September 13, 2021

Daily Market Commentary

Canadian Headlines

• Kansas City Southern said it’s backing out of a merger agreement with Canadian National Railway Co. and plans to accept a competing offer from Canadian Pacific Railway Ltd., the latest step in the fight over which railroad would become the first to operate in Canada, the U.S. and Mexico. Canadian Pacific’s proposal was declared superior even though at about $27 billion it’s lower than Canadian National’s $30 billion offer, which began to unravel last month amid questions over whether it would win regulatory approval. Canadian National has about five business days to negotiate terms that could change the U.S. railroad’s decision, Kansas City Southern said in a statement Sunday. Canadian National said it’s continuing to evaluate its options and “will make carefully considered decisions in the interests of all CN shareholders and stakeholders and in line with our strategic priorities.”
• Chinese biopharma firm Everest Medicines Ltd. will license an mRNA Covid-19 vaccine from Canada’s Providence Therapeutics Holdings Inc., as companies try to bring the most effective inoculation platform into China despite its apparent resistance to western shots. Everest will gain rights to Providence’s vaccine in Greater China and countries including Indonesia, Singapore, and Thailand, it said in a statement Monday. It will pay $100 million cash upfront for access to the vaccines and mRNA technology, and up to $100 million in profit-sharing, the statement said. The deal includes another payment of up to $300 million in stock if further products are developed using Providence’s mRNA technology platform.
• Amazon said it will hire 15,000 full-time and and part-time employees across Canada and increasing wages of frontline staff. Workers will receive C$17 per hour to C$21.65 per hour with comprehensive benefits starting on day one, including access to health, dental and vision benefits, training and education programs. Hiring to take place throughout the fall; all employees to also receive an additional C$1.60 – C$2.20 per hour, starting immediately, regardless of their tenure with the company
• Cathie Wood’s Ark Investment Management is allowing one of its funds to invest in Canadian Bitcoin ETFs as the money manager seeks fresh ways to bet on digital assets. In a late-Friday filing for the $5.7 billion ARK Next Generation Internet ETF (ticker ARKW), the firm tweaked the fund’s prospectus to include reference to holding exposure to cryptocurrencies via “exchange-traded funds domiciled in Canada.”  The move comes after the $1.3 billion Amplify Transformational Data Sharing ETF (BLOK), a blockchain-focused product, was last week shown to have a tiny stake in three Canadian Bitcoin ETFs.

World Headlines

• European equities rose on Monday, recouping some of the ground lost in the past two weeks, as bets that economic growth will persist outweighed concerns over inflation, tapering and China regulatory risks. The Stoxx Europe 600 Index was up 0.8% as of 11:45 a.m. in London. Energy and utilities were among the biggest gainers, amid a supply crunch that has pushed electricity and gas prices to fresh records across the continent. The European benchmark has climbed almost 18% this year, buoyed by robust earnings reports and a rapid recovery from the pandemic-induced recession. With valuations stretched following the rally, sentiment soured over the past few weeks amid concerns that price pressures would curb earnings outlooks and force central banks to scale back stimulus measures.
• U.S. futures climbed along with stocks in Europe, where energy companies led gains as crude oil extended a rally to a six-week high. Industrial metals rose, with aluminum reaching $3,000 a ton in London for the first time in 13 years amid supply disruptions. Contracts on the S&P 500 and Nasdaq 100 advanced after the indexes ended last week in the red. Apple Inc. rose in pre-market trading even as Epic Games Inc. filed a notice of appeal in its closely watched antitrust lawsuit. The dollar edged higher and Treasury yields were little changed ahead of ahead of critical inflation data that traders will use to assess expectations about the timing of stimulus withdrawal and interest-rate hikes. A report on Tuesday may show consumer prices in the U.S. moderated in August.
• Asian stocks declined for the third day in four as reports and statements from Chinese authorities gesturing further regulations in the technology sector damped investor sentiment. The MSCI Asia Pacific Index fell as much as 1.1%, weighed by the consumer discretionary sector. Alibaba Group Holding slid after the Financial Times said China is looking to break up affiliate Ant Group’s Alipay and create a separate app for its loan business. Meituan declined after authorities called for platform operators to review the working conditions of gig economy workers.
• Oil rose to hits highest level in just under six weeks as investors tracked the slow restoration of supplies in the Gulf of Mexico and the outlook for demand and inventories over the fourth quarter. West Texas Intermediate added 0.9%, while the global Brent benchmark also nudged higher out of its recent narrow trading range. Almost half of crude output in the U.S. Gulf of Mexico — about 884,000 barrels a day — had yet to resume after Hurricane Ida as of Sunday, according the latest statement from the Bureau of Safety and Environmental Enforcement. Tropical Storm Nicholas is over the western side of the Gulf and is about to menace Texas. Louisiana declared a state of emergency ahead of the latest storm.
• Gold prices were steady on Monday as the dollar firmed, while investors were cautious ahead of U.S. consumer price readings that could be crucial to Federal Reserve’s decision on when to start withdrawing its asset purchases. Spot gold was flat at $1,787.96 per ounce by 0711 GMT, while U.S. gold futures fell 0.2% to $1,789.00.
• Aluminum reached $3,000 a ton in London for the first time in 13 years amid expectations that supply disruptions are here to stay, while demand keeps rising. The metal has surged about 15% over the past three weeks as supply risks increase throughout the industry, from bauxite mining in Guinea and alumina refining in Jamaica to aluminum smelting in China and beyond. Chinese producers were dealt a fresh blow on Monday as Steelhome reported that Yunnan province will enforce production curbs from this month in an effort to meet energy intensity reduction goals. Smelters in the European Union are also facing rising costs with both carbon credits and power inputs at record highs, Goldman Sachs Group Inc. said.
• Covid inflation is everywhere, but some have more of it than others. Among advanced economies, the U.S. is starting to look like the outlier.  That’s probably because it did more fiscal stimulus in the pandemic, economists say. The consensus is that high inflation won’t last long. But even if that’s right, the current elevated level has the potential to cause problems of its own — for President Joe Biden’s most ambitious economic plans at home, and for other countries too. August data due Tuesday is set to show annual growth in U.S. consumer prices stayed above 5% in August for a third straight month, according to Bloomberg surveys. The median forecast was 5.3%, down from 5.4% the previous month. Most other developed countries have seen a spike too — just not nearly as big.
• Investors added money to exchange-traded funds that buy emerging market stocks and bonds last week. This was the third 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 $792.6 million in the week ended Sept. 10, compared with gains of $1.4 billion in the previous week, according to data compiled by Bloomberg. So far this year, inflows have totalled $37.4 billion.
• Turkish grocery delivery app Getir brought its total fundraising for the year to more than $1.1 billion by securing additional capital from an existing investor, according to people with knowledge of the matter. Under an agreement recently reached by the Istanbul-based company, one of its investors will increase their stake in exchange for $150 million in fresh funds, said the people, who asked not to be named because the deal isn’t public. They wouldn’t specify what valuation the investment placed on Getir or the size of a shareholding that will change hands.
• CVC Capital Partners agreed to acquire secondary buyout specialist Glendower Capital in a deal that will provide one of the most prominent buyout firms with a new strategy to lure investors. CVC and Glendower will combine to create an alternative asset manager with 113 billion euros ($133 billion) under management, according to a statement on Monday. Neither party disclosed financial details of the transaction. Glendower management won’t cash out and will continue to lead the business independently under Glendower’s name. Bloomberg reported about the potential deal earlier this year.
• House Democrats have drafted a package of tax increases that falls short of President Joe Biden’s ambition, an acknowledgment of how politically precarious the White House’s $3.5 trillion economic agenda is for party moderates.  The Democratic proposal would raise the top corporate tax rate from 21% to 26.5%, less than the 28% Biden had sought, people familiar with the matter said Sunday night. The top rate on capital gains would rise from 20% to 25%, instead of the 39.6% Biden proposed, the people said. The package of proposals, estimated to raise more than $2 trillion, are slimmed down to appeal to business-minded Democrats, many of whom hail from swing districts. And Democratic leaders, who need the party’s full support to push Biden’s agenda through Congress, will almost certainly pare them down further in the weeks ahead.
• Carlyle Group Inc. is considering options for Novolex Holdings that include selling the packaging company or taking it public, according to people familiar with the matter. The private equity firm has been interviewing banks for a strategic review of the Hartsville, South Carolina-based company in the first half of 2022, said the people, who asked not to be identified because the information is private.  Novolex could be valued at about $6 billion should Carlyle choose to sell the company or opt for an initial public offering, although no final decision has been made and the firm could elect to keep the business, the people said.
• Toast Inc., which helps restaurants handle payments, is seeking as much as $717 million in a U.S. initial public offering. The Boston-based company plans to sell 21.7 million Class A shares at $30 to $33 apiece, it said in a regulatory filing Monday. The deal could value Toast at as much as $16.5 billion based on the number of outstanding shares listed in the prospectus. Toast’s share sale will add to the $104 billion already raised by tech company IPOs this year, according to data compiled by Bloomberg. The offering comes as the restaurant industry rebounds from a pandemic that was disastrous for in-person dining, but was a boon for takeout and delivery services.
• Breeze Aviation Group Inc. has ordered 20 additional Airbus SE A220-300 aircraft, bolstering the fleet of its startup airline and enabling longer domestic and short-haul international routes. The new planes, adding to a prior 60-jet order, mean the low-cost Breeze Airways will receive one A220 a month for the next six and a half years, the company said in a statement Monday. The aircraft have a book value of $91.5 million each, for a total value of about $1.8 billion, though airlines traditionally receive discounts from the list price for multiplane orders. The carrier, which offers nonstop flights primarily to leisure destinations from relatively small airports, converted existing aircraft options to firm orders to secure slots in Airbus’s production slate and ensure its growth plan isn’t disrupted, Breeze Chief Executive Officer David Neeleman said in an interview. It has 40 remaining options for additional A220-300s.
• Hungary plans to offer a range of dollar and euro bonds to shore up its budget as it’s facing a potential delay in accessing European Union funds because of a feud with the bloc over democratic values. The country may sell 10-year and 30-year bonds in dollars, as well as seven-year and/or 20-year bonds in euros, according to a person familiar with the matter, who asked not to be identified because they’re not authorized to speak about it. Hungary’s debt management agency on Monday increased its cap for 2021 foreign-currency borrowing to 4.5 billion euros ($5.3 billion) from 644 billion forint ($2.2 billion). “The plan to issue several bonds, in both euros and dollars at once, is quite bold, but considering the state of the market, the issuance will be successful,” said Anton Hauser, a Vienna-based fund manager at Erste Asset Management.
• Public Power Corp rose 9% at the opening in Athens, the most in 10 months, after Macquarie Infrastructure Corp. and Real Assets Group offered 2.12 billion euros ($2.5 billion) to buy a 49% stake in the company’s Hedno unit. The offer price is the highest ever submitted in the privatization of a Greek state-owned company, Environment and Energy Minister Konstantinos Skrekas said. The offer is 1.5x, or around 600 million euros, over Hedno’s regulatory asset base, which exceeds market expectations by around 310 million euros, or 1.3 euros a share, Athens-based Euroxx Securities said in a note to investors.
• TransUnion agreed to buy data company Neustar for $3.1 billion in cash, extending its reach into information services. The credit reporting agency will acquire the Reston, Virginia-based business from investors led by private equity firm Golden Gate Capital, according to a statement Monday. Neustar, which is expected to generate about $575 million of revenue in 2021, offers services that help verify digital identities. TransUnion expects the transaction to close in the fourth quarter and will fund the deal with debt as well as cash on hand. The firm said the tie-up will add to adjusted earnings per share from 2023.
• Credit Suisse AG has dropped from the roster of lead banks on an Olam International Ltd. unit’s planned London initial public offering after turning down a loan request, people with knowledge of the matter said. The Swiss bank was set for a top role in Olam Food Ingredients’ London IPO as recently as August, alongside banks including Citigroup Inc. and JPMorgan Chase & Co., said the people, who asked not to be identified as the information is private. Credit Suisse decided not to participate in loan facilities Olam raised that month, the people said. The bank has lent to the Singapore-based agri-business firm in the past, one of the people said.
• Tropical Storm Nicholas gained power as it neared the Texas coast early Monday on a path that will likely bring flooding rains as far north as Houston as well as Louisiana, which is still recovering from Hurricane Ida that struck just two weeks ago. With winds of 60 miles per hour, Nicholas was 45 miles southeast of the Rio Grande River, the National Hurricane Center said in a 5 a.m. Eastern advisory. Louisiana Governor John Bel Edwards declared a state of emergency and Texas Governor Greg Abbott ordered emergency crews to get ready for the storm.  A tropical storm warning stretches along almost all of the Texas coast and it could bring 8 to 16 inches of rain throughout the region, touching off flooding “especially in highly urbanized metropolitan areas,” Eric Blake, a senior hurricane specialist at the center, wrote in his forecast. Nicholas’ winds could peak at 70 miles per hour, just below the 74 mile-per-hour threshold needed to be classified a hurricane.
• For the first time since the beginning of the Covid-19 pandemic, all of New York City’s public school students are expected to return to classes in person on Monday. It’s a day some families have looked forward to for months, and others have dreaded since Mayor Bill de Blasio eliminated a virtual option for the nation’s largest district. Last year, a majority of New York City students took advantage of a remote option, allowing classrooms to operate at a fraction of capacity. The full return to in-class instruction will test de Blasio’s insistence that schools can keep infection rates low even with all 1 million children learning in person and the highly contagious delta variant spreading among the unvaccinated. Since the start of the school year, more than 1,400 schools in 35 U.S. states have closed because of Covid-19, according to the Burbio tracker,which follows school shutdowns.
• The investment-grade primary market, coming off of its busiest week in history, is expected to slow down with about $35 billion in sales in the next five days. High-yield note sales are picking up after a more moderate restart following the Labor Day holiday. Meanwhile, Evergrande has offered a plan to appease investors concerned about overdue payments for its high-yield wealth management products. High-grade sales may jump higher if another jumbo deal surfaces after Walmart priced $7 billion of bonds on Wednesday to help lift total issuance to nearly $78 billion spread out over a record 54 deals during the four trading days
• The delta variant, once again, outpaced Toyota’s efforts to secure semiconductors. The Japanese carmaker cut its expected production for the business year through March 2022 to 9 million units from 9.3 million.  It’s the latest sign that even the world’s No. 1 carmaker, which had weathered the global chip shortage better than its peers in early days of the pandemic, can no longer avoid the turmoil. The virus spread in Southeast Asia has led to a drop in operations at Toyota’s local suppliers, exacerbating the ongoing chip crunch.
• Chinese technology shares fell again Monday amid the latest moves from Beijing to reshape online businesses. Traders mulled a report that the government intends to break up Ant Group Co.’s Alipay business, a Friday statement calling for better protection of gig economy workers’ rights and the latest warning against blocking links to rival services. The Hang Seng Tech Index finished 2.3% lower, with Meituan, Alibaba Group Holding and Tencent Holdings Ltd. dragging on the gauge. Chinese stocks listed in the U.S. fell in premarket trading

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*All sources from Bloomberg unless otherwise specified