November 9, 2021

Daily Market Commentary

Canadian Headlines

• Onex Partners to Buy Fidelity Building Services Group, according to a press release. Onex Corporation today announced that Onex Partners V, Onex’ $7.2 billion fund, has agreed to acquire Fidelity Building Services Group, in partnership with the company’s management team.
• Canaccord Genuity Group Inc.’s dealmakers turned in their best quarter ever after a flood of cheap capital for corporations fueled a boom in acquisitions and drove a surge in profit. Net income rose 87% from a year earlier to C$61.8 million ($49.7 million) in the three months ended Sept. 30, the company said Monday. Profit was 58 cents a share, excluding significant items, on a diluted basis. Chief Executive Officer Dan Daviau said companies are awash in capital, helped by low interest rates and rising equity markets, making it easier for them to spend money on long-term strategic priorities. Advisory revenue in the fiscal second quarter rose to a record C$139.4 million, including C$103.6 million from the U.S., where Canaccord’s 2019 acquisition of the Petsky Prunier merger boutique is driving gains.

World Headlines

• European stocks were steady near their record high as investors digested a flurry of corporate earnings and the Federal Reserve’s warning that risky assets could be more vulnerable to declines as they keep rising. The Stoxx Europe 600 rose 0.1% by 8:32 a.m. in London. Automotive and media stocks led gains while insurance and consumer product shares were under pressure. Investors are weighing the risks to the rally that has taken European stocks to record highs and keeping an eye on central banks to assess the impact of inflation on monetary policy. In the U.S., Lael Brainard is said to have interviewed for the top job at the Fed, with some speculation that the central bank would be more dovish under Brainard. European equities have gained for the past five weeks as corporate profits drove optimism in the region, with companies managing inflationary pressures and supply bottlenecks. Focus will likely turn to monetary policy as the earnings season comes to a close.
• U.S. Treasury yields slipped Tuesday as investors speculated about a change in leadership of the Federal Reserve, while stocks were steady ahead of inflation data. Treasuries rose after a report that Fed Governor Lael Brainard, seen as more dovish by some, was interviewed for the central bank’s top job. U.S. equity futures were steady after the Fed warned in a report that asset prices could drop if sentiment sours. European and Asian shares also drifted. Global equities remain around all-time highs as investors weigh strong earnings, easing travel curbs and U.S. infrastructure spending against the risk of persistent inflation that may lead to tighter monetary policy.
• Asian equities were mixed, struggling to follow a positive lead from Wall Street as traders weighed economic optimism and Covid treatments against virus outbreaks across China. The MSCI Asia Pacific Index was up 0.1% on Tuesday, trimming an earlier 0.4% gain. SoftBank surged 11% after the company said it would buy back as much as 1 trillion yen ($8.8 billion) of its own stock. Wuxi Biologics rebounded from the previous day’s tumble, after the U.K. government said it will add some of China’s shots to approved vaccines for visitors. While Asian markets attempted to follow increases seen on Wall Street overnight, “paring back of initial gains suggest that several factors including China’s Covid-19 situation and its property sector remain of concern,” said Jun Rong Yeap, market strategist with IG Asia Pte. in Singapore.
• Oil rose as traders waited for further signals from the White House on whether it will tap the Strategic Petroleum Reserve in response to high prices. West Texas Intermediate gained after advancing almost 4% over the past two sessions. Energy Secretary Jennifer Granholm said President Joe Biden may make an announcement to address the situation this week. As part of that process, Granholm said officials will scrutinize the Energy Information Administration’s Short-Term Energy Outlook due later on Tuesday. Oil soared to a seven-year high last month as a revival in consumption drained stockpiles, including in the U.S. Biden has been urging the Organization of Petroleum Exporting Countries and its allies to quicken the pace at which they are restoring supplies taken offline at the start of the pandemic. Their refusal to heed that call has put the focus back on Biden and the steps that he could now take to try and bring crude and gasoline prices back down.
• Gold held near two-month highs, drawing support from lower bond yields ahead of key inflation data from the U.S. and China later this week. Bullion has gained this quarter 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. The latest U.S. producer and consumer price data will offer fresh insight on the likely course of Federal Reserve policy. Fed Chair Jerome Powelllast week stressed that the start of tapering of bond purchases didn’t mean rate hikes were coming any time soon.  Gold’s breakout above $1,810 last week was a bullish signal that more gains are likely, according to technical analysts, although some market watchers are more cautious on the longer-term prospects for bullion.
• Bitcoin and Ether hit all-time highs in a cryptocurrency rally that some analysts attributed partly to the search for a hedge against inflation. Bitcoin, the world’s largest digital token, jumped as much as 3.6% to $68,513, while Ether posted a more modest advance to about $4,840. The total value of digital tokens tracked by CoinGecko reached some $3.1 trillion. Trying to work out why virtual currencies are rallying is often a fraught task, but some theories pointed to the appetite for assets that can deliver returns even as the pandemic recovery stokes inflation. Bitcoin is up more than 130% this year and Ether some 550%, though for critics the volatility inherent in digital tokens damages their claims to being a store of value.
• GE plans to form three global public companies focused on the growth sectors of aviation, healthcare, and energy, according to a press release. Shares climbed as much as 17% in premarket trading. GE will pursue a tax-free spinoff of GE Healthcare, creating a pure-play company in early 2023 and will retain a stake of 19.9%. GE will combine GE Renewable Energy, GE Power, and GE Digital into one business and then pursuing a tax-free spinoff of this business in early 2024
• BioNTech SE raised its forecast for this year’s Covid-19 vaccine sales to almost $20 billion, as the pandemic drags on and countries order more shots.  People who are fully vaccinated are 16 times less likely to end up in intensive care wards or to die from Covid, an Australian study found, adding to evidence that may bolster the case for countries to treat the disease as endemic. The parties in talks to form Germany’s next government agreed on measuresto tackle the latest surge in cases, seeking to avoid sweeping restrictions. Hong Kong needs at least six months before reopening to the world, a government adviser said. The territory must finish negotiating open borders with the mainland and boost the vaccination rate, with Hong Kong and China the only places still pursuing a “Covid Zero” strategy.
• Carrefour SA announced a 3 billion-euro ($3.5 billion) investment plan in e-commerce and said it aims to triple the value of products it sells online by 2026. The gross value of merchandise sold online should reach 10 billion euros and digital expansion should add an extra 600 million euros to operating profit in five years, the retailer said Tuesday. The company is expanding in advertising and financial services as well as online groceries. The plan boosts spending on e-commerce and digital by 50% compared to past years. Chief Executive Officer Alexandre Bompard has been aiming to turn around the French grocery chain, which failed twice this year to do a transformational deal to sell itself to Canada’s Alimentation Couche-Tard Inc. and then later on to domestic rival Auchan.
• Newcrest Mining Ltd. agreed to buy Pretium Resources Inc. in a cash and shares deal valuing the Canadian gold producer at about $2.8 billion, adding to a wave of consolidation in the sector. Melbourne-based Newcrest will offer Pretium holders C$18.50 ($14.87) a share, a 23% premium to the target’s closing price Monday in Toronto. Pretium’s board has unanimously recommended the transaction, although it still requires the approval of two-thirds of the company’s shareholders.
• Federal Reserve Governor Lael Brainard was interviewed for the top job at the U.S. central bank when she visitedthe White House last week, according to people familiar with the discussions, signaling that Chair Jerome Powell has a serious rival as President Joe Biden considers who will lead the Fed for the next four years. Powell and Brainard are the only people who have publicly surfaced as being in the running for chair. Powell’s current term in that post expires in February and Biden said on Nov. 2 that he’d make a decision “fairly quickly.” Bloomberg News has previously reported that Brainard was also under consideration for the position of Fed vice chair for supervision. Biden’s scope to reshape the leadership of the Fed widened further on Monday when Governor Randal Quarles announced he would step downbefore the end of the year. Quarles’ tenure as vice chair for supervision expired in October, but he could have stayed on as a governor until 2032 and his exit hands Biden another slot to fill.
• Citigroup Inc. raised a record $40 billion for Asia-Pacific clients to finance sustainability projects this year, a sixfold increase from 2020 as the U.S. lender strives to meet its global targets and help firms lower emissions. Issuers in the region are taking advantage of cheaper financing by issuing green bonds, tapping increased demand for these products as environmental, social and governance investing becomes more mainstream, the bank said in a statement Tuesday. “We view sustainable financing both as a mandate and as an opportunity to partner with our clients across geographies — to help them decarbonize their operations and achieve their enterprise sustainability goals,” said Peter Babej, chief executive officer for Asia-Pacific.
• Just weeks ago, Wall Street analysts and central bankers were quick to assure investors that a collapse by China Evergrande Group wouldn’t be a Lehman moment. Regulators in Beijing said that the crisis would be “contained.” Now that a bond selloff has spread to China’s entire real estate sector and beyond, concern is growing about the potential risk to the global financial system.  The U.S. Federal Reserve made that link explicit in a report on Monday, warning that what happens in China’s property industry could impact financial markets and threaten world economic growth. Underscoring the risks of a potential spillover, the Hong Kong Monetary Authority asked banks to disclose their exposure to Chinese real estate, according to a local media report.
• The pandemic’s effects on mortality have been uneven. Life expectancy dipped in most places last year, shaving 28.1 million years off the cumulative longevity in 31 countries. But residents of a handful of places that successfully kept Covid-19 at bay — including New Zealand and Taiwan — actually lived longer.  Life expectancy is an indication of how long on average people will live once their age is taken into account, provided that there aren’t any big shifts in the number of people dying in each age bracket over time. Another measure — excess years of life lost — quantifies the impact when those changes do occur, and gives greater weight to deaths that occur at younger ages. A study of 37 countries and territories in the journal BMJ found the pandemic was a killing field in most places. More than 28 million years of life were lost in 2020 across 31 of them, with Russia, Bulgaria, Lithuania, the U.S., and Poland recording the heaviest toll, the study led by Nazrul Islam, a physician-epidemiologist and medical statistician at the University of Oxford, found.
• Vice President Kamala Harris is embarking on five days of personal diplomacy in France as she aims to raise her international profile and continue healing a rift between the U.S. and its oldest ally. Harris is scheduled to mingle with officials from a couple dozen nations as she showers attention on President Emmanuel Macron. “It is good to be in France,” she told reporters after she deplaned at Paris Orly Airport. “I am looking forward to many, many days of productive discussions reinforcing the strength of our relationship.” U.S.-France ties have been strained in recent months following Australia’s decision to cancel a $66 billion submarine contract with France in favor of a new security pact and nuclear-powered submarine deal with the U.S. and U.K.
• London Gatwick airport and discount carrier Wizz Air Holdings Plc demanded Britain return to rules compelling airlines to surrender more unused operating slots next summer. The pair have written to U.K. Transport Secretary Grant Shapps urging him to back a return to an 80% use-them-or-lose-them threshold in a consultation document expected in coming days. The requirements were relaxed during Covid-19 to shield airlines whose services were hit by the crisis.  Gatwick says its runway is currently underused, starving the airport of revenue. Wizz, meanwhile, has been thwarted in its plan to establish a major hub at the hub south of London.
• Rolls-Royce Holdings Plc raised 455 million pounds ($617 million) to fund the development of small modular nuclear reactors, with almost half of the financing coming from the U.K. government. Britain has committed 210 million pounds to the project, secured by private-sector funding of 245 million pounds, according to statements. That will allow the jet-engine maker to proceed with obtaining design approval for the reactors and identifying locations for on-site assembly of the plants. The U.K. is supporting nuclear as the best way to back up intermittent renewable generation and to eliminate fossil fuels from power plants by 2035. The Treasury will allocate 1.7 billion pounds to bringing forward a final investment decision on at least one large-scale nuclear project, most likely Electricite de France SA’s Sizewell C. Smaller modular reactors would be sited across the country to address more specific needs.
• UniCredit SpA will take a 1.6 billion euro ($1.9 billion) charge from exiting its remaining holding in Turkish lender Yapi Ve Kredi Bankasi as it completes a divestment plan set by previous management.  The Italian lender will sell 18% of the bank to Koc Holding for 300 million euros ($348 million) and dispose of the remaining 2% on the market, according to a statement late Monday. UniCredit said the deal will have a negative consolidated impact largely due to a foreign exchange revaluation reserve, though with a limited impact on capital.  “The deal has had a long gestation but it was logical to expect it to be finalized in November 2021 after the end of the lock-up,” Alberto Cordara, an analyst at Bank of America, wrote in a note. “This amount will have have no impact on the adjusted earnings that UniCredit uses as a basis for shareholder remuneration.”
• fter missing out on much of the U.K.’s pandemic property boom, the luxury home market is showing signs of a comeback. Selling some of the country’s most expensive homes has proved to be a boon for broker Savills Plc this year, with the prime property market outstripping forecasts, according to a trading update on Tuesday. “The continued strength of U.K. prime residential markets has exceeded our expectations,” Savills said in the statement. That, combined with a faster recovery in the commercial sector, signals that in this financial year “the U.K. business is likely to materially exceed both our earlier expectations for 2021 and the out turn for 2019.”
• The European Union is planning to boost sanctions related to Belarus and its actions that have triggered a growing migrant and humanitarian crisis on its eastern frontier. The move comes after Polish troops used tear gas to prevent migrants ushered to the border by Belarus from storming a barbed-wire fence along the two countries’ border on the EU’s eastern edge. The standoff risks turning increasingly deadly as thousands of people from the Middle East are stuck in the forests with temperatures dropping below zero. An EU working group on Monday agreed to broaden the scope of the current sanctions regime directed at Belarus to include persons and entities supporting illegal border crossings, according to an official familiar with the decision. Adoption of the new criterion will likely happen on Nov. 25.
• One billion people will be at risk of extreme heat stress if global warming causes the world’s temperature to rise by 2C, new modeling shows. A study by the Met Office, the U.K.’s national meteorological service, warned that a 2C rise could lead to a 15-fold increase of a potentially fatal cocktail of heat and humidity across the planet. A 4°C rise would mean that nearly half of the world’s population could be living in affected areas, according to the research, released at the COP26 climate conference in Glasgow. The Met Office used an indicator which combines warmth and humidity, known as wet-bulb temperature, to assess heat stress risk. Once this measure passes 32°C, people are at extreme risk of adverse health effects, particularly those with physical outdoor jobs, according to Andy Hartley, climate impacts lead at the Met Office.
• Panera Bread is planning to go public and has secured an unconventional investment from Danny Meyer’s special-purpose acquisition company, adding to one of the busiest restaurant IPO seasons in years. Panera Brands — the privately held company that owns Panera Bread, Caribou Coffee and Einstein Bros. Bagels — on Tuesday said it plans to file for an initial public offering with the Securities and Exchange Commission. Panera hasn’t determined the price range, number of shares it plans to offer or a date for the IPO, the company said Tuesday. JAB Holding Co., a European investment firm that is the majority investor in Panera Brands, plans to continue to be a long-term shareholder of the company post-IPO, a firm spokesman said.
• The Federal Reserve warned that fragility in China’s commercial real-estate sector could spread to the U.S. if it deteriorates dramatically, as investor focus turns to China Evergrande Group’s biggest payment test yet.  The Fed’s stability report, which is meant to highlight risks that could undermine the financial system, said that “stresses in China could strain global financial markets through a deterioration of risk sentiment, pose risks to global economic growth, and affect the United States.” China’s higher-quality dollar bonds are suffering their worst selloff in about seven months as property woes spill into the broader credit market. The high-yield market had dropped 12 of the last 13 trading days through Monday, according to a Bloomberg index, putting yields at 23.5%. Even state-owned firms are feeling the effects of the deepening rout.
• A quarter of U.S. workers are considering a job change or retirement in the next 12 to 18 months, pointing to further churn in the labor market, according to a survey by Principal Financial Group Inc. The share rises to 34% when accounting for respondents on the fence in their current roles, the survey showed. Employers shared the sentiment, with 81% concerned about strong competition for candidates. “The survey shows a clear picture of a labor market still in flux in large part due to shifting habits and preferences brought on by the pandemic,” said Sri Reddy, senior vice president of Retirement and Income Solutions at Principal.
• Early last year, at the onset of the coronavirus pandemic, a small genetics startup called Color Genomics set up a Covid-19 testing lab. It was the first step toward what became a full transformation of its business. The company, now known as Color Inc., plans to announce a new investment Tuesday that values the startup at $4.6 billion, triple what it was just 11 months ago. Now Color must prove that a business built around a pandemic will serve a purpose when the virus is contained. Color’s post-pandemic plan is based on the promise of another transformation. The startup currently has more than 6,500 Covid testing sites at offices, schools and elsewhere, as well as 500 vaccination sites across the U.S. Color will expand many of these locations for all sorts of health care purposes, such as administering flu shots or blood-pressure tests. The idea is to offer conveniently located outlets for routine health services, allowing workers and parents to cut out special trips to clinics.

“Your time is limited, don’t waste it living someone else’s life. Don’t be trapped by dogma, which is living the result of other people’s thinking. Don’t let the noise of other’s opinion drowned your own inner voice. And most important, have the courage to follow your heart and intuition, they somehow already know what you truly want to become.” – Steve Jobs

*All sources from Bloomberg unless otherwise specified