September 21, 2021
Daily Market Commentary
- The S&P/TSX Composite fell for the third day, dropping 1.6%, or 335.82 to 20,154.54 in Toronto. The move was the biggest since falling 1.8% on Jan. 29. Today, financials stocks led the market lower, as all sectors lost; 200 of 235 shares fell, while 34 rose. Shopify Inc. contributed the most to the index decline, decreasing 3.2%. NFI Group Inc. had the largest drop, falling 23.6%.
- Prime Minister Justin Trudeau won a third term in Canada’s snap election though fell short of regaining the majority he was seeking, forcing him to rely on smaller parties in another fragmented parliament. Trudeau’s Liberal Party was elected or leading in 158 of the 338 seats in the House of Commons, with 99% of the polls reporting. That’s one more seat than he won in the last vote in 2019. The main opposition Conservatives, under Erin O’Toole, won 119 seats, two fewer than last time. For a second straight election, though, the Liberals lost the popular vote to the Conservatives and won only because of a strong showing in Toronto, Montreal and other cities. Overall, the result leaves parliament little changed from what it was before Trudeau called the election — a stable minority that gives the prime minister license to continue pursuing a pre-election big-spending agenda that had already received parliamentary backing earlier this year. In addition, Trudeau should easily find support in the legislature to press ahead with new campaign pledges such as raising taxes on financial institutions and imposing stricter emission rules for the oil and gas sector.
- European equities recovered from their worst decline in two months, as concerns over China’s real estate crackdown eased and investors awaited this week’s Federal Reserve meeting for guidance on tapering. The Stoxx Europe 600 Index was up 1% as of 12:16 p.m. in London, with most sectors gaining. Commodities-linked industries traded higher as oil advanced and iron ore futures took a breather following Monday’s rout. The European benchmark slid Monday to its lowest level since July as fears of contagion from a debt crisis at China Evergrande Group added to worries over rising inflation, a stimulus slowdown and coronavirus risks. The Stoxx 600 is now about 3.5% away from its record high, reached in August.
- Futures on the S&P 500 and Nasdaq 100 gained, suggesting some improvement in sentiment after concerns about fallout from China Evergrande Group’s debt woes roiled markets Monday. Dip-buyers in the last hour of trading Monday helped the S&P 500 pare some losses, though the index still posted the biggest drop since May.
- Asian stocks fell for a second day amid continued concerns over China’s property sector, with Japan leading regional declines as the market reopened after a holiday. The MSCI Asia Pacific Index was down 0.5%, headed for its lowest close since Aug. 30, with Alibaba and SoftBank the biggest drags. China Evergrande Group slid deeper in equity and credit markets Tuesday after S&P said the developer is on the brink of default. Markets in China, Taiwan and South Korea were closed for holidays. Worries over contagion risk from the Chinese developer’s debt problems and Beijing’s ongoing crackdowns, combined with concern over Federal Reserve tapering, sent global stocks tumbling Monday. The MSCI All-Country World Index fell 1.6%, the most since July 19.
- Oil rose after a two-day decline with a selloff in global equities easing and some crude output still shut three weeks after Hurricane Ida hit the U.S. Futures in London climbed above $75 a barrel. Wider markets recovered from a selloff on Monday, which also rippled into oil, ahead of this week’s Federal Reserve meeting. Ida is having a lasting impact on the oil market with some fields in the Gulf of Mexico unable to resume supply until next year. Traders are also weighing the impact of the global energy crunch on demand. Oil has resumed its advance over the past month, in part due to a tightening of the market following lingering supply disruptions from U.S. storms. At the same time, consumption is coming into focus in anticipation that soaring natural gas prices will force a shift toward oil.
- Gold advanced as fears of a spillover from debt woes of Asian real estate developer China Evergrande Group stoked demand for havens, outweighing concerns that the Federal Reserve’s reduction in stimulus could come soon.
- Royal Dutch Shell Plc shareholders will get an unexpected $7 billion payout after the company promised to give them three quarters of the proceeds from the sale of Permian shale oil fields to ConocoPhillips. The cash pledge comes less than two months after Shell raised its dividend by almost 40% and started $2 billion of share buybacks. It’s more evidence that the energy giant is working hard to regain the faith of investors after making a historic cut to its payout last year in the depths of the Covid-19 pandemic. “For investors elsewhere, a divestment immediately allocated into a buyback to the tune of $7 billion, with balance sheet strengthening on top, is rare,” analysts from Bernstein Research said in a note. It “proves without any doubt that Shell are focused on winning shareholders back.”
- The European Union is discussing a possible delay of upcoming trade talks with the U.S. following French outrage over a canceled Australian submarine contract that was scuttled in favor of a new defense pact with Washington and the U.K. France asked the European Commission to postpone the first meeting of the Trade and Technology Council that was due to gather in Pittsburgh on Sept. 29, according to EU diplomats who asked not to be identified because the talks are confidential. The EU was seeking to use the Pittsburgh meeting to hammer out a framework to screen potentially hostile foreign investments, cooperate on export controls, discuss artificial intelligence and address critical supply chain gaps of goods like semiconductors. But more importantly, it would have symbolized a reconciliation after four years of transatlantic trade conflict with former President Donald Trump.
- Universal Music Group BV shares soared in their stock market debut as investors seized the chance to own the dominant player in a resurgent music industry. Spun off from French media company Vivendi SE, UMG hit the Amsterdam stock market with a value of 45.4 billion euros ($53.2 billion). The listing comes days after the U.S. recorded music sector reported strong sales growth driven by a surge in streaming audiences on platforms such as Spotify and Apple Music during the pandemic. UMG is seen by analysts as the overwhelming winner in new markets because it produces more stars and hit songs than its rivals, Sony Music Entertainment and Warner Music Group. UMG controls about 40% of the industry and that success helps it to lure the next generation of talent. Nine of the top 10 selling musicians worldwide last year were UMG artists, according to global industry body IFPI.
- Goldman Sachs Group Inc.’s Petershill Partners is planning to go public in a deal that could raise as much as 1.1 billion pounds ($1.5 billion), adding to a rush of private equity firms listing in Europe. The newly created company will be valued as much as 4.3 billion pounds. It’s the third IPO by a private equity manager in Europe in recent months, underscoring investor demand for high-growth assets. Petershill announced the terms of the deal on Tuesday, saying it plans to raise about 549 million pounds in fresh capital and existing shareholders will sell shares worth as much as 540 million pounds. If there is enough demand, underwriters can increase the deal size to as much as 1.3 billion pounds.
- Indian drugmaker Macleods Pharmaceuticals Ltd. has selected banks including Edelweiss Financial Services Ltd. and ICICI Securities Ltd. to manage its Mumbai initial public offering, according to people familiar with the matter. The 35-year-old company has also picked JPMorgan Chase & Co. for the listing, the people said. More bankers could be added later, they said, asking not to be named as the information is private. Macleods could raise about $1 billion from the listing, one of the people said.
- Telkom SA SOC Ltd. is looking to list the South African phone company’s tower and mast portfolio in Johannesburg, saying the value of the business isn’t reflected in the share price. The former state monopoly will make a final decision on the move before the end of the fiscal year, according to a statement on Tuesday. The division, called Swiftnet, owns more than 6,200 masts and is currently part of property subsidiary Gyro. Telkom shares gained as much as 11% after the announcement, the most in almost four months. The stock has increased more than a third this year, valuing the group at 21 billion rand ($1.4 billion).
- A booster dose of Johnson & Johnson’s Covid-19 vaccine provided 100% protection against severe disease when given two months after the first inoculation, according to widely anticipated data that suggests it increases the potency of the one-time shot. The booster was 94% effective at preventing symptomatic Covid infections in the U.S. portion of the Phase III trial, and 75% effective overall when it was given 56 days after the initial dose, the company said in a statement Tuesday. A second study found the additional shot spurred a 12-fold increase in production of antibodies against Covid when it was given six months after the first. The results come as many developed nations turn to booster shots to address waning protection from some vaccines and the rise of the more infectious delta variant, which is sparking new outbreaks globally. The move has raised questions about the level of protection afforded by the existing shots and the equitable distribution of the vaccines now available.
- U.S. Bancorp will buy MUFG Union Bank’s core regional banking franchise from Mitsubishi UFJ Financial Group for about $8 billion, as consolidation in the American financial industry intensifies. The deal price includes $5.5 billion in cash and about 44 million shares of U.S. Bancorp common stock. MUFG will hold a minority stake of approximately 2.9% in the U.S bank. MUFG said the total transaction is worth about $17.6 billion, and includes $9.6 billion from dividends or share buyback by Union Bank ahead of the sale. The agreement excludes the purchase of MUFG Union Bank’s Global Corporate & Investment Bank, certain middle and back office functions, other assets, it said in a statement on Tuesday.
- Uber Technologies Inc., the ride-hailing giant that once posteda quarterly loss of $5.2 billion, may finally be about to turn a profit. Shares in Uber rose 4.2% in pre-market trading in New York on Tuesday, while rival Lyft Inc. also rose 2.3%. The company’s adjusted earnings before interest, taxes and other expenses may range from a $25 million loss to a $25 million profit in the third quarter, it said in a filing Tuesday. On that basis a profit would arrive slightly earlier than previously anticipated, as Chief Executive Officer Dara Khosrowshahi had told analysts in August that a fourth-quarter adjusted profit was in reach. Uber said Tuesday adjusted earnings in the fourth quarter could range from flat to a $100 million profit.
- Federal Reserve Chair Jerome Powell will this week face the challenge of convincing investors that plans to scale back asset purchases aren’t a runway to raising interest rates for the first time since 2018. “You have two tools,” said Michael Gapen, chief U.S. economist at Barclays in New York, referring to bond buying and interest rates. “If you are making progress to start using one of your tools, that means you are making progress toward using the other.” Officials are expected to hold interest rates near zero while telegraphing tapering of the Fed’s $120 billion in monthly bond purchases in their policy statement at 2 p.m. in Washington Wednesday.
- The International Energy Agency called on Russia to supply more natural gas to Europe, saying the energy crunch was an opportunity for the country to show it’s a “reliable supplier.” Russia is meeting is contractual obligations to ship gas to Europe, but its exports to the continent are still down from levels in 2019, before the global pandemic, the agency said. More gas flowing from the east would help Europe boost its stockpiles before the winter. Gas prices in Europe are breaking records day after day as top supplier Russia keeps a cap on the additional flows needed to refill storage sites. Norway has struggled to sell more due to heavy maintenance while Asia is scooping up cargoes of liquefied natural gas, leaving Europe starved of the fuel just a few weeks before the heating season starts.
- Off-exchange trading venues LeveL ATS and Luminex Trading & Analytics agreed to merge in a deal that brings together their buy-side and sell-side investor networks. LeveL ATS, an equity-trading platform for sell-side investors, and Luminex, a block-trading venue built and owned by the buy-side community, will continue to operate as separate trading systems but under one broker-dealer system, according to executives for the two Boston-based companies. “By combining we create an ecosystem where both the buy-side and sell-side have the ability to interact when and how they choose, broadening the liquidity that both customers can participate in,” LeveL ATS Chief Executive Officer Whit Conary said in an interview.
- China Three Gorges Corp. is considering acquiring X-Elio Energy SL’s Mexican renewable energy business as the state-owned firm seeks to expand its international footprint, according to people familiar with the matter. X-Elio’s portfolio in Mexico, where it has about 535 megawatts of projects in operation, could be valued at about $400 million in a potential transaction, the people said. Considerations are ongoing and no final decision has been made, said the people, asking not to be identified because the matter is private. Other bidders for the assets could still emerge, the people said. China Three Gorges didn’t immediately respond to requests for comment made on a public holiday in China. A representative for Madrid-based X-Elio, which is owned by Brookfield Renewable Partners LP and KKR & Co., declined to comment.
- The U.K.’s green bond debut broke records as investors jumped on the most anticipated sterling debt sale of the year. The U.K. will raise 10 billion pounds ($13.7 billion) from green debt maturing in 2033, a record for a green bond sale. It has attracted over 100 billion pounds of orders, also an all-time high for both U.K. gilts and the global green market, beating Italy’s debut earlier this year. While a boom in global sales looks set to take ethical debt issuance toward $1 trillion this year, deals in sterling remain a small fraction of that. As recently as last year Robert Stheeman, the head of the U.K.’s Debt Management Office, said green gilts would be merely a “symbolic” step unless investors were prepared to pay more.
- Expectations are mounting that U.S. regulators will intensify supervision of banks exiting Libor following sluggish progress in the $2 trillion syndicated lending market. A senior New York Federal Reserve official has complained about inertia in loans, and repeated warnings that firms will create safety and soundness risks by writing Libor contracts beyond year-end. The worries have been echoed by others. Both the Treasury and the Securities and Exchange Commission are among government agencies that have expressed concern that companies aren’t being offered loans linked to Libor alternatives. Some $6.2 trillion of business and consumer loans were still pinned to dollar Libor as of March, according to the Alternative Reference Rates Committee.
- Google employees have joined the slew of politicians and activists blasting the internet giant for pulling a voting app from Russia’s opposition leader, a move critics say showed the company was caving in to the Kremlin. Staff members complained over the weekend about the Google’s decision in internal forums and on memegen, a messaging board that has served as a breeding ground for protests within the company. Images circulating inside Google, which were viewed by Bloomberg News, spoofed its corporate creed about prioritizing users. One picture depicts a man reading a magazine below the slogan, “Putinthe user first.” These internal frustrations are the latest in a series of blows to Alphabet Inc.’s Google operations in Russia, where the company is facing increased political pressure, fines and aggressive demands to police its influential internet services. So far, Google has decided those pressures are still worth operating in the multibillion dollar advertising market.
- National Express Group Plc is in talks to buy rival bus operator Stagecoach Group Plc in a deal that would unite two of Britain’s biggest transport firms as the industry faces a costly transition to electric vehicles. The 442 million-pound ($604 million) takeover proposal, confirmed by the companies Tuesday, would help National Express expand amid a rebound in commuter and leisure travel from the Covid-19 crisis, while keeping down costs through the sharing of bus depots, routes and office functions. A bigger group would also be better placed to make the hefty investments required as Britain moves to de-carbonize its bus fleet.
- Investors seeking hints about how Beijing plans to deal with China Evergrande Group’s debt crisis are training their crosshairs on the central bank’s liquidity management. The People’s Bank of China will resume daily open-market operations Wednesday after a holiday break, and a large net injection may signal Beijing’s intent to reduce systemic stress after the Evergrande crisis roiled global equities. On the other hand, if the PBOC withdraws funds, that could mean it’s prepared to tolerate higher market volatility as the developer moves closer to a default. The need to calm market jitters may be even more pressing if mainland stocks slide at the resumption of trade Wednesday as they catch up with losses made offshore. The Hang Seng China Enterprises Index, a gauge of Chinese equities traded in Hong Kong, slumped more than 3% when China was shut Monday and Tuesday, while Wall Street analysts sought to reassure investors that Evergrande won’t lead to a Lehman moment.
“In three words I can sum up everything I’ve learned about life: it goes on.” –Robert Frost
*All sources from Bloomberg unless otherwise specified