December 16th, 2020
Daily Market Commentary
- Bank of Canada Governor Tiff Macklem warned the nation’s economy could temporarily shrink again amid a second wave of virus cases, tempering good news on the start of inoculations against Covid-19. In his last speech of the year on Tuesday, Macklem said uncertainty remains elevated and new restrictions could trigger a small contraction at the start of 2021. On the plus side, “news on vaccines provides some reassurance that more normal activities can resume sometime later next year.” Tiff Macklem speaks during a Bank of Canada news conference on Oct. 28. “The economic recovery from the pandemic is at a very difficult stage,” Macklem told the Vancouver Board of Trade via video conference. “Near term, rising Covid-19 infections will dampen growth and could even deepen our economic hole.”
- Quebec Premier Francois Legault says closures of non-essential retailers from Dec. 25 to Jan. 11 will help break the second wave of Covid-19 infections and ease the burden on hospitals. Retailers that remain open won’t be allowed to sell non-essential goods. Province also extends primary schools’ holiday break to Jan. 11, loosens rules for outside activities. New cases have averaged 1,800 per day over the past week. Most indoor businesses, including restaurant dining rooms and museums, have been closed since Oct. 1 in regions with the worst outbreaks.
- A new giant in the fast-growing cannabis industry will be created after Tilray Inc. and Aphria Inc. agreed to combine their operations. The all-stock deal, which puts together two of the industry’s best known names, will create a new entity with an equity value of about C$4.8 billion ($3.8 billion), according to a statement and interviews with the Tilray and Aphria chief executive officers. The enlarged group’s 12-month annual sales of C$874 million surpasses that of industry leaders such as Curaleaf Holdings Inc.and Canopy Growth Corp. The new company will trade under Tilray’s ticker on the Nasdaq, and Aphria shareholders will own 62% of Tilray’s stock under the terms of the transaction, which was characterized as a “reverse acquisition of Tilray.” Aphria will pay a 23% premium to Tilray’s Dec. 15 closing price of $7.87.
- Equinox Gold Corp. has signed a friendly agreement to acquire Premier Gold Mines Ltd. which will spin out its Nevada assets in a new U.S.-focused gold miner to be called i-80 Gold Corp. Under the deal, Equinox Gold will acquire Premier’s interest in the Hardrock Project in Ontario, the Mercedes Mine in Mexico and the Hasaga and Rahill-Bonanza properties in Red Lake, Ont. The proposal will see Premier shareholders receive 0.1967 of an Equinox Gold share and 0.4 of a share of i-80 Gold for each Premier share held. Equinox shares closed at $13.10 on the Toronto Stock Exchange on Tuesday, while Premier shares closed at $2.52.
- Global stocks rallied, with confidence among investors building on the back of stronger German factory data, the vaccine rollout and the prospect for more U.S. stimulus. In the U.S., S&P 500 futures were higher and the dollar weakened as investors waited for details from the Federal Reserve’s recent meeting. Economists say the Fed may deliver fresh guidance on its asset purchases, now $120 billion a month, tying how long the buying will continue to substantial progress in meeting its goals of full employment and 2% inflation.
- European stocks extended gains to rise as much as 1% on Wednesday, after Purchasing Managers’ Index data showed better-than-expected business activity in Germany and France. The Stoxx Europe 600 Index was up 0.9% as of 9:06 a.m. in London, with energy and automotive stocks leading gains. Euro-zone lenders lagged behind the broader market after the European Central Bank lifted a de-facto ban on dividends, but imposed strict limits on payouts.
- U.K. and European Union negotiators are inching toward a trade deal as talks in Brussels continue around the clock. European Commission President Ursula von der Leyen said a deal is possible but that it will be difficult. “As things stand, I can’t tell you if there will be a deal or not,” she said. Optimism has grown after the two sides agreed to continue discussions past their self-imposed Sunday deadline and the EU’s chief negotiator Michel Barnier said he saw a “narrow path” to a deal this week if differences can be bridged.
- German manufacturing powered ahead in December, with global demand helping factories post a better-than-forecast performance. IHS Markit’s monthly index unexpectedly jumped to 58.6, the highest level in almost three years, from 57.8. Orders across the goods-producing sector increased sharply, with many firms citing stronger demand from China in particular. The reading pushed the euro higher. It extended its gain and was up 0.4% to $1.2198 as of 10:47 a.m Frankfurt time. The yield on German 10-year bonds rose.
- Iron ore’s dizzying demand surge has made it the world’s best performing commodity this year, and prices could stay elevated for months to come. The rally has been almost two years in the making, after a mine disaster in Brazil shuttered a significant chunk of output in the world’s no. 2 producer. It’s a supply shock that came as Australia’s mining giants kept production in check, happy to take higher prices rather than rush to raise output. In the second half of this year, faltering supply has met a surge in demand. China, the dominant consumer, is spending heavily on construction to rescue an economy that cratered in the wake of the pandemic. The country’s steel production this year is on track to top 1 billion tons for the first time.
- A trucking-driven rebound in diesel use is boosting profit margins on some U.S. light sweet crudes to multi-month highs. Diesel consumption is back to pre-virus levels due to an e-commerce driven boost in trucking, even as gasoline demand for this time of year is at its lowest in decades, according to the most recent government data. The higher diesel prices have lifted the profitability of processing a barrel of light crude into fuels. The margin on West Texas Intermediate crude rose to $6.50 a barrel Monday, the highest since early October and the margin on Louisiana Light Sweet crude surpassed $7 a barrel to the highest since April 20, the day WTI futures sank below zero, according to data published by Oil Analytics.
- Gold extended its advance off the back of a weaker dollar, as investors awaited the outcome of the Federal Reserve’s final meeting of the year and weighed the potential for a fiscal stimulus deal. Markets are expecting fresh guidance on the Fed’s asset-purchase program when the two-day gathering ends later Wednesday. Meanwhile, Senate Majority Leader Mitch McConnell said that he will keep lawmakers in Washington and prevent a holiday recess until they agree to pass coronavirus-related aid.
- Germany recorded the biggest increase in Covid-19 deaths since the pandemic began as Chancellor Angela Merkel hinted that a hard shutdown that takes effect Wednesday will remain in force beyond January. Tokyo cases rose to an all-time high, while South Korea also reported record infections. China secured 100 million doses of the vaccine developed by Pfizer Inc. and BioNTech SE. In the U.K., almost 140,000 people have been inoculated against Covid-19. Across the U.S., cases are surging. New York City’s mayor told residents to prepare for a shutdown of all but essential businesses soon after Christmas. California is stockpiling body bags, recruiting medical workers and considering whether to request a U.S. Navy hospital ship.
- The Federal Reserve’s decision on Wednesday is one of the last big events in one of the most turbulent years for markets. Strategists are waiting to see if the central bank links the future of asset purchases to measures of employment and inflation, or even takes action to alter the pace or composition of bond buying, for instance by tilting debt purchases to longer maturities to support the economy. The meeting comes as Covid-19 vaccines are rolled out for the first time, bolstering optimism that the pandemic will ease in coming months. Congressional leaders also appear to be getting closer to agreeing on a fiscal relief package. But if those talks continue to drag on, the pressure on the Fed and Chairman Jerome Powell for economic support may increase. Among the predictions are a flatter yield curve, dollar weakness and a rally in stocks if the Fed delivers a dovish surprise. Looking further out, some strategists still expect the benchmark 10-year Treasury yield to top 1% next year.
- Australia will challenge China at the World Trade Organization over Beijing’s decision to impose hefty tariffs on its barley exports, a further sign of deteriorating relations between the two key trading partners. Trade Minister Simon Birmingham said Wednesday that the government had advised counterparts in Beijing of its intention “to request formal consultations with China.” The dispute process could take years to be resolved, but the organization should recognize that the tariffs are “not underpinned by facts and evidence,” he said. “We will make this formal request to the WTO tonight,” Birmingham told reporters. “WTO dispute resolution processes are not perfect, and they take longer than would be ideal, but ultimately, it is the right avenue for Australia to take.”
- Bain Capital and Clayton Dubilier & Rice are competing in the final stage of bidding for Mediq, the Dutch health-care services provider owned by Advent International, people familiar with the matter said. The private equity firms have made binding offers for the Utrecht-based business, the people said, asking not to be identified as the discussions are private. Mediq has also drawn interest from other buyout firms including Triton and CapVest, the people said. Advent is working with advisers at Rothschild & Co. to gauge interest in the business, Bloomberg News reported in August.
*All sources from Bloomberg unless otherwise specified