March  4, 2021

Daily Market Commentary

Canadian Headlines

• CNQ achieved record annual corporate BOE production levels of approximately 1,164 MBOE/d, an increase of 6% or approximately 65,000 BOE/d over 2019 levels. Continued focus on effective and efficient operations and our culture of continuous improvement delivered strong operating cost reductions. As a result, record low annual operating costs of $20.46/bbl (US$15.25/bbl) of Synthetic Crude Oil (“SCO”) produced were achieved at the Company’s Oil Sands Mining and Upgrading segment, a decrease of $2.10/bbl. Our North America Exploration and Production (“E&P”) liquids segment achieved significant operating cost reductions of $1.20/bbl or 10% from 2019 levels.

World Headlines

• European shares tumbled as concerns over valuations among pandemic winners re-emerged with a surge in sovereign bond yields. The Stoxx 600 Europe Index was down 0.9% by 10:50 a.m. in London as technology shares slumped after the Nasdaq 100 on Wednesday fell to the lowest level in two months. Chipmaker ASML Holding NV lost as much as 4.7%. Miners were also among the worst decliners as Rio Tinto Plc and BHP Group Plc traded ex-dividend, while metals dropped on higher bond yields and a stronger dollar. A spike in yields in U.S. treasuries and German bunds is testing investors’ appetite for the frothier segments of equities, such as pandemic winners and defensive shares, but also some cyclical sectors that have rallied in the past weeks on the reopening optimism. The Stoxx 600 is trading within about 5% of last year’s pre-pandemic record high.
• U.S. futures edged down and European stocks fell on Thursday as traders awaited remarks from Federal Reserve Chairman Jerome Powell following a renewed bout of bond volatility. Treasuries were steady. S&P 500 and Nasdaq 100 contracts declined though came off their lows of the session, spurred by the 10-year Treasury yield approaching 1.5% on Wednesday and rising inflation expectations. In an appearance at a Wall Street Journal webinar later today, Powell is expected to push back on bond-market concerns, saying the central bank will be ultra-patient in withdrawing its support for the economy after the pandemic has ended. The rise in inflation expectations and long-term borrowing costs is stoking volatility and raising concern that a prolonged rally in equity markets may be in jeopardy. Investors are trying to assess central banks’ appetite to buy more longer-dated bonds to keep financial conditions loose. The focus turns to Powell’s upcoming comments, after Chicago Fed President Charles Evans said the recent climb in yields reflected economic optimism.
• Asian stocks tumbled as investors sold technology companies following a renewed bout of volatility in U.S. Treasury yields. Tencent and TSMC were the biggest drags on the MSCI Asia Pacific Index, while Meituan and SoftBank each slid by at least 5%. The decline in technology stocks outweighed gains in banking shares, even as Australia & New Zealand Banking and National Australia Bank both advanced more than 2%. China led losses in Asia, with the CSI 300 Index falling the most since July 24. Investors sold off some of the country’s most popular stocks, including Kweichow Moutai. Almost all regional indexes in Asia retreated, with gauges falling more than 2% in China, Hong Kong and Japan. Singapore was the only market posting gains.
• Oil traded near $61 a barrel in New York, with investors focusing on a critical OPEC+ meeting that may see supply curbs eased. West Texas Intermediate slid 0.4%, while Brent also dropped, as the dollar hit a high for the day. Saudi Arabia and Russia, the most influential members of the OPEC+ alliance, held talks on Wednesday to seek common ground on production as Riyadh urged caution and Moscow sought to increase supplies, a delegate said. The group meets later on Thursday to agree on output levels for April. Oil rose earlier on Thursday amid gathering tensions in the Middle East as Yemen’s Houthi rebels claimed attacks on Saudi targets. The rebels, who are backed by Iran, said they bombed an airbase in Saudi Arabia’s southwest with a drone and hit a Saudi Aramco crude facility in Jeddah. Aramco and Saudi officials didn’t immediately respond to requests for comment.
• Gold held near the lowest level in almost nine months as investors turn their focus to Federal Reserve Chair Jerome Powell who’s due to speak Thursday. Powell will probably seek to convince financial markets that the central bank will be ultra-patient in pulling back its support for the economy after the pandemic has ended. Rather than trying to cap rising long-term interest rates, Fed watchers expect Powell to use his appearance at a Wall Street Journal webinar to reaffirm the focus on the central bank’s employment and inflation goals by keeping monetary policy looser for longer, and to make clear he’d like to avoid a repeat of last week’s disorderly bond market.
• Bitcoin turned lower in Asia, dipping below the closely watched $50,000 level Thursday amid a wider mood of caution in financial markets. The largest cryptocurrency fell as much as 3.8% and was holding at about $49,500 as of 2:38 p.m. in Hong Kong. The coin surged Wednesday to briefly trade above $52,000, about $6,000 shy of last month’s record. “After the massive drop from $58,000, this could be traders selling the bounce,” said Vijay Ayyar, head of Asia Pacific with cryptocurrency exchange Luno in Singapore. Bitcoin’s most ardent fans argue it’s consolidating before a run at a fresh record because the token is emerging as a hedge for inflation risk just as fears about price pressures escalate. Critics say Bitcoin is in a giant, stimulus-fueled bubble that’s destined to burst like the 2017 boom and bust cycle.
• Selling in the bond market is ready to explode and take U.S. Treasury yields soaring to 2%, according to strategists who believe this year’s rout is not yet over. Analysts at ING Groep NV say investors’ attitude toward holding longer-dated bonds has grown cautious, “to put it mildly,” exacerbating the potential for rapid selling on any sign of weakness in the market. They see yields on 10-year Treasuries rising another 50 basis points, joining the likes of BNP Paribas SA who also expect yields at 2% by year-end. Investor jitters were on display again Wednesday, when a bigger-than-expected bond sale plan from the U.K. caused ructions globally. Concern over supply hitting the market is adding to fears inflation is set to accelerate, which could force central banks to begin tightening policy. Then there’s the risk liquidity evaporates to fuel sharper moves.
• General Motors Co. is looking to build a second battery factory in the U.S. with joint-venture partner LG Chem Ltd., the latest move in the Detroit auto maker’s efforts to expand its investment in electric vehicles. A GM spokesman confirmed to The Wall Street Journal that the companies are exploring building a second battery-cell plant and said a decision could come in the first half of this year. GM and LG are close to completing a decision to locate the plant in Tennessee, said people familiar with the matter. A final selection hasn’t yet been made, the people said. Already, the two companies are building a $2.3 billion battery plant in northeast Ohio that is expected to open next year and eventually supply enough batteries to power hundreds of thousands of vehicles annually. The new plant is likely to be a similar-size investment, some of the people said.
• The Senate enters the final stages of debating President Joe Biden’s $1.9 trillion pandemic relief bill on Thursday, with passage in the chamber likely pushed off until the weekend. Senate Majority Leader Chuck Schumer had planned to kick off the process Wednesday night but lacked an official cost estimate on the latest version of the bill, which has been trimmed down from the House-passed measure. In addition to stripping out a minimum-wage increase to comply with Senate rules, Biden agreed to moderate Democrats’ demands for tightening eligibility for $1,400 stimulus checks, which will also affect the Congressional Budget Office’s calculation of the overall price tag. Once the CBO’s numbers are in and the Senate votes to begin debate, a process starts that Republicans are threatening to drag out as long as possible to register their opposition to the massive bill.
• The European Union’s medicines regulator started a rolling review of Russia’s Sputnik V Covid-19 vaccine, the first major step in gaining approval for the shot’s use in the region. An experimental vaccine developed by India’s Bharat Biotech International Ltd. showed 81% efficacy in an interim trial. The U.S. is averaging 2 million inoculations a day for the first time. In Germany, officials agreed on a plan to gradually unwind restrictions on Europe’s largest economy. Countries where more than half of adults are overweight have recorded Covid-19 mortality rates more than 10 times higher than other nations, according to the World Obesity Federation.
• Prime Minister Boris Johnson’s government is being accused of dropping its pledge to end austerity after cutting a further 4 billion pounds ($5.8 billion) a year for departments in the budget. The reductions in day-to-day spending plans unveiled on Wednesday by Chancellor of the Exchequer Rishi Sunak set the stage for a challenging review of resources for government ministries later this year. It adds to savings of over 12 billion pounds announced just four months ago and suggests a squeeze for everything except health, defense and education. Johnson swept to power in 2019 on a pledge to “level up” poorer regions and end years of cuts introduced by then finance minister George Osborne to tackle what was at the time a record budget deficit following the financial crisis. But his plans have been made more difficult by the even bigger levels of borrowing to get the country through the coronavirus pandemic.
• The U.S. will suspend retaliatory tariffs on U.K. products caught up in the longstanding dispute over illegal aid to Boeing Co. and Airbus SE in a boost for post-Brexit Britain’s trade agenda. The tariff suspension will last four months to “focus on negotiating a balanced settlement to the disputes”, the U.K. government said in a statement on Thursday. The decision means goods like Scotch whisky, biscuits and clotted cream can be imported to the U.S. from Britain without being subject to an additional 25% duty. Removing tariffs on U.K-U.S. commerce has been a priority for Prime Minister Boris Johnson’s government as they seek a broader trade deal with President Joe Biden’s administration. Britain unilaterally dropped tariffs on some U.S. products indefinitely in January in a bid to reduce trade tensions. The former Trump administration did not reciprocate the U.K.’s concession.
• Federal Reserve Chairman Jerome Powell will probably seek to convince suddenly skeptical financial markets on Thursday that the central bank will be ultra-patient in pulling back its support for the economy after the pandemic has ended. Rather than trying to cap rising long-term interest rates, Fed watchers expect Powell to use his appearance at a Wall Street Journal webinar to reaffirm the Fed’s determination to meet its revamped employment and inflation goals by keeping monetary policy looser for longer, and to make clear he’d like to avoid a repeat of last week’s disorderly bond market.
• Philippine food maker Monde Nissin Corp. filed for an initial public offering to raise as much as 63 billion pesos ($1.3 billion) in what could be the nation’s biggest ever first-time share sale. The producer of the country’s best-selling instant noodle brand Lucky Me! plans to sell 3.6 billion shares at as much as 17.5 pesos each, according to a filing with the Philippine Securities and Exchange Commission on Thursday. The company could issue as many as 540 million additional shares in an overallotment option, the filing showed. At $1.3 billion, the share sale would be the country’s largest IPO to date, based on data compiled by Bloomberg. National Grid Corp. of the Philippines is seeking an IPO in the Southeast Asian nation to raise as much as $1 billion, Bloomberg News has reported.
• CTP BV, a developer of industrial property in central and eastern Europe, is seeking as much as 1 billion euros ($1.2 billion) in an Amsterdam initial public offering, adding to the city’s growing clout as a hotspot for large listings. The company said it aims to sell up to a 15% stake and raise gross proceeds of at least 800 million euros, including an over-allotment of existing shares. CTP, whose biggest market is the Czech Republic, builds and operates business parks including warehouses and office properties used by tenants such as logistics and e-commerce companies. The property firm has seen rising demand for its space due to a surge in online shopping during coronavirus-induced lockdowns, which have forced people to order everything from food to clothing from their homes. It’s also benefiting from a trend of businesses shortening their supply chains and relocating operations closer to Europe.
• Empresa Electrica Guacolda SA dollar bonds have fallen to distressed levels after a parent company said it’s selling its stake in the Chilean coal-fired power producer. Yields on Guacolda’s $500 million of notes due in 2025 spiked to 12.4% Thursday from 7.4% last week, and are now trading at just 75 cents on the dollar, according data compiled by Bloomberg. The bonds began falling after one of Chile’s largest power generators, AESGener, said on Feb. 23 that it agreed to sell its 50% stake in Guacolda to co-owner WEG Capital, an investment firm. The sale, which is subject to regulatory approval, is part of a move to cut carbon emissions. Guacolda operates five coal-burning plants in the Atacama region in northern Chile.
• U.K. antitrust authorities opened a probe into Apple Inc.and its App Store to examine whether the iPhone maker is abusing its market power by insisting on its own payment system to restrict competition. The Competition and Markets Authority will consider Apple’s potentially “dominant” position in the supply of apps on iPhones and iPads, it said in a statement on Thursday. The probe will focus on how Apple forces customers to use its own payment system for in-app purchases, the CMA said. “Complaints that Apple is using its market position to set terms which are unfair or may restrict competition and choice -– potentially causing customers to lose out when buying and using apps -– warrant careful scrutiny,” said Andrea Coscelli, who leads the CMA.
• Private equity company TPG Capital Asia is considering a plan for an initial public offering of its pathology business in the region, according to people with knowledge of the matter. The buyout firm has asked banks to submit proposals for the potential listing of Pathology Asia Holdings Pte, said the people, who asked not to be named as the process is private. TPG is still weighing a listing venue for the business, while Singapore is among the options, the people said. TPG has expanded the business since it initially bought 39 pathology laboratories from Healthscope Ltd. in 2018 for A$279 million ($217 million), one of the people said. The operations are worth about $2 billion, the person said.
• Saudi Arabia may ship gas to South Korea where it will be used to make hydrogen, and the carbon dioxide produced in the process will be transported straight back to the kingdom. Under a memorandum of understanding, Hyundai OilBank Co. will take liquefied petroleum gas cargoes from Saudi Aramco which it will then convert into hydrogen, the Korean energy company’s parent Hyundai Heavy Industries Holdings Co. said in a statement. The hydrogen will be used at desulfurization facilities and to power vehicles. The MOU signed Wednesday includes an agreement for the carbon dioxide emitted in the hydrogen-making process to be transported back to Saudi Arabia, according to a Hyundai Heavy spokesman. The gas will then be used in Aramco’s oil production facilities.
• Hippo Enterprises Inc., a home-insurance startup, agreed to go public through a merger with Reinvent Technology Partners Z, a special purpose acquisition company that counts Zynga Inc. founder Mark Pincus and LinkedIn co-founder Reid Hoffman as its lead directors. The deal values the combined entity at $5 billion, the companies said Thursday in a regulatory filing. Reinvent Technology Partners Z will be renamed Hippo Holdings Inc. The transaction will allow Hippo to trade publicly after years of expanding throughout the U.S. and snapping up a home-maintenance platform and an insurance carrier. Hippo, led by Chief Executive Officer Assaf Wand, raisedcapital last July in an investment that valued the company at $1.5 billion.
• New York Governor Andrew Cuomo says he’s weathered political storms before and the two scandals buffeting him now won’t chase him away. But with multiple probes underway, he may just be buying himself more time. Cuomo defied calls for his resignation in a televised appearance on Wednesday, in which he offered a choked-up apology for making women feel“uncomfortable” but assured critics that allegations he sexually harassed staffers and covered up nursing home coronavirus deaths wouldn’t derail his determination to continue governing the state. Cuomo’s apology broke nine days of silence and harkened back to a carefully-crafted survival playbook he has honed over three decades in government: Browbeat when in a position of authority, lay low in the wake of trouble, but above all, don’t let go of power.
• Aviva Plc has exited its Italian businesses in a pair of deals totaling 873 million euros ($1.1 billion) as the U.K. insurer continues to pivot toward its core markets. CNP Assurances and Allianz SE bought the London-based firm’s Italian life and general insurance units respectively, according to a statement Thursday. Those deals, following the company’s recent French sale, mean the firm has now completed the bulk of its planned exits from non-core areas. “We have taken major steps forward in simplifying the business,” Chief Executive Officer Amanda Blanc said in the statement. “Our strategic focus is now on the U.K., Ireland and Canada where we have leading positions.” Since joining last July, Blanc has moved at pace to exit businesses in Europe and Asia. The firm last month agreed to sell its French operation for 3.2 billion euros, the biggest deal yet among seven divestments that Blanc says will generate more than 5 billion pounds in cash proceeds.
• Melrose Industries Plc restarted the sale process for its Nortek air management business, after the first attempt was interrupted by the coronavirus pandemic. The U.K. buyout specialist said that Nortek, which provides heating and air conditioning products, is trading strongly with sales up 5% last year. There’s no certainty that a sale will be completed, Melrose said Thursday in a statement with annual results. Melrose plans to seek as much as $3.5 billion for Nortek, Bloomberg News reported in January, citing a person familiar with the matter. The company said in September that it would review strategic options for the division in early 2021.

“You can overcome anything if you don’t bellyache.“ – Bernard Baruch

*All sources from Bloomberg unless otherwise specified