October 27, 2021

Daily Market Commentary

Canadian Headlines

  • The board of Rogers Communications Inc. voted 10-1 to let go of Chief Executive Officer Joe Natale and even drafted a press release announcing his departure, but reversed course at a Sept. 26 board meeting, according to court documents filed by Edward Rogers. Edward’s mother, Loretta Rogers, spoke in favor of a CEO transition, according to an affidavit he filed Tuesday as part of his effort to wrest control of the company. His sister, Martha Rogers, also supported the move, the documents state.  But Loretta Rogers said in an emailed statement that her son’s version of events is “unfortunate” and “untrue” and that she supports Natale as the man to lead the company through its proposed $16 billion takeover of rival Shaw Communications Inc. She said she was shown information that cast Natale’s performance in a poor light, but after conferring with independent directors, she decided to stand by him.
  • Canadian Prime Minister Justin Trudeau announced a post-election overhaul of his government on Tuesday, naming a former Greenpeace activist dubbed “Green Jesus” as environment and climate change minister in a move that has caused consternation in the country’s oil-rich west. The appointment, just days out from the COP26 climate summit in Glasgow, suggests Trudeau — who had previously offered support for the country’s oil and gas industry while also implementing measures such as a carbon tax — is coming down firmly on the side of climate action. Steven Guilbeault, the new minister, worked for environment advocacy groups including Greenpeace for more than a decade before entering politics. Nicknamed the “Green Jesus of Montreal” by Quebec newspaper La Presse, he once scaled Toronto’s CN Tower to unveil a banner that denounced Canada and then-president George W. Bush as “climate killers.”

World Headlines

  • European equities dropped as investors locked in gains from this month’s rebound, while some of the day’s earnings releases disappointed. The Stoxx 600 Index was 0.5% lower as of noon in London, after closing near a record on Tuesday. Miners were the main drag on the gauge in early trade, as aluminum and iron ore prices slumped. Deutsche Bank AG fell more than 6% after the German lender’s earnings failed to impress.  The main European equities benchmark is into its seventh consecutive quarter of gains and on course for its best month since March. Even as the economic rebound from the pandemic-induced recession is now past its peak, solid company earnings reports have sustained the rally, with investors buying the dips despite warnings about supply bottlenecks and runaway inflation.
  • U.S. futures fluctuated and stocks in Europe retreated from a near-record on Wednesday amid mixed earnings reports, a decline in commodity prices and renewed concerns about economic growth. Bonds gained. S&P 500 contracts were little changed and Nasdaq 100 futures edged lower in response to big-tech earnings released later in Tuesday’s U.S. session. Texas Instruments Inc. dropped 4% in pre-market trading after a sales forecast that failed to meet expectations. Microsoft Corp. and Twitter Inc. gained close to 2% after upbeat reports.
  • Investors rushed to offload Chinese tech stocks as a flare-up in Sino-U.S. tensions sparked fears that more scrutiny from Washington could be in store for the sector. The Hang Seng Tech Index, which tracks mostly Chinese technology firms traded in Hong Kong, slumped 3.2% in its biggest loss since Sept. 9. More broadly, the CSI 300 Index slid 1.3% at the close, while the Hang Seng Index lost 1.6%. Wednesday’s selloff shows sentiment is still fragile toward China’s embattled tech sector even as the Hang Seng Tech Index climbed in each of the previous three weeks. The gauge has lost about 5% so far this week. It is down more than 40% from a peak in February amid Beijing’s clampdown on private enterprises in a bid to reduce wealth gap and tame monopolistic behavior.
  • Oil’s bumper rally cooled after an increase in U.S. crude inventories and as industrial commodities retreated. Global benchmark Brent fell 1.4%, after failing to break through its 2018 high so far this week. The American Petroleum Institute reported crude stockpiles rose 2.32 million barrels last week, while gasoline and distillate supplies also edged up. Crude was lower with most other commodity markets.  Although U.S. crude inventories rose, the volume at the storage hub of Cushingfell by about 3.73 million, according to people familiar with the data. It would be the biggest decline since January if replicated in official figures released later Wednesday.
  • Gold extended its decline as robust U.S. earnings bolstered optimism across markets, with investors awaiting the European Central Bank gathering Thursday for signals on how officials will address lingering inflationary pressures. Bullion is trading below a key $1,800 an ounce level amid the debate over rising price pressures and how the world’s central banks are dealing with inflation while preparing to dial back on stimulus measures. Meanwhile, the S&P 500 eked out a record high following strong corporate results, and traders continued to track progress on President Joe Biden’s economic agenda. Still, a flareup in U.S.-China tensions damped some risk-on sentiment.
  • Senate Democrats released the details of a proposed levy on billionaires, a new and logistically risky approach to taxation that lawmakers hope will help fund President Joe Biden’s social spending aimed at low- and middle-income Americans. The plan, sponsored by Senate Finance Committee Chairman Ron Wyden, is the result of weeks of negotiations among Democrats about how to find ways to raise taxes on the wealthy that nearly every member of the party can support. Wyden is betting that fellow lawmakers — and voters — will broadly back a plan that would shift more of the tax burden to the very wealthiest. Even if the plan does pass, collecting the several hundred billion dollars that Wyden’s office says it will raise depends on withstanding likely court challenges and loophole-seeking by those in the IRS’s sights.
  • Hertz Global Holdings Inc., fresh off a blockbuster order for 100,000 Teslas, reached an exclusive agreement to supply Uber drivers with electric vehicles and signed up Carvana Co. to dispose of rental cars it no longer wants. Taken together, the deals represent a trifecta of aggressive and innovative initiatives with the potential to upend the car-rental business and hasten the transition to greener fuel sources. The car order on Monday, the largest-ever for EVs at $4.2 billion, was such as watershed moment that it propelled Tesla Inc.’s valuation past $1 trillion. Just as surprising: The company behind it all is barely out of bankruptcy. Only 17 months ago, with the Covid-19 pandemic raging, Estero, Florida-based Hertz was so troubled and its future so uncertain that it was forced to seek protection from creditors. Now, under the control of hedge fund and private-equity owners, Hertz is leaning on mobile technology and digitization to transform a stodgy industry known for uninspiring cars and poor customer experiences.
  • A blowout first quarter has brought Microsoft Corp. back into contention in the race for the world’s most-valuable listed company. The software behemoth is less than $80 billion away from dethroning Apple Inc. for the first time since May 2020, based on a 2.8% gain in U.S. premarket trading. If the gains hold in regular trading hours, Microsoft will have a market value of $2.39 trillion compared with $2.47 trillion for Apple.  The stock was boosted after Microsoft reported estimate-topping results for an 11th straight quarter. Several analysts raised their price targets, saying the earnings were very strong across the board.
  • The U.S.’s top uniformed military officer called China’s suspected test of a hypersonic weapons system a “very concerning” development in the escalating competition between Washington and Beijing. “What we saw was a very significant event of a test of a hypersonic weapon system. And it is very concerning,” General Mark Milley, chairman of the Joint Chiefs of Staff, said in an interview for “The David Rubenstein Show: Peer-to-Peer Conversations” on Bloomberg Television. “I don’t know if it’s quite a Sputnik moment, but I think it’s very close to that. It has all of our attention.”  Milley’s comments are the most significant acknowledgment by a U.S. official of reports that China’s military conducted possibly two hypersonic weapons tests over the summer, including the launch into space of an orbiting hypersonic weapon capable of carrying a nuclear payload. The Financial Times first reported the tests, citing officials it didn’t name.
  • The U.S. Bitcoin-related ETF industry may hit another milestone with an offering that shorts crypto futures. The Direxion Bitcoin Strategy Bear exchange-traded fund would offer managed short exposure to CME Bitcoin futures contracts, according to a filing with the Securities and Exchange Commission dated Tuesday. This comes after the ProShares Bitcoin Strategy ETF and Valkyrie Bitcoin Strategy ETF, both of which are backed by futures, made their debuts last week. Bitcoin rose to a record of nearly $67,000 amid those ETF launches, though it’s fallen back since then and was trading around $61,000 in early London hours on Wednesday. The cryptocurrency has more than quadrupled in the past year, demonstrating its trademark volatility both to the upside and downside.
  • Merck & Co. reached a licensing agreement aimed at widening access to its promising Covid pill, a pact health advocates hope will spur other pharmaceutical companies to act. The accord with the United Nations-backed Medicines Patent Pool will help make the antiviral therapy available in more than 100 low- and middle-income nations if it gains approval, allowing generic-drug companies to apply for licenses to make the experimental drug, according to a statement Wednesday. The organization’s first agreement to provide access to a Covid technology follows concerns that lower-income nations struggling to get access to vaccines will be left behind once again when it comes to Covid drugs. Merck and its partners won’t receive royalties as long as Covid is classified as a public health emergency of international concern by the World Health Organization.
  • A U.S. ban of China Telecom (Americas) Corp. by regulators shows that broad concerns about Beijing persist in Washington, even as the Biden administration takes steps to improve communications between the world’s biggest economies. The U.S. Federal Communications Commission, an independent government agency overseen by Congress, on Tuesday voted 4-0 to cancel permission to operate in the U.S. for the unit of China Telecom, one of three leading communications providers in China. Though the company doesn’t do a lot of business in the U.S., being barred from the market is significant coming on the heels of the moves against other strategic Chinese tech giants, including Huawei Technologies Co.
  • Equinor ASA is boosting natural gas exports to ease Europe’s supply crunch, sacrificing some oil production in the process. The Norwegian giant has halted the re-injection of gas that had been used to boost oil output at the Gina Krog field, and will export the fuel instead, Equinor Chief Executive Officer Anders Opedal said in a Bloomberg TV interview on Wednesday. In addition the company is ramping up gas production at other fields, including the giant Troll. “We have turned every valve to see if we can produce and export more gas,” Opedal told a press conference the same day. “For Equinor, it is important to be a stable and secure supplier of gas to Europe.”
  • BNP Paribas SA intends to hire 100 people as part of a plan to create a unit it says will wean corporate and institutional clients off activities that emit too much carbon dioxide. The division will help clients mobilize capital to make it easier for them to shift over to low-carbon business models, BNP Paribas said in a statement on Wednesday. Banks are ramping up their efforts to support client transition strategies toward a greener economy with dedicated entities. Citigroup Inc. and Deutsche Bank AG both created similar transition units earlier this year as the industry responds to the rapid shift in sentiment around fossil fuels. Meanwhile, French regulators have criticized the finance industry for coming up with vague climate strategies. They’re urging banks, insurers and asset managers to provide more transparent transition models.
  • EQT AB is exploring a potential acquisition of Swiss banking software specialist Temenos AG, according to people familiar with the matter. The Stockholm-based buyout firm is in the early stages of considering a bid for Temenos, which has a market value of 9.8 billion Swiss francs ($10.7 billion), the people said, asking not to be identified discussing confidential information. If EQT does take Temenos private, it would be one of the largest buyouts involving a listed European company this year, according to data compiled by Bloomberg.
  • India’s inclusion in JPMorgan’s global emerging-market bond index could prompt $25 billion of inflows from foreign investors, the bank said in a research report. Actual inclusion will depend on domestic and international developments, Arthur Luk, a JPMorgan Chase & Co. strategist, wrote in a note. Given India’s large weight in the index, the process would likely be staggered over 10 months, similar to China’s inclusion into GBI-EM in 2020, Luk said. Earlier this month, the U.S. bank’s index team said that Indian government bonds were on track to be placed on index watch for inclusion. The ability to access the market through an international central security depository such as Euroclear, and clarity on taxes were among key hurdles cited by investors.
  • Deutsche Bank AG’s reliance on debt trading became ever more apparent in the third quarter as an industrywide slump in that business weighed on results. The German lender posted a smaller jump in dealmaking fees than its U.S. rivals and its previous exit from stock trading caused it to miss out on a rally that lifted revenue at peers. That meant a 12% slide in the fixed-income business led to a drop in revenue and profit at its investment bank in a quarter when UBS Group AG and Barclays Plc reported gains. Shares fell as much as 5.5%. The results underscore urgency for Chief Executive Officer Christian Sewing to come up with alternative sources of growth, after relying on a boom in fixed income for much of his turnaround so far. But the lending businesses that were initially at the center of his strategy are still suffering from negative interest rates. Unexpected expenses, meanwhile, have forced the CEO to scrap the cost-reduction targets for this year and next, and prompted the bank to book a 583 million-euro transformation charge in the quarter.
  • Ralph Schlosstein plans to step down as co-chairman and co-chief executive officer of Evercore Inc., leaving John Weinbergalone in both roles. The move takes effect on Feb. 25, Evercore said in a statementWednesday. Schlosstein, 70, will also resign from the board and remain with the company as chairman emeritus. Weinberg — a scion of the family that ran Goldman Sachs Group Inc. for most of its existence — was tapped as Evercore’s executive chairman in 2016. He was named to his most recent roles last year. Schlosstein had said previously that whenever he stepped down, Weinberg, 64, would be sole CEO.
  • Bitcoin slid below $60,000 as traders liquidated the most positions in a month.  Prices for the biggest digital asset lost 5% to $58,975 as of 10:44 a.m. in London, reaching the lowest intraday price in almost two weeks. Ether also sank about 5% and smaller tokens took a hit, with Dash and EOS tumbling more than 10%. Analysts said speculators are cutting back on positions as the launch of the first U.S. Bitcoin exchange-traded fund fanned enthusiasm and pushed prices to new all-time highs. Total liquidations of long crypto positions topped $700 million on Wednesday, the most since Sept. 20, according to data from Bybt.com.
  • McDonald’s Corp. posted third-quarter sales that beat expectations as U.S. diners placed larger orders and absorbed higher menu prices, while international results were buoyed by fewer pandemic restrictions.  The fast-food chain posted comparable sales — a closely watched gauge of performance for restaurants — of 12.7% in the quarter ended Sept. 30. That’s above the nearly 10% estimate from analysts. Comparable sales also outpaced expectations in the U.S. and international markets, the Chicago-based company said Wednesday. While the restaurant industry is struggling with rising wage and commodity costs on top of supply-chain shortages and delays, McDonald’s is faring well thanks to its takeout and delivery focus. A new chicken sandwich and loyalty program, along with menu price hikes, helped in McDonald’s home market, where the chain has more than 13,000 locations.
  • Coca-Cola Co. reported quarterly sales and profit that exceeded Wall Street’s expectations on Wednesday and raised its full-year outlook, sending shares higher in early trading. Third-quarter organic revenue, which excludes the impact of items like currency and acquisitions, was up 14%, above analysts’ average estimate. Adjusted earnings of 65 cents a share outpaced expectations. The owner of the Minute Maid, Dasani and Schweppes brands sees organic revenue growth in a range of 13% to 14% for the full year, an increase to the bottom end of its guidance issued in July.
  • Harley-Davidson Inc. reported better-than-expected sales and profit in the third quarter as demand in North America offset supply-chain bottlenecks that have limited motorcycle shipments. Adjusted earnings rose to $1.18 a share from $1.05 in the year-earlier period, the Milwaukee-based company said in a statement Wednesday. Analysts had expected 80 cents a share, according to the average of estimates compiled by Bloomberg. Revenue from motorcycles and related products rose 20% to $1.16 billion. Chief Executive Officer Jochen Zeitz, a former Puma SE executive who took the helm of the troubled manufacturer in February 2020, has slashed costs, culled dealerships and tightened inventory in order to raise prices. While he’s overseen the launch of successful new models like this year’s Pan America adventure bike, chip shortages, shipping delays and a trade spat with Europe are weighing on his plans for a turnaround.
  • China plans to limit the price miners sell thermal coalfor as it seeks to ease a power crunch that’s prompted electricity rationing and even caused a blackout in a major city last month. Beijing aims to set the price of its most-popular 5,500-NAR grade coal at 440 yuan ($69) a ton at the pithead, according to people familiar with the situation, who asked not to be identified as they aren’t authorized to speak publicly. That price, which includes taxes, is a target rate, and there will be an absolute ceiling at 528 yuan, the people said. The plan, which is scheduled to last until May 1 next year, is pending approval by the State Council, and could be revised, according to the people. Beijing also wants downstream sales prices to be controlled, though it will let local governments set standards to limit the price of local coal trading, the people said. Coal importers will obtain subsidies to balance their losses, they said.
  • Visa Inc. has joined rival Mastercard Inc. as an investor in Deserve, the credit-card technology startup’s chief executive officer said in an interview. “Our partnership with Visa in crypto will power interesting use cases around rewards, payments and settlements for credit card transactions,” Deserve co-founder and CEO Kalpesh Kapadia said. The card has achieved “tremendous growth” measured by adoption and usage, and is approaching $2 billion in annualized transaction volume, Kapadia said. BlockFi cardholders are projected to spend roughly $30,000 per year, 50% above that of average credit cardholders, added Kapadia.
  • Brazil’s central bank is poised to deliver its biggest interest rate hike in nearly two decades as plans for greater public spending risk jeopardizing efforts to bring inflation down to target. Most economists agree on the need to step up an already aggressive monetary tightening campaign, but are divided over how dramatic the increase will be. The majority of the 47 analysts surveyed by Bloomberg expect the benchmark Selic to jump by 150 basis points to 7.75%. Thirteen project a hike of 125 basis points, while five still see a third straight full percentage point rise. The central bank, led by Roberto Campos Neto, has reasons to become even more hawkish after the government said it would bypass spending rules to boost handouts to the poor ahead of next year’s election. The news rattled investors and prompted the real to plunge last week. It also complicated an inflation outlook that’s already pressured by higher costs of food, electricity and fuel

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*All sources from Bloomberg unless otherwise specified