November 18th, 2020
Daily Market Commentary
- RSA Insurance Group Plc accepted a 7.2 billion-pound ($9.6 billion) takeover offer from Canada’s Intact Financial Corp. and Danish insurer Tryg A/S, the biggest acquisition of a U.K.-listed company this year. The bid is about 50% more than the share price on Nov. 4, the last business day before Bloomberg News reported the takeover talks. That’s the highest premium paid in a European insurance deal for a decade, RSA Chief Executive Officer Stephen Hester said on a call with journalists after the announcement on Wednesday. For Hester, who said he’ll leave RSA when the takeover is completed and the company is split up, the deal would culminate a program of cutting costs and selling assets since he joined in 2014 in what observers saw as preparation for a potential sale. Activist investor Cevian Capital, RSA’s largest shareholder, said Hester had brought about a “strategic and operational transformation” of the company.
- Right next door, in Quebec, where three in five of Canada’s virus deaths have hit, rage over new lockdowns is palpable. In Ontario, ICUs are filling up. Out west, caseloads are hitting records, not to mention the exploding disaster across the U.S., which is shutting down yet again. But in four eastern Canadian provinces, group limits have been raised and internal travel fostered. The region of 2.4 million has banded together, barred outsiders, hewed tightly to health guidelines and has a Covid-19 death rate a 10th of the country’s. With almost no one noticing — and that’s how they like it — Atlantic Canada, an outpost of quiet obedience and aging rural stoicism, has become a pandemic Shangri-La.
- Brookfield Asset Management was started with a buy rating and $51 price target at Goldman Sachs, which also added the company to its America’s Conviction List. “With ~$290bn in fee-bearing [assets under management], we view BAM as a leading global alternative manager, poised to benefit from secular growth in Private Markets,” the firm wrote to clients
- Keystone XL is receiving an investment from Canadian indigenous groups in a deal that TC Energy Corp. hopes will help save its embattled oil pipeline project from being scrapped by U.S. President-elect Joe Biden. Natural Law Energy, a group of five first nations in Alberta and Saskatchewan, will make an equity investment of as much as C$1 billion ($765 million) in the project, Calgary-based TC Energy said Tuesday. The company is close to striking deals with other indigenous communities in both the U.S. and Canada, Bevin Wirzba, TC’s president of liquids pipelines, said in an investor presentation. Alberta, a landlocked province holding the world’s third-largest crude reserves, desperately needs more pipelines to export crude from its oil sands. Keystone XL is among the many pipeline projects in North America that have suffered growing opposition from environmental and indigenous groups.
- European stocks advanced as investors weighed progress in the development of Covid-19 vaccines against the risk of rising cases. The Stoxx Europe 600 Index gained 0.5% by 11:49 a.m. in London. Retail and travel stocks outperformed, while industrial goods and food and beverage stocks lagged. Pfizer Inc. said Wednesday that a final analysis of clinical-trial data showed its Covid-19 vaccine was 95% effective, paving the way for the company to apply for the first U.S. regulatory authorization for a coronavirus shot within days. Investors have been analyzing pharmaceutical companies’ reports about progress in the development of a Covid-19 vaccine, which could mark a major breakthrough, removing the risk of new lockdowns that hurt economic growth. Equities around the world got a boost after Moderna Inc. announced Monday that its vaccine was 94.5% effective.
- U.S. equity futures and European stocks extended gains after Pfizer Inc. said its Covid-19 vaccine was 95% effective. Bitcoin surged past $18,000 for the first time since December 2017. Pfizer shares climbed in pre-market trading. The news paves the way for the company to apply for the first U.S. regulatory authorization for a coronavirus shot within days. Boeing Co. gained 5.3% in early trading after U.S. regulators ruled that the 737 Max can safely return to the skies with an extensive package of fixes.
- Japanese stocks dropped after reports of record new coronavirus cases and possible restrictions in the nation’s capital. The Nikkei 225 Stock Average extended its loss to more than 1% in afternoon trading following a report from Japanese broadcaster FNN that Tokyo saw a daily record of 493 cases on Wednesday. Electronics and auto makers were the biggest drags on the broader Topix. The city is making arrangements to raise its Covid-19 alert to the highest level, and may ask stores to close early, the Nikkei newspaper said earlier. Officials are expected to make the decision on Thursday at a meeting of experts.
- Oil rose on expectations that further progress in vaccines against coronavirus will revive global demand, and amid signs of robust consumption in Asia. West Texas Intermediate futures advanced 2.1%, rising in tandem with stock markets as Pfizer Inc. said a final analysis of clinical-trial data showed its Covid-19 vaccine was 95% effective. An effective treatment is seen as key in reversing this year’s unprecedented slump in fuel use. Refiners in China, Japan and South Korea snapped up cargoes from Russia, the Middle East and the U.S., leading to a gain in physical crude prices. Buying interest has been strong after some refiners got less oil than usual in term supply contracts from OPEC producers Saudi Arabia and Iraq.
- Gold fell after Pfizer Inc. announced plans to file for an emergency authorization after a final analysis showed its shot had no significant safety issues. The U.S. drugmaker and partner BioNTech SE said their Covid-19 vaccine was 95% effective, paving the way for them to file for authorization in the U.S. “within days.” Bullion has carved out a trading range below $1,900 an ounce since Pfizer announced an initial readout on the vaccine’s effectiveness last Monday, blunting demand for the haven. Even with effective vaccines in the pipeline, the U.S. faces an uphill battle to bring the pandemic under control. While states including California and Illinois have extended restrictions to combat rising case numbers, an aid package from Congress could take time. Speaker Nancy Pelosi and Senate Minority Leader Chuck Schumer on Tuesday asked Senate Majority Leader Mitch McConnell to resume talks for further fiscal stimulus, though McConnell stuck to his insistence on a targeted package.
- Chancellor Angela Merkel’s government offered Germany’s hard-hit auto industry 5 billion euros ($5.9 billion) in aid to help weather the coronavirus crisis and invest in the transition to electric cars. Berlin will extend cash bonuses for purchasing electric-powered vehicles until 2025, expand the country’s charging network and make payments for topping up batteries easier. The government will also offer incentives to replace aging trucks and help component makers invest in new technology. Carmakers and parts suppliers, which employ nearly 800,000 people in Germany, were spending heavily on electric cars before the pandemic hit. That left companies exposed to the sudden drop in demand from the fallout. Auto production plunged 97% in April and has yet to recover to pre-pandemic levels, with curbs to stem the latest wave threatening to further sap demand.
- The U.K. inflation rate edged higher in October, boosted by the rising cost of food and clothing. Consumer prices rose 0.7% from a year earlier, up from 0.5% the previous month, the Office for National Statistics said Wednesday. The core rate, which excludes volatile energy and food prices, increased to 1.5% from 1.3%. Despite the pickup, the headline rate has remained less than half Bank of England’s 2% target since April, underscoring the weakness an economy hit hard by the pandemic. Speaking after the data was published, BOE Chief Economist Andy Haldane said the Covid crisis “risks leaving lasting scars on us as individuals and on the wider economy,” including persistently lower levels of investment and innovation and higher unemployment and debt. However, he said recent positive news on vaccines could mean hope is justified.
- Tokyo reported a record number of new cases Wednesday, surpassing a previous daily high set in August as Japan faces an increased spread of the coronavirus ahead of winter. The crisis continued to mount in Europe, with Poland reporting a record 603 deaths in the past 24 hours. British doctors warned that tough new measures must be in place when England’s lockdown ends. More U.S. states imposed restrictions to tamp down an unrelenting surge, and hospitalizations in New York increased by the most since the pandemic’s peak.
- Boeing Co.’s 737 Max can safely return to the skies with an extensive package of fixes, U.S. regulators ruled, after a scarring 20-month hiatus prompted by a pair of fatal crashes. The actions announced Wednesday on the Federal Aviation Administration’s website mark the end to the longest grounding of a jetliner in U.S. history and set the stage for airlines and other regulators around the world to resume passenger service with the plane. Boeing shares jumped 5.3% to $221.27 in pre-market New York trading. Through Tuesday, they had lost 50% of their value since the March 10, 2019 crash of an Ethiopian Airlines Group flight that triggered the global grounding of the 737 Max.
- Goldman Sachs Group Inc. raised $10.3 billion for a new fund that will primarily buy private equity stakes as interest in such deals intensifies. Harold Hope, Goldman’s global head of secondary investing, said the fund is his group’s largest and includes about $250 million of internal capital. It will be used to acquire holdings owned by existing fund backers and stakes that buyout firms may want to spin off into new vehicles, an area that Hope calls “non-traditional” deals. Wall Street firms are building secondaries businesses as investors seek liquidity and to mitigate the risk of traditional buyout funds. Brookfield Asset Management Inc. and TPG are among firms pushing into the market with such transactions gaining traction even as deal volume has slid in the pandemic. There were a record $85 billion in secondaries deals last year, according to research from Coller Capital.
- Morgan Stanley gave Tesla Inc. an overweight rating for the first time in more than three years, predicting that Elon Musk’s firm is on the verge of a “profound model shift” from selling cars to generating high-margin software and services revenue. “To only value Tesla on car sales alone ignores the multiple businesses embedded within the company,” analyst Adam Jonas wrote in a note as he upgraded the shares from equal-weight and raised his price target by 50% to $540, suggesting 22% upside for a stock that’s quintupled this year. Jonas’s valuation now includes Tesla’s network services, energy storage and insurance businesses. The internet-of-cars opportunity is also real, and a prerequisite to unlock further gains for the stock, the analyst wrote. Tesla shares extended their surge on Wednesday, rising 2.7% in premarket trading to $453.56. The stock jumped 8.2% Tuesday after it was selected for admission to the S&P 500 Index.
- A.P. Moller-Maersk A/S has launched a $1.6 billion share buyback program, as the world’s biggest container shipping company says the Covid crisis has so far dented its business less than feared. Copenhagen-based Maersk, which late on Tuesday raised its guidance for a second time since October, reported a 39% increase in Ebitda to $2.3 billion in the third quarter. Profit by that measure, before restructuring and integration costs, will reach $8 billion to $8.5 billion this year, it said. Previous guidance was for $7.5 billion to $8 billion. The global economy was “still severely impacted” by the pandemic last quarter, Maersk said in a statement on Wednesday. “However, volumes have decreased less than expected.” The company also said “costs were kept well under control and freight rates have increased.”
- Apple Inc. is cutting by half the fees charged to most developers who sell software and services on the App Store, marking the biggest change to the store’s revenue structure since the iPhone maker launched the service in 2008. The company is lowering the App Store fee to 15% from 30% for developers who produce as much as $1 million in annual revenue from their apps and those who are new to the store. The change will go into effect Jan. 1 as part of an App Store Small Business Program, Apple said Wednesday in a statement. The company said the new structure will apply to the “vast majority” of developers who charge for apps and in-app purchases on Apple’s devices. The program won’t affect some major apps such as those from Netflix Inc. and Spotify Technology SA.
- Pfizer Inc. said a final analysis of clinical-trial data showed its Covid-19 vaccine was 95% effective, paving the way for the company to apply for the first U.S. regulatory authorization for a coronavirus shot within days. The U.S. drugmaker and partner BioNTech SE said their vaccine protected people of all ages and ethnicities, with no significant safety problems so far in a trial that includes almost 44,000 participants. The update is the latest in a string of promising developments on the vaccine front in recent days. Moderna Inc.’s rival jab appears equally effective, judging from data published earlier this week, and a third contender, from AstraZeneca Plc and the University of Oxford, is expected to release trial results in coming days.
- The U.S. Federal Communications Commission is poised to vote Wednesday to let wireless devices use airwaves assigned 21 years ago for a vehicle safety system that hasn’t come to fruition, rejecting carmakers’ efforts to hold onto the frequencies. The change, set for a vote at the FCC in Washington, follows years of rearguard lobbying by carmakers such as Ford Motor Co. and General Motors Co. to retain their exclusive hold on the rich airwaves swath they were allotted in 1999. Since then a new wireless era has arrived, with surging demand for frequencies from mobile phones and other devices that connect over Wi-Fi. In response the FCC has moved to open airwaves to new uses. Those at issue in Wednesday’s vote are suited to new 5G technologies that promise connected factories and homes via ultra-fast links. The FCC would let billions of Wi-Fi devices use frequencies once destined for use by pickup trucks and Cadillac sedans linked to roadside gadgets.
- British Land Co. Plc has ramped up asset sales as the coronavirus pandemic helped wipe 842 million pounds ($1.1 billion) from the company’s property portfolio. The landlord has sold 675 million pounds of real estate since April as it cashes in on resilient demand for London offices with long leases and seeks to cut its exposure to brick and mortar stores. Its retail properties lost about 15% of their value in the six months through September, while its London office buildings fell by 3.1%, the company said in a statement Wednesday. The writedowns underscore the challenge facing incoming Chief Executive Officer Simon Carter, who is taking over from Chris Grigg. Commercial property landlords have been hit hard by Covid-19, with England’s second lockdown of the year forcing pubs, restaurants and non-essential stores to close. Still, investors have continued to snap up the best office buildings, lured by returns that are significantly higher than those available on government bonds.
- Air France-KLM is in talks for as much as 6 billion euros ($7.1 billion) in fresh funds to get through the Covid-19 pandemic, a move that could swell what is already Europe’s biggest airline industry bailout. The governments of France and the Netherlands are discussing providing further support to the struggling carrier by year-end, according to people familiar with the matter. Air France-KLM shares sank as much as 6.1% on Wednesday, after French newspaper Le Monde reported earlier on the new capital-raising effort. The loss-making airline is in talks about the plan that would include 3 billion euros from France and 1 billion euros from the Netherlands, according to one of the people. They are aiming to keep the existing shareholder balance and avoid a nationalization of the carrier.
- Croda International Plc agreed to buy Iberchem for 820 million euros ($920 million) as Europe’s largest cosmetic-ingredients maker expands into the hotly contested market of fragrances. The maker of sunblock chemicals and pharmaceutical additives plans to raise 600 million pounds ($796 million) in equity to help pay for the purchase of the asset from private equity firm Eurazeo, it said Wednesday. Bloomberg earlier reported Croda was lining up funding for a deal and that Iberchem was a target. In buying Murcia, Spain-based Iberchem, Croda is turning the tables on fragrance makers that have been expanding on its turf. Switzerland’s Givaudan SA is among the scent suppliers that are prioritizing expansion in the skin-care actives market as they look to offer global consumer-goods companies the full spectrum of ingredients.
- European Union regulators offered member governments guidelines on speedy testing for the coronavirus in the latest effort to prevent national health measures from hindering the free movement of people across the bloc. The European Commission recommendation covers the use of rapid antigen tests for detecting Covid-19 in “specific settings.” The commission also urged EU governments to recognize each other’s test results and approved 35.5 million euros ($42.2 million) for the International Federation of Red Cross and Red Crescent Societies to expand testing in the bloc. “Testing tells us what the extent of the spread is, where it is and how it develops,” EU Health Commissioner Stella Kyriakides said in a statement on Wednesday in Brussels. “It is a decisive tool to slow down the spread of Covid-19.”
- Senior U.S. officials called for Georgia’s opposition to work within the legal system to address their concerns over last month’s parliamentary elections, as Secretary of State Michael Pompeo visited in a show of support for the country’s efforts to orient itself toward the West and away from Russia. The officials, who spoke to reporters on Wednesday on customary condition of anonymity, said the election results were generally accurate and not fatally flawed, though they said there were some concerns like vote-buying and intimidation. They said they’ll urge the opposition not to boycott parliament but to push for electoral reform within the law. The comments came as Pompeo visited the country as part of a seven-nation swing through Europe and the Middle East. He met President Salome Zourabichvili in the morning and planned to meet civil society leaders later in the day, while his acting assistant secretary for Europe, Philip Reeker, planned to stay on and meet opposition leaders.
- Global funds have bought the most South Korean debt this year since 2010, a testament to the securities’ appeal as a haven and yield play. Overseas investors purchased $55.9 billion of listed South Korean notes in the year through Nov. 17, according to data from the Financial Supervisory Service. In contrast, they withdrew almost $20 billion from bonds in India, Indonesia and Thailand. Thanks to a rare combination of attractive yields and the safety of a high sovereign rating, South Korean debt is reeling in funds at a furious pace. But the inflows are creating a headache for the authorities, who worry that continued strength in the won could erode the competitiveness of the nation’s exports.
- New York City hotel owners have to pay more than $500 million to employees displaced by Covid-19, according to people familiar with an arbitrator’s recent ruling, a victory for tens of thousands of unemployed workers and a fresh setback for cash-strapped property owners. The ruling represents the largest hotel-employee payout ever awarded in New York City, hotel owners and union representatives said. While the final amount of severance pay depends on a few factors, it is likely to be the biggest on record for any hotel-union group in the country, these people said. The magnitude of the payments is heightening tensions between lodging owners and the hotel union as Covid-19 ravages New York’s hospitality business.
- California’s largest utility, PG&E Corp., named Patricia K. Poppe as its new chief executive officer to lead the energy giant as it struggles to regain public trust after its equipment sparked deadly wildfires that drove the company into bankruptcy last year. Poppe will be PG&E’s third CEO in the past two years, it said in a statement Wednesday. She will take over on Jan. 4, replacing interim chief Bill Smith, who took over from Bill Johnson, the veteran utility executive who steered the company through Chapter 11 before retiring at the end of June. The stakes are high for the century-old utility. It pleaded guilty in June to 84 counts of involuntary manslaughter for its role in starting the Camp Fire, which destroyed the town of Paradise in 2018. Regulators have put in place oversight measures that could include a state takeover if the company causes another catastrophic blaze.
- Cruise operator Carnival is updating credit investors on both sides of the Atlantic through a series of calls Wednesday via JPMorgan. AT&T launched an offer that will see 13 series of notes exchanged into two new series worth up to a combined $5.5 billion.
- Saudi Aramco returned to the debt markets for the first time since April of last year, selling $8 billion of bonds to help fund the world’s biggest dividend. The state oil and gas firm issued the debt on Tuesday after slumping crude prices caused profit to fall by 45% in the third quarter. That’s left it unable to generate enough cash to fund shareholder payouts it’s promised will reach $75 billion this year. Almost all of those will go to the Saudi Arabian government, which needs the money to plug a widening budget deficit and prop up a slumping economy. Aramco’s deal was the largest from a company in emerging markets this year, according to data compiled by Bloomberg. The firm sold tranches maturing in three, five, 10, 30 and 50 years. Investors placed more than $50 billion of orders, according to people with knowledge of the matter. Pricing ranged from 1.32% for the shortest notes to 3.65% for the 50-year portion. The spreads over U.S. Treasures were between 110 basis points and roughly 200.
*All sources from Bloomberg unless otherwise specified