January 7th, 2021

Daily Market Commentary

Canadian Headlines

  1. Canadian stocks rose on Wednesday, closing shy of record highs, amid chaos in the U.S. Capitol. The S&P/TSX Composite index rose 0.8%, giving back some of its earlier gains of as much as 1.4% as pro-Trump mobs stormed the legislature. Pot stocks outperformed as Democrats, seen as more positive for the cannabis industry, edged closer to control of the U.S. Senate. After the markets closed, it was announced that Democrats won both seats in the Georgia runoff elections. Canada’s economy and financial markets are moving in opposite directions as investors drive up asset prices in response to cheap-money policies. That trend will continue in the months ahead, according to Manulife’s Frances Donald.
  2. The seven-month streak of gains in Canada’s labor market probably came to an end last month. Economists in a Bloomberg survey expect Statistics Canada to report Friday the country lost 30,000 jobs in December. They also predict the unemployment rate ticked up 0.2 percentage points to 8.7%. Virus cases continue to rise, forcing local authorities to tighten restrictions even further on businesses and households. Partial lockdowns in Toronto, Montreal and the province of Manitoba probably led to more job losses in already battered sectors like restaurants, hotels and the recreation industry.
  3. With single-game sports betting about to go legit in Canada, the troika of DraftKings Inc., FanDuel Inc. and William Hill Plc that dominates the U.S. betting business is preparing to pounce. But an entrepreneurial father-son team has something their would-be rivals don’t: a legion of fans that have made their mobile app, theScore, among the most popular sports apps in North America. Shares of Toronto-based Score Media and Gaming Inc. surged after Canada unveiled legislation in November to legalize single-event sports betting, following in the footsteps of multiple U.S. states. The stock ended last year up 111% and jumped another 17% in the first three trading days of 2021.
  4. Quebec is implementing a curfew, Canada’s first of the Covid-19 pandemic, and adding new restrictions on business as it battles a rise in virus-related hospitalizations. The nightly curfew across starts Jan. 9 and will last nearly a month, Premier Francois Legault said at a news conference Wednesday. His government also asked manufacturers and builders to curb activity by delaying the production of non-essential goods. Restaurants, retailers and many other industries are already closed or operating under tight limits. The announcement brings Canada’s second-largest province closer to the measures it took in March, which shut down about 40% of the economy for eight weeks, according to government estimates.

World Headlines

  1. European equities edged higher on Thursday, led by construction stocks, miners and energy firms, after Congress formally certified Joe Biden as the new U.S. president. The Stoxx 600 Index was up 0.2% at 9:30 a.m. London time, paring some gains from earlier in the session as a drop in Ryanair Holdings Plc weighed on travel stocks and downgrades for software firm Amadeus IT Group SA and IT services provider Atos SE hit the tech sector. Tech, last year’s top-performing subgroup, has come under pressure at the beginning of 2021 amid a rotation toward value. Overall, European equities looked beyond the unrest when supporters of President Donald Trump broke into the U.S. Capitol, with the focus instead on expectations of fresh stimulus with Democrats gaining control of the U.S. Senate. Sentiment in Europe also got a boost from an unexpected rise in German factory orders pre-lockdown in November.
  2. Global markets are showing resilience after a day of violence rocked the U.S. Capitol, with investors firmly focused on the prospect for more economic stimulus and the likelihood that calm will prevail as Joe Biden takes the presidency. S&P 500 futures were up 0.1% and most stock benchmarks across Asia and Europe were in the green. Treasury yields held above 1%, while the dollar strengthened against all its major peers. In a sign that traders are still willing to pile on risk, Bitcoin shot above $37,000 to another record high.
  3. Japanese shares rallied, with the Topix closing at its highest level in almost three years, on expectations for extra U.S. economic stimulus measures after Democrats won control of the Senate. Technology, machinery and bank stocks contributed most to the benchmark’s advance, as all but two of 33 industry groups rose. The Nikkei 225 Stock Average also jumped, with Fast Retailing Co. and Fanuc Corp. the biggest boosts. Both measures came off the day’s highs after Tokyo reported a new daily record for coronavirus cases.
  4. Oil edged higher as a drop in U.S. crude stockpiles and Democrat victories in Senate elections in Georgia added impetus to a rally spurred by Saudi Arabian output cuts. Futures in New York traded near $51 a barrel, though the global Brent benchmark pared earlier gains. A bumper year-end draw in American crude inventories aided the latest leg of the rally. At the same time the Democrat wins in Georgia buoyed markets broadly as they gave the party control of the chamber, potentially paving the way for more U.S. stimulus spending, after tumultuous scenes in the U.S. Capitol on Wednesday. There are risks to the rally though. Japan declared a state of emergency in Tokyo to try and stem the spread of Covid-19 cases, while a Chinese city of 11 million people to the south of Beijing has been shut off. That follows tougher restrictions in Germany and the U.K. earlier in the week.
  5. Gold advanced after posting the biggest loss in almost a month as investors weighed rising Treasury yields and tracked events in Washington. The Senate rejected a second challenge to the Electoral College votes for Democratic President-elect Joe Biden and the House is expected to do the same, likely clearing the way for certification of his victory in the November election. The proceedings were earlier suspended when pro-Donald Trump protesters stormed the U.S. Capitol. A curfew was ordered in Washington after a day of violence that resulted in a woman being fatally shot. Bullion sank on Wednesday after Democrats won two key Georgia Senate runoffs, paving the way for a unified government and boosting the odds of a torrent of spending. The 10-year Treasury yield at one point surged close to 10 basis points to more than 1.05%, weighing on the non-interest bearing bullion.
  6. South Korean conglomerate SK Group is investing $1.5 billion in U.S. fuel-cell maker Plug Power Inc. to boost the use of hydrogen as an alternative energy source in Asia. The companies are forming a joint venture to provide hydrogen fuel-cell systems, fueling stations and electrolyzers in South Korea and elsewhere, SK and Plug said in a statement Wednesday. It’s a move that comes as companies and governments around the globe push to use hydrogen in power plants, vehicles and elsewhere in place of fossil fuels. While most hydrogen is produced from natural gas, it can be generated from water through electrolysis powered by renewable energy. When burned, it produces no greenhouse gases.
  7. Japan’s Prime Minister Yoshihide Suga declared a state of emergency for Tokyo and the surrounding areas, trying to stem infections that hit a daily record in the capital. China banned all vehicles and people from leaving the city of Shijiazhuang to the south of Beijing after confirming almost 200 coronavirus infections. More than 10 million people will now be tested for the virus. Accelerating caseloads across Europe prompted a call from the World Health Organization for stricter measures across the continent. The U.S. reported a record 3,844 deaths from Covid-19, while confirmed cases globally climbed by an all-time high of 776,435 to more than 87 million.
  8. A ban on corn exports in Argentina is fanning fear among farmers and traders that one of the world’s top food suppliers is returning to an era of brutal meddling in crop markets. The measure creates yet another driver for surging global grain futures, given Argentina is the third-largest shipper of corn, and stokes concern of an up-tick in food nationalism around the world as the pandemic disrupts trade. The Argentine government suspended corn shipments through February to force growers to sell to the local livestock industry. The idea is to suppress feed costs and, in turn, prices of beef, pork, chicken, eggs and milk in a country where inflation is forecast to reach 50% this year.
  9. Investors in Tikkurila Oyj may be facing a takeover battle after U.S. paint maker PPG Industries Inc. raised its offer for the Finnish company by over a tenth to $1.5 billion, in an effort to sideline a competing bid from an undisclosed suitor. PPG’s latest offer is for 27.75 euros a share, 11% more than its earlier proposal. Tikkurila, which didn’t disclose the value of the rival bid, traded 15% higher on Thursday morning. PPG’s offer is unanimously recommended by those Tikkurila board members who participated in the decision making. Major shareholders with about 30% of the stock have reaffirmed their irrevocable undertakings to accept the offer.
  10. Partners Group Holding AG bought medical apparel company Careismatic Brands for about $1.3 billion including debt, according to a person with knowledge of the matter, in the private equity firm’s latest health-care deal. The Swiss firm purchased Careismatic from New Mountain Capital, the New York-based private equity shop that acquired the company in 2016. Partners Group plans to bolster Careismatic’s growth by launching new products and digitizing sales and marketing, said the person, who asked not to be identified because the information is private. Partners Group, with more than $96 billion in assets, has been pursuing deals in niche segments of health care. Recent acquisitions include vision-services provider EyeCare Partners and Wedgewood Pharmacy, which provides specialty medications for animals. In August, the firm agreed to sell its majority stake in supply-chain outsourcing specialist PCI Pharma Services to Kohlberg & Co. and Abu Dhabi’s Mubadala Investment.
  11. Security systems firm Verisure Holding AB is pitching a new leveraged loan to replace existing debt and pay a dividend to its owner, in a deal that will show lenders’ willingness to support debt-funded payments to shareholders. The company will present the 2 billion-euro ($2.46 billion) seven-year term loan to investors on Jan. 8, according to people familiar with the matter who asked not to be identified because the information is private. At least some of the cash will go to its private equity owner Hellman & Friedman LLC. Such deals rely on investors allowing companies to pile more debt onto their balance sheets to fund dividends. They became scarce during 2020 as investors waited to see how junk-rated companies weathered the coronavirus pandemic.
  12. Cannabis and solar-power stocks extend gains in U.S. premarket trading after the Democrats secure control of the U.S. Senate, which is likely to result in policies that will boost both industries. Both sectors had bounced on Wednesday as the Democrats neared wins in both runoff elections in Georgia. Among cannabis stocks, Tilray +12%, Aurora +9.1%, Canopy +4.8%, Cronos +6.1%, Sundial Growers +6.1%
  13. Alibaba Group Holding Ltd. and Tencent Holdings Ltd. led a technology stocks selloff as the Trump administration considers barring investments in China’s two most valuable companies. Alibaba fell 3.9% and Tencent dropped 4.7% in Hong Kong trading on Thursday, tracking losses in their New York-listed securities. The State Department, Department of Defense and Treasury Department are among authorities involved in the deliberations, according to people with knowledge of the talks. The discussions focus in part on how such a move might affect capital markets, the Wall Street Journal reported earlier Wednesday. Imposing a ban on the two companies would mark the most dramatic escalation yet by President Donald Trump’s administration, given the sheer size of the two firms and the difficulty unwinding positions. At $1.3 trillion, the combined market value of their primary listings is nearly twice the size of Spain’s stock market, while the firms together account for about 11% of the weighting for MSCI Inc.’s emerging markets benchmark.
  14. As the U.S. grapples with record hospitalizations and deaths from the Covid-19 pandemic, a crucial vaccination rollout campaign is being impeded by inconsistent messaging and myriad state strategies as a new variant of the virus drives up infection rates, according to public health experts. The missteps have put the number of vaccinations well behind targets set by the Trump administration’s U.S. Operation Warp Speed effort. About 5.46 million doses have been administered in the U.S. since mid-December, or 32% of those that have been distributed across the country and well below the Trump administration’s goal of 20 million by the end of 2020, according to data compiled by Bloomberg News. Vaccination rates have ranged significantly across states, with South Dakota using 69% of the doses sent to it and Georgia just 22%, according to Bloomberg’s data.
  15. The nightmare year of 2020 brought the airline industry’s first decade of sustained profitability to a shuddering halt. The coronavirus pandemic tore through in a tumultuous, unprecedented way — leaving carriers in a deep hole, along with a constellation of aerospace manufacturers, airports and leasing firms. 2021 is shaping up to be a transition year for an enterprise that takes passengers on the equivalent of 208 million annual trips around the globe. At best, the path ahead will be bumpy, with progress toward a return to travel dependent on the pace of vaccine roll-outs, access to capital, government policies and the unpredictability of a virus that’s not yet fully understood. Still, there will be leaps, including the first commercial flights to near-space.
  16. The New York Stock Exchange is proceeding with a plan to delist three major Chinese telecommunications firms, its second about-face this week, after U.S. Treasury Secretary Steven Mnuchin disagreed with its shock decision to give the companies a reprieve. The pivot comes after the exchange’s earlier move caught U.S. officials off guard. The exasperation reached the highest levels of the administration of President Donald Trump, who signed an executive order in November requiring investors to pull out of Chinese businesses deemed a threat to U.S. national security. The NYSE’s back-and-forth moves have also sown deep confusion in global financial markets. The decision is based on “new specific guidance received on Jan. 5, 2021, that the Department of Treasury’s Office of Foreign Assets Control provided to the NYSE,” the exchange said in a statement Wednesday. “The issuers have a right to a review of this determination.” An NYSE representative declined to elaborate on the decision.
  17. Denmark has charged two British citizens for their role in a 9.6 billion-krone ($1.6 billion) dividend tax fraud, as police take a major step toward wrapping up a years-long investigation. The two are believed to have “committed cynical and meticulously planned fraud,” Danish police said in a statement on Thursday. Neither suspect was named, but police said one resides in Dubai, which is the home of former trader and hedge-fund manager Sanjay Shah, the subject of a U.K. investigation into Cum-Ex trades. The development marks something of a milestone in a case that has outraged Danes since they learned that international financiers stole about $2 billion from state coffers by falsely claiming refunds on their dividend taxes. The wider Cum-Ex scandal is still being investigated in Germany and the U.K., as well as in Denmark.
  18. Saudi Arabia raised pricing for oil customers in Asia and the U.S. after its shock move this week to cut output sent crude prices climbing. A day after its unilateral decision during an OPEC+ meeting to slash oil production, the kingdom opted to increase prices for all grades shipped to the two regions in February. State producer Saudi Aramco on Wednesday raised its flagship Arab Light oil to Asia, its biggest market, to $1 above the benchmark used by the company. That’s the highest level since August. The increase of 70 cents from January’s shipments was more than the market had expected ahead of the OPEC+ gathering. The median estimate was for a hike of 40 cents, according to a Bloomberg survey of five traders in late December. All U.S. grades were raised by 20 cents.
  19. Jack Ma’s Ant Group Co. is planning to restructure its consumer credit operations so the company can continue lending nationwide under new regulations that would otherwise threaten to dramatically restrict its most lucrative business, people familiar with the matter said. The plan, which is preliminary and subject to regulatory feedback, is part of Ant’s sweeping reassessment of its corporate structure after Beijing scuttled the Chinese fintech giant’s $35 billion initial public offering in November. Ant wants to gradually move its main consumer credit operations — which had 1.7 trillion yuan ($263 billion) of outstanding loans as of June — into a new consumer finance unit that has the right to operate nationwide, the people said, asking not to be identified because the matter is private.
  20. Prime Minister Narendra Modi’s government has approved an incentive program worth 284 billion rupees ($3.8 billion) to bring investments to India’s federally-controlled territory of Jammu and Kashmir. The aim of the program is to create jobs and attract investment to the region, the government said in a statement. Jammu and Kashmir formally ceased to be a state on Oct. 31, 2019 and was divided into two federally-controlled territories after Modi ended seven decades of autonomy in the restive region, promising ‘a new era’ of development opportunities. The Himalayan region’s economy, which depends mostly on farming, handicrafts and tourism, has been hard hit by movement and communications restrictions imposed by the federal government since it was stripped of its special autonomous status.
  21. China sentenced Hu Huaibang, a former chairman of the nation’s biggest policy bank, to life imprisonment on charges of corruption, the second harsh punishment doled out this week in a sign President Xi Jinping is escalating a campaign to crack down on lawbreaking state officials. Hu was found guilty of taking bribes totaling 85.5 million yuan ($13 million) during his tenure at China Development Bank Co. between 2009 and 2019, according to the ruling of Chengde Intermediate Court. Hu pleaded guilty, according to a court statement. Lai Xiaomin, the former chairman of state-controlled Huarong Asset Management Co., was on Tuesday in a rare move condemned to death after receiving $277 million in bribes. The sentences underscore the ruling Communist Party’s increasingly tough stance on corruption among government cadres and corporate executives. More than 1.5 million government officials have been punished in the years-long campaign.
  22. The total market value of cryptocurrencies surpassed $1 trillion for the first time Thursday amid a frenzied and volatile rally in Bitcoin to yet another record. Cryptocurrencies hit the milestone after a fivefold climb in market value in the past year, data from tracker CoinGecko shows. Strategists have cited demand from speculative retail traders, trend-following quant funds, the rich and even institutional investors as among the reasons for the surge. Bitcoin rose as much as 6% on Thursday to touch a high of $38,169 and has more than quadrupled in the past year, according to a composite of prices compiled by Bloomberg. It accounts for about two-thirds of cryptocurrency market value, followed by Ether at about 13%, according to CoinGecko data.
  23. The U.S. Capitol Police force was caught unprepared by a mob of pro-Trump extremists on Wednesday, in a failure to protect the seat of American democracy unparalleled in modern times. Rioters, many bearing Trump garb, breached the barricades set up by the under-staffed police force and swarmed the Capitol, disrupting the certification of President-Elect Joe Biden’s election and forcing the evacuation of Vice President Mike Pence and other lawmakers.
  24. Walgreens Boots Alliance Inc. beat analysts’ estimates for first-quarter earnings as the international drugstore chain saw sales withstand virus-related disruptions in the U.K. and the U.S. Adjusted earnings per share were $1.22, compared with the $1.03 average estimate of Wall Street analysts. Revenue rose 5.7% to $36.3 billion, compared with the average estimate of $34.9 billion. The company affirmed its guidance of low single-digit growth in fiscal 2021 adjusted earnings per share.
  25. Lacework Inc. raised $525 million to expand its cloud security business in a funding round valuing it at more than $1 billion. The investment in the San Jose, California-based startup was led by Sutter Hill Ventures and Altimeter Capital. Other investors included Coatue Management, D1 Capital Partners, Dragoneer Investment Group, Tiger Global Management and Snowflake Ventures. Lacework provides security for cloud-based systems, helping detect threats to businesses that use Amazon Web Services, Microsoft Azure, Google Cloud Platform or Kubernetes. The company works with technology businesses such as Pure Storage Inc., Veeva Systems Inc. and Brightcove Inc.

*All sources from Bloomberg unless otherwise specified