July 29th, 2020
Daily Market Commentary
- Canadian equities fell on Tuesday, led by energy and consumer discretionary stocks. The S&P/TSX Composite index fell 0.3% in Toronto, after rising 1% yesterday. Energy, consumer discretionary and financials were the worst sectors, while health care and real estate climbed. Energy stocks declined along with crude oil prices as investors turned their focus to domestic supplies, with expectations for another buildup in already swollen U.S. stockpiles. Some of underperforming energy stocks included Vermilion Energy Inc. and Meg Energy Corp., both of which dropped more than 5%. Canopy Growth Corp. was among the top performers, rising 15% on Tuesday. Meanwhile, Bank of Nova Scotia is planning to keep most of its headquarters employees working from home for the rest of the year as part of an effort to stop the spread of Covid-19.
- Shopify Inc. nearly doubled its revenue in the second quarter, crushing analysts’ estimates as consumers moved their purchases online during the coronavirus pandemic. Sales grew 97% to $714.3 million from the same quarter a year ago, Ottawa-based Shopify said in a statement Wednesday. Analysts had expected about $512 million, according to data compiled by Bloomberg. Gross merchandise volume, a key metric that represents the value of all goods sold on the platform, surged 119% or $16.3 billion to $30.1 billion from a year earlier. Analysts were expecting a 49% increase on a year-over-year basis to $20.6 billion.
- European stocks gained, boosted by positive updates from Kering to Schneider Electric SA, as investors awaited the Federal Reserve’s rate decision. The Stoxx Europe 600 Index rose 0.3% as of 8:55 a.m. in London, with the retail sector posting the biggest sector gain as Gucci-owner Kering surged 5.7% after its revenue beat estimates. Schneider Electric added 4.2% after resuming buybacks and re-establishing 2020 targets. Banks were also in focus, with Deutsche Bank AG rising after seeing large trading gains, while Banco Santander SA dropped after suffering a 12.6-billion-euro ($14.8 billion) impairment charge.
- U.S. futures and European equities swung from losses to modest gains as major earnings streamed in. Advanced Micro Devices Inc. jumped about 10% in the premarket after increasing its guidance and Starbucks Corp. advanced on a sales rebound. Seagate Technology Plc tumbled after an earnings miss. In Europe, Barclays Plc’s fell on bad loan provisions. Investors will keep an eye on earnings this week from Amazon.Com Inc., Apple Inc. and Alphabet Inc. for clues on whether the resurgence of Covid-19 is affecting tech companies and a recovery in the global economy. A drop in U.S. consumer confidence added to evidence that the pace of the rebound is cooling as the virus interrupts reopenings in several states.
- Japanese shares fell as the latest slew of earnings reports highlighted concerns over the country’s economic health. Electronics and auto makers were the biggest contributers to the Topix index’s dip. Canon Inc. shares tumbled by the most since 1987 after the company reported a quarterly loss, cut its interim dividend and forecast full-year profit below expectations amid weak demand due to Covid-19. Nissan Motor Co. dropped after it forecast a worse-than-expected operating loss for the current fiscal year as it plans to shut assembly lines and cut jobs.
- Oil edged higher as U.S. crude stockpiles were set to have fallen last week, while the dollar slid again. Futures in New York rose 1.1%. U.S. inventories fell by 6.83 million barrels, the American Petroleum Institute reported but said that gasoline supplies rose, according to people familiar with the data. The Bloomberg Dollar Spot index fell 0.3%, heading for its lowest close since September 2018. Investors are waiting for the conclusion of a Federal Reserve policy meeting on Wednesday, with the U.S. central bank expected to signal it will keep interest rates near zero for longer as the coronavirus continues to surge. Florida reported a record death toll, while a resurgence of cases across the Asia-Pacific is being viewed as an early warning sign for the rest of the world.
- Gold held its ground after a record-setting rally as investors awaited the outcome of a Federal Reserve meeting amid expectations policy makers will remain dovish, potentially spurring more gains. Bullion’s surge has been driven by concern over the coronavirus pandemic and damage to economies, with gains supported by negative real yields and a weaker dollar. With more stimulus on the horizon, Goldman Sachs Group Inc. said that gold is the currency of last resort amid an inflation threat to the dollar and forecasts a rally to $2,300 an ounce. On Tuesday, the real yield on 10-year U.S. Treasuries closed below its previous record low.
- The surge in unemployment claims brought on by the Covid-19 pandemic produced a welcome side effect for some major accounting firms—big paydays for their tech consulting and government service businesses. State unemployment agencies in California, New York, and elsewhere spent millions this year hiring contractors to help upgrade or expand their claims-processing systems, staff-up call centers, and assist with fraud prevention and investigation. The 11 states where Bloomberg Law confirmed terms of the deals agreed to spend a combined $173.8 million on contracts with Accenture, Deloitte, and EY. Deloitte dominated those contracts, with $141.1 million of the total.
- The U.S. economy ground to a halt for almost the entirety of April. Now the world is about to find out the depth of that contraction. Data due Thursday are forecast to show U.S. gross domestic product plummetedan annualized 34.8% in the second quarter, the most in records dating back to the 1940s, after the spread of Covid-19 prompted Americans to stay home and states to order widespread lockdowns.
- General Electric Co. predicted a brighter outlook for the rest of the year and 2021 after the coronavirus pandemic battered results in the second quarter. The jet-engine division is seeing “early signs of improvement” on the road to a lengthy recovery, GE said in a presentation Wednesday as it reported earnings. The company burned through $2.1 billion in industrial free cash in the second quarter, less than the $3.3 billion drain expected by analysts. Culp is trying to get GE back on track after the pandemic upended a turnaround he began after taking the reins in 2018. GE posted double-digit declines in orders across all its industrial businesses in the second quarter, with comparable declines in sales in all units except renewable energy. Revenue in the aviation business plunged 44% as the virus gutted air travel and dimmed the long-term outlook for aircraft sales.
- Occidental Petroleum Corp. is in talks about a potential sale of energy assets in Africa and the Middle East to Indonesia’s state-owned PT Pertamina, people with knowledge of the matter said. Pertamina is negotiating the acquisition of oil and gas stakes in countries including Ghana and the United Arab Emirates, according to the people. It has been discussing a purchase price of about $4.5 billion for the assets, the people said, asking not to be identified because the information is private. The Indonesian company has also expressed interest in buying some assets from Occidental in Algeria and Oman, though they may not be included in an initial deal, the people said.
- The European Union reached an agreement with Gilead Sciences Inc. for supplies of the company’s antiviral drug remdesivir to combat the coronavirus. The European Commission signed a 63 million-euro ($74 million) contract with Gilead for batches of Veklury — the brand name for remdesivir — to be made available to EU countries and the U.K. starting in early August.
- The U.K. is moving swiftly to snap up supplies of future coronavirus vaccines, signing a deal with partners GlaxoSmithKline Plc and Sanofi to secure as many as 60 million doses of their experimental shot. The latest agreement highlights the aggressive steps the British government is taking to obtain inoculations for its population of 66 million people. The U.K. has now secured the highest number of doses per capita, putting the country ahead of the U.S., according to London-based analytics firm Airfinity. The pact follows the U.K. government’s move last week to buy 90 million doses of potential vaccines from a partnership of Pfizer Inc. and BioNTech SE as well as from Valneva SE. The University of Oxford’s partner, AstraZeneca Plc, intends to make as many as 30 million doses available to the U.K. by September as part of a pact to deliver 100 million doses.
- Banco Santander SA slumped to the first loss in its 163-year history after the Covid-19 health crisis forced it to write down the value of its businesses across the globe. The Spanish bank is paying the price for rapid expansion into areas hit hard by the pandemic — such as U.K. consumer finance and low-quality U.S. loans — with a $14.8 billion writedown on assets to reflect the worsening economic outlook. The charges sent Santander spiraling to a $13 billion quarterly loss, the biggest since UniCredit SpA’s 13.6 billion-euro loss in late 2016. Already contending with anemic growth and interest rates dipping further into negative territory, Europe’s banks are confronting the prospect of increasing corporate and individual defaults as government aid programs expire. Santander already had the highest provisions of any bank before the crisis after its push into emerging markets such as Brazil and Mexico.
- Sanofi and GlaxoSmithKline Plc, partners developing a potential coronavirus vaccine, agreed to supply the U.K. with as many as 60 million doses of their experimental shot. The U.S. neared 150,000 deaths even as daily infections slowed in some hard-hit states. China reported 101 new cases, up from 68 a day earlier, while Japan found a record 1,002 infections on Wednesday. Australia’s Queensland state will close its borders to all visitors from Sydney from Saturday. In the European Union, officials backtracked further on a plan to let in more foreign travelers.
- Stimulus talks between President Donald Trump’s representatives and Democrats bogged down Tuesday over demands by Senate Majority Leader Mitch McConnell that his proposed changes to liability law be included wholesale in the aid package. House Speaker Nancy Pelosi said McConnell’s insistence that his plan for shielding businesses, schools and other organizations against litigation stemming from coronavirus cases be in the bill exactly as proposed suggests that he’s not serious about reaching a deal.
- Broadband provider Altice USA Inc. agreed to sell nearly half its Lightpath fiber business to Morgan Stanley Infrastructure Partners for about $2.3 billion. Altice expects to receive about $1.1 billion in net cash after taxes and debt repayment from the deal, which values the operation at $3.2 billion. Altice will maintain control of the business with a 50.01% stake, the companies said in a statement Tuesday. The transaction is meant to help Altice focus on its core business while bringing in fresh capital for Lightpath, which sells fiber-optic services to companies in the New York City area. More than 11,400 buildings are connected to Lightpath’s fiber network.
- MacKenzie Scott said she has donated about $1.7 billion to several causes including racial equity, climate change and public health, as the world’s 13th-richest person works to fulfill a pledge to give away a majority of her wealth. The novelist’s $59.3 billion fortune derives from a 4% stake in Amazon.com Inc., which she received as part of her divorce from Jeff Bezos, the world’s richest man. In a blog post Tuesday, she outlined her philanthropy and said the global turmoil in the first half of 2020 spurred her to call attention to organizations and leaders driving change and addressing inequities. She wrote under what she said was her new last name, Scott. She still uses Bezos on her Twitter account.
- Visa Inc. is starting to benefit from the slow reopening of cities around the U.S., but executives still aren’t willing to predict what the next two months will bring. Visa said spending on its network climbed by almost 10% in recent weeks after it struggled for months because consumers stayed home and businesses were shuttered to stem the spread of the coronavirus pandemic. The recent improvement wasn’t enough for Visa to offer guidance for its full-year performance. The world’s largest payments network warned it’s still seeing a persistent drop in overseas spending as many countries keep their borders shut to tourists.
- The U.K. should adopt a farming certification system to safeguard high food standards as it negotiates future trade deals, according to recommendations from a government-commissioned review. Ministers were urged to introduce a program to allow farmers from other countries to certify they meet British animal welfare and environmental standards. This would result in lower tariffs provided they meet the benchmark, according to the National Food Strategy published Wednesday.
- BC Partners will team up with the largest shareholder in Italy’s IMA Industria Macchine Automatiche SpA to acquire the machinery maker and take it private, in a deal valuing the company at about 2.9 billion euros ($3.4 billion). The private equity firm and SOFIMA Società Finanziaria Macchine Automatiche SpA — which owns 51.6% — will launch a mandatory tender offer for outstanding IMA shares at 68 euros per share, according to a statement Tuesday, confirming an earlier report by Bloomberg. The deal shapes up to be one of this year’s biggest private equity buyouts of a listed European company.
- Singapore Airlines Ltd. posted its biggest quarterly loss on record as the coronavirus left it flying less than 1% of its usual number of passengers. The net loss in the three months to June was S$1.12 billion ($815 million), compared with net income of S$111 million a year earlier, the carrier said in a statement Wednesday. Sales dropped 79% to S$851 million and traffic measured by revenue passenger kilometers sank 99.5%. Air traffic the world over has plunged because of tight border controls and a reluctance to travel during the pandemic. The International Air Transport Association said Tuesday that the airline industry is unlikely to fully recover before 2024. The situation is particularly dire for the likes of Singapore Airlines as it has no domestic market to fall back on.
- China Three Gorges Corp. is exploring selling a stake worth as much as $4 billion in the state-owned power company’s overseas asset portfolio, according to people familiar with the matter. The power giant has approached sovereign funds including Singapore’s GIC Pte and China Investment Corp. about potentially acquiring a minority interest representing between 10% and 20% of China Three Gorges’ international assets, said the people, who asked not to be identified because the matter is private. The move toward a stake sale follows the reorganization of the company’s overseas assets into a separate unit that Bloomberg News reported in December. China Three Gorges has been working with advisers on setting up an entity to hold the international assets and bringing in strategic investors, the people have said.
*All sources from Bloomberg unless otherwise specified