June 7, 2021

Daily Market Commentary

Canadian Headlines

• Lightspeed POS Inc. said it’s making two deals to acquire digital platforms and will spend a total of $925 million in cash and stock. Acquisition of Ecwid, an e-commerce platform, is for $175 million in cash and $325 million in subordinate voting shares. Ecwid had $20m in revenue in period ended March 31, y/y growth rate more than 50%. Acquisition of NuOrder, a platform that connects businesses with suppliers, is for $212.5 million in cash and $212.5 million in shares,
• Air Canada said Chief Executive Officer Michael Rousseauand the company’s executive vice-presidents will voluntarily return their 2020 bonuses and share appreciation units after a public outcry that followed a bailout by the Canadian government. “Every step of the way, management and the board have acted in the best interests of Air Canada and its stakeholders and have been mindful of their role in mitigating the consequences of the pandemic,” the company said. “Unfortunately, there is now public disappointment around the actions relating to these 2020 executive compensation outcomes.”

World Headlines

• European equities were little changed Monday, as worries over inflation and possible delays to countries’ reopening plans put a brake on a record rally. The Stoxx 600 Index was down 0.1% at 9:05 a.m. London time, slipping from last week’s all-time closing peak, with the Stoxx 600 Automobiles and Parts Index set for a record close, rising as much as 0.9%. While European equities have climbed 13% in 2021 to an all-time high, they have gained just 5.3% since the beginning of April. Concerns over the virus have kept stocks largely rangebound, with worries resurfacing after U.K. Health Secretary Matt Hancock said it is too early to say whether a planned easing of coronavirus restrictions on June 21 can go ahead.
• U.S. equity-index futures dropped with Treasuries as investors weighed inflation risks and the impact of a minimum corporate tax on technology firms. The dollar was steady. Futures on the Nasdaq 100 and S&P 500 declined, while contracts on the Dow Jones Industrial Average were little changed. The 10-year rate added two basis points after Treasury Secretary Janet Yellen said on Sunday a slightly higher interest-rate environment would be a plus. Oil in New York slipped after rising to $70 per barrel as short-term demand worries continued. Tesla Inc. dropped in premarket trading after canceling plans for a longer-range sedan.
• Asian equities swung between gains and losses as Hong Kong’s Hang Seng Index slid on the first day of trading following the start of its biggest-ever overhaul, while stocks in Singapore climbed. Financials and internet giant Tencent were among the biggest drags on the MSCI Asia Pacific Index, while advances in consumer staples and healthcare shares cushioned the downside. The regional benchmark has traded sideways for the past few sessions after recovering back above its 100-day moving average. Traders continue to speculate that the U.S. recovery will be strong enough to prompt the Federal Reserve to taper asset purchases. Still, a weaker-than-expected American jobs report eased fears about the economy running too hot and lifted U.S. stocks Friday.
• Oil slipped after hitting $70 a barrel in New York for the first time since October 2018 as a rally driven by signs of a tightening market eased. Futures jumped 5% last week, and were unable to break above the $70 marker Monday. The long-term demand outlook remains bullish as vaccination rates climb worldwide, driving greater mobility. OPEC+ appears in control of crude prices, with U.S. production still below pre-pandemic levels, said Mike Muller, Vitol Group’s head of Asia. A robust rebound from the virus in the U.S., China and Europe has driven prices more than 40% higher this year. But the demand recovery has been patchy with the pandemic still surging in parts of Asia. Chinese oil imports, a major reason behind the rally, fell to a five-month low in May as private refiners held back on purchases amid scrutiny of government-issued purchases quotas.
• Gold declined as comments by Treasury Secretary Janet Yellen on inflation raised expectations for fiscal spending, pushing Treasury yields higher. Bullion ticked lower after Yellen said Sunday that President Joe Biden should push forward with his $4 trillion spending plans even if they trigger inflation that persists into next year, adding that a “slightly higher” interest rate environment would be a “plus.” That helped boost Treasury rates, making non-interest bearing gold seem less attractive.
• China’s iron ore imports in May tumbled to their lowest level in a year as record prices deterred buyers of industrial commodities and the domestic recovery from the pandemic begins to slow. Copper purchases in May also fell to a three-month low, while shipments of copper ore edged higher on the month, according to Chinese customs data released on Monday. Metals prices in China peaked in the middle of the month before retreating as the authorities ratcheted up their campaign to tame inflationary pressures in the economy. The gathering pace of the economic recovery elsewhere in the world saw iron ore cargoes diverted from China, said Vicky Wang, director of investment and research at Ruida New Control Capital Management Co. China’s imports may also have fallen after Beijing’s curbs on emissions hit dirtier methods of producing steel, even as overall production of the alloy remained robust.
• Global infections are falling dramatically, with the U.S. reporting the lowest number of daily cases since March 2020. Worldwide infections for the week ended Sunday were the least in almost three months. Despite the trend, rising cases in places from Fiji to the U.K. are a reminder that the pandemic isn’t disappearing anytime soon. The U.K.’s Health Secretary said it’s too early to say whether a planned loosening of rules on June 21 can go ahead. Thailand launched a mass vaccination drive on Monday, as the nation seeks a reopening of tourism next year. The Indian state that contains Mumbai is starting a phased easing of restrictions, as the country reported the lowest number of cases since early April.
• Investors added money to exchange-traded funds that buy emerging market stocks and bonds last week. This was the 31st straight week of inflows. Inflows to U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $1.42 billion in the week ended June 4, compared with gains of $1.74 billion in the previous week, according to data compiled by Bloomberg. So far this year, inflows have totalled $29.3 billion.
• Trading in European carbon permits reopened on the ICE Endex exchange in Amsterdam after a technical issue had prevented some traders from accessing the market. The glitch marred the first day of trading after a move to the continent from London after Brexit. The European carbon market is the world’s biggest. ICE Endex closed the market on Monday morning while trying to fix a problem, the exchange said in an emailed statement. Some traders couldn’t put in their orders, according to people familiar with the matter.
• Janet Yellen proved her bona fides as a political deal-maker by leading the world’s richest economies to an agreement on global taxes that had eluded negotiators for nearly a decade. Yet what was hailed as a victory at the Group of Seven for President Joe Biden’s Treasury secretary may not carry far in Washington, where winning lawmakers’ support for the administration’s vast plans for tax and spending increases will be a far tougher challenge. The G-7 finance ministers on Saturday sealed a landmark deal in London, paving the way to help countries collect more taxes from big companies and setting a minimum global corporate tax rate of at least 15%. That would signal an end to decades of nations racing each other to lower levies, eroding their collective revenues.
• As President Joe Biden pushes ahead with sweeping plans to spend trillions of dollars on infrastructure and the U.S. social safety net, White House advisers are counting on his personal touch with Congress — including chummy calls with lawmakers — to win over skeptics in both parties. He’s taken the lead in engaging with Senator Shelley Moore Capito, the top Republican negotiator on a bipartisan infrastructure package. But the hands-on lobbying is beginning to show its limits, as the White House on Friday rejected the latest GOP offer for being too small to address administration objectives. Biden’s pledge to keep talking — with another call with Capito coming Monday — is adding to pressure among Democrats to forgo the Republicans.
• Tesla Inc. has called off plans to build the Model S Plaid+, a longer-range version of its high-end sedan, according to Chief Executive Officer Elon Musk. Musk tweeted on Sunday that the Plaid+ will be canceled because the Plaid version of the Model S is “just so good.” Tesla had been taking refundable deposits for the car for months and billing it as offering more than 520 miles (837 kilometers) of range, compared with about 390 miles for the Plaid model. Musk didn’t address whether the availability of a new type of battery factored in Tesla’s decision to cancel the Model S Plaid+. The CEO unveiled plans in September of last year to develop larger, more energy-dense and powerful 4680 cells that would enable the company to offer both cheaper and higher-performing electric cars. But in April, Musk said those cells were probably 12 to 18 months away from volume production.
• Blackstone Group Inc. has struck a roughly $6.7 billion deal to buy QTS Realty Trust Inc. and take the data-center operator private. The investment giant’s infrastructure unit, Blackstone Infrastructure Partners, together with its nontraded real-estate investment trust, known as BREIT, have agreed to pay $78 a share for QTS, the companies plan to announce Monday. The price represents a 21% premium to QTS’s closing share price Friday and a 24% premium to the volume-weighted average over the last 90 days. Based in Overland Park, Kansas, QTS is a real-estate investment trust that owns more than 7 million square feet of data-center space in 28 locations across North America and Europe. Its customers include big software and social-media companies as well as government entities that use the centers to securely store and process data.
• Gold will surge to fresh highs in the next year, but investors seeking currency alternatives as global debt balloons should look to Bitcoin, according to a $7.5 billion hedge fund. Both are likely to rally even as the Federal Reserve moves to taper asset purchases, said Troy Gayeski, co-chief investment officer and senior portfolio manager at SkyBridge Capital. The two are frequently compared by investors, with former Treasury Secretary Lawrence Summers saying cryptocurrencies could stay a feature of global markets as something akin to digital gold.
• Severe bottlenecks that have snarled major ports in the U.S. and Europe through the pandemic are now disrupting operations at a key export hub in China that could last until the end of this month and lead to further rise in ocean freight rates. Yantian International Container Terminals, an operator of terminals at Shenzhen port, was partially closed late last month for a few days after some dockworkers were among those confirmed with Covid amid an outbreak in Guangdong Province. The facility is facing challenges due to efforts by the local authorities to disinfect and enforce quarantine measures that have led to labor shortages. The disruption at the world’s fourth-busiest container port is putting stress on an already fragile global supply chain. While ships are calling at Yantian, port activities there and nearby facilities remain restricted. Vessels are spending as long as five days at port recently, as containers for exports are piled high at yards stretched to maximum capacity.
• China’s exports continued to surge in May, although at a slower pace than the previous month, fueled by strong global demand as more economies around the world opened up. Imports soared, boosted by rising commodity prices. Exports grew almost 28% in dollar terms in May from a year earlier, the customs administration said Monday, weaker than forecast and below the pace in April, but still well above historical growth rates. Imports soared 51.1%, the fastest pace since March 2010, leaving a trade surplus of $45.5 billion for the month.
• Peru’s presidential runoff is on a knife edge, increasing the chances of a disputed election and calls for a recount as the country appeared split into two opposing camps. Investor favorite Keiko Fujimori took an early lead over her leftist opponent Pedro Castillo in a running tally published by the electoral authority, which was weighted toward the urban areas where she is strongest. But as more votes came in overnight from the rural districts that favor Castillo, that gap narrowed. With almost 88% of votes counted, Fujimori had 50.6% support to 49.4% for Castillo, a former school teacher turned union organizer from the Peruvian highlands.
• The wave of U.S. homeowners refinancing their mortgage seems to have crested. The May prepayment speed report saw Fannie Mae 30-year aggregate prepayment speeds drop by a double-digit percentage for a second release in a row. Last month saw a 16% decline, dropping the aggregate conditional prepayment rate to 23.4, which followed a decline of 21% in April. Prepayment speeds are now down 34% since March. An aggregate conditional prepayment rate of 23.4 means that should the current level hold, about 23% of the principal balance within those mortgage-backed securities will be prepaid annually. With homeowners able to refinance their mortgages at par and Fannie Mae 30-year mortgage bonds mostly trading at a premium, a slowdown in speeds can boost investor performance.
• Macquarie Infrastructure confirmed that it agreed to sell its Atlantic Aviation business to KKR for $4.475 billion in cash and assumed debt and reorganization obligations. Atlantic Aviation operates one of the largest networks of fixed base operations in the U.S. providing a full suite of critical services to the private aviation sector.
• Flipkart, the Indian e-commerce giant controlled by Walmart Inc., is in talks to raise at least $3 billion from investors including SoftBank Group Corp. and several sovereign wealth funds, according to people familiar with the matter. The startup is targeting a valuation of about $40 billion and is in discussions with Singapore’s GIC Pte., Canada Pension Plan Investment Board and the Abu Dhabi Investment Authority, said the people, asking not to be named because the discussions are private. Japan’s SoftBank, which had previously backed Flipkart before selling its stake to Walmart, could invest $300 million to $500 million of the total through its Vision Fund II, one of the people said. Flipkart plans to raise the additional capital ahead of an initial public offering, now planned for next year, the people said. The company had targeted an IPO as soon as the fourth quarter of this year, but those plans have been delayed by the coronavirus resurgence in India.
• Armin Laschet boosted his chances of succeeding Angela Merkel as German chancellor by helping secure a decisive victory for his Christian Democratic Union in the country’s poorest state. In the final regional contest before the national vote in September, the 60-year-old party leader showed he can successfully guide Merkel’s party in a tight campaign. The outcome will help ease doubts about his suitability to lead Germany’s conservatives and take on the job of running Europe’s biggest economy. The CDU halted its slide in recent elections on Sunday, winning 37% of the ballots in Saxony-Anhalt, up more than seven percentage points compared to the last vote in 2016, according to preliminary results. The far-right Alternative for Germany, which was pushing for the lead in some recent polls, dropped more than three points to end up a distant second in the former communist region with 21%.

“It is impossible to produce superior performance unless you do something different from the majority.” – John Templeton

*All sources from Bloomberg unless otherwise specified