March 19, 2021

Daily Market Commentary

Canadian Headlines

• Canadian stocks fell with the broader market, after energy stocks declined with the oil price. The S&P/TSX Composite index fell 0.8% in Toronto, most since March 4. Energy stocks tumbled as oil plunged as vaccination efforts in some parts of the world stalled, casting uncertainty over the speed of an economic recovery and a full rebound in global oil demand. Meanwhile, financials and industrials were the best performing stocks within the index. Meanwhile, Canada’s population grew at the slowest pace in more than a century as Covid-related restrictions curbed immigration. The nation’s population rose by just 0.4% in 2020 to 38,048,738, Statistics Canada reported Thursday in Ottawa. That’s the slowest annual growth since 1916, during World War I. In absolute numbers, the 149,461 annual increase was the smallest since 1945.
• Thomson Reuters Corp., managers of its former financial data unit and other investors sold about 745 million pounds ($1 billion) of stock in London Stock Exchange Group Plc, raising cash to pay taxes on the sale of the business to the LSE. The holders sold about 10.4 million shares at 7,150 pence each, according to a statement Friday. That’s a discount of 2.8% to Thursday’s closing price for LSE shares. The sellers also included Blackstone Group Inc., Canada Pension Plan Investment Board and Singaporean sovereign wealth fund GIC Special Investments Pte. Ltd. The stake equals about 1.9% of LSE’s equity. After the sale, the sellers will own a combined 30% stake of the U.K. stock exchange operator, according to the statement. The stock exchange completed its $27 billion purchase of Refinitiv this year, kicking off a new era in which the majority of its revenue will come from data. The transaction has already helped spur consolidation among the finance industry’s biggest data providers, which are trying to meet soaring demand for information on increasingly computerized financial markets.

World Headlines

• The Stoxx Europe 600 index declined, led by banks and retailers, while bond yields across the region retreated. China’s CSI 300 share gauge slumped as chilly U.S.-China talks soured the mood, while Japan’s Topix rallied and the Nikkei 225 sank after the Bank of Japan said it will focus purchases of exchange-traded funds on the former gauge. France announced a lockdown of areas including Paris to fight the pandemic, casting a cloud over Europe’s outlook amid an uneven vaccine roll out even as the European Central Bank signaled continued monetary support.
• Nasdaq 100 futures climbed and Treasury yields fell, signaling a rebound may be in store for technology stocks after Thursday’s selloff sparked by rising inflation bets. Contracts on the S&P 500 and Dow Jones Industrial Average also edged higher after U.S. shares slid from a record. The yield on the 10-year Treasury benchmark slipped back below 1.7%, a threshold it hadn’t breached since January 2020, and the dollar was steady. WTI crude oil held above $60 a barrel after a 7% plunge.
• Asia’s equity benchmark headed for its biggest drop in nearly two weeks, tracking the overnight slide in U.S. stocks after Treasury yields spiked. Technology was the worst-performing sector. Regional chipmakers and Chinese internet giants were among the biggest drags on the MSCI Asia Pacific Index, which lost as much as 1.2% amid a broader selloff. The first face-to-face meeting between senior U.S. and Chinese officials since Joe Biden became president also increased risk for some troubled markets. China’s CSI 300 Index, the worst performer among Asia’s major equity benchmarks, fell 2.6% lower. Japanese stocks also slipped after the Bank of Japan specified the size of its movement range for 10-year domestic bond yields and cut the reference to an annual buying target for ETFs.
• Oil, one of the most-favored reflation trades, just took a heavy beating. Prices headed for the biggest weekly slump since October after a sell-off driven by inflation concerns and a cooling physical market. Futures in New York clawed back some of the losses on Friday, but the recovery was muted given Thursday’s 7.1% decline. The drop followed a surge in Treasury yields that pushed the dollar higher, while there were signs of softer near-term crude demand in Asia. The unwinding of long positions by some commodity trading advisers may also have played a role.
• Gold headed for a second weekly advance as the first high-level talks between the U.S. and China since President Joe Biden took office immediately descended into bickering and recriminations. Illustrating the deep divide that remains despite the leadership change in the White House, each side sharply criticized the other over human rights, trade and international alliances at the meeting in Alaska. The acrimonious start to talks rippled across markets, with Asian stocks and European equity futures dropping alongside a gauge of the U.S. dollar.
• Equity traders frustrated by this year’s low volumes are getting ready for a big liquidity boost. Options and futures on indexes and equities are scheduled to expire Friday, a quarterly event known as quadruple witching that typically spurs trading as large derivatives positions roll over. The event usually brings single-day volumes that rank among the highest of the year — welcome news for investors who need to shuffle big holdings. There’s a lot to shuffle. The broad rotation away from stocks that benefited from the pandemic lockdowns to ones that should thrive as the economy bounces back means that exchange-traded funds and quant traders may be forced to dramatically switch positions, in what could become the most turbulent rebalance ever.
• The European Union has a chance to put its Covid-19 inoculation push back on track after a chaotic week that’s ended with its medicines regulator lifting a suspension of vaccines made by AstraZeneca Plc. While most nations in the bloc, including Germany, France, Italy, will restart administering the shots, Scandinavian countries will wait for a green light from local regulators on the risk of side effects. Norway’s prime minister faced a police probe after she flouted her own government’s Covid restrictions. Cases in Germany rose by the most in two months, just days before Chancellor Angela Merkel decides on how to proceed with the country’s lockdown restrictions. President Joe Biden announced the U.S. on Friday will clinch his goal of administering 100 million Covid-19 vaccine shots in the first 100 days of his presidency, reaching the mark six weeks ahead of time.
• JPMorgan Chase & Co. is investing 2.67 billion yuan ($410 million) in China Merchants Bank Co.’s wealth management unit in a bid to win a larger share of the country’s financial market. The U.S. bank will take a 10% stake in China Merchants Bank’s arm, the Shenzhen-based Chinese bank said in an exchange filing on Friday. The transaction is subject to approval by the China Banking and Insurance Regulatory Commission, JPMorgan said in a separate statement. Financial firms are rushing to capitalize on China’s opening of its $53 trillion financial industry, with the likes of JPMorgan, Goldman Sachs Group Inc. and UBS Group AG adding staff and expanding their footprint in everything investment banking to asset management. Most foreign financial institutions have identified wealth management as a prime focus with investable assets estimated to double over the next few years.
• Chinese ride-hailing giant Didi Chuxing Technology Co. is accelerating plans for an initial public offering to as early as next quarter to capitalize on a post-pandemic turnaround, people familiar with its plans said. Didi, the largest investment in SoftBank Group Corp.’s portfolio, is targeting a valuation above the $62 billion it secured during its last funding round, the people said, asking not to be identified discussing an internal matter. The company moved up plans from a previous target of late 2021 after its Uber-like car-hailing business bounced back with China’s success in bringing Covid-19 under control. Based on a common 15% float for mega IPOs in Hong Kong, one potential venue, Didi could raise roughly $9 billion in what would be one of the largest tech debuts globally in 2021. The company hasn’t made a final decision on the listing location, one person said. Didi’s plans remain preliminary and the timing could still slip till later in the year depending on negotiations.
• The U.K. government sold part of its stake in NatWest Group Plc for 1.13 billion pounds ($1.6 billion), reducing its holding for the first time in almost three years. The Treasury sold 590.7 million shares to the bank at the closing price of 190.50 pence on Thursday, according to a statement Friday. Its holding will be reduced to 6.9 billion shares, representing 59.8% of NatWest’s share capital. The sale still leaves the U.K. state as the lender’s largest shareholder, more than a decade after it rescued what was then Royal Bank of Scotland in a 45.5 billion-pound bailout. The Conservative government has repeatedly pledged to cut the holding, but the process of selling the stock has been stalled as Brexit dominated the British political scene and the lender’s market value languished at about half the amount of the bailout.
• If investors keep pouring money into equity funds at their current pace, it could add a “breathtaking” $1.6 trillion to stocks this year, Bank of America Corp. strategists say. Despite the market volatility spurred by rising bond yields and inflation bets, equity funds attracted a record $68.3 billion in the week through March 17, according to a BofA note on Thursday. On an annualized basis, additions will amount to the whopping trillion-dollar figure, smashing the previous record of $300 billion reached in 2017, strategists led by Michael Hartnett forecast. The flows indicate that equities remain the most popular investment instrument, notwithstanding the slump in frothier sectors such as technology. Bonds have seen inflows of $110 billion this year, only a third of the $347 billion into stock funds, as equity returns remain alluring with borrowing costs still near historic lows.
• Vladimir Putin is still hoping for a public conversation with Joe Biden to clear the air between the two presidents after the U.S. leader’s accusation that he’s a killer, Kremlin spokesman Dmitry Peskov said Friday. The White House brushed off Putin’s initial proposal, made late Thursday in comments to state television, for a talk to be shown live on either Friday or Monday. But Peskov said Russia is going ahead with a formal request to the U.S. to hold it at “any convenient time for the U.S. president.” “Mr. Biden has made rather unprecedented statements,” Peskov told a conference call. “In order to prevent these statements from doing harm to the already sad state of bilateral relations, Putin proposed discussing the situation, but doing it openly, since it would be of interest to the peoples of both countries.”
• Private equity firm TA Associates is in advanced discussions to buy Unit4 NV, the enterprise software company owned by Advent International, for more than $2 billion, according to people familiar with the matter. A final agreement hasn’t been reached and talks could still fall apart, said the people, who asked not to be identified because the information was private. Last year, Advent revived plans to sell Netherlands-based Unit4 after receiving takeover interest from a special purpose acquisition company, or SPAC, Bloomberg News has reported. A spokesperson for TA Associates couldn’t immediately be reached for comment. Representatives for Advent and Unit4 declined to comment.
• South Korea’s biggest coal region is investing $28 billion over the next four years in cleaner energy sources as the country seeks to zero out planet-warming greenhouse gases by 2050. South Chungcheong province, home to roughly half of South Korea’s coal-fired power plants, will spend 31.23 trillion won ($27.6 billion) through 2025 to build an offshore wind power farm and a blue hydrogen production plant, according to a statement from the Presidential Blue House, without providing further details. The plan was released during President Moon Jae-in’s visit to Boryeong thermal power plant in the region, where he was briefed about the province’s strategies toward becoming a carbon emissions-free society.
• The first face-to-face meeting between the U.S. and China since President Joe Biden took office was bound to be confrontational. The question now is whether the two sides can find a way cooperate after unloading so many grievances in public. Top diplomats from the world’s two largest economies criticized each other over everything from trade to human rights in a high-stakes first encounter Thursday in an Alaskan ballroom. U.S. Secretary of State Secretary of State Antony Blinken accused Beijing of undermining global stability, while his counterpart, Yang Jiechi, said the U.S. wasn’t “qualified to speak to China from a position of strength.” The barbs on both sides appeared intended for domestic consumption, with Biden seeking to show his supporters that he’s tough on China and President Xi Jinping needing to satisfy his own increasingly nationalistic population. Still, the unusually acrimonious exchange showed the world just how hard it will be to repair a relationship that deteriorated rapidly under Donald Trump.
• Tesla Inc. cars have been banned from Chinese military complexes and housing compounds because of concerns about sensitive data being collected by cameras built into the vehicles. The order, issued by the military, advises Tesla owners to park their cars outside of military property, according to people familiar with the directive who asked not to be identified because the information is private. The ban, relayed to residents of military housing this week, was triggered by concerns that the world’s biggest maker of electric vehicles is collecting sensitive data via the cars’ in-built cameras in a way the Chinese government can’t see or control, one of the people said. Images of what was purported to be a notice about the ban were also circulating on Chinese social media. Multi-direction cameras and ultrasonic sensors in Tesla cars may “expose locations” and the vehicles are being barred from military residences to ensure the safety of confidential military information, the notice said.
• Mortgage lenders, who last year increased headcount to over 100,000 people for the first time since 2007, are likely to focus their resources on those homeowners who still have incentive to refinance amid rising rates. And those homeowners are to be found among the 30-year uniform mortgage bonds with 3%, 3.5% and 4% coupons. There remain $663 billion, $500 billion and $365 billion, respectively, of those mortgages outstanding, according to data compiled by Bloomberg. If prepayment speeds are to remain elevated anywhere, that is likely where it will be. This year is already shaping up to be a vastly different beast than 2020, with mortgage rates shooting higher over the past two months and Federal Reserve monetary policy already highly accommodative.
• Greensill Capital owes $1.15 billion to SoftBank Group Corp., people familiar with the matter said, as the Japanese institution emerges as one of the main creditors to the collapsed supply chain finance firm. A total value of claims for more than A$1.75 billion ($1.35 billion) was submitted on behalf of Greensill’s creditors, administrator Grant Thornton said in a statement Friday after a call between creditors concluded. Another meeting is set for April 22 when creditors will have the opportunity to vote on Greensill’s future. The first creditors meeting for Lex Greensill’s collapsed supply-chain finance business in Australia on Friday lasted 55 minutes, with 59 creditors in attendance with their representatives. The Association of German Banks as well as German and Australian securities regulators were also on the call, led by Matt Byrnes, a partner at Grant Thornton.

“If I wished to punish a province, I would have it governed by philosophers.“ – Frederick the Great

*All sources from Bloomberg unless otherwise specified