September 27, 2021
Daily Market Commentary
- Canadian Imperial Bank of Commerce is planning to double the staff of its innovation-banking unit in the next year and a half as a boom in the technology industry boosts demand for venture lending to startups. The business is opening an office in London, bringing its total locations to 12, Toronto-based CIBC said Monday. CIBC Innovation Banking, which was established when the bank bought venture capital lender Wellington Financial in 2018, also has offices in New York, Boston and Menlo Park, California, among other cities, and currently has a team of about 50. CIBC is expanding the unit as the pandemic accelerates the growth of technology companies, particularly in the software and life-sciences segments. Mark McQueen, who heads the business and led Wellington when CIBC bought it, said the move to the bank has helped the business meet that flood of new demand and should aid its efforts to continue bulking up its staff.
- President Xi Jinping handed down orders for handling the case of Huawei Technologies Co. executive Meng Wanzhou, China said, as Beijing seeks to cast her release as a diplomatic win over the U.S. “General Secretary Xi Jinping made important instructions,” Foreign Ministry spokeswoman Hua Chunying said Monday at a regular press briefing, referring to the 68-year-old’s title as head of the ruling Communist Party. Hua didn’t elaborate on what Xi specifically did, but said diplomats followed through to see that Meng received consular help, and that solemn representations were lodged with the U.S. and Canada, “asking them to drop the charges and ensure her safe return.”
- European stocks traded lower as investors mulled risks from the slowdown in China’s economic growth. The German market outperformed as investors were relieved that a hard-left coalition seemed unlikely following national elections. The Stoxx Europe 600 Index fell 0.2% by 12:11 p.m. in London, with technology stocks leading the declines amid rising U.S. Treasury yields. The DAX climbed 0.4%, boosted by gains in renewable-energy shares after the Greens had their best-ever showing in the vote, in addition to a bounce in real-estate stocks. The European gauge fell after rising as much as 0.7% earlier as investors were spooked by the comments from the People’s Bank of China that the nation’s economic recovery is “still not solid and not balanced.” Concerns also grew as nickel and tin fell sharply in London as China’s power crisis spread from factories to residents.
- U.S. index futures surrendered their gains as investors assessed whether global growth can withstand a slowdown in China and a global energy crunch. U.S. index futures surrendered their gains as investors assessed whether global growth can withstand a slowdown in China and a global energy crunch.
- Asian stocks fell, reversing an earlier gain, as a drop in the Shanghai Composite spooked investors in the region by stoking concerns about the pace of growth in China’s economy. The MSCI Asia Pacific Index wiped out an advance of as much as 0.7%, on pace to halt a two-day climb. Consumer discretionary names and materials firms were the biggest contributors to the late afternoon drag. Financials outperformed, helping mitigate drops in other sectors. The Shanghai Composite was among the region’s worst performers along with Vietnam’s VN Index. Shares of China’s electricity-intensive businesses tumbledafter Beijing curbed power supplies in the country’s manufacturing hubs to cut emissions. The CSI 300 still rose, thanks to gains in heavily weighted Kweichow Moutai and other liquor makers.
- Oil rallied at the start of the week’s trading on signs that the crude market is tightening amid a global energy crunch. West Texas Intermediate topped $75 a barrel after a run of five weekly gains, while Brent reached the highest level since October 2018. Prices are set to continue rallying as supply struggles to catch up with fast-rising demand, according to Trafigura Group’s co-head of oil trading Ben Luckock. His remarks came on the same day that Goldman Sachs Group Inc. said Brent could hit $90 a barrel by year-end as the market is in a bigger deficit than many realize. Crude is rallying on signs that inventories globally are falling sharply, with demand hotting up ahead of winter and OPEC+ only slowly adding barrels back to the market. As traders eye the prospect of large market deficits, Trafigura said longer-dated oil prices remain cheap at around $70 a barrel. So-called timespreads, which gauge market strength, have rallied sharply in recent weeks in another sign that traders are positive about the outlook.
- Gold prices firmed on Monday, propped up by a subdued dollar and slight retreat in the U.S. Treasury yields, with investors gearing up for speeches from U.S. Federal Reserve policymakers this week for cues on the central bank’s rate hike timeline. Spot gold was up 0.4% at $1,757.00 per ounce, as of 0656 GMT, while U.S. gold futures were up 0.4% at $1,758.50.
- Investors added money to exchange-traded funds that buy emerging market stocks and bonds last week. This was the fifth 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 $173.5 million in the week ended Sept. 24, compared with gains of $1.59 billion in the previous week, according to data compiled by Bloomberg. So far this year, inflows have totalled $37.1 billion.
- Rolls-Royce Holdings Plc agreed to sell its Spanish ITP Aero unit to a group led by Bain Capital for 1.7 billion euros ($2 billion), netting the British aero-engine maker much-needed cash to help it recover from the coronavirus crisis. The deal with Bain and partners JB Capital and Spanish defense firm Sapa will help Rolls rebuild its balance sheet as it seeks to restore its investment-grade credit rating, it said Monday in a statement. The shares jumped as much as 11% on the asset sale and contractwin to upgrade engines on U.S. B-52 bomber planes that could be worth as much as $2.6 billion. The unit sale marks a milestone for Chief Executive Officer Warren East, who set a target to raise at least 2 billion pounds from disposals. Rolls-Royce’s finances were hammered by the outbreak, which gutted long-distance travel on the large aircraft that use the company’s engines. Rolls said in August it was near an agreementfor a sale of ITP.
- Polestar, the electric-carmaker controlled by Volvo Car AB and its owner Zhejiang Geely Holding Group Co., has agreed to go public through a merger with blank-check company Gores Guggenheim Inc. The transaction will imply a $20 billion enterprise value, Polestar said in a statement Monday. The deal will bring in about $800 million of cash from Gores Guggenheim and $250 million from institutional investors. Based in Gothenburg, Sweden, Polestar is a rival to Tesla Inc. and EV maker Lucid Motors. The company’s second vehicle and first all-electric car, the Polestar 2, started production in March at Geely’s plant in Luqiao, China. In June, the company said the Polestar 3 — an SUV — will be built in Ridgeville, South Carolina, in a plant opened by Volvo Cars in 2018.
- House Democrats are heading toward a showdown this week over President Joe Biden’s economic agenda, with a planned vote on a $550 billion infrastructure package that has riven the caucus in two and still more negotiations on broader tax and spending plan. House Speaker Nancy Pelosi put the infrastructure bill on the schedule for Monday under pressure from moderates eager to get the bipartisan bill, which has already passed the Senate, enacted. But progressives — whose votes are likely vital — are insisting on progress first on the bigger social-spending bill. On Sunday night, she told House Democrats in a letter that the infrastructure legislation will be voted on Thursday. Party leaders are continuing to negotiate among factions on the second bill encompassing much of the rest of Biden’s plans.
- Google lashed out in court at the European Union regulators who levied a record-breaking $5 billion fine and imposed an antitrust order that struck at the heart of the U.S. tech giant’s ability to make money. The search giant’s power over mobile phones is the focus of a week-long hearing at the EU’s General Court in Luxembourg. Google’s lawyers said the European Commission blundered by demanding changes to allegedly anti-competitive contracts with suppliers of phones running its Android operating system — the engine room for the vast majority of mobile devices in the region. “The commission shut its eyes to the real competitive dynamic in this industry — that between Apple Inc. and Android,” Meredith Pickford, a lawyer for Google, told a five-judge panel on Monday. Regulators “mistakenly found Google to be dominant” for mobile phone software licensed to phone manufacturers. Apple doesn’t allow other phones use its iOS system.
- Uber Technologies Inc. has already seen its U.K. drivers departing to other ride-hailing and delivery apps, leading to longer waiting times. Now drivers are also spending time searching for fuel, hindering their ability to meet demand for rides. “More and more of the working day is taken up looking for fuel,” said James Farrar, general secretary of Britain’s App Drivers and Couriers’ Union. Drivers aren’t compensated for this and they’re not able to raise prices themselves, so the gas shortage is eating into their earnings, he said. The ADCU is planning a strike on Tuesday that will involve “thousands” of drivers in London, Birmingham, Nottingham, Glasgow, Manchester, Bristol, Sheffield and Leeds, Farrar said. The action is demanding pay for all time drivers spend working, an increase to their per-mile fees and an end of what they say are unfair dismissals with compensation for lost wages when drivers are suspended.
- American men lost 2.2 years of life expectancy last year because of Covid-19, the biggest decline among 29 nations in a study of the pandemic’s impact on longevity. Deaths among working-age men contributed the most to declining lifespans in the U.S., according to research led by demographers at the U.K.’s University of Oxford. Only Denmark and Norway, who have excelled at controlling their outbreaks, avoided drops in life expectancy across both sexes, the study published Sunday in the International Journal of Epidemiology found. Before the pandemic, life expectancy at birth had continuously increased in most countries for generations. Covid-19, though, “triggered a global mortality crisis,” the magnitude of which hasn’t been witnessed since World War II in Western Europe or the breakup of the Soviet Union in Eastern Europe, the researchers said.
- U.S. National Security Advisor Jake Sullivan will meet Monday with Crown Prince Mohammed Bin Salman during a trip that makes him the highest-ranking Biden administration official to visit Saudi Arabia. The meeting, confirmed by a U.S. official, comes as the U.S. pushes for a cease-fire in Yemen, where a Saudi-led coalition has been battling Iran-backed Houthi fighters since 2015. The coalition intervened against the Houthis in an effort to restore Yemen’s United Nations-recognized government. The conflict’s created what the UN has called the world’s worst humanitarian disaster and pushed the Yemeni population to the brink of famine.
- Unlisted Heimstaden Bostad AB is about to be crowned the Nordic region’s biggest property company after buying a portfolio of assets from a Northern European rival with the help of a jumbo bank loan. JPMorgan Chase & Co. and Deutsche Bank AG have underwritten a 65.7 billion kronor ($7.6 billion) bridge facility as part of the transaction, which has a total value of 92.5 billion kronor, the Swedish company, rated BBB by Standard & Poor’s, said on Sunday. “We may see high capital markets activity via bond issuance, for example, which would be normal to repay a bridge of this size,” said Danske Bank A/S credit analyst Louis Landeman in an interview.
- UBS Group AG must wait until the end of the year for the outcome of its bid to topple a record 4.5 billion-euro ($5.3 billion) penalty, after Paris judges delayed their ruling in the tax case. The Paris court of appeals said the judgment, originally scheduled for Monday, will now be handed down on Dec. 13. UBS is challenging a 2019 conviction for allegedly helping clients to launder funds through numbered accounts and trusts that should have been declared to French tax officials. UBS is on track to at least win a cut after prosecutors conceded that recent guidance from France’s top court forced them to seek a lower fine, bringing the total penalty and damages sought to 3 billion euros. The Zurich-based lender has only set aside 450 million euros in provisions.
- China Evergrande Group’s electric-car unit plunged in Hong Kong trading after it warned of a “serious shortage of funds,” taking its losses in market value from an April peak past $84 billion. Shares of China Evergrande New Energy Vehicle Group Ltd. closed down 9.4%, extending this year’s decline to 93.3%. At its peak in April, the company was valued at $86.7 billion — higher than Ford Motor Co. — despite not yet having a car on the market. That’s now looking like an increasingly unattainable prospect. In a statement late Friday, Evergrande NEV said it has suspended paying some of its operating expenses and some suppliers have stopped work. The statement confirmed an earlier report by Bloomberg News that the company had missed salary payments to some workers, and fallen behind on paying a number of suppliers for factory equipment.
- Indian Prime Minister Narendra Modi launched a program that will create a unique digital health identity for over 1.3 billion people and allow them to access their records online, part of an effort to enhance efficiency in a healthcare system constrained by the pandemic. The Ayushman Bharat Digital Mission, unveiled Monday, aims to create digital health infrastructure to provide universal health coverage with unique health identification numbers for all citizens. This will allow citizens to link all their health records to this ID through a mobile application. The launch comes amid concerns over privacy and growing surveillance in India, given there is no data protection law in the country and a panel of lawmakers are scrutinizing a bill. Critics have said the government is using the pandemic to make a case for digitizing health records.
- Goldman Sachs Group Inc. sees strength in the global oil market, and it doesn’t expect it to subside anytime soon. The bank raised its year-end price forecast for Brent crude by $10 a barrel to $90, according to the Sept. 26 note from analysts including Damien Courvalin. They also lifted their 2023 outlook by $20 a barrel to $85, well above where forwards and futures contracts for the year currently trade. In the near term, Goldman sees demand springing back stronger than expected as more countries reopen, with coronavirus vaccines proving effective at keeping hospitalization rates low. At the same time, Hurricane Ida took out an unexpectedly large chunk of U.S. crude supply, while OPEC and its partners will struggle to ramp up output fast enough to meet one of the largest inventory draws on record, the bank said.
- Global banks are about to get a comprehensive blueprint for how derivatives worth several hundred trillion dollars may be finally disentangled from the London Interbank Offered Rate. Clearing houses are preparing a synchronized shift of about 13 trillion euros ($15 trillion) of interest-rate swaps to the new euro short-term rate, ESTR, next month. The process is a critical step toward retiring the Euro Overnight Index Average, part of the bedrock of Europe’s financial system. The move by CME Group Inc., LCH Ltd. and Eurex Clearing AG is a test case for their impending transitions from Libor starting later this year. It’s part of a global effort to phase out discredited and unreliable benchmarks after multiple scandals, and replace then with more trusted alternatives.
- Polestar, the electric-vehicle maker backed by Volvo Car Group and actor Leonardo DiCaprio, agreed to go public through a merger with blank-check company at a roughly $20 billion enterprise valuation. The automaker founded four years ago by Sweden’s Volvo and its Chinese owner Zhejiang Geely Holding Group Co. will combine with special purpose acquisition company Gores Guggenheim Inc., according to a statement. Roughly $1.05 billion of proceeds will help Polestar bring three new models to market within the next three years. Unlike other automotive upstarts that have debuted via SPAC deal, Polestar has models on the market and access to an established carmaker’s production network. The transaction with Gores Guggenheim is a coup for Volvo and Geely Chairman Eric Li, who set up the brand with an eye toward drawing external investors as EVs begin to take off. Polestar is betting it will be better able to sustain its valuation than other companies that have gone public chasing the success of Tesla Inc.
- U.K. Prime Minister Boris Johnson is considering bringing in army drivers to fix a supply chain crisis in Britain, with many gasoline stations running dry over the weekend as panic among motorists spreads. Ministers are to meet later Monday. The government has already caved in to industry demands to issue 5,000 short-term visas to truck drivers, yet business leaders and unions said it wouldn’t fix the problem. Fuel supplies had run dry at numerous sites around London, causing anguish for motorists and threatening the ability of key workers to do their jobs.
- Nickel and tin fell sharply in London as China’s power crisis spread from factories to residents, adding risks to supply chains, demand and the economic recovery. Residents in several northern provinces have already been dealing with blackouts, while traffic lights are being turned off, causing chaos on the roads in at least one major city. That shows how quickly the country’s power crisis is escalating, adding the risk of social instability to an economic slowdown and global supply chain disruptions. Economists at Nomura Holdings Ltd. and China International Capital Corp. have downgraded their growth forecasts as electricity shortages force businesses to cut back on production. The power crunch in the top metals consuming country has already caused supply losses at metal smelters, fabricators and steel mills in the past few months.
“Success is a journey, not a destination” —Arthur Ashe
*All sources from Bloomberg unless otherwise specified