November 25, 2021

Daily Market Commentary

Canadian Headlines

• Canadian equities climbed for the second consecutive day as companies in the technology sector offset losses in consumer staples. The S&P/TSX Composite rose 0.4%, or 94.66, to 21,548.43 in Toronto. The gain was the biggest since it rose 0.9% on Nov. 12. Shopify Inc. contributed the most to the index gain, increasing 3.3%. Docebo Inc. had the largest increase, rising 5.5%. Yesterday, 129 of 233 shares rose, while 101 fell; 7 of 11 sectors were higher, led by information technology stocks.
• Canada’s small businesses are expecting wages to rise at the fastest pace in over a decade. Businesses see employee compensation rising by 3.1% over the next year, according to a November survey of members by the Canadian Federation of Independent Business. That’s the highest level in data that goes back to 2009. The historical average is 1.6%. The data suggest Canadian firms are feeling the pressure to raise pay after inflation surged and the labor market tightens.
• Several of the biggest investors in Paytm’s record-breaking initial public offering added to their stakes in the Indian fintech giant after shares plunged by as much as 41%, according to people familiar with the matter.  BlackRock Inc. and Canada Pension Plan Investment Board were among so-called anchor investors in the IPO that bought more Paytm shares on Tuesday and Wednesday, the people said, asking not to be identified discussing private information. The stock climbed for a third day on Thursday, rallying as much as 7% before closing up 2.5% at 1,796.55 rupees in Mumbai. That’s still a fair distance away from its issue price of 2,150 rupees. The size of this week’s purchases by anchor investors couldn’t immediately be learned. Representatives for BlackRock and CPPIB declined to comment.
• Nutrien Ltd., one of the world’s biggest fertilizer suppliers, will build four blending facilities in Brazil that will more than double its capacity in the nation. Operations at the new plants will begin in 2023, Roberto Carlos Oliveira, Nutrien’s fertilizer head for Latin America, said in an interview. The firm is also boosting capacity at four other plants it already owns in Brazil. The investment is part of the company’s expansion plan for Brazil, which is the world’s fourth largest fertilizer consumer. The plants will be located in Cerrado and Southeast regions, close to farms, as opposed to competing suppliers who are based near ports, according to Oliveira. The proximity to farms has helped to prevent delivery delays, he said. Nutrien imports roughly 90% of the crop nutrients it sells locally.

World Headlines

• European stocks advanced as risk appetite outweighed concerns about withdrawal of stimulus and Covid-19 restrictions in the region. The Stoxx Europe 600 Index added 0.2% by 10:30 a.m. in London, with utilities jumping the most. Tech stocks also advanced, ending a five-day losing streak. European equities have dropped from record highs this week amid concerns that the spike in Covid-19 cases will lead to renewed restrictions and lockdowns, while the central banks’ pace of withdrawing monetary stimulus is also a worry. Still, as bond yields remain low, many investors see few alternatives to equities.
• Global stocks advanced with U.S. index futures as signs of a solid recovery in the world’s largest economy outweighed jitters over inflation and a faster tapering of Federal Reserve stimulus. Contracts on the S&P 500 and Nasdaq 100 indexes rose at least 0.2% each as the U.S. was shut for Thanksgiving. Trading volumes on the MSCI Inc.’s gauge of world equities slid 18% from their 30-day average. The dollar was steady near a 16-month high. Remy Cointreau SA jumped 11% in Europe on an earnings beat. Base metals rallied, with nickel near the highest level in seven years. U.S. stocks proved resilient to a slew of economic data and Fed minutes on Wednesday that supported expectations for a quicker removal of stimulus by the Fed. While inflation concerns deepened, traders were in no mood to miss a play on the U.S. recovery story. Rising bets not only for a quicker taper, but also an earlier liftoff of interest rates, suggest caution may return after Thanksgiving.
• Asian equities were poised to snap a three-day losing streak, while traders continued to weigh the prospects of higher inflation and faster-than-expected tapering by the U.S. Federal Reserve. The MSCI Asia Pacific Index rose as much as 0.3% Thursday, with Japanese stocks among the leaders as the dollar held a three-day advance against the yen. Kaisa Group was the biggest gainer on the gauge as the Chinese developer moved to avoid a potential default, while Reliance shares returned to a price level reached prior to the scrapping of the Indian conglomerate’s deal with Saudi Aramco. Asian stocks are hovering near a six-week low as a strong dollar remains a headwind for emerging-market equities, while higher U.S. Treasury yields have dragged down technology and other growth stocks around the region.
• Oil was steady after OPEC said a planned coordinated release of reserves may swell a crude surplus expected early next year. Futures in New York traded near $78 a barrel. The projection was made by the producer group’s advisory body — the Economic Commission Board — ahead of an OPEC+ meeting next week. Some of the group’s delegates warned this week that releasing strategic reserves may lead to the alliance holding back crude supply in January. Crude had fallen over the past month as President Joe Biden agitated for a response to rising energy prices, but the landmark plan announced Tuesday fell short of expectations and saw prices rise. The International Energy Agency accused Saudi Arabia, Russia and other major energy producers of creating “artificial tightness” in global oil and gas markets, urging OPEC+ to accelerate the return of supplies.
• Gold edged higher on a weaker dollar as investors weighed a swath of positive economic data from the U.S. and an indication from Federal Reserve officials of faster tapering. The metal is on track for about a 3% fall this week as the dollar surges to its highest in more than a year, with U.S. data showing jobless claims at the lowest level in decades and an increase in consumer spending. On Thursday, the greenback eased somewhat, allowing gold to rise. Federal Reserve policy makers, who are trying to balance the recovery with elevated price pressures, and have indicated they were open to a quicker removal of support to curb inflation. Officials have shifted to a more hawkish tone in recent weeks after data showed U.S. inflation at the highest in over three decades.
• The European Union’s drug regulator has recommended the Pfizer-BioNTech vaccine for children aged 5 to 11. Separately, the EU plans to limit vaccine validity for travel purposes to nine months, signaling the need for boosters. Germany passed 100,000 Covid deaths, with new infections still rising and hospitals in some cities becoming overwhelmed. Europe is the pandemic’s epicenter again, and some of its governments are considering reintroducing measures to curb the resurgence of the virus, including compulsory shots in Germany, restrictions for unvaccinated people in Italy, and mask mandates in Denmark. In Asia, Shanghai is reporting a flareup just as China had managed to stem the widest outbreak since the start of the pandemic, and the World Health Organization is monitoring a new variant that’s been found in South Africa and Botswana.
• A fund backed by trading giant Vitol Group agreed to buy Vivo Energy in a deal valuing the Africa-focused fuel retailer at about $2.3 billion. The transaction will bring Vivo assets back in house for the oil trader, which sold shares in the retailer in 2018 in what was one of the biggest initial public offerings on the London Stock Exchange that year. The offer shows Vitol is willing to spend to pursue growth and find outlets for its traditional fuels amid the energy transition. Vitol, which owns 36% of Vivo, will pay $1.85 (139 pence) a share in cash for the rest, the trading house said Thursday. No. 2 investor and co-founder Helios Investment Partners also supports the deal, Vitol said.
• Jamie Dimon knew right away that Beijing wouldn’t like his joke about the Communist Party’s downfall, noting immediately afterward: “I can’t say that in China.”  In many ways, that was the point. The quip capped extended remarks on Tuesday from JPMorgan Chase & Co.’s chief executive officer in which he questioned the sustainability of China’s rise and spoke about the complications of free speech in the country. Dimon’s expression of regret less than 24 hours later, however, shows the power China wields in getting foreigners to regulate their speech if they want to do business in the world’s second-biggest economy. In Dimon’s case, Beijing didn’t even need to have state-backed bodies criticize him — as the party did earlier this year to Hennes & Mauritz AB over forced labor in Xinjiang — for him to walk back the comments.
• The National Football League and the billionaire Rams owner Stan Kroenke agreed to a $790 million settlement of a lawsuit by St. Louis over the team’s move to Los Angeles five years ago, municipal officials said. The accord, announced Wednesday, will avert a January trial in which the league was to face claims it violated its own relocation policy by authorizing Kroenke to take the Rams to the west coast. The trial threatened to spill confidential details about NFL finances into public view, including information about Dallas Cowboys owner Jerry Jones and other prominent team owners. St. Louis officials filed the suit seeking more than $1 billion in damages, arguing the team’s departure robbed the city and county of tax revenue, including from ticket sales, concessions, earnings and property. St. Louis also alleged it spent $16 million planning for a new stadium before the Rams defected.
• Walt Disney Co. reported that subscribers to its traditional cable TV channels tumbled in the past year, with its flagship ESPN network dropping to 76 million from 84 million a year ago. The company said in a regulatory filing Wednesday that Nielsen, which provides the numbers, had trouble collecting some data during the pandemic last year.  Disney’s traditional TV channels depend on fees from cable companies and other pay TV operators for a big chunk of their revenue. Fees paid to its domestic TV business, which includes networks such as the Disney Channel and National Geographic, rose 2% to $15.2 billion in the year that ended in October. The rates charged pay-TV providers rose 7%, while the number of subscribers declined 4%, the company said.
• U.S. aviation regulators welcomed steps proposed by AT&T Inc.and Verizon Communications Inc. to mitigate potential risks to aircraft from new 5G services. “This is an important and encouraging step,” the Federal Aviation Administration said in a statement. “We look forward to reviewing the AT&T and Verizon proposal. The FAA believes that aviation and 5G C-band wireless service can safely co-exist.” The companies said they will roll out new 5G wireless service at temporarily reduced power in coming months to alleviate fears the signals may interfere with the electronics of jetliners and other aircraft. The measures, described Wednesday in a letter to the U.S. Federal Communications Commission, follow an alert to the aviation industry from the FAA regarding the new service.
• Before going public with a $12 billion offer for Telecom Italia SpA, U.S. buyout firm KKR & Co. needed to make sure one key stakeholder was on board: Italian Prime Minister Mario Draghi.  The KKR team was clear that they couldn’t proceed with the bid unless they had the government’s support, according to people familiar with the matter. So earlier this month they headed to Rome to sit down with Italian officials. Draghi was briefed on the deal and the officials set some conditions, the people said, but the government ultimately gave KKR the green light. Telecom Italia shares rose as much as 2.5% on Thursday before erasing those early gains to trade little changed at 11:04 a.m. in Milan.
• The U.K. gave 13.6 billion pounds ($18.5 billion) in subsidies to its oil and gas industry after signing the Paris climate deal five years ago, according to campaigners against a new production field off the coast of Scotland. Companies received 9.9 billion pounds in tax relief for new exploration and production, and 3.7 billion pounds in payments for decommissioning sites between 2016 and 2020, the group Paid to Pollute said. The figures are based on analysis by the Organization for Economic Co-operation and Development. The U.K. Department of Business, Energy and Industrial Strategy denied subsidizing the fossil-fuel industry. The government follows guidelines issued by the International Energy Agency after the Group of 20 committed to phase out such subsidies, a spokeswoman said. The IEA approach focuses more on what consumers are paying for energy, while the OECD examines the industry at large.
• The European Central Bank is weighing curbs on the riskiest part of banks’ lending to indebted companies amid fears of a potential blow-up in the market, according to people with knowledge of the matter. Officials on the ECB’s supervisory board have discussed capping newly originated highly-leveraged transactions at a certain share of individual banks’ balance sheets, the people said, asking not to be identified as the matter is private. Still, some members are reluctant to follow that course if banks can show that they’re adequately managing risk, the people said. Talks are at an early stage and caps may not be the chosen action, they said. The leveraged loan market has been on a tear this year, especially in the U.S., as private equity firms cash out of companies and investors seek protection against inflation. Deutsche Bank AG has counted on the lucrative business as a key contributor to its investment bank as a pandemic-driven trading rally peters out. The German lender could be among the most impacted banks should the ECB decided to impose curbs.
• The European Union is recommending a 9-month time limit for the validity of Covid-19 vaccinations for travel into and within the bloc and also is proposing to prioritize vaccinated travelers. The European Commission is proposing that member states should continue welcoming all travelers inoculated with shots approved by the bloc, according to a document seen by Bloomberg. It also called for countries to reopen as of Jan. 10 to all those who have used vaccines approved by the World Health Organization.  EU Justice Commissioner Didier Reynders announced on Thursday a new internal EU travel framework based more on individuals’ vaccination or recovery status than on caseloads in the countries they’re coming from. A separate announcement on the external travel rules is scheduled for later Thursday.
• Poland will temporarily cut taxes on electricity, gas and excise on fuel in a bid to help the central bank stem rising consumer prices that have become a hot topic among the ruling party’s electorate. The government rolled out a 10-billion-zloty ($2.4 billion) plan that assumes lowering the value-added tax on electricity and gas for three months starting from January. Lower excise on fuel will be in place for five months. The government also plans one-off payments to about 5 million households as compensation for higher food prices. Inflation is making headlines in Poland as an energy crunch in Europe spurred price growth to 6.8% in October from a year earlier. With consumers increasingly concerned about rising costs, the government is stepping in to bolster the efforts of the central bank, which raised the key interest rate by 115 basis points to 1.25% in the past two months.
• Goldman Sachs Group Inc. economists said they expect the U.S. Federal Reserve to tighten monetary policy faster than previously anticipated next year amid rising inflationary pressures. The central bank will double the pace it’s withdrawing its massive asset purchase program to $30 billion a month from January and start raising interest rates from near zero in June, the economists led by Jan Hatzius said in a report to clients on Thursday. The bank will then hike rates in September and December as well as twice in 2023, said the economists, who previously expected the benchmark to be boosted in July and November.
• Oil traders are betting that longer-term crude prices could be set to spike because of a lack of investment in future supply. Since hitting their high for the year last month, the most-active oil futures have fallen almost 5%. By comparison, those for late 2022 and 2023 have barely moved, sticking above $70 a barrel. With nearby contracts rattled by U.S.-led efforts to boost supply — and the potential for an OPEC+ backlash — those further out are being boosted by dwindling investment in production, and a dearth of producers selling deferred futures to lock in their future sales.
• China’s State Council called on local governments to sell more special bonds this year in order to boost investment amid a slowdown in the economy. Premier Li Keqiang chaired a meeting of the State Council, China’s cabinet, on Wednesday, urging local governments to have more ongoing construction of projects at the beginning of next year, the official Xinhua News Agency reported. It also called on them to make better use of proceeds from special bonds to expand domestic demand. Regional governments should step up project preparation, facilitate the launch of projects that are mature, and make reasonable requests for special bond quotas next year, according to Xinhua. The authorities will study the possibility of granting some bond quotas in advance of next year, according to the report, as they did in the recent two years.
• Mexico’s economy shrank more than expected in the third quarter after new legislation banning labor outsourcing hit the services industry and coronavirus cases surged. Gross domestic product fell 0.4% from the previous three-month period, compared with a preliminary reading of a 0.2% drop and a median estimate of a 0.3% fall in a Bloomberg survey. It’s the first contraction since the second quarter of 2020, when Mexico imposed its harshest set of restrictions to tackle the Covid-19 pandemic. From a year ago, GDP grew by 4.5%, according to final data from the national statistics institute published Thursday.
• Ikea opened its biggest store in the world in the Philippines, with the new 730,000 square foot facility in Manila a cornerstone of the home-furnishings giant’s expansion plans in Asia. Thursday’s opening was feted with an event held at the store’s cafeteria attended by Philippine trade secretary Ramon Lopez and foreign minister Teodoro Locsin, where Ikea’s cult-favorite Swedish meatballs were served to some attendees. They were accompanied for the big day by a special Philippine twist — adobo sauce.  Ikea is sticking to Covid-19 protocols after the store’s opening was delayed amid the pandemic, with an online booking system that’s full for the next two weeks, according to store manager Georg Platzer. Customers have to wear masks and observe distancing.

*All sources from Bloomberg unless otherwise specified