June 12th, 2020

Daily Market Commentary

Canadian Headlines

• Laurentian Bank of Canada says François Desjardins is stepping down as President and CEO and will be retiring from the bank effective June 30.
• Cineworld terminating its deal to buy Canadian peer Cineplex improves its liquidity prospects and should be positive for the stock near-term, Jefferies (buy on Cineworld) says in a note. Jefferies had originally liked the Cineplex deal, but “the world has changed” and Covid-19 had made the acquisition unattractive in the near term.

World Headlines

• European equities slid again after slumping the most since March last week on lingering concerns about a second wave of infections and the pace of economic recovery. The Stoxx Europe 600 Index declined 1% as of 10:30 a.m. in London, paring an earlier drop of as much as 2.6%. Cyclical sectors such as travel, miners and oil sectors led losses, while defensives including health-care shares outperformed. The rally that saw European stocks rise more than 30% from March lows came to a halt last week as Covid-19 cases picked up in more than 20 U.S. states. Value and cyclical stocks have suffered in particular amid concerns that the economic recovery is slower than forecast. Chinese data Monday showed the world’s second-largest economy had a smaller bounce back in May than expected.
• U.S. stock index futures dropped alongside shares in Europe and Asia as worries over a potential second wave of Covid-19 led to deepening concerns over the global economy. Contracts on the S&P 500 declined 3% as of 8:27 a.m. in London. Futures on the Nasdaq 100 Index and Dow Jones Industrial Average fell 2.4% and 3%, respectively. On Friday, U.S. stocks rallied from the biggest rout in 12 weeks as dip-buyers emerged for firms that bore the brunt of Thursday’s selling.
• Japanese stocks posted their biggest drop in over 10 weeks as reports of jumps in coronavirus cases at home and abroad hurt investor sentiment. Electronics makers and services shares weighed on the benchmark Topix gauge the most. The Nikkei 225 Stock Average closed below 22,000 for the first time in over two weeks but remained 30% above its March low. A circuit breaker was triggered, suspending trading of futures on the Mothers Index for 10 minutes in late afternoon trading — the gauge of smaller, growth-oriented stocks closed 4.1% lower.
• Oil fell again as a fresh coronavirus outbreak in China, and increases in cases elsewhere, spurred concerns that a second wave of the virus will derail a nascent economic recovery. Futures traded near $35 a barrel in New York, sinking in tandem with equity markets, after losing 8.3% last week. Beijing closed the city’s largest fruit and vegetable supply center following a surge of cases, stirring fears of a resurgence just as the world’s largest oil user is showing signs of improving demand. “Fear has started sprouting again,” said Bjornar Tonhaugen, head of oil markets at consultants Rystad Energy A/S in Oslo. “Concerns that we may be seeing the beginning of a second wave of the pandemic are dominating trading floors this morning across the globe.”
• Gold fell after a weekly gain as the dollar strengthened amid concern over a resurgence in the coronavirus pandemic and its effect on the global economy, with some investors seen selling the haven to raise cash as equities tumbled. U.S. futures dropped along with Asian stocks on Monday, spurred by worries over a second wave of infections that could dash hopes for a V-shaped recovery.
• PG&E is hosting investor calls today via JPMorgan, Barclays, Bank of America, Citigroup and Goldman Sachs in preparation for a sale of first mortgage bonds. Chesapeake Energy is debating whether to skip interest payments due today and invoke a grace period while it talks with creditors, according to people with knowledge of the matter.
• Hertz Global Holdings enters into an Open Market Sale Agreement with Jefferies dated June 15, 2020, for up to $500 million of its common stock.
• BP Plc will make the biggest writedown on the value of its business since the Deepwater Horizon disaster a decade ago, as the coronavirus pandemic hurts long-term oil demand and accelerates the shift to cleaner energy. In a dramatic revision that prompted questions about the affordability of its dividend, the British giant cut its estimates for oil and gas prices in the coming decades between 20% and 30%. It also expects the cost of carbon emissions to be more than twice as high as before. Under its new Chief Executive Officer Bernard Looney, BP has been quicker than many of its peers to plan for a low-carbon world. Yet moves toward a more sustainable future are bringing financial pain today, and investors are asking fundamental questions about the value of oil majors.
• Spreading cases in Beijing raised concern of a resurgence of the pandemic in China, while infections increased in Tokyo and a former Food and Drug Administration chief said new U.S. outbreaks are occurring. Worries over a second wave sent stocks tumbling around the world. Retail outlets in England selling non-essential items are opening on Monday for the first time since March, while French President Emmanuel Macron said the pace of emerging from the national lockdown will accelerate. Infectious disease expert Anthony Fauci suggested that bans on travel to the U.S. may remain until a vaccine arrives. Hong Kong Disneyland will reopen June 18, ending a five-month shutdown.
• Walmart Inc. has partnered with e-commerce giant Shopify Inc.to expand its third-party marketplace site and grab more of the pandemic-fueled surge in online shopping. Shares of the Canadian technology company rose in early trading. The world’s largest retailer aims to add 1,200 Shopify sellers this year, Walmart executive Jeff Clementz said in an interview. The company’s marketplace site, which already offers more than 75 million products, grew at a faster pace than Walmart’s overall web business in the first quarter, and third-party sales are typically more profitable as the sellers pay a fee to list items and often shoulder the delivery costs. The collaboration is Walmart’s latest attempt to expand the scale and profitability of its $21.5 billion U.S. e-commerce business, which is gaining ground on market leader Amazon.com Inc. but continues to lose money. In recent years, Walmart has rolled out a fulfillment service for third-party sellers, allowed customers to return marketplace items in its physical stores and jettisoned millions of third-party items that didn’t meet quality standards.
• SoftBank Group Corp. has completed its $4.7 billion buyback program in just three months as the Japanese company spends to bolster its share price against losses in the investment business. The company has bought 500 billion yen ($4.7 billion) of its own stock since March, using the entire budget for re-purchases slated to run through next March. It had acquired 107,679,300 shares of its own stock as of June 15, SoftBank said in a statement on Monday. 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. Son has already lined up a second re-purchase of as much as 2 trillion yen, without a timeframe.
• The Wall Street owners of the Philadelphia 76ers and New Jersey Devils now have a toehold in the NFL. Josh Harris and David Blitzer acquired a stake of less than 5% in the Pittsburgh Steelers earlier this year, according to two people familiar with the transaction. While no details on price were available, the pair of financiers may have paid as much as $140 million, based on the $2.8 billion value Forbes estimated for the NFL franchise last September. The deal opens a new chapter for Harris and Blitzer, two of Wall Street’s more prolific investors in professional sports. In addition to the 76ers and Devils, they own Newark’s Prudential Center and the Crystal Palace soccer club of the English Premier League. Most recently, they’ve been exploring a possible bid for the New York Mets.
• Scandinavia’s main carrier SAS AB has won state backing to target 12.5 billion kronor ($1.3 billion) in new funds, with the arrangement set to redraw ownership lines and leave some creditors sharing potential losses. SAS, which is part owned by Nordic states, said Sweden has agreed to back up to 5 billion kronor in shares or other transferable securities. Denmark has also thrown its support behind a recapitalization. The deal entails burden sharing for holders of SAS outstanding bonds and hybrid notes, it said in a statement on Monday.
• Saudi Arabia reduced the amount of crude it will supply next month to seven refiners in Asia after OPEC+ agreed to extend its historic output cuts through July. The volume of contracted oil the seven buyers will receive for July was cut by 10% to 40%, according to refinery officials who asked not to be identified as the information is private. Some South Korean processors were notified of steep curbs to their requested supply after being spared reductions last month, while three refiners in Japan will get their full volumes after their flows were trimmed in June, the officials said, signaling the kingdom’s attempt to balance the cuts. OPEC+ agreed to a one-month extension of its cuts to help underpin the market recovery, with Saudi Arabia following the pledge to prolong curbs with big price hikes to its crude. China has led a recovery in oil demand across Asia after the easing of lockdowns, although the region’s rebound is expected to be uneven.
• 24 Hour Fitness Worldwide Inc. sought court protection from its creditors, unable to keep up with debt payments after the prolonged shutdown caused by coronavirus outbreak. The fitness chain’s Chapter 11 petition was filed in Delaware, court papers show. Chapter 11 allows a company to keep operating while it works out a plan to pay its creditors and ease its debt load. Even before the onslaught of the coronavirus, middle-tier operators like 24 Hour struggled with customer defections to higher-end or budget-friendly fitness options. The gym operator posted a 2% revenue decline in unaudited fourth-quarter earnings, Bloomberg reported.
• The German government will request authorization from parliament to raise a further 62 billion euros ($70 billion) in debt to help pay for its massive stimulus program, according to two people with direct knowledge of the plan. That would bring the total of new debt this year to 218 billion euros, said the people who requested not to be named because the official announcement has yet to be made. Chancellor Angela Merkel’s cabinet is due to sign off on the supplementary budget on Wednesday before it goes to parliament for approval. Earlier this month her coalition agreed to a sweeping 130 billion-euro stimulus package to spur short-term consumer spending, and get businesses to invest again.
• More than one million Britons are falling through the cracks in the government’s coronavirus job support programs and remain in desperate need of aid, according to U.K. lawmakers. The cross-party Treasury Committee, which scrutinizes the work of Chancellor of the Exchequer Rishi Sunak, welcomed the scale and pace of his interventions but said the conditions attached meant many remain exposed to the economic hit inflicted by the pandemic.
• The European Union fired a warning shot at China over its global trade ambitions with an unprecedented tariff decision to counter Chinese subsidies to exporters. For the first time, the EU on Monday took aim at alleged market-distorting aid granted by a country to exporters located in another state. To date, such European duties have focused only on subsidies provided by the country where the exporters are based. “It’s a landmark case that could lead to many more similar ones,” said Agatha Kratz, an associate director at Rhodium Group who leads research on EU-China relations and Chinese commercial diplomacy. “Chinese state support is in fact found widely beyond China’s borders, with distortive effects on EU and other foreign stakeholders.”
• The U.K. government faces legal action after awarding a 108 million-pound ($135 million) contract for Covid-19 personal protection equipment to a single company that’s specialized in pest-control supplies. The Good Law Project, founded by anti-Brexit lawyer Jo Maugham, said it’s suing over the controversial deal with Crisp Websites Ltd., trading as PestFix, according to a statement on the group’s website on Monday.

*All sources from Bloomberg unless otherwise specified