June 30, 2021
Daily Market Commentary
- The world is counting on farmers in North America for big harvests of everything from corn to canola this year. Due to weird weather patterns, growers will likely come up short. The U.S. and Canada are seeing unusual variability in climate, with some crops withering from severe heat and drought while others see flooding. Meanwhile, demand is surging as economies recover from the coronavirus pandemic, so much so that every grain counts. The culprit is an abnormal, high pressure system that’s likely to remain in place during a key period of the growing season when plants are blooming and developing. It’s responsible for the hottest temperatures ever in the U.S. Pacific Northwest while forming a trough across the central U.S. that’s bringing rain showers. The hot and arid conditions have moved east, spilling over into farming areas in the U.S. Plains and Canadian Prairies, hurting everything from spring wheat that goes into pizza to canola used for cooking oil.
- European stocks retreated Wednesday as investors balked at risks from a highly infectious coronavirus strain. The Stoxx 600 Europe Index was 0.6% lower as of 11:32 a.m. in London, with almost all sectors declining, led lower by autos and utilities. The Stoxx 600 Automobiles & Parts Index fell the most in more than a month, while travel stocks extended declines on fears that the more contagious Delta variant of Covid-19 could hit tourism as the summer season starts in Europe. Prospects of an economic rebound have offset worries over a pick-up in inflation, and the European benchmark is still less than 2% off a record. The Stoxx 600 is 11% higher in U.S. dollar terms so far this year and is on the longest streak of monthly gains since 2013, versus the S&P 500’s 14% gain.
- U.S. futures fluctuated while European stocks dropped on Wednesday as risks from a highly infectious coronavirus strain trumped growing confidence in the global economic recovery. Contracts on the S&P 500 Index were little changed while European shares declined, with cyclical stocks bearing the brunt of losses in the Stoxx 600 gauge. Airlines struggled as fears of the more contagious Delta variant continue to spur tourism curbs in the region. Japan and Hong Kong led modest losses in Asia. Treasuries rose and the dollar was steady as traders digested the latest Fed comments. On asset purchases, Thomas Barkin said Tuesday he wants to see much more U.S. labor market progress before slowing them, while Christopher Waller said economic performance warrants thinking about pulling back on some stimulus. Oil rose, while Bitcoin slipped to trade around $34,600.
- Asia’s stock listing aspirants will likely face a less generous market following a first-half sales boom, as bubbly valuations and nervousness about U.S. monetary policy make investors more cautious. Firms in Asia have raised $82 billion through initial public offerings so far this year, the most ever for a first half, and beating the previous record of $63 billion seen during a comparable period in 2010, data compiled by Bloomberg show. The performance is part of a global trend, with new listings having hit a record of almost $351 billion since 2021 began, as ultra-low interest rates and ample liquidity pushed yield-hungry investors into riskier assets. With bankers in Asia still staring at a busy deals pipeline for the second half, they may find it hard to repeat the success seen earlier in the year. That’s due to growing concerns that rising inflation will prompt the U.S. and other major central banks to unwind some of the stimulus that laid the foundation for the remarkable global stock rally in the past year.
- Oil is on course for its best half since 2009, extending gains Wednesday ahead of a key OPEC+ meeting that’s expected to bring an increase in supply. Futures in New York rose 0.5% to top $73 a barrel, and are up more than 50% this year. The American Petroleum Institute reported a 8.15 million-barrel weekly decline in U.S. crude stockpiles, according to people familiar with the data, which added to positive sentiment before OPEC+ meets on Thursday. The alliance has delayed preliminary talks to allow members more time to resolve differences. While Russia has been weighing a proposal to hike output, Saudi Arabia has signaled it prefers a gradual approach amid fresh Covid-19 outbreaks in some regions, and Kuwait has said the group remains cautious.
- Gold headed for the biggest monthly drop in more than four years on the back of gains in the dollar following the Federal Reserve’s hawkish shift. The metal is trading near the lowest since April after the Fed pulled forward its forecasts for interest rate hikes. A stronger dollar has added much of the pressure, with the currency on course for its best month since March 2020, and investors have trimmed holdings in bullion-backed exchange-traded funds. Traders will focus on economic data and comments from Fed officials for more clues on the timing of stimulus tapering. Richmond Fed President Thomas Barkin said Tuesday he wants to see much more U.S. labor market progress before taking action, while Governor Christopher Waller said economic performance warrants thinking about pulling back on some stimulus.
- Citigroup Inc. joined European rivals including UBS Group AG in touting its flexible work policies as a tool that will give it a competitive edge over rivals in recruiting and retaining top staff. The lender’s employees will have the option to choose to work from home at least partially, investment banking co-head Manolo Falco said at a virtual press briefing on Wednesday. That will set the bank apart from some U.S. rivals that have demonstrated a more hardline approach to remote work, he said, naming J.P. Morgan Chase & Co. and Goldman Sachs Group Inc. There’s mounting evidence that global investment banks are broadly falling into two camps on their approach to more flexible working. While many U.S. firms are requiring their staff to come back to the office, a growing number of European lenders including UBS and Deutsche Bank — and now Citigroup — are saying that increased flexibility on a more permanent basis can improve staff morale and perhaps give them a hiring advantage.
- North Korean leader Kim Jong Un said a “grave” situation stemming from quarantine negligence has created a “great crisis,” according to a state media report that didn’t provide any details. The statement came after the country has claimed for more than a year it has avoided Covid. More than 3 billion doses of Covid vaccine have been administered around the world as the pace of the global rollout continues to accelerate. Moderna Inc. said its vaccine produced protective antibodies against the contagious delta variant, which is fast becoming the dominant strain in France, Germany, South Africa and other nations. In Australia, the remote Outback town of Alice Springs became the latest region to enter a lockdown as the delta variant spreads across the continent. Cases continued to climb in Tokyo, with less than a month before the scheduled start of the Olympic Games.
- Americans are enjoying outsized pay boosts this year from desperate employers, but the raises are failing to keep pace with surging prices for everyday goods. U.S. wages likely posted a third strong monthly gain to fuel a 3.6% increase in June from a year earlier, according to economists’ forecasts ahead of the Labor Department’s jobs report due Friday. Companies including FedEx Corp. and Olive Garden owner Darden Restaurants Inc. are raising wages to attract staff. At the same time, prices for everything from milk to car rentals and gasoline are rising at a rapid clip, eating into those income gains. The Federal Reserve’s preferred consumer-price gauge rose 3.9% in the 12 months through May, the fastest since 2008.
- Cybersecurity firm SentinelOne Inc., kicking off a banner day for initial public offerings in what is set to be the biggest week of the year, expanded the size of its listing and priced the shares above a marketed range to raise more than $1.2 billion, according to people familiar with the matter. The Mountain View, California-based company sold 35 million shares for $35 each on Tuesday, said the people, who asked not to be identified because the information wasn’t public yet. The company had marketed 32 million shares for $31 to $32, a range that it had elevated from $26 to $29 on Monday.
- Electric-vehicle maker Xpeng Inc. has raised about HK$14 billion ($1.8 billion) in its Hong Kong listing, becoming the first Chinese EV producer to finish a so-called homecoming share sale. The U.S.-listed firm sold 85 million shares at HK$165 each, according to an exchange filing on Wednesday, confirming an earlier Bloomberg News report. The offer price represents a discount of about 4.1% to its closing price of $44.32 on Tuesday on the New York Stock Exchange. Xpeng had set a maximum price of HK$180 for the portion reserved for retail investors. One of Xpeng’s American depositary shares is equivalent to two ordinary shares. Trading in Hong Kong is slated to start on July 7.
- AIA Group Ltd. has agreed to acquire a stake in China Post Life Insurance Co. for about 12 billion yuan ($1.9 billion) to bolster its China expansion. The Hong Kong-based insurance giant will buy a 24.99% stake in China Post Life, subject to regulatory approvals, AIA said in a filing to the Hong Kong exchange on Tuesday. AIA closed 0.8% higher at HK$96.5 in Hong Kong on Wednesday. The deal marks AIA’s second effort this year to boost its distribution network in the world’s most populous nation. AIA is accelerating expansion in mainland China as Covid travel restrictions continue to curb sales of insurance to Chinese visitors, previously a key driver for its Hong Kong unit. Mainland China has eclipsed Hong Kong as the largest contributor of new business value for the insurer.
- Chinese ride-hailing giant Didi Global Inc. has raised about $4.4 billion after pricing its U.S. initial public offering at the top of a marketed range and selling more shares, according to people familiar with the matter. Didi sold about 317 million American depositary shares in the offering, around 10% more than originally planned, based on an updated filing on Tuesday. The company priced the shares at $14 each after marketing them for $13 to $14, the people said, who asked not to be identified because the details weren’t public yet.
- Volkswagen AG’s Traton SE truck unit will seek to expand in Asia to build a broader global presence, after finalizing the $3.7 billion takeover of U.S. affiliate Navistar International Corp. The company plans to fill remaining gaps in its industrial footprint in markets including China, Traton said Wednesday in a prepared statement for its annual general meeting. Acquiring Navistar marks a milestone for VW’s long-standing efforts to forge a viable rival for industry leaders Daimler AG and Volvo AB on a global scale. Traton makes Scania and MAN vehicles as well as VW-branded trucks for emerging markets and has been largely dependent on sales in Europe and Latin America.
- New York City election officials thrust the race for the next mayor into turmoil Tuesday after erroneously counting test ballots alongside election night results, producing about 135,000 “dummy ballots” that skewed results of the city’s first major test of a new ranked-choice voting system. The major blunder forced the Board of Elections to retract preliminary results it had posted hours earlier. The board promised to republish corrected results Wednesday that will show whether Brooklyn Borough President Eric Adams will maintain his lead over former Sanitation Commissioner Kathryn Garcia and civil rights lawyer Maya Wiley. Practically, the results released Tuesday had little bearing on determining the final winner of the race, which won’t be certified until 125,000 absentee votes are counted beginning next week. This week’s results are meant to show only who would have won the election if absentee ballots weren’t included, an incremental data release intended to provide voters with at least some transparency into the process.
- Expedia Group Inc.’s short-term rental business Vrbo has banned hosts who use its platform from leaving house keys in public places, and TripAdvisor Inc. is reviewing its safety policies to better protect travelers. The two companies said the moves were prompted by a recent Bloomberg Businessweek investigation into violent crimes at Airbnb Inc. listings. That story reported on the alleged rape at knife point of a 29-year-old Australian tourist in an Airbnb rental near Times Square on New Year’s Eve in 2015. The woman had picked up the keys to the apartment at a nearby bodega without having to provide identification, and somehow her attacker had obtained a duplicate set of keys and was waiting for her when she returned. Expedia’s new policy, adopted last week, bars hosts from leaving keys in public places “where the owner, property manager or staff is not present.” TripAdvisor is also working to update its rules about how keys are transferred to guests, according to Brian Hoyt, a company spokesman. “Beyond that change, we are committing to a larger review of our policies to further protect travelers booking vacation rentals on our platform,” he said.
- Turkish President Recep Tayyip Erdogan accused his political opponents of using threats to deter Deutsche Bank from playing any future role in the financing of a multibillion-dollar Istanbul project. The main opposition party “CHP is threatening everyone over Canal Istanbul. They threatened Deutsche Bank, saying that they won’t” repay debt incurred during the project, Erdogan told members of his ruling AK Party on Wednesday. “There is an international arbitration mechanism and they don’t know about it.”
- Russia will be able to keep pace with any easing of OPEC+ production cuts in both the short and medium term, according to analysts including Bank of America Corp. and Fitch Ratings Inc. As the cartel discusses whether to boost output further in August, there has been renewed speculation about whether record production cuts could have permanently damaged Russian fields. While some old and inefficient wells have been shut for good in the past year, the country has largely preserved its pre-pandemic capacity, according to a Bloomberg survey of six analysts. Russia could boost output by about 700,000 barrels a day from current levels within six to 12 months, according to the average analyst estimate. That could return the country to just under the post-Soviet annual production record of 11.25 million barrels a day reached in 2019.
- Australian bank Macquarie Group Ltd. is branching into U.K. rental housing with the creation of a new business that’s planning to invest more than 1 billion pounds ($1.4 billion). The bank’s asset management arm will buy, develop and operate multi-family housing complexes in London and other U.K. cities, according to a statement. The platform, called Goodstone Living, initially plans to raise about 1 billion pounds of debt and equity, said a person familiar with the matter, who asked not to be named because the funding details aren’t public. Macquarie is joining some of the world’s biggest investors by seeking a slice of a property class that’s proved resilient during the pandemic. A lack of supply and growing demand across Europe has made purpose-built rental housing an attractive bet for money managers seeking stable returns. They bought more apartments in the first quarter than any other property, with deal volumes surging 36% from a year earlier, according to Real Capital Analytics.
- French President Emmanuel Macron could revive a controversial pension reform as he prepares to unveil his priorities for the rest of his mandate and ahead of 2022 elections. Macron is set to speak to the French some time during the first half of next month, probably before July 14 when French leaders usually address the nation to mark Bastille Day. That is when he is considering tackling a topic that is highly contentious for voters, according to a person familiar with the government’s thinking. Finance Minister Bruno Le Maire has urged Macron to make it clear to voters that he’s still committed to his original pledges after a year-long battle to contain the spread of the coronavirus. The idea is to show a president willing to take risks in areas where he’s seen as strong, such as the economy, before people go on summer holidays.
- China’s biggest bank dumped a plan to finance a $3 billion coal-fired power plant in Zimbabwe, dealing a blow to coal developers in Africa that see the Asian country as the last potential funder of their projects. Industrial and Commercial Bank of China Ltd. told Go Clean ICBC, an ad-hoc body representing 32 environmental groups, that it won’t fund the 2,800-megawatt Sengwa coal project in northern Zimbabwe, according to a June 18 email seen by Bloomberg that was sent to 350.org, one of the Go Clean groups. ICBC didn’t immediately respond to a request for comment. Western and South African banks have come under increasing pressure from their shareholders not to fund developments that could contribute to climate change, leaving Chinese lenders as one of the last avenues to secure finance. That door may now be closing, should China plan to improve its own environment credentials.
- An accelerated approval program for U.S. drugs that’s been around for almost three decades is under fire for the criteria used by regulators to decide which therapies should be greenlighted, and for letting ineffective treatments linger on the market. The Food and Drug Administration’s accelerated process has been hailed for quickly addressing unmet medical needs with novel treatments. But critics say changes are needed to make it more transparent, to better measure efficacy and to quickly stop the sales of drugs that fail confirmatory trials. Approval of the Alzheimer’s drug Aduhelm has revved up debate on the program. Rather than being cleared based on its effectiveness, Aduhelm gained approval by showing it can reduce amyloid plaques in the brain, a physical biomarker, or surrogate, linked to the disease. Meanwhile, the drug’s maker, Biogen Inc., has nine years to finish a trial on its efficacy.
- Credit Suisse Group AG is weighing an overhaul of its wealth management business, consolidating several private banking units to save costs and centralize control as the sprawling global bank seeks to move past recent scandals. The move would replace a regional structure, where Asia in particular currently reports into a local leadership in the private bank, according to people with knowledge of the matter. The bank could consider appointing a global wealth management head to oversee the unified business, one of the people said.
- Ares Management has invested more than $1 billion in sports-related properties, including in teams such as Formula One’s McLaren Racing and Major League Baseball’s San Diego Padres. The alternative asset manager said in a statement reviewed by Bloomberg News that it struck several deals over the past six months in sports. It didn’t disclose the terms of the transactions, which range from Ares taking a minority ownership stake to refinancing bank debt. In McClaren, Ares is making a minority investment as part of a consortium, according to the statement. It’s the first time the Los Angeles-based firm is investing in Formula One, Ares partner and co-head of U.S. direct lending Jim Miller said in an interview.
- Microsoft and Google, tech giants that compete in cloud computing, web search and artificial intelligence, five years ago formally agreed to cease using their substantial lobbying firepower against each other, seeking to eliminate a pricey and distracting battle and clear the way to collaborate more. That truce, forged at the time by two new CEOs wanting a fresh start on a formerly acrimonious relationship, expired in April. Even before the deal was allowed to lapse, the non-aggression pact had been fraying. The companies feuded publicly over a proposal to force Google to pay news publishers for content and squabbled more quietly over technology for selling search ads. Neither company is eager to extend or renew the alliance, according to people familiar with each companies’ thinking, who weren’t authorized to discuss confidential relationships.
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*All sources from Bloomberg unless otherwise specified