June 16th, 2020
Daily Market Commentary
- Canadian equity markets shrugged off earlier losses to end Monday’s session higher, led by a rally in tech stocks. The S&P/TSX Composite Index rose 0.7% in Toronto. U.S. stocks also gained following a Federal Reserve pledge to follow through on corporate bond purchases. Shopify Inc. led the TSX higher after the e-commerce giant inked a deal with Walmart Inc. Cineplex Inc. was the worst performing stock in Canada, slumping 17% as Britain’s Cineworld Group Plc backed out of a deal to acquire the company for C$2.15 billion ($1.6 billion). Meanwhile, Canadian home sales saw a 57% increase in May from the prior month, a small piece of good news in an otherwise frozen market. Transactions for existing properties reached 26,111 in the month, the Canadian Real Estate Association reported. That was still down 40% from a year earlier and at the lowest level for May since 1996. Benchmark prices were little changed.
- A sharp decline in the use of credit cards at the end of March led to the first drop in consumer debt balances in more than a decade, according to Equifax Canada. Average balances on debt excluding mortgages dropped 0.5% to C$23,386 ($17,200) in the first quarter from a year earlier, the country’s largest credit reporting firm said Tuesday. With stores and restaurants closed in March due to the coronavirus, consumers cut back on credit card use, leading to the decline in balances. The trend gained momentum in April, “with few signs that consumers are looking to debt for support in the early days of the pandemic,” Bill Johnston, vice president of data and analytics at Equifax, said in a statement.
- Covid “ambassadors” will hand out free face masks as North America’s third-busiest transit system gears up for a gradual return to work in Toronto after a lockdown that has dragged on for almost three months. Thousands of bankers, traders and other workers use the often-packed subway system to get to their jobs in Canada’s financial capital. The country’s five largest banks have head offices within a few blocks of the city’s main rail hub, Union Station. But the elbow-to-elbow commute is about to change. The Toronto Transit Commission will distribute 1 million non-medical masks as face coverings become mandatory on July 2. There will be decals on floors and walls to help educate passengers and hand sanitizers available in all stations.
- Ford Motor Co. is scrapping plans to make a next-generation Edge SUV, putting a Canadian assembly plant that produces the crossover at risk of closure, according to industry forecaster AutoForecast Solutions. The assembly plant in Oakville, Ontario, used to make the Ford Flex and Lincoln MKT, and currently makes only two models: the Lincoln Nautilus and Ford Edge. The Flex and MKT were canceled last year, and Nautilus production is scheduled to move to China after 2023, said Sam Fiorani, vice president at AutoForecast Solutions in Chester Springs, Pennsylvania. The demise of the Edge, which debuted in 2006 and received a facelift in 2019, would leave the plant with no new product to anchor it, Fiorani said, citing industry sources.
- European stocks rallied on Tuesday, with reports of a U.S. infrastructure spending package worth $1 trillion outweighing concern of a flare-up in the coronavirus pandemic and worsening relations both on the Korean peninsula and on the Indo-Chinese border. The Stoxx Europe 600 Index was up 2% as of 9:28 a.m. in London, with all 19industry groups in positive territory. Construction stocks led the rebound, rising the most in nearly a month, with other cyclical sectors including travel, banks, industrials and miners also outperforming the wider gauge. Both European stocks and U.S. futures pared gains after North Korea confirmed the demolition of a building used for cross-border liaison. Europe’s benchmark is jumping following news that the U.S. government is considering $1 trillion in infrastructure spending and after the Federal Reserve detailed plans to buy individual corporate bonds. That’s injecting fresh momentum in a rally that had flagged after the Stoxx 600 reached a three-month high in early June.
- U.S. stock index futures gained as the Federal Reserve’s plan to buy corporate bonds and the Trump administration’s preparation of an infrastructure proposal spurred demand for riskier assets. September contracts on the S&P 500 rose as much 1.7%, before trimming gains to less than 1% after South Korea confirmed that North Korea blew up the inter-Korean liaison office. Futures on the Nasdaq 100 Index and Dow Jones Industrial Average were up 0.8% and 1%, respectively. The underlying S&P 500 closed 0.8% higher on Monday, swinging from a loss of as much as 2.5%.
- Japan’s benchmark Nikkei 225 index extended its gains on Tuesday to as much as 4.5% after the Bank of Japan maintained its policy balance rate and said it will take more action without hesitation if needed. This follows the Federal Reserve’s announcement on Monday that it will begin buying individual corporate bonds and a report that the Trump administration is preparing a nearly $1 trillion infrastructure proposal as part of its push to spur the U.S. economy back to life. The moves are a much needed shot in the arm for investor sentiment, which had faded in recent days as worries over a second wave of coronavirus infections took hold.
- Oil hovered near $38 a barrel as investors weighed the International Energy Agency’s projection that consumption won’t fully recover until at least 2022 against economic stimulus in the U.S. and tighter physical supplies. Futures in New York were steady after climbing in the previous session for the first time in three days. Fuel use will remain 2.5% lower next year than in 2019, mostly because of a slow recovery in jet fuel consumption, the IEA said in its monthly report. A new coronavirus outbreak in Beijing and sharp increases in infections in some U.S. states including Arizona and Florida are adding to nervousness that the worst of the pandemic is yet to come.
- Gold steadied as investors awaited testimony from U.S. Federal Reserve Chairman Jerome Powell on the central bank’s next steps to combat the hit from the coronavirus pandemic. Powell, who delivers his semi-annual policy report Tuesday and Wednesday, is expected to echo the downbeat view he gave last week after policy makers signaled rates would probably stay near zero. Bullion earlier got a lift from concerns over new outbreaks in the U.S. and China, tensions in Asia and a weaker dollar.
- President Donald Trump said he’ll sign an executive order on policing on Tuesday. The NYPD will disband its anti-crime unit, reassigning 600 plainclothes officers to other parts of the force. And officials in New York, California and Colorado moved to increase police accountability and limit officers’ use of deadly force. NYPD said there was “no criminality by Shake Shack’s employees” after an investigation into an incident where three NYPD officers were taken to a local hospital after ingesting what they believed to be a bleach-like substance in their milkshakes at a Shake Shack in Manhattan. A police union had earlier saidthey were “intentionally poisoned.” Shake Shack, which earlier said it was cooperating with the probe, said in response to the finding of no criminalitythat their team “is working hard to get the full picture” of what happened and is “relieved to hear the officers are all okay.”
- Hong Kong will further ease social distancing measures by allowing public gatherings of as many as 50 people. The city’s unemployment rate rose to a 15-year high in May after shutdowns and renewed anti-government protests. Global cases surpassed 8 million as Beijing shut some areas to contain a virus cluster and data scientists predicted India’s numbers may surge after it abandoned a lockdown.
- U.K. jobless claims more than doubled to almost 3 million during the virus lockdown, adding urgency to Bank of England and government efforts to cushion the blow. The number of people seeking unemployment benefits increased by more than 1.5 million in the two months through May, the Office for National Statistics said Tuesday. In April alone, employment dropped 429,000, the most in over six years, even as the government’s furlough program protected millions of jobs. Almost all of those to lose their job became inactive, rather than unemployed, as the lockdown limited the numbers searching for work.
- The Trump administration is preparing a nearly $1 trillion infrastructure proposal as part of its push to spur the world’s largest economy back to life, according to people familiar with the plan. A preliminary version being prepared by the Department of Transportation would reserve most of the money for traditional infrastructure work, like roads and bridges, but would also set aside funds for 5G wireless infrastructure and rural broadband, the people said.
- Paying kickbacks to doctors for referrals. Surgically implanting unneeded heart monitors. Aggravating troubled teenagers during psychiatric sessions to worsen their mental health. Health-care providers accused of bilking taxpayers by inflating Medicare or Medicaid expenses have paid billions of dollars in settlements with the federal government over the past decade for a variety of transgressions, some of which risked patients’ lives. Now the money is flowing the other way. Companies that settled cases involving overbilling or fraud — among them Tenet Healthcare Corp., Universal Health Services Inc. and Beaumont Health — received more than $36 billion in interest-free loans from a U.S. Health and Human Services Department program to help providers handle cash-flow shortages caused by the pandemic, according to data compiled by Bloomberg and Good Jobs First, a watchdog group that has been monitoring federal relief payments.
- Corporate executives surveying the damage from their bruised supply chains are hearing lessons from the past about the risks of waiting too long to change. In the Great Recession of 2007-09, banks and other financial institutions became the Achilles’ heel of a global economy that needed immediate reinforcements from bailouts to capital injections, eventually requiring thicker buffers of government regulation and supervision. Now, in the early months of the Covid-19 pandemic, global supply chains are drawing parallels to the financial companies of 12 years ago — crippled by an unexpected shock, exposed by flaws in their sophisticated instruments, second-guessed for pushing the public close to panic, diagnosed for a once-in-a-generation overhaul.
- Technology investor Kinnevik AB sold about 645 million euros ($731 million) of shares in online clothing retailer Zalando SE in an accelerated bookbuild offering, joining other shareholders in cashing in on rising stock prices of lockdown winners. Kinnevik sold 11.25 million Zalando shares, more than the 10.6 million originally planned, due to strong investor demand, the Stockholm-based investor said in a statement late Monday. The shares were priced at 57.40 euros each, the bottom end of initial estimates, according to terms seen by Bloomberg. The price is 6.4% below where Zalando’s stock closed on Monday. Zalando shares fell 4.9% to 58.26 euros at 9:45 a.m. in Frankfurt.
- A tunnel intended to connect Finland and Estonia faces a delay of up to seven years after Finnish policy makers picked a route opposed by the developer. The Helsinki-Uusimaa Regional Council’s assembly voted to route the project under the capital and not Espoo, the adjacent city. Finnish entrepreneur Peter Vesterbacka, formerly of Rovio Entertainment Oyj, plans to appeal the decision. But even that would add time, meaning that in a best-case scenario the project will be delayed by 1 1/2 years from the current deadline of December 2024.
- Sanofi, the French pharmaceutical giant, plans to invest about 610 million euros ($690 million) in two new vaccine production and research centers in France to boost its capacity to fight pandemics. The announcement comes as French President Emmanuel Macron, whose government has called for shifting production of essential goods like pharmaceutical ingredients back home, visits one site Sanofi plans to beef up near Lyon. The effort will strengthen Sanofi’s ability to advance new vaccines and produce them on a massive scale, the Paris-based company said in a statement, citing a close collaboration with French authorities in the past few months.
- North Korea blew up an inter-Korean liaison office on its side of the border, in an explosive rebuke to Seoul that appeared designed to draw maximum global attention with little immediate risk of war. The move represented North Korea’s most serious provocation in years and follows an escalating series of threats against South Korean President Moon Jae-in’s government. The state-run Korean Central News Agency said in a statement that the office — the most concrete achievement from series of summits between the two Koreas in 2018 was — was “tragically ruined with a terrific explosion.” South Korea’s Unification Ministry called the demolition of a 18 billion won ($15 million) facility that served as a de facto embassy for the two countries a “senseless act” that had “destroyed the hopes of those who wished for peace on the Korean Peninsula.” The country’s National Security Council warned North Korea of a strong response if it took further actions, but gave no indication of imminent retaliation.
- Bank of Japan Governor Haruhiko Kuroda said interest rates would likely remain ultralow into 2023 and warned that the coronavirus pandemic could end up having a longer-than-expected impact on the economy. “Whether it’s the fiscal year 2021 or 2022, I do feel we’re a long way from a situation where we can raise rates,” Kuroda said at press conference in Tokyo, essentially ruling out the possibility of higher rates before his current term as governor ends in April 2023. For now the central bank needed to focus on helping firms in Japan that are still under severe financing stress, Kuroda said, adding that he was determined to support businesses with lending for as long as needed during the crisis.
- Apple Inc. faces a pair of European Union investigations into its App Store and Apple Pay, barely four years after it was hit with a record-breaking tax bill by regulators. EU Competition Commissioner Margrethe Vestager will review whether Apple’s app store rules violate competition law by requiring developers to use the company’s own purchase system, which levies a 30% fee on all subscriptions. The EU will also check on Apple Pay terms and how Apple limits near-field communication for “tap-and-go” functionality to its own Apple Pay. “It appears that Apple obtained a ‘gatekeeper’ role when it comes to the distribution of apps and content to users of Apple’s popular devices,” Vestager said in a statement Tuesday. “We need to ensure that Apple’s rules do not distort competition in markets where Apple is competing with other app developers, for example with its music streaming service Apple Music or with Apple Books.”
*All sources from Bloomberg unless otherwise specified