September 10, 2021

Daily Market Commentary

Canadian Headlines

• The S&P/TSX Composite fell for the third day, dropping 0.2%, or 36.52 to 20,705.27 in Toronto. The index dropped to the lowest closing level since Sept. 1. Industrials stocks led the market lower Thursday as 9 of 11 sectors declined; 145 of 229 shares fell, while 82 rose. Canadian Pacific Railway Ltd. contributed the most to the index decline, decreasing 3.9%. Transcontinental Inc. had the largest drop, falling 4.9%. The Bank of Canada released guidance for the first time on how it plans to eventually reduce monetary stimulus, saying it will first raise interest rates before curbing its holdings of government bonds.
• Lundin Mining names Peter Rockandel, currently the company’s senior vice president, corporate development and investor relations, as president and CEO. Marie Inkster will be stepping down from the board on Dec. 31, though will act as an advisor to the company until the end of 2022.

World Headlines

• European stocks edged higher Friday, trimming some of this week’s losses, as investors bet that policy makers will keep supporting the economic recovery. The Stoxx 600 Europe Index added 0.3% by 10:20 a.m. in London, with consumer products, miners and technology sectors outperforming. Luxury stocks gained the most as LVMH advanced after HSBC upgraded its rating of the French company.  The main European benchmark is on track for a second weekly loss, the first time since the end of April, as investors reduced their risk allocations amid fears that central bank stimulus measures might get pulled back quickly. While the European Central Bank on Thursday said it will slow down the pace of its pandemic bond-buying program, it reiterated that this move shouldn’t be seen as tapering.
• U.S. index futures rose and global stocks rebounded as investor concerns eased about stimulus tapering by central banks and China’s regulatory crackdown. December contracts on the S&P 500 gained 0.4% after the equity benchmark posted the longest run of losses since June. Affirm Holdings Inc. surged 24% in premarket trading after revenue beat estimates. Treasury yields rose as the benchmark 10-year rate added three basis points, while the dollar was little changed against major peers after paring an advance. Markets have fluctuated between hope and despair as the continued spread of the coronavirus undermines economic recovery and boosts supply-shock inflation, even as central banks reaffirm an accommodative stance. The U.S. equity benchmark is heading for the biggest weekly slide since July 16, threatening to make September the first loss-making month since January.
• Asian equities climbed as investors returned to technology shares in China and South Korea after losses earlier this week. The MSCI Asia Pacific Index rose as much as 1.1%, led by consumer discretionary and IT stocks, as the gauge headed for a third straight week of gains. Alibaba and Tencent shares were the biggest contributors to Friday’s advance after a newspaper report clarified that Beijing was slowing down, instead of halting, new game approvals.
• Oil rose, paring a weekly decline, as investors assessed China’s confirmation that it had released crude from its strategic reserves in an unprecedented intervention in the global market. Futures in New York increased 1.5% on Friday. Beijing tapped its giant reserves “to ease the pressure of rising raw material prices,” according to an announcement from the National Food and Strategic Reserves Administration. It didn’t give further details, but people familiar with the matter said the statement referred to millions of barrels of oil that were offered to domestic refineries in July. Some analysts see the move as a precursor to ramping up purchases later to make up for depleted stockpiles. Releasing stocks “for the first time can be seen as bullish as it’s in preparation for the demand bump in 4Q,” analytics firm Oilytics said in a report. Inventories “will have to be eventually replaced so demand is just getting deferred,” it said.
• Gold held steady ahead of U.S. inflation data, and is headed for its first weekly decline since early August as the prospect of stimulus tapering weighs on the haven metal. The dollar weakened as European equities and U.S. futures rebounded following a three-day run of losses, though higher bond yields prevented gold gaining. Concerns of the delta variant of coronavirus hampering economic growth have shadowed markets this week and also gave investors cause to reconsider the outlook for monetary stimulus by central banks. Gold was steady at $1,795.57 an ounce as of 11:22 a.m. London time, and is down 1.8% this week. Palladium added 1.5%, rebounding from its lowest in a year. Silver and platinum also advanced. The Bloomberg Dollar Spot index retreated 0.1%.
• The surge in base metals markets is gathering steam, with aluminum and nickel notching fresh multiyear highs as supply tightens and demand booms. Nickel in London surged as much as 2.6% to a seven-year peak and aluminum rose 1.9% to the highest since 2008. Both metals are benefiting from China’s crackdown on emissions from energy-intensive industries, while their role in the green revolution is buoying the longer-term outlook. In the short-term, demand is surging in areas including construction and consumer durables, and logistical turmoil is making it tough to get metal where it’s needed. As a raw material that’s used broadly in consumer products from drinks cans to cars, aluminum’s rally is causing a major headache for manufacturers, who are facing worsening supply shortages alongside the sharp rise in prices. That’s eating into profit margins, and spurring them to pass on costs to consumers, exacerbating inflationary pressures that are already the most severe in years.
• President Joe Biden urged China’s Xi Jinping to cooperate on key issues even as they spar on other topics, as his administration grows frustrated over what it perceives as a lack of seriousness in Beijing’s engagement with American officials. The leaders of the world’s biggest economies spoke by telephone for 90 minutes on Thursday night, their first discussion since February. It came as the relationship becomes increasingly adversarial, with a senior administration official telling reporters that Biden initiated the call after meetings involving his cabinet officials and Chinese counterparts over the past months remained unfruitful. The U.S. has sought to separate issues like climate change from more contentious ones like trade, human rights and democracy in places like Hong Kong, while Beijing has linked them all together. While it doesn’t appear like the call changed those dynamics, optimism over improved relations helped put China’s yuan on pace for its strongest close in nearly three months.
• Blackstone Group Inc. decided against proceeding with its $3 billion offer to take over Soho China Ltd., the Beijing-based office operator said, marking the second failed attempt to sell itself.  Progress in satisfying the preconditions of the offer was insufficient, Soho said in a statement to the Hong Kong stock exchange on Friday. In June, Blackstone offered to acquire Soho for as much as HK$23.7 billion ($3 billion), pending regulatory approval. Last month, China’s antitrust regulator said it had formally accepted the deal for review. Soho has been seen as a takeover target since early 2020, as a lack of new assets in its pipeline and declining office rents in key Chinese cities put mounting pressure on its profits. China’s commercial property space is being pressured and developers are facing liquidity pinches amid a regulatory crackdown.
• Cathie Wood’s exchange-traded funds have sold some of its Tesla Inc. shares in the past two days, taking advantage of the recent rally as the stock climbs for a third week in a row. The ARK Innovation, ARK Next Generation Internet and ARK Autonomous Technology & Robotics ETFs sold over 180,000 shares on Wednesday and Thursday, according to its daily trading updates. At closing prices, that puts the total value at nearly $139 million. Shares of the electric-vehicle maker have climbed over the past three weeks, adding about $75 million in market value as the company’s shipments of China-made cars to the local market rebounded last month and amid a broader stock market rally in August. The stock was up 0.5% in premarket trading on Friday.
• Singaporean online gaming and e-commerce firm Sea Ltd. has raised $6 billion in a sale of U.S. shares and convertible bonds, according to people familiar with the matter, in the biggest ever equity offering by a Southeast Asian company. Sea priced the American depositary shares at $318 each, the people said, asking not to be identified as the information isn’t public. The price represents a discount of about 1.4% to the Tencent Holdings Ltd.-backed company’s last close of $322.60 in New York. At $318 per share, the company would raise about $3.5 billion from the offering of 11 million shares described in its preliminary prospectus. Sea is also selling $2.5 billion in convertible bonds.
• Cary Group Holding AB, a vehicle glass repair and replacement provider, plans to launch an initial public offering on Nasdaq Stockholm during the second half of the year. The listing will help the Swedish company to “strengthen its balance sheet, which will support further M&A consolidation,” according to a statement on Friday. The IPO is expected to value Cary at 9.2 billion Swedish kronor ($1.1 billion) and will provide the company with gross proceeds of about 1.25 billion kronor, some of which will be used to pay repay an oustanding shareholder loan.
• President Joe Biden said he’d order all executive branch employees, federal contractors and millions of health-care workers to be vaccinated against the coronavirus, and that his administration would issue rules requiring large private employers to mandate shots or testing. The new measures are Biden’s response to a resurgent Covid-19 pandemic driven by the delta variant of the virus and by tens of millions of Americans who have refused to be vaccinated. Federal employees who don’t comply could be dismissed, the administration said, and private employers might be fined. Biden also delivered some of his harshest criticism yet of the 25% of U.S. adults who’ve so far not been inoculated, saying that they’re dragging out the pandemic that has claimed more than 650,000 lives in the U.S.
• European natural gas extended this week’s record rally, as the market weighed concerns of a supply crunch against news from Russia that a controversial new pipeline to the region has finally been built. Construction of the Nord Stream 2 pipeline was completed on Friday morning, according to Gazprom PJSC. The company wants to start commercial supplies next month, people familiar with the matter said earlier this week. However, European gas prices hardly moved on the news. “The market is waiting for clear signs of an increase in Russian flows in the coming weeks,” consultant Engie EnergyScan said in a note. “For the moment, it does not see them and comes to the conclusion that Europe is obliged to enter into aggressive competition with Asia to attract LNG cargoes to replace the missing pipeline supply,” it added, referring to liquefied natural gas.
• The U.K. economy barely grew in July, suggesting the recovery from the coronavirus recession is rapidly levelling off as consumer spending weakens and supply disruptions hamper production. Gross domestic product expanded just 0.1%  — a tenth of the pace posted in June, the Office for National Statistics said Friday. Economists surveyed by Bloomberg had expected 0.5% growth. The figures left output 2.1% below the level in February 2020, before the pandemic struck. The slowdown heralds a return to more normal growth rates after pent-up demand following the lifting of restrictions in the spring saw the economy surge by almost 5% during the second quarter.
• Toyota Motor Corp. trimmed its production outlook to 9 million units from 9.3 million units for the fiscal year through March, blaming the spread of the coronavirus in Southeast Asia. The world’s No. 1 automaker is adjusting production operations for September and reviewing plans for October, but said in a statement that it is sticking to its forecast for operating profit of 2.5 trillion yen ($22.7 billion) for the fiscal year.  “Key reasons for the production adjustment include a decline in operations at several local suppliers due to the prolonged spread of COVID-19 in Southeast Asia and the impact of tighter semiconductor supplies,” Toyota said in the statement. “Although the outlook for November and beyond is unclear, current demand remains very strong.”
• The presidents of the Federal Reserve banks of Boston and Dallas said they are selling their individual stock holdings by Sept. 30, in moves aimed at quenching ethical concerns over their trading activity last year. Boston Fed chief Eric Rosengren and Dallas Fed’s Robert Kaplan released near-identical statements Thursday after their most recent financial disclosure documents showed active trading in a range of investments during a year in which the central bank took sweeping policy actions to protect the U.S. economy from Covid-19.
• The pace of high-grade bond sales is expected to slow Friday after an onslaught of issuance that pushed volume over the past three days to $76 billion, just $10 billion shy of sales in all of August. SoftBank Group will borrow about $4 billion through a pair of margin loans secured by the bulk of its stake in T-Mobile, according to a regulatory filing.
• Sporting-goods company Vista Outdoor Inc. agreed to buy golf-simulator maker Foresight Sports for $474 million, bolstering the technology portfolio for the maker of water bottles, bike helmets and shooting products. The cash deal for the San Diego-based company marks Vista Outdoor’s biggest acquisition since it was spun out in 2015 by a company now owned by Northrop Grumman Corp., according to data compiled by Bloomberg.  The announcement confirms Bloomberg’s report that Vista Outdoor was nearing a deal to buy Foresight Sports.
• BlackRock Inc. is re-assessing its plans for U.S. employees to return to offices in early October, saying the spread of the Covid-19 delta variant calls for a more flexible approach. The world’s largest asset manager is now telling employees that it hasn’t decided when it would like to see them at their desks at least a few days a week, according to a memo seen by Bloomberg Thursday. The New York-based firm said it would give staff 30 days’ notice before moving to that hybrid work model.
• DoorDash Inc., Grubhub Inc. and Uber Technologies Inc.’s Uber Eats sued New York City over its newly entrenched cap on the amount meal-delivery services can collect from restaurants. The companies say the 15% cap interferes with their right to freely negotiate contracts and will likely result in higher prices for consumers and lower earnings for restaurants and delivery drivers. The city’s ordinance is “nothing more than unconstitutional, harmful, and unnecessary government overreach that should be struck down,” the companies said in a complaint filed Thursday in Manhattan federal court.
• KKR & Co. agreed to sell Riata Corporate Park in Austin, Texas, in a deal valuing the eight-building campus at more than $300 million. The buyer is an affiliate of Starwood Capital Group, a person with knowledge of the matter said. KKR acquired the technology-focused office campus spanning 688,1000 square feet for $258 million through a vehicle known as KKR Real Estate Partners Americas II LP in a transaction announced in January 2020. It has since upgraded amenities including Riata’s fitness center, outdoor space and cafe, and the sale implies a price of roughly $440 per square foot, compared with KKR’s entry price of $350 a square foot, the person said.
• Holcim Ltd. agreed to sell its Brazilian unit to Companhia Siderurgica Nacional for about $1 billion as the Swiss cement maker cuts debt. The asset has five cement plants, four grinding stations, six aggregate sites and 19 ready-mix concrete facilities, the company said Friday. Holcim will use the proceeds to invest in its Solutions & Products business. Under Chief Executive Officer Jan Jenisch, Holcim has been selling off assets that don’t contribute to its core operations in an effort to reduce leverage. Since a turnaround plan announced in 2018, the Zug, Switzerland-based company has sought to prune activities outside Europe in countries including Indonesia and Malaysia.
• Visma AS has secured investment from backers including Norway’s government pension fund and billionaire John Fredriksen’s Aeternum Capital, valuing the software group at 16 billion euros ($18.9 billion). Singaporean wealth fund GIC Pte Ltd. and Norwegian technology investor Vind are also buying stakes in the Oslo-based company, according to a statement that confirmed an earlier Bloomberg News report. European buyout firm Hg will remain Visma’s biggest shareholder and will not be reducing its holding. ABG Sundal Collier and Goldman Sachs Group Inc. acted as placement agents on the transaction.
• There has never been a better time to sell green bonds in Europe.  A boom in ESG investing has pushed up the “greenium” investors are willing to pay for debt that complies with a set of environmental, social, and governance criteria, according to Deutsche Bank AG. That’s flushed out debut green deals from issuers as diverse as Spain and Oreo-cookie maker Mondelez International Inc. “We are now able to go to issuers and tell them ‘if you issue your debt in green format, you will actually save money,’ meaning that the hurdles we had to overcome for our clients to issue green bonds are now gone,” said Henrik Johnsson, co-head of investment banking EMEA at Deutsche Bank in London. “We are in a Goldilocks moment.”

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*All sources from Bloomberg unless otherwise specified