March 11, 2021

Daily Market Commentary

Canadian Headlines

• Canadian equities rose Wednesday after a rotation to value stocks continued, with tech lagging. The S&P/TSX Composite Index rose 0.5%, with eight of eleven sectors rising. Energy and consumer staples led the charge. Oil closed higher after traders assessed a U.S. government report showing the largest two-week decline in gasoline supplies on record, while signs emerged of demand picking up. Canada’s housing market is in a “huge bubble” after months of runaway price gains, according to economist David Rosenberg, who was bearish on U.S. real estate before it crashed nearly 15 years ago.
• Trans Mountain Pipeline LP is petitioning to keep the insurers of its controversial Canadian oil sands pipeline confidential as environmental groups urge insurance companies to drop their coverage. The pipeline company normally discloses the insurance companies in a so-called Financial Resource Plan that’s filed with the regulator each April. But Trans Mountain said in a Feb. 22 letter that insurers are facing pressure to stop covering the pipeline, raising costs for both Trans Mountain and its customers. Members of the public can file comments on the request until March 22. “In 2020, Trans Mountain experienced a significant reduction in available insurance capacity,” the company said in its petition. “It sought and secured partial replacement policies to compensate for this reduction, but did so at a significantly higher cost.”
• Transat AT reported revenue for the first quarter that missed the average analyst estimate. The company said it’s seeking financing of at least C$500 million that it would need if it’s not bought by Air Canada, including exploring Canada’s Covid-19 emergency loan program for small businesses.

World Headlines

• European shares climbed on Thursday, extending recent gains and reaching a level not seen since late February 2020, as the market’s focus turns to the European Central Bank meeting. The Stoxx Europe 600 Index was 0.3% higher at 9 a.m. in London, with almost all sectors advancing, led by basic resources and technology shares. The index is about 2.5% away from the pre-pandemic peak of February 2020. As the equities benchmark climbs for a fourth day, investors will be looking at ECB’s President Christine Lagarde’s comments for confirmation of policysupport for the economy recovery. For banks, the main focus will be on possible rate moves and any update on lenders’ payouts.
• U.S. stock futures rallied, with Nasdaq 100 contracts pointing to the return of tech outperformance as Treasury yields stabilize. Apple Inc. and Tesla Inc. climbed in premarket trading. AMC Entertainment Holdings Inc. jumped 10% after posting a smaller-than-expected loss. GameStop Corp. sank 6% following a wild day of volatility. Roblox Corp. soared 10% as Cathie Wood’s Ark Investment Management disclosed a stake in the digital games company. Market sentiment is getting a boost from Wednesday’s weaker-than-expected report on U.S. consumer prices, which eased concern about broader inflationary pressures. Ten-year Treasury yields have steadied around 1.5% in recent days, helping breathe life back into technology stocks that were pummeled over the past month.
• A surge in Chinese stocks on the last day of the National People’s Congress failed to prevent them from posting their worst performance during the event since 2009. The CSI 300 Index fell 2.9% over the week-long legislative meeting, the Communist Party’s biggest political event of the year. That’s despite the gauge surging 2.5% Thursday, its biggest daily gain in two months. An equity rout triggered by growing concern over liquidity tightening and possible asset bubbles cast a cloud on this year’s gathering, which was condensed into half its usual two-week length due to coronavirus restrictions. Despite gaining in the last two sessions, the benchmark stock gauge is still down 12% from a 13-year high reached on Feb. 10. With the NPC concluding, some investors are looking for buying opportunities.
• Oil rose as the dollar declined and a fall in U.S. gasoline inventories offered a signal of recovering consumption. Futures in New York climbed above $65 a barrel, while the U.S. currency was trading lower. Gasoline inventories have declined more than 25 million barrels in the last two weeks, while a measure for consumption expanded last week to the highest level since November. Profit from producing the fuel has soared. The appetite for Iranian oil has grown, meanwhile, with China boosting its purchases even as other nations wait for the easing of U.S. sanctions. Imports have surged so much this month that ports in Shandong province are seeing increased congestion, according to traders and analysts.
• Gold climbed for a third day as investors weighed the prospects of further U.S. stimulus and the latest reading on inflation. President Joe Biden plans to sign his $1.9 trillion Covid-19 relief bill on Friday after it cleared its final congressional hurdle. Still, the partisan divide over the bill foreshadows the difficulty Biden will have in enacting the multi-trillion dollar, longer-term economic program he wants later this year. Bullion’s movements have recently been dictated by the dollar and bond yields, with the latter’s rise to the highest level in a year weighing on demand for the precious metal which doesn’t offer interest. While the roll-out of vaccines has seen diminishing investor interest for the traditional haven, bets on rising inflation provided some support for gold as a hedge. Biden’s economic package may give a huge “tailwind” to gold in the long term, according to Commerzbank AG analyst Carsten Fritsch.
• Denmark is suspending the use of AstraZeneca Plc’s vaccine over blood clot concerns, Health Minister Magnus Heunicke said. The decision comes after the European health regulator said there was no indication that the vaccine has caused blood clotting that led Austrian authorities to suspend using a batch of the vaccines. A coronavirus outbreak at a Hong Kong gym has spread to international schools and other fitness centers, while positive cases also appeared in the banking community. Fewer residents are showing up to get vaccines from Chinese maker Sinovac Biotech Ltd. amid reports of side effects. New cases jumped in Germany and India. Brazil reported a record number of deaths for the second day in a row, with the country set to retake the post of second hardest-hit nation in the world.
• President Joe Biden got his giant coronavirus stimulus bill. Now, he wants to make sure he gets credit. The president will hold a ceremony on Friday to sign his $1.9 trillion American Rescue Plan into law, kicking off a victory lap that aides and allies describe as a campaign to persuade the nation that he and fellow Democrats are responsible for preventing millions of Americans from enduring poverty and illness. Biden, Vice President Kamala Harris and their spouses plan to fan out across the country and highlight Americans receiving stimulus checks and coronavirus vaccines, as well as businesses that have been able to stay afloat with government loans. That includes presidential travel Tuesday to suburban Philadelphia, where Biden is expected to tout the benefits of his bill.
• GameStop Corp.’s wild ride continued in U.S. premarket trading after Wednesday’s regular session was marked by extreme volatility in a stock that has split opinion between bullish day traders and bearish analysts. After initially rising as much as 5% from Wednesday’s close, the stock sank as much as 16% to $222. It traded at $243 as of 5:30 a.m. in New York. GameStop ended Wednesday’s session up 7.3%, rising for a sixth day, its longest winning streak since September. However, the session was anything but a smooth ride: at one point, shares whiplashed violently, bouncing between $348 and $172 in about 22 minutes, triggering multiple volatility halts. Volume also exploded, with over 70 million shares traded, almost double what’s been seen in the past week.
• As many businesses struggled to survive the pandemic, Amazon.com Inc. was quietly building a national grocery chain. The first Amazon Fresh store opened to the public in Los Angeles in September. Store No. 11 opened Thursday, and Amazon is working on at least 28 more, from Philadelphia to the Sacramento suburbs. The company is also testing the “Just Walk Out” cashierless shopping technology created for its Go convenience stores at an Amazon Fresh location in Illinois. More than a decade after it started selling groceries, Amazon has a tiny sliver of the $900 billion U.S. grocery market and has watched traditional chains finally start figuring out how to sell food online. Amazon Fresh, industry watchers say, is a way for the company to become even stickier with devoted Prime members, as well as appeal to a broad cross-section of America—from lower-income shoppers who frequent discounters like Walmart Inc. to wealthier customers looking to pick up online orders.
• Apple Inc. has a tried-and-true approach to launching new products: The company designs in-house, sources its own components, and works with a contract manufacturer to assemble it for sale. As the tech giant plots a foray into the car market, it could adopt a similar strategy — working with a lesser-known contract manufacturer — after talks with some brand name automakers stalled. To build a vehicle, Apple has three primary options: Partner with an existing carmaker; build its own manufacturing facilities; or team up with a contract manufacturer such as Foxconn or Magna International Inc. The Cupertino, California-based company has reached out to automakers including Hyundai Motor Co., but the discussions have not gone well. In this scenario, Apple would develop an autonomous system for the vehicle, the interior and external design, and on-board technology, while leaving the final production to the carmaker. Such a deal would essentially ask an existing car company to shed its brand and become a contract assembler for a new rival.
• European Union governments are bracing for further possible delays in the distribution of AstraZeneca Plc’s Covid vaccine after a warning from the European Commission that the manufacturer remains a problem, according to a diplomatic note seen by Bloomberg. Astra Chief Executive Pascal Soriot said last month the company would look at tapping international supply chains to make up for some of the shortfall, including production in the U.S. It’s revised its delivery schedule multiple times, most recently committing to 40 million doses this quarter and 180 million in the second from an earlier goal of about 280 million across both periods. But at a meeting of EU ambassadors on Wednesday, diplomats were told by senior EU officials that Astra continues to be “problematic.” They also heard that Johnson & Johnson, which could get market authorization from the European Medicines Agency on Thursday, has yet to provide a delivery schedule for its vaccine.
• Former Credit Suisse Group AG bankers who blew the whistle on their employer for helping wealthy Americans dodge taxes are now urging U.S. authorities to punish the bank beyond the $2.6 billion it paid as part of a guilty plea seven years ago. A lawyer for the bankers wrote a letter to the Internal Revenue Service’s whistle-blower’s office last week that said the bank’s conspiracy continued “well after the plea agreement and sentencing” in 2014. Credit Suisse’s “misrepresentations and material omissions” about one wealthy American caused the bank to violate its plea agreement after the Justice Department and IRS agreed to reduce its fine by $1.3 billion, wrote the attorney, Jeffrey Neiman.
• Chinese lawmakers approved an extensive overhaul of how Hong Kong chooses its leaders, a momentous step in Beijing’s efforts to curb opposition in the Asian financial hub’s political system. The National People’s Congress passed near unanimously a proposal Thursday to change the size and composition of the body that picks the city’s chief executive, and have it nominate local legislators. The rubber-stamp parliament also established a vetting committee to ensure candidates in the former British colony are “patriots,” effectively ending China’s only experiment with open elections. Kenneth Chan, an associate professor at Hong Kong Baptist University, called it a “total purge of democratic figures” who had continued to play a prominent role in the Asian financial hub since the handover 24 years ago. “This is the second handover because the first one wasn’t very successful in Beijing’s eyes,” Chan said.
• The U.K. is preparing a wide-ranging review of financial markets to defend the City of London’s global pre-eminence after Brexit. In an interview with Bloomberg, Economic Secretary to the Treasury John Glensaid the government isn’t going to stop after overhauling rules covering initial public offerings and fintech firms. It is also preparing to consult businesses on “detailed proposals for wider reform to the capital markets” in the summer, he said on Wednesday. The review will look at changes to market structure, transparency rules, as well as commodities, the minister said. The aim is to reduce costs and burdens for firms while maintaining high standards of regulation, he added.
• JD.com Inc. posted better-than-expected 31% revenue growth, suggesting China’s e-commerce boom may persist as the country bounces back from the pandemic. China’s No. 2 online retailer reported sales of 224.3 billion yuan ($35 billion) in the December quarter, outpacing the 219.52 billion yuan average of analysts’ estimates. Net income was 24.3 billion yuan. Its shares surged 10% in pre-market trading in New York. JD’s inhouse logistics network has proven instrumental to buoying the company’s operations during the pandemic, when lockdowns drove a record number of consumers online. That fueled a surge in e-commerce for players from Alibaba Group Holding Ltd. to Pinduoduo Inc. in 2020, straining delivery networks, and questions remain about whether they can sustain growth this year.
• South Korean e-commerce giant Coupang Inc. and a group of existing shareholders have raised $4.6 billion in an enlarged offering, making it one of the biggest listings by an Asian company on a U.S. exchange. Coupang priced 130 million shares at $35 each on Wednesday, above a marketed range of $32 to $34 apiece, the company said in a statement. The retailer’s IPO is the biggest on a U.S. exchange since Uber Technologies Inc. raised $8.1 billion in 2019, according to data compiled by Bloomberg. Coupang’s offering is also the biggest by any Asia-based company in New York since Alibaba Group Holding Ltd.’s $25 billion listing in 2014, the biggest ever in the U.S.
• Before the global financial crisis, General Electric Co. and its finance unit were AAA rated darlings of corporate bond investors, who gobbled up tens of billions of dollars in debt offerings each year. That allowed the conglomerate to access cheap capital and build a financing behemoth that rivaled some of Wall Street’s largest banks. With the $30 billion sale of its jet-leasing business Wednesday, General Electric is shaking off one of the last remaining vestiges of GE Capital, folding what’s left into its broader corporate balance sheet and marking an inauspicious endfor what was once one of the biggest players in the investment-grade bond universe. At their peak in 2006, General Electric and GE Capital issued over $60 billion of bonds, more than even Wall Street mainstays like Bank of America Corp. and JPMorgan Chase & Co., according to data compiled by Bloomberg.
• Manhattan apartment dwellers on the hunt for better digs drove a surge in leasing last month. New lease signings in the city’s costliest borough jumped 112% in February from the same month last year, appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate said in a report Thursday. That’s the biggest monthly gain since April 2011. Renters seeking to capitalize on record concessions and falling prices were the catalyst, and leasing gains were especially strong for higher-end units. Doorman buildings lured new renters at more than twice the rate than at those without the amenity, according to the report. For apartments priced in the top 10% of the market, signings jumped 114% in February.
• Verizon Communications Inc. is kicking off a jumbo bond sale that may help finance purchases of 5G airwaves that the company needs to accelerate growth. The company is selling unsecured bonds in as many as nine parts, a person with knowledge of the matter said. The longest portion of the offering, a 40-year security, could yield about 175 basis points above Treasuries, according to the person, who asked not to be identified as the details are private. Verizon signed a $25 billion delayed-draw term loan in late February to support the acquisition of spectrum after leading bidding in a government auction for the airwaves that drew record demand. Rival AT&T Inc. entered a new term loan for $14.7 billion in February for similar purposes. Both facilities are expected to be largely repaid with new bonds once drawn, adding billions of dollars to the market that’s already set new supply records this year.
• Last year, Russell Robinson and his family received about $2,000 in stimulus money. He was looking forward to another check for $2,000 that President Joe Biden in January promised would arrive soon. But after Democrats slimmed down eligibility for the checks, he, his wife and three children didn’t make the cut this time. It’s not that Robinson needs the cash. The risk consultant, 43, from Kansas City, Missouri, remained employed throughout the pandemic. Robinson is one of millions of Americans who received federal coronavirus relief money in 2020 but aren’t eligible under the bill passed this week by Congress and expected to be signed by Biden on Friday.
• CVC Capital Partners will pay as much as 365 million pounds ($509 million) for a stake in Six Nations Rugby, the body that oversees Europe’s main rugby tournament. The money will be paid over a five-year period in return for a one-seventh stake in the competition. The rugby unions of England, France, Ireland, Italy, Scotland and Wales, who play in the competition, will continue to own the remainder of Six Nations Rugby. Private equity firms are investing in sports as broadcasters compete for content to help sell subscriptions. The money managers are especially interested in leagues rather than teams because that helps diversify the risk.

“Courage is not simply one of the virtues, but the form of every virtue at the testing point.“ – C.S. Lewis

*All sources from Bloomberg unless otherwise specified