February 24th, 2020

Daily Market Commentary

Canadian Headlines

• Teck Resources Ltd. is pulling its application for a controversial new oil-sands mine in Alberta, freeing Canadian Prime Minister Justin Trudeau from a political predicament. The company will write down the Frontier project’s C$1.13 billion ($850 million) carrying value, it said in a statement late Sunday. Teck’s decision not to proceed with the mine frees Trudeau from possibly the toughest test yet of his vow to balance developing Canada’s resources with fighting climate change. Rejecting the mine would have sparked widespread anger in Alberta, where the mine would have provided jobs and investment; approving it would have alienated the Liberal prime minister’s environmentalist base.
• Pressure is mounting on protesters at blockades that have slowed Canada’s rail network as provincial governments indicate they’re ready for the police to get involved. Ontario police and Canadian National Railway Co. gave Mohawks, who have set up a blockade in Tyendinaga, Ontario, until midnight on Sunday to clear the barricades, according to the state broadcaster. They’ll face a police investigation and charges if they don’t obey, the Canadian Broadcasting Corp. reported, citing a Mohawk source. The blockade is about 130 miles northeast of Toronto. Environmental and indigenous-rights activists are opposing the construction of TC Energy Corp.’s Coastal GasLink pipeline, a C$6.6 billion project ($5 billion) project in British Columbia. The blockades, which have been set up in several provinces, have shut down rail freight service in eastern Canada and halted most intercity passenger train routes.

World Headlines

• European equities haven’t had such a bad day in more than three years as increasing concerns over the economic impact of the coronavirus hurt travel and luxury sectors and volatility spiked. The Stoxx Europe 600 Index fell as much as 3.7%, the most since June 2016, led by the travel, mining and auto sectors. The Euro Stoxx 50 Volatility Index surged as much as 47%, the most since the so-called “Volmageddon” of February 2018 — when Wall Street was rocked by a surge in volatility and a sell-off in stocks.
• U.S. equity futures tumbled alongside stocks in Europe and Asia on Monday as authorities struggled to keep the coronavirus from spreading more widely outside China. Havens including Treasuries and gold jumped. Governments and companies are curbing travel and trade in an attempt to contain a novel pathogen that can be transmitted by people without symptoms. Today’s market moves follow on last week’s surge into havens after fresh warnings by companies over the potential impact of the virus on business and global supply chains. Adding to the anxiety Monday was China announcing an easing of the quarantine of Wuhan, only to retract the statement hours later.
• The risk-off mood was triggered by multiple outbreaks of the epidemic that’s now spread to more than 30 countries, with South Korea reporting a jump in infections and Italy locking down an area of 50,000 people near Milan. Finance chiefs and central bankers from the largest economies warned this weekend that they saw the virus bringing downside risks to global growth.
• Renewed fears that the coronavirus will harm global growth rocked commodity markets again on Monday, with oil and metals prices tumbling while gold soared toward $1,700 an ounce amid a flight to haven assets. As the deadly virus spreads more widely outside China, raising the threat of a global pandemic, finance chiefs and central bankers from the world’s largest economies said they see downside risks persisting. That’s spurring fresh alarm in commodity markets that had started to recover from lows hit earlier in the month when China’s virtual shutdown threw supply chains into chaos. With the International Monetary Fund cutting its global growth forecast and warning that it’s also looking at more “dire” scenarios, investors are concerned that risks to raw-material demand are worsening.
• Investors withdrew money from exchange-traded funds that buy emerging market stocks and bonds last week, ending two weeks of inflow that reached $398 million. Outflows from U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $142.9 million in the week ended Feb. 21, compared with gains of $265.7 million in the previous week, according to data compiled by Bloomberg. So far this year, inflows have totaled $3.66 billion.
• A growing number of Chinese companies are postponing their annual earnings announcements as the deadly coronavirus outbreak causes delays in board meetings and internal audits. At least 190 Chinese firms had delayed releasing their numbers for 2019, according to exchange data compiled by Bloomberg. The firms include Jiangsu Hengrui Medicine Co. and Chongqing Changan Automobile Co., while some listed in Hong Kong and the U.S. have also changed their schedule, including Baidu Inc.
• Bernie Sanders on Monday unveiled a $1.5 trillion proposal for free universal child care and pre-kindergarten programs that would be funded through a tax on “extreme wealth.” The idea of universal child care has been a staple of the Vermont senator’s stump speech, but the proposal fleshes out the details of how it would be implemented and paid for. Under his plan, all children from infancy would have access to full-day, full-week, high-quality child care and would enter pre-kindergarten beginning at 3 years old, “regardless of income.”
• The coronavirus outbreak spread further outside China, sparking concerns about a global pandemic. Italy, now the virus’s epicenter in Europe, reported five deaths and the country’s financial hub is in virtual lockdown. Infections spiked again in South Korea and Iran, while Afghanistan, Bahrain and Kuwait all reported their first cases. That dented markets globally — European equities fell the most since June 2016 and the yield on 10-year Treasuries also dropped to the lowest since that year. U.S. stocks look set for their biggest drop since August.
• The U.S. will sign military deals worth more than $3 billion with India on Tuesday, President Donald Trump said at the start of a two-day state visit to the South Asian nation. “We make the greatest weapons ever made. Airplanes. Missiles. Rockets. Ships. We make the best and we’re dealing now with India. But this includes advanced air-defense systems and armed and unarmed aerial vehicles,” Trump told a cheering crowd at the western Indian city of Ahmedabad on Monday as he shared the stage with India’s Prime Minister Narendra Modi.
• Chancellor Angela Merkel’s Christian Democratic Union will accelerate the process of appointing a new leader as the party struggles to emerge from political turmoil. A special party conference will be held to choose a successor to Annegret Kramp-Karrenbauer on April 25, according to a CDU official. The party chairwoman who shocked Germany’s political establishment this month by abandoning ambitions of succeeding Merkel as chancellor set the plan in motion at a leadership meeting on Monday in Berlin. Kramp-Karrenbauer is due to hold a press conference later this afternoon.
• China is trying to get people back to work, risking a renewed spread of the coronavirus. Central and local governments are loosening the criteria for factories to resume operations as they walk a tightrope between containing a virus that has killed almost 2,600 people and preventing a slump in the world’s second-largest economy. The rush to restart has been propelled by China’s leader Xi Jinping and top leaders, who are urging companies to resume production so the country can continue to meet lofty goals for growth and economic development in 2020. At stake are the fates of millions of Chinese businesses facing collapse because of the shutdowns, and the ability of companies across the globe from Apple Inc. to Nissan Motor Co. to access crucial components.
• Commodity markets face a difficult week dominated by the coronavirus crisis, with the disease strengthening its grip beyond China and starting to hurt growth from the U.S. to Germany and Japan. A series of major events will shed light on the damage so far, and map out what’s to come. As trading kicked off Monday, copper and oil sank, while gold rallied yet again. IP Week, the glitzy annual gathering of oil traders in London, runs Tuesday to Thursday, although it’s been curtailed by the virus. Across the Atlantic, miners conclave for the BMO Global Metals & Mining Conference, with CEOs Richard Adkerson of Freeport-McMoRan Inc., Tom Palmer of Newmont Corp. and Mark Bristow of Barrick Gold Corp. among the top names. In agriculture, there’s the Commodity Classic, touted as largest farmer-focused trade show in America.
• HSBC Holdings Plc Chairman Mark Tucker’s drive to reboot the giant lender needs a reboot. The decision by UniCredit SpA’s Jean Pierre Mustier to drop out of consideration for HSBC’s top job marks the second high-profile setback in less than a week for Tucker, the first outsider ever hired as the chairman of the 165-year-old institution. The bank’s shares have tumbled since a Feb. 18 strategy overhaul fell flat, reaching their lowest in more than three years on Monday. Tucker is now conducting the search for a new CEO in the spotlight — his first pick lasted just 18 months — with shareholders demanding answers and some insiders questioning the board’s search process. Mustier’s exit further complicates an already drawn-out search and deepens the uncertainty around interim CEO Noel Quinn and the plan announced last week to cut 35,000 jobs.
• Democratic presidential candidate Joe Biden on Monday unveiled a $640 billion housing plan that includes tax credits for first-time homebuyers and low-income renters, as well as more federal assistance for the country’s poorest renters. The former vice president’s team sees his proposals as especially important in aiding African Americans and Latinos, two advisers said on the condition of anonymity. The plan was released less than a week before the Feb. 29 South Carolina primary, where more than half of Democratic voters are black, but also before Super Tuesday on March 3, when California — which is facing a dramatic housing and homelessness crisis — casts its primary votes.
• Xperi Corp. said it has received an unsolicited takeover proposal from a consortium led by its former chief executive officer, posing a potential challenge to its merger with TiVo Corp. Metis Ventures LLC, where former Xperi CEO Tom Lacey is a managing member, proposed an all-cash bid of $23.30 a share for all outstanding Xperi shares, according to a statement on Sunday, which confirms an earlier Bloomberg News report. The offer represents a 20% premium over Xperi’s closing price on Friday and values the company at almost $1.2 billion.
• South Korea warned its fragile economic recovery is under threat from the coronavirus that has spread dramatically across the country over the past week, and pledged action to minimize the fallout. The country’s currency and the main stock index plunged. The epidemic poses a “large concern that it will limit the trend of economic recovery started late last year,” First Vice Minister Kim Yong-beom said Monday, according to the Finance Ministry. He cited a drop in domestic consumption and exports to China, among other impacts.

*All sources from Bloomberg unless otherwise specified