January 8th, 2021
Daily Market Commentary
- Canadian stocks closed at a record on Thursday, rallying alongside global markets, as investors focused on the prospect of higher government spending once Joe Biden takes office in less than two weeks. The S&P/TSX Composite Index rose 1.1% to 18,027.57, surpassing the previous record of 17,944.06 set last February before the pandemic roiled markets. The country’s largest public company, Shopify Inc., jumped 6.9%. The index has climbed four straight days as investors flock to value-oriented and cyclical sectors in Canada, including energy and materials. The S&P/TSX Health Care index, primarily comprised of pot stocks, has risen 13% this week. The industry got a boost on optimism that a Democratic-led Senate will be positive for the marijuana industry in the U.S.
- After nine months of stockpiling capital to ensure they could withstand the strains of the pandemic, Canada’s biggest banks are facing a new problem: how to spend all that extra money. Canada’s six largest banks were sitting on C$70.4 billion ($55.5 billion) more in Common Equity Tier 1 capital than required by regulators, as of Oct. 31. CET1 capital is the stash of securities meant to serve as a bank’s first line of defense in a financial crisis. While excess capital may be reassuring during a global pandemic, it also threatens to become a drag on the banks’ return on equity, a key metric for investors, as Covid-19 vaccines are distributed and the economy recovers. The challenge banks face is making compelling arguments that they have the best plan for putting that money to work — and earning a higher valuation for it.
- European equities are on track to start 2021 with their biggest weekly gain in almost two months as investors predict government stimulus and coronavirus vaccination programs will drive an economic rebound. The Stoxx Europe 600 Index added 0.6% as of 9:57 a.m. in London, taking the week’s rise to 3%. An index tracking European tech stocks soared to its highest in almost 20 years as chipmakers were boosted by earnings reports from U.S. and Asia bellwethers. Consumer discrectionary and utilities were among other sectors gaining, while financials and energy slipped. Markets are continuing to react positively to the prospect of added fiscal stimulus in the U.S. after the Democrats secured control of the Senate, according to Alexandre Tavazzi, global strategist at Pictet Wealth Management. The situation is “close to ideal” for stocks, as a lack of a strong majority will also make it difficult for Democrats to implement tax rises, Tavazzi said in written comments.
- U.S. futures climbed with stocks ahead of key American jobs data that could strengthen the case for further stimulus under a Democrat-controlled Congress. Contracts on the S&P 500 Index traded in the green as investors awaited Friday’s payrolls report, forecast to show a sharp slowdown in December hiring. Investors are betting Democrat control of the Senate will give President-elect Joe Biden greater power to battle the economic slowdown spurred by the pandemic, including with stimulus checks. The dollar erased gains and 10-year Treasury yields were flat.
- Asian stocks climbed to new highs on hopes for U.S. stimulus and investor demand for shares tied to electric vehicles and semiconductors. Shares of EV-related companies gained after Tesla jumped to a fresh record. Hyundai Motor surged 19% even as it backed away from a statement confirming it’s in talks with Apple Inc. on developing self-driving car. In Hong Kong, Geely Automobile jumped 20% after the company is said to form an EV tie-up with Baidu. South Korea’s Kospi climbed 4%, the most among Asian benchmarks, powered by gains in Hyundai and Samsung Electronics, which rose after reporting results.
- Brent oil topped $55 a barrel for the first time since February as gains in broader markets added to investor optimism already buoyed by Saudi Arabia’s unilateral plan to cut output. The move caps a stellar few months for the oil market, with crude emerging as a favored play to bet on coronavirus vaccines and global reflation. Saudi Arabia’s pledge earlier in the week to cut production by 1 million barrels a day in February and March added vigor to the rally, while Democrat gains in the U.S. have spurred broader markets higher in expectation of additional stimulus. The spreading coronavirus remains a near-term concern though. Accelerating cases across Europe prompted a call from the World Health Organization for stricter measures across the continent, while the U.K.’s latest restrictions are already compounding a plunge in fuel sales. China has locked down a city of 11 million near Beijing to contain an outbreak.
- Gold dropped below $1,900 an ounce as the dollar pared losses and equity markets gained, as investors digested confirmation of a Joe Biden presidency and Democrat-controlled congress. Bullion slipped as much as 1.8% in London, erasing gains made at the start of this year, as a measure of the dollar spiked from the day’s low. The move was exacerbated by the breaching of the 100-day moving average, a key technical level. “The move lower is technically driven,” triggered by a stronger U.S. dollar and higher Treasury yields, said Georgette Boele, an analyst at ABN Amro Bank NV. The metal should now test support at $1,870 an ounce, she added.
- Google is the U.K.’s first big post-Brexit antitrust target as regulators opened a probe into the company’s planned changes to curb publishers’ collection of advertising data. The Competition and Markets Authority said it’s investigating Google’s so-called privacy sandbox changes that could “undermine the ability of publishers to generate revenue and undermine competition in digital advertising, entrenching Google’s market power.” The probe adds to Google’s legal headaches around the world. The Mountain View, California-based company faces lawsuits from the U.S. Department of Justice and multiple states over allegedly anticompetitive practices.
- A semiconductor shortage is dragging on some of the world’s biggest auto manufacturers, costing Daimler AG, Nissan Motor Co. and Honda Motor Co. production of a range of cars. Mercedes-Benz maker Daimler joined its German peer Volkswagen AG in announcing it’s affected by the industrywide supply bottleneck, without quantifying the impact. Honda said it will cut domestic output by about 4,000 cars this month at one of its factories in Japan, while Nissan is adjusting production of Note hatchbacks. VW, the world’s biggest carmaker, announced last month that it would need to adjust first-quarter manufacturing plans around the globe because of the shortage. The company said chipmakers reassigned some of their production capacity to consumer electronics and other sectors last year and were caught off guard by surprisingly resilient auto demand. The amount of VW car output lost could be in the low six-digit range, according to people familiar with the matter.
- Spectrum Brands Holdings Inc. and private equity firm CVC Capital Partners are in advanced talks to acquire hair-dryer maker Conair Corp., according to people with knowledge of the matter. The deal could value Stamford, Connecticut-based Conair at about $2 billion, the people said, asking not to be identified because the information is private. The suitors aim to reach an agreement within weeks, though negotiations could still fall apart, the people said. Closely held Conair, founded in 1959 by Lee Rizzuto, makes products including hair dryers and curling irons. It also sells professional styling equipment under the BaByliss PRO brand and owns kitchen appliance maker Cuisinart, according to its website.
- President Donald Trump, in a video message on Thursday night, condemned the storming of the U.S. Capitol — which occurred after he urged his angry supporters to take action — and said he would prepare for the administration of President-elect Joe Biden. “The demonstrators who infiltrated the Capitol have defiled the seat of American democracy,” Trump said of the violence, which left several people dead. “To those who engage in the acts of violence and destruction: you do not represent our country. And to those who broke the law: you will pay.” The video followed a wave of resignations from his administration and calls from top congressional Democrats, former White House aides, business leaders, and even the editorial page of the Wall Street Journal for Trump’s removal from office over his role in inciting the insurrection. Members of Congress have also discussed impeachment.
- Pfizer Inc. and BioNTech SE’s Covid-19 vaccine may protect against the new fast-spreading variants of the coronavirus that have emerged in the U.K. and South Africa, according to a study. The study, by researchers at the University of Texas Medical Branch and supported by the companies, homed in on the crucial N501Y mutation in the virus’s spike protein that is common to both fast-spreading variants. Antibodies in the blood of people who had been vaccinated were able to neutralize a lab-created version of the mutant virus. Though it’s early data, the results are a promising sign that the vaccine will probably have an effect against the new variants, a major worry for health authorities that are struggling to stem a tide of new infections even as they seek to vaccinate hundreds of thousands of vulnerable people. Both the U.K. and South African strains appear to be more infectious than previous mutations.
- Bill Gates joined the battle for Signature Aviation Plc, allying with Blackstone Group Inc.’s $4.3 billion approach for the world’s biggest operator of private jet bases. Gates’s Cascade Investment LLC, the No. 1 shareholder in Signature Aviation, and Blackstone are in advanced discussions with the London-based firm on a $5.17-a-share cash offer, they said Friday in a statement. Signature had said in December it would accept an approach from Blackstone if a firm offer were made at that level. The involvement of Gates means Blackstone becomes the firm favorite to purchase Signature after Carlyle Group Inc. said Thursday it was also considering a potential offer. A third suitor, Global Infrastructure Partners, said in December that it was considering its options after its lower bid was rejected.
- All passengers arriving in the U.K. will be required to prove they do not have coronavirus, showing a negative test result taken within 72 hours of the start of their journey. Under rules announced Friday, anyone failing to produce evidence they don’t have Covid-19 will be fined 500 pounds ($678). Travelers arriving from countries not on the government’s open travel corridor list will be required to isolate at home for 10 days, regardless of their test results. The measures, set out by Transport Secretary Grant Shapps, will come into force next week for passengers arriving in Britain by plane, boat or train. The plan is aimed at stopping new strains of Covid-19 coming into the U.K., such as one identified in South Africa, as the government accelerates the roll-out of vaccines, Shapps said.
- Hyundai Motor Co. backed away from a statement confirming it is in talks with Apple Inc. on developing self-driving car that fueled an $8 billion surge in the Korean automaker’s market value Friday, saying instead that it received requests for potential cooperation from a number of companies. Revising its statement for the second time in a matter of hours, Hyundai said it had been contacted by potential partners for the development of autonomous electric vehicles, removing any reference to Apple. Shares of Hyundai surged 19% after Korean media initially reported on talks with the U.S. company, only slightly paring their gains after the statement confirming discussions was revised.
- MSCI Inc. will remove China’s three major telecommunications companies from its indexes on Friday, giving global funds just one day to adjust billions of dollars of passive investments. The index provider’s decision to cut China Mobile Ltd., China Telecom Corp. and China Unicom Hong Kong Ltd. at the close of business applies to their shares in Hong Kong, which are far more actively traded than the securities due to be delisted by the New York Stock Exchange. The rush to rebalance lifted volume in all three stocks to at least 18 times the daily average over the past three months. The stocks had already swung wildly this week on confusion over whether they should be included in a U.S. ban on investments in Chinese companies with military ties. Passive investors, market makers and portfolio traders usually have weeks to prepare for significant index changes, which can be the busiest days of the quarter. One Hong Kong trader at a New York-based bank said client demand was so overwhelming on Friday that employees from other teams were pulled in to help.
- The chief executive officer of Swedish real estate firm Castellum AB says his latest bid for Norwegian office provider Entra ASA is worth a lot more than is immediately apparent from the offer document. Henrik Saxborn, who has been locked in a takeover battle to buy Entra since November, on Thursday formalized Castellum’s bid. He’s offering just over 186 kroner a share, in cash and stock, which is about 2% less than a proposed bid made late December by rival suitor SBB. But Saxborn, in an interview, said that when taking synergies into account his offer is worth 204 kroner, valuing Entra at roughly $4.4 billion. Before the first offers were made in November, Entra’s market value was about $3.1 billion.
- The Democratic sweep of the White House and U.S. Congress puts many wealthy Americans in a bind: Higher taxes are probably on the way, but it may already be too late to avoid big bills. President-elect Joe Biden campaigned on a variety of tax-rate hikes and other changes aimed at squeezing trillions of dollars from corporations and Americans earning more than $400,000. After Democrats’ wins in two Georgia Senate runoffs this week, the party will have narrow majorities in both chambers of Congress, and the ability to fulfill at least some of those promises.
- Samsung Electronics Co. shares rose 7.1% to a record high in Seoul Friday amid signs of a rebound in the memory-chip market and off the back of a surge in earnings. South Korea’s biggest company posted a 26% increase in operating income to 9 trillion won ($8.3 billion) for the three months ended December in preliminary results. That compares with a 9.52 trillion won average of analyst forecasts. Sales for the quarter were 61 trillion won. The company didn’t provide net income or break out divisional performance, which it will report later this month when it releases final results. Hours earlier, fellow memory chipmaker Micron Technology Inc. issued a bullish forecast, predicting that the need for dynamic random access memory will likely exceed supply this quarter. The tightness of supply in DRAM is already driving up prices, according to Chief Executive Officer Sanjay Mehrotra. His company and Samsung are two of the largest players in a resurgent market that’s set to expand through increased usage in the automotive sector and more advanced, resource-intensive applications like artificial intelligence.
- Credit Suisse Group AG said it expects to post a fourth-quarter loss after setting aside $850 million for legal cases in the U.S. that date back to the financial crisis more than a decade ago. The provision, for a dispute in New York with bond insurer MBIA Inc. as well as other potential cases related to residential mortgage backed securities, is more than twice as high as the bank estimated only last month. It comes on top of a previously announced $450 million impairment on a hedge fund investment that will also be booked in the fourth quarter. The loss caps a year of setbacks for Chief Executive Officer Thomas Gottstein, who took over in the wake of a spying scandal in February. While he simplified the organizational setup, including at the investment bank, and started a review of the asset management business, Gottstein has been unable to stop a constant flow of bad news. Last month, the bank warned it risks missing a key profit target because of the impact of the pandemic.
- The U.K. cleared Moderna Inc.’s Covid-19 vaccine, adding a third shot for emergency use against the pandemic as infections surge. Britain’s medicines regulator said Friday that it has authorized the U.S. company’s vaccine, confirming an earlier report by Bloomberg. As the country ramps up immunizations against the fast-spreading coronavirus, the Covid death toll now stands at more than 78,000 across Britain. AstraZeneca Plc and the University of Oxford’s Covid-19 shot won U.K. clearance late last month. That followed authorization of another vaccine, from Pfizer Inc. and BioNTech SE, in early December. The European Union and the U.S. have also cleared the Moderna product.
- Chuck Schumer is set to preside over the narrowest possible majority of the U.S. Senate, a task that will require him to keep his Democratic caucus united while luring Republican support for legislation central to President-elect Joe Biden’s priorities. Schumer, 70, rose to the pinnacle of Senate power on his capacity for political fundraising, heavily aided by ties to New York’s lucrative financial industry. Now his success as incoming majority leader will hinge on building consensus in a chamber still reeling from Wednesday’s mob violence and with Republicans divided over loyalty to President Donald Trump. The storming of the Capitol by an angry crowd of Trump supporters rattled lawmakers and prompted many Republicans to distance themselves from the president, who in the past was feared for his taste for retribution. The test for Schumer will be whether he can exploit Republicans’ widening disaffection with Trump’s divisive tactics.
- Commerzbank AG will take an additional 2.1 billion-euro ($2.6 billion) hit in the fourth quarter as the pandemic weighs on interest rates and drives up bad loans, pushing the lender deeper into the red as it readies a new turnaround plan. Commerzbank will write off 1.5 billion euros in goodwill on its books and set aside about 630 million euros for bad loans to reflect the impact of a second lockdown, according to a statement Friday. That’s on top of a 610 million-euro charge the Frankfurt-based bank announced last month to cover job cuts.
- The slim edge Democrats won in the Senate renews hopes for limited legislation to combat climate change, such as measures to fulfill President-elect Joe Biden’s pledge to promote the use of electric vehicles and clean energy. But the ambitious Green New Deal, as well as controversial proposals to phase out fossil fuels and ban fracking, are still on ice. “Thin blue majorities in the House and Senate might not enable Biden’s party to enact a sweeping climate law,” said Kevin Book, managing director of research firm ClearView Energy Partners. Yet, he added, “a thin blue Senate could enable a bigger green stimulus, and carbon capture and EV credits could be part of it.”
- California Governor Gavin Newsom is set on Friday to unveil his budget for the next fiscal year, detailing how he plans to spend a windfall estimated at up to $26 billion that the state has accumulated despite the pandemic-induced recession that’s left thousands of businesses shuttered and 1.5 million people still out of work. Newsom has already said he wants to spend $300 million to aid in the vaccine rollout, $2 billion to help schools reopen for in-person instruction, $1 billion to help small businesses and $2.4 billion to send $600 stimulus checks to about 4 million low-income Californians. The one-time largesse is largely due to an unexpected strength in tax collections from the state’s wealthiest residents who have reaped the benefits of a rebound in investments and stable employment, while lower-income workers lost their jobs in the pandemic. Meanwhile, the state’s reserves of about $16 billion have softened the blow of cuts, and impending Democratic control of the U.S. Senate has increased chances of additional federal aid to California and other local governments.
*All sources from Bloomberg unless otherwise specified