October 8, 2021
Daily Market Commentary
- Canadian equities advanced on Thursday with tech and consumer discretionary stocks leading the way. The S&P/TSX Composite rose for the third day, climbing 1.1% in Toronto. The move was the biggest since rising 1.2% on June 1. Today, information technology stocks led the market higher, as all sectors gained; 188 of 234 shares rose, while 44 fell. Shopify contributed the most to the index gain, increasing 3.4%. Richelieu Hardware had the largest increase, rising 7.0%.
- Canadian cannabis producer Sundial Growers Inc.said it will buy liquor and pot retailer Alcanna Inc. for C$346 million ($276 million) in stock, building on a vertical-integration strategy of acquiring stores. Sundial, which is based in Calgary and listed on Nasdaq, will pay C$9.12 per Alcanna share, the companies said Thursday evening. Alcanna’s stock price had jumped in late August and the first half of September. The trading activity prompted regulators to ask the company to make a statement on Sept. 15, which confirmed it was in “early-stage discussions” with a company it didn’t name.
- Canadian software provider Dye & Durham Ltd. said its board has turned down a $2.8 billion offer made by a management group and intends to stay a public company. The Toronto-based company said a special committee of the board recommended that it “continue to pursue its existing business strategy which contemplates further growth through acquisitions” under Chief Executive Officer Matthew Proud. A group of executives had made an approach in May proposing to pay C$50.50 a share. Dye & Durham provides software for legal and business professionals, offering clients a platform for accessing legal registries and public records data. Its products help speed up document searches, document creation and electronic records filings.
- European equities traded lower on Friday, as investors weighed the risks from a global energy crunch and central banks tapering their asset purchases for the region’s growth outlook. The Stoxx Europe 600 Index was down 0.2% as of 12:13 p.m. in London. Energy shares were among the biggest gainers as oil prices headed for a seventh weekly increase. Technology stocks including AMS AG and Nordic Semiconductor ASA underperformed after AAC Technologies, one of Apple Inc.’s Asian suppliers, gave a profit warning. The main European equities benchmark has been on a rollercoaster ride since mid-August, when it reached a record high. After six consecutive quarters of gains — the longest winning streak since 2006 — valuations are stretched, and the outlook has been clouded by a spike in inflation, fears of a slowdown in China, rising bond yields, and persistent supply bottlenecks.
- U.S. futures drifted and stocks were mixed as investors awaited a key employment report for clues on the Federal Reserve’s monetary policy. Treasury yields climbed. Global stocks are on course for their best week since early September after the U.S. Senate moved to avert the risk of an immediate default, ending weeks of political stalemate. While an energy crunch and commodity-fueled price pressures remain cause for concern, investors will first turn to Friday’s jobs report for indications on the Fed’s timeline for reducing bond purchases. The 10-year U.S. Treasury yield reached the highest since June. The measure is close to completing a technical pattern that may point to further losses ahead. Oil extended a rebound, on track for a seventh weekly gain.
- Asian stocks rose for a second day as China’s market reopened higher and the U.S. Senate approved a short-term increase in the debt ceiling. The MSCI Asia Pacific Index advanced as much as 1% in a rally led by consumer discretionary shares. Alibaba and Tencent were among the biggest contributors to the gauge’s climb. Shares in mainland China surged more than 1% as investors returned from the Golden Week holiday. Asia’s stock benchmark is slightly down for the week, as rising bond yields weighed on tech-heavy indexes in South Korea, Taiwan and Japan. The gauge is down more than 1% this month amid an energy shortage in China and India.
- Oil headed for a seventh weekly gain, the longest run since December, as a global energy crunch roils markets from Europe to Asia. Futures in New York extended gains toward $80 a barrel, a level they haven’t hit since 2014. The U.S. Energy Department said that it had no plans “at this time” to tap the nation’s oil reserves, easing concerns that higher prices could be met with emergency supply. Crude rallied to the highest since 2014 earlier this week after OPEC+ stuck with plans for a gradual boost in supply next month despite a rapidly tightening market, in part due to the energy crisis. Russia’s offer to ease the gas crunchin Europe and a Financial Times report that the U.S. would consider releasing reserves saw prices tumble more than 3% on Thursday. Crude has since sharply reversed those losses.
- Gold may suffer from an increasingly hostile environment in the coming days that could put the haven on course for a ride back below $1,700/oz. U.S. jobs data are due that’ll likely usher in a Fed tapering program, the dollar has more backbone, and 10-year Treasury yields are firming. Taken together, that’s not a great recipe for the precious metal, which has dropped more than 7% so far this year as the crisis of the pandemic and accompanying central bank largesse give way to a roadmap for escaping from Covid-19’s clutches and less monetary accommodation. Bullion did well out of the Fed in 2020 as the world’s most powerful central bank deployed its monetary muscle to rescue the largest economy. Expectations for the removal of that extraordinary support, followed by actual tapering, change the story. Gold will register a drop this year.
- The U.K. is mounting the biggest flu-jab drive in its history, as concern mounts that respiratory illnesses will surge after months of pandemic lockdown brought on lower levels of immunity. A study in Sweden showed that paying a modest cash incentive helped boost vaccination rates. Meanwhile, Italy announced plans to allow nightclubs to reopen. Hong Kong reaffirmed its commitment to a Covid Zero strategy and said its approach to the virus will become “more and more aligned” with China, which is pursuing the same policy.
- The U.S. Senate approved legislation Thursday that pulls the nation from the brink of a payment default with a short-term debt-ceiling increase, breaking a weeks-long standoff that rattled financial markets. The vote was 50-48, with no Republicans in favor of the measure that simply kicks the can toward another precarious debt-limit fight in less than two months. The $480 billion increase in statutory borrowing would run out around Dec. 3. The debt limit increase still needs a vote in the House, which has been on break. But Majority Leader Steny Hoyer said Thursday night that representatives would return on Tuesday. The measure is expected to be approved in that chamber. President Joe Biden“looks forward to signing this bill as soon as it passes the House and reaches his desk,” White House Press Secretary Jen Psaki said in a statement.
- Robotics firm AutoStore Holdings Ltd. and its backers are looking to raise as much as 15.5 billion kroner ($1.8 billion) on the Oslo Stock Exchange in one of Norway’s biggest-ever initial public offerings amid a rush of Nordic share sales. AutoStore plans to raise $315 million, while holders will offer existing stock worth as much as $1.5 billion, according to a statement Friday. The listing could value AutoStore, which is owned by private equity firm Thomas H. Lee Partners, SoftBank Group Corp. and EQT AB, at as much as 103.4 billion kroner. The share sale rivals telecom provider Telenor ASA’s 15.6 billion-kroner IPO in 2000 as among Oslo’s biggest on record, data compiled by Bloomberg show. If there’s enough demand, underwriters can allocate more shares, taking the total size of the AutoStore deal to 17.8 billion kroner.
- Citigroup Inc. said an enigmatic money manager who accused the bank of owing him 10 billion euros ($11.6 billion) is a fantasist and a fraud. Olgun Halil Shah, the registered director of the Lex Foundation, says money transferred to a Citigroup account in April never materialized. The foundation — which says it funds United Nations humanitarian projects and had a Saudi royal on its board — filed the London suit in July seeking to recover the money. But Citigroup said the money “does not exist,” and alleges a document showing the transfer happened was a forgery. The foundation is illegitimate and has never had any involvement in funding UN projects, according to defense papers the bank filed at the U.K. High Court Sept. 30.
- The U.K. kicked off the process to sign a trade deal with Saudi Arabia and a group of other Gulf states, its latest post-Brexit target as it seeks deeper economic ties beyond the European Union. Negotiations for a pact between Britain and the Gulf Cooperation Council, whose members also include Qatar, Bahrain and Oman, aim to start in 2022 following a 14-week consultation with the public and businesses, the U.K.’s Department for International Trade said in a statement. British trade with the GCC was worth about 45 billion pounds ($61 billion) in 2019, 7% of the size of Britain’s commerce with the EU in the same year. The move comes at a time when Saudi Arabia’s sovereign wealth fund is taking over Newcastle United FC from billionaire Mike Ashleyafter it received approval from the U.K.’s Premier League following a year and a half wait.
- Airbus SE delivered about 40 jets in September, according to people familiar with the matter, setting up a fourth-quarter race to hit a year-end goal of 600 handovers. The European planemaker looks set to have matched its August pace, with official figures due to be published Monday. The tally suggests that in the third quarter the manufacturer sent approximately 127 planes to customers, leaving it with 176 left to reach its 2021 target, roughly in line with the figure for the three months through June. Airbus has been focused on deliveries throughout the pandemic, persuading struggling airlines to continue taking planes to keep cash flowing into the business. Chief Executive Officer Guillaume Fauryrecently reaffirmed the company’s plan to boost narrow-body output to 64 per month in 2023 from 40, even as suppliers battle raw-material shortages, surging logistics costs and labor deficiencies.
- China levied a $533 million fine on Meituan for violating anti-monopoly regulations, ending a months-long probe that had weighed on the country’s food-delivery leader. The State Administration for Market Regulation imposed a 3.44 billion yuan fine on Meituan, amounting to 3% of its 2020 domestic revenue, according to a statement Friday. The company will also have to return 1.29 billion yuan of deposits stemming from exclusivity arrangements. Billionaire Wang Xing’s firm was told to improve its commissions mechanism, ensure the legal rights of restaurant partners and step up protections for its delivery riders. Investors are likely to regard the sanctions as letting Meituan off lightly, given Beijing’s intensifying scrutiny over the millions of blue-collar workers that power the gig economy. The government has ordered firms like Didi Global Inc. and Meituan to rectify businesses that in some cases operate in legal gray zones, hiring unlicensed drivers for instance. Some analysts had anticipated fines for Meituan in excess of $700 million.
- Chinese property firms may face a wave of defaults next year if China Evergrande Group’s deepening debt crisis shuts access to a key source of funding and conditions don’t ease for heavily indebted borrowers. There’s growing alarm that the liquidity crisis at Evergrande will spill over to other developers as President Xi Jinping maintains measures to cool the property market. Fears of contagion risks intensified this week after a surprise default by Fantasia Holdings Group Co. spurred a dramatic selloff in the offshore market. That sent yields on China dollar junk bonds to 16.9%, the highest in about a decade, while Evergrande’s dollar bond prices sank to a record low. The nation’s developers are facing a “triple whammy” with dwindling access to offshore financing, “catastrophic” September pre-sales and a limited onshore banking market, distressed debt veteran Michel Lowy said in a Bloomberg Television interview Friday.
- After years of waiting for a U.S. Bitcoin ETF, the crypto community may finally get as many as four products in a matter of weeks. This month, the Securities and Exchange Commission once again has to approve, reject or delay a set of applications for exchange-traded funds based on the largest digital currency. This time round, they all follow a format that SEC Chair Gary Gensler has indicated could be received favorably by the regulator. They’ll hold Bitcoin futures rather than the digital asset itself, and are filed under the Investment Company Act of 1940 — a route that offers higher investor protection. It’s all raising hopes in the $6.7 trillion U.S. ETF industry and beyond that after years of delays, the world’s largest market may finally be ready to join the party. In that time, dozens of cryptocurrency exchange-traded products have already launched in Canada and across Europe.
- The European Union’s executive will explore the possibility of national governments jointly purchasing and storing natural gas to boost the region’s energy resilience and avoid future price shocks. The European Commission is set to examine options for strengthening the region’s leverage in talks with third-country suppliers as part of a plan to avoid the energy crunch undermining an economic recovery. The plan will also offer guidance on how to design tax cuts, direct support for the most vulnerable and state aid for companies, according to a person familiar with the draft EU proposals. About 20 countries have taken action already to blunt the impact of the crisis or are in the process of doing so, according to the draft. These measures can be financed with revenues from government auctions of permits in the EU carbon market and other tools such as environmental taxes. The Commission also notes that member states have the leeway to appoint a supplier of last resort.
- Merck & Co.’s experimental pill for Covid-19 should be accompanied by other treatments as soon as they’re available to cut the risk of drug resistance that would limit its effectiveness, Wellcome foundation director Jeremy Farrar said. While yet to be cleared by regulators, Merck’s molnupiravir has been hailed as a potential breakthrough, as it could be relatively cheap and easy to make, doesn’t require infusion and has shown it reduces the risk of hospitalization in a trial. Yet it may need to be combined with other drugs to head off resistance, Farrar said. Resistance occurs when viruses and bacteria evolve to blunt or defeat drugs’ mechanism of attack. It’s a constant concern for antivirals and antibiotics and has already been seen with Covid treatments such as Eli Lilly & Co.’s antibody therapy. Farrar suggested Merck’s pill would be no exception, despite optimism that it may be a potent new weapon to fight the pandemic.
- The number to watch for on Friday’s U.S. payrolls report is 200,000. Anything below that would prompt investors to question the health of the economy and send Treasury yields lower in the near term, according to all eight strategists surveyed by Bloomberg. Such a scenario would boost bets for a delay or a slower pace of Federal Reserve tapering. Yet, the figure is less than half of the median of economists’ estimates at 500,000. While most investors see Fed tapering as a certainty on the horizon, they await clarity on its timing and speed. Inflationary pressures from supply-chain bottlenecks and the anticipated start of tapering in November have left yields poised to build on their third-quarter increases. That means the bar on a post-data pullback in Treasury yields is very high.
- G Squared, which has backed companies including Airbnb Inc. and Spotify Technology SA, is dedicating part of a new $1.2 billion venture fund to deals with startups in Latin America, adding to an influx of foreign investment in the region this year. Chicago-based G Squared is opening a Miami office dedicated to Latin America, and plans to start closing investments in coming months, founder and managing partner Larry Aschebrook said in an interview. It will spend as much as roughly $200 million of the G Squared V fund in the region, he said. “This region of the world has been somewhat ignored from a venture capital perspective. But we’re seeing that change before our eyes,” Aschebrook said. “You’re going to see much more capital flow into the region. North American investors are going to continue to come in. And far more unicorns are being minted.”
- A U.S. nuclear-powered attack submarine struck an object while submerged in international waters in the Indo-Pacific region last week, the Navy said, adding that no life-threatening injuries were reported. “The submarine remains in a safe and stable condition. USS Connecticut’s nuclear propulsion plant and spaces were not affected and remain fully operational,” U.S. Pacific Fleet said in a statementlate Thursday, adding that the extent of the damage from the Oct 2. incident is being assessed. A U.S. Naval Institute News report, citing an unnamed defense official, said 11 sailors suffered minor to moderate injuries when the submarine hit an unknown underwater object in the South China Sea. The last known incidence of a U.S. submarine striking an underwater object took place in 2005, when the USS San Francisco struck an underwater mountain in a collision that killed one sailor aboard, it said.
- Global talks to reshape the corporate tax landscape are set to resume on Friday after Ireland’s decision to adhere to the world consensus on a minimum rate removed one hurdle to an agreement that still hangs in the balance. The Irish shift is one of several needed from among the 140 countries negotiating a wide-ranging deal in talks hosted by the Organization for Economic Cooperation and Development. Some nations are seeking so called carve-outs to partially exempt certain activities from a minimum tax rate of 15%, while others are haggling over a separate part of the accord concerning where profits of big firms are levied.
“The most difficult thing is the decision to act, the rest is merely tenacity.” –Amelia Earhart
*All sources from Bloomberg unless otherwise specified