November 2, 2021

Daily Market Commentary

Canadian Headlines

• CI Financial Corp. and R.H. Bluestein & Co. today announced an agreement under which CI will acquire a majority interest in Bluestein, a Birmingham, Michigan and New York-based private client firm overseeing US$4.1 billion in assets. Founded in 1990, Bluestein is led by Robert H. Bluestein and Jeffrey N. Bluestein and serves families throughout the country from offices in Birmingham and New York City. The wealth and investment management firm specializes in delivering tailored services to individuals, trusts and multigenerational families. Bluestein will be CI’s first registered investment advisor in the Metro Detroit area and in Michigan, strengthening CI’s substantial presence in the Midwest, where CI RIAs currently manage approximately US$35 billion from offices in Chicago, Cincinnati and Columbus, Ohio. With the closing of this and other recently announced transactions, CI’s assets in its U.S. wealth management business are expected to reach US$87.5 billion (C$111 billion) and CI’s total assets globally are expected to reach US$264 billion (C$334 billion).

World Headlines

• European stocks eased from a record high as investors considered the strength in corporate earnings against concerns over Covid-19’s resurgence and swelling equity valuations. The Stoxx Europe 600 Index slipped 0.1% by 9:54 a.m. in London. Miners led declines among sectors as iron ore futures extended losses on shrinking steel output in China, while a decline in BP Plc following earnings weighed on energy shares. Flutter Entertainment Plc slumped 6% after warning annual profit outside the U.S. would likely be less than expected. Europe’s equities surged to a record high on Monday as a buoyant reporting season fueled optimism that the region’s corporations can maintain healthy profit margins despite rising input costs. Concerns around a jump in inflation and interest rates had hit shares in September before an October rebound.
• U.S. index futures were mixed as an earnings-driven rally stalled amid a deepening supply crunch and coronavirus curbs in China. Shorter-term Treasury yields fell as traders pared back some global rate-hike bets. December contracts on the Dow Jones Industrial Average slipped after the underlying gauge surged past the 36,000 mark on Monday. Russell 2000 contracts rose. Bonds from Europe to the U.S. jumped after Australia signaled patience with rate increases. Iron-ore futures tumbled on shrinking steal output in China. Tesla Inc. led premarket losses in New York. Bond and currency markets are bracing for the Fed to announce a tapering of asset purchases as an initial step to eventually raising interest rates to contain inflation. Equity markets, on the other hand, are focusing on earnings growth and valuations. Meanwhile, mixed data on the global economic revival is further clouding the picture as the pandemic is making a comeback in parts of the world.
• Asian stocks dipped, led by Chinese shares on concerns about the impact of measures to curb Covid-19 infections, while financials underperformed ahead of key central bank decisions this week. The MSCI Asia Pacific Index erased earlier gains of as much as 0.4% to fall 0.2% in afternoon trading. Blue-chip financial stocks including China Merchants Bank and Westpac Banking were among the biggest drags. Traders are focused on this week’s U.S. Federal Reserve meeting amid concerns about elevated inflation. Sentiment turned sour after authorities in Beijing halted classes at 18 schools amid Covid-19 resurgence. China’s benchmark CSI 300 Index fell 1%, while Hong Kong’s Hang Seng Index reversed an earlier gain of 1.9% to close in negative territory.
• Oil remained close to $85 a barrel as the market turns its attention to a meeting of oil producers on Thursday and a growing clamor for crude among consumer nations. Brent and West Texas Intermediate crudes were little changed on Tuesday, with two days to go until the Organization of Petroleum Exporting Countries and its allies meet to set output policy. Nations including Kuwait have said there’s no need to add barrels more quickly, despite pressure from the U.S. and Japan to do so. Oil prices hit a seven-year high in October and demand is now back above 100 million barrels a day, a level last seen before the Covid-19 pandemic, according to BP Plc. The energy crisis has also lifted oil demand, prompting Bank of America Corp. to say Brent crude will hit $120 a barrel by the end of June.
• Gold held an advance ahead of key central bank decisions as traders weigh the prospects of tighter monetary policy and the impact that would have on the global recovery from the pandemic. Federal Reserve policy makers gather on Tuesday and Wednesday and are expected to decide to scale back their massive bond-purchase program. The Reserve Bank of Australia abandoned a bond-yield target after an acceleration in inflation spurred traders to price in higher borrowing costs. The Bank of England meets on Thursday. Investors will also look out for any comments by Fed Chair Jerome Powell on prospects for rate hikes amid inflationary pressures stoked by rising commodity prices and pandemic-related supply chain disruptions. A report Monday showed persistent logistical challenges continued to weigh on U.S. manufacturers in October.
• Benchmark wheat futures in Chicago traded at the strongest level since 2012 as a jump in importer demand drained world supplies constrained by dry weather in the Black Sea region and in North America. Prices for December delivery, the most active contract, held an overnight gain of 3.2%, the biggest in a month. The rally in prices of one of the world’s most important staple foods threatens to further push up global food costs that are already at a decade high. Spring wheat in Minneapolis, used in bagels and pizza crusts, has risen to the strongest since 2008 after a drought slashed output. One of the catalysts of the overnight surge was a huge purchase by Saudi Arabia. The state buyer booked 1.3 million tons of wheat in a tender this past weekend, almost double the amount expected. In addition, top importer Egypt bought 180,000 tons of Russian wheat less than a week after its largest purchase of the season, but its buying is still running 23% behind last year.
• Iron ore futures extended losses below $100 a ton on shrinking steel output in China and signs economic growth is facing mounting headwinds. Prices in Singapore slumped for a fifth day as the world’s top steelmaker ramped up efforts to cap annual steel volumes. While China has imposed curbs on production throughout 2021, restrictions are now being rolled out more frequently and limits have been extended into the first quarter in an effort to ensure blue skies for the Winter Olympics.
• Authorities in Beijing halted classes at 18 schools in one district after a teacher was infected with Covid-19, days before a key Communist Party meeting in the city. Bulgaria reported record daily Covid-19 deaths. Infections in Thailand declined to a four-month low and new cases fell in Australia’s two most-populous states as both nations ease international border restrictions. Japan plans to let business travelers and students enter the country but isn’t loosening curbs for tourists, Nikkei reported. Singapore expects 2,000 coronavirus deaths each year, even after achieving one of the world’s highest vaccination rates.
• Tesla Inc. is poised to give back some of its more than $300 billion gain since Hertz Global Holdings Inc. announced a massive order for its electric vehicles, after Elon Musk cast doubt on the deal and downplayed its potential. The Model 3 maker hasn’t signed a contract yet with Hertz, the chief executive officer wrote in a tweet responding to a fan club account that thanked the world’s richest person for Monday’s gain in Tesla shares. Musk also said that because Tesla has demand for more vehicles than it can produce, the deal with Hertz “has zero effect on our economics.” Tesla shares slumped as much as 6.9% before the start of regular trading Tuesday. The stock has soared 56% during the past month.
• Pakistan has issued an emergency tender to buy liquefied natural gas to cope with sudden supply disruptions as the peak winter season takes hold, according to people familiar with the matter. Pakistan LNG Ltd. issued an tender for two cargoes to be delivered this month, an unusually prompt timeframe, according to a notice on the company’s website. The purchases for Nov 19-20 and Nov. 26-27 come after two previously bought cargoes won’t be delivered in time, the people said, asking not to be identified. Offers are due on Friday. The last-minute tender is a setback for Pakistan, which last week decided to stay away from the market because of high prices. That was the latest sign that this year’s rally has started to curb demand, as governments and industries skip pricey purchases, a move that could force the nation’s government to ration supplies.
• Rivian Automotive Inc., the electric truck maker backed by Amazon.com Inc., plans to raise as much as $8.4 billion in an initial public offering that could give it a value of as much as $53 billion.  Rivian said it plans to sell 135 million shares for $57 to $62 each, according to its filing Monday with the U.S. Securities and Exchange Commission. At the top of that range, Rivian would have a market value of $53 billion based on the outstanding shares listed in its filing. Accounting for employee stock options and restricted stock units, the company’s fully diluted value is close to $60 billion. That compares with a valuation of $27.6 billion after a $2.65 billion funding round in January, Bloomberg News reported.
• BP Plc said it would buy back an additional $1.25 billion of shares, using the proceeds of surging energy prices to woo investors who have become disenchanted with oil and gas. The last of the western world’s supermajors to report third-quarter earnings, BP followed very much in its peers’ footsteps by reporting a big increase in profit from a year earlier. After years of poor returns, the industry is funneling most of this extra cash into repurchasing shares and paying dividends. That’s pleasing shareholders who are increasingly concerned about climate change, but lack of investment in new production has contributed to the current global energy crunch.
• Johnson & Johnson, Teva Pharmaceutical Industries Ltd. and other former opioid makers scored the pharmaceutical industry’s first win in the sprawling four-year litigation over the drugs, defeating a lawsuit by local governments in California that claimed they created a public-health crisis through misleading marketing. Superior Court Judge Peter Wilson in Santa Ana on Monday rejected claims that units of J&J, Teva, Endo International Plc and Abbvie Inc.’s Allergan Plc duped doctors and patients about the addictiveness of opioid painkillers and created a so-called “public nuisance” tied to the medications. Officials in Los Angeles, Santa Clara and Orange counties and the city of Oakland sought as much as $50 billion to beef up policing and treatment budges depleted by the epidemic. It’s the first time a judge or jury has rejected claims by states or local governments that ex-opioid makers should be held liable for the fallout from the U.S. opioid epidemic, which has claimed the lives of almost 500,000 Americans over the last two decades. Teva shares rose as much as 11% in Tel Aviv Tuesday.
• New Yorkers cast their ballots for mayor on Tuesday, pinning their hopes on a new leader to revive the nation’s financial capital as it wrestles with a pandemic-induced economic crisis. Among voters’ chief concerns is crime, which propelled Democratic nominee Eric Adams to win a crowded June primary election and sets him up for an all-but-certain victory against Republican Curtis Sliwa, who trailed Adams by 40 points in a recent Emerson College poll. After crime, New Yorkers said their top concerns included homelessness, jobs and Covid.
• Apollo Global Management Inc. handed investors $8.8 billion as a frenzied dealmaking environment helped drive asset sales. The firm’s third-quarter earnings beat analysts’ estimates. The private equity business led the way with $6 billion in such sales, Apollo said in a statement Tuesday. Apollo and peers are benefiting from the robust market for mergers and initial public offerings. Exits by private equity in the U.S. reached a record $638 billion this year through September, according to data from Pitchbook. Carlyle Group Inc. last week reported that it delivered a record $14 billion in proceeds in the third quarter.
• The Biden administration is launching an assault on methane Tuesday, advancing initiatives across government — and the globe — to keep the potent heat-trapping gas from escaping landfills, oil wells and farms. Measures being announced Tuesday seek to deploy at least five Cabinet-level agencies. For instance, the Environmental Protection Agency is releasing a long-awaited proposal to require leaks in oil and gas wells to be plugged. The Agriculture Department will announce a program encouraging farmers to harness and sell methane. Pipeline regulators will expand their oversight of natural gas lines. And President Joe Biden, who is in Glasgow, Scotland, for the United Nations COP26 conference on climate change, will also announce that more than 90 nations have signed a joint U.S.-European Union pledge to collectively reduce global methane emissions 30% below 2020 levels by 2030. Brazil, a major source of methane emissions, announced Monday that it was joining the pact.
• Chemical company DuPont de Nemours Inc. agreed to buy engineering materials maker Rogers Corp. for about $5.2 billion to expand into electric cars and driver assistance systems. The deal values Rogers shares at $277 each, about a third more than Monday’s closing price of $208.23, according to a statement Tuesday. The purchase will boost DuPont’s position in advanced materials for key growth markets also including telecommunications and clean energy, the company said. “We are sharpening our focus on high-growth, high-value opportunities in sectors with steady long-term secular growth trends,” DuPont Chief Executive Officer Ed Breen said in the statement. The company planned to further invest “organically and through strategic acquisitions to maximize our capabilities,” he said.
• Federal Reserve policy makers are expected to announce this week that they will start scaling back their massive asset-purchase program amid greater concern over inflation, economists surveyed by Bloomberg said. A majority of the 49 economists in the survey predicted the U.S. central bank will begin the taper in November and wrap it up by mid-2022, curbing the current $120 billion monthly buying pace by reducing Treasuries by $10 billion a month and mortgage-backed securities by $5 billion. They are closely divided on whether interest-rate liftoff will be in 2022 or early 2023, with a slim majority estimating the latter timing while they see rates rising to 1.75% by the end of 2024, a quarter point more than the survey projected in September. The Federal Open Market Committee meets for two days starting Tuesday and will issue a policy statement at 2 p.m. in Washington Wednesday. There will be no quarterly economic and rate forecasts published at this meeting. Chair Jerome Powell will hold a press conference 30 minutes later.
• Day two of global climate talks is beginning with a fair bit of momentum. The U.S. and European Union are set to meet with representatives from developing countries to discuss infrastructure, and more news on methane is expected.   Also up later is Mark Carney, who’s pushing banks to get greener, and BlackRock’s Larry Fink. While governments have failed to reach their own targets on climate finance, the hope is that the private sector will funnel more money into the energy transition, bringing the net-zero targets closer. Hanging over the summit are two clouds. One is the energy crisis, which has forced countries to focus more on security of supply — at least in the short-term. And U.S. President Joe Biden is battling opposition to his climate plans at home, undermining his credibility in Glasgow.
• One hundred countries, representing 85% of the world’s forests, have given themselves nine years to halt and reverse deforestation, in a major new commitment at global climate change talks on Tuesday. Brazil, Russia, Canada, Colombia and Indonesia will be among the nations committing to halt and reverse forest loss and land degradation by 2030 at the third day of COP26 in Glasgow, Scotland, in an initiative spearheaded by the conference host, the U.K. The inclusion of Brazil, home to the world’s largest tropical rainforest, is crucial to the initiative and comes amid a turnaround in the country’s ambitions to reduce emissions and tackle deforestation. Across the world as a whole, an area of forest the size of 27 soccer pitches is lost every minute, according to the U.K.
• Pfizer Inc. raised its forecast for the year as it now expects $36 billion in revenue from its Covid-19 vaccine, having clinched 2.3 billion doses in 2021 supply agreements, although sales of the shot are projected to fall next year. Adjusted profit for 2021 is projected to reach $4.13 to $4.18 a share, up from the previous guidance of $3.95 to $4.05, the drugmaker said Tuesday. Revenue will be $81 billion to $82 billion, compared with an earlier forecast of $78 billion to $80 billion. Covid vaccine sales will taper in 2022, bringing in about $29 billion from sales of about 1.7 billion doses, according to a company presentation. The company has capacity to produce about 4 billion doses annually and could fill further orders.
• KR & Co. deployed a record amount of money in new investments in the third quarter as assets soared and the dealmaker pushed deeper into technology-related bets. The alternative asset manager committed $24.4 billion across industries, according to a statement Tuesday. That exceeded the prior high reached in the second quarter. The firm almost hit another milestone, taking in $28.3 billion in new capital in the three-month period. That brings the total for the year to $101.7 billion, putting KKR ahead of its capital-raising goal. About 40% of the quarterly inflows in private markets came from real estate.
• The message from the powers that be in Washington to the shadow bankers of the crypto world couldn’t be clearer: It’s time to become a real bank. That’s one of the main takeways from a President’s Working Group on Financial Markets report on stablecoins, which are tokens designed to be stand-ins for dollars and other national currencies in crypto markets. The coins, which are meant to track the dollar or another currency or asset 1-for-1, have become an integral part of crypto markets. The value of the top stablecoins has exploded almost 500% over the past 12 months and exceeded $130 billion as of October, according to data from Coin Metrics and The Block cited in the report. The report urges Congress to pass legislation that requires stablecoin issuers to become insured depository institutions subject to the same supervision and regulation as banks. The goal is to avoid risks, such as fraud, human or computer error, or a crisis of confidence that causes a “run” on stablecoins that triggers losses for coins that investors were led to believe would always be worth $1 each.
• Huawei Technologies Co. is in advanced talks to sell its x86 server business after the U.S. blacklisting of the company made it difficult to secure processors from Intel Corp., the latest blow to the Chinese technology giant from American sanctions, according to people familiar with the matter. The Shenzhen-based company is selling the server business to a consortium that includes at least one government-backed buyer, the people said, asking not to be identified because the negotiations aren’t public. The precise value of the deal couldn’t be learned, but it’s likely billions of yuan, they said. Several potential buyers from government and the private sector emerged in recent months. Henan Information Industry Investment Co. Ltd., a Zhengzhou-based state-owned firm that has been a partner of Huawei’s server business, is a leading player, one of the people said. Consumer electronics maker Huaqin Technology Co. Ltd. and an asset management company representing the Hubei provincial government, are involved in the talks, the people said. It’s unclear if the companies are bidding separately or as part of the same consortium.

“The more you feed your mind with positive thoughts, the more you can attract great things into your life.” ― Roy T. Bennett, The Light in the Heart

*All sources from Bloomberg unless otherwise specified