July 17th, 2020

Daily Market Commentary

Canadian Headlines

  1. Canadian equities fell on Thursday, led by tech stocks. In the U.S., the technology-dominated Nasdaq-100 fell more than the Dow Industrials and the S&P 500. The S&P/TSX Composite index fell 0.2% in Toronto. Technology’s underperformance was driven mainly by a 3% decline in Shopify Inc. after Citi started research coverage of the e-commerce platform with a neutral ratingand said that current valuation leaves “little room for upside.” Oil snapped its two-day rally amid a weaker demand outlook underscored by OPEC+ producers’ decision to taper production cuts and U.S. economic data that signaled a slowing recovery in the labor market. Cirque du Soleil Entertainment Group agreed to back a purchase agreement from a group of its secured lenders, setting the minimum acceptable bid in its court-supervised sales process.
  2. Manulife Financial Corp. is setting targets to boost leadership roles for Black, Indigenous and people of color across its North American businesses by 2025. The Canadian life insurer plans to increase representation from those minorities in leadership roles by 30% over the next five years and recruit at least 25% from that group each year for its graduate program, the firm said in a statement Friday. “We recognize how important it is to improve the diversity of our organization at all levels,” Chief Executive Officer Roy Gori said in the release. “Establishing goals not only demonstrates our commitment to this important work, it will help us build a more inclusive culture to drive innovation and enable us to better serve our customers.”

World Headlines

  1. European stocks fluctuated amid earnings reports and as investors focused on talks between European Union leaders over the bloc’s recovery fund. The Stoxx Europe 600 Index was little changed as of 9:17 a.m. in London, after erasing gains of as much as 0.3% following German Chancellor Angela Merkel’s comment that big differences remained in the fund talks. Carmakers outperformed, with Daimler AG rising on better-than-expected results. EU leaders at the summit kicking off Friday will meet in person for the first time since February to try settle their differences over the 750 billion-euro ($854 billion) fund. While European stocks have outperformed U.S. and global shares since the plan was announced mid-May, negotiators of the deal have been playing down chances of an agreement ahead of the talks.
  2. U.S. equity futures rebounded from losses late yesterday, when Netflix Inc. surprised investors with a disappointing subscriber outlook. European shares fluctuated, while the dollar weakened. Funds tracking the S&P 500 and Nasdaq 100 pointed to a flat open when regular trading begins. Netflix sank about 8% in pre-market trading. The dollar weakened, gold climbed and Treasuries were steady. Investors will be closely watching to see how the broader technology sector reacts to Netflix’s weaker outlook. The Nasdaq Composite has managed to go two months without posting back-to-back declines, but that’s now under threat as investors question the resiliency of tech’s searing rally.
  3. Japanese shares fell as investors weighed mixed readings from the latest batch of U.S. economic data against the backdrop of growing coronavirus cases. Chemical companies and banks were the biggest drags on the benchmark Topix. The gauge and bluechip Nikkei 225 Stock Average still capped their best week since early June following a rally triggered by reports of progress in drug development to combat the virus.
  4. Oil fell on signs that the recovery in oil consumption may be starting to slow. Futures in New York fell below $41 a barrel after struggling to surpass their highs from June in recent days. Indian road fuel sales fell in the first half of July as localized virus lockdowns occurred in several cites, and the Chinese city of Urumqi locked down some areas amid fears of another outbreak in the country. American unemployment figures barely dropped last week, highlighting the risks to a broader economic recovery. Though demand concerns are returning in some of the world’s largest consuming regions, it remains a far from uniform picture. Japan’s fuel demand is just 4% lower than a year earlier, and there have been steady recoveries in nationwide consumption in the U.K. and the U.S.
  5. Gold edged higher, holding near its key $1,800-an-once mark, as investors weighed mixed data from the U.S. and China ahead of stimulus talks in Europe. Investors are looking to European Union leaders to conclude their 750 billion-euro ($857 billion) accord at a summit that starts Friday, while German Chancellor Angela Merkel expressed caution about sealing the deal this week. That comes after mixed signals on the economic recovery in China and the U.S. after reports published Thursday. Sino-American trade relations and rising coronavirus infections in some regions are also on traders’ radar, supporting gold’s appeal as a safe haven. Prices are on track for a sixth straight week of advances, the longest such stretch in over a year.
  6. Tesla Inc. kept gaining users in China last month, with registrations of its electric vehicles jumping to a record in the world’s largest market as the coronavirus outbreak receded. In June, 14,976 China-built Teslas were registered in the country, according to data from state-backed China Automotive Information Net. That’s a 32% increase from May and the highest monthly number so far for the carmaker, which is ramping up output after starting deliveries from its Shanghai plant around the beginning of the year. While the broader Chinese auto market is recovering slowly from a two-year slump, wealthier buyers are drawn to Tesla’s brand cachet. The EV market leader’s sales now approach a quarter of the total tally for the category, the China Passenger Car Association said this month, making life difficult for a slew of local upstarts trying to get their businesses off the ground. Through June, there were 49,761 Teslas registered in China.
  7. Ted Sarandos was just named co-chief executive officer at Netflix Inc. and already he faces a difficult task: soothing investor anxiety about slowing growth at the video-streaming giant. The company tapped its longtime chief content officer to take the top job, alongside current CEO Reed Hastings, on a day when it delivered a disappointing subscriber forecast and sent its shares plunging as much as 15% in late trading. They recovered slightly, but were still down 7.3% in premarket trading in New York Friday.
  8. Prosus NV handed in the highest offer for EBay Inc.’s classifieds unit, putting the Naspers Ltd.-owned business in pole position to win one of the largest auction processes this year, people familiar with the matter said. The EBay board is scheduled to meet Friday to formally choose a preferred bidder, the people said, asking not to be identified because the information is private. A sale of the classifieds business was expected to fetch more than $8 billion, Bloomberg News has reported. Prosus is competing against a private equity consortium — backed by Blackstone Group Inc., Permira and Hellman & Friedman — and a separate proposal from Norwegian online marketplace Adevinta ASA, the people said. The situation is fluid, and one of the rival bidders could still emerge on top, according to the people.
  9. BlackRock Inc. saw a rebound in flows to products such as mutual funds and exchange-traded funds, powered by retail investors jumping into a rising market and recovery in fixed income products. Long-term funds took in a net $62.2 billion in the second quarter, the world’s largest asset manager said Friday. That marked a reversal from the prior three-month period when BlackRock saw its first net outflows from those products in five years, as clients fled chaos from the Covid-19 crisis. Resurgent confidence from retail investors helped the comeback, as they added a net $16 billion to BlackRock funds, or more than eight times their contribution in the same period one year earlier. Fixed income led all other types of products segments with $60 billion in inflows.
  10. Prime Minister Boris Johnson relaxed work-from-home guidance, putting him at odds with his top scientific adviser as he seeks to pump life into the U.K.’s coronavirus-battered economy. Anyone will now be able to use public transport, Johnson said in a televised press conference on Friday, marking a change from guidance to avoid it where possible. And from August 1, he said employers will have “more discretion” on bringing staff working from home back into offices. With the economy shrinking a fifth in the three months through April, Johnson and Chancellor of the Exchequer Rishi Sunak are trying to revive economic activity and stave off an expected wave of job cuts as the government tapers support for businesses and continues to ease a lockdown that began on March 23.
  11. Hong Kong’s new outbreak has surpassed the scale of its previous wave of infections in a warning that the worst of the pandemic is yet to come. In Spain, Barcelona’s government urged residents not to leave their homes unless necessary as countries around the world grapple with a fresh surge in infections. China’s Xinjiang province also tightened control measures, Australia’s most populous state reimposed limits and Israel will shutter some businesses on weekends. Meanwhile, U.K. Premier Boris Johnson relaxed work-from-home guidance, putting him at odds with his top scientific adviser. Earlier, India became the third country to record more than a million cases while Brazil surpassed two million infections. Florida and Texas reported a record numbers of deaths, and Dr. Anthony Fauci said many states reopened too quickly and called for “a time out.”
  12. SoftBank Group Corp. quietly sold an additional $2.2 billion of its stake in Alibaba Group Holding Ltd. as part of the Japanese conglomerate’s fund-raising effort to pay down debt and buy back its own shares. The deal, which includes a collar contract and call spread, is expected to be settled between May 2024 and June 2024. The details were disclosed on page 276 of SoftBank’s year-end financial filing released on June 25, but have not been previously reported. A SoftBank Group spokesman confirmed the details of the sale. This step is the latest in an unwinding of a relationship between the two companies that spans two decades. SoftBank founder Masayoshi Son was an early backer of Jack Ma’s Alibaba and the Chinese e-commerce giant remains his most successful investment by far. In early 2000, Son invested $20 million into the then-unknown web portal connecting Chinese manufacturers with overseas buyers, a stake that is now worth more than $150 billion. Son and Ma stepped down from each other’s boards last month.
  13. America’s leaders face an urgent set of decisions on whether to extend history’s biggest rescue effort — or let parts of it lapse. The government approved more than $2 trillion of extra spending after the coronavirus brought swaths of industry and commerce to a sudden halt. Some measures targeted those who took the biggest hit, like the unemployed and small business. Others were across-the-board, reaching every corner of the economy. But these programs are due to run out in the coming weeks and months. Each expiration date will test the still-fragile U.S. recovery — unless policy makers opt to keep crisis supports in place.
  14. Bond market confidence is ebbing in an imminent deal for a euro-area recovery fund, yet investors are finding solace in the fact that the European Central Bank may prevent any fresh turmoil. This is reflected in the buoyancy of the Italian debt market — seen as one of the region’s most vulnerable to economic uncertainty. Benchmark yields in the nation dropped Thursday to the lowest level since March after ECB President Christine Lagarde reiterated that the institution’s 1.35-trillion-euro ($1.54 trillion) pandemic bond-buying program will be fully used. Omens aren’t good for a deal at this weekend’s European Union summit, according to Mizuho International Plc. Dutch Premier Mark Rutte, an opponent of the proposed 750 billion rescue fund, has played down the chances of a deal. Even Germany’s Angela Merkel and France’s Emmanuel Macron, the architects of the proposal, are pushing back the timing of an accord.
  15. German Chancellor Angela Merkel raised doubts that European Union leaders, meeting in person for the first time in five months, would be able to agree this week on a landmark 750 billion-euro ($855 billion) recovery fund to help their economies heal from the pandemic. “We’re entering these discussions with plenty of vigor, but I have to say that the differences remain very, very great, so I can’t predict whether we’ll reach an agreement here,” Merkel said in Brussels before the start of the summit. “I expect very, very difficult negotiations.” Their meeting comes after weeks of intense negotiations between diplomats and governments, seeking to bridge differences over the total size of the package, how money would be distributed and the proportion of loans versus grants. Officials have warned that another summit later this month could be needed to clinch a deal.
  16. British Airways, the world’s biggest operator of Boeing Co.747-400s, is retiring its entire fleet of the jumbo jets with immediate effect because of the damage the coronavirus has done to air travel. “It is unlikely our magnificent ‘queen of the skies’ will ever operate commercial services for British Airways again due to the downturn in travel caused by the Covid-19 global pandemic,” the airline, a unit of IAG SA, said in a statement. The carrier’s 31 Boeing 747-400 planes, which could sit 345 passengers in four classes, flew to destinations including Beijing, New York, San Francisco, Cape Town and Lagos, until Covid-19 struck and forced the airline to park them. British Airways had planned to finish phasing out the aircraft in 2024.
  17. Partners Group Holding AG has agreed to buy Iberian crop-protection company Rovensa from rival private equity firm Bridgepoint in a deal valuing the business at around 1 billion euros ($1.1 billion) including debt. The mid-market private equity firm will acquire a “major equity stake” in Rovensa, it said in a statement Friday, confirming an earlier Bloomberg News report. Partners Group will work with Rovensa management to internationalize the company and make select further acquisitions, according to the statement. Partners Group edged out other suitors including AEA Investors and Pamplona Capital Management, people familiar with the matter said, asking not to be identified as discussions were private. Spokespeople for AEA and Pamplona didn’t immediately respond to requests for comment.
  18. Chinese clinical research service provider Hangzhou Tigermed Consulting Co. has won approval from the Hong Kong stock exchange for its second listing, which could raise about $1 billion in what would be Asia’s largest health-care listing this year, according to people familiar with the matter. Shenzhen-listed Tigermed could start gauging investor demand for the offering as soon as next week, the people said, asking not to be identified as the information is private. Tigermed’s shares have risen about 70% in Shenzhen this year amid a broader rally in health-care stocks. Tigermed joins a growing number of health-care and pharmaceutical companies seeking to sell shares at a record rate in Asia. The sector is this year’s second-best performer in the region as the coronavirus pandemic stokes investor interest in companies developing everything from better cancer detection and treatment to eye therapies. South Korea’s SK Biopharmaceutical Co. raised $784 million in June in Asia’s largest health-care IPO so far in 2020, and the shares have almost quadrupled from their offer price.

*All sources from Bloomberg unless otherwise specified