March 30, 2021

Daily Market Commentary

Canadian Headlines

• Canadian equities fell Monday after paring a bigger slump earlier in the day. The S&P/TSX Composite Index fell 0.2%, with pot and technology stocks among laggards. Consumer staples were strong. Health officials in Canada are halting the rollout of AstraZeneca Plc’s Covid-19 vaccine to people under 55 over concerns it could lead to blood clots in rare circumstances. Oil climbed to the highest in almost two weeks as traders looked ahead to this week’s OPEC+ meeting with speculation that renewed demand concerns will spur the group to keep production in check.
• Canadian data centers have turned into acquisition magnets. Montreal-based eStruxture Data Centers Inc. said Tuesday it’s buying eight facilities from Aptum Technologies, more than doubling its locations across Canada and gaining a foothold in Toronto. The deal is the latest sign of fast consolidation among Canadian data centers, the target of several U.S.-led deals in the past two years. U.S. investors that have gone north include Boca Raton, Florida-based Digital Colony Management, which last year helped finance the acquisition of a centerin Montreal, and in 2019 bought the assets that now form Aptum Technologies from Cogeco Communications Inc. Redwood City, California-based Equinix Inc. also scooped up 25 data centers from BCE Inc. last year for more than C$1 billion ($794 million), and Compass Datacenters LLC of Dallas bought Montreal-based ROOT Data Center in 2019.
• As a record-breaking surge in Toronto home sales starts to spark concern that a bubble may be forming, one part of the market in Canada’s largest city is running even hotter than the rest: the luxury end. Sales of homes worth more than C$4 million ($3.2 million) surged 157% in January and February from a year earlier, brokerage Sotheby’s International Realty Canada said in a report released Tuesday. By contrast, data from the Toronto Regional Real Estate Board for the same period showed sales across all price ranges rose 52%.

World Headlines

• European equities rose on Tuesday, nearing a record high, as investors focused on prospects of faster vaccine progress in the U.S. and as contagion concerns over the implosion of Archegos Capital Management remained subdued. The Stoxx Europe 600 Index climbed by 0.5% as of 9:45 a.m. in London, with most sectors in the green, while Germany’s DAX Index rose to a fresh record. The U.K.’s FTSE 100 Index also advanced, up 0.7% to its highest in more than a year. Banks were the biggest gainers after Monday’s slump which was fueled by the Archegos debacle. HSBC Holdings Plc rose 1.9% and Credit Suisse Group AG added 1.8%. Energy stocks were up by 0.7% as traders looked ahead to this week’s OPEC+ meeting after the reopening of the Suez Canal.
• Treasury yields rose with stocks as President Joe Biden’s spending plans and ramped-up vaccine efforts stoked bets for a quicker economic recovery. U.S. index futures fluctuated as traders assessed the fallout from the implosion of Archegos Capital Management. Biden, in an address Wednesday in Pittsburgh, will detail a mass expansion of government spending aimed to reducing inequality and strengthening infrastructure. A revamp of the tax code is also part of the plan and is already proving divisive among economists and lawmakers. Ten-year Treasury yields rose to 1.77%. The five-year rate rose as high as 0.95%, a 13-month high, followed by a block sale in the notes. The U.S. reached a record three-day stretch of 10 million shots over the weekend, according to the Bloomberg Vaccine Tracker, and plans to offer inoculations to 90% of adults.
• Asia’s equity benchmark fluctuated between gains and losses after a two-day gain, with losses in Japan and some Southeast Asian markets offsetting a rally in China and South Korea. The Topix declined 0.8%, halting a three-day rally, as a majority of stocks on the index traded without rights to their next dividends. Nomura Holdings extended losses after plunging by a record on Monday, when the brokerage said it may have incurred a “significant” loss arising from transactions with a U.S. client. Meanwhile, stocks in China, Hong Kong and South Korea and India rallied, with the CSI 300 Index set for third day of gains. The gauge has been anchored at a key support level as traders awaited further clarity from corporate earnings.
• Oil fell beneath $61 a barrel in New York, hampered by a stronger dollar, as traders weighed risks to the demand recovery ahead of OPEC+’s ministerial meeting this week. West Texas Intermediate slid 1.7%, while the greenback was stronger, making commodities priced in the currency less attractive. Treasury yields also climbed. While fuel consumption is rising in many parts of the world, risks remain, with the head of the U.S. Centers for Disease Control and Prevention warning of “impending doom” as cases and deaths in the country pick up. Oil is poised to close out a fourth quarterly advance on Wednesday, but the past week has seen volatility climb amid the Suez Canal blockage. All eyes are now on the Organization of Petroleum Exporting Countries and its allies, whose ministers gather Thursday to decide output policy for May and possibly beyond, and are expected to maintain tight curbs to deplete global inventories further.
• Gold extended its biggest fall in more than three weeks as President Joe Biden prepared to unveil big spending plans after announcing major progress on rolling out vaccines. Biden said 90% of U.S. adults will be eligible for Covid-19 vaccines by April 19, boosting risk appetite even as concerns linger around new strains of the virus. The president will also this week unveil major plans to reboot the U.S. economy and boost employment. Gold is heading for its first quarterly decline since 2018 as a nascent global recovery reduces the safe-haven’s appeal. A stronger-than-expected dollar and rising bond yields have also dragged bullion down from its record high in August last year.
• U.S. stock prices will double over the next decade, as pandemic-induced policy changes and an increasingly desperate hunt for real returns push investors to equities, Sanford C. Bernstein strategists said. The S&P 500 index will reach 8,000, up from its 3,971 close on Monday, Inigo Fraser-Jenkins and Alla Harmsworth wrote in a note. Back in 2019, the two strategists had disagreed over the outlook, with Fraser-Jenkins giving a forward target price of 4,000 and Harmsworth 8,000 for the next decade. “We are in a totally new policy environment where there is a case for higher (but not too high) inflation and also the possibility that real rates remain low,” Fraser-Jenkins said in an email, when asked about his change of mind, which now puts him in agreement with Harmsworth. “We see this higher forecast now as a confluence of policy changes and the needs of investors to achieve a given level of real return.”
• World leaders have called for an international treaty on pandemic preparedness after Covid-19 exposed weaknesses in the system. BioNTech SE and Pfizer Inc. raised their 2021 production target, Israel is buying millions of vaccine doses for future use and France has found a new variant. Sweden’s health agency said a planned easing of restrictions should be postponed because of a surge in infections, and Italy is set to impose new quarantine rules on travelers from other parts of the European Union. Meanwhile, more than half of England’s population was estimated to have Covid-19 antibodies earlier this month. In Asia, Hong Kong’s leader said the territory could eventually make vaccination a requirement for quarantine-free travel to destinations such as Singapore and urged residents to take their shots. The Philippines will allow private companies to import vaccines “at will” to boost inoculations.
• The stocks at the center of the Archegos Capital Management crisis posted gains in premarket trading as investors assessed whether the fallout from forced offerings has further to run. ViacomCBS Inc. rose 1.6% at 7:03 a.m. in New York following its weeklong plunge, with Discovery Inc. up 1% and Tencent Music Entertainment Group climbing by 1.5%. The American depositary receipts of Chinese companies Baidu Inc. and GSX Techedu Inc. also advanced, while Vipshop Holdings Ltd. gained 4% after announcing a $500 million buyback. Shares in the companies, which also include Farfetch Ltd. and Iqiyi Inc., have had a rocky couple of sessions following the forced liquidation of positions linked to Bill Hwang’s Archegos, with ViacomCBS down 55% in the last week. While investors remain nervous about the potential for more liquidations, there have been no signs yet of a broader contagion.
• Shares of ByteDance Ltd., the Chinese parent of hit video app TikTok, are trading at a valuation of more than $250 billion in the secondary market, according to people familiar with the matter. The Beijing-based startup’s value has surged in recent weeks as investors gain confidence in the business and founder Zhang Yiming weighs options for an initial public offering, said the people, asking not to be named because the transactions are private. ByteDance was valued at $140 billion during its last fundraising, according to CB Insights. The company’s shares traded at a roughly $200 billion valuation in private transactions just a month ago, one of the people said. At $250 billion, ByteDance would be more valuable than Exxon Mobil Corp. or Coca-Cola Co.
• SSE Plc plans to sell its 33% stake in local gas network company Scotland Gas Networks Plc as part of its plan to focus on renewable generation. SSE said in February it had appointed banks to review options for a sale and is “now progressing options for divestment of all its equity stake in SGN,” according to a statement on Tuesday. The company will continue to own and operate its electricity grid business Scottish and Southern Electricity Networks. SSE is building the world’s biggest offshore wind farm at Dogger bank and has a 2 billion-pound ($2.8 billion) divestment plan by autumn 2021.
• Data management business Cohesity Inc., backed by SoftBank Vision Fund, said it’s now valued at $3.7 billion, up from $2.5 billion last year. The valuation was ascertained as part of a tender offer by investors for employee shares expected to total about $145 million, Cohesity founder and Chief Executive Officer Mohit Aron said in an interview. The investment is being led by Steadfast Capital Ventures, with participation from existing investors, including SoftBank Vision Fund, DFJ Growth, Foundation Capital and Wing Venture Capital. Cohesity, whose clients include Cisco Systems Inc. and NASA, provides data management services, saying its products can simplify backup and recovery and defend against cybersecurity threats.
• Qell Acquisition Corp., the blank-check company started by former General Motors Co. North America President Barry Engle, is taking German electric-aircraft startup Lilium GmbH public through a reverse merger. The deal will list Lilium on the Nasdaq and values the combined company at approximately $3.3 billion, according to a statement Tuesday. Lilium will bring in proceeds of $830 million, including about $380 million in cash currently held in trust and $450 million from private investments in public equity. Qell is making a high-stakes bet that Lilium will succeed in the nascent business of small electric aircraft. The startup intends to get its planned seven-seat vertical takeoff and landing craft completed and ready to launch commercial passenger service in 2024. Later, with additional funding, the Munich-based company plans to build a 16-seat model to move passengers across congested cities at rates competitive with high-speed rail. Bloomberg News reported the companies were in talks earlier this month.
• Alarms were blaring inside Wall Street’s corridors of power in the middle of last week, as executives realized they might be facing the biggest hedge fund blowup since Long-Term Capital Management in the 1990s. Global investment banks, gathering in a hastily arranged call, needed a swift truce to deal with Bill Hwang’s Archegos Capital Management if they were to head off billions of dollars in losses for banks and a potential chain reaction across markets. Yet by Friday, it was everyone for themselves. The forced liquidation that sent bellwether stocks tumbling last week and continues to send shock waves across capital markets, was preceded by bickering in the highest rungs of international finance that quickly devolved into finger-pointing and now fury, according to people with knowledge of the situation. Banks are just starting to tally the carnage.
• Food-delivery startup Deliveroo Holdings Plc is likely to price shares in its initial public offering at 390 pence each, the bottom of the range at which they were marketed, according to terms seen by Bloomberg News, as reluctant investors and nervous markets weigh on London’s biggest listing this year. The sale will raise 1.5 billion pounds ($2.1 billion) at that price, assuming the company and its shareholders sell all of the 384.6 million shares on offer, below the 1.77 billion pounds that Deliveroo could have garnered at the high end of the range. Books on the offering close today at 1 p.m. London time, the terms show. Deliveroo’s offering has been plagued by a growing list of funds saying they won’t buy shares over concerns that the company’s treatment of couriers doesn’t align with responsible investing practices. Hundreds of riders are also expected to refuse to make deliveries when the shares begin trading on Wednesday.
• Germany increased planned bond sales in the second quarter by 2.5 billion euros ($2.9 billion), as the government ramps up borrowing to help offset the impact of the coronavirus pandemic. Federal government bond issuance will rise to 59.5 billion euros in the April-June period, up from 57 billion euros planned at the end of last year, the Federal Finance Agency said Tuesday. While the agency said that uncertainty due to the virus crisis and “related challenges” to budget planning could prompt additional issuance adjustments in the second half, Managing Director Tammo Diemer said that he did not expect any “significant changes” from today’s perspective.
• Governments and the World Health Organization are uniting on a push for a new treaty to improve defenses against future pandemics after the Covid-19 outbreak exposed weaknesses in the system. The main goal of the accord would be to ensure what the WHO, one of the signatories, has called for throughout the pandemic: a collective approach across countries and societies that would make the world more resilient in future outbreaks. The push comes amid signs that getting past the pandemic will still take time. Many countries in Europe have recently instituted tighter lockdown measures amid a resurgence of Covid cases. In the U.S., the head of the U.S. Centers for Disease Control and Prevention warned of “impending doom” amid a new wave of infections.
• Xiaomi Corp. plans to invest about $10 billion over the next decade to manufacture electric cars, embarking on its biggest-ever overhaul to enter China’s booming EV market. Billionaire co-founder Lei Jun will lead a new standalone division that will invest an initial 10 billion yuan ($1.5 billion) on smart vehicle manufacturing, the company said in an exchange filing. The Chinese smartphone maker joins tech giants from Apple Inc. to Huawei Technologies Co. in targeting the vehicle industry, betting future cars will grow increasingly autonomous and connected. Depending on progress, Xiaomi could end up investing a total 100 billion yuan in the project in as little as three years, taking external financing into account, a person familiar with the matter told Bloomberg News before the announcement. The company will contribute about 60% of the envisioned sum and plans to raise the rest of the funds, said the person, who asked not be identified because the plans are private.
• HSBC Holdings Plc’s private bank raised more than $2.3 billion from private clients for alternative investments globally in 2020, a record and an over 90% jump from the previous year. Clients in Asia, where HSBC is targeting wealth management as a growth engine, added $1.34 billion for alternative investments, while Europe, the Middle East and Africa saw $963 million of inflows, the London-based bank said in a statement Tuesday. “In Asia, despite the challenges posed by Covid-19, our alternatives business saw a record year in capital raising,” said Edward Moon, regional head of alternative investments Asia at HSBC Private Banking. “In particular, there was increased investment activities across the private markets spectrum.”
• BioNTech SE and Pfizer Inc. raised this year’s production target for their Covid-19 vaccine to as many as 2.5 billion doses, with the German biotech’s chief executive predicting a version of the shot that can be stored in refrigerators will be ready within months. The new target represents an increase of about one quarter from the company’s earlier estimate. BioNTech said it expects 9.8 billion euros ($11.5 billion) in revenue from the supply contracts signed already, which amount to 1.4 billion doses. Revenue expectations include milestone payments from BioNTech’s partners and will rise as more orders are signed, the company said in a statement on Tuesday. “We are seeing an increased demand,” Chief Executive Officer Ugur Sahinsaid in an interview. “At the moment we have prepared ourselves to produce 2.5 billion doses, but in principle there is room for further increase.”
• Nissan Motor Co.’s former top lawyer, who led an internal investigation into alleged financial misconduct by Carlos Ghosn, said he endured retaliation, demotions and even corporate surveillance of his family after questioning the integrity of the probe. Former Global General Counsel Ravinder Passi, speaking for the first time about the arrest of Nissan’s celebrated ex-chairman Ghosn and his daring escape out of Japan, described what he views as a toxic corporate culture, one rife with fear, intrigue and reprisals for those who step out of line. In an extended interview for Bloomberg’s QuickTake Storylines, Passi said he knew of similar instances of Nissan’s top managers having security teams tail individuals. “I had seen the Nissan security department behave in a very, very egregious manner with others, in terms of following, surveilling.”
• GameStop Corp. shares rose after the company named Elliott Wilke as chief growth officer, the latest in a string of senior executive appointments, and part of a corporate overhaul by activist investor and board member Ryan Cohen. In addition to Wilke, the video-game retailer also named Andrea Wolfe as vice president of brand development and Tom Petersen as vice president of merchandising to help implement Cohen’s strategy of turning the brick-and-mortar chain into an e-commerce powerhouse. Wilke joins from Amazon.com, where he spent the past seven years, and will start on April 5, while Wolfe and Petersen were previously at Chewy Inc. and joined the company effective Monday.

“There is only one good, knowledge, and one evil, ignorance.” – Socrates

*All sources from Bloomberg unless otherwise specified