July 5, 2021
Daily Market Commentary
- A unit of Brookfield Asset Management Inc. agreed to acquire DexKo Global Inc., a supplier of axles and chassis to trailer and recreational-vehicle manufacturers, for $3.4 billion. Brookfield Business Partners LP, a listed arm of the Canadian investment firm, plans to fund the deal with about $1.1 billion of equity. It will invest about $400 million, with institutional partners funding the rest of the equity portion, according to a statement Monday. Makers of big rigs have benefited from resilient delivery of goods during the pandemic, while RV manufacturers also got a boost from vacationers looking for safer means of travel. Closely held DexKo produces suspension systems, brakes and hydraulic components and is present in North America, Europe and Australia.
- Brookfield Asset Management Inc. has kicked off the sale of PD Ports, a deal that could value one of the U.K.’s oldest port operators at more than 2 billion pounds ($2.8 billion), according to people familiar with the matter. The Canadian investment firm is working with advisers and has reached out to potential bidders, the people said, asking not to be identified as the matter is private. Brookfield expects to close a sale of PD Ports before the end of the year and the business could draw financial and strategic investors, the people said. Deliberations are in the early stages, and no final agreements on the timing of any deal have been reached, the people said. A representative for Brookfield declined to comment.
- European stocks were little changed on Monday as investors weighed the prospects of economic recovery against Covid-19 risks, in addition to U.K. corporate deal news. The Stoxx Europe 600 Index was steady as of 11 a.m. in London. Miners surged as base metals gained on Chinese demand. Banks outperformed, while healthcare retreated. Oil stocks were in focus as the OPEC+ group resumes efforts to break a stalemate over raising production. U.S. stocks are closed for the Independence Day holiday, which could lead to lower trading volumes in Europe. Among individual moves, Wm Morrison Supermarkets Plc surged 11% after an investor consortium led by Fortress Investment Group agreed to buy the British grocer for about 6.3 billion pounds ($8.7 billion).
- U.S. equity-index futures were steady, and crude oil traded above $75 per barrel, as investors weighed the potential for a more hawkish tilt at the Federal Reserve and OPEC+ tensions over oil production. Contracts on the S&P 500 Index slipped marginally after the benchmark index notched up another record on Friday. West Texas Intermediate crude rose for a fourth time in five days as the United Arab Emirates held out against an extension of output increase by the OPEC+ alliance. The dollar dropped for a second day. The U.S. jobs report Friday signaled the economy is gaining steam but not at a pace that would prompt the central bank to taper stimulus quickly. Fed watchers awaited June meeting minutes due Wednesday to gauge how far divisions among members have widened on the tapering time line. U.S. stock and bond markets remain closed for the July 4 Independence Day holiday.
- Asian equities fluctuated in a narrow range as gains in technology-hardware stocks were offset by declines in Chinese internet giants. Chipmakers TSMC and Samsung were among the biggest boosts to the MSCI Asia Pacific Index. Tencent and Alibaba took a beating after local regulators moved to block Didi Chuxing from app stores just days after the ride-hailing firm’s U.S. listing. Tencent fell as much as 4.2%.
- Oil held steady as tensions between Saudi Arabia and the UAE escalated over the weekend, leaving the market with few clues about how supply talks will proceed on Monday after discussions reached an impasse last week. The Saudis are standing firm about raising output starting next month and extending the scope of the OPEC+ agreement to the end of 2022, while the United Arab Emirates wants better terms for itself. A failure by the group to raise supply may further squeeze the market, driving prices even higher and raising concerns over inflation. On the other hand, a breakdown in their unity could result in a free-for-all that crashes crude.
- Central banks may be regaining their appetite for buying gold after staying on the sidelines for the past year. Central banks from Serbia to Thailand have been adding to gold holdings and Ghana recently announced plans for purchases, as the specter of accelerating inflation looms and a recovery in global trade provides the firepower to make purchases. A rebound in buying — which had dropped to the lowest in a decade — would bolster the prospects for gold prices as some other sources of demand falter.
- India’s Paytm will seek shareholders’ approval next week for an initial public offering with an initial fundraising target of 160 billion rupees ($2.2 billion), according to people familiar with the plan, setting in motion the process for the country’s largest ever debut. If green-lit during a shareholder meeting slated for July 12, the digital payments startup will have the option of raising that target to as much as roughly $2.6 billion, per regulatory guidelines. The board has decided to start smaller and could increase the size depending on investor momentum, the people said, asking not to be named as the deliberations are not public.
- China expanded its latest crackdown on the technology industry beyond Didi Global Inc. to include two other companies that recently listed in New York, dealing a blow to global investors while tightening the government’s grip on sensitive online data. In a series of announcements that began on Friday and escalated over a holiday weekend in the U.S., Beijing ordered all three companies to halt new user registrations and told app stores to remove Didi’s service from their platforms. The regulatory onslaught came just days after the ride-hailing giant completed one of the biggest U.S. listings of the past decade and within weeks of debuts by the other targeted companies — Full Truck Alliance Co. and Kanzhun Ltd.
- A triumphant President Joe Biden all but announced an end to the pandemic in the U.S. on Sunday, celebrating what he called a “heroic” vaccination campaign on the country’s Independence Day holiday. Speaking at a party on the White House’s South Lawn with more than 1,000 people in attendance, Biden declared that the U.S. had achieved “independence” from the coronavirus, though he cautioned against complacency with more transmissible variants circulating in the country. “Today, all across this nation, we can say with confidence: America is coming back together,” Biden said to a cheer from the invited guests. “Today, while the virus hasn’t been vanquished, we know this: It no longer controls our lives, it no longer paralyzes our nation and it’s within our power to make sure it never does so again.”
- Apollo Global Management Inc. said Monday it’s considering an offer for Wm Morrison Supermarkets Plc, heating up a takeover battle for the U.K. grocer. Morrison just agreed over the weekend to a 6.3 billion-pound ($8.7 billion) takeover from a consortium led by Fortress Investment Group. That offer trumped private equity firm Clayton Dubilier & Rice LLC’s earlier 5.5 billion-pound bid, which the supermarket operator rejected. Morrison shares surged as much as 12% to a record in London, trading above the level of the Fortress offer.
- France desperately needs pension reform, just not right away. That’s the message for President Emmanuel Macron from a chorus of top business leaders, days before he’s set to announce whether he’ll attempt change before the 2022 election. Macron’s first attempt to repair the country’s system and fulfill a 2017 campaign pledge triggered strikes and helped fuel months of violent demonstrations before being cut short by the pandemic. Now that the economy is staging a comeback, many business leaders are wary of once again rocking the boat.
- A handful of emerging-market currencies have held onto gains versus the dollar this year. That list may shrink in the coming weeks as the highly contagious delta variant forms a new fault line for developing nations. Countries that are lagging behind in vaccination rates — such as South Africa and Russia — may feel the pressure as they tighten restrictions that will hurt economic activity, according to Credit Agricole CIB. Once the best performers of 2021, the rand and ruble were among those that knocked an index of emerging-market currencies lower into the end June for the first monthly drop in three. The ruble fell 1.4% last week, while the rand dropped 0.7% amid rising infections.
- Sydney Airport received a A$22.3 billion ($17 billion) takeover offer from a group including IFM Investors in what would be Australia’s largest acquisition and one of the boldest bets on a recovery in global travel since the pandemic started. The offer values Sydney Airport shares at A$8.25 each, the company said in a statement Monday. While that’s 42% higher than Friday’s closing price, it’s below the stock’s peak of around A$9 in late 2019 before Covid-19 devastated aviation. The shares closed up 34% to A$7.76 on Monday. The suitors are seeking to capitalize on the slump in market value at Australia’s largest airport before global travel starts to pick up. While airlines worldwide have received billions of dollars in government handouts to survive the crisis, infrastructure providers like airports haven’t been helped on the same scale.
- An explosive mix of excess cash sloshing in the financial system, ongoing quantitative easing and a looming debt ceiling deadline could combine to create a headache for major money markets, according to Zoltan Pozsar. The Credit Suisse Group AG strategist and long-time Odd Lots guest has earned a reputation for predicting the repo madness of late 2019, and is once again predicting volatility in a key funding market. At issue is the amount of money that could flow into the Federal Reserve’s reverse repurchase facility (RRP) as money market funds and banks reshuffle their existing holdings to take advantage of a recent increase in interest. The Fed surprised the market last month by tweaking interest paid on the RRP from nothing to 5 basis points, a move that’s been luring billions of dollars into a facility intended to help the central bank keep a floor under interest rates. Already Pozsar estimates that usage of the facility has jumped by $300 billionsince the RRP rate hike as money market funds dump lower-yielding T-bills in favor of parking cash at the RRP.
- Credit Suisse Group AG said it’s planning to introduce a work model that gives the bank employees in Switzerland “maximum flexibility,” joining global peers in making remote working arrangements more permanent. Swiss universal bank employees in Switzerland, depending on their role, will be able to decide with their teams and line managers how much of their time they want to spend outside the office and which days to be in, according to a statement from the bank on Monday. “As we prepare for a post-pandemic world, our aim is to become more flexible and agile when it comes to working arrangements,” Credit Suisse Switzerland CEO Andre Helfenstein said in the statement.
- The protection conferred by Pfizer Inc.’s vaccine against mild forms of Covid-19 appeared to wane after a few weeks in data garnered in Israel as the delta variant took hold, although the shot continued to shield users against severe illness. The vaccine developed with BioNTech SE protected 64% of receivers against the illness between June 6 and early July as the government lifted restrictions, down from 94% between May 2 and June 5, the Ynet news website reported, citing Health Ministry numbers. More importantly, those who were vaccinated remained far less likely to be hospitalized, with protection dropping only slightly to 93% from 98% in the period. The efficacy against serious illness was similar, according to the report.
- Warburg Pincus is creating a Chinese asset management company to invest in distressed real estate opportunities, with plans to garner $5 billion in assets in five years. The U.S. private equity firm will work with Wensheng, one of the largest special situation asset managers in China, to create a joint venture focusing on real estate special situation investments, including distressed assets. The two will commit as much as $600 million, according to a joint statement on Monday. Warburg Pincus is tapping into the growing sector of distressed asset investment as more Chinese property companies feel the strain from tighter liquidity and policy curbs. High debt levels and a government deleveraging drive are pushing more developers to sell assets.
“Invest for the long haul. Don’t get too greedy and don’t get too scared.” – Shelby M.C. Davis
*All sources from Bloomberg unless otherwise specified