July 31st, 2020
Daily Market Commentary
- George Weston Ltd., the Canadian grocery and baking giant, is exploring an acquisition of ailing Swiss baking company Aryzta AG, people familiar with the matter said. The Toronto-based company is working with an adviser as it pursues a deal for Aryzta, the people said, asking not to be identified because the information is private. The Swiss baking firm is also attracting interest from potential private equity bidders including Apollo Global Management Inc. and Cerberus Capital Management, the people said.
- Prime Minister Justin Trudeau denied allegations his ties to the WE Charity led him to award a contract to the organization. In 90 minutes of testimony to a parliamentary committee, Trudeau said he never influenced the public service’s decision to choose WE Charity to administer a C$900 million ($670 million) student-grant program this spring, even though he realized in hindsight he should have recused himself from cabinet’s final decision on the matter. Trudeau and his chief of staff, Katie Telford, both said public servants concluded WE was the only organization in Canada capable of building out the plan quickly, forcing the government to choose either to move ahead or drop it altogether.
- While work-from-home policies are helping to make lumber a top performer as shut-in Americans build decks and fences, office closures are devastating another tree product: paper. Shutdowns have withered the demand for paper used in everything from newspaper ads to schools, stores and restaurants, said Resolute Forest Products Chief Executive Officer Yves Laflamme. The Montreal-based company temporarily shut down five of its paper machines as the pandemic spurred customers to cancel as many as 40% of their orders, he said. The company’s paper shipments fell by 132,000 metric tons in the second quarter due to the “dramatic decrease” in economic activity particularly for advertising in flyers, inserts and commercial papers, according to an earnings statement.
- European equities advanced, after falling the most in more than a month yesterday, as investors analyzed earnings beats from banks and technology companies. The Stoxx Europe 600 Index added 1%, led by technology stocks. SAP SE jumped 1.7% and ASML Holding NV gained 2.4% after Apple Inc. reported quarterly revenue that crushed analyst forecasts. BNP Paribas SA jumped 5.2% after posting a blowout performance in fixed-income trading that beat most large Wall Street banks. Nokia Oyj rallied 14% as it bumped up its earnings guidance after slashing costs and overhauling its products.
- A rally in U.S. stock index futures fueled by strong earnings from the biggest tech companies weakened in late afternoon trading in Asia, as surging coronavirus infections sapped sentiment. Futures on the S&P 500 Index were up 0.1% as of 3:13 p.m. in Tokyo, paring an earlier gain of as much as 0.8%. Contracts on the Nasdaq 100 were up 0.8%, after having climbed as much as 1.3%. Apple Inc., Amazon.com Inc. and Facebook Inc. jumped in after-hours trading following strong results. The results helped support high expectations that saw the Nasdaq 100 surge 53% in the 91 days from its March low, the fastest rally over any comparable time period since 2000.
- Asian stocks fell, with a number of markets including Singapore closed for holidays. Japan led the slide as the yen climbed to the highest level against the dollar since March, hurting the earnings outlook for the nation’s exporters, and as Tokyo coronavirus infections set a daily record of over 400.
- Oil is set to end July with a gain in New York ahead of OPEC+ plans to return supply to the market after the group’s historic output cuts, while the coronavirus pandemic continued to spread across many major economies. Futures reversed Thursday’s decline to trade above $40 a barrel. Deep production curbs by the Organization of Petroleum Exporting Countries and its allies have helped oil rebound from its plunge below zero in April, but it’s a precarious time to be adding more supply to the market as virus cases continue to expand rapidly through some American states and stages a comeback in Asia. Data Thursday showed the U.S. economy suffered its sharpest downturn since at least the 1940s in the second quarter, highlighting the devastating impact of the pandemic.
- Gold surged to a fresh record Friday fueled by a weaker dollar and low interest rates. Silver headed for its best month since 1979. Spot bullion is up 11% in July, heading for its best month in eight years, as a gauge of the dollar slumped, prompting concerns its status as the world’s reserve currency of choice is at risk, and U.S. real yields fell to a record low. While the ferocity of rallies in both gold and silver cooled in the middle of the week, most market watchers predict there may be more gains ahead. Both metals are headed for their biggest annual gain in a decade, with record inflows into gold and silver exchange-traded funds, as concern about the fallout from the coronavirus pandemic boosts demand for havens. The Federal Reserve this week repeated a vow to use all its tools to support the U.S. economy, with governments and central banks worldwide already unleashing vast amounts of stimulus to shore up growth.
- Exxon Mobil Corp. posted the worst loss in its modern history after the pandemic slammed headlong into a global crude glut to savage almost every part of the oil giant’s business. The disastrous collapse in crude prices bled Exxon’s production division while Covid-19 lockdowns strangled demand for everything from jet fuel to plastic wrap, hobbling the company’s sprawling refining and chemical units. Exxon’s woes are emblematic of the broader threats menacing the petroleum industry in what is turning out to be the deepest crisis of its 161-year history. International titans that raked in record-breaking profits during the first decade of the century have now been reduced to widespread job cuts, belt tightening and heavy borrowing to cover dividends and other outlays.
- The U.K. government tightened lockdown rules for more than 4 million people across a large part of northern England, seeking to contain a new spike in cases. Spain and France led the euro-area into a record economic contraction. Tokyo announced a record number of new infections and said an emergency may be declared if the situation worsens. Tighter restrictions loom in Melbourne, where cases are increasing. In the U.S. there were record deaths in Texas, Florida and Arizona, and California endured its second-deadliest day. The airline industry’s pummeling at the hands of the pandemic was laid bare in the latest second-quarter earnings in Europe, while fixed-income trading, music streaming and tobacco got a boost.
- President Donald Trump is quick to call “fake news” any suggestion he won’t win a second term, yet his recent campaign shakeup and increased attacks on mail-in voting signal the political peril he faces from a raging pandemic and cratering economy. One of the most extreme signs came Thursday, when Trump floated the idea of postponing the election with 96 days before the vote. The president can’t do that without an act of Congress, but it marked a dramatic escalation in his repeated, unfounded arguments that allowing mail-in ballots to protect against coronavirus would lead to widespread voter fraud and render the election illegitimate. Trump later said that he doesn’t want to change the date of the election, but warned it could be days “or even years” until the nation knew the outcome if mail-in balloting is used. “I don’t want to see a crooked election,” Trump told reporters at the White House. “This election will be the most rigged election in history, if that happens.”
- U.S. oil giant Chevron Corp. posted its worst quarterly loss in at least three decades and warned that the global pandemic wreaking havoc upon energy markets may continue to drag on earnings. Chevron fully erased the value of its Venezuela operations from its books, amounting to $2.6 billion, after they were effectively frozen by U.S. sanctions, and wrote down another $1.8 billion in assets due to lower commodities prices. Even stripping out the impairments, Chevron’s adjusted loss was $3 billion, more than twice the average analyst estimate in a Bloomberg survey and the deepest since at least 1989.
- Alphabet Inc. shares dipped in premarket trading on Friday, after the Google-parent reported its first-ever decline in revenue, pressured as the pandemic weighed on digital advertising. The company said that ad sales were picking up again by the end of the quarter, but the comments failed to excite, especially in comparison with earnings seen at other major internet and technology stocks, like Facebook Inc., Amazon.com Inc. and Apple Inc. RBC Capital Markets wrote that the quarter showed a “recovery in moderation,” adding that “fundamentals were clearly weak” due to the pandemic. While analysts see a steady recovery in the digital ads market, prompting a number of firms to raise their price targets, Susquehanna cautioned that a full recovery “will only come when the economy begins performing better.”
- Engie SA said it may sell at least 8 billion euros ($9.5 billion) of assets in the next three years, twice as much as announced in February, to boost growth in renewables as the utility reviews business areas hit by the coronavirus. Engie is among energy companies adjusting to the consequences of the global crisis, which has crushed demand and hurt prices for power and gas. Utilities are positioning themselves to benefit from stimulus packages prepared by European governments, which plan to invest in cleaner energies to fight against global warming. The company will conduct a strategic review of operations representing about two-thirds of revenue at its Client Solutions unit, which helps customers reduce energy consumption. It will consider divestments to fund investments in renewables and infrastructure assets such as district cooling networks, Engie said Friday in a statement.
- The U.S. Treasury will soon provide some clues on what’s about to happen with the pile of cash towering over money markets. The Treasury’s cash hoard at the Federal Reserve — known as the Treasury General Account — is close to a record $1.8 trillion. On Monday, officials will offer estimates of where they see it in three months’ time, and how much more short-term cash they expect to raise to help people and businesses through the pandemic. Trouble is, the Treasury’s numbers are riddled with uncertainties, starting with the timing of the hotly-debated stimulus package in Congress.
- Caterpillar Inc.’s cost-cutting efforts helped the heavy-equipment maker make up for slowing sales after demand was ravaged by the coronavirus pandemic. Total operating costs were 25% lower, the company said Friday in an earnings statement released before regular trading hours. Sales fell across the company’s segments, with dealers slashing inventories by $1.4 billion. While Caterpillar declined to provide forward guidance, it sees a similar percentage decrease in end-user demand in the third quarter, and expects dealers to cut stockpiles by more than $2 billion for the full year.
- Nvidia Corp. is in advanced talks to acquire Arm Ltd., the chip designer owned by SoftBank Group Corp., according to people familiar with the matter. The two parties aim to reach a deal in the next few weeks, the people said, asking not to be identified because the information is private. Nvidia is the only suitor in concrete discussions with SoftBank, according to the people. A deal for Arm could be the largest ever in the semiconductor industry, which has been consolidating in recent years as companies seek to diversify and add scale. Cambridge, England-based Arm’s technology underpins chips in products including Apple Inc. devices and connected appliances. SoftBank acquired the business for $32 billion in 2016.
- A former Coutts & Co. banker was found guilty of failing to flag money-laundering concerns related to a $700 million transfer into an account controlled by Low Taek Jho, the alleged mastermind behind the 1MDB scandal. The man, who was only identified as A., was fined 50,000 Swiss francs ($55,000) by the Swiss Federal Criminal Court in a ruling Friday. The decade-old 1MDB scandal, which led to the fall of former Malaysian Prime Minister Najib Razak, returned to the headlines this past week. Najib was found guilty of abuse of power and money laundering, while Goldman Sachs Group Inc. struck a $3.9 billion deal with Malaysia to resolve probes into the U.S. bank’s role in a scheme to plunder the Asian nation’s 1MDB investment fund.
- The Trump administration will provide as much as $2.1 billion to Covid-19 vaccine partners Sanofi and GlaxoSmithKline Plc, the biggest U.S. investment yet in fast-tracking shots and snapping up supplies. Part of Operation Warp Speed, the funding will support clinical trials and manufacturing while allowing the U.S. to secure 100 million doses of the shot, if it’s successful, the companies said Friday. The country has an option to receive an additional 500 million doses longer term. The deal follows billions of dollars of U.S. commitments to other experimental vaccines — all still needing to show their effectiveness in testing — and may stoke concerns that other countries will be left behind. Vaccines are seen as the key to leading the world out of the pandemic that has killed about 675,000 people in a matter of months.
- The euro-area economy plunged into an unprecedented slump in the second quarter, putting it in a deep hole from which it may take years to fully recover. Spain took the biggest hit, shrinking 18.5%, while French and Italian output also dropped by double digits. The 19-member region as a whole saw a 12.1% contraction. The declines in activity reflect the effect of strict quarantines measures on businesses and consumer spending, and a slump in tourism in some countries.
- Spain’s economy suffered a bigger blow than expected in the second quarter, leaving it with a long recovery that’s become even tougher after a new hit to its vital tourism industry. The record 18.5% drop in output — led by plunges in consumer spending and investment — is the deepest reported so far in Europe, where restrictions to control the coronavirus battered businesses and households. Economists had anticipated a 16.6% contraction. The virus fallout has been widespread across the continent, with data on Friday showing France and Italy contracting 14% and 12% respectively. Figures later in the day are expected to reveal a double-digit slump in the euro area.
- Hong Kong delayed a key Legislative Council election scheduled for September for one year due to a recent surge in Covid-19 cases. “Delaying the Legislative Council election held every four years is a very difficult decision,” Chief Executive Carrie Lam said at a Friday night press conference. “But in order to curb the pandemic, ensure public safety and citizens’ health, and meanwhile ensure the election is held under an open and fair environment, this decision is necessary.” The Asian financial hub saw 121 coronavirus infections on Friday after recording its highest tally yet on Thursday. The city is grappling with a new wave of cases that has seen tighter restrictions — including a two-person limit on public gatherings — that could further impact traditional campaigning.
- BNP Paribas SA reported a blowout performance in fixed-income trading that beat all but one of the large Wall Street banks, allowing the French lender to move past embarrassing losses from equity derivatives. The shares surged. Revenue from trading fixed-income securities, currencies and commodities jumped 154% in the second quarter from a year earlier, trailing only Morgan Stanley’s 168% gain. The bank said volumes were driven by governments and corporations selling debt to deal with the coronavirus crisis, as well as foreign exchange and commodities hedging by clients.
- A day after their leaders faced five hours of interrogation in Congress over allegations their power and influence is out of control, four of the biggest American tech companies saw their combined market value swell by $250 billion thanks to earnings that shocked even Wall Street. Shares of Amazon.com Inc., Facebook Inc., Apple Inc. and Alphabet Inc. built on already-torrid rallies after each reported earnings or revenue that crushed analyst estimates. Combined, the companies put up sales of $200 billion in the three months ended in June, with Amazon reporting a record quarter.
*All sources from Bloomberg unless otherwise specified