June 3rd, 2020
Daily Market Commentary
- Canada stocks rose with global markets as investors weighed new bouts of stimulus and positive economic signals as coronavirus lockdowns ease. The S&P/TSX Composite Index rose 1% in Toronto. Consumer discretionary and energy stocks outperformed, while materials fell. Meanwhile, one of Canada’s railways is seeing signs the economy is slowly bouncing back from the coronavirus pandemic. Volumes rose 4% at Canadian National Railway Co. in the last week of May as manufacturing and construction sectors reopened, said Chief Financial Officer Ghislain Houle. While the recovery is expected to be slow, it’s a positive sign after shipments hit bottom last month, he said. On the deals front, Fairfax Financial Holdings Ltd. said it isn’t making and isn’t engaged in making a bid for BlackBerry Ltd., BNN Bloomberg reported, citing an email from Fairfax’s general counsel. BlackBerry rose 7.6%, bringing its two-day gain to 13%.
- It would be hard for Tiff Macklem to imagine a worse economic backdrop to begin his seven-year term as Bank of Canada governor. One quarter of the nation’s labor force is out of work after the coronavirus pandemic and an oil-price crash triggered the deepest recession in the postwar era. Tens of thousands of Canadian businesses will almost certainly close in the next several months, bringing lasting damage to an economy that was struggling even before the crisis, and is seen lagging the recovery in the U.S. For Macklem, most recently dean of the University of Toronto’s business school, that will mean testing the limits of debt accumulation in a country that — with total government, corporate and household liabilities topping 300% of gross domestic product — is already one of the most-highly leveraged in the world.
- Canada’s residential real estate market is bouncing back from coronavirus shutdowns. Home sales and prices rose in Toronto in May from the near freeze-up of activity caused by the pandemic in early spring. Sales in and around Toronto rose 53% from April on a seasonally adjusted basis as new listings surged almost 48% and the average price climbed 4.6%, according to Toronto Regional Real Estate Board. From a year ago, prices rose 3% in May to an average C$863,599 ($638,710) from a year ago, the data show.
- Cyclicals led gains in European stocks on Wednesday as risk-on sentiment spurred by stimulus bets and reopening economies was further supported by output data that was less severe than initially estimated. The Stoxx Europe 600 Index advanced 1.1% as of 9:41 a.m. in London, holding gains after a gauge of economic activity in the 19-nation euro region rose in May to the highest in three months. Insurers, carmakers and banks were top performers, while health-care was the only sector to fall. Germany’s cyclical-heavy DAX Index climbed 1.7%, rising above its 200-day moving average for the first time since August 2019. A rebound in European equities has regained momentum this week, despite growing U.S.-China tensions, with the Stoxx 600 trading near a three-month high. Investors expect more stimulus measures from Thursday’s European Central Bank meeting.
- The global rally in stocks held its momentum Wednesday as investors clung to optimism for a quick economic recovery from the coronavirus pandemic and looked past protests in U.S. cities. Treasuries dipped with gold, while a dollar gauge hit its lowest level since early March. Futures rose on both the S&P 500 Index and the Nasdaq 100, which closed on Tuesday within 1% of its record high.
- In Asia, South Korean shares advanced the most after the country detailed a third round of fiscal stimulus, while Singapore’e benchmark entered a bull market. Brent crude failed to sustain a rally above $40 after a meeting between OPEC and its allies this month was thrown into doubt as Saudi Arabia and Russia drew a hard line over quota cheating by some nations.
- Oil erased gains as the OPEC+ meeting was put in doubt over cheating by some nations on their output-cuts deal. The producer group won’t hold an early meeting on June 4, and a scheduled gathering next week was also threatened, unless all nations first agree to cut output by as much as they promised, according to people familiar with the negotiations. The alliance had been expected to prolong their record cutbacks instead of easing them next month.
- Gold declined for a second day as a global rally in equities continued amid investor optimism over a quick economic rebound from the coronavirus crisis. Activity in China has recovered to 80% to 85% of pre-virus levels, according to Bloomberg Economics. Most havens felt the pressure, even as civil unrest continued across America and simmering tensions between China and the U.S. threatened their hard-won trade deal. Traders meanwhile continue to pull money out of Comex gold, pushing the aggregate open interest in futures contracts to the lowest in a year. That’s a legacy of the turmoil in March that saw prices in New York soar above those in other trading centers amid panic and logistical disruptions triggered by the pandemic.
- The architect of Sweden’s controversial coronavirus strategy said his plan led to too many deaths. Austria is lifting border controls with all its neighbors, except Italy. Brazil announced a record daily death toll, while in the U.S. President Donald Trump said the Republican Party is considering moving its national convention from Charlotte, North Carolina. The U.K. will publish details of its 14-day quarantine plan for all arrivals from overseas, effective June 8. Prime Minister Boris Johnson is planning a financial statement and a speech on the post-pandemic landscape. China said its one new virus case was imported, and South Korea reported 49 new cases, mostly around Seoul, with one more death. Indonesia said its budget deficit would widen, while Lion Air grounded flights indefinitely
- German unemployment rose to the highest level since late 2015, underscoring the struggle that even countries with well-established safety nets face in shielding workers from the pandemic-induced crisis. The number of people out of work rose by 238,000 in May, following an even bigger jump the previous month, according to the Federal Labor Agency in Nuremberg. Economists at the agency’s IAB research arm predict joblessness could rise above 3 million in the course of the year, compared to May’s level of 2.875 million.
- Large-scale protests continued across the U.S. Tuesday night as demonstrators again clashed with law enforcement near the White House. But overall, Americans are waking up to reports of a calmer evening than in recent days. From New York to Los Angeles, demonstrators once again massed to speak out against the killing of George Floyd, an unarmed black man who died after a white Minneapolis police officer knelt on his neck for more than eight minutes. The incident has renewed concerns about police use of force that helped spark the Black Lives Matter movement. The racial tensions laid bare by the nationwide protests also have revealed a problem for presumptive Democratic presidential nominee Joe Biden in the November election: He doesn’t excite younger black voters who want change, not just a sympathetic ear.
- Tiffany & Co. plunged after Women’s Wear Daily reported LVMH’s $16 billion deal to buy the jeweler is uncertain as the U.S. economy faces widespread upheaval. Board members of the French luxury giant arranged to meet Tuesday to discuss the planned acquisition, WWD reported, citing unidentified individuals. Directors are concerned about the Covid-19 pandemic that has disrupted the U.S. economy and growing unrest over police violence, the fashion publication said. They also expressed worries over Tiffany’s ability to cover its debt covenants at the end of the transaction. Tiffany shares fell 8.9% to $117.03 Tuesday, the steepest intraday drop since 2015. LVMH, which has agreed to pay $135 a share for Tiffany, was little changed in Paris trading Wednesday.
- Celebrity makeup brand Charlotte Tilbury is nearing a sale to Puig, the Spanish company behind Paco Rabanne perfumes, in a deal valuing the business at more than $1 billion, people familiar with the matter said. An agreement to buy U.K.-based Tilbury could be announced as early as this week, said the people, who asked not to be identified because discussions are private. Puig, which also sells Jean Paul Gaultier and Nina Ricci fragrances, is in talks to team up with Byron Trott’s investment firm BDT Capital Partners on the purchase, the people said.
- Warner Music Group Inc.’s shareholders have raised $1.93 billion in an upsized initial public offering that ranks as one of the biggest U.S. listing this year. Investors in the company sold 77 million shares at $25 apiece, above the midpoint of a marketed range, Warner Music said in a press release Wednesday. The company’s backers were earlier marketing a sale of 70 million shares at $23 to $26 each. The listing signals the renewed strength of U.S. offerings after a hiatus brought on by the pandemic. With homebound consumers looking for entertainment, the New York-based company’s emphasis on streaming revenue has resonated with investors.
- Prime Minister Boris Johnson said he will give as many as three million Hong Kong residents the chance to seek refuge and a new life in the U.K. if China presses ahead with plans to impose a new security law on the former British colony. The premier’s intervention marks an escalation in London’s pressure on Beijing over its proposals for a law that democracy advocates say will erode the rights and freedoms of the people of Hong Kong. China warned that it would “backfire.” “Many people in Hong Kong fear their way of life, which China pledged to uphold, is under threat,” Johnson wrote in an article published in The Times of London newspaper. “If China proceeds to justify their fears, then Britain could not in good conscience shrug our shoulders and walk away; instead we will honor our obligations and provide an alternative.”
- Italy scored record investor orders for its latest debt sale as credit risk eased for a third day on optimism that global economies are starting to get back to normal. The nation pulled in more than 100 billion euros ($112 billion) of bids for a 10-year note just a day before the European Central Bank is expected to announce more monetary stimulus to help the region’s economies through the coronavirus fallout. Risk-on sentiment has also spurred Virgin Media to offer pound-denominated high-yield notes, while Danone joined a growing list of repeat corporate borrowers with its second deal amid the virus upheavals. Global financial markets are rallying as more nations begin to emerge from lockdowns and as manufacturing gauges show that economies are stabilizing. Expectations that the ECB will boost its 750 billion-euro Pandemic Emergency Purchase Programme — even though it has so far spent less than a third of the funds available — is also outweighing concerns about a new spike in virus cases in Asia.
- The European Union will try to convince Boris Johnson to forge a compromise later this month in an attempt to stop the U.K. from breaking away from the bloc without a trade deal. With the negotiations deadlocked, and the latest talks set to end Friday without a breakthrough, the EU is pinning its hopes on a dramatic intervention by the British prime minister when he speaks to European Commission PresidentUrsula von der Leyen and EU Council President Charles Michel later this month, according to people familiar with the matter in Brussels. Johnson will be told where the EU could potentially make concessions — as long as the U.K. takes a similarly conciliatory approach, the people said. That could allow the two sides to reach an accord in the second half, they said.
- Standard Life Aberdeen Plc told most of its U.K. staff to work from home for the rest of the year as other asset managers mull how the pandemic has reshaped the future use of their offices. The asset manager told its 4,900 U.K. employees that the majority shouldn’t expect to come into the office in 2020, according to a June 2 internal memo seen by Bloomberg. BNP Paribas Asset Management’s London staff will also continue to work from home for the foreseeable future, while Baillie Gifford is planning a phased return of staff in coming months, according to representatives of the firms.
- A Hong Kong telecommunications firm controlled by tycoon Richard Li is considering options including a sale of its international enterprise unit, PCCW Global, according to people familiar with the matter. A subsidiary of HKT Ltd., the business could be valued at as much as $1 billion in a sale, said the people, who asked not to be identified because the matter is private. The asset could attract interest from other telecom companies as well as private-equity funds, the people said. Sale considerations are at an early stage, while a formal process could start as soon as later this year, the people said. HKT, which is controlled by PCCW Ltd., has not yet decided the structure of the deal, they said.
- The specter of negative prices is hanging over energy markets more than a month after oil’s unforgettable crash below zero. While crude has staged a rapid recovery after a deal by the biggest producers to curb a surplus, the $600 billion global gas market remains extraordinarily oversupplied. Traders and analysts say the worst may be yet to come as demand falls and storage nears capacity, creating the ideal conditions for negative prices in some parts of the world. It shows just how far the global energy industry is from recovering from a pandemic-fueled slide in demand and signals more pain for producers from the shale fields of Texas to Australia’s Curtis Island. Unlike the oil market, there’s been no sign of a coordinated response to address the glut, meaning the fallout could be deeper and longer.
- HSBC Holdings Plc’s top executive in Asia has come out in support of a controversial national security law drafted by China’s central government for Hong Kong. Bank executive Peter Wong signed a petition in support of China’s proposed security legislation, according to comments posted on the bank’s official WeChat account. The lender reiterates it support for laws that stabilize Hong Kong’s social order and revitalize the economy under the ‘one country, two systems’ principle, the post read. These are HSBC’s first public comments on the topic after Hong Kong’s former Chief Executive Leung Chun-ying lambasted the global lender over not publicly voicing its support for China’s plan to enact national security legislation in the city. The London-based bank last year became a flash-point in the anti-government protests, with its branches vandalized after it closed an account linked to the protests.
*All sources from Bloomberg unless otherwise specified