July 13th, 2020
Daily Market Commentary
- Ontario Premier Doug Ford is set to announce details of the province’s next stage of reopening on Monday as officials determined the Covid-19 outbreak is under control. In April, Ford outlined a phased approach to getting Canada’s largest provincial economy back to work that relies on criteria set out by the chief health officer. The province is now in stage two, allowing shopping malls to open and restaurants and bars to serve patrons outdoors. The government has given few details about about stage three so far. It has indicated most remaining workplaces will be allowed to open but large public gatherings, such as concerts and sporting events, would still be restricted. A government spokesperson confirmed details of the next phase will be revealed on Monday. It’s possible the Ford government will take a regional approach to this phase, as it did in stage two when it allowed parts of Ontario to open earlier than Toronto and other regions with higher case numbers.
- European equities rose as investors eyed the start of the earnings season, which may offer clues to the pace of economic recovery. The Stoxx Europe 600 Index climbed 0.5%, led by cyclical, or more economically sensitive sectors, such as miners, automakers and travel stocks. DNB ASA, Norway’s biggest bank, gained 11% after delivering second-quarter earnings that beat even the most optimistic estimates. The second-quarter reporting season kicks off this week with the likes of Volvo AB, Electrolux AB and Nordea Bank set to shed light on the virus’s profit impact. Investors will also be mulling whether the stock market’s rapid rebound since the start of the Covid-19 pandemic has been wise or foolish. In addition to the earnings releases, market players will also look to China’s second-quarter gross domestic product data on Thursday in addition to U.S. retail sales.
- Future contracts on U.S. equity indexes advance ahead of earnings from big American companies that are expected to signal clues on the state of economy as the novel coronavirus pandemic continues. Investors’ focus is turning to whether the profit outlook will back up bullishness fueled by central bank and fiscal policy support as global equity markets trend near the highest levels since February. On the other hand, widening coronavirus outbreaks are being reported in some parts of the world. On Sunday, Florida posted the biggest one-day increase in cases since the pandemic began in the U.S., reporting 15,300 new infections.
- Japanese stocks climbed the most in almost a month, following U.S. peers higher after data on a coronavirus treatment helped ease some concerns over the outbreak. Electric appliance and auto makers provided the biggest boosts to the Topix index. U.S. stocks climbed Friday after data showing Gilead Sciences Inc.’s remdesivir may help severely ill Covid-19 patients survive the deadly infection. Patients getting the drug were 62% less likely to die within 14 days than a group that wasn’t part of the trial, the company said.
- Oil edged lower ahead of an OPEC+ meeting this week at which the group may announce plans to start tapering historic production cuts even as the coronavirus surges unabated in many parts of the world. Futures in New York fell below $40 a barrel. The producer bloc will review the state of the market at an online meeting on Wednesday amid expectations it will soon begin unwinding the output curbs that have helped haul oil back from its plunge in April. Russia’s top oil companies are preparing to increase output next month in the absence of other guidance from the Energy Ministry, according to two people from the industry who spoke on condition of anonymity.
- Gold climbed and silver hit a 10-month high as investors weighed virus developments and fresh U.S.-China tensions against an advance in equities on Monday. Global stocks rose ahead of earnings season, shrugging off new coronavirus outbreaks in some parts of the world, with Florida on Sunday posting the biggest one-day rise in cases since the pandemic began in the U.S. China sanctioned American officials in a retaliation over legislation intended to punish Beijing for its treatment of ethnic minorities. President Donald Trump said on Friday a phase two trade deal with China isn’t under consideration as the relationship between the countries has deteriorated too much.
- Copper rallied to the highest in more than two years as increased risks over supplies from South America fused with positive Chinese market sentiment to feed gains. Copper led base metals higher Monday to extend an eight-week winning streak in London. Workers at an Antofagasta Plc mine in Chile have rejected a final wage offer, raising the prospect of a strike, and adding to concerns on supply as miners in the top producer fall ill from the coronavirus. The metal widely regarded as an economic bellwether has benefited over the past two months from a confluence of positive factors, with supplies at risk just as lockdowns ease. The latest lift has come as bullish sentiment has enveloped Chinese financial markets, marked by local stocks outpacing gains in every other market worldwide. Higher prices will benefit producers including Freeport-McMoRan Inc., the biggest publicly traded copper company.
- President Donald Trump uses Facebook like a Swiss Army knife — to raise money, amplify his message, and mobilize voters. His rival, Joe Biden, uses the increasingly controversial social platform primarily to stick his hand out for donations. As he did in 2016, Trump is taking advantage of the social media giant’s granular knowledge of its users’ interests to target specific ads to specific people, and is doing so much more often than Biden. This “micro-targeting” allows Trump to tap into Facebook’s unique ability to rally his base of voters, who he needs to motivate as he trails Biden in most election polls. Since entering the presidential contest in April 2019, Biden has spent $21 million on Facebook ads compared to $33 million for Trump over the same period, according to the Center for Responsive Politics. But the two campaigns are spending the money very differently.
- PepsiCo Inc. reported stronger-than-expected sales and earnings in the second quarter as consumers kept stocking up on snack foods during the Covid-19 pandemic, sending the shares higher. The owner of the Mountain Dew and Doritos brands reported revenue of $16 billion in the three months ended June 13. Analysts’ average estimate was $15.4 billion. Earnings per share beat the highest estimate. As one of the first big packaged-food companies reporting results for the spring months, PepsiCo is being closely watched by investors for a look at how consumers are responding to 2020’s upheaval. The company is well-positioned because of its high global share of the market for snack foods, according to Bloomberg Intelligence.
- Pfizer Inc. and BioNTech SE received fast track designation from the U.S. Food and Drug Administration for two vaccine candidates, boosting their shares in pre-market trading. Hong Kong reported 41 new local cases, another record high, and may tightensocial distancing measures amid fears of a resurgence after weeks of near-normal activity. More than half a million residents defied the fresh outbreak and government warnings to vote in an unofficial primary. U.S. virus cases rose to 3.27 million with almost 56,000 new infections, less than the one-week average daily increase. Florida broke the daily record for all U.S. states with more than 15,000 new cases. India added more than 50,000 new cases over the weekend, with deaths topping 1,000.
- Google said it plans to spend $10 billion over the next five to seven years to help accelerate the adoption of digital technologies in India. Sundar Pichai, who was born in the country and is now chief executive officer of parent Alphabet Inc., made the announcement at the annual Google for India event via video conference. He said the outbreak of the coronavirus has made clear the importance of technology for conducting business and for connecting with friends and family.
- China announced sanctions against U.S. officials including Senators Marco Rubio and Ted Cruz, in a largely symbolic attempt to retaliate over Washington’s moves to punish Beijing for its treatment of ethnic minorities in the Xinjiang region. Chinese Foreign Ministry spokeswoman Hua Chunying said sanctions against the four officials would begin Monday, without elaborating. Hua listed Rubio of Florida and Cruz of Texas — both Republicans and high-profile critics of China — as targets of the unspecified measures, in addition to Ambassador Sam Brownback, Representative Chris Smith and the Congressional-Executive Commission on China. “Xinjiang is China’s internal affairs and U.S has no right to interfere,” Hua said at a regular news briefing Monday in Beijing. “We urge the U.S. to immediately withdraw its wrong decisions, stop interfering in China’s internal affairs or undermining China’s interests. We will make further reactions based on the development of the situation.”
- The U.K. government is facing calls to clear up its advice on coronavirus safety measures after ministers were accused of giving conflicting messages about whether people should go back to work and when they should wear face coverings in public. On Monday Justice Secretary Robert Buckland said Britons should continue to work from home if they can — which remains the government’s official written guidance. “There’s no doubt that people who can work at home should continue doing that,” Buckland told LBC Radio. But that contradicted the message that Prime Minister Boris Johnson gave on Friday, when he said: “We should now say, go back to work if you can.” And there was more confusion over the question of whether people should cover their faces. Johnson on Friday suggested the public should wear masks in shops, but on Sunday his senior cabinet colleague Michael Gove said wearing a mask was a matter of “good manners” but should not be made compulsory.
- Analog Devices Inc. agreed to acquire rival Maxim Integrated Products Inc. for $20.9 billion in stock, heralding what may develop into a new round of consolidation in the $400 billion semiconductor industry. Analog Devices will pay 0.63 share for each Maxim share, representing a 22% premium to Maxim’s closing share price on Friday, the two companies said in a statement early Monday. Analog Devices shareholders will own about 69% of the combined company, which will be valued at about $68 billion including debt, the companies said. The acquisition of San Jose, California-based Maxim creates a larger rival for Texas Instruments Inc. in the market for analog and embedded processor chips, crucial components in the spread of computing and intelligence to everyday devices.
- Cathay Pacific Airways Ltd.’s shareholders approved a plan to raise HK$39 billion ($5 billion) in a government-backed rescue that includes the sale of preference shares and a rights issue. All resolutions put to vote were approved, the airline said in a statement following an extraordinary general meeting in Hong Kong on Monday afternoon. When the recapitalization plan was announced last month, Cathay Chairman Patrick Healy said it was the only way to save the airline from collapse. Cathay’s main shareholders Swire Pacific Ltd., Air China Ltd. and Qatar Airwayssaid then they would vote in favor of the plan.
- Investors added money to exchange-traded funds that buy emerging market stocks and bonds last week. Inflows to U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $1.1 billion in the week ended July 10, compared with losses of $805.8 million in the previous week, according to data compiled by Bloomberg. So far this year, outflows have totalled $17.2 billion.
- China’s investors have waited five years for stock values to return to $10 trillion, a milestone that would seal the market’s recovery from its biggest crash in history. The good news is that it could happen as soon as this week, and even a slower pace of gains — which is favored by Beijing — would do it. China’s domestic equities are worth about $9.5 trillion after this month’s rally, according to data compiled by Bloomberg as of July 12. The advance has taken two of its indexes to 2015 levels and made virtually all of the country’s stock benchmarks overheat. In local currency terms, China’s market cap is already at a record 66 trillion yuan. But the $10 trillion level also marked the top of the bubble five years ago, a memory that’s still fresh in investors’ minds. Similarities between now and then have started to displease policy makers, who have taken steps to rein in stocks: Shanghai’s large caps slumped Friday after two government funds said they plan to sell shares. And while state media are still championing the bull run, a front-page commentary Monday underlined the importance of a “healthy” stock market.
- Swedish engineering giant Alfa Laval AB agreed to buy Neles Oyj in a deal that values the Finnish valve maker at roughly $2 billion, setting a price that’s high enough to potentially fight off any counter bids. After striking a so-called combination agreement with Neles, Alfa will make a voluntary recommended public cash tender offer for all issued and outstanding shares, excluding those held by Neles or any of its subsidiaries, according to a statement on Monday. Neles’ shareholders will be offered 11.50 euros in cash per share, representing a premium of 33% compared with Friday’s closing price. Neles stock traded as high as 12 euros on Monday, up 39%, while Alfa Laval gained about 5%.
- UiPath Inc., a software maker that helps companies automate repetitive tasks like data entry, has closed a round of funding that values the company at $10.2 billion. The financing round, which the company announced in a statement, confirmed a Bloomberg News report last month and bumps up UiPath’s valuation significantly from $7 billion last year.
- Moderna Inc.’s experimental vaccine for Covid-19 could generate sales of more than $5 billion a year, Jefferies analyst Michael Yee said, initiating the stock at a buy. A 220% surge for the stock since the start of the year has split Wall Street as to “what will happen or if the vaccine will even work, and is hugely divided on valuation,” Yee wrote in a note to clients.
- Saudi Oil Minister Prince Abdulaziz bin Salman likes the idea of OPEC+ acting as the central bank of oil. And he expresses admiration for Alan Greenspan, former chairman of the U.S. Federal Reserve. The challenge now confronting the oil producers’ club is one that’s all too familiar to the Fed: how to avoid a “taper tantrum,” the market panic that ensued when the institution proposed tightening monetary policy in 2013. Having successfully doubled crude prices over the past few months through unprecedented output cuts, the OPEC+ alliance led by the Saudis and Russia is poised to begin unwinding these stimulus measures. As fuel demand recovers with the lifting of coronavirus lockdowns, the producers are about to open the taps a little.
- Russian President Vladimir Putin agreed to push back completion of an ambitious $400 billion investment and development program, blaming the economic havoc wreaked by the coronavirus epidemic. “I ask the government with the participation of the State Council to adjust the national projects within three months,” Putin said at a televised meeting Monday with ministers and officials. “We must proceed from their realities.” The projects that were meant to be completed by 2024 require adjustment because “we will have to work in conditions of stricter budget restrictions” due to the coronavirus, Prime Minister Mikhail Mishustin told Putin. “It is possible to extend the time frame for achieving the national goals that you mentioned today to 2030.”
- Blackstone Group Inc. agreed to buy NIBC Holding NV for 1.03 billion euros ($1.2 billion) in cash after Dutch lender’s largest shareholders consented to a price cut by about a fifth, salvaging a deal that was almost derailed by the coronavirus pandemic. The new price including dividends is roughly 250 million euros lower than the 1.3 billion-euro offer reached in February, NIBC said in a statement on Monday. Its two largest shareholders, J.C. Flowers & Co. and Reggeborgh Invest BV, support the new offer of 7 euros per share, which rises to 7.53 euros including a 2019 dividend, the Dutch company said in a statement on Monday.
- Boris Johnson’s government will launch an ad campaign Monday to urge businesses to prepare for the end of the Brexit transition period on Dec. 31, as a survey showed only a quarter of directors said their companies were fully ready. Although Britain left the European Union on Jan. 31, it has since been in a no-change relationship, designed to allow both sides to prepare for what comes next — and talks on that question are deadlocked. Cabinet Office Minister Michael Gove on Sunday announced plans to spend 705 million pounds ($890 million) on new border infrastructure, less than six months before it needs to be in place. But the government also needs businesses to prepare. A survey by the Institute of Directors published Monday found 45% saying they were unable to do so, largely because of the impact of coronavirus, but also because the nature of Britain’s future relationship with the EU remains unclear.
- London Heathrow airport, normally the busiest in Europe, will close one of its two runways for repairs at the height of the summer season, a reflection of passenger traffic that remains near rock bottom because of coronavirus lockdowns. The landing strip will be shut down over coming weeks to allow preliminary works to take place, before reopening during the day with construction activity taking place at night, according to parent Heathrow Airport Holdings Ltd. The number of people passing through Heathrow was down 95% in June from a year earlier, after the introduction of quarantine rules for arriving passengers cut occupancy levels by 10%, the airport said Monday. Sequentially, that’s barely an improvement from levels seen in April and May at the height of travel curbs.
- More than half a million Hong Kong residents defied government warnings and a fresh coronavirus outbreak to vote in an unofficial primary, a strong turnout that signals continued resistance to Beijing’s decision to impose a broad national security law just two weeks ago. More than 610,000 residents — representing more than 13% of registered voters — cast ballots in the two-day vote to narrow down the opposition candidates competing in elections for the city’s Legislative Council set for Sept. 6. The turnout, which was more than three times organizers’ expected tally, came despite government statements that the effort could violate provisions of the new security law.
*All sources from Bloomberg unless otherwise specified