June 15, 2021

Daily Market Commentary

Canadian Headlines

• Canada and the European Union launched a new partnership to secure supply chains for critical minerals and reduce dependence on China in a push for jobs and to counter climate change. “With EU partners, we talked about what we can do to build a cleaner economy for years to come,” Canadian Prime Minister Justin Trudeau told reporters on Tuesday after meeting with EU chiefs in Brussels. “To begin with, in order to continue creating good, green jobs for the middle class, we must secure supply chains for critical minerals and metals that are essential for things like electric car batteries.” The partnership was unveiled as the world’s biggest economies continuing to spar over everything from human rights to technology exports, with China mocking U.S. efforts to build a broader coalition to counter Beijing and calling Washington “very ill indeed.”
• Canadian Imperial Bank of Commerce led a syndicate of lenders providing a C$780 million ($642 million) green loan that will finance the second phase of construction of the CIBC Square office complex in Toronto. The transaction is the largest-ever green real estate construction loan in Canada, according to a joint statement from CIBC, which served as administrative agent and green structuring agent, and developers Ivanhoe Cambridge and Hines. Desjardins Capital Markets and HSBC Bank Canada served as co-lead arrangers. CIBC Square is set to be first office complex in Toronto to reduce water consumption by capturing, filtering, and sanitizing groundwater for use in on-site washrooms, according to the statement. National Bank of Canada, Toronto-Dominion Bank, Bank of Nova Scotia, Bank of Montreal, and Wells Fargo also took part in the loan, which is aligned with the Green Loan Principles, market guidelines developed to promote the development of the green loan market.

World Headlines

• European stocks rose toward their eighth successive record as investors awaited tomorrow’s key policy decision from the U.S. Federal Reserve. The Stoxx Europe 600 Index was up 0.3% as of 10:25 a.m. in London, with gains in chemical and industrial sectors outweighing losses in miners and banks. Germany’s DAX Index was the best-performing major benchmark, also poised for yet another record. Equities in the region are on their longest push into new-record territory since 1999. Europe’s value-dominated stock universe is playing catch-up to tech-heavy U.S. markets in 2021, supported by economic growth conviction, inflationary impulses and steeper curves. Ahead of the Fed decision, the consensus is that policymakers will send less dovish signals.
• Treasuries climbed Tuesday while U.S. equity futures were little changed, with markets appearing unruffled ahead of a key Federal Reserve meeting. Contracts on the S&P 500 index pared an early gain after the underlying gauge hit another record Monday. The day before the Fed’s next policy decision — and possible hints about when the central bank will slow the pace of emergency asset purchases — there were few nerves on display. The statement is set to include updated forecasts, and expectations are that officials would broadcast any taper plans well in advance.
• Asian equities advanced as continued gains in the region’s technology stocks outweighed losses in financial shares ahead of the U.S. Federal Reserve’s meeting this week. The MSCI Asia Pacific Index rose by as much as 0.5% before paring gains. Its subgauge of information-technology stocks climbed for a fourth day, providing the biggest support. Finance sector shares slumped, led by those trading in Hong Kong, pushing the Asian benchmark lower by 0.1% at one point. New Zealand was the day’s best performer, followed by benchmarks in Japan and Australia. Markets in China and Hong Kong underperformed as they resumed trade following a public holiday. China’s CSI 300 Index fell more than 1%, dragged lower by materials, health-care and financials firms.
• Oil traded above $71 a barrel as investors weighed the outlook for rising demand against extended anti-virus curbs in some economies, with officials tackling the challenge posed by more infectious variants. West Texas Intermediate was 0.3% higher after ending Monday little changed. Prices are set to move higher from current levels, according to Alex Sanna, head of oil marketing at Glencore Plc. Demand is likely to return to normal levels by the third quarter of next year, he said at the FT Commodities Global Summit.
• Gold held near the lowest in four weeks in the wake of higher bond yields, as investors awaited a key Federal Reserve meeting for clues on future monetary policy. The yield on 10-year Treasuries eased slightly on Monday, following a two-day gain from the lowest since March that damped the appeal of the non-interest-bearing precious metal. Bullion traders’ attention will be on the Fed’s two-day meeting which starts Tuesday, as well as comments from central bank Chair Jerome Powell, for signals on a timeline for paring stimulus.
• Copper’s stellar rally is starting to creak as investors unwind their bullish bets and evidence of demand weakness mounts in China’s powerhouse manufacturing sector. Prices plunged as much as 4.3% in London, crashing through their 50-day moving average to trade at a seven-week low. Copper hit an all-time high last month, but pressure on the bellwether metal is mounting as Chinese demand softens and investors grow more confident that the strong inflationary forces seen across leading economies will prove transitory. The possibility that the U.S. Federal Reserve will soon start to slow the pace of emergency asset purchases is also bolstering the outlook for the dollar, shaking a pillar of support for copper and other commodities that have been boosted by the currency’s weakness over the past year. While supply issues and a demand uplift arising from the green-energy transition sustain the long-term outlook for copper, an investor exodus appears to be accelerating as shorter-term fundamental, macroeconomic and technical pressures build.
• The European Union’s debut bonds are set to raise 20 billion euros ($24 billion) to fund the region’s recovery, with a near-record orderbook showing investors are clamoring for the highly-rated securities. The size of the 10-year bond sale was double that expected by Danske Bank A/S and ABN Amro Bank NV, as the bloc kicks off a program of issuance that could top 80 billion euros this year. The debut pulled in over 142 billion euros of orders, just short of a record set last year for a similar-dated EU social bond. The sale is one of the most highly-anticipated in recent times, given the huge amount of debt that the EU plans to issue over the next few years. Before the pandemic, pooling European debt would have been a near-impossible feat and faced stiff resistance from the region’s richer countries.
• The view that Bitcoin is a hallmark of speculative excess and froth is still going strong, even after last month’s 35% plunge. About 80% of fund managers surveyed by Bank of America Corp. called the market a bubble, up from 75% in May. The poll, which captures the view of 207 investors with $645 billion in assets, said “long Bitcoin” is the second-most crowded trade after commodities. The results point to a skepticism among some professional managers about whether crypto is a viable asset class, given its extreme volatility and regulatory uncertainty. Bubble fears are nothing new for cryptocurrencies, and plenty of investors have voiced doubts over the wisdom of wading into an asset that has no fundamental underpinning.
• China Evergrande Group fell after Caixin’s WeNews reported that a local government discussed paring the property giant’s stake in a regional lender and a new policy could curb a key source of financing for developers. Authorities in the northeastern Liaoning province held discussions with Evergrande to inject state capital into Shengjing Bank Co. to dilute Evergrande’s stake, according to a report by WeNews on Sunday, citing unidentified people. Evergrande is the biggest shareholder of the bank headquartered in Liaoning. No agreement has been reached yet, the report said, without specifying the reason. Evergrande and Shengjing Bank didn’t immediately respond to requests for comment.
• With the road to the Tokyo Olympics now in its final stretch, stakeholders are on the lookout for how the final version of the guidelines set to be released Tuesday will ensure the safety of the games as the Japanese capital continues to struggle with controlling the pandemic. Athletes, officials and media will be subject to penalties, such as fines, losing credentials and being expelled from the games if they break virus protocols, local media reported ahead of the release, citing people related to the games.
• Problems at a Chinese nuclear power plant near Hong Kong probably aren’t cause for any concern, experts said. Some of the politics behind the situation just might be. An issue discovered inside China General Nuclear Power Corp.’s Taishan Unit 1 reactor, in which presumably damaged fuel rod casings leaked inert gas, has happened enough times in the industry that operators know how to manage it and it’s usually “not any kind of threat,” according to Jeff Merrifield, a former U.S. Nuclear Regulatory Commissioner. What’s perhaps more disquieting is the seeming lack of communication between state-owned CGN and Electricite de France SA, the designer and minority owner of the plant. An EDF unit alerted the U.S. government on the issue, and on Monday the parent firm called for CGN to provide more information and to meet to discuss the operation’s issues.
• AstraZeneca Plc’s antibody cocktail was only 33% effective at preventing Covid-19 symptoms in people who had just been exposed to the virus, failing a study that was key to the drugmaker’s pandemic push. U.K. Prime Minister Boris Johnson pushed back his plan to lift restrictions by four weeks as the more infectious delta variant spreads, threatening to undermine the country’s effort to vaccinate its way out of the outbreak. There was good news on the vaccine front, with two-dose shots from Pfizer Inc. and Astra proving highly effective at preventing the hospitalization of those with the delta mutation.
• The U.S. and the European Union agreed to extend a tariff truce for five years, parking a dispute over aircraft subsidies given to Airbus SE and Boeing Co. that saw the allies impose duties on $11.5 billion of each other’s exports. U.S. Trade Representative Katherine Tai, speaking to reporters in Brussels on Tuesday, said the tariffs would remain suspended as long as the terms of the agreement are upheld and while they work on addressing issues including outstanding subsidies already paid. The accord turns the page on a key conflict in former President Donald Trump’s trade war and sets the stage for a new era of transatlantic cooperation over state aid at a time when China is vying to displace the Boeing-Airbus civil aircraft duopoly.
• EQT AB is weighing an initial public offering of Azelis, a distributor of specialty chemicals and food ingredients, according to people familiar with the matter. The private equity firm is working with advisers on the listing plans, the people said, asking not to be identified discussing confidential information. Azelis could be valued at about 5 billion euros ($6 billion) in any IPO, the people said. EQT is eyeing a listing of Azelis after the summer, the people said. Deliberations are ongoing and decisions on value and timing of an IPO may change depending on market conditions and investor appetite, according to the people.
• Solid Power, a maker of solid-state batteries backed by Ford Motor Co. and BMW AG, confirmed it’s agreed to merge with a blank-check firm in a deal that values the combined company at about $1.2 billion. The electric-vehicle battery developer expects to complete its combination with Decarbonization Plus Acquisition Corp. III in the fourth quarter and list on the Nasdaq under the ticker symbol SLDP, according to a statement. Bloomberg News reported last week the companies were in merger talks. Once the deal closes, Solid Power expects to have about $600 million in cash, including $165 million from a private investment in public equity, or PIPE. The Louisville, Colorado-based company expects to supply batteries that offer almost 500 miles (805 kilometers) of driving range to future Ford and BMW vehicles.
• The Federal Reserve is inching toward the start of a long road to normalizing its relationship with the rest of Washington and Wall Street. After spending the past 15 months providing unprecedented help to the federal government and investors via trillions of dollars of bond purchases, it could start preliminary discussions about scaling back that support at a pivotal two-day policy meeting that kicks off on Tuesday. Weaning Wall Street and Washington off the Fed’s extraordinary largesse won’t be easy. Since Covid-19 struck the U.S. in March 2020, the central bank has brought more than $2.5 trillion of U.S. Treasury debt, effectively covering more than half of the federal government’s red ink over that time.
• Apple Inc. is facing renewed scrutiny in Washington over its compliance with secret Trump-era subpoenas for user data on more than 100 users including U.S. lawmakers, highlighting the bind tech companies find themselves in when obliged to satisfy law enforcement demands. House Intelligence Committee Chairman Adam Schiff, whose data was among material Apple turned over to the Justice Department, said on Monday that lawmakers will delve into how giant tech companies respond to subpoenas for information on their customers. Schiff, a California Democrat, enraged former President Donald Trump with congressional investigations of his administration’s ties to Russia. The House Judiciary Committee on Monday announced an investigation into the Justice Department’s surveillance of members of Congress, journalists and others, ostensibly sparked by an effort to run down media leaks. The Senate Judiciary Committee also said it would look into the matter.
• China mocked the U.S.’s efforts to build a broader coalition to counter Beijing, calling Washington “very ill indeed” as the world’s biggest economies continue to spar over everything from human rights to technology exports. Chinese Foreign Ministry spokesman Zhao Lijian hit back at U.S. efforts to rally allied support during summits of the Group of Seven and North Atlantic Treaty Organization in recent days. The comments represented Beijing’s most pointed response since President Joseph Biden began his first visit to Europe focused on efforts to answer China’s challenge to the global order.
• The City of London may remain a ghost town for a little longer yet. Deutsche Bank AG has told staff that plans for a staged return to their U.K. offices are being delayed after Prime Minister Boris Johnson announced an extension of pandemic restrictions until July 19, according to a person familiar with the matter. The German lender had previously told U.K. staff they would be encouraging more staff to return from June 21, which the U.K. government had said in February would be the earliest time by which all lockdown restrictions would be lifted. That timeframe has now been pushed back until the government decides to remove all legal limits on social contact although workers with business or personal reasons to work from the office can still do so, the person said.
• Equinor ASA, Norway’s biggest oil and gas company, will no longer operate shale oil and gas fields, or other unconventional assets around the world, after billions of dollars of losses that caused a controversy at home. Other companies can get a better performance from shale, while Equinor will stick to the offshore oil and gas fields that it knows best, Chief Executive Officer Anders Opedal said in an interview on Tuesday. Equinor has admitted it should never have made the investments into U.S. shale fields that resulted in a writedown of $11.5 billion, led to a Parliamentary hearing and a report by the State Auditor, which slammed the Ministry of Petroleum and Energy.
• Real estate prices around the world are flashing the kind of bubble warnings that haven’t been seen since the run up to the 2008 financial crisis, according to Bloomberg Economics. New Zealand, Canada and Sweden rank as the world’s frothiest housing markets, based on the key indicators used in the Bloomberg Economics dashboard. The U.K. and the U.S. are also near the top of the risk rankings. “A cocktail of ingredients is sending house prices to unprecedented levels worldwide,” economist Niraj Shah wrote in the report. “Record low interest rates, unparalleled fiscal stimulus, lockdown savings ready to be used as deposits, limited housing stock, and expectations of a robust recovery in the global economy are all contributing.”
• Mark Spehn couldn’t join billionaire Idan Ofer at his seaside villa north of Tel Aviv for a June 8 party to mark the initial public offering of Zim Integrated Shipping Services Ltd. But the 35-year-old Deutsche Bank AG trader still had much to celebrate from his desk in London. Spehn’s long-shot bet on the once-distressed Israeli shipping company has put the German lender on track for one of its biggest wins since its “Big Short” trades against U.S. subprime securities more than a decade ago. With the world’s 11th-largest container shipping carrier now riding the wave of record-high freight rates, Deutsche Bank’s potential windfall could climb to almost $1 billion

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*All sources from Bloomberg unless otherwise specified