July 27th, 2020
Daily Market Commentary
- Brookfield Asset Management Inc. has picked banks for an initial public offering of its India real estate investment trust that could raise at least $500 million, according to people familiar with the matter. The Canadian asset manager has selected Bank of America Corp., Citigroup Inc. and Morgan Stanley to arrange the REIT offering, said the people, who asked not to be identified as the information is not public. A listing on the Mumbai stock exchange could happen as soon as the end of this year, the people said. Brookfield held discussions on the potential IPO of its commercial real estate assets in India since late last year, Bloomberg News reported in December. Details of the offering including its size and timeline could still change and more banks could join at a later stage, the people said.
- European equities moderately extended last week’s drop, as new virus data suggested setbacks in global efforts to contain the coronavirus pandemic, with airlines and other travel-exposed stocks leading declines. The Stoxx Europe 600 Index was down 0.4% as of 8:20 a.m. in London, with most sectors in negative territory. German stocks rose 0.4%, while Spain’s IBEX was the worst-performing large-country benchmark with a decline of more than 1%. Equities in the region retreated from their crisis highs last week amid concerns over global trade as Sino-U.S. relations worsened, and worsening outbreaks in some of Europe’s key export markets. Major country benchmarks diverged in their recovery, with Germany’s DAX briefly reaching a new intraday high for 2020 on Tuesday while Britain’s FTSE 100 and France’s CAC remain about 19% and 17% short of January levels, respectively.
- Nasdaq 100 futures rose more than 1% as tech companies climbed in pre-market trading along with gold miners. The Stoxx Europe 600 Index struggled for traction as airlines were clobbered after the U.K. ordered quarantines for passengers returning from Spain. Investor concern about the global economy and expectations that the Fed’s open market committee meeting will reinforce a dovish outlook are driving the dollar and precious metals in opposite directions and supporting equities. While fresh outbreaks of the virus emerged from China to Spain, cases fell in the populous states of California, Florida and New York.
- Japan’s Topix index erased a loss and closed higher as market watchers cited the potential support from the nation’s central bank. In the first day of trading after a four-day weekend, the Topix index pared a morning drop of as much as 1.3% and rose in the afternoon. The Nikkei 225 Stock Average trimmed its decline but closed in the red, and the yen pushed its three-day gain against the dollar to 1.4%. S&P 500 futures rose in Asian trading after the underlying index slid in the last two sessions.
- Oil slipped to near $41 as investors weighed worsening relations between Washington and Beijing alongside flare-ups in coronavirus outbreaks across the world. Futures in New York edged lower after a 1.7% gain last week. Chinese authorities took over the U.S. consulate in Chengdu on Monday as tit-for-tat tensions continue to simmer between Beijing and the U.S. At the same time, second waves of the pandemic are popping up from Spain to China, casting new potential clouds over the demand outlook, though the surge in cases in the U.S. was easing. The most notable market moves in recent days have come in the shape of the oil futures curve. Brent’s prompt spread is trading in its largest contango structure since May, a sign of oversupply, while contracts based on the value of Russian and North Sea crude were both weaker last week. Its the latest signal that the market’s re-balancing appears to have taken a pause for breath in recent sessions.
- Gold’s unrelenting march higher shows no signs of slowing after a plunge in the dollar swept prices past the previous high set in 2011 and put the metal on track for even bigger gains. Bullion’s surge came as a gauge of the U.S. currency sank to the lowest in more than a year, the latest in a long line of bullish factors — including negative real rates in the U.S. and bets the Federal Reserve will keep policy accommodative when it meets this week — that are pushing prices ever higher. With the world facing an extended period of unprecedented economic and political turmoil, gold’s now got $2,000 in its sights. Some in the market suggest the haven could rise even beyond that.
- Health officials around the world are trying to tackle second waves of the pandemic, with outbreaks from China to Spain and Germany underlining the difficulty of stamping out the virus. China reported the greatest number of domestic cases since mid-March amid flareups in the west and northeast. A British researcher said the effectiveness of any vaccine is likely to depend on annual doses. India’s epidemic is growing at the fastest pace in the world, increasing 20% over the last week. Spain is scrambling to stay ahead of new outbreaks that prompted the U.K. to impose a quarantine on travelers returning from the country. Cases fell in many hard-hit U.S. states, including Florida, Arizona, California and Texas, though reported numbers are often incomplete on weekends.
- Moderna jumped 7% in premarket trading on Monday after the biotech company’s Covid-19 vaccine program received a second awardfrom the U.S. government, this time for $472 million. A Phase 3 study of mRNA-1273 in 30,000 people is expected to kick off today, the latest funding from the Biomedical Advanced Research and Development Authority to support the development of the experimental vaccine, including the late-stage trial
- Investors added money to exchange-traded funds that buy emerging market stocks and bonds last week. This was the third straight week of inflows. Inflows to U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $485.3 million in the week ended July 24, compared with gains of $624.6 million in the previous week, according to data compiled by Bloomberg. So far this year, outflows have totalled $16.1 billion.
- Bitcoin rose above $10,000 for the first time since June 10. The largest cryptocurrency spiked into five digits around 6 a.m. New York time on Sunday — rising as high as $10,169, according to pricing compiled by Bloomberg. The gains quickly fizzled, initially, then rallied again later, gaining 1.9% to $10,080 as of 9:25 p.m. Bitcoin, which crypto fans have often touted as “digital gold,” is in favor as the yellow metal nears record levels, concerns rise about the health of the world economy and the dollar falls. Also, last week, the U.S. Office of the Comptroller of the Currency said American banks can provide custody services for customers’ crypto assets, which could help boost the asset class’s appeal with some investors.
- Senate Majority Leader Mitch McConnell is expected to release a $1 trillion pandemic relief proposal on Monday, kicking off talks with Democrats on provisions including money for people who’ve lost their jobs and protections for employers reopening their businesses. The Republican plan will be outlined in a set of bills likely to appear Monday afternoon. The measures, a step toward a fifth coronavirus stimulus bill, aim to extend just-expired supplemental unemployment benefits, but at a lower level; provide a new round of $1,200 direct stimulus checks; funnel money to schools to help them reopen; and approve funding for expanded virus testing.
- The solar energy industry in California, eager to hold on to a valuable tax break, wants to be carved out of a commercial property tax hike that voters will consider in November. Opponents say a proposed deal with lawmakers, however, is an unconstitutional bailout for special interests. The debate comes to a head Monday when a bill crafted by the solar industry, introduced in June, is heard in the Assembly Revenue and Taxation Committee. Without the bill, the property tax exclusion will end if voters approve the ballot measure and commercial solar systems would be assessed each year starting in 2022.
- AstraZeneca Plc agreed to pay as much as $6 billion to buy into Daiichi Sankyo Co.’s promising medicine for lung and breast cancer, the drugmakers’ second potential blockbuster oncology deal in two years. The U.K. drugmaker will pay Japan’s Daiichi $1 billion upfront to jointly develop and bring to market a cancer therapy in early clinical tests called DS-1062, the companies said Monday. As much as $5 billion in additional payments could follow, subject to regulatory and sales milestones. AstraZeneca is forging ahead to become a global oncology powerhouse, even as it works on a vaccine for the coronavirus pandemic. Last year, the company committed to pay Daiichi as much as $6.9 billion for another cancer medicine, which marked its biggest deal in more than a decade. For the Japanese company, the deal is the latest in what has turned into a transformative partnership. Besides the cancer deals, Daiichi is in talks to make Astra’s Covid-19 vaccine in Japan.
- Spain’s tourism industry is at increasing risk of being shut down as countries across Europe seek to restrict visits to the Mediterranean nation, following an order by the British government to quarantine visitors. A steady increase in new infections in Spain last week pushed Boris Johnson’s government on Saturday to order a 14-day quarantine for all visitors from Spain. Other European countries, including Belgium, France and Norway, have also begun advising against visits to certain areas in Spain, and more restrictions could be coming.
- Hong Kong will ban all dine-in services at restaurants and public gatherings of more than two people not from the same family starting Wednesday, as the city’s worst coronavirus outbreak shows no sign of abating. In a third round of rule-tightening in as many weeks, Chief Secretary for Administration Matthew Cheung said Monday that masks will also now be required in outdoors areas, with only medical exemptions.
- A large Chinese property developer suffered a record drop in its dollar bonds, reflecting concerns that a proposed stake reduction by two major state shareholders may weaken its finances. Greenland Holdings Corp.’s 7.25% dollar bond due 2025 fell 2.2 cents on the dollar to 98.3 cents as of 6:05 p.m. in Hong Kong, the biggest drop since it was priced on July 15, according to Bloomberg prices. Its 6.125% dollar note due 2023 slid to a record low. The bond declines came after China’s sixth-largest developer by sales saidits two major shareholders Shanghai Land Group Ltd. and Shanghai Municipal Investment Group Corp. plan a combined stake sale of up to17.5%. The consideration amount has yet to be decided and the deal needs to be approved by the state asset regulator, according to a statement to the Shanghai stock exchange.
- China’s biggest oil company plans to use some of the $38 billion it will receive for selling its pipelines to start new businesses focusing on wind and solar power. PetroChina Co. will use some of the proceeds for a “transformational development of the company to a green and low-carbon model,” Wei Fang, head of investor relations, said in an emailed statement. The money will also go toward dividends, debt repayment and spending on its oil and gas business, he said. The move underscores how growing concern about climate change and plummeting costs of renewable energy are reshaping the future for global oil and gas giants. While European majors such as Total SA and Royal Dutch Shell Plc have been investing in clean energy for years, China’s fuel champions have until now mostly stuck to their core businesses.
- The biggest U.S. technology companies have gone on a buying spree this year, waving off intense scrutiny from competition watchdogs and critics who say they’ve bolstered their power by snatching up nascent rivals. The number of acquisitions by the five largest companies — Amazon.com Inc., Apple Inc., Alphabet Inc.’s Google, Facebook Inc., and Microsoft Corp. — came at the fastest pace through June since 2015, according to data compiled by Bloomberg. Tech deals are accelerating even in the face of stepped-up antitrust scrutiny under the Trump administration. Federal officials are investigating Google, Facebook, Apple and Amazon for antitrust violations, and the Justice Department under Attorney General Willliam Barr is expected to file a monopolization case against Google in the coming weeks. Google and Facebook are also contending with investigations by state attorneys general.
- The long-staid world of HVAC is suddenly in the spotlight. With research showing the coronavirus may spread through shared air, property managers are rushing to upgrade heating, ventilation and air conditioning systems before reopening buildings. That’s leading to costly upgrades for equipment that armies of professionals used to take for granted. Building specialists are poring over how well heavy-duty filters block microbes and considering whether to install systems that use ultraviolet light or electrically charged particles in the ductwork to kill the virus. Companies including Honeywell International Inc., Carrier Global Corp. and Trane Technologies Plc are benefiting from the surge in demand, offering everything from air-monitoring sensors to portable filter machines to help make up for deficiencies in ventilation.
- Twitter Inc. has struggled for years to police the growing number of employees and contractors who have the ability to reset users’ accounts and override their security settings, a problem that Chief Executive Officer Jack Dorsey and the board were warned about multiple times since 2015, according to former employees with knowledge of the company’s security operations. Twitter’s oversight over the 1,500 workers who reset accounts, review user breaches and respond to potential content violations for the service’s 186 million daily users have been a source of recurring concern, the employees said. The breadth of personal data most of those workers could access is relatively limited — including such things as Internet Protocol addresses, email addresses and phone numbers — but it’s a starting point to snoop on or even hack an account, they said.
- Hasbro Inc. said second-quarter sales and profit fell from a year ago, as the company struggled against a pandemic that has shuttered retail toy departments and disrupted its supply chain. Revenue declined to $860.3 million, Pawtucket, Rhode Island-based Hasbro said Monday, missing the $994.8 million average of analysts’ estimates. The company reported a profit of 2 cents a share, excluding some items. Analysts were forecasting a profit of 20 cents a share.
- Facebook Inc. Chief Executive Officer Mark Zuckerberg is prepared with what he sees as a compelling argument for lawmakers ready to grill him on antitrust issues: hindering American technological innovation only helps China. Zuckerberg plans to portray his company as an American success story in a competitive and unpredictable market, now threatened by the rise of Chinese social media apps around the world — and increasingly, at home, with the popularity of TikTok, according to people familiar with the matter, who asked not to be identified because the CEO’s remarks aren’t yet public.
*All sources from Bloomberg unless otherwise specified