February 25th, 2020

Daily Market Commentary

Canadian Headlines

• Bank of Nova Scotia’s capital-markets division is showing signs of a turnaround. The unit had long been the weakest link for the Toronto-based lender, with growth in quarterly profit only once in the past two years. The division appears to have turned a corner in the fiscal first quarter, reporting an 11% increase in income, helping the bank post results that beat analysts’ estimates. Scotiabank’s global banking and markets division benefited from rising equities and fixed income and more deal activity compared with a year earlier. Earnings for the division totaled C$372 million ($280 million), up from C$335 million.
• Bank of Montreal is making progress in its five-year effort to double earnings from wealth management. The Toronto-based lender has been accelerating growth in the U.S., building out services for wealthy clients and expanding its global asset manager, with the aim of getting C$2 billion ($1.5 billion) in annual profit from wealth management by 2023. The bank is making progress, with a 22% increase in earnings from the business in its fiscal first quarter. That helped the company beat analysts’ estimates.

World Headlines

• Europe shares extended losses as investors weighed the latest coronavirus developments after a selloff wiped out global equity gains for this year. Treasuries turned higher and the dollar erased a drop. Declines in carmakers and banks dragged the Stoxx Europe 600 index lower. Ten-year Treasury yields headed toward a record-low close, while European bonds were mixed, with core yields falling. Crude oil held Monday’s slide of nearly 4%.
• U.S. stock-index futures rose as some investors deemed that Monday’s equity rout brought prices to attractive levels amid speculation that a drug to treat the novel coronavirus may be on the horizon. S&P 500 Index futures contracts expiring in March rose 0.2% at 10:34 a.m. in London, while contracts climbed 0.1% for the Dow Jones Industrial Average and advanced 0.3% for the Nasdaq 100. All three main U.S. stock benchmarks fell more than 3% Monday on growing concern that the coronavirus is spreading more widely outside China. The S&P 500 fell the most since February 2018 and now has declined three straight days, its longest losing streak since December. U.S. stocks have lost about $1 trillion in value in the past two sessions.
• Japanese shares tumbled more than 3% as traders returned after a holiday, though the decline was less than the two-session slide on Wall Street while they were away. Stocks fell in China and Australia and pushed higher in South Korea and Hong Kong. The yen strengthened against the dollar for a third day. Erratic market moves suggest investors remain on edge over the economic impact of the virus. The World Health Organization has held off from declaring a global pandemic even as cases surged in South Korea, Italy and Japan. Some traders may be taking encouragement from news about the development of treatments, even if experts warn it would take time to build stocks of medicines. Japan’s health minister said the country plans to recommendFujifilm Holdings Corp.’s Avigan drug to treat the virus.
• Oil held losses after the biggest drop in almost seven weeks as investors attempted to gauge the economic impact of the fast-spreading coronavirus and the potential response from producers. Futures held above $51 a barrel in New York after tumbling 3.7% Monday amid a broad market selloff driven by a rise in cases of the virus in South Korea, the Middle East and Europe. Prices ticked higher earlier Tuesday when Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman expressed confidence in the OPEC+ partnership, while saying the group hasn’t made a decision yet on whether to extend or modify its production-cut agreement.
• Gold stepped back from its blistering rally even as more companies warned the coronavirus crisis is hurting business and bets accumulated on the prospects for U.S. interest rate cuts in 2020. Bullion eased from the highest since 2013 as some appetite for risk crept back, with U.S. futures climbing after Monday’s slump. While the head of the World Health Organization called new cases “deeply concerning,” he said the outbreak isn’t yet a pandemic. Globally, 80,130 people have now been infectedand 2,698 have died.
• Natixis SA agreed to sell most of its remaining stake in credit insurer Coface SA to Arch Capital Group in a 480 million-euro ($521 million) deal that may allow the French lender to return more execess cash to shareholders. Arch Capital, a U.S. specialty and mortgage insurer, will acquire 29.5% of Coface at 10.70 euros a share, Natixis said Tuesday. That’s a discount of 6% to Monday’s closing price. The French bank will keep its remaining 12.2% stake as a financial investment.
• For big business, the impact of the new coronavirus epidemic is exacting a growing toll worldwide. Mastercard Inc. and United Airlines Holdings Inc. emerged as the latest companies to warn that sales and profit are getting hurt as the epidemic spreads meaningfully beyond its center in China’s Hubei province. Growing outbreaks are emerging in other parts of Asia and in Europe. The U.S. credit-card network cut its revenue-growth forecast as the spread of infections puts off travelers. Chicago-based United scrapped its 2020 profit forecast altogether, underscoring the unpredictable nature of the two-month-old health emergency.
• Home Depot Inc. rebounded from a string of disappointing results with a fourth quarter that topped analysts’ projections as the U.S. housing market heated up. The shares gained in early trading. Earnings per share of $2.28 topped the average prediction of $2.11. The company forecast comparable sales growth of 3.5% to 4% this year, implying an acceleration is likely.
• President Donald Trump said Democratic presidential front runner Bernie Sanders is advocating “totally unaffordable” policies that are “not going to work” during a meeting with business leaders Tuesday at the U.S. embassy in New Delhi. “When we win re-election – I think we will – when we win, I think the market’s going to go up, it’s going to be like a rocket ship, like last time, but even more so,” Trump said. “I think the fact that the Democrats are so radical, so out of control, they honestly don’t know what they’re doing.” Past presidents typically shied away from discussing domestic politics while on foreign soil, but Trump has seldom abided by that particular tradition and often laces into his opponents back home while overseas.
• The Trump administration said it has asked Congress for $2.5 billion — half new money, half repurposed from other efforts — to battle the spread of the coronavirus. The announcement came on the same day that global financial markets were shaken over reports that the illness had spread to Italy and South Korea. U.S. stock benchmarks slid more than 3% on Monday, with the S&P 500 Index falling the most since February 2018. More than $1 billion of the money would be dedicated to creating a vaccine, according to a person familiar with the matter. Other parts of the request would be put toward stockpiling of protective masks and therapeutic programs, said the person, who was granted anonymity to discuss health policy deliberations.
• Hammerson Plc wrote down the value of its malls and stores and slashed its planned dividend as rents plunged and investors fled retail property. The European shopping center landlord is at the sharp end of the transformation sweeping retail as consumers increasingly move online and retailers reduce their brick-and-mortar stores. The impact of evolving shopping habits has been particularly pronounced in the U.K., which accounts for the majority of the company’s portfolio, where high property taxes, long leases and the highest online spending in Europe have created a major challenge for traditional store owners. The value of Hammerson’s properties across Europe fell by 16.2% last year to 8.3 billion pounds ($10.8 billion), according to a company statement on Tuesday. The firm said that it will reduce its dividend for 2020 to “a sustainable level” and that it expects to make a full-year payment of 14 pence, down sharply from 25.9 pence for 2019.
• OPEC hasn’t decided yet to extend or modify its agreement to cut oil output, Saudi Arabia’s energy minister said, as the coronavirus batters the global economy and threatens demand for crude. The Organization of Petroleum Exporting Countries and its allies are to meet next week in Vienna to assess their global cuts policy. Energy Minister Prince Abdulaziz bin Salman is confident of OPEC’s partnership with other producers including Russia, he told reporters on Tuesday in Riyadh.
• Malaysia’s political upheaval is jeopardizing the economy’s outlook at a time of heightened global risks and brewing discontent among locals about rising living costs. The ruling coalition collapsed Monday amid a power struggle between 94-year-old Prime Minister Mahathir Mohamad and his planned successor. The political uncertainty is stalling economic policy, including a stimulus package that was due to be unveiled by Mahathir on Feb. 27 to counter the coronavirus outbreak. The set of incentives is set to “go ahead” on a date set by Mahathir as interim premier, after they were finalized by former Finance Minister Lim Guan Eng on Feb. 23, Lim said in a statement. Earlier, former Deputy Trade Minister Ong Kian Ming cautioned the package wouldn’t be announced in time.
• JPMorgan Chase & Co. said it expects net interest income to fall slightly to $57 billion this year, as lower rates squeeze traditional lending businesses. The bank kept its goal for return on tangible equity at 17% and said its overhead ratio would be below 55% in the medium term, according to a web presentation before the firm’s investor day in New York.
• Mastercard Inc. said Chief Executive Officer Ajay Banga will leave the role early next year, and be replaced by Michael Miebach, the credit-card company’s chief product officer. Banga will transition to the role of executive chairman on Jan. 1, 2021, as Richard Haythornthwaite retires, the company said in a statement Tuesday.
• Revolut Ltd. has raised $500 million in a funding round that values the London financial-technology firm at $5.5 billion, making it one of Europe’s most valuable fintech startups despite still being loss-making. The company will use the cash for product development and to increase banking operations across Europe, it said in a statement on Tuesday. Revolut said it plans to begin making loans for retail and business banking customers, expand its savings accounts beyond the U.K., and improve its customer service.
• Mallinckrodt Plc agreed to pay $1.6 billion to settle claims arising out of the U.S. opioid crisis, with some of the company’s units filing for Chapter 11 bankruptcy protection. The settlement would resolve lawsuits from thousands of plaintiffs, the company said in a statement. Attorneys general in 47 states and U.S. territories support the deal, the company said.
• Amazon.com Inc. is taking aim at the urban grocery market with a larger version of its cashierless Go convenience store. The company on Tuesday is set to open the first Go Grocery, located in Seattle’s Capitol Hill neighborhood, not far from the online retailer’s headquarters. The store is about five times the size of a typical Amazon Go — meaning it can accomodate shopping carts — and carries baked goods, meat, produce and household items
• HP Inc. announced it will return $16 billion to shareholders, primarily through buybacks, and boost cost cuts, trying to rally investors against Xerox Holdings Corp. for control of the world’s second-largest personal computer maker. HP will increase share repurchases to $15 billion from a $5 billion program announced in October. This will result in adjusted profit of $3.25 to $3.65 per share in fiscal 2022, which is about $1 more per share than analysts’ projections. HP executives also said they have engaged Xerox to discuss a potential combination on their terms, rather than succumbing to the printer maker’s hostile takeover effort.
• Wireless towers operator IHS Holding Ltd. has hired banks to oversee what may be the biggest initial public offering of an African company in the U.S., according to people with knowledge of the matter. IHS Holding has selected Citigroup Inc. and JPMorgan Chase & Co. as global coordinators for a listing that could value Africa’s largest operator of wireless towers at as much as $7 billion, said the people. The Mauritius-based company is leaning toward a New York IPO which could happen as soon as the first half of the year, they said. While Citigroup and JPMorgan have top spots on the IPO, other lenders will likely be added to the syndicate, said the people, who asked not to be identified because the information is private. No final decisions have been taken and the timeline could be pushed back, depending on market conditions.

*All sources from Bloomberg unless otherwise specified