April 1, 2021

Daily Market Commentary

Canadian Headlines

• Canadian equity markets pared gains to close little changed Wednesday, as telecom and media stocks fell. The S&P/TSX Composite index was flat, erasing an earlier advance of as much as 0.4%. Communication services stocks and financials dropped the most while tech outperformed. Five of 11 sectors declined.  Rogers Communications and Shaw Communications fell after Innovation Minister Francois-Philippe Champagne said late Tuesday that their proposed deal has “very serious” competitive issues. The Bank of Canada is seeing “worrying” signs that some Canadians are taking on too much debt to buy into the nation’s hot housing market. In an interview with the Financial Post, Governor Tiff Macklem said there is evidence that loan levels relative to home values are growing — an indication that some borrowers could be overextending. He also warned people have begun to make purchases based on the belief prices will continue rising.
• Brookfield Asset Management Inc. said it reached a $6.5 billion agreement to acquire the shares of Brookfield Property Partners LP it doesn’t already own, taking its real estate arm private. The Canadian alternative-asset manager said in a statement it plans to acquire the minority stake for $18.17 per unit. That would mark a 10% increase to the $16.50 a unit Brookfield Asset offered in January, and a 26% premium over where the shares traded prior to that earlier proposal. Brookfield Property’s board has unanimously approved the deal, according to the statement. Brookfield Property shares closed Wednesday in New York at $17.79. Shares rose 2.7% in premarket trading Thursday to trade just above the bid price at $18.27.
• Surging equity markets and a blossoming technology sector fueled the biggest first-quarter crop of initial public offerings by Canadian companies in 15 years. So far this year, 32 Canadian firms have announced IPOs set to raise a combined $3.26 billion, according to data compiled by Bloomberg. The total is more than 10 times the $305.2 million of deals announced by this time last year, and the most for a first quarter since 2006, when $3.58 billion of public offerings were announced. Global tech companies including Amazon.com Inc., Microsoft Corp. and Alphabet Inc.’s Google have made major investments in their Canadian operations over the past decade, drawing programming talent to the country and spawning startups that are now ready to make the leap to public markets. Those companies are finding healthy demand from Canadian fund managers who have long wanted to fill out their portfolios with homegrown tech names.

World Headlines

• European stocks rose, after a fourth straight quarter of gains, as investors weighed the latest U.S. fiscal stimulus against a fresh lockdown in France ahead of the Easter holiday. The Stoxx Europe 600 rose 0.5% at 9:25 a.m. in London. France’s CAC 40 erased an early decline to gain 0.4% after President Emmanuel Macron announced a new four-week national lockdown, shutting down schools and some businesses. Technology shares outperformed, boosted by semiconductors after U.S. bellwether Micron Technology Inc. gave a bullish earnings forecast and Taiwan Semiconductor Manufacturing Co. outlined plans to increase capacity. French IT company Atos SE bucked the trend, plunging 14% after disclosing that auditors had found accounting errors for two of its U.S. entities.
• U.S. index futures rose with stocks as signs of faster job creation in the world’s largest economy fueled optimism about the global recovery. Contracts on the S&P 500 Index advanced before Friday’s U.S. nonfarm payrolls data that may show the quickest pace of hiring in five months. Nasdaq 100 futures increased 0.9%, while technology stocks gained in premarket trading. The Stoxx Europe 600 gauge headed for the longest streak of weekly gains this year. Longer-dated Treasury yields fell as investors weighed the prospects of President Joe Biden winning approval for his $2.25 trillion stimulus plan. Traders are jockeying for position before the Easter weekend after ADP’s March data showed U.S. private employers hired the most workers in six months. Biden’s ambitious plan to rebuild U.S. infrastructure has added to the growth outlook, even though Republican opposition to the plan raises questions about how much can actually be delivered.
• Asian stocks climbed after U.S. President Biden announced a $2.25 trillion infrastructure plan and amid several big news items in the semiconductor industry. Tech stocks were the biggest boost to the MSCI Asia Pacific Index as chip giant TSMC announced plans to spend $100 billion over the next three years to expand capacity. Another lift came from a Dow Jones report that Micron and Western Digital are each exploring potential deals for Kioxia that could value the Japanese memory maker at around $30 billion. Japanese shares gained after the Tankan survey showed the nation’s large manufacturers have turned optimistic for the first time since the fall of 2019. South Korean stocks climbed following a report that the nation’s exports rose the most in more than two years on strong global demand.
• Oil rose above $60 a barrel in New York ahead of a high-stakes OPEC+ policy meeting, with producers debating whether to extend deep supply curbs to drain stockpiles and safeguard a rally. West Texas Intermediate advanced 1.9% after tumbling over the previous two sessions. Prices fell Wednesday after an OPEC+ panel meeting ended without a policy recommendation, while a fresh lockdown in France stoked demand concerns. Still, positive signs from the U.S., as well as parts of Asia, highlight the complexity of the decision facing OPEC+ ministers later on Thursday. As well as the patchy recovery in consumption, there are political pressures too, with the U.S. energy secretary on Wednesday calling her Saudi counterpart to highlight the importance of “affordable energy.”
• Gold extended a rebound from near a nine-month low as investors weighed President Joe Biden’s plan for a $2.25 trillion splurge on infrastructure and the dollar steadied. The eight-year plan envisions a wave of spending on everything from transportation to clean water and better social care. Gold climbed Wednesday, paring one of its worst starts to the year in decades, after Treasury yields pulled back as Biden faced both Republican opposition and criticism from within his Democratic Party. Gold has tumbled about 10% in 2021 as risk appetite improved following a recovery in the global economy and an accelerating vaccine program. Rising Treasury yields have also hurt the metal, driven by expectations fiscal stimulus and pent-up savings will cause the economy to run hot after the pandemic. Dollar strength, based in part on the successful U.S. vaccine program, has also diminished bullion’s appeal.
• Hong Kong will resume administering BioNTech SE Covid shots on Monday after giving the all-clear on a scare over defective vials. Canada’s Ontario province, home to Toronto and the capital Ottawa, will be locked down for 28 days to fight the spread of the virus, CBC News said. Brazil detected a new Covid-19 variant, similar to the one found in South Africa, as it again reported record deaths. Ukraine reported record daily coronavirus deaths. France will impose a four-week lockdown from Saturday, and Italy extended restrictions on movement and business openings.
• President Joe Biden laid out what he called a “bold” plan to rebuild U.S. infrastructure, but now needs an equally ambitious effort to wrangle it through Congress in the face of Republican opposition and criticism from within his Democratic Party. Biden, in a speech Wednesday in Pittsburgh, invoked the great public investments of the past — the transcontinental railroad, the interstate highway system and the space program — to sell his idea to spend $2.25 trillion over eight years on a menu of projects, from bolstering the electrical grid to upgrading childcare facilities. “This is not a plan that tinkers around the edges. It’s a once in a generation investment in America,” Biden said. “It’s big, yes. It’s bold, yes. And we can get it done.”
• Vinci SA’s move to buy a core business of Spain’s Actividades de Construccion y Servicios SA ​​​for about 4.9 billion euros ($5.8 billion) will turn the French infrastructure giant into a global player in renewable energies. The deal that was more than six months in the making expands Vinci’s reach into Spain and Latin America, according to a statement Thursday. The Madrid-based ACS unit will add about 45,000 employees and 6 billion euros in annual sales. ACS, whose chairman Florentino Perez also heads the Real Madrid soccer club, had received a non-binding offer from Vinci in October. Its shares fell as much as 1.8% in Madrid, while Vinci rose as much as 3.1% in Paris.
• J&T Express, an Indonesian courier company, is considering a U.S. initial public offering that could raise more than $1 billion, according to people familiar with the matter. The Jakarta-based company is working with advisers on the first-time share sale, which could take place as soon as the fourth quarter, the people said. An offering could value J&T Express at about $5 billion, said one of the people, who asked not to be identified as the information is private. The company is considering a new funding round after it recently raised $300 million, one of the people said. J&T Express could potentially challenge telecommunications tower operator PT Indosat as the biggest U.S. listing by an Indonesian company, according to data compiled by Bloomberg. Indosat raised $1.05 billion in an IPO in 1994. If successful, J&T Express would also be the first Indonesian firm to list in New York since 2019.
• Frontier Group Holdings Inc., which operates budget carrier Frontier Airlines, priced its U.S. initial public offering at the bottom of a marketed range, according to people familiar with the matter. The company’s shares sold for $19 apiece, according to the people, who asked not to be identified because the information wasn’t public yet. The company and its shareholders sold 30 million shares in all, one of the people said. The company and the investors had each offered 15 million share for $19 to $21 each. William Franke, Frontier’s 83-year-old chairman and biggest shareholder, planned to sell 14.2 million of the shares, filings with the U.S. Securities and Exchange Commission showed.
• A manufacturing error at a plant involved in Covid-19 vaccine production affected 15 million doses worth of an ingredient for Johnson & Johnson’s vaccine, according to two people familiar with the matter, though the company downplayed the situation and said it met its most recent vaccine delivery target. The issue, which occurred recently at an Emergent BioSolutions Inc. facility in Baltimore, isn’t expected to change President Joe Biden’s expectation that the U.S. will have enough vaccine for all adults in May, the people said. None of the doses produced and shipped so far in the U.S. have come from that plant, which isn’t authorized yet, two administration officials said, speaking on condition of anonymity.
• French President Emmanuel Macron announced a nationwide four-week lockdown, closing schools and business, in the latest and alarming sign that Europe is yet again losing control of the pandemic. “We did everything we could to make these decisions as late as possible, when they became strictly necessary. That is now,” Macron said in a televised address on Wednesday. New variants make the virus “more contagious and deadlier.” The French leader implored the nation to make an extra effort as the lockdown comes into force on Saturday. Restrictions will be flexible this weekend, during the Easter holidays, to allow people to relocate within regions. Seventy-one percent of French said they approved of the decision to extend restrictions, according to a snap Harris International poll.
• Home working is likely to remain after the pandemic finishes, according to a survey of 2,000 companies the U.K., most of which are planning to allow employees greater flexibility on where and when they do their jobs. CIPD, the professional group for human resources staff, said two-thirds of companies are developing a hybrid work model where people spend only part of the time in the office. About 71% of employers said having staff at home either boosted productivity or made little difference. The findings add to the debate about what the workplace will look like once the U.K. drops its request for people to do their jobs from home if they can. After previous lockdowns, Prime Minister Boris Johnson’s government was aggressive in encouraging a return to office. Since then, the habit for home working has become more entrenched, with many saying they want more flexibility.
• China slammed a foreign correspondents’ club in the country as an “illegal organization” in a move that broadens its attack on journalists whose reports differ from the government’s official line. The Foreign Correspondents’ Club of China has no sense of right and wrong and lacks principles, Foreign Ministry spokeswoman Hua Chunying said at a regular press briefing Thursday in Beijing. “Fewer than half of foreign correspondents in China are members of the FCCC, and most of them are Western journalists from the U.S. and Europe,” she said. “Foreign journalists in China should feel lucky.”
• Fresh from passing a $1.9 trillion stimulus bill, U.S. President Joe Biden on Wednesday turned his attention to a similarly vast package of investment in infrastructure, and that means the U.S. is going to need more commodities. There’s just one problem: China. America requires steel, cement, and tarmacadam for roads and bridges, and cobalt, lithium, and rare earths for batteries. Above all, it needs copper—andlots of it. Copper will go into the electric vehicles that President Biden has said he’ll buy for the government fleet, in the charging stations to power them, and in the cables connecting new wind turbines and solar farms to the grid. But when it comes to these commodities—and copper in particular—Washington is one step behind Beijing.
• A pair of Cathie Wood exchange-traded funds added around $1 billion in a single day this week in an emphatic display of investor loyalty toward the famed Ark Investment Management founder. The flagship Ark Innovation ETF (ticker ARKK) took in a record $717 million on Tuesday, while the Ark Space Exploration and Innovation fund (ARKX) absorbed $281 million on its debut, according to data compiled by Bloomberg. Alongside bumper trading volumes on the day, it all adds up to one of the best-ever ETF launches for the fund, which tracks U.S. and global companies engaged in space exploration and innovation.
• Pfizer Inc.’s Covid-19 vaccine remained highly effective after six months, according to new long-term results that the company said could be used to seek an expansion of its regulatory status. Follow-up data from a final-stage trial of 46,307 people showed the vaccine was 91.3% effective in preventing symptomatic cases starting one week after the second dose through as long as six months. In the U.S. alone, the efficacy rate was 92.6%, according to a report Thursday by Pfizer and its partner BioNTech SE. At the same time, the companies provided some of the first data on how their vaccine might handle the immune-evading B.1.351 variant that arose in South Africa. Nine of 800 trial participants in that country got sick with Covid, including six infected with B.1.351. However, all were in the placebo group, suggesting the shot retains efficacy against the variant.
• Taiwan Semiconductor Manufacturing Co. plans to spend $100 billion over the next three years to expand its chip fabrication capacity, a staggering financial commitment to address booming demand for new technologies. TSMC, the world’s leading manufacturer of advanced semiconductors, already planned a record capital expenditure of as much as $28 billion this year, but recent trends and developments have pushed for even more capacity. Now at the center of a global chip supply crunch, Taiwan’s biggest company has pledged to work with customers across industries to overcome a deluge of demand.
• Even with $371 billion in Federal Reserve support, mortgage bonds couldn’t beat investment-grade corporates in the first quarter. The Bloomberg Barclays U.S. MBS index saw 0.15% in excess return versus Treasuries, which pales next to the investment-grade corporate index return of 0.95%, as vaccine hopes trumped central bank largess. Still, for the mortgage index the first quarter of the year is often unkind, with the past decade seeing an average of -0.08% in excess return. And this year’s tally is certainly a nice improvement over the -0.83% shellacking the sector took over the same period last year.
• The OPEC+ meeting on Thursday will discuss whether to maintain the group’s current output cuts or resume a monthly schedule of modest and gradual production increases, according to a delegate. The choice between those two options could still go either way, the delegate said, asking not to be named because the information wasn’t public. Many OPEC-watchers had been expecting the group to roll over its production quotas for at least one month, so any deviation from that could be bearish. The cartel agreed in December to a monthly schedule of gradual output hikes of as much as 500,000 barrels a day, but paused the plan in January due to doubts about the strength of demand.

“Never let the future disturb you. You will meet it, if you have to, with the same weapons of reason which today arm you against the present.” – Marcus Aurelius

*All sources from Bloomberg unless otherwise specified