March 31, 2021

Daily Market Commentary

Canadian Headlines

• The Canadian stock benchmark was little changed as declines in material shares offset gains in the health care sector. The S&P/TSX Composite index slipped less than 0.1% in Toronto. after Monday’s 0.2% loss. Materials were the worst performing stocks as metals fell with the strong U.S. dollar, while health care was the best performers. Meanwhile, 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.
• Rogers Communications Inc.’s proposed takeover of Shaw Communications Inc. creates “very serious” competitive issues for Canadian officials weighing whether to let the deal proceed, Innovation Minister Francois-Philippe Champagne said. Consumer prices are among the central questions in the review, according to Champagne, the point person on the case for Prime Minister Justin Trudeau. The government’s decision will be a landmark with lasting consequences for the telecommunications industry, Champagne said in an interview with Bloomberg News on Tuesday. The $16 billion merger results in “very serious issues and very important issues when it comes to maintaining that level of competition,” Champagne said. It would reduce the number of wireless providers to three from four in about two-thirds of Canada, including the Toronto and Vancouver markets.
• Dollarama Inc. reported its fourth-quarter profit edged down compared with a year ago due to restrictions imposed by provincial governments and costs related to the pandemic. The retailer says it earned $173.9 million or 56 cents per diluted share for the quarter ended Jan. 31, down from a profit of $178.7 million or 57 cents per diluted share a year earlier. Excluding temporarily closed stores, comparable store sales for the quarter fell 0.2 per cent compared with a year earlier.

World Headlines

• European stocks were steady after three days of gains as investors hit the brakes on a cyclical rally and awaited details of the U.S. stimulus plan. The Stoxx Europe 600 Index added less than 0.2% as of 10:39 a.m. in London, on track for a fourth quarterly advance. Defensives such as personal care and grocery shares and telecom firms led gains, while banks and insurers lagged. European stocks are poised to enter April, historically the best month for returns, with the Stoxx 600 within 1% of a record high. The benchmark is pausing as the U.S. 10-year Treasury yield briefly hit a 14-month high and investors await details of U.S. President Joe Biden’s $2 trillion economic plan, set to be unveiled in Pittsburgh today.
• Treasury yields rose with commodities before U.S. President Joe Biden unveils an economic plan including a $2.25 trillion infrastructure boost. Stocks were mixed as traders weighed inflation and the tax impact of the stimulus. S&P 500 index futures were little changed, while Nasdaq 100 contracts and European stocks rose after Asia’s equity benchmark posted a second-day decline. The dollar dropped, still heading for its best quarter in a year. The Bloomberg Commodity Index and emerging-market currencies led by South Africa’s rand climbed. Investors, rattled by the meltdown at Bill Hwang’s Archegos Capital Management, are turning their attention to growth and inflation as volatility spurred by the forced sales subsides. While Europe’s struggle with inoculations and the resurgence of the coronavirus have tempered growth expectations, the U.S. vaccine rollout is surpassing targets.
• China’s CSI 300 Index snapped a three-day rebound to fall 0.9% on Wednesday, with the benchmark gauge ending March with the largest monthly decline in a year amid faltering investor sentiment. Liquor giant Kweichow Moutai slipped 2.3% after it said it expects revenue growth to slow further this year. Henan Shuanghui was down 6.6%, while Sany Heavy fell 7.8% after reporting earnings that missed estimates. Firms set to report annual results on Wednesday include CSC Financial Co., Zhejiang Supor Co. and Jafron Biomedical Co. With sentiment shaken in recent weeks by concerns over monetary tightening and a government drive to de-risk, the CSI 300 continues to hover near the key 5,000 point support level, and has been drifting between its 100-day and 200-day moving averages. A drop of 5.4% this month is the most since March last year, and a 3.1% quarterly decline is the first since the same period last year. Turnover in Shanghai and Shenzhen on Wednesday dwindled to near the lowest since late October.
• Oil traded near $60 a barrel in New York ahead of an OPEC+ meeting this week, with the group expected to maintain its cautious stance on boosting output as near-term demand concerns persist. West Texas Intermediate moved between small gains and losses, after dropping 1.6% on Tuesday. In the run-up to Thursday’s closely watched ministerial talks, an OPEC+ panel revised down consumption estimates for the year. Still, the alliance also expects the surplus built up during the pandemic to be mostly gone within the next quarter. Demand remains sluggish in many parts of the world as coronavirus lockdowns continue to restrict travel. Spanish refiner Repsol said it’s cutting processing at one of its plants due to weak fuel consumption. The global picture is far from uniform though, with China’s manufacturing figures beating estimates, pointing to higher-than-expected industrial activity there.
• Gold is set for its worst start to a year since 1982, with investors shunning the safe-haven as it comes under pressure from higher bond yields and a strengthening dollar. The metal has fallen more than 11% this year as investors trade their havens for assets that will benefit from the economic recovery. Exchange-traded fund holdings have dropped to their lowest since May, while hedge funds trading on the Comex have cut their positions to just above a 22-month low. That comes even as a resurgence of virus cases in Europe and the U.S. darkens the near term outlook for economies. Rising Treasury yields have dealt much of the damage to bullion, which bears no interest. Also adding pressure has been unexpected strength from the dollar, driven by bets an accelerating vaccine program and vast fiscal stimulus in the U.S. will see the nation’s recovery out-pace others. On Tuesday, gold fell past $1700 an ounce, a support which has held through much of March.
• Pfizer Inc. said its Covid-19 vaccine was 100% effective in a final-stage trial in kids ages 12 to 15, a finding that could pave the way for shots for teens and pre-teens before the next school year. The vaccine is already authorized in the U.S. for people ages 16 and up. Pfizer and its partner BioNTech SE said they planned to submit the data to regulators in the U.S and Europe as soon as possible, seeking to amend their vaccine authorizations to include the younger age group. In the study of 2,260 adolescents, the vaccine produced antibodies against the Covid-19 that exceeded the level seen in vaccinated young adults, Pfizer and BioNTech said in a statement. All 18 cases of Covid-19 in the study were in teens who received a placebo, the companies said. Side effects were consistent with those experienced by people ages 16 to 25.
• The World Health Organization’s chief said a mission to study the origins of the coronavirus in China didn’t adequately analyze the possibility of a lab leak. The White House also criticized the report, calling it incomplete and faulting data and access provided by China. China reported its first cluster of infections in more than a month in the southwestern province of Yunnan. Malaysia extended travel restrictions in its capital and four states while Singapore is looking to establish quarantine-free travel with countries and regions that have successfully controlled the pandemic. Covid-19 deaths in the U.S. are expected to bottom out in the next two weeks and then may inch higher as the nation races to blunt an incipient new wave of cases with its vaccination campaign. Germany will halt the use of AstraZeneca Plc’s Covid vaccine for people younger than 60 starting on Wednesday.
• T-Mobile US Inc., which has emerged as the surprise leader in the new wireless technology known as 5G, is close to unveiling a broadband service for homes that may let a swath of U.S. consumers cut another cord — the landline tying their internet service to a traditional phone or cable company. The wireless provider, the second-largest following its acquisition of Sprint Corp. a year ago, expects to sign up 7 million to 8 million homes with 5G broadband over five years. Thanks to that $26.5 billion acquisition, T-Mobile has a year lead in 5G over rivals Verizon Communications Inc., the industry’s biggest company, and No. 3 AT&T Inc. But if this all sounds a tad familiar, that’s because it is. From tech companies that vowed to launch broadband service via orbiting satellites to phone companies pledging to lay fiber-optic cable to your door, would-be competitors have so far failed to shake the cable industry’s grip on super-fast internet service.
• President Joe Biden will unveil a $2.25 trillion U.S. infrastructure plan Wednesday — paid for by steep tax hikes on businesses– that his administration said will prove the most sweeping since investments in the 1960s space program. The four-part, eight-year plan dedicates $620 billion for transportation, including a doubling in federal funding for public transit. It would provide $650 billion for initiatives tied to improving quality of life at home, like clean water and high-speed broadband. There’s $580 billion for strengthening American manufacturing — some $180 billion of which goes to what’s billed as the biggest non-defense research and development program on record — and $400 billion to address improved care for the elderly and people with disabilities. Biden’s plan would increase the corporate income tax to 28% from 21%, and set a 21% minimum tax on global corporate earnings. The White House said tax increases will be “fully paying for the investments in this plan over the next 15 years.”
• Deliveroo Holdings Plc shares plunged as much as 31%, the worst performance in decades for a big U.K. initial public offering, as fund managers shunned the food-delivery startup over its employment practices and markets soured on the fast-growing companies that fared well during the pandemic. The stock dropped 23% to 300 pence at 11:22 a.m. in London after the 1.5 billion-pound ($2.1 billion) sale, which was priced at 390 pence, the bottom end of the initial range. Trading was halted twice for several minutes due to volatility. The first-day plunge deals a blow to London’s efforts to establish itself as a hub for technology listings in the wake of Brexit. The IPO quickly ran aground after bankers, led by Goldman Sachs Group Inc. and JPMorgan Chase & Co., began taking orders last week. Some of the U.K.’s largest asset managers said they wouldn’t buy the stock because Deliveroo’s treatment of couriers doesn’t align with responsible investing practices, and some balked at the dual-class structure that allows Chief Executive Officer Will Shu to retain control of the business for three years.
• China’s Zhejiang Geely Holding Group Co. is considering reviving plans for an initial public offering of its Volvo Cars unit that could value the business at around $20 billion, people familiar with the matter said. Closely held Geely Holding has been speaking with potential advisers about selling shares in Volvo Cars as soon as this year, the people said, asking not to be identified because the information is private. It is considering potential listing venues including Stockholm and Amsterdam, the people said. Automakers have been searching for ways to fund the enormous investments needed for the seismic shift toward electric vehicles. In February, Geely Holding scrapped plans to merge Volvo Cars with the Chinese group’s publicly traded unit, Geely Automobile Holdings Ltd. It decided instead to bundle the two firms’ powertrain operations into a new company and team up on technology development.
• South Korean energy supplier SK Innovation Co. plans an initial public offering of its battery separation unit that aims to raise as much as 2.3 trillion won ($2 billion). SK IE Technology Co. will sell around 8.6 million new shares at between 78,000 won and 105,000 won each, according to a regulatory filing Wednesday. Another 12.8 million shares will be sold by SK Innovation. If the stock is priced at the top of that range, it would give SK IE Technology a market value of around 7.5 trillion won when it lists in May. A $2 billion IPO would be the largest in South Korea since mobile game-maker Netmarble Corp. raised $2.4 billion in 2017, according to data compiled by Bloomberg. It would also exceed the $1.3 billion listing in February of SK Bioscience Co., one of the manufacturers of AstraZeneca Plc’s Covid-19 vaccine.
• Hitachi Ltd. will pay $9.6 billion for U.S. software development company GlobalLogic, Nikkei reported, a move that could help the Japanese firm expand its technology services business. Its shares fell as much as 5.5% following the report, which didn’t specify the source of the information. The deal will be one of the largest ever for Hitachi, according to data compiled by Bloomberg. Technology and so-called smart life businesses account for roughly 40% of Hitachi’s revenues. The firm has been helping businesses automate and modernize manufacturing through its Lumada Internet of Things platform. Nikkei had earlier reported Hitachi will spend about 350 billion yen ($3.2 billion) on acquisitions to boost its operations in North America and potential acquisitions could help the platform hit a revenue goal of 1.6 trillion yen in the next fiscal year, Bloomberg Intelligence has previously said.
• The owners of PT Solusi Tunas Pratama are reviving the sale of a majority stake in the Indonesian telecommunication tower operator that could give it a valuation of at least $1 billion, according to people with knowledge of the matter. Buyout firms Carlyle Group Inc. and Southern Capital Group are working with an adviser on the potential divestment, said the people, who asked not to be named as the discussions are private. Singapore’s Southern Capital indirectly controls about 43% of STP while Carlyle has roughly 26%, one of the people said.
• InMobi Pte, which provides mobile-advertising services globally, is planning to list in the U.S. by the end of the year, according to a person familiar with the plan, potentially the first among a slew of Indian startups targeting initial public offerings. The tech upstart, India’s first private company to reach unicorn status with venture funding, could kick off the IPO process in a few weeks, when its board is set to meet to consider a listing, said the person, who asked not to be identified talking about a confidential matter. The offering size could be as large as $1 billion, valuing InMobi at $12 billion to $15 billion, the person said.
• President Joe Biden plans to allow a pandemic-related ban on visas for certain temporary workers, enacted by former President Donald Trump, to expire Wednesday, according to people familiar with the matter. The moratorium, which affected H-1B visas used by technology companies to hire foreign coders and engineers, was imposed last June. Biden is opting not to renew it, said the people, who asked not to be identified because the decision hasn’t been announced. The White House declined to comment. Biden’s decision will please business groups from Silicon Valley giants to India’s IT services leaders, which had pressured the administration to lift the ban ever since the new president took office. Executives have grown frustrated that the directive was not immediately revoked, arguing it hurt U.S. companies.
• Huawei Technologies Co.’s quarterly revenue shrank for the first time on record, reflecting the devastating impact of U.S. sanctions that forced China’s largest technology company out of smartphones and into other technology arenas. The disappointing results underscore the depth of the damage Washington has wrought on a company that once vied with Apple Inc. and Samsung Electronics Co. to lead the global smartphone market. It reported revenue fell 11% to 220.1 billion yuan ($33.5 billion) in 2020’s final quarter. That’s down from 3.7% growth in the September quarter and 23% in the second quarter, according to Bloomberg calculations based off previously reported figures.
• France is headed toward a nationwide lockdown to contain the epidemic, with measures that could include school closures and extending a ban on intercity travel, two people familiar with the matter said. “Decisions have been made,” the government spokesman Gabriel Attal said on Wednesday, after a defense council meeting earlier. He declined to elaborate as French President Emmanuel Macron will address the nation at 8 p.m. Paris time, and his Prime Minister Jean Castex will address the Parliament for a debate and a vote on the measures needed to address the epidemic on Thursday, according to Macron’s party. This would represent a policy reversal for Macron, who until now had favored a localized approach. Earlier this month, more than a third of the country including the Paris region was placed under a lighter lockdown, with some open-air activity encouraged. The U.K. went through a similar process last year, abandoning a four-tier strategy that proved over-complicated and didn’t work to contain infections.
• Mastercard Inc., allpay and PFS provisionally agreed to pay fines totaling more than 32 million pounds ($44 million) for their alleged role in a “cartel” exploiting pre-paid cards used to distribute welfare funds to the homeless and victims of domestic abuse. The trio engaged in anti-competitive behavior by agreeing not to compete or poach each others’ clients, the U.K.’s Payment Systems Regulator said in a statement on its preliminary findings on Wednesday. Two other firms also accused of wrongdoing, APS and Sulion, haven’t reached a settlement. “Collusion in payments is absolutely unacceptable,” Chris Hemsley, managing director of the PSR, said in the statement. “Pre-paid card services, like these, can provide significant benefits to local authorities as one way to make welfare payments to some of the most vulnerable people in society.”
• Nomura Holdings Inc.’s chief executive officer was having a bumper inaugural year in charge — until a U.S. family office spoiled the party. Just days before Kentaro Okuda’s first anniversary as head of Japan’s biggest brokerage, the company warned of a “significant” loss from an unnamed U.S. client. That’s tied to the massive unwinding of leveraged bets by Bill Hwang’s Archegos Capital Management, according to people familiar with the matter. The debacle triggered a record 16% drop in Nomura’s shares on Monday, wiping $3.5 billion from its market value and threatening a turnaround executives had hoped would herald a new era of more sustainable profits. Instead, a $2 billion claim on a single client risks largely erasing Nomura’s pretax profits for the second half of the year ending March 31, according to a Jefferies Financial Group report.
• Ares Management Corp is buying private-equity secondaries fund manager Landmark Partners in a deal worth $1.08 billion. Los Angeles-based Ares will pay around $787 million in cash and the remainder in shares for the business, which invests in existing portfolios of private equity fund holdings, according to a statement on Wednesday. Founded in 1989, Landmark manages around $19 billion in assets and has 150 employees. “We believe secondary investments are only increasing in their appeal to a growing group of investors and we are excited to include these strategies in our comprehensive alternatives offering,” Michael Arougheti, Chief Executive Officer and President of Ares, said in the statement.
• U.S. employment probably swelled in March by the most in five months as millions of Covid-19 vaccinations and a more open economy helped invigorate hiring, including at businesses hit hardest by the pandemic. Friday’s monthly jobs report will show 650,000 people were added to payrolls and the unemployment rate dropped to 6%, according to the median forecasts of economists surveyed by Bloomberg. Some are projecting an increase of 1 million or more, which would be the sharpest gain since August. The rate of coronavirus vaccinations rose above two million per day in March and dozens of states eased pandemic-related business restrictions or lifted them all together. That likely boosted hiring in sectors most depressed by the health crisis, such as leisure and hospitality, which have been slow to rebound because of limits on capacity and in-person activities.
• Hitachi Ltd. will pay $8.5 billion for U.S. software development company GlobalLogic Inc., a move that could help the Japanese firm expand its technology services business. The size of the deal will increase to $9.6 billion when debt is included, Hitachi said in a statement Wednesday. The acquisition — targeted for completion by end-July — will be one of the largest ever for Hitachi, a storied Japanese name that grew out of electronics into a railway to electrical equipment conglomerate that’s begun investing in providing gear for the so-called internet of things. Its shares closed down 7.3% in Tokyo. Hitachi has been helping customers automate and modernize manufacturing through its Lumada IoT platform, and technology and so-called smart life businesses now account for roughly 40% of revenues. Nikkei had reportedin January the firm will spend about 350 billion yen ($3.2 billion) on acquisitions to boost its operations in North America.
• Walgreens Boots Alliance Inc. raised their annual forecast for adjusted earnings per share, saying that it anticipates strong growth in the second half of the year. The company raised fiscal 2021 guidance to mid-to-high single-digit growth in constant currency adjusted earnings per share from both total and continuing operations. Previous guidance was for low single-digit growth.

“Education is the kindling of a flame, not the filling of a vessel.” – Socrates

*All sources from Bloomberg unless otherwise specified