June 24th, 2020
Daily Market Commentary
- Canadian equities rose for a second straight session while U.S. shares also gained on speculation Congress will seek additional stimulus to combat the economic effects of the pandemic. The S&P/TSX Composite Index advanced 0.3% as materials posted another strong session. Eight of eleven sectors rose. Gold futures closed at a seven-year high as a resurgence in coronavirus cases bolstered demand for the metal as a haven. Enbridge Inc.’s yearlong battle with Michigan officials over a pipeline that runs through the Great Lakes is flaring up again after damage to a support structure prompted the state to try to shut down the conduit. Oil slipped from a three-month high before a U.S. government report expected to show another increase in inventories, signaling the market still has its work cut out to clear a massive supply glut. Shopify Inc. Chief Executive Officer Tobias Lutke is touting Canada as a relocation option after President Donald Trump temporarily suspended several employment-based visas.
- European stocks tumbled on Wednesday, led lower by shares in travel companies, autos and banks, as investors fretted over the prospect of a fresh round of U.S. tariffs on European and U.K. exports as well as the scope of central bank support to the region’s economy. The Stoxx 600 Index was down 1.9% by 10:43 a.m. London time, extending losses as stocks such as Diageo Plc and luxury goods makers dropped on the possibility of the U.S. imposing tariffs on $3.1 billion of exports from France, Germany, Spain and the U.K.
- S&P 500 index futures extend drop to as much as 0.8%, following European shares lower, amid an acceleration in virus cases the American South and cautious remarks on a recovery by ECB’s chief economist.
- Japanese stocks fell as concerns grew over the economy’s reopening after Tokyo’s governor said the city’s coronavirus infection numbers for today will be “large.” Food and bank stocks were the biggest drags on the Topix index. The Nikkei 225 Stock Average erased an early gain, ending the trading session lower. Tokyo had 55 new coronavirus cases, the highest daily tally since May 5, according to broadcaster NHK. Before the NHK report, Governor Yuriko Koike said in a televised briefing that workplace clusters are a problem.
- Oil fell in New York after an industry report signaled another increase in U.S. crude stockpiles, while the spread of the coronavirus continued to cloud prospects for an economic recovery. Futures dropped 1.6%, extending Tuesday’s decline after settling at the highest since early March on Monday. The American Petroleum Institute reported that inventories rose by 1.75 million barrels last week, according to people familiar with the data. That would be a third weekly gain if confirmed by government figures on Wednesday. The dollar also climbed, adding to pressure on prices.
- Gold is on the cusp of challenging the hard-to-crack $1,800 an ounce mark, potentially opening the way for a move toward its record price, as a resurgence in virus cases risks impeding the global economic recovery. Futures rallied to just shy of the level last seen at the end of 2011, the year bullion notched its all-time high, as cases of Covid-19 climb from Tokyo to Germany. City and state officials in hotspots across the U.S. are considering slowing or reversing reopening plans, while the European Union is weighing whether to keep a ban on Americans entering the bloc when external borders reopen.
- Louisville police fired one of the officers involved in the shooting death of Breonna Taylor, saying he “wantonly and blindly” fired 10 shots into her apartment in March, AP reports. Taylor was shot eight times in a no-knock raid in a drugs investigation. The suspect didn’t live at her house and no drugs were found. She died of her injuries, sparking widespread protests. President Donald Trump aligned himself squarely with law enforcement in a speech to supporters in Arizona on Tuesday, abandoning sympathy for people protesting police brutality or its victims, as he sought to stabilize his re-election campaign. Trump didn’t mention George Floyd’s name in his remarks, and criticized liberals for not protesting homicide rates in major cities. A speaker at his event criticized the planned rebranding of Aunt Jemima breakfast foods.
- Wirecard AG won a short reprieve from the lenders on its 1.75 billion euros ($2 billion) revolving credit facility after banks decided to assess the embattled company’s long-term viability before telling it to repay the loan. Advisory firm FTI Consulting is monitoring Wirecard’s compliance with the loan terms as lenders sift through documents and speak with stakeholders including Visa Inc. and Mastercard Inc. to decide how best they can secure the highest repayment, people familiar with the matter said. A standstill agreement is only expected to last a short period before lenders make a final decision, the people said, asking not to be identified discussing the private information. Wirecard earlier this week said that 1.9 billion euros ($2.15 billion) it previously reported as cash on its balance sheet probably doesn’t exist, triggering a collapse in shares and a criminal investigation into how the money went missing. The revelations are rippling across the financial system, with about 15 lenders now grappling with the extent of potential losses. ABN Amro Bank NV, Commerzbank AG and ING Groep NV are among the lead banks among lenders that have given Wirecard about 1.6 billion euros in credit out of the total facility, Bloomberg has reported.
- Germany reported 712 new cases of Covid-19, a jump of more than 200 from the previous day, while Tokyo reported 55 infections, its highest daily tally since May 5. Rising incidences of the disease in Israel prompted localized lockdowns. The European Union is considering keeping travelers from the U.S. out when it reopens external borders. Newly diagnosed infections soared in some of the most populous U.S. states, and businesses said consumers are jittery as infections rise. Concerns over the potential for localized outbreaks to spread more widely are shaping policies in many countries, even as the U.K. takes a gamble by lifting many lockdown restrictions on July 4.
- The U.S. is weighing new tariffs on $3.1 billion of exports from France, Germany, Spain and the U.K., adding to an arsenal the Trump administration is threatening to use against Europe that could spiral into a wider transatlantic trade fight later this summer. The U.S. Trade Representative wants to impose new tariffs on European exports like olives, beer, gin and trucks, while increasing duties on products including aircrafts, cheese and yogurt, according to a notice published late Tuesday evening. The statement lays out a month-long public comment period ending July 26.
- A long-running clash over the ability of Wall Street banks to weather hard times and still pay shareholder dividends is gaining urgency as the number of Covid-19 cases ticks up and economic data remain gloomy. Critics, including a number of government and Federal Reserve veterans of the 2008 financial crisis, say they’d rather see the banks marshal resources for a rocky road ahead than continue paying shareholders. On Thursday, the central bank will announce results of its annual stress tests, which for the first time will include a “sensitivity analysis” to gauge how well banks can navigate an economy shattered by a global pandemic. While the Fed will release evaluations for individual institutions, the outcome of the sensitivity exam will have a single score for all the banks in the test.
- SoftBank Group Corp. offloaded a large chunk of its stake in wireless carrier T-Mobile US Inc. stake at a discount, cementing a series of transactions that could fetch as much as $20 billion for the Japanese investment giant. The Tokyo-based company raised $14.8 billion from a sale of T-Mobile shares to institutional investors, SoftBank said in a statement. The offering of 143.4 million shares was priced at $103 apiece, representing a 3.9% discount to T-Mobile’s record high closing price on Tuesday. SoftBank is set to raise another $4.1 billion through several related deals that will see shares sold to Marcelo Claure, a T-Mobile board member, and other investors, according to the statement Wednesday. The total proceeds would rise to $20 billion if so-called over-allotment options are exercised.
- ICICI Bank Ltd. is considering raising as much as $3 billion in a share sale as the lender seeks to bolster its capital ratios, according to people familiar with the matter. The Mumbai-based bank plans to start discussions with potential advisers for the offering soon, said the people, who asked not to be identified as the information is private. ICICI Bank is currently targeting a share sale as soon as September, though the timing could still change depending on market conditions, the people said. Shares of ICICI Bank extended losses to as much as 8.3% on Wednesday after the Bloomberg News report. The stock is down 35% this year, mirroring a 34% slump in the 10-member Bankex index.
- Cboe Global Markets Inc. brought U.S. stock-market volatility trading to the masses 16 years ago with futures on the VIX index. Replicating that success with interest rates has been elusive, but the firm is going back to the drawing board to try again. Trading of futures on Cboe’s 10-Year U.S. Treasury Note Volatility Indexl anguished even as volatility soared in March and volume surged in Treasury futures and options listed at CME Group Inc. Cboe blames an unconventional design it was in the process of fixing. Then, last month, CME declined to renew the pricing data that the index was based on.
- Evolution Gaming Group AB has offered to acquire its smaller rival NetEnt AB in a tie-up worth 19.6 billion kronor ($2.1 billion). Stockholm-based Evolution is offering to pay 79.93 kronor for each NetEnt share, which is about 43% more than the closing price on June 23, it said on Wednesday. When trading started it Stockholm, its shares jumped as much as 38%. Evolution’s stock price fell as much as 10%. Evolution said it had already secured unanimous backing from the board of directors of NetEnt to move ahead with the transaction. Shareholders representing about 21% of the company and 45% of the votes in NetEnt have agreed to the takeover, Evolution said.
- Europcar stock surges as much as 17%, day’s top performer on the French market, after Volkswagen is said to be exploring an offer for the car-rental company. Considerations are at an early stage, according to people familiar with the matter, and follow Europcar’s moves last year to look at the future as top shareholder Eurazeo considered withdrawing
- KKR & Co. has raised more than $10 billion for its third Asia fund, on track to amassing the biggest buyout war chest ever assembled by a U.S. private equity firm for the region, people familiar with the matter said. The New York-based buyout giant has achieved 80% of its $12.5 billion target within seven months of official launch and plans to close the first round by the end of this month, the people said, asking not to be identified because the matter is private. At its full size, the fund would surpass a record $10.6 billion raised by Hillhouse Capital Group for Asia in 2018. KKR has been on a buying spree globally this year, snapping up assets after valuations plunged as the spread of the coronavirus grounded the global economy. Bigger funds with a long track record such as KKR have benefited from the turmoil, weathering better a drop in the flow of cash triggered by the virus outbreak and the trade war.
- As Europe prepares a multi-billion-dollar blitz to cut greenhouse gas emissions, a race is on to cash in on the green transformation of the nation with the region’s most polluting power plant. Poland, which currently relies on coal for more than 70% of its electricity generation, is stepping up efforts to replace the dirty fuel with renewable energy. As the country finalizes its 2040 energy policy, some of the world’s biggest players in renewables are seeking to capture a share of the market. It marks a drastic turnaround for Poland’s ruling Law & Justice party, which went from a blocker of wind farms to booster, amid the plummeting cost of renewables and a public backlash against some of the dirtiest air on the continent. The government’s shift also comes as the European Commission proposes linking its 750 billion-euro ($841 billion) economic stimulus program to the bloc’s climate goals.
- British shopkeepers slowly emerging from three months of forced closure have a new problem on their hands: the rent is due. Third quarter rents for the country’s commercial properties are billed on Wednesday with about 2.5 billion pounds ($3.1 billion) owed by retailers alone, according to the British Property Federation. While mall landlords eventually got about half the rent owed for the second quarter, government curbs on their ability to force payments mean they may get even less this time around.
- The halting of a British pork plant’s sales to China after just a few workers contracted coronavirus highlights the risk that more facilities around the world could see exports disrupted. China’s customs authorities said that a division of the U.K.’s Tulip Ltd. and a beef unit of Brazil’s Agra voluntarily stopped shipments to China after some workers tested positive. Tulip said three of its 640 workers at its Tipton, England, site tested positive — a relatively small amount compared with recent outbreaks at meat plants in Europe and the Americas. The news follows China’s suspension of poultry imports from a Tyson Foods Inc. plant in the U.S., where hundreds of cases were reported, and a German abattoir has also voluntarily halted pork exports to the Asian country. While food consultant Gira said some companies may have freely stopped sales to China to avoid risking a ban, it raises concerns about interruption to trade.
- Indonesia’s government will place more than $2 billion at state-owned banks at a lower interest rate to boost lending to industries ravaged by the coronavirus pandemic, expanding the scope of its fiscal stimulus to revive the nation’s economy. PT Bank Rakyat Indonesia, PT Bank Mandiri and PT Bank Negara Indonesia are among state lenders which can tap 30 trillion rupiah ($2.1 billion) of government funds with Bank Indonesia at 80% of central bank’s benchmark interest rate, according to Finance Minister Sri Mulyani Indrawati. The scope and size of the program may be expanded after a review in three months, she said at a briefing in Jakarta Wednesday.
- GNC Holdings Inc. filed for bankruptcy protection with the aim of selling itself and closing stores after its latest effort to manage its debt load unraveled amid the coronavirus pandemic. The health and wellness company’s Chapter 11 petition filed in U.S. Bankruptcy Court in Delaware allows the retailer to keep operating while it pursues a dual-track process to restructure its balance sheet in a standalone plan or complete a sale, according to a statement. GNC entered into the process with support from a majority of its secured lenders and an affiliate of its largest shareholder, Harbin Pharmaceutical Group Holding Co., the Pittsburgh-based company said in the statement. The agreement also includes its largest vendor and joint venture partner, IVC. Certain lenders also provided $130 million in additional liquidity to financially support the company through its proposed restructuring.
*All sources from Bloomberg unless otherwise specified