July 3rd, 2020
Daily Market Commentary
- Watco Cos., a rail operator backed by Oaktree Capital, is in advanced talks to acquire Dow Inc. railway hubs that serve some of its chemical plants in the U.S. and Canada, according to people with knowledge of the matter. Pittsburg, Kansas-based Watco beat out offers from rivals, said one of the people, who requested anonymity because the talks are private. A Dow spokeswoman declined to comment. “Our strategy includes continual portfolio evaluation and management with a focus on benchmarking, applying a best owner mindset, and a capital allocation discipline that supports value growth in our core businesses,” she said in an emailed statement
- European equities slipped lower on Friday as investors weighed improving economic data and Germany’s backing of European Central Bank policy against an acceleration in coronavirus infections in the U.S. The Stoxx Europe 600 Index was down 0.5% as of 10:58 a.m in London, after advancing at the open. Banks, miners and energy were the biggest drags on the market, while technology and retail outperformed. The regional benchmark is up 2.3% since Monday, headed for its best week since June 19. Lower volumes are expected, with U.S. markets closed for Independence Day.
- Investors continue to weigh promised stimulus measures and upbeat economic data against relentless new outbreaks of the virus. U.S. payrolls figures Thursday fueled optimism of a V-shaped recovery in the world’s biggest economy, even as Florida reported that infections and hospitalizations jumped the most yet, and Houston had a surge in intensive-care patients. American cash equity and bond markets are shut Friday for Independence Day.
- Japanese shares rose after positive U.S. jobs data helped ease market concern over the fallout from the coronavirus outbreak. Electronics and telecommunications stocks provided the biggest boost to the Topix, while railroad company shares fell. U.S. payrolls rose by more-than-expected 4.8 million in June after an upwardly revised 2.7 million gain in the prior month. The data also showed the unemployment rate fell for a second month to 11.1%.
- Oil slipped on Friday, paring a weekly gain as surprisingly strong U.S. economic data and tightening crude supplies jostled with fears that a coronavirus resurgence will erode demand. Futures fell toward $40 a barrel in New York, but are still up 4.3% for the week. Crude rose along with broader markets on Thursday as data showed a rebound in the U.S. jobs market accelerated in early June. That came after American crude stockpiles shrunk by the most this year and a survey showed OPEC oil production dropped last month to the lowest since 1991. The virus continues to surge unabated across large parts of the U.S., however, clouding the outlook for energy demand. The worsening outbreak may not have been fully captured in the jobs data, which provided a snapshot of hiring in the middle of the month before many states reversed course on their re-openings.
- Gold held steady as investors weighed improving economic data against a surge in coronavirus infections in some regions. Trading volumes were thin Friday due to a holiday in the U.S. Purchasing Manager Indexes from the euro area came in ahead of forecastsafter a better-than-expected U.S. jobs report on Thursday. Meanwhile, the spread of the virus accelerated in the Americas, with cases jumping the most in almost eight weeks. Brazil and Mexico also reported a rise in new infections. Gold is still headed for a small weekly advance, supported by worries over a second wave of coronavirus flare-ups. Silver also rose, creating a so-called golden cross formation on its daily chart, which for some traders suggests the potential for further gains.
- U.S. President Donald Trump will head to Mount Rushmore on Friday for an early Independence Day celebration with thousands of guests who won’t be required to wear masks or socially distance, continuing his aggressive public schedule despite a spike in coronavirus cases. Infections in the U.S. jumped the most in almost eight weeks and the Centers for Disease Control said fatalities could reach 160,000 by late July. Brazil reported its second-highest daily tally, Mexico logged a record rise in new infections, while Peru became the 10th nation to report 10,000 deaths. U.K. Prime Minister Boris Johnson urged citizens to act responsibly as pubs prepare to reopen and the government lifts quarantine rules on travel for more than 50 countries, excluding the U.S. Earlier, Beijing announced the first easing of restrictions as infections appear to slow.
- From a 2,997-point rout in the Dow to two 9% single-day rallies in the S&P 500, the 2020 stock market has served up a raft of tantalizing sessions for would-be market timers. Hours came and went in which whole years could be made or lost. But for all the dizzying turbulence, it’s worth noting that the S&P 500 is nearly flat for anyone who sat tight and held through the chaos. Mistakes stand out in an environment like that — the back-breaking costs of even a few wrong moves in a market as turbulent as this one. Maybe volatility is the time for active managers to shine, but the downside of getting it wrong has rarely been greater.
- The world’s biggest pension fund posted a record loss in the first three months of 2020 after the coronavirus pandemic sparked a global market rout in the period. Japan’s Government Pension Investment Fund lost 11%, or 17.7 trillion yen ($164.7 billion), in the three months ended March, it said in Tokyo on Friday. The decline in value was the steepest based on comparable data back to April 2008, reducing the fund’s total assets to 150.63 trillion yen. Foreign stocks were the worst performing investment, followed by domestic equities. The results come just months after the fund revamped top management and revised its asset allocation to focus more on overseas debt. The loss, which wiped out gains for the fiscal year, may attract political attention as social security remains a major concern for tens of millions of Japan’s retirees.
- Hangzhou Wahaha Group Co., one of China’s biggest drink makers, is weighing an initial public offering that could raise more than $1 billion, according to people with knowledge of the matter. A listing could come as soon as next year, the people said, asking not to be identified as the matter is private. The beverage company is working with an adviser on preparations for the share sale, and has been considering Hong Kong among potential listing venues though no final decision has been made, they said. Founded in 1987 by entrepreneur Zong Qinghou, Wahaha has grown into a food and beverage giant with products ranging from bottled water, yogurt drinks and juice to instant noodles. The company has 80 production bases and employs about 30,000 workers, according to its website. Its products are available in more than 30 countries including Canada, Singapore and the U.S., the website said.
- Converge Information and Communications Technology Solutions Inc., a fast-growing Philippine provider of fixed broadband services, aims to raise as much as $725 million in a maiden share sale in October. The company will use the proceeds to fund capital expenditure and help accelerate its nationwide fiber network rollout, according to a preliminary prospectus filed with the Philippine SEC. “The Philippine fixed broadband market is currently at an inflection point, with demand for broadband subscriptions expected to increase as supply continues to meet the significant latent demand,” Converge’s investor Warburg Pincus said in a statement.
- Google and Temasek Holdings Pte are in negotiations to join a funding round of between $500 million and $1 billion for Indonesian e-commerce giant PT Tokopedia, according to people familiar with the matter. Tokopedia, the online marketplace backed by SoftBank Group Corp.’s Vision Fund, has held talks with U.S. internet giants including Facebook Inc., Microsoft Corp. and Amazon.com Inc., the people said. But Google and Temasek have been more active in their negotiations and those talks may conclude in coming weeks, they said, asking not to be identified because the discussions are private.
- Boeing Co. hasn’t told employees, but the company is pulling the plug on its hulking 747 jumbo jet, ending a half-century run for the twin-aisle pioneer. The last 747-8 will roll out of a Seattle-area factory in about two years, a decision that hasn’t been reported but can be teased out from subtle wording changes in financial statements, people familiar with the matter said. It’s a moment that aviation enthusiasts long have dreaded, signaling the end of the double-decker, four-engine leviathans that shrank the world. Airbus SE is already preparing to build the last A380 jumbo, after the final convoy of fuselage segments rumbled to its Toulouse, France, plant last month.
- FedEx Corp. on Thursday asked the Washington Redskins to rename the NFL team following protests against racial injustice that have shaken the U.S. and pushed many companies to increase efforts to combat racism. The team plays at FedExField after a deal in 1999 gave the company naming rights to the stadium and other marketing rights. In 2003, Fred Smith, FedEx’s founder and chief executive officer, acquired a 10% stake in the team and joined its leadership council, which is similar to a board of directors. Separately, Nike Inc.’s website appeared to have removed merchandise with the Redskin’s name. A search on the site for “Redskins” late Thursday returned no results. The world’s largest sportswear brand has the main licensefor NFL-related apparel, including uniforms.
- France’s Emmanuel Macron tapped conservative Jean Castex to be his new prime minister as he seeks to inject momentum into his presidency after a disastrous showing in June municipal elections. The 55-year-old is a fresh face in the French political scene — so his appointment to replace Edouard Philippe, a popular figure among voters, is telling. Macron has picked a largely unknown bureaucrat and removed a potential rival who had overshadowed him and could have a half eye on the 2022 presidential elections.
- Germany’s delayed coal-exit legislation cleared its final parliamentary hurdle Friday, setting in stone a road map to close scores of plants by 2038, long after the nation’s European partners dumped the fossil fuel. Fought over for the last 18 months, the phase-out plan will kick in this year and cost taxpayers at least $55 billion, including direct compensation to utilities, payments to retire their workers and costs to cushion the exit in the two main mining regions. The bill has left critics of the lengthy phase-out doubting whether Germany will get much climate protection for its cash.
- The lukewarm response to the modest infrastructure boost Prime Minister Boris Johnson promised is piling pressure on Chancellor of the Exchequer Rishi Sunak as he prepares to unveil a stimulus package to cushion the blow of what could be the worst recession in three centuries. With job losses mounting, Johnson’s pledge this week to “build, build, build” Britain back to economic health — a program he likened to the New Deal that rescued the U.S. economy following the Great Depression — ran into criticism, not least because the 5 billion pounds ($6.25 billion) announced was an acceleration of planned spending rather than new money.
- A joint bid from Indian telecommunications tycoon Sunil Mittaland the British government won an auction for bankrupt satellite operator OneWeb, taking Britain a step closer to relaunching its post-Brexit space ambitions. An arm of Mittal’s Bharti Enterprises Ltd. conglomerate and the U.K. will each commit $500 million in a deal expected to close by year end, the bidders said in e-mailed statements on Friday. Bharti will provide the company with “commercial and operational leadership” while the U.K. will have a final say over future access to the London-based satellite firm’s technology. OneWeb has been building a constellation of low-Earth orbit satellites to provide internet services outside urban areas. It had raised about $3.3 billion in debt and equity financing from shareholders including SoftBank Group Corp., Airbus SE and Qualcomm Inc. before it collapsed into bankruptcy in March.
- India has accumulated the world’s fifth-largest foreign exchange reserves at more than $500 billion, making it a bright spot in an otherwise dismal economy. The reserves were bolstered by a rare current-account surplus in the first quarter, a return of inflows into the local stock market and foreign direct investment, including into a unit of Reliance Industries Ltd., India’s largest company by revenue. That allowed the central bank to mop up close to $25 billion in foreign exchange to add to its reserves in the quarter through June, according to analysts such as Anubhuti Sahay, chief India economist at Standard Chartered Plc in Mumbai. A strong reserve buffer is a cushion against market volatility, and gives foreign investors and credit rating companies added comfort that the government can meet its debt obligations despite a deteriorating fiscal outlook and the economy’s first likely contraction in more than four decades.
- India will stop power equipment imports from China, power minister Raj Kumar Singh said, amid simmering border tensions between the two neighbors. The South Asian nation has the capability to manufacture all kinds of electricity equipment, Singh said at a meeting with energy officials of states, encouraging them to promote local procurement. China accounted for 210 billion rupees ($2.8 billion) of the total 710 billion rupees of equipment for non-renewable power projects imported in the year ended March 2019, according to Singh. Shares of state-run Bharat Heavy ELectricals Ltd., the country’s largest power-equipment maker, surged as much as 5.3% after Singh’s comments.
- Texas Governor Greg Abbott ordered residents to wear face coverings in public amid a spike in Covid-19 cases across the second-most populous U.S. state. In a reversal of his months-long opposition to such a mandate, Abbott on Thursday said the order applies to all counties with 20 or more virus cases. He also barred people from gathering outdoors in groups larger than 10. Texas reported its second-worst day of the pandemic with almost 8,000 new cases and a surge in hospital admissions.
*All sources from Bloomberg unless otherwise specified