June 1st, 2020
Daily Market Commentary
- Xebec Adsorption Inc. a global provider of clean energy solutions, and Fonds de solidarité FTQ are proud to announce the creation of the GNR Québec Capital L.P. investment fund. With an initial capitalization of $20 million, this new investment vehicle aims to increase renewable natural gas (RNG) production in Québec. Partners, particularly from the agricultural and municipal sectors, will have access to the capital and expertise needed to develop and operate efficient facilities to treat organic waste. The creation of a fund of this type for renewable natural gas projects is a first in Québec. Xebec and the Fonds will each initially invest $10 million into the partnership. Over time, Xebec and the Fonds expect that the partnership could receive an aggregate $100 million in equity capital from Xebec, the Fonds and other investors.
- European equities trimmed earlier gains after China halted some U.S. farm imports, threatening a trade deal with the U.S. The Stoxx Europe 600 Index was up 0.5% as of 9:24 a.m. in London, with some regional markets closed, including Germany and Switzerland. It had risen as much as 1.1% earlier as U.S. President Donald Trump stopped short of specifying tough sanctions over China’s new national security law for Hong Kong. Escalating tension between the world’s two biggest economies has driven investor sentiment in recent sessions, after shares rallied last week to their highest level since early March. Still, helping risk sentiment on Monday are data signaling an easing in the euro area’s pandemic-induced downturn in May and expectations of more stimulus from the European Central Bank’s update later this week.
- U.S. stock-index futures pared losses and European shares climbed as investors weighed signs of economic recovery with the possibility of renewed trade trictions with China. Contracts on the S&P 500 and the Nasdaq 100 gauges were little changed after falling earlier in the day, when Bloomberg reported that state-owned traders Cofco and Sinograin were ordered to suspend purchases of some American farm goods including soybeans.
- Japanese shares rose as investors shifted attention from U.S.-China friction to the prospects of lockdowns being lifted. The Topix rose as much as 0.6%, reversing an earlier loss of 0.1%. The benchmark has rebounded 27% from its March low, recovering more than half of the losses triggered by the coronavirus pandemic. The Nikkei 225 Stock Average advanced as much as 1.3% Monday.
- The oil market took an initially neutral view on OPEC+ deliberations that could result in the producers group announcing a short-extension to unprecedented output curbs. Futures in New York were virtually unchanged near $35 a barrel. The Organization of Petroleum Exporting Countries and its allies is considering bringing their next meeting forward to Thursday, where it will discuss prolonging production curbs by one to three months, according to a delegate. The existing agreement calls for the output cuts to ease from July.
- Gold steadied as investors weighed protests across the U.S. and worries about escalating tensions between America and China. Silver climbed to a three-month high. Bullion is near a seven-year high as heightened tension between the countries risks putting the phase-one trade deal in jeopardy. China was said to pause purchases of some American farm goods, after President Donald Trump stopped short of spelling out tough new sanctions against China over Hong Kong. The U.S. also saw violent protests over the weekend in major cities. Silver climbed for a fourth day, building on its biggest monthly gain since 2011. Money managers cut their bullish bets in Comex gold to a one-year lowand increased them in silver in the week to May 26, CFTC data show.
- Wuhan’s push to break hidden virus transmission chains through aggressive testing appears to have succeeded, as no new asymptomatic cases were found for the first time in two months. Protests spread across the U.S., fueling concerns of a renewed spike in infections and more economic pain. Hong Kong banned a vigil to commemorate the 1989 crackdown on activists in Beijing’s Tiananmen Square, citing the threat to public health from the coronavirus. Apple Inc. is poised to reopen its biggest stores in Japan and gauges of manufacturing activity in Europe pointed to an easing in the downturn.
- The year’s biggest meeting of cancer researchers was subjected to a coronavirus overhaul this year, but even in scaled-back form it forced investors to recalibrate their expectations for some closely watched medicines. The American Society of Clinical Oncology meeting is the field’s most important gathering each spring, providing a stage for major pharmaceutical companies to unveil major findings and tout promising treatments. It’s also an annual opportunity for all kinds of researchers, doctors, executives and investors to rub elbows. With Covid-19 making travel uncomfortable and splashy conferences impossible this year, the summit was mostly a virtual affair. Still, it delivered many of the kinds of important victories and stinging setbacks it often does. And the meeting showed that even as the drug industry races to identify virus treatments and vaccines, cancer remains perhaps its most important business overall.
- Zynga Inc. Chief Executive Officer Frank Gibeau said the company has agreed to buy Turkish mobile-game maker Peak for $1.8 billion, marking its biggest acquisition yet. The deal, which Zynga is expected to formally announce later on Monday, is comprised of $900 million in cash and $900 million in Zynga stock, Gibeau said in an interview. It’s slated to be completed in the third quarter. The Peak deal will bring Zynga a popular lineup of puzzle games called Toon Blast and Toy Blast. The company is making the acquisition at a time when its business is booming, fueled by consumers staying at home with few live-entertainment options. Zynga’s shares are up nearly 50% this year, closing at $9.15 on Friday.
- Coty Inc. named a new chief executive officer as the perfume and cosmetics maker battles to overcome stagnating sales, changing consumer tastes and retail challenges caused by the coronavirus pandemic. Chairman Peter Harf, 74, will assume the CEO role, Coty said in a statement. Harf, who is managing partner of investment firm JAB, Coty’s largest shareholder, was previously the company’s CEO from 1993-2001. He will oversee a new executive committee with Chief Financial Officer Pierre-André Terisse and Gordon von Bretten, chief transformation officer. Harf will be the fourth chief executive in as many years. Pierre Denis, previously head of the Jimmy Choo fashion brand, had been tapped to take over this summer. He follows Pierre Laubies and Camillo Pane, who left in 2018, according to data compiled by Bloomberg.
- Italian eyewear billionaire Leonardo Del Vecchio stepped up his efforts to become a bigger player in Italy’s finance industry, asking for approval to raise his stake in Mediobanca SpA to as much as 20%. The shares jumped as much as 14%. Del Vecchio, who owns 10% of Italy’s largest publicly traded investment bank, submitted the request to the Bank of Italy on May 29, he said in a statement on Monday, a day after press speculation mounted on his move.
- Investors withdrew money from exchange-traded funds that buy emerging market stocks and bonds last week. This was the 15th straight week of outflows. Outflows from U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $593.7 million in the week ended May 29, compared with losses of $699.1 million in the previous week, according to data compiled by Bloomberg. So far this year, outflows have totalled $18.7 billion.
- Four Singaporean blue-chip stocks lost a combined market capitalization of S$863 million ($613 million) on Friday amid record volumes after MSCI Inc. deleted them from its benchmark for the city-state’s largest stocks. Two of the four shares excluded from the MSCI Singapore Index — Singapore Press Holdings Ltd. and Sembcorp Industries Ltd. — became over-sold on a technical indicator Friday, while ComfortDelGro Corp. and SATS Ltd. traded close to that territory, according to data compiled by Bloomberg.
- The reopening of America was always going to be fraught, with competing fears of new virus outbreaks and economic meltdown. Now cities across the nation, from New York to Chicago to Los Angeles, are reeling from unrest that could worsen both. Violence erupted in dozens of cities following the death of George Floyd, a black Minneapolis man who died after a white police officer pressed a knee into his neck for more than eight minutes. Some demonstrators broke off to rampage through shopping districts, including Rodeo Drive in Beverly Hills and Michigan Avenue in Chicago, and set fire to police cars and municipal buildings.
- Chinese government officials told major state-run agricultural companies to pause purchases of some American farm goods including soybeans as Beijing evaluates the ongoing escalation of tensions with the U.S. over Hong Kong, according to people familiar with the situation. State-owned traders Cofco and Sinograin were ordered to suspend purchases, according to one of the people, who asked not to be identified discussing a private matter. Chinese buyers have also canceled an unspecified number of U.S. pork orders, one of the people said. Private companies haven’t been told to halt imports, according to one of the people. The halt is the latest sign that the hard won phase-one trade deal between the world’s two biggest economies is in jeopardy. While Chinese Premier Li Keqiang last month reiterated a pledge to implement the agreement that was inked in January, tensions have continued to escalate since then amid a standoff over Beijing’s move to tighten its grip on Hong Kong.
- Senior Facebook Inc. employees took to Twitter over the weekend to express their dismay at Chief Executive Officer Mark Zuckerberg’s decision not to take action on incendiary comments posted to the social network by U.S. President Donald Trump. After the president tweeted a message with the words “when the looting starts, the shooting starts” in response to protests over the death of George Floyd in Minneapolis, Twitter Inc. for the first time obscured one of his tweets, marking it with a warning that it breached service rules by glorifying violence. Facebook’s response to the same content, in a postfrom Zuckerberg on Friday, was to say, “We think people need to know if the government is planning to deploy force.”
- Top Airbus SE executives are planning to assess additional measures that may be necessary to address the impact of the coronavirus pandemic, according to people familiar with the matter. Among the topics to be discussed at a meeting this week are production rates for the plane-maker’s top-selling A320-series narrow-body jet, said the people, who asked not to be named discussing confidential deliberations. While an adjustment wouldn’t necessarily entail a rate cut, Airbus slashed output by about a third in April to cope with cratered demand from airlines that have parked planes because of the virus. At the time, the planemaker said it would aim to produce 40 of the single-aisle A320s per month, and reassess once it determined whether the recovery was “V-shaped” or “L-shaped.”
- Barclays Plc will begin returning about 700 staff to offices in the U.K., U.S. and India starting next month. The London-based bank told staff in a memo Monday that the rest of its employees will work from home at least until the end of September, according to people with knowledge of the matter. The employees who will go back to the office over the summer will be mostly traders and others who can’t work from home, and they comprise less than 1% of global headcount, the people said. A spokesman at Barclays declined to comment. Banks are crafting their plans to safely return employees to office towers that were mostly emptied in March, when the deadly coronavirus pandemic spread across Western nations and lockdowns prompted staff to work from home. From this week, Citigroup Inc. is bringing back a portion of its staff to its London office in Canary Wharf.
- A top regulator’s plan for boosting Fannie Mae and Freddie Mac’s ability to withstand losses could mean higher costs for many mortgage borrowers, with the burden falling most heavily on those with less wealth and lower incomes, according to economists and housing-finance experts. The 424-page rule released for comment by the Federal Housing Finance Agency last month would dramatically raise the amount of capital the two mortgage-finance giants must hold and likely increase fees they charge for guaranteeing loans, which would hit borrowers in the form of higher interest rates. FHFA Director Mark Calabria’s proposal highlights the fine line his independent agency and the U.S. Treasury Department must walk to achieve their stated goal of freeing Fannie and Freddie from the government’s grip. To claim success, they will likely have to pull off a juggling act of keeping down borrowers’ costs, protecting taxpayers, appeasing mortgage-bond holders and enticing stock investors needed to re-capitalize the companies.
- Wuhan authorities said they found no new cases of “silent spreaders” for the first time in nearly two months as the city’s aggressive push to test its entire population appears to have succeeded in breaking hidden chains of transmission. Of the 60,000 people tested on Sunday, no cases of asymptomatic infections were found, said the Wuhan municipal health commission on Monday. In an ambitious effort to guard against a resurgence of cases, Wuhan is testing its entire 11 million population for the virus and has found some 200 asymptomatic cases in the past two weeks. The presence of infected people who show no outward signs of being sick but can nonetheless infect others has been an obstacle in worldwide efforts to contain the coronavirus, and a major reason why the pandemic spread so widely and quickly. In countries where testing remains inadequate, there is no way to detect such carriers and isolate them before they infect others.
- A record surge in bank deposits has given U.S. lendersmore cash than they know what to do with. One thing they don’t need: help from the Federal Reserve to fund the government-backed loans they made to small businesses. Banks had tapped only $49 billion from the Paycheck Protection Program Liquidity Facility by May 27 as they loaned $511 billion, according to the central bank and the U.S. Small Business Administration. That’s largely because lenders are sitting on $1.8 trillion of new deposits that have flooded in since March 11 — a 13% increase, and the biggest two-month jump since at least 1973, when comparable data is available.
- Apple Inc. is on track for a market capitalization of $2 trillion over the next four years, according to analysts at Evercore ISI, who see a combination of earnings growth and a boost from the services and wearables businesses helping the tech giant become the first company of that value. Evercore ISI analyst Amit Daryanani sees Apple’s shares reaching $550 in an “upside scenario” driven by gross margin expansion. Apple’s market cap currently stands at $1.38 trillion, just below Microsoft Corp’s at $1.39 trillion and above that of Amazon.com Inc. at $1.22 trillion. Apple shares have gained 8.3% so far in 2020, outpacing a 5.8% slide for the S&P 500 Index as the coronavirus pandemic hit asset prices globally.
*All sources from Bloomberg unless otherwise specified