July 14th, 2020
Daily Market Commentary
- Canadian shares pared their earlier gains to close lower, with the decline led by tech and materials stocks. The S&P/TSX Composite Index fell 0.5% in Toronto. Tech, materials and industrials were among the worst performers, while the utilities sector was the best performer. U.S. stocks declined after the S&P 500 briefly touched the highest level since the coronavirus pandemic sent markets tumbling worldwide. Aphria Inc. was the best performing stock in the TSX composite after it was upgraded to buy from hold by Stifel, which said the Canadian cannabis company’s discounted multiple undervalues its improving growth prospects. The shares rose 8.9%. Canadian consumer confidence stalled last week for the first time in almost three months. The Bloomberg Nanos Canadian Confidence Index, a weekly composite measure of financial health and economic expectations, was largely unchanged at 46.1 last week, from 46.2 a week earlier. That ends a 10-week streak of gains.
- Prime Minister Justin Trudeau’s remarkable ability to recover from missteps faces yet another test. The Canadian leader, who finds himself under investigation for a third time by the country’s ethics watchdog, is relying on an approach he’s used in the past to get himself out of tight spots: eating humble pie. At a press conference on Monday, Trudeau offered up a “should have known better” public apology, this time for his involvement in awarding a C$20 million ($14.7 million) government contract to a charity that has close ties to his family. While pollsters say they have no reason to believe the apology won’t work again this time, Trudeau’s ability to mire himself in controversy continues to be one of the defining aspects of his leadership — limiting his ability to make sustained gains in popularity outside Liberal Party loyalists.
- Calfrac Well Services Ltd. filed for bankruptcy in in the Southern District of Texas and in Canada, the latest in a long line of energy companies to go under amid a steep decline in crude prices. The oilfield services provider had been firing workers and trimming operations in North America in an effort to slash costs. The Calgary-based company reported a net loss of $123 million for the first three months of 2020, even after cutting operating spending by $150 million. The filing follows a plunge in crude prices as the Covid-19 pandemic dents global growth. The slump has already forced energy service companies including Vista Proppants & Logistics Inc. and Unit Corp. to seek court protection from creditors. Calfrac reported $987 million of net debt as of the end of the first quarter.
- India’s Shapoorji Pallonji Group is in preliminary talks with Brookfield Asset Management Inc. to raise as much as $400 million in structured debt to help repay maturing obligations, according to people with knowledge of the matter. The Mumbai-based conglomerate, controlled by billionaire Pallonji Mistryand his family, plans to use shares of unit companies as collateral against the borrowings, said one of the people, asking not to be identified as the discussions are private. The group is resorting to structured loans from the Canadian private-equity fund after its plans to sell assets ranging from solar power plants to toll roads got delayed by the coronavirus pandemic, the person said. It has about $950 million of debt due by 2021, according to data compiled by Bloomberg.
- European stocks fell on Tuesday, led by declines for tech shares and travel firms, as tensions between the U.S. and China and worries over rising coronavirus cases weighed on sentiment. The Stoxx 600 Index was down 1.1% at 8:02 a.m. in London, with the tech sector — which recently hit a 2001 peak — posting the biggest declines. As earnings reports began to trickle in, oil and gas exploration firm Aker BP ASA’ssecond-quarter Ebitda missed analysts’ estimates. Meanwhile meal-kit maker HelloFresh SE rose 4.8% after saying that it expects its revenue for the second quarter to be “significantly” above market expectations.
- U.S. equity futures climbed after yesterday’s retreat, while European stocks slid as investors weighed earnings season and the economic hit of rising virus cases. JPMorgan Chase & Co. climbed after revenue beat estimates and Tesla Inc. advanced in pre-market trading. Treasuries and the dollar were steady. The U.K.’s two-year bonds yielded less than Japanese debt for the first time. Copper ended a six-day winning streak amid renewed tensions between Beijing and Washington. Market sentiment has taken a hit from signs the virus is throttling reopening plans in states like California, and concern that equity valuations are stretched with global stocks trading near pre-pandemic highs.
- Japanese shares fell, retreating after their biggest rise in almost a month amid concerns over the strength of the global economic recovery. Technology stocks were the biggest contributor to the Topix index’s loss. U.S. equities dropped Monday, with the Nasdaq Composite shedding 2.1%, its worst performance in two weeks. Japan could declare a state of emergency again if infections increase further, though the government wants to avoid doing that if possible, Economy Minister Yasutoshi Nishimura said at a briefing. The World Health Organization saidCovid-19 probably won’t disappear in the coming months, and it’s unrealistic to expect that a perfect vaccine will become available to everyone immediately.
- Oil slipped for a second day on signs of a slower emergence from lockdown in some corners of the globe. Futures fell by as much as 2.6% in New York. California, one of the largest gasoline-consuming states in America, announced on Monday that it would pull back on reopening efforts, the latest red flag for the return of oil demand. This isn’t just happening in America — Hong Kong imposed its strictest social distancing measures yet and Japan said a new state of emergency is possible if infections increase.
- Gold hovered near the $1,800-an-ounce mark, as investors weighed recent coronavirus developments and fresh tensions between the U.S. and China. Riskier assets including equities took a hit as rising virus cases prompted tighter restrictions from Hong Kong to California. The World Health Organization warned Covid-19 probably won’t disappear in the coming months, and it’s unrealistic to expect that a perfect vaccine will become available to everyone immediately. On the trade front, Washington rejected Beijing’s expansive maritime claims in the South China Sea, reversing a previous policy of not taking sides in such disputes and escalating tensions with Beijing on yet another front.
- The U.K. economy’s expansion was much weaker than expected in May, casting doubt on how fast the nation can rebound from the depths of the coronavirus slump. Disappointing figures for growth came as the country’s fiscal watchdog outlined the strain on government finances from the billions spent to help businesses and workers through the crisis. It said the budget deficit could balloon to 21% of output this year, and the debt ratio will stay above 100% for the next five years. The news helped to push the pound lower against the dollar for a second day. Worries about U.K. prospects also drove demand for government bonds, driving two-year yields below Japan’s for the first time ever.
- China’s imports of raw materials, from oil to soybeans to copper, surged to records last month as the top commodities consumer fuels a recovery from the pandemic that has slammed global growth and roiled markets. Shipments of crude and soybeans rocketed in June as cheap cargoes bought during the depths a price crash continued to arrive, while unwrought copper and iron ore purchases jumped on expectations Chinese manufacturing activity will unlock demand. The country first hit by Covid-19 is indicating signs of an economic revival, with figures released Tuesday alongside commodity trade data showing China’s overall exports and imports both rose last month. The surprising increases come as some developed economies started to reopen, potentially bolstering the outlook for exports from the Asian nation in coming months.
- The Federal Reserve is facing pressure to loosen the rules on its $500 billion municipal lending facility, which charges penalties so steep that almost no governments are willing to borrow from it. A group of state treasurers, local officials and advocacy groups including Americans for Financial Reform, a Washington-based advocacy group, sent the central bank a letter on Tuesday requesting that it significantly cut the interest rates it charges on loans. The groups also asked it to lend for longer terms and expand the number of governments that are eligible to borrow. The Fed announced the Municipal Liquidity Facility in April to ease the cash crunches facing U.S. states and cities by buying short-term debt sold to cover revenue shortfalls caused by the pandemic.
- Resurgent virus cases prompted tighter social distancing and hygiene rules around the globe. California closed indoor dining and bars, and face coverings will be compulsory in all shops in England from July 24. Tehran closed schools, universities and religious sites for a week. Hong Kong imposed its strictest social distancing measures yet, Japan said a new state of emergency is possible, while the Australian state of Queensland imposed a quarantine on some visitors. The U.K. economy grew at a slower-than-expected pace in May, while Singapore plunged into a recession last quarter. The World Health Organization said Covid-19 probably won’t disappear in the coming months, and called for caution over hopes for a perfect vaccine.
- Joe Biden on Tuesday will unveil clean-energy and infrastructure plans that seek to balance progressives’ demands for bold action on climate against protecting swing-state jobs in a coronavirus-altered economy. Biden’s plan includes $2 trillion in spending over four years and sets the goal of a 100% clean-energy standard by 2035, people briefed on the proposals said. That’s more spending over a shorter period than the $1.7 trillion, 10-year plan that Biden had offered during the Democratic primary. The proposal is another key element of Biden’s broader plan to pull the U.S. out of the recession touched off by the pandemic as he builds his argument into the November election against President Donald Trump. With the energy plan, the Democratic nominee will seek to both revive the economy and address deeper systemic problems that existed before the virus hit.
- President Donald Trump swept to power by championing the hardships of forgotten men and women, but his re-election bid has so far centered on the plight of just one person: himself. Trump is struggling to respond to a resurgent pandemic, an economic downturn and nationwide protests for racial justice. The coronavirus has weakened the central plank of his campaign — the economy — while mostly scuttling the rallies that he thrives on. While all those crises raged, Trump has tweeted “POLITICAL WITCH HUNT!” and repeatedly complained about “PRESIDENTIAL HARASSMENT!” several times and said courts have given broad deference to presidents, “BUT NOT ME!” He said the Obama administration spied on his campaign. He defended his time golfing and said it was his only exercise.
- JPMorgan Chase & Co.’s results were one more marker of the disconnect between ebullient markets and concern about the U.S. economy. The biggest U.S. bank said second-quarter profit fell 51% to $4.69 billion, a smaller drop than forecast, as record trading revenue helped counter the biggest loan-loss provision in the firm’s history. It’s the second consecutive quarter that trading set a record, as the bank’s Wall Street unit is helping prop up a consumer-lending division struggling with business closures and swelling unemployment rolls. The firm’s fixed-income trading revenue doubled from a year earlier and the equity markets unit surged more than 30% as trading desks have benefited from a roller-coaster year. After the pandemic drove stocks into the fastest bear market ever in March, the S&P 500 mounted one of the biggest rallies in nine decades, boosted by stimulus measures and optimism over a swift economic rebound.
- In about two weeks millions of Americans could lose a crucial economic lifeline of this pandemic: $600 a week in extra federal unemployment benefits. The scheduled end will ripple through households and the entire economy. The program accounts for a big chunk of the Treasury Department’s record jobless payments last month, which exceeded $100 billion. Without the additional cash, some of the hardest-hit households may be forced to choose which bills to pay and which to let slide.
- Before the bankruptcies came the bonuses: $10 million at J.C. Penney Co., $25 million at Chesapeake Energy Corp., $1.5 million at Hertz Global Holdings Inc. That’s how much was promised to executives only weeks or in some cases days before bankruptcy. Of the 100 or so major companies that have filed since the coronavirus shutdown began, 19 of them have committed to paying a total of $131 million in retention and performance bonuses, both before and after filing, a number that’s poised to climb as a record number of Americans are jobless and the pandemic spreads. The companies say they need to keep their management teams to help turnaround consultants repair the damage, even when it means rewarding people who were in charge when the business began sinking. The timing of some of the bonuses, before the filing, legally heads off opposition from creditors, who can’t block such payouts unless they’re made after a case reaches court.
- Google is in advanced talks to buy a $4 billion stake in Indian billionaire Mukesh Ambani’s technology venture, people familiar with the matter said, seeking to join rival Facebook Inc. in the chase for growth in a promising internet market. The Mountain View, California-based titan has been discussing the investment in Reliance Industries Ltd.’s digital arm, Jio Platforms Ltd., the people said, asking not to be identified because the information is private. An announcement could come as soon as the next few weeks, according to the people.
- Virgin Atlantic Airways Ltd. is poised to announce a rescue worth at least 1 billion pounds ($1.25 billion), after clearing the last major hurdle to the deal, according to people familiar with the matter. Negotiations with credit-card processors holding back some 200 million pounds of sales have been resolved, said the people, who asked not to be named discussing a confidential matter. U.S. hedge fund Davidson Kempner Capital Management will provide about 200 million pounds in fresh lending, the people said. Billionaire founder Richard Branson will contribute about the same after raising money from his Virgin Galactic Holdings Inc. space venture.
- EasyJet Plc Chairman John Barton said he expects shareholders to approve the British carrier’s 419 million pound ($524 million) share sale, providing a financial buffer as it contends with a slow recovery from the coronavirus shutdown. The Luton, England-based airline received proxy votes worth 60% of share capital in favor of the conditional part of a 703 pence-a-share equity raise announced last month, Barton told investors on Tuesday. EasyJet needed a simple majority to push ahead with the proposal. Final results will be announced later on. After the equity increase, EasyJet has said it will have more than 3 billion pounds of cash, including funds raised from sale-and-leaseback transactions on its aircraft. Liquidity has been boosted by a slightly lower-than-expected cash burn as more customers opt to take vouchers for canceled flights instead of asking for refunds.
- EQT Partners AB, the biggest private equity firm in the Nordic region, is transferring ownership of a software provider to two of its own funds and an external investor in a deal worth more than 3 billion euros ($3.4 billion). EQT, which is based in Stockholm, agreed to sell IFS AB to successor funds within its own organization and TA Associates, it said on Tuesday. The arrangement includes a transfer from the EQT VII fund to EQT VIII and EQT IX, it said. TA Associates will become a minority partner.
- Hillhouse Capital plans to invest $1 billion in Chinese biotechnology company Beigene Ltd., said people with knowledge of the matter, in the largest equity financing ever by a biotech company. After the investment, Hillhouse’s stake in Beigene will increase to about 12.6% from its current 7.5%, the people said, asking not to be identified because the matter is private. An announcement with details of the investment by the Asian private equity firm could be made as early as Tuesday, the people said. Hillhouse acted as the anchor investor for the $2.1 billion direct offering of 145.8 million ordinary shares to fund drug research and market its treatments in the U.S. and China, the people said. The shares were priced at $14.23, or $185 per U.S. share, which is worth 13 ordinary shares, the Nasdaq-listed company said on Monday. Beigene shares rose 8.7% to $213.01 Monday in New York.
- Poland’s biggest oil refiner signed a letter of intent with the government to acquire a controlling stake in the country’s biggest gas company as part of the state’s drive to create national champions. State-run PKN Orlen SA will analyze the “optimal model” for the purchase of PGNiG SA, it said in a statement on Tuesday. The announcement comes on the day Orlen received the European Union’s conditional approval for its merger with smaller peer Grupa Lotos SA. The proposed acquisition is part of the government’s push to create Polish national champions in the mold of South Korea or Japan, which will be able to compete abroad. Orlen’s aim is to become the biggest energy conglomerate in the country, spanning oil, gas as well as power production. This year, it bought utility Energa SA for $700 million.
- The U.K. is poised to ban Huawei Technologies Co. from its next generation mobile networks under a two-step plan to protect critical systems from security threats, a person familiar with the matter said. Under the blueprint, British phone companies will not be able to add any new Huawei components to their 5G networks by the end of the year. After that, all existing equipment made by the Shenzhen-based company would need to be removed from 5G infrastructure by 2027, the person said, speaking anonymously to discuss sensitive plans. Prime Minister Boris Johnson, his senior ministers and top security chiefs are due to be presented with the proposal at a meeting of the National Security Council on Tuesday. A decision is expected to be announced later in the House of Commons.
- Hong Kong implemented its strictest suite of social distancing measures yet as the Asian financial hub looks set to be the first in the region where a new outbreak surpasses previous waves in severity. Bars, gyms and beaches will be closed, public gatherings limited to four people, and fines will be doled out to those refusing to wear masks on public transport as authorities try to slow a growing resurgence. Officials said they detected 40 local cases on Tuesday, bringing the total outbreak to 224 people in around a week. The breadth of Hong Kong’s social distancing measures reflects the large proportion of cases of unknown origins, which grew to a record of 24 out of 40 local cases on Tuesday. Because officials cannot identify where the infections are centered, they can’t deploy less-disruptive targeted measures like in South Korea and Japan and have instead levied broad policies for the whole city.
- China will impose unspecified sanctions on defense contractor Lockheed Martin Corp. after the U.S. approved a possible $620 million deal to supply missile parts to Taiwan, marking the latest in a volley of punitive actions by the superpowers as relations grow colder. “China firmly opposes U.S. arms sales to Taiwan,” Chinese Foreign Ministry spokesman Zhao Lijian said at a briefing in Beijing on Tuesday. “We will impose sanctions on the main contractor of this arms sale, Lockheed Martin,” he said, without elaborating on what form the sanctions may take. The move comes as tensions grow between the U.S. and China on a number of fronts, from the trade war and territorial claims in the South China Sea to the coronavirus pandemic and new security law Beijing imposed on Hong Kong. Zhao, the Foreign Ministry spokesman, called on the U.S. to cut military ties with Taiwan — which China considers part of its territory — to avoid “further harm to bilateral relations.”
- Delta Air Lines Inc. says the resurgence of new coronavirus cases and related travel restrictions have stalled a fledgling recovery in U.S. travel demand and prompted the carrier to slash the number of flights it had hoped to return to its schedule next month. The airline will add back no more than 500 flights in August instead of the 1,000 it had planned. It doesn’t see adding much more through the end of this year. “Demand growth has largely stalled,” Chief Executive Officer Ed Bastiansaid in an interview. “The pace of improvement from this point is going to depend on consumers’ confidence in flying.” He made his comments as Delta on Tuesday reported a record quarterly adjusted loss of $2.8 billion after a coronavirus-driven collapse in demand slashed revenue by 91% in the three months through June.
*All sources from Bloomberg unless otherwise specified