March 25, 2021

Daily Market Commentary

Canadian Headlines

• BRP Inc. reported Q4 2020 net earnings of $264.3 million, or $2.95 per diluted share, compared with net earnings of $118.4 million, or $1.32 per diluted share, for the year ago quarter. The company reported normalized earnings of $162.8 million, $1.82 per normalized diluted share, beating a Capital IQ consensus mean forecast of $1.68. BRP had reported normalized earnings of $100.2 million, or $1.12 per normalized diluted share for Q4 2019. Total Q4 2020 revenue was $1.81 billion, 12.3% higher than Q4 2019’s $1.61 billion, and also beating the $1.78 billion forecast. The revenue increase was mainly driven by a higher volume of products sold and lower sales programs due to a strong retail environment, partially offset by an unfavourable foreign exchange rate variation of $19 million.
• Xebec Adsorption Inc. a global provider of clean energy solutions, announced today its 2020 fourth quarter and full year results, with the following highlights. Revenues increased by $7.2 million to $56.5 million for the twelve-month period ended December 31, 2020, compared to $49.3 million for the same period the prior year. Adjusted EBITDA of ($22.0) million for the twelve-month period ended December 31, 2020, compared to $7.0 million for the same period last year.

World Headlines

• European equities inched lower on Thursday, led by energy shares, as doubts persist over the control of the pandemic and pace of the economic recovery. The Stoxx 600 Index was down 0.2% as of 9:16 a.m. in London, with gains for utilities and telecoms offsetting a fall in the real estate and mining sectors. Energy shares retreated with oil prices, after both surged on Wednesday, as tugs and diggers struggle to dislodge a massive ship stuck in the Suez Canal cargo route. The benchmark has made little progress this week as nations attempt to navigate their way through the pandemic. European Union leaders are expected to lay out plans for reopening their economies at a video conference Thursday, while the U.K. suggested it may need to impose tougher restrictions on borders. Meanwhile, AstraZeneca Plc reported a slightly lower efficacy for its vaccine in a U.S. study.
• U.S. equity futures ticked up, boosted by Washington’s upbeat assessments of a recovery in the world’s largest economy. Oil turned lower after a rally spurred by the blockage of the Suez Canal fizzled. Contracts on the Nasdaq 100 index led gains, signaling a potential recovery for tech stocks caught on the losing end of a rotation into cyclical re-opening trades Wednesday. In the premarket, Nike Inc. lost 3.6% as the company risked a boycott in China over its practice of not sourcing cotton from the contentious Xinjiang region. Carnival Corp. rose from its worst three-day slump since November on prospects for the return of cruise-line operations.
• Asian stocks were poised to eke out their first advance in five sessions as investors snapped up cyclical stocks, with industrials and financials driving the advance in the MSCI Asia Pacific Index. Japanese shares were the biggest gainers, as the Topix rose more than 1% for its first gain of the week. Banks and electronics makers boosted the nation’s shares, with Keyence contributing most to the benchmark’s gain after Goldman gave a bullish view of the factory automation sector. Philippine stocks rallied for a third day, ahead of the nation’s central bank’s decision after market close to keep its policy rates unchanged. India’s Sensex led losses among key regional gauges, amid renewed worries over a resurgence of coronavirus cases in the country.
• Oil retreated as traders monitored efforts to dislodge a massive ship blocking the Suez Canal, after two wild days that saw prices whipsaw around 6% in both directions. Futures in New York slid 1.6%, the latest sizable move this week. Work to re-float the container ship that’s stuck in the canal — a key trade route for crude flows — was expected to begin early Thursday in Egypt. The best chance of freeing the vessel may not come until Sunday or Monday. The bounce in oil following the canal incident gave the market a much needed breather after a series of factors including softening demand combined to drive prices to a six-week low on Tuesday. U.S. crude stockpiles, meanwhile, have continued to climb, although domestic fuel consumption has expanded.
• Gold steadied as investors weighed Treasury yields following an auction of notes and Federal Reserve Chairman Jerome Powell’s comments on the economic recovery. Bullion has traded in a narrow range over the past two weeks following a drop to a nine-month low amid a surge in bond yields, which has curbed the metal’s appeal. Decent demand at an auction of five-year Treasury notes calmed worries about Thursday’s seven-year auction following last month’s disastrous sale of the same tenor which sparked a global sell off in bonds. On Wednesday, Powell said the recent rise in Treasury yields reflected a brighter economic outlook as vaccination roll-outs accelerate and was not cause for concern. He said the central bank’s relatively muted forecast for lower unemployment this year — despite very strong expected growth — was actually disguising “highly desirable” labor market gains.
• Israel’s vaccination drive propelled it toward the top of Bloomberg’s Covid Resilience Ranking, transforming everyday life to put the country alongside New Zealand and Taiwan as one of the best places to be in the coronavirus era. Europe is paying the price for a chaotic vaccine rollout, with nine of the 10 most significant declines in March. Poland announced tighter restrictions in the face of a record surge in coronavirus cases. AstraZeneca Plc’s vaccine was 76% effective in a U.S. study, a slightly downgraded estimate based on the latest data collected from a contentious clinical trial. Denmark is extending its suspension of Astra’s shot for another three weeks, amid concerns it might be linked to blood clots. The European Union and U.K. signaled a thawing of relations over vaccine sharing, while a research group is preparing to make public a paper criticizing the trial data from Sputnik V, Russia’s most widely available coronavirus vaccine.
• China’s stock market is showing the world what happens when central banks and governments start exiting pandemic-era stimulus — and it’s not pretty. The CSI 300 Index has lost 15% since climbing to a 13-year high last month as concern about tighter monetary policy replaced optimism about the economic recovery. Like elsewhere, the rally had been led by investors chasing a small number of stocks, many of whom piled in at the top as a frenzy grew. Now the gauge is trailing MSCI Inc.’s global benchmark by the most since 2016 this month and the most popular mutual funds are getting crushed. Central banks around the world are dealing with the aftermath of last year’s multiple interest-rate cuts and trillions of dollars in stimulus. Some, like the Federal Reserve and the European Central Bank, have said they’ll stick to their loose policies for now. Others are being forced to act by inflation risks. Brazillast week became the first Group of 20 nation to lift borrowing costs, with Turkey and Russia following suit. Norway is also turning more hawkish.
• Nine days after the first of two fatal Boeing Co. 737 Max crashes in 2018, the U.S. Transportation Department quietly shelved a major initiative aimed at improving safety at aircraft manufacturers. Now aviation regulators are resurrecting the measure — which enjoys broad support by industry and has been repeatedly cited in reviews of the 20-month Max grounding and in legislation as a critical tool to prevent such accidents in the future. The reason for the delay: the measure to require manufacturers to adopt a so-called safety management system ran afoul of President Donald Trump’s anti-regulatory policies, according to people familiar with the deliberations. The Federal Aviation Administration, which reports to the Transportation Department and had initially sought to mandate such systems in 2018, now says it won’t be able to complete a requirement for them until March 2024.
• Coherent Inc. accepted II-VI Inc.’s $6.88 billion takeover offer, saying it was a better fit for the laser maker than rival bidder Lumentum Holdings Inc. While Lumentum’s bid was higher, Coherent said its board favored II-VI after weighing the risks and opportunities of the rival approaches. Coherent must now pay Lumentum $217.6 million in fees for breaking up their previously agreed deal, which was worth $6.92 billion based on the latter’s closing share price on Wednesday. II-VI “believes its proposal would create significant value for the shareholders of both companies and remains superior to Lumentum’s latest proposal,” II-VI said in a statement late Wednesday. Its offer also includes a $1.5 billion investment from Bain Capital.
• Much of Russia’s Far East is so vast and remote that it’s mostly been left to the bears, wolves and rare breed of tiger that live there. Now the Kremlin wants to use it to convince the world that the country is doing its part to fight climate change. Russia, the world’s biggest energy exporter and one of its largest polluters, is creating a digital platform to collect satellite and drone data about the CO₂ absorption capacity of the region’s forests. The aim ostensibly is to monetize an area nearly twice the size of India by turning it into a marketplace for companies to offset their carbon footprint. The hope is that the plan will also deflect some of the criticism Moscow is getting over its unambitious climate efforts ahead of United Nations talks later this year. Russia has long argued that it should be granted more slack in climate talks for the sequestration potential of its forests, which hold an estimated 640 billion trees. But until now the huge taiga has been poorly managed, leading to record forest fires in the past two years as global warming has made summers hotter and dryer.
• Royal Philips NV will sell its domestic-appliances unit to private equity firm Hillhouse Capital as the formerly sprawling Dutch conglomerate completes its transformation to a focused health-care equipment maker. The deal with Hillhouse values the appliances business at about 3.7 billion euros ($4.4 billion), Philips said in a statement Thursday. The Amsterdam-based company expects to receive cash proceeds of about 3 billion euros once the deal is completed, which is expected in the third quarter. After already exiting consumer-electronics businesses including televisions, DVD players and lighting, the sale of the appliances unit marks Philips’ exit from non-health care-related markets. Chief Executive Officer Frans van Houten has made a string of health-related acquisitions to build out Philips’ telehealth and diagnostics portfolio and provide a one-stop shop for hospitals and clinics looking to optimize costs.
• Cineworld Group Plc said new lending and a U.S. tax refund will carry it to the end of the year even if its theaters remain closed, but spelled out plausible risks that cast “significant doubt” over its survival. London-based Cineworld announced a new $213 million convertible bond due 2025 alongside its full-year results. Paired with a U.S. tax refund, that provides liquidity through to the end of the year, and it added it has debt covenant waivers until June 2022. It will also seek shareholder approval to temporarily suspend its borrowing limit. Shares fell as much as 10.7% in early London trading. The stock has recovered in recent months with vaccination prospects after more than two thirds of its value was wiped off at the outbreak of the pandemic last March.
• Thailand cleared Johnson & Johnson’s single shot Covid-19 vaccine for local emergency use, the third manufacturer to win the approval from the Southeast Asian nation. The Food and Drug Administration approved the shots on Thursday, Deputy Premier and Health Minister Anutin Charnvirakul said in a post on Facebook. Vaccines manufactured by AstraZeneca Plc and Sinovac Biotech Ltd. were previously approved and are being used in the national inoculation program. Bharat Biotech International Ltd. has submitted some documents for approval, while Russia’s Sputnik V, China’s Sinopharm and Moderna Inc.have shown interest in seeking local approvals, according to Paisarn Dunkum, secretary general of the regulator. So far, more than 5,800 are fully vaccinated and 96,000 more have received their first shots.
• Green bonds. Blue bonds. Brown bonds. Environmentally-conscious investors may soon be able to buy a different color of asset every day of the week. Record demand for sustainable finance is spurring this rainbow of debt types by governments and companies, to fund increasingly specific ways of mitigating climate change. While green bonds — which pledge their proceeds to finance wind farms or solar parks — are the dominant species, some of these labels have so far remained relatively niche. That’s set to change as a market now worth over $2 trillion develops rapidly, and as financial engineers create new ways to brand such debt. The greater choice is a boon for the growing cohort of specialist funds with ethical mandates, yet also creates more due diligence in an asset class already lacking clarity thanks to a lack of uniform standards.
• Joe Biden will host his first formal news conference at the White House on Thursday, a high-stakes test for a president facing questions about two recent mass shootings, a surge in migrant children at the U.S. southern border and the ongoing pandemic. Biden’s performance will be under close scrutiny after public appearances during his campaign and early presidency were limited by the coronavirus outbreak. While presidents traditionally hold a news conference within their first month in office, Biden has broken with that precedent, prompting critics to accuse his administration of not being transparent. White House aides have pointed out that the president has repeatedly fielded impromptu questions from the media. He did so on Tuesday during a trip to Ohio, where he spoke about his administration’s response to the mass shootings in Georgia and Colorado as well as Democratic senators’ concerns that his cabinet lacks diversity.
• Sun Capital Partners Inc. is seeking some $2.5 billion for its eighth flagship fund, as the private-equity firm seeks to continue growing its technology and healthcare portfolios, according to people familiar with the fundraising. At about $2.5 billion, the Boca Raton, Fla.-based firm’s new fund would be roughly $200 million larger than its predecessor, Sun Capital Partners VII LP, which closed on $2.3 billion in 2019. Sun Capital has shifted its investment focus somewhat in recent years away from the restaurant sector by pushing into healthcare and technology deals, and earlier this year formally pushed into technology as a target sector by hiring Elizabeth de Saint-Aignan as managing director.
• The pandemic pushed Americans to spend on their homes like never before, tackling do-it-yourself projects with a newfound fervor after years of favoring contractors. Total spending on home improvement and repairs climbed an estimated 3% last year to $419 billion, despite a slowdown in the broader U.S. economy, researchers from Harvard University’s Joint Center for Housing Studies said in a study released Thursday. While that market has been increasing over the past decade, the composition of the spending changed markedly in 2020, as more people took on projects themselves and remodeling shifted away from the coasts to less-expensive areas inland.
• The deep freeze across the central U.S. last month didn’t just darken 4 million homes in Texas. It also left millions of people across the border in Mexico in the dark for days, disrupted water supplies, forced schools and businesses to shut, and knocked out service to about 800 manufacturing facilities that depend on U.S. shale gas for energy. Since then, President Andres Manuel Lopez Obrador has turned the crisis into a rallying cry for more energy independence, weaponizing it to advance a nationalist agenda that has implications beyond natural gas imports and threatens tens of billions of dollars of investments in renewable energy by U.S., Canadian and European energy companies. On a large screen behind his press-briefing podium, he called up the image of a recent Wall Street Journal article showing how the power-market deregulation in Texas cost utility customers billions of dollars.
• The Biden administration will steer nearly $10 billion toward bolstering Covid-19 vaccine access for vulnerable U.S. communities that have suffered the most from the pandemic — including funding aimed at encouraging people to get inoculated. The money, largely from the $1.9 trillion relief package passed earlier this month, will expand Biden’s efforts to help disadvantaged parts of the country, including Black and Latino communities where people are more likely to fall ill with coronavirus and die from it.
• The U.S. high-yield corporate market is about $2 billion away from making this the busiest quarter of all time, with at least three borrowers set to sell debt Thursday. Barclays sees scope for the economic growth outlook to be further revised higher and bond yields to rise driven by expansionary fiscal policy, which should be beneficial for credit spreads.
• United Airlines Holdings Inc. will expand domestic flights that bypass its hub airports, bucking the traditional network strategy of big U.S. carriers and extending a push to entice more leisure travelers as demand recovers. Starting in late May, United is planning 26 nonstop flights from seven Midwestern cities to three destinations in South Carolina, one in Florida and one in Maine, according to a company statement Thursday. The new service follows the November addition of direct flights to Florida from the East and Midwest that avoided the company’s hubs in Chicago and Newark, New Jersey. The strategy reflects demand from vacationers for nonstop service that keeps them away from large, potentially congested airports amid the coronavirus pandemic, even as U.S. vaccination rates increase. Faced with a severe dearth of business-passenger and international traffic, major airlines have also revamped large parts of their networks to serve leisure travelers.

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*All sources from Bloomberg unless otherwise specified