July 12, 2021
Daily Market Commentary
- Canada’s transportation authority imposed new rules on its two largest railroad companies operating in wildfire-ravaged British Columbia as it investigates whether a freight train caused a blaze that destroyed a village two weeks ago. Canadian National Railway Co. and Canadian Pacific Railway Co. will have to ensure they can respond within 60 minutes to any fire detected along rail lines in the most affected areas of British Columbia, according to a release Sunday from Transport Canada.
- U.S. futures were mixed as investors turn their attention to the second-quarter earnings season starting this week in order to gauge whether corporate profitability can support equity valuations. Treasury yields dropped.
- European stocks were little changed Monday, with investors rotating out of cyclical sectors as they assess risks to the recovery from the delta virus variant and the outlook for stimulus. The Stoxx 600 Europe Index was less than 0.1% lower as of 9:22 a.m. in London. A decline in U.S. Treasury yields is boosting rates-sensitive sectors like real estate and utilities, while hitting cyclicals such as miners, banks and carmakers. Admiral Group Plc climbed after saying it sees a higher-than-expected pretax profit, while Atos SE slumped 15% as it lowered revenue growth and operating margin targets for the year.
- Asian equities rose, led by gains in China and Japan, after U.S. stocks rallied to all-time highs and the Chinese central bank said it will cut the amount of cash most lenders must hold in reserve. The MSCI Asia Pacific Index climbed more than 1% after a four-day losing streak. Information-technology and industrials were the top-performing sectors. Japan’s Topix climbed 2.1%, while China’s CSI 300 Index added 1.3%. The liquidity-sensitive ChiNext surged 3.7% to the highest since June 2015.
- Gold held an advance as bond yields retreated and investors weighed the outlook for global growth on concerns that coronavirus variants may threaten the economic recovery. The dip in Treasury yields last week helped boost the appeal of the non-interest bearing metal. They will remain in focus amid new supply coming to the market, with the U.S. government set to sell $58 billion of new three-year notes on Monday along with $38 billion of existing 10-year securities.
- Oil dipped after a two-day gain as investors assessed the demand outlook amid a Covid-19 resurgence in many regions. Futures in New York fell below $74 a barrel after rising more than 2% on Friday. The rollout of vaccines and rebound in economic activity across major economies, particularly the U.S., has underpinned increasing fuel consumption. The spread of the highly infectious delta variant of the virus and uncertainty over supply from the OPEC+ alliance are clouding the outlook, however.
- European Central Bank President Christine Lagarde told investors to prepare for new guidance on monetary stimulus in 10 days, and signaled that fresh measures might be brought in next year to support the euro-area economy after the current emergency bond program ends. Speaking to Bloomberg Television days after the ECB raised its inflation goal to 2% and acknowledged it may overshoot the target, Lagarde said the July 22 Governing Council session — previously expected to be relatively uneventful — will now have “some interesting variations and changes.”
- U.S. Treasury Secretary Janet Yellen will press European Union officials in Brussels this week to reconsider their plan to propose a digital levy after securing the Group of Twenty’s endorsement for the principles of a global corporate-tax agreement. Yellen is in Brussels Monday and Tuesday following the gathering of G-20 finance ministers and central bankers in Venice, which concluded Saturday with the group’s call to finish work on the global plan’s details by October. The Treasury chief is set to make the case for the EU to hold off on unveiling its plan for a bloc-wide digital levy on online sales.
- Air France-KLM has started talks with Airbus SE and Boeing Co. for 160 new single-aisle planes in what could be the biggest-ever order for the carrier seeking to expand its low-cost offering. The airline group is negotiating a joint order for jets destined for Transavia in France, KLM and the Dutch Transavia fleet, Chief Executive Officer Ben Smith said in an interview published Monday in Dutch daily FD.
- Flipkart completed a fundraising round valuing the Indian online retailer at $37.6 billion, with main owner Walmart Inc. joining investors including SoftBank Group Corp. in injecting $3.6 billion of fresh capital. Tencent Holdings Ltd., Blackstone Group Inc.-backed Antara Capital and several sovereign wealth and pension funds also participated, the company said Monday in a statement. Those include Abu Dhabi’s sovereign fund ADQ, Singapore’s GIC Pte, Qatar Investment Authority and Canada Pension Plan Investment Board.
- Penn Virginia Corp. agreed to purchase Lonestar Resources US Inc., a troubled U.S. shale oil and gas producer that emerged from bankruptcy late last year, for $370 million. The all-stock deal, in which Lonestar holders will receive 0.51 share of Penn Virginia for each of their shares, is expected to close in the second half of this year, Houston-based Penn Virginia said in a statement Monday. Lonestar filed for bankruptcy last year as the firm struggled amid low energy prices and high debt loads.
- KKR & Co. has acquired a residential building outside of Phoenix, its latest wager that residents who left fast-growing cities during the pandemic are returning and eager to rent luxury apartments. KKR purchased The District at Scottsdale, a 332-unit property built in 2019, said Chris Lee, a partner at the New York firm and its head of real estate in the Americas. “It’s part of a broader strategy we began embarking on last summer when we took a contrarian view that people would come back to cities as quickly as they left,” he said in an interview.
- MSP Recovery, specializing in securing Medicare and Medicaid secondary payments, will go public through a merger with a blank-check firm that will give the combined company an enterprise value of $32.6 billion. Coral Gables, Florida-based MSP announced the tie-up with Lionheart Acquisition Corp. II in a Monday statement that confirmed an earlier Bloomberg News report. MSP’s senior executive team, led by Chief Executive Officer John H. Ruiz, will continue to manage the company.
- The White House is intensifying its effort this week to counteract Republican laws to restrict voting, as Democrats grow increasingly concerned that President Joe Biden has no answer to the GOP-led campaigns in dozens of states. On Monday, Vice President Kamala Harris is set to discuss new, Republican-led bills to curb ballot access with local leaders in Detroit. The next day, Biden is scheduled to deliver a speech on voting rights in Philadelphia. The new campaign comes as two pieces of national legislation that would maintain ballot access are stalled in Congress and as judges as high as the Supreme Court have upheld GOP efforts.
- As the International Monetary Fund plans for the return of staff to its headquarters buildings in Washington, the world’s financial firefighter is mapping a strategy to allow employees to work part of the week from home beyond the pandemic — an idea that may reduce its physical-space needs. IMF staff, who have been working from home since last year due to Covid-19, would be permitted to continue doing so starting in September as part of a proposed trial plan even though the health emergency in Washington looks to have eased, according to people familiar with the plan, who asked not to be identified because it’s private.
- U.K. Prime Minister Boris Johnson will today warn people to stay vigilant as he prepares to lift virtually all remaining curbs in England. French President Emmanuel Macron will also address the nation today amid a surge in infections. Authorities have toughened social-distancing rules in Bangkok, Seoul, and parts of Vietnam as the fast-spreading delta variant of the coronavirus continues to advance. Tokyo entered its fourth state of emergency and Sydney had a 45% spike in daily cases.
“It is ludicrous to believe that asset bubbles can only be recognized in hindsight.”– Michael Burry
*All sources from Bloomberg unless otherwise specified