August 24th, 2020
Daily Market Commentary
- Canadian shares dropped Friday, ending the week little changed. The S&P/TSX Composite Index fell 0.5% Friday, with seven of eleven sectors lower. Materials fell while health care also lagged. Up more than 5% this year, the S&P 500 Index hit a fresh record Friday. In Canada, meanwhile, the TSX still needs to rise another 545 points, or about 3.3%, just to break even for the year. Gold prices slipped, heading for the first back-to-back weekly decline since June, as the dollar advanced and stronger-than-expected U.S. economic data eased concerns over the pace of recovery.
- Justin Trudeau will square off in Canada’s next election against a former air force officer who wooed the right flank of the Conservative Party. Members of the nation’s main opposition party elected Erin O’Toole as their new leader by a vote of 57% to 43% over former defense minister Peter MacKay, according to third-round results announced early Monday in Ottawa. The tally was released more than six hours late after problems caused by high turnout and a malfunctioning envelope-opening machine. O’Toole, 47, takes over from Andrew Scheer, who announced his resignation in December after failing to oust Trudeau in last fall’s election despite a series of scandals and fatigue over the incumbent prime minister’s perceived penchant for style over substance.
- European stocks rose the most in two weeks, erasing last week’s decline and tracking overnight gains in Asia, with shares supported by signs of easing tensions between the U.S. and China, and President Donald Trump reportedly looking to fast-track approval of a Covid-19 vaccine. The Stoxx Europe 600 Index extended gains to 1.7% as of 10 a.m. in London, in a broad rally led cyclical shares including energy, chemicals, basic resources and technology. Oil stocks were spurred by Brent crude nearing $45 a barrel, while travel & leisure was the only industry group in the red amid rising new virus cases in Europe.
- U.S. travel stocks, including American Airlines Group Inc., United Airlines Holdings Inc. and Carnival Corp., rose in pre-market trading. Telecom carrier BT Group jumped after Sky News reported that the board is on alert for takeover approaches. Gold shrugged off its earlier losses to climb with copper and oil, while the dollar weakened. Market sentiment was supported by news over the weekend that the U.S. Food and Drug Administration is working to expand access to a virus treatment involving blood plasma from recovered patients. Separately, the Financial Times reported that the Trump administration is considering whether to bypass regulatory standards to accelerate an experimental vaccine.
- Japanese shares finished with modest gains in lackluster trading following mixed economic data from the U.S. and Europe. The benchmark Topix index fluctuated for most of the day, swinging between a gain and loss of about 0.3% each. Auto sector shares were the heaviest drag on the market, while Nintendo Co. and machinery stocks rose. Volume on the first section of the Tokyo Stock Exchange held below 2 trillion yen (18.9 billion) for a sixth straight session.
- Oil edged higher as production was disrupted by two storms approaching the U.S. Gulf Coast. Futures rose 0.8% in New York. Almost 58% of crude output, or more than 1 million barrels a day, in the Gulf of Mexico was closed as of midday Sunday. The storms Marco and Laura — the latter of which is forecast to become a hurricane — are coming from different directions and have the potential to cause billions of dollars in damage. The weather systems could force refineries to shut and also hit demand when they near land. Crude, and other risk assets including equities, received a boost on Monday amid a thaw in U.S.-China relations. President Donald Trump’s team was said to be privately seeking to reassure American companies that they can still do business with the WeChat messaging app in China.
- Gold edged higher after a second weekly loss as the dollar faced renewed pressure before fresh commentary from the Federal Reserve later this week. Chair Jerome Powell is set to deliver a keynote address on Thursday about the Fed’s long-awaited monetary policy framework review, which has focused on a new inflation strategy. Investors are largely expecting more monetary stimulus before the end of the year. Gold has gained about 28% so far this year on massive liquidity injections from central banks and governments trying to help economies to recover from the coronavirus pandemic. While many banks see room for further gains, bullion prices have been under pressure recently with risk-on sentiment picking up. Inflows into gold-backed exchange-traded funds have slowed, with holdings in the top ETF, SPDR Gold Shares, remaining flat for four straight sessions through Friday.
- Saudi Aramco reshuffled its senior management and created a division focused on “portfolio optimization,” as the world’s biggest oil producer adapts to low crude prices and seeks new ways to raise cash. The Saudi state energy company appointed senior vice president Abdulaziz Al Gudaimi to lead a new Corporate Development team that will “assess existing assets” and boost access to “growth markets,” it said in a statement on Sunday. He will report to Chief Executive Officer Amin Nasser and start on Sept. 13.
- General Electric’s board extended CEO Larry Culp’s contract by two years and revised how Culp would be compensated, making it easier for him to take home as much as $230 million at the end of his contract. The 57-year-old Culp will lead GE through at least August 2024 with the option for a one-year extension after that, the company said in a regulatory filing
- Some of the largest real estate investors are walking away from debt on bad property deals, even as they raise billions of dollars for new opportunities borne of the pandemic. The willingness of Brookfield Property Partners LP, Starwood Capital Group, Colony Capital Inc. and Blackstone Group Inc. to skip payments on commercial mortgage-backed securities backed by hotels and malls illustrates how the economic fallout from the coronavirus has devalued some real estate while also creating new targets for these cash-loaded investors. “Just because a prior investment didn’t work out doesn’t necessarily mean that should tarnish the reputation for future endeavors,” said Alan Todd, head of U.S. CMBS research for Bank of America Securities. “It’s not like something was done in bad faith.”
- Hong Kong reported its first single-digit increase in daily cases since the latest wave of infections began in early July, while the Indonesian island of Bali announced it will remain closed to foreign visitors for the rest of the year. New Zealand Prime Minister Jacinda Ardern said the largest city Auckland will stay in lockdown four days longer than planned. U.S. President Donald Trump said a treatment based on blood plasma donated by people who’ve recovered from Covid-19 will be expanded, even before researchers fully understand how well it works. Europe is seeing a resurgence of cases, while infections in the U.S. eased. Tokyo reported the lowest number of new cases since early July, in the latest sign that its outbreak may have peaked.
- President Donald Trump said a coronavirus treatment that involves blood plasma donated by people who’ve recovered from Covid-19 will be expanded to more sick Americans, widening access to a promising therapy even before researchers fully understand how well it works. “This is a powerful therapy,” Trump said at a White House news conference. “Today’s action will dramatically expand access to this treatment.” The U.S. Food and Drug Administration confirmed Sunday that it had cleared what’s known as convalescent plasma for use in certain patients. The move would make it easier to receive the treatment, which Trump has promoted even though studies to prove its benefits haven’t been completed. Bloomberg News reported earlier that the announcement was forthcoming.
- Sweden will this week meet with investors for a debut green bond targeting clean transportation and pollution prevention. A global call will be held on Aug. 26 and one-on-one investor calls will be made available from Aug. 27, according to people familiar with the matter, who asked not to be identified because they’re not authorized to speak about it. The maturity of the notes will be seven to 10 years, with a total issuance target set at 20 billion kronor ($2.3 billion), the country’s debt office said in a statement. It has appointed Barclays, Danske Bank, NatWest Markets, SEB and Swedbank as joint lead managers of the offering.
- Nintendo Co. added another $3 billion in market value in Tokyo on Monday with retail investors on the Robinhood app cited as helping to further boost the game maker’s popularity. Nintendo has been one the strongest-performing blue-chip stocks in Japan this year, as the pandemic, together with the release of its smash-hit Animal Crossing: New Horizons game, helped boost the already high popularity of its Switch console. Shares are up more than 70% from their March low, and have hardly looked back since passing the 50,000 yen barrier in June, with earnings earlier this month blowing past all estimates and Nintendo software continuing to dominate sales rankings in Japan.
- Tencent Holdings Ltd. is close to taking Leyou Technologies Holdings Ltd. private in a deal that would value the Chinese gaming firm at about $1.3 billion, according to people familiar with the matter. The companies are discussing an offer price range of HK$3.30 to HK$3.40 for each Leyou share, said the people, who asked not to be identified as the information is private. Leyou’s major shareholder Charles Yuk plans to sell his entire stake in the company, the people said. Yuk held about 69% of the Hong Kong-listed firm as of the end of December, its latest annual report shows. Shares of Leyou erased earlier losses and jumped as much as 4.8% on the Bloomberg News report. The stock closed up 2.9% at HK$3.20, giving the gaming company a market value of about $1.27 billion.
- Investors withdrew money from exchange-traded funds that buy emerging market stocks and bonds last week. Outflows from U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $108 million in the week ended Aug. 21, compared with gains of $143.9 million in the previous week, according to data compiled by Bloomberg. So far this year, outflows have totalled $15.9 billion.
- Driverless car startup Luminar Technologies Inc., backed by tech billionaire Peter Thiel, is going public via a $3.4 billion merger with blank-check company Gores Metropoulos Inc., bolstering efforts to get its laser sensors onto the production lines of global automakers. The deal will be paid for with $400 million in cash from the blank-check company, as well as $170 million from other investors including Thiel, a unit of Volvo Car AB and GoPro Inc. founder Nick Woodman, according to a statement on Monday that confirmed an earlier Bloomberg News report. Luminar is the latest entity to merge with a special purpose acquisition company, or SPAC. The investment vehicles have gone mainstream this year, offering a faster route for startups seeking to go public without the scrutiny or risks of an initial public offering.
- Back-to-back tropical storms pose a combined threat to the U.S. Gulf Coast this week, where more than half of offshore oil production is already shut and residents from Texas to Florida are warily watching the skies. From the south, Tropical Storm Marco is weakening but still rushing toward a Monday landfall in Louisiana. It threatens a dangerous surge in coastal waters that could combine later with the larger and deadlier Tropical Storm Laura, which is forecast to strengthen into a hurricane on Tuesday. “There is an old saying ‘never trust a storm that goes into the Gulf,’ especially if it is large,” said Jim Rouiller, lead meteorologist with the Energy Weather Group. “The notion of rapid intensification is definitely on the table. I grow more concerned about Texas.”
- Boeing Co. is preparing to bolster the long-term safety of its troubled 737 Max with technology borrowed from space vehicles and urban drones that can provide data to help back up its sensors. The system — known as synthetic air data — takes existing information on the aircraft, runs it through a computer program and produces readings that mimic what costly additional sensors provide. Added as a result of pressure from overseas regulators, it would reduce the risk of accidents such as those on the Max. But it would also address a wide range of deadly air crashes triggered by confusing cockpit readings, according to engineers and academic research. It’s already proved its value on Boeing’s 787, and Airbus SE is adopting similar techniques in its aircraft.
- The European Union’s top trade negotiator, Phil Hogan, faces a critical week with his job on the line even after he apologized expansively for attending a golf-society dinner in his native Ireland during the coronavirus pandemic. His imbroglio with Irish government leaders comes at a challenging time for the EU, with Hogan helping chart its future association with the U.K. and leading talks to update trade ties with the U.S., a relationship worth about $1.3 trillion a year. Irish Deputy Prime Minister Leo Varadkar, who as former leader lobbied to get him the high-profile post, has kept up the pressure on Hogan. The EU commissioner went to last week’s social event a day after the Irish government said no formal or informal events or parties should be organized at cafes and restaurants.
- U.K. Prime Minister Boris Johnson urged parents to send their children back to school when they reopen in England next week, amid growing concern among some teachers and union officials that it’s not safe to do so. “The risk of contracting Covid-19 in school is very small and it is far more damaging for a child’s development and their health and well-being to be away from school any longer,” Johnson said in a statement on Sunday. “It’s vitally important that we get our children back into the classroom to learn and to be with their friends.”
- The Indonesian island of Bali will remain closed to foreign visitors for the rest of 2020 after authorities postponed a plan to welcome back international tourists from Sept. 11 as the coronavirus continues to spread. “The Indonesian government couldn’t reopen its doors to foreign travelers until the end of 2020 as we remain a red zone,” Bali Governor Wayan Koster said in a statement. “The situation is not conducive to allowing foreign tourists to come to Indonesia, including to Bali.” After some success in containment early on, Bali’s infection rate jumped in June as migrant workers returned home and testing increased. The island had 4,576 confirmed cases as of Monday and 52 deaths, while Indonesia as a whole has more than 155,000 confirmed cases and 6,759 deaths, government data show.
- Tencent Holdings Ltd. jumped the most in a month after White House officials are said to have reassured American businesses that a ban on its WeChat app won’t be as broad as feared. The WeChat owner rallied 5.8% at the close in Hong Kong Monday, making it the best performer on the benchmark Hang Seng Index, after people familiar with matter said the Trump administration is privately seeking to reassure U.S. companies including Apple Inc. that they can still do business with Tencent’s WeChat messaging app in China. In recent days, senior administration officials have been reaching out to some companies, realizing that the impact of an all-out ban on the popular app could be devastating for U.S. technology, retail, gaming, telecommunications and other industries, according to the people.
*All sources from Bloomberg unless otherwise specified