August 10th, 2020

Daily Market Commentary

Canadian Headlines

  1. Barrick Gold Corp. is returning some of the windfall it’s getting from gold’s record rally to its shareholders. The world’s second-largest gold miner increased its quarterly cash dividend 14% to 8 cents per share, the company said in its second-quarter earnings statement Monday. That’s up from the previous dividend of 7 cents per share. “The board believes that the dividend increase is sustainable and reflects the ongoing robust performance of our operations and continued improvement in the strength of our balance sheet,” the company said. Chief Executive Officer Mark Bristow said the strong cash generation demonstrated the quality of Barrick’s assets and management’s ability to capture the full benefit of higher gold prices.
  2. Alstom SA hinted that it may seek better terms for its 6.2 billion-euro ($7.3 billion) purchase of Bombardier Inc.’s train arm after the Canadian company reported a second-quarter loss on write-downs at the unit. The earnings announcement on Aug. 6 turned up unexpected financial and operational performance issues, especially when compared with information available prior to the February takeover deal, Alstom said in a statement Monday. The French company said the transaction still makes sense, though it will take the developments into account in talks with Bombardier and update the market if needed.
  3. Canadian Natural Resources agrees to buy Painted Pony Energy for cash consideration of C$0.69/share, according to statement. Purchase price represents ~30% premium over the twenty-day volume weighted average trading price of the Painted Pony shares on the Toronto Stock Exchange. Painted Pony will seek approval for the transaction by its shareholders and holders of options at a special meeting to be held in Sept.

World Headlines

  1. European equities swung between gains and losses amid concerns about rising U.S.-China tensions and as investors eyed fresh U.S. stimulus measures. The Stoxx Europe 600 Index was up 0.3% at 10:54 a.m., having earlier erased an advance of as much as 0.8%. Banks and insurers led gains, while technology stocks were the biggest decliners.
  2. U.S. equity futures edged higher with European stocks as President Donald Trump’s executive actions to extend economic aid bolstered investor enthusiasm. On Saturday, Trump signed four executive orders to maintain some assistance, including for unemployment benefits, a temporary payroll tax deferral, eviction protection and student-loan relief. Trump’s policy announcements come as Democrats and Republicans are still negotiating a broader additional coronavirus relief package. The two sides are still trillions of dollars apart on overall spending and on key issues, including aid to state and local governments and the amount of supplementary unemployment benefits.
  3. Oil snapped a two-day losing streak on growing signs that consumption in key regions is edging higher. Crude demand in Asia is almost back to pre-virus levels, Saudi Aramco Chief Executive Officer Amin Nasser said Sunday. Meanwhile, oil drilling in the U.S. fell to a 15-year low and the number of active global rigs is at a record low, as explorers abandoned growth plans and as billions of barrels from old discoveries became worthless. Oil last week broke through the top end of the range it has been stuck in for months, but it struggled to sustain that move as rising virus infections raised doubts about a sustained economic recovery. At the same time, OPEC+ is set to test the appetite for demand, returning some supply to the market from this month following historic production cuts.
  4. Gold held a decline from a record after better-than-expected U.S. jobs data, though remained above $2,000 an ounce as optimism about an economic rebound was tempered by concerns about the recovery path. Workers returned to low-wage jobs at restaurants and retailers as major cities continued to reopen early in July, according to data released on Friday. The jobs report also showed that millions of Americans who lost their jobs early in the pandemic remain unemployed, with the overall rate still almost triple the pre-crisis level. President Donald Trump announced four executive actions on Saturday, including a temporary payroll tax deferral for some workers and continued expanded unemployment benefits, as the coronavirus crisis continues to hobble the economy. A gauge of the dollar was steady, after rising on Friday.
  5. The pandemic-induced downturn initially had hints of being the sharpest but shortest U.S. recession on record. Now there are increasing signs of economic scarring that resemble past slumps. Beneath a headline number showing a better-than-expected gain in July jobs, the government’s employment report contained indications of underlying weakness. Payrolls remain 13 million below pre-pandemic levels and the number of people out of work for 15 weeks or longer more than doubled from the prior month, to 8 million. The labor-force participation rate fell for the first time in three months and the number of people discouraged by job prospects hit a five-year high.
  6. Investors withdrew money from exchange-traded funds that buy emerging market stocks and bonds last week, ending four weeks of inflow that reached $2.41 billion. Outflows from U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $2.59 million in the week ended Aug. 7, compared with gains of $202.9 million in the previous week, according to data compiled by Bloomberg. So far this year, outflows have totalled $15.9 billion.
  7. Eastman Kodak shares plunged as much as 49% ahead of the bell on Monday after a federal agency put on hold a $765m loan for shifting the legacy photography company’s factories to help produce ingredients used in key generic medicines to fight the coronavirus. “Recent allegations of wrongdoing raise serious concerns,” the U.S. International Development Finance Corporation said in a tweet Friday night; “We will not proceed any further unless these allegations are cleared”
  8. Tencent Holdings Ltd. added to Friday’s sharp decline to start the week, putting the stock’s two-day loss of market value at $66 billion following America’s move to ban residents from doing business with the company’s WeChat app. The stock fell 4.8% Monday and nearly reached Friday’s low. The cumulative 9.6% drop, the worst two days since October 2011, followed a four-month, 70% surge which put shares into record territory and made the internet giant Asia’s most valuable company at nearly $700 billion.
  9. Saudi Aramco said it’s still working on a deal to buy a $15 billion stake in Reliance Industries Ltd.’s refining and chemicals business, even as lower oil prices force it to slash other investments. Reliance’s shares fell in mid-July after Chairman Mukesh Ambani said a transaction had been delayed “due to unforeseen circumstances in the energy market and the Covid-19 situation.” A deal with India’s Reliance would help the world’s biggest crude exporter join the ranks of the top oil refiners and chemical makers. State-owned Aramco, which bought chemical firm Saudi Basic Industries Corp. for $70 billion this year, is already a major supplier of crude to India, while Reliance sells petroleum products such as gasoline to the kingdom.
  10. There were plenty of casualties left in the rubble of failed negotiations on another trillion-dollar-plus rescue package for a U.S. economy mired in a historic, pandemic-induced recession. Worst hit are the families, businesses, and state and local governments that have had a safety net pulled out from under them at a time some data suggest that recent gains in employment may be transitory as the continuing spread of Covid-19 infections forces a retrenchment. In Washington, the political damage is widespread. But the biggest impact may be on President Donald Trump.
  11. China said it will sanction 11 Americans in retaliation for similar measures imposed by the U.S. on Friday, but the list doesn’t include any members of the Trump administration. Those sanctioned include Senators Marco Rubio, Ted Cruz, Tom Cotton and Pat Toomey; Congressman Chris Smith; Human Rights Watch Executive Director Kenneth Roth; National Endowment for Democracy President Carl Gershman; and Michael Abramowitz, the president of Freedom House, Chinese Foreign Ministry spokesman Zhao Lijian told a briefing in Beijing on Monday. “In response to the U.S.’s wrong behaviors, China has decided to impose sanctions on those individuals who behaved badly on Hong Kong-related issues,” Zhao said. He did not specify what the sanctions would entail.
  12. Roughneck job cuts accelerated in July and the outlook may worsen as new Covid-19 cases stifle economic activity, according to the Petroleum Equipment and Services Association. The U.S. oilfield-services sector shed 9,344 jobs last month, a 43% increase from June’s losses, the industry-funded trade group said in a report released Monday. That pushed the industry’s total job casualties since the pandemic emerged to 99,253. Texas, Louisiana, Oklahoma, Colorado and New Mexico were the hardest-hitregions for oilfield job cuts, according to the report, which crunched U.S. Bureau of Labor Statistics data with help from the University of Houston’s Hobby School of Public Affairs. Oilfield employment in American fields hasn’t been this low since March 2017.
  13. Coronavirus infections among U.S. children grew 40% in the last half of July, according to a report that comes amid heated debate over whether schools should re-open in the fall. The U.S. has reported more than 5 million infections. Saudi Arabia said it plans a clinical trial of a coronavirus vaccine developed by China’s CanSino Biologics on at least 5,000 volunteers. Australia had its deadliest day in the coronavirus pandemic, with 19 fatalities in the state of Victoria. U.S. Health and Human Services Secretary Alex Azar hailed Taiwan’s democracy and praised President Tsai Ing-wen’s response to the pandemic during a visit to Taiwan. U.S. Treasury Secretary Steven Mnuchin and House Speaker Nancy Pelosi signaled readiness to resume negotiations on pandemic relief without setting a date.
  14. The pace of France’s economic recovery is slowing, the country’s central bank said, confirming expectations of a prolonged period before output catches up with pre-crisis levels. In its monthly report, the Bank of France said economic activity was 7% below normal levels in July after a 9% gap in June. Indicators for August suggest a similar shortfall as last month or only a slight improvement.
  15. Turkey moved to slow lending to businesses in an attempt to stabilize the lira. The banking regulator, known as BDDK, said Monday that its asset ratio formula, which compels banks to extend more loans, will be reduced by 5 percentage points to 95% for commercial lenders, and to 75% for Islamic lenders. The regulator also fine-tuned some rules for calculating the ratio and allowed banks to use average levels of the foreign exchange rate for the previous month. Turkey is unwinding policies designed to shield the economy from the coronavirus pandemic that had unleashed a credit boom. The latest decision follows upheaval in financial markets last week that sent the lira to a record low against the dollar. The sell-off is showing little sign of letting up, with the Turkish currency registering the biggest fall globally on Monday.
  16. Banks operating in Hong Kong are stepping up scrutiny of their customers and at least one U.S. bank is moving to suspend accounts to avoid running afoul of U.S. sanctions slapped on city officials, putting them at risk of violating the controversial security law imposed by China. Asking not to be named discussing clients, people familiar with the decision said on Monday that one U.S. bank is taking steps to suspend accounts linked to some sanctioned officials. Two major Chinese banks are assessing what needs to be done based on their risk tolerance and compliance requirements, people party to those discussions said, suggesting they wouldn’t entirely brush off the sanctions.
  17. Tencent Holdings Ltd. has proposed a deal to merge DouYu International Holdings Ltd. with Huya Inc., creating a Chinese leader in game streaming with a combined market value of more than $10 billion. Tencent has offered to buy 30 million shares of Huya from part-owner Joyy Inc. for $810 million, the U.S.-listed company said. It separately proposed a merger via a share swap with Huya to Douyu, the latter company said in a statement. Tencent is said to seek control of the final entity, which would allow the WeChat operator to dominate the $3.4 billion Chinese live-streamed gaming arena. The social media titan — which owns a 37% stake in Huya and 38% of DouYu — has been discussing a merger with the duo over the past few months, people familiar with the deal told Bloomberg News last week.
  18. China will resume issuing tourist visas for visitors to Macau, paving the way for the mass return of Chinese punters to the world’s largest gaming hub after months of losses. Zhuhai city in neighboring Guangdong province will begin issuing tourist visas, including both individual and group tours, for mainland residents to travel to Macau again on Aug. 12, said Macau’s Secretary for Social Affairs and Culture Ao Ieong U on Monday in a press briefing.
  19. Hong Kong police arrested media tycoon Jimmy Lai and raided the offices of his flagship newspaper, the highest-profile case yet against the city’s democracy activists under a national security law that has fueled U.S.-China tensions. Lai was shown handcuffed as he was taken away by officers from his home on Monday morning. When a reporter asked Lai for his views on the arrest, he answered: “What views do I have? They want to arrest me.”
  20. The largest mall owner in the U.S. has been in talks with Inc., the company many retailers denounce as the mall industry’s biggest disrupter, to take over space left by ailing department stores. Simon Property Group Inc. has been exploring with Amazon the possibility of turning some of the property owner’s anchor department stores into Amazon distribution hubs, according to people familiar with the matter. Amazon typically uses these warehouses to store everything from books and sweaters to kitchenware and electronics until delivery to local customers. The talks have focused on converting stores formerly occupied by J.C. Penney Co. Inc. and Sears Holdings Corp., these people said. The department-store chains have both filed for chapter 11 bankruptcy protection and as part of their plans they have been closing dozens of stores across the country. Simon malls have 63 Penney and 11 Sears stores, according to its most recent public filing in May.
  21. Warren Buffett is betting on brighter prospects for his Berkshire Hathaway Inc. Berkshire spent a record $5.1 billion buying back its own stock in the second quarter, and may have kept that higher pace going in July. The billionaire investor sought to seize on a bigger discount to the S&P 500 during a quarter when the conglomerate’s operating businesses held up better than expected. Buffett said in early May that he was keeping cash high to be prepared for any direction the pandemic might turn and wasn’t overly attracted to buybacks. But as he searched for undervalued assets to spend billions on, he gravitated to his own firm’s shares.
  22. Kyanite Investment Holdings, a unit of Singapore state-backed investor Temasek Holdings Pte, scrapped its bid to take control of Keppel Corp. after the oil-rig builder posted a second-quarter loss. Kyanite invoked a clause allowing it to withdraw the offer after the quarterly loss failed to meet pre-conditions of the bid, it said in a statement Monday. Kyanite in October offered S$4 billion ($2.9 billion) for an additional 30.6% stake in Keppel. Temasek already owns one-fifth of the conglomerate, whose businesses include offshore and marine infrastructure and property development.

*All sources from Bloomberg unless otherwise specified