November 10, 2021
Daily Market Commentary
- Canadian Natural Resources to buy Storm Resources for C$6.28/share cash, Storm Resources says in release. Purchase price implies an enterprise value for Storm of approximately C$960 million. Storm says holders with 12.6% of outstanding shares will vote in favor of deal.
- The White House pledged to discuss a key pipeline that carries Canadian crude through Michigan with the northern neighbor, stressing the U.S. isn’t considering a shutdown of the conduit the state’s governor wants shuttered. The Canadian and U.S. governments will “engage constructively” on the future of Enbridge Inc.’s Line 5 pipeline, the White House principle deputy press secretary, Karine Jean-Pierre, said at a briefing Tuesday. The comments helped clarify the position of the Biden administration in an escalating dispute between Michigan Governor Gretchen Whitmer, a Biden ally, and Enbridge. Speculation the U.S. was considering a shutdown of the line that delivers propane and oil to the Midwest triggered strong criticism from Republicans at a time when energy prices are surging because of tight supplies.
- European equities were little changed on Wednesday as investors weighed solid earnings reports against the risks from intensifying inflationary pressure, supply bottlenecks and an unfolding crisis in China’s property market. The Stoxx Europe 600 Index traded flat at 9:43 a.m. in London, erasing its opening gains. Energy stocks outperformed as oil climbed, while a slump for Adidas AG shares dragged consumer products lower, after the German company said it will probably reach only the lower end of its forecasts for the year. A robust economic rebound and soaring corporate earnings have propelled the main European equities benchmark into seven consecutive quarters of gains and successive records this year. With inflation gauges in Europe, China and the U.S. hitting multi-year highs, concerns that rising prices will force central banks to tighten policy are increasingly weighing on sentiment.
- U.S. futures fell with stocks as investors awaited a key U.S. report on consumer prices to assess the risk of tighter monetary policy. Treasury yields climbed. Contracts on U.S. gauges turned lower, with those on the Nasdaq 100 leading losses. DoorDash Inc. soared in premarket trading after the meal-delivery service said it’s buying Finnish food-delivery startup Wolt Enterprises Oy for about $8 billion. Tesla Inc. gained 0.6% after its worst selloff since September 2020.
- MSCI Inc.’s Asia-Pacific gauge was also lower after data showing an acceleration in Chinese inflation, although it trimmed some losses amid a late-session rally in the country’s property stocks. Risks are building for global equities near all-time highs, with the Federal Reserve warning of the rise in asset prices. Investors will parse Wednesday’s inflation report for any clues on policy tightening.
- Oil slipped after a U.S. government report forecast oversupply next year, cooling expectations of an immediate emergency stock release. West Texas Intermediate dipped 0.4% after surging 2.7% in the previous session. The White House didn’t announce an SPR release on Tuesday and said it continues to look at all the tools it has available to limit the impact of high prices on consumers. That decision was influenced by a government forecast that showed the global market will return to a surplus as soon as the first quarter next year, potentially cooling the current rally. Oil surged to a seven-year high last month as economies recovered from the coronavirus pandemic and a global energy crisis aided demand, boosting U.S. gasoline prices and fanning inflation. The surge prompted President Joe Biden to weigh the merits of an emergency crude release after the Organization of Petroleum Exporting Countries and its allies refused to increase output at a faster clip. Tuesday’s report appears to have made that less likely in the short-term, with supply-demand balances looking weaker for next year.
- Gold snapped a four-day gain after real U.S. bond yields rebounded ahead of key inflation data. Bullion rose to a two-month high this week, supported by a sharp drop in real Treasury yields that partly reflected the uncertain economic outlook. That comes as the market shifts to a view that central banks are in no hurry to raise interest rates even in the face of persistent inflation. Traders are awaiting the U.S. consumer price index for the latest gauge of inflationary pressures that may impact the path for monetary policy. Federal Reserve Chair Jerome Powell said last week officials can be patient on raising interest rates but remain ready to curb inflation if necessary.
- A fourth Covid-19 wave is spreading in Germany, with a record number of new cases reported. A Chinese virologist warned the country risks economic collapse if officials continue to pursue a so-called Covid-Zero policy. German Chancellor Angela Merkel said that hospitals in some hotspots are coming under increasing pressure. With just over 67% of the total population fully vaccinated, she and other officials are urging more people to get their jabs. France, meanwhile, will require an extra shot for seniors who want to visit restaurants and museums, while Scotland is considering tighter restrictions because of a high level of new infections. China is grappling with a fourth major outbreak driven by the delta variant, the broadest the country has seen since the virus emerged in Wuhan in late 2019, with 20 out 31 provinces on the mainland reporting cases. Daily infections in the U.S. are still too high to pull back on mitigation measures such as mask-wearing, according to White House medical adviser Anthony Fauci.
- Sanofi SA has picked Bank of America Corp., BNP Paribas SAand JPMorgan Chase & Co. to lead the initial public offering of its business manufacturing drug ingredients, according to people familiar with the matter. The French pharmaceuticals company is seeking to raise about 1 billion euros ($1.2 billion) in an IPO of its EUROAPI unit next year, the people said, asking not to be identified discussing confidential information. More banks could get added to the listing roster, according to the people. Representatives for Bank of America, BNP Paribas, JPMorgan and Sanofi declined to comment. Active pharmaceutical ingredients are chemical molecules and biological substances essential to any drug. Interest in the sector increased amid the Covid-19 pandemic as Europe looked to safeguard local supplies of key drug ingredients, rather than rely on Asian manufacturers.
- Vodacom Group Ltd. agreed to buy a majority stake in Vodafone Egypt from its U.K. parent for $2.7 billion, expanding the South African carrier’s operations into the north of the continent. The Johannesburg-based company, which is more than 60% owned by Vodafone Group Plc, will issue new shares to cover 80% of the cost of acquiring the Egyptian market leader, with the balance to be paid in cash, according to a statement on Wednesday. The deal will allow Vodacom to expand beyond its key markets and present a greater challenge to arch rival MTN Group Ltd., the continent’s largest carrier. A key attraction of the Egypt market is that most of the 100 million population don’t use traditional banks, allowing Vodacom to roll out its lucrative mobile-money services, Chief Executive Officer Shameel Joosub told reporters.
- Google lost its appeal of a 2.4 billion-euro ($2.8 billion) antitrust fine for allegedly thwarting smaller shopping search services, in the first of a trilogy of European Union court fights over cases that set the course for the EU’s campaign to rein in Silicon Valley. The U.S. search giant breached competition rules and deserved the penalty doled out by the European Commission in 2017, the EU General Court in Luxembourg ruled on Wednesday. Judges backed the EU’s finding that Google shouldn’t favor its own service, an issue that’s triggered complaints against other tech giants. A company’s actions to make its own services more prominent “involves a certain form of abnormality,” the court said. “A general search engine is infrastructure,” it said, countering a view that Google is free to act as it wishes on its own website.
- General Atlantic raised $7.8 billion to invest in rapidly expanding companies in hot industries such as technology and life sciences, making it the largest growth equity fund in the firm’s history. The haul, topping a $5 billion target, brings total commitments during the past two years to about $24 billion, said Graves Tompkins, global head of capital partnering for New York-based General Atlantic. It started collecting cash for the fund late last year with backing from endowments, foundations and family offices. Private equity firms are benefiting from a seemingly insatiable appetite for fast-growing companies as investors hunt for yield with interest rates near historic lows. The value of deals for businesses that have expanded past startup stage but aren’t yet viewed as ripe buyout targets or ready for a public listing hit a record $62.5 billion last year, according to PitchBook.
- European natural gas prices slumped to the lowest in more than a week as Russian supplies are gradually increasing. Benchmark Dutch futures fell more than 12% after flows to Europe via Ukraine and Poland edged higher Wednesday. Gazprom PJSC booked some pipeline capacity on the Ukrainian-Slovakian border for the day, bringing supplies through the route in line with Russia’s long-term transit agreement with its neighbor. Any extra supply is welcome after Europe started its heating season with the lowest inventories in more than a decade. Russian President Vladimir Putinsaid late last month that Gazprom would refill its European storage facilities after finishing Russia’s domestic stockpiling campaign on Monday.
- Sweden’s biggest grocery chain, ICA Gruppen, plans to go private at a 107.4 billion kronor ($12.5 billion) valuation, the latest in a wave of dealmaking to sweep through the European supermarket industry. ICA’s majority owner, comprising an association of 1,500 retailers, is looking to acquire all the shares it doesn’t already own, according to a statement on Wednesday. The group sees leaving the stock market as key to modernizing the company amid increased competition from online grocers. The buyout would be one of the largest consumer deals on the continent this year and follows the acquisition of British grocery chain Wm Morrison Supermarkets Plc by buyout firm Clayton Dubilier & Rice for 7 billion pounds ($9.5 billion). France’s Carrefour SA has also been immersed in consolidation talks, trying and failing to sell itself to both Canada’s Alimentation Couche-Tard Inc. and domestic rival Auchan.
- Southeast Asia’s booming internet economy is set to double to $363 billion by 2025, eclipsing the previous forecast of $300 billion, research from Google, Temasek Holdings Pte and Bain & Co. shows. E-commerce, travel, media, transport and food are driving the region’s digital growth, with online spending rising 49% in 2021 to $174 billion, the companies said in their latest annual report. The region added 60 million new digital consumers since the start of the pandemic, led by Thailand and the Philippines.
- Adidas AG said it will probably reach only the lower end of its forecasts for the year as factory shutdowns in Asia complicate efforts to roll out new sneakers and sports apparel. Third-quarter operating profit reached 672 million euros ($778 million), missing analysts’ estimate of 679 million euros. Sales in the period amounted to 5.75 billion euros, below analysts’ 5.84 billion-euro average estimate.
- China Evergrande Group faces its biggest test yet Wednesday with $148.1 million of coupon payments due on three dollar bonds, while the broader junk bond market rallied on a report China may make it easier for property firms to sell debt. In other developments, Evergrande’s electric-vehicle unit sold shares at a deep discount, and Fantasia Holdings Group Co. plunged 37% in Hong Kong following a six-week halt after the company’s surprise default. The Securities Times report on possible changes to debt issuance rules sparked the biggest jump in three weeks for China’s junk-rated dollar bonds. Higher-quality issuers such as Country Garden Holdings Co. and CIFI Holdings Group Co. saw some of their bonds rise about 7 cents, while the BI China Real Estate Owners and Developers Valuation Peers stock index surged 6.2%, the most in nine months. Shares got a late-day boost on speculation — later reported by Cailian — that state-owned enterprises have asked regulators to adjust the “three red lines” lending limits for mergers in the sector.
- U.S. liquefied natural gas exports have risen 8.1% on a cargo-per-day basis in November as Turkey has boosted imports to meet winter demand. American exporters loaded 27 tankers through Nov. 9, flirting with the three cargo-per-day monthly benchmark last reached in May when 95 shipments were sent, according to vessel data analyzed by Bloomberg News. Turkey imported six American cargoes in October after securing five such shipments in the previous seven months.
- Zillow Group Inc. reached a deal to sell about 2,000 homes from its ill-fated house-flipping program, the company’s biggest bulk sale as it starts unloading thousands of homes and terminates the business. Pretium Partners, a New York City-based investment firm, has agreed to buy Zillow homes across 20 U.S. markets and plans to rent them out, according to people familiar with the matter. The digital real-estate company said it intends to sell roughly 9,800 homes it owns, plus another 8,200 it had been in the process of buying. The company expects to lose between 5% and 7% on these sales. In the transaction with Pretium, Zillow received market price for the properties, these people said.
- Germany’s council of economic advisers urged the European Central Bank to publish a strategy for normalizing its ultra-expansive monetary policy in light of building inflation risks. The four-member group sees inflation in the euro-area’s largest economy averaging 3.1% in 2021 and 2.6% in 2022, and warned that persistent supply-chain logjams and rising fuel prices could turn temporary factors into lasting higher rates of inflation. “There are risks to the upside for the inflation outlook for the coming years,” the advisers said in a report published Wednesday in Berlin. The ECB “should communicate a normalization strategy soon,” with quantitative metrics for the unwinding of its ultra-loose policy.
- DoorDash Inc. is set to once more narrow its valuation gap with ride-hailing behemoth and food delivery rival Uber Technologies Inc. If a premarket surge in DoorDash Inc. shares sustains, its market capitalization would increase to about $77 billion, closing in on Uber’s $88 billion value. The shares are currently 18% higher in U.S. premarket trading as investors applauded the company’s ability to keep growing even as economies reopened, and on its plan to expand in Europe and Asia through a 7 billion-euro ($8.1 billion) acquisition of Wolt Enterprises Oy. At the same time, Uber has been fighting to maintain market share in the delivery space, while a recovery in ride-hailing helped it to post its first-ever adjusted profit earlier this month. Uber shares have fallen 11% so far in 2021, compared to a 35% jump for those of DoorDash as of Tuesday’s close. DoorDash briefly surpassed Uber’s market value in mid-September.
- The U.K. presidency of COP26 has released a first draft of the summit’s conclusions, urging nations to strengthen their climate targets by the end of 2022 and calling on the UN to report each year on the impact of those plans on global warming. The draft goes some way to step up action this decade, yet some of the world’s worst polluters haven’t submitted an official blueprint since 2016, and it remains to be seen if this will spur efforts. NGOs criticized the lack of detail on help for vulnerable nations to adapt to climate change. The text will now go to consultations with national capitals as the meeting in Glasgow enters its decisive phase.
- Brazil’s lower house of congress passed a controversial proposal that bends the country’s fiscal rules to finance a new social program President Jair Bolsonaro is launching ahead of his 2022 re-election campaign. The so-called precatorios bill was approved late on Tuesday by 323-172 votes, a wider margin of support than it had received just a week ago. It now needs the backing of three-fifths of senators, also in two rounds of voting. Senate President Rodrigo Pacheco still has to decide whether the proposal will be analyzed by the constitution and justice committee before the floor vote
“It is not how much we have, but how much we enjoy, that makes happiness.”- Charles Spurgeon
*All sources from Bloomberg unless otherwise specified