June 28, 2021

Daily Market Commentary

Canadian Headlines

• A unit of Brookfield Asset Management Inc. agreed to acquire Modulaire Group, the European designer of modular work spaces backed by TDR Capital for about $5 billion, in one of the largest private equity deals in Europe this year. Brookfield Business Partners LP, a listed arm of the $600 billion-plus Canadian investment firm, plans to fund the deal with about $1.6 billion of equity, it said in a statement Sunday. The unit itself will commit $500 million, with the balance to be funded by its institutional partners. Brookfield Business Partners could syndicate a portion of its equity investment to other investors.
• Amazon will open its first Amazon robotics fulfillment center in Parkland County, Alberta creating more than 1,000 full-and part time jobs starting at $16 an hour with comprehensive benefits.
• Canadian shares are a bargain at a time when “U.S. stocks look frothy,” in Bank of America Corp.’s view. Strategists Ohsung Kwon and Savita Subramanian made the argument in a report last week that compared forward price-earnings ratios for the S&P/TSX Composite and S&P 500 indexes. The valuation gauge showed Canada’s benchmark was 23% cheaper as of Friday, according to data compiled by Bloomberg. The discount bottomed out April 13 at 27%, the biggest in more than two decades. “Canada looks particularly attractive” as the global economy rebounds, the report said.

World Headlines

• U.S. equity futures were steady and European stocks dropped on Monday as new travel restrictions prompted by Covid-19 strains helped spur a re-think of the reflation trade. Contracts on the tech-heavy Nasdaq 100 Index outperformed those on the S&P 500 and Dow Industrials, as investors moved back into defensive shares over firms that stand to benefit from reopening. The Stoxx 600 Index was led lower by travel firms, with the highly contagious Delta strain threatening to derail summer tourism in Europe by prompting new quarantine rules. Hong Kong said it will ban all passenger flights from Britain starting Thursday.
• European equities dipped on Monday as investors balanced hopes for the economic recovery against worries over a fast-spreading strain of the coronavirus, while management changes were in focus among luxury stocks. The Stoxx Europe 600 Index was down 0.3% by 9:41 a.m. London time, with travel, banking and energy shares dropping the most. The Stoxx Travel Index slid 2.8% following updates on vaccination requirements from popular U.K. travel destinations Portugal and Malta.
• Asian equities fluctuated in a narrow range as investors awaited fresh signs on the health of the reflation trade while monitoring the latest moves around the region to contain the coronavirus. The MSCI Asia Pacific Index swung between a loss of 0.2% and a gain of 0.1%, with volumes on most major gauges 20%-40% below 30-day averages. Hong Kong stocks dipped after morning trading was canceled due to a storm.
• Oil held steady near the highest level since 2018, with an OPEC+ meeting this week expected to bring supply increases that won’t keep pace with the global demand recovery. Futures in New York traded near $74 a barrel after rising 1% on Friday. The Organization of Petroleum Exporting Countries and its allies will meet Thursday following a 50% gain in prices this year. Producers may decide to boost output by 550,000 barrels a day in August, a Bloomberg survey shows, but that’s barely a quarter of the global deficit that OPEC+ anticipates during the month.
• Copper was steady in London with investors weighing a supportive long-term fundamental outlook against short-term risks to demand as major economies exit the pandemic and stimulus ebbs. The pandemic recovery is in a new phase as multiple central banks start or plot the withdrawal of emergency stimulus, gradually shifting from peak support. Meanwhile, there are growing signs that demand for commodities used in areas including property and durable goods is fading as lockdown restrictions ease and consumers focus their spending elsewhere.
• The Federal Reserve might consider an interest-rate hike from near zero as soon as late 2022 as the labor market reaches full employment and inflation is at the central bank’s goal, Federal Reserve Bank of Boston President Eric Rosengren said. “The criteria is that we have a sustainable inflation rate, that’s 2% or above, and that we’re at full employment,” Rosengren said in a broadcast interview with Yahoo Finance. “I do expect that it’s quite possible that we will see that by the end of next year, but it does depend on whether the economy progresses as strongly as I’m expecting.”
• The U.S. labor market is entering one of its strangest summers ever, with a powerful economic rebound generating record demand for workers just as roadblocks distort employment and wage levels. While economic growth will clock 10% this quarter and 7% next, according to Bloomberg surveys — well above pre-pandemic trends — millions of Americans remain reluctant or unable to take up the unprecedented number of job openings available.
• European Central Bank Executive Board member Fabio Panetta outlined a strategy in which the institution uses “unconventional flexibility” to keep borrowing costs low until government spending has helped push up inflation. Panetta called on governments and the public to recognize that the current mix of fiscal and monetary stimulus is “clearly superior” to before the pandemic, when political leaders were focused on reducing debt.
• The U.K.’s financial watchdog just took one of the most significant regulatory moves to date against a crytocurrency exchange as global scrutiny of the industry hardens. Binance Markets Ltd., an affiliate of top global crypto bourse Binance, was told by the Financial Conduct Authority it has until the evening of June 30 to confirm it has removed all advertising and financial promotions, according to the authority’s register.
• Bitcoin pushed higher Monday as proponents took the U.K.’s crypto crackdown in their stride after the token traded above a key technical level over the weekend. The largest cryptocurrency advanced 6.9% to $34,874 as of 10:32 a.m. in London, in a second day of gains. The broad crypto space also climbed with the total market cap up about 5% to $1.44 trillion, according to CoinGecko pricing.
• Glencore Plc will buy out two rivals in a giant Colombian coal mine, expanding its production of the most-polluting fuel as prices soar, despite global efforts to reduce usage. In what’s likely to be the final deal announced by outgoing Chief Executive Officer Ivan Glasenberg, Glencore agreed to buy stakes owned by BHP Group and Anglo American Plc in the Cerrejon thermal coal mine for about $588 million, subject to purchase price adjustments.
• Blackstone Group Inc. has agreed to buy the warehouse properties of U.K. grocer Asda for about 1.7 billion pounds ($2.4 billion), according to people with knowledge of the process. The New York-based private equity group has been selected as preferred bidder for the portfolio, the people said, asking not to be identified because the process isn’t public. It includes 25 properties spanning about 7 million square feet that will be rented by Asda following the sale, they added.
• Companies are racing to public markets like never before, cashing in on record-high stock prices. An all-time high of almost $350 billion has been raised in initial public offerings in the first six months of this year, according to data compiled by Bloomberg, surpassing the previous peak of $282 billion from the second half of 2020 and enriching entrepreneurs and bankers alike.
• UBS Group AG will permanently allow as many as two-thirds of its employees to adopt a hybrid model of working from home and the office, according to a person familiar with the plans, as it seeks a competitive recruitment edge over some U.S. banks taking a more hardline approach. The lender’s move is being led by Chief Executive Officer Ralph Hamers, the person said, asking not to be identified because the information isn’t public. The bank is also committed to offering staff the flexibility of a hybrid work arrangement based on roles and locations, the person said.
• CME Group Inc., whose Treasury futures already dominate among pros, is now trying to lure small traders by offering simpler-to-understand contracts that focus on the numbers the masses care most about anyway: yields. The contracts, when they begin trading on Aug. 16, will rise when Treasury yields increase and fall when they decline — whereas the existing futures move in the same direction as bond prices, a byzantine turnoff for many investors. The Micro Treasury Yield futures, which will compete with a similar set of products introduced last year by The Small Exchange, will come in 2-, 5-, 10- and 30-year versions.
• The U.S. Air Force struck Iran-backed militias in Iraq and Syria on Sunday, in a test of Iran’s incoming president, whose election this month has already complicated efforts to revive a 2015 deal on Iran’s nuclear program. The raids on operational and weapons storage facilities were in response to attacks on U.S. interests and were a “necessary, appropriate and deliberate action designed to limit the risk of escalation,” Pentagon spokesman John Kirby said.
• Hong Kong will ban all passenger flights from Britain starting Thursday, labeling the country “extremely high risk” just as it loosens entry requirements for people traveling from most other parts of the world. “From 0.00am on July 1 (Hong Kong time), all passenger flights from the U.K. will be prohibited from landing,” the government said in a statement Monday.
• Immune responses to the AstraZeneca Plc Covid-19 vaccine improve with a longer gap of up to 45 weeks between doses, with a third shot able to boost antibody levels even further, according to a study. Leaving a gap of as long as 10 months between the first and second doses increased the level of protective antibodies, according to research from the University of Oxford published Monday. The researchers were also able to show for the first time that a booster dose induced a strong response and increased activity against variants.

“Someone’s sitting in the shade today because someone planted a tree a long time ago.” – Warren Buffett

*All sources from Bloomberg unless otherwise specified