May 4, 2021

Daily Market Commentary

Canadian Headlines

  • The real estate investment firm Hines is raising money for deals in the Asia-Pacific region as it looks for opportunities coming out of the pandemic. The fund, Hines Asia Property Partners, will have an initial investment capacity of roughly $900 million, according to a statement on Tuesday. Cadillac Fairview, the property unit of Ontario Teachers’ Pension Plan, is providing $400 million in equity. Hines, which wants to expand its portfolio in the region, will invest as much as $100 million and the rest will be debt, said David Steinbach, global chief investment officer at the Houston-based firm. Investors have been funneling money into commercial real estate funds over the past year, anticipating a wave of Covid-related deals. The new Hines fund will target deals in markets including Japan, Australia, South Korea as it seeks to invest in warehouses, offices, retail and residential property.
  • Canada’s Amp Energy plans to invest A$2 billion ($1.5 billion) in a major renewable energy hub in South Australia. Amp bought a portfolio including three large solar projects totaling more than 1.3 gigawatts from Australian renewable energy company EPS Energy, it said in a statement on PR Newswire. They will be part of the Renewable Energy Hub of South Australia that will also feature wind and battery energy assets, Amp said. South Australia, which aims to get 100% of its power from renewables by 2030, became one of the world’s first major grids to briefly meet its entire energy demand last year with solar energy, according to BloombergNEF. More than 70% of the state’s electricity came from renewables in the first quarter of 2021, according to the Australian Energy Market Operator.

World Headlines

  • European equities were steady on Tuesday morning as plans to ease pandemic curbs in the region supported sectors that have been worst-hit by the measures, while lockdown-winning technology stocks declined. The Stoxx Europe 600 Index was flat as of 9:18 a.m. in London, with economically sensitive sectors including miners, travel and energy leading gains. The FTSE 100 Index outperformed other major benchmarks, catching up with Monday’s European gains as U.K. markets resumed trading after a holiday and the country’s prime minister said lockdown rules are set to be scrapped in late June. Since peaking at an all-time high in mid-April, the Stoxx 600 has been bound to a narrow range, with strong gains ahead of the earnings season setting a high bar for first-quarter beats. The result has been the least volatile European stock market since pre-pandemic times.
  • U.S. futures slipped and stocks were mixed as investors continued to rotate out of pandemic winners like technology and into sectors poised to gain from economic reopening. Contracts on the Nasdaq 100 Index traded down 0.3% a day after the likes of Tesla Inc. and Amazon.com Inc. dragged the underlying gauge lower on signs of quickening inflation. Tech shares were also the biggest laggards in the Stoxx Europe 600 Index, with semiconductor firm Infineon Technologies AG slumping as much as 5%. In contrast, cyclical shares such as miners and travel stocks helped power the European benchmark as a gauge of commodity prices hovered at the highest level since 2012. Futures on the Dow Industrial Average also outperformed. The dollar jumped, while Treasuries dropped alongside most European bonds. Digital token Ether extended its surge to set another record as larger rival Bitcoin slipped.
  • Asian stocks fell as a resurgence of Covid-19 cases in the region dragged shares in Taiwan and India lower. The Taiex index slid 1.7%, clocking its worst two-day drop since August, after Taiwan reported two local virus cases on Monday. That slump took some of the shine off one of the world’s top-performing stock markets this year. India’s Sensex index fell as much as 1.2% as the country continues to witness more than 300,000 new Covid-19 infections daily.
  • Oil climbed above $65 a barrel on optimism that the resumption of economic activity in the U.S. and Europe will underpin demand. West Texas Intermediate gained 1.3%, while gasoline futures were up 1.8%. The European Union plans to ease curbs for vaccinated travelers this summer, while states around the New York region are set to relax capacity restrictions. That’s offsetting concerns about weaker oil consumption in parts of Asia, including key importer India, where Covid-19 remains rampant. Oil has been climbing in recent weeks — amid a broad advance across commodity markets — as investors bet that the rollout of vaccines will permit a return to pre-pandemic conditions. Reflecting that rebound, Federal Reserve Chair Jerome Powell said on Monday that the U.S. economic recovery is “making real progress,” although he cautioned that the gains have been uneven.
  • Gold pared some of Monday’s gains as the dollar strengthened ahead of key U.S. economic data this week. The dollar was supported amid a cautious mood in markets. Data on the U.S. trade balance, factory orders and durable goods are due Tuesday and the April unemployment rate will be released on Friday, throwing further light on the country’s economic recovery. Bullion jumped the most in more than two weeks on Monday, after data showed growth at U.S. manufacturers cooled in April amid surging prices for raw materials, highlighting risks to the recovery from the pandemic. Slower expansion in manufacturing reinforces expectations that central banks will keep interest rates near zero, bolstering demand for precious metals.
  • Denmark will ease curbs this week and dropped Johnson & Johnson’s Covid-19 shot. Bavaria’s Oktoberfest festival was canceled, but free beer is available to New Jersey residents who get a vaccine. India was criticized for a “lack of leadership” by a former central bank chief, as Prime Minister Narendra Modi resists pressure to lock down. Hong Kong is isolating all residents of a building after finding a case, and reviewing a decision to make vaccinations mandatory for foreign domestic workers after a backlash. There is also growing anger at Australia’s decision to ban citizens returning home from India. The New York Stock Exchange will allow more traders on the floor if they’re fully vaccinated, after weekly confirmed cases in the U.S. rose at the slowest pace of the pandemic. The Biden administration will support Pfizer’s move to start exporting U.S.-made doses of its vaccine.
  • U.K. Prime Minister Boris Johnson said the country is on course to scrap lockdown rules over the next seven weeks. Denmark will ease curbs this week and dropped Johnson & Johnson’s Covid-19 shot. Cricket regulators suspended the Indian Premier League after multiple players contracted Covid-19. The country was criticized for a “lack of leadership” by a former central bank chief, as Prime Minister Narendra Modi resists pressure to lock down. Hong Kong is reviewing a decision to make vaccines mandatory for foreign domestic workers after a backlash. There is also growing anger at Australia’s ban on citizens returning home from India. The New York Stock Exchange will allow more fully vaccinated traders on the floor, and New Jersey is offering free beer to residents who get shots.
  • The fate of President Joe Biden’s $4 trillion economic vision for the U.S. now rests with the lawmakers turning his infrastructure and social-spending plans into legislation that can get through a narrowly divided Congress. Congress approved his $1.9 trillion coronavirus-relief plan in March, largely intact and less than two months after it was proposed. This time Biden has put forth the $2.3 trillion American Jobs Plan focused on infrastructure, manufacturing and corporate tax increases, and the $1.8 trillion American Families Plan composed mainly of social spending and tax hikes on wealthy individuals. Passing the spending and tax increases envisioned by Biden will depend on where lawmakers can find compromise. But without the urgency of the pandemic — and with Democrats less united on the overall size of the proposals than they were in approving the aid package — the plans could be debated by Congress well into the fall or even 2022.
  • Goldman Sachs Group Inc.’s top brass has formulated a plan to have U.S. employees return to offices next month as Wall Street’s march back to its skyscrapers gathers pace. The investment bank is planning to tell employees that they should be prepared by mid-June to work from offices again, according to people with knowledge of the matter. The move follows a mandate last week from JPMorgan Chase & Co. chief Jamie Dimon, seeking to return his workforce in rotations from early July. Goldman Chief Executive Officer David Solomon joins Dimon in counting on an expanding vaccination drive to hasten the revival of pre-pandemic routines in an industry where legions have spent 14 months working remotely. The duo has been at the forefront in sketching out the most pressing timelines to refill towers, moves that are likely to put pressure on other firms in finance and beyond.
  • Storage software company Vast Data Inc. said it’s valued at $3.7 billion in a new funding round, more than triple its $1.2 billion valuation last year. Vast Data, which competes in some respects with Pure Storage Inc., raised $82 million in an investment led by Tiger Global Management. Nvidia Corp. also participated in the round. Prior investors in Vast Data include TPG, Goldman Sachs Growth Equity and Norwest Venture Partners, according to the company. Nvidia’s head of enterprise computing, Manuvir Das, said his company invested because the startup stands out in the storage software category.
  • Bill and Melinda Gates, who for decades have overseen one of history’s greatest fortunes and philanthropic operations, said they plan to divorce. The announcement Monday that the couple is splitting after 27 years of marriage has the power to ripple through the technology industry, a vast portfolio of business and real estate holdings and into the realms of global health, climate change policy and social issues including equality for women. The pair, who command an estimated $146 billion, according to the Bloomberg Billionaires Index, made no public hint of their financial plans, though they emphasized that they will cooperate on continuing their philanthropy.
  • Qualcomm Inc. accused European Union investigators of being “biased” towards Apple Inc. when they slapped it with a 997 million-euro ($1.2 billion) antitrust fine for allegedly pressuring the iPhone maker to only buy its 4G chips. The European Commission “engaged in a biased investigation” and allowed Apple to “dictate the evidence, narrative and conclusions,” Miguel Rato, a lawyer for Qualcomm, told the EU General Court on Tuesday, citing an internal Apple memo. This was “gross and indefensible maladministration.” On the first of three days of hearings in Luxembourg, Qualcomm said the 2015 document showed how EU officials “dealt with Apple secretly on several occasions,” before concluding in 2018 that the world’s largest smartphone chipmaker had made illegal payments to Apple to ensure only its chips were used in iPhones and iPads.
  • British Prime Minister Boris Johnson said coronavirus lockdown rules are set to be scrapped in seven weeks’ time, as he hailed the U.K.’s successful vaccine rollout ahead of key elections this week. On the campaign trail, Johnson said the pandemic data was likely to allow people in England to stay overnight with friends or relations, with indoor hospitality able to reopen from May 17.  Remaining social distancing rules are also likely to be canceled from June 21, he added, although he warned that international travel will need to be carefully monitored after May 17 to avoid reimporting the virus again.
  • Deutsche Lufthansa AG asked shareholders for permission to raise 5.5 billion euros ($6.6. billion) in fresh capital, calling it a necessary step to repair the stricken carrier’s balance sheet after the coronavirus pandemic punctured a decades-long boom in air travel. At the airline’s annual meeting on Tuesday, Chief Executive Officer Carsten Spohr implored investors to back the motion, which would authorize the issuance of 2.15 billion new shares at the nominal price of 2.56 euros each, about one-fourth Lufthansa’s current stock price. The company said last week it wouldn’t use the full amount available, and instead aim for the “smallest possible” raise. The move would give Europe’s largest airline enough cash to replace Germany’s so-called silent participation, a major part of Lufthansa’s 9 billion-euro government bailout. The interest rates on the instrument — a debt-equity hybrid that doesn’t dilute shareholder voting rights — are set to rise over coming years.
  • Montana Aerospace AG, a supplier of aircraft parts to Airbus SE and Boeing Co, is seeking 440 million Swiss francs ($481 million) from a listing amid a severe downturn in the airline industry. The company is looking to sell as many as 18.2 million new shares, according to a statement on Tuesday. The firm’s sole shareholder, Montana Tech Components AG, a holding company controlled by Austrian entrepreneur Michael Tojner, will offload existing shares to cover over-allotments. The total deal could reach 506 million Swiss francs, if the additional shares are sold. That could result in as much as 43.5% of the company listed at the IPO price. Montana Aerospace will market shares at 24.15 to 25.65 Swiss francs through May 11, with the new stock set to start trading a day later. Capital International Investors and M&G Investments have agreed to take up 124 million Swiss francs of the offering.
  • Cryptocurrency enthusiasts are scaling up price targets for Ether after the second-largest token’s record-breaking run, an echo of the unbridled optimism that accompanied an earlier surge in Bitcoin. The token affiliated with the Ethereum blockchain — a digital ledger popular for financial services and sales of so-called crypto collectibles like online art — is up about 1,500% in the past year and hit a new peak of $3,455 on Tuesday. The climb is stirring predictions of more gains ahead even as some technical indicators flash warnings that the rally may be overextended. Crypto proponents argue investors are now looking beyond Bitcoin to Ether and other tokens despite warnings of a stimulus-fueled mania in the sector.
  • Mortgage-bond investors may be looking at an April shower of supply, once the prepayment report on Thursday reveals the final number for the month. Morgan Stanley analysts wrote that they wouldn’t be surprised if net issuance last month totaled more than $100 billion. JPMorgan analysts said that $135 billion is a possibility. Last November saw $100 billion, the highest monthly total since at least the Great Financial Crisis. Agency MBS net supply came to $184 billion in the first quarter, according to Bank of America data. And considering that the latter part of the year tends to see the majority of issuance — with an average of 63% of net supply coming in the second half of 2020 and 2019, according to Sifma — it is little surprise that some bond analysts have already increased their U.S. agency mortgage-backed security net supply forecasts for 2021.
  • CVS Health Corp. raised its full-year earnings forecast as first-quarter results beat expectations on the strength of Covid-19 testing and vaccinations that helped the company overcome a weak cough, cold and flu season. Adjusted net income for 2021 will be $7.56 to $7.68 a share, CVS said. The company had earlier forecast a range of $7.39 to $7.55.
  • Under Armour Inc. reported first-quarter results that beat analysts’ estimates and sharply boosted its full-year outlook as stimulus checks, the return of team sports and high demand for sportswear buoy sales. The company now expects earnings per share, excluding some items, to be between 28 cents and 30 cents this year, more than double the earlier estimated range of 12 cents to 14 cents. Revenue is now expected to rise by a high-teens percentage, better than the high-single-digit percentage increase it had been forecasting earlier.
  • Argo AI, the self-driving startup backed by Ford Motor Co. and Volkswagen AG, has developed a sensor it believes will be key to commercializing autonomous transportation in cities, suburbs and on the highway. The Pittsburgh-based company, which plans to go public as soon as this year, unveiled a lidar sensor Tuesday capable of “seeing” 400 meters (437 yards) down the road with almost photographic detail. Lidar bounces light off objects to create an image of the road ahead, providing critical information to computers that pilot next-generation technology in vehicles without human drivers. The new sensor will be at the heart of the self-driving system that will debuton Ford’s ride-hailing and delivery vehicles next year and on VW models in the middle of the decade. Argo’s lidar could remove some roadblocks holding back more widespread adoption of driverless technology, in part by improving the visibility of other vehicles in low-light conditions.
  • KKR & Co. collected more cash from investors in the first quarter, adding to its stockpile and capitalizing on the soaring demand for higher-yielding assets. The alternative asset manager took in almost $15 billion in new capital during the three-month period, led by inflows into its Asia, real estate and health-care growth strategies, New York-based KKR said Tuesday in an earnings statement. KKR, which has been one of industry’s most active firms in pursuing deals during the Covid-19 pandemic, is building on last year’s record fundraising effort when it took in about $44 billion. The firm said last month that it expects to gather more than $100 billion by 2022 through inflows into its private equity, infrastructure, real estate and credit businesses.

“In essence, the stock market represents three separate categories of business. They are, adjusted for inflation, those with shrinking intrinsic value, those with approximately stable intrinsic value, and those with steadily growing intrinsic value. The preference, always, would be to buy a long-term franchise at a substantial discount from growing intrinsic value.” — Michael Burry

*All sources from Bloomberg unless otherwise specified