May 13, 2021
Daily Market Commentary
- Canadian shares fell for a third day along with U.S. equities on inflation concerns after a higher than expected uptick in U.S. consumer prices. The S&P/TSX Composite index fell 0.9% in Toronto to lowest since April 23. All of the stock sectors fell, except energy as oil prices climbed. Meanwhile, Canadians are so alarmed by the red-hot housing market that many say they’d like to see the central bank raise the cost of borrowing to dampen demand for real estate and stabilize prices.
- Parka maker Canada Goose Holdings Inc. posted earnings and revenue for the fiscal fourth quarter that beat analysts’ estimates because of strong online orders. The company projects sales in the current year will top C$1 billion ($823 million) for the first time. Revenue for the quarter ended March 28 rose 48% from a year earlier to C$208.8 million, well above the C$164.1 million expected by analysts. The company dealt with store closures during the quarter as a new wave of infections hit Europe and North America. Its home province of Ontario was hit particularly hard. Six of its 28 locations are currently closed, half of them in Toronto. Revenue fell in Canada while it increased “significantly” in other major markets.
- European stocks fell to their lowest level since early April as investors exited riskier assets amid concern that rising inflation may lead to tighter monetary policy and curb corporate profits. The Stoxx 600 Index was down 1.4% as of 10:15 a.m. in London, sliding to its lowest level since April 1, with some markets in the region including Switzerland, Norway, Denmark and Sweden closed for holidays. The declines came after the S&P 500 and Nasdaq 100 both slumped more than 2% in a third-straight session of losses following a rise in U.S. inflation. On Thursday, all sectors were in decline, led lower by miners and energy shares as iron ore futures sank and oil dropped after a four-day gain. Auto makers where also among the biggest fallers.
- Global stocks fell toward a six-week low and U.S. equity futures retreated as inflation fears continued to depress investor sentiment. The dollar rose to a one-week high. The MSCI World Index sank for a fourth day, losing 0.6% in the longest selloff since September. S&P 500 contracts dipped 0.4%, while Asian and European equities saw steeper losses.
- Asian stocks slumped, with the regional benchmark on track to enter a technical correction, as mounting worries over inflation and a resurgence in Covid-19 cases soured investor sentiment. The MSCI Asia Pacific Index slumped as much as 1.6%, taking losses from a Feb. 17 peak to 10%, and wiping out all its gains for the year. Asian equities tracked losses in American shares after data on Wednesday showed U.S. consumer prices climbed in April by the most since 2009. The selloff in Asia is part of this week’s rout in global equities as an explosive rally in commodity prices threatens to push up inflation. The region is also battling a fresh surge in coronavirus infections in several countries including India, Japan and parts of Southeast Asia, with slow vaccine rollouts and delays in reopening borders compounding concerns for equity investors.
- Oil snapped a four-day gain as markets broadly retreated on inflation concerns and a key U.S. fuel pipeline restarted. West Texas Intermediate lost 2.1%, while Brent retreated too. Stock markets weakened as inflation concerns in the U.S. continue to spur risk-off sentiment in broader markets. China Premier Li Keqiang urged the country to deal effectively with the commodity price surge and its impact, according to a state television report, echoing previous comments from officials. In the U.S., the Colonial Pipeline — a key source of gasoline for the East Coast — is returning to service after a cyberattack last Friday. That’ll bring relief to motorists after panic-buying emptied out some gas stations and retail prices topped $3 a gallon. In futures markets, profits to produce the fuel slumped after news of the restart.
- Gold steadied after its biggest slump in six weeks as a Federal Reserve officials played down concerns of out of control inflation following a surge in U.S. consumer prices. Bullion fell more than 1% on Wednesday as a report showed U.S. consumer prices rose in April by the most since 2009. While that fanned concerns about inflation and pushed Treasury yields higher, Fed officials continued to play down the significance of the rise. Vice Chairman Richard Clarida acknowledged he was surprised by the data but argued the spike in inflation was likely to be prove transitory. It came just days after a big miss on U.S. jobs growth, indicating the economic recovery was not assured. That data helped gold to its biggest weekly gain in sixth months, as investors pared back expectations of tighter monetary policy in the near future. The metal has staged a small recovery in recent months after a torrid first quarter, driven by lower Treasury yields and a weaker dollar.
- President Joe Biden’s attempt to expand the definition of infrastructure has sent economists to the drawing boards to measure the impact of his spending plans. Infrastructure has traditionally been thought of as physical things — roads, train tracks or airports — and federal investment in these in the past has transformed the U.S. economy, helping drive growth and productivity. Yet the pandemic has had a disproportionate effect on mothers and minority workers, prompting some policy makers to call for building a more robust “care economy” through spending on what’s now being called “soft infrastructure.”
- Singapore’s air-travel bubble with Hong Kong was facing further delays after virus cases in the local community rose to the highest since July because of a cluster at Changi Airport. There were more than 300,000 new confirmed Covid-19 cases in India for the 22nd consecutive day and more than 4,000 confirmed deaths. Seychelles, which has vaccinated more than half of its population using Sinopharm and Astra shots, said a surge in cases of the disease was easing. A group of medical experts said children aged 12 to 15 can safely take the vaccine made by Pfizer Inc. and BioNTech SE, opening an important new phase of the U.S. immunization effort.
- Tesla shares fell as much as 3.1% in U.S. pre-market trading, before paring their drop to 1.5%, after Chief Executive Officer Elon Musk said the company is suspending purchases using Bitcoin, making a U-Turn from earlier this year, when the electric-vehicle maker said it planned to accept it as a payment. “For Tesla and the stock, not accepting Bitcoin does not change the thesis or growth trajectory for the EV story,” Wedbush analyst Dan Ives wrote in a note. Still, the move “does add to the noise and volatility around the name at a time in which risk assets are under enormous selling pressure,” he wrote
- China Evergrande Group raised about HK$10.6 billion ($1.4 billion) selling shares in its electric vehicle unit, the latest effort by the nation’s most indebted developer to boost capital. The sale amounts to about 2.7% of outstanding shares in China Evergrande New Energy Vehicle Group Ltd., the real estate firm said in a filing to the Hong Kong stock exchange on Thursday. Evergrande NEV tumbled as the shares were sold at a 20% discount. Evergrande has been selling assets to repair its balance sheet in line with Chinese regulators’ efforts to deleverage the property sector. The company was in breach of all key metrics for reducing debt levels — known as the “three red lines” — at the end of last year, even as many of its peers improved.
- Bain Capital is considering a sale of its controlling stake in Seoul-listed botox maker Hugel Inc., according to people familiar with the matter. The buyout firm is seeking as much as $2 billion from a disposal of its 44.4% stake in Hugel, said the people, who asked not to be identified as the information is private. Bain’s holding in the botox maker is valued at about 1.2 trillion won ($1 billion) based on Thursday’s share price. Bain is working with Bank of America Corp. on the stake sale, which could kick off as soon as the second half of this year, the people said. The shares could attract health-care companies as well as private equity firms, they added.
- Advent International is exploring options including a potential sale for its stake in ASK Group, an Indian investment and wealth management firm, according to people familiar with the matter. The buyout firm is working with Nomura Holdings Inc. on a possible deal, said the people, who asked not to be identified as the discussions are private. Advent is seeking a valuation of more than $1 billion for ASK Group in a deal, one of the people said, adding that the country’s coronavirus outbreak could mean the process will take longer. Considerations are an early stage and Advent could still decide to keep the holding, the people said. A representative for Nomura declined to comment, while a representative for Advent couldn’t be reached for comment.
- The largest gasoline pipeline in the U.S. is returning to service following a cyberattack that took the fuel artery offline for five days, offering hope that fuel shortages in several states will soon come to an end. Colonial Pipeline Co., operator of a conduit that handles more fuel than Germany consumes, said it began to resume shipments around 5 p.m. Eastern time Wednesday. In a further effort to provide relief, the Biden administration temporarily waived century-old shipping restrictions to allow one foreign-flagged ocean-going tanker to help relieve the shortages. U.S. Energy Secretary Jennifer Granholm said Tuesday it would take days to fully restore supplies after the pipeline’s restart, while Colonial indicated it will get its physical operations up and running ahead of its business systems. Using foreign-flagged tankers may help in the relief effort, but the sailing time alone for a ship to take fuel from Houston to New York would take six or seven days.
- New York Governor Andrew Cuomo and his staff have retained legal counsel for at least three federal and state investigations into alleged misdoings. The question now is how they’re going to pay for it. At issue is a state finance law that requires contracts by the third-term Democrat or his staff worth more than $50,000 to first be approved by the state’s comptroller, who serves as New York’s chief financial officer. The comptroller’s office says Cuomo hasn’t submitted any requests to authorize contracts with the multiple law firms the governor and his staff have retained over the last few months.
- Citigroup Inc. plans to hire more than 1,000 professionals across its wealth franchise in Hong Kong over the next five years, stepping up its expansion amid an increasingly heated grab for talent in the region. The hires will include more than 550 new relationship managers and private bankers, the New York-based lender said in a statement on Thursday. To date, the bank has hired 75 private bankers and relationship managers. The Wall Street bank joins others, including HSBC Holdings Plc and Credit Suisse Group AG, in beefing up the ranks of private bankers to capture clients in an increasingly affluent region. China has signaled that it could soon allow investments across the border between Hong Kong and the nation’s southern region.
- Blackstone Group Inc. is buying 66 multifamily properties in the San Diego area for more than $1 billion and plans to invest some $100 million to improve the properties, whose apartments currently provide low-cost housing to thousands of people. The deal would transfer about 5,800 apartments to Blackstone’s real-estate portfolio from the Conrad Prebys Foundation, named for the developer who assembled the portfolio of properties involved. The San Diego Union-Tribune, which earlier reported on the deal, said Blackstone already owns about 900 apartments in the metropolitan area. The New York firm is a major landlord in the U.S., with roughly 100,000 homes and apartments in its real-estate holdings, and is making the deal as the nation’s housing market heats up. Median one-bedroom apartment rents have been rising in San Diego, with a 2.2% gain from last year to $1,820 in April, according to real-estate data tracker Zumper Inc.
- The Biden administration temporarily eased century-old U.S. shipping requirements to allow a foreign tanker to transport gasoline and diesel to fuel-starved areas of the country following the Colonial Pipeline outage. A waiver has been issued for a single company under the 101-year-old Jones Act, which stipulates goods transported between U.S. ports be carried on ships built and registered in the U.S. as well as crewed by American workers, Homeland Security Secretary Alejandro Mayorkas said in a Thursday statement. The move is designed to address fuel shortages spurred by the cyberattackon the Colonial Pipeline, which shut down a major artery for gasoline, diesel and jet fuel across the U.S. East Coast. Even with fuel shipments resuming from around 5 p.m. New York time Wednesday, it’s unclear how long it will take for the network to return to normal.
- South Korea unveiled ambitious plans to spend roughly $450 billion to build the world’s biggest chipmaking base over the next decade, joining China and the U.S. in a global race to dominate the key technology. Samsung Electronics Co. and SK Hynix Inc. will lead more than 510 trillion won of investment in semiconductor research and production in the years to 2030 under a national blueprint devised by President Moon Jae-in’s administration. They’ll be among 153 companies fueling the decade-long push, intended to safeguard the nation’s most economically crucial industry. Moon got a briefing from chip executives on the initiative Thursday during a visit to the country’s most advanced chip factory, a Samsung plant south of Seoul. Samsung is boosting its spending by 30% to $151 billion through 2030 while Hynix is committing $97 billion to expansion at existing facilities in addition to its $106 billion plan for four new plants in Yongin, co-Chief Executive Officer Park Jung-ho said during the event.
- Russia’s debt chiefs are working on a mechanism that will allow the government to retire costlier ruble bonds sold to raise emergency funds during the coronavirus pandemic. “The goal is to restore the right structure of the portfolio so that in the next crisis, government debt can be used to conduct an active economic policy again,” Deputy Finance Minister Timur Maksimov said in an interview. He didn’t elaborate on the timing or the amount of money the ministry might earmark for the purchases. Russia doubled its borrowing plan last year to help shield the economy from the pandemic as oil prices collapsed and the U.S. weighed sanctions on ruble debt sales. In a series of blowout auctions dominated by local banks, the Finance Ministry sold floating-rate bonds offering a coupon that climbs with the central bank’s key rate.
- Alibaba Group Holding Ltd.’s revenue beat estimates after China’s e-commerce leader rode a post-pandemic recovery and begins to move past a bruising antitrust investigation. Jack Ma’s flagship e-commerce firm reported revenue of 187.4 billion yuan ($29 billion), compared with the 180.4 billion yuan average of analysts’ estimates. But it swung to a 5.5 billion yuan net loss, after the company swallowed a $2.8 billion fine for monopolistic behavior imposed by Beijing. It forecast revenue of more than 930 billion yuan for the coming year. Executives have sought to put behind them a crackdown on Ma’s internet empire that’s shaved $260 billion off the Chinese internet behemoth’s market value. The $2.8 billion fine marked the conclusion of a four-month probe, but the threat of future action will likely cast a shadow over Alibaba’s business for some time.
- Donald Trump could hurt Republicans’ chances of regaining control of Congress in the 2022 midterms, just by endorsing the candidates working so hard to win his backing. The former president is studying races and plans to bestow his superlative-laden endorsements around the country in many 2022 primary or general election contests for the U.S. House, Senate and governorships, according to a person familiar with his thinking. While those nods can still be the golden ticket in a Republican primary and solidly GOP districts, they also can energize independents and Democrats who don’t like Trump in competitive districts — risking defeat for Republican candidates in the general election and with it possible control of the House, according to studies of the 2018 and 2020 campaigns.
- The Biden administration will seek $11 billion to buy 85 Lockheed Martin Corp. F-35 jets in the coming fiscal year, tracking a plan outlined last year by the Trump administration, according to a U.S. official. With a $715 billion budget request for fiscal year 2022, the Pentagon had considered increasing the quantity of next-generation fighters it planned to buy but decided to instead focus on using additional funding to upgrade the F-35 with new capabilities every six months, the official said. “It’s not unusual for a new administration’s first budget to change relatively little from its predecessor,” J.J. Gertler, a military aviation analyst for the non-partisan Congressional Research Service, said in an email. “But using the prior number for FY 22 adds fuel to the idea that the big changes for the program will come in ’23,” he said.
- Walt Disney Co. is heading into its fiscal second-quarter report with analysts the most positive they’ve been on the stock since April 2020. The entertainment giant is in a potentially enviable position. The company is seen as more insulated from the unwinding of the stay-at-home trade as the economy inches closer to a full reopening. That trend has weighed on companies like streaming-industry leader Netflix Inc., which tumbled after first-quarter results last month showed dismal subscriber growth, following a surge in 2020.
- Century-old investment bank Cowen Inc. says it will hold cryptocurrencies for hedge funds and asset managers, a service that many Wall Street stalwarts were long reluctant to offer even as they rushed to cash in on their clients’ interest in the hot asset class. The firm will provide “institutional-grade” custody services for cryptocurrencies and a variety of other digital assets through a partnership with Standard Custody & Trust Co., Cowen said Thursday. It will also make a $25 million investment in PolySign Inc., Standard’s parent company. “The demand is clearly here,” Jeffrey Solomon, Cowen’s chief executive officer, said in an interview. “We’re going to be able to help a lot of our institutional clients get over the hump and start trading digital assets in the not-too-distant future.”
- Boeing Co. sent two service bulletins to 737 Max operators Wednesday, providing instructions to repair an electrical issue that has grounded scores of new jets for more than a month. The repair orders, issued after the U.S. Federal Aviation Administration signed off on its plan, represents a crucial step in resolving a manufacturing defect that has irritated customers, halted deliveries and thwarted Boeing’s plans to smoothly re-introduce its flagship jetliner after two fatal crashes. The issue potentially affects hundreds of 737 models made since early 2019, including 71 jets delivered to U.S. operators. Boeing hasn’t handed over any of its Max jets since alerting airlines and lessors last month that some cockpit components weren’t properly grounded due to a slight manufacturing change. The issue is “degraded” electrical connections on a standby power unit, a circuit breaker panel, and the plane’s main instrument display, the FAA said in April.
- U.S. homeowner equity is surging, according to an Attom Data Solutions press release this morning. That may be good news for many of the 55.8 million Americans who have a mortgage, but bond investors should pay more attention to borrowers’ income. The data company said that 31.9% of mortgaged homes were “equity-rich” in the first quarter, meaning the loan was equal to just half the home’s value, or less. That proportion stood at 26.5% at the same time last year. Yet, the Global Financial Crisis taught us that household equity can be ephemeral, especially during a housing boom. Prices are a measure of peoples’ opinion at a specific point in time — and opinions can change. For instance, during the early aughts the S&P Core Logic Case-Shiller national home price index reached its highest point in July 2006 — at that time a record high — before losing a quarter of its value by the end of 2011.
- Genworth Financial Inc. postponed a planned initial public offering for its Enact Holdings Inc. unit, citing volatility in the mortgage-insurance market. The IPO was expected to fetch as much as $623 million in what would have been this week’s largest U.S. initial offering. Genworth shares fell 5.2% to $3.65 at 6:35 a.m. in early trading in New York. Genworth’s ability to meet its near-term obligations isn’t dependent on the IPO, the company said Thursday in a statement. The Richmond, Virginia-based holding company had about $757 million in cash and liquid assets as of March 31, according to the statement. “In light of the recent significant trading volatility in the mortgage-insurance sector, Genworth’s board of directors determined that current market pricing for the planned offering does not accurately reflect Enact’s value,” Chief Executive Officer Tom McInerney said in the statement. “Therefore, we have decided to postpone the IPO and will continue to evaluate our options as market conditions develop.”
- Twitter Inc. has stepped up its pace of acquisitions in recent months after years of languid deal-making, a change that reflects the social network’s stronger financial standing and a renewed effort to speed up the addition of new features. Last week Twitter announced the purchase of news reader service Scroll with a goal of adding the product to an eventual subscription offering for its social network. The deal was Twitter’s sixth announced so far this year, and the seventh since December. While many of Twitter’s transactions have been small and driven by a desire to quickly add more employees or technical expertise, Twitter’s activity this year is markedly different from 2017 and 2018, when the company completed just one public acquisition in two years. Twitter, which a few years ago was itself a buyout target, is also taking bigger swings, and has been part of the conversation around higher-profile deals since last year, including efforts to acquire Discord Inc., Clubhouse and even TikTok.
“Excellence is never an accident.” — Aristotle
*All sources from Bloomberg unless otherwise specified