June 29, 2021

Daily Market Commentary

Canadian Headlines

  • Manulife Financial Corp. Chief Executive Officer Roy Gori is setting a higher bar for the financial firm’s Asia operations after growing the business substantially in the past four years. The Toronto-based company, which is hosting an investor day on Tuesday, is seeking to increase its Asian insurance and wealth businesses to 50% of company earnings by 2025, up from 41% last year, Gori said in an interview. The business accounted for 35% of earnings in 2016. Key to the growth will be expanding sales through insurance agencies, banks and on digital platforms, Gori said. Along those lines, the company also is setting a target of processing 88% of its transactions digitally by 2025, up from 81% in 2020, he said.
  • The unrelenting heat wave that shattered temperature records across the U.S. Pacific Northwest on Monday and threatens to smother the region for another six straight days has begun to trigger rolling blackouts in some parts. For the first time in the company’s history, Avista Corp. — which supplies electricity to nearly 340,000 homes and businesses in the Northwest — instituted rotating outages after parts of its system overloaded. The blackouts, which were affecting about 9,300 customers late Monday, are expected to last into Tuesday. Across all of Washington and Oregon, more than 30,000 customers were in the dark, according to PowerOutage.US, which compiles utility outagedata. While Avista was the first major utility to report rolling blackouts, it may not be the last. Prolonged heat waves such as the one bearing down on the Northwest this week threaten to blow transformers, strain power lines and break down other equipment over time. During a 10-day heat wave across California in 2006, utilities lost more than 1,500 transformers, each knocking out one neighborhood in the process. There were signs of other systems under strain, too: Portland’s streetcar system was suspended. Seattle’s Sound Transit system said trains may operate at reduced speeds.

World Headlines

  • European equities crept higher Tuesday as sectors seen benefiting from an economic rebound were favored despite lingering concerns around the impact of the Delta Covid-19 variant. The Stoxx Europe 600 index was up 0.4% as of 12:20 p.m. in London, with industrials and consumer discretionary gaining most, while banks rose too after U.S. peers announced dividends and buybacks after passing stress tests. Energy shares pared a gain as crude futures slipped, while real estate and consumer staples trailed. Europe’s main equity benchmark sits less than 1% off a record high as governments around the world lift pandemic restrictions, spurring hopes of a sharp bounce-back in economic activity. Euro area data released Tuesday showed sentiment among consumers increased for a fifth consecutive month, and employment expectations also rose.
  • Stocks were mixed and U.S. futures fluctuated on Tuesday as concerns over a highly infectious Covid-19 strain spurred caution among investors. The dollar strengthened. S&P 500 futures were little changed. Morgan Stanley shares gained more than 3% in pre-market trading after the U.S. bank said it will double its quarterly dividend. Treasuries were steady. Oil slipped and gold headed for the biggest monthly drop in more than four years. Global stocks are poised to close out their fifth quarterly advance amid a worldwide vaccine rollout that powered an economic recovery and sparked concerns about increasing prices and the withdrawal of stimulus measures. The recovery also drove the reflation trade as more economies reopened, though that is being hampered as some countries, especially in Asia, are falling behind in their vaccine strategies.
  • Asian equities fell, hurt by declines in cyclical shares on concerns the spread of the delta variant of the coronavirus in countries around the region will hamper an economic recovery. Financials and consumer discretionary sectors were the biggest drags on the MSCI Asia Pacific Index. The gauge slipped as much as 0.7%, poised to snap a five-day winning streak. China and Hong Kong led losses in Asia, while investors sold value plays in Japan. Cyclicals led a selloff in Singapore stocks amid lagging reopening plans.
  • Oil fell as a coronavirus resurgence raised concerns about demand ahead of an OPEC+ meeting this week that could see the alliance boost some halted output. Futures in New York extended declines toward $72 a barrel. The infectious delta variant of the virus has resulted in a spike in U.K. cases and is taking a toll on mobility in some parts of Asia. While the crude market has tightened, the latest flare-up could play a part when OPEC+ gathers Thursday to decide on output levels in August. Despite oil’s recent loss of momentum, prices are still up about 9% this month. Key regions including the U.S. and China are rebounding from the virus, while India’s biggest refiner is boosting fuel production. Futures and swaps in leading pricing locations are in a bullish backwardation structure, although the spread is narrowing in what could be early signs of some weakness.
  • Gold slipped to the lowest in more than a week as the dollar firmed on concerns about the delta virus strain in Europe. Rapidly rising infections in the U.K. have prompted restrictions on travelers from the country. Asian nations are also struggling to contain the highly transmissible Covid-19 variant. Much of the pressure on gold has come through the dollar. Bullion is headed for the biggest monthly drop in more than four years after the Federal Reserve pulled forward its forecasts for interest rate hikes. Gold has slid below $1,800 an ounce this month and traders are now focused on the timing of when policy makers may start dialing back stimulus.
  • Hong Kong banned flights from the U.K. amid rising infections, while Spain took visitors from the country off its restriction-free travel list. Close to half of Australia’s population is now in lockdown as the nation struggles to contain a spread of the delta variant. Officials are preparing to scrap an isolation requirement for schoolchildren in England who come into contact with a positive case, amid criticism of the disruption it’s causing. Infections continue to climb in Tokyo with less than a month before the scheduled start of the Olympic Games in the Japanese capital. The 7-day average of new cases is 22% higher. Vietnam’s economic hub of Ho Chi Minh City will maintain social distancing measures for an undetermined time because of a growing outbreak. Meanwhile, daily infections in India fell to the lowest since March.
  • Morgan Stanley led big U.S. banks in raising payouts to investors — by jacking up dividends or announcing plans to buy back shares — after amassing cash piles that easily met the Federal Reserve’s capital requirements. Dividend payouts by the nation’s six largest lenders will rise, on average, by almost half — and that’s with Citigroup Inc. abstaining from an increase — according to statements issued Monday. Morgan Stanley doubled its quarterly payout while also announcing as much as $12 billion in stock buybacks. “Morgan Stanley has accumulated significant excess capital over the past several years and now has one of the largest capital buffers in the industry,” Chief Executive Officer James Gormansaid in the bank’s statement.
  • The House passed two bills Monday that are expected to form the core of legislation in the chamber designed to boost U.S. research and development in response to China’s challenge to U.S. economic supremacy. By wide bipartisan margins, the House authorized more funding for the National Science Foundation and additional money for the Department of Energy, following a similar effort in the Senate that saw the passage of a comprehensive $250 billion measure that included more than $52 billion in incentives and grants for domestic semiconductor manufacturing.
  • BlackRock Investment Institute strategists are dialing down their excitement for U.S. stocks, at least in the near term. The risk of higher taxes, tighter regulation and potential for faster economic growth in other developed countries has dented the market’s appeal, the strategists led by Wei Li said in a note. The S&P 500 is trading at a record high after surging more than 90% from its March 2020 low, pushing investors to weigh possible risks to the rally and to consider other markets that haven’t gained as much. Stocks in Europe and Japan can win from the current phase of the recovery trade, strategists say, and these parts of the world also face lower risk of additional taxation and more regulation relative to the U.S.
  • United Airlines Holdings Inc. is overhauling its fleet with the biggest jetliner order in company history and an ambitious upgrade for its aircraft cabins, bolstering a push to appeal to more travelers willing to pay for pampering. The airline agreed to buy 200 Boeing Co. 737 Max jets and 70 Airbus SEA321neo planes, a deal valued at about $15 billion based on estimates by aircraft appraiser Ascend by Cirium. Those planes and other United single-aisle jets will get a revamped cabin with seat-back screens and larger overhead bins, according to a company statement Tuesday. The plans signal the airline’s intention to step up competition with Delta Air Lines Inc. and American Airlines Group Inc. for premium-seat customers, who demand more creature comforts and typically generate an outsize portion of industry profits. United will also use the new planes to reduce its use of smaller regional jets amid an anticipated rebound in corporate demand, which is still stuck at less than half the pre-pandemic level.
  • American agriculture is on track for one of its best years this century as soaring exports to China boost corn, soybean and wheat prices. Yet President Joe Biden and the Democratic Party are facing major political challenges in farming regions like the rolling pasture land of southwest Wisconsin, where he travels Tuesday to promote a bipartisan deal on infrastructure that would have benefits for agriculture and rural America. Farm country has been a stronghold for former President Donald Trump and will play an out-sized role in the 2022 contest for control of the 50-50 U.S. Senate, in which disproportionately rural states such as North Carolina, Georgia, Ohio and Wisconsin will be pivotal.
  • Central London could lose as many as 835,000 jobs in the aftermath of the Covid-19 pandemic, with employees in service industries increasingly able to work remotely and flexibly, according to research by a consulting firm. An analysis of London’s labor market data by Advanced Workplace Associates, a consultancy based in the U.K. capital, showed that about 41% of people living and working in inner London could do their jobs away from their current office locations. The firm looked at 13 London boroughs plus the City of London, finding that many workers in the services sector are likely to be able to do their jobs outside the office. That could lead to a shift in where people choose to live.
  • European natural gas traded at its highest level since 2008 as the market weighed the likelihood of Russia sending more fuel to Europe. Dutch next-month prices gained 1.7% ahead of the results of Ukraine’s auction on Wednesday morning for pipeline capacity for next month. If Russia’s Gazprom PJSC doesn’t book any interruptible capacity to ship more gas to Europe, it will be the third consecutive month of no additions. The absence of extra flows will further constrict an already tight market. Storage levels are below average for this time of year after a colder and longer-than usual winter season. European gas storage is less than 47% full, lower than at any time over the past six years for this point in the season.
  • The European Union notched up more than 130 billion euros ($155 billion) of orders for its second sale under its NextGenerationEU program, expanding efforts to build a curve of securities dedicated to funding its recovery from the coronavirus pandemic. The EU is selling nine billion euros of five-year debt and six billion euros of 30-year debt Tuesday, meaning that orders topped the amount offered more than eightfold, even though demand fell short of its first sale earlier this month. The offering is part of program aiming to raise $1 trillion of debt over five years to finance grants and loans to member states. More issuance is slated by the end of July, while green bonds may come later in the year.
  • Clayton, Dubilier & Rice agreed to buy UDG Healthcare Plcfor a sweetened offer of about 2.8 billion pounds ($3.9 billion) in cash after winning the backing of key shareholders. The price amounts to 1,080 pence a share, the companies said in a statement Tuesday. Last week, CD&R said it was considering raising its offer to that level after some of Dublin-based UDG’s largest investors complained that a previous bid was too low. The pace of health-care acquisitions has accelerated during the pandemic, and UDG, which provides a range of services to pharmaceutical customers in about 25 countries, said last month it’s supporting clients in bringing Covid-19 treatments and vaccines to market. UDG said Tuesday it has not received offers from any other bidders since CD&R submitted its original bid.
  • Japanese households are likely to save 430 billion yen ($3.9 billion) on cellphone charges this year as they benefit from Prime Minister Yoshihide Suga’s relentless pressure to drive down mobile fees. The country’s major phone carriers announced much cheaper mobile plans earlier this year as they responded to Suga’s call for big reductions. The latest savings equate to around 3,890 yen ($35) for each person over 15 in Japan, based on internal affairs ministry data, but considerably more for those who switched to the cheaper plans. The extra potential spending money the savings will generate could serve as a small boost for Suga, who faces a general election by the fall. Suga’s populist move to cut phone prices suggests he may be more interested in the pocket books of voters than the Bank of Japan’s ever-distant 2% price stability target.
  • A consortium led by Alibaba Group Holding Ltd. and the Jiangsu provincial government are nearing a deal to buy a stake in the retail arm of Chinese billionaire Zhang Jindong’s Suning empire, according to people familiar with the matter, the latest domino to fall in Beijing’s effort to clean up its heavily indebted conglomerates. The unit, Suning.com Co., could make an announcement as soon as this week, said the people, who asked not to be identified as the information is private. Zhang will no longer have control of the company after the deal, the people said, marking the end of his run as a high-profile entrepreneur who drove Suning into an array of businesses, including ownership of the Inter Milan soccer team.
  • Just two weeks into her tenure as chair of the U.S. Federal Trade Commission, Lina Khan has been handed her first crisis: how to rescue the agency’s near-dead monopoly lawsuit against Facebook Inc. and keep antitrust enforcement against the biggest technology companies on track. On Monday, a federal judge in Washington dismissed the FTC’s landmark antitrust complaint against Facebook and a parallel complaint by a coalition of states, both of which sought to break up the company. Judge James Boasberg said the FTC failed to sufficiently detail its claim that the company has monopoly power in the social media market. He gave the agency an opening to revive the complaint by fixing it and refiling in 30 days.
  • Apollo Global Management Inc. added Susan Kendall as head of strategic finance and David Lang as chief operating officer for enterprise solutions. Kendall, who will join Apollo’s business planning and strategy division in mid-July, had been chief financial officer of Citigroup Inc.’s global consumer bank. Lang will step into a newly created role in Apollo’s business-support division after 27 years at Goldman Sachs Group Inc., where he was most recently a partner and COO of its Salt Lake City office. Already in 2021, Apollo has brought in Barclays Plc’s John Cortese to lead the credit-trading business, Carlyle Group Inc.’s Craig Farr to oversee capital-markets operations, Elliott Management Corp.’s Joseph Jackson as a partner focused on event-driven credit and Goldman’s Earl Hunt to run its non-traded business development company.
  • Mexico’s central bank raised an unusual red flag when it upended markets with a surprise interest rate hike last week: drought may pressure farm prices, it warned. It was the only new item the central bank, known as Banxico, listed among inflation risks the day it lifted borrowing costs for the first time since 2018. The worst drought in decades, according to NASA, may have persuaded policy makers to turn hawkish, central banker Gerardo Esquivel said in a subsequent interview. Central banks around the world are weighing how much environmental events affect their stance on rates. Federal Reserve Chair Jerome Powell has insisted climate change was not a primary factor in making monetary policy, a view challenged by his European counterparts. In Brazil, the worst water crisis in nearly a century has helped drive inflation above 8%, the fastest in five years, in part explaining recent rate increases in Latin America’s largest economy.
  • Steven and Mitchell Rales, the billionaire brothers behind industrial conglomerate Danaher Corp., shifted $3.3 billion in shares to their charitable foundations in one of the largest ever transfers of its kind. The move earlier this month allocates billions for future donations from two of the world’s wealthiest people, who’ve eschewed the limelight while building a high-tech manufacturing empire. In addition to life sciences-focused Danaher, they own stakes in machinery company Colfax Corp. and advanced instrumentation-maker Fortive Corp.
  • Helping Carlos Ghosn escape trial in Japan was a mistake, one that they deeply regret, said the Americans who helped the former Nissan Motor Co. chairman flee the nation to safety in Lebanon. “I helped Carlos Ghosn escape Japan while he was on bail,” Michael Taylor said on Tuesday, his voice quavering. It was the first time he spoke at length in court. “I deeply regret my actions and sincerely apologize for causing difficulties for the judicial process and for the Japanese people.” At a hearing two weeks ago, Michael and his son Peter agreed with assertions by prosecutors that they helped Ghosn escape the country at the end of 2019. They were extradited to Japan from the U.S. earlier this year, and face a maximum of three years in prison on charges of harboring or enabling the escape of a criminal.
  • JPMorgan Chase & Co. agreed to buy OpenInvest, a financial-technology firm that offers services for values-based investing. Founded in 2015, OpenInvest is backed by Andreessen Horowitz and Y Combinator, among others, JPMorgan said Tuesday in a statement. Terms of the transaction weren’t disclosed. “Clients are increasingly focused on understanding the environmental, social, and governance (ESG) impact of their portfolios and using that information to make investment decisions that better align with their goals,” Mary Erdoes, chief executive officer of JPMorgan’s asset- and wealth-management business, said in the statement. The acquisition follows JPMorgan’s recent takeover of 55ip, a fintech that focuses on helping investors cut their tax liabilities. The moves position the New York-based bank to broaden offerings to financial advisers, a key source of growth in the asset-management industry.

“Investing is a business where you can look very silly for a long period of time before you are proven right.” – Bill Ackman

*All sources from Bloomberg unless otherwise specified