May 13th, 2020
Daily Market Commentary
- Canadian stocks snapped their winning streak Tuesday as Anthony Fauci warned against a premature reopening of the economy amid the coronavirus pandemic. The S&P/TSX Composite Index fell 1.5%. All eleven sectors retreated, with real estate being the worst-performing group. JPMorgan Chase & Co. cut its forecast for Canadian economic growth because of gradual and uncoordinated efforts across provinces to reopen. GDP will shrink by 45% annualized in the second-quarter, more than an earlier forecast of 30%, the bank said.
- The world’s longest undefended border will likely remain shut until late June, according to a newspaper report. Canada and the U.S. agreed in March to close the border to non-essential travelers to help prevent further spread of the coronavirus. In April, they extended those measures until May. Prime Minister Justin Trudeau’s government and President Donald Trump’s administration are now in talks to keep restrictions in place until June 21, the Globe and Mail reported Wednesday, citing unidentified sources familiar with the discussions.
- European stocks were led lower by cyclical sectors, such as autos and banks, as investors weighed the risk of a second wave of virus infections if lockdowns ease too soon. The Stoxx Europe 600 Index slid 1.5% at 9:19 a.m. in London, following a downbeat session in the U.S. after the nation’s top infectious disease official, Anthony Fauci, warned against restarting activity too soon. The fallout from the pandemic is also becoming more apparent, with A.P. Moller-Maersk A/S and ABN Amro Bank NV declining after their results, while the U.K. economy plunged into recession in March, a sign of worse to come. The FTSE 100 Index fell 1.2%.
- U.S. equity-index futures advanced on Wednesday, signaling to a rebound after yesterday’s late slide, while Asian shares edged higher and European stocks dropped. The dollar weakened and Treasury yields slipped. Contracts on the S&P 500 and Nasdaq-100 gauges fluctuated before heading upward as the American opening drew near and traders prepared for remarks due later on Wednesday by Federal Reserve Chairman Jerome Powell, who may offer fresh clues on the outlook for the world’s largest economy, and for monetary policy.
- Japanese stocks fell as comments from a top U.S. health official caused investors to weigh the risks of global economy reopening. Automobile and electronics makers were the biggest drags on the benchmark Topix index. The Nikkei 225 Stock Average also fell but closed above 20,000 for a fourth day. Stocks had regained nearly half of their coronavirus-related losses in recent rally.
- Oil traded near a five-week high as investors weighed the nascent recovery of demand against concerns about a resurgence in coronavirus cases if lockdowns are relaxed too early. The head of the International Energy Agency said oil use will be below pre-coronavirus levels for at least a year, highlighting the depth of the collapse in consumption. The top infectious disease official in the U.S. said states reopening too quickly could hurt an economic recovery. Futures in New York dropped as much as 2.8%, before paring those losses.
- Gold held steady near $1,700 an ounce as investors weighed the hurdles to easing lockdowns ahead of commentary from Federal Reserve Chairman Jerome Powell. The haven gained on Tuesday after Anthony Fauci, the top infectious disease official in the U.S., warned reopening too soon risked new outbreaks. Meanwhile, regional Fed chiefs said there was potential for massive bankruptcies that could create a lasting scar.
- Chancellor of the Exchequer Rishi Sunak warned the U.K. is facing a significant recession after a report showed the economy shrank almost 6% in March. The sharp decline is only a small part of the damage of the coronavirus lockdown, which was in place for all of April and is set to endure in some form for months to come. The measures heaped misery on an already tepid economy, with the Bank of England foreseeing a staggering 25% contraction this quarter as part of the deepest slump in more than three centuries. There was also a chilling warning that many more lives could be lost if Britain experiences a protracted L-shaped recession that increases poverty. The U.K. already has the second highest number of deaths from the virus worldwide.
- China is sealing off cities in a province that borders North Korea amid a growing cluster of cases. Hong Kong’s 23-day streak without a case of local transmission ended and Germany aims to fully reopen borders with European nations by June 15. Russia reported more than 10,000 cases again, although the growth rate slowed. The Italian government is set to approve a much-delayed $60 billion stimulus package and Britain’s economy slumped in March, plunging into what may be its deepest recession in centuries.
- Jerome Powell and his Federal Reserve colleagues are staring down the possibility of mass bankruptcies and long-lasting unemployment unless there’s a more concerted government effort to shield the U.S. economy from the impact of the coronavirus pandemic. That’s the context in which the Fed chair will speak Wednesday at 9 a.m. during a virtual event with the Peterson Institute for International Economics in Washington, though he may be loath to give clear hints on future monetary policy, with the central bank’s next rate decision still a month out. Some investors are looking for insights into how hard Powell’s resolve is against cutting the Fed’s benchmark interest rate beneath zero, something he has warned against doing in the past. President Donald Trump on Monday called such a policy a “GIFT” for the economy.
- As the coronavirus inflicts ever more death and economic carnage across the U.S., President Donald Trump is resorting to his preferred and battle-tested tactic to fight the biggest threat to his re-election: diversion. The shift was clear on Mother’s Day, when he flooded Twitter with 126 posts, including promoting a tweet that called his own Justice Department “corrupt.” A day later, he accused Democrats of trying to “steal” a little-watched congressional race in California. He continued his attacks into the week, accusing Barack Obama of unnamed crimes, and then on Tuesday promoting a baseless conspiracy theory that MSNBC’s Joe Scarborough had committed murder.
- Tesla Inc. may be allowed to scale up activities at its only U.S. car plant as soon as next week, according to the California county Elon Musk has been feuding with over his desire to reopen. Health officers for Alameda County said late Tuesday that the factory can reopen if Tesla adopts safety recommendations in addition to a new plan the company submitted on Monday. While the county will let Tesla start to augment its operations this week, city police will be called upon to verify that the carmaker is adhering to the agreed measures aimed at protecting workers.
- Las Vegas Sands Corp., the world’s largest casino company, is dropping its pursuit of a license in Japan, ending a multidecade quest for what was one of the biggest prizes in the global gambling business. The company founded by billionaire Sheldon Adelson has been trying to expand in Japan since at least 2005, but management objected to some terms of the country’s casino legislation, according to people familiar with the matter. One of the biggest stumbling blocks was that the concession would be good for only 10 years. Even in that time frame, national or local government officials could change the terms in a way that might crimp profit. The company’s resorts in Macau and Singapore have licenses that extended for 20 and 30 years, respectively.
- The world’s largest container line is bracing for an historic slump in demand after emergency lockdowns across the globe left international trade in tatters. A.P. Moller-Maersk A/S, which controls about one-fifth of the global fleet used to transport goods by sea, says the fallout from Covid-19 will drive volumes down by as much as 25% this quarter. The bleak signal from Maersk follows a warning from the World Trade Organization last month that the pandemic could result in the worst collapse in international trade flows since World War II.
- ABN Amro Bank NV’s new chief executive officer will review the bank’s strategy after the Dutch lender posted its first loss since 2013 and set aside almost twice as much as expected to cover future loan losses. The bank made 1.1 billion euros ($1.2 billion) of provisions to account for loans going bad and said the figure may rise to 2.5 billion euros for the full year. The net loss of 395 million euros was driven by the provisions and its exposure to two clients. CEO Robert Swaak, just three weeks into the job, said reviewing the investment bank will be a top priority.
- Tencent Holdings Ltd. reported better-than-expected sales after pandemic-induced lockdowns helped spur growth in its suite of online offerings from gaming to social media. The WeChat operator’s revenue rose 26% to 108.1 billion yuan ($15.2 billion) after gaming sales rose at their fastest pace since 2017 during the coronavirus-stricken March quarter. That compared with the average estimate of 101.07 billion yuan. Net income rose 6% to 28.9 billion yuan from a year earlier, when Tencent booked an 11 billion yuan one-time gain on investments.
- India will provide collateral-free loans worth $40 billion to boost liquidity for small businesses and help the economy tide over the coronavirus outbreak. The loans will benefit up to 4.5 million small businesses, Finance Minister Nirmala Sitharaman said in New Delhi on Wednesday. The program will be open until Oct. 31.
- Royal Caribbean Cruises said that it has commenced a private offering of senior secured notes to be issued by the company in separate series of notes due 2023 and 2025, for an aggregate principal amount of $3.3 billion. The notes and the related guarantees will be secured by 28 of the company’s vessels and material intellectual property of the company
- Uber Technologies Inc. is selling new debt, just a day after a report said that the company has made an offer to acquire food delivery company Grubhub Inc. The ride-hailing service is issuing $750 million of senior notes due 2025, according to a statement Wednesday. The proceeds will be used for working capital and other general corporate purposes, which may include potential acquisitions and strategic transactions, the company said in the statement.
- Chinese and Iranian hackers are aggressively targeting American universities, pharmaceutical and other health-care firms in a way that could be hampering their efforts to find a vaccine to counter the coronavirus pandemic, U.S. officials said. Since at least Jan. 3, the two countries have waged cyberattacks against a range of American firms and institutions that are working to find a vaccine for Covid-19, the disease caused by the coronavirus, officials said. The attacks have raised the prospect among some officials that the aggression could be viewed by the Trump administration as a direct attack on U.S. public health and tantamount to an act of war, they said, because the attacks may have hindered vaccine research in some cases. Such an interpretation would represent an escalation of how the U.S. government views cyberattacks against the country.
- Giuseppe Conte’s government is set to approve a much-delayed 55 billion-euro ($60 billion) stimulus package to help Italians battle the economic hit from the coronavirus crisis, with the focus on liquidity for businesses and aid to families suffering after over two months of a nationwide lockdown. Tensions in Conte’s coalition of have led to weeks of delays for a spending plan originally dubbed the “April Decree.” A cabinet gathering that had been due on Sunday evening to approve the package has been shifted repeatedly, with Wednesday at 2 p.m. now cited by Ansa news agency as the meeting time.
*All sources from Bloomberg unless otherwise specified