November 23rd, 2020
Daily Market Commentary
- Members of the largest union at Lundin Mining Corp.’s Candelaria copper mine in Chile are returning to work after accepting a wage offer, ending a strike that had halted production for more than a month. Leaders of the AOS union signed a new 30-month contract on Friday, with its almost 550 members returning to work after going through Covid-19 and other health and safety protocols, union president, Evelyn Walter, said in a text message. While a strike by another union at Candelaria continues, the agreement with AOS opens the door for the mine to resume operations, ending a stoppage that raised concerns over supply disruptions in a nation that accounts for a quarter of the world’s mined copper. BHP Group’s Escondida, the world’s biggest copper mine, is among operations scheduled to negotiate new wage contracts early next year.
- European stocks started the week by returning to their highest level since late February after AstraZeneca Plc said its vaccine candidate prevents an average of 70% of Covid-19 cases, before giving up some gains after the November PMI reading hinted at declining output. The Stoxx 600 benchmark was up 0.5% as of 10:02 a.m. in London, with 14 of 20 sectors in positive territory and cyclical industries including energy, banks and miners rising the most. Equities in the region remain on course for a record monthly gain, up more than 14% in November, after Joe Biden declared victory in the U.S. election and a series of positive developments in the global race to develop a safe Covid-19 vaccine. The rally has been led by cyclical stocks as investors rotated into sectors that have been most affected by the pandemic.
- U.S. equity futures rose and the dollar weakened on optimism over a Covid-19 vaccine, with AstraZeneca Plc saying its shot prevented illness in most people. Pfizer Inc. and Moderna Inc. climbed in pre-market trading after a U.S. government official said immunizations could start soon. U.S. vaccinations against Covid-19 will “hopefully” start in less than three weeks, said Moncef Slaoui, head of the government’s Operation Warp Speed, on CNN’s “State of the Union” on Sunday. An advisory panel of the Food and Drug Administration is meeting on Dec. 10 to discuss emergency use authorizations.
- In other markets, Asian stocks continued marching higher. The MSCI Asia Pacific Index has risen 15 of the past 16 trading sessions, and South Korean stocks hit a record as improving trade data and the earnings outlook boosted investor confidence.
- Oil touched its strongest level since early September as signs that Covid-19 vaccinations in the U.S. could be underway within three weeks improved the demand outlook. Markets broadly rallied after AstraZeneca Plc became the latest company to report a vaccine that protects most people from coronavirus. Vaccinations will “hopefully” start as soon as Dec. 11 or Dec. 12, Moncef Slaoui, head of the American government’s Operation Warp Speed vaccine acceleration program, said on CNN on Sunday. A weaker dollar also buoyed crude. The prospect of a treatment has reshaped the oil futures curve, with nearby prices rallying more than later ones. Small pockets of the WTI curve moved into a bullish backwardation structure on Friday, and those gains continued early Monday.
- Gold steadied as investors weighed growing optimism over a coronovirus vaccine against surging cases in many parts of the world. Bullion held last week’s loss after the dollar weakened and stock markets advanced as AstraZeneca Plc said its vaccine prevented most people from developing Covid-19, marking another promising development in the quest to end the pandemic. Separately, U.S. vaccinations will “hopefully” start in less than three weeks, according to the head of the federal government’s program to accelerate the production of a shot. Prices last week edged near the lowest since July as hopes that a vaccine could bolster economic growth buoyed markets and curbed demand for a haven. Still, the U.S. is now averaging almost 110,000 more daily cases than a month ago, while there’s been a resurgence in infections in Europe and parts of Asia.
- China’s shipments of diesel and gasoline surged to a six-month high as state-run refiners sought to maintain high processing rates and use up export quotas. Diesel shipments in October were almost 83% higher than a year earlier, data from the General Administration of Customs showed. Exports of the industrial fuel reached 522,200 barrels a day, while gasoline was at 514,468 barrels a day, both at the highest since April, according to Bloomberg calculations. Chinese refiners ramped up crude processing in October to match a monthly record as plants made fuels to meet a boost in domestic demand. The need to clear export quotas and keep run rates high led to a jump in shipments last month, despite weak export margins, according to Liu Yuntao, an analyst with London-based Energy Aspects Ltd.
- It may come down to another pharmaceutical breakthrough to set the tone for emerging markets headed toward 2021. Developing-nation stocks, currencies and bonds rose for a third week in the five days through Friday, and Asian markets opened strongly on Monday, as the prospect of a coronavirus vaccine roll-out in the months ahead outweighed concern that rising infections would lead to tougher curbs in the nearer term. Underscoring investor optimism, a measure of implied volatility for currencies fell to the lowest in almost four months. Emerging markets are set to outperform the rest of the world as a global economic rebound takes hold starting in the second quarter, according to Goldman Sachs Group Inc. With reduced political uncertainty following the U.S. election and the potential for more positive vaccine updates, analysts and investors from BlackRock Inc. to JPMorgan Chase & Co. and Morgan Stanleyhave been flagging opportunities in risky assets that have trailed peers.
- Union leaders and transportation advocates have looked to President-elect Joe Biden and his former Senate colleague Mitch McConnell for possible action next year on a major infrastructure package. Yet, as President Donald Trump and allies including McConnell refuse to recognize Biden as the election winner, hopes are fading for an early bipartisan breakthrough on a significant infusion of funding for bridges, highways and airports. Trump himself had pressed earlier in his tenure to advance an infrastructure deal, something that had eluded Washington policy makers for years, yet the effort fell short as he and Democratic leaders including House Speaker Nancy Pelosi parted ways over how to pay for it.
- Rebalancing flows may lead to an exodus of around $300 billion from global stocks by the end of the year, according to JPMorgan Chase & Co. Large multi-asset investors may need to rotate money into bonds from stocks after strong equity performance so far this month, strategists led by Nikolaos Panigirtzoglou wrote in a note Friday. They include balanced mutual funds, like 60/40 portfolios, U.S. defined-benefit pension plans and some big investors like Norges Bank, which manages Norway’s sovereign wealth fund, and the Japanese government pension plan GPIF, the strategists said. “We see some vulnerability in equity markets in the near term from balanced mutual funds, a $7 trillion universe, having to sell around $160 billion of equities globally to revert to their target 60:40 allocation either by the end of November or by the end of December at the latest,” the strategists wrote.
- Merck & Co. agreed to acquire privately-held biopharma company OncoImmune for an upfront payment of $425 million in cash to gain access to a potential therapy for severe Covid-19. OncoImmune shareholders will also be eligible for payments based on sales and on the achievement of certain regulatory milestones, the companies said in a statement Monday. OncoImmune recently announced positive findings from an interim efficacy analysis of a late-stage study evaluating its lead therapeutic candidate, CD24Fc, for the treatment of patients with severe Covid-19.
- A Covid-19 vaccine developed by the University of Oxford and AstraZeneca Plc prevented a majority of people from getting the disease in a large trial, another promising development in the quest to end the pandemic, and the rollout could begin next month. The vaccine stopped an average of 70% of participants from falling ill, an early analysis of the data show. The effectiveness rose to 90% for one of two regimens, using half a dose followed by a full one later, close to the high bar set by Pfizer Inc. and Moderna Inc. Astra and Oxford officials said they’re preparing to submit the findings to regulators and don’t expect the different outcomes in the study to affect the process. The U.S. could potentially take longer to sign off because a clinical trial in that country will need more time before it delivers results.
- China Evergrande Group took two more steps toward restoring confidence in its finances, securing a $4.6 billion investment from state-linked companies and lining up 23 cornerstone investors for the spinoff of its property services arm. Companies backed by city governments in Guangdong province — Evergrande’s home base — will buy equity worth 30 billion yuan ($4.6 billion) from existing investors in Hengda Real Estate, a unit that holds Evergrande’s main property assets in China, a person familiar with the matter said over the weekend, asking not to be identified as the information isn’t public. Evergrande also announced that cornerstone investors had agreed to buy a roughly 7% stake in Evergrande Property Services Group Ltd. The investors include SenseTime Group and a subsidiary of China Gas Holdings Ltd., according to terms obtained by Bloomberg News. The unit is seeking about $2 billion in a Hong Kong initial public offering that will help Evergrande pare debt.
- Foxconn Technology Group plans to assemble key components for Google servers from its plant in Wisconsin, people familiar with the matter said, finally breathing life into a factory Donald Trump hailed as crucial to bringing manufacturing back to the U.S. The Taiwanese company has decided to locate production for this new contract at the existing complex rather than make the components at home or in China, the people said, asking not to be identified discussing a sensitive move. The under-utilized factory should start mass production in the first quarter, timed with the release of Intel Corp.’s Ice Lake server chips, they said. Foxconn is setting up surface-mount technology assembly lines that it will use to place semiconductors onto circuit boards, they added.
- Blackstone Group Inc. is doubling down on Asia, seeking to raise at least $5 billion for its second private equity fund focused on the region, people familiar with the matter said. The U.S. investment firm has started marketing the new vehicle to potential investors, according to the people, who asked not to be identified because the information is private. It’s targeting more than double the size of its first Asia buyout fund, which closed at about $2.3 billion in 2018. Blackstone is raising ever-larger pools of capital as dislocations from the coronavirus pandemic offer up more deal opportunities. President Jon Grayhas vowed to increase the proportion of Asian investment in its total business, which stood at just under 10% two years ago. In 2018, it raised $7.1 billion for Asia real estate investments.
- China reported sporadic local cases in Tianjin, Shanghai and Inner Mongolia, raising concerns that the virus is popping up again in the world’s second-largest economy. Hong Kong and Singapore scrapped a planned travel bubble after cases spiked in Hong Kong. The euro area is slipping into another contraction amid new virus restrictions that are taking a massive toll on parts of the economy. Vaccinations against Covid-19 in the U.S. will “hopefully” start in less than three weeks, according to the head of the federal government’s program to accelerate a vaccine.
- Cineworld Group Plc obtained a rescue loan and agreed other measures to increase its liquidity by $750 million and avoid a cash crunch with its movie theaters set to remain closed well into next year. Its shares jumped as much as 27%. The world’s second-largest cinema chain reached a deal for a new $450-million, three-year debt facility, along with covenant waivers on existing loans, and pushed out the maturity of a revolving credit line. It also got a tax refund, rent deferrals from landlords and will issue equity warrants to participating lenders, according to a statement Monday. Cineworld now expects to have enough “financial and operational flexibility” until lockdown restrictions ease and studios bring major releases back to screens. The company assumes cinemas will reopen “no later than May 2021,” it said in a statement on Monday.
- President-elect Joe Biden intends to name his longtime adviser Antony Blinken as secretary of state, according to three people familiar with the matter, setting out to assemble his cabinet even before Donald Trumpconcedes defeat. In addition, Jake Sullivan, formerly one of Hillary Clinton’s closest aides, is likely to be named Biden’s national security adviser, and Linda Thomas-Greenfield will be nominated to serve as Biden’s ambassador to the United Nations. An announcement of the president-elect’s top national security advisers is expected for Tuesday, the people said. Biden’s incoming White House chief of staff Ron Klain said Sunday the president-elect would be making his initial cabinet announcements on Tuesday, but declined to specify which positions would be filled first. The people familiar with Biden’s selections asked not to be identified because he hasn’t yet made the announcements.
- Moderna Inc. chief executive officer Stephane Bancel offloaded another $1.74 million of shares last week while the world awaits for the biotech company to be the second company to file its vaccine for emergency use in the U.S. Stock in the Cambridge, Massachusetts based company climbed as much as 5% to $102.48 before the bell on Monday. The sale comes after Pfizer Inc.and BioNTech SE became the first companies to complete a submission for a vaccine to U.S. regulators on Friday. Bancel sold 9,000 directly owned shares and 10,000 indirectly owned shares at an average price of $91.73 starting on Nov. 18, according to the filing. Bancel and other freshly minted billionaires gained over $400 million last Monday on the heels of encouraging trial news. The recent rally lifted Bancel’s net worth to $3.1 billion, based mainly on his 6% stake in the business, according to the Bloomberg Billionaires Index.
- Investors added money to exchange-traded funds that buy emerging market stocks and bonds last week. This was the third straight week of inflows. Inflows to U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $1.96 billion in the week ended Nov. 20, compared with gains of $1.38 billion in the previous week, according to data compiled by Bloomberg. So far this year, outflows have totalled $7.13 billion.
- Prosus NV is on the lookout for acquisitions after the Dutch e-commerce giant reported a 28% rise in first-half earnings and a net cash position of $4.3 billion. The owner of global internet assets specializing in the likes of food delivery, payments and online education lost out on two high-profile takeover battles in the past year and maintains a strong liquidity position, according to a statement on Monday. As well as cash, Prosus has the ability to borrow and sold $2 billion of debt in July. While prices have gone up for certain online assets, there are still growth companies available, Chief Executive Officer Bob van Dijk said in an interview. “We still find good opportunities, though some of them might be at an earlier investment stage rather than mature.”
- Aviva Plc agreed to sell its stake in its Italian life insurance joint venture for about 400 million euros ($475 million) as Chief Executive Officer Amanda Blanc continues her revamp of the firm. The insurer will sell its 80% holding in Aviva Vita to its partner UBI Banca, according to a statement Monday. The proceeds of the sale, which will leave Aviva with three insurance businesses in Italy, will be used to strengthen the firm’s balance sheet. Blanc announced in August that Aviva would focus on its operations in the U.K., Ireland and Canada, signaling that underperforming units in other countries could be sold. The company sold control of its Singapore business in September and is also pursuing a sale of its French unit.
- The Trump administration is close to issuing a list of 89 Chinese aerospace and other companies that would be unable to access U.S. technology exports due to their military ties, Reuters reported, a move that could escalate tensions as the Biden administration prepares to take over. A spokesman for the U.S. Department of Commerce declined to comment, Reuters said. Commercial Aircraft Corp. of China Ltd., or Comac, and Aviation Industry Corp. of China Ltd. are among the firms named, Reuters reported, citing a draft copy of the list from the U.S. Commerce Department. The move could fuel already-heightened tensions between the U.S. and China on fronts ranging from trade and Taiwan to the handling of the coronavirus as President-elect Joe Biden prepares to take over from Donald Trump.
- Microsoft Corp. data partner AvePoint Inc. said it has reached a deal to go public through a merger with blank-check company Apex Technology Acquisition Corp. The combined businesses will have an equity value of about $2 billion on a pro forma basis, said a spokesperson for AvePoint. That includes $140 million in proceeds from institutional investors participating in the transaction through a committed private investment, or PIPE. AvePoint shareholders are expected to own about 72% of the combined company when the deal closes, according to the company. The new company will be named AvePoint and will trade on the Nasdaq Stock Market under the symbol AVPT. The company will be led by Tianyi Jiang, AvePoint’s co-founder and chief executive officer, with AvePoint co-founder Kai Gong serving as executive chairman.
- A U.K. lawmaker said Cerberus Capital Management would be an inappropriate owner of Co-Operative Bank Plc and urged the Bank
of England to block the U.S. private-equity firm’s approach. Kevin Hollinrake, who co-chairs the parliamentary group on fair business banking, said in a Nov. 20 email to BOE Governor Andrew Bailey that he has “deep concerns” about a possible takeover by the U.S. private equity firm. He noted Co-Op Bank’s customers were often attracted to its “reputation of ethical and sustainable practices” and that the sale of the bank to a “vulture fund would be of particular concern.” He said that the buyout firm’s 13.3 billion pound ($18 billion) acquisition of the former Northern Rock mortgage book in 2015 left 270,000 mortgage customers with lower levels of regulatory protection.
- Danone will cut as many as 2,000 jobs, including one in four positions at its global headquarters, as the world’s largest yogurt maker attempts to revive profitability after getting hit by the coronavirus pandemic harder than other rivals. The company said Monday it’s considering moving global headquarters for its various businesses closer to the base of its French operations in Paris. Annual cost savings should reach 1 billion euros ($1.2 billion) by 2023 after the measures, also fueled by more efficient purchasing. The job cuts represent about 2% of Danone’s total staff. Chief Executive Officer Emmanuel Faber, who started the year with a focus on sustainability, is changing tack to address internal management shortcomings. The company has struggled for years to breathe life into its European dairy division despite introducing dozens of new products. Now with the pandemic, its bottled water division is reeling as restaurants shut down.
- Carlos Ghosn’s detention for almost 130 days in a Japanese jail was neither necessary nor reasonable and violated the former Nissan Motor Co. chairman’s human rights, a UN panel concluded in a harsh critique of Tokyo prosecutors who led the case against him. The decision to arrest Ghosn four times in a row so as to extend his detention was “fundamentally unfair,” the United Nations Human Rights Council’s Working Group on Arbitrary Detention said in a report Monday posted on its website. The panel said that it would refer the case to the UN’s rapporteur on torture, cruel and other inhuman or degrading treatment.
- French lender Credit Agricole SA offered to buy Italy’s Credito Valtellinese for about 737 million euros ($875 million) in cash as consolidation accelerates in European banking. The unsolicited bid of 10.50 euros a share, made through its Italian unit, represents a 21.4% premium to the Nov. 20 closing price, according to a statement from Credit Agricole Monday. The French lender, which took a 5% stake in 2018 in the Italian bank commonly known as Creval, said it has already received a commitment letter from Davide Serra’s Algebris Investments for the sale of that firm’s 5.4% stake. A deal would strengthen Credit Agricole’s position in Italy’s wealthy north, including a doubling of its market share in Lombardy, and consolidate its role as the sixth-biggest retail bank in Italy, with 3 million clients. The offer adds to a series of mergers this year as the economic fallout from the pandemic and low interest rates fuel consolidation, particularly in Italy and Spain, two countries hit hard by the virus.
*All sources from Bloomberg unless otherwise specified