June 10, 2021
Daily Market Commentary
- Brookfield Infrastructure Partners files an application with the Alberta Securities Commission challenging the defensive tactics employed by Inter Pipeline and the special committee of its board of directors. Brookfield says seeks elimination of the $350 million termination fee, agreed to by IPL and its board of directors, which “threatens to enrich Pembina Pipeline Corporation at the expense of IPL’s existing shareholders”
- Bank of Montreal picked Amazon.com Inc.’s web-services division as its preferred cloud provider to help the bank modernize operations and introduce new digital applications. The deal includes using Amazon Web Services technology for the bank’s call centers and for remote-work tools for its employees, as well as employing the tech firm’s machine-learning capabilities, Seattle-based Amazon said Thursday. Financial terms of the agreement weren’t disclosed. Big Canadian banks have been adopting more digital services after the pandemic shut down or reduced capacity at their physical locations. The Amazon deal will help Bank of Montreal make its own operations more efficient, enabling it to convert customer-service conversations into text transcripts, digitize certain documents and more easily calculate the market and credit risks in its lending portfolio, said Victor Tung, the lender’s U.S. chief technology and operations officer.
- European stocks were steady near a record as investors awaited the European Central Bank meeting for cues on stimulus and inflation. The Stoxx 600 Index was little changed as of 10:03 a.m. London time, with health care and tech shares among the best-performing sectors. BT Group Plc boosted telecom stocks after Altice U.K. agreed to buy a stake in the company. Carmakers and energy shares were among worst laggards. With European equities notching a series of fresh records in June, investors are paying close attention to policymakers to gauge whether inflation concerns will prompt discussions of tapering stimulus. In addition to the ECB decision, at which rates are expected to stay unchanged, a report on U.S. inflation will also be in focus later Thursday.
- U.S. equity-index futures and government bonds steadied before a U.S. inflation report that may provide clues on the monetary-policy outlook. S&P 500 futures were little changed, as were European stocks hours before the next policy statement from the European Central Bank. The rangebound trading that’s characterized the start of June may be about to get some impetus from progress reports on the global economic recovery. In addition to the U.S. inflation report and ECB decision Thursday, leaders of Group of Seven nations are gathering in the British seaside village of St. Ives, Cornwall, many of them face-to-face for the first time since coronavirus erupted.
- The 10-year Treasury yield traded above 1.5%, pausing a rally that took the benchmark to the lowest since March on Wednesday.
- Asian equities rose by the most in more than a week, as Chinese and U.S. commerce ministers agreed to push forward trade and investment ties. Separately, China’s central bank reassured the market over rising prices. Technology stocks contributed most to gains in the MSCI Asia Pacific Index. TSMC gave the biggest boost among individual stocks, ahead of a post-close report that showed its sales increased 20% in May. Taiwan, Indonesia and China posted the largest advances among regional benchmarks. Chinese and American commerce officials agreed to “promote the healthy development of pragmatic cooperation in trade and investment”. That followed an earlier announcement that President Joe Biden would revoke Trump-era bans on the Chinese-owned apps TikTok and WeChat.
- Oil erased losses as traders awaited inflation data, after an increase in U.S. fuel stockpiles brought crude’s rally to a halt. Futures in New York held steady after earlier dropping 1%. In the U.S., inflation figures due later Thursday may give clues about the path of monetary policy. Data on Wednesday showed gasoline inventories jumped, and a rolling average of demand slid for the first time in a month, adding to the bearish sentiment.
- Gold turned lower as the dollar strengthened, and investors await Thursday’s U.S. inflation report that may provide clues on the Federal Reserve’s monetary policy path. Firm real yields and a stronger greenback saw gold weaken in Europe trading. The metal has largely treaded water this week as easing inflation expectations have been met by lower bond yields, with the 10-year Treasury falling below 1.5% for the first time in a month on Wednesday, helped by a strong auction. Thursday’s U.S. Consumer Price Index report will be one of the last major economic indicators before the Fed’s next policy meeting, and may influence the debate on whether the central bank needs to taper monetary stimulus to counter price pressures. So far Fed officials have been almost unanimous in saying inflation will be transitory, though persistently high CPI prints may give them cause for concern.
- Iron ore climbed into a bull market — just two weeks after tumbling into a bear market — on expectations for robust Chinese steel output and as a warning about a Vale SA dam put the spotlight back on supply. Iron ore has been whipsawed over the past month as Chinese steelmakers ramped up production in defiance of government attempts to rein in output to control the industry’s carbon emissions. At the same time, a boom in steel prices boosted mill margins, enabling them to better accommodate higher raw material costs. Chinese iron ore demand will likely stay strong in 2021 on elevated steel output, supported by downstream sectors such as infrastructure construction, machinery and autos, Yi Zhu, analyst at Bloomberg Intelligence, wrote in a report this week. The country could produce 1.07 billion tons of crude steel this year, up 1% from 2020, according to the report, which cited estimates from the China Metallurgical Industry Planning and Research Institute.
- The Group of Seven is set to vow to deliver at least 1 billion extra doses of vaccines over the next year to help cover 80% of the world’s adult population, a move designed to end the pandemic in 2022, according to a draft communique seen by Bloomberg News. It will also call for a new study into the origins of the coronavirus. More than 80% of the athletes participating in the Tokyo Olympics next month have been vaccinated. China approved another inactivated Covid-19 shot for emergency use as the most populous country aims to speed up inoculations. Meanwhile, the European parliament approved vaccine passports, a key step toward easing travel across the European Union. U.S. President Joe Biden’s administration intends to buy 500 million doses of Pfizer Inc.’s vaccine to share internationally through a World Health Organization-backed program to help lower-income nations. Moderna Inc. is also in talks with Biden’s team.
- Prime Minister Boris Johnson is set to meet Joe Biden for the first time Thursday ahead of the Group of Seven summit that the U.K. is hosting. Leaders will discuss Covid, China and climate change, and a draft communique seen by Bloomberg shows them committing to 1 billion extra vaccine doses over the next year to try and end the pandemic. The U.K. is seeking to project an image of rejuvenated status after its departure from the European Union, though there are plenty of tensions over its post-Brexit trading arrangements for Northern Ireland that could bubble over into the meeting.
- Treasuries traders are taking bets off the table ahead of key U.S. inflation numbers, with benchmark yields breaking their recent trading range in a shakeout of short positions. Yields steadied Thursday after slumping this week to close at the lowest since March. The moves come as a measure of positioning showed traders unwound the equivalent of almost $7 billion in 10-year cash bonds Wednesday, a sign the market may be willing to look past the prospect of a higher-than-expected reading. Markets have become fixated on the durability of inflation as the global economic recovery continues to gain traction, as it could add to the case for the Federal Reserve to start discussions on withdrawing stimulus. U.S. data Thursday is expected to show annual prices climbed in May by 4.7%, the most since 2008 and building on a jump the previous month.
- United Airlines Holdings Inc. is in advanced talks for a large narrow-body order that would include at least 100 Boeing Co. 737 Max jets as part of a broader fleet revamp, according to people close to the matter. The Chicago-based carrier is also speaking with Airbus SE about purchasing long-haul single-aisle aircraft, according to one person, who asked not to be identified as the discussions are confidential. United sees an opportunity to upgrade its fleet and is studying several new, fuel-efficient models at a time when Boeing and Airbus are hungry for deals and demand for leisure travel is surging in the U.S., the people said.
- Syngenta Group Co., the agriculture giant owned by China National Chemical Corp., has picked banks for an initial public offering on Shanghai’s Nasdaq-style STAR board, according to people familiar with the matter. China International Capital Corp. and Citic Securities Co. are among advisers for the preparations of the share sale, said the people, asking not to be identified as the information is private. Syngenta could be valued at as much as $60 billion in a listing, which could take place as soon as this year, the people said. Syngenta has accelerated its IPO plans as Chief Executive Officer Erik Fyrwaldtold German media that the company has kicked off the process and hopes to list before the end of 2021. The company was aiming for mid-2022 last year.
- When the Federal Reserve starts scaling back its massive bond-buying spree, mortgage traders are betting their market will be at the forefront. That would be a break from the Fed’s balanced approach during its last pullback in 2014, when it slowed purchases of Treasuries and mortgage-backed securities at the same pace. But with housing prices now surging and lending rates not far from record lows, some see a diminishing case for the central bank to keep adding $40 billion of mortgage bonds to its balance sheet each month. It’s a prospect that’s already making ripples in financial markets as traders seek to get ahead of the Fed’s moves. Mortgage-backed securities lost 0.18% last month even as Treasuries gained, marking the worst underperformance since the pandemic’s early days in January 2020. Last week, Dallas Federal Reserve Bank President Robert Kaplan underscored that view, saying he doesn’t think the housing market needs as much support as it’s getting from the central bank.
- Commerce ministers from China and the U.S. agreed to push forward trade and investment links in their first call since the start of the Biden administration. Chinese Commerce Minister Wang Wentao and his counterpart Gina Raimondo“agreed to promote the healthy development of pragmatic cooperation in trade and investment,” in a phone call Thursday morning China time. The two “exchanged views frankly and pragmatically on relevant issues and mutual concerns,” according to a Chinese government statement.
- Amazon.com Inc. is getting U.K. antitrust scrutiny into how it uses data from smaller sellers on its site, the Financial Times reported, citing three people with knowledge of the matter. The Competition and Markets Authority has been analyzing Amazon’s business for months, according to the newspaper. While the regulator hasn’t yet announced an investigation, it may focus on whether Amazon favors merchants that use its logistics and delivery services, the report said. The U.K. move mirrors European Union investigations into the same issues. The U.K. and EU last week opened parallel probes into Facebook Inc. Silicon Valley tech giants are coming under increasing antitrust scrutiny both at home. The U.K. is seeking to assert itself as an antitrust authority after quitting the EU.
- China’s top legislative body has passed a data security law, strengthening Beijing’s control over digital information amid a crackdown on local technology giants and market access disputes with the U.S. The legislation was approved Thursday by the National People’s Congress Standing Committee, state broadcaster China Central Television said. The full text of the final legislation wasn’t immediately released. An earlier draft called for establishing a categorical and hierarchical system for data and risk-assessment mechanisms. The bill urged national security reviews of data handling, saying that harmful overseas activities should be “pursued for legal responsibility.”
- The U.K.’s rules to define sustainable investing will be more ambitious than the European Union’s recent effort, according to the head of the expert panel advising the government. Ingrid Holmes, chair of the nation’s new Green Technical Advisory Group, said this planned framework will reflect the U.K.’s desire to go further and faster in its climate targets than the bloc. Building efficiency standards and the classification of energy sources such as hydrogen and natural gas are examples of areas that may require tighter thresholds in Britain, she said. “We very much see this is an opportunity to big up ambition in the race-to-zero globally,” Holmes, an executive director at the Green Finance Institute, said in an interview. “If we can match the EU and go further, it’s a race to the top rather than the bottom.”
- The world’s richest governments are under mounting pressure to help poor countries fight climate change. At the Group of Seven summit in the U.K. this week, they’ll have a chance to prove that they can do something about it. Leaders of the G-7, including U.S. President Joe Biden and German Chancellor Angela Merkel, are set to meet in Cornwall, England from June 11-13. On the agenda is a discussion of how to help finance a shift to cleaner energy in low-income countries. Observers are looking for a pledge from the group to steer the recovery from the pandemic in a greener, fairer direction. A draft document seen by Bloomberg News ahead of the summit includes a commitment for “each” G-7 member to increase its financial contributions to helping the poorest countries decarbonize their economies. Specific contributions are still under discussion.
- Altice U.K. bought a 12% stake in BT Group Plc, in a high-profile backing of the company’s plan to expand its high-speed broadband internet network. The newly created company, controlled by billionaire Patrick Drahi, has agreed to buy 1.2 billion shares of BT, Altice said in a statement on Thursday. The stake, which a spokesman said was acquired over the past few days, had a value of about 2.2 billion pounds ($3.1 billion) as of Wednesday’s close. Drahi said he’ll use Altice’s expertise in rolling out fiber networks to help BT expand across the U.K. The British company has been looking for a partner to help it build out an extra 5 million fiber optic connections by 2026, opening up its infrastructure to an external investor for the first time. Altice said that it has no plans to launch a full takeover bid for BT.
- Banks will face the toughest capital requirements for holdings in Bitcoin and other cryptoassets under global regulators’ plans to ward off threats to financial stability from the volatile market. The Basel Committee on Banking Supervision said on Thursday that the banking industry faces increased risks from cryptoassets because of the potential for money laundering, reputational challenges and wild swings in prices that could lead to defaults. The panel proposed that a 1,250% risk weight be applied to a bank’s exposure to Bitcoin and certain other cryptocurrencies. In practice, that means a bank may need to hold a dollar in capital for each dollar worth of Bitcoin, based on an 8% minimum capital requirement. Other assets with this highest-possible risk weighting include securitized products where banks have insufficient information about underlying exposures.
- China arrested over 1,100 people in a sweeping crackdown on the use of cryptocurrencies for money laundering, adding to signs it’s further reining in crypto-linked activities. Police busted more than 170 criminal groups that used cryptocurrencies to launder money in telecom scams to avoid being tracked down, the Ministry of Public Security said in a statement. The campaign spanned 23 provinces and cities, it added. Arrest figures were as of Wednesday afternoon. The criminal groups needed to hire people to help with the laundering process because the bank accounts they used for such scams had been seized. Those hired would register their own bank accounts on virtual currency platforms, and use the money received from the criminal groups to trade virtual currencies before transferring those assets to the groups’ designated digital wallets. They were offered 1.5% to 5% commissions, which had lured many people into being accomplices in scams that caused “serious social harm,” according to the ministry.
- For gamers, the annual E3 video game showcase in Los Angeles is usually like Christmas in summertime. While this year’s digital-only festivities will be far more muted, the industry is readying a raft of new releases aimed at building on a pandemic-fueled boom. Ubisoft Entertainment SA plans to showcase a new Far Cry game and reveal future content for the recent blockbuster Assassin’s Creed Valhalla. Microsoft Corp. will lay out what’s next in store for the Xbox console, including updates on Halo Infinite, and Nintendo Co. will reveal titles coming to its Switch portable gaming device this year. Fans will be on the lookout for the “megatons” — unexpected, exciting news about devices or games that will be the talk of the show. Industry giants have spent months preparing for the event, producing trailers and demos designed to make an impact on a viewership that’s expected to be in the millions. Video games were one of the runaway success stories of the pandemic as people hunkered down at home and whiled away lockdown hours tending to their islands on Animal Crossing, ousting imposters in Among Us or surviving the zombie outbreak in The Last of Us Part II. Revenue from video games soared 20% in 2020 to nearly $180 billion, according to market intelligence firm IDC.
“If you are not good at innovating, be smart in investing.” – Rifhi Siddiq
*All sources from Bloomberg unless otherwise specified