May 31, 2021
Daily Market Commentary
- Canadian software company Dye & Durham Ltd. will review its options after a shareholder group led by management offered to buy the company for about C$3.4 billion ($2.8 billion), less than a year after it went public. The Toronto-based company announced Monday it will form a special committee of directors “to explore and evaluate potential strategic alternatives” after the management-led group said it would be interested in buying the company for C$50.50 a share. That’s 23% higher than its closing price on Friday.
- Canada needs a better strategy to build up an electric-vehicle supply chain and become a North American battery hub that takes advantage of a global push toward cleaner energy. That’s the parting advice Sherritt International Corp.’s outgoing Chief Executive Officer David Pathe has for the Canadian government and an industry set to disrupt everything from mining to automaking. “Canada as a whole, with some leadership from the federal government, needs to be more strategic about how we develop that industry from a national industrial policy perspective,” Pathe, 50, said in a Friday interview. “It takes more coordinated policy from the government to bring all the pieces together because it needs more than just raw materials.”
- European equities were little changed on Monday, as investors looked for the next catalysts to give the market direction following a rally that has pushed gauges to successive highs. The Stoxx Europe 600 Index inched 0.1% lower as of 9:05 a.m. in Paris, retreating from Friday’s record close. Carmakers and utilities slipped. Markets in the U.K. are closed for the Spring Bank Holiday, while U.S. stock markets will be shut for Memorial Day.
- Stocks in Europe struggled for direction along with U.S. futures on Monday as traders await fresh catalysts, with the key American jobs data later this week set to provide further clues on the outlook for the biggest economy. Contracts on the S&P 500 and Nasdaq 100 swung between small gains and losses amid shortened trading hours due to the Memorial Day holiday in the U.S. The dollar was steady against a basket of peers. There’s no Treasuries cash trading today, after the 10-year yield closed just below 1.6% on Friday.
- Asian stocks rose during a volatile trading day, with the benchmark gauge on track to outperform the S&P 500 Index for the first month since January. The MSCI Asia Pacific Index went up 0.3%, buoyed by shares in Indonesia and Taiwan. China’s CSI 300 Index closed 0.2% higher Monday, extending gains after its best weekly surge since February on the back of record foreign buying of local stocks. Meanwhile, Malaysian stocks were among the day’s biggest decliners, with the benchmark index sliding 0.7% after the government imposed a two-week nationwide lockdown to curb a surge in Covid-19 infections. Shares in Japan and the Philippines also fell.
- Oil advanced ahead of an OPEC+ policy meeting as traders expect rising demand to absorb a planned production increase from the group as well as any additional crude from Iran. Futures in New York climbed past $67 a barrel, putting crude on track for a second straight monthly gain. OPEC and its allies are expected to stick with a decision to boost output in July when the group gathers Tuesday, according to a Bloomberg survey last week. While rebounding demand is driving prices higher, the possibility of more barrels from Iran should a nuclear deal be revived is clouding the outlook.
- Gold headed for the biggest monthly advance since July, with inflation risks in focus ahead of key U.S. jobs data due later this week that will offer clues on the economic recovery. Some Federal Reserve officials have said that recent price pressures are to be expected as the economy reopens amid pent-up demand, and should prove temporary as supply glitches abate. The PCE price index — which the Fed uses for its inflation target — rose 3.6% from a year earlier, the biggest jump since 2008.
- China is escalating a crackdown on its online education sector, forcing once high-flying startups to mothball plans for multi-billion-dollar initial public offerings this year. Just months ago, edtech outfits were one of the hottest investments in China’s post-Covid internet industry, pulling in more than $10 billion of venture funding last year from powerhouses like Alibaba Group Holding Ltd., Tencent Holdings Ltd. and SoftBank Group Corp. Then Beijing stepped in. President Xi Jinping suggested in March the surge in after-school tutoring was putting immense pressure on on China’s kids, signaling a personal interest in curbing excesses. That led to warnings in state-owned media and penalties aimed at predatory practices that play on a nation’s obsession with academic achievement. Now, the country’s education ministry plans to create a dedicated division to oversee all private education platforms for the first time, according to people familiar with the matter.
- A strengthening world recovery from the Covid-19 pandemic risks leaving behind many regions, fueling inequalities across and within borders, the Organization for Economic Cooperation and Development said Monday. As the Paris-based group revised up its 2021 global growth forecast to 5.8% from 5.6%, it warned of gaping differences that mean living standards for some people won’t return to pre-crisis levels for an extended period. In countries including Argentina and Spain, more than three years will elapse between the onset of the pandemic and a recovery of per-capita economic output, according to the new projections. That compares to just 18 months in the U.S. and under a year in China.
- Apple Inc., which has come under fire for the behavior of its suppliers, reported progress among its manufacturing partners during the tumultuous year of the coronavirus pandemic as it released a supply-chain responsibility report. The Cupertino, California-based firm said improvements include a reduction in major violations of its code of conduct and no cases of child labor. The 113-page report covers a range of issues, from the treatment of workers to energy usage and infectious disease policies in the wake of Covid-19. It did cite several examples of suppliers failing to fulfill their duties and non-compliance with Apple’s working-hours policy. The company also stopped providing specific addresses for supplier facilities in the latest list of contractors it works with, information it had provided in the past for transparency.
- Iran and world powers have started what could be their final negotiations to revive a 2015 nuclear accord that limited the Islamic Republic’s atomic activities in return for sanctions relief. The fifth round of talks has begun in Vienna, with Iranian and Russian officials saying that, while some issues still need to be resolved, it could be the final one. If a deal is struck, the U.S. would probably ease sanctions on Iran’s oil, banking and shipping sectors, though it is unclear to what extent or how quickly that would happen. Iran, whose economy has been battered by the U.S. penalties, is preparing to ramp up crude production and boost exports in anticipation of an agreement.
- Turkey’s economy has grown at a strong pace this year, outperforming most large economies as it recovers from the pandemic — an expansion that’s come at the expense of price and currency stability. Turkey grew faster than all Group of 20 nations except for China in the first quarter after nearly stalling a year ago when Covid-19 struck. It’s been bolstered by robust consumption on the back of last year’s government-led push to cut interest rates and boost lending. Gross domestic product rose 7% from a year earlier and 1.7% from the fourth quarter. The median of 22 forecasts in a Bloomberg survey was for 6.3% growth compared to the same period in 2020.
- China signaled its tolerance for the yuan’s rally is fading after the authorities set the daily fixing at a weaker-than-expected level and state-run newspapers warned against rapid gains. Beijing fixed the reference rate at 6.3682 per dollar on Monday, versus the average estimate of 6.3656 in a Bloomberg survey. The rise in the yuan is due to short-term speculation and probably won’t last, Sheng Songcheng, a former People’s Bank of China official told the state-run Xinhua News Agency on Sunday. The central bank-backed Financial News and an ex-regulator also weighed in. The chorus of comments talking down the yuan follows a subtle shift in policy makers’ stance at the end of last week after earlier messaging appeared to indicate a greater tolerance for a stronger currency. A rapidly rising yuan may draw increased scrutiny in global financial markets, especially at a time when the dollar is losing momentum.
- China will allow all couples to have a third child, a surprise move aimed at slowing the nation’s declining birthrate as risks to the economy’s long-term prospects mount because of a rapidly aging population. In a meeting presided over by President Xi Jinping Monday, the Communist Party’s Politburo decided to ease the current two-child restriction, saying “allowing every couple to have three children and implementing related support policies will help improve the population’s structure,” according to a report by the official Xinhua News Agency. It wasn’t clear when the move would take effect, although the meeting discussed major policy measures to be implemented in the period to 2025. China has been gradually reforming its stringent birth policy that for decades limited most families to only having a single child, with a second child allowed since 2016. However, that reform did little to reverse the declining birthrate and further relaxation of the limits is unlikely to lead to a sustained increase.
- Goldman Sachs Group Inc. plans to double its real estate investment in Japan, a person familiar with the matter said, adding to signs of foreign interest in the nation’s property market. The U.S. bank will increase investment to about 250 billion yen ($2.3 billion) a year from the previous range of around 100 billion yen to 150 billion yen, said the person, who asked not to be identified. It will focus on logistics facilities, data centers and properties offloaded by corporate owners, the person said. Goldman joins firms such as Blackstone Group Inc. and BentallGreenOak in stepping up investment in Japanese property, signaling confidence that the market will rebound after the pandemic drove up office vacancies and hurt the hospitality business. Overseas investment in the nation’s commercial real estate climbed to about 1.6 trillion yen last year, the highest since 2007, according to Jones Lang LaSalle Inc.
- The relative resilience of Ether in May’s cryptocurrency rout has put the spotlight back on the idea that the second-largest digital token could one day overtake Bitcoin by market value. Right now the largest virtual currency is more than twice as big as Ether but the gap narrowed by about $350 billion in May, courtesy of one of Bitcoin’s worst drops and a smaller retreat in Ether. Fans of Ether cite its popularity for blockchain-based financial services and digital collectibles, as well as an ongoing upgrade to boost the efficiency of the affiliated Ethereum network. Ether “will likely exceed Bitcoin at some point in the future, as Ethereum will be superior when it comes to innovation and developer interest,” said Tegan Kline, co-founder of blockchain software company Edge & Node. But she also said that investors should be allocating capital to both tokens.
- A Texas voting-rights bill that drew criticism from President Joe Biden over the weekend failed to pass late Sunday night as Democrats left the chambers before the vote. “A number of members have chosen to disrupt the legislative process by abandoning the legislative chamber before our work was done,” Speaker Dade Phelan said in a statement. “In doing so, these members killed a number of strong, consequential bills,” he said, including those with bipartisan support. Lawmakers in the Republican-controlled Texas legislature finalized the draft legislation, which Governor Greg Abbott and other state leaders say will ensure election integrity. The state’s Democratic Party labeled it an attempt at suppression that makes it harder to vote by mail, limits voting hours and adds barriers to voter registration.
- A full global deal to overhaul taxation rules and make multinationals pay more in countries where they operate may not be achieved until October, the chief of the Organization for Economic Cooperation and Development said Monday. Speaking in Paris, Angel Gurria said a “180-degree change in the position of the U.S.” has accelerated the talks, making an outline of a deal possible at a meeting of Group of 20 finance officials in July. But some countries, including the U.S., may need to legislate before the matter can be completely settled. Gurria’s comments provide a counterpoint to the sense of expectation building for agreement at the Group of Seven finance ministers meeting later this week, and the G-20 one the following month. Such gatherings are preludes to the push for a far broader consensus than just between those blocs in order to cement a new landscape for tax.
- Apple Inc. will add to its global retail presence even as stores in inner cities struggle with an accelerating shift to sales online during the coronavirus pandemic, Germany’s Funke Mediengruppe reported. The Cupertino, California-based company operates about 500 Apple stores globally, including 100 in Europe. Retail locations offer an opportunity for people to experience new technology, ask questions and attend workshops on Apple’s products, Funke said, citing Deirdre O’Brien, the iPhone maker’s senior vice president of retail and people.
- The debate in commodity markets over whether this year’s supercharged rally is over, or whether prices will move higher after a pause, is in full swing. For now, hedge funds have stepped to the side. Commodity investors are reducing bets on further price gains in everything from crops to copper to natural gas. Hedge-fund holdings this week in 20 of the 23 commodities tracked in the Bloomberg Commodity Index fell by the most since November, according to data from the U.S. Commodity Futures Trading Commission and ICE. Weather is boosting U.S. crops, pointing to bigger harvests, while also reducing demand for natural gas. Oil markets are bracing for bigger supplies and China, the biggest commodities buyer, is moving to contain high raw material prices. In sum, the much-vaunted commodity supercycle is in doubt as bearish factors emerge amid inflation fears and demand concerns.
- More than 20 investors have expressed interest in a funding round for Dalian Wanda Group Co.’s commercial property management unit, which could raise about 20 billion yuan ($3.1 billion), according to people familiar with the matter. Sovereign wealth funds, Chinese technology companies and private equity funds are among those that have shown preliminary interest in the fundraising, said the people, who asked not to be identified as the discussions are private. Wanda Light Asset Commercial Management Co. plans to raise about 2 billion yuan each from some lead investors, while the rest of the investors could chip in around 500 million yuan to 1 billion yuan each, the people said. The funding round could value the unit at about 200 billion yuan, they added.
“We don’t have to be smarter than the rest, we have to be more disciplined than the rest.” – Warren Buffet
*All sources from Bloomberg unless otherwise specified