March 29, 2021

Daily Market Commentary

Canadian Headlines

• Canadian equities fell this week with health care and technology stocks leading the declines, while utilities advanced. The S&P/TSX Composite Index still rose 0.5% Friday, with eight of eleven sectors higher. Materials and energy led the charge. Canada received assurances Covid-19 vaccine shipments to Canada will continue from the European Union after speaking to officials from the European Commission and three EU countries about the tightening of export restrictions, according to two statements from the Canadian government.
• Canadian activity has proved sturdier than anticipated since spring 2020, with real GDP and employment on track to post uninterrupted sequential quarterly gains. This pattern mirrors the U.S. and stands in contrast to first-quarter retrenchment in Europe. Near-term risks including glacial vaccine rollout, strained supply chains, and a third wave of rising Covid-19 transmission in March should not be dismissed. Yet even if service-sector unlocking proves delayed in time or reduced in initial intensity, we expect persistent tailwinds will remain in place. Massive U.S. fiscal aid will have positive spillovers for Canada, where the government is set to unveil its own aggressive budget plans in April. These factors help drive our above-consensus view on Canadian growth for 2021.

World Headlines

• European equities climbed on Monday as energy stocks rallied, outweighing concerns over a $20 billion wave of U.S. block trades that roiled the region’s banking and financial services sectors. The Stoxx 600 Index was up 0.4% by 12:14 p.m. London time, recovering from a dip of as much as 0.1%. Food and beverage companies, oil and chemicals stocks were among the biggest gainers, while semiconductor equipment makers boosted the tech sector. However, the banking subindex slid as much as 1.3%, while the region’s financial services gauge dropped 1.6%, as lenders across the region assessed their exposure to an unwinding of leveraged equity bets by Archegos Capital Management. Credit Suisse Group AG was the biggest faller, plunging as much as 15%, while Deutsche Bank AG slipped 3.2%. Shipping stocks were also a weak spot, with A.P. Moller-Maersk falling 0.7% and Frontline Ltd. down 5.2% after the vessel blocking the Suez Canal was successfully refloated.
• S&P 500 Index futures edged lower as traders weighed the impact of forced block trades that took the shine off a record Wall Street close. Nasdaq futures pared losses, while oil rose as traders looked ahead to this week’s OPEC+ meeting. Contracts on the S&P 500 declined, while Nasdaq 100 futures were little changed, following revelations that Archegos Capital Management LLC — the family office of Bill Hwang — was behind a $20 billion spree of block trades on Friday, selling Chinese tech giants and U.S. media firms. With a number of banks said to be exposed to Archegos, investors are are on the lookout for signs of contagion.
• Another Monday, another test for Asian markets successfully negotiated. For a second straight week, the region’s traders faced a potential drag from weekend news. And they pulled through the equity block-trade drama with little sign of panic, just as they had weathered a plunge in the Turkish lira the week before. Shares in Nomura Holdings Inc. did plunge 16% Monday, as some of the world’s biggest banks tallied their exposure to wrong-way bets by Archegos Capital Management. That followed an extraordinary $20 billion wave of block trades, which rattled investors Friday. But the MSCI Asia Pacific Index of stocks eked out a gain of 0.2%, and currency markets likewise proved resilient for much of the Asian trading session.
• Oil rose with traders looking ahead to an OPEC+ meeting this week and as salvage teams partially refloated the giant vessel that has been blocking the Suez Canal for days. West Texas Intermediate erased earlier declines, following volatile trading in recent days. The market’s focus remains on the demand impact of renewed coronavirus lockdowns before the OPEC+ discussions on output policy on Thursday. The first steps have been taken toward reopening one of the world’s most important waterways, maneuvers continue to fully free the Ever Given container ship. Oil is set to close out a fourth consecutive quarterly gain this week, aided by sustained supply curbs imposed by the Organization of Petroleum Exporting Countries and its allies, and optimism that global demand will expand as coronavirus vaccines get rolled out. But a run of three weekly losses for WTI has put a dent in crude’s performance, underpinning speculation that OPEC+ will again refrain from easing curbs when ministers hold their virtual meeting this week.
• Gold retreated as the dollar ticked higher amid nerves in equity markets caused by a large family office liquidating positions, while investors continue to assess the outlook for bond yields ahead of more stimulus to aid the U.S. economy. Ten-year U.S. Treasury yields retreated and a gauge of the dollar held near the highest since November as traders braced for potential fallout from a wave of forced selling by hedge fund Archegos Capital Management. President Joe Biden plans to unveil a further stimulus program with a tilt toward infrastructure later this week, while data Friday showed U.S. household spending declined in February and incomes fell as the initial boost from stimulus checks at the start of the year fade. Gold has remained range bound in recent weeks, but is still down about 9% this year as the roll out of vaccines boosts demand for havens. So far bond yields have climbed faster than inflation expectations, raising real rates and putting pressure on gold. That’s despite Federal Reserve Chair Jerome Powell’s pledge to keep monetary policy loose until the economy has “all but fully recovered.”
• Global Covid-19 cases rose for a fifth straight week, while the death toll also continued to accelerate. India’s infections on Monday climbed the most since October. German Chancellor Angela Merkel threatened to assert federal control over measures to stem the pandemic, picking a legal fight that reflects the gravity of the latest wave of infections. Britons are being urged to follow the rules or risk a resurgence of the virus as England takes a much-anticipated step toward exiting restrictions. The coronavirus probably spread from bats to humans via another animal, with the likelihood it was leaked from a lab in China “extremely unlikely,” according to the long-awaited results of a World Health Organization-China study reported by the Associated Press.
• The U.K. government rejected a request from Sanjeev Gupta’s GFG Alliance for a 170 million-pound ($234 million) bailout as it struggles to stay afloat following the collapse of its biggest lender. The plea was rebuffed amid concerns by ministers over the structure and corporate governance at GFG, and whether bailout funds would remain in the country, a person familiar with the matter said. The request came on Friday. Without the funding boost, thousands of jobs may be at risk in Gupta’s U.K. operations. He owns a dozen steel mills in the U.K. under his Liberty Steel division, and an aluminum smelter in Scotland. In all, GFG has some 5,500 employees across the country, with 3,000 of them at Liberty’s operations.
• President Joe Biden this week will reveal the scope and ambition of his plans to expand and reorient the U.S. government, setting the stage for a bitter fight on Capitol Hill that could define his presidency. Biden will unveil the framework for a major infrastructure-and-jobs program on Wednesday in Pittsburgh, and later in the week offer the first glimpse of his 2022 budget — which promises to redirect federal funds to areas such as climate change and health care. The announcements will offer the first concrete details of Biden’s plan to overhaul federal spending, in a sales pitch without the immediacy of the pandemic emergency that he had for his first package. To succeed, Biden will have to convince the public and lawmakers on a multi-trillion dollar investment in infrastructure and social safety nets, along with a revamp of the tax code to help address funding needs and widening inequality.
• Investors added money to exchange-traded funds that buy emerging market stocks and bonds last week. This was the 21st straight week of inflows. Inflows to U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $957.5 million in the week ended March 26, compared with gains of $2.07 billion in the previous week, according to data compiled by Bloomberg. So far this year, inflows have totalled $18.4 billion.
• The Ever Given container ship stuck in the Suez Canal has been partly refloated, but salvage teams and tugs are still fighting to free the vessel entirely so that traffic can resume on the crucial trade route. While the Suez Canal Authority said the Ever Given had been successfully refloated around 4:30 a.m. local time, the head of the company that’s a key part of the rescue mission said it was too early to celebrate. More than 450 ships are waiting near the canal. The backlog is one more strain for global supply chains already stretched by the pandemic as the canal is a conduit for about 12% of global trade. Some ships have already opted for the long and expensive trip around the southern tip of Africa instead of Suez.
• Another large block trade in ViacomCBS Inc. has priced at $47 per share, according a person familiar with the matter, the latest in an extraordinary flurry of such deals that began before the weekend. The shares rose to premarket highs, trading nearly flat from Friday after falling as much as 3.4% earlier Monday. About 45 million shares were offered Sunday on behalf of an undisclosed holder, people familiar with the matter previously told Bloomberg. The most recent block trade known to Bloomberg had offered shares at $46 to $47 each through Morgan Stanley, one of the people said on Sunday. The offering price represents a 2.6% discount to Friday’s closing price. The stock offering represents about 7.7% of the company’s total shares outstanding as of March 24, according to data compiled by Bloomberg. The stake is worth roughly $2.2 billion based on Friday’s closing price.
• Ride-hailing giant Didi Chuxing is raising new funds for its self-driving unit as China’s answer to Uber attempts to supercharge growth beyond its core businesses ahead of an anticipated initial public offering this year. Didi Autonomous Driving is planning to raise as much as $500 million at a valuation of roughly $6 billion, people familiar with the matter said, asking not to be identified discussing private matters. The new proceeds will help Didi speed up mass production of driverless vehicles and invest in technologies like artificial intelligence chips, people said. Plans for the latest fundraising could still change as considerations are at an early stage, according to the people. A representative for Didi declined to comment.
• Food-delivery startup Deliveroo Holdings Plc cut the upper valuation target in its London initial public offering by about 950 million pounds ($1.3 billion), after some institutional investors balked at the company’s treatment of riders. Deliveroo set new guidance of 3.90 pounds to 4.10 pounds a share, according to deal terms seen by Bloomberg. The company initially marketed the offering at 3.90 pounds to 4.60 pounds, valuing it at as much as 8.8 billion pounds. A Deliveroo spokesperson said the adjustment lowered the top end of the valuation target to 7.85 billion pounds. Some of the U.K.’s biggest asset managers said last week they’re concerned the London-based company’s treatment of couriers isn’t aligned with socially responsible investing practices. Hundreds of riders are expected to refuse to make deliveries when the shares begin trading on Wednesday. Some investors also have expressed concern that the company’s dual-class voting structure is counter to good corporate governance.
• Cazoo Ltd. will list in New York after selling itself to hedge-fund founder Dan Och’s blank-check company in a deal valued at $7 billion, turning its back on a potential initial public offering in London. The combination with special-purpose acquisition company Ajax I will raise about $1.6 billion in proceeds for the company, including $805 million in a cash trust from the SPAC and another $800 million from Ajax’s sponsors, Cazoo said in a statement on Monday. London-based Cazoo will be listed in New York after the deal closes, and Och said he plans to join the company’s board. Cazoo previously weighed plans for an initial public offering in London, according to people familiar with the matter. The deal with Ajax I means Britain loses another unicorn to an overseas bidder despite efforts to reform London’s listing rules to make staying local more attractive for founders. More than $175 billion in takeovers of U.K. companies by foreign buyers have been announced in the past year, according to data compiled by Bloomberg. That’s up about 54% from the previous 12 months.
• Broadridge Financial Solutions Inc. is buying electronic trading platform Itiviti Group from private equity firm Nordic Capital. The all-cash transaction is valued at 2.1 billion euros ($2.5 billion), according to a statement Monday from Broadridge, whose technology and operations platforms underpin the daily trading of more than $10 trillion in securities. Stockholm-based Itiviti’s platform serves 24 of the top 25 global investment banks and more than 2,000 brokers, trading firms and asset managers across 50 countries, according to the statement. The company had recurring revenues of about 210 million euros in 2020.
• Southwest Airlines Co. ordered 100 Boeing Co. 737 Max jetliners and said it would purchase as many as 155 more, in the latest sign that the single-aisle program is stabilizing after two torrid years. The firm order for 100 planes, valued at about $10 billion before customary discounts, gives a boost to the smallest model in the Boeing family, the 737 Max 7. Southwest opted to stick with the U.S. planemaker after considering switching over to European rival Airbus SE’s A220. Southwest also switched 70 orders for the larger Max 8 over to the Max 7, while adding options for 155 of either model, it said Monday in a statement.
• China’s coal mining giants surged Monday after promising generous dividend payouts and as prices for the fuel jumped on supply tightness. Shares for China Shenhua Energy Co. and Yanzhou Coal Mining Co. both rose more than 10% in Hong Kong. The companies, China’s largest listed miners by production, said Friday they would give the lion’s share of 2020 profits to shareholders in the form of dividends. They also rose as thermal coal prices jumped to the highest since December, as safety inspections restrict output while a strong economy supports demand. The boost in shares and commodity prices underscores how important the fossil fuel remains even as China begins a long-term shift toward carbon neutrality.
• In a booming global bond market, there are few segments that are growing quite like the money-minting machine for green bonds. So eager are investors to buy up these notes that they’re willing to pay a premium — and accept lower interest payments — for the privilege. The risk is that in this mad rush they’re letting a feel-good label obscure the reality of their investments. At the forefront of concerns among a small but growing contingent of bond buyers is greenwashing: the possibility that governments and companies are exaggerating or misrepresenting their environmental credentials or sustainability bona fides to tap feverish demand, lower borrowing costs and boost their reputation.
• Deutsche Bank AG Chief Operating Officer Frank Kuhnke will probably leave the company as part of a management board revamp, people familiar with the matter said. Kuhnke, one of Chief Executive Officer Christian Sewing’s first appointments, will likely not have his contract renewed when it lapses later this year, the people said, who asked not to be named discussing confidential decisions. His duties could be divided up between existing board members and the bank may announce the changes as early as this week, they said. The overhaul of Deutsche Bank’s governance body is shaping up to be one of the biggest since Sewing took over as chief executive officer almost exactly three years ago. Sewing is set to relinquish his role as head of the investment bank, with Fabrizio Campelli seen as the lead candidate to replace him.
• Carlyle Group Inc. has agreed to buy Fly Leasing Ltd., taking the aircraft company private in a deal with an enterprise value of $2.36 billion. Washington-based Carlyle will pay $17.05 per share in cash for Fly Leasing, adding 84 aircraft to the private equity firm’s commercial aviation investment and servicing arm, according to a statement Monday. The deal is expected to close in the third quarter of 2021. Fly Leasing’s sale comes on the heels of AerCap Holdings NV’s $30 billion deal to buy General Electric Co.’s plane-leasing arm. While air travel is slowly beginning to pick up, leasing firms have suffered during the Covid-19 pandemic. They play a critical financing role in keeping deliveries flowing, often with sale-leaseback deals that hand vital cash to airline carriers.
• Bitcoin and other cryptocurrencies rose after Visa Inc. said its payments network will use a stablecoin backed by the U.S. dollar to settle transactions, as blockchain technology gains more acceptance in the established financial system. As part of a pilot program, Visa is using USD Coin to settle transactions over Ethereum, with the help of the Crypto.com platform and Anchorage, a digital-asset bank, according to a statement Monday by the San Francisco-based payments giant. Visa will offer the service to more partners later this year. Bitcoin jumped by as much as 6.3% during the European session to climb back above $58,000. The wider Bloomberg Galaxy Crypto Index also advanced.

“To find yourself, think for yourself.” – Socrates

*All sources from Bloomberg unless otherwise specified