July 15th, 2020
Daily Market Commentary
- Canada shares climbed on Tuesday, led by energy stocks as oil prices rebounded. The S&P/TSX Composite index rose 1.7% in Toronto. Energy, materials and indsutrials were among the best-performing stocks, while real estate was the only group the negative. Crude futures rose as initial signs that OPEC members intend to comply with promises to curtail production eclipsed fears that a resurgence in coronavirus cases would send demand back to the worst days of the pandemic. Shopify Inc. garnered a new top bull, with National Bank Financial boosting their price target to a Street-high of $1,250. National Bank is opting for a longer-term view on Canadian tech stock valuations, despite short-term questions about where shares are trading.
- Cirque du Soleil Entertainment Group, which is restructuring under court protection in Canada, is poised to accept a recapitalization offer from a group of lenders, people with knowledge of the matter said. The ad hoc committee of creditors, which represents holders of about $760 million in Cirque debt, has been working on a “credit bid” that would see lenders inject at least $300 million of new capital into the live performance company to eventually restart its shows. The offer will be formally presented to a committee of Cirque’s board Tuesday night, the people said, asking not to be identified because the information is private.
- It’s decision day at the Bank of Canada. Tiff Macklem, in his first policy decision since taking over as governor June 3, will need to recommit to large-scale asset purchases in order to keep up with an unexpectedly large jump in government spending. The central bank releases its rate setting and Monetary Policy Report at 10 a.m. in Ottawa, followed by a press briefing at 11:15 a.m.
- The Stoxx Europe 600 Index gained 1% as of 10:35 a.m. in London, with 14 of the 19 industry groups trading higher. Miners and travel shares outperformed. The vaccine developments brought optimism to financial markets that have been struggled to make headway recently in the face of new outbreaks across the U.S. and Asia.
- U.S. index futures climb, tracking shares in Europe higher, as progress in developing a coronavirus vaccine crossed a key milestone. Oil advanced while the U.S. dollar declined. Moderna Inc. shares surged 18% in pre-market trading. AstraZeneca Plc rose after a report that a medical journal will release positive news on the coronavirus vaccine the company is developing with University of Oxford researchers. Airlines, cruise ship operators and hotel shares rallied.
- In Asia, shares in Hong Kong underperformed, while those in Shanghai fell amid signs policy makers are uneasy over the pace of recent gains. Benchmarks in Tokyo, South Korea and Australia advanced.
- Oil rose near its highest level since March as U.S. crude inventories looked set for a large drop and OPEC+ sought extra output cuts from laggards. Futures in New York traded near $41 a barrel, extending Tuesday’s gains. The American Petroleum Institute reported that inventories fell by 8.32 million barrels last week — the biggest drawdown since December if confirmed by official figures on Wednesday. Meanwhile, OPEC+ is seeking compensatory curbs in the next two months from members that overshot quotas, delegates said.
- Gold held a two-day advance and silver extended gains as the dollar weakened, making havens like precious metals more appealing even amid optimism over a coronavirus vaccine. Moderna Inc.’s Covid-19 vaccine produced antibodies to the virus in all patients tested in an initial trial. Still, the U.S. recovery “is stalling somewhat” as infections rise, Federal Reserve Bank of Dallas President Robert Kaplan warned Tuesday. The dollar fell to a one-month low.
- Donald Trump ordered an end to Hong Kong’s special status with the U.S. and signed legislation that would sanction Chinese officials responsible for cracking down on political dissent in the city, drawing a rebuke from China and adding fresh uncertainty for businesses including banks in the financial hub. “No administration has been tougher on China than this administration,” the U.S. president said Tuesday, announcing the two moves in the White House Rose Garden. Trump also said he had no plans to speak with President Xi Jinping, deviating from his pattern of criticizing Beijing while tempering it with warmth and respect for the Chinese leader.
- Iraq will supply less oil to some Asian refiners as it seeks to meet its production-cut target under the OPEC+ alliance’s output agreement. SOMO, the state-run oil marketing company in OPEC’s second-biggest producer, notified at least six customers in the region that it won’t fulfill their requests for contractual supplies loading next month, according to company officials with knowledge of the refineries’ crude procurement. Two buyers were told they wouldn’t receive any Basrah oil for August, and that SOMO will try to accommodate their needs in the following month, the officials said. Three customers were given smaller volumes, another only got one-third of what it was seeking, while five other refiners received what they asked for.
- The U.K. will sell nearly twice as many bonds than it did during the height of the financial crisis, according to estimates of primary dealers. Gilt issuance for the fiscal year that began in April is set to climb to about 450 billion pounds ($567 billion), with the Debt Management Office’s funding needs for September to November totaling 115 billion pounds, data from seven banks show. While issuance is seen dwarfing the 228 billion-pound record set in the fiscal year that ended in April 2010, the effect on gilt yields is likely to be muted. Barclays Plc estimates the extra supply to be almost entirely offset by the rate of purchases from the Bank of England.
- With Huawei Technologies Co. barred from Britain’s future wireless networks, its two European rivals look set to split the market. The ban — forcing phone companies to remove 5G Huawei equipment by 2027 and stop buying it by the end of this year — is a blow to the industry, which had lobbied hard to keep Huawei, and not just because of the burden of having to redesign the next-generation networks they were already building. It also turns Britain’s wireless radio equipment market into an effective duopoly of Finland’s Nokia Oyj and Ericsson AB of Sweden. The companies that run Britain’s communications infrastructure will be bracing for higher prices and will have little choice but to use both Nokia and Ericsson if they are to avoid becoming dangerously reliant on either vendor.
- U.S. job gains are set to slow sharply or even reverse in July after a resurgent coronavirus and new wave of shutdowns stymied the economic rebound. California on Monday ordered all inside dining and other indoor entertainment closed in the most populous U.S. state, while shutting down business more broadly in harder-hit counties. Washington Governor Jay Inslee on Tuesday paused any relaxation of restrictions in the state for two weeks. Jobs-website Glassdoor Inc. said openings across the U.S. had dropped 5.5% over the past two weeks, with declines in all 50 states.
- Moderna Inc.’s Covid-19 vaccine produced antibodies to the coronavirus in all patients tested in an initial safety trial, federal researchers said, clearing an important milestone as the U.S. continues to grapple with a surge in new infections. The U.S. biotech firm’s breakthrough is one of the most promising developments yet in the race to develop a vaccine against the virus that has paralyzed the world’s economy. Yet the road to a successful shot is filled with hurdles, and some patients in the trial experienced severe side effects.
- Apple Inc. won its court fight over a record 13 billion-euro ($14.9 billion) Irish tax bill in a crushing blow to European Union antitrust chief Margrethe Vestager’s crackdown on preferential fiscal deals for companies. The EU General Court sided with the iPhone maker, saying the European Commission failed to show Ireland’s tax arrangements with the company were illegal state aid. The decision can be appealed. The Apple case is the hallmark of Vestager’s five-year campaign to get rid of allegedly unfair tax deals that some EU governments dole out to favored multinationals including the likes of Amazon.com Inc. Apple’s fury at its 2016 tax bill led Chief Executive Officer Tim Cook to blast the EU move as “total political crap.”
- Google has agreed to buy a $4.5 billion stake in Jio Platforms Ltd., the digital arm of Reliance Industries Ltd., adding to a series of large investments from the U.S. into the online venture that has nearly 400 million users for its voice and data services in India. The global search leader is acquiring 7.7% of the fast-growing internet unit for a price of 337.4 billion rupees, Reliance Chairman Mukesh Ambani said Wednesday, confirming an earlier Bloomberg News report.
- Shares in Chinese biotechnology company Beigene Ltd. jumped the most in eight months after Hillhouse Capital invested about $1 billion in the largest equity financing ever by a biotech company. The Asian private equity firm’s stake in Beigene increased to about 12.7%, according to a regulatory filing Tuesday confirming an earlier report by Bloomberg News. 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 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.
- OPEC+ is seeking extra production cuts from members that have missed their targets again in June, potentially tempering the impact of the supply resumption planned by the wider coalition next month. A technical committee that met online on Tuesday outlined plans for countries including Iraq, Nigeria and Kazakhstan to make an additional 842,000 barrels a day of compensatory cuts in August and September, according to delegates. The proposal will be discussed on Wednesday by a ministerial monitoring committee led by Saudi Arabia and Russia, the delegates said, asking not to be named because the information isn’t public. They’re expected to announce that the group’s overall curbs of 9.6 million barrels a day — about 10% of global supplies — will be relaxed in August as global fuel demand recovers.
- UnitedHealth Group Inc. posted a surge in profit during the second quarter, a period in which many Americans steered clear of hospitals and doctors’ offices to avoid contracting Covid-19. The health insurer maintained its earnings outlook for the full year. Adjusted second-quarter earnings per share were $7.12, higher than the $5.25 a share analysts expected.
- The remarkable rebound in U.S. equities from the depths of the Covid-19 crisis in March faces a fresh test in coming weeks, with the American economy set for a withdrawal of a key stimulus support. The average unemployment benefit for Americans put out of work will tumble by more than 60% at the end of July, hobbling the incomes of millions of laid off workers — many of whom may not be able to return to their jobs given the renewed shutdowns now affecting swathes of the economy from California to Florida. Stocks have proven resilient to plenty of bumps lately, from the surge in numbers of Americans infected with the coronavirus to a sharp escalation in U.S.-China tensions. The more risk-sensitive bond market has seen bouts of anxiety that have repeatedly pushed Treasury yields to record lows.
- A brutal day of hand-to-hand combat on the India-China border last month may accomplish what years of Pentagon and White House outreach has struggled to achieve: draw the U.S. and India closer militarily. U.S. strategists have long wanted to get India firmly on America’s side, seeing the nation of 1.3 billion as a powerful counterweight to China. But while India has historically tried to balance its ties among global powers, the clashes with China at 14,000-feet (4,300 meters) laid bare the potential longer-term risks of not having the U.S. more clearly behind it.
*All sources from Bloomberg unless otherwise specified