March 12, 2021
Daily Market Commentary
- Canadian equities rose Thursday, advancing for a fifth straight session with cannabis shares and tech leading the charge. The S&P/TSX Composite Index advanced 0.8% to a record high. Nine of 11 sectors advanced, with communication services and real estate lagging. Oil rose the most in almost a week alongside a broader market rally as signs emerged that a recovery in fuel consumption is gaining traction. Bank of Canada officials were driven by concern about the uneven labor market recovery in deciding this week to maintain extraordinary monetary stimulus. With its purchase by Air Canada in jeopardy, tour operator Transat AT Inc. said it’s exploring a government emergency loan that could come as early as this month.
- North American lumber prices will extend gains this year as homebuilding and renovations cause demand for wood to outstrip production, according to Forest Economic Advisors LLC. “Production is going to have a hard time keeping up with demand growth as the world economy bounces back from Covid-19 in 2021-22,” Paul Jannke, the FEA’s principal of lumber, said Thursday during a conference hosted by the industry research group. That’ll keep the average lumber price this year above levels seen in 2020, he said. Higher lumber prices could stifle the number of planned construction projects across North America and push prices for new homes even higher due to rising costs, echoing issues that hurt homebuyers in the past year. Skyrocketing lumber prices have lifted the average price of a new single-family home in the U.S. by $24,386 in the past 10 months, the National Association of Home Builders said on Feb. 22.
- European shares dropped, with tech the biggest decliner following the Tencent news. A resurgence of the virus in Italy coupled with division over AstraZeneca Plc’s Covid-19 vaccine also hit sentiment. Burberry Group Plc rose following an announcement that the rebound in its fourth quarter has been stronger than analysts expected.
- A fresh bout of bond volatility hit markets on Friday, sparking a risk-off mood that sent technology stocks sharply lower. The dollar jumped. Futures on the Nasdaq 100 gauge slumped after accelerating vaccinations in the U.S. and the passage of the $1.9 trillion pandemic-relief bill sent Treasury yields surging. The tech-heavy index dropped as much as 2% as the Treasury 10-year yield hit 1.61%. A Bloomberg report that Beijing is expanding a crackdown on Tencent Holdings Ltd. also weighed on the technology sector. Markets were jolted on Friday by the surge in yields, after relatively smooth bond sales this week had eased concerns on the fixed-income outlook. The wave of stimulus and vaccine rollout in the U.S. is once more forcing investors to confront the prospect of excessive inflation. The focus now turns to Friday’s U.S. producer-price data and the Federal Reserve decision next week.
- Technology shares rose across the region while the Asian stock benchmark erased gains amid declines in financial companies led by AIA Group. Shares of chipmakers and related suppliers advanced, extending gains in global sector names following news that China’s main industry association will work with its U.S. counterpart to discuss supply-chain safety and trade restrictions. AIA Group lost more than 5%, contributing most to a near 1% drop in the MSCI Asia Pacific Financials Index. The insurer’s measure of future profitability of new policies sold declined 33% in 2020 to $2.8 billion, missing analysts’ estimates for a 30.5% slide. By country, benchmarks in Japan and South Korea led gains. SoftBank Group gave the Nikkei 225 a leg up after Coupang, in which SoftBank is a key investor, rose 41% in its U.S. trading debut. Hong Kong’s Hang Seng Index underperformed, weighed by financials.
- Oil steadied with the market facing a mixed demand outlook after a recent rally and the dollar climbing. Futures in London were little changed below $70. The demand picture remains uneven across various regions, with Indian fuel sales falling in February amid higher pump prices, while demand is climbing in America and the U.K. The global Brent benchmark started this week with a push above $70 a barrel after attacks on Saudi oil infrastructure, before retreating. While attention is centered on the recovery in demand and OPEC+ policy, there are concerns higher prices might encourage a surge in U.S. production by shale drillers in a move that would add to supply concerns amid sharply-rising flows of Iranian crude into China.
- Gold dropped, erasing gains made earlier this week, as advances in bond yields and the dollar eroded the metal’s appeal. Higher Treasury yields have damped demand for non-interest bearing gold, while stimulus bets spurred optimism for economic growth and stoked inflation worries, though consumer price gains have remained tame. President Joe Biden on Thursday signed a $1.9 trillion pandemic-relief bill into law, allowing aid to flow to tens of millions of individuals, businesses and state and local governments. Gold “fears a yield rise not being driven by rising inflation, but by an economic recovery,” said Ole Hansen, head of commodity strategy at Saxo Bank A/S. It’s being hit by “a double whammy in both directions as dollar and yields tend to move in lockstep right now.”
- U.K. trade with the European Union deteriorated in the first month since the Brexit split, suggesting commercial relations between the two economies will suffer more than the British government advertised. U.K. goods exports to the EU fell almost 41% in January from a month earlier, while imports from the bloc dropped 29%, data from the Office for National Statistics showed Friday. The hardest-hit EU imports were machinery and transport equipment, especially cars, and medicinal and pharmaceutical products. Importers on both sides of the channel built up inventories ahead of the Jan. 1 split, leading to less cross-border freight shipped by air, sea and rail and largely avoiding the prolonged traffic jams that many critics had predicted.
- President Joe Biden offered a Fourth of July goal for the U.S. to begin returning to normal as “light in the darkness” to a weary nation on Thursday, counting on a rapidly expanding supply of coronavirus vaccine to raise American hopes. In his first prime-time address as president, Biden told states he wants all adults in the U.S. made eligible for vaccines by May 1. Meanwhile, Germany is at the start of a third wave of Covid-19 infections, said Lothar Wieler, head of the Robert Koch Institute. In Italy, the government is weighing stringent new restrictions on as many as two-thirds of citizens, with the regions encompassing the country’s largest cities possibly heading into lockdown.
- New York Governor Andrew Cuomo is facing an impeachment inquiry led by the state’s own Democratic lawmakers as allegations of his misconduct mount, but he still has a number of advantages as he tries to cling to power. Pressure to unseat him hit a new high on Thursday after allegations emerged that he groped a female aide under her blouse, 59 Democrats in the state Legislature demanded that he resign, and the Assembly speaker began an impeachment inquiry that could lead to his removal from office. Yet removing a sitting governor from office is a lengthy, complicated process. And the intractable Cuomo, who has said there was “no way” he would step down, continues to hang on, defiant.
- President Joe Biden offered a Fourth of July goal for the U.S. to begin returning to normal as “light in the darkness” to a weary nation on Thursday, counting on a rapidly expanding supply of coronavirus vaccine to raise American hopes. In his first prime-time address as president, Biden told states he wants all adults in the U.S. made eligible for vaccines by May 1. That vision was already within reach before his announcement, on the first anniversary of lockdowns that paralyzed the world’s largest economy. The new goal carried echoes of the last time Biden made a promise he was already on track to meet — his declaration before taking office that his administration would preside over 100 million doses of vaccine jabbed into American arms in his first 100 days. By the time he was inaugurated, the U.S. was already nearing a pace of 1 million shots a day, virtually assuring the goal would be achieved.
- The Biden administration has informed some suppliers to China’s Huawei Technologies Co. of tighter conditions on previously approved export licenses, prohibiting items for use in or with 5G devices, according to people familiar with the move. The 5G ban is effective as of this week, according to the people, who asked not to be identified to discuss nonpublic communications. The rules create a more explicit prohibition on the export of components like semiconductors, antennas and batteries for Huawei 5G devices, making the ban more uniform among licensees. Some companies had previously received licenses that allowed them to keep shipping components to Huawei that the Chinese company may have then used in 5G equipment, while other companies were already subject to tighter restrictions.
- Rakuten Inc. plans to raise 242 billion yen ($2.2 billion) by selling shares to investors including Tencent Holdings Ltd., Walmart Inc. and Japan Post Holdings Co., bankrolling expansions into AI, finance and mobile. Japan Post will buy a stake of 8.32% via new and existing shares in Rakuten while China’s social media leader and the U.S. retail giant will take smaller slices, a filing showed Friday. Shares of Rakuten and Japan Post surged as the agreement builds on an existing alliance on logistics forged by the two last year. The Japanese e-commerce pioneer has benefited from a boom in online shopping during the pandemic, but faces stiff competition from Amazon.com Inc. Last year, the company scaled back plans to offer free shipping after pushback from sellers using its platform prompted regulatory scrutiny. Rakuten is also expanding rapidly into wireless mobile, hoping to disrupt the staid industry.
- Polish shoe retailer CCC SA agreed to sell stakes in its Eobuwie.pl SA e-commerce arm in deals that value the business at 5 billion zloty ($1.3 billion), a move that will give the company cash to pay down debt and bolster its finances during the pandemic. Telecommunications and media company Cyfrowy Polsat SA and Rafal Brzoska, the founder of parcel-locker operator InPost SA, are in exclusive talks to each buy 10% of the unit for 500 million zloty, CCC said Friday in a regulatory filing. The retailer is readying Eobuwie for an initial public offering in 2022 or 2023, CCC said. CCC is capitalizing on a surge in online shopping tied to coronavirus lockdowns. Eobuwie generated 2.2 billion zloty of sales and 193 million zloty of earnings last year, supporting CCC at a time when its business was hit by the pandemic. The parent, which owns 75% of Eobuwie, said in July it was considering selling a stake in the e-commerce unit.
- Microsoft Corp. has detected and blocked a “new family of ransomware” that was being used against servers that still hadn’t patched vulnerabilities after last week’s major security breach. The updates it released on Friday are a temporary measure to defend against attacks, which were already occurring in many places, the company said. The company discovered suspected Chinese state-sponsored hackers were exploiting previously unknown vulnerabilities in Microsoft’s widely used Exchange business email software earlier in March. Even as it issued a patch for those systems, hackers rushed to find companies that had yet to install Microsoft’s fix.
- Texas Lieutenant Governor Dan Patrick joined a majority of state senators in urging a key regulator to reverse billions of dollars in energy charges tied to last month’s blackouts. But Arthur D’Andrea, the chairman and lone member of the Public Utility Commission of Texas, told lawmakers in back-to-back hearings that he would not do so. In circular testimony that displayed an at-times murky grasp of how the state’s power market works, D’Andrea claimed that he lacked the authority to change prices, that doing so would bankrupt certain companies and could even affect hedging contracts for cattle futures. He also asserted, without evidence, that Texas’ independent market monitor erred in concluding that the energy crisis resulted in $16 billion in overcharges.
- Greensill Capital, the London-based finance firm that collapsed into insolvency this month, sold one of its private jets to a U.S. law firm late last year. A Dassault Falcon 7X aircraft the company acquired for $22 million three years ago was removed in December from the local registry in the Isle of Man, a territory between England and Ireland, and listed the following day with Texas-based Johnson Law Group as the owner, filings show. The company spent more than $70 million buying jets it used to send founder Lex Greensill and others across the globe as the firm tried to revamp the humdrum business of supply-chain finance — the short-term corporate debt that helps speed up payments between companies.
- Europe’s problems with AstraZeneca Plc’s Covid-19 vaccine deepened, with at least nine countries suspending use of the shot over safety concerns that Germany and France — along with the continent’s top health authority — say are unfounded. Austria was first to raise concerns last weekend when it stopped using AstraZeneca’s vaccine as a precaution following reports of a death and illness among recipients. In rapid succession, Denmark, Italy and Norway echoed the move, pointing to instances of blood clotting that health authorities want to investigate more closely. Thailand has followed suit. The suspensions threaten to derail Europe’s already stuttering vaccine rollout, which trails campaigns in the U.K. and U.S. and could prolong the social and economic pain of the pandemic. They follow complaints from Europe that Astra isn’t delivering enough doses, along with age restrictions that many countries put on the shot in January before recently clearing it for all adults.
- Royal Dutch Shell Plc disclosed the profitability of its sprawling and secretive oil-trading unit for the first time, saying it almost doubled to $2.6 billion last year. The scale of that result shows the importance of the trading division to the oil major in a year when weak demand and prices hit other parts of the business. Shell took advantage of wild price swings and a market situation that allowed it to make money by storing oil to sell later for a profit. The company’s earnings from oil trading in 2020 beat the highest ever net income at Vitol Group, the world’s largest independent trading house, which made a record $2.3 billion in 2019. Vitol has yet to disclose 2020 results.
- U.K. Communities Secretary Robert Jenrick intervened in the planning decision over whether to build a controversial coal mine in Cumbria, northwest England, citing the need for a public inquiry about its potential climate impacts. The decision was announced Thursday in a letter to Cumbria County Council posted on the website of Jenrick’s Ministry for Housing, Communities and Local Government. Jenrick is “calling in” the decision to be made by central government, rather than by local planning authorities as would be standard practice, it said.
- Deutsche Bank AG jacked up its investment banking bonus pool by almost half after a blowout year in the markets, a far cry from the lean years when traders called the annual pay announcement the “day of long faces.” A 46% jump in variable compensation for investment bankers, and a 29% increase across all units at Germany’s largest lender, compares with smaller gains or even cuts at major European banks that have disclosed the change. Deutsche Bank posted its first profit last year after five consecutive annual losses, driven by booming income in its trading unit in the wake of the pandemic. The decision comes as the lender is halfway through a deep restructuring plan and forecasts revenue will fall “marginally” as the pandemic effect peters out. Higher volumes and fees in the corporate and private bank will be offset by rate headwinds, while the asset management unit should see “slightly higher” revenues, it said in its annual report published Friday.
- Treasuries tumbled, pushing the benchmark bond yield near its highest in a year, as a cluster of factors triggered a sudden bout of selling. Benchmark 10-year yields rose as much as eight basis points to touch 1.61%. The world’s most watched bond rate has failed to close above 1.60% in more than a year, though has surpassed that level in volatile intraday trading several times in recent weeks. The move started in Australia, where bond futures fell heading into the market’s close to put modest pressure on Treasuries. At around the same time, there was a block sale of 10-year ultra bond futures, followed by a buyer of downside put options — the hedging of which tends to weigh on the market. The three combined to tip 10-year Treasury futures through Thursday’s session low, which unleashed the wave of selling.
- A retail investor buys shares in a small company, touts his position on social media and inspires a horde of followers to do the same. The stock price goes to the moon — before crashing back to earth. It’s an all-too-familiar tale to anyone watching the market in 2021, but this wasn’t GameStop Corp. It wasn’t even in America. And it happened in 2018. It was in the Japanese city of Osaka, where a day trader who goes by the nickname Tonpin was betting on a tiny maker of precision dies and molds called Nichidai Corp. and broadcasting the fact on Twitter, where he has more than 55,000 followers. The stock surged more than sixfold in the first three months of 2018 before losing most of the gains.
- Apple Inc.’s stock could reach a market capitalization of $3 trillion, analysts say, citing the development of the Apple Car as well as high expectations for the next iPhone. Citigroup Inc. and Wedbush see potential for the tech giant to hit the milestone, an increase that implies an almost 50% surge from Thursday’s close. With a market cap of $2.05 trillion currently, Apple is already the most valuable stock in the world. Developing the Apple Car could boost the company’s sales by 10% to 15% after 2024, Citigroup Inc. analyst Jim Suva wrote in a note on Friday. By 2025, he expects the worldwide electric vehicles market to outgrow the combined market for smartphones, PCs, tablets and wearables.
- Foreign investors are dumping Mexican peso-denominated sovereign bonds at the fastest pace since the height of the pandemic as U.S. Treasury yields climb. It’s going to take a lot of clarity before they go back in. Mexico’s 10-year local bonds — known as Mbonos — have fallen to 111 cents from their 118-cent peak in January as the percentage owned by foreigners tumbles to 45%, the lowest since 2012, according to central bank data. Foreign ownership has been falling for two years, with the biggest sales in April, the height of the pandemic panic. Now, rising U.S. Treasury yields have reignited the trend as outside investors pulled 59 billion pesos ($2.8 billion) out of Mbonos in February, according to BBVA data. That’s up from just 4.9 billion pesos in January outflows.
- Outsized demand for Verizon’s $25 billion deal — the largest high-grade bond sale of 2021 — may help improve the recent deteriorating credit tone. JPMorgan and Guggenheim’s Scott Minerd see a more positive environment ahead. The telecommunication giant’s $109 billion peak order book allowed the company to pay zero to 7 basis points in new issue concessions after initially dangling premiums of 33 basis points to 38 basis points, Bloomberg’s Brian Smith writes
- It’s been a good time to own a home in America. A reportThursday from CoreLogic revealed that U.S. homeowners gained $1.5 trillion in equity during 2020, or roughly $26,000 per household. Home prices surging at their fastest since 2014 is not only good news for homeowners. For mortgage bond investors it is also good news, of a sort. Higher prices reduce demand, meaning that fewer homes will be sold, which means fewer agency mortgage bonds will be created. Last year’s net issuance of $508 billion agency mortgage bonds was the highest since 2007, and home sales are a major determinant of supply. So any slowdown in the demand for houses would improve sector fundamentals, especially as the Federal Reserve continues to add $40 billion a month of mortgage bonds to its balance sheet.
- International Business Machines Corp. has reigned for nearly three decades as the top recipient of patents in the U.S. But in the past five years, the annual income the technology giant generates from those rights has slipped and the overall number of patents it produced has plateaued. Unfavorable Supreme Court precedents and an emboldened tech industry are threatening what had been a reliable cash machine. Intellectual property rights historically brought in more than $1 billion a year, on average, helping offset massive research and development costs and shrinking revenue. Last year, IBM’s income from intellectual property was $626 million, its lowest point since 1996, and 2019 wasn’t much higher. While it continues to secure license deals, they are fewer and harder-won, with companies like Airbnb Inc. and Chewy Inc. waging battles in court.
“No man does anything from a single motive.“ – Samuel Taylor Coleridge
*All sources from Bloomberg unless otherwise specified