January 4th, 2021

Daily Market Commentary

Canadian Headlines

  1. Brookfield Asset Management Inc. and a group of investors have offered to acquire the stake in Brookfield Property Partners that they don’t already own, in a $5.9 billion deal to take the real estate company private. The Canadian alternative-asset manager said it has made a proposal to acquire the outstanding units for $16.50 each, or about a 14% premium to where the shares closed Thursday in New York. Brookfield Asset Management already owns about 60% of Brookfield Property Partners, which has a market value of $13.8 billion. Privatizing Brookfield’s real estate subsidiary is appealing because it has consistently traded at a discount to the underlying value of its assets, Nick Goodman, Brookfield Asset Management’s chief financial officer, said in an interview.

World Headlines

  1. The Stoxx Europe 600 Index climbed more than 1.5%, led by economically-sensitive sectors like mining and travel, after data showed euro-area manufacturing grew the fastest in more than 2 1/2 years in December.
  2. U.S. equity futures rose with European stocks as upbeat manufacturing data and rising commodities prices boosted risk appetite on the first trading day of 2021. Contracts on the S&P 500 Index pointed to further gains after the benchmark closed at a record high. Equities are beginning the new year at rich valuations amid expectations that widespread vaccine distribution in 2021, central bank support and government aid will reignite economic growth and boost corporate profits. Purchasing managers indexes showed factory activity across Asia continued to gain momentum in December, spurred by strong demand for the region’s exports, though China’s recovery is starting to moderate.
  3. Asian stocks climbed to a new record, as technology shares remained strong in the first session of 2021. Tencent and Samsung Electronics were the biggest boosts to the benchmark MSCI Asia Pacific Index, which advanced for a seventh day. South Korean stocks posted the biggest gains, as names related to Hyundai Motor surged after a broker said the carmaker may unveil its first electric vehicle built on an a dedicated platform sooner than expected.
  4. Oil rose for a fourth day — aided by a falling dollar — before OPEC+ meets to decide whether it can keep lifting output as a surging virus threatens the global energy demand recovery. Futures in New York jumped as much as 2.7% to approach $50 a barrel. A further decline in the dollar is boosting the appeal of commodities that are priced in the currency, while as investors return to their desks at the start of the year, crude has emerged as a favored trade to hedge against a rise in inflation. The world’s biggest commodity indexes will begin their annual rebalancing this week too, a move that should spur extra buying of oil futures. The Organization of Petroleum Exporting Countries and its allies are returning 500,000 barrels a day to the market this month and meet on Monday to decide on production levels for February. The outlook for the first half is very mixed and there are still many downside risks to juggle, OPEC Secretary-General Mohammad Barkindo said at a meeting on Sunday.
  5. Gold surged above $1,900 an ounce as lower U.S. real yields and a weaker dollar helped the precious metal build on its biggest annual advance in a decade. Bullion climbed to the highest level in almost two months after renewed declines in real yields boosted gold’s allure. Real yields — the difference between nominal benchmark bond yields and the rate of inflation — were at -1.092% on Friday, near last year’s nadir. The figure ticked up on Monday. The decline in real rates is being driven by a rise in inflation expectations, with investors betting that vaccine distribution, further central bank support, and continuing government aid will see demand rebound in 2021.
  6. Euro-area manufacturing grew at the fastest pace in more than 2 1/2 years in December, bringing some positive news at the end of an horrific 2020 for the region’s economy. Final readings of IHS Markit’s monthly surveys showed growth led by Germany, where activity expanded the most in almost three years, with all other countries covered also reporting an improvement on November. The euro-area index came in at 55.2, up from 53.8 though slightly lower than an earlier preliminary reading.
  7. Global coronavirus infections climbed above 85 million, after daily cases in the U.S. soared to a record of nearly 300,000 following the New Year holiday. Germany is set to extend its lockdown, while Hong Kong won’t re-open classrooms for more than a month, as many nations opt to delay reopening schools. Japan’s prime minister is considering another state of emergency for the Tokyo area, with cases at records and a vaccine rollout more than a month away. The U.K. gave the first shots of AstraZeneca’s vaccine on Monday, in a race against a faster-spreading variant that’s prompted lockdowns across the country.
  8. Centene Corp. agreed to buy Magellan Health Inc. in a transaction valuing the target company at $2.2 billion to expand its behavioral health platform. Centene will pay $95 a share in cash, according to a statement on Monday, or 15% above Magellan Health’s closing price on Thursday. The purchase will be primarily funded with debt, and JPMorgan Chase & Co. has provided a bridge financing commitment. Magellan stock climbed 11% to $92.05 in pre-market trading.
  9. Teledyne Technologies Inc. agreed to buy FLIR Systems Inc. for about $8 billion in cash and stock to build out its offering of sensors used in aerospace and other industries. FLIR holders will get about $56 per share, based on average trading prices over the past five days. That reflects about a 28% premium to the company’s last closing price of $43.83 on Dec. 31. The manufacturers of sensors, cameras and sensor system share similar business models, but have little overlap because their technologies involve different wavelengths, Teledyne Executive Chairman Robert Mehrabian said in a statement.
  10. MGM Resorts International has raised its bid for Entain Plc in a 8.1 billion pound ($11.1 billion) deal that would be the largest in a recent wave of trans-Atlantic betting mergers. Entain said the offer undervalues the company. The proposed deal, which would give the Las Vegas casino operator broader access to fast growing online betting markets, offers Entain investors 0.6 of a share of MGM for every share they hold, London-based Entain said in a statement on Monday. MGM may also offer a “limited partial cash alternative” to shareholders, and would own about 42% of the combined company.
  11. Tesla Inc. came close to meeting its 500,000 vehicle-deliveries goal for 2020, setting the stage for a new year in which it’s expanding in China and poised to open new factories in Texas and Germany. The electric-car maker said Jan. 2 it handed over 180,570 vehicles in the year’s final three months, the most for any quarter but just 450 vehicles shy of the half-million mark Chief Executive Officer Elon Musk sought for the year. Tesla has been ramping up output of its more mass-market models to meet rising global demand for battery-powered cars, with 2020’s total jumping 36% from the prior year.
  12. Natixis SA has agreed to sell its majority stake in H2O Asset Management back to the investment firm’s management team, ending a decade-long relationship that’s recently been marred by controversy. Natixis last year said it was in talks about a “progressive and orderly unwinding” of its partnership with the London fund manager, which could include a sale of its stake. The move could be a blow to H2O, which had relied on Natixis’s huge distribution network to help bring investors into its 20 billion euros ($24.6 billion) of funds.
  13. China Longyuan Power Group Corp., a key global wind farm operator, could add a dual listing in mainland China after its parent company agreed to merge with Shenzhen-traded Inner Mongolia Pingzhuang Energy Co. China Energy Investment Corp., a state-owned coal mining giant, is considering absorbing Pingzhuang, Longyuan said in a Dec. 31 filing to the Hong Kong stock exchange. While the statement didn’t mention specific plans, it could allow Longyuan to add a dual listing, opening up a new source of capital for expansion and potentially allowing for more asset injections from CEIC into the listed firm, according to Robin Xiao, an analyst with CMB International Securities Corp.
  14. Investors added money to exchange-traded funds that buy emerging market stocks and bonds last week. This was the ninth 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 $1.5 billion in the week ended Dec. 31, compared with gains of $1.02 billion in the previous week, according to data compiled by Bloomberg. So far this year, outflows have totaled $0.
  15. China’s state-owned telecommunications companies declined in Hong Kong after the New York Stock Exchange said it’s delisting them to comply with a U.S. executive order that sanctioned companies identified as affiliated with the Chinese military. Shares of China Mobile Ltd., the largest of the three, fell as much as 4.5% on Monday to their lowest level since 2006, while China Telecom Corp. dropped 5.6%. The two posted their biggest intraday losses since mid-November. China Unicom Hong Kong Ltd. slipped 3.8%. The stocks pared most of those losses later in the day. The American depositary receipts of the three firms will be suspended from trading between Jan. 7 and Jan. 11, and the process of delisting them has started, NYSE said. The nation’s oil majors including CNOOC Ltd. also fell on concerns they will be targeted next for delisting in the U.S.
  16. Bitcoin held near a record a day after breaching $34,000 for the first time while Ether, another digital currency, also surged as the crypto rally continues. Ether climbed as much as 22% to about $1,163 following a 30% advance on Sunday. Bitcoin held onto most of its weekend gains, dipping about 1.6% to $33,060 as of 6:53 a.m. on Monday in London, according to a composite of prices compiled by Bloomberg. Bitcoin eclipsed its 2017 high late last year and only hit $20,000 for the first time in the middle of December. Proponents of the world’s largest cryptocurrency argue that it’s muscling in on gold as a hedge against U.S. dollar weakness and inflation risk, citing evidence of growing interest among institutional investors.
  17. Apple Inc. supplier Foxconn Technology Group signed a strategic cooperation deal with embattled Chinese electric-vehicle startup Byton Ltd. in a transaction that could mark a large bet by the iPhone assembler on the car-making business. The companies, aided by the Nanjing Economic and Technological Development Zone, aim to start mass production of the Byton M-Byte by the first quarter of 2022, according to a statement Monday. Foxconn, whose main listed arm is Hon Hai Precision Industry Co., plans to invest around $200 million in the venture, a person familiar with the matter said earlier, declining to be identified discussing information that isn’t yet public. The deal could represent a lifeline for Byton, which is struggling to produce its first vehicle having unveiled its M-Byte concept car several years ago. Under the arrangement, Foxconn will supply Byton with its advanced manufacturing technology, operation management expertise and supply chain resources. The Taiwan-based company is however also talking to other Chinese electric-car makers on potential collaborations, another person familiar said.
  18. President Donald Trump urged Georgia election officials to “find” thousands of votes and recalculate the election result to flip the state to him — an extraordinary effort to strong-arm fellow Republicans as he tries to dispute Joe Biden’s election win. In a 62-minute call on Saturday, Trump oscillated from flattery to threats as he pressed officials, including Secretary of State Brad Raffensperger, to take action in his favor just days before Congress is scheduled to certify the election results. The president’s voice — and that of his chief of staff, Mark Meadows — was heard in an audio recording of the call that was obtained by Bloomberg News. Excerpts of the call were published earlier Sunday by the Washington Post.
  19. Billionaire Ant Group Co. co-founder Jack Ma skipped a recent taping of an African TV program he created, spurring speculation online about his whereabouts and the outcome of an investigation into his internet empire. Ma hasn’t been seen in public since Chinese regulators torpedoed Ant’s $35 billion IPO, then tightened fintech regulations and launched an antitrust probe into Alibaba Group Holding Ltd. — all in a span of days. The Financial Times on Friday reported that the showrunners of the Shark Tank-like “Africa’s Business Heroes” replaced him as a judge in a November telecast and removed his photo from the show’s website, around the same time Ma delivered his now-infamous rebuke of the “pawnshop” mentalities of government overseers.
  20. The U.S. dollar kicked off the new year with a weak start as expectations for a global economic recovery bolstered demand for riskier assets. It lost ground against almost every major currency on Monday, pushing a gauge of its strength to the lowest level in nearly three years, after purchasing managers indexes across Europe and Asia showed factory activity gathering pace. The euro rose as much as 0.7% against the dollar toward a high last seen more than two years ago, while the greenback touched the weakest level against the Chinese yuan since June 2018. Stocks and gold rallied as the market brushed aside concerns over the accelerating spread of the virus.
  21. Venezuelan oil exports plummeted last month as U.S. sanctions have left some of the South American country’s cargoes stranded in Asia and competition with fellow OPEC+ members is set to heat up. A linchpin of the Venezuelan economy, the sales slumped by about half from November to 231,613 barrels a day, according to shipping reports and vessel-tracking data compiled by Bloomberg. For the year, exports fell to their lowest in about seven decades. Cargoes that loaded in December could arrive in Asia as early as this month just as the Organization of Petroleum Exporting Countries and its allies increase supplies.
  22. Genworth Financial and China Oceanwide Holdings says given the uncertainty around the completion and timing of the remaining steps required to close their pending transaction, the companies have not extended the current December 31, 2020 “end date” under the merger agreement. Genworth says it is focusing on executing its contingency plan, including a potential partial IPO of Genworth’s U.S. Mortgage Insurance (U.S. MI) business, designed to meet its near-term liabilities of approximately $1.0 billion of debt due in 2021.
  23. Employees of Google and parent company Alphabet Inc. announced the creation of a union on Monday, escalating years of confrontation between workers and management of the internet giant. The Alphabet Workers Union said it will be open to all employees and contractors, regardless of their role or classification. It will collect dues, pay organizing staff and have an elected board of directors. The unionizing effort, a rare campaign within a major U.S. internet company, is supported by the Communications Workers of America as part of a recent tech-focused initiative known as CODE-CWA. Googlers who join the Alphabet Workers Union will also be members of CWA Local 1400.

*All sources from Bloomberg unless otherwise specified