February 11th, 2020

Daily Market Commentary

Canadian Headlines

• The first companies developing medical treatments from psychedelic drugs like LSD, ketamine and the active ingredient in magic mushrooms are gearing up to list on Canadian stock exchanges. Mind Medicine Inc., which is undertaking clinical trials of psychedelic-based drugs, intends to list on Toronto’s NEO Exchange by the first week of March, said JR Rahn, the company’s co-founder and director. A NEO spokesman confirmed the listing, which is pending final approvals. The company plans to list via a reverse takeover under the ticker MMED. It’s not yet generating revenue and is targeting a valuation of approximately $50 million, Rahn said. Mind Medicine counts former Canopy Growth Corp. co-chief executive officer Bruce Linton as a director and Shark Tank star Kevin O’Leary as an investor.
• TMX Group Ltd. beat expectations even though its net income fell 32 per cent to $47.5 million in the fourth quarter on lower revenues. The owner of the Toronto Stock Exchange says it earned 84 cents per diluted share, down from $1.24 per share or $69.8 million a year earlier. Excluding one-time items, which include an $18-million non-cash impairment charge, adjusted earnings grew slightly to $74.3 million or $1.31 per share, compared with $73.9 million or $1.31 per share in the fourth quarter of 2018. The Board of Directors of TMX Group Limited today declared a dividend of $0.66 on each common share outstanding, payable on March 13, 2020 to shareholders of record at the close of business on February 28, 2020. The Board of Directors also approved a plan to repurchase up to 560,000 of our common shares issued and outstanding by way of an NCIB, subject to regulatory approval. These common shares represent approximately 1% of our common shares outstanding as of February 7, 2020.

World Headlines

• European shares rose to a fresh record high after the S&P 500 Index hit a new peak and investor attention shifted away from coronavirus fears and toward comments from central banks and positive corporate news. The Stoxx 600 Index gained 0.5%, led by travel and telecom shares. T-Mobile’s owner Deutsche Telekom AG surged 4% after a person with knowledge of the matter said that T-Mobile US Inc. is poised to win court approval for its $26.5 billion takeover of Sprint Corp. Travel firm TUI AG jumped 12% after saying it expects summer 2020 to be strong. ASML Holding NV added 1.2% after its first-quarter revenue forecast beat estimates.
• U.S. equity futures climbed alongside stocks in Europe and Asia as investors pushed benchmarks to record highs before commentary from Federal Reserve Chairman Jerome Powell. Oil rose and Treasuries slipped. Contracts on the three main American gauges pared earlier gains but remained in the green ahead of Powell’s testimony before Congress, where the Fed chair will likely give hints on monetary policy and how the expanding coronavirus outbreak from China is influencing policymakers.
• Benchmarks in Hong Kong and Seoul rose at least 1%, while the Shanghai market climbed for a sixth session. Japan was shut for a holiday. Investors have turned more bullish lately despite the novel flu-like epidemic, signaling confidence that central banks will act to shore up growth in the event of a global slowdown. San Francisco Fed President Mary Daly said Monday that the U.S. economy and policy were in a good place. Focus is also shifting to how companies are addressing the virus’s impact, with earnings due this week from firms such as Alibaba Group Holding Ltd., Credit Suisse Group AG and Airbus SE.
• Oil prices indicated that global markets face a renewed surplus as Asia’s coronavirus hits demand, with discounts on prompt supplies emerging across the Brent futures curve. Brent crude has moved into a full “contango” structure in which each monthly contract is cheaper than the next, suggesting a glut in supply. Global demand estimates are being cut as the outbreak causes severe economic disruption in China, while OPEC is hesitating over steps to support prices.
• Gold snapped a four-day winning streak as risk-on sentiment came back into markets, even as investors continued to weigh the economic impact of the spreading coronavirus. Virus concerns are taking a back seat to gains in equity markets, according to DailyFX analyst David Cottle. Investors have pushed stock benchmarks to record highs ahead of commentary from Federal Reserve Chairman Jerome Powell.
• The U.K. economy narrowly avoided a contraction in the fourth quarter, adding to evidence of a pickup following Boris Johnson’s election win. Gross domestic product was unchanged from the third quarter, as forecast by economists in a Bloomberg survey. December alone saw output rise a stronger-than-forecast 0.3%. The pound gained as much as 0.2% after the report and was trading at $1.2929 as of 9:32 a.m. in London. Signs of a revival since Johnson’s December election victory convinced the Bank of England not to cut interest rates last month, though uncertainty is expected to persist.
• The death toll from the coronavirus exceeded 1,000. Hubei, the province at the center of the outbreak, reported its highest number of fatalities yet and removed top officials. Beijing said regions less hit by the disease should accelerate a resumption of industrial output and President Xi Jinping reportedly warned officials that efforts to contain the virus had gone too far, threatening the country’s economy. A cruise liner with 2,257 on board was turned away by a fourth country after almost two weeks at sea.
• T-Mobile US Inc. is poised to win court approval for its $26.5 billion takeover of Sprint Corp., according to a person with knowledge of the matter, defeating a state-led lawsuit that sought to block the industry-altering wireless deal. U.S. District Court Judge Victor Marrero in Manhattan is expected to rule as soon as Tuesday morning, said the person, who asked not to be identified discussing the case. The judge’s office informed both sides earlier Monday that he was ruling in favor of the companies, the person said. The decision is a huge win for T-Mobile and its owner Deutsche Telekom AG, as well as SoftBank Group Corp., Sprint’s parent. The combined company, which will operate under the T-Mobile name, will have a regular monthly subscriber base of about 80 million — in the same league as AT&T Inc., which has 75 million subscribers, and Verizon Communications Inc., which has 114 million.
• The European Union swiftly rebuffed calls from the U.K. government that London’s financial services firms should enjoy continued access to the single market even if the country breaks away from the bloc’s rules after Brexit. The U.K. Treasury had included the demand for so-called permanent equivalence as part of its preparations for next month’s trade negotiations with the EU — some of which were revealed in a document that was photographed as Chancellor of the Exchequer Sajid Javid carried it in Downing Street on Monday.
• Hasbro Inc. reported higher fourth-quarter sales as toys based on Frozen 2 and Star Wars helped the toymaker overcome the fallout from President Donald Trump’s trade war with China. Revenue rose to $1.43 billion, Pawtucket, Rhode Island-based Hasbro said Tuesday. Analysts predicted $1.44 billion. The company also posted profit of $1.24 cents a share, excluding some items, beating estimates of 88 cents.
• Investors betting on Alibaba Group Holding Ltd.’s inclusion in a program allowing mainland Chinese investors to buy its shares in Hong Kong could be in for a disappointment. China’s largest e-commerce company, valued at HK$4.56 trillion ($587 billion) in Hong Kong, can’t be included in the stock connect program linking the Asian financial hub with Chinese investors at present, according to people with knowledge of the matter, who asked not to be identified as the discussions are private. The exclusion of companies with secondary listings and weighted voting rights from the program was part of an arrangement agreed to by the mainland and Hong Kong exchanges before Alibaba’s Hong Kong debut last year, the people said. The Shanghai, Shenzhen and Hong Kong exchanges haven’t agreed to make an exception or revise the agreement for Alibaba, though that could change in the future, they said.
• Distressed oil supplies are being offered to India as the spread of the coronavirus crimped fuel consumption across China, prompting requests for cargo deferrals and cancellations by Asia’s no. 1 importer. State-owned Bharat Petroleum Corp Ltd. received offers for supplies of crude from Caspian Sea and South America for March loading, said R. Ramachandran, director of refineries at the company. The shipments originally meant for Chinese refiners were being shown at low prices, potentially yielding up to 15% more returns when processed, he said in a phone interview.
• Longtime Republican operative Roger Stone deserves to spend as long as nine years in prison for lying to Congress to protect President Donald Trump and other crimes, U.S. prosecutors told a judge. Stone, 67, who was convicted in November, argues he’s been punished by his public trial and loss of professional standing. His age, health, and status as a first-time offender convicted of a non-violent crime don’t warrant a prison sentence, he said in a court filing Monday. He asked for probation.
• Chancellor Angela Merkel’s lawmakers will try to sideline hawks seeking to exclude Huawei Technologies Co. from next-generation mobile networks with a motion that stops short of a full ban of the Chinese equipment maker. Legislators in Merkel’s Christian Democratic-led bloc will vote Tuesday on a motion with softer language than a draft by hard-liners who wanted a potential Huawei ban from 5G networks, according to the text of the motion seen by Bloomberg News. Merkel has warned against a blanket veto, saying Europe’s biggest economy can’t afford to shut out the Chinese.
• U.S.-led reconstruction efforts in Afghanistan since 2002 are linked to the deaths or injuries of more than 5,100 people in addition to more than $130 billion in financial costs, according to a new report on America’s longest war. Some 2,214 people were killed and another 2,921 wounded while taking part in reconstruction and stabilization missions across the war-ravaged nation from 2002-2018, according to a report published late Monday by the Special Inspector General for Afghanistan Reconstruction, or SIGAR, a Pentagon watchdog.
• The Philippines has notified the U.S. that it’s terminating a 22-year-old military agreement, which can be ended with 180-days notice, just hours after President Rodrigo Duterte said President Donald Trump was trying to save the deal. The notice to terminate the 1998 Visiting Forces Agreement — which sets the terms for joint exercises and engagement of American soldiers in the Philippines — has been transmitted to the U.S., presidential spokesman Salvador Panelo said on Tuesday.
• Daimler AG slashed its dividend to the lowest since the financial crisis and promised deeper cost cuts as Chief Executive Officer Ola Kallenius frees up cash this year to electrify its vehicle lineup. Kallenius, who has struggled to make headway on a restructuring push in his first nine months on the job, vowed to deliver “significantly” higher profit this year than last, by squeezing out costs and capping investments. Daimler will also review non-core operations to channel more money into automaking, the German manufacturer said Tuesday.
• U.K. Prime Minister Boris Johnson is set to push ahead with the HS2 high-speed rail project linking London to northern England, despite political opposition and spiraling costs. The new route will be the U.K.’s biggest ever infrastructure project — and currently Europe’s largest — but the total price tag could reach more than 100 billion pounds ($129 billion). The first trains may not start running until 2031.
• Russia is studying the recommendations of OPEC+’s technical committee to curb oil output by a further 600,000 barrels a day to offset the demand impact from the coronavirus outbreak, the country’s energy minster Alexander Novak said. The producer group’s Joint Technical Committee met last week to discuss whether further output cuts were needed. The epidemic has curbed demand for energy from the world’s largest crude consumer, causing traders to look at storing crude on tankers at sea to deal with a glut.
• Mastercard Inc. won approval to set up a bank card clearing business in China, gaining access to a $27 trillion payments market as part of the nation’s financial opening. The announcement by the People’s Bank of China on Tuesday signals the country is moving ahead with the speedier opening of its financial system that was agreed on as part of the phase one trade deal with the U.S., even as it grapples with a virus outbreak.
• Barclays Plc had the deal seemingly locked up. Along with a trio of smaller lenders, the bank had agreed to arrange a $1.1 billion loan for ACProducts’ buyout of a unit of rival Masco Corp. While the terms of the financing weren’t quite as good as the kitchen-cabinet maker’s private equity owners had hoped, getting a signed commitment from the banks allowed the company to finally announce the deal in mid-November.
• Two senior lobbyists for the Federal Home Loan Bank of San Francisco pushed a long-shot idea for ending U.S. control of mortgage giant Freddie Mac — a problem that’s bedeviled Washington for more than a decade. The proposal, pitched behind closed doors in 2016 by Lawrence H. Parks and Timothy Simons, called for federal home loan banks to buy Freddie using cash windfalls they won in settlements with Wall Street after the financial crisis. The plan was quickly tabled but got revived in 2017 when President Donald Trumptook office and top administration officials made clear they wanted the government out of the business of running Freddie and its sibling, Fannie Mae.
• Chevron Corp. has ramped up output at a key Venezuela oil project to levels not seen in almost a year, offering a thorny reminder of how U.S. sanctions are failing to deliver a knockout of Nicolas Maduro’s regime. The U.S. is eyeing tougher sanctions that could target Russian producer Rosneft PJSC and potentially affect Chevron’s waiver at a time when tensions between the two countries are escalating anew. Maduro, meanwhile, is considering giving foreign producers operational control at some fields to bring in added cash and, perhaps, to nudge other U.S. oil companies to lobby for their own access to Venezuela’s huge oil reserves.
• Lyft Inc. has a tough act to follow with its fourth-quarter earnings report Tuesday afternoon, following ride-hailing rival Uber Technologies Inc.’s surprise forecast that it will be profitable by the end of 2020, a year earlier than Wall Street had expected. “The question now is whether Lyft can, will or should match that target,” Guggenheim analyst Jake Fuller wrote in a note on Monday. “We think the answer is that it probably could, but may not and that would be just fine with us.” During its third-quarter report, Lyft had said it expected to be profitable on an adjusted Ebitda basis in the fourth quarter of 2021. Analysts on average currently expect the company to turn Ebitda-positive in the third quarter of 2021, according to data compiled by Bloomberg. Lyft’s announcement was followed by a similar move by Uber just a few days later.

*All sources from Bloomberg unless otherwise specified