March 26, 2021
Daily Market Commentary
- Canadian equities reversed their drop to closer higher Thursday, with multiple groups paring losses. The S&P/TSX Composite Index rose 0.1% as nine of 11 sectors rose. Tech and materials lagged, while health care led the charge. Oil dropped as a strengthening dollar and mounting lockdowns in Europe blunted the potential impact of crude cargoes backing up outside the blocked Suez Canal. Canada’s efforts to combat climate change scored a major victory after the country’s top court ruled that Prime Minister Justin Trudeau’s national carbon tax is constitutional.
- Cannabis stocks are on pace for their first back-to-back quarterly gains in four years, and investors are optimistic the rally has legs as states like New York move to fast-track legalization. Bloomberg Intelligence’s Global Cannabis Competitive Peers Index has gained 33% so far this year, adding to its 45% surge in the fourth quarter of 2020. That consecutive increase is the first and also the biggest since 2017, before recreational marijuana use was legalized in Canada. Tilray Inc.’s stock leads the index this quarter, gaining over 170%, while Organigram Holdings Inc. surged over 170% during the same period, aided by a $175 million investment from British American Tobacco Plc. Aphria Inc. has jumped 157%.
- European equities rose at the end of a volatile week of trading as fresh U.S. vaccine targets boosted optimism about global growth prospects. The Stoxx Europe 600 Index climbed 0.8% as of 8:08 a.m. in London, after overnight gains on Wall Street as U.S. President Joe Biden doubled his vaccination target for the first 100 days. Value and cyclical shares led broad sector gains in Europe as miners jumped 2.3%, while oil shares also rallied as the Suez Canal blockage continued. Banks outperformed, while health-care rose the least. Stocks in Europe have whipsawed since mid-March on concern over whether the rising virus rate and setbacks in the vaccination program will delay the economic reopening. Still, many market players are bullish about the region’s equities as cheap and cyclical shares gather pace, and the Stoxx 600 is less than 2% away from a record reached in February 2020.
- U.S. stock-index futures rose, oil rebounded and long-dated Treasury yields advanced after President Joe Biden doubled the goal for his vaccination drive and the Federal Reserve freed banks from pandemic restrictions on dividends. The dollar slid for the first time in four days. Risk appetite made a comeback across the world on economic-recovery bets, capping a volatile week beset with vaccine-supply disputes, a traffic block on the Suez canal and further deterioration in China’s relations with the West. The renewed optimism helped investors look past a sluggish debt auction in the U.S. Nasdaq 100 mini contracts expiring in June led increases in the derivative market, signaling technology stocks may retain traders’ favor. Gains for the S&P 500 mini futures suggested the U.S. benchmark may erase its second weekly decline. Cruise-line operator Carnival Corp. and Occidental Petroleum Corp. rose at least 2.4% in premarket trading.
- Japanese stocks rose for a second day amid optimism over Covid-19 vaccines and after the yen weakened against the dollar. Electronics and auto makers were among the biggest boosts to the Topix index, with all 33 industry groups gaining. SoftBank Group and Advantest were the biggest contributors to the rise in the Nikkei 225. The yen slightly extended its loss through 109 per dollar. Asian stocks rallied broadly, following U.S. peers higher after President Joe Biden announced a new goal of administering 200 million Covid-19 vaccine doses in his first 100 days in office. Meanwhile, the Federal Reserve announced banks that clear stress tests can raise dividends after June 30.
- Oil resumed gains, mirroring sentiment in broader markets, after a volatile few days that that saw prices swing wildly around $60 a barrel. Futures in New York climbed 2.2% with a gauge of market volatility at its highest since November. The Suez Canal blockage is rumbling on, but its impact on headline prices has been muted. Still, shipping rates have climbed and a gridlock of vessels are waiting to pass through the vital artery, with efforts to dislodge the Ever Given expected to take until at least Wednesday. Oil’s gains on Friday came amid a rise in broader markets and a weaker dollar, aided by optimism around Covid-19 vaccine distribution. Still, U.S. virus cases are rising again and some European countries renewed lockdowns in a setback for the global recovery.
- Gold headed for a weekly drop even as bond yields halted their advance, under pressure from a dollar strengthening on the success of the U.S. vaccine program. Treasury yields are set to post their first weekly loss since January after a slate of bond auctions passed without a repeat of the disaster that caused a spike last month. That’s eased the pressure on gold, though a dollar that’s strengthened on U.S. vaccine success has hurt the metal this week. On Friday, gold steadied as the dollar trimmed its weekly gain, while risk sentiment improved and European equities advanced.
- Dislodging the container vessel blocking the Suez Canal will take until at least Wednesday, a longer effort than initially feared that will amplify the disruption to global supply chains for everything from oil to grains to cars. The extended halt to traffic through one of the world’s most important waterways is stretching a container-shipping industry that’s already operating at full capacity. It threatens costly delays for European companies that rely on a steady flow of Asian imports and for consumers who’ve grown fond of fast online purchases during the pandemic. The task of re-floating the 200,000-ton ship called Ever Given, which is still firmly wedged across the vital maritime trade route, will require about a week of work and potentially longer, said people familiar with the matter, who asked not to be identified. Rescue efforts had initially been expected to last only a couple of days.
- The European Medicines Agency is expected to grant regulatory approval to two vaccination plants in the Netherlands and Germany as soon as Friday, according to two people familiar with the matter. Earlier, EU leaders gave their guarded support to a plan to restrict vaccine exports after it emerged the bloc sent more shots to the rest of the world than it has given to its own people. Meanwhile, new infections are on the rise around the world. On Thursday, more than 733,000 cases were reported, the highest since mid-January. Germany’s health minister said cases are rising too rapidly and the health-care system is in danger of reaching capacity next month.
- President Joe Biden’s administration appears relaxed about running large budget deficits, but for one government agency that’s usually been a cue to start sounding alarms. The Congressional Budget Office –- whose job is to evaluate how new legislation will affect the public finances — finds itself in a tough spot as Biden prepares to announce an economic package worth as much as $3 trillion, on top of his $1.9 trillion pandemic relief bill earlier this month. Since its creation in the 1970s, the CBO has often been on the hawkish side of budget arguments, flagging the risk that the U.S. could slide into a fiscal crisis by spending too much. It repeated the warning this month. But the agency has persistently overestimated the government’s borrowing costs — leading to exaggerated debt projections that helped deter public spending.
- The financial incentives that have driven millions of Americans to dump cable TV for streaming services are disappearing fast. With recent price increases at Disney+ and Netflix — along with the debut of Paramount+ and Discovery+ — the streaming landscape is evolving quickly. And it’s getting more expensive to assemble a top-notch streaming collection, with the cost rapidly approaching the level of a traditional cable bundle. If you put together the flagship streaming services from the biggest media and tech companies, including Amazon.com Inc., AT&T Inc., Netflix Inc. and Walt Disney Co., it would now cost you $92 a month in the U.S. That’s almost as much as a typical cable-TV subscription, which S&P Global Market Intelligence puts at $93.50.
- WeWork has agreed to merge with a special-purpose acquisition company, according to people familiar with the matter, in a deal that would take the shared-office provider public nearly two years after its high-profile failure to launch a traditional IPO. The planned merger with the BowX Acquisition Corp. SPAC would value WeWork at $9 billion including debt, the people said. WeWork would also raise $1.3 billion, including $800 million in a so-called private investment in public equity, or PIPE, from Insight Partners, funds managed by Starwood Capital Group, Fidelity Management and others, the people said. WeWork is a big player in the market for flexible office space. It signs long-term leases with landlords, then after renovating a space and furnishing it, subleases small offices or even whole buildings to tenants for as little as a month at a time. Should the merger close in the coming months as expected, it would cap what has been a long and bumpy road toward a listing for WeWork.
- The London Stock Exchange Group has started the European leg of an international offering of bonds to refinance the debt that paid for its $27 billion acquisition of Refinitiv Holdings. The exchange started taking orders on Friday for a four-part offering of euro and sterling bonds, according to a person familiar with the matter, who asked not to be identified because they’re not authorized to speak about it. The transactions come a day after the company sold $4.5 billion of debt across five maturities in the U.S., marking its first return to the international capital markets since 2018. The European deal comprises 1.5 billion euros ($1.8 billion) of bonds in three 500 million-euro tranches — four-year notes initially offered at about 60 basis points over the benchmark spread, seven year debt at around 75bps and a 12-year maturity in the 95bps area.
- AeroFarms, the vertical farming company, is nearing a deal to go public through a merger with blank-check firm Spring Valley Acquisition Corp., people familiar with the matter said. The transaction could give the combined company an equity value of about $1.2 billion, according to the people. An agreement could be announced as soon as Friday, the people said, asking not to be identified discussing confidential information. Vertical farming companies like AeroFarms use artificial light and heat produce plants and vegetables outside traditional growing seasons. The industry is seen as vital to helping reduce global hunger and restore forests depleted by commercialized agriculture. The prospect of solving both problems has enticed all sorts of investors, from tech entrepreneurs to restaurateurs.
- Growing vaccine nationalism in major producers like India are hitting the world’s most disadvantaged nations the hardest, leaving them waiting for millions of doses promised through a World Health Organization-backed inoculation initiative. The plans to keep more vaccine supply for domestic use are exacerbating what the WHO’s head this week called a “grotesque” supply chasm between rich and poor nations, dealing another blow to the prospect of global solidarity in fighting the Covid-19 pandemic. The world’s biggest vaccine manufacturer, India’s Serum Institute, is a key supplier to Covax, a program through which 2 billion vaccine doses are supposed to be distributed to middle and low-income countries, many of which have no ability to sign procurement contracts on their own.
- Germany’s Finance Ministry gave explicit backing in 2019 to financial regulator BaFin’s controversial approach to fraud accusations at Wirecard AG, raising questions about its role in one of the biggest corporate scandals in recent history. In a March 2019 phone call, Deputy Finance Minister Joerg Kukies gave the head of BaFin, Felix Hufeld, broad support for his efforts to investigate the allegations, according to briefing documents for a parliamentary hearing on Wirecard seen by Bloomberg. Hufeld had at that point already implemented an unprecedented ban on short-selling Wirecard stock, and went on to file lawsuits against journalists who had reported on the accounting irregularities at the company.
- Allianz SE, Europe’s largest insurer, is to purchase the Polish operations of Aviva Plc for 2.5 billion euros ($2.9 billion). The deal values London-based Aviva’s Polish business at 2.7 billion euros, according to a statement from Aviva Friday. It’s subject to regulatory approval and is expected to complete within 12 months. The sale completes Aviva Chief Executive Officer Amanda Blanc’s plan to boost the London-listed insurer’s struggling share price by offloading non-core assets. Blanc has wasted little time since taking the helm in July, agreeing to sell a majority stake in its Singapore business for about $2 billion and pushing ahead with the disposal of units in Italy, France and now Poland.
- China announced retaliatory sanctions on senior British politicians including the former leader of the ruling Conservative Party for “maliciously spreading lies and disinformation” about its Xinjiang region. The Chinese Foreign Ministry announced in a statement on Friday that it is targeting nine individuals and four entities in the U.K. The nine sanctioned individuals are former Conservative leader Iain Duncan Smith, the party’s policy adviser Neil O’Brien, chair of Parliament’s foreign affairs committee Tom Tugendhat, David Alton, Tim Loughton, Nusrat Ghani, Helena Kennedy, Geoffrey Nice and Joanne Nicola Smith Finley.
- Social Finance Inc., the online lender that earlier this year reached a deal to go public, plans to offer its retail customers the ability to invest in initial public offerings. “If you’re going to achieve your financial goals, having access to a broad range of diversified investment opportunities is imperative,” SoFi Chief Executive Officer Anthony Noto said Friday in a statement. “Gaining access to primary offerings is another way to diversify your portfolio that has previously been restricted to a select few.” Robinhood Markets, the online brokerage that said earlier this week it had filed confidentially for its own IPO, is also building technology that would let its customers buy into initial offerings, Reuters reported Thursday.
- Deutsche Bank AG Chief Executive Officer Christian Sewingis set to relinquish his role overseeing the lender’s sprawling investment bank, in a move aimed at appeasing regulators and freeing him up to focus on his restructuring of the institution. Germany’s largest lender will likely decide on a successor over the next couple of months, said people familiar with the plans. The bank is vetting candidates, with an internal replacement most likely at this point, the people said, asking not to be identified discussing the private information. Sewing took on the dual role of CEO and investment banking head as part of his decision in 2019 to pull out of equities trading and slash the division’s headcount. The decision was seen with skepticism by the bank’s regulators, who told Sewing soon after they’d prefer him to give up the role out of concern it overburdens him. While the bank returned to profit last year as it benefited from a broad trading rally, the regulators’ view hasn’t changed, the people said.
- Apple Inc. is considering launching an Apple Watch with a rugged casing aimed at athletes, hikers and others who use the device in more extreme environments, according to people familiar with the matter. The Cupertino, California-based technology giant has internally discussed introducing such a Watch variation later in 2021 or 2022 at the earliest, said the people, who asked not to be identified discussing private matters. This is at least the second time Apple has mulled a rugged smartwatch. After launching the first version of the Apple Watch in 2015, the company weighed a new model to better appeal to extreme sports athletes. The current version is still popular with runners, hikers, and swimmers, and Apple has added several sports and activity-tracking features via its annual update cycle. However, Casio Computer Co. and other watchmakers have seen strong sales from sturdier product designs with extra protection.
- Retirement products provider Jackson Financial delayed a $1.6 billion high-grade bond sale Thursday, which will likely impact the final pricing, according to CreditSights. WeWork agreed to merge with a special-purpose acquisition company at valuation of $9 billion with debt, Dow Jones reports. Jackson Financial delayed the offering after the U.S. unit of Prudential received late notification concerning potential claims by two recently departed executives, a representative for the company said Thursday
- After posting their worst returns in 13 years, Argentina’s banks are blaming part of their losses on the government’s pandemic measures and asking the central bank to ease the squeeze. Officials from Argentina’s four biggest banking industry groups, which include foreign and local institutions, held several meetings, calls and message exchanges over the past weeks with central bank chief Miguel Pesce and Production Minister Matias Kulfas, asking them to eliminate or modify some of the regulations, according to people with direct knowledge of the matter. The banks are complaining about measures taken in 2020 to support the economy in the middle of the pandemic, such as mandating that financial institutions give out loans with rates lower than inflation, eliminating commissions for certain services and deferring loan payments. The government is reluctant to eliminate these measures as it seeks to revive economic activity ahead of midterm elections, the people said.
“The unexamined life is not worth living” – Socrates
*All sources from Bloomberg unless otherwise specified