September 22, 2021

Daily Market Commentary

Canadian Headlines

  • Canadian stocks climbed along with the country’s currency after Prime Minister Justin Trudeau won a historic third term in a federal election that did little to reorder the political balance of the country. Canada’s benchmark S&P/TSX Composite Index was up 0.7% at 9:58 a.m. in Toronto, in line with gains in other equity markets, while the Canadian currency strengthened against the U.S. dollar. Trudeau’s Liberal Party was elected or leading in 158 of the 338 seats in Canada’s 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. The Bloc Quebecois won 34 seats and the New Democratic Party had 25 seats. The result leaves parliament little changed from how it looked before Trudeau called the vote.

World Headlines

  • European equities continued their recovery from a two-month low as investor concerns over contagion from the blowup at China Evergrande Group ease ahead of the Federal Reserve’s policy update. The Stoxx Europe 600 index was up 0.6% at 10:55 a.m. in London, with mining stocks gaining as metals rose along with other commodities, while energy and travel and leisure also advanced. Defensive sectors like health care and utilities underperformed. Global markets were given a reprieve from fears over the fallout from Evergrande on Wednesday as China’s central bank boosted liquidity and investors reviewed a statement from the troubled developer about an interest payment. European shares were hit by contagion concerns earlier this week and are now down 3% from August’s record high.
  • S&P 500 and Nasdaq 100 contracts advanced. China avoided a major selloff after trading resumed following a holiday, after the country’s central bank boosted its injection of short-term cash into the financial system. The Fed’s potential timeline for tapering stimulus and any shifts in expectations for interest-rate increases will be key for investors, who have grown used to central-bank stimulus supporting asset prices. The Fed meeting comes after a period of market volatility stoked by Evergrande’s woes. China’s wider property-sector curbs are also feeding into concerns about a slowdown in the economic recovery from the pandemic.
  • Asian stocks headed for their longest losing streak in more than a month amid continued China-related concerns, with traders also eying policy decisions from major central banks. The MSCI Asia Pacific Index dropped as much as 0.7% in its third day of declines, with TSMC and Keyence the biggest drags. China’s CSI 300 tumbled as much as 1.9% as the local market reopened following a two-day holiday. However, the gauge came off lows after an Evergrande unit said it will make a bond interest payment and as China’s central bank boosted liquidity.
  • Oil rallied after a U.S. industry report showed another big draw in crude inventories, pointing to a tightening market, and China’s central bank added liquidity to quell concern about a major developer’s debt woes. West Texas Intermediate traded above $71 a barrel after rising as much as 1.9%. Nationwide stockpiles sank more than 6 million barrels, including a drop at the key storage hub in Cushing, Oklahoma, according to the industry-funded American Petroleum Institute. Crude has fared strongly in September after extreme weather disrupted U.S. supplies and as a rally in natural gas spurred expectations oil demand may benefit from switching. In Asia, China’s central bank injected more short-term cash into the financial system, alleviating some concern over the crisis at China Evergrande Group and aiding industrial commodities while the Federal Reserve’s latest interest rate decision will be released later.
  • Gold was steady ahead of the outcome of a Federal Reserve meeting which may provide clues on the outlook for the tapering of monetary stimulus. Traders will scrutinize forecasts by the central bank that could reveal growing pressure to raise interest rates in 2022. The Federal Open Market Committee will release a statement at 2 p.m. Washington time with updated quarterly estimates, including its dot plot of rate projections. Chair Jerome Powell is set to brief reporters 30 minutes later.
  • Iron ore’s roller-coaster ride in 2021 shows no signs of easing, with prices ending an unprecedented slump to move sharply higher as investors monitor simmering debt troubles at China Evergrande Group. The developer’s onshore property unit said it reached an agreement with yuan bondholders on an interest payment, offering some relief after fears over Evergrande’s financial stability sparked a global flight from risk. China’s central bank also boosted short-term cash into the financial system, helping steady commodity markets. In Singapore, iron ore futures climbed more than 15%, surging back above $100 a ton from their lowest close in 16 months. Events around Evergrande spooked the market earlier in the week and the steelmaking material was already oversold, said Atilla Widnell, managing director of Navigate Commodities.
  • The U.K. will accept vaccination certificates from the United Arab Emirates starting next month, in a boost to travel between two of the world’s busiest hubs. In the UAE, mask-wearing rules are being eased after a sustained decline in coronavirus cases. German Health Minister Jens Spahn predicted the pandemic may be over by next spring once so-called herd immunity has been achieved, so long as no new vaccine-resistant variant emerges. China’s northeastern city of Harbin is conducting tests of its 10 million residents and suspending schools for a week to control an outbreak. Singapore’s prime minister said the country is doing its best to expand its coronavirus control operations after new cases topped 1,000 in three of the past four days.
  • Entain Plc shares jumped after DraftKings Inc. offered to acquire the U.K. gambling company for about $22.4 billion, as a surge in sports betting helps drive deal activity across the industry. Entain received a cash-and-stock offer for 2,800 pence a share on Sept. 19, the company said in a statement Tuesday after the London stock market closed. The proposal, representing a 46% premium over Monday’s closing share price, includes 630 pence in cash. Entain also disclosed that it had received an earlier offer from DraftKings of 2,500 pence a share, which the board rejected. Entain said it would “carefully consider” the latest offer, which may not lead to a deal. DraftKings confirmed in a separate statement that it made an offer but didn’t provide additional details.
  • Nancy Davis has lured billions to her ETF guarding against inflation. Now she’s looking to repeat that success with a product betting on the other side of the trade. Her firm, Quadratic Capital Management LLC, is launching the Quadratic Deflation exchange-traded fund (ticker BNDD), it said in a Tuesday statement. The new product will seek to profit in an economic climate of falling prices, weak growth and negative long-term interest rates. Like its established sibling with the opposing mandate — the Quadratic Interest Rate Volatility and Inflation Hedge ETF (IVOL) — the strategy aims to deliver by trading a mix of Treasuries and options.
  • Abu Dhabi National Oil Co. increased the size of its drilling unit’s initial public offering amid heavy demand for shares in what is likely to be the emirate’s biggest listing in at least four years. Abu Dhabi’s state oil company will now list 11% of Adnoc Drilling on the local bourse, raising as much as 4.05 billion dirhams ($1.1 billion). It had initially planned to raise $750 million by offering a 7.5% stake. The decision was “based on significant oversubscription across all tranches,” Adnoc said, and comes amid an uptick in listings in Abu Dhabi and Saudi Arabia. While Riyadh has been the region’s hottest market for listings over the past two years, Abu Dhabi has been trying to revive its local bourse.
  • Volkswagen AG’s truck division Traton SE became the latest manufacturer to warn the global shortage of semiconductors has jeopardized deliveries. Unit sales in the third quarter will be significantly lower than planned, the truckmaker said in a statement Wednesday. Supply bottlenecks are expected to continue in the fourth quarter and into next year. Traton’s parent VW, Daimler AG and rivals outside Germany including Toyota Motor Corp. have braced investors for a downbeat upcoming quarterly earnings season after Covid-19 outbreaks in Southeast Asiafurther crimped chip supplies. The chief executives of VW and Daimler recently warned shortages could continue for months or years to come.
  • Toast Inc., which helps restaurants handle payments, raised $870 million in an initial public offering priced above a marketed range. The Boston-based company sold 21.7 million shares Tuesday for $40 each, according to a statement confirming an earlier report by Bloomberg News. Toast had marketed the shares for $34 to $36 apiece, a target it had raised on Monday from $30 to $33. Toast has a market value of close to $20 billion based on the outstanding shares listed in its filings with the U.S. Securities and Exchange Commission. Accounting for employee stock options and restricted stock units, the company would have a fully diluted value of more than $22 billion.
  • Ineos Group said it will spend 1 billion pounds ($1.4 billion) at its Grangemouth refinery and petrochemicals site to slash emissions in line with Scotland’s 2045 net-zero target. “The main concept of this investment is bringing in hydrogen, fueling a low-carbon economy into Grangemouth,” Andrew Gardner, chairman of Ineos Grangemouth, said in an interview ahead of the announcement on Wednesday. Grangemouth is just east of Glasgow, where United Nations climate talks known as COP26 are scheduled to begin in little more than a month. Ineos, one of the region’s biggest emitters, previously said that it was considering investing in so-called blue hydrogen, produced using natural gas.
  • Sony Group Corp.’s Indian unit signed a non-binding deal to buy the country’s largest publicly-traded television network Zee Entertainment Enterprises Ltd., pouncing on a beleaguered company whose shareholders have sought removal of key officials. Zee shares jumped 32% on Wednesday following the deal announcement, giving it a market value of $4.4 billion. About 53% of the merged entity would be owned by Sony India shareholders and the rest by Zee’s holders, the companies said. Sony shareholders will inject capital into its unit so that it will have about $1.58 billion of funds at closing, and Sony would nominate a majority of the board. The deal would expand Sony’s media business in the world’s second-most populous country, while vaulting Zee Chief Executive Officer Punit Goenka to the top of a bigger entity. Goenka, whose removal Zee shareholders have sought, would lead the combined company, according to the terms of the deal.
  • Democrats are pursuing an almost certainly doomed strategy to avert a government shutdown and stave off a federal default, raising the likelihood of financial-market stresses that will ultimately force U.S. lawmakers’ hands. While the House on Tuesday night approved a bill to keep the federal government funded past the end of the fiscal year on Sept. 30 and to suspend the debt limit for more than a year, blanket Republican opposition means it’s assured of failing in the Senate. Once that Senate rejection — expected in coming days — is complete, the clock will be ticking until the government runs out of authorization to keep many operations running past month-end. Sometime later in October, according to Secretary Janet Yellen, the Treasury Department will exhaust its capacity to keep paying U.S. obligations.
  • Global markets were offered a reprieve from Evergrande contagion fears on Wednesday as China’s central bank boosted liquidity and investors mulled a vaguely-worded statement from the troubled developer about an interest payment. The CSI 300 Index closed 0.7% lower, paring opening losses of as much as 1.9% after an Evergrande unit said a coupon payment had been resolved with bondholders in private negotiations. An injection of short-term cash by the People’s Bank of China lent support to fragile sentiment, helping steady risk assets beyond the world’s second-largest economy.
  • The Federal Reserve is expected to signal scaling back asset purchases later this year, with scrutiny also on forecasts that could reveal growing internal pressure to raise interest rates in 2022. The Federal Open Market Committee is all but certain to hold rates near zero after a two-day policy meeting Wednesday and keep buying bonds at the current $120 billion monthly pace. The panel will release a statement at 2 p.m. Washington time plus updated quarterly estimates, including its dot plot of rate projections. Chair Jerome Powell will brief reporters 30 minutes later. Seven of 18 officials in June penciled in liftoff in 2022, though the median estimate saw rates on hold into 2023.  With inflation forecasts likely to move higher this meeting, more policy makers could join the 2022 camp. Growing support for an earlier hike could undermine Powell’s message of patience while Covid-19 remains a threat, and his claim that tapering doesn’t start the countdown to liftoff.
  • Joe Biden and Xi Jinping boosted their efforts to help other nations address climate change as fears over the global environment and the Covid-19 pandemic dominated the first day of world leaders addressing the annual United Nations General Assembly. President Biden said in his speech Tuesday morning that the U.S. would double funding to aid developing countries cope with climate change, helping bring the world closer to a $100 billion annual target sought ahead of a climate conference in Scotland next month.
  • Europe’s financial watchdog says it expects that banks will start adding to their capital buffers in anticipation of stricter regulatory demands triggered by climate change. The European Banking Authority is drawing up templates that will guide the industry through a new era of financial rules designed to reflect environmental and social risks. Banks will be expected to start reporting within the new framework at the end of next year, but there’s currently no clear time line for introducing new capital requirements
  • Netflix Inc. has agreed to buy the works of novelist Roald Dahl, snaring a catalog that has sold more than 200 million copies worldwide including titles such as “Matilda” and “Charlie and the Chocolate Factory.” The streaming giant plans to use Dahl’s characters and stories for animated and live-action films and TV series, publishing projects, games, theater shows and consumer products, Netflix said in a statement Wednesday, confirming an earlier Bloomberg News report. The deal’s completion is subject to regulatory approvals, it said. Netflix already had a three-year-old agreement with the Roald Dahl Story Co. to make animated shows based on his material. An acquisition is a rare event for Netflix — the company has made fewer than 10 in the past decade — and this would be its biggest. Netflix’s usual practice is to sign deals with big-name filmmakers and TV producers who can deliver the programming the service needs to keep attracting subscribers, which now top 209 million.
  • Freshworks Inc. raised about $1 billion in an initial public offering, pricing the shares above a marketed range it already elevated earlier this week. The company sold 28.5 million shares Tuesday for $36 each after marketing them for $32 to $34, according to a statement confirming an earlier report by Bloomberg News. In what was already set to be one of the largest IPOs on a U.S. exchange this week, Freshworks on Monday lifted the planned range from $28 to $32. At $36 a share, Freshworks has a market value of $10 billion based on the outstanding shares listed in its filings with the U.S. Securities and Exchange Commission. Accounting for employee stock options and restricted stock units, the company would have a fully diluted value of more than $11 billion.
  • Goldman Sachs Group Inc. analyst Jernej Omahen is leaving the firm after two decades in which he became an influential voice on European banks and a regular presence on their earnings calls.  Omahen will retire from Goldman Sachs at the end of the year, according to a post on his LinkedIn page that didn’t say what he plans to do next. Omahen covers 16 financial-services providers including Credit Suisse Group AG, Deutsche Bank AG, UBS Group AGand Banco Santander SA, according to data compiled by Bloomberg. “Jernej played a central role in growing the team, as well as broadening and deepening our coverage across European banks, insurance, real estate and diversified financial companies,” Goldman Sachs said in a memo posted by Omahen. “He is also a friend and mentor to many of our colleagues in Global Investment Research.”
  • BP Plc’s traders lost $100 million in a “debacle” of a deal with a West African commodities firm, according to details from a London employment lawsuit that offers a rare glimpse into the business on the oil giant’s trading floor. BP bought crude oil and sold gasoline in a series of deals with Taleveras Energy that left the U.K. company exposed when Taleveras entered into insolvency procedures in 2015, a former senior trader at BP said in a legal filing. Traders then rushed to charter an oil tanker to collect oil cargoes in an attempt to make good the shortfall of lost funds. The trading mishap was revealed in a suit brought by Jonathan Zarembok, who alleged he was pushed out for voicing concerns about potential bribery in Nigeria, as well as speaking up in the aftermath of the Taleveras deal. He said BP’s trading unit sought to “sweep under the carpet” some of the consequences of the loss.
  • Taiwan has submitted an application to join a Pacific trade deal, just days after China sent its own request to become a member of the agreement which was once pushed by the U.S. as a way to isolate Beijing and solidify American dominance in the region. The Taiwanese application to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership was sent to New Zealand, with a public announcement scheduled for as soon as Thursday morning, according to a person familiar with the situation. New Zealand is the depositary nation for the deal and will forward it to the other 10 nations.
  • President Joe Biden will call for 70% of the world to be vaccinated by this time next year during a virtual vaccine summit he’ll host Wednesday that’s intended to spur countries, businesses and organizations to set firm targets to defeat the coronavirus pandemic. Biden will pledge a U.S. order of 500 million doses of Pfizer Inc.-BioNTech SE’s vaccine for donation abroad, pushing the total U.S. donation pledge above 1.1 billion doses as he leans on other nations to do the same, according to officials familiar with the event. The summit attendees will include foreign leaders, private sector figures and representatives of non-governmental organizations, and include a mix of speeches and recorded statements. Biden will lead one of four sessions, on vaccinating the world, while Vice President Kamala Harris will lead another.

“Victory has a thousand fathers, but defeat is an orphan.” –John F. Kennedy

*All sources from Bloomberg unless otherwise specified