November 24th, 2020

Daily Market Commentary

Canadian Headlines

1. Apollo’s C$39 per share offer for Great Canadian Gaming reflects only a fraction of its potential value, Burgundy Asset Management, the casino operator’s third-largest holder, said in a letter to the company. Burgundy said that “we believe Great Canadian’s Ontario assets are irreplaceable properties for which Apollo’s C$39 offer reflects only a fraction of their potential value”

World Headlines

1. European stocks rose on Tuesday, on course for a record monthly gain, spurred by investor optimism about the development of coronavirus vaccines and reduced political uncertainty in the U.S. The Stoxx 600 Index was up 0.6% by 8:56 a.m. London time, led by energy shares, with sentiment helped by President-elect Joe Biden beginning his formal transition process. Airlines EasyJet Plc and International Consolidated Airlines Group SA rose after England planned to cut its quarantine period for arrivals from high-risk countries. Elsewhere, Germany’s DAX benchmark is set to gain more constituents and tighter rules in an overhaul. European stocks have jumped 14% in November following a string of positive study results from companies racing to develop a vaccine against the coronavirus. Stocks in sectors like travel, which have been hit hard this year by restrictions on movement, and economically sensitive industries have made big gains this month.
2. Global stocks advanced for a second day as investors cheered the start of U.S. President-elect Joe Biden’s formal transition and the prospect for more economic stimulus. Stock markets globally trended higher after the General Services Administration acknowledged Biden as the apparent winner of the presidential election. The move reduces political uncertainty in the U.S., giving Biden and his team access to current agency officials, briefing books, some $6 million in funding and other resources. A combination of good news on a Covid-19 vaccine and reports that former Federal Reserve Chair Janet Yellen could be named as the next Treasury Secretary are giving investors more confidence to pile on risk. That’s fueling the rotation out of defensive technology stocks and into assets that have been hardest hit by the pandemic, such as airlines and energy producers.
3. Japanese stocks rose as the market reopened following a national holiday, as investor sentiment was lifted by progress on the U.S. administration transition and another Covid-19 vaccine candidate. Electronics were the biggest boost as all but one industry group advanced in the Topix, which closed at the highest level since October 2018. The U.S. General Services Administration acknowledged Joe Biden as the winner of the presidential election, and President Donald Trump called on his team to cooperate. Biden plans to name former Federal Reserve Chair Janet Yellen as Treasury Secretary, people familiar with the matter said.
4. Oil traded at its highest level since March as markets broadly rallied on the start of the U.S. presidential transition process and with the demand outlook strengthening after a string of positive vaccine breakthroughs. Brent futures rose as much as 1.4% in London, accompanied by a sharp rally in the shape of the futures curve as physical markets in Asia showed signs of strength. The triggering of a formal transition process to U.S. President-elect Joe Biden buoyed stock markets and pushed down the dollar on Tuesday. With coronavirus vaccines appearing more likely in recent weeks and crude demand in Asia soaring, the gains in the shape of the oil futures curve have been even more stellar than the almost 24% rise in Brent prices so far this month. The international benchmark’s nearest contract moved to a premium to the next month on Monday for the first time since July — a bullish structure known as backwardation that indicates tight supply.
5. Gold extended its drop, hitting the lowest level in four months after positive vaccine news, strong economic data and signs the U.S. presidential power transition would pass smoothly. Bullion prices sank on Monday after trading mostly in a range for weeks. It followed improved economic data from the U.S. and an announcement that 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. Gold fell beneath a key level of support as investors shunned the haven asset, and the drop continued on Tuesday, as equity markets rallied. Traders will now have their eyes on the $1,800 an ounce mark, which represents a key support for gold, according to Ole Hansen, head of commodity strategy at Saxo Bank A/S.
6. The U.K. government plans to double the amount of renewable power supported by the country’s main subsidy mechanism and create a new structure that will bolster a variety of technologies, speeding up a wave of new investment. The next round of the contracts for difference system will clear the way for as much as 12 gigawatts of new green power capacity across three different technologies, according to a statement from the U.K.’s Department for Business, Energy and Industrial Strategy. That’s up from 5.8 gigawatts that won contracts last year, an advance that will help the government deliver on Prime Minister Boris Johnson’s plan to cut emissions. Offshore wind is central to that plan, with the government aiming to quadruple capacity to 40 gigawatts by 2030. The new expanded auction round could drive more than 20 billion pounds ($26.7 billion) of investment, according to industry group RenewableUK.
7. Hong Kong will shut bars and clubs as the city tightens social distancing rules amid a recent spike in virus cases. Prime Minister Boris Johnson confirmed England’s national lockdown will be replaced next week by a three-tier system of regional restrictions. England will also chop its quarantine time for arrivals from high-risk countries if they take a test. AstraZeneca Plc’s vaccine showed potential in halting severe cases of Covid-19, according to the leader of the U.S. government’s Operation Warp Speed program. Meanwhile, the World Health Organization’s chief scientist said people will probably need to take precautions against Covid-19 for the next year.
8. President-elect Joe Biden and his team will begin to delve into Donald Trump’s coronavirus vaccine planning and assess the condition of federal agencies after the president relented and allowed the transition planning to begin. After weeks of inaction, the chief of the General Services administration acknowledged Monday that Biden was the “apparent winner” of the Nov. 3 election. The shift came after the key swing state of Michigan certified Biden as the winner, at least nine Republican senators called for the transition to begin and the Trump legal team suffered fresh setbacks. Trump made clear that he wasn’t ready to concede, but the GSA’s declaration gives Biden and his team access to current agency officials, briefing books and other resources, including some $6 million in funding.
9. Russian online retailer Ozon Holdings Plc will raise $990 million in its initial public offering in the U.S., taking advantage of demand for technology stocks amid the busiest fourth quarter for new listings since 1999. Ozon priced 33 million shares at $30 apiece, the company said in a statement Tuesday. This exceeded guidance of $22.50 to $27.50 per share, while the offering size is 10% higher than initially planned. Ozon is set to start trading on the Nasdaq and in Moscow later Tuesday. Ozon plans to use the IPO proceeds for general corporate purposes. Goldman Sachs Group Inc. and Morgan Stanley are managing the sale along with Citigroup Inc., UBS Group AG and three Russian banks. The underwriters have an option to buy as many as 4.95 million shares within 30 days.
10. Goldman Sachs Group Inc. is planning a European stock trading platform to ensure its clients can still buy and sell shares even without a post-Brexit agreement to allow dealing in London. The Wall Street bank has applied to French regulators to start a Paris-based trading venue called SIGMA X Europe, according to the company. It intends to open before Jan. 4 subject to regulatory approvals. “It’s critically important for us to have the capabilities in place for all our clients to respond to what we believe will be a changing of the liquidity landscape in Europe and the U.K. post-Brexit,” Elizabeth Martin, global head of futures and equities electronic trading at Goldman Sachs, said in an interview.
11. JD.com Inc.’s logistics unit is considering an initial public offering that could raise at least $5 billion, according to a person familiar with the matter. JD Logistics is targeting a valuation of about $40 billion, the person said, asking not to be identified as the information is not public. The company is leaning toward choosing Hong Kong as a venue for the IPO, the person said. JD has held early discussions with banks, said people familiar with the matter. The IPO plans are still preliminary, the people said. The company could decide not to proceed with a listing and details including size and venue could still change, they said. The potential listing was first reported by IFR.
12. Czech Prime Minister Andrej Babis said the country isn’t yet ready to start a tender for a new nuclear reactor, signaling a delay in the project that’s been a key concern for investors in power utility CEZ AS. After years of negotiations, state-controlled CEZ and the government in July signed a contract effectively providing price guarantees and financing help. The largest traded utility in eastern Europe, whose shares have long suffered because of the project’s risks, planned to start the tender by the end of 2020. Babis veered off the announced road-map late on Monday, telling public radio that the tender isn’t prepared yet and that the government shouldn’t decide on such an important investment 10 months before elections. He also said it could take about one-and-a-half years to secure European Union’s permission for the planned state aid.
13. India’s mass transit systems, unreliable even before the coronavirus pandemic, were shut off completely when the country locked down. As a result, Indians rushed to find alternative transportation, and that often meant used cars. A major beneficiary was Cars24 Services Pvt., an online marketplace for used cars based in Gurgaon, India. The company’s valuation jumped to more than $1 billion after a new round of funding, Cars24 plans to announce Tuesday. DST Global, the investment firm led by Russia-born billionaire Yuri Milner, invested $200 million in the deal. The investment doubles the total funds raised by Cars24 since the business was established five years ago. The chief executive officer and co-founder, Vikram Chopra, was an investment analyst early in his career at Sequoia Capital, one of the world’s most prominent venture capital firms and now a Cars24 investor. Chopra started Cars24 after having a hard time selling his car before a temporary move to the U.S., he said. Daunted by the situation, he ended up giving his car to a friend instead, he said.
14. Swedish real estate firm SBB will make a voluntary tender offer to acquire its Norwegian rival, Entra ASA, in a deal valuing it at about $3.3 billion. The offer price of 165 Norwegian kroner per Entra share represents a premium of 14.8% compared with Monday’s closing price. Sweden’s real estate market has ridden a wave of expansion in recent years, in part financed by a surge in bond issuance. Real estate issuers in the country now dominate its credit market, a trend that’s recently been underscored by the Riksbank’s decision to add corporate bonds to its asset purchases.
15. Elon Musk’s year of dizzying ascents hit a new apex Monday as the Tesla Inc. co-founder passed Bill Gates to become the world’s second-richest person. The 49-year-old entrepreneur’s net worth soared $7.2 billion to $127.9 billion, driven by yet another surge in Tesla’s share price. Musk has added $100.3 billion to his net worth this year, the most of anyone on the Bloomberg Billionaires Index, a ranking of the world’s 500 richest people. In January he ranked 35th. His advance up the wealth ranks has been driven largely by Tesla, whose market value is approaching $500 billion. About three-quarters of his net worth is comprised of Tesla shares, which are valued more than four times as much as his stake in Space Exploration Technologies Corp., or SpaceX.
16. Germany’s DAX index plans its most sweeping overhaul since its inception, adding 10 new companies and new quality controls after the implosion of Wirecard AG rocked investor confidence in the gauge. The changes will trigger billions of euros of passive flows for the new members. Those are likely to come from the largest stocks in Germany’s MDAX gauge, which include Airbus SE, Siemens Healthineers AG, Sartorius AG and Zalando SE. Index operator Qontigo will boost the number of DAX members to 40 from 30 in the third quarter of next year, while reducing MDAX membership to 50 from 60 companies, it said in a statement.
17. England said it will chop its 14-day quarantine for arrivals from high-risk countries by almost two-thirds if they take a coronavirus test, easing restrictions on air travel just in time for the Christmas holiday rush. Airline shares surged after the Department for Transport published the new rules, which will come into force on Dec. 15. England’s self-isolation period will be reduced to five days if a passenger tests negative for Covid-19 on or after the fifth day. British Airways owner IAG SA gained as much as 6.6%, while EasyJet Plc soared up to 7.3% in London. Irish discounter Ryanair Holdings Plc and Wizz Air Holdings Plc also advanced.
18. Enel SpA, Europe’s biggest utility, is set to invest 160 billion euros ($190 billion) over the next 10 years on a bet that demand for green energy and electrification will surge globally. Under Chief Executive Officer Francesco Starace, Enel has sought to ride the accelerating shift to a low-carbon world, committing vast sums of money to expanding its renewable power, networks and energy-efficiency divisions. Its bold investment plan comes as competition for new projects intensifies, with utilities now vying with oil majors pushing more aggressively into the sector.
19. Malaysia’s AirAsia Group Bhd. posted yet another quarterly loss as coronavirus-related restrictions continued to destroy global travel demand, though its figures improved from the previous three months. The airline, once the pioneer of a low-cost flying revolution in Asia, lost 851.8 million ringgit ($208 million) in the period through September, compared with a net loss of 51.4 million ringgit a year earlier and a record 992.9 million ringgit loss in the second quarter. Revenue plunged 86% to 442.9 million ringgit, AirAsia said in an exchange filing Tuesday. The airline is one of the most closely watched in Asia, growing from Malaysian roots into a sprawling empire of no-frills carriers from Japan to India. The pandemic forced it to scale back, with its Japan unit going bust and investment in its Indian affiliate under review. AirAsia X Bhd. also submitted a new debt restructuring proposal to creditors earlier this month. The long-haul unit last week said its quarterly loss widened to 308.5 million ringgit.
20. Xiaomi Corp. posted its fastest pace of revenue growth in more than two years after the Chinese smartphone giant grabbed market share from Huawei Technologies Co. when American sanctions deepened. China’s No. 2 smartphone name reported a stronger-than-anticipated 34.5% rise in sales to 72.2 billion yuan ($11 billion) in the September quarter. More than half of that originated beyond its home country for the first time as Xiaomi took advantage of Huawei’s retreat to delve deeper into markets from Western Europe to India, where it widened its lead. The company been among the biggest beneficiaries of the Trump administration’s campaign to rein in Huawei and contain China’s technological ascendancy. Its unit shipments surged 42% in the third quarter globally, researcher IDC estimated, by far the best performance among brands from Samsung Electronics Co. to Apple Inc. Huawei’s own volumes plummeted 22% over that period, and it now has to defend its No. 2 position against the likes of Vivo.
21. Credit Suisse Group AG expects to book a $450 million impairment on its stake in York Capital Management as the U.S. firm winds down most of its hedge-fund strategies, the latest in a series of hits to the bank’s balance sheet and reputation. The charge, which could still change, will be booked in the fourth quarter in the asset management business, the Zurich-based bank said Tuesday. Credit Suisse agreed to take a 30% stake in York in 2010, offering to pay at least $425 million at the time to give clients access to alternative investments.
22. Two business development companies managed by a joint venture of FS Investments and KKR & Co.’s credit arm are planning to merge, creating a $15 billion lending vehicle that will be one of the largest providers of financing to midsized firms in the U.S. The merger combines FS KKR Capital Corp. and FS KKR Capital Corp. II into an entity with more than $3 billion of committed capital available for new investments, according to a Tuesday statement. The newly combined BDC, which will keep operating under FS KKR Capital Corp. banner, will continue to focus mainly on senior secured debt investments. The new entity will have enhanced access to the investment-grade debt markets, a stronger dividend profile and lower overall expenses, Michael Forman, chief executive officer of both BDCs, said in the statement.
23. Record airline losses from the coronavirus outbreak will balloon further next year as anticipated vaccination programs take time to revive travel demand, according to the industry’s main trade group. The International Air Transport Association on Tuesday predicted carriers will lose almost $39 billion in 2021, more than double the forecast in June. That’s on top of a $118.5 billion deficit in the current 12 months, up 40% from the prior outlook after a new wave of lockdowns wiped out a resurgence in flights. Together the losses will be five times those accumulated during the 2008-2009 recession, according to IATA, which forecasts that the industry will turn cash positive again in the fourth quarter of next year, earlier than it had suggested before recent breakthroughs with vaccine tests.
24. Tiffany & Co. had strong earnings growth in one of its last reports before being taken over by LVMH, helped by a resurgence of demand in China and e-commerce. Comparable sales in China almost doubled, which harks back to the boom days of that market. China has been a lifeline for luxury brands with consumers keen to get their hands on luxury goods they aren’t able to buy abroad because of the virus. After backing out of a deal to acquire Tiffany in September, LVMH will in the end buy the U.S. company in a deal worth $131.50 a share instead of $135. The companies revised their terms last month after the threat of a lengthy legal battle. While they’ll avoid that dispute, it’ll still cost Tiffany money.
25. Europe’s aviation safety regulator kicked off the process of bringing Boeing Co.’s 737 Max back into service, in a major step toward the grounded jet’s global return. The European Union Aviation Safety Agency published a proposed airworthiness directive Tuesday, laying out changes required before the aircraft can return to service. The move triggers a 28-day public consultation, putting the Max on track for final clearance by early 2021. EU approval would mark a milestone in Boeing’s effort to return the Max to service outside the U.S., following the Federal Aviation Administration’s granting of final clearance last week. Backing by European regulators would help build global support for the aircraft, after the Max crisis damaged the FAA’s reputation as the leader in air safety.
26. A measure of credit risk continued to ease alongside rising stocks as investors cheered the start of U.S. President-elect Joe Biden’s formal transition and the prospect for more economic stimulus. Ancestry.com may price $1 billion of notes to help fund its buyout by Blackstone as soon as Tuesday. It’s the last big push of retail earnings before Black Friday, with Nordstrom, Gap and Tiffany among those reporting. Ancestry was able to lower the yields on the two-part sale amid $8 billion of orders, Bloomberg reported. Commitments on the $1.8 billion of leveraged loans were due Monday
27. McCormick & Co. agreed to buy Cholula from private-equity firm L Catterton for $800 million in cash to increase its offerings in the fast-growing hot-sauce market. McCormick, a maker of seasonings, spices and condiments, will finance the purchase with cash on hand and commercial paper, the Hunt Valley, Maryland-based company said in a statement Tuesday. The owner of brands including French’s yellow mustard, McCormick has seen demand rise this year as the coronavirus pandemic prompts more people to cook and eat meals at home. It already owns Frank’s RedHot, another popular hot sauce.
28. Royal Dutch Shell, Total and BP joined about 60 other energy companies committing to rein in emissions of methane, one of the most harmful greenhouse gases. The companies signed up to the Oil and Gas Methane Partnership, a project driven by the UN Environment Program. Their membership underlines the disparity between European majors and their U.S. counterparts, which have faced less-intense pressure to cut polluting emissions. When emitted directly into the atmosphere, the warming power of methane is more than 80 times that of carbon dioxide over a 20-year period, according to UNEP and its two partners in the project — the European Commission and nonprofit group the Environmental Defense Fund
29. Brazil’s inflation accelerated past the official target in mid-November amid higher prices of food and transportation in the latest test to the central bank’s pledge to hold the key interest rate at a record low. The IPCA-15 index rose 4.22% from a year ago, surpassing this year’s 4% target for the first time since mid-February, the national statistics agency reported on Tuesday. Consumer prices increased 0.81% from the month prior, above the median estimate for a 0.72% gain from analysts in a Bloomberg survey.

 

*All sources from Bloomberg unless otherwise specified