January 31, 2022

Daily Market Commentary

Canadian Headlines

  • Blackberry to Sell Legacy Patents for $600M, according to a press release. BlackBerry Limited, announced today that it has entered into a patent sale agreement with Catapult IP Innovations Inc., a Delaware company, pursuant to which BlackBerry has agreed to sell substantially all of its non-core patent assets to Catapult for total consideration of $600 million.
  • Raucous protests in Canada’s capital continued Sunday over trucker vaccine mandates and other Covid-19 health restrictions, but the crowd thinned from its height a day earlier after drawing military and political rebukes for poor behavior. The main avenue outside the parliament buildings in Ottawa remained blockaded by a line of big rigs, and protesters speaking on a makeshift stage said they don’t intend to leave anytime soon. Canada’s legislature has been on a winter break since mid-December, but is scheduled to resume sitting on Monday. The trucker convoy has drawn an unusual amount of global attention, most recently from Donald Trump. “We want those great Canadian truckers to know that we are with them all the way,” the former U.S. president told a Texas rally Saturday night. The protesters in Ottawa are “doing more to defend American freedom than our own leaders by far,” he said.

World Headlines

  • European stocks climbed as investors shifted their focus to earnings and away from prospects of policy tightening from central banks. The Stoxx Europe 600 was trading 0.5% higher at 10:52 a.m. in London, trimming gains of as much as 1.2%, with technology shares leading the advance after the Nasdaq 100 rallied on Friday. Italy’s FTSE MIB index outperformed, rising as much as 1.9%, as political uncertainties ease with Mario Draghi set to remain prime minister. European equities have been under pressure this month over concerns that aggressive interest-rate hikes from central banks will hurt growth. Traders are now monitoring earnings and guidance to assess companies’ resilience through the stalling recovery.
  • A global equity rally threatened to fizzle when the U.S. markets open on Monday as fluctuations in index futures signaled a volatile day. Investors turned their attention to upcoming earnings amid growing confidence corporate performance can weather Federal Reserve tightening. Contracts on the S&P 500 Index fell 0.2%, while those on the Nasdaq 100 Index rose 0.3%. The Stoxx 600 gauge advanced for a fourth time in five days and an index of global equities pared its biggest monthly drop since March 2020. Treasury yields advanced while the curve flattened as bond markets braced for successive rate hikes by Fed starting March. Citrix Systems Inc. fell in premarket trading after its proposed sale failed to offer a premium on the stock price.  As investors reconcile to a hawkish U.S. central bank, the expensive parts of the U.S. stock market are undergoing a valuation re-rating along with the bond markets.
  • Equities in Asia Pacific climbed in a quiet trading day, paring a portion of their worst monthly decline since July amid continued investor concerns about the pace of tightening by the U.S. Federal Reserve. The MSCI Asia Pacific Index gained as much as 0.8%, reversing an early loss of 0.4%, as consumer discretionary and communication services shares climbed. Alibaba and Tencent were among the biggest contributors to gains as the Hang Seng Tech Index closed up 2.4%. Asian tech stocks followed their U.S. peers higher after bellwethers including Apple and Microsoft announced strong quarterly results and outlooks. Benchmarks in Japan, India and Hong Kong rose, with the latter in a shortened trading session at the start of Lunar New Year holidays. Markets in China, South Korea and Taiwan were closed.
  • Oil markets opened the week higher and were heading for the biggest January gain in at least 30 years as robust demand outpaced fresh supply.  The global crude benchmark rose 0.8%, paring earlier gains, but remains on track for a 17% gain this month. West Texas Intermediate futures traded above $87 a barrel.  Traders on Monday were greeted with a familiar set of drivers, from the weather to stockpiles. Low temperatures in the U.S. have been boosting demand for fuels, as Boston reported a daily snow record and New York’s Central Park saw more than 8 inches fall. Oil infrastructure in Ecuador was damaged by a rockslide, potentially endangering supply. Meanwhile, oil held on tankers fell by more than a fifth last week, the latest sign of ebbing inventories.
  • Most base metals gained as the dollar eased from a recent high, while traders mulled a slowing economy in top user China, where markets are closed this week. Gold steadied. After posting its worst week since October, copper led gains on the London Metal Exchange as the greenback eased from the highest since mid-2020, offering support to commodities priced in the currency. There are also continued signs of tight supplies, with LME stockpiles of copper, nickel and aluminum extending declines on Monday. Still, there are concerns that a slowdown in China poses risks to demand. The nation’s manufacturing output slipped at the start of the year and Covid-19 outbreaks curbed consumer spending, official data released over the weekend show. Caterpillar Inc., considered an economic bellwether, signaled Friday that Chinese demand for machinery will likely decline this year.
  • Iron ore futures in Singapore plummeted on Monday as China vowed to strengthen the oversight of prices, which surged last week to the highest level since September. The steelmaking material has been on a tear since the start of the year as expectations that China will boost infrastructure spending and further ease monetary policies brightened demand prospects. But the rally — which still puts iron ore on track to gain more than 12% in January — is starting to unnerve Beijing.  Pointing to the sharp rise in prices and abnormal fluctuations, the National Development and Reform Commission said late Friday it will crack down on speculation. The state economic planner also said it will examine measures to ensure the “smooth operation of iron ore prices.”
  • The number of infections among athletes and team members in Beijing for the Winter Olympics continues to grow as the Games draw near, at an even faster clip than the Tokyo games last summer. Spain has started to include the price of face-masks in its basket making up the inflation reading. In New Zealand, Prime Minister Jacinda Ardern has returned a negative test for Covid-19 after being identified as a close contact, although she will continue to self-isolate in line with health ministry rules. Japanese Prime Minister Fumio Kishida is pushing to quicken the pace of booster vaccinations, as a poll showed his voter support slipping months ahead of a key upper house election.
  • Russian Foreign Minister Sergei Lavrov and U.S. Secretary of State Antony Blinken will speak by phone Tuesday, as diplomatic efforts to reduce tensions over Ukraine continue. The U.S. and the European Union are zeroing in on a package of sanctions against Russia if there’s an invasion. In the U.K., Prime Minister Boris Johnson’s government is looking at targeting “any company or individual of direct interest to the Russian state.” The United Nations Security Council is set to debate the crisis on Monday. Moscow further boosted troop levels around the Ukrainian border over the weekend, according to the Pentagon, with Russia moving forces also to Belarus for military drills next month. Russia has repeatedly denied it plans to invade Ukraine.
  • Elliott Investment Management and Vista Equity Partners are nearing an agreement to acquire software-maker Citrix Systems Inc. for around $13 billion, people familiar with the matter said.  The investment firms are close to a deal to buy Citrix for about $104 per share, according to the people, who asked not to be identified because the information is private. The transaction could be announced as soon as Monday, the people said.  Shares of Fort Lauderdale, Florida-based Citrix were down about 3.5% during premarket trading in New York on Monday. The stock closed at $105.55 on Friday, giving the company a market value of about $13.2 billion.
  • Investors added money to exchange-traded funds that buy emerging market stocks and bonds last week. This was the fifth 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 $417.8 million in the week ended Jan. 28, compared with gains of $875.9 million in the previous week, according to data compiled by Bloomberg. So far this year, inflows have totalled $4.76 billion.
  • Shell Plc’s two-tier share structure came to an end at the weekend, bringing a close to its historic setup that the company increasingly regarded as a financial burden. Late last year, Shell’s investors and board agreed to overhaul the company’s legal and tax structure, losing “Royal Dutch” from its name, relocating its tax residence to the U.K. and moving a dozen top executives to London. The plan included consolidating all the shares in one country, making it easier to buy and sell assets as well as return cash to stockholders. Shell’s shares will start dealings on Euronext Amsterdam and the London Stock Exchange on Monday, in each case as a single line of ordinary stock, the company said in a statement.
  • American families are feeling the financial squeeze of soaring inflation and a persistent pandemic as fractious Democrats return to Washington this week no closer to a deal on a tax and spending bill party leaders hoped would by now provide relief. Despite gangbusters growth at a 6.9% annual rate during the final quarter of 2021, other economic measures tell a very different story. Average wages are falling behind inflation and consumer sentiment plummeted in January to the lowest in more than a decade. More Americans are having trouble paying their bills than at any time since last March, shortly before the Biden administration began distributing stimulus checks and other relief measures. Hunger is rising again.
  • U.K. Prime Minister Boris Johnson plans to make a statement to the House of Commons on Monday after receiving results of a civil service probe into allegations of rule-breaking during lockdown.  “We can confirm that Sue Gray has provided an update on her investigations to the prime minister,” the Cabinet Office said in an email. Johnson will set out his response to Parliament around 3:30 p.m., his spokesman Max Blain told reporters. Gray has been investigating a slew of allegations of parties at Johnson’s office and in other government departments, at a time when such gatherings were banned as part of restrictions to tackle Covid-19.
  • Vodafone Group Plc shares jumped as much as 4.5% after activist fund Cevian Capital AB built a stake and pushed for changes at the U.K. telecommunications giant. Bloomberg first reported Cevian’s position on Friday. The Swedish investment firm has been pushing for improvements at the European and African group, whose shares have languished in recent years. Chief Executive Officer Nick Read has already been streamlining Vodafone, cutting costs and pursuing consolidation in key European markets.  Cevian’s presence will increase the pressure. It’s the latest example of a fund agitating at a major telecom business, coming after its own campaign at 5G equipment and software maker Ericsson AB, and following in the footsteps of Elliot Investment Management’s dramatic interventions at Telecom Italia SpA and AT&T Inc.
  • Russia’s natural gas production is forecast by the International Energy Agency to rise to a record high this year, even as Europe struggles with its worst energy crisis in decades. The country’s output and exports have been closely scrutinized by traders and European policymakers as gas prices in the region climbed to unprecedented levels in the winter, contributing to inflation and a cost-of-living crisis. Gazprom PJSC’s capped deliveries have partly been blamed, including by the IEA, for the crisis. Russia is set to pump 763 billion cubic meters of gas this year, the IEA said in its quarterly report on Monday. That would be the highest annual output in over 30 years, based on governmental statistics.
  • Macau Legend Development Ltd. tumbled to the lowest on record after its former chief executive officer was arrested as a crackdown on junkets sweeps through the world’s biggest gaming hub. Shares slumped 19% on Monday, the biggest loss since 2015, after the company said Weng Lin Chan had been detained by police and resigned as CEO. Macau authorities said Sunday they had arrested two men, including a 49-year-old with the last name of Chan, on suspicion of illegal gambling activities and money laundering. Chan is Macau Legend’s biggest shareholder and is also chairman of Tak Chun Group, the city’s second largest junket operator.
  • Japan’s consumer sentiment fell by the biggest margin since the height of the pandemic crisis in January, as Covid infections rocketed with the spread of the omicron variant and as inflation expectations continued to tick up. The consumer confidence index declined by 2.4 to 36.7, the biggest drop since April 2020, the Cabinet Office reported Monday. That compared with a 37.0 estimate by analysts. The reading was the lowest since August, during a summer wave of infections.  The result shows how fast the new variant is weighing on the mood of consumers as daily nationwide cases jumped from less than 500 at the beginning of January to over 80,000. The government has reinstated quasi-emergency measures in most parts of the nation to try to contain the latest wave of infections.
  • India’s government swapped 1.19 trillion rupees ($16 billion) of debt held by the central bank, effectively pushing out maturity of the notes to reduce redemption pressure before next week’s budget. The bond market rallied.  The administration bought debt held by the central bank due to mature between fiscal years ending March 2023 and 2025 and replaced them with papers due in 2028-2035, the Reserve Bank of India said in a statement Monday. The transaction may reduce India’s gross borrowing needs for the coming fiscal year as it will lower redemption pressure by 636.5 billion rupees, the size of the papers due to mature over that period. Analysts forecast that Prime Minister Narendra Modi’s government will announce a near-record 13 trillion rupees of bond sales in its upcoming budget to help the economy recover from the pandemic.
  • Mexico’s gross domestic product shrank at the end of 2021, putting the economy in recession after supply chain shortages and lack of fiscal stimulus by the government hurt activity. The economy declined 0.1% in the fourth quarter from the previous three-month period, less than the median estimate for a 0.3% decline in a Bloomberg survey, according to the preliminary statistics released by Mexico’s statistics institute Monday. This follows a 0.4% contraction during the third quarter. On an annual basis, Latin America’s second-largest economy grew 1% between October and December, below the 1.5% expected by the economists.
  • UBS Group AG has become an investor favorite in recent years as a reliable beacon of profitability. For Chief Executive Officer Ralph Hamers, such stability poses a challenge: how to fix something that isn’t visibly broken.  Coming from ING Groep NV, the Dutch lender he’s credited with transforming, the Dutchman’s mission statement is to pull UBS into the Digital Age. Last week, he made his long-awaited first move, buying robo wealth adviser Wealthfront for $1.4 billion in cash. The deal gives UBS more than 470,000 additional U.S. clients, notably a younger crop that’s still accumulating wealth. It’s a departure for the Zurich-based bank, long accustomed to providing personalized services to the ultra rich. Hamers says the bank must embrace a broader base, even if it means pushing lower-margin, automated products that aren’t the hallmark of UBS’s personalized offerings.
  • The University of California system is suing 8minute Solar Energy LLC and Tom Buttgenbach, its co-founder and chief executive, seeking roughly $1.22 billion over the university’s investment in several renewable-power projects. The public university’s regents allege that 8minute and Mr. Buttgenbach fraudulently induced it to invest $150 million in a collection of projects in early 2020, then Mr. Buttgenbach misappropriated much of the capital and used it to enrich himself, in a lawsuit brought last month in Alameda County Superior Court in Alameda, Calif. The university made the investment from its roughly $170 billion in assets, which include pension funds and endowments. The lawsuit said that the university is seeking compensation for $405 million in lost returns, and that under California law damages can total three times the amount lost, in this case $1.22 billion.
  • Congestion at the world’s biggest port in Shanghai is being compounded by reductions in air-cargo capacity at the city’s main airport, a situation that’s likely to raise costs further for the semiconductor industry. It’s now taking more than two months for goods to get shipped by sea from Shanghai to the U.S., a wait time that’s too long for the crucial chips used in everything from cars to computers, according to Keelvar, a European-based supply-chain services provider whose customers include Samsung Electronics Co., Logitech International SA and Siemens AG. But air cargo isn’t providing the back up it might. The U.S. and China suspended dozens of flights over Covid-19 testing protocols earlier this month, while the discovery of an infected worker at Pudong airport’s imported cargo handling facility on Jan. 24 sparked rounds of mass testing and sent hundreds of people into quarantine, although Chinese authorities said operations weren’t immediately affected.
  • The United Arab Emirates plans to introduce a federal tax on corporate earnings for the first time next year, in its latest step toward dismantling a levy-free regime that helped make it a magnet for businesses from across the world. The government’s set to introduce a 9% federal corporate tax on business profits from June 2023, state-run WAM news agency said Monday. Corporate tax won’t apply on personal income from employment, real estate and other investments, and incentives for free-zone companies that don’t do business with the mainland will continue.
  • Cathie Wood stepped up buying of Robinhood Markets Inc.shares as the online broker’s stock dropped to a record low following earnings that fell short of Wall Street expectations. Wood’s firm ARK Investment Management bought nearly 2.44 million Robinhood shares on Friday, the most since its stock market debut in July, according to trading data from Ark compiled by Bloomberg. The buying came on a day when the firm’s stock at one point dropped below $10, before staging a rebound in line with the broader U.S. market. Robinhood still trades 67% below its initial public offering price and ranks among the worst high-profile global stock market debuts during the pandemic, joining the likes of China’s Didi Global Inc. and London’s THG Plc

“Be yourself; everyone else is already taken.”― Oscar Wilde

*All sources from Bloomberg unless otherwise specified