March  5, 2021

Daily Market Commentary

Canadian Headlines

• Major oil sands producers in Western Canada will idle almost half a million barrels a day of production next month, helping tighten global supplies as oil prices surge. Canadian Natural Resources Ltd.’s plans to conduct 30 days of maintenance at its Horizon oil sands upgrader in April will curtail roughly 250,000 barrels a day of light synthetic crude output, company President Tim McKay said in an interview Thursday. Work on the Horizon upgrader coincides with maintenance at other cites. Suncor Energy Inc. plans a major overhaul of its U2 crude upgrader, cutting output by 130,000 barrels a day over the entire second quarter. Syncrude Canada Ltd. will curb 70,000 barrels a day during the quarter because of maintenance in a unit. The supply cuts out of Northern Alberta, following a surprise OPEC+ decision to not increase output next month, could add more support to the recent rally in crude prices. OPEC+ had been debating whether to restore as much as 1.5 million barrels a day of output in April but decided to wait.
• Canada’s procurement minister hopes her efforts to secure Covid-19 vaccines will allow her compatriots to watch National Hockey League games in person next season. The country’s vaccine campaign is off to the second-slowest start among Group of Seven nations. Procurement Minister Anita Anand said in an interview Thursday the pace will pick up rapidly after some initial delays in deliveries. “We are doing everything we can to move as many doses as possible forward, from Q3 to Q2,” Anand said by video conference from her home office in the Toronto suburb of Oakville. “That’s my goal because I want Canadians — my family included — to be able to go to an NHL hockey game.”
• Canada’s housing market risks entering a speculative phase that could trigger new measures from regulators, economists at the nation’s largest banks are warning. For months, historically low mortgage rates have combined with increased demand for bigger living spaces and a lack of supply to drive prices to new highs. Recently, signs have begun to emerge of speculators driving some of the demand, along with other buyers worried they’ll miss out from the boom. That’s raised worries prices could be moving up by too much and too fast.

World Headlines

• European shares dropped Friday as this week’s gains in government bond yields pushed investors to exit risk assets amid concerns over valuations. The Stoxx Europe 600 Index fell as much as 1.2% and was down 0.6% as of 10:02 a.m. in London, with almost all sectors declining, led lower by travel and leisure and media shares. Tech stocks also declined after another negative Nasdaq 100 trading session Thursday. Energy stocks advanced as oil extended a rally after this week’s OPEC+ meeting.
• U.S. equity futures stemmed declines as investors await key U.S. jobs data at the end of a week in which fears of a growth break-out sparked volatility across markets. Treasuries rose and the dollar advanced. Contracts on the S&P 500 and Dow Jones Industrial Average turned higher along with those on the tech-heavy Nasdaq 100 after a topsy-turvy week.
• Oil briefly moved above $65 a barrel after OPEC+ chose not to relax supply curbs even as the global economy pulls out of its pandemic-driven slump, confounding widespread expectations the group would loosen the taps. The surprise decision spurred a wave of crude price forecast upgrades by major banks. The producer alliance agreed to hold output steady in April, while Saudi Arabia said that it will maintain its 1 million barrel-a-day voluntary production cut. West Texas Intermediate rose as much as 1.9% and Brent briefly topped $68.
• Gold continued to decline below $1,700 an ounce as the dollar strengthened, the day after Federal Reserve Chair Jerome Powell refrained from pushing back against the recent surge in bond yields.
• Corporate borrowing costs and gauges of credit risk rose around the world after Federal Reserve Chair Jerome Powell stopped short of detailing how he might tamp down a spike in rates. The Markit CDX North American Investment Grade Index, which investors use to hedge against losses on company notes, widened to a four-month high. Equivalent European measures for both investment-grade and high-yield corporate debt rose for the third consecutive day to the highest in about a week. Sentiment soured after Powell told a Wall Street Journal webinar that the recent run-up in yields was notable, but declined to be drawn on what tools might be used if disorderly conditions or any persistent tightening in financial conditions threatened the Fed’s goals.
• Iron ore futures headed for their first weekly decline in a month as port inventories rose in China and the world’s biggest importer unveiled a conservative economic growth target. China’s top policy makers have gathered for the National People’s Congress that kicked off Friday to lay out key economic plans, with investors seeking signals that might impact commodities demand, including potential stimulus policies surrounding de-carbonization.
• For the second week in a row, a majority of small firms in the U.S. reported they’re operating at a pre-pandemic capacity or higher. During the last week of February, 52.6% of firms said that their operating capacity, or maximum amount of activity the business could handle, was at least back to pre-Covid-19 levels, according to the U.S. Census Bureau’s Small Business Pulse Survey. The data still point to an uneven recovery, with industries such as restaurants and education services remaining in great distress. The results also don’t take into account the millions of businesses that have closed over the past year.
• China’s government set a conservative economic growth target for this year, shifting its focus from recovery mode to longer-term challenges like reining in debt and reducing technological dependence on the U.S. The growth target was set at above 6%, well below economists’ forecasts, with the budget deficit expected to fall to 3.2% of gross domestic product, Premier Li Keqiang said Friday at the opening of the National People’s Congress. In sharp contrast to places like the U.S., where the Biden administration is trying to push through a new $1.9 trillion stimulus package, Beijing outlined a plan to normalize policy now that the pandemic is under control domestically and the economy has bounced back.
• The European Central Bank will step up its pace of emergency asset purchases to counter rising bond yields that risk hurting growth prospects in the euro area, according to economists. That’s the majority view in a Bloomberg survey, which also showed that more than half the respondents expect the 1.85 trillion-euro ($2.23 trillion) program to be extended beyond its current end-date of March 2022. At the same time, just one fifth expect another increase in the size of the tool, suggesting market moves so far haven’t fundamentally changed the economic outlook.
• German factory orders rose in January, suggesting manufacturing will continue to support the economy through extended coronavirus lockdowns. Demand increased 1.4%, nearly three times as much as expected and bolstered by orders from outside the country. Domestic demand declined.
• Senate Democrats face a gauntlet of Republican attempts to rein in President Joe Biden’s $1.9 trillion stimulus package in a marathon session of votes that will extend the timetable for passage into the weekend. Democratic leaders plan to rough it through the amendment process and emerge with a bill that gets the votes of all 50 Democrats without risking a revolt from progressives in the House, which will have to agree on the Senate version before it goes to Biden for his signature. The president has already agreed to revisions to keep moderate Senate Democrats on board, including narrowing the eligibility for direct payments to millions of Americans. Incentives have also been added, including more money for rural hospitals, health insurance subsidies for the unemployed and broadband.
• U.K. regulators kicked off the final countdown for Libor, ordering banks to be ready for the end date of a much maligned benchmark that’s been at the heart of the international financial system for decades. The U.K. Financial Conduct Authority confirmed Friday that the final readings for most rates will take place at end of this year, with just a few key dollar tenors set to linger for a further 18 months.
• Australia asked the European Union to review a decision by Italy to block a shipment of AstraZeneca Plc’s coronavirus vaccine to the country. France’s Health Minister backed Italy’s measure and said other EU member states may act similarly amid delays in inoculations across the bloc. The decision could reignite concerns echoed by many including the World Health Organization that the EU is engaging in damaging protectionism, at a time when countries around the world race to immunize their populations. Germany reported the largest rise in new Covid-19 cases in a month as the country grapples with the spread of mutations, though a minister remained upbeat about the prospect of reopening hotels and restaurants later this month.
• The havoc that the pandemic is wreaking in Brazil and Mexico is cooling demand for gasoline and diesel in two top markets for U.S. oil refiners. Gasoline consumption in Mexico, which takes almost six in every 10 barrels of gasoline exported by the U.S., slumped to an eight-month low in January. Diesel sales in Brazil, which had surpassed levels seen prior to the pandemic, fizzled out and are at the lowest levels seen since May.
• Virgin Galactic Holdings Inc. Chairman Chamath Palihapitiya sold his personal holding in the space-tourism company founded by Richard Branson, raising $213 million. The 44-year-old businessman disposed of 6.2 million shares at an average price of $34.32 this week, based on a filing with the U.S. Securities & Exchange Commission. He still owns 15.8 million shares with his investment partner Ian Osborne, amounting to a 6.2% stake.
• Blackstone Group Inc. is in exclusive talks to acquire a minority stake in India’s Sify Technologies Ltd., according to people with knowledge of the matter. The communications infrastructure firm has sought a valuation of around $1 billion to $1.2 billion in a transaction, said the people, who asked not to be identified because the talks are private. It’s unclear what valuation the Blackstone stake purchase will be struck at and talks could still fall apart. Sify’s American depositary receipts rose 6.7% in pre-market trading on Friday in the U.S.
• Norsk Hydro ASA, one of the world’s largest aluminum producers, is selling its rolling business to private equity firm KPS Capital Partners to improve profitability as it focuses on low-carbon products. Hydro will sell the operations, which include seven plants and about 5,000 employees, to KPS for an enterprise value of 1.38 billion euros ($1.6 billion). The divestment follows a two-year review of the struggling business. As part of a five-year plan unveiled last year, the Norwegian aluminum maker aims to grow its recycling, renewables, and battery operations as consumer appetite for green products swells.
• UBS Group AG boosted its bonus pool by almost a quarter and paid new Chief Executive Officer Ralph Hamers a 3 million franc bonus ($3.2 million) to reward him for this first few months in charge, more than he typically earned for a full year at ING Groep NV. UBS set aside $3.3 billion for variable compensation last year, a 24% increase compared with 2019, according to the Zurich-based lender’s annual report on Friday.

“Nothing that you have not given away will ever really be yours.“ – C.S. Lewis

*All sources from Bloomberg unless otherwise specified