July 2, 2021
Daily Market Commentary
- Manulife Financial Corp. is planning to seek full control of its mutual fund joint venture in China to expand in one of the world’s fastest-growing wealth markets, according to a person familiar with the matter. The Toronto-based insurer is in talks to buy the 51% stake being sold by partner Teda Investment Holding Co., the person said, requesting not to be identified because the matter is private. The stake would cost at least $272 million, according to an auction statement on Wednesday. The Canadian firm, which owns 49% of the joint venture, declined to comment in an emailed statement. Teda didn’t immediately respond to a request for comment after business hours. It’s unclear whether any other prospective buyers have expressed interest in Teda’s stake.
- European equities edged higher Friday as investors awaited key U.S. employment data and weighed the prospects for economic recovery against concerns about the fast-spreading delta virus strain. The Stoxx 600 Europe Index was up 0.3% as of 11:51 a.m. in London, with most of the sectors in the green, led higher by travel and leisure stocks. Ambu slumped as much as 16% after lowering its full-year financial forecast. Europe’s benchmark has kicked off the second half of the year on a positive note after a stellar first six months, as investors bet on an economic rebound and await what’s expected to be another strong earnings season. The Stoxx 600 is about 0.5% away from a record closing level reached last month.
- U.S. futures climbed alongside Treasuries on Friday as traders awaited key monthly employment data for the latest clues on the health of the American economy. Contracts on the S&P 500 were modestly higher ahead of Friday’s payrolls report, which will be closely watched in the wake of a string of rosy economic readings for the U.S. economy. A 711,000 increase in payrolls is forecast for the month, which would be the strongest advance since March. Nasdaq futures rose 0.2%. Investors are parsing data prints like the upcoming payrolls report for a sense of how close the Federal Reserve is to tapering policy accommodation as employment improves and inflationary pressures build. Rates traders seegrowing odds that officials led by Chair Jerome Powell will communicate a change at the Fed’s annual symposium in Jackson Hole, Wyoming, in August.
- Asian equities fell, led by a slump in Chinese stocks following the Communist Party’s 100th anniversary celebrations. Alibaba, Meituan and Tencent were the largest drags on the MSCI Asia Pacific Index. China’s CSI 300 Index slid as much as 3%, the most since March 19, amid signs of profit-taking following gains in the run-up to the event. Hong Kong’s Hang Seng Index dropped as much as 2.1% as trading resumed after Thursday’s holiday. The slide in China and Hong Kong offset an advance in Japanese stocks after strong U.S. economic data took Wall Street to another record. In other positive news for economic reopenings, Johnson & Johnson said that its coronavirus vaccine neutralizes the fast-spreading delta variant.
- Oil held Thursday’s gain after infighting within OPEC+ delayed a much-anticipated decision on raising output levels, risking an inflationary spike in prices if the group can’t come to an agreement. Futures in New York traded near $75 after jumping 2.4% Thursday. The alliance was forced to postpone a decision on output after the United Arab Emirates blocked a deal. The standoff could ultimately lead to OPEC+ not increasing supply, according to a delegate, which would mean the cartel would fall back on terms that call for production to remain steady until April 2022. Before the breakdown, the alliance appeared to have an agreement in principle to boost output 400,000 barrels a day each month from August to December to meet rising demand as economies recover from the pandemic. OPEC+ ministers will reconvene Friday as the dramatic turn of events leaves the market in limbo and tarnishes the cartel’s carefully reconstructed reputation after last year’s brutal Saudi Arabian-Russian price war.
- Gold edged higher on declining U.S. bond yields, with investors weighing the path of the Federal Reserve’s monetary policy ahead of a key U.S. jobs report. The U.S. central bank probably will need to begin raising interest rates in late 2022 or early 2023 as increased government spending keeps inflation above its long-run average target, according to the International Monetary Fund. That’s a slightly more hawkish view than the Fed, which only sees rate hikes beginning in 2023.
- The Federal Reserve probably will need to begin raising interest rates in late 2022 or early 2023 as increased government spending keeps inflation above its long-run average target, according to the International Monetary Fund. The U.S. central bank likely will begin to scale back asset purchases in the first half of 2022, staff from the Washington-based fund said in a statement Thursday following the conclusion of so-called article IV consultations, the IMF’s assessment of countries’ economic and financial developments following meetings with lawmakers and public officials. “Managing this transition — from providing reassurance that monetary policy will continue to deliver powerful support to the economy to preparing for an eventual scaling back of asset purchases and a withdrawal of monetary accommodation — will require deft communications under a potentially tight timeline,” IMF staff said in the concluding statement.
- The Biden administration is sending response teams to unvaccinated pockets of the U.S. in an attempt to combat the spread of the highly transmissible delta Covid-19 variant. U.S. health officials will boost testing, provide therapeutics and deploy federal personnel where needed and requested, said Jeffrey Zients, President Joe Biden’s Covid-19 response coordinator. Staff will come from the Health and Human Services Department, the Centers for Disease Control and Prevention and the Federal Emergency Management Agency. One thousand U.S. counties have Covid vaccination coverage of less than 30%, and the CDC is seeing increasing rates of the disease, primarily in the Southeast and Midwest, director Rochelle Walensky said Thursday in a White House briefing.
- Deutsche Telekom AG has kicked off the sale of its T-Mobile Netherlands BV subsidiary, which could be valued at around 4.5 billion euros ($5.3 billion), according to people familiar with the matter. The telecommunications operator has sent out information on the business to potential bidders, the people said, asking not to be identified discussing confidential information. It has asked for first-round offers to be submitted this month, one of the people said. The sale is attracting preliminary interest from potential bidders including Apax Partners, Apollo Global Management Inc., BC Partners, Providence Equity Partners and Warburg Pincus, the people said. Deliberations are in the early stages, and there’s no certainty any of the suitors will decide to proceed with offers, the people said.
- Kakao Pay Corp., South Korea’s largest online payment service with 36 million users, is seeking to raise as much as 1.63 trillion won ($1.4 billion) in an initial public offering in Seoul, following blockbuster IPO filings from Kakao Bank and Krafton Inc. this week. The Pangyo-based fintech company will sell 17 million new shares at 63,000 won to 96,000 won apiece, Kakao Pay said in a filing on Friday. At the top of the range, its market capitalization could exceed $11 billion. The firm is scheduled to debut on August 12.
- The world’s biggest pension fund posted a record return for the fiscal year ended March, boosting its assets to a new high and beating its benchmark for the first time in seven years. Japan’s Government Pension Investment Fund booked a gain on its investments of 25%, or 37.8 trillion yen ($339 billion), in the 12 months ended March, the most since the fund started managing the nation’s pension reserves in 2001. Overseas stocks were its best-performing asset in the period, returning 59.4%, followed by a 41.6% return in domestic stocks. Overseas debt gained 7.1%, while Japanese debt lost 0.7%. The fund’s return exceeded its compound benchmark by 0.3%.
- BC Partners has started exploring options for German technical-ceramics maker CeramTec GmbH after receiving approaches from rival private equity funds, people with knowledge of the matter said. The buyout firm is in the early stages of studying possibilities, including a sale or initial public offering of CeramTec, the people said, asking not to be identified because the information is private. A deal could value the business at 3.5 billion euros ($4.1 billion) or more, they said. CeramTec, based outside the southern German city of Stuttgart, makes ceramics used by orthopedic manufacturers in hip joint replacements. It also produces ceramic pipes, valves and bearings for industrial applications as well as materials used in metalworking, textile machinery and medical equipment.
- Starwood Capital Group LLC raised its offer for Austrian landlord CA Immobilien Anlagen AG, boosting the price by 5.7% to entice shareholders to accept the deal before a deadline later this month. The U.S. property heavyweight raised the bid to 37 euros per share from 35 euros, according to a statement. The tender is set to expire on July 14 and was adjusted previously to reflect dividend payments. Shares in CA Immo, which is valued at 3.9 billion euros ($4.6 billion) under the new offer, rallied in Vienna to trade in line with the higher price. Starwood Capital is looking to boost participation in the bid, which was first announced in February. Less than 4% of shareholders accepted the initial proposal, which would have increased its stake in CA Immo to 33%. The tender period was then extended by three months in April.
- Richard Branson plans to fly to space on July 11, days before a similar journey by fellow billionaire Jeff Bezos. The shares of Branson’s Virgin Galactic Holdings Inc. surged. The VSS Unity spacecraft will also carry three Virgin Galactic employees and two pilots from the launch site in New Mexico, according to a company statement Thursday. Bezos is planning a trip to space July 20 from nearby West Texas aboard a rocket made by Blue Origin, the Amazon.com Inc. founder’s space company. Branson’s suborbital flight would fulfill a longtime goal for the U.K. billionaire and Virgin Galactic, which he founded in 2004. The company recently completed data analysis from its last test flight on May 22, and concluded it was ready to evaluate the cabin experience, said Chief Executive Officer Michael Colglazier. Branson had his pick of which of two planned flights this summer he’d prefer to join.
- Apollo Global Management Inc. is planning to list a blank-check company in Amsterdam that could raise about 400 million euros ($473 million) for acquisitions, according to people familiar with the matter. The private equity firm is working with STJ Advisors LLP on the listing, which could take place in the coming months, the people said, asking not to be identified as the details aren’t public. Credit Suisse Group AG and JPMorgan Chase & Co. are leading the IPO, the people said. Deliberations are ongoing and the size and timing of any listing could change depending on investor sentiment and market conditions, the people said. Representatives for Apollo, Credit Suisse, JPMorgan and STJ declined to comment.
- London moved back ahead of Amsterdam as Europe’s largest share trading center in June, reclaiming the top spot for the first time this year after Brexit pushed much of the city’s volumes to the continent. An average 8.92 billion euros ($10.6 billion) of shares a day were traded on various London venues in June, compared with 8.8 billion euros for various Dutch venues, according to data from Cboe Europe. This compares with about 9.4 billion euros average daily trading value for Amsterdam in May and around 8.7 billion euros in London. Paris, the third largest venue, saw its daily trading decline from almost 6.1 billion euros in May to 5.8 billion euros in June.
- The Biden administration and global allies scored a major victory Thursday in their push for a more balanced international corporate tax system, but still face multiple significant obstacles to completing an ambitious plan that has been years in the making. The boost came during a round of talks hosted by the Organization for Economic Cooperation and Development, where 130 countries and jurisdictions backed a plan to set a minimum corporate tax rate and establish a new regime for sharing the taxes imposed on the profits of multinational firms. Even as governments hailed the news — U.S. Treasury Secretary Janet Yellen called it “an historic day for economic diplomacy” — the agreement remains well short of a done deal. A handful of countries refused to sign on. Most importantly, resistance came from three European Union members, any of which could prevent the 27-member bloc from implementing the plan.
- The lucrative North Atlantic flight corridor that links European tourism and business meccas like Paris and London with the U.S. has been starved for traffic for the past 18 months, depriving some of the world’s biggest airlines of revenue from their most profitable journeys. Now carriers including Emirates, United Airlines Holdings Inc. and British Airways are gearing up again, with plans to boost transatlantic seat capacity by 40% collectively in the eight weeks through Aug. 23, according to data from flight tracking firm OAG. It’s not a sure gamble. The delta variant of the coronavirus has spread to more countries, clouding the outlook for a further progress toward a reopening of the vital routes.
- BNP Paribas SA and Intesa Sanpaolo SpA and other European banks itching to boost shareholder payouts probably won’t get all they wished for after their top regulator signaled they still need to exercise caution. Ten of the biggest euro-area banks have more than more than 22.2 billion euros ($26.3 billion) set aside to reward shareholders, as the European Central Bank nears a decision this month on lifting a controversial cap on payouts handed down in return for unprecedented aid in 2020. Last month, U.S. banks were given the all clear to boost returns.
- OPEC+ entered a phase of tense internal diplomacy as it sought to overcome a dispute that’s blocking measures to ease rising oil prices. As of Friday morning, the group had failed to resolve the standoff, delegates said. If the negotiations fail, the world may not get the extra crude supplies it was expecting. That would squeeze an already tight market, risking a further inflationary price spike. “If OPEC+ fails to reach a compromise, the automatic fall-back will be to roll over current quotas into August and beyond,” said Matthew Holland, a geopolitical analyst at consultant Energy Aspects Ltd. “That would lead to sharply higher prices, something most OPEC+ members want to avoid.”
- Wall Street is backing a potentially lucrative trade betting on companies poised to win back investment-grade ratings in Europe’s accelerating economic recovery. Pacific Investment Management Co. and JPMorgan Chase & Co. say buying the debt of companies on the cusp of an upgrade has the potential to unlock profits. And in the wake of a pandemic that saw a record number of companies tumble into junk territory, the strategy — known as rising-star investing — has rarely looked so promising. The trade has decades of business-cycle history behind it, and Pimco projects as much as 200 basis points of outperformance over the average three years it takes to exit junk. That’s nothing to sniff at in a market where negative yields on corporate debt are commonplace.
- GlaxoSmithKline Plc agreed to pay U.S. biotech Alector Inc. as much as $2.2 billion to develop therapies targeting diseases such as Parkinson’s and Alzheimer’s, the latest step by the U.K. pharmaceutical giant to rebuild its drug pipeline. Alector will receive $700 million upfront from Glaxo, and up to $1.5 billion in the future if the treatments prove successful, the companies said Friday. They will co-develop and commercialize two monoclonal antibodies, one of which is in late-stage trials to tackle a form of dementia. The therapies are part of an emerging field of research that tries to use the body’s own immune system to fight neurodegenerative diseases. In this case, scientists are seeking to increase levels of a protein in the brain called progranulin, which helps regulate the immune response and affects the survival of neurons.
- Charles Schwab Corp. said it is cooperating with an investigation by the Securities and Exchange Commission and will take a $200 million charge in its second-quarter results related to the probe. The inquiry relates to disclosures around the firm’s Schwab Intelligent Portfolios product, according to a regulatory filing Friday. The company said its ultimate liability from the matter may differ from the amount it’s earmarking now. Schwab purchased rival brokerage TD Ameritrade in October, giving America’s original discount broker even more sway over the industry it pioneered nearly a half-century ago. The combined firm has more than $7 trillion in client assets across 32 million active brokerage accounts.
- UniSuper Management Pty lifted its cash holdings in anticipation markets will overreact to any sign the Federal Reserve is readying to start removing emergency monetary policy settings. Rather than a worrying prospect, moves to reduce monetary easing would be a sign the U.S. economy is healthy, the A$100 billion ($75 billion) pension fund’s Chief Investment Officer John Pearce said. The last time the U.S. central bank tapered in 2013, the only impact was on fund manager performance, not on economic growth, he said in an interview Thursday.
- Some people who received the Johnson & Johnson Covid-19 shot in the U.S. are seeking out added doses of a messenger-RNA vaccine, fearing their initial inoculation won’t protect them from the virus. Demand for the one-and-done J&J shot has suffered in part due to the perception that it’s inferior to the two-dose mRNA vaccines that showed higher efficacy in clinical trials. But it is unclear if mixing vaccines will safely increase protection, and there are fresh signs that J&J’s shot is a strong shield against variants. Last month, the first suggestion that mixing may be helpful came in a study that found combining the Pfizer Inc.-BioNTech SE vaccine with AstraZeneca Plc’s shot, which is based on adenovirus vector technology similar to J&J’s vaccine, can provide a formidable shield against infection.
“You cannot escape the responsibility of tomorrow by evading it today.” – Abraham Lincoln
*All sources from Bloomberg unless otherwise specified