May 6, 2021

Daily Market Commentary

Canadian Headlines

• Canadian equities rose Wednesday amid a slew of corporate earnings. The S&P/TSX Composite Index rose 0.6%, with energy and materials leading. Teck Resources Ltd. gained 7.1% and Suncor Energy Inc. rose 3.6%. U.S. lumber futures extended their steep rally to fresh record highs, shooting above $1,500 as sawmills try to keep up with surging demand. On the vaccine front, Canada has become the first country to approve the use of the Pfizer Inc.-BioNTech SE Covid-19 vaccine for adolescents as young as 12.
• Canada is considering allowing patients to receive two different types of Covid-19 vaccines as the country deals with shortages of shots from AstraZeneca Plc and Moderna Inc. Federal health officials are closely watching a U.K.-based trial in which participants received two kinds of shots. Results are expected in the next month or so, Supriya Sharma, chief medical adviser at Health Canada, said Wednesday at a news conference. Vaccine mixing “would most likely be an mRNA vaccine like a Pfizer or a Moderna, combined with an AstraZeneca which is a viral vector vaccine,” Sharma said. Canada has fully vaccinated just 2.6% of its population, the second-lowest rate among Group of Seven countries, according to the Bloomberg Vaccine Tracker. It’s grappling with limited supplies of all but the Pfizer Inc.-BioNTech SE vaccine.
• Alphawave IP and its holders are looking to raise as much as 810 million pounds ($1.1 billion) in a listing on the London Stock Exchange, adding a rare semiconductor stock to the U.K. market and boosting the City’s attempts to establish itself as a technology hub. The Canadian company is looking to raise 360 million pounds by selling as many as 96 million shares in an initial public offering, while shareholders plan to offload a stake worth as much as 450 million pounds, according to terms seen by Bloomberg. The company plans to market shares in the IPO at 375 pence to 430 pence through May 13, with the new stock set to start trading a day later, the terms showed.

World Headlines

• European equities slipped as investors weighed earnings reports and some vaccine makers slumped on the prospect of a patent waiver. The Stoxx 600 Index was down 0.5% at 10:45 a.m. London time, after its biggest advance since March on Wednesday. BioNTech SE and CureVac NV dropped as much as 19% and 18%, respectively, in German trading after the European Union backed a plan to discuss waiving vaccine-patent protections. Consumer staples outperformed as technology shares lagged. In earnings reactions, Societe Generale SA rose 3.2% after posting its best equities-trading performance since 2015, and U.K. clothing and homeware retailer Next Plc gained 2.7% after boosting its guidance. European shares have traded in a range in recent weeks after rising above pre-pandemic levels last month, with optimism around the global economic rebound tempered by concerns over increasing virus infections in some Asian countries, including India, which reported record daily cases on Thursday.
• U.S. equity futures fluctuated while stocks were mixed on Thursday as investors monitored corporate news ahead of key employment data from the world’s largest economy. The dollar weakened. Contracts on the S&P 500 Index rose modestly as traders awaited the latest jobless claims figures for clues on the strength of the U.S. economic recovery. Tesla Inc. shares gained in pre-market trading on a report that its second-quarter production capacity is already sold out. Iron ore climbed and steel futures hit fresh records amid renewed demand from China. In the wake of mounting evidence of inflation, investors are increasingly focused on when the Federal Reserve might start throttling back its emergency support. Economists surveyed by Bloomberg expect the Fed will announce a reduction in the pace of bond purchases in the fourth quarter. While Chair Jerome Powell hasn’t yet shifted from his message that it’s too soon to discuss such a move, policy makers have begun to address the issue more directly.
• Asian stocks gained, with a rally in Japan driven by cyclical shares helping offset a selloff in China as both markets reopened after an extended holiday break. The MSCI Asia Pacific Index rose as much as 0.9%, with some earlier of that earlier gain trimmed after China said it was suspending a regular economic dialogue with Australia. Drugmakers were the biggest losers on the CSI 300 Index on news that the U.S. will support a proposal to waive intellectual-property protections for Covid-19 vaccines. Japan’s Topix index rose to its two-week high as traders returned following Golden Week holidays. That’s even as the nation was reportedly looking to extend a state of emergency for Tokyo, Osaka and the prefectures of Kyoto and Hyogo amid a continued rise in virus cases.
• Oil slipped below $69 a barrel as traders assessed an uneven recovery in global demand. Global benchmark Brent has struggled for momentum after failing to break above $70 a barrel on Wednesday. While major crude importer India is battling a record coronavirus wave that’s sapped economic activity, there are signs of rising oil consumption in the U.S., Europe and China. Data Wednesday showed American stockpiles declined last week to the lowest since February. Oil has rallied in 2021 as key economies including the U.S. and China rebound from the impact of the pandemic, fanning energy demand. The strength in crude forms part of a broad advance in raw materials, with the Bloomberg Commodity Spot Index surging to the highest level in almost a decade. Still, the outbreak in India has rapidly worsened since the start of April, and the country is now reporting more than 350,000 cases every day.
• Gold edged higher as the dollar weakened, while investors weighed the debate on inflation risks amid the rebound in the U.S. economy. U.S. inflation is unlikely to get out of control despite the unprecedented government spending that’s been authorized in response to the coronavirus pandemic, according to Federal Reserve officials. The five-year breakeven rate– a proxy for inflation expectations — has jumped to the highest since 2008, buoyed in part by commodity prices. Bullion may extend gains made in April — the first monthly advance this year — on expectations that policy makers will keep interest rates low, which would help boost the appeal of the non-interest-bearing precious metal. Gold’s traditional role as a hedge against higher consumer prices could also bolster demand for the haven asset.
• The U.K. and French navies dispatched military patrol vessels to the isle of Jersey amid a deepening row over post-Brexit fishing rights. The two British patrol ships were deployed Wednesday night ahead of a potential blockade by French fishermen as a precautionary measure, the U.K. said. France said it sent two vessels Thursday morning to guarantee the safety of everyone at sea. The deployment of the ships is a sign of the ongoing frictions between the two NATO allies, caused by Britain’s exit from the European Union. Negotiations over fish were one of the most contentious elements of the post-Brexit accord. France on Tuesday threatened to cut off power to Jersey to protest a lack of fishing licenses. Previously, Paris said it would limit access for U.K. financial services companies into the EU if its fishermen aren’t treated fairly.
• Mitsui & Co. is exploring a deal to take Malaysian hospital group IHH Healthcare Bhd. private, according to people with knowledge of the matter. Some private equity firms have approached the Japanese trading house to team up on the potential transaction to buy out IHH’s other shareholders, said one of the people, who asked not to be named as the information is private. Mitsui has reached out to Khazanah Nasional Bhd., IHH’s second largest shareholder, to pick up its stake, another person said. IHH, which is listed on the stock exchanges of Malaysia and Singapore, has a market value of 45 billion ringgit ($11 billion). Shares rose as much as 5.5% in Kuala Lumpur following the Bloomberg News report, their biggest intraday move since March 1.
• U.S. support for a waiver of patent protections for Covid-19 vaccines heads to the World Trade Organization, setting the stage for potentially thorny talks over sharing the proprietary know-how needed to boost global supplies of the life-saving shots. “In terms of how soon the WTO can deliver — that literally depends on the WTO members, collectively, being able to deliver,” U.S. Trade Representative Katherine Tai said in an interview Wednesday. “I am the first one to admit that what we are leaning into is a process that is not going to be easy.” Shares of vaccine makers tumbled in Europe and Asia, a day after the announcement sent drugmakers including Moderna Inc. falling in the U.S. The European Union and China signaled a willingness to take part in the negotiations.
• President Joe Biden’s plan to raise $700 billion over a decade from increased tax audits of the wealthy and corporations — a major funding source for his economic-investment proposals — will probably take years to bear fruit and faces skepticism that the figure is realistic. The Biden administration has proposed a more than 10% funding increase for the Internal Revenue Service for the next fiscal year and an overall investment of $80 billion over the next 10 years to beef up the agency’s depleted auditing staff and outdated technology. Biden’s American Families Plan, released last week, highlighted the audit take as a principal way to pay for $1.8 trillion in initiatives including child care and education. But some former IRS officials said it will take several years to produce significant results, especially after accounting for the time it takes to hire and train new employees and to complete audits of highly complex returns. Moreover, such audits are prone to appeals and litigation that could tie up any payments for additional years, and past efforts to recoup unpaid taxes have returned a tiny fraction of what Biden envisions.
• JPMorgan Chase & Co. is further expanding its balance sheet in Frankfurt as it adapts to a post-Brexit Europe. The U.S. bank expects to add a similar amount to its European hub in 2021 as it did last year, according to its annual report for J.P. Morgan AG. The unit increased by about 180 billion euros ($216 billion) to 244 billion euros last year, the document said, confirming an earlier Bloomberg report. JPMorgan has led its Wall Street peers in shifting assets out of London as the U.K. exited the European Union. It has repeatedly said it expects its EU unit to gain market share in areas including trading, investment banking and commercial banking.
• Treasury Secretary Janet Yellen faces the challenge of speeding a debt-ceiling increase through Congress without shaking investor confidence, a potentially difficult task even with Democrats controlling both chambers and the White House. The current suspension of the U.S. borrowing limit expires on Aug. 1, and the Treasury Department on Wednesday cautioned that if Congress fails to act, the administration would have to shift federal funding to make good on debt payments. Officials are looking at scenarios where those accounting measures “could be exhausted much more quickly” than previously, the department said. Even if the Treasury could stave off any default for months, as during past occasions when congressional talks dragged out before a final resolution, investors face the risk of disruption this summer. Officials would likely need to sharply cut sales of Treasury bills, at a time when traders have already complained about scarcity and some auctions have featured negative yields.
• Texas lawmakers gave initial approval Wednesday to a measure intended to cover billions of dollars of a power-market shortfall resulting from February’s energy crisis that left millions in the dark during a deep winter freeze. The state’s legislators have been trying to figure out how to handle the nearly $3 billion in debt faced by the state’s grid operator after companies slammed by sky-high energy costs defaulted on payments. Under current rules, it would take the grid operator nearly a century to cover the deficit through monthly collections. The Texas House of Representatives bill would set up a special state entity that can issue low-cost bonds to cover the financial shortfall, ensuring electricity generators get paid for the power they supplied during the crisis while reducing the financial burden on consumers. The bonds would be paid off through charges allocated to all power market participants over the lifetime of the debt.
• Italian Prime Minister Mario Draghi is set to abandon a project backed by his predecessor to create a single national fiber network controlled by Telecom Italia SpA, opposing a return to a phone industry monopoly. Following a European Union request for the government to foster competition as it allocates funds from the bloc’s recovery plan, Rome will no longer support Telecom Italia’s plan to combine its land-line assets with networks run by state-owned rival Open Fiber SpA, according to people familiar with the matter. The Telecom Italia proposal would have kept the combined new operator under the ex-monopolist’s control. Telecom Italia fell as much as 9.2% after the Bloomberg report on Thursday, the biggest intraday decline in almost a year, and traded at 42 cents a share at 10:52 a.m. in Milan.
• Online sales of Adidas AG and Nike Inc. plunged in China after a boycott of international brands that have taken a stand against the treatment of Muslim Uyghurs in the Xinjiang region, reflecting the blow to businesses that cross Beijing’s political lines. Sales in the Adidas store on Alibaba Group Holding Ltd​​​​.’s Tmall — China’s largest business-to-consumer e-commerce platform — slumped by 78% in April from a year ago, while Nike’s dropped by 59%, according to analysis done by Morningstar Inc. Fast Retailing Co.’s clothing brand Uniqlo, also targeted by the boycott, dropped by more than 20%. Mainland consumers instead turned to Chinese sportswear competitors, including Anta Sports Products Ltd. and Li Ning Co. Ltd., which have supported using materials from the contentious far west region.
• Cathay Pacific Airways Ltd. has hired banks for a possible dollar bond sale that would be its first since the 1990s, as the carrier offers voluntary redundancy to staff amid the collapse in travel caused by the pandemic. The Hong Kong-based airline will hold a series of calls with investors from Thursday for the potential debt offering through a unit Cathay Pacific MTN Financing (HK) Ltd., according to a person familiar with the matter who asked not to be identified as the details are private.
• Moderna Inc. said studies of its Covid vaccine in teenagers showed that it was 96% effective and raised its product sales projections for the year as it reported its first-ever profitable quarter. Total revenue for the quarter was $1.94 billion, Moderna said, versus the average expectation of $2.22 billion. Moderna reported earnings of $2.84 a share; analysts had expected adjusted earnings of $2.34 a share.
• The selloff that’s tearing through high-valuation tech shares has battered Cathie Wood’s flagship ETF. The ARK Innovation exchange-traded fund (ARKK) dropped for a seventh straight day Wednesday in its longest slide in nearly two and a half years. After surging roughly 150% in 2020 thanks to a string of prescient bets on Tesla Inc. and stay-at-home tech darlings, the negative stats are starting to add up. ARKK, which edged lower in early trading on Thursday, is down more than 10% for the year and investors are piling into protection against more losses. Put volume hit 190,000 Tuesday, the most in six weeks and the fourth-most on record. The latest data show outflows for a sixth consecutive day, the longest streak since the fund launched in 2014.
• When automakers were first hit with chip shortages at the end of last year, they tried idling factories until the troubles blew over. But with the crisis stretching into its fifth month and getting worse, they’re getting creative to keep at least some production moving forward. Nissan is leaving navigation systems out of thousands of vehicles that typically would have them because of the shortages. Ram no longer offers its 1500 pickups with a standard “intelligent” rearview mirror that monitors for blind spots. Renault has stopped offering an oversized digital screen behind the steering wheel on its Arkana SUV — also to save on chips. The crisis is an historic test for the century-old auto industry just as it is trying to accelerate a shift toward smarter, electric vehicles. For decades, carmakers moved steadily to include more and better advanced features; now, they’re stripping some of them out — at least temporarily — to salvage their sales.
• Tesla Inc. shares rose in early trading after the blog Electrek reported production capacity for the second quarter is already sold out. The electric-car maker has communicated the level of demand for its vehicles to employees, Electrek said, citing unnamed sources. The author of the post has disclosed in the past he is a Tesla shareholder. The stock pared a 2.9% gain to trade up 1.2% before the start of regular trading. Tesla sold a record of almost 185,000 vehicles in the first three months of the year despite having issues rolling out new versions of the Model S and X. Chief Executive Officer Elon Musk has said he expects to start delivering S sedans with an updated interior, battery pack and drive units as soon as this month.
• The Biden administration’s multitrillion-dollar infrastructure proposal includes $100 billion to bring high-speed broadband to every American, an idea that might be expected to win applause from those who provide the service. But cable companies such as Comcast Corp. and Charter Communications Inc.that connect about two-thirds of U.S. homes that have broadband service fear the plan’s specific call for “future-proof” technology could leave them facing subsidized competitors. That’s because the traditional coaxial lines that cable companies still use to serve most of their subscribers don’t handle the upload speeds that consumer advocates say should be required to receive federal infrastructure aid. Many say subsidies should go only to systems that can download and upload traffic at speeds of at least 100 megabits per second.
• China urged Western nations to stay out of its affairs and fix their own problems after the Group of Seven’s foreign ministers unified behind a litany of grievances with the world’s second-largest economy. The Chinese Foreign Ministry condemned the G-7 statement Wednesday criticizing Beijing’s treatment of ethnic and religious minorities, and urging it “to participate constructively” in the rules-based international system. The developed economies should “stop interfering in other countries’ internal affairs, making groundless accusations in a condescending way and disrupting global epidemic cooperation,” ministry spokesman Wang Wenbin said.
• It’s been a wild ride for investors who plowed billions of dollars into clean-energy funds over the past six months. Now one ETF issuer is getting ready to offer funds designed to amplify every move. Direxion Investments plans to start an exchange-traded fund intended to double the daily performance of the S&P Global Clean Energy Index. The firm also is working on one that seeks to multiply the return of being short the index by two, according to a filing with the U.S. Securities and Exchange Commission. The Direxion Daily Global Clean Energy Bull 2X Shares and Direxion Daily Global Clean Energy Bear 2X Shares would be the first leveraged clean-energy ETFs in the $6.2 trillion ETF industry. That will be a coming-of-age moment for the clean-energy sector, which has exploded in popularity, with assets surging to more than $18 billion from $4.3 billion a year ago — even after a recent pullback. Leveraged ETFs use derivatives to amplify the return of the underlying assets.
• Iron ore and steel climbed to records as Chinese investors unleashed fresh demand following a three-day holiday. Benchmark spot iron ore prices topped $200 a ton for the first time ever, while futures in Singapore and China climbed. Steel demand is surging as economies chart a path back to growth just as the world’s biggest miners have been hampered by operational issues, tightening ore supply. The boom comes as China’s steelmakers keep output rates above 1 billion tons a year, despite a swath of production curbs aimed at reducing carbon emissions and reining in supply. Instead, those measures have boosted steel prices and profitability at mills, allowing them to better accommodate higher iron ore costs.
• Cascade Investment, the holding company created by Bill Gates, transferred stock in two of Mexico’s largest companies to Melinda French Gates, bringing the total amount she’s received in the past few days to more than $2 billion. Cascade moved stock worth more than $500 million in Coca-Cola Femsa and Grupo Televisa to her control, according to regulatory filings dated May 3, the same day the Gateses announced they were ending their 27-year marriage. Cascade shifted about $1.8 billion of shares in Canadian National Railway Co. and AutoNation Inc. this week to French Gates, Bloomberg reported Tuesday.

“Investing puts money to work. The only reason to save money is to invest it.” — Grant Cardone

*All sources from Bloomberg unless otherwise specified