August 4th, 2020
Daily Market Commentary
- CI Financial Corp. announced a deal to take full ownership of Balasa Dinverno Foltz LLC (BDF) of Itasca, Illinois, a private wealth management firm with $4.5 billion in assets. Deal takes CI’s U.S. wealth management business to about $11 billion in assets under management. BDF is its fifth direct acquisition of a U.S. registered investment adviser.
- European stocks fell, reversing an early gain, as defensives including health-care and food and drinks shares declined on disappointing earnings. The Stoxx Europe 600 Index dropped 0.2% as of 10:05 a.m. in London. Health-care was the worst-performing sector after Bayer AG cut its guidance, while Diageo Plc dragged food-and-beverage shares lower after its organic sales growth disappointed. Germany’s DAX Index dropped 0.4%. Stocks climbed yesterday on strong U.S. manufacturing data, after giving up a fourth monthly gain in the final sessions of July. The Stoxx 600 has traded in a range since hitting a three-month high, and is struggling to break decisively above its 50-day moving average.
- U.S. index futures drop alongside shares in Europe as investors wait on whether fresh fiscal stimulus in the U.S. will get approval. Oil and the dollar declined. Investors are focused on whether U.S. Congress will approve fresh stimulus before the Senate leaves on an extended break on Friday, when monthly job data is due. Meanwhile, tension between the U.S. and China continues to simmer. President Donald Trump said TikTok will have to close its U.S. business by Sept. 15 — unless there’s a deal to sell the social media network’s American operations.
- Japanese stocks rose as positive U.S. manufacturing data and progress seen in negotiations over a coronavirus-related stimulus bill helped lift sentiment. Automakers and railway companies gave the most support to the Topix index. U.S. stocks rose, with the Nasdaq 100 reaching a record, as President Donald Trump said he may take executive action to impose a moratorium on evictions and suspend payroll taxes. A gauge of U.S. manufacturing showed the fastest expansion since March 2019.
- Oil dropped toward $40 a barrel in New York after the biggest gain in two weeks as investors weighed additional OPEC supply hitting the market against signs of an economic recovery across major economies. OPEC’s crude output rose last month led by Saudi Arabia ahead of the group and its allies relaxing their historic cuts this month, according to a Bloomberg survey. Oil futures added 1.8% on Monday for a second daily increase, tracking stronger equities after U.S. manufacturing rapidly expanded in July, while euro area factories returned to growth. The futures curve, however, is showing some weakness, with the three-month timespread for benchmark U.S. crude near the widest contango since May, indicating there are some concerns about oversupply.
- Spot gold steadied after hitting a record as risk sentiment improved amid positive economic data and a slowdown in the rate of coronavirus infections in some places. U.S. manufacturing expanded in July at the fastest pace since March 2019 as more factories boosted production in the face of firmer orders and lean inventories. Plants across the euro area saw an even stronger return to growth last month than initially reported, marking the region’s first manufacturing expansion in one-and-a-half years.
- Germany and Poland recorded increases in new coronavirus infections, while budget airline EasyJet Plc is seeing a stronger-than-anticipated pickup in passenger demand following the lifting of European travel restrictions. In Asia, Hong Kong on Tuesday reported a second day of new cases falling below a hundred, though infections in the Philippines hit a record and Tokyo’s continued to rise. Australia’s Victoria state said anyone flouting isolation rules will face a fine of as much as A$5,000 ($3,572) as new cases rise. U.S. President Donald Trump said he may take action to impose a moratorium on evictions and enact a payroll tax holiday. California and Arizona reported fewer new cases after battling a surge in infections last month. Mexico’s new infections fell.
- Boris Johnson’s government will invest nearly 1.3 billion pounds ($1.7 billion) in building projects and provide 2 billion pounds in energy efficiency grants in an effort to create jobs and rally the pandemic-hit U.K. economy. Housing Secretary Robert Jenrick said 300 “shovel-ready” projects will receive a share of a 900 million pound Getting Building Fund, and a further 360 million pounds will go toward homes on previously developed “brownfield” land. The U.K.’s construction industry was stalled by the coronavirus pandemic earlier this year and rebooting the sector could help ease unemployment and generate revenue as the country faces its worst recession for 300 years. The building fund is expected to deliver 45,000 new homes and the brownfield program 26,000, the government said.
- House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin head into another round of negotiations on a new virus relief package after talks on Monday yielded “a little bit” of progress despite the wide gap that still remains between Republicans and Democrats. It was the first glimmer of optimism that the talks over the past week had made some progress, and pressure was growing among lawmakers in both parties to get a deal. But there still was no resolution on some of the most critical issues, including an extension of the supplemental unemployment insurance that has expired. With the talks dragging on, President Donald Trump on Monday said he was considering executive action to restore a moratorium on evictions that also expired, and the White House was looking at other steps the administration could take without action by Congress.
- KKR & Co. attracted a record amount of cash in the second quarter as investors looked to capitalize on the turmoil unleashed by the Covid-19 pandemic. The New York-based alternative asset manager raised $16.4 billion, it said Tuesday, surpassing its previous peak from the fourth quarter of 2017. The boost was driven by demand for buyout and infrastructure strategies in Asia, as well as real estate and credit dislocation funds. Some private equity firms are bringing in money at a rapid clip amid this year’s market upheaval as investors search for yield. Blackstone Group Inc.also benefited from a strong fundraising quarter. Private equity executives have been touting their ability to navigate the coronavirus crisis, and the industry is flush with $1.56 trillion of unspent money, according to researcher Preqin.
- U.S. endowments earned a median investment return of 2.6% for the latest year, the lowest since fiscal 2016, offering little relief to colleges as the Covid-19 pandemic constrains tuition and other revenue sources. Bigger funds lagged behind the overall group, according to results published Tuesday by Wilshire Trust Universe Comparison Service. Endowments with more than $500 million in assets gained 2.4% before fees in the 12 months through June, the data show. Funds broadly trailed the S&P 500, which rose 5.4%.
- On an overcast morning last month, Serbia’s President Aleksandar Vucic arrived at a military airport near Belgrade to pose with six Chinese-made attack drones. “They have a long range, they can shoot at targets from a distance of nine kilometers and record the terrain, objects of interest to Serbia deep within enemy territory,” Vucic said standing alongside Serbian troops clad in berets and face masks to protect against Covid-19. The purchase of the six pilotless aircraft by the NATO partner makes Serbia the first European country to deploy Chinese combat drones. It also underscores China’s broadening strategic footprint on NATO’s doorstep, from cyberattacks and intellectual property theft to strategic investment through its Belt and Road Initiative.
- British lenders have offered a taste of how much the worst recession in centuries is going to cost. The bill’s already at 17.2 billion pounds ($22.4 billion). Write-offs at the country’s six biggest banks so far this year roughly equal Barclays Plc’s current market value. “There’s likely more of that to come, and with low interest rates dragging on revenues, full year profits will not be pretty,” said Nicholas Hyett, analyst at Hargreaves Lansdown Plc.
- HSBC Holdings Plc is planning a big boost to its wealth management staff in China in a bid to lift its sagging profits, increasing its presence in the face of mounting political tensions between Beijing and Western governments. In conjunctions with its earnings release on Monday, which revealed first-half profit halved, the bank said it’s targeting to hire 2,000 to 3,000 wealth planners within four years in China. The first 100 new people have already started in Guangzhou and Shanghai, it said. London-based HSBC, which makes more than half of its revenue and almost all of its profits in Asia, is walking a political tightrope in its attempts to further push into the world’s most populous nation. The move is taking place at a time when the bank is handling criticism over its dealings with Huawei Technologies Co. and an endorsement to China’s controversial security law on Hong Kong.
- The Bank of England is facing pressure from green campaigners to revise its pandemic rescue program after research showed it’s effectively subsidizing polluting industries while claiming tackling climate change is a priority. The central bank’s 20 billion pound ($26 billion) Corporate Bond PurchaseScheme favors carbon intensive industries such as energy production and manufacturing, according to a report led by the New Economics Foundation on Tuesday. Protesters wearing masks of Governor Andrew Bailey will gather outside the bank on Thursday, when policy makers are due to make their next decision on interest rates. So far, the bond program has pumped 11.4 billion pounds of new money into the dirtiest sectors, though they offer marginal contributions to the U.K. economy, the report said. Around 57% of the value of the bonds purchased are from the most carbon intensive sectors, but they only represent 13.8% of overall employment and contribute 19% to gross value added.
- Telecom Italia SpA plans to approve a 1.8 billion euro ($2.1 billion) binding offer by KKR & Co. for a minority stake in some of the phone carrier’s landline assets, according to people familiar with the matter, a move that could accelerate the former phone monopoly’s efforts to create a single national network. Telecom Italia’s board of directors, which is set to gather on Tuesday to approve second-quarter results, is close to approving the sale of a 38% stake in the company’s so-called secondary network, covering cables that run from the street to premises, said the people, who asked not to be identified discussing internal deliberations.
- Sony Corp. reported profit that outpaced estimates on strong demand for its games products, but offered a measured forecast for the fiscal year due to uncertainty from the coronavirus pandemic. The Tokyo-based company said operating profit for the quarter ended in June was 228 billion yen ($2.15 billion), compared with average analyst estimates of 137 billion yen. The company forecast operating profit for the year ending in March of 620 billion yen, compared with projections for 654 billion yen. Sony also said it would buy back as much as 1.64% of its shares for 100 billion yen.
- India’s poultry industry is in dire need of cash after prices slumped earlier this year on speculation fanned by social media that chickens could spread the coronavirus, according to one of the nation’s top producers. Chicken prices at the farm gate plummeted as much as 70% in March from January, forcing farmers to cull large numbers and causing huge losses, said Suresh Chitturi, vice chairman and managing director of Srinivasa Farms Pvt. Prices have now recovered to just above production costs, but banks are still not willing to lend, he said in a phone interview. Farmers need up to 200 billion rupees ($2.7 billion) in loans, Chitturi said. Bank financing is crucial to the $14 billion industry which directly or indirectly employs 5 million people and supports 25 million producers. With an annual output of 95 billion eggs, India ranks second in the world, according to Chitturi.
- Argentina and its largest creditors struck a deal to restructure $65 billion of debt, setting the stage for the South American nation to emerge from its third default since the turn of the century. The government said in a statement Tuesday that the deal with key creditors would provide “significant debt relief” and that interest and capital payment dates for some new exchange bonds were moved forward to reach the agreement. While the statement didn’t provide a net-present value for the agreement, people with direct knowledge of the matter said the deal is worth about 54.8 cents on the dollar. The agreement is the product of months of talks between the government and large investment firms including BlackRock Inc., Ashmore Group Plc, and Fidelity Investments, and is the first step toward stabilizing a struggling economy. Inflation hovers near 45%, the peso has lost more than half its value in just a few years and gross domestic product is set to shrink for the third consecutive year.
- Joe Biden, who’s spent decades warning about the dangers of budget deficits, will inherit one of the biggest in U.S. history if he becomes president—and he’ll be in no rush to pare it back. That’s the signal the Democratic candidate is sending after his campaign rolled out a $3.5 trillion economic program over the past month. It promises to invest in clean energy and caregiving, buy more made-in-America goods, and start narrowing the country’s racial wealth gaps. The bill for this agenda is modest in comparison with the universal health-care and student loan forgiveness plans backed by some of Biden’s primary season rivals. Still, it would come right after the U.S.’s multitrillion-dollar fight to pull its economy out of a pandemic slump. This year’s budget shortfall is forecast to exceed 17% of gross domestic product, the most since the country mobilized to fight World War II.
- California’s second round of coronavirus-related shutdowns, among the nation’s strictest measures, are already causing pain for the most populous state’s labor market and portend a deterioration in the overall U.S. employment picture for July. When Governor Gavin Newsom announced on July 13 that indoor operations at businesses including salons and gyms would close to curb the resurgent virus — cases in the state have doubled in the last month — owners scrambled to figure out whether they could stay open. Some establishments, particularly restaurants, took advantage of outdoor space, but many closed completely, causing workers to be laid off a second time.
- Even as the pandemic continues to drive down consumer spending and depress oil prices, investors are spending big on clean-tech companies. Shares are now near record highs, the latest sign that wind and solar are no longer fringe bets. Electric-carmaker Tesla Inc. has grabbed much of the attention with a 255% jump this year. But the stock surge is hitting across clean tech, from solar installers to fuel-cell providers to wind companies. Vivint Solar Inc. has tripled and Sunrun Inc. nearly tripled, while Sunnova Energy International Inc. and Enphase Energy Inc. have doubled. The WilderHill New Energy Global Innovation Index of 87 companies has soared 29% this year, eclipsing the Nasdaq’s 22% gain–and hitting highs last seen 12 years ago.
- Alphabet sold $5.75 billion of bonds with rock-bottom yields in the largest-ever corporate bond sale dedicated to ESG purposes. The parent company of Google plans to use the proceeds of the sustainability bonds for organizations that support Black entrepreneurs, as well as small- and medium-sized businesses impacted by Covid-19, affordable housing, green housing and clean-energy projects
- The National Football League, a little over a month from the start of its 2020 season, has a plan to avoid the kind of coronavirus-driven game cancellations that have plagued the start of Major League Baseball. The NFL’s approach is to rely on contact tracing to stem the spread of the virus, using devices that can be worn on the wrist or even sewn into jerseys. Unlike the National Basketball Association, which is successfully playing in a single-site “bubble” environment, the NFL plans to play at stadiums around the country as usual. And baseball’s struggles to keep its season on course show how quickly the virus that has killed more than 150,000 Americans can derail a sport when players, coaches and staff aren’t sequestered from the world.
- Morgan Stanley’s status as a primary dealer of French government bonds has been put on ice by the nation’s debt management office because of transactions conducted five years ago that affected the liquidity of the market. The suspension, which will last at least three months, comes into effect Tuesday, Agence France Tresor said in a statement. The U.S. bank said it had lodged an appeal against the regulator Autorite des Marches Financiers’ decision relating to the trading activity. The AFT said that the restoration of the bank’s status as a primary dealer would be subject to “compliance with remedial measures,” jointly adopted between the two sides. Morgan Stanley was the 10th most active dealer in primary markets in 2019, according to the AFT website, with BNP Paribas SA top.
*All sources from Bloomberg unless otherwise specified