October 13, 2021

Daily Market Commentary

Canadian Headlines

  • The United States will relax coronavirus restrictions at its land borders with Canada and Mexico for vaccinated travelers next month, allowing for the resumption of non-essential travel like tourism. The changes, announced by members of New York’s congressional delegation, come after the White House previously announced its intention to begin allowing airline passengers from a broad swath of countries – including Canada, Mexico, and Europe – to enter the country with proof of vaccination and a coronavirus test in early November. The changes are expected to invigorate international travel before the holiday season, and Tuesday’s announcement addresses complaints by those living in border communities that the U.S. was imposing different rules for those traveling by air than for those driving to see friends and family.
  • The Canadian dollar, Norwegian krone, and Russian ruble have been among the biggest beneficiaries of the sprint up in oil prices since August. The good news for investors betting on these currencies is that their sensitivity to the price of crude increases when oil trades between $80 and $100 per barrel. The major crude exporters have shrugged off gains in the Bloomberg Dollar Spot Index, and their currencies have appreciated an average of 3% versus the greenback since the 3-month Brent contract broke above $70 per barrel.

World Headlines

  • European equities rose on Wednesday as investors weighed early signs of yet another strong earnings season against risks from rising energy costs, slowing growth rates and supply bottlenecks. The Stoxx Europe 600 Index climbed 0.4% as of 10:09 a.m. in London, reversing its opening losses. Technology led the gains after SAP SE raised its full-year revenue forecast on accelerating cloud sales, while miners underperformed with iron ore extending losses.
  • U.S. equity futures bounced before inflation data that along with earnings reports will give key insights into corporate health in an era of rising costs. Both S&P 500 and Nasdaq 100 contracts rose ahead of the U.S. consumer report, with the tech-heavy Nasdaq outperforming. News that the chip shortage may crimp Apple Inc.’s output weighed on sentiment.  The U.S. 10-year Treasury yield held below 1.60% and a gauge of the dollar ticked lower. A rally in oil paused but crude remained around $80 a barrel amid a global energy crunch. Chinese thermal coal futures hit another record high.
  • Asian stocks posted a modest advance as investors awaited key inflation data out of the U.S. and Hong Kong closed its equity market because of typhoon Kompasu. The MSCI Asia Pacific Index rose 0.2% after fluctuating between gains and losses, with chip and electronics manufacturers sliding amid concerns over memory chip supply-chain issues and Apple’s iPhone 13 production targets. Hong Kong’s $6.3 trillion market was shut as strong winds and rain hit the financial hub. Wednesday’s direction-less trading illustrated the uncertainty in Asian markets as traders reassess earnings forecasts to factor in inflation and supply chain concerns. U.S. consumer price index figures and FOMC minutes due overnight may move shares.
  • Oil held above $80 a barrel after a four-day advance, with traders monitoring the impact of a global energy crisis on demand and industrial output. West Texas Intermediate edged lower after posting the highest close since October 2014. The IEA said in a flagship report that the world was failing to invest in energy on the scale that’s needed to avoid sharp increases in fossil-fuel prices and at the same time avoid catastrophic climate change. Record energy costs have resulted in some plants cutting output by up to 50%. That could offset the uplift from higher oil consumption as consumers switch away from natural gas due to high prices.
  • Gold rose on Wednesday, boosted by concerns of an economic hit from soaring energy prices and a retreat in the dollar, as investors braced for U.S. inflation data. Spot gold rose 0.6% to $1,769.68 per ounce by 1024 GMT, while U.S. gold futures gained 0.7% to $1,770.60.
  • The U.K. economy grew less than expected as shoppers reined in spending, raising doubt about whether output will return to pre-pandemic levels this year. Gross domestic product rose 0.4% in August, the Office for National Statistics said Wednesday. A series of revisions showed an unexpected drop in July, leaving the economy 0.8% smaller than it was when Covid-19 struck in February 2020. The figures add to evidence Britain’s recovery is being squeezed by supply shortages and a jump in the cost of goods. That may give the Bank of England reason to delay an increase in interest rates that financial markets anticipate will come this year.
  • WM Tech Corp., controlled by founder and chairman Zhang Wenzhong, has shelved its Hong Kong initial public offering after letting the application lapse, according to people familiar with the situation, following queries from the city’s bourse. The Beijing-based company behind the Wumart supermarket chain and Metro AG’s outlets in China is no longer actively pursuing a listing, the people said, asking not to be identified as the information is private.  The proposed IPO, which could have raised as much as $1 billion, was facing delays as Hong Kong Exchanges & Clearing Ltd. questioned the supermarket owner on its business operations, Bloomberg News reported in July.
  • Apple Inc., the world’s most valuable company, has finally joined a growing list of household names from Toyota to Samsung forced to cut back on business because of a global shortage of semiconductors. Apple is now likely to slash its projected iPhone 13 production targets for 2021 by as many as 10 million units, Bloomberg News reported Tuesday. For months, while supply chain shocks rocked the electronic, automaking, and even commodities industries, Apple remained the one company that could secure the chips needed to keep selling its latest range of products, due to its well-managed supply chain and the prestige of meeting its exacting standards.
  • BlackRock Inc.’s assets under management fell slightly to $9.46 trillion in the third quarter, as the world’s largest money manager navigated higher inflation and equity markets suffered their worst returns since the outbreak of Covid-19. Investors added a net $98 billion to BlackRock’s long-term funds in the quarter, the New York-based company said in a statement Wednesday. Overall net inflows were $75.3 billion. BlackRock’s exchange-traded funds business, the industry’s largest, took in a net $58 billion to reach $3 trillion in assets. Adjusted earnings were $10.95 a share, beating the average estimate of $9.39 by 11 analysts in a Bloomberg survey.
  • Delta Air Lines Inc. reported the first quarterly profit excluding federal aid at a major U.S. carrier since the start of the pandemic but said rising jet fuel prices are a threat to staying in the black. The strong performance in the just-ended quarter exceeded analysts’ expectations as the Atlanta-based airline overcame a temporary slowing of demand amid a resurgence of coronavirus-linked fears stemming from the delta variant. Third-quarter net income, excluding $1.3 billion in government aid, came to $194 million, or 30 cents a share, the airline said Wednesday. Analysts had expected a 17 cents a share profit for the period, according to the average of estimates compiled by Bloomberg.
  • Deutsche Bank AG is facing a claim from a Spanish hotel chain over losses suffered on foreign-exchange derivatives sold by the lender. Palladium Group estimated its combined claim at about 500 million euros ($577 million), according to legal filings filed at the High Court in London. Palladium says in its suit that it was sold products by Deutsche Bank that it didn’t understand and, as a result, it piled up derivatives with a notional amount as high as 5.6 billion euros. The hotel company entered into hundreds of “highly complex” transactions with the German lender, which were “impossible” for them to price, value and understand the risks of, the hotel group said in the lawsuit. Its lawyers say that the bank must have known and appreciated that the company didn’t have a proper understanding of their exposure under the transactions.
  • Russia is still injecting natural gas into its storage facilities and will complete the process by Nov. 1 as planned, said the country’s deputy energy minister. There’s now enough of the fuel in domestic inventories to get the country through the winter, however cold it may be, Evgeny Grabchak told reporters at Russian Energy Week in Moscow on Wednesday. “Do we expect a very cold weather? We don’t,” the deputy minister said. “Are we ready for it? We are.” Russia’s injections into domestic underground storage have been under scrutiny, as Gazprom’s PJSC’s preparations for winter coincided with lower exports to Europe. That’s exacerbated the continent’s worst energy crisis in decades, with rebounding demand and scarce pipeline supply pushing prices to record levels.
  • The European Union is planning a diplomatic offensive to forbid all new oil, gas and coal projects in the Arctic in a bid to tackle climate change. The European Commission will outline its Arctic strategy later on Wednesday, according to Environment Commissioner Virginijus Sinkevicius. It comes just days before crucial United Nations climate talks that some see as the last opportunity to control catastrophic global warming. The bloc will seek an “international agreement on a moratorium” on energy projects in the Arctic, Sinkevicius told Bloomberg News. “This is the make or break decade in the fight against the climate and biodiversity crises. Our generation has the unique and only opportunity to change the world and the Arctic is at the center of this change.”
  • JPMorgan Chase & Co.’s dealmakers posted their best quarter yet, riding what’s on track to be a record year for mergers and acquisitions. Fees from advising on deals almost tripled in the third quarter, crushing analysts’ estimates and helping to push the firm’s net income to $11.7 billion. “JPMorgan Chase delivered strong results as the economy continues to show good growth — despite the dampening effect of the delta variant and supply-chain disruptions,” Chief Executive Officer Jamie Dimon said in a statement Wednesday. Investment-banking fees jumped 52%, driven by a “surge in M&A activity and our strong performance in IPOs.”
  • Russia is ready to deliver the natural gas that Europe needs, but the continent’s current energy crisis is due to flawed policies rather than lack of supply, said President Vladimir Putin.  Europe’s largest gas supplier is “prepared to discuss any additional steps” and meet its partners halfway, Putin said at Russia Energy Week in Moscow on Wednesday. However, he also criticized the continent for introducing “systematic flaws” into its energy system then “blame shifting” when things went wrong.  A spike in gas and power prices is wreaking havoc in Europe’s economy. While state-run gas giant Gazprom PJSC has been fulfilling all of its long-term supply contracts, one reason for the continent’s energy crisis has been lower-than-expected supplies from Russia.
  • New York’s residential brokers are about to get their own listings website to compete with real estate giant Zillow Group Inc.  The city’s major brokerages — and the trade group that represents them — are working with Homesnap, owned by CoStar Group Inc., to develop the new platform. Citysnap, set to debut next year, will offer home shoppers an alternative to Zillow’s StreetEasy and other sites that the agents say use their hard-won listings as a springboard to generate revenue. The effort comes after several years of acrimony between New York’s residential-property industry and the websites it’s come to rely on to reach the wider public. Agents have protested StreetEasy’s practice of charging a daily fee for rental listings. And Zillow has faced legal challenges over its “Premier Agent” program, which sales brokers say allows any agent, anywhere, to muscle in on a deal by paying Zillow a fee.
  • JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon sees some green shoots in real estate lending, saying that there are “early signs” of commercial real estate loan growth, with “modestly higher” new loan originations in commercial term lending. Even so, JPMorgan’s third-quarter overall commercial banking loans fell 7% in the quarter compared with the prior year. Here’s the breakdown: Commercial and industrial lending, or C&I, dropped 11% versus last year and fell 3% in the quarter (including PPP loans). Commercial real estate lending fell 3% for the year and was flat quarter-over-quarter.  Earlier this month, real estate lending company Walker & Dunlop served as the guinea pig for JPMorgan’s first deal tied to SOFR, the replacement for Libor, with a $600m leveraged loan deal led by the bank. That was a watershed moment in the switch from Libor.
  • Takeda Pharmaceutical Co. is joining forces with Immusoft, a Seattle-based cell-therapy company, in a search for rare-disease therapies as part of a deal that could be worth about $900 million. The collaboration is aimed at discovering, developing and marketing cell therapies for neurometabolic disorders that harm the brain and nervous system by disrupting how the body makes energy, according to a statement.  Drugmakers have been increasingly focusing on the rare-disease market, where therapies for serious conditions can command high prices. Takeda became a big player in the area with its $62 billion purchase of Shire in 2019 and has recently initiated partnerships with Selecta Biosciences Inc., for autoimmune diseases, and Poseida Therapeutics Inc., focused on cancer.
  • Hong Kong suspended schools and the city’s $6.3 trillion stock market canceled trading Wednesday as strong winds and rain from typhoon Kompasu lashed the financial hub. Hong Kong Exchanges and Clearing Ltd. canceled securities trading, including the Hong Kong-China stock connect and derivatives markets, for all of Wednesday after Kompasu halted after-hours trading the day before. The city raised the storm warning alert to No. 8, the third-highest on its scale, from No. 3 Tuesday afternoon.
  • The London Metal Exchange’s black tie dinner returned Tuesday in a step toward normality for the nearly 1,000 people who dusted off tuxes and dresses. Fewer tables meant the party was less raucous than usual — with one exception: exchange boss Matt Chamberlain couldn’t get through his speech without heckling over the LME’s recent handling of its iconic trading floor. It’s been five weeks since the 144-year-old exchange caved to pressure and reopened “the Ring” after an 18-month hiatus. But it’s still not clear whether the floor, one of the last bastions of open-outcry trading, will survive until next year’s dinner. Volumes have plunged more than 90% from pre-pandemic levels, according to an analysis by Bloomberg, after the LME reduced the floor’s role in setting prices as a compromise when it reopened. There’s so little activity in the afternoons that some traders have started leaving the red leather benches at lunchtime to return to their offices.
  • The House Tuesday approved a short-term increase in the government’s debt limit, sending the legislation to President Joe Biden just days before the U.S. Treasury was at risk of running out of borrowing authority. The – 219-206 vote staves off the threat of an immediate financial calamity, but sets the stage for another partisan confrontation on debt and spending in less than two months. Biden is expected to swiftly sign the bill to raise the statutory ceiling by $480 billion, a move designed to allow the Treasury Department to meet the federal government’s obligations through Dec. 3. Treasury Secretary Janet Yellen had warned the current debt limit would be breached around Oct. 18 without congressional action.

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*All sources from Bloomberg unless otherwise specified