier — before the global pandemic set in. The results marked a sixth straight profitable quarter but also the first time the company missed Wall Street’s estimate for earnings per share since July 2019.
  15. Exxon Mobil Corp. kept the S&P 500 Index’s third-largest dividend after this year’s rally in commodity prices eased analysts’ fears that the payout was becoming unaffordable. Exxon’s first-quarter dividend will be 87 cents a share, the same level as the previous seven payouts, the Irving, Texas-based company said in a statement on Wednesday. The decision means Exxon, for now, remains one of corporate America’s “dividend aristocrats,” defined as companies that have increased the shareholder distribution consistently for 25 years or more. The oil giant’s precipitous 41% drop last year, the worst annual performance in at least four decades, led some analysts to speculate that the payout was becoming too expensive. Exxon’s cash flow has been too small to cover its dividend and capital spending for the past eight quarters, leading to a dramatic increase in debt.
  16. 16. Strategists are lining up to recommend buying the dip in stocks, anticipating that more stimulus and a global economic recovery from the pandemic will bolster equities. Market watchers at investment banks including Goldman Sachs Group Inc., JPMorgan Chase & Co. and Nomura Holdings Inc. are among those expecting a turnaround. Asian shares slumped Thursday, after the S&P 500 index turned negative for the year following its worst drop since October. “This should be seen as a correction in a new equity cycle, and it’s likely that recovery when it comes back again will be led by more cyclical and value parts of the market,” Peter Oppenheimer, chief global equity strategist at Goldman Sachs, said on Bloomberg Television. Markets will climb on a strong economic and profits recovery, he added. The global stock rally had already stalled near record levels, hurt by virus lockdowns and uncertainty over the timeline for President Joe Biden’s $1.9 trillion fiscal relief plan. A battle between retail investors and short sellers over firms such as GameStop Corp. added to worries that parts of the market were running too hot.
  17. Russian President Vladimir Putin’s attempts to limit rising food prices may end up actually increasing overall inflation, adding to pressure on the central bank to start raising interest rates again this year. Retailers may compensate for losses incurred from government-ordered price freezes on sugar and sunflower oil by pushing up the cost of other goods, according to Igor Safonov, an economist at the Higher School of Economics in Moscow. The Audit Chamber, a government watchdog, estimated in a report published this week that food prices overall will shoot up when the restrictions are lifted at the end of the first quarter.
  18. Saudi Arabia wants to emulate Germany’s success with renewable energy and be a pioneer in hydrogen production, as the world’s biggest oil exporter seeks to diversify its economy. “We will be another Germany when it comes to renewables,” Energy Minister Prince Abdulaziz bin Salman said Wednesday on a panel at the Future Investment Initiative conference in Riyadh. “We will be pioneering.” The green version of the fuel, which produces only water vapor when burned, is made with renewable energy, typically solar and wind power. The blue type is produced from natural gas, with the greenhouse gas emissions being captured so they can’t escape into the atmosphere.
  19. Store and office vacancies are surging across the U.K. as the pandemic hammers retailers and workers stay at home. The amount of empty space in the U.K.’s malls and stores is rising at the fastest pace since at least 1999, when records began, according to a survey of brokers conducted by the Royal Institution of Chartered Surveyors. The number of brokers reporting higher office vacancy rates was the highest since the depths of the last financial crisis. U.K. retail landlords were already grappling with falling rents and values before lockdowns accelerated the shift to online shopping and forced more stores to close. The pandemic has also dented the outlook for office landlords as companies grapple with the economic fallout of the virus and question the need for staff to come in to work every day.
  20. STMicroelectronics NV is ramping up spending on added semiconductor capacity after a supply chain breakdown disrupted the automotive industry and piled pressure on the French-Italian chipmaker to boost output. The industry has been struggling to meet demand for chips powerful enough to run the latest generation of smartphones and manage an increasingly sophisticated array of functions in cars, after the pandemic and geopolitical tensions disrupted supply chains. Chipmakers face the risk of investing in new production that could end up being underused if customers stop stockpiling. ST Chief Executive Officer Jean-Marc Chery said all of the company’s foundries are fully booked and it’s starting to see shortages of some materials.
  21. Apple Inc. shares fell more than 3% in extended trading after a cautious outlook from executives overshadowed quarterly revenue that topped $100 billion for the first time. While the company didn’t provide an official forecast for the fourth quarter in a row, executives said sales growth from AirPods and other wearables will decelerate in the current quarter. They also warned that Services sales in the period will face tougher comparisons with a year earlier. Sales jumped 21% to $111.4 billion in the period ended Dec. 26, the company said Wednesday in a statement. Analysts, on average, expected $103.1 billion, according to data compiled by Bloomberg. Profit was $1.68 a share, also topping Wall Street estimates.
  22. Comcast Corp. continues to see the benefits and drawbacks of the prolonged pandemic, with internet customers soaring again last quarter while sales at its theme parks and movie studios declined. The Philadelphia-based company added 538,000 internet subscribers, its most for a fourth quarter and a 22% increase from a year ago. Analysts expected 496,040 new internet customers. Comcast also lost 248,000 video customers in the quarter, 66% more than a year ago but better than analysts’ forecast of 268,220 losses. Theme-park sales sank 63%, while film-studio revenue dropped 8%.

“Often man is preoccupied with human rules and forgets the inner law.” – Antoine the Healer

*All sources from Bloomberg unless otherwise specified