July 6, 2021

Daily Market Commentary

Canadian Headlines

• Canadian stocks rallied to their highest closing level on record Monday as energy companies outperformed on surging oil prices. The S&P/TSX Composite index rose 0.3% in Toronto, led by energy and tech stocks. Oil prices rose above $75 a barrel after OPEC+ abandoned its meeting without a deal, tipping the cartel into crisis and leaving the oil market facing tight supplies and rising prices. On the M&A front, a unit of Brookfield Asset Management and a group of institutional partners agreed to buy closely held trucking-parts supplier DexKo Global Inc. for $3.4 billion, betting on an industry that has remained strong throughout the pandemic.
• Telus International Cda Inc. is buying Playment Inc., a Bangalore-based company that turns images and videos into data that can be used in artificial intelligence applications, as it seeks to bolster the services it offers to technology and enterprise clients. Playment, which has counted Y Combinator and Elevation Capital among its early-stage investors, uses so-called computer vision tools to make AI processes work better. These tools include a remote-sensing method known as LiDAR that uses laser pulses to measure variable distances, according to a statement from Telus International. Terms of the deal weren’t disclosed. Computer vision technology is used in applications such as health care diagnostics and disease detection in crops. Telus International, which started trading on U.S. and Canadian stock markets in February, cited consulting data that estimates the computer vision market will more than triple in size by 2026 to more than $50 billion.
• Toronto saw the lowest number of homes trade hands in a year in June as the pandemic-fueled demand that drove the market to record highs starts to fade with immigration still muted. Home sales in Canada’s largest city fell 9.1% in June from the month before to 8,885 transactions, the third consecutive monthly decline, according to data released Tuesday by the Toronto Regional Real Estate Board. Despite the declining number of sales the seasonally adjusted average price of a home remained virtually unchanged last month at C$1.06 million ($859,890), the data show. The Covid-19 pandemic helped make Canada’s housing market among the hottest in the world over the last year as record low mortgage rates and increased demand for larger living spaces ran up against the persistent shortage of housing stock that has long plagued its largest cities. But now with lock down measures easing, vaccinations rising, and the economy picking up, the circumstances that created the boom are starting to ease, and the immigration-driven population growth that has long underpinned the country’s housing market remains muted.

World Headlines

• European equities were little changed on Tuesday as the surge in oil amid the OPEC+ crisis highlighted risks to a stock market trading near record highs. The Stoxx Europe 600 Index was down less than 0.1% by 10:11 a.m. in London. Automakers and banks led the decliners. Oil stocks jumped as Brent extended gains after OPEC+ ended days of talks without a deal to bring back more halted output next month. Travel and leisure shares also gained. Ocado Group Plc rose 2.5% after gaining Spanish grocery chain Alcampo as a new client for its robotic warehouse business. J Sainsbury Plc, Britain’s second-largest supermarket, climbed after raising its profit outlook again
• U.S. futures were steady with stocks Tuesday as traders weighed a jump in crude oil prices after a breakdown in OPEC+ talks. A gauge of the dollar was little changed. Minutes due Wednesday from the Fed’s latest meeting may provide further context on the central bank’s hawkish pivot last month. Elsewhere, Australian bond yields rose as the central bank announced a slower pace of asset purchases, while reiterating that interest rates are unlikely to rise before 2024. New Zealand’s currency outperformed major peers on speculation that an interest-rate hike could come this year.
• Asian equities rose, headed for their second small gain in two days, as advances in financials and energy firms helped offset concerns over China’s crackdown on the technology industry. Financials were the biggest boost to MSCI Asia Pacific Index as U.S. Treasury yields rose. A gauge of energy stocks climbed the most as crude jumped after OPEC+ failed to reach a deal to bring back more halted output. Hong Kong shares dipped as investors continued to digest the Chinese government’s move to expand its crackdown on the tech industry beyond Didi to include two other companies that recently listed in New York. The MSCI China Health Care Index fell by as much as 7.5%, its biggest dropsince March 2020, on concerns that new government draft guidelines would make it more difficult to develop oncology drugs in China.
• Oil jumped to the highest in more than six years after a bitter fight between Saudi Arabia and the United Arab Emirates plunged OPEC+ into crisis and blocked a supply increase. West Texas Intermediate crude advanced to $76.98 a barrel, the highest since November 2014, as the breakdown in talks left the market without the extra supplies for next month it had been counting on. What happens next will determine whether the standoff could escalate into a conflict as destructive as last year’s price war. At stake is the stability of the global economic recovery amid growing inflationary pressures, and the ability of the producers’ alliance to retain its hard-won control over the oil market.
• Gold rose to the highest in more than two weeks, drawing support from technical levels and short-covering, as investors awaited Federal Reserve minutes for more clues on the monetary policy path. The metal on Monday closed above its 100-day moving average and has climbed back above $1,800 an ounce, which can be seen as a psychologically important level. Prices have risen about 3% since hitting a two-month low in late June, when the Fed’s hawkish shift and a stronger dollar curbed bullion’s appeal. You “probably have some short-covering along with some technical buying all helping to contribute to a higher gold price this morning,” said Joseph Stefans, head trader at MKS (Switzerland) SA. “Physical demand has begun to resurface a bit, U.S. real yields continue to drift lower, which has brought some dollar selling to the market.”
• The U.K.’s health secretary is set to relax self-isolation requirements for fully vaccinated people in England, while Germany is easing rules for travelers arriving from Britain, Portugal and other nations. England will select a new cricket squad for matches against Pakistan scheduled for this week after players and staff members tested positive, the BBC reported. The delta variant continued to push up case numbers around the world, with Sydney’s outbreak raising concern the city may need to extend its lockdown. The Australian Grand Prix Formula One race planned for November has been canceled, and Japan plans to hold the opening ceremony of the Tokyo Olympics without fans, according to reports.
• Investors added money to exchange-traded funds that buy emerging market stocks and bonds last week. This was the 35th 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 $785.6 million in the week ended July 2, compared with gains of $773.7 million in the previous week, according to data compiled by Bloomberg. So far this year, inflows have totalled $32.4 billion.
• Didi Global Inc. plunged in premarket trading after a Chinese regulator ordered the removal of the company’s platform from app stores, days after a $4.4 billion initial public offering in the U.S. Shares of the China-based tech firm fell as much as 30% to $10.90, wiping out about $22 billion of market value and taking the stock below the $14 IPO price. They traded at $12.57 as of 6:55 a.m. in New York. The Cyberspace Administration of China barred new users from Didi’s app, citing security risks and tightening its grip on sensitive online data. Didi, whose American Depository Receipts only traded in New York since June 30, said the move may have an “adverse impact” on its revenue in China.
• Sumitomo Mitsui Financial Group Inc. will buy a 74.9% stake in Fullerton India Credit Co. for about $2 billion, marking the first entry into the South Asian country’s retail financial business by a Japanese bank. Japan’s second-largest lender will eventually acquire the rest of the Indian credit firm from Fullerton Financial Holdings Pte, it said in a statement Tuesday, confirming an earlier Bloomberg News report. With the acquisition, Fullerton India will become a consolidated subsidiary of Sumitomo Mitsui, it said in a separate statement. Fullerton Financial is a unit of Singapore’s state investment fund Temasek Holdings Pte.
• Chinese billionaire Zhang Jindong secured a $1.36 billion state-backed bailout for the troubled retail arm of his Suning empire, marking another step in Beijing’s efforts to clean up its heavily indebted conglomerates. A group of investors, led by the Nanjing state asset management committee and the Jiangsu provincial government, will take a 16.96% stake in Suning.com Co., according to a statement Monday. The deal was struck at 5.59 yuan a share, the near eight-year low the stock was trading at before it was halted June 16. The shares surged 10% in Shenzhen trading Tuesday. Alibaba Group Holding Ltd. and leading Chinese appliance makers Midea Group Co. and Haier Group Co. are also partners in the fund, as are smartphone maker Xiaomi Corp., and TCL Technology Group Corp. After the transaction, none of the major holders will have a controlling stake.
• The two largest shareholders of PT Tower Bersama Infrastructure are exploring the potential sale of the Jakarta-listed telecommunications company, according to people with knowledge of the matter. Private equity firm Provident Capital Indonesia and a subsidiary of investment company PT Saratoga Investama Sedaya have asked banks for proposals on a possible transaction for their stakes, said the people, who asked not to be identified as details are private. Saratoga’s PT Wahana Anugerah Sejahtera owns 34% of Tower Bersama’s outstanding shares while Provident Capital holds 22%, according to data compiled by Bloomberg. The stakes are worth about 43.5 trillion rupiah ($3 billion) at Monday’s closing price. Tower Bersama has a market value of about $5.3 billion.
• Saudi Arabia raised oil prices for buyers from Asia to the U.S. for August after OPEC+ talks broke down just as the market was clamoring for more supply. The Saudis, along with Russia, sought over the past week to rally other members around a plan to unwind production cuts incrementally and to extend their accord through to the end of next year. The proposal collapsed when the United Arab Emirates balked at keeping in place what it says is an unfair production baseline for its quota for longer. In its main market of Asia, Saudi Aramco increased the official selling price, or OSP, for Arab Light crude by 80 cents a barrel to $2.70 above the regional benchmark. That’s the biggest month-on-month increase since January, and suggests the oil giant won’t raise supply next month even as it sees the market tightening.
• The cost of renting a home is soaring in cities across the U.S., squeezing the finances of low-income households and posing a threat to the consensus that pandemic inflation will soon fade away. The median national rent climbed 9.2% in the first half of 2021, according toApartment List. While part of the increase reflects a bounce-back in prices that dropped earlier in the pandemic, the real-estate firm says rents are now higher than if they had stayed on their pre-Covid track. And they’re still rising at a rapid clip — just at the time of year when the largest number of lease renewals fall due, locking millions of tenants into bigger monthly bills. Surveys by the New York Fed and Fannie Mae suggest renters are braced for further hikes of 7% to 10% in the coming year.
• KKR & Co. has raised $2.2 billion for a new real estate fund that will seek investment opportunities throughout Europe as lockdown measures are eased across the continent. The private equity firm’s second dedicated property fund has already invested more than $700 million in residential housing and warehouses, two areas that have proved resilient to the pandemic, according to a statement Tuesday. It will also seek to buy hospitality properties hurt by restrictions and build offices fit for the post-Covid workforce. “We continue to believe that Europe represents an attractive investing environment for real estate,” Ralph Rosenberg, partner and global head of KKR Real Estate, said in the statement.
• Swedish industrial group Hexagon AB has agreed to acquire Infor’s global software business for about $2.75 billion on a cash and debt free basis. Hexagon is buying the enterprise asset management unit, which typically combines software and systems to manage physical assets, for $800 million in cash and $1.95 billion worth of shares, according to a statement on Tuesday. The shares will be bought from Infor’s parent, Koch Industries, while the cash component will be financed via Hexagon’s existing debt facilities. The deal sent the shares up as much as 4% at the start of trading in Stockholm, to a record high, according to data compiled by Bloomberg.
• The Bank of England will ask staff to come into the office at least one day a week from September as U.K. companies plot the return of workers following plans to relax guidance to stay at home. Employees at the central bank will be expected to organize regular “team days” in the office, Chief Operating Officer Joanna Place said in a speech. The return to office schedule was delayed beyond the government’s July 19 re-opening date to allow for more staff to be vaccinated and for the summer holidays. The Bank of England is among other employers in finance sketching out such hybrid policies combining work in the office and a home. Social distancing rules since the start of the pandemic in early 2020 made normal office-working almost impossible. With restrictions due to be scrapped, commercial banks including Standard Chartered Plc have already declared their workers will be able to continue at least some home-working permanently.
• Sri Lanka’s risk premium for a default jumped, reflecting concern that the pandemic is damaging the nation’s ability to fill its foreign-exchange coffers ahead of at least $2.5 billion in dollar debt due in the next 12 months. The nation’s five-year credit default swaps rose to 1,553 basis points on Monday, the highest since March 1. A separate gauge of one-year default probability was at 27.9%, the steepest in Asia, up from around 13% over six months ago, according to a Bloomberg model where a reading above 1.5% signifies high risk of failure to pay.
• The Bank of Japan will likely consider raising its inflation forecast when it updates its quarterly economic outlook next week, according to people familiar with the matter. BOJ officials see that the inflation boost from higher energy prices is larger than they previously expected, making a revision likely, the people said. The bank’s most recent forecast in April was for a 0.1% gain in its key consumer price gauge for the year ending in March 2022. The current market consensus for that period is 0.3%. The BOJ has little intention to cite the upward revision as a sign of improvement in the underlying price trend as the bank has been describing energy price moves as transitory, the people said.
• For years, the powers that be on Wall Street have toyed with questions about whether it would be feasible to move the stock market onto a blockchain, the underlying technology behind cryptocurrencies. The innovators in the fast-moving world of decentralized finance — or DeFi — aren’t waiting around to see how those discussions unfold. Instead, they’ve built synthetic versions of equities that track some of the world’s biggest companies. In essence, the anti-establishment ethos of the crypto world is being applied to a rough facsimile of the stock market. Fake versions of Tesla Inc., Apple Inc., Amazon.com Inc. and other big stocks, as well as a few popular exchange-traded funds, have been created by the projects Mirror Protocol and Synthetix over the past year. The tokens, and the programming that allows them to trade, are engineered to reflect the prices of the securities they track without any actual purchases or sales of the real stocks and ETFs involved. So far, volumes are just a tiny fraction of those on regulated exchanges. But for crypto enthusiasts, the potential upside is huge.
• Platinum Equity agreed to buy Solenis, a maker of specialty chemicals, and merge it with Sigura Water, creating a new global player in the consumer, industrial and pool-water treatment markets. Bloomberg reported Friday that German industrial conglomerate BASF SE and private equity partner Clayton, Dubilier & Rice were considering exit options for Solenis. The deal, which implies an enterprise value for Solenis of $5.25 billion, will give Platinum more exposure to consumer and industrial markets, including water treatment and waste-water businesses. Once combined, the merged company will generate approximately $3.5 billion of revenue, Platinum said in a statement Tuesday.
• Daimler AG and Jaguar Land Rover became the latest carmakers to warn of crimped sales as a result of the global semiconductor shortage, with the latter flagging deliveries in the second quarter will be 50% worse than initially thought. Shares in the British luxury carmaker’s Indian parent Tata Motors Ltd. slumped as much as 10% in Mumbai, the biggest intraday drop in almost three months, while stock in Daimler, owner of Mercedes-Benz, fell 1.8% in Frankfurt. A shortage of automotive chips that began in December as consumer demand for personal devices soared amid pandemic lockdowns has persisted through 2021, raising concerns of the issue spilling over into next year. The dearth is threatening to slash $110 billion in sales from the car industry, consulting firm AlixPartners forecast in May, and has forced auto manufacturers to overhaul the way they get the electronic components that have become critical to contemporary vehicle design.
• New York City could find out who its next mayor is likely to be when the Board of Elections on Tuesday releases the long-awaited results of as many as 125,794 absentee ballots in the city’s Democratic primary race. The results may still not be the final say as the board continues to review disputed ballots. It has said it may not certify results before July 12. But Tuesday’s release could add clarity to a race that remains too close to call: No candidate won an overwhelming majority on Election Day and the use of a new ranked-choice voting system, which allows voters to rank up to five candidates, makes it harder to decipher how voters’ preferences will tilt the outcome. Given that Democrats outnumber Republicans by 7-to-1 in New York City, the winner of the Democratic primary is likely to win the general election in November against Republican nominee Curtis Sliwa.
• President Joe Biden’s effort to reverse a free fall in U.S.-Russia relations encounters an early test in Syria as an agreement over international aid corridors into the country is set to expire this week. Keeping aid flowing into Syria was a key request Biden made of President Vladimir Putin at their summit in Geneva last month, but that will require the two nations and other members of the United Nations Security Council to reach an accord this week. The current agreement expires July 10. The U.S. and allied nations want to avert a shutdown of aid operations, which benefits Syrians living in rebel-held areas. Putin, for his part, wants to extract concessions for his ally, Syrian President Bashar al-Assad. Millions of lives could hang in the balance.
• AngloGold Ashanti Ltd. appointed former BHP Group executive Alberto Calderon to its top job, ending a nearly year-long head hunt that’s weighed on the shares of the No. 3 gold producer. Calderon, a 61-year-old Colombian who once served as a junior minister in a government that fought drug lord Pablo Escobar, will join AngloGold on Sept. 1. The Ivy League economist, who was in the running to become chief executive officer at BHP before the position went to Andrew Mackenzie, served as CEO of Melbourne-based explosives maker Orica Ltd. until February. AngloGold hasn’t had a permanent CEO since Kelvin Dushnisky’s abruptdeparture last September after holding the position for just two years. The Johannesburg-based miner’s shares have underperformed peers in the past year as the CEO hunt dragged on and the company had to suspend operations at a mine in Ghana. While Calderon’s experience lies in industrial metals, coal and oil, his background may help AngloGold to advance its key expansion projects in Colombia.
• The oil curve is going from strength to strength, with spreads between monthly futures contracts that wouldn’t look out of place in a $100-a-barrel market. On Monday, the Organization of Petroleum Exporting Countries abandoned a meeting at which the group was expected to add barrels to the market and quell concerns about supply. The abandonment means the cartel’s pre-existing plan will apply. That means, for now, none of the extra crude for which the market is clamoring. Brent futures for the coming December are now trading at $6 barrels above the same contracts for a year later. The last time the spread, popularly known among traders as Dec.-Red-Dec., was so extreme for sustained periods was in 2011-2014. Headline prices averaged almost $108 a barrel over that time.
• Bank of America strategists are calling for $15 billion to $20 billion of high-grade supply in the holiday-shortened week. Platinum Equity is acquiring water treatment company Solenis from CD&R and BASF for $5.25 billion with BofA Securities and Goldman Sachs leading the debt financing for the purchase. The tightest junk and investment-grade corporate bond spreads in decades suggest U.S. companies have a growing incentive to issue debt over the summer rather than waiting until later this year. In leveraged loans, Verizon Communications media division is tapping the market to fund its $5 billion leveraged buyout by Apollo Global Management. Verizon Media is selling two new loans totaling $1.5 billion. A lender call is scheduled for July 8
• The buyout industry has long been a major backer of fossil-fuel deals. Now it’s rolling out new green asset funds at a record clip in a bid to lure the institutional money flocking to climate-friendly investments. Today’s private equity shops — including the world’s largest alternative asset manager, Blackstone Group — are pouring capital into fast-growing sectors such as solar, carbon capture, and battery storage. Part of the attraction stems from the rapid adoption of wind and solar as public demand for climate accountability rises. It’s a shift in investment strategy that comes after years of fits and starts for the once struggling renewables space. Especially over the last 18 months, environmental, social, and governance factors have also become a much stronger consideration for North American investors, said Kelly DePonte, a managing director at Probitas Partners, which raises money for private equity funds.

“People don’t like the idea of thinking long term. Many are desperately seeking short term answers because they have money problems to be solved today.” – Robert Kiyosaki

*All sources from Bloomberg unless otherwise specified