March  2, 2021

Daily Market Commentary

Canadian Headlines

• Canadian shares rallied with the broader equity markets, after investors shook off concern about the impacts of higher Treasury yields. The S&P/TSX Composite index rose 1.3% in Toronto, the most since Feb. 1, after falling the previous two sessions. Health care, led by pot stocks, was the best- performing sector. Aerospace stocks led the rally in industrials on vaccine optimism. On the M&A front, deals among cashed-up mining companies are poised to pick up once lingering uncertainties from the pandemic dissipate, according to the most-active investment bank in the industry. Miners are flush with cash and ready to expand through acquisitions, with resurgent demand and supply shortfalls driving up metals prices and company earnings to levels not seen for a decade, according to global metals and mining group co-heads Ilan Bahar and Jamie Rogers of BMO Capital Markets. The firm is hosting one of the world’s largest mining conferences this week.

World Headlines

• European stocks extended Monday’s rebound, although gains were tempered by a slide in energy shares as oil slipped. The Stoxx Europe 600 Index added 0.5% as of 11:05 a.m. in London, with consumer companies and construction firms leading gains. The energy subindex was down 0.7%, the worst-performing sector as oil slid ahead of an OPEC+ meeting. Stocks are rebounding after last week’s declines, although caution showed through the optimism on Tuesday after China’s top banking regulator said he’s “very worried” about risks emerging from bubbles in global financial markets and the nation’s property sector. With the Stoxx 600 still about 5% from its February 2020 record, the path to recovery has turned bumpy. Investors will likely keep a close eye on economic data such as Friday’s U.S. jobs report for clues on policy moves, after the recent spike in bond yields.
• S&P 500 futures pulled back after the index capped the best day since June. Trading was mixed across asset classes as investors took stock of recent bond market volatility and China’s top banking regulator said he’s “very worried” about risks from bubbles in global financial markets. Zoom Video Communications Inc. rallied 8% in early U.S. trading on an upbeat revenue forecast.  Benchmark Treasury yields added two basis points to 1.44%. In the U.K., the FTSE 100 Index rose ahead of the government’s annual budget report on Wednesday. Oil futures in New York traded near $60 a barrel, with investors looking ahead to the OPEC+ meeting later this week.
• Asian stocks declined as top Chinese banking regulator’s warning about bubbles and leverage stirred concerns among investors. China’s CSI 300 Index was the worst-performing regional gauge in Asia, down 1.3% as Guo Shuqing, chairman of the China Banking and Insurance Regulatory Commission, said he is “worried” that bubbles in overseas markets and said the country aims to reduce the level of leverage. Hong Kong’s Hang Seng Index also fell 1.2% after the city’s Chief Financial Secretary Paul Chan said he doesn’t rule out further changes to the city’s stamp duty on stock trades. Chinese technology firms such as Xiaomi Corp. were higher Tuesday, seen as beneficiaries of one of the biggest-ever revamps for Hong Kong’s benchmark Hang Seng Index.
• Oil held steady just days before many of the world’s largest producer nations meet to discuss how much crude they should supply in the coming months. Crude futures in New York were trading near $61 a barrel. OPEC and its allies will meet on Thursday to decide if they will ease supply curbs further. Ahead of the gathering, Saudi Arabia has urged members to take a cautious approach, despite headline prices having their best ever first two months of a year. That caution could be warranted too. The structure of the futures curve has weakened so far this week, suggesting some of the tightness in the market is easing. At the same time, Unipec is re-offering cargoes of Angolan crude, a sign of softer crude demand in Asia.
• Gold steadied after falling to an eight-month low, as waning demand for haven assets quickened outflows from exchange-traded funds. Bullion has dropped more than 9% this year as investors weigh the outlook for a post-pandemic recovery amid the rollout of vaccines and stimulus. On Monday, gold outflows from ETFs topped 14 tons, the most in three months. Those fund holdings, a key pillar of support for the precious metal over the past year, are at their lowest since July. “The past months have shown that the corona crisis has lost its scare for financial markets and that 2021 will be a year of recovery. This should weigh on the demand for gold as a safe haven,” Carsten Menke, an analyst at Julius Baer Group Ltd., wrote in a note. “Even if financial markets may be a little bit too optimistic as of now, today’s gold price levels do not represent an opportunity.”
• European Commission President Ursula von der Leyen expects the vaccine situation in Europe to improve in the second quarter, telling the Financial Times that she and her colleagues underestimated how difficult it would be. German unemployment unexpectedly rose for the first time in eight months as lockdowns persisted, and Italy may seek more stimulus spending. Meanwhile, the number of patients in the Czech Republic hospitalized in serious condition reached a record, with the medical system on the brink of collapse. In Asia, registrations for vaccinations in India jumped after the prime minister got his shot, while the Philippines rejected a proposal to have “influencers” undergo public inoculations. China set a goal to vaccinate 40% of its population by the end of June.
• Hertz Global Holdings Inc. received a bid from Knighthead Capital Management and Certares Management to purchase the company out of bankruptcy for as much as $4.2 billion, according to court documents. Under the plan, Knighthead and Certares will take control of Hertz when it emerges from bankruptcy, with the sum dependent on existing lenders’ desire to participate in the financing. Knighthead and Certares’s position would include direct investment, rights offering participation and buying Hertz’s existing unsecured debt. The plan gives Hertz unsecured bondholders the option to take a cash payout of 70% of their investments’ face value or roll their debt into new the financing, the filings show. Hertz would have around $2.2 billion of liquidity after the deal.
• The Federal Reserve is intensifying its scrutiny of banks’ efforts to shed their reliance on the London interbank offered rate, and has begun compiling more detailed evidence on their progress, according to multiple people with knowledge of the matter. Banks are being asked for specifics on their Libor exposure, their plans for amending contracts tied to the benchmark, and the fallback provisions being utilized to facilitate the shift to alternative rates, said the people, who requested not to be named given the sensitivity of the inquiries. The move is viewed partly as way for the Fed to telegraph the urgency of the transition, but also as a prelude to concrete supervisory action in the months ahead. Banks have less than a year before the Fed has indicated it will stop allowing them to enter into new contracts pegged to Libor, a bedrock of the financial system being phased out by global policy makers due to a lack of underlying trading and following a high-profile rigging scandal. Still, the rate — which underpins trillions of dollar of assets — has proven difficult to dislodge. Officials last year indicated they would delay the end of certain tenors by 18 months amid concerns over financial stability stemming in part from the industry’s lack of preparation.
• EBay Inc. and Adevinta ASA have offered to sell off part of their classified ads business in the U.K. to try to clear Europe’s biggest new hurdle to technology deals. EBay has offered to divest its U.K. Gumtree business, one of the country’s largest websites for free ads, as well as its Motors.co.uk site, to ease approval of its $9.2 billion deal. Adevinta is pledging to shed its Shpock app in the country. The companies’ U.K. operations are relatively small and would account for just 5% of the combined businesses’ revenue, EBay said. The U.K.’s Competition and Markets Authority will make a decision on whether those asset sales are enough to secure its approval by April 29, with the potential to postpone the decision until June 28, the regulator said on Tuesday. The U.K. is proving to be a tough forum for global merger approval after becoming an independent jurisdiction with the country’s exit from the European Union. One deal this year has already been ditched after the CMA opposed it, and the authority’s chief has warned that he’s skeptical about Google’s offer to the EU to win approval for its takeover of health tracker Fitbit Inc.
• Renishaw Plc is putting itself up for sale after the two founders of the almost 50-year-old British engineering firm said they wanted to sell their combined majority shareholdings. Executive Chairman David McMurtry and Deputy Chairman John Deer, who together own about 53% of the company, told the board they prefer to shed their stakes entirely, Renishaw said in a statement Tuesday. Shares of the Gloucestershire-based firm soared as much as 20%, valuing the company at 5.05 billion pounds ($7 billion). Renishaw’s main business is selling precision measurement products that help manufacturers produce and inspect components and keep machinery and industrial automation systems running. It also specializes in 3D printing parts from metal powder and sells to a diverse set of industries, from aerospace and automotive to energy, electronics and health care.
• Zoom Video Communications Inc.’s upbeat revenue forecast sent shares of the company surging. For its founder, that translates into a $2 billion wealth bump. Eric Yuan, who owns almost one-fifth of the video-conferencing company, is now worth about $22 billion, according to the Bloomberg Billionaires Index. The stock jumped as much as 12% late in the U.S. Monday as Zoom said revenue could climb 43% in fiscal 2022, more than the 37% analysts tracked by Bloomberg estimated on average. Shares climbed 7.8% to $441.56 in premarket trading Tuesday.
• New York’s Chuck Schumer confronts his first major test as Senate majority leader with the chamber set to take up President Joe Biden’s $1.9 trillion Covid relief package this week despite simmering tension between the Democratic Party’s moderate and progressive factions. Schumer said he wants to bring the legislation to the Senate floor by mid-week, but on Monday Democrats were still wrangling over some details of the bill, a version of which passed the House early Saturday on a narrow party-line vote. The package includes $1,400 payments to millions of Americans along with extended supplemental unemployment benefits and aid to small businesses, though who gets the payments and how big the jobless benefits will be in the final Senate bill is the subject of negotiations among Democrats.
• The Biden administration is set Tuesday to announce sanctions against Russia over the poisoning and jailing of opposition leader Alexey Navalny, according to people familiar with the matter. The penalties — like those just approved by European Union ambassadors — will match sanctions the EU and the U.K. imposed earlier on other Russians allied to President Vladimir Putin as punishment for the attempted murder of Navalny, the official said. They would be the first sanctions ordered by President Joe Biden against Russia and would set the tone for relations with Putin. The ruble recovered sharply after the news, reversing earlier losses as investors were encouraged by the relatively narrow scope of the sanctions.
• Slovakia will get 2 million doses of the Sputnik V vaccine from Russia in a move the European Union member’s leader hailed as life-saving for its citizens. Prime Minister Igor Matovic said his health minister would authorize the use of the shots, skirting the usual approval from the Slovak drug regulator. The virus “doesn’t know geopolitics,” he added. Matovic’s administration has struggled to bring the pandemic under control and has seen his popularity slump just a year after he won power in elections. The country received the first batch of Russian vaccines on Monday and shipments will continue through June, he told reporters on Monday in Kosice, eastern Slovakia.
• Russia last month pumped below its OPEC+ oil-output target for the first time since the historic curbs began last May, failing to take full advantage of a more generous quota. The nation produced 38.56 million tons of crude and condensate in February, according to preliminary data from the Energy Ministry’s CDU-TEK unit. That equates to 10.095 million barrels a day, based on a 7.33 barrel-per-ton conversion ratio. Output of condensate — a light oil extracted from natural gas — is excluded from the OPEC+ deal. As the CDU-TEK doesn’t provide a breakdown between crude and condensate, it’s difficult to assess the nation’s compliance, but if February’s condensate production was in line with January’s, then daily crude output would be around 9.155 million barrels, some 30,000 barrels lower than its OPEC+ quota.
• Rising demand for a niche material used in solar panels has sent shares of top producer GCL-Poly Energy Holdings Ltd. soaring and swelled the fortune of its billionaire founder, delivering an early winner in the global push to tame greenhouse gas emissions. Prices have boomed for polysilicon, an ultra-refined form of the mineral found in beach sand and used to convert photons of light into electricity. Factories will need to run all out this year as key markets including China, Europe and the U.S. accelerate the deployment of solar power to help meet climate targets. Global solar installations are forecast to jump more than 80% through 2025, and China will double capacity during that period as the nation curbs its reliance on fossil fuels. China’s leaders are expected to mandate a further acceleration in deployment of clean energy in a 14th Five Year Plan due this week.
• GAM Holding AG is winding down a group of funds that invest in loans sourced by Greensill Capital, following Credit Suisse Group AG in reducing ties to Australian financier Lex Greensill’s firm. The Swiss asset manager is closing the GAM Greensill Supply Chain Finance Fund to subscriptions and redemptions “as a result of recent market developments,” according to a statement on Tuesday. Greensill Capital is fighting for its survival after it made use of so-called “safe harbor protection” that’s allowed under Australian insolvency laws, according to another person familiar with the matter. The move effectively buys directors more time to work out alternative financing as it protects them from personal liability for insolvent trading.
• Kohl’s Corp. gave an upbeat sales outlook and announced plans to reinstate its dividend, bolstering management’s strategic plans amid pressure from a group of activist investors. The company says 2021 net sales will grow by a mid-teens percentage range. Resuming its capital allocation strategy is also on the agenda this year, it said, from bringing back its dividend to resuming a share repurchase program.
• Violent extremists motivated by racial and anti-government ideology have emerged as the biggest domestic terrorism threat, FBI Director Christopher Wray will tell senators in his first public testimony since President Joe Biden took office. Wray will face a barrage of questions from the Senate Judiciary Committee on Tuesday about whether intelligence and law enforcement agencies were aware of the danger facing lawmakers when violent supporters of President Donald Trump stormed the Capitol on Jan. 6. The leader of the Federal Bureau of Investigation will also detail what his agency is doing to get ahead of threats in the months and years ahead. The bureau remains on alert for possible attacks in coming weeks, according to an FBI official who briefed reporters last week on condition of anonymity.
• Target Corp. reported a strong year-end performance, though it declined to give the one thing investors really want: a forecast for the current year. The retailer’s fourth-quarter comparable sales growth and adjusted earnings per share both beat analysts’ expectations. The highlight, as in previous periods, was its digital business, which more than doubled sales in the period ended Jan. 30 thanks to same-day fulfillment services like curbside pickup and home delivery. Still, the cheap-chic retailer said Tuesday that it wouldn’t provide sales or earnings guidance for the current fiscal year and beyond, citing “continued uncertainty” around the pandemic. Target had already pre-reported strong holiday sales fueled by online orders, so investors have focused on its expectations for 2021. After a gain of 19% last year, comparable sales are projected to decline 3.3% this year, according to Consensus Metrix.
• A surge of imports into the U.S. economy shows little sign of slowing down, clogging American ports and highlighting ways the pandemic is still causing imbalances in the global recovery. Consider the number of inbound shipping containers through the 10 largest U.S. ports. They rose 12.5% in January from a year earlier after a 23% surge a month earlier and a 25% jump in November, according to data compiled by John McCown, an industry veteran and founder of Blue Alpha Capital. The divergence was apparent in Commerce Department figures last week showing the nation’s merchandise trade deficit expanded to $83.74 billion in January, the second-widest in records back to 1989, as the value of imports hit a new peak.
• The Covid-19 pandemic spurred many New York residents to move out of cramped apartments and into other places with lower taxes and warmer weather. Others were forced out after losing their jobs. They left a city stripped of many of the cultural, entertainment and gastronomical perks that had long set it apart, leading to a record vacancy rate in New York apartments. Landlords scrambled to fill spaces, offering Covid “deals,” lowering prices, throwing in free parking or a few months’ rent. All that has created the perfect opportunity for others to move into the city of their dreams, and lock in rents that have reached the lowest level in a decade.

“Character may almost be called the most effective means of persuasion.“ – Aristotle

*All sources from Bloomberg unless otherwise specified