August 11th, 2020

Daily Market Commentary

Canadian Headlines

1. Canadian shares rose to the highest level since March 4 on Monday, led by advancing energy and healthcare stocks. The S&P/TSX Composite index rose 0.4% in Toronto. Energy stocks gained after oil posted the biggest gain in a week in New York amid signs that the U.S. may move forward with another economic stimulus deal that could bolster consumption. On the deals front, the board of Canaccord Genuity Group Inc. may prefer a deal involving its U.K. wealth management unit to a sale of the entire company, analysts say. Canaccord, Canada’s largest non-bank brokerage, is exploring strategic options including a sale of all or part of its business, according to people familiar with the matter, Bloomberg reported Friday. Mark Carney, the only person to run two major central banks, is helping Justin Trudeau the craft next steps in a plan to pull Canada out of a deep recession sparked by the coronavirus. Five months after stepping down as the Bank of England governor, Carney has become an informal adviser on policy matters to the Canadian prime minister.

World Headlines

1. European stocks jumped and were poised for their best three-day gain in a month, with risk assets getting a boost after U.S. President Donald Trump said he’s considering a tax cut on capital gains. The Stoxx Europe 600 Index added 2% as of 10:02 a.m. in London, led by travel & leisure stocks. Autos were also strong after Chinese car sales accelerated. Equities are regaining momentum after stalling since reaching a four-month high in late July, assailed by geopolitical tensions and worries about rising coronavirus cases globally. Still, surprisingly strong macro reports in July signal room for further stock gains, while investors await progress on a U.S. stimulus plan.
2. U.S. stock index futures advance along with gains in Europe and most of Asia as President Donald Trump said he’s considering a tax cut on capital gains. Oil rose, while the dollar slipped. Investors are taking some comfort from Trump’s comment on potential tax cuts, strong Chinese economic data and also falling Covid-19 hospitalizations in California and New York. They’re driving an MSCI global stocks benchmark toward erasing its 2020 loss today.
3. Japan’s Topix index climbed by the most in eight weeks as signs of a possible slowdown in coronavirus cases in the U.S. and positive Chinese economic data lifted investor sentiment. All but two of the benchmark’s 33 industry groups advanced, with electronics and auto makers the biggest boosts, as the market reopened following a three-day weekend. The Nikkei 225 Stock Average also rallied, rising above its 50-day moving average. The yen weakened against the dollar for a third session.
4. Oil edged higher as markets in Europe and Asia advanced on signs that the surge in coronavirus cases in the southern U.S. is slowing. Futures in London topped $45 a barrel, heading for their strongest close in five months. The number of Americans hospitalized due to Covid-19 fell below 50,000 for the first time in a month as a spike in the Sun Belt eased. That helped Asian stocks climb the most in a week, while those in Europe also rallied. Weakness in the dollar has also been aiding oil in recent weeks and there could be further currency-related gains if stimulus negotiations in the U.S. — which remain deadlocked — bear fruit.
5. Gold fell below $2,000 an ounce, heading for the longest losing run since May, as exchange-traded fund investors took a breather and broader market sentiment improved. Bullion has retreated from last week’s record high as a slump in U.S. real yields eased. Global equities climbed on Tuesday after President Donald Trump said he’s considering a tax cut on capital gains, while bullion-backed ETF holdings edged lower for a second day from an all-time high.
6. Russia registered its first coronavirus vaccine, President Vladimir Putin said during a televised meeting with the government. The vaccine’s registration is conditional and trials will continue while production gets underway, the Health Minister said. Hong Kong reported the fewest cases since the start of the financial hub’s latest outbreak, while infections continued to rise in India and Germany. In the U.K., employment fell the most since 2009, highlighting an economic shock that’s expected to escalate. In the U.S., which accounts for a quarter of all cases, hard-hit states including New York, California and Texas reported falling hospitalizations. Coronavirus infections breached 20 million cases globally, after doubling in six weeks. It took six months to reach 10 million.
7. Sasol Ltd. said it will swing to a full-year loss per share after writedowns on U.S. chemical assets contributed to 112 billion rand ($6.3 billion) of charges and oil prices declined. The South African fuel and chemical maker’s results for the year ended June 30 were “impacted by the Covid-19 pandemic and a severe decline in crude oil and chemical product prices,” Sasol said in a trading statement. Lower demand for fuel due to the coronavirus pandemic, along with a battering for oil prices, weighed on a company already reeling from mismanagement and cost overruns at the Lake Charles Chemicals Project in Louisiana. Sasol has accelerated an asset disposal program aimed at reducing debt and avoiding a last-resort rights offer.
8. President Donald Trump is continuing to cite 401(k) balances as a key economic indicator, saying retirement accounts are doing great even during the Covid-19 recession. New data from Fidelity Investments shows he’s mostly right. Fidelity said Tuesday that the average 401(k) balance increased 14% in the second quarter as individual investors largely stayed the course after the March rout in equities caused a 19% decline in account balances. “So, 401(k)s are doing fantastically,” Trump said Saturday as he signed a series of stimulus-related orders. “I hope you kept your stocks. I hope you didn’t sell. I hope you had confidence in your president and confidence that the president was going to be reelected.”
9. The U.S. will order imports from Hong Kong to be labeled as ‘Made in China’ according to a government document, in the latest escalation of trade tensions between the two nations. The notice, published in the U.S. Federal Register, says that goods produced in Hong Kong and imported into the U.S. must be marked to indicate their origin is China. This will begin after Sept. 25, the document said. The actual impact of the new rules on Hong Kong’s trade or economy will likely be limited as there are few direct exports from the city to the U.S. The vast majority of the city’s shipments to the U.S. consist of re-exports, or goods passing through its territory with no substantial modifications.
10. Democratic presidential nominee Joe Biden is closing in on an announcement of a running mate as early as midweek, having completed interviewing all the top candidates, people familiar with the planning said Monday. Biden is now deliberating about his choice, the people said. While Biden’s staff is preparing for an imminent rollout, they also know he has a tendency to delay important decisions until the last minute. In 2008, Barack Obama did not announce his choice of Biden until the Saturday before the Democratic National Convention while in 2016, Hillary Clinton waited until the Friday before the convention to announce her pick. The convention begins next Monday, August 17.
11. Even as China continues to return fire at the Trump administration, leaders in Beijing are also signaling they want to ease tensions with the U.S. as the clock ticks down to the presidential election. Trump’s moves to ban popular Chinese apps TikTok and WeChat ahead of sending the highest-ranking American official to Taiwan in 40 years — which included a meeting Monday with President Tsai Ing-Wen — drew a relatively muted response from China’s foreign ministry and its top diplomats. The shift in tone follows comments Friday by Yang Jiechi — China’s top diplomat and member of the Communist Party’s 25-seat Politburo — who said the door for talks with the U.S. remained open. His statement sought to appeal to a broader spectrum of American policy makers, blaming current tensions on a “small group” of U.S. politicians.
12. Occidental Petroleum Corp. reported a $6.6 billion writedown in the second quarter, equivalent to more than 40% of its market value, as the collapse in energy prices took its toll on the debt-laden U.S. shale oil producer. More than two-thirds of the impairment was to account for the lower value of its domestic onshore acreage, with the remainder in the Gulf of Mexico and overseas, the Houston-based company said Monday in a statement. The shares plunged as much 6.8% in after-market trading in New York. Occidental is not alone is taking large impairments after the Covid-19 pandemic crushed demand for petroleum around the world, but its writedown is one of the biggest relative to its size. Though the charges don’t affect near-term cash flows, they increase certain leverage ratios, potentially pushing up borrowing costs for the oil producer.
13. Rolls-Royce Holdings Plc warned of a new manufacturing defect after finding cracks in turbines that power Airbus SE’s A350 jet, an unwelcome development after years of engine problems racked up billions in costs. The glitch concerns compressor blades on XWB engines in service on the A350 for four or five years, Rolls-Royce said in a statement Tuesday. It said the European Union Aviation Safety Agency is set to issue a directive on the matter. Rolls-Royce is still reeling from a series of setbacks concerning the Trent 1000 model it makes for the Boeing Co. 787. Those problems are expected to cost 2.4 billion pounds ($3.2 billion) through 2023, and have seen the U.K. firm cede market share on the Dreamliner to a rival turbine from General Electric Co.
14. BP Plc is exploring a sale of a German chemicals unit as it continues a push to divest peripheral businesses, according to people with knowledge of the matter. The British energy giant is reaching out to potential acquirers to gauge their interest in DHC Solvent Chemie GmbH, the people said, asking not to be identified as the matter is private. DHC manufactures a range of specialized solvents used in the paint, agricultural and medical industries, according to its website. BP’s new leadership has been seeking to strengthen finances and transition away from being a traditional oil company. In June, BP agreed to sell its main petrochemicals operations to Ineos Group for $5 billion. BP is targeting $25 billion in divestments by 2025, it said last week, paving the way for additional assets to come to market.
15. Britain’s mounting labor market crisis was underscored by a 220,000 slump in employment during the height of the coronavirus lockdown, the worst decline since the global financial crisis. The fall in the second quarter coincided with a period that saw the most strict restrictions to contain the spread of the disease. The Office for National Statistics said early indicators for July suggest that the number of employees on payrolls is down around 730,000 compared with March. The figures highlight an economic shock that’s expected to escalate as government support for wages is gradually withdrawn from this month. They also heap pressure on Chancellor of the Exchequer Rishi Sunak to extend the furlough programs that have so far kept the worst of the economic crisis at bay.
16. Carlyle Group Inc. is considering options for Logoplaste, including a potential sale that could value the Portuguese plastic-packaging firm at more than 1 billion euros ($1.2 billion), people with knowledge of the matter said. The U.S. buyout firm has picked Barclays Plc and Goldman Sachs Group Inc.to advise on its review of the business, one of the people said, asking not to be identified because the information is private. A potential sale process could begin after the summer and would likely draw interest from rival packaging firms and other private equity funds, the people said.
17. New Zealand’s world-beating run of being Covid-free has come to an end, with the detection of new cases prompting the government to put largest city Auckland into lockdown. Authorities have detected four cases of coronavirus in one Auckland household from an unknown source, and contact tracing is now underway to prevent further spread, Prime Minister Jacinda Ardern said late on Tuesday. New Zealand had recorded 102 days of no community transmission, with its only cases quarantined at the border. New Zealand’s economy rebounded faster than expected from a nationwide lockdown in April and May, with confidence boosted by its Covid-free status. Elimination of the virus also fanned support for Ardern’s Labour Party ahead of the Sept. 19 general election.
18. Prudential Plc plans to spin off its U.S. unit and focus on Asia, accelerating a breakup of the company that began with the listing of its U.K. business last year. An initial public offering of a stake in Jackson National Life Insurance Co. will be held in the first half of 2021, according to a company statement on Tuesday. Prudential has been under pressure for months from activist shareholder Third Point to separate its Asian and U.S. businesses. “We think there is a real demand for the shares, and they are ready at size and scale to be a standalone company,” Chief Executive Officer Mike Wells said in a Bloomberg TV interview.
19. Senate Majority Leader Mitch McConnell’s insistence that legal liability protections for businesses, schools and colleges be included in any new coronavirus relief bill is approaching a moment of reckoning. Warning that an avalanche of litigation would undercut any rebound from the pandemic’s economic damage, McConnell has repeatedly said he won’t let a bill to pass the Senate without a temporary shield from most coronavirus-related lawsuits for businesses that follow public health guidelines. But the proposal remains in limbo with talks on a stimulus package stalled. Action by President Donald Trump over the weekend to at least partially extend expired unemployment aid and defer payroll taxes failed to spur any new negotiations between Democrats and the White House. McConnell and Senate Democratic leader Chuck Schumer on Monday exchanged blame but no new ideas on breaking the deadlock.
20. Even if the most optimistic projections hold true and a Covid-19 vaccine is cleared for U.S. use in November, the vast majority of Americans won’t be able to get the shots until spring or summer next year at the earliest. That likely timeline, based on interviews and remarks from top specialists including Anthony Fauci of the White House Coronavirus Task Force, means businesses, schoolchildren and families will continue to wait. In an interview, Fauci, who has also been involved with White House’s “Operation Warp Speed” vaccine program, said it may take until well into 2021 for vaccines to reach the much of the general public.
21. CuriosityStream, a streaming platform for documentaries on science, history and other topics, has agreed to go public through a merger with blank-check company Software Acquisition Group Inc. The business, founded by Discovery Channel creator John Hendricks, is valued in the deal at about $330 million including debt, according to a statement. To finance the transaction, Software Acquisition is raising an additional $25 million, with about 40% coming from new investors. Mergers with special purpose acquisition companies, or SPACs, have gone mainstream this year with firms seeking to go public without the risks of an initial public offering. A total of $16.2 billion worth of SPAC mergers have been announced this year, compared with about $7 billion for the same period in 2019, according to data compiled by Bloomberg.
22. Kroger Co. is setting up an e-commerce marketplace open to third-party vendors, part of the grocery-store operator’s bid to wrest web sales away from giants like Amazon.com Inc. and Walmart Inc. The owner of the Fry’s and King Soopers chains is working with online commerce specialist Mirakl to offer tens of thousands of additional goods, including housewares and toys, the companies said Tuesday in a statement. The partnership will let Kroger offer “more-relevant products” by broadening its e-commerce operations to include third-party sellers, according to Jody Kalmbach, the company’s vice president of product experience.
23. The baseball season has started with eerily empty stadiums, but some teams are exploring high-tech ways to verify that people in the stands are taking health precautions, a possible step toward bringing fans back. Several Major League Baseball teams have held talks with a California startup called Airspace Systems Inc. that develops technology to detect whether people are wearing face masks, the league and the company said. The discussions focus on implementing the systems into cameras around the stadium to identify people without face coverings, with masks dangling from their chins or otherwise worn improperly. Representatives for Airspace and MLB declined to name the teams in talks to use the technology. They also declined to comment on whether the tools would be reserved for fans or whether they would be deployed sooner for screening players or staff.

*All sources from Bloomberg unless otherwise specified