November 4, 2021

Daily Market Commentary

Canadian Headlines

• Canadian equities finished close to an all-time record amid strength in the health-care sector and positive sentiment in U.S. markets following the Federal Reserve decision. The S&P/TSX Composite rose 0.4% to 21,265.10 in Toronto. The index advanced to the highest closing level since Oct. 25 after the previous session’s decrease of 0.4%. Today, financial stocks led the market higher, as eight of 11 sectors gained; 147 of 233 shares rose, while 84 fell. Shopify Inc. contributed the most to the index gain, increasing 1.1%. SSR Mining Inc. had the largest increase, rising 9.8%.
• Brookfield Asset Management Inc. entered the German real estate market fray with a bid to take Alstria Office REIT-AGprivate, joining property titans betting on the long-term prospects of workers returning to business hubs as pandemic concerns fade. The Canadian firm on Thursday offered 19.50 euros ($22.53) a share for the Alstria stock it doesn’t already own, valuing the Hamburg-based investment trust at about 3.47 billion euros, according to Bloomberg calculations. The price implies a 17% premium on Wednesday’s close.  The shares soared as much as 20% to 20 euros and were still trading above the offer price at 19.54 euros at 9:37 a.m. in Frankfurt. Alstria’s management and supervisory boards welcomed the offer, saying they intend to recommend shareholders to accept. The boards have committed to tender their shares, subject to existing share ownership guidelines, the company said.
• Barrick Gold Corp. exceeded earnings estimates for a ninth straight quarter as the second-largest bullion company did a better job at controlling costs than expected. The Toronto-based company reported adjusted earnings of 24 cents a share for the third quarter, down from 41 cents a year earlier but just ahead of the 23-cent average estimate. Barrick churned out 1.09 million ounces in the third quarter, up from the second quarter though below year-ago levels and the average analyst estimate. Fourth-quarter output is expected to be the strongest of the year after mill repairs at Goldstrike in Nevada.

World Headlines

• European equities climbed to a fresh record on Thursday after the Federal Reserve reassured investors it’ll be patient about raising interest rates, while a rush of strong corporate earnings added to risk appetite. The Stoxx 600 index was up 0.5% as of 9:30 a.m. in London, extending its gains into a sixth day, set for the longest winning streak since mid-June. Energy and real estate led gains, with Alstria Office REIT-AG jumping as much as 20% after Brookfield Asset Management Inc. offered to buy all shares in the real estate investment trust it doesn’t already own. The main European equities benchmark has been rising for five consecutive weeks on the back of another solid earnings season. The gauge has gained more than 20% this year, buoyed by a broad economic rebound from the pandemic-induced recession and ample central bank liquidity.
• The U.S. dollar and Treasuries advanced as investors weighed the Federal Reserve’s patience with interest-rate hikes against the risk of persistent inflation and slowing global growth. Stocks extended a rally. The greenback rose against all Group-of-10 peers, pushing the euro closer toward year-to-date lows. The 10-year U.S. yield shed three basis points. Meanwhile, equities continued to defy bond-market caution, sending a gauge of global stocks to a record. Technology stocks were back in favor around the world, with Qualcomm leading New York pre-market gains on upbeat guidance. Stocks, meanwhile, were being cushioned by a stellar earnings-reporting season. Of the 392 S&P 500 companies that have reported results so far this quarter, 82% have beaten forecasts. S&P 500 Index futures rose 0.1%, while contracts on the Nasdaq 100 added 0.4%.
• Asian stocks rose, headed for their first gain in three days, after the Federal Reserve moved to taper stimulus while saying it will be patient on raising interest rates. The MSCI Asia Pacific Index climbed as much as 0.7%, driven by gains in technology shares including Tencent, Alibaba and Keyence. Japan and China led gains around the region, with stocks also climbing in Indonesia, Thailand and Hong Kong. The Fed indicated it was alert to inflation risks but still sees them as transitory due to pandemic-related supply and demand imbalances. The S&P 500 climbed to a fresh record high after the Fed comments, pushing its gain for 2021 to 24%, while the Asian benchmark is little changed on the year.
• Oil gained as investors turned their attention to a key OPEC+ meeting, with the group facing calls from consumers to pump more crude. Futures in New York rose back above $81 a barrel, with the alliance expectedto stick to its planned 400,000-barrel-a-day hike for December. The U.S. is urging OPEC+ to raise output by as much as 800,000 barrels a day, according to delegates and diplomats, but so far there’s little indication it’ll change course. Oil recently rallied to the highest since 2014 as an economic rebound from the pandemic combined with a supply crunch across the energy industry to drive up demand for crude. U.S. President Joe Biden has led calls from major consumers for higher OPEC+ production, but Saudi Arabia and others in the alliance have pushed back, saying coronavirus outbreaks continue to threaten the market.
• Gold edged higher from a three-week low as the Federal Reserve signaled it will be patient on raising interest rates, after announcing it will start reducing bond purchases this month. Chair Jerome Powell on Wednesday stressed that the tapering — at a pace of $15 billion per month — doesn’t mean policy makers will hike rates any time soon and they want to see the labor market heal further. A Federal Open Market Committee statement also included new language that inflation might not prove to be entirely transitory.
• The U.K. has cobbled together a coalition of countries, banks and institutions willing to phase out coal and stop lending for fossil fuel projects abroad. But the deals fall well short of COP26 President Alok Sharma’s aim to “consign coal to history” and China is notably lacking from the plans. As energy day gets under way in Glasgow, in the background a tense meeting of OPEC+ oil producers is about to kick off. U.S. President Joe Biden has been calling for more ambitious climate plans, but he’s also been urging the cartel to pump more.  Meanwhile, climate activists including Greta Thunberg are planning mass protests in the coming days, angered by what they say has been a lack of access to COP26 events. But there’s some good news: the International Energy Agency says net-zero pledges at the summit mean there’s still a chance to limit the increase in global warming to 1.8-degrees Celsius.
• Democrats will argue for months about what led to their defeat at the ballot box on Tuesday — whether it was their messaging, their candidates or their president. But there was consensus that the first step is to get something done on economic issues. One day after an embarrassing loss in the Virginia gubernatorial election and a dispiritingly tight race in New Jersey, Democrats from President Joe Biden to moderate and progressive members of Congress cast passage of his infrastructure and $1.75 trillion social spending package as a panacea for further losses. For months, the centerpiece of Biden’s legislative agenda has been stalled because of infighting among congressional Democrats. But party activists and strategists say that Democrats have to take action on so-called bread-and-butter issues, like inflation and education if they don’t want a repeat of Tuesday’s results in next year’s midterm elections.
• Novartis AG agreed to sell its stake in Roche Holding AG back to the rival Swiss drugmaker for $20.7 billion, ending a two-decade investment and building up a cash pile for possible acquisitions. Novartis took advantage of record levels in Roche’s voting stock to unwind the remnants of a failed takeover attempt that began in 2001 under then-Novartis Chief Executive Officer Daniel Vasella. The company is booking a capital gain of about $14 billion on the investment at a time when the cost of acquisitions in pharma have been soaring and drugmakers need funds to develop new treatments. CEO Vas Narasimhan has been working to prune and reshape Novartis since taking over in 2018.
• Amundi SA’s net inflows were unexpectedly dragged down by 16.3 billion euros ($19 billion) of cash being pulled from a Chinese joint venture in the third quarter.  Europe’s largest asset manager raked in just 200 million euros in the three months to Sept. 30, compared with the 10.5 billion euros consensus predicted by analysts surveyed by Bloomberg. Still, the Paris-based firm’s quarterly profit beat estimates and assets under management were in line with forecasts, according to a statement Thursday. The outflows from the firm’s joint venture with Agricultural Bank of China were largely driven by the bank withdrawing 11.6 billion euros to reinvest in the nation’s economy, part of a broader move being seen among Chinese lenders, Nicolas Calcoen, Amundi’s head of finance and strategy, said in an interview. He said it was a one-time adjustment.
• For investors looking for signs that the global semiconductor shortage is near an end, Qualcomm Inc. offered some solace: Though problems are expected to persist until next year, the chipmaker is now more adept at getting its hands on scarce parts. Qualcomm has farmed out production of certain products to multiple manufacturers, helping ensure it has enough supplies. The moves helped the company deliver an upbeat forecast for the latest quarter, sending its shares up as much as 8.3% in pre-market trading in New York Thursday.  Even with the challenges, the company is benefiting from the growing appetite for smartphone chips and a push into new markets. Qualcomm, the world’s largest smartphone chipmaker, expectsearnings of $2.90 to $3.10 a share in the period ending in December, well above the $2.58 predicted by Wall Street. Revenue will be $10 billion to $10.8 billion, compared with an average estimate of $9.73 billion.
• BlackRock Inc., the world’s largest asset manager, intends to add a new metric across its portfolios that will allow clients to track the temperature scores of its investments, according to Paul Bodnar, its global head of sustainable investing. The plan is to have the new metric in place by the end of the year, Bodnar said at a COP26 panel in Glasgow, Scotland, on Thursday. “We are seeing the rise of very interesting metrics,” he said. “We are reporting for our clients by end of year the temperature rise – a temperature score for a portfolio that shows if this was the global economy, how much warming would it cause.” Bodnar, a former aide on climate policy in the Obama administration, also spoke of the need to funnel more capital into transition assets. That’s as the investment industry comes under mounting pressure to cut off funds to carbon emitters as part of a growing net-zero movement of which BlackRock, with its $9.5 trillion under management, is the largest member.
• Credit Suisse Group AG said it will post a net loss in the fourth quarter on the back of a 1.6 billion-franc ($1.8 billion) impairment tied to its restructuring, as charges and legal fees accompany its efforts to reboot strategy in the wake of a string of scandals.  Third-quarter net income dropped 21%, hit by 564 million francs ($620 million) of litigation costs from a variety of issues including a fund-raising scandal in Mozambique and the implosion of Greensill Capital. A move to shrink the investment bank by 25% will cause the impairment this quarter as the firm leans further into wealth management.
• British lender Metro Bank Plc is attracting takeover interest from Carlyle Group Inc., according to people familiar with the matter. The buyout firm has been studying a potential acquisition of Metro Bank, the people said, asking not to be identified because the discussions are private. Shares of Metro Bank have fallen 25% in London trading this year, giving it a market value of about 180 million pounds ($245 million).  Metro Bank was the first new retail bank to open its doors in the U.K. in more than a century in 2010 and has become known for its branch network, including in expensive locations like the King’s Road in Chelsea. It emerged to challenge incumbents such as Barclays Plc and Lloyds Banking Group Plc, whose reputations in the country had been tarnished by the 2008 global financial crisis.
• The Federal Reserve has had a lot of trouble over the years deciding how hot to let the job market run before raising interest rates. In the late 1960s it waited too long, and the result was a wage-price spiral that helped send inflation into double digits during the 1970s. In the mid-2010s it was too quick off the mark, temporarily stifling economic growth and delaying a full-fledged recovery of the labor market until the end of the decade. Fed Chairman Jerome Powell and his colleagues may soon have to make a call on whether the rebound from the pandemic has brought us to maximum employment. Their task is made more difficult by the mixed signals emanating from the job market, which has 10.4 million unfilled openings but 5 million fewer people on payrolls than before the pandemic. The current bout of inflation further complicates their discussions. Prices are rising more than two times faster than the central bank’s 2% goal. Fed officials are betting that the pace will slow when supply chain snafus are resolved, but the danger is that inflation could become embedded via a feedback loop: A tight labor market compels employers to raise pay, and then companies hike prices to recoup the higher labor costs. Wages rose by 4.2% in the third quarter from a year earlier, the biggest increase since 2001, according to one government gauge. “I do worry that inflation risks have risen significantly,” says Brandeis University professor Stephen Cecchetti.
• Cigna Corp. reported third-quarter earnings that beat Wall Street’s highest estimates and raised its profit outlook for the year. The company raised its full-year adjusted profit outlook to at least $20.35 a share, from a previous level of greater than $20.20. Cigna’s adjusted income from operations was $5.73 per share, beating the $5.23 average of analyst estimates compiled by Bloomberg and above the highest analyst forecast.
• OPEC+ is heading for a politically consequential showdown with President Joe Biden, as Saudi Arabia and its allies must choose whether to heed American demands for more oil. The cartel looked set to rebuff the request, triggering a bare-knuckle fight with the White House, which is worried that inflation caused by high energy prices could derail its economic agenda. “You take a look at oil prices,” Biden told reporters at a news conference at the United Nations climate summit in Glasgow on Tuesday. Fuel costs are high because of “the refusal of Russia or the OPEC nations to pump more oil.”
• Lenovo Group Ltd. posted quarterly earnings that beat analysts’ estimates after the world’s largest personal computer maker edged rivals in a global PC market that’s showing signs of cooling. Net income jumped 65% to $512 million in the three months ended in September, the Beijing-based company said in a statement Thursday. Analysts predicted $482 million on average. Revenue increased 23% to $17.9 billion, topping the estimate of $17.4 billion. Lenovo maintained its top position in the global PC market with moderate 3.1% growth in the third quarter, edging out HP Inc., according to research firm International Data Corp. But signs of a slowdown are beginning to show in some more developed, high-margin markets. Component shortages and logistics issues led to the first quarterly computer shipment decline in the U.S. since the Covid outbreak, IDC said.
• Hellman & Friedman and EQT AB managed to get enough Zooplus AG shareholders to accept their 3.7 billion euro ($4.3 billion) offer for the German online pet-food retailer, paving the way for the joint bid to go through. Investors holding more than 50% of Zooplus said they would tender in favor of the deal, the companies said Thursday. The offer was conditional on half of the company’s stock plus one share accepting before a Nov. 3 deadline. The private equity companies had joined forces on a 480 euro-per-share bid. The final result of the increased offer after the initial acceptance period will be published on Nov. 8.
• House Democrats are reviving changes to individual retirement accounts containing millions of dollars as lawmakers look to finalize the taxes on the wealthy to finance President Joe Biden’s agenda. The changes included in a draft of the House bill released Wednesday place limits on the tax-advantaged accounts and gives the Internal Revenue Service more oversight over them. The legislation, which House leaders say could get a vote as soon as Thursday, is not yet final and will likely undergo several more revisions as it moves through Congress. The legislation would prevent contributions to traditional individual retirement accounts or Roth accounts once they reach $10 million and would require mandatory distributions for accounts that exceed that amount. The bill would also require accounts with at least $2.5 million to report their balances annually to the IRS.

“It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.” –Henry Ford

*All sources from Bloomberg unless otherwise specified