March 18, 2021

Daily Market Commentary

Canadian Headlines

• Canadian shares rose after the U.S. Federal Reserve continuedto project near-zero interest rates at least through 2023 despite rising inflation concerns. The S&P/TSX Composite index rose 0.6% in Toronto, more than recouping the 0.4% drop on Tuesday. Pot stocks and miners led the rally while consumer staples fared the worst. Meanwhile, Mexico and Canada are at the top of President Joe Biden’s list of countries to eventually receive exports of U.S.-made coronavirus vaccines, according to a U.S. official familiar with the plans.
• Canada’s six largest banks have all added ESG components to their chief executive officers’ compensation frameworks, putting them in a small minority of companies that tie executive pay to such measures. How environmental, social and governance matters affect pay varies by firm, as does the percentage of compensation involved. Still, the Canadian lenders stand out because only 9% of the 2,684 companies in the FTSE All World Index tracked by researcher Sustainalytics in a 2020 study had tied executive pay to ESG. The moves, disclosed in the banks’ proxy circulars earlier this month, put them at the front of a push by activists and investors to establish incentives for actions like reducing emissions and diversifying workforces. At Canadian Imperial Bank of Commerce, the pressure to make changes also came from within, said Sandy Sharman, head of the bank’s people, culture and brand team.
• China has announced trials for two men at the heart of a bitter feud with Canada, raising the stakes in the case ahead of a crucial meeting between top diplomats from Beijing and Washington. Michael Spavor and Michael Kovrig will face their first court hearings Friday and Monday respectively, Canadian Foreign Minister Marc Garneau said in an emailed statement, adding that diplomats have requested to attend. “We believe these detentions are arbitrary, and remain deeply troubled by the lack of transparency surrounding these proceedings,” Garneau said. Chinese Foreign Ministry spokesman Zhao Lijiansidestepped a question Thursday about the trials, telling a regular news briefing in Beijing he had nothing to add.

World Headlines

• European stocks climbed, fueled by a rotation into cyclical sectors as bond yields rose after the Federal Reserve vowed policy support. The Stoxx Europe 600 Index rose 0.3% as of 10:15 a.m. in London, within 2% of last year’s record high. Carmakers, miners and banks rose more than 1% each, while defensives lagged. The Euro Stoxx 50 Index rose 0.5% to its highest since May 2008, and Germany’s DAX Index rose 1% to a fresh record. The Fed’s pledge to maintain rates at near-zero through 2023 soothed investors who had been worried about a more hawkish tone given the rising inflation expectations. The spike in bond yields has spurred a strong rotation into value and cyclical sectors since mid-February, while dragging on pricey sectors such as technology.
• Inflation concerns are rattling investors once again, fueling a selloff in U.S. bonds and sending Nasdaq futures sharply lower. Ten-year Treasury yields climbed above 1.7% for the first time since January 2020, and the 30-year rate topped 2.4%. The Nasdaq 100 Index, a benchmark for high-valuation stocks that are sensitive to rising yields, sank more than 1%. Tesla Inc. slumped in pre-market trading. U.S. equities look poised to reverse some of the gains from Wednesday, when markets hit an all-time high. The Federal Reserve’s apparent willingness to keep pumping support into the economy and let it run hotter has spurred betson faster growth and inflation, sending market expectations of price pressures to multi-year highs.
• Asian stocks climbed toward a two-week high as risk-on sentiment returned after the U.S. Federal Reserve projected interest rates to remain near-zero through 2023. Internet stocks, which were previously hammered by a spike in U.S. Treasury yields, contributed the most to the MSCI Asia Pacific Index’s gain on Thursday. Reflation trades abated, with Commonwealth Bank of Australia and India’s Reliance Industries Ltd. among the heaviest drags on the region’s benchmark. Hong Kong’s Hang Seng Index led advances in Asia, with the gauge up 1.3%, extending its longest streak of gains in a month. Japan’s Nikkei 225 Stock Average pared gains, trading near its highest level in three decades. Key equity gauges in Indonesia and Vietnam rose more than 1%.
• Oil extended declines as inflation concerns rattled broader sentiment and physical markets in Asia cooled. West Texas Intermediate retreated for a fifth straight day, putting the U.S. benchmark on course for the longest losing streak in more than a year. The dollar rose, U.S. equity futures dipped and bond yields climbed amid inflation fears. Brent’s market structure has also steadily weakened in recent days. Oil prices have backtracked this week despite the surprise OPEC+ decision earlier this month to extend output cuts. Concern has risen that the demand recovery could stall after several European countries halted use of AstraZeneca Plc’s coronavirus vaccine, the latest blow to a stuttering rollout in the region.
• Gold declined as Treasury yields reached their highest since January 2020, continuing their climb after being briefly held back by the Federal Reserve’s dovish words. Fed Chair Jerome Powell and his colleagues remained dovish at the end of their meeting Wednesday, despite upgrading their U.S. economic outlook and mounting inflation worries in financial markets. While more Fed officials saw an earlier start to the withdrawal of ultra-easy monetary policy, Powell stressed this remains a minority view. That message helped briefly stem the relentless rise of Treasury yields, which have been putting pressure on non-interest bearing gold this year. The haven has made a weak start to 2021 as investors position for the end of the pandemic. A resurgent dollar, driven by expectations that U.S. growth will outpace gains in other countries this year, has also hurt bullion.
• A delayed shipment of AstraZeneca Plc’s Covid-19 vaccine from India is behind a cut in the U.K.’s supply starting later this month, prompting the government to shift focus and offer remaining doses to the people most at risk of Covid-19. The European Union is bracing for a decision by its health regulator on whether AstraZeneca’s shot is safe to use while a shortages of doses is fueling an escalation in the bloc’s dispute with the U.K. over supplies. Brazil surpassed 90,000 new cases in one day, while India topped 35,000 for the first time since early January. Tokyo’s state of emergency will end on Sunday.
• President Joe Biden is poised to meet his goal of delivering 100 million Covid-19 vaccine shots in his first 100 days in office as soon as Thursday, reaching the milestone more than a month ahead of time. As of Wednesday, his 57th day in office, the U.S. had vaccinated nearly 98 million people since Biden’s inauguration. The pace of shots has risen to an average of nearly 2.5 million per day for the last week. That leaves Biden within grasp of his target on Thursday — the 58th day of his presidency — and poised to hit it no later than Friday, barring a major slowdown. He’s scheduled to speak publicly on Thursday afternoon about the state of vaccinations.
• Semiconductor Manufacturing International Corp. will build a $2.35 billion plant with funding from the government of Shenzhen, the first major project to emerge from China’s masterplan to match the U.S. and become more self-reliant as global chip supply dwindles. SMIC on Thursday warned that shortages could worsen this year and next and wallop Chinese businesses if the country doesn’t ramp up domestic capacity now. The company has agreed to a joint venture with the southern municipality in which it will develop and operate a chipmaking plant that can produce silicon of 28 nanometers or above, it said in a stock exchange filing. The partners aim to draw third-party investment, begin production by 2022 and eventually produce 40,000 12-inch wafers a month. Its shares rose as much as 3% in Hong Kong.
• Vodafone Group Plc’s mobile-phone towers unit Vantage Towers AG rose as much as 3.7% after selling 2.3 billion euros ($2.8 billion) of shares in an initial public offering that lifted Europe to its biggest ever first quarter for stock market debuts. Vantage shares climbed 2.9% to 24.69 euros at 9:19 a.m. in Frankfurt. The company sold 95.8 million shares at 24 euros each in the offering, including an over-allotment, according to a statement Wednesday. The price was in the lower half of the initial range at which the shares had been marketed. Europe’s IPO market is booming, with Vantage bringing the total raised this year to $20.2 billion, according to data compiled by Bloomberg. The region’s previous record first quarter was in 2015, with $20.1 billion of deals.
• Google announced a $7 billion investment in the U.S. that will create at least 10,000 new jobs this year, a drop from the $10 billion it promised it would invest in 2020 before the pandemic swept the country. The Alphabet Inc. unit is investing in offices and data centers, including more than $1 billion in its home state of California, Google Chief Executive Officer Sundar Pichai said in a statement on Thursday. Part of the investment will be used for data center expansions in Nebraska, South Carolina, Virginia, Nevada and Texas, Pichai said. In early 2020, Google said it would invest over $10 billion into offices and data centers in a range of states, including California, New York and Texas. This was also a drop from the $13 billion it pledged in 2019 to invest in order to expand in rural areas such as Nevada, Nebraska and Oklahoma.
• Bond traders ramped up bets on faster growth and inflation after Federal Reserve officials reiterated projections that they’ll hold rates near zero through 2023. The signal of continued ultra-loose policy drove the Treasuries yield curve sharply steeper, with 30-year yields breaking above 2.5% for the first time since 2019. The premium over five-year debt was within touching distance of the highest level in nearly seven years. Market measures of inflation expectations also surged to multiyear highs, while traders edged away from bets the Fed would start tightening as soon as late next year. The dollar pushed higher against its major peers.
• Beijing is seeking a meeting between Joe Biden and Xi Jinping next month if the first high-level U.S.-China talks in Alaska starting Thursday are productive, according to people familiar with the situation. The Biden-Xi meeting as envisioned by Chinese officials would be organized around Earth Day on April 22 to show both leaders are focused on combating climate change, one of the people said. Biden is already set to gather global leaders together on that day to push the world for greater ambition in curbing greenhouse gas emissions. The prospect of the meeting was first reported by the Wall Street Journal. When asked whether the diplomats will discuss a Xi-Biden meeting during their talks in Alaska and if a meeting of the two leaders is planned, Chinese Foreign Ministry spokesman Zhao Lijian said no such arrangements have been made. He later added that the two countries will discuss a range of topics.
• National Grid Plc agreed to buy PPL Corp.’s U.K. electricity distribution business for 7.8 billion pounds ($10.9 billion), a move that will transform the company as it prepares for a low-carbon future. The biggest U.K. utilities transaction in a decade highlights how crucial grids have become as nations figure out how to navigate the shift to electricity from fossil fuels. Distribution grids, the local networks that feed directly into homes and businesses, are at the heart of the energy transition. Smart homes with electric heating systems, as many as 30 million electric cars, and small scale renewable generation will all be connected to local grids in the coming decades.
• Air China Ltd. will buy 18 Airbus SE A320neo family single-aisle jets for a total of $2.2 billion from a unit of GE Capital Aviation Services Inc., according to a Thursday filing to the Shanghai stock exchange. The state-owned carrier will purchase the planes from AFS Investments Inc., raising its capacity by about 2% from the end of last year. The deal includes five A320neos and 13 A321 long-range jets, which Airbus will deliver to AFS through 2022, according to the filing. The order comes at a time the global aviation industry is deep in the doldrums as the coronavirus pandemic has decimated international travel. Chinese airlines have recovered better than most thanks to the strength of their giant domestic market, with passenger traffic returning close to pre-Covid levels.
• China, the world’s biggest importer of farm commodities, ramped up purchases in the first two months of this year to plug growing local shortages and to keep food prices under control. The country shipped in almost 5 million tons of corn in January and February, more than five times the amount unloaded a year earlier, according to customs Thursday. That included an all-time monthly high of 3 million tons in January. China has been scooping up record amounts of corn and soybeans from overseas to feed the world’s largest hog herd, which is recovering from African swine fever. The country faces shortages of farm commodities because of a lack of productive farmland and increasing demand from a more affluent population, and is trying to boost yields and reduce wastage.
• In retrospect, it was a slam-dunk bet that when stuck-indoors Americans were sent $600 stimulus checks back in January, they’d plow a lot of it into the stock market. But with the economy gradually opening, the calculus is less simple this time around as $410 billion lands in bank accounts around the country. Back then, pajama-clad gamblers and bored workers who didn’t need the cash turned into market newbies, driving a surge in brokerage accounts and fueling the stock rally. Now data suggest vaccinated Americans are emerging from lockdowns ready to splurge on plane tickets instead of airline stocks. Disneyland beckons along with beach vacations and visits to relatives. Wall Street analysts are noticing. Predictions that day traders would pour cash into the market have turned into forecasts for a surge in retail spending.
• Credit Suisse Group AG replaced asset management head Eric Varvel and suspended bonuses for senior executives as the bank seeks to contain the widening fallout from the Greensill Capital scandal. Varvel, who will stay with the Swiss lender, will be succeeded by ex-UBS Group AG asset management head Ulrich Koerner in the most senior shakeup so far over the Greensill fund issues. Koerner takes over April 1, when asset management will also be split from International Wealth Management and run separately, the bank said Thursday.
• BlackRock Inc., the money manager that’s made bold statements about climate change, now plans to press companies about their policies related to human rights, as well as biodiversity, deforestation and water. The world’s largest asset manager said it will ask companies in which it holds stakes to identify and show how they intend to prevent human rights abuses, and provide “robust” disclosures about those practices. BlackRock also will request that businesses show how they have adopted sustainable practices regarding air, water, land, minerals and forests, according to a stewardship report released Thursday. In both cases, the New York-based firm said it will ask companies to explain the board’s role in overseeing management’s approach to these issues, and may vote against directors who don’t act.
• Volkswagen AG shares continued their meteoric rise as U.S. retail investors seized on the stock amid rapid-fire announcements on the company’s efforts to rival Tesla Inc. in electric vehicles. The German carmaker’s common stock soared as much as 14% and its preference shares climbed more than 9% before trimming gains Thursday in Frankfurt. VW’s market value exceeded 150 billion euros ($180 billion) in intraday trading just after it overtook SAP SE as Germany’s most valuable public company. Retail investor interest is likely driving a massive run-up in trading volume for the automaker’s American depositary receipts, Barclays analysts led by Kai Mueller wrote in a report, pointing to a spike in VW-related Google searches, positive Twitter posts and recent news coverage. VW staged back-to-back briefings earlier this week on plans to build six battery factories and sell more EVs than Tesla no later than 2025.

“Success is often nothing more than moving from one failure to the next with undiminished enthusiasm.“ – Winston Churchill

*All sources from Bloomberg unless otherwise specified