December 1st, 2020
Daily Market Commentary
- Canadian equities slid Monday but still capped off a strong November as vaccine optimism buoyed stocks throughout the month. The S&P/TSX Composite Index rose 10.3% in the best monthly gain since April. On Monday, energy shares led the decline while tech was among gainers. OPEC talks ended without an agreement on next year’s oil output, with ministers punting the final decision into a second day of discussions as tensions in the cartel simmered. Private equity firm Sandpiper Group also won its battle to replace the board of Artis Real Estate Investment Trust, taking control of a property portfolio with heavy exposure to oil-producing regions of Canada that have taken a severe economic hit in the pandemic.
- Bank of Nova Scotia posted fiscal fourth-quarter earnings that topped analysts’ estimates as its Latin America-focused international unit rebounded from a tough quarter. Canada’s third-largest lender by assets said profit in its international business — which has operations in countries including Mexico, Peru and Chile — fell 56% from a year earlier to C$333 million ($257 million), but the unit bounced back from a loss in the third quarter. Overall, the bank posted profit of C$1.45 a share, excluding some items, beating analysts’ C$1.22 average estimate.
- Bank of Montreal’s fiscal fourth-quarter profit topped analysts’ estimates, helped by a strong performance from its capital-markets business and slowing declines in Canadian retail banking. The lender, Canada’s fourth-largest by assets, said profit in its capital-markets business rose 40% to C$379 million ($292 million) in the three months through Oct. 31. Overall, the bank posted profit of C$2.41 a share, excluding some items, better than analysts’ C$1.91 average estimate.
- Bank of Montreal is winding down its U.S. oil and gas investment banking business and will focus on assets in Canada going forward, becoming the latest financial institution to cut ties with America’s beleaguered shale industry. BMO said it has made “the financial decision for an orderly wind-down of our non-Canadian investment and corporate banking energy business.” Going forward, the company said by email, its capital markets energy business will be focused on Canada. The company is eliminating about 50 positions in its investment banking group as part of the exit that was announced to staff on Monday, according to a person with direct knowledge of the situation who asked not to be identified because the information isn’t public. A handful of corporate bankers will manage BMO’s U.S. oil and gas loan book, the person said.
- An Enbridge Inc. pipeline that will help ship more Canadian crude to the U.S. Midwest received final approval, paving the way for construction to start soon on a third key export project for the oil sands after years of delays. Minnesota approved the stormwater pollution plan for Enbridge’s Line 3 pipeline replacement and expansion, the project’s last pending permit, the company said on Monday. Construction is expected to take six-to-nine months on a line that will add 370,000 barrels a day of capacity. Producers in Alberta, which holds the world’s third-largest crude reserves, have seen growth ground to a halt in recent years as a lack of enough export pipelines caused local crude prices to plummet in value. Now, three projects could allow them to ship an extra 1.8 million barrels a day when built.
- European stocks rose on Tuesday, beginning the final month of 2020 on a positive note as Chinese manufacturing data boosted sentiment, with autos, miners and travel stocks all rising. The Stoxx 600 Index was up 0.3% by 8:13 a.m. London time, with investors watching for manufacturing data for the euro area due later. Among individual movers, Swiss baker Aryzta AG gained 4.1% after the company’s chief said the firm has received multiple, unsolicited offers. UniCredit SpA was in focus after the Italian lender’s chief executive officer decided to leave next year. European stocks saw their best month on record in November as hope spurred by progress with a vaccine against the coronavirus boosted investment in risk assets. Energy stocks, banks and insurers were the top-performing sectors last month, while more defensive personal and household goods, health stocks and food and beverages lagged.
- U.S. stock futures rose after their best month since April, as investors assessed prospects for a Covid-19 vaccine and central bank support. December contracts on the S&P 500 advanced 1% as of 9:35 a.m. in London, after completing an 11% gain for November. Futures also added 1.1% on the Dow Jones Industrial Average and 0.7% for the Nasdaq 100 Index. Federal Reserve Chair Jerome Powell said that while vaccine development is positive for the U.S. economy in the medium term, “significant challenges and uncertainties remain, including timing, production and distribution, and efficacy across different groups.”
- Japanese stocks rose, tracking gains in U.S. futures, as investors eyed continued Federal Reserve support amid the latest positive vaccine news. Electronics makers were the biggest boost to the Topix index, while the Nikkei 225 Stock Average rose to its highest level since April 1991. The gauges both fell Monday but still capped their best month in years, with the Topix rising 11% in November and the Nikkei surging 15%. Moderna Inc. requested clearance for its shot after new analysis showed it was highly effective in preventing Covid-19, with no serious safety problems. Federal Reserve Chair Jerome Powell said that while vaccine development is positive for the U.S. economy in the medium term, “significant challenges and uncertainties remain, including timing, production and distribution, and efficacy across different groups.”
- Oil traded near $45 a barrel in New York with OPEC seeking more time to reach a deal on production policy after a meeting broke down without an agreement. Futures flipped between gains and losses having earlier been buoyed by a weaker dollar. The recovery in Asia gathered pace as factory activity in South Korea and China surged in November. The rebound highlights the uneven global oil demand picture OPEC+ is facing, with Europe and the U.S. grappling with a resurgent outbreak. Ministers from the alliance will now meet on Thursday rather than Tuesday to allow more time to deliberate on whether to delay a planned increase in output from January. While some see the market as too fragile to absorb additional barrels, others are keen to pump more oil to take advantage of higher prices following Covid-19 vaccine breakthroughs.
- Gold rose back above $1,800 an ounce from the lowest level in almost five months as the dollar retreated amid strong risk-on sentiment in equity markets. Investors began December in a bullish mood following a record month for global stocks as the arrival of a coronavirus vaccine spurs optimism for a return to economic growth. Equities gained after positive Asian factory dataand a new deal on the euro-area’s bailout fund. Gold climbed, while a gauge for the dollar neared its lowest since April 2018 as month-end flows unwound.
- Tesla Inc. will be added to the S&P 500 Index in one shot on Dec. 21, a move that will ripple through the entire market as money managers adjust their portfolios to make room for shares of the $538 billion company. Given Tesla’s massive market size, S&P consulted with investors in November, asking for feedback on whether the stock should be folded into the index all at once or in two parts, which would have been unprecedented. The electric-vehicle maker would be the seventh-biggest company in the S&P 500 at its current market value, falling between Berkshire Hathaway Inc. and Visa Inc. With about $11 trillion in funds tied to the S&P 500, money managers have been looking toward a few busy weeks ahead no matter how Tesla was included in the index. Whether it was one fell swoop or two separate tranches, managers of index-tracking funds would still have had to offload stocks of several other companies to make room for the mammoth newcomer in their portfolios.
- China’s No. 2 smartphone maker Xiaomi Corp. is seeking to raise as much as $4 billion from a combined share placement and sale of convertible bonds, adding to a war chest aimed at expanding its market share from competitor Huawei Technologies Co. Xiaomi is selling 1 billion shares in a top-up placement to raise as much as $3.2 billion, according to terms of the deal obtained by Bloomberg News. The shares are being offered at HK$23.70 to HK$24.50 each, representing a 6.3% to 9.4% discount to its closing price of HK$26.15 on Monday. It’s Hong Kong’s largest top-up placement on record, data compiled by Bloomberg show. Xiaomi is also seeking $855 million through a seven-year, zero-coupon convertible bond, the terms show. The conversion premium is set at 42.5% to 52.5% above the reference share price, which will be the offering price of the equity placement.
- JD Health International Inc. raised HK$27 billion ($3.5 billion) after pricing Asia’s biggest health-care initial public offering at the top end of a marketed range, people with knowledge of the matter said. The unit of Chinese e-commerce operator JD.com Inc. priced its sale of 381.9 million shares at HK$70.58 apiece, the people said, asking not to be identified as the information isn’t public. The company is due to start trading in Hong Kong on Dec. 8. The IPO surpasses the $2.3 billion share sale by Japan’s Otsuka Holdings Co. a decade ago to become Asia’s biggest listing in the health-care sector, according to data compiled by Bloomberg. The medical industry has seen a record wave of listings in Asia this year, spurred by strong investor demand amid the coronavirus pandemic.
- Pfizer Inc. and partner BioNTech SE sought regulatory clearance for their Covid-19 vaccine in the European Union, putting the shot on track for potential approval there before the end of the year. The European Medicines Agency said on Tuesday it could issue an opinion within weeks, with a meeting on the assessment scheduled for Dec. 29 at the latest. Submitted on Monday, the formal application caps a rolling review process that started on Oct. 6 and allowed Europe’s drugs regulator to examine data on the vaccine as it emerged. Governments around the world are eager to start vaccinating their populations to curb the pandemic. Rival Moderna Inc. requested clearance in the U.S. and Europe on Monday. The U.K. invoked a special rule to allow its regulator to bypass its EU counterpart and may be the first to sign off on the Pfizer-BioNTech product. The U.S. isn’t far behind, with a Food and Drug Administration panel set to meet on Dec. 10 to discuss the vaccine.
- President-elect Joe Biden is setting up his first confirmation fight with Senate Republicans by choosing Neera Tanden — a sometimes-acerbic Democratic policy wonk with an often-partisan Twitter feed — to serve as his White House budget chief. Tanden, the tough-minded head of an influential Democratic think tank, is a veteran Hillary Clinton aide seasoned in Washington battles over Obamacare and Donald Trump’s presidency. Her selection Monday as Biden’s nominee to lead the Office of Management and Budget drew swift objections from GOP senators who could block her confirmation, with Senator John Cornyn of Texas calling her selection “radioactive.”
- Exxon Mobil Corp. is about to incur the biggest writedown in its modern history as the giant U.S. oil and gas producer reels from this year’s collapse in energy prices. Exxon — traditionally far more reluctant to cut the book value of its business than other oil majors — on Monday disclosed it will write down North and South American natural gas fields by $17 billion to $20 billion. That could make it the industry’s steepest impairment since BP Plc’s 2010 Gulf of Mexico oil spill that killed 11 workers and fouled the sea for months. Meanwhile, capital spending will be drastically reduced through 2025. The announcement comes in the waning days of a grueling year for Chief Executive Officer Darren Woods, who’s resorted to laying off thousands of employees, curtailing retirement benefits and canceling ambitious growth projects. The former refinery manager, who stepped in to the top job in 2017, has been forced to recast his seven-year, $210 billion blueprint for rejuvenating Exxon’s aging portfolio of crude and gas holdings.
- Bitcoin’s recovery from a rout last week is stoking speculation that the cryptocurrency can breach $20,000 for the first time. The most-traded digital asset rose as high as $19,907 on Monday, rebounding from its Thanksgiving Day plunge to set successive record highs this week. The surge buoyed other cryptocurrencies, including Ether and Litecoin “Fear of missing out is slowly kicking in,” said Antoni Trenchev, managing partner of Nexo in London, which bills itself as the world’s biggest digital-coin lender. “We are only just beginning to see some of our retail clients borrowing against their Bitcoin to buy more Bitcoin and that will ultimately propel the rally well into the $20,000s.”
- Trade talks between the U.K. and European Union are “so tricky and so difficult” but there could be a positive outcome in the next few days, European Commission President Ursula von der Leyen said. With face-to-face talks continuing in London, the German head of the bloc’s executive said on Tuesday there are still important questions to resolve around the so-called level playing field, a set of rules designed to ensure fair competition between businesses. The negotiations, which have been going on since March, are now in their final days, with both sides’ parliaments needing time to ratify any agreement before the U.K. leaves the EU’s single market on Dec. 31. An accord would establish tariff and quota-free trade in goods and cooperation in areas such as security and transport.
- Global banks in Hong Kong, from Goldman Sachs Group Inc. to Standard Chartered Plc, are urging more staff to work from home again as virus cases surge in the Asian finance hub. Goldman Sachs will go back to a full work-from-home approach in Hong Kong starting Wednesday except for staff that have to be in the office to perform their roles, according to a staff memo that was confirmed by a bank spokesman. Standard Chartered has applied a hard split-team arrangement for functions that require work in the office, and shortened branch hours last Friday, according to a spokeswoman. “In view of covid wave 4, we strongly encourage our staff to work from home where possible,” she said.
- French car sales plunged 27% in November after a second lockdown shuttered showrooms and put the country on course for its worst year in at least a decade. France recorded 126,048 passenger-car registrations last month, the lowest since August, industry group CCFA said Tuesday. Registrations have contracted 27% since the start of the year. While the drop is far less severe than the record 89% fall in April during the country’s first lockdown, the November figures are the first from a major European market to show the extent of the battering the industry took from reimposed restrictions on dealerships. “France could be heading toward the worst year for car sales since 1975,” said Francois Roudier, a CCFA spokesman. In any case, registrations are likely to be the weakest since 2010, he said.
- London’s Crossrail train line will get an 825 million-pound ($1.1 billion) loan to allow completion of the long-delayed project following a deal between the city’s mayor and the U.K. government. The cash, to be borrowed by the Greater London Authority from the Department for Transport, will allow completion of the final section of the line under the center of the capital, Transport for London said in a statement Tuesday. The funds come on top of an earlier 2.15 billion-pound top-up package and are intended to get the link up and running in the first half of 2022, 3 1/2 years late. They’ll be repaid from business rates and a mayoral infrastructure levy.
- Credit Suisse Group AG signaled it may need to set aside an additional $380 million in the fourth quarter to cover a 2009 U.S. case involving guarantees for residential mortgage-backed securities, the latest financial hit after a hedge fund loss last month. The Zurich-based lender is facing costs of as much as $680 million after the New York judge presiding over the case on late Monday ordered the bank and municipal-bond broker MBIA to submit estimates of damages related to the mortgages, issued in 2007, Credit Suisse said in a statement on Tuesday. It has already set aside $300 million to cover losses in the case. If Credit Suisse does not hear from the judge before year end, it plans to increase the amount it needs to set aside in the fourth quarter and any loss will be made public at the time of its earnings statement in February, according to a Credit Suisse spokesman. The fourth-quarter amount could still change if the bank hears from the judge before the end of the year.
- Airbnb Inc. and existing investors are seeking to raise as much as $2.6 billion in a long-awaited initial public offering expected to cap the biggest year ever for U.S. listings. The home-rental platform and some shareholders are offering 51.9 million shares at $44 to $50 apiece, San Francisco-based Airbnb said in a filing Tuesday with the U.S. Securities and Exchange Commission.
- President Donald Trump is running out of time to do what hedge funds and other investment firms with big ownership stakes in Fannie Mae and Freddie Mac have wanted since he took office: put the mortgage giants on a path to exiting government control. While Trump has long vowed an overhaul of the companies, he’s made little progress in four years and now has less than two months to act. Fannie and Freddie’s regulator, Federal Housing Finance Agency Director Mark Calabria, wants to make sweeping changes before President-elect Joe Biden is sworn in — but Calabria can’t pull the trigger without the blessing of Treasury Secretary Steven Mnuchin.
- The U.K. retail industry suffered one of the harshest blows yet after two of the country’s best-known retailers collapsed, putting 25,000 jobs at risk in less than 24 hours. Debenhams said Tuesday morning it’s preparing to close its doors for good after failing to find a buyer. Late Monday, Philip Green’s Arcadia Group, which owns brands including Topshop and Dorothy Perkins, began insolvency proceedings. Both retailers have anchored malls and main streets across Britain for decades and operate about 600 stores combined. U.K. retailers have suffered a double whammy: the pandemic hit as many were struggling to adjust to online competition. The industry is set to lose 235,000 retail jobs this year, according to the Centre for Retail Research.
- OPEC+ talks were delayed for two days to give ministers more time to reach a deal, after a long and tense meeting on oil production broke down without an agreement. The move, set out in a letter seen by Bloomberg, was the most dramatic sign yet of the deep division inside the cartel after hours of talks on Monday yielded no result. Oil prices, which have rallied on vaccine hopes as well as expectations that OPEC will maintain its current output curbs, slipped on the news. OPEC ministers met on Monday and had been scheduled to talk to their non-OPEC partners on Tuesday. At one point, there had appeared to be a consensus building between ministers yesterday, but the meeting then became unusually fraught. Saudi Arabia’s energy minister, in what appeared to be a gesture of frustration, told others he may resign as co-chair of a key OPEC+ panel. At stake is the credibility of the cartel whose actions have underpinned the market since the spectacular oil crash earlier this year. The run-up to the meeting saw new cracks emerge in the relationship between the United Arab Emirates — a core part of the group — and other members. The UAE’s national long-term strategy to crank up production is clashing with the cartel’s current strictures.
- Zoom Video Communications falls more than 5% in U.S. premarket trading on Tuesday after fiscal third-quarter results, as analysts question whether momentum can be sustained once life starts to return to normal with the introduction of a coronavirus vaccine. Zoom’s shares have surged more than 600% this year amid lockdown measures, though the stock has retreated from a recent record following progress on vaccines.
*All sources from Bloomberg unless otherwise specified