June 30th, 2020
Daily Market Commentary
- Cineplex Inc. struck a deal with lenders for C$250 million ($183 million) in new financing as it deals with an uncertain future after a failed takeover. Canada’s dominant chain of movie theatres said lenders had agreed to relax covenants because of the Covid-19 pandemic, though some of the new money it’s borrowing must be used to repay existing debt. The company shut all of its venues on March 16 and most remain closed, though it plans to open some outlets in six provinces starting on Friday. The Toronto-based company reported a loss of C$178 million for the quarter ended March 31. Cineplex said the loss included a writedown of C$173 million on property and other assets and acknowledged that the business will take a long time to recover from the pandemic.
- China suspended meat imports from more plants as the Asian nation continues to sow confusion in global agriculture markets by suggesting a potential link between the spread of coronavirus and food. Customs authorities suspended imports from plants in countries including Brazil, Canada and Germany, according to a notice on a departmental website. While China didn’t provide a reason for the suspension, most, if not all, of the facilities had one thing in common: Covid-19 outbreaks. The country has taken some unexpected steps in recent weeks, stirring controversy when its companies asked food suppliers around the world to sign a document attesting their cargoes meet safety standards to ensure they aren’t contaminated with the virus. Exporting nations and regulatory agencies have pushed back, declaring there’s no evidence linking infections to food.
- Yoga-pants retailer Lululemon Athletica Inc. agreed to buy Mirror, a maker of in-home fitness equipment, for $500 million, broadening a partnership that began last year as exercise increasingly moves away from traditional gyms. Mirror will operate as a standalone company within Lululemon and retain its chief executive following completion of the deal, the companies said Monday in a statement. The purchase will be paid from Lululemon’s primary sources of liquidity, including $800 million in cash and $700 million in credit facilities.
- European shares fell on the final day of their best quarter since March 2019, as investors continued to weigh the region’s economic recovery against the risk of rising virus infections. The Stoxx Europe 600 Index was down 0.3% as 10:01 a.m. in London, after opening 0.5% higher, with the World Health Organization warning that the worst of the coronavirus pandemic is still to come. Banks led losses, while Royal Dutch Shell Plc dragged energy shares lower after saying it will write down up to $22 billion in the second quarter. The benchmark is still up 12% for the quarter, boosted by a strong rotation into cyclicals since mid-May.
- U.S. index futures slide, indicating a negative open for major stock indexes, as a jump in new coronavirus cases clouds optimism around businesses’ reopening. The World Health Organization warned that the worst of the coronavirus pandemic is still to come because of a lack of global solidarity. More U.S. areas took steps to scale back reopenings, with Arizona closing bars and New Jersey halting plans for indoor dining.
- Japanese shares climbed, following U.S. peers higher after strong economic data and upbeat earnings forecasts from U.S. chipmakers. Most Topix index industry groups rose, with the biggest boost coming from a subindex of electric appliance makers, which capped its best quarter since December 2012. The Nikkei 225 Stock Average logged its biggest quarterly gain in seven years, with an 18% rise for April-June. The yen weakened against the dollar for a fifth session.
- Oil edged lower as the resurgence of the coronavirus in the U.S. continued to dampen the prospects of a broader demand recovery. Futures in New York fell 1.3% toward $39 a barrel. With the coronavirus running rampant across southern and western America and many states pausing or reversing reopening measures, the outlook for energy demand in the world’s largest economy remains uncertain. Oil prices are also being put under pressure by the prospect of returning supply from Libya.
- Gold headed for the biggest quarterly advance since 2016 amid a surge in demand for haven assets due to the coronavirus outbreak, which shows no signs of abating. Bullion has been rising due to a resurgence in virus infections, with new hot spots emerging and the World Health Organization warning that the worst of the pandemic is still to come because of a lack of global solidarity. More U.S. areas took steps to scale back reopenings, while Australia’s Victoria is imposing a four-week lockdown in some parts of the metropolis of Melbourne in an attempt to contain a spike in cases.
- Boris Johnson is setting out his vision for dragging the U.K. economy out of what may be its deepest recession in 300 years, with a program to spend billions of pounds on infrastructure to build back to prosperity. In a major speech on Tuesday, the U.K. prime minister confirmed his commitment to long-term investment in some of the country’s most deprived regions, arguing that balancing the books must wait until recovery is secure. Reprising spending pledges he made before December’s general election, Johnson’s office announced the acceleration of 5 billion pounds ($6.2 billion) of investment in roads, schools and hospitals and promised to publish a strategy for further capital spending in the fall.
- The Trump administration made it harder to export sensitive American technology to Hong Kong, escalating pressure on China as lawmakers in Beijing prepared to hand down a national security law that limits the former British colony’s autonomy. The U.S. Commerce Secretary Wilbur Ross said in a statement Monday that the security legislation, which China’s top legislative body approved Tuesday, raised concerns about the transfer of key technology. The Commerce Department said it was suspending regulations allowing special treatment to Hong Kong over things including export license exceptions. “With the Chinese Communist Party’s imposition of new security measures on Hong Kong, the risk that sensitive U.S. technology will be diverted to the People’s Liberation Army or Ministry of State Security has increased, all while undermining the territory’s autonomy,” Ross said, providing little detail on specific impacts. “Further actions to eliminate differential treatment are also being evaluated.”
- Prosus NV pledged to maintain an aggressive investment strategy even as the Covid-19 pandemic pushes dealmaking to the lowest in more than two decades, with food delivery, classified advertising and online payments all showing signs of life. The Amsterdam-based e-commerce giant that’s majority owned by Naspers Ltd., Africa’s biggest company, has about $7 billion in cash and available credit facilities, according to a statement late Monday. And the group sees no reason to batten down the hatches, Chief Executive Officer Bob van Dijk said in a phone interview.
- Royal Dutch Shell Plc said it will write down between $15 billion and $22 billion in the second quarter, as the company gave investors a wider glimpse of just how severely the coronavirus crisis has hit Big Oil. The pandemic left no part of the energy giant’s sprawling business unscathed. Shell lost money from pumping oil, fuel sales fell and shipments of everything from liquefied natural gas to petrochemicals suffered.
- The Federal Reserve is preparing for the possibility of an economically debilitating second wave of coronavirus infections even as it’s hoping that can be avoided. In launching the Main Street and corporate lending facilities this month and starting to buy corporate bonds, the central bank has laid the groundwork for stepped-up support for the economy and financial markets should they be undermined by fresh outbreaks of the virus.
- Uber Technologies Inc. is in talks to purchase Postmates Inc., said a person familiar with the discussions, seeking to expand food delivery services in the U.S. and capitalize on a surge in orders during the coronavirus pandemic. Postmates is alternatively exploring various paths to go public, said the person, who asked not to be identified because the discussions are private. One option it’s considering would involve merging with a special purpose acquisition company, the person said. In the talks with Uber, a deal could value Postmates at $2.6 billion, according to the Wall Street Journal. Representatives for Uber and Postmates declined to comment. The New York Times reported earlier Monday that Uber had made an offer to acquire Postmates.
- China’s largest banks have $1.1 trillion in dollar funding at stake and face potentially steep fines from U.S. legislation that targets penalizing lenders doing businesses with Chinese officials involved in Hong Kong’s controversial security law, according to Bloomberg Intelligence. The bipartisan measure, which was passed by the U.S. Senate and still needs to go through the House and be signed by the U.S. President, bars financial institutions from providing accounts to sanctioned officials, many of whom may be assumed to use the services of China’s biggest banks, Francis Chan, a senior analyst at BI in Hong Kong, said in a June 30 note. Banks in violation risk being cut off from accessing the U.S. financial system, he said.
- Philip Morris International Inc. signaled that cigarettes may start becoming obsolete within a decade in some markets as smokers switch to alternative products for nicotine. “I am convinced it is possible to completely end cigarette sales in many countries within 10 to 15 years,” Chief Executive Officer Andre Calantzopoulos said in a sustainability report published Tuesday. He said the help of regulators is needed to make that possible. The maker of Marlboro and Chesterfield cigarettes has been saying it sees a “smoke-free future,” and now has started giving a concrete timeline. Philip Morris has a lead in smoking alternatives with its IQOS heated-tobacco device, though competitors such as Juul has been nipping at its heels. The company gets almost a fifth of its revenue from non-combustible products.
- Norwegian Air Shuttle ASA has notified Boeing Co. that it is terminating purchase agreements for all 97 of its remaining jets on order, citing the prolonged grounding of the 737 Max and engine problems with the 787 Dreamliner. The decision covers 92 of Boeing’s Max narrow-body planes, five of the long-distance Dreamliners and a related maintenance pact, Norwegian said in a statement. The airline, which last month reached a rescue deal with its lenders after the Covid-19 virus decimated air travel, said it also filed a legal claim seeking the return of pre-delivery payments for the jets plus compensation tied to the Max’s 15-month idling. The termination roils Boeing’s relationship with one of its largest customers in Europe, even if Norwegian’s financial troubles had cast doubt on its ability to take all the planes. The airline has converted about $1.5 billion of debt into equity and accessed government loan guarantees to stave off a collapse.
- BNP Paribas SA is leading a charge by French lenders lobbying to resume dividend payments as they seek to shore up slumping share prices because of the coronavirus, according to people familiar with the matter. The French bank is among the most vocal parties seeking to convince the European Central Bank to permit payouts in the fourth quarter, the people said, asking not to be named as the talks are private. Some ECB supervisory board members are sympathetic and are arguing for individual banks to be allowed to make small payments this year, the people said. French lenders had promised some of the fattest investor payouts this year and saw their shares hit hard by the ECB’s call to hold off dividends until at least October. The central bank indicated it was a necessary trade-off after it allowed lenders to tap into capital buffers and offered them unprecedented relief. ECB supervisory board chairman Andrea Enria said earlier in June that the watchdog would make a decision on dividends in July.
- Poland is offering three-year bonds in euros, joining an unprecedented wave of issuance from east Europe with its first deal in the international debt markets since the start of the Covid-19 pandemic. The region’s largest economy is in the market with a benchmark three-year bond at a spread of 29 basis points above midswaps, according to a person familiar with the deal who asked not to be named as they aren’t authorized to speak about it publicly. Demand for the bond has exceeded 4.5 billion euros ($5 billion) the person said. Poland has focused on domestic funding sources during the pandemic, supported by central bank purchases worth over 96 billion zloty ($24 billion). Its most recent euro-denominated bond sale, in which it became the first emerging-market sovereign to get paid for borrowing in euros, took place in February.
- Chinese President Xi Jinping signed a landmark national security law for Hong Kong, a sweeping attempt to quell dissent that drew fresh U.S. retaliation and could endanger the city’s appeal as a financial hub. The National People’s Congress Standing Committee earlier Tuesday adopted a decision to write the legislation into the former British colony’s law, the official Xinhua News Agency reported. The law will come into effect later on Tuesday and will be put in the official government gazette as soon as possible, Hong Kong Chief Executive Carrie Lam said in an evening statement.
- China Vanke Co., the nation’s largest listed residential developer, has sold a $5.5 billion stake in a portfolio of distressed real-estate assets, boosting its cash buffers. The 50% stake was purchased by a group of seven investors including bad-debt specialist China Cinda Asset Management Co., Vanke said in an exchange filing late Monday. It’s the second-largest asset sale by a listed Chinese developer, behind Dalian Wanda Group Co.’s $9.4 billion disposal of hotel and theme park assets in 2017. The deal will also give Vanke a liquidity injection, lifting cash to 2.2 times short-term debt from 1.9 times at the end of March, according to Bloomberg Intelligence analysts led by Carmen Lee. That will help the firm more easily handle the recent sales plunge triggered by the coronavirus outbreak, they said.
- The U.S. is again grappling with a shortfall of testing that has hobbled the nation since the pandemic’s early weeks, and now threatens to further undermine containment efforts at a crucial moment. In new hot spots like Arizona, Texas and Florida, where Covid-19 is rapidly spreading, lines for testing extend outside of urgent-care offices and other sites. Two high-school football stadiums in Houston regularly hit capacity by mid-morning and have to turn people away. The country’s largest labs are forecasting a surge in demand that could lead to longer waits for test results, and have warned that limited amounts of critical testing supplies could become a constraint. Though capacity has expanded, widespread testing remains elusive, in part due to persistent supply shortages.
- The Food and Drug Administration plans to release guidance Tuesday outlining its conditions for approving a Covid-19 vaccine, including a requirement that any vaccine be at least 50% more effective than a placebo in preventing the disease. The FDA said that no vaccine would be approved unless a vaccine company had “clearly demonstrated” proof of a vaccine’s safety and effectiveness through a clinical study, according to a summary of the guidance viewed by The Wall Street Journal. According to the summary, the FDA also said a vaccine wouldn’t be approved simply if it leads to antibodies in the bloodstream of patients, on grounds that it is not known what level of antibodies will confer protection to patients.
- Netflix Inc. will shift up to $100 million to lenders that serve the Black community, making it the largest company yet to pledge cash to historically underfunded financial institutions. The online TV giant will start by shifting $25 million into the Black Economic Development Initiative, a new fund that will invest in Black-owned financial institutions serving low-income communities, and $10 million to Hope Credit Union. Going forward, the company will steer 2% of its cash on hand, which currently amounts to about $5 billion, to financial organizations that directly support African-American communities.
- President Donald Trump has publicly shrugged off allegations that Russia offered bounties to kill American troops in Afghanistan, reigniting concerns that he’s more interested in preserving ties with the Kremlin than defending U.S. interests. Trump has yet to demand an investigation or threaten Russia with any consequences if the allegations are confirmed — even as lawmakers from both parties demanded the administration hold Russia accountable if there is evidence that the bounty offers occurred. Trump’s only public remark on the reports was a tweet that an intelligence official he didn’t name told him the bounty allegations weren’t credible — even though White House Press Secretary Kayleigh McEnany told reporters on Monday that there’s no consensus on their veracity.
- The Federal Reserve became one of the top holders in some of the world’s largest credit ETFs less than two months after stepping into the market. The central bank owns more than 13 million shares of the $54 billion iShares iBoxx $ Investment Grade Corporate Bond exchange-traded fund (LQD) as of June 16, making it the third-largest holder, according to data compiled by Bloomberg. Only Bank of America Corp. and Fisher Asset Management — both of whom have yet to file their second-quarter holdings — own more shares than the U.S. central bank.
*All sources from Bloomberg unless otherwise specified