January 4, 2022

Daily Market Commentary

Canadian Headlines

• Trade show operator Emerald Holding Inc. has acquired closely held media and events company MJBiz for $120 million in cash, according to a statement provided to Bloomberg News. The deal will give Emerald, whose largest shareholder is Toronto-based investment firm Onex Corp., a foothold in trade shows focused on the cannabis industry. MJBiz runs MJBizCon, an annual event in Las Vegas that drew 27,000 attendees last year, Emerald Chief Executive Officer Hervé Sedky said in an interview.
• BlackBerry devices running the original operating system and services will no longer be supported after Jan. 4, marking the end of an era for the storied device that catapulted work into the mobile era. Ontario-based BlackBerry Ltd., the company formerly known as Research In Motion whose signature handset in the 1990s came to embody working on the move, said handsets running its in-house software “will no longer be expected to reliably function” after Tuesday, according to its end-of-life page. The move, first announced in 2020, effectively kills off a line-up that remains popular to this day in parts of the world for its reliability and security. BlackBerry devices and their physical keyboards were once the go-to mobile device both for professionals keeping up with email and younger people messaging on its proprietary platform. The company’s appeal waned as Apple Inc.’s iPhone and a slew of Android handsets with larger displays, better graphics and wider app offerings took over the market during the past decade.

World Headlines

• European stocks rose to a fresh record as risk appetite returned amid growing optimism that the omicron variant of the virus won’t derail a global recovery in growth. The Stoxx 600 Index was up 0.7% by 10:33 a.m. in London, with travel and leisure outperforming other sectors as shares in U.K. airlines caught up with Monday’s holiday, boosted too by encouraging data on omicron. Other cyclical sectors like autos, banks and energy stocks also rallied. European stocks have recovered ground in the past weeks to trade at a fresh peak as signs that the omicron variant of the virus is milder have quelled investor nerves, even as regions see record numbers of cases.
• U.S. index futures and European stocks rose, extending a strong start to 2022, as investors bet data on U.S. manufacturing and job openings will further show the world’s largest economy is resilient against the spread of omicron. Contracts on the S&P 500 Index climbed 0.4% after the underlying gauge hit another record Monday. Carnival Corp. advanced in premarket New York trading amid a global rebound in travel stocks. Waning demand for haven assets pushed the yen to a five-year low. Treasury yields increased marginally as Federal Reserve tightening underpinned traders’ debates on the year’s outlook. Investors are setting aside their worries about the highly infectious omicron virus variant for the moment as they continue to trade on the economic recovery from the pandemic. The ISM December survey, due for release Tuesday, will show the early impact of the variant on supply chains, while the JOLTS data will show the balance between job openings and unemployment numbers.
• Asian stocks gained behind rallies in Japan and Australia on their first trading sessions of 2022, with much of the region tracking the strong performance in the U.S. as investors maintained growth optimism despite a worsening pandemic. The MSCI Asia Pacific Index rose as much as 1%, the most in two weeks, lifted by technology and financial shares. Metals and mining stocks gave the Australian benchmark gauge a boost, while a weaker yen allowed exporters to provide support for Japan’s Topix. Chinese stocks bucked the regional trend to suffer their weakest start to a year since 2019. The CSI 300 Index fell 0.5% as some investors took profit and assessed developments in the property sector. Tuesday’s activities in Asia also showed some traders setting aside their worries over the rapid spread of omicron strain for now to bet on resilience in the global economy.
• Oil fluctuated before an OPEC+ meeting that’s expected to see the alliance agree to another output boost next month. Futures in New York swung between gains and losses near $76 a barrel. OPEC+ is set to ratify a 400,000-barrel-a-day increase for February when it gathers on Tuesday, delegates said. That’s despite concerns that demand could be weakened by virus flare-ups, including in China, the biggest oil importer. The overall supply-demand backdrop is looking better for OPEC+, with the cartel cutting estimates for a surplus in the first quarter amid slower output growth from its rivals. Recent weeks have seen a litany of supply issues in producing countries, including in OPEC member Libya, where production is expected to fall again this week.
• Gold was steady after posting its biggest drop in six weeks as bond yields surged, with investors bracing for monetary policy tightening in 2022.  Ten-year Treasuries had the worst start to a year in more than a decade, with rates rising 12 basis points on Monday, the largest first-day jump since 2009, according to Bloomberg data. Higher yields diminish the appeal of non-interest bearing havens like gold. On Tuesday bullion rose as much as 0.3%, partially rebounding after the steep loss at the start of the week.
• The U.S. set a new global daily record of coronavirus cases, with more than 1 million people diagnosed with Covid-19 on Monday as omicron sweeps across the country. The tally was almost double the previous record, set just days ago.  Hong Kong will ban most unvaccinated people from restaurants, libraries and museums from next month and require all teachers and school staff to get shots. Hong Kong found one preliminary Covid-19 positive case with unknown source of infection, health officials said. In mainland China, Zhengzhou became the second major city in Henan province to impose a partial lockdown this week. Eurasia Group warned that China’s zero-Covid policy will this year “fail to contain infections, leading to larger outbreaks, requiring in turn more severe lockdowns.”
• China Huarong Asset Management Co. is set to resume trading in Hong Kong on Wednesday morning after the troubled financial giant raised $6.6 billion in a state-orchestrated rescue that brought it back from the brink of a crisis.  The Beijing-based distressed asset manager applied to resume trading as it fulfills share resumption guidance, according to a statement filed with the Hong Kong stock exchange. The company said it has taken measures to return to its core business, simply its structure, reduce capital consumption and increase returns. China Huarong reported profit of 1.62 billion yuan ($255 million) in the first six months of 2021, which compares with a loss of about 106.3 billion a year earlier. Chairman Wang Zhanfeng is expected to hold a press briefing on Wednesday.
• TPG Inc. set terms for a U.S. initial public offering that could raise as much as $1.05 billion, as it joins larger rivals like Blackstone Inc. in listing on the stock market. The private equity firm and some top executives plan to offer 33.9 million shares at $28 to $31 apiece, according to a filing Tuesday with the U.S. Securities and Exchange Commission. Founded as Texas Pacific Group in 1992 by Jim Coulter and David Bonderman, TPG’s willingness to take massive bets on unloved or risky companies has often paid off. It was an early investor in businesses such as Uber Technologies Inc. and Airbnb Inc.
• Everything is falling into place for further gains in global stocks this year, according to JPMorgan Chase & Co strategists. “Stay bullish — positive catalysts are not exhausted,” strategists led by Mislav Matejka wrote in a note to clients on Tuesday. Downside risks — including a hawkish turn by central banks, a slowdown in China’s economy, or more significant coronavirus restrictions — will either fail to materialize or are already priced in to stocks, they said. The positive outlook comes as benchmark indexes in both the U.S. and Europe trade at record highs, following last year’s ferocious rally on the back of unprecedented fiscal stimulus and a solid rebound from the pandemic-induced slump.
• Elizabeth Holmes was found guilty of criminal fraud for her role building the blood-testing startup Theranos Inc. into a $9 billion company that collapsed in scandal. A jury in San Jose, California, returned the verdict after hearing three months of testimony that was often technical, heavily contested and, from Holmes herself, shocking. The 37-year-old faces a maximum sentence of 20 years in prison, although she’ll probably get far less than that. Holmes will also likely appeal her conviction and any sentence she gets. Holmes, wearing a mask in the courtroom as everyone else did, stayed perfectly still and upright while the verdict was read. She looked directly at the jurors as they were polled by the judge to determine if the verdict matched their conclusions. There was little reaction in the courtroom to the verdict, beyond the sound of fluttering of keyboards from the press. Holmes’s partner, her mother and father sat still in the front row.
• Tesla Inc. is off to a strong start to the new year after the electric-car maker smashed its quarterly record for deliveries in what one analyst called a “trophy-case” performance. The company’s shares jumped 14% in New York, their biggest gain since March and best start to a year since Tesla went public more than a decade ago. The $144 billion in market value that Tesla added on Monday is the equivalent of an entire Honeywell International Inc. or Starbucks Corp. It’s also more than the value of almost 90% of the companies in the S&P 500 Index.
• Turkey’s central bank posted an extraordinary daily profit of around $10 billion on the final day of 2021, sparking questions on what caused this overnight boon that will trickle down to the nation’s Treasury. The monetary authority had penciled in an annual loss of around 70 billion liras ($5.2 billion) on Dec. 30 but ended the year with 60 billion liras of profit, an unprecedented change of fortunes in a single day, according to its daily balance sheet. In February, the Ministry of Treasury and Finance — as the central bank’s biggest stakeholder — will begin collecting much of that sum as dividends.  The abrupt turnaround comes after President Recep Tayyip Erdogan unveiled measures meant to compensate lira investors for any losses. Erdogan’s pressure on the central bank to lower its benchmark interest rates sent the lira plummeting against the dollar last year, while pushing inflation past 36%.
• European natural gas prices surged on Tuesday as top seller Russia tightened its grip on supplies just as geopolitical tensions with Ukraine are running high at the start of the year. Russia gas shipments through two key pipelines to Europe dropped sharply this week, reigniting a rally that had been cooled over the holiday period by a flotilla of U.S. liquefied natural gas cargoes heading to Europe. Benchmark European gas prices jumped more than 20%, following a 14% gain on Monday. In the U.K., where markets were closed Monday, prices soared more than 40%. Europe is facing an energy crunch as Russia is curbing supplies just as the continent enters the two coldest months of the winter. Several nuclear power plants are also offline for repairs and maintenance in France, boosting gas demand. Tensions between Russia and Ukraine are also fueling concerns about an invasion that some say could happen early this year.
• Sri Lanka unveiled a $1 billion relief package as President Gotabaya Rajapaksa’s government seeks to temper growing public anger over the surging prices of essential food and medical items in a country that’s running out of foreign exchange to pay for imports. The government will raise civil servants salaries and pensions, remove some taxes on food and medicine and provide cash for its poorest citizens, a move critics say won’t help Sri Lanka’s state of finances and soaring inflation. The package accounts for 1.2% of gross domestic product, and will be re-allocated from the 3.9 trillion rupees budgeted to be spent in the whole of 2022, Rajapaksa’s brother and Finance Minister Basil Rajapaksa told a briefing in Colombo late Monday. There are no plans for new taxes, he added.
• Internet outages by Myanmar’s military junta to curb nationwide protests over a coup in 2021 cost the country $2.8 billion, the biggest losses in the world, according to a study. The Southeast Asian nation topped 21 countries that disrupted the internet for a total 30,179 hours last year, leading to global losses of $5.5 billion — up 36% from 2020. Nigeria and India followed Myanmar, a report from U.K.-based digital privacy and security research group Top10VPN showed Tuesday. Nigeria lost $1.5 billion in 2021 and India, the world’s biggest democracy that had topped the list in 2020, lost $583 million. Governments controlled the flow of information by total internet blackouts and social media blocks, or by throttling speeds to levels where anything beyond simple text-based communication becomes impossible.
• The United Arab Emirates is at increased risk of being placed on a global watchdog’s list of countries subject to more oversight for shortcomings in combating money laundering and terrorist financing, even after a recent government push to stamp out illicit transactions. The Financial Action Task Force is leaning toward adding the UAE to its “gray list” early this year, one of two classifications used by the intergovernmental body for nations determined to have “strategic deficiencies,” according to people familiar with the matter, who requested anonymity because the discussions are private. Should the FATF approve the designation, it would be among the most significant such steps in the Paris-based group’s three-decade history given the UAE’s position as the main financial hub of the Middle East. The FATF currently puts 23 countries — including Albania, Syria and South Sudan — under closer scrutiny, with only Iran and North Korea on its highest-risk “black list.”
• AT&T Inc. and Verizon Communications Inc. agreed to delay by two weeks a new 5G service that airlines said might interfere with aircraft electronics and pose a safety hazard. The companies issued separate statements on Monday night, two days before their planned Jan. 5 launch, and one day after rebuffing a request for delay from U.S. transportation officials. The action came after a flurry of calls directed at the industry and the White House from aviation groups seeking a delay, and as airlines threatened legal action. The U.S. Federal Aviation Administration had been planning to issue hundreds of notices with specific restrictions for airport runways, heliports and other flight routes, which it said could cause significant disruptions to the aviation system.
• Amazon.com Inc. brushed off media speculation that it was suspending sales of its Kindle e-reader in China, after some of its signature product’s models went out of stock on Chinese platforms. “We remain committed to our customers in China,” a company spokesperson said in a statement. “Customers can continue to purchase Kindle e-readers from offline and third-party online retailers.” Kindle Oasis and Kindle Paperwhite devices were not in stock on JD.com on Tuesday, but were still available from some vendors on Alibaba Group Holding Ltd.’s e-commerce outlet. JD.com Inc. and Alibaba did not immediately respond to requests for comment. Customer service representatives on both platforms said they had not received any notice of changes to Kindle availability in China.
• U.S. oil futures are trading above $75 but the yearly reshuffling of billions of dollars of commodity investments are about to trigger a sharp bout of selling. Every January, the world’s two biggest commodities indexes — the S&P GSCI Index and the Bloomberg Commodities Index — reset, spurring a raft of inflows and outflows across commodity markets. For WTI, that means investments tracking both benchmarks could be ready to pull almost 60 million barrels worth of futures contracts from the market, according to Societe Generale estimates. The dollar value of those flows is significant — the French bank estimated in November it would be the equivalent of about $4.6 billion. Citigroup Inc.expects about $3.1 billion of selling, according to a December report. The flows occur during a five-day roll period for each index, the first of which begins on the fifth working day of January, though traders often position themselves ahead of time.

Happy New Year from the MacNicol Team!

*All sources from Bloomberg unless otherwise specified