July 20, 2021

Daily Market Commentary

Canadian Headlines

• The selloff in Canadian shares worsened on Monday after the spread of the delta coronavirus variant raised investors’ concern over the economic recovery, while tension between the U.S. and China escalated. The S&P/TSX Composite index fell as much as 1.9% in the biggest intraday drop since March 4. Cyclical industries such as energy, materials and financials led the losses while technology was the only sector in the green with investors piling into shares of Shopify and Kinaxis. For the first time since March, the TSX fell below its 50-day moving average in addition to tumbling below the lower-end of its trading envelope. Energy stocks were the worst performers as oil fell on an OPEC+ agreement to boost supply into 2022 amid concerns about the delta variant. Whitecap Resources, Suncor Energy and Crescent Point Energy were among some of the worst performers within the sector.

World Headlines

• European stocks gained after their worst day in seven months as optimism over economic growth and earnings prospects outweighed concerns around the spread of Covid-19 variants. The Stoxx Europe 600 Index was up 0.4% at 10:43 a.m. in London after rising as much as 1.1% earlier. Construction, financials and media were among the outperformers, while technology, health care and utilities lagged. The U.K. FTSE 100 added 0.6% after being among the worst-hit benchmarks on Monday. The Stoxx 600 benchmark lost 2.3% on Monday, the most since December, as rising coronavirus infections spurred fresh worries about business disruption. However, despite concerns over elevated equity valuations, investors see few alternatives to stocks as bond yields remain depressed.
• U.S. stock-index futures gained as equity markets stabilized after Monday’s rout, with investors weighing corporate earnings against the uncertain outlook for global growth. Treasury yields edged lower and the dollar was steady. Futures on the S&P 500 and Nasdaq 100 signaled a firmer open for U.S. stocks. The 10-year Treasury yield fell further below 1.2%, hitting the lowest level since February as traders pared bets on Federal Reserve tightening. Crude oil hovered between small gains and losses, while Bitcoin fell below the closely watched $30,000 level.
• The Nikkei 225 Stock Average entered a correction, with Japanese equities declining for a fifth-straight day amid renewed concerns over the coronavirus as Tokyo prepares to host the Olympics. Fast Retailing Co. and SoftBank Group Corp. were the largest contributors to a 1% loss in the Nikkei 225. The blue-chip gauge closed 10% below a February high, entering a technical correction after flirting with that level a few times since May. Electronics and auto makers were the biggest drags on the broader Topix, which also fell 1%, with all but two industry groups in the red.
• Brent oil steadied after a coronavirus-driven washout on Monday that saw prices tumble to an eight-week low. Futures in London held near $69 a barrel after plunging 6.8% on Monday amid a broader market rout. The fast-spreading delta variant of Covid-19 has led to a surge in virus cases and renewed restrictions as it sweeps across the globe from Asia to Europe. Oil’s upward trajectory has reversed in July, with the latest virus waves demonstrating the uneven nature of the economic recovery. Goldman Sachs Group Inc. said the delta variant may curb global oil demand by 1 million barrels a day for a couple of months, though that’s offset by a slow production ramp-up from OPEC+.
• Gold steadied as stock markets found their feet after falling sharply on fears the Delta variant would harm global growth prospects. U.S. stock-index futures and European equities gained as markets stabilized following Monday’s rout, which saw the S&P 500 fall the most in two months. Demand for havens like Treasuries eased, causing yields to rebound from the lowest levels since February. Still, new waves of Covid-19 are challenging previous optimistic assumptions about the pace of the global economic recovery, giving investors a reason to think about havens like gold. The U.S. on Monday warned citizens against travel to the U.K. and Indonesia, while hospitalizations in Texas rose the most since April and Southeast Asia reels from a wave of infections.
• Nasdaq Inc. is teaming up with a group of banks including Goldman Sachs Group Inc. and Morgan Stanley to spin out its marketplace for shares of private companies. The deal could help drive more transactions to Nasdaq Private Market, the New York-based exchange operator’s trading platform for shares of companies that haven’t yet had an initial public offering. Trading in pre-IPO shares has heated up in recent years as startups have waited longer to go public. Employees of such companies often seek to cash out of their shares, while investors may want to get in on a fast-growing technology startup.
• UBS Group AG posted better-than-expected profit in the second quarter after Switzerland’s largest bank benefited from surging new assets and fee income, driving the shares to their biggest gain in more than eight months. More than a year after the onset of the pandemic, the firm is seeing large increases in both recurring fee income — which the bank typically receives for helping manage client assets — and transaction-based earnings as clients boost trading. Those dynamics helped drive net income about 63% higher compared with a year earlier to $2 billion, beating analyst estimates.
• A summer resurgence of the pandemic stoked by the spread of the delta variant is raising alarms, sparking a global stocks selloff. The U.S. warned citizens against travel to the U.K. and Indonesia amid rising infections in the two nations. Apple Inc. is pushing back its return-to-office deadline because of the resurgence across many countries, people familiar with the matter said. More executives of Japanese companies are skipping Friday’s opening ceremony for the Tokyo Olympics as concerns about holding the games during the pandemic grow. Australia’s Victoria state extended its fifth lockdown since the pandemic began and tightened border restrictions with Sydney.
• The U.K. Foreign Office plans to cut its wage bill by as much as 20%, two people briefed on the matter said, after Boris Johnson’s government reduced overseas aid spending to help repair pandemic-hit public finances. Much of the cost saving would come from cutting workers on international development projects that are no longer going ahead, as well as short-term contracts and secondments coming to an end, according to the people, who spoke on condition of anonymity. But these wouldn’t be enough to reach the 20% target, and some redundancies are likely to be needed, one person said. Plans are at an advanced stage though the process is not yet finalized, the people said. A Foreign, Commonwealth and Development Office spokesperson said no decision has been taken.
• Netflix Inc. shares just wrapped up their worst first half in five years. If history is any guide, they are about to turn around. The video-streaming company slumped 2.3% in the first six months of this year, the worst performance since 2016, after first-quarter subscriber growth fell short of expectations. Five years ago, Netflix shares recouped a loss of 20% as strong subscriber results helped ease concerns about slowing growth. Results due after market close on Tuesday could once again do the trick for Netflix’s stock if the company’s second-quarter numbers and forecast for the third are enough to vanquish investors’ concerns.
• Volvo Group posted a lower operating profit than expected as the truckmaker struggles to keep up with demand amid a shortage of components. Adjusted operating profit swung to 9.73 billion Swedish kronor ($1.1 billion) during the second quarter, Volvo said Tuesday in a statement, missing the average analyst estimate of 9.92 billion kronor. Truck orders during the quarter rose in line with expectations. The Swedish company was forced to halt production last quarter for about a month, the higher end of expectations, because of a lack of semiconductors and other parts as customers sought to boost their fleets in the wake of the pandemic. The stoppages raised costs and more turmoil is expected in the second half of the year.
• Apple Inc. is pushing back its return to office deadline by at least a month to October at the earliest, responding to a resurgence of Covid variants across many countries, people familiar with the matter said. The iPhone maker becomes one of the first U.S. tech giants to delay plans for a return to normality as Covid-19 persists around the world and cases involving a highly transmissible variant increase. Apple will give its employees at least a month’s warning before mandating a return to offices, the people said, asking not to be identified discussing internal policy.
• Speaker Nancy Pelosi, relegated to the sidelines in the stalled Senate debate over a $3.5 trillion budget blueprint, soon must decide whether the House should draft its own tax and spending plan. Frustrations are mounting on both sides of the Capitol over the Senate’s inability to get firm commitments from the 50 members of its Democratic caucus to back the plan, which pays for the bulk of President Joe Biden’s economic agenda. Senate Majority Leader Chuck Schumer on Monday took a procedural step intended to push along negotiations on a related $579 billion infrastructure package. The New York Democrat said he hopes to make progress this week on the budget proposal, but moderates in his caucus are unwilling to back that until the bipartisan infrastructure bill is agreed upon.
• Apollo Global Management Inc. is in talks to join Fortress Investment Group’s 6.3 billion-pound ($8.6 billion) bid for Wm Morrison Supermarkets Plc and said it won’t make a separate offer for Britain’s fourth-largest grocer. In a further twist in what is shaping up to be Britain’s largest take-private deal in a decade, Apollo said Tuesday it would support Fortress’ intention to maintain salaries, honor supplier relationships and avoid material sale and leasebacks of Morrison’s extensive property portfolio. The move by Apollo, which came close to taking majority control of U.K. grocer Asda last year, raises the stakes for private equity firm Clayton, Dubilier & Rice LLC, whose 230 pence-per-share bid was previously rejected by Morrison.
• China rejected accusations by the U.S., U.K. and their allies that actors linked to the Asian nation’s government were behind the Microsoft Exchange hack and other “malicious cyber activities.” “The U.S. ganged up with its allies and launched an unwarranted accusation against China on cybersecurity,” Chinese Foreign Ministry spokesman Zhao Lijian said Tuesday at a regular press briefing in Beijing. “It is purely a smear and suppression out of political motives. China will never accept this.” Zhao added that the details released by the U.S. “do not constitute a complete chain of evidence. In fact, the U.S. is the largest source of cyber attacks in the world.”
• EasyJet Plc said it will focus capacity on mainland Europe to capture late-summer demand, as its U.K. home market continues to be held back by confusion surrounding shifting travel rules. Two-thirds of sales are currently coming from the Continent when there’s normally an even split with the U.K., EasyJet said Tuesday after reporting a 318 million-pound ($435 million) pretax loss for the quarter through June. EasyJet has sought to remain flexible throughout a choppy restart of air travel in Europe, shifting jets to markets such as Scandinavia as rapid rule changes impede progress in the U.K. While the government there spurred demand by removing a quarantine requirement for fully vaccinated Britons returning from medium-risk countries, travelers aren’t sure what to expect next, holding back bookings.
• Emerging-market investors have been pouring money into bonds and cutting back on stocks in a trend that’s set to intensify as the delta variant of the coronavirus ravages developing economies with low vaccination rates. Bonds have seen net inflows for 11 straight months, the longest streak in Institute of International Finance data going back to early 2018. They surged to a net $99.2 billion in the six months through June, versus net equity withdrawals of $2.2 billion, according the data, which tallies emerging markets excluding China.
• Honda Motor Co. long eschewed big strategic alliances, preferring to go it alone even as many of its carmaking peers banded together to improve economies of scale. That strategy is shifting now that the Japanese automaker is shifting more aggressively to electric vehicles. “It will be extremely risky for Honda to push the move alone,” Chief Executive Officer Toshihiro Mibe said in an interview Tuesday. “It’s meaningful to form alliances, mass-produce and lower costs to make our business sustainable.” Speaking to Bloomberg News at Honda’s Innovation Lab on the 38th floor of an office building in central Tokyo, Mibe said the company is open to working with others in different industries when it comes to developing software used in EVs.
• Food delivery startup Swiggy announced it closed a $1.25 billion funding round led by SoftBank Vision Fund 2 and Prosus, just days ahead of rival Zomato Ltd.’s listing. New investors in the round include Qatar Investment Authority, Falcon Edge Capital and Goldman Sachs, while existing backers Accel Partners and Wellington Management also participated, Swiggy said in a statement Tuesday. The latest fundraising was heavily oversubscribed following strong interest from investors, the startup said without providing details or its market value. Bloomberg had reported earlier that SoftBank is investing in the company at a $5.5 billion valuation. Global investors have flocked to India’s nascent startup ecosystem, just as the bulk of the country’s 625 million smartphone users begin to get acquainted with video streaming, food ordering and online shopping. Last week, Walmart Inc.-owned online retailer Flipkartannounced a record $3.6 billion funding round, Zomato’s $1.3 billion initial public offering drew overwhelming investor interest, while fintech brand Paytm filed documents for what is slated to be India’s largest IPO.
• Spring wheat extended a dazzling rally as a relentless bout of hot, dry weather scorches North American fields. U.S. Department of Agriculture data on Monday showed a further collapse in spring-wheat ratings, which are treading at their worst since 1988. While the variety only accounts for a fraction of world grain output, it adds to weather worries across global growers that are driving a rebound in crop prices. Recent rain in parts of the U.S. Farm Belt failed to buoy corn ratings. In top wheat shipper Russia, heat and dryness are hampering spring-planted fields, according to Andrey Sizov at consultant SovEcon. And sunny weather is aiding French grain harvests after storms, but may fade later this week.
• A selloff in Bitcoin accelerated Tuesday, pushing it below $30,000 for the first time in about a month. The largest digital coin fell 3.6% to $29,667 as of 7 a.m. in New York. Other virtual currencies also retreated, including second-ranked Ether. The Bloomberg Galaxy Crypto Index was down about 4%. Some traders had viewed $30,000 as a key support that might open the way to more losses if breached. Further big declines from here could rattle the cryptocurrency market and even exacerbate a wider flight from risk assets such as stocks. Global equities are falling due to fears of slowing economic growth and the relentless spread of the delta variant of Covid-19.
• Jeff Bezos is poised to blast off for an 11-minute ride on his company’s rocket, fulfilling a childhood dream to explore space and furthering a push to make space tourism viable. The world’s richest man, his brother and two others will fly on the New Shepard built by Blue Origin, the space company Bezos founded in 2000 with a vision of millions of people living and working in space. The rocket is scheduled to launch from West Texas at about 8:00 a.m. local time, in Blue Origin’s first flight with passengers aboard. The New Shepard has previously flown unmanned 15 times. At an altitude of 47 miles (76 km), a 10-foot-tall capsule with large windows and reclining leather seats will detach from the booster and ascend beyond the Karman line 62 miles above the Earth, where the passengers experience a few minutes of weightlessness and unforgettable views. They then strap back in and freefall toward the desert ground with six parachutes. Just before touchdown, a retro thruster slows the descent for a soft landing.
• Senate Finance Committee Chairman Ron Wyden has drafted legislation that would overhaul a major part of the 2017 tax overhaul that Republicans billed as a boon to small businesses, and Democrats have criticized as benefiting wealthy business owners. The bill would expand eligibility to types of businesses not currently eligible for the “pass-through” deduction created by the 2017 law, like lawyers, accountants, or doctors making above certain income thresholds. The proposal enters the conversation around the broader infrastructure and social spending economic agenda that Democrats hope to advance this year, as it could raise tens of billions to help offset the costs of those policies, though it could also face political headwinds from small-business groups.
• The notable lack of housing supply — largely a function of the collapse in homebuilding since 2010 — has become stark enough to grab the attention of the White House. Biden administration officials recently sat with homebuilding industry leaders to discuss the “ongoing challenges in the race to complete new homes.” Hence, today’s housing starts release will likely garner a good deal of attention, especially from mortgage bond investors. The good news for would-be homeowners is that the last eight reports have all seen single-family housing starts come in above a one-million annualized pace, a streak not seen since July 2007. This has been a welcome relief for a housing market suffering from a drought of new homes.

“There are better starters than me but I’m a strong finisher.”– Usain Bolt

*All sources from Bloomberg unless otherwise specified