November 19th, 2020

Daily Market Commentary

Canadian Headlines

1. Canadian equities retreated Wednesday, snapping a three-day winning streak as traders assessed potential lockdowns and rising covid cases. The S&P/TSX Composite Index fell 0.3%, with eight of eleven sectors dropping. Materials fell as gold prices declined, while consumer staples also underperformed. Air Canada doesn’t want to see Prime Minister Justin Trudeau’s government take an equity stake as part of a relief package for the hard-hit sector. Ontario may impose severe lockdown measures in Toronto and some surrounding areas in coming days, as the coronavirus “is spreading at an alarming rate,” Premier Doug Ford said. Meanwhile, with the expiration of an $8.4 billion play for the Cogeco group, investors are asking what’s next for rival Rogers Communications Inc.
2. The Covid-19 pandemic has made for a rare moment in Corporate Canada: three companies entered this quarter with over C$5 billion ($3.8 billion) of cash. Shopify Inc. and Barrick Gold Corp. joined Air Canada in reporting a hefty pile of cash and short-term investments at the end of the quarter. It’s the first time that many non-financial companies on the S&P/TSX Composite Index have been so flush in the last 25 years, according to data compiled by Bloomberg. The three companies have seen their war chests balloon for different reasons. Barrick and Shopify are prospering, while Air Canada has gone on a mammoth capital-raising spree to secure the funds to survive the Covid-19 pandemic. Barrick, the world’s second-largest gold producer, has seen its cash position swell amid surging gold prices as investors flocked to haven assets earlier this year. It spun out $1.3 billion of free cash flow in the third quarter allowing it to boost its dividend for the third time in the past year. Barrick held about $4.7 billion (C$6.1 billion) of cash as of the end of the third quarter.
3. The U.K. is poised to sign a new trade agreement with Canada to replace the existing deal it has through European Union membership, a step ministers say they hope will pave the way to even closer links with Britain’s 12th-biggest trading partner. The agreement would be a major boost to U.K. Prime Minister Boris Johnson in his efforts to plot a new course for Britain as a global trading nation outside the EU. An announcement is expected within days, according to people familiar with the matter who spoke on condition they not be identified. Without the new accord, the U.K. and Canada would face tariffs on trade from Jan. 1, when the Brexit transition period ends. After this date the U.K. will no longer be part of CETA, the EU-Canada trade agreement that came into force in 2017. Total trade between the two countries was worth about 17 billion pounds ($23 billion) in 2019.

World Headlines

1. European stocks fell from an almost nine-month high as investors weighed rising coronavirus cases and the extent of recent gains fueled by optimism about vaccine progress. The Stoxx Europe 600 Index dropped 0.8% at 10:32 a.m. in London, with banks and energy shares — November’s winners — leading a broad retreat in industry groups. Only utilities advanced. European stocks have surged 13% in November on positive vaccine updates and reduced political uncertainty after the U.S. election. With the gains exceeding strategists’ previously held expectations for 2020, prognosticators are turning to the outlook for next year. The average of nine forecasts is for the Stoxx 600 to finish 2021 about 2% higher than Wednesday’s close.
2. Global stocks slumped for a third day as tougher virus restrictions from New York City to South Australia fueled concern about the pandemic’s economic toll. S&P 500 futures edged lower, while declines were steeper in Europe with cyclical shares taking the brunt of the retreat. Norwegian Air Shuttle ASA plunged 16% after seeking protection from creditors. Germany’s Thyssenkrupp AG tumbled after saying it would slash 11,000 jobs amid a cash burn at its steel business. Nvidia Corp. dropped in U.S. pre-market trading after warning that data-center chip sales will decline slightly. The dollar index strengthened from a two-year low and Treasuries advanced. Gold dropped for a fourth day amid a drawdown in bullion-backed exchange-traded funds.
3. Japan’s Topix index closed higher, erasing an earlier drop, as stocks that benefit from stay-at-home demand regained ground lost in recent days as Tokyo officially raised its coronavirus alert to the highest level. The telecommunications group was the biggest boost as the benchmark reversed losses in afternoon trading. Game makers including Nintendo Co. also gained, while losers included value plays such as banks and automakers that had risen on virus progress in the past two weeks. The Nikkei 225 Stock Average pared its loss but closed down, while Sharp Corp. climbed on news it will be added to the blue-chip gauge.
4. Oil dropped from a two-month high after U.S. coronavirus restrictions tightened and cracks emerged in the united front presented by OPEC+. Futures fell 0.8% in London, after fluctuating between gains and losses. New York City said it would shut schools to stem rising infections, while road use in Europe continued to tumble as lockdowns remained in place across the region. The shaky demand picture poses a challenge to the Organization of Petroleum Exporting Countries and its allies as they struggle to manage the market. With less than two weeks to go until a key policy meeting, officials from the United Arab Emirates stoked tension by privately floating the idea of leaving the club.
5. Gold dropped for a fourth day as the dollar strengthened and positive vaccine developments encouraged investors to unwind holdings in bullion-backed exchange-traded funds. ETFs sold off for a fifth straight session on Wednesday, and have dropped 52 tons of gold since Pfizer Inc. announced its vaccine breakthrough last week. The University of Oxford confirmed that the Covid-19 vaccine it’s developing with AstraZeneca Plc produced strong immune responses in older adults in an early study. The resurgence of infections is still a cause for concern, with New York City shutting schools and Italy’s fatalities rising by the most in seven months. Stocks declined as investors reigned in the bullishness that’s dominated since the spate of vaccine news, while the dollar climbed, pressuring gold.
6. New York City’s public school shutdown and the prospect of a crippled mass transit agency brings a new sense of vulnerability to a city that had been making a comeback from its dark days as the world’s Covid-19 epicenter. And more bad news is imminent. New York Governor Andrew Cuomo said the city’s rising test rate could force indoor dining, gyms and other “high-risk” nonessential businesses to close. The moves threaten the city’s economy just as it was showing signs of improvement. Before Covid-19 struck, the city’s unemployment rate was 3.4%. New York, the early center of the U.S. outbreak, saw the rate touch a high of 20.3% in June. By September, with the reopening of schools and many businesses, it had partly recovered to 14.1%.
7. Nasdaq Inc. agreed to acquire Verafin, a provider of technology that fights financial fraud and money laundering, for $2.75 billion in cash. Verafin, based in St. John’s, Newfoundland and Labrador, provides a cloud-based platform to help clients detect and report financial crimes, according to a statement Thursday. It serves more than 2,000 financial institutions in North America. The purchase fits a strategy laid out at Nasdaq’s investor day earlier this month, when Chief Executive Officer Adena Friedman said the company was seeking acquisitions that would bolster its ability to provide software and analytics to the industry.
8. Asian aviation authorities are preparing next steps toward approving the Boeing Co. 737 Max for commercial flights after U.S. regulators lifted a 20-month grounding. South Korea will examine the U.S. Federal Aviation Administration’s assessment of the aircraft and review the required pilot training program before giving its approval, an official for the Asian country’s transport ministry said Thursday. It will also discuss with airlines and monitor the decisions of nations’ including China and Japan, the official said. The U.S. FAA cleared the Max’s return to the skies with an extensive package of fixes, including software changes to a system linked to two fatal crashes and maintenance procedures. The crashes — one off the coast of Indonesia more than two years ago and another in Ethiopia early last year — killed 346 people and prompted the grounding.
9. Russia surpassed 2 million Covid-19 infections, pushing its hospital system to the brink. The country has the fifth-most cases globally after the U.S., Brazil, India and France and has so far steered clear of a full lockdown during the second wave of the pandemic. The University of Oxford confirmed that the Covid-19 vaccine it’s developing with AstraZeneca Plc produced strong immune responses in older adults in an early study. Pivotal findings from the final phase of trials are expected in the coming weeks. In the U.S., deaths from the virus passed the grim milestone of 250,000 and New York City’s public school shutdown and the prospect of a crippled mass transit agency brought a new sense of vulnerability to the city. Tokyo is raisingits virus alert to the highest level following a new record of daily cases, while South Australia began one of the world’s toughest lockdowns to contain a cluster of infections.
10. Homebuyers, facing tightening credit standards and skyrocketing prices, are putting up the biggest down payments in at least two decades. The median down payment for single-family homes and condos in the U.S. was $20,775 in the third quarter, the most in records going back to 2000, according to a report from Attom Data Solutions. That’s up 69% from $12,325 a year earlier, before record low mortgage rates kicked the housing boom into a higher gear. Borrowers put up 6.6% of the median sale price of homes financed in the quarter, up from 4.7% a year earlier and the highest level since 2018. The median loan amount in the quarter of $275,500 was the highest since 2000, up 24% from the third quarter of last year.
11. Foreign investors purchased a net 1.06 trillion ($10.2 billion) worth of Japanese stocks in the cash and futures markets in the week ended Nov. 13, amid improving sentiment toward cheaper stocks as hopes grow for an end to Covid-19. The data release from Japan Exchange Group marked the second week overseas traders bought more than $10 billion of the nation’s equities. Japan’s stocks have risen on the back of strong local earnings, positive global vaccine news as well as the conclusion of the U.S. elections.
12. Chinese online real estate platform KE Holdings Inc. will raise $2.1 billion in a follow-on offering after pricing the new shares at a 5% discount to their last close, according to people familiar with the matter. The share sale comes just over three months after KE went public in New York, making it the fastest-ever return to selling shares by a U.S.-listed Chinese company after its initial public offering, data compiled by Bloomberg show. Its American depositary receipts have more than tripled in value since the $2.4 billion float in August, marking a much-needed winfor one of its backers, SoftBank Group Corp. KE will sell 35.4 million American depositary shares at $58 each, the people said, asking not to be identified as the information is private. The price represents a discount of 5.2% to KE’s closing price of $61.17 on Wednesday. A representative for KE did not respond to a request for comment.
13. A consortium backed by Oaktree Capital has offered to provide at least $2 billion of funding to Vodafone Group Plc’s listed Indian arm, people with knowledge of the matter said. Oaktree teamed up with several other firms including Varde Partners for the potential deal with Vodafone Idea Ltd., according to the people. The investor group made a proposal to provide around $2 billion to $2.5 billion of capital to Vodafone Idea, the people said, asking not to be identified because the information is private. Vodafone Idea said in September it plans to raise as much as 250 billion rupees ($3.4 billion) selling shares and debt to shore up its finances as competition heats up in the Indian wireless industry. It wasn’t immediately clear how a potential deal with the Oaktree-backed consortium would be structured.
14. Macy’s Inc. reported the start of a sales recovery that outpaced analysts’ expectations. But with the virus surging across the U.S., its new momentum entering the crucial holiday season will be put to the test. Comparable-store sales for owned and licensed stores, a key measure of retail performance, fell 20.2% in the quarter ended Oct. 31, better than the estimated 23.4% decline from Consensus Metrix. Digital sales grew 27% compared to the same quarter last year — though that was a deceleration from the second quarter’s brisk 53% rate.
15. A campaign to pressure President-elect Joe Biden to put Representative Deb Haaland in charge of the Interior Department — and make her the first American Indian cabinet secretary in U.S. history — is gaining ground in Washington. The effort, which involves lawmakers, tribal leaders and some environmentalists, also is making headway with Biden transition officials, according to three people familiar with the matter who asked not to be named discussing deliberations over personnel. Haaland, who was just elected to her second term in the House, is a top contender for the post of Interior secretary along with retiring Senator Tom Udall, the people said. Both are Democrats from New Mexico.
16. The Trump administration has assured states they’ll have enough hospital beds and equipment to handle the alarming nationwide surge in coronavirus cases, but it isn’t advocating for additional measures to slow the virus’s spread and continues to shut out Joe Biden’s advisers. Several American governors have imposed new restrictions on businesses and social life, and New York City announced Wednesday it would close schools. In a call with governors two days earlier, Vice President Mike Pence, who leads the federal pandemic response, said that the nation has thousands of hospital beds in reserve and ample supplies of protective gear, with vaccines around the corner.
17. After years of upheaval, criminal charges and bankruptcy, California utility giant PG&E Corp. has placed its fate in the hands of a new chief executive with a record of reducing accidents, cutting costs and building bridges. Patricia K. Poppe, a General Motors Co. veteran who now runs the Michigan utility CMS Energy Corp., will be PG&E’s fourth leader in the past two years, taking over on Jan. 4., the company said Wednesday in a statement. Her task is monumental. Not only must she reform a sprawling enterprise that’s been found responsible for sparking numerous deadly wildfires, she has to regain the trust of the public and government officials including Governor Gavin Newsom, who had threatened to take over the company if it didn’t correct its “culture of ineptitude.” And she has to do it while cutting $1 billion in costs.
18. Norway’s $1.2 trillion sovereign wealth fund, the world’s biggest, is raising the cap on external managers after its new chief executive officer made clear he wants more outsiders to help oversee investments. Starting next year, the Oslo-based fund plans to have external managers, including hedge funds, handle up to 5% of its portfolio, equivalent to just over $60 billion. That compares with 3.9% at the end of 2019, and about 4.4% in late October. Nicolai Tangen, the fund’s 54-year-old CEO since September and a former hedge fund manager, told Bloomberg earlier this year he’s keen to step up reliance on external managers because he thinks it’s a strategy that can “generate a significant surplus return.” That view has now shaped policy at the fund.
19. Thyssenkrupp AG will cut 11,000 jobs, roughly 10% of its workforce, as the conglomerate’s beleaguered steel business hemorrhages cash and Germany’s government bickers over a possible rescue. The steel and materials group almost doubled the number of positions it plans to eliminate after recording a 5.5 billion-euro ($6.5 billion) net loss for the year that ended in September. The company forecast another more than 1 billion-euro deficit for the current period in a statement Thursday. Thyssenkrupp shares fell as much as 7.6% in Frankfurt trading. The stock has plunged more than 60% since the start of the year.
20. The European Union is facing a grueling battle to overcome a threat endangering billions of euros of pandemic-relief and budget funds as central bank chief Christine Lagarde warns of the dangers of a delay. With much of the continent in lockdown amid a second wave of Covid-19 infections, Hungary and Poland are blocking 1.8 trillion euros ($2 trillion) of disbursements from the EU’s jointly financed economic-recovery package and its next seven-year budget. France says the countries could be excluded from the rescue plan altogether unless a compromise is found. The sticking point is conditionality linking budget transfers to the rule of law — a subject of frequent sparring between Brussels and the two nations. While relaxing the new requirements would offer one route to bring them on board, it would risk protests from other members such as the Netherlands, who see the standoff as a fight for the EU’s core democratic values. A video conference among leaders on Thursday offers the chance to address the holdup.
21. Central banks in Indonesia and the Philippines unexpectedly cut their benchmark interest rates to record lows as the two nations grapple with the worst coronavirus outbreaks in Southeast Asia. Bank Indonesia lowered its key rate Thursday by 25 basis points to 3.75%, its first cut in four months, as 11 of 26 economists surveyed by Bloomberg predicted. Minutes later, Bangko Sentral ng Pilipinas cut by the same amount to 2.0%, as only five of 18 economists expected.
22. President Xi Jinping pledged that China wouldn’t engage in decoupling, in an address to Asia-Pacific leaders in Kuala Lumpur just days after the region inaugurated the world’s largest free-trade agreement. Xi’s speech during Asia-Pacific Economic Cooperation summits Thursday came as he — and the world — await clues on how U.S. President-elect Joe Bidenwill approach the region. The White House declined to say Wednesday whether President Donald Trump plans to address the gathering in Malaysia, held virtually this year because of the pandemic. Singaporean Prime Minister Lee Hsien Loong said after Xi that a U.S. government led by Biden was more likely to adopt a multilateral approach to trade that was supportive of existing international institutions and forums. Lee, whose city-state is dependent on trade as well as U.S. security support, took a swipe Trump’s at “America First” economic policies.
23. Months after much of Asia emerged from coronavirus lockdowns, commercial real estate dealmaking remains far below pre-pandemic levels, a sign markets face a long, slow recovery just as hopes rise for vaccines to make offices, hotels and malls safe again. Even in places that are conquering Covid, investors are taking it slowly. About $128 billion in commercial real estate traded hands globally in the quarter ending Sept. 30, little
    changed from the previous three month-period and the lowest level since early 2012, according to Real Capital Analytics Inc. The value of third-quarter deals sank 27% in Asia, 37% in Europe and 59% in North America from third quarter 2019, CBRE Group Inc. reported.
24. Judy Shelton’s chance of getting confirmed to the Federal Reserve Board was left hanging by a fraying thread after the Senate left Washington Wednesday for a holiday recess without planning another vote on her nomination. President Donald Trump’s pick of the controversial economist ran into bipartisan resistance, the political calendar and the pandemic, leaving her with little chance of confirmation before a new Congress and a new president take over next year. The Senate returns to work Nov. 30, but Senate Majority Leader Mitch McConnell hasn’t yet put a vote on Shelton to join the Fed board on the schedule. The task of getting her confirmed will only get harder after that.
25. Carnival is in the market with a cross-border bond sale after holding credit update calls with investors. Meanwhile, Sinclair Broadcast Group is preparing to launch a secured junk bond deal as soon as this week, according to people familiar with the matter. Carnival is selling $1 billion and 350 million euros ($414 million) of 5.25NC3.25 notes that each may yield in the mid-high 8%s, according to a person familiar with the matter

*All sources from Bloomberg unless otherwise specified