June 29th, 2020
Daily Market Commentary
- The wild ride of Canada’s stock market in 2020 shows no signs of abating soon. That’s the message from strategists who are expecting choppy months ahead as investors worry about a second coronavirus wave and plunging corporate profits amid a global recession, trade tensions and U.S. elections. “Now that we’re coming into the summer, it’s going to be more of a second guess of really what’s going on because we’ve still got a ton of volatility ahead of us,” said Greg Taylor, chief investment officer at Purpose Investments. “We’re not out of the woods of volatility. It’s already been a volatile year for markets, but I don’t think it’s going to end anytime soon.” As quickly as the Canadian market plunged into bear-market territory in March, it surged even more rapidly into a bull zone. Since the March 23 bottom, the S&P/TSX Composite Index has climbed 35% — with plenty of bumps along the way. It’s still down 11% for the year. Market swings paint a picture of a volatile first half. The TSX has moved 1% or more in either direction 54 days so far in 2020, the most since 2011, according to data compiled by Bloomberg. There have been eight such days in June, though the gains and losses have mostly cancelled each other out: the index is flat this month.
- European equities fell at the start of the week amid concerns about the rising number of new Covid-19 cases. The Stoxx Europe 600 Index dropped as much as 0.6% after earlier rising 0.3%. The oil sector led the decline as Brent crude fell, while the personal and household goods industry group was also one of the biggest laggards.
- U.S. equity futures fluctuated with European stocks as investors weighed stimulus measures against the accelerating virus spread in the U.S. and Brazil. Facebook Inc. fell in pre-market trading as more companies halted social media spending. The dollar slipped against its major peers, while the yield on Treasury five-year notes traded close to a record low. Poland’s zloty rose after presidential election results triggered a run-off.
- Japanese shares fell by the most in two weeks as global coronavirus cases and deaths passed sobering milestones, forcing investors to rethink the prospects for economic recovery. Technology companies weighed most heavily on the Topix index as all industry groups declined. Stocks including Honda Motor Co., Canon Inc. and Japan Tobacco Inc. traded without rights to the next dividend, shaving about 31 points off the Nikkei 225 Stock Average.
- Oil steadied in New York as the boost from a weaker dollar offset concern that the resurgence of coronavirus will crimp fuel demand. Futures held above $38 a barrel, recouping earlier losses of 2.6% as the slide in the U.S. currency made dollar-priced commodities an attractive hedge. Still, sentiment in crude markets remained fragile after last week’s 3.2% slide. Deaths from the pandemic topped half a million globally, cases rose past 10 million and a United Nations agency reported the most infections for a single day. A surge in infections across the southern and western U.S. is causing states including Texas to reinstate measures to halt its spread.
- Boeing Co. climbed after U.S. aviation regulators said they’d approved a critical set of test flights on the 737 Max to begin as soon as Monday, having reviewed the company’s safety assessment of fixes for the plane. The Federal Aviation Administration confirmed the start of the multiday program in an email to Congressional staffers on Sunday. “Over the past several weeks the FAA has been reviewing the system safety assessment submitted by Boeing,” the agency said in the email. “The FAA’s Type Inspection Authorization Board has completed its review, clearing the way for flight certification testing to begin.”
- BP Plc agreed to sell its chemicals business to Ineos Group Holdings SA, taking a big step toward strengthening its finances while also furthering its transitioning away from being a traditional oil company. The transaction means BP hits its target of selling $15 billion of assets ahead of schedule, as the oil industry faces immense financial pressure from the coronavirus crisis. The company recently made its biggest write-off in a decade and said it would lay off 10,000 staff by the end of this year. The announcement comes just months after new Chief Executive Officer Bernard Looney set the London-based energy giant on course to eliminate its carbon emissions by 2050, a radical step that has since been followed by its peers.
- Chesapeake Energy Corp., the archetype for America’s extraordinary shale-gas fortunes, filed for bankruptcy, becoming one of the biggest victims of a spectacular collapse in energy demand from the virus-induced global lockdown. The Oklahoma City-based company filed for Chapter 11 protection from creditors in U.S. Bankruptcy Court in the Southern District of Texas on Sunday, listing assets and liabilities in the range of $10 billion and $50 billion, and more than 100,000 creditors. The company also entered into an agreement to eliminate about $7 billion in debt and secure $925 million in debtor-in-possession financing.
- The U.S. and China are moving beyond bellicose trade threats to exchanging regulatory punches that threaten a wide range of industries including technology, energy and air travel. The two countries have blacklisted each other’s companies, barred flights and expelled journalists. The unfolding skirmish is starting to make companies nervous the trading landscape could shift out from under them. “There are many industries where U.S. companies have made long-term bets on China’s future because the market is so promising and so big,” said Myron Brilliant, the U.S. Chamber of Commerce’s head of international affairs. Now, they’re “recognizing the risk.”
- China moved to further deepen its economic ties to Hong Kong, allowing two-way cross border purchases of wealth products at the same time as authorities in Beijing push to quell dissent in the former British colony. Regulators on Monday announced the kick off of a long anticipated program dubbed Wealth Management Connect, which will allow Hong Kong residents and people in Macau and southern China to invest across the border. Flows under the program will be handled in a “closed-loop” through the bundling of designated remittance and investment accounts, the People’s Bank of China said in a joint statement with the monetary authorities of Hong Kong and Macau.
- Investors added money to exchange-traded funds that buy emerging market stocks and bonds last week, ending two weeks of outflows that reached $1.01 billion. Inflows to U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $319.8 million in the week ended June 26, compared with losses of $623.8 million in the previous week, according to data compiled by Bloomberg. So far this year, outflows have totalled $17.5 billion.
- Coty Inc. agreed to buy a 20% stake in Kim Kardashian West’s beauty business for $200 million to develop skin, hair and nail products under the reality TV star’s brand. Coty said Monday it expects the acquisition to be complete in the third quarter, and all the products will be sold through luxury beauty retailers as well as online. The shares were 17% higher at $4.90 in pre-market trading in the U.S. Monday. The stock has fallen 63% this year through Friday.
- Facebook Inc. shares were poised to fall for a second dayafter more businesses, including Starbucks Corp. and Diageo Plc, joined the growing number of brands planning to halt spending on social media, undermining the company’s growth outlook. Shares declined about 2.5% in early trading before markets in New York opened on Monday. The stock had tumbled 8.3% Friday after Unilever, one of the world’s largest advertisers, said it would cease spending on Facebook properties this year, eliminating $56 billion in market value and shaving the net worth of Chief Executive Officer Mark Zuckerberg by more than $7 billion. Shares closed at $216.08 Friday after reaching a record $242.24 the preceding Tuesday.
- China’s state-owned oil refining giants are in discussions to form a purchasing group to buy crude together, increasing their bargaining power and avoiding bidding wars. Senior executives from China Petroleum & Chemical Corp., PetroChina Co., Cnooc Ltd. and Sinochem Group Co. are in advanced talks to iron out details of the plan, said people familiar with the initiative, who asked not to be identified as discussions are private and ongoing. The proposal has won the support of the Chinese central government and relevant industry watchdogs, the people said.
- BP Plc agreed to sell its chemicals business to to Ineos Group Holdings SA, taking a big step in its transition away from being a traditional oil company, while also raising vital funds. The announcement comes just months after new Chief Executive Officer Bernard Looney set the London-based energy giant on course to eliminate its carbon emissions by 2050, a radical step that has since been followed by its peers. The transaction also means BP hits its target of selling $15 billion of assets ahead of schedule, as the oil industry faces immense financial pressure from the coronavirus crisis. The company recently made its biggest write-off in a decade and said it would layoff 10,000 staff by the end of this year.
- Gilead Sciences Inc. said it will charge the U.S. government and other developed countries $390 per vial for its coronavirus-fighting drug remdesivir, or about $2,340 for a typical five-day course of treatment. Gilead said in a statement Monday it would offer this price to developed countries around the world, in order to create a one-price model that would avoid the need for country-by-country negotiations that could slow down access. The $390 per vial price is for government entities. Once supply is less tight and Gilead starts selling the drug in normal distribution channels, the list price for private insurance companies and other commercial payers in the U.S. will be $520 a vial, or $3,120 for a five-day course.
- The $700 billion CLO market will soon be able to purchase junk bonds and potentially other, riskier securities alongside leveraged loans after U.S. regulators eased constraints on some of their biggest investors. The Federal Reserve, Office of the Comptroller of the Currency and Federal Deposit Insurance Corp. approved changes to the Volcker Rule on Thursday that expand the types of securities that banks can invest in, paving the way for CLOs to once again include bonds in their pools of assets. What’s more, the moves could possibly allow them to buy equity and equity-like securities, according to some initial interpretations of the new regulations. The changes hearken back to the pre-crisis days for collateralized loan obligations, which previously had more latitude to decide what assets they bundled and sold into securities of varying risk and return. In 2015, Volcker Rule provisions limiting Wall Street banks from investing in so-called covered funds essentially did away with that leeway. Beginning Oct. 1, those restrictions are expected to change, allowing CLOs to have bond buckets of up to 5% of their assets without being considered covered funds.
- Russia dismissed U.S. intelligence findings reported by American media that it paid bounties for the Taliban to kill American and allied soldiers in Afghanistan as “fake news.” The intelligence assessments are part of the domestic political battle in the U.S. ahead of November presidential elections, said Zamir Kabulov, President Vladimir Putin’s envoy to Afghanistan. “It’s hard to explain otherwise the appearance of such stupidities,” Kabulov told Bloomberg by phone Monday.
- Turkish authorities are working on removing the ban on short selling for some of the largest local shares as early as July 1, according to people with direct knowledge of the matter. The restrictions will be lifted initially for members of the Borsa Istanbul 30 Index, with clearing house Takasbank activating a new automation system to facilitate the move, the people said, speaking on condition of anonymity as the plans aren’t public. Turkey banned short selling on banking stocks in October after the U.S. filed an indictment against a local lender. The prohibition on betting on share declines was extended to the whole market in February as tensions increased between Turkey and Russia over Syria and as the spread of the coronavirus caused a rout in global equities.
- Wirecard AG’s collapse has laid bare significant cracks in Germany’s financial oversight, increasing pressure on Chancellor Angela Merkel’s government after one of the country’s biggest corporate failures. Even with ample warning, German authorities failed to catch accounting issues at the digital-payments company. Slow decision-making, insufficient oversight and fragmented responsibilities created cracks that allowed Wirecard’s problems go undetected by officials. Germany is one of relatively few countries to split accounting enforcement between a private-sector watchdog and its markets regulator, while the investigation of money laundering at non-financial companies is handled by regional authorities. With the fallout risking the country’s reputation as a place to do business, the government is now pushing for reform.
- Singapore will cut back on military spending for the foreseeable future until the trade-dependent nation sees signs the economy is recovering from the impact of the coronavirus pandemic, according to its defense minister. While the city-state hasn’t compromised on security operations and pertinent acquisitions and is planning to resume overseas training soon, it is facing budgetary pressures, Minister of Defense Ng Eng Hen told reporters last week ahead of the Singapore Armed Forces (SAF) Day celebrations on July 1. The Ministry of Defence “and the SAF are taking measures to cut cost where we can without compromising critical operations or reduction in SAF’s medium and long term capabilities,” he said. “We will continue to be prudent in our spending but I think all of us know that we will have to tighten our belts for this year, even the next, even 2022, until the economy fully recovers.”
- Investors including Tencent Holdings Ltd. and private equity giant Primavera Capital are joining a funding round that values Chinese grocery delivery upstart Xingsheng Youxuan at $3 billion, people familiar with the matter said. The two companies are bankrolling one of the more recent entrants to a sector galvanized by the pandemic. The latest financing of about $300 million for Xingsheng Youxuan triples the company’s price tag from its last funding round in 2019, the people said, asking not to be identified because the information is private. Tencent — which also backs grocery-delivery rival Missfresh — will participate though it hasn’t decided on how much capital to put in, one of the people said.
- Temasek Holdings Pte is prepared to drop a S$4 billion ($2.9 billion) bid for control of Keppel Corp. should the Singaporean conglomerate’s next earnings report trigger a clause that allows it to walk away, according to people familiar with the matter. The state investment firm is keeping a close tab on Keppel’s financials considering any significant impairment could trigger so-called material adverse change clauses, said the people, who asked not to be identified as the information is private. Temasek can’t adjust its offer price in accordance with the terms of the deal, leaving it little wiggle room, the people said.
*All sources from Bloomberg unless otherwise specified