June 17, 2021
Daily Market Commentary
- Canadian stocks closed little changed on the day after initially rising when U.S. Federal Reserve officials signaled two rate hikes by the end of 2023. The S&P/TSX Composite Index was flat, with eight of eleven sectors declining. Tech and financials were among gainers. Gold fell to a four-week low after the Fed outlook revision. Meanwhile, inflation in Canada accelerated to its highest level in a decade, in what policy makers are saying will only be a temporary run-up in prices.
- Global demand for potash could grow by as much as 3% a year over the next decade, BHP Group said as the world’s biggest miner prepares to decide on a major investment in the crop nutrient in Canada. BHP remained on track to take a final investment decision on the Jansen potash project around the middle of 2021, the company said Thursday in a presentation, pending finalization of port and rail arrangements and a final risk assessment. The first phase of development is seen costing between $5.3 billion and $5.7 billion, with initial production expected within five to six years. Potash prices have rallied this year, boosted by the economic recovery from the Covid-19 pandemic. Nutrien Ltd., the world’s biggest fertilizer company, said earlier this month that it plans to boost its potash production by about half a million metric tons more than it previously expected this year amid strong global demand.
- Fisker and Magna International signed a binding agreement to support manufacturing which will last through 2029, according to a statement. Fisker, Magna also confirm that the all-electric Fisker Ocean SUV will be produced at Magna’s manufacturing facility in Graz, Austria.
- European stocks declined, snapping their longest record-setting streak since 1999, after Federal Reserve officials were more hawkish than expected, speeding up their expected pace of policy tightening. The Stoxx 600 Index was down 0.3% at 8:08 a.m. London time, with mining shares as the worst performers after base metals dropped. Banks gained amid rising bond yields. Europe’s main benchmark is falling for the first time in ten sessions after the Fed signaled two rate increases by the end of 2023 from near zero now, with Chair Jerome Powell saying there’s a risk inflation will be higher than expected. A report on U.S. initial jobless claims may offer more clues on the pace of the economic rebound.
- U.S. stock-index futures slumped and the dollar strengthened as nervousness about U.S. interest-rate hikes spread through global markets. S&P 500 contracts lost 0.3%, while Europe’s Stoxx 600 Index fell for the first time in 10 days. Emerging markets and commodities were lower, while bank shares advanced. The Bloomberg Dollar Spot Index rose for a fifth day. Miners Freeport-McMoran Inc. and Newmont Corp. declined in premarket New York trading. Fed Chair Jerome Powell acknowledged the risks of inflation and said officials had begun a discussion about scaling back bond purchases. Policy makers’ dot plot showed they anticipate two rate increases by the end of 2023, a faster-than-expected pace of tightening. This marked a turning point in the Fed’s communication to global markets, which had so far been ultra-dovish.
- Asian stocks fell, putting the regional benchmark on track for its biggest drop in about a month, as risk assets sold off after U.S. Federal Reserve officials expedited the expected pace of policy tightening. The MSCI Asia Pacific Index lost as much as 1%, with materials and industrials being the worst-performing sectors. Samsung Electronics Co., BHP Group Ltd. and Komatsu Ltd. were among the biggest drags on the benchmark. The Fed’s hawkish surprise came as Asian equities have largely been in a retreat since hitting a record high in February. The Asian gauge has fallen almost 6% from that peak, weighed down by rising global concerns over inflation and a selloff in the region’s biggest market China.
- Oil traded near $72 a barrel as investors weighed signs of a tightening global crude market against the Federal Reserve’s decision to start moving toward an end of its ultra-easy monetary policy. West Texas Intermediate was 0.2% lower, and Brent also fell. On Wednesday, Fed Chairman Jerome Powell said officials would begin talks on tapering massive asset purchases, while penciling in two rate hikes by the end of 2023. That aided the dollar, hurting the appeal of commodities priced in the currency, while hitting sentiment in wider markets.
- Gold declined below $1,800 an ounce as the Federal Reserve sped up its expected pace of policy tightening amid optimism about the labor market and heightened concerns over inflation. The metal slipped to the lowest in six weeks on Thursday as the dollar continued to strengthen, the day after Fed Chair Jerome Powell said the central bank would begin a discussion about scaling back bond purchases. It’s the first major hawkish turn from the central bank whose deluge of stimulus has been critical to bullion’s strong performance since the start of the pandemic. The central bank also released forecasts that show they anticipate two interest-rate increases by the end of 2023 — sooner than many thought — which helped boost the dollar and U.S. bond yields, hurting gold.
- Italy’s economy could grow well above 5% this year — faster than the latest predictions by the central bank, the OECD and European Commission — according to two government officials. Higher global growth and the end of pandemic lockdowns are fueling a stronger-than-expected recovery, the officials said, asking not to be identified as the estimates are still confidential. The brighter outlook is based on models with updated data being studied by the government, they said. Italy was hard hit by the coronavirus pandemic, with gross domestic product plunging almost 9% last year. The government has spent more than 170 billion euros ($202 billion) on fiscal stimulus to keep the companies and workers afloat through successive strict lockdowns. More than 200 billion euros in European Union recovery fund cash is on its way in the next few years.
- CureVac NV lost more than half its value in German trading after a preliminary analysis of a large study found its vaccine fell short of the high efficacy bar set by other messenger RNA shots. Hong Kong is planning to shorten quarantine periods for fully vaccinated travelers from most places to seven days from as much as 21 days, so long as they pass an antibody test. Moderna Inc. said the U.S. government exercised an option to buy 200 million more doses of its vaccine, bringing its total order to 500 million, and the U.K. is considering allowing fully vaccinated people to travel to amber-list countries without having to quarantine on their return, the Daily Telegraph reported.
- The U.S. and U.K. reached a truce in a trade dispute involving Airbus SE and Boeing Co., agreeing to a five-year suspension on tariffs affecting various goods. Products such as Scotch whisky, biscuits and clotted cream had been hit by additional duties of 25% because of the spat, and the agreement between the U.S. and Britain suspends the tariffs until 2026 while talks take place, U.S. Trade Representative Katherine Tai’s office said in a statement on Thursday. While the U.S. reached a framework in the longstanding aircraft-subsidy dispute with the EU earlier this week, it needed to negotiate a separate resolution with London after the U.K. left the EU last year.
- Marathon Oil Corp. used to represent everything that was wrong with U.S. shale: enormous debtloads, lavish executive pay and a seeming willingness to spend whatever it took to boost output. The company hemorrhaged money, and the stock plunged 84% from a peak in 2014 through the end of last year. This year, CEO Lee Tillman took a different tack. He cut his own pay 25%, got rid of its corporate aircraft and with oil output down 20% after the pandemic, pledged to leave it there. The result? The stock doubled this year. Its peers are doing well too. U.S. wildcatters are the second-best performing sector in the S&P 500 Index. After years of booms and busts that produced astronomical losses along with a whole lot of oil, the fracking industry seems to have found a sweet spot. It’s poised to generate more than $30 billion of free cash this year, a record, according to Bloomberg Intelligence. While that’s just a blip compared with the $300 billion that Deloitte LLP estimates the sector burned over the previous decade, it marks at least a temporary revival for an industry that a year ago had been largely written off by investors.
- Chinese autonomous driving technology startup DeepRoute.ai is looking to raise as much as $300 million in a funding round ahead of a potential initial public offering, according to people with knowledge of the matter. The Shenzhen-based company is weighing an IPO as soon as the end of this year, one of the people said, asking not to be named as the information is private. The company is weighing options for listing venues including the U.S., one of the people said. Details including the amount of DeepRoute’s financing and IPO timing are still preliminary and subject to change, the people said. The company is looking for a new round of financing, but the amount hasn’t been determined yet, said a Shenzhen-based representative, adding that it has no plans for an IPO at this stage.
- FWD, the acquisitive Asian insurer backed by billionaire Richard Li, has filed confidentially for a U.S. initial public offering, moving ahead with preparations for a long-awaited listing. The holding company of FWD Ltd. and FWD Group Ltd. has confidentially submitted a draft registration with the U.S. Securities and Exchange Commission for the planned share sale, according to a statement on Thursday. The statement, which confirms an earlier Bloomberg News report, didn’t specify the size and timeline of the offering. FWD is considering raising about $2 billion in the U.S. share sale, according to people familiar with the matter. A listing could value the insurer at about $13 billion, the people said, asking not to be identified as the discussions are private.
- ByteDance Ltd., the parent of hit short video app TikTok, swung to an operating loss of $2.1 billion last year after it issued more shares to employees ahead of a widely anticipated initial public offering. The loss compared with operating profit of $684 million in 2019, according to a memo to employees Thursday. That was due in part to higher expenses incurred from share-based compensation to workers, a person familiar with the matter said, while expenses also soared as ByteDance boosted spending to acquire users and support its content creators. It earned gross profit of $19 billion on revenue of $34.3 billion, which more than doubled. Net loss ballooned to $45 billion, mainly stemming from accounting adjustments.
- Federal Reserve officials have said for months that price increases are temporary. On Wednesday, they weren’t so sure. “Is there a risk that inflation will be higher than we think? Yes,” Chair Jerome Powell told a press conference. He spoke after financial markets were taken by surprise when policy makers signaled they expect to make not one, but two, hikes to interest rates in 2023 from near zero now. The Fed has been in a tug-and-pull with investors and critics over whether recent spikes in prices as the economy reopens from the pandemic will be transitory, as officials have argued, or prove more lasting.
- President Joe Biden said he wanted to meet Russia’s Vladimir Putin in Geneva to set some “rules of the road” in a relationship that has been eroding for years. After about three hours together, the two leaders showed how differently they interpreted that goal. Putin got one thing he craved — legitimacy on the international stage. Biden argued he confronted Putin over cyberattacks, Russia’s treatment of democracy activists and the need to cooperate over nuclear weapons and the Arctic. But concrete accomplishments were hard to define, and both leaders were in vintage form. Shrugging off questions about human rights in Russia, Putin spent much of his post-summit news conference on Wednesday criticizing the U.S. over issues ranging from CIA black sites in the early 2000s to the January attack on the U.S. Capitol.
- CarVal Investors raised $3.6 billion for a new global fund focused on credit and distressed debt, closing the vehicle to new money after exceeding an initial goal of $3 billion. The fund will invest in corporate debt, structured credit and hard assets, including sectors battered by the Covid-19 pandemic such as aviation and hospitality. Its early investments returned 20% in the year since its June 2020 launch, according to a person with knowledge of the results. CarVal, a global alternative investment manager based in Hopkins, Minnesota, manages about $10 billion. The fund’s close comes at a tough time for distressed investing, as a flood of stimulus spending has tightened credit spreads and given troubled companies easy access to cash. Distressed bonds and loans traded in the U.S. have shriveled to around $58 billion as of June 1, according to data compiled by Bloomberg, from a peak of nearly $1 trillion last year. Still, CarVal managing principal Lucas Detor, who leads the firm’s investment strategy, sees opportunity.
- The Japanese government will end a state of emergency for Tokyo, Osaka and other areas on June 20 as planned, about a month before the country is due to host the Summer Olympics. Prime Minister Yoshihide Suga said Thursday that Japan would act quickly to tackle any new infection surges as the country prepares for the July 23 start of the games. Apart from Tokyo and Osaka, Suga said the emergency will end the same day for seven other regions. The government will retain focused restrictions on seven regions including the capital through July 11, he said.
- The world’s richest nations have set the stage for a revolution in corporate taxation, but they still have their work cut out to actually achieve that overhaul. Talks in coming weeks between more than 100 governments before a Group of 20 meeting in July will build on the outlines of a deal earlier this month by Group of Seven finance ministers. Despite their breakthroughs on a minimum global corporate tax rate and a shift in philosophy allowing one country to apply levies to profits of another’s national champions, multiple technical details remain unresolved.
- China took another step toward extinguishing any form of dissent in Hong Kong, hailing police in the city for arresting top editors of a pro-democracy newspaper and warning journalists not to write articles that challenge Beijing. On Thursday morning, roughly 500 police officers descended on the headquarters of the popular Apple Daily newspaper for the second time in 12 months after accusing its leaders of violating a national security law imposed last year. They arrested three top editors and two senior executives of the tabloid owned by Next Digital Ltd founder and democracy activist Jimmy Lai, a fierce critic of Beijing who is currently serving more than year in prison for attending unauthorized protests.
“People invest in stocks for two opposite reasons — in hope and confidence in the future of an enterprise or in fear that the value of their capital will be lost through inflation.” – Bernard Baruch
*All sources from Bloomberg unless otherwise specified