March 17, 2021
Daily Market Commentary
- Canadian equity markets fell on Tuesday, ending a seven-day rally, as cyclical sectors underperformed. The S&P/TSX Composite index fell 0.4% in Toronto. Pot stocks pared back gains from Monday when New York Governor Andrew Cuomo said the state is very close on legalizing marijuana. Resource stocks also underperformed as oil and copper prices fell.
- Enbridge Inc. warned that refiners in central Canada and the U.S. Midwest would see crude supplies cut in half and propane costs surge for some homeowners if Michigan’s governor succeeds in shutting a key oil pipeline that crosses the state. Refineries in Michigan, Ohio, Indiana, Pennsylvania as well as those in Ontario and Quebec would have to find alternative means for securing crude oil should Line 5 be shut, requiring the building of new rail terminals and rail cars, Vern Yu, the company’s president of liquid pipelines, told Canadian lawmakers Tuesday. Michigan homeowners that rely on propane to warm their homes would see prices increase by 38 cents a gallon and airports in Detroit and Toronto would face jet fuel shortages. Michigan Gov. Gretchen Whitmer announced in November that she is revoking an easement that permitted the pipeline to cross the lake beds in the Straits of Mackinac, a move that could force the systems to shutdown by May. The pipeline is a key conduit for the state’s fuel and a critical source of oil for refineries in both the U.S. and Canada. The move has drawn protests from Canada’s government, which has vowed to fight to keep the pipeline operating.
- Prime Minister Justin Trudeau’s government is worried that a recently amended electricity law in Mexico will harm Canadian investments in the country’s clean energy sector. Mexico’s legislature has recently passed a bill proposed by nationalist President Andres Manuel Lopez Obrador to strengthen state power company Comision Federal de Electricidad, or CFE, at the expense of the private sector. While the legislation has currently been halted by a Mexican court, its implementation could leave as much as $4.1 billion in Canadian assets at risk in the Latin American country, according to a Canadian government official who wasn’t authorized to speak publicly on the matter. “Canada is concerned that the recently passed law that amends the Electrical Industry Law will be damaging to Canadian investment in renewable energy,” said Youmy Han, a spokesperson for Canada’s Trade Minister Mary Ng, via email.
- European stocks fell from their highest level in more than a year, with miners and retailers leading losses, as investors awaited a Federal Reserve decision for clues about continued policy support following a rise in bond yields. The Stoxx Europe 600 Index dropped 0.3% as of 9:30 a.m. in London, with cheap and economically sensitive sectors falling the most after recent gains. Carmakers bucked the trend, rising 1.1% after BMW AG forecast better profitability than analysts had estimated. Since rising inflation expectations sent bond yields higher starting in mid-February, a rotation from growth to value stocks has weighed on pricey sectors such as technology. With European equities less than 2% away from their pre-pandemic peak in February 2020, investors are watching today’s Fed outlook on growth and inflation for clues as to whether high yields will continue to sap the appeal of risk assets.
- U.S. futures edged lower and Treasury yields extended gains ahead of a key Federal Reserve meeting at which officials will deliver their outlook for the economy amid a budding recovery that risks stoking inflation. Contracts on the S&P 500 traded modestly down, while those on the Nasdaq dropped 0.8%. Fuel-cell firm Plug Power Inc. plunged more than 20% in pre-market trading after it disclosed accounting errors. The Stoxx Europe 600 Index fell, and South Korean stocks retreated as Samsung Electronics Co.warned it’s grappling with the fallout from a “serious imbalance” in semiconductors globally.
- Asia’s equity benchmark headed for its third drop in four days, pulled down by weakness in the semiconductor sector. Regional chip giants TSMC and Samsung were among the heaviest drags on the MSCI Asia Pacific Index, after Samsung warned of a “serious” imbalance in the semiconductor industry and said it may have to delay the introduction of one of its key smartphones. Equity gauges in India and South Korea were the worst performers in Asia. However, benchmarks in China and Vietnam rose, with the CSI 300 Index capping a second day of gains as telecom and consumer discretionary shares climbed.
- Oil erased gains as the International Energy Agency said talk of an upcoming supply shortfall could be misleading. Futures in New York declined 0.2%, giving up earlier gains of as much as 0.8%. OPEC and its partners could quickly deploy their stalled production spare capacity to quash oil price rallies, the IEA said in its monthly report. Demand won’t return to pre-virus levels until 2023, the agency said in a separate report. Traders will get more supply information Wednesday with the U.S. inventory data, which could show the first decline in crude stockpiles since mid-February. The Federal Reserve policy statement is also due later. Despite the recent retreat, oil is still up more than 33% this year as OPEC+ output cuts tighten supply and as the demand outlook improves with the rollout of Covid-19 vaccines. Consumption is roaring back in some regions including the U.S., although parts of Europe are struggling. There’s also been some recovery in the dollar, curbing crude’s gains of late.
- Gold edged higher as investors awaited the Federal Reserve’s guidance on monetary policy amid expectations of a strong recovery from the pandemic. The Fed wraps up a two-day meeting on Wednesday and is all but certain to hold interest rates near and repeat a vow to keep buying bonds at the current $120 billion monthly pace. While Chair Jerome Powell has promised to maintain aggressive support of the U.S. economy, the central bank’s quarterly economic forecasts will show how many of his colleagues share his commitment. Bullion investors will be watching for the central bank’s latest messaging on inflation, rising bond yields and the overall strength of the economic recovery. The metal touched a nine-month low early last week, and has been pressured this year by the surge in Treasury yields and and economic growth that’s fueling fears of inflation.
- The yield on 30-year Treasuries spiked to a level unseen since 2019 amid growing expectations fiscal aid will spur inflation. The rate rose as much as 4 basis points to 2.419%, eclipsing the 2.4162% seen in January 2020. Rates jumped across notes and bonds, with yields on the 10-year climbing as much as 5 basis points to 1.667%, a level unseen since January 2020.
- The European Union will reach herd immunity through vaccination in the fall as planned despite supply delays from AstraZeneca Plc, EU Industry Commissioner Thierry Breton told a newspaper. Italy and other countries are hoping the European Medicines Agency clears Astra’s vaccine Thursday after investigating reports of blood clotting, Italian Health Minister Roberto Speranza said. The move would allow EU member states including Germany and France to lift a temporary suspension that could delay vaccination plans and has sowed confusion about the shot’s safety. Taiwan and Palau will open their borders to form a travel bubble. In the U.S., former President Donald Trump said he would urge his supporters and others wary of the vaccine to get it.
- Volkswagen AG has swiftly gone from corporate dinosaur status to stock market darling, and its chief executive officer’s imitation of Elon Musk has a lot to do with it. Herbert Diess has taken a page out of the Tesla CEO’s script for captivating investors big and small, taking a hands-on role in getting VW’s message out on social media and staging splashy events big on ambition. It’s paying off — the carmaker’s common shares are now up almost 70% this year while the more liquid preference shares are up more than 40%. The turnabout in sentiment has been dramatic and sudden. VW’s market capitalization dropped last year as Tesla vaulted past all other automakers to become the world’s most valuable by a wide margin. But already this month, VW has added about 36 billion euros ($43 billion) to its valuation, as optimism that it may be able to catch up to Tesla squeezes short sellers.
- Samsung Electronics Co. warned it’s grappling with the fallout from a “serious imbalance” in semiconductors globally, becoming the largest tech giant to voice concerns about chip shortages spreading beyond the automaking industry. Samsung, one of the world’s largest makers of chips and consumer electronics, expects the crunch to pose a problem to its business next quarter, co-Chief Executive Officer Koh Dong-jin said during an annual shareholders meeting in Seoul. The company is also considering skipping the introduction of a new Galaxy Note — one of its best-selling models — this year, though Koh said that was geared toward streamlining its lineup.
- President Joe Biden’s next major economic package will almost certainly have to rely once again on a Democrat-only approach after Senate Minority Leader Mitch McConnell shut the door Tuesday on Republican support for tax hikes to pay for it. While West Virginia Democrat Joe Manchin has insisted Democrats at least try to work with Republicans on an infrastructure package — and Biden also continues to hold out hope — there’s little expectation now that such a bipartisan path exists for anything close to the scale the White House wants, and certainly not for the taxes on the wealthy and corporations they envision will pay for it.
- Shoppers are out for vengeance. A year into a pandemic that’s devastated lives, jobs and the economy, those who are lucky enough to have disposable income are ready to go out and splurge — even if they still have nowhere to go in that stunning dress or those brand new sneakers. Some are calling this “revenge spending.” U.S. retail sales are near record highs and employment and vaccinations are on the rise. Americans have amassed a massive stockpile of excess savings — Bloomberg Economics estimates it to be about $1.7 trillion since the beginning of the pandemic through January. And that’s about to be bolstered by a new round of stimulus payments. As the economy reopens, consumer spending over the next two quarters is likely to be the strongest such period in at least 70 years with a rebound in services leading the way, according to economists at Wells Fargo & Co.
- For years, Uber Technologies Inc. has been locked in a fierce and expensive contest with global regulators over the protections it offers to drivers. The gig economy giant has argued that drivers are free agents, able to work when and where they like, and are therefore not directly employed by Uber — or eligible for benefits like sick leave and overtime. In its home state of California, Uber Chief Executive Officer Dara Khosrowshahi advocated for a “third way” of classifying workers — other than as contractors or as full-time staff. And he’s suggested that the company’s approach in the state could be a blueprint for resolving similar labor battles brewing worldwide. But on Tuesday, Uber said it would adopt a different model for its drivers in the U.K. After losing a watershed ruling in Britain’s Supreme Court, the company agreed to reclassify all of its 70,000 drivers in the country as “workers,” which are guaranteed specific benefits under U.K. law. The result is essentially a “fourth way” for Uber — and another example of the growing pressure the company is facing from world governments to treat its workers better and comply with with local rules.
- The February freeze that triggered mass blackouts in Texas led to chemical plant shutdowns that are disrupting global supply chains, causing a shortage of the raw materials needed for everything from medical face shields to smartphones. The power outages brought the world’s largest petrochemical complex to a standstill, forcing more plants in the Gulf of Mexico region to shut down than during Hurricane Harvey in 2017. A month later, many remain offline, and analysts said it could be months more before all are fully back. Prices for polyethylene, polypropylene and other chemical compounds used to make auto parts, computers and a vast array of plastic products have reached their highest levels in years in the U.S. as supplies tighten. For example, prices for polyvinyl chloride, or PVC, have more than doubled since last summer, according to S&P Global Platts.
- The U.K. government revealed plans to slash the amount of carbon dioxide spewed out by factories and other industrial processes by two-thirds within the next 15 years. The Industrial Decarbonization Strategy published Wednesday is part of the U.K.’s ambition to effectively eliminate greenhouse gas emissions by 2050. The Department for Business, Energy and Industrial Strategy allocated more than 1 billion pounds ($1.4 billion) to projects that can help drive down emissions in hospitals and schools, as well as factories. Cutting emissions from industry is one of the toughest areas in the fight against climate change. Some processes like oil refining, chemical and steel production rely on fossil fuels and can’t be easily be switched to renewable electricity.
- Video streaming platform Bilibili Inc. is looking to raise as much as $3.2 billion in a second listing in Hong Kong, as the trend of Chinese companies seeking trading footholds in the city gathers pace. Nasdaq-listed Bilibili is selling 95 million shares in the offering, according to a statement. It has set a maximum price of HK$988 for the portion of the deal reserved for Hong Kong’s retail investors, which represents a premium of 12.3% to its closing price in the U.S. on Tuesday. Bilibili is joining a rapidly-expanding group of Chinese companies looking to sell shares in Hong Kong, pressured by tensions between China and the U.S. and beckoned by the Asian financial center’s hot market for new listings.
- Market expectations for a sustained rise in inflation and withdrawal of policy support are misplaced, creating buying opportunities in corporate bonds, according to BlackRock Inc. and Lombard Odier. In an environment where growth is picking up but price gains likely to be transient, Lombard favors longer-dated corporate debt in China and India, said Dhiraj Bajaj, head of Asia credit. BlackRock likes high-yield corporate paper and Chinese securities, according to Neeraj Seth, head of Asian credit in Singapore. The growing debate over the global inflation outlook is dividing investors into two camps, with Bill Gross and Bridgewater Associates primed for price pressures to shoot higher, while others argue that the recent market selloff on those fears will correct. Investors will be scrutinizing the Federal Reserve’s projection for the policy outlook Wednesday for clues to back up their arguments.
- Apple Inc. has severed ties with Chinese component supplier Ofilm Group Co. over allegations it’s involved in a government program that transfers ethnic minorities from Xinjiang to other parts of the country for work, a person familiar with the matter says. The iPhone maker is thought to have terminated its contracts with Ofilm over the concerns a few months ago, the person said, asking not to be identified discussing a private matter. Ofilm’s shares tumbled by the 10% daily limit, closing at the lowest level since August 2019, after saying in an exchange filing that an overseas customer will stop buying its products. The Chinese company, which did not name the client, said it is evaluating the impact of the change on its earnings.
- Malaysia announced a 20 billion ringgit ($4.9 billion) package to revitalize economic activity as Covid infections slow and vaccines are rolled out. The plan will include a 11 billion ringgit fiscal injection, Prime Minister Muhyiddin Yassin said in a televised address Wednesday. There will also be no more blanket lockdowns, he said, adding that any movement control orders will be done at localities and clusters, he said. The decision comes a day before the one-year anniversary of the virus lockdown aimed at curbing the spread of the pandemic. The number of new daily cases has been falling since January’s peak, sparking optimism the economy will improve in coming months. Tuesday’s tally was the smallest since early December.
- NRG Energy Inc. withdrew an earlier full-year profit forecast and said it expects a $750 million loss due to the brutal cold snap that froze Texas and led to sweeping blackouts across the state. Based on the new information available to us today, we are unable to provide financial guidance due to the unprecedented and unpredictable market outcomes resulting from winter storm Uri,” Chief Executive Officer Mauricio Gutierrez said Wednesday in a statement. The company, which operates power plants and provides retail services to homes and businesses in the state, previously projected full-year earnings of as much as $2.6 billion. The shares dropped as much as 8.6% in pre-market trading in New York.
- Coinbase Global Inc.’s backers registered for as many as 114.9 million shares to trade in the direct listing of the cryptocurrency exchange, in the latest test of alternative ways to come to the public markets. Investment firms including Andreessen Horowitz and Union Square Ventures are among those whose shares could trade, according to a regulatory filing Wednesday. Chief Executive Officer Brian Armstrong and Coinbase co-founder Fred Ehrsam have also registered stock. Coinbase shares have changed hands at $200 to $375.01 in private transactions this year, the filing shows. The volume-weighted average price per share for transactions from January through March 15 was $343.58, indicating that the shares registered for trading could be valued at about $39.5 billion.
“The causes of events are ever more interesting than the events themselves“ – Marcus Tullius Cicero
*All sources from Bloomberg unless otherwise specified