March 10, 2021

Daily Market Commentary

Canadian Headlines

  • Canadian stocks jumped Tuesday, closing at a record high after a rebound in tech and other risk equities. The S&P/TSX Composite Index gained 0.8%, with seven of 11 sectors rising. Marijuana stocks including Curaleaf Holdings Inc. were among leaders, gaining 15%. Just Energy Group Inc. filed for court protection in Canada and bankruptcy in the U.S. after suffering crushing losses in the Texas blackouts that plunged millions of people into darkness and the region’s power sector into chaos. Inter Pipeline Ltd. is open to an acquisition by Brookfield Infrastructure Partners LP should the suitor sweeten its takeover offer, the pipeline firm’s chief executive officer said.
  • Royal Bank of Canada’s capital markets chief says that even after two decades of expansion in the U.S., the country remains its biggest opportunity for growth. RBC Capital Markets sees the potential to boost its market share in the U.S. from its current level of about 2.5% to as much as 4% over time, Chief Executive Officer and group head Derek Neldner said in an interview. While that won’t happen overnight, “clearly the U.S. is still our primary focus,” he said. A particular focus for the firm, which already is in the top 10 in the U.S. in terms of wallet share, will be to diversify the U.S. platform by adding more advisory and equity capital markets capacity, said Neldner, who took over as the division’s head in November 2019. RBC Capital Markets had the strongest performance among Toronto-based Royal Bank’s major divisions in its most recent fiscal year, boosting profit 4.1% to C$2.78 billion ($2.2 billion) in the year ended Oct. 31. The gain was driven by a boom in trading as well as increased revenue from corporate and investment banking. The investment banking business alone has generated more than C$1 billion in revenue for four of the past five quarters.
  • Newmont agrees to acquire all of the outstanding shares of GT Gold that Newmont does not already own for C$3.25 per share. Company says deal represents a premium of 38% to the 20-day volume-weighted average price of GT Gold’s shares on the TSX-V as at March 9, 2021.

World Headlines

  • European shares reversed early losses to turn positive, after closing at their highest level in more than a year Tuesday. The Stoxx Europe 600 Index rose 0.2% as of 10:08 a.m. in London, about 3% away from the pre-pandemic record close of February 2020. Deutsche Telekom AG led telecoms as the best-performing sector after Citigroup Inc. upgraded the shares to buy, while miners fell as iron ore slid. Adidas AG rose 3.5% after forecasting sales will bounce back to near 2019 levels. European stocks have risen in March, boosted by a strong rally in cyclicals such as carmakers and construction firms on bets of an economic recovery, while surging bond yields have weighed on tech shares. With a record level in sight, the path to further gains may be bumpy as investors weigh frothy valuations in some pockets of the market and global inflation risk.
  • U.S. equity futures fluctuated with European stocks on Wednesday as the rally in tech shares stalled and traders sifted through corporate earnings. Contracts on the Nasdaq 100 dropped 0.3% following Tuesday’s surge, while those on the Dow Jones Industrial Average outperformed. General Electric Co. rose as much as 3.7% in pre-market trading after agreeing to combine its jet-leasing business with rival AerCap Holdings NV. GameStop Corp. extended its recent resurgence in early trading after more than doubling in a week.
  • Asian stocks rose for a second day, with equity benchmarks in China, Thailand and Indonesia leading the advance. Following the Nasdaq’s surge, the Chinext index of Chinese small caps rose, with Tesla battery-supplier CATL contributing the most to the gains after the 20% rally in Elon Musk’s automaker overnight. After recent successive declines, Wednesday marked a rebound for Chinese stocks, with the benchmark CSI 300 Index also climbing as much as 1.7% before paring gains. While a rout that erased $1.3 trillion from equity values in just 14 sessions was halted, traders warned the worst was not yet over. Markets in Singapore and South Korea lagged. Australia’s benchmark index also fell, erasing an earlier advance of 0.5%, as iron ore miners dropped.
  • Oil reversed an earlier decline, largely undulating with the swings in the dollar before data on U.S. oil stockpiles due later. Futures in New York edged lower on Wednesday, after falling more than 3% over the past two sessions. Market volatility has also been creeping higher in recent weeks. The American Petroleum Institute reported crude inventories rose last week, while gasoline stockpiles fell, according to people familiar. Still, there are signs of weakness in the market. WTI’s nearest time spread briefly erased all of its backwardation — a structure that indicates tightness — on Tuesday. Oil production across American shale patches next year is expected to climb to the highest annual rate since 2019, according to a government report.
  • Gold steadied, following the biggest jump in two months, as investors focus on the U.S.’s $1.9 trillion pandemic relief program and longer-term stimulus plans. The House is now planning to vote on the Covid-19 relief bill Wednesday morning, according to Majority Leader Steny Hoyer’s office. Focus will then turn to President Joe Biden’s soon-to-be-unveiled longer-term “build back better” program, which will span measures to address infrastructure, climate, health care, inequality and much more, and cost trillions of dollars over a decade. While prospects for massive stimulus stokes concerns over inflation, supporting gold as a hedge, the outlook for faster economic growth has weighed on the traditional haven. Higher bond yields have lowered the appeal of non-interest-bearing bullion, with prices down about 10% this year. Holdings in exchange-traded funds dropped to the lowest since June.
  • General Electric Co. agreed to sell its jet-leasing business to rival AerCap Holdings NV, bringing together the world’s two biggest aircraft financiers in a deal that’s poised to reshape a market already roiled by the coronavirus pandemic. Under the deal, valued at more than $30 billion, GE will receive $24 billion in cash plus 111.5 million shares, equivalent to a 46% equity stake in the combined entity, according to a statement Wednesday. GE will get an additional $1 billion from AerCap in either cash or debt when the transaction closes. The tie-up gives rise to a behemoth lessor after a year in which the pandemic has hammered aviation and prompted airlines worldwide to cancel jet orders, delay deliveries and defer lease payments. The deal also marks the end of GE Capital, the company’s once-mighty finance unit, the remnants of which will be folded into the broader corporate balance sheet.
  • China’s stock rout turned so extreme that state-backed funds intervened to calm the market on Tuesday, but authorities appeared to make it somewhat difficult to find out what happened on the mainland. On Weibo, the Twitter-like platform with about half a billion active users, a search for Chinese equivalent of “stock market” generated no posts on its web version on Wednesday, suggesting the phrase had been censored. Users could still post using the term, and the mobile version showed some results if hashtags weren’t included. Searches for words that mean “plunge,” “A-shares” and “stocks” were successful in the morning.
  • Cybersecurity platform Snyk Ltd. said it has closed a $300 million funding round that gives it a valuation of $4.7 billion, quadrupling its value since the start of 2020. The transaction included both primary and secondary offerings, with the company getting $175 million in new capital. That brings the total raised by Snyk, which was founded in 2015, to $470 million. The round was co-led by venture firms Accel and Tiger Global Management. Other investors included Addition, BlackRock Inc., Boldstart Ventures, Canaan Partners, Coatue, GV, Salesforce Ventures and Stripes. The round also included new investors such as Atlassian Ventures and Franklin Templeton.
  • Cathay Pacific Airways Ltd. reported a net loss of HK$21.65 billion ($2.8 billion) for 2020, a period the carrier described as “the most challenging 12 months of its more than 70-year history” as the coronavirus pandemic brought unprecedented disruption to global air travel. The outlook isn’t much better, according to the airline’s Chairman Patrick Healy, who said in a statement “it is by no means clear how the pandemic and its impact will develop.” Hong Kong has largely closed its borders to non-residents and imposed 21-day mandatory quarantine on those who return. Cathay expects to operate at well below 50% passenger capacity in 2021.
  • The House is poised to send the $1.9 trillion Covid-19 relief plan to President Joe Biden for his signature, providing an economic boost that will last long after $1,400 stimulus checks start arriving in Americans’ accounts this month. With four days until supplemental unemployment benefits begin running out, House Democratic leaders expect passage Wednesday morning. The bill is far bigger than initial Wall Street expectations of what could be accomplished in a closely divided Congress. It provides a template for a potential longer-term expansion of an American social-safety net that has long been much smaller than its European counterparts. Democrats say the near-$110 billion temporary expansion of the child-tax credit will help cut child poverty in half, while tax forgiveness on jobless benefits and student-debt relief will give help to millions more.
  • Saudi Arabia will take measures to ensure global energy security and deter attacks on its oil infrastructure, Foreign Minister Prince Faisal bin Farhan said in Riyadh on Wednesday, days after a missile and drone assault on Saudi Aramco facilities. The attack on Sunday targeted a key crude installation of the state oil company and was claimed by Iran-backed fighters in neighboring Yemen who are battling a Saudi-led coalition. It was intercepted but represented a serious escalation, stirring regional tensions at a time when U.S. President Joe Bidenaims to re-enter nuclear diplomacy with Tehran. “The failed attempts to target the port of Ras Tanura do not only target the security of the economy and Saudi Arabia. They target the global economy and its oil supplies and the global energy security,” Prince Faisal said at a press conference alongside his Russian counterpart Sergei Lavrov.
  • Russia said it has slowed access to Twitter Inc., accusing it of failing to take down pornographic and other banned content, escalating a growing push against foreign social networks. Authorities will slow access to Twitter on all mobile devices and on half of desktop computers because the company failed to remove content related to teenage suicide attempts, pornography and drug use, internet watchdog Roskomnadzor said in a statement Wednesday. It said access could be blocked altogether if Twitter doesn’t remove the banned content.
  • Friction at the U.K. border is rising again following Brexit as shipping companies rejected more cargoes due to cross the English Channel from France. The rate that freight companies declined to take shipments that were scheduled to move rose last week and is now 69% higher than the average in the third quarter, according to the logistics platform Transporeon. The figures add to evidence of constraints on Britain’s ability to trade goods in the next few months. Those tensions are likely to increase starting in April when the European Union phases in full customs checks, threatening to increase delays at ports and hold up imports.
  • The Chinese Foreign Ministry summoned the British ambassador, escalating a row between the countries over press freedom. The ministry said in a statement that Ambassador Caroline Wilson posted a public article on the popular WeChat messaging service complaining about sanctions on foreign media, even as those news outlets spread fake news. The article “deliberately confused defamation with critical news reporting” and was “selectively blind” to the oppression of Chinese media, the ministry said. Tensions between the countries have risen over China’s early handling of the pandemic, and because Boris Johnson’s government has offered Hong Kong residents a pathway to British citizenship after Beijing imposed a national security law last year on the former British colony. The U.K. has also criticized China for its treatment of its Uighur Muslim minority in Xinjiang province.
  • An investigation into illegal talent poaching by Beijing-based Bitmain Technologies Ltd. has revived fears Chinese companies will target Taiwan’s top engineers as their country works to build a world-class chipmaking industry. Investigators descended on the offices of Bitmain’s two Taiwan units and interviewed 19 people Tuesday in a probe into whether the crypto-mining startup had violated local laws, according to Chang Jui-chuan, a spokeswoman for the New Taipei District Prosecutors Office. The Chinese firm, which develops semiconductors for mining and other purposes, is suspected of illegally recruiting hundreds of engineers from Taiwanese firms over a period of three years. Taiwan prohibits firms from China from doing business or recruiting locally without prior approval, a measure intended to limit the influence of its political rival.
  • India will levy a 40% customs tax on imports of solar modules from April next year to cut dependence on foreign supplies and boost domestic manufacturing of the equipment, the renewable energy ministry said. The finance ministry has approved the proposal, which also includes a 25% customs duty on imports of solar cells, the ministry said in a note published on its website. It didn’t mention for how long the taxes will apply. India first proposed taxes on solar power equipment imports in the middle of last year following virus-related supply chain disruptions and deadly border skirmishes with China, which supplies nearly 80% of India’s modules.
  • Robinhood Markets Chief Executive Officer Vlad Tenev said investing in financial markets should be as common as shopping on, defending his brokerage against watchdogs, lawmakers and critics. “Investing should be as ubiquitous as shopping online,” Tenev said in an interview with Bloomberg Television’s Emily Chang. “It should just be something that people do.” The Menlo Park, California-based company plans to file its initial public offering as soon as this month as Tenev juggles the firm’s legal challenges and greater scrutiny on Capitol Hill. He took over as sole CEO last year, and in short order confronted the late January run-up in “meme stocks” like GameStop Corp. and a subsequent congressional hearing.
  • This morning’s refinance index release shows that higher mortgage rates are starting to bite, leaving millions of U.S. homeowners with no opportunity to lower their monthly payment. The Mortgage Bankers Association’s refinance application index dropped 5% for the week ending March 5. It is down 23% over the past six weeks and at its lowest since Oct. 16. This is welcome news for mortgage bond investors who paid a premium for their securities, as homeowner refinancings result in a prepayment of the loan at par. The 30-year mortgage rate is now at 3.02%, up 0.37% from the record lowreached on Jan. 7. From almost the entire universe of borrowers having at least 50 basis points of incentive to refinance, now only about 50% of those wrapped into Fannie Mae and Freddie Mac and two-thirds of those in Ginnie Mae bonds do, according to Scott Buchta, head of fixed-income strategy at Brean Capital.
  • Credit Suisse Group AG started an internal probe into the collapse of a $10 billion group of supply chain finance funds and temporarily replaced three employees in its asset management unit who were tied to the strategy. The Swiss lender has reached out to external firms to deal with regulators’ queries surrounding the collapse of the funds, which it ran with Australian financier Lex Greensill, people familiar with the matter said, asking for anonymity in discussing internal information. Michel Degen, head of asset management in Switzerland and EMEA, is being replaced in the interim by Filippo Rima, according to one person. Luc Mathys, head of fixed income in the unit, and another manager who ran the funds were also suspended from their roles, the person said.
  • Apple Inc. said it’s planning to build a new semiconductor design center in Munich as part of a 1 billion-euro ($1.2 billion) investment push to develop custom chips for 5G mobile and other wireless technologies in Germany. Apple plans to move into the 30,000-square-meter (98,400-square-foot) facility near central Munich in late 2022 and plans to hire hundreds of people, the company announced on Wednesday. “I couldn’t be more excited for everything our Munich engineering teams will discover — from exploring the new frontiers of 5G technology, to a new generation of technologies that bring power, speed, and connectivity to the world,” Chief Executive Officer Tim Cook said in a statement.
  • Franklin Templeton’s Mohieddine Kronfol is joining the ranks of fund managers scanning for signs it’s time to pile into emerging markets left battered by the Treasury-led selloff. U.S. 10-year real yields above zero will be the trigger for the Dubai-based chief investment officer for Middle Eastern and North African fixed income. He’ll be watching to see which bonds get punished most in the ensuing slump. It’s an approach that’s proving popular with some of the world’s biggest investment firms, from JPMorgan Asset Management to Ashmore Group Plc. They’re betting any turmoil will be a temporary setback as vaccine efficacy and President Joe Biden’s stimulus package power a global economic upswing.
  • The battle between news publishers and Alphabet Inc.’s Google and Facebook Inc. that flared up in Australia recently is coming to the U.S. Lawmakers plan to re-introduce legislation Wednesday to allow news organizations to band together to negotiate with the technology companies over payment for content and the data the companies have about readers. The legislation, which is being proposed in the Senate and House with bipartisan support, would make the U.S. the next front in the news industry’s war against Facebook and Google. Publishers scored a major victory last month when Australia passed a law to force the companies to pay for news content. In Europe, publishers have been lobbying European Union lawmakers to copy parts of the Australian law.

“Friendship is born at that moment when one person says to another What! You, too? I thought I was the only one.C.S. Lewis

*All sources from Bloomberg unless otherwise specified