July 21st, 2020
Daily Market Commentary
- Canadian equities rose to their highest level since March 5 as information technology and materials stocks outperformed. Investors also assessed encouraging news on a potential virus vaccine. The S&P/TSX Composite Index gained 0.4%. Shopify Inc. rose 8.5%, leading tech shares higher. Nine of eleven sectors still lagged. Silver futures latched on to gold’s rally, climbing above $20 an ounce to the highest since 2016 on rising haven demand and concerns about supply of the white metal.
- Choice Properties REIT reported that rent collection for the second quarter was about 89%, “which is at the higher end of collections within the industry” mainly due to the stability of its “necessity-based portfolio.” It also reported a C$14.6 million provision for certain past due amounts on a proportionate share basis.
- European stocks climbed after European Union leaders agreed on a 750 billion-euro ($860 billion) stimulus package designed to aid the region’s economic recovery. The Stoxx Europe 600 Index added 1% as of 8:10 a.m. in London. Earnings were also in focus, with UBS Group AG climbing 2.2% after reporting net new money and profit that beat estimates and expressing confidence about dividends, while Novartis AG dropped 1% after trimming its 2020 sales forecast. The agreement over the EU recovery fund is further boosting sentiment, following optimism about a vaccine against the coronavirus. Equities in Europe have outperformed U.S. and global shares since mid-May, when the stimulus proposal was first announced, with several strategists and investors citing it as a reason to prefer the region’s stocks.
- Stocks set a fresh four-month high in Europe and German equities erased losses for the year after leaders agreed on a landmark recovery plan. Stocks are marching higher globally on the back of more government stimulus and a seemingly unstoppable advance in technology companies that benefit from online shopping during the pandemic. S&P 500 Index equity futures pointed to more gains on Tuesday after a blistering rally that sent the Nasdaq 100 Index to its best gain in almost three months.
- Japanese stocks rose, following U.S. peers higher with earnings season set to kick off and following the latest results from various coronavirus vaccine trials. Electronics makers were the biggest boost to the Topix index. The tech industry subgauge is up 42% from its March low, one of the best performers in that span as the broader benchmark rebounded 28%.
- Oil climbed to the highest level since early March in London as hopes for an economic recovery from the coronavirus crisis lifted financial markets. Brent futures rose 2.2% as European Union leaders agreed on an unprecedented stimulus package to pull their economies out of the worst recession in memory, while results of early trials of a virus vaccine developed by the University of Oxford and AstraZeneca Plc showed promising results. U.S. crude inventories probably fell for the third time in four weeks, a Bloomberg survey showed. Still, with the pandemic raging unabated in many regions across the globe and the economic fallout not yet fully realized, the demand recovery continues to face headwinds. In China, the nation’s top refiner plans to cut operating rates at some of its plants this month due to severe flooding.
- Spot gold climbed to the highest level in almost nine years as the dollar weakened. Spot silver surpassed $20 an ounce after futures on the Comex breached that level on Monday. The precious metals have climbed on demand for havens as the coronavirus pandemic hurts global growth and boosts the need for stimulus. Silver has been given additional support from supply concerns due to mine disruptions and the revival of industrial consumption as some countries like China start to show signs of recovery.
- EBay Inc. agreed to sell its online classifieds business to Adevinta ASA for $9.2 billion, ending one of the largest auctions of the year. The Norwegian digital marketplace owner, now the largest business in that sector globally, is already looking ahead to its next deal. The tie-up means EBay will get $2.5 billion of cash and 540 million shares in the Norwegian firm, the companies said in a statement on Tuesday. Shares in Adevinta rose as much as 39%. Adevinta beat out Naspers Ltd.’s Prosus NV and a private equity consortium that included Blackstone Group Inc., Permira and Hellman & Friedman, who’d also been pursuing the unit, people familiar with the matter had said. The bid from Oslo-based Adevinta, which operates a number of online marketplaces across Europe and Latin America, got a surprise boost because EBay wanted to keep a significant stake in the business, people said.
- President Donald Trump is escalating tensions with state and local authorities by seeking to deploy more federal agents into cities gripped by protests and spikes in crime, a policy that appeals to his base ahead of the election but faces legal challenges. Twice in recent days, Trump has said he wants more federal law enforcement officers sent to cities such as Chicago and New York following the dispatch of Department of Homeland Security personnel to Portland, Oregon, to protect federal property. In Portland, pitched battles have erupted between federal agents and protesters, prompting state officials to sue the Trump administration — yet the president remained undeterred.
- Joe Biden on Tuesday unveiled a $775 billion plan to bolster child care and care for the elderly that would be financed by taxes on real estate investors with incomes of more than $400,000 as well increased tax compliance by high-income earners. The Biden campaign did not fully explain how the plan for a “caring economy” would be financed, but officials highlighted some tax breaks they would seek to eliminate to raise revenue. In particular, a senior campaign official said a Biden administration would take aim at so-called like-kind exchanges, which allow investors to defer paying taxes on the sale of commercial real estate if the capital gains are reinvested in another property. The official also said they would prevent investors from using real estate losses to lower their income tax bills.
- The world’s major central banks aren’t purchasing debt fast enough, leaving almost $1 trillion of new sovereign bonds looking for buyers in the months ahead. The flood of fresh debt, sold by governments to fund pandemic-rescue packages, threatens to dwarf central-bank buying and swamp markets in the U.K., Canada and Australia, according to Bloomberg calculations. Policy-maker purchases will also lag issuance in the U.S. and Japan, where a continuing tilt toward buying short-maturity debt would risk allowing yields on longer-dated bonds to rise unchecked, hurting pension funds and life insurers that rely on these markets. By contrast, most of Europe is set to benefit from the European Central Bank’s purchases and may offer the best shelter for investors worried about a potential surge in bond yields.
- A crisis can stretch for weeks, months, even years, but its arc can be shaped by a few crucial moments in which political leaders choose a course of action. For a U.S. economy still reeling from the devastation of the novel coronavirus, one such moment is approaching. Economists are warning the nation is in danger of careening off a fiscal cliff unless Congress approves a rescue package to succeed the $2 trillion Cares Act. Key elements of that are set to expire this month, just as a resurgence of the virus in states that rushed to reopen their economies is making the nascent recovery look decidedly vulnerable. The Trump administration is calling on Republicans and Democrats to get legislation passed before the start of the summer recess in August.
- Robinhood Markets Inc. said its global expansion plans are on hold for now, and is postponing its U.K. launch plans indefinitely, according to an email sent to those on the waiting list on Tuesday. “We’ll be closing our waitlist and taking down our U.K. website shortly,” the Menlo Park, California-based firm said in the email. It added that it is adapting to changes that the world has gone through “over the past several months”. The company had previously delayed its early 2020 U.K. launch date and was planning to have its trading app available to users there before year end.
- The transit agency will announce budget cuts on Wednesday. Officials are hoping federal assistance will help ease the crisis that the pandemic has created. Facing one of the biggest financial crises in the history of the subway, New York’s public transportation agency is preparing drastic measures to restore its finances that are likely to affect riders for years to come. The measures the agency is drafting include reducing service, slashing the transit work force, scrapping planned infrastructure improvements, raising tolls beyond scheduled increases and adding to its already record-high debt, according to officials at the Metropolitan Transportation Authority, which runs the city’s subway, buses and two commuter rails. With forecasts showing a staggering budget shortfall of $16.2 billion through 2024, transit leaders now say that at least some of these cuts are unavoidable as the system copes with the devastating impact of the coronavirus pandemic. The agency’s adopted budget for 2020-21 totaled $34.5 billion.
- Jeff Bezos added $13 billion to his net worth on Monday, the largest single-day jump for an individual since the Bloomberg Billionaires Index was created in 2012. Amazon.com Inc. shares surged 7.9%, the most since December 2018 on rising optimism about web shopping trends, and are now up 73% this year. Bezos, Amazon’s 56-year-old founder and the world’s richest person, has seen his fortune swell $74 billion in 2020 to $189.3 billion, despite the U.S. entering its worst economic downturn since the Great Depression. He’s now personally worth more than the market valuation of giants such as Exxon Mobil Corp., Nike Inc. and McDonald’s Corp.
- European Union leaders agreed on an unprecedented stimulus package worth 750 billion euros ($860 billion) to pull their economies out of the worst recession in memory and tighten the financial bonds holding their 27 nations together. The agreement, in the early hours of Tuesday after more than four days of acrimonious negotiations in Brussels, required the unanimous approval of the member states and represents a victory for German Chancellor Angela Merkeland French President Emmanuel Macron, who drafted an early outline for the proposal in May. The emergency fund will give out 390 billion euros of grants and 360 billion euros of low-interest loans.
- Vattenfall AB took a massive hit on the value of a new German coal plant in yet another sign of how the fossil fuel is struggling in Europe. The Swedish utility wrote down the value of the Moorburg facility in Hamburg by 9.1 billion kronor ($1 billion), according to its first-half earnings statement on Tuesday. The plant opened in 2015 and by then Vattenfall had already taken impairment losses of 4 billion kronor for the project. The writedown is another example of how renewable energy and the global pandemic is reshaping energy economics. Demand for power dropped more than 20% in some European countries during the lockdown, leading coal’s share in generation to plummet as green sources like solar and wind have priority on the grid.
- Uber Technologies Inc. is bracing for a long summer of legal battles that could see the end of its reign in London and entitle its drivers to a long list of workers’ rights. A dispute over whether its drivers should continue to be classified as self-employed begins Tuesday at the U.K.’s Supreme Court. In a second legal clash scheduled for September, Uber will appeal the loss of its operating license in the capital, its biggest European market. The cases come at a time when the coronavirus pandemic has already reduced demand, and caused Uber to cut about a quarter of its workforce. It reported a first-ever decline in the gross bookings of rides last quarter and said business was down 80% in April. While the employment case could force it to reimburse drivers for unpaid holiday pay, the challenge to its license could push it out of London.
- Hong Kong is facing its worst coronavirus outbreak, and the city is woefully unprepared for the surge. With local infections growing over 600 in about two weeks, the Asian financial hub has been taken off-guard by the sudden eruption of infections, close to half of which are untraceable. While other places in the region like Australia are also facing aggressive resurgences, their hospital bed vacancies and testing capabilities appear to outstrip those of Hong Kong’s. The city reported 58 additional local cases on Tuesday, 24 of which were of unknown origins. Unlike in Japan and the U.S. where mostly young people are becoming infected, Hong Kong’s outbreak is affecting an older group of patients than before, raising the likelihood of more cases turning critical. The median age this time is 55 years old, up from 40 in previous waves, and clusters are forming in nursing homes.
- India’s Vikram Solar Ltd. is planning to invest 54.32 billion rupees ($726 million) to make solar energy equipment in the South Asian country, which is encouraging domestic manufacturing to reduce imports. The company will build a factory in the southern Tamil Nadu province, the state government said Monday. The 3-gigawatt plant, expected to be completed in five years, will make wafers, cells and modules, Kolkata-based Vikram Solar said in a separate statement. It did not mention the planned investment. Prime Minister Narendra Modi’s administration is keen to boost local manufacturing of solar cells and modules to support its ambitious growth plans of expanding renewable energy capacity by more than five-fold to 450 gigawatts over the next decade. The efforts are part of a broader self-reliance campaign by the government to reduce imports and boost domestic industry to generate jobs and revive an economy that’s set for an annual contraction in four decades due to the coronavirus pandemic.
- Carlyle Group Inc. co-Chief Executive Officer Glenn Youngkin is stepping down after less than three years at the helm, handing sole control of the private equity giant to Kewsong Lee in the midst of the coronavirus pandemic. Youngkin, 53, who joined Carlyle in his 20s and was long groomed by its founders, decided to give up his post and will depart at the end of September to focus on public service, the firm said in a statement Tuesday. The abrupt exit leaves the $217 billion alternative asset manager squarely under the control of Lee, a skilled dealmaker who joined in 2013 from Warburg Pincus. Most of the firm’s prominent initiatives of recent years, including growing its credit and insurance businesses, already were under Lee’s purview.
- Eager U.S. gamblers returning quickly to casinos after the Covid-19 lockdown helped Eldorado Resorts Inc. sell almost $8.8 billion in debt and stock needed to complete its takeover of Caesars Entertainment Corp. Eldorado’s Tom Reeg, who now is chief executive officer of the combined company, said he never questioned whether to go forward with the deal, which was worth $17 billion when it was announced last year, even after the coronavirus shut down all the casinos in the country for three months. “It continued to make business sense, our financing commitments were rock solid,” Reeg, 49, said in an interview Monday, when the purchase closed. “We knew we could finance the transaction. We’d already done so much work on synergy, starting to think about integration — it was clear there was even more opportunity than we thought.”
- When it comes to protecting the world from the coronavirus, two doses of a vaccine may be better than one. But doubling the number of jabs each person needs could complicate efforts to immunize billions of people. The latest results from front-runners in the sprint to come up with a vaccine, including the University of Oxford-AstraZeneca Plc partnership and Moderna Inc., highlight that prospect. Both efforts are conducting final-stage testing with two doses. Producing vaccines and deploying them to the world’s population in the midst of a pandemic would be a massive feat even if researchers are able to deliver single-dose inoculations. A need for two would make manufacturing and logistics even more complex.
- Treasury Secretary Steven Mnuchin and House Speaker Nancy Pelosi will kick off a first round of negotiations on the next virus relief plan even as Republicans are still hashing out an agreement among themselves. With the pandemic surging across the country and economic data pointing to a stalled recovery, Pelosi and Mnuchin are scheduled to meet Tuesday afternoon, along with Senate Democratic Leader Chuck Schumer and White House Chief of Staff Mark Meadows. Mnuchin and Meadows will meet earlier in the day with Senate Republicans, where the administration may face pushback from GOP lawmakers as they go over their ideas for getting schools reopened and businesses hiring.
*All sources from Bloomberg unless otherwise specified