October 25, 2021
Daily Market Commentary
- The escalating crisis at Rogers Communications Inc. has taken another extraordinary twist, with two different men claiming they are chairman and two factions of the Rogers family each saying they have control of the board. Edward Rogers was named chairman at a meeting in Toronto on Sunday night, according to a statement by a group that says it represents the “reconstituted board” with five new members. But the company says that meeting was not valid, the board’s membership hasn’t changed at all and John MacDonald remains the chairman. It’s an unprecedented situation that is now headed to a courtroom. Edward Rogers said he’ll ask the British Columbia Supreme Court to confirm that he has the ability to appoint the 14-member board — including those five new directors, who are all his allies.
- A group of investors led by Montreal-based Canderel Real Estate Property Inc. will buyout Cominar Real Estate Investment Trust for C$2.2 billion ($1.8 billion) in a bid to wring value from a portfolio of retail and office properties with outlooks tested by changes due to the Covid-19 pandemic. The investor group, which also includes FrontFour Capital Group LLC, Artis Real Estate Investment Trust and partnerships managed by Sandpiper Group, will pay C$11.75 per unit for Cominar’s shares, according to a statement. The agreement assigns an enterprise value of C$5.7 billion to Cominar, the release said. The sale comes more than a year after Vanier, Quebec-based Cominar announced a strategic review to look at finding buyers for its collection of real estate assets concentrated in Canada’s French speaking province. The company’s value had already been eroding for years before the rise of remote work and e-commerce brought on by the pandemic made the future look even bleaker for office and retail properties everywhere.
- European stocks were little changed on Monday as investors geared up for a busy week of earnings, while rising coronavirus cases in some parts of the world kept a lid on gains. The Stoxx 600 Index traded up less than 0.1% by 12:04 p.m. in London. Automakers, banks and miners outperformed, while industrials lagged. Miners and energy shares got a boost from a rally in metals and oil. On a quieter day for earnings, shares in HSBC Holdings Plc gained after the lender’s profit beat estimates and it announced a higher-than-expected buyback. European stocks have rebounded from a recent selloff as the earnings season has gathered pace, though concerns over rising inflation, supply chain bottlenecks and fresh Covid outbreaks from the U.K. to Singapore make investors more cautious. A gauge showing that German business confidence dropped to a six-month low also damped sentiment on Monday.
- U.S. futures were mixed on Monday as traders geared for a string of earnings reports from technology heavyweights including Facebook Inc., while keeping in mind inflation concerns and rising Covid-19 risks. Futures on the Nasdaq 100 edged higher, while contracts on the S&P 500 were little changed. The five largest U.S. technology companies are set to report earnings in coming days, starting with Facebook on Monday. PayPal Holdings Inc. surged in pre-market trading after the company said it isn’t pursuing an acquisition of Pinterest Inc., ending days of speculation over a potential $45 billion deal. Pinterest dropped. The 10-year U.S. Treasury yield rose and the dollar was steady after Federal Reserve Chair Jerome Powell flagged that inflation could stay higher for longer, fueling investor concern that sticky price increases may force policy makers to raise borrowing costs.
- Asian stocks swung in a narrow range as investors monitored concerns over inflation and China’s delta-variant virus outbreak ahead of key upcoming catalysts. The MSCI Asia Pacific Index was down less than 0.1%, paring an earlier drop of 0.4%, with communications the biggest drag among sectors. Chinese stocks rose despite comments from a health official that new Covid-19 infections will likely increase in coming days. The new infections in Asia’s largest economy “may put risk appetite in the region on hold, as China’s zero-Covid-19 policy suggest aggressive measures to control virus spreads,” said Jun Rong Yeap, a market strategist at IG Asia Pte. The mild dip reflected expectations that economic recovery will continue when virus risks ease, he said.
- Brent oil rallied above $86 a barrel after Saudi Arabia urged caution in boosting supply, while an eye-watering rally in market structure deepened. The global crude benchmark advanced 0.6%, while West Texas Intermediate hit the highest since 2014. Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman told Bloomberg Television at the weekend that producers shouldn’t take the rise in prices for granted. That conservative stance was echoed by both Nigeria and Azerbaijan. The strengthening in prices has been outpaced by an even faster rally in so-called timespreads, which gauge the health of the market. WTI for immediate delivery was trading at more than a dollar higher than the next month as traders pay premium prices to secure supplies. The closely watched spread between the nearest two December contracts was the strongest since 2013.
- Gold rose for a fifth day, the longest run of gains since July, as risks around higher-for-longer inflation bolstered the metal’s appeal. On Friday, Federal Reserve Chair Jerome Powell said inflation could stay higher for longer, as he made clear that the central bank will begin tapering its bond purchases shortly but remain patient on raising interest rates. Meanwhile, Treasury Secretary Janet Yellen said on Sunday she expects price increases to remain high through the first half of 2022 and ease in the second half, but rejected criticism that the U.S. risks losing control of inflation. Bullion, which can be bought as an inflation hedge, has climbed this month as traders try to gauge how central banks will address the rising price pressures which have been stoked by supply-chain bottlenecks and higher energy costs. There are also growing risks to the outlook for China, where a delta variant virus outbreak is expected to worsen in the coming days and the economy faces headwinds from a property-sector slowdown.
- China warned that new infections will increase in the coming days after the latest outbreak, fueled by the delta variant, expanded to 11 provinces. It locked down thousands of people in the North. Top U.S. health officials signaled confidence that children ages 5 to 11 will begin getting Covid-19 vaccines by early November. The Pfizervaccines will likely be given at pediatricians’ offices rather than at pharmacies or large sites. Singapore deployed its fake news law against the website Truth Warriors over its claims that Covid-19 vaccines are not effective. In Hong Kong, the financial industry is increasing pressure on authorities to ease virus restrictions.
- President Joe Biden and fellow Democrats are racing to reach agreement on a scaled-back version of his economic agenda, with a self-imposed deadline and his departure later this week for summits in Europe intensifying pressure on negotiations. Biden met Sunday with Senate Majority Leader Chuck Schumer and West Virginia Democratic Senator Joe Manchin, who has used his pivotal vote in the 50-50 Senate to force his party to shrink what had been a $3.5 trillion plan for social spending and measures to address climate change. The meeting provided no breakthrough, but the rare in-person Sunday breakfast discussion at Biden’s Delaware home was evidence of the sense of urgency among Democratic leaders to find an agreement on specifics of the package after months of discussion and negotiations.
- South Korean battery maker LG Energy Solution replaced its chief executive officer following the $1.9 billion recall of General Motors Co.’sBolt electric vehicles. LG Chem Ltd.’s battery unit LG Energy Solution said Kwon Young-soo will start in the role on Nov. 1, replacing Kim Jong Hyun. Kwon, 64, is seen as one of the inner circle of LG Group Chairman Koo Kwang-Mo, and previously worked in the conglomerate’s panel display and electronics unit. “Kwon has deep knowledge and insight in the battery business, and can build trust with investors and customers,” LG Energy said in a statement Monday, citing his experience heading LG Chem’s battery business in 2012. “The group needs the most reliable person for the battery business, an important business that is growing fast, in order to widen the gap in the competition against rivals such as Chinese firms.”
- Investors added money to exchange-traded funds that buy emerging market stocks and bonds last week. This was the second straight week of inflows. Inflows to U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $965.3 million in the week ended Oct. 22, compared with gains of $719.5 million in the previous week, according to data compiled by Bloomberg. So far this year, inflows have totalled $38.8 billion.
- The Japanese government will sell 843 billion yen ($7.4 billion) of shares in Japan Post Holdings Co. in the ongoing privatization of the postal and financial-services giant six years after its initial public offering. The price of Japan Post’s secondary share sale was set at 820.6 yen apiece, according to a statement, marking a 2% discount to Monday’s closing price of 837.4 yen. The government is offloading about 1 billion shares to Japanese and overseas investors, and the company also plans to buy back shares worth up to 100 billion yen, or 3.5% of the total outstanding amount.
- Hellman & Friedman and EQT AB teamed up on a joint 3.7 billion euro ($4.3 billion) offer for Zooplus AG, ending a takeover battle between the private equity companies for the German online pet-food retailer. Hellman & Friedman said it raised its offer to 480 euros a share in cash from 470 euros, and EQT will be an equal partner in the bid. Zooplus’s management and supervisory boards support the bid and recommend shareholders accept it before it expires on Nov. 3. The bidders had been in a standoff over Zooplus. Earlier this month, Hellmann & Friedman matched EQT’s 470 euro per share offer. The stock rose 0.3% to 477 euros at 9 a.m. in Frankfurt.
- China Evergrande Group’s electric-vehicle unit jumped in Hong Kong trading after the chairman of the indebted property giant said making such cars would become its main business within a decade. Shares of China Evergrande New Energy Vehicle Group Ltd. climbed as much as 17% on Monday, the most in three weeks. Evergrande rose 6% before paring the gain to 0.7% at 3:01 p.m. The Securities Times reported Friday that Evergrande Chairman Hui Ka Yan said he plans to scale down real-estate operations to focus on new energy vehicles. The reported shift to the electric car business will be a challenge given that Evergrande has yet to deliver a single vehicle, despite Hui’s ambitions to take on industry giants such as Tesla Inc. The world’s most indebted developer is struggling with a cash crisis that has led it to consider selling stakes in units including Evergrande NEV.
- Hertz Global Holdings Inc., barely four months out of bankruptcy, placed an order for 100,000 Teslas in the first step of an ambitious plan to electrify its rental-car fleet, according to people with knowledge of the matter. It’s the single-largest purchase ever for electric vehicles and represents about $4.2 billion of revenue for Tesla Inc., according to the people, who asked not to be identified because the information is private. While car-rental companies typically demand big discounts from automakers, the size of the order implies that Hertz is paying close to list prices. The cars will be delivered over the next 14 months, and Tesla’s Model 3 sedans will be available to rent at Hertz locations in major U.S. markets and parts of Europe starting in early November, the people said. Customers will have access to Tesla’s network of superchargers, and Hertz is also building its own charging infrastructure, they said.
- Thrasio Holdings Inc., an aggregator of Amazon.com Inc. products, has raised more than $1 billion in a private funding round led by technology investor Silver Lake. Silver Lake, a new investor in Thrasio, was joined by existing investors including Advent International, Upper90, Oaktree Capital Management and Peak6 in the Series D financing, according to a statement. The round valued the company at more than $5 billion, said a person familiar with the matter who asked not to be identified discussing private information. Stephen Evans, managing director at Silver Lake, said a lot of the capital from the round will go toward rolling up brands.
- U.S. Treasury Secretary Janet Yellen defended Federal Reserve Chair Jerome Powell’s record on regulating the financial system, which has been a target of criticism from progressive Democrats arguing he shouldn’t get a new term. While declining to say how she’s advised President Joe Biden on his decision over whether to reappoint Powell, Yellen told CNN’s “State of the Union” that financial rules had “markedly strengthened” under Powell’s term, as they did during her time at the Fed and under her predecessor, Ben Bernanke. As the pandemic added stress to the financial markets, “the core of our financial system did very well because of the improvements in capital liquidity, risk management, stress testing,” Yellen said. “And those improvements have stayed in place during the Powell regime.”
- An elite group of emerging markets are still benefiting from negative interest rates, in effect charging investors for lending them money. But the good times may be coming to an end. Lithuania raised 325 million euros ($378 million) of seven-year bonds at -0.013% and 230 million euros of five-year debt at -0.16% this year, while Estonia sold 400 million euros of one-year bills at -0.44% in March in the domestic market, according to data compiled by Bloomberg. Slovenia and Slovakia have negative yields in the secondary market on their two- and five-year debt. Yields on Cyprus’ bonds only turned positive on Oct. 19. While money markets expect the ECB’s deposit rate to remain below zero for the next two years, changes to its emergency bond purchases may come as early as December. Meanwhile, investor enthusiasm for sub-zero rates may have already peaked. The total amount of negative-yielding debt worldwide has fallen to $11.4 trillion from a record of $18.3 trillion in December.
- Private-equity firm Francisco Partners is targeting $2 billion for its third Agility fund, which will focus on smaller deals than the technology-focused firm’s main vehicles, according to people familiar with the matter. If Francisco Partners reaches its goal for the new fund it would be over 33% larger than its predecessor Agility fund, which closed with $1.5 billion last year. The San Francisco-based firm’s maiden Agility fund collected $600 million in 2016. Francisco Partners earmarked its first Agility fund for investments of less than $50 million, according to a press release issued when it closed, and last year the firm said its second Agility fund would target investments of less than $125 million in 13 to 15 companies.
- AerCap Holdings is selling a $2 billion term loan to support its acquisition of GE Capital Aviation Services after the aircraft lessor brought the second biggest high-grade deal of the year last week. Meanwhile, U.S. leveraged loan sales tied to the Secured Overnight Financing Rate are picking up pace after JPMorgan established a blueprint for borrowers earlier this month. U.S. high-grade primary markets will likely slow down this week with preliminary estimates calling for about $15 billion of fresh supply that could include a bond sale from one of the top banks. Sales reached $51 billion last week, with the October volume of $96.5 billion already in line with expectations of as much as $100 billion
- PayPal Holdings Inc. said it isn’t pursuing an acquisition of Pinterest Inc., ending days of speculation over a potential $45 billion deal. San Jose, California-based PayPal had approached Pinterest about a potential deal, Bloomberg News reported last week. The companies discussed a potential price of around $70 a share, people with knowledge of the matter said, a price that would have valued Pinterest at about $45 billion. “In response to market rumors regarding a potential acquisition of Pinterest by PayPal, PayPal stated that it is not pursuing an acquisition of Pinterest at this time,” the company said in a one-sentence statement Monday.
- Mexican rates traders are at risk of getting too far ahead of the central bank as they push expectations for policy tightening higher amid stronger-than-anticipated inflation and shifts in pricing for the Federal Reserve. The yield on the two-year Mexican bond surged last week to 6.80%, a level unseen for that tenor since March 2020, as the rate on the December 2023 note notched its biggest five-day advance since June. The peso strengthened for a second straight week, wiping out all of this month’s losses. Swap markets are now pricing in a quarter-point rate hike at each of the remaining Banco de Mexico meetings left for this year, which would bring total tightening for this cycle to 1.25 percentage points. While that much is in line with most analysts’ predictions, some are skeptical the central bank can maintain that frenetic pace. That could provide a buying opportunity slightly further out the curve for Mexican bond investors willing to buck current pricing.
- Liquefied natural gas is in such high demand that there aren’t enough ships to ferry the fuel in Asia, further complicating a global energy shortage that is bound to worsen this winter. The rate to charter an LNG vessel in the Pacific jumped to a nine-month high last week as more ships are getting tied up with exports from U.S. facilities to Asia, increasing travel time that makes them unavailable for new orders. Meanwhile, shipowners are opting to position their spare vessels in the Atlantic, slashing the amount of available ships in Asia, in order to give them the flexibility to send U.S. cargoes to whichever region is colder. “Spot charter rates have risen steadily since late-September and we would expect this to continue as we enter the winter trading season,” said Fraser Carson, a gas and LNG analyst at Wood Mackenzie Ltd. “U.S. LNG cargoes will be required for prompt deliveries in both Europe and Asia over the winter, and the extent to which they are delayed or re-routed will play a part in how high charter rates go, and for how long.”
“Keep your eyes on the stars and your feet on the ground.” Theodore Roosevelt
*All sources from Bloomberg unless otherwise specified