May 12th, 2020
Daily Market Commentary
- Canadian shares moved higher for the sixth-straight session Monday as tech shares rallied, while investors weighed reopening of the economy. The S&P/TSX Composite Index gained 0.9%. Shopify Inc. gained 6.2%, leading tech higher. Meanwhile, Premium Brands Holdings Corp. rose 13% after first-quarter earnings results. Oil declined as doubts circulated over Saudi Arabia’s ability to implement additional pledged production cuts. Canada unveiled a loan program for large firms that have been hit by Covid-19 and can’t get financing by conventional means.
- Impala Asset Management has become the second investor in a month to go public about efforts to pressure Canadian miner Teck Resources Ltd. into ousting its longstanding CEO. The Connecticut firm, founded by industry veteran Bob Bishop, said it sent a letter to Teck’s board Feb. 28, excerpts of which it provided to Bloomberg. The letter criticizes Teck’s chief executive officer, Don Lindsay, for what the firm calls destruction of shareholder value while saying he received one of the biggest paychecks in the industry. In 2019, Lindsay’s total compensation was C$9.2 million ($6.6 million), including C$1.64 million in salary.
- Brookfield Asset Management Inc. and Indian aviation tycoon Rahul Bhatia are considering bids for Virgin Australia Holdings Ltd., joining a score of suitors seeking to capitalize on Asia’s first airline casualty from the coronavirus pandemic, people with knowledge of the matter said. The Canadian investment firm, which manages more than $540 billion, is planning to make its own indicative offer before the end of this week, according to the people. Brookfield could team up with other bidders later in the process, one of the people said, asking not to be identified because the information is private.
- Tencent Holdings Ltd. is backing a big expansion by coffee and doughnut chain Tim Hortons across China, making its latest investment in physical retail to shore up its WeChat mobile payments network. China’s largest social media and gaming company is investing an unspecified amount in a Chinese outfit run jointly by Restaurant Brands International Inc.and the Cartesian Capital Group, the joint venture said in a statement. As part of the agreement, the internet giant will help the Canadian chain expand to some 1,500 outlets across the country from roughly 50 now, while digitizing operations and logistics.
- European stocks advanced as Vodafone Group Plc boosted telecommunication shares, while investors assessed risks from easing lockdown measures. The Stoxx Europe 600 Index rose 0.3% as of 9:48 a.m. in London. Telecoms led gains, with Vodafone up 6% after its organic service revenue growth beat forecasts. Drugmakers also outperformed, while miners and travel and leisure stocks slipped. European stocks rallied as much as 24% from a March low, before the rebound stalled in May on worries about a second wave of coronavirus cases and strained U.S.-China trade relations.
- U.S. equity futures edged higher, European stocks gained and Asian shares fell on Tuesday as investors took in stride an up-tick in coronavirus infections in several nations and signs of fresh trade tension. Oil advanced. Contracts on the S&P 500 had fallen after the Trump administration moved on Monday night to block investments in Chinese equities by a government retirement fund, but they recovered through the European morning.
- Stocks in Hong Kong and India led a broad retreat across Asia. Treasuries fluctuated and the dollar gave up a gain. Global equities have recouped about half of their plunge after hitting a March low, but the sustainability of the rally remains in question amid poor economic data and company earnings and as countries begin to unwind lockdowns that froze economic activity. Goldman Sachs Group Inc. warned that investors got ahead of themselves and the S&P 500 Index could drop almost 20% in the next three months.
- Oil edged higher as signs of a recovery in demand continued to surface following the easing of virus-led lockdowns in some regions, while Saudi Arabia pledged to cut production further. Futures rose 2.6% in New York after falling Monday. Pockets of fuel demand are starting to emerge in India and China, and while a huge glut remains, global stockpile builds are starting to slow. Saudi Arabia announced a surprise move to deepen daily output cuts by another 1 million barrels, which was followed by smaller reductions from OPEC allies the United Arab Emirates and Kuwait.
- Gold edged higher above $1,700 an ounce as concerns about an increase in coronavirus infections and trade tensions supported haven demand. China’s Wuhan, where the pandemic began, reported its first new infections since the city ended its lockdown last month. South Korea reported a flare-up in cases, while Germany recorded the first increase in new infections in four days as it gradually relaxes restrictions. Investors are also weighing the Trump administration’s move to block investments in Chinese equities by a government retirement fund, as well as recent gains in the dollar. Two Federal Reserve officials pushed back on market views that the central bank may use negative rates that have been tried in Europe and Japan.
- The Federal Reserve said a facility designed to purchase eligible corporate debt from investors will launch on May 12, bringing a key part of the U.S. central bank’s emergency coronavirus lending program online following weeks of anticipation. The so-called Secondary Market Corporate Credit Facility will begin purchases of eligible exchange-traded funds invested in corporate debt on Tuesday, the New York Fed said Monday on its website. It was first announced in March and has played an important role in keeping financial markets relatively calm since then.
- Anthony Fauci will warn Tuesday of the “danger of trying to open” prematurely as top officials discuss how to safely restart the economy. Elon Musk said he planned to resume production at Tesla Inc.’s only U.S. car plant, flouting a county ruling to stay closed. Wuhan will test its entire population of 11 million after the Chinese city where the pandemic began reported new infections for the first time since its lockdown was lifted. Russia added more than 10,000 infections for the 10th straight day and is now second only to the U.S. in total cases. Boris Johnson watered down his plan for rebooting the U.K. economy and the health secretary said Britons planning summer vacations are unlikely to be able to travel abroad. Sweden will adjust a key element of its strategy after the death rate at care homes spiraled.
- Saudi Arabia’s state-controlled oil giant retained its massive dividend despite a 25% plunge in profit, and signaled it would keep spending in check as it braces for deeper damage from the oil crisis. Saudi Aramco, the world’s most valuable listed company, will pay a dividend of $18.75 billion for the first three months of 2020. That would leave it on track to meet its full-year goal of $75 billion, though it didn’t specify if it was still committed to that number. The payout is crucial for the kingdom, which holds about 98% of Aramco and is facing its worst financial turmoil in decades as revenue falls. On Monday, the government tripled value-added tax and cut bureaucrats’ allowances as it looks to rein in a fiscal deficit that could reach 13% of gross domestic product this year.
- Turkey’s sovereign wealth fund will inject 21 billion liras ($3 billion) into three state lenders to strengthen their capital positions and minimize the impact of the coronavirus pandemic that may provide a $24 billion boost to the market. Turkiye Varlik Fonu, the fund also known as TWF, will boost the core capitals of TC Ziraat Bankasi AS, Turkiye Halk Bankasi AS and Turkiye Vakiflar Bankasi TAO, the fund said in an emailed statement. Halkbank and Vakifbank said in separate public filings that the fund will purchase newly issued shares. The fund will finance the cash injection via bond sales by the Treasury and Finance Ministry to banks in the local market, it said.
- The buyers of Imperial Brands Plc’s premium cigar business, including world-renowned Cohiba, have been shrouded in a smoky veil of secrecy. But one group of investors is being fronted by a Hong Kong businessman who helps run some of Asia’s biggest gambling operations. Last month, Imperial agreed to sell its premium cigar business outside of the U.S. to Allied Cigar Corp. for 1.04 billion euros ($1.1 billion), part of a disposal of its high-end cigar portfolio that also includes the Romeo y Julieta and Montecristo brands. A spokesman for Imperial declined at the time to provide details on the suitor, while the cigarette maker’s management described the acquirers as “the right long-term owners” for the cigar business in a statement.
- President Donald Trump and allies are holding off on more coronavirus-related stimulus as his team tracks the impact of some $5 trillion already poured into the economy — and banks on an economic rebound as shutdown measures are eased. But they may find themselves under more pressure to act again, sooner than they expected, if efforts to reopen the economy don’t rapidly bear fruit. Republicans and Democrats joined together in March to fast-track three stimulus measures totaling about $3 trillion as the economy collapsed from social-distancing practices Americans adopted to protect themselves from infection. The U.S. Federal Reserve played its part with two emergency rate cuts, and worked with Treasury to offer $2.3 trillion in loans.
- Norway plans to draw a record 382 billion kroner ($37 billion) from its wealth fund, forcing the world’s biggest sovereign investor to embark on an historic asset sale to generate cash. The unprecedented withdrawal, revealed in Norway’s revised budget for 2020, is more than four times the previous record set in 2016. The development exposes the scale of the economic damage done by the twin crises of Covid-19 and a collapse in global oil markets, with western Europe’s biggest crude exporter now facing its worst economic slump since World War II.
- It’s a sign of the times when about 82 billion pounds ($97 billion) in bids are chasing bonds that yield about 0.35%. The U.K.’s first ever 10-year syndicated bond offering will raise 12 billion pounds, with the gilts set to be priced at 8.5 basis points above the current 10-year benchmark yield, according to a person familiar with the matter, who asked not to be identified because they’re not authorized to speak about it. The huge bidding suggests that investors deem the pricing generous, which is one reason why syndications are so popular. Unlike auctions, they’re typically used for new issues or when they need to drum up a large amount of money. But borrowers have to pay banks a premium for being responsible for underwriting the bond.
- Russian car sales declined the most on record in April, the first concrete sign of the toll a nationwide lockdown has taken on the economy, as dealers were forced to close down in an effort to contain the spread of coronavirus. New car sales fell 72% from a year earlier to 38,922 vehicles, according to the Association of European Businesses in Moscow, which said the decline was the biggest monthly decrease since it began tracking the metric in 2007. “‘Black April’ 2020 strongly challenged dealer liquidity and mid-term even their sustainability,” Thomas Staertzel, Chairman of the AEB Automobile Manufacturers Committee, said in a statement Tuesday. “Dealers are preparing for restart, although I do not expect much better sales results in May.”
- China is stepping up purchases of soybeans from the U.S. as Brazilian sales start to wane and the Asian nation seeks to meet its pledges under the trade deal with Washington, according to people familiar with the matter. State-run buyers have purchased more than 20 cargoes, or over 1 million metric tons, of American soybeans in the past two weeks, said the people, who asked not to be identified because the information is private. The beans were bought using tariff waivers previously issued, the people said. Top trade negotiators from both nations spoke by phone last week and pledged to create favorable conditions for implementation of the bilateral trade deal and cooperate on the economy and public health, according to a statement from the Chinese Ministry of Commerce. President Donald Trump later said he’s struggling with Beijing in the wake of the global coronavirus pandemic.
- Kotak Mahindra Bank Ltd. picked arrangers including Bank of America Corp. and Morgan Stanley to work on a proposed $1 billion share sale, according to people familiar with the matter. The fundraising could happen as soon as next month, said one of the people, who asked not to be identified as the matter is private. Kotak Mahindra in April announced a plan to sell as many as 65 million new shares. The Indian lender did not provide pricing details, though following the formula set out by regulators, the offering could be worth about $1 billion in total.
- JPMorgan Chase & Co. has taken on two well-known bitcoin exchanges, Coinbase Inc. and Gemini Trust Co., as banking customers, according to people familiar with the matter, the first time the bank has accepted clients from the cryptocurrency industry. The move is the latest in a string of positive developments for bitcoin and another sign that Wall Street is becoming more comfortable with the business of cryptocurrencies. Coinbase, founded in 2012, is the largest U.S.-based bitcoin exchange, with more than 30 million accounts. Gemini, founded in 2014 by Tyler and Cameron Winklevoss, is a smaller exchange, but it has been in the vanguard of the industry’s movement to attract mainstream clients and embrace regulation.
- Restaurant Brands International Inc., the owner of Burger King and Tim Hortons, says the food-service industry needs to change “for the foreseeable future and possibly forever” after Covid-19. In an open letter Tuesday, Chief Executive Officer Jose Cil said his company is preparing to welcome diners back as some governments start to reopen their economies. One option being considered is “more comfortable and reusable masks that may become part of our standard uniforms.” Restaurant Brands is increasing its digital ordering capabilities by adding its restaurants to smartphone apps, Cil said. He also noted that the company is making unspecified improvements to its drive thrus and adding curbside pickup service. Inside restaurants, it’s making sure customers are spaced out in all locations, regardless of local regulations
- Boeing Co.’s top executive sees a rocky road ahead for U.S. airlines, saying it’s probable that a major carrier will go out of business as the Covid-19 pandemic keeps passengers off planes. The recovery is going to be slow, with air traffic languishing at depressed levels for months, Boeing Chief Executive Officer Dave Calhoun said in an interview to be aired Tuesday on NBC. Asked by ‘Today’ show host Savannah Guthrie if a major airline might have to fold, Calhoun replied, “Yes, most likely,” according to a preview of the interview provided by NBC.
- House Democrats are still drafting their plan for another round of economic stimulus, legislation that could top $2 trillion, but the bill won’t be ready for a vote before Friday. House Majority Leader Steny Hoyer told fellow Democrats on a private conference call that the legislation was still being drawn up from proposals submitted by rank and file members last week, according to lawmakers and aides. With House lawmakers away from Washington, the earliest possible vote would be Friday, and that schedule could slip into the next week. The centerpiece of the Democrats’ virus relief plan is almost $1 trillion in to aid state and local governments. It’s also likely to include another round of cash payments to individuals following up on the $1,200 most people received from a March stimulus bill. Also under discussion are expanded unemployment benefits, money for Covid-19 testing, food stamp funding, rental assistance and student loan forgiveness.
*All sources from Bloomberg unless otherwise specified