June 12th, 2020

Daily Market Commentary

Canadian Headlines

• Canadian stocks tumbled the most since March 27, slumping with global markets on concerns a second-wave of the coronavirus will stir up new economic challenges. The S&P/TSX Composite index fell 4.1% in the third day of losses, its longest losing streak since March 9. All sectors declined, with health care and energy especially weak. The market is still up 34% from this year’s low on March 23.
• Zijin Mining says unit will buy 100% stake of Guyana Goldfields Inc. for C$1.85 per share in an all-cash deal, according to filing to Shanghai stock exchange. A separate statement says Zijin Mining plans to sell as many as 6b yuan of bonds convertible to its A shares, and the proceeds will be used to fund some of its projects

World Headlines

• European equities climbed for the first time in five days, rebounding from their worst sell-off since March as a rotation into cyclicals resumed. The Stoxx Europe 600 Index was up 1.4% at 11:29 a.m. London time, reversing about a third of Thursday losses. Autos, banks, travel and commodity stocks led gains again after a sharp pullback earlier this week. Media shares also outperformed as Pearson Plc surged after activist investor Cevian Capital AG revealed a 5.4% stake in the struggling education company. Stocks fell 5.9% over the past four sessions after surging to a three-month high last week on optimism about stimulus and economic reopenings. Concerns about overheating and a second wave of coronavirus infections in the U.S. damped sentiment this week, with the Stoxx 600 on track for its biggest weekly drop since mid-March.
• U.S. equity futures rebounded with European stocks on Friday after a dramatic selloff spurred by concerns over a second wave of coronavirus infections and a slower-than-expected economic recovery. Treasuries slipped alongside the dollar. Contracts on the three main American equity benchmarks pointed to solid gains at the open after Wall Street suffered its biggest drop in 12 weeks on Thursday.
• Japanese stocks declined, capping their worst week since early April, following a selloff in U.S. peers amid concerns about market overheating and a possible second wave of coronavirus infections. Japan’s benchmark index fell for a fourth day, with all but one industry group in the red. The Nikkei 225 Stock Average slipped for a second day but remained about 35% above its March low. The 25-day Toraku index, which compares the number of advancing and declining stocks on the Topix, was at 131 on Thursday, the 14th day it held above the 120 level that signals a correction may be close.
• Oil is heading for the first weekly loss since late April in New York on fears a second wave of U.S. infections could derail a fragile recovery. The market has shrugged off a pledge by OPEC+ to extend record output cuts, with sentiment souring this week after the Federal Reserve warned of prolonged damage to the economy by the pandemic and U.S. inventories reached record highs. Crude pared earlier declines to trade above $36 on Friday.
• Gold headed for the first weekly gain in four after concerns of a protracted economic recovery and a second wave of coronavirus infections aided demand for haven assets. The global economy is recovering more slowly than expected from the pandemic and will bear lingering scars from the experience, according to the International Monetary Fund. The U.K. economy shrank a record 20.4% in April as businesses and workers reeled under lockdown. The gold market also welcomed dovish messages from the U.S. Federal Reserve earlier this week, according to UBS Group AG, which said economic data releases up ahead will be key for further price movements.
• President Donald Trump used a visit to Texas to highlight his campaign to reopen the U.S. even as Houston weighs a new lockdown. Trump’s team asked people attending a rally in Oklahoma to waive liability if they contract Covid-19. The U.K. economy contracted a record 20.4% in April as businesses and workers reeled under the lockdown designed to control the spread of Covid-19, while the International Monetary Fund warned that the global economy will recovers lower than expected. China’s leading coronavirus vaccine developer signed an agreement with a drugmaker in Brazil to conduct further testing of its shot’s efficacy. Formula One has canceled races in Singapore, Japan and Azerbaijan for the 2020 season due to the pandemic.
• The U.K. plans to fast-track cases related to protest vandalism or assaulting police officers in an escalated judicial approach that echoes that of the 2011 London riots, the Times reports. The moves come amid worries that counterprotesters seeking to defend statues and memorials may clash with Black Lives Matter protesters this weekend. Companies are yielding to pressure to respond to racism inside and outside the workplace. Disney, T-Mobile and Papa John’s cut off advertising on Fox News host Tucker Carlson’s show after controversial comments about the Black Lives Matter movement. Audrey Gelman, chief executive officer of The Wing, resigned from the women’s co-working space amid complaints from employees about “systemic” mistreatment of minorities, Vice reported. Amazon is considering pulling the “Dukes of Hazzard,” while the country-music band Lady Antebellum changed its name, which evoked the pre-Civil War South. Nike made Juneteenth — a celebration of the end of slavery in the U.S. — a company holiday.
• Hertz Global Holdings Inc. is asking a bankruptcy judge to let it take advantage of the quixotic surge in its stock by selling up to $1 billion of new shares. Stocks of bankrupt companies typically get wiped out, but after an enormous two-week rally, the car rental giant envisions offering as many as 246.78 million common shares with help from Jefferies LLC, according to a court filing. Judge Mary Walrath set a hearing for Friday to consider the idea.
• SoftBank Group Corp. has spent about $2.9 billion in the past three months buying back its own shares, adding market support as the Japanese company struggled with falling global tech valuations. The company has bought 311.7 billion yen ($2.9 billion) of its own stock since March 13, about 62% of the 500 billion yen budget for re-purchases slated to run through next March. It had acquired 71,536,700 shares of its own stock as of May 31, SoftBank said in a statement on Friday. The Tokyo-based company led by founder Masayoshi Son last month booked a record 1.36 trillion yen operating loss for the year ended March 31. SoftBank had been among the most aggressive investors in startups in recent years, but is now marking down the value of stakes in companies such as WeWork, Oyo Hotels and Uber Technologies Inc. The company’s Vision Fund business lost 1.9 trillion yen in the period.
• His company has sent his net worth soaring to $7.4 billion, but Trevor Milton is frustrated. The executive chairman of Nikola Corp. is under siege from skeptics of the company he started in 2014 with the goal of revolutionizing the trucking industry. The doubters who have him particularly down are criticizing him for taking orders for hydrogen fuel cell-powered semis and saying they’re worth $10 billion. The number has come under scrutiny for a few reasons. For starters, reservations for Nikola’s truck cost nothing. Milton says the company took money initially but paid it all back after Tesla Inc. got criticized for funding itself a similar way.
• The U.S. Treasury is sitting on a near-record $1.5 trillion pile of cash, and what it does with it has become the biggest wild card for funding markets as quarter-end approaches. The department’s initiative to ensure it always has enough money on hand to pay its bills is once again making it harder for the Federal Reserve to gauge how reserves in the banking system will unfold at a crucial juncture. That’s because swings in the government’s cash on deposit at the Fed have a direct impact on the level of reserves — effectively draining bank reserves as the amount climbs. And the sheer size and volatility of the Treasury’s buffer have increased along with federal deficits that are swelling because of pandemic-triggered stimulus spending. With the Treasury issuing bills faster than it can spend the cash, that pile has kept growing.
• The U.K. economy shrank a record 20.4% in April as businesses and workers reeled under the lockdown designed to control the coronavirus pandemic. The contraction means the nation has effectively seen almost 18 years of growth wiped out in two months. While a rebound is likely as businesses start to reopen, the grim figures will increase the pressure on the government and Bank of England to do more to support the recovery. The hit to the economy rounds off a difficult week for Prime Minister Boris Johnson, who is facing mounting criticism from politicians and scientific advisers after they blamed his Conservative administration for making a series of grave mistakes since the beginning of the outbreak.
• The U.K. government backed down on plans to impose full-border checks after Brexit in an attempt to avoid piling an additional burden on businesses already struggling with the impact of coronavirus.
• Hong Kong’s surprise decision last month to reappoint its top securities regulator came after a suggestion from Beijing that he remain in the role, according to people familiar with the matter. China’s government proposed that Ashley Alder stay on as head of Hong Kong’s Securities & Futures Commission in part because he’s viewed by foreign investors as a steady hand at a time of heightened economic and political turbulence, the people said, without elaborating on how the message was communicated to Hong Kong. Alder, a Brit who first took the job in 2011, had been planning to step down in September. He’ll now stay on for another three years.
• Japan’s parliament passed a record 31.9 trillion yen ($298 billion) extra budget Friday in an effort to shore up the economy amid the coronavirus pandemic. The new spending provides financing help for struggling companies, payroll subsidies and aid to the medical system. The budget will help fund a 117 trillion yen stimulus package unveiled last month that doubles the scale of Japan’s virus response.
• Barstool Sports’ Dave Portnoy had bought just one stock in his life before the quarantine hit. When the country shut down in March, canceling sports and sports betting, the founder of the brash, misogynistic media empire dusted off his old E*Trade account and started day trading. “With the volatility, it is kind of like watching a sports game,” said Portnoy, 43, who started live streaming as “Davey Day Trader Global” to his 1.5 million Twitter followers with the caveat: “I’m not a financial advisor. Don’t trust anything I say about stocks.” Despite the obligatory warning, Portnoy has touted stocks like InspireMD Inc. and Smith & Wesson Brands Inc., while dissing the acumen of Warren Buffett, the world’s fifth-richest person and widely regarded as one of the greatest investors ever. “I’m sure Warren Buffett is a great guy but when it comes to stocks he’s washed up,” Portnoy tweeted Tuesday. “I’m the captain now.”
• It will go down as wildest of the shale wildcatters, the overreaching pioneer of fracking techniques that minted vast fortunes and, now, have left behind ruin. At long last, financial reality has caught up with Chesapeake Energy Corp., avatar of the boom and subsequent bust of North American shale. Chesapeake’s spiral toward oblivion accelerated this week with executives said to be preparing for a potential bankruptcy filing, signaling the imminent end of Chief Executive Officer Doug Lawler’s 7-year campaign to turn around the troubled gas explorer. For a company that’s been skirting disaster for most of the past decade, the Covid-19-driven collapse in world energy prices merely added one more exclamation point to a tale of risk, hubris and debt.
• North Korea accused the U.S. of breaking promises it made at a historic summit two years ago, saying the Trump administration had turned dreams for peace into “a dark nightmare” and dashed hopes for denuclearization. Foreign Minister Ri Son Gwon said in a message to mark the second anniversary of the then-unprecedented June 12, 2018, meeting between leader Kim Jong Un and President Donald Trump that the U.S. had broken its word, adding that North Korea saw no benefit in engaging with Washington. “Nothing is more hypocritical than an empty promise,” Ri was quoted as saying in a Friday report from the official Korean Central News Agency. He added the U.S. has shown over the past two years that it’s aiming for the “isolation and suffocation” of North Korea.
• Corporate-bond trading volume reached its highest level since 2013 earlier this year by one measure, but liquidity was terrible. That paradox underscores why the Federal Reserve may have to support corporate-debttrading for a long time. In March, money managers found trading volumes were concentrated in bonds from only a handful of companies, according to a recent analysis by Barclays Plc. And the gap between the risk premiums that dealers demand for buying a security and for selling that security was spiking, signaling that trading had broken down.

*All sources from Bloomberg unless otherwise specified