December 3rd, 2020

Daily Market Commentary

Canadian Headlines

1. Toronto-Dominion Bank is getting a lift from its massive retail-banking business, helped by mortgage growth driven by Canada’s strong housing market. Toronto-Dominion’s heavy reliance on personal and commercial banking in Canada proved helpful in the fiscal fourth quarter. Profit in the unit rose 3.3% to C$1.8 billion, contributing to overall earnings that beat analysts’ estimates. Toronto-Dominion front-loaded its provisions for credit losses early in the pandemic, giving it a boost in the three months through October as fears of worst-case scenarios from the crisis subside. The lender set aside C$917 million in the quarter ended Oct. 31. That’s down from C$3.22 billion in the second quarter and C$2.19 billion in the third quarter.
2. Canadian Imperial Bank of Commerce’s focus on its domestic market is paying off, with strength in the nation’s housing market fueling an emerging rebound in the company’s retail-banking operations. Profit in the Canadian personal and commercial business rose 5.5% in the fiscal fourth quarter. That compares with a 23% drop in the unit’s net income in the previous three months. The performance contributed to the bank’s overall results beating analysts’ estimates.
3. Bank of Canada veteran Sharon Kozicki is the pick of economists to be the central bank’s next second in command. Kozicki, currently an adviser to Governor Tiff Macklem, is the clear front-runner in a Bloomberg survey on who will replace Carolyn Wilkins after she steps down as senior deputy governor next week. Other contenders include two current deputies, Paul Beaudry and Toni Gravelle. Stephen Murchison, a bank veteran now seconded to a pension fund, is on the list, as is Jean-Francois Perrault, the chief economist at Bank of Nova Scotia in Toronto. The transition in the top ranks comes at a critical time for the Ottawa-based central bank. Since taking the reins in June, Macklem has fine-tuned the nation’s first-ever emergency quantitative easing program while fending off political criticism that he’s financing Prime Minister Justin Trudeau’s deficit spending agenda. The bank is also in the homestretch of renewing its five-year mandate agreement with the government, a process Wilkins was leading.
4. Canada’s hottest housing markets are slowing down as unsold condos pile up with more people fleeing dense downtown living for the suburbs. Home sales in Toronto, Canada’s financial capital, fell 2.1% in November, the third straight month transactions have dropped on a seasonally adjusted basis, according to data released Thursday by the Toronto Regional Real Estate Board. In Vancouver, which has Canada’s most expensive real estate, home sales slid 17% on an unadjusted basis compared with a month earlier, the Real Estate Board of Greater Vancouver said Wednesday. Prices were more or less flat in both cities compared with October.

World Headlines

1. European stocks turned weaker Thursday after data showed that U.K. output shrank for the first time since June amid restrictions to slow a resurgence of Covid-19. The Stoxx Europe 600 Index was 0.4% lower as of 9:58 a.m. in London, after edging 0.1% higher earlier, with energy and chemical stocks retreating the most and travel and leisure advancing. The FTSE 100 erased gains and dropped 0.5%, while most major European gauges were also in the red. IHS Markit’s composite Purchasing Managers Index in the U.K. dropped to 49 in November, slipping below the critical 50 mark that signals contraction. In the U.S., Democrats are making a bid to break the standoff on a new stimulus package, while in Europe as final Brexit talks continue, France warned it could veto a trade deal between the U.K. and the European Union if it doesn’t like the terms. Optimism around Covid-19 vaccines continues as, following U.K. approval of a shot, the U.S. is in a prime position to follow.
2. Global stocks paused near all-time highs and Treasuries steadied on Thursday amid mounting concern about fragile economic recoveries and the debate over fiscal support. S&P 500 futures stalled after the underlying gauge closed at another record high. Splunk Inc. tumbled 21% in the pre-market after the data-software company’s revenue forecast missed estimates. Micron Technology gained after the chipmaker raised its guidance.
3. Japanese stocks saw modest gains Thursday as automakers and telecom companies supported the benchmark Topix, while M3 Inc. and Daikin Industries Ltd. weighed on the Nikkei 225 Stock Average. Shares of Denso Corp. helped lift the auto-sector index after the company was upgraded to buy from neutral at Goldman Sachs. Railways and airlines gained after local broadcaster TV Asahi reported that the government plans to extendits travel campaign aimed at reviving domestic tourism to June 2021.
4. Oil fell before an OPEC+ meeting as powerbrokers in the alliance haggle over output policy after failed talks earlier in the week. Futures in New York traded near $45 a barrel. Discussions are now focusing on proposals for a gradual easing of production cuts over several months, following talks between Russia, Saudi Arabia and the United Arab Emirates, said a delegate. There could be a one-month delay before the tapering starts, according to one delegate, though the Kremlin said it was too early to comment on any deal. The talks are taking place against the backdrop of a futures curve that is suggesting additional supplies are needed. Brent’s nearest futures are at a premium to later ones, a structure known as backwardation that indicates tight supply. The much-watched spread between the nearest two December contracts is also at its strongest since February.
5. Gold traded at the highest level in more than a week as investors weighed prospects for a stimulus package in the U.S. and a weaker dollar against vaccine breakthroughs. House Speaker Nancy Pelosi and Senate Democratic leader Chuck Schumerbacked a $908 billion bipartisan stimulus proposal on Wednesday as the foundation for a new round of negotiations with congressional Republicans and the White House. This sent U.S. equities to another record high on Wednesday, while Treasury yields also rose, and the dollar dropped to the lowest since April 2018.
6. U.S. employment gains probably slowed only modestly in November despite a record surge of coronavirus cases that still threatens to limit or even reverse hiring in coming months. Friday’s jobs report will show nonfarm employers added 478,000 people to payrolls and the unemployment rate fell 0.1 percentage point to 6.8%, according to economists surveyed by Bloomberg. While those would be the smallest improvements since the rebound began in May — and leave the economy 9.6 million jobs short of pre-pandemic levels — the labor market is in better shape than analysts expected it to be a few months ago.
7. The number of coronavirus cases reported in Iran surpassed 1 million on Thursday, the Middle East’s worst outbreak. German Chancellor Angela Merkel extended the nation’s partial lockdown for three more weeks, with the daily death toll at its highest since April. The U.S. had its deadliest day ever, with Covid-19 fatalities topping 2,700, according to Johns Hopkins University. Hospitalizations in the country surpassed 100,000 for the first time. Thailand will intensify patrolling at its borders after about a dozen people, who illegally entered the country from neighboring Myanmar, tested positive for coronavirus.
8. President Donald Trump isn’t letting his election loss stop him from beating up on China. On Wednesday alone, his administration restricted travel visas for members of the Chinese Communist Party and banned cotton imports from a military-linked firm it accused of “slave labor.” He’s also expected to soon sign a bill passed by the U.S. House of Representatives that could ultimately lead to Chinese companies getting kicked off American exchanges. The question now is just how bad things could get in the next seven weeks before President-elect Joe Biden takes over. Trump’s administration faces a mid-December deadline to name banks who do business with officials accused of undermining Hong Kong’s autonomy, and could sanction others — including possibly more senior party members.
9. Democrats are making a bid to break the standoff on a new stimulus package with House Speaker Nancy Pelosi and Senate Democratic leader Chuck Schumer scaling back demands on a relief plan, as President-elect Joe Biden urged Congress to find a bipartisan path forward. Retreating from the $2.4 trillion pandemic relief package they had been pushing before the election, Pelosi and Schumer said a $908 billion proposal from a bipartisan group of lawmakers should serve as the baseline for negotiations with congressional Republicans and the White House.
10. Japanese investors bought the most foreign bonds in over two years in November, while ramping up sales of overseas stocks with the move possibly triggered by a re-balancing among local pension funds. Fund managers bought a net 4.72 trillion yen ($45.2 billion) of foreign debt last month, the biggest purchase since September 2018, according to Bloomberg’s calculations based on the Ministry of Finance’s data. Net purchases for the week ending Nov. 27 totaled 372.4 billion yen, the ministry’s weekly capital flow data showed. In contrast, investors in the Asian nation sold 2.38 trillion yen of overseas shares in November, the biggest withdrawal since July, the ministry’s data showed. Global equities have delivered a return of almost 40% for Japanese investors since the start of the nation’s fiscal year in April, while yen-hedged global bonds gained 3%.
11. Russian oil major Rosneft PJSC approved an extension of its $2 billion share-buyback program to the end of next year in a bid to keep investors on side amid prospects for low or no dividends for 2020. Low crude prices, a shaky market recovery and a weakening ruble led to a net loss for Rosneft in the nine months through September, casting doubt on this year’s dividends. The Russian oil giant’s international peers have faced similar challenges, with BP Plc and Royal Dutch Shell Plc taking multibillion-dollar writedowns and slashing shareholder payouts. Rosneft’s shares pared losses to trade 0.4% lower at 447 rubles as of 11:32 a.m. in Moscow. The company’s board approved the extension of the repurchase at a meeting on Nov. 27, the company said in a filing.
12. Saudi Arabia’s sovereign wealth fund plans to raise as much as $7 billion in loans as it seeks cash for new investments, according to people familiar with the matter. The Public Investment Fund has approached international banks to participate in a U.S. dollar revolving facility of between $5 billion and $7 billion, the people said, asking not to be identified as the information is private. The PIF aims to complete the fundraising early next year and use the cash for opportunistic investments, they said. The $347 billion sovereign investor is a key lever for the kingdom’s efforts to revive growth after what may be the deepest recession the world’s largest crude exporter has experienced since 1987. Handed $40 billion earlier this year to buy global stocks, the PIF plans to plow the same amount into the domestic economy next year and again in 2022.
13. Vanguard Group Inc. lost a mandate to run at least $590 million in Taiwan government pension and insurance assets due to weak performance, dealing a further blow to the world’s second-largest money manager as it reshuffles its Asian operations. Assets managed by Vanguard under an Asia-Pacific mixed index mandate was redeemed prematurely due to long-term under-performance and “unusual moves” in Asia, according to the Bureau of Labor Funds’ October updatesposted on Dec. 1. The Vanguard funds returned about 13% since inception in August 2016, about half the benchmark’s 26% gain, according to the previous month’s statement.
14. Conduit Holdings Ltd. rose as the Bermuda-based reinsurer started trading in London after an 826 million-pound ($1.1 billion) initial public offering. The stock climbed as much as 7% to 534.9 pence from the offering price of 500 pence. The company sold 164.1 million shares, according to a statement Wednesday. The order book closed on Tuesday, two days earlier than planned. The newly established underwriting business is betting on rising prices for commercial insurance. Its cost, which had already been increasing for the last few years, has jumped as the coronavirus pandemic raises risks across multiple lines of business.
15. Los Angeles Mayor Eric Garcetti issued an order for residents to stay at home, warning that the city is approaching a “devastating tipping point” in its fight against Covid-19 that would overwhelm the hospital system. “We must minimize contact with others as much as possible,” Garcetti wrote in the order dated Dec. 2. The steps were needed to avoid risking “needless suffering and death,” he said. The order, which supersedes one from June, prohibits public and private gatherings of people from more than one household and states that all businesses in the city that require people to work on location must stop operations. Walking, driving, travel on public transport, bikes, motorcycles and scooters are prohibited, other than for those undertaking essential activities.
16. France warned it could veto a trade deal between the U.K. and the European Union if it doesn’t like the terms, piling pressure on the EU negotiating team not to make further concessions as talks build to a climax. At a meeting of the bloc’s 27 ambassadors on Wednesday, the French envoy warned chief Brexit negotiator Michel Barnier of how bad it would look if he brokered a deal only to see it vetoed by EU leaders, according to a diplomatic note of the meeting seen by Bloomberg. Barnier swerved a request from ambassadors to see key parts of the text before it’s finished, with some of those present voicing concerns he might be giving too much away and leaving them with too little time to scrutinize any agreement.
17. Engie SA is lining up advisers as it prepares to divest some services businesses in one of the French utility’s biggest-ever disposals, people familiar with the matter said. BNP Paribas SA, Credit Suisse Group AG and Lazard Ltd. have been shortlisted for potential roles, according to the people, who asked not to be identified because the information is private. The banks will help Engie study strategic options for the assets, including a sale or initial public offering, the people said. It plans to seek a valuation of around 5 billion euros ($6 billion) for the operations, which include electrical installation as well as services for heating and ventilation systems, the people said. Some private equity firms are already studying the businesses, they said.
18. All new vehicles sold in Japan by the mid-2030s will be hybrid or electric as the government begins to unveil concrete steps for reaching its goal of becoming carbon neutral by 2050, broadcaster NHK said. Japan’s economy ministry is targeting “100% electrification” over approximately 15 years, a move that would gradually bump gasoline-engine cars out of the new car market, NHK reported, citing unidentified sources. A new vehicle market consisting of only hybrid and electric automobiles would be a significant shift, given they only make up about 29% of Japan’s 5.2 million new motor vehicle registrations, according to Japan’s Automobile Manufacturers Association. While Toyota Motor Corp. popularized hybrid vehicles with the Prius and the country’s automakers are among the world’s top producers in the segment, the domestic market for electrified vehicles has plateaued in recent years. Last year, both plug-in hybrid and EV registrations fell year-on-year, JAMA data show.
19. 3M Co. plans to cut 2,900 jobs as Chief Executive Officer Mike Roman accelerates an overhaul amid the Covid-19 pandemic and a need to focus on doing more business online. The maker of Post-it notes, medical masks and chemical additives will step up the use of analytics and data to improve efficiency and enhance marketing in response to an increasingly digital age, the Minnesota-based company said Thursday. The measures, cutting about 3% of its employees as of the end of last year, will result in a pretax charge of as much as $300 million. 3M has boosted production of the N95 masks needed by health-care workers to protect against the coronavirus, but sales otherwise have been sluggish during the pandemic. Third-quarter organic sales growth was about 1% in the third quarter and the company was unable to provide an earnings forecast.
20. Macquarie Group Ltd. has struck a $1.7 billion deal to buy Waddell & Reed Financial Inc. and expand its U.S. asset management business. The acquisition will add Waddell & Reed’s $68 billion asset management unit to Macquarie’s U.S. equivalent and give it the size and scale to compete with larger rivals, the Sydney-based lender said in a statement Thursday. The deal is Chief Executive Officer Shemara Wikramanayake’s biggest move since taking charge two years ago. Asset management has seen a wave of consolidation in recent years amid a squeeze on fees from cutthroat competition and a shift to passive fund management that’s dominated by giants BlackRock Inc. and Vanguard Group Inc. At the same time, the lure of a steady revenue stream and low capital charges have attracted firms like Morgan Stanley, which agreed to shell out $7 billion for Eaton Vance Corp. earlier this year to bulk up in the space.
21. Blackstone Group Inc. is expanding its industrial real estate holdings, snapping up more than a dozen facilities in a deal with Iron Mountain Inc. The $358 million transaction includes 13 properties located mainly in California, northern New Jersey and Pennsylvania’s Lehigh Valley, according to a statement Thursday. Iron Mountain, which provides records storage and secure document disposal for companies, agreed to lease back the buildings and plans to use proceeds of the sale to invest in its faster-growing businesses, including data centers.
22. OPEC+ is closing in on a deal to gently ease output curbs after days of fractious negotiations that revealed deep cracks at the core of the cartel. After direct talks, Russia and Saudi Arabia have thrashed out a plan to take to other members, according to one delegate. Others also said a deal was close, but the details remain unclear. Discussions have focused on a gradual relaxation of output cuts over several months, and according to one delegate there could be a one-month delay before the tapering starts.
23. Elon Musk’s dizzying ascent in 2020 hit a new peak this week as he’s about to become the head of an S&P 500 Index company. That’s just days after surging to the second-richest person on the planet with a $139 billion fortune. But the Tesla Inc. chief executive officer isn’t the only electric-vehicle entrepreneur to have turned fabulously wealthy this year. Some rivals are growing their net worths at an even quicker rate, according to the Bloomberg Billionaires Index. Nio Inc. founder William Li has gotten 12 times richer in 2020 through his holding in the U.S.-listed carmaker, the fastest pace of gains among the world’s 500 richest people. The net worth of He Xiaopeng, chairman of XPeng Inc., has jumped more than 600%. Overall, fortunes of the handful of people tracked by the Bloomberg index in the EV industry have increased by more than $140 billion — including Musk’s $111 billion surge.

 

*All sources from Bloomberg unless otherwise specified