June 9, 2021

Daily Market Commentary

Canadian Headlines

  • The battle for a controversial Canadian oil pipeline is heating up, with Pembina Pipeline Corp. forming a partnership with an indigenous group to buy the key Trans Mountain pipeline in a challenge to another native group seeking full ownership. Canada’s third-largest pipeline company said in an emailed statement it has formed Chinook Pathways, an “equal” partnership with Western Indigenous Pipeline Group to pursue ownership of the government-owned Trans Mountain once an expansion of the system is completed. The announcement came after another indigenous group called Project Reconciliation announced it would seek to fully own the pipeline.

World Headlines

  • European shares eased slightly from Tuesday’s record close as investors awaited key macro data and the European Central Bank meeting this week. The Stoxx 600 Europe Index was down 0.1% as of 10:36 a.m. in London, with miners and insurers falling the most. Health care and travel shares led gains after the U.S. eased travel warnings for countries including France and Germany. Economic reopenings and rapid vaccination progress are fueling European share gains, with investors looking for signs of inflation that could imperil the loose monetary policy by central banks. Thursday’s ECB meeting will be in focus, as will the U.S. consumer prices report the same day.
  • The dollar slipped and Treasury yields were lower as investors awaited Thursday’s U.S. inflation report before gauging the direction of monetary policy. The greenback weakened against all of its nine developed-world peers. The 10-year rate slipped two basis points to 1.50%. U.S. equity futures were little changed and stocks in Europe dipped. Bitcoin added 2.5%, trading above $34,000. Global markets’ indecision on Wednesday signals a tug-of-war between traders who believe accelerating inflation is transitory and those who bet it’ll prove persistent enough to warrant a tapering of Federal Reserve stimulus. With stocks near record levels and U.S. yields already high relative to peers, traders find little room for maneuver. For now, the Fed’s dovish stance is calming the markets.
  • Asian equities slipped for a second day, weighed down by losses in technology shares, as investors monitored inflation data for signals on potential central bank actions. TSMC and Sony were the biggest drags on the MSCI Asia Pacific Index. The regional benchmark slipped 0.4%, on track for its largest decline in three weeks. Financial stocks also contributed to the loss, as U.S. Treasury yields declined. Chinese stocks edged higher after the nation’s producer prices rose more than expected, but consumer prices increased less than expected in May. Global investors anxiously await Thursday’s U.S. consumer-price data for clues on how long the Federal Reserve can postpone a tapering of stimulus.
  • Crude extended gains after an industry report showed another draw in U.S. crude inventories, while Iran said a deal to end sanctions on its oil sector remained elusive. Futures in New York rose 0.2% after settling above $70 a barrel on Tuesday for the first time since October 2018. There’s no conclusive agreement to lift U.S. restrictions on Iran’s oil sector despite the two nations making “great progress” on broader economic issues, a top Iranian official said on Wednesday. A new round of talks is expected later this week. The oil market has been underpinned by a demand recovery in the U.S., China and Europe, and there are signs the Covid-19 resurgence in Asia may be easing. Crude inventories have been sliding and likely fell further last week, according to the American Petroleum Institute. The U.S. State Department loosened its travel warnings for nations around the world, which could pave the way for more airline travel.
  • Gold traded flat as investors kept their positions steady ahead of Thursday’s U.S. inflation report, which could provide clues as to when the Federal Reserve will start discussing tapering asset purchases. Bullion is hovering below $1,900 an ounce amid the debate over whether inflation will prove sticky and prompt central banks to pare stimulus earlier than expected. Investors in exchange-traded funds have meanwhile kept their positions mostly steady this month after a brief resurgence in May. Thursday will bring the U.S. Consumer Price Index report which will be one of the last major economic indicators before the Fed’s next policy meeting, and could be make or break for gold. A higher than expected figure may see bullion fall as expectations for earlier Fed tapering increase, though much will hinge on the reaction of central bank officials to the news.
  • The European parliament approved vaccine passports, a move aimed at easing travel. The European Union and the U.S., meantime, are set to back a renewed push into investigating the origins of Covid-19, according to a document seen by Bloomberg News. New cases in Russia surged above 10,000 on Wednesday to the highest in more than three months as skepticism toward domestically-developed vaccines undermined attempts to corral the pandemic. In Italy, discos may begin reopening in early July. U.S. President Joe Biden’s adviser Anthony Fauci issued a warning about the delta variant that was first identified in India. The World Health Organization said the strain is markedly easier to transmit and more virulent than previous mutations.
  • Vimian Group AB is planning a private placement that will be followed by a listing on Nasdaq’s exchange for growth stocks in Stockholm. Fidelio Capital AB, the pet health supplier’s biggest owner, and Vimian’s board said that by seeking a public listing, the company’s “M&A and organic growth strategy is expected to gain further support.” It’s targeting 76 kronor a share, equivalent to a valuation of 29.6 billion kronor, or about $3.6 billion. Vimian offers services that cater to the animal health industry, with clients including vets, laboratories and pet owners. After the listing, Fidelio will “remain as a long-term significant shareholder in Vimian, with the ambition to continuously contribute to the group’s future development,” the company saidon Wednesday.
  • Merck & Co. said it has entered a $1.2 billion agreement to supply the U.S. government with its oral treatment for Covid-19, should the experimental pill receive regulatory clearance. Merck agreed to supply the government with 1.7 million courses of the treatment, called molnupiravir, according to a statement by the Kenilworth, New Jersey-based Wednesday. The drug, being developed with Ridgeback Biotherapeutics, is in final-stage testing. The therapy is under study for treatment of non-hospitalized patients with confirmed cases of Covid-19 and at least one risk factor associated with poor disease outcomes. The U.S. drugmaker earlier stopped development of the drug as a therapy for the sickest patients.
  • Four months after the failure of the Texas electric grid sparked a backlash against clean power, investors and developers have decided just what the state needs: more renewable energy. Much more. Texas is on pace to have as much green-power development in coming years as the next three states combined, according to the American Clean Power Association, a Washington-based trade group. Projects totaling 15 gigawatts — equal to the total electrical capacity of Finland in 2019 — are under construction or in advanced development, more than double three years ago. That’s according to data from the Electric Reliability Council of Texas, or Ercot, the state’s grid operator.
  • Airbus SE is poised to begin taking orders for a freighter version of its A350 wide-body as soon as next month, in a challenge to Boeing Co.’s dominance in the market for dedicated cargo aircraft. The European planemaker has been speaking to more than a dozen potential customers and will seek board authorization to market the new plane in the coming weeks, provided it can line up enough commitments, according to people familiar with the matter. The program could officially launch by year-end, said the people, who sought anonymity discussing confidential matters.
  • U.K. Chancellor of the Exchequer Rishi Sunak is pressing for the City of London to be exempt from a plan by global leaders to make multinationals pay more tax to the countries where they operate. Finance ministers from the Group of Seven advanced economies struck a historic deal last weekend that could force the world’s biggest companies to pay a minimum corporate tax rate of 15%. Sunak is expected to make the case that financial services, including global banks with head offices in London, should be exempt from the plan when talks move to the G-20 next month.
  • President Joe Biden’s blueprint for the U.S. semiconductor industry marks an ambitious effort to set industrial policy for a critical sector of the economy, but the strategy will need more money and global support to take back chip supremacy and preempt a rival effort from China. The White House on Tuesday outlined a sweeping plan to secure the conduits for critical products from medicines to chips, responding in part to the growing economic and political sway of its Asian rival. Semiconductors — the basic yet incredibly sophisticated components in most every modern device — took centerstage in a 250-page White House report, which highlighted Beijing’s “ultimate goal of cyber sovereignty and establishing first-mover advantage.” The U.S. Senate expressed bipartisan support by passing a bill offering $52 billion to bolster domestic chip manufacturing the same day. That’s aimed at reassuring industry leaders like Intel Corp., Samsung Electronics Co. and Taiwan Semiconductor Manufacturing Co. as they consider expanding investments in production capacity in the country. It’s a hefty pledge, but the money will go fast in an era where a single advanced wafer fab runs more than $10 billion.
  • Ryanair Holdings Plc notched up a third win in its campaign to topple billions of euros of Covid-19 bailouts for rival carriers, after European Union judges faulted the EU’s approval of a 550 million-euro ($670 million) German loan to airline Condor. The EU General Court, the bloc’s second-highest tribunal, on Wednesday said the European Commission’s decision gave “an inadequate statement of reasons” for approving the measure. But in light of the “economic and social context marked by the Covid-19 pandemic,” judges put on hold any order to repay the aid until after the EU’s antitrust arm has re-examined the case and issued a new decision fixing the procedural errors.
  • Officials from Britain and the European Union are meeting on Wednesday to try and defuse a row over Northern Ireland that threatens to spill over into this week’s Group of Seven summit. European Commission Vice President Maros Sefcovic is holding talks with the U.K.’s Brexit minister, David Frost, in an effort to resolve the trade dispute — part of which now revolves around whether British will be allowed to ship sausages to Northern Ireland. Frost will then head to Cornwall, England, to support Prime Minister Boris Johnson, who is set to come under pressure from U.S. President Joe Biden and EU leaders. At issue is whether Johnson is backsliding from a legally binding agreement he made less than two years ago to secure the U.K.’s orderly withdrawal from the bloc: in a bid to avoid customs checks on the island of Ireland, Johnson agreed to put a trade border in the Irish Sea. As a result, goods reaching Northern Ireland from the U.K. now have to comply with a different set of health and safety checks stipulated by the EU.
  • A top U.S. envoy appealed to Iran to accept a “mutual return” to a landmark nuclear agreement with world powers as diplomats are set to gather to negotiate a cap on the Persian Gulf country’s atomic program in exchange for sanctions relief. The statement delivered by Washington’s top International Atomic Energy Agency diplomat late Tuesday acknowledged trust needs to be rebuilt after former President Donald Trump unilaterally applied punishing economic sanctions three years ago, prompting Iran to respond by dramatically increasing its nuclear work. Returning to the deal could allow Iran to ramp up global oil sales.
  • Credit Suisse Group AG canceled a plan to back star trader Hamza Lemssouguer’s credit fund in a stunning about-face as it dials back risk after the implosion of Archegos Capital Management and Greensill Capital. The Swiss lender agreed with Lemssouguer that he should take his Arini European Credit fund outside the bank, according to an internal memo seen by Bloomberg. Credit Suisse will not invest any money or retain an ownership stake, said a person familiar with the matter. Sofia Rehman, a spokeswoman for the bank in London, confirmed the memo’s contents. The fund launch had already been delayed as the bank re-evaluated its “risk appetite” for using its own cash to seed new funds, according to the memo.
  • An unexpected jump in U.S. wages has given financial markets a new reason to worry that higher inflation may be here to stay. Consumer prices are rising quickly as the economy reopens after the pandemic. A closely watched data release on Thursday is expected to show prices rose another 0.4% in May — pushing annual inflation above April’s 4.2%, already the highest in more than a decade. Many policy makers and economists see the price spike as temporary –- partly because they haven’t been anticipating much in the way of wage growth, which has been relatively stagnant for years at the lower end of the pay scale.
  • The newest additions to the meme-stock frenzy surged in premarket trading as retail traders latched on to their latest favorites. ContextLogic Inc. soared 32% and Clover Health Investments Corp. rose 17% as of 6:30 a.m. in New York, both extending huge gains on Tuesday. Fast-food restaurant chain Wendy’s Inc. edged higher, extending Tuesday’s 26% advance and brushing aside a downgrade from Stifel. There’s no sign of the meme-stock craze slowing as members of Reddit’s WallStreetBets forum egg on retail traders to take on professional short sellers. The U.S. Securities and Exchange Commission said this week it’s scrutinizing markets for signs of manipulation as the likes of AMC Entertainment Holdings Inc. continue to surge. GameStop Inc, which started the craze in January, reports first-quarter results after Wednesday’s close.
  • Amazon.com Inc. is fielding bids to replace JPMorgan Chase & Co. as the issuer on its popular co-brand credit card, according to people familiar with the matter. American Express Co. and Synchrony Financial are among those bidding on the portfolio, according to the people, who asked not to be identified discussing the negotiations. Representatives for the lenders declined to comment, while a spokesperson for Amazon didn’t have immediate comment when reached by email on Tuesday. JPMorgan is willing to part with the Amazon portfolio, according to some of the people familiar with the matter. Banks in recent years have loaded up their cards with rich perks, making it harder for lenders to turn a profit, especially in the world of co-brand cards where revenue is often shared with the merchant partner.
  • The Senate overwhelmingly passed an expansive bill to invest almost $250 billion in bolstering U.S. manufacturing and technology to meet the economic and strategic challenge from China. The 68-32 vote on the legislation Tuesday was a rare spot of bipartisanship in an otherwise polarized Senate and a clear indicator of the concern in both political parties that the U.S. risks falling behind its biggest global competitor.
  • Another bad week for Bitcoin could be a precursor of more pain to come, according to strategists watching the selloff in cryptocurrencies. Further weakness in its price may bring the $20,000 zone into view as a downside target, according to Oanda Corp., Evercore ISI and Tallbacken Capital Advisors LLC. Bitcoin has dropped about 7% this week and was trading at about $34,200 as of 10:16 a.m. in London. The largest cryptocurrency is “dangerously approaching the $30,000 level” amid growing regulatory fears in the U.S., and “a break of $30,000 could see a tremendous amount of momentum selling,” said Edward Moya, senior market analyst with Oanda Corp.
  • Abu Dhabi Investment Authority is planning to join one of the biggest leveraged buyouts of all time by investing about $1 billion alongside a consortium acquiring medical supply company Medline Industries Inc, according to people familiar with the matter. The biggest sovereign wealth fund of Abu Dhabi will back the takeover of Medline by Blackstone Group Inc., Carlyle Group Inc. and Hellman & Friedman, the people said, asking not to be identified discussing confidential information. Singapore’s state-owned investor GIC Pte is also investing in the deal, which values Medline at more than $30 billion.
  • Swedish battery maker Northvolt AB raised $2.75 billion in its biggest financing round yet to expand its operations and cater to surging demand in Europe for cells made with green energy. The private placement was co-led by Swedish pension funds AP1, AP2, AP3 and AP4, and Omers Capital Markets, alongside existing investors Goldman Sachs Asset Management and Volkswagen AG, according to a statement published on Wednesday. The company, founded by former executives from Tesla Inc., currently leads European efforts to build a domestic supply chain for lithium-ion batteries in the region that has emerged as a key market for electric vehicles alongside China. As other projects in the region gather pace, Northvolt targets a 25% share of the European market by 2030.

“90% of all millionaires become so through owning real estate.” – Andrew Carnegie

*All sources from Bloomberg unless otherwise specified