April 30th, 2020
Daily Market Commentary
- Canadian equities rallied Wednesday, following U.S. shares higher optimism surrounding a potential coronavirus treatment. The U.S. government’s top infectious-disease expert said that early results of a closely watched clinical trial offered “quite good news” regarding a possible Covid-19 therapy made by Gilead Sciences Inc. Also, oil rallied on a belief that consumption could gradually turn up as major producers continue to cut output to counter a global glut. The S&P/TSX Composite Index rose 2.9% for a fourth straight gain, to its highest level since March 6. Energy shares led the way as 10 of 11 sectors advanced.
- The coronavirus ground nearly all business in Canada to a temporary halt. Now it’s also threatening one of the nation’s main drivers of long-term growth: foreign students. While Canadian universities are still admitting international students for the fall, there’s growing unease among applicants over the halt in travel and visa processing. There were more than 642,000 foreign students in Canada at the end of last year, helping power the biggest increase in immigration in more than a century. Encouraged by Prime Minister Justin Trudeau’s open-door policies, the flood of newcomers has won praise as a form of “human stimulus.” Any reduction could worsen the economic blow from the pandemic.
- One of Canada’s largest beef plants is set to resume operations just as union officials warn the number of coronavirus infections is still rising. Cargill Inc. will resume operations at its High River, Alberta plant on May 4 with one shift, the company said Wednesday. The facility accounts for about 40% of Canada’s beef processing capacity. Its temporary shutdown has left thousands of cows waiting for slaughter on farms and prompted McDonald’s Corp.’s Canadian unit to start importing beef to meet its needs.
- Refiners in the America’s heartland are starting to ramp up, which will be welcome news to struggling Canadian oil producers. Heavy Western Canadian Select crude’s discount to U.S. benchmark futures shrank to $8 a barrel Wednesday, the narrowest in more than a year, NE2 Group pricing data show. Refineries in the Midwest, which take almost two-thirds of U.S. imports from Canada, boosted their crude use by almost 300,000 barrels a day last week, after slowing down for weeks due to a glut of fuel. Refiners in the region increased rates as some states, including Ohio, prepared to relax stay-at-home orders and as farmers started spring planting, which requires diesel. The region is experiencing a “a fairly significant sharp increase in demand,” Valero Energy Corp.’s Gary Simmons, chief commercial officer, said on an earnings call today.
- European equities turned negative, with gloomy earnings and a historic dividend cut by Royal Dutch Shell Plc tempering optimism about signs of progress in treating the coronavirus. The Stoxx Europe 600 Index dropped 0.2% as of 9:31 a.m. in London, wiping out an earlier gain of 0.6%. The gauge is still on track for its best monthly rise in a decade. Shell tumbled 5.9% after slashing its payout for the first time since World War II, while Societe Generale SA and Lloyds Banking Group Plc weighed on the banking sector after reporting results. European equities are up 8.2% in April on optimism about swift monetary and fiscal support measures and as the number of new virus cases eases, paving the way for the lifting of lockdowns. Stocks around the world surged on Wednesday after Gilead Sciences Inc. said its experimental drug helped Covid-19 patients recover faster.
- Futures for the S&P 500 turned lower on Thursday and European shares stalled after a three-day surge as investors weighed corporate results, more dismal data and the latest virus news. Oil continued to rebound after an early-week tumble. Contracts on the S&P 500 swung from gains to losses, with the underlying index on track for its best month in almost 50 years. Nasdaq 100 futures clung to an advance following strong results from Microsoft Corp., Facebook Inc. and Tesla Inc. after the Wednesday close.
- Japanese stocks rose, tracking gains in U.S. equities on signs of progress in the development of a coronavirus treatment. Electronics and auto makers were the biggest boosts to the Topix index. The blue-chip Nikkei 225 Stock Average closed above the 20,000 mark for the first time since March 6 as Japan’s markets reopened after a holiday on Wednesday. The value of daily trading on the Tokyo Stock Exchange’s main board topped 3 trillion yen ($28 billion) for the first time since March 31 as investors adjusted positions ahead of three more Golden Week holidays next week.
- Oil jumped for a second day as global production cuts deepened and signs of a fledgling demand recovery emerged. Futures in New York rose by as much as 18%. Norway said it will participate in oil-output cuts for the first time since 2002, joining other major producers in reining in supply. Data on Wednesday showed a surprise surge in U.S. gasoline demand, while some European figures are improving. In China, traffic is returning to the streets, supporting a boost in fuel use and refining rates.
- Gold is heading for the biggest monthly gain since 2016 as top economies ramp up stimulus to repair the damage from the coronavirus pandemic, boosting the metal’s allure as a store of value. Bullion traded near the highest since 2012 after the U.S. Federal Reserve voiced concern Wednesday the crisis could leave permanent scars on the U.S. economy, while leaving interest rates near zero. The European Central Bankwill decide Thursday if more action is needed amid the historic pandemic-led slump.
- Comcast Corp. added the most quarterly internet customers in 12 years, providing momentum to a business that’s become critical during the home lockdowns caused by the pandemic. The cable giant added 477,000 internet subscribers last quarter, topping analysts’ expectations. Comcast reported quarterly profit of 71 cents a share, excluding certain items, topping the 67 cents that analysts expected. Total revenue of $26.6 billion was just shy of the $26.8 billion that Wall Street forecast.
- Germany’s government has set out a unified position on a bailout for Deutsche Lufthansa AG, with the airline group expected to accept a significant government stake and state veto rights in exchange for a multibillion-euro package of assistance, according to people familiar with the matter. While details are still being negotiated, the economy and finance ministries have ironed out disagreements that dragged on for weeks, the people said, asking not to be named discussing the deliberations. The plan foresees Germany taking a least a 25% stake in the airline and receiving at least one seat on the firm’s supervisory board, the people said. The assistance could run to 10 billion euros ($11 billion).
- ConocoPhillips will deepen cuts to production as the historic crash in oil prices forces drillers across the globe to shut unprofitable wells. The Houston-based company estimates that it will voluntarily curtail production by 420,000 net barrels per day in June, with the bulk of that in the Lower 48 states, it said in an earnings statement Thursday. Cuts for May are estimated to be 230,000 barrels per day. Future decisions to curtail will be made on a month-to-month basis. Last month, Conoco said it would slash more than one-fourth of its North American production and halting all U.S. fracking in what was the continent’s largest pandemic-related oil cutback at that time. Chief Executive Officer Ryan Lance vowed to keep a portion of the company’s crude in the ground rather than lose money on low selling prices. With demand for petroleum crushed by the coronavirus, refineries are cutting runs and storage is expected to run out within weeks, Lance has said.
- Twitter Inc. has more users than ever, but its advertising business was hit hard by the Covid-19 pandemic at the end of the first quarter. The social-media company reported revenue of $808 million in the period, ahead of Wall Street estimates of $773 million, according to data compiled by Bloomberg. The shares surged about 10% in early trading. From March 11 to the end of the quarter, sales were down 27% year-over-year. The decline was particularly pronounced in the U.S., Twitter’s most valuable market. The San Francisco-based company plans to reduce costs by cutting down on hiring and eliminating travel and events that are no longer necessary given employees are working from home. It still plans to build a new data center in 2020 as was previously announced.
- Facebook Inc. shares soared in pre-market trading Thursday after it reported results that surged past expectations and helped ease concerns about weakness in the digital advertising market. Morgan Stanley wrote that it had “materially underestimated” the durability of Facebook’s ad business, while Pivotal Research — which had been one of the few bears on the social-media company before upgrading its rating today — said they were “far better results than anybody anticipated.” The stock gained 8.5% before the bell. Shares have already advanced more than 30% off a March low. Among other social-media stocks, Twitter jumped 5.1% before the bell and its own results expected Thursday; Pinterest Inc. also rose 2.6%. Snap Inc., which reported similarly strong results last week, rose 0.4%
- The euro-area economy plunged into a record contraction, an outcome that will only add more urgency to controversial demands for joint government fiscal support. Output in the 19-country region shrank 3.8%, reflecting shutdowns to contain the coronavirus that have pushed businesses close to collapse, sent unemployment surging and forced governments to unleash billions of euros in emergency stimulus.
- China rejected U.S. President Donald Trump’s claim that Beijing was trying to damage his re-election chances with its handling of the coronavirus outbreak. Spain recorded steep declines in new cases, Germany is set to extend restrictions and Britain will likely miss its daily testing target. The European Central Bank will decide on Thursday if more than $1.1 trillion in asset purchases and a generous lending plan are enough to keep companies and households afloat as data showed that shutdowns had pushed the region’s economy into a record contraction.
- Gilead Sciences Inc. Chief Executive Officer Daniel O’Daysaid there are more than 50,000 courses of the company’s experimental Covid-19 therapy, packed in vials and ready to ship as soon as the drug is authorized for emergency use by U.S. regulators. He made the comments in an interview hours after the National Institute of Allergy and Infectious Diseases director Anthony Fauci said a U.S.-run trial of the drug, remdesivir, met its overall target, helping patients recover faster. The potential for the first effective coronavirus treatment sent stock markets soaring on Wednesday. O’Day, 55, said the company had been in constant communication with regulators at the Food and Drug Administration, and these communications have picked up in intensity in the last few days as the results of big trials have started to roll in.
- President Donald Trump is facing a turning point in his bid for re-election, betting that a handful of Southern and Midwestern states can reopen their economies without triggering an even deeper public health crisis. If it works out, Trump can claim he was right all along about quickly lifting stay-at-home restrictions that are damaging the economy. If it doesn’t and coronavirus cases spike, pollsters and political analysts say it’s Trump who will bear the blame — even after he tried to shield himself from fallout by putting governors in charge of the most critical decisions.
- Tesla Inc. shares jumped 9% in pre-market trading after the U.S. electric carmaker reported a surprise quarterly profit, though analyst views on the report were mixed. The company is seeing strong demand in China, but faces uncertainty over the timing of a restart to production in Fremont, California after restrictions were imposed due to the coronavirus. The period may have also benefited from temporarily low capital expenditure. Analysts at Piper Sandler and CFRA raised their price targets while Citigroup Inc.’s Itay Michaeli said the report was unlikely to settle any bull versus bear debates. The stock heads into Thursday’s trading already up more than 90% in 2020.
- Mexico’s economy suffered its deepest contraction in over a decade during the first quarter, even before the nation was shut down to contain the pandemic that analysts see unleashing a slump to rival the Great Depression. Gross domestic product in the three months through March fell 1.6% compared to the previous quarter, according to preliminary data. The result, the worst since the first quarter of 2009, came in below the median estimate for a 1.4% drop from economists surveyed by Bloomberg.
- Apple Inc. and Alphabet Inc.’s Google earlier this month unveiled an ambitious plan to jury-rig billions of smartphones into coronavirus-tracking beacons, hoping to help public-health authorities fight the disease and pave the way to end lockdowns that have crippled the global economy. Now, just weeks after the announcement, the program is already facing serious challenges and it’s unclear whether the system will ever be used at a large scale. Persistent concerns about privacy, weak consumer adoption, and the lack of a coordinated government effort on testing could all pose obstacles to the companies’ push. Some governments have already struck out on their own, building systems used by millions without needing Apple and Google’s help.
- Banco Bilbao Vizcaya Argentaria SA took a combined hit of 3.5 billion euros ($3.8 billion) for virus-related provisions and a second consecutive charge at its U.S. business to post its biggest-ever quarterly loss. BBVA, which is focused on emerging markets in Latin America and Turkey, reported a first-quarter net loss of 1.8 billion euros. The virus impact alone accounted for about half of the 2.6 billion euros the bank set aside to cover loan losses. The shares fell as much as 6.1%. The lender is joining other global banks in setting aside billions of dollars to deal with the future economic effects of the outbreak. BBVA — along with bigger Spanish rival Banco Santander SA –already had one of the highest levels of provisions among European lenders, reflecting its exposure to volatile emerging markets.
- Spain recorded steep declines in the number of new coronavirus deaths and cases, as the nation begins gradually relaxing a strict lockdown regime after weeks of confinement. The number of fatalities rose by 268 to 24,543 in the 24 hours through Thursday, the smallest increase in six weeks and compared with Wednesday’s of 325, according to Health Ministry data. Total infections rose by 1,309 to 213,435 after the previous day’s gain of 2,144. The figures include an adjustment on how previous new cases were counted in one region, the ministry said.
- Royal Dutch Shell Plc cut its dividend for the first time since at least the Second World War as the oil slump triggered by the coronavirus pandemic reshapes the energy industry. The surprise move is the latest illustration of how the global spread of the deadly disease is causing the biggest upheaval for generations. Energy consumption is undergoing a historic plunge, as is GDP growth in many countries. The global economy that emerges from the other side of the crisis may look very different. This is a big moment in the history of Shell and the oil industry. The company was by far the biggest payer in the FTSE-100, providing a reliable income to millions of pension fund investors. The two-thirds reduction in its dividend to 16 cents a share — “much worse” than many investors wanted or expected according to Redburn analyst Stuart Joyner — underscores the gloomy outlook for the year.
- SoftBank Group Corp. forecast a wider net loss for the fiscal year ended in March, adding 150 billion yen ($1.4 billion) to its prediction from just two weeks ago because of deeper difficulties at the office-sharing startup WeWork. The Japanese company said it now expects to lose 900 billion yen, after estimating previously its net loss would total about 750 billion. The hit related to WeWork accounts for about 700 billion yen of the non-operating losses, including investments and loan commitments. The Tokyo-based company bailed out WeWork last year after its failed stock offering and has since taken control of the business.
- Despite marching orders from China’s top leader Xi Jinping to maximize oil and gas production, the energy sector is bending to the reality of the pandemic-fueled market collapse. The nation’s three biggest state producers will slash their spending plans this year by a combined $19 billion, with PetroChina Co.’s 32% chop leading the way, the fattest among global majors. The cuts to capital expenditures, announced Wednesday along with first-quarter results, are among the drastic steps companies are taking to weather the crash in demand and prices amid the coronavirus fight. They also come one year after China’s state firms boosted spending to satisfy calls by President Xi to reverse the decline in oil output that raised the nation’s import dependency.
- BlackRock Inc. bought Indian government bonds just as fears of a coronavirus-driven economic meltdown drove many of its peers out of Asia’s highest-yielding markets. The world’s biggest money manager added to holdings of Indian bonds maturing in a decade after the securities started to look “cheap” in March, Neeraj Seth, head of Asian credit in Singapore said in an interview. BlackRock’s move came amid a record $6.2 billion outflow from India’s sovereign bonds last month that pushed the 10-year yield as much as 46 basis points higher. The Reserve Bank of India sprung into action with a rate cut and a $50 billion liquidity pledge as a nationwide lockdown to curb the coronavirus spread added to concern over heavy government borrowing.
- Macy’s Inc. plans to reopen 68 stores on Monday in states that have loosened restrictions, joining a handful of other retailers that are limping back to life after the coronavirus forced them to shut stores. Macy’s Chief Executive Jeff Gennette said in an interview that he expects to have all of the company’s roughly 775 stores reopened in six weeks, if infection rates taper off as projected and state and local governments allow it. The next batch of roughly 50 stores is scheduled to reopen May 11. The retailer, which also owns the Bloomingdale’s and Bluemercury chains, has been offering curbside pick up at about 20 Macy’s stores for the past week.
- Joe Biden has tapped four allies to lead a committee to advise him on his vice-presidential selection, a process that will be especially closely watched given his age and speculation that he might not seek a second term if elected. The co-chairs of the presumptive Democratic presidential nominee’s panel are former Connecticut Senator Christopher Dodd, Delaware Representative Lisa Blunt Rochester, Los Angeles Mayor Eric Garcetti and Cynthia Hogan, a vice president for policy and government affairs at Apple Inc. as well as a former White House and Senate counsel to Biden. They will conduct conversations with Democrats across the party and work with the lawyers who are running the vetting process, Biden’s campaign said Thursday.
- As states start lifting their lockdown orders, America’s burger joints, pizzerias, taquerias and diners find themselves on the reopening economy’s front line. Whether they’re ready or not. Restaurants are among the first businesses allowed to throw open their doors in many places easing virus-fighting restrictions. And after weeks of laying off staff and living off takeout orders, owners can’t wait — even if they’re not quite sure how to make it work. Cutting the number of seated customers by half or more, as some states are requiring, will devastate finances already in terrible shape. Servers in masks don’t make for an inviting atmosphere. Forget salt-and-pepper shakers on the tables. One restaurant in Iowa plans to start dine-in service by seating only truckers, because they tend to eat alone.
*All sources from Bloomberg unless otherwise specified