Launch Pad

Daily market commentary

Friday, September 17, 2021
  
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Today
 

Green Day said it best with their song “wake me up when September ends”, and that is certainly what many investors are singing now. History is not on our side as we enter the second half of the month and markets continue to lose steam. Stock futures are lower this morning as investors remain cautious due to a resurgent Covid virus, a Fed meeting next week, and a historical tendency for September to be a weak month for equities. Major indexes are up modestly this week but it is still not certain if they will close the week in the green; so far this month, stocks remain in the red. 

It’s “quadruple witching” day, when stock and index options and futures expire today. It happens four times a year, on the third Friday of the last month of each quarter.  This can lead to increased trading volume and volatility. The quarterly expiration also coincides with a rebalancing of benchmarks such as the S&P, sparking single-day volumes that rank among the highest of the year. Roughly $3.4 trillion of equity options are set to mature, including $720 billion of single stock options that is expected to be the most for any September expiration. The rebalance in the S&P 500 alone may force $55 billion of stock trades, according to S&P Dow Jones Indices. 

Close to 70% of employers worldwide are having trouble finding people to fill vacant roles, making work perks all but essential for companies scrambling to fill open roles. Many companies have made promises of paying higher wages, offering more flexible schedules and even offering free college tuition for workers. Despite these new perks, we are still seeing global labour shortages leading to some companies going a different route and scrapping drug tests to attract and retain talent. In a survey out earlier this week, 9% of employers worldwide said they are eliminating job screenings or drug tests in order to attract and retain talent, so if you smell anything funny next time you go pick up some food, you’ll know why. 

Analysts warn that U.S. auto stocks may remain volatile over the next 3 to 6 months as visibility for the sector is significantly lacking. As production disruption is likely to most hurt the supplier link of the value chain, investors will remain cautious until more clarity comes out. 

Believing in the strong U.S. consumer, retailers are building up their inventories in preparation for the holiday season as reported by the WSJ. While markets have been unsettled over covid-19 worries and contagion impact of a possible slowdown in China (notwithstanding the Evergrande debacle), the U.S. consumer has come shining through.  As reported yesterday, August retail numbers surprised to the upside yesterday risking 0.7% in August. 

Diversion: Norm Macdonald taught us a lot, but one of the most important lessons he taught us is the importance of not procrastinating when giving gifts.  

 
 
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Company news

The Evergrande crisis is sending shockwaves through China's junk bond market, with prices falling to near decade lows. Some holders of Evergrande's $19 billion in dollar bonds are racing to organize creditor committees in preparation for a debt restructuring. Evergrande shares tumbled on news a major holder had cut its stake.  However, as Evergrande struggles to pay its suppliers and cautioned investors of the possibility of a default, the editor-in-chief of the Global Times, a state-backed Chinese newspaper warned the company should not bet on a government bailout and is “not too big to fail.” Invesco is in talks with State Street's asset management arm about a merger, the WSJ reported. If a deal goes through, Invesco would be a third-place contender in passive fund management. General Motors plans to extend downtime at seven North American factories as the worldwide semiconductor shortage continues to crimp production. Liverpool fans are happy as Manchester United soccer (football?) team operator reported a quarterly loss that was 5.9% narrower than what it lost a year ago. 

Commodities
 

Brent oil futures dipped this morning but held above $75 a barrel, remaining on track for a weekly gain of more than 3% thanks to the slow recovery in output after two hurricanes in the U.S. Gulf of Mexico.  This week's supply-demand reports from OPEC+ and the IEA suggest that the balance of the year will be tight as demand is expected to grow and non-OPEC supply, partly because of Hurricane Ida, will get tighter. At the time of writing, NYM WTI Crude futures are down -0.52% to US$72.23/bbl and ICE Brent Crude futures are down -0.3% to US$75.44/bbl.   

Gold regained some ground today after a drop of nearly 3% in the last session, but a firm dollar kept bullion on course for a weekly decline with the focus still on an upcoming Fed meeting. Bullion slipped nearly 3% yesterday after an unexpected increase in U.S. retail sales raised expectations that the Fed may reduce its stimulus sooner, which also drove a rally in the dollar. Gold Spot is up +0.4% to US$1,776.41/oz this morning.



Fixed income and economics

The data calendar is light this morning with just a University of Michigan sentiment update due to be released after the equity bell. The preliminary headline gauge is poised to clock in at 72.0 points for September which would be improved from the 70.3 reading prior. Both current conditions and expectations are schedule to show a slight increase with the survey’s one-year inflation standard likely to have risen by a tick as well. Otherwise, markets are taking this quadruple witching Friday in stride and still beaming from yesterday’s gains. U.S. retail sales for August delivered a positive surprise that is hoping to create the setup for a strong consumer-driven push heading into the latter half of 2021. Headline receipts grew +0.7% month-over-month following July’s downwardly revised decline of 1.8%. Similarly, the retail sales control group expanded by +2.5% after the -1.9% revision. Non-store retailers, general merchandise stores, and furniture/home furnishings all rebounded sharply following declines previously. Meanwhile, sales among food services & drinking places (the only service category in the retail sales report) were unchanged, likely reflecting the negative impact of rising COVID-19 infections on consumers’ willingness to spend on services. The global semiconductor shortage, which has disrupted production and created upside price pressures on these categories, is partly to blame for the month-on-month decrease in durable goods sales. On the margin, the American consumer continues to hold the economy up and will do so as long as monetary policy remains accommodative. 

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Contributors: A. Innis, A. Nguyen, D.Mak, J. Price

Charts are sourced to Bloomberg unless otherwise noted.

The opinions expressed in this report are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Richardson Wealth Limited or its affiliates. Assumptions, opinions and estimates constitute the author's judgment as of the date of this material and are subject to change without notice. We do not warrant the completeness or accuracy of this material, and it should not be relied upon as such. Before acting on any recommendation, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Past performance is not indicative of future results. Richardson Wealth Limited, Member Canadian Investor Protection Fund. Richardson Wealth is a trademark of James Richardson & Sons, Limited used under license.