September 15, 2021
Daily Market Commentary
- Canadian National Railway Co. has declined to increase its offer for Kansas City Southern after a months-long takeover battle, a person familiar with the matter said, ceding to Canadian Pacific Railway Ltd. a prize that will create the first railroad spanning the U.S., Canada and Mexico. The decision opens the door for Kansas City Southern to move forward with Canadian Pacific’s $27 billion merger proposal and terminate a $30 billion agreement with Canadian National. That CN pact began to unravel last month when U.S. regulators rejected a key provision of the agreement. Kansas City Southern responded to the regulatory ruling on Sept. 12 by saying Canadian Pacific’s proposal was superior and giving its larger rival five business days to respond. A Canadian Pacific-Kansas City Southern agreement will need approval from shareholders, Mexican regulators and the U.S. Surface Transportation Board.
- Brookfield Asset Management Inc. and Canada’s Public Sector Pension Investment Board are considering reviving the sale of a controlling stake in French towers company TDF Infrastructure, after previous plans to do so stalled, according to people familiar with the matter. The investment firms may begin a formal sale process before the end of the year that could value TDF at more than 5 billion euros ($5.9 billion), the people said, asking not to be identified discussing confidential information. Deliberations are in the early stages and no final decisions on the timeline of any sale have been made, the people said. Representatives for Brookfield and TDF declined to comment, while a spokesperson for PSP didn’t immediately respond to requests for comment.
- Brookfield Asset Management Inc. is seeking to raise $12 billion to $15 billion for its third flagship private equity fund after making a string of acquisitions, according to people familiar with the matter. The Toronto-based firm is expected to start fundraising later this month and complete it by early 2022, the people said, asking not to be identified because the matter is private. In a letter to shareholders in August, Brookfield Chief Executive Officer Bruce Flatt said he wanted to bring in $100 billion for deals and grow each of the firm’s flagship funds to more than $25 billion in capital over time. To achieve that, Brookfield is bolstering its investor ranks. Flatt said the firm now has 2,000 clients globally, up from 425 five years ago.
- European equities fell Wednesday amid worries over the impact of rising inflation on central bank policy, along with lingering growth concerns. The Stoxx Europe 600 Index was down 0.3% as of 12:26 p.m. in London, with retail, utilities and consumer stocks falling, while energy, miners and automakers outperformed. A rally in European shares has stalled over the past month as investors considered whether central banks would need to reduce stimulus in order to stem inflation. Statistics released Wednesday showed U.K. consumer prices rose at the strongest pace in more than nine years.
- U.S. futures edged higher, while European stocks slipped as traders contemplated mixed data on the global recovery. Contracts on the S&P 500 and Nasdaq 100 rose after Monday’s declines in the underlying indexes. Casino companies fell in pre-market trading after Chinese officials said they would change regulations to tighten restrictions on operators. The 10-year Treasury yield ticked lower and the dollar weakened against major peers. U.S. inflation was lower than forecast in August but still elevated, leaving the debate about whether price pressures are transitory unresolved. Meanwhile, U.K. inflation surged more than expected to the strongest pace in more than nine years, prompting investors to anticipate a sharper increase in interest rates in 2022.
- Asian stocks dropped, hurt by a selloff in Macau casino operators over fears of tighter regulations and declines in Japanese equities. The MSCI Asia Pacific Index fell as much as 1%, with Sands China, Wynn Macau and Galaxy Entertainment Group all plunging to lead decliners on the gauge Wednesday. Chinese tech stocks declined again as the government scrutiny on casinos also fueled concerns that Beijing was strengthening its broader regulatory crackdown. Japanese shares, which have led gains in Asia this month on expectations of favorable policy changes following Prime Minister Yoshihide Suga’s decision to resign, were among the region’s biggest losers Wednesday. Both the Topix and Nikkei 225 snapped a three-day winning streak.
- Oil gained after a U.S. industry report showed another decline in inventories of crude and gasoline, signaling a tightening market. Global benchmark Brent rose above $74, while West Texas Intermediateadvanced for a fourth day. The industry-funded American Petroleum Institute reported nationwide crude stockpiles fell 5.44 million barrels last week, according to people familiar with the matter. Official data will be released later, while the dollar also weakened making commodities priced in the currency more valuable.
- Gold prices on Wednesday consolidated in a tight range near the key $1,800 level as softer U.S. inflation data fed uncertainty about the Federal Reserve’s tapering timeline. Spot gold was down 0.2% at $1,800.38 per ounce by 0904 GMT, but slightly off a one-week peak of $1,808.50 hit on Tuesday, in part because the dollar recovered some ground following a slide driven by the inflation data.
- U.S. President Joe Biden suggested the possibility of an in-person meeting with Xi Jinping during a phone call last week, but the Chinese president declined to commit to one as he continues to avoid leaving his country even for major gatherings amid the Covid-19 pandemic. Biden suggested the two leaders meet at some point in the next few months, according to people familiar with the conversation who were granted anonymity to discuss it. When asked late Tuesday at the White House whether he was disappointed that Xi didn’t want to meet with him, Biden told reporters “not true.” Xi hasn’t left China for more than 600 days, the longest stint of any Group of 20 leader. Instead, he’s made virtual appearances at events including a summit of leaders from the BRICS nations. He isn’t expected to appear at next week’s United Nations General Assembly in New York either, though Chinese presidents seldom attend those gatherings.
- India will allow telecommunications firms to receive 100% foreign direct investment without any government clearances, part of a plan to bail out its wireless phone operators including the local unit of Vodafone Group Plc that’s grappling with mounting debt, a crushing price war and billions of dollars in government dues. Currently firms can raise only 49% FDI through the so-called automatic route, Telecom Minister Ashwini Vaishnaw said in a briefing Wednesday. Prime Minister Narendra Modi’s administration also allowed telecom firms four years to clear dues to the government. The rescue plan is crucial for Vodafone Idea Ltd. and Bharti Airtel Ltd. — India’s No. 2 carrier — both of which saw their financial health deteriorate after billionaire Mukesh Ambani’s Reliance Jio Infocomm Ltd. sparked a brutal price war in 2016, and quickly clinched market share to become the top player. Many private phone operators exited the market, merged with rivals, or filed for bankruptcy after Jio lured away subscribers with cheap data and free calls.
- Microsoft Corp., the world’s largest software maker, has launched what could be its largest ever stock-repurchase program of as much as $60 billion, at a time when lawmakers are considering a tax on buybacks. The company’s recent resurgence has given it a market value north of $2.2 trillion, making it the second-most valuable publicly traded company after a 35% rise in its shares over 2021. Its previous buyback plan, unveiled in September 2019, was for $40 billion. Microsoft’s latest purchase scheme comes after two senior Democratic senators proposed a 2% tax on corporate stock buybacks as part of a bid to help fund a $3.5 trillion U.S. budget bill.
- Pfizer Inc.’s vaccine neutralized two concerning new variants in a lab experiment that offers reassurance for countries relying on immunization campaigns to subdue the pandemic. U.S. President Joe Biden is expected to meet with chief executives from companies including Walt Disney Co. and Microsoft Corp. to discuss vaccination requirements, Dow Jones reported. China’s economy weakened further last month after virus curbs damped consumer spending, a trend that may be extended as students and teachers were urged to avoid travel for the upcoming holidays. Singapore said the treatment plan for most people with breakthrough infections will be home quarantine.
- Cathie Wood’s exchange-traded funds sold $66 million of Tesla Inc. shares Tuesday and picked up more Robinhood Markets Inc. as the retail broker’s dismal stock market performance continues. Ark Investment Management LLC funds sold almost 89,000 shares in Tesla and added more than 236,000 of Robinhood, according to the firm’s daily trading update. They’ve added about 390,000 Robinhood shares so far this month. Shares in the online brokerage, which became a household name as cooped-up users bet on assets like meme stocks and cryptocurrencies, have fallen 43% from their peak in early August. Ark is the company’s fifth-largest stockholder with just under 1% of the shares.
- Macau’s top gaming stocks lost a record $18.4 billion in combined market value on Wednesday after officials said they would change casino regulations to tighten restrictions on operators, including appointing government representatives to “supervise” companies in the world’s biggest gaming hub. The Bloomberg Intelligence index of the six big casino operators fell a record 23%. American operators saw the worst selloffs, with Sands China Ltd. sinking as much as 33%, while Wynn Macau Ltd. plunged 34%, both the steepest declines ever. Galaxy Entertainment Group slumped 20%, its sharpest drop in a decade. The sector also led declines in China’s dollar bond market. A note due 2028 from Wynn Macau sunk 9 cents on the dollar to 91.4 cents, according to Bloomberg-compiled prices, set for its biggest-ever decline. Dollar bonds from SJM Holdings Ltd., MGM China Holdings Ltd. and Melco Resorts and Entertainmentdropped at least 3 cents.
- Treasury Secretary Janet Yellen has one of the biggest to-do lists in Washington: usher in a global tax overhaul, press Wall Street on climate change and distribute billions of dollars in Covid-relief funds. Yet her efforts are hampered by vacancies in the Treasury’s top ranks, where only three officials including herself have been confirmed by the Senate. Of the 17 key remaining jobs that require confirmation, 10 have nominees stuck in the Senate, while the rest have not been named. Priorities such as a top-to-bottom review of the agency’s financial sanctions and work to bolster resilience of the U.S. Treasuries market — which nearly seized up in March 2020 amid a desperate global rush for cash dollars — have progressed far slower than expected, according to people familiar with the matter.
- Walmart Inc. is teaming up with Ford Motor Co. and self-driving startup Argo AI to launch a driverless delivery service in three U.S. cities. Testing will begin in three cities later this year — Miami; Austin, Texas; and Washington, Argo said Wednesday in a statement. Ford is providing Escape hybrids outfitted with Argo’s self-driving technology to deliver groceries and other merchandise in what’s billed as Walmart’s first multicity self-driving service. Walmart, the world’s largest retailer and a logistics leader, has aggressively pursued the possibility of delivering its goods in robot rides. It also is testing driverless delivery with General Motors Co.’s Cruise LLC, Alphabet Inc.’s Waymo, autonomous delivery startup Nuro, and self-driving delivery company Gatik. With a boom in online shopping driving demand, analysts say autonomous delivery could become a $1 trillion business.
- KKR & Co. is forming a joint venture with Cornerstone Cos. to acquire more than $1 billion of health-care real estate, such as medical offices and ambulatory surgery centers. Demand for medical offices and other outpatient facilities, which can serve patients more cheaply than hospitalization, is expected to grow to help reduce health-care costs, according to real estate advisory firm Newmark Group Inc. KKR’s $349 billion global portfolio includes more than two-dozen health-care companies that provide insights into potential real estate opportunities. “As investors in the health-care sector for more than two decades, our relationships and understanding of the needs of tenants will help us to provide attractive ownership for their mission-critical real estate,” Michelle Hour, credit director at New York-based KKR, said in a statement Wednesday.
- Jefferies Financial Group Inc. hired more than a dozen bankers as part of an effort to win more business in advising financial institutions on mergers and acquisitions. The firm added six managing directors for its financial institutions group in recent months, including Bank of America Corp.’s Jackie Cleary, who will be based in Australia, according to a memo obtained by Bloomberg. They’ll be overseen by Alejandro Przygoda, who recently joined from Credit Suisse Group AG to lead the unit from New York. While some of the names have emerged in press reports, the memo shows the extent to which the New York-based firm has been building its franchise.
- U.K. inflation surged more than expected to the strongest pace in more than nine years, prompting investors to anticipate a sharper increase in interest rates next year. Consumer prices jumped 3.2% in August from a year ago, the most since March 2012, after dipping back to the central bank’s 2% target the month before, the Office for National Statistics said on Wednesday. The reading was above the highest estimate in a Bloomberg survey. The pound gained 0.1% against the dollar to $1.3822, and money markets are now betting the Bank of England will raise the base rate to 0.5% by the end of next year.
- North Korea fired off two ballistic missiles — its second major test in less than a week of weapons designed to bolster its capability to conduct nuclear strikes against Japan and South Korea. South Korea’s Joint Chiefs of Staff said two ballistic missiles were fired from central North Korea into waters off the eastern coast of the peninsula Wednesday afternoon. The launch came on the same day South Korean President Moon Jae-in observed his own military’s test of a submarine-launched ballistic missile, joining a small list of countries to demonstrate the technology. Japanese Prime Minister Yoshihide Suga called the North Korean launches an “outrage and a threat to the peace and safety of our country and the region.” Suga said “we protest strongly and condemn this action,” noting that Pyongyang is banned from tests of ballistic missiles under United Nations resolutions.
- California Governor Gavin Newsom beat back a recall effort, with voters resoundingly deciding to keep the first-term Democrat in office after a historic special election. Democratic voters in the most-populous U.S. state turned out to defeat a conservative-led movement that was fueled by anger over pandemic restrictions. The result wasn’t close, with major news outlets declaring the race in Newsom’s favor less than an hour after polls closed. The outcome is a major win for Newsom, 53, and Democratic leaders who had characterized the recall attempt as a power grab by supporters of former President Donald Trump. A loss would have marked a sharp reversal for California, which has championed itself as a leader in progressive initiatives and hasn’t elected a Republican to statewide office since 2006. It also would have signaled trouble for national Democrats heading into the 2022 elections.
- U.K. Prime Minister Boris Johnson will announce changes to his cabinet on Wednesday as he seeks to rebuild the economy in the wake of the coronavirus pandemic. While the premier on Tuesday set out plans to manage the ongoing Covid pandemic over the fall and winter, he’s now seeking to redouble efforts to deliver on election promises including his plan to “level up” parts of the country that have fallen behind, an official familiar with the matter said. The changes to Johnson’s top team comes ahead of a potentially tricky few months as the prime minister continues to grapple with high levels of Covid-19 cases while seeking to return the country to normality and rebuild the economy in the wake of its worst recession in three centuries. It will also enable the governing Conservative Party to present a fresh face at its annual conference early next month.
- Hundreds of thousands of people may be infected annually by animals carrying coronaviruses related to the one that causes Covid-19 in China and Southeast Asia, according to a study emphasizing the ongoing pandemic threat from spillover events. An average of 400,000 such infections occur each year, most going unrecognized because they cause mild or no symptoms and aren’t easily transmitted between people, researchers with the EcoHealth Alliance and Singapore’s Duke-NUS Medical School said in a study released Thursday before peer review and publication. Still, each spillover represents an opportunity for viral adaptation that could lead to a Covid-like outbreak. The question of where and how the virus that causes Covid emerged has become particularly contentious, with some leaders blaming a hypothetical leak from a lab in Wuhan, China that studies the pathogens. The new research, supported by the U.S. National Institute of Allergy and Infectious Diseases, builds on evidence that bats are the main host-animals for viruses like SARS-CoV-2 and that people living near their roosts are especially vulnerable.
- HPS Investment Partners has closed its largest direct lending fund as investors continue to pour money into the booming private credit market. The firm’s fifth Specialty Loan Fund, together with parallel investment funds and accounts, raised about $11.7 billion in equity commitments translating to about $15.4 billion of investable capital including leverage, according to a statement viewed by Bloomberg. The fund drew a mix of new and current investors, primarily from pension funds, sovereign wealth funds and insurance companies, according to a person familiar with the matter. Committed capital was a roughly even mix between U.S. and foreign investors, the person said. Fund-raising began in early 2020.
- A SpaceX rocket is set to launch four civilians into orbit for a three-day voyage circling the Earth, a new milestone in Elon Musk’s quest to send everyday people to the cosmos, eventually establishing a colony on Mars. No professional astronauts will be on board. The flight is scheduled for liftoff as soon as Wednesday evening from Florida. The passengers will rely upon the SpaceX Dragon capsule’s autonomous capabilities for navigation, life support and a safe return, splashing down in the Atlantic Ocean. The trip, dubbed Inspiration4, will carry technology billionaire Jared Isaacman, 38, and three others into orbit aboard the Dragon. SpaceX is touting the flight as a boundary-breaking effort to prove that ordinary, relatively fit non-astronauts can withstand the rigors of spaceflight. During their time orbiting the Earth, the crew will conduct medical research to investigate the bodily and health impacts of spaceflight.
- American Airlines Group Inc. signed a letter of intent to invest $200 million in Brazilian partner Gol Linhas Aereas Inteligentes SA under a deal that would expand their commercial cooperation, establish an exclusive codeshare and link loyalty programs. The two will work together in areas including purchasing, sales tools and systems integration as allowed by regulatory and other limits, American said in a statement Wednesday. The U.S. carrier will invest in 22.2 million newly issued Gol preferred shares in exchange for a 5.2% “participation in the company’s economic interest,” and will gain the right to name a director to the Brazilian airline’s board. The agreement builds on an initial marketing, or codeshare, established in 2020 after a previous South American partner was snatched away from American by Delta Air Lines Inc. It will allow customers to travel to more than 30 cities served by American in the U.S. and over 20 new destinations served by Gol in South America. The expanded relationship follows American’s agreement to buy a stake in JetSmart Airlines SpA, a privately-held, low-cost carrier based in Chile.
- The European Central Bank will let its employees work remotely until early next year, the latest sign that the delta variant of the coronavirus is derailing the return to the office around the world. The “default solution is remote working, still today, and probably until the end of January, and then we will see,” ECB President Christine Lagarde said on “The David Rubenstein Show: Peer-to-Peer Conversations” on Bloomberg Television
“The greatest glory in living lies not in never falling, but in rising every time we fall.”- Nelson Mandela
*All sources from Bloomberg unless otherwise specified