June 23, 2021

Daily Market Commentary

Canadian Headlines

• Canadian equities advanced Tuesday, extending their strong start to the week. The S&P/TSX Composite Index increased 0.2% as nine of eleven sectors rose. Technology and consumer staples stocks climbed the most. Canada’s Senate passed legislation that will legalize single-event sports betting in the country. Shares of Score Media and Gaming rose 7%. Investors seeking to capitalize on economic reopening should look north of the border for a cheaper alternative to the “frothy” S&P 500, according to strategists at Bank of America Corp.
• Bank of Canada Governor Tiff Macklem is in the final stages of a mandate review that could see him request more authority from Prime Minister Justin Trudeau’s government to run the economy hot. The central bank’s five-year inflation targeting mandate is up for renewal this year, with few signs a major overhaul is in the works. But Macklem might lean toward design and communication changes to the 2% target, perhaps by focusing on labor-market metrics or putting more emphasis on the Bank of Canada’s allowable range for inflation. That could give him some more flexibility to address under-performance in the economy at a time when other central banks are doing the same.
• Horizons ETFs Management Canada is launching two exchange-traded funds that give investors exposure to lithium and hydrogen, tapping into two fast-growing markets that are key to weaning the world off of fossil fuels. The Horizons Global Lithium Producers Index ETF and Horizons Global Hydrogen Index ETF make their Toronto Stock Exchange trading debut Wednesday, Horizons ETFs said in a statement. The lithium ETF, which will trade under the symbol HLIT, offers exposure to companies primarily focused on mining or production of the world’s lightest metal, as well as lithium compounds and lithium-related components. The hydrogen ETF, with ticker HYDR, offers exposure to hydrogen fuel cell and hydrogen, technology, equipment, generation, storage and transport companies in developed and emerging markets.

World Headlines

• European equities edged lower on Wednesday, as investors weighed economic data and more comforting comments on inflation and monetary policies from the Federal Reserve. The Stoxx 600 Europe Index was down 0.3% as of 10:34 a.m. in London, after advancing as much as 0.2%. Oil and energy stocks led gains, while retail shares dropped the most after analysts at HSBC Holdings Plc downgraded luxury goods companies including Kering SA and Hermes International. After last week’s more-hawkish-than-expected stance from the Federal Reserve, Chair Jerome Powell told lawmakers Tuesday the price increases seen in the economy recently are bigger than expected but reiterated that they will likely wane. Other Fed officials are scheduled to talk later today.
• Stocks were mixed and U.S. equity futures were steady Wednesday as investors assessed prospects for an economic recovery, while concern eased that faster inflation would spur policy tightening. Treasuries fell. Contracts on all three U.S. equity benchmarks were little changed, after two days of gains for the S&P 500 Index. European equities edged lower as a drop in retailers and consumer shares outweighed gains in commodity sectors. Asian equities advanced. Markets are steadying this week after last week’s volatility spurred by the Federal Reserve’s hawkish tilt at its meeting. Chair Jerome Powell on Tuesday said the central bank would be patient in waiting to lift borrowing costs, and reiterated that while price increases are bigger than expected, they will likely wane.
• Asian equities posted a modest advance, led by Hong Kong and Taiwan, as Federal Reserve Chair Jerome Powell soothed investor nerves by reiterating that price increases will likely wane. T he MSCI Asia Pacific Index was up 0.3%, set for a second straight day of gains. Property and IT shares climbed, offsetting a decline in consumer staples and industrial stocks. Hong Kong’s Hang Seng Index rose by the most in more than two months while Taiwan’s benchmark also jumped, driven by an advance in tech shares including Meituan, TSMC and MediaTek. The Asian measure’s mild move on Wednesday lies in contrast to its outsized swings in the past few sessions following the Fed’s hawkish pivot last week. Fed officials moved to clarify their stance this week, with Powell on Tuesday saying authorities would be patient in waiting to lift borrowing costs.
• Oil in London advanced to a fresh two-year high above $75 a barrel, as industry data pointing to another drop in U.S. crude stockpiles reinforced a bullish picture for global markets. The nation’s inventories slid by a substantial 7.2 million barrels last week, the American Petroleum Institute reported, according to people familiar with the data. That would be a fifth straight week of declines if confirmed by government data later Wednesday. This latest sign of tightening comes as fuel demand bounces back from the pandemic and stalled nuclear talks defer the prospect of renewed Iranian supplies. The heads of Royal Dutch Shell Plc and TotalEnergies SE joined a chorus of industry figures warning that crude could return to $100 a barrel.
• Gold edged higher on a weaker dollar after Federal Reserve Chair Jerome Powell’s continued to play down risks of persistent inflation. Powell said price increases seen in the economy recently were bigger than expected but reiterated that they would likely wane, although he acknowledged the uncertainty around that view. He also said the Fed would be patient in waiting to lift borrowing costs. Powell was speaking before the House Select Subcommittee on the Coronavirus Crisis on Tuesday.
• Europcar Mobility Group has rejected a bid from Volkswagen AG valuing the auto-rental firm at about 2.2 billion euros ($2.6 billion), people with knowledge of the matter said. A consortium led by the German carmaker offered about 44 euro cents per share for Europcar earlier this month, the people said, asking not to be identified because the information is private. Europcar, which is controlled by group of hedge funds, views the proposal as too low, the people said. A bid of 44 cents per share would represent about a 12% premium to Europcar’s Tuesday closing price. Shares of Europcar have fallen 9% in Paris trading this year, giving the company a market value of about 1.9 billion euros. The firm filed for Chapter 15 bankruptcy protection in the U.S. in December.
• Brooklyn Borough President and former New York police captain Eric Adams led the first round of counting in the Democratic mayoral primary, seizing a crucial advantage with a focus on law enforcement in a crime- and pandemic-battered city. With nearly all the precincts reporting early Wednesday, Adams had about 31% of the vote, followed by civil rights lawyer Maya Wiley with 22% and former city Sanitation Commissioner Kathryn Garcia with about 20%. At a time when the issue of police brutality is driving much of the nation’s policy agenda, Adams managed to balance his former career as a cop with his record of pushing for NYPD reform after getting beaten by an officer as a teen.
• Prime Minister Boris Johnson’s government is preparing to allow Britons who have been fully vaccinated against coronavirus to travel to more than 150 countries without the need to quarantine on their return later this summer. About 1 million people in Sydney will be barred from leaving the city, as Australia races to control an outbreak of the Delta variant. Restrictions have also been stepped up in Wellington after an Australian tourist tested positive when returning from the New Zealand capital. Japan has surpassed its target of administering 1 million doses of Covid-19 vaccine on a single day ahead of the Tokyo Olympics and a general election. The organizers of the games have dropped plans to sell alcohol at venues, given it could fuel the spread of the virus.
• President Joe Biden will launch a comprehensive plan to curb gun crime, including by allowing states and municipalities to tap into coronavirus relief funding to hire police officers under certain circumstances. Biden will unveil the strategy in a speech on Wednesday, officials familiar with the plan said, speaking on condition of anonymity before the announcement. Measures include toughening rules for gun dealers, expanding summer programs for teenagers and doing more to hire people released from prison. Biden and Attorney General Merrick Garland will also lead a meeting Wednesday at the White House on crime prevention. Among those scheduled to attend are New Jersey Attorney General Gurbir Grewal, Baton Rouge Police Chief Murphy Paul and the mayors of Baltimore, Maryland, and Miami-Dade County, Florida.
• The Bitcoin Fund listed on the Nasdaq Dubai exchange Wednesday, the first of its kind to trade in the Middle East as cryptocurrencies grab attention globally. The stock closed at $38.30, up 10% for the day, according to prices on Nasdaq Dubai’s website. The Canadian fund was the first of its type to be listed on a major exchange, in Toronto last year. The intent of the Dubai listing is to get trading at all hours around the globe. Dubai-based Dalma Capital Management Ltd. was the joint lead arranger for the offering.
• New York-traded electric vehicle maker Xpeng Inc. has received the green light from the Hong Kong stock exchange to list in the city, the latest homecoming share sale by a Chinese company. The company submitted an updated listing document on Wednesday, indicating it has won the bourse’s approval. The filing, which confirmed an earlier Bloomberg News report, didn’t specify Xpeng’s fundraising size. The EV maker could raise as much as $2 billion in Hong Kong as soon as this year, according to people familiar with the matter, who asked not to be identified as the information is private. A listing by Xpeng would end a brief hiatus in such share sales by U.S.-listed Chinese firms with online travel firm Trip.com Ltd. the last, raising about $1.25 billion in Hong Kong in April. Many U.S.-traded Chinese companies have flocked to the Asian financial hub since it eased rules in 2018 to allow the likes of Alibaba Group Holding Ltd. and gaming giant NetEase Inc. to list.
• The Irish government plans to sell part of its 676 million euro ($807 million) stake in Bank of Ireland Group Plc. over the next six months or so, the latest stage in its bid to recoup the bank bailout that almost bankrupted the nation. Part of Ireland’s 13.9% shareholding in the bank will be sold through a pre-arranged trading plan that will be managed by Citigroup, Ireland’s finance ministry said in a statement Wednesday. Up to 15% of the expected aggregate total trading volume in the company is to be sold over the duration of the trading plan and there will be a minimum share price for those sold. No further details were disclosed.
• The pandemic has created a once-in-a-generation buying opportunity for investors willing to bet on the long-term prospects of workers returning to the hearts of global cities. That’s the view of real estate titans including Tishman Speyer Properties President Rob Speyer and Brookfield Asset Management Inc. Chief Executive Officer Bruce Flatt, who have invested billions snapping up discounted offices and other commercial buildings since the start of the pandemic. Even as others fret about the future demand for workspace, Tishman has spent about $12 billion since March last year on deals it expects “to be some of the best investments we have ever made,” Speyer said. “If you have a long-term view of things reverting anywhere near where they were pre-Covid, these are generational buying opportunities.”
• Amazon.com Inc. signed deals to buy power from 14 wind and solar farms across North America and Europe, bolstering its position as the world’s largest corporate buyer of renewable electricity. The latest push is part of the company’s plan to use renewable sources for all of its power needs by 2025. Amazon’s latest batch of green electricity deals are for a total capacity of 1.5 gigawatts, the company said in an emailed statement. “We’re driving hard to fulfill The Climate Pledge — our commitment to reach net-zero carbon by 2040, 10 years ahead of the Paris Agreement,” said Jeff Bezos, Amazon’s founder and chief executive officer.
• Top Chinese and U.S. diplomats may hold talks during a Group of 20 meeting next week in Italy, the Financial Times reported, a sign the governments of the world’s biggest economies may be taking steps toward easing tensions. Talks about a possible meeting between Chinese Foreign Minster Wang Yi and U.S. Secretary of State Antony Blinken are ongoing, the newspaper reported Wednesday, citing three people familiar with talks. The U.S. is also exploring the possibility of a telephone call between Presidents Joe Biden and Xi Jinping, the report added.
• Russia used bombs and gunfire in “warning shots” against a British Navy destroyer in the Black Sea, the Defense Ministry in Moscow said Wednesday. A Su-24 aircraft dropped four bombs in waters near the Royal Navy destroyer H.M.S. Defender and a border patrol ship fired its gun to divert it after the British vessel entered Russia’s territorial waters off Crimea and refused to heed radio warnings, the ministry said, according to the Interfax news service. Russia alleged the ship was 3 kilometers (2 miles) into its waters when the incident occurred and reversed course after the firing.
• Dubai developer Meydan is set to meet its creditors next week to discuss a $2.6 billion debt restructuring plan aimed at giving it financial breathing space, people familiar with the matter said. PwC has been working with the company to put together a proposal, which will be presented at a meeting with bank creditors, the people said, asking not to be named because the information is confidential. Meydan’s total debt amounts to about $4 billion, of which $2.6 billion requires restructuring, the people said. Under the plan, the company will ask creditors to extend repayments on that amount for a period said to be between eight to 10 years, the people said. The company also intends to sell assets to raise fresh funds, they said.
• The bosses of some of the world’s biggest oil companies said crude prices are likely to keep rising because a lack of investment will curtail future supply. The chief executive officers of Royal Dutch Shell Plc and TotalEnergies SE joined major commodity traders and banks in predicting that oil could go as high as $100 a barrel, although they also said volatile markets could drive prices back down again. Low investment is “going to exacerbate supply and demand tightness as the economies pick back up again, and then in time we’ll see supply pick up and rebalance,” Exxon Mobil Corp. CEO Darren Woods said at the Qatar Economic Forum Tuesday. “In the shorter term, probably, higher prices” are more likely.
• Hong Kong’s pro-democracy Apple Daily newspaper, which cheered on the city’s anti-China protest movement in 2019, is shutting down after authorities used a national security law to arrest its top editors and freeze company assets. Apple Daily will stop operating at midnight and publish the last print edition Thursday due to concerns over manpower and the safety of employees, the Hong Kong newspaper said on its website. Earlier on Wednesday, the board of parent company Next Digital Ltd. owned by pro-democracy media tycoon Jimmy Lai announced the newspaper would close on June 26.
• Warren Buffett resigned as a trustee at the Bill and Melinda Gates Foundation as the charity grapples with upheaval created by the divorce of its namesake founders. “My goals are 100% in sync with those of the foundation,” Buffett, 90, said Wednesday in a statement that also announced he had reached the halfway mark in giving all of his Berkshire Hathaway Inc. shares to charity. Buffett has contributed more than $27 billion of his own money to the charity over the past 15 years. He’s one of the Gates Foundation’s three board members, alongside Bill Gates and Melinda French Gates, who announced last month they’re splitting after 27 years of marriage. Buffett has no involvement in the endowment’s investment decisions, according to the foundation.
• Europe’s private-sector economy is booming, accompanied by mounting inflation pressures as coronavirus restrictions loosen across the region. Surveys of purchasing managers by IHS Markit showed euro-area activity growing at the fastest pace in 15 years, with companies struggling to keep up with demand and prices surging. The equivalent U.K. index was only slightly below May’s record, with firms hiring staff quicker than at any time since it began collecting data in 1998. A global rebound from the coronavirus crisis is spreading through the region as the receding pandemic allows consumer-facing sectors to resume business. European Central Bank President Christine Lagarde acknowledged the pickup this week, saying the outlook “is indeed brightening” while insisting inflation pressures are purely temporary.
• Morgan Stanley plans to bar employees who aren’t vaccinated against Covid-19 from entering its offices in the New York area, as a growing number of major Wall Street firms delay the return of staff who aren’t protected against the deadly virus. The policy, outlined in an internal memo, is one of the most restrictive issued by a major U.S. bank so far. The firm said the goal is to help create a normal office environment, without a need for face masks and physical distancing. Just last week, Chief Executive Officer James Gorman fired off a warning shot to employees still uncertain about wanting to return to its buildings. “If you can go to a restaurant in New York City, you can come into the office and we want you in the office,” he said at a conference.
• American homeowners aren’t making a beeline to the lender’s door to refinance their mortgages, despite a 0.25% drop in the 30-year mortgage rate since April 1. This morning’s report saw the Mortgage Bankers Association refinancing indexrise 2.8% compared to the previous week, which saw a 5.5% increase. Still, the index is 9% lower than one year ago and just 1% higher than during the week of April 1, when the Freddie Mac 30-year mortgage rate hit its year-to-date high of 3.18%. With mortgage bonds, the pace at which the underlying homeowners are paying off their home loans — either by refinancing or sales, for the most part — is critical. Investors receive their funds back at par, and with most of the mortgage universe trading at a premium, this can hurt returns.
• U.S. restaurants, faced with higher food and labor costs, are raising menu prices at a much faster pace than historical rates, insistent on preserving profits after an arduous year. From local restaurants to national chains like Chipotle Mexican Grill Inc., owners have boosted prices by as much as 5% in the past few weeks alone. Even at fast-food companies that were locked in price wars just a couple of years ago to win over cost-conscious consumers, increases aren’t taboo anymore. “We are going to be paying higher prices in restaurants,” said David Henkes, senior principal at industry researcher Technomic. “Part of the calculus right now is there’s probably some appetite of consumers to pay whatever because they haven’t been out for a while.”
• As Covid-19 cases decline, Regeneron Pharmaceuticals Inc. and Vir Biotechnology Inc. are seeking new life for their monoclonal antibody therapies as preventative drugs, targeting millions of people worldwide with compromised immune systems. The list of conditions is long, ranging from blood cancers to organ transplants and diseases such as multiple sclerosis and HIV. In some cases, the maladies themselves weaken the immune system; in others, it’s the drugs the patients must take. But in all cases, this group of patients is left wide open for dangerous opportunistic infections. Financial analysts have recently questioned the therapies’ longterm prospects. But drugmakers say Covid won’t be gone any time soon, and their antibodies may have the potential to protect people with compromised immune systems moving forward. The new pitch comes with pandemic restrictions ending, low inoculation rates in some U.S. states and emerging research suggesting vaccines don’t fully protect many within this vulnerable patient group.

“Bottoms in the investment world don’t end with four-year lows; they end with 10- or 15-year lows.” – Jim Rogers

*All sources from Bloomberg unless otherwise specified