November 18, 2021

Daily Market Commentary

Canadian Headlines

• Canadian equities edged lower, weighed down by companies in the technology and industrials sectors. The S&P/TSX Composite fell 0.3 percent at 21,653.02 in Toronto. The move follows the previous session’s increase of 0.2 percent. Shopify Inc. contributed the most to the index decline, decreasing 1.8 percent. Real Matters Inc. had the largest drop, falling 14.0 percent. Today, 140 of 233 shares fell, while 90 rose; 9 of 11 sectors were lower, led by information technology stocks.
• The leaders of the U.S., Canada and Mexico will hold their first in-person meeting since President Joe Biden’s election on Thursday, with skirmishes looming over energy and trade as the nations emerge from the pandemic. Biden will host Canadian Prime Minister Justin Trudeau and Mexican President Andres Manuel Lopez Obrador at the White House for what’s called the North American Leaders’ Summit. Pandemic-related border restrictions have recently begun to ease among the nations, but some hurdles remain, such as the risk of overheating economies, supply chain logjams and vaccine and testing rules for cross-border movement. The three countries’ leaders haven’t held a formal summit since 2016, when Trudeau hosted then U.S. and Mexican Presidents Barack Obama and Enrique Pena Nieto.
• Definity Financial Corp., the property and casualty insurer formerly known as Economical Mutual Insurance Co., raised about C$1.4 billion ($1.1 billion) in the largest Canadian initial public offering of the year. A total of 63.6 million shares were sold for C$22 apiece, the Waterloo, Ontario-based company said in a release late Wednesday, the top end of the range it had targeted. The company is also selling another C$700 million in shares in a private placement to the Healthcare of Ontario Pension Plan and Swiss Re. Definity’s offering is one of the largest IPOs of a Canadian company in the past five years and a rare new offering from a financial firm in a year dominated by technology deals.
• Food prices will likely stay elevated in 2022 as disruptions to the global supply chain are set to persist, according to the head of Cargill Inc., who highlighted labor shortages as one of the biggest risks facing the industry. Whether it’s meat processors, truckers, warehouse operators or port staff, the global food system is seeing more competition for workers. Plants are not running at full capacity, constraining food supplies and creating the potential for further price gains, said David MacLennan, chief executive officer of the agriculture powerhouse.
• Canadian Pacific Railway Ltd. raised $8.45 billion by selling investment-grade bonds in U.S. and Canadian dollars to help fund its acquisition of Kansas City Southern. The Calgary-based railroad operator priced $6.7 billion of U.S. dollar bonds in five parts, according to a person with knowledge of the matter. Separately, the company also sold C$2.2 billion ($1.74 billion) notes in two parts. Canadian Pacific won a buyout war for Kansas City Southern in September, agreeing to acquire the U.S.-based railroad in a $27 billion cash and stock transaction that will create the first railroad to operate in the U.S., Canada and Mexico. Both companies are scheduled hold shareholder meetings to vote on the merger agreement in early December.

World Headlines

• European stocks were little changed near a record high after six consecutive days of gains as a jump in Covid-19 cases kept risk appetite muted, and falling commodities weighed on sectors. The Stoxx 600 Europe Index was flat by 10:22 a.m. in London, with energy stocks and miners falling the most. Metro Bank Plc slumped after Carlyle Group Inc. ended talks about a takeover. Shares in the region are trading at record levels following a robust earnings season that reassured investors in the strength of the economy. However, inflation, the pandemic and supply constraints are making investors more cautious about the outlook for risk assets.
• U.S. equity futures rose as traders took comfort from signals that central banks will keep pledges to overlook faster inflation rather than rush into rate hikes. Contracts on the tech-heavy Nasdaq 100 outperformed those on the S&P 500. In the premarket, Nvidia Corp. jumped 7% after a sales forecast by the world’s largest chipmaker. Alibaba Group Holding Ltd. slid after reporting sales that missed analyst estimates for a second straight quarter. Global equities have been clocking up gains amid blockbuster earnings and signals that central banks will take a patient policy approach even amid spiraling price pressures.
• Asian stocks fell, on track for a second day of losses, as Baidu helped lead a slump in Chinese technology giants. The MSCI Asia Pacific Index dropped as much as 0.4%, extending its two-day slide to about 0.9%. The Hang Seng Tech Index lost about 3%, as search engine giant Baidu tumbled on worries over the advertising outlook and video-streaming firm Bilibili dropped after posting a larger-than-expected loss. Hong Kong’s Hang Seng Index and China’s CSI 300 benchmark were the worst performing national benchmarks Thursday, while Taiwan’s Taiex managed a small gain. Alibaba also fell, ahead of its highly awaited earnings report later today that may show the impact of Beijing’s regulatory curbs.
• Oil edged lower, extended declines from a six-week low, as China said that it’s carrying out work on a release of crude from strategic reserves. West Texas Intermediate declined 0.6%, after earlier falling as much as 1.6%. The move suggests the world’s two biggest oil consumers are willing to work together to keep a lid on energy costs. It follows a virtual summit between U.S. President Joe Biden and his Chinese counterpart Xi Jinping earlier this week in which energy supplies were discussed. With the global economy gripped by rising levels of inflation, key oil consumers are trying to bring down prices. The International Energy Agency said this week that some of current tightness in the market is starting to ease as global production picks up, and the volume of oil being transported at sea has picked up sharply in recent weeks.
• Gold edged lower, paring some of Wednesday’s gains, as investors digested comments from Federal Reserve officials on rising price pressures.  Chicago Fed President Charles Evans said Wednesday that he was optimistic the labor market would be vibrant next year, but made no comments on his preferred pace of policy tightening. He followed San Francisco Fed President Mary Daly, who said it’s still too early to take action on interest rates, and St. Louis Fed President James Bullard, who urged the central bank to turn more hawkish. Gold has been buffeted over the past few days as Fed speakers take contrasting views on what to do about persistent price pressures. Last week, the metal broke out of a long-held downtrend after the U.S. consumer price index rose the fastest since 1990, sparking fears inflation could get out of control.
• Covid deaths and infection rates may fall below seasonal flu levels by the middle of next year assuming new dangerous variants don’t emerge in the meantime, Bill Gates said. The number of cases in Germany rose by more than 60,000 for the first time, setting a record for a second straight day. Belgium reimposed a work-from-home requirement and set a new mask mandate, while Spain approved boosters for vulnerable populations. Disney Cruise Line is requiring vaccines for passengers 5 and older, the first such move in the industry.
• The scramble for cash by Chinese property companies is intensifying as the industry looks for ways to alleviate a historic liquidity squeeze. Firms announced plans to raise $2.4 billion in just the past 24 hours, taking the total over the last week to at least $4.2 billion, according to Bloomberg calculations. The latest fundraising includes China Evergrande Group’s stake divestment in HengTen Networks Group Ltd. and Country Garden Services Holdings Co.’s second share placement in six months, as well as onshore bond sales by two state-run developers.  Property firms are stepping up efforts to raise cash as they seek to repay debt at a time when strict rules on leverage, elevated borrowing costs and a slowdown in homes sales are curbing traditional sources of funds. Chinese policy makers have made it clear they expect developers to meet their obligations, even as officials maintain curbs on the sector.
• Alibaba Group Holding Ltd. outlook for fiscal 2022 revenue fell short of estimates after intensifying competition and new coronavirus outbreaks compounded regulatory headwinds for China’s top e-commerce firm. The disappointing forecast followed sales that missed analyst estimates for a second straight quarter. Alibaba posted a less-than-expected 29% rise in revenue for the September quarter to 200.7 billion yuan ($31.4 billion). It forecast 20% to 23% growth in fiscal 2022 revenue, short of the 27% that analysts were projecting. Net income plummeted 81% to 5.4 billion yuan, lagging estimates after the internet giant marked down the value of equity investments. The lackluster numbers underscore the former stock market darling’s struggle to revive businesses walloped by macroeconomic, regulatory and competitive turmoil. Revenue growth at a plethora of divisions including its Cainiao logistics arm and local on-demand services underperformed expectations, while bread-and-butter customer management revenue from platforms like Taobao and Tmall grew just 3% — the slowest in at least five quarters. Alibaba’s stock fell more than 4% in pre-market trading in New York.
• Macy’s Inc. posted stronger-than-expected results for the third quarter and raised its full-year earnings guidance, showing that consumer demand remains robust as the department-store chain enters its crucial holiday season. Comparable sales at stores owned by the company rose 37.2%, according to a statement released on Thursday. That’s above the average estimate of 34.5% from analysts surveyed by Bloomberg.
• The U.S. will pay Pfizer Inc. $5.3 billion for an order of 10 million courses of its experimental Covid-19 pill beginning later this year. The purchase is contingent on U.S. clearance of the Covid oral antiviral, which Pfizer has applied for, according to a statement from the company Thursday. Bloomberg News reported the order earlier, citing people familiar with the situation, without the financial details. Pfizer has become one of the companies most involved in the response to the pandemic, with its Covid pill and messenger RNA vaccine developed with Germany’s BioNTech SE. The U.S. said Wednesday that it would offer funds to companies including Pfizer to expand mRNA vaccine production.
• A bipartisan group of House lawmakers wants to alter how the government defines who counts as brokers of crypto assets, less than a week after the current designation became law. Cryptocurrency transactions totaling $10,000 or more would no longer be treated as similar to cash for tax reporting purposes, though sales would continue to be taxed as capital gains. The bill, sponsored by Representatives Patrick McHenry, a North Carolina Republican, and Tim Ryan, an Ohio Democrat, would exclude hardware and software developers, as well as miners who validate crypto transactions through the blockchain.
• President Joe Biden directed agencies to share real-time information about who is eligible for federal benefits, after $1.4 billion worth of stimulus checks sent to dead people last year put a spotlight on government data silos. The directive, published on Thursday, is part of the president’s broader strategy to improve how the federal government spends its money and serves Americans. It calls on agencies to share how they decide which Americans to pay, while still protecting individuals’ privacy. Federal officials use personal records, such as age and income level, to determine whether to send someone a check. The Social Security Administration, for example, needs to know when a person reaches retirement age, while Medicaid must record a family’s income. Agencies don’t always share that information with each other—creating payment errors and hurdles for families that receive government benefits.
• Deere & Co. union workers ratified an agreement with the company Wednesday to return to plants across the U.S., putting an end to their first strike since 1986. United Auto Workers members voted 61% to 39% in favor of the agreement, which will increase pay and boost retirement benefits over a six-year agreement. The union said the work stoppage “captured the mood of a nation” wanting fair wages and benefits for workers. The company said in a message that operations resume Wednesday night with many reporting to the third shift. The strike had thrown several of Deere’s businesses into turmoil. Software engineers and computer programmers left their desks to assemble sprayers and combines in manufacturing plants instead. Serious delays in replacement parts threatened farmers, who rely on functional machines and speedy repairs at the peak of harvest. Usedfarm equipment prices were hitting record highs amid shortages.
• Ford Motor Co. and General Motors Co. have billions of reasons to consider going public with their electric-vehicle units, according to Nicholas Colas, co-founder of DataTrek Research LLC and a former auto analyst. Colas compared their market values with those of Tesla Inc., Rivian Automotive Inc. and Lucid Group Inc., in a report Wednesday before a rally among EV makers faded. Ford and GM would be able “to build a cash buffer for the EV business and to have a public market currency for acquisitions” by taking the units public, he wrote, though he added that they almost certainly won’t take that step.
• Novo Nordisk A/S agreed to buy Dicerna Pharmaceuticals Inc. to gain a technology platform that can develop promising new medicines in a transaction that values the U.S. biotech at $3.3 billion. Denmark’s Novo will pay $38.25 per share in cash, a premium of 80% to Dicerna’s closing price on Nov. 17, the company said in a statement. Both boards backed the transaction. The two companies have worked together to find drug targets in liver cells, yielding an experimental medicine slated to enter clinical tests next year. Novo said the takeover will further its understanding of disease biology and its ability to develop targeted medicines.
• CVC Capital Partners is emerging as the leading bidder for tea assets owned by Unilever Plc, in what will be one of the year’s biggest carveouts by a European company, people with knowledge of the matter said.  The buyout firm is in advanced talks on a deal for the Unilever unit, the people said, asking not to be identified because the information is private. Rival private equity bidder Advent International is also still in the running, and Unilever’s board hasn’t yet signed off on the transaction, according to the people. An agreement could be announced in the coming days, the people said. The tea business could be valued at around $5 billion in a sale, Bloomberg News reported previously.
• Turkey’s central bank cut its key interest rate for a third month on Thursday but said it would consider ending the easing cycle from December amid a weakening currency and worsening inflation outlook. The lira slid. The Monetary Policy Committee heeded President Recep Tayyip Erdogan’s renewed push for lower borrowing costs, reducing its one-week repo rate by 100 basis points to 15%. The move was in line with the median estimate in a Bloomberg poll of 24 economists and the central bank’s own monthly survey. While most central banks are talking of tightening policy as the global recovery fuels a surge in prices, Turkey’s decision to slash 4 percentage points off borrowing rates since September has rattled markets and frustrated investors who complain its monetary policy is becoming increasingly erratic and unpredictable.
• China Evergrande Group plans to sell its entire stake in HengTen Networks Group Ltd. at a hefty loss. That’s the first time since the developer’s liquidity crisis began that it has agreed to dispose of a Hong Kong-listed business.  Shares of Evergrande and other developers fell in Hong Kong Thursday, while HengTen rallied as much as 28%. China’s dollar junk bonds rose, according to traders. Country Garden Services Holdings Co., which suspended stock trading before the open, plans to raise $1.03 billion via the sale of 150 million new stock. Developer Agile Group Holdings Ltd. agreed to issue five-year exchangeable bonds.
• China is releasing some oil from its strategic reserves days after the U.S. invited it to participate in a joint sale, suggesting the world’s two biggest oil consumers are willing to work together to keep a lid on energy costs. U.S. President Joe Biden and Chinese President Xi Jinping had discussed the merits of releasing oil from strategic reserves during their virtual summit this week, and Beijing’s decision will be seen as a win in Washington’s campaign to bring down prices. The administration has been lobbying Asian nations including China, India, Japan and South Korea to release reserves after OPEC+ rebuffed pressure from Biden to pump more crude. Oil prices have jumped more than 50% this year, contributing to a surge in inflation as the global economy recovers from the Covid-19 pandemic. Gasoline prices are near records in some regions of the U.S. and the administration is weighing several responses beyond its own stockpile release. Biden has also ordered the Federal Trade Commission to investigate possible market manipulation.
• Traders have pushed back bets on the first European Central Bank rate hike to 2023, a sign they’re heeding policy makers’ message of patience.  Money markets now expect the central bank to raise its deposit rate by 10 basis points only in February 2023, compared with wagers December 2022 on Wednesday. Then, the policy rate could take five years to rise to 0%, swaps contracts suggest.  “A rate hike in 2022 seems to be too much,” said Jens Peter Sorensen, chief analyst at Danske Bank A/S, who sees the current bout of inflation as transitory and expects the ECB to tighten borrowing costs after 2023. He also cites the fragile European economic recovery and rising Covid cases as factors underscoring the patience.
• European countries are making a U-turn in their fight against a brutal fourth wave of the pandemic, increasingly forcing reluctant companies to let employees work from home. Just months after people began to return to the office, Germany is poised to agree on mandatory remote working as long as there are no “operational reasons” that stand in the way. The Belgian government on Wednesday decreed that employees need to work from home four days a week until mid-December. In Ireland and the Netherlands, people have already been instructed to work from home where possible.
• Americans paid down credit-card debt during the pandemic. Credit-card issuers are spending big to get them borrowing again. Banks’ credit-card marketing costs surged last quarter, and there is little evidence the multibillion-dollar spending spree will stop soon. Mailed credit-card solicitations are back above pre-pandemic levels. Issuers are making cash-back offers and other rewards more generous. During the past two quarters, cash-back cards offered an average 1.11% per dollar spent, up from 1.08% in the beginning of the year and the highest level since at least 2010, according to WalletHub.com. Miles or points offered have reached their highest level in over a decade, at 1.2 miles or points per dollar spent.
• Kohl’s Corp. posted stronger-than-expected sales in the third quarter and boosted its full-year outlook, showing that recent strategic moves such as focusing on athletic wear and teaming up with Sephora are resonating with shoppers.  Same-store sales, a key metric in retail, rose 15.5%, the retailer said in a statement Thursday. That’s above the 12.7% growth estimated by analysts as compiled by Bloomberg.

*All sources from Bloomberg unless otherwise specified