November 30th, 2020

Daily Market Commentary

Canadian Headlines

  1. Justin Trudeau, already among the most enthusiastic champions of government spending, will deliver another dose of stimulus to shore up an economic recovery that’s starting to creak amid a second wave of Covid-19 in Canada. Finance Minister Chrystia Freeland is expected to announce billions of additional funding in a fiscal update Monday, with dozens of new measures that could include topping up existing benefits to families and business along with teeing up money for infrastructure, daycare and climate change. The new spending will solidify the Canadian government’s status as the most expansionist in the industrialized world, reflecting Trudeau’s all-in commitment to put the state at the center of the nation’s recovery from the pandemic.
  2. The end of the Covid-19 crisis may be in sight for Canada’s biggest banks, with profit declines slowing and investors looking ahead to an eventual return to growth. Canada’s six biggest banks are expected to post an average earnings drop of 17% when they report fiscal fourth-quarter results this week, according to analysts’ estimates compiled by Bloomberg. That would be smaller than the 52% decrease in adjusted earnings from continuing operations on a per-share basis in the second quarter, during the early days of the pandemic, and a 19% decline in the third quarter. While profits are still down from last year, investors no longer fear that the coronavirus recession will result in a sustained financial crisis, and they’re confident the banks set aside enough to absorb the loan defaults that may be coming, said Laura Lau, who helps manage C$1.6 billion ($1.2 billion) at Brompton Corp. Investors are instead focused on how banks will revive profit growth and are looking for signs of a lending rebound, she said in an interview.
  3. Canada’s economy probably expanded at the fastest pace ever in the third quarter, but the momentum will be short-lived as the country deals with a second wave of Covid-19 and renewed social restrictions. Economists anticipate gross domestic product grew 47.7% on an annualized basis in the July-to-September period on broad-based gains after businesses reopened from initial lockdowns. Statistics Canada is due to release the numbers at 8:30 a.m. Tuesday, along with a flash estimate for October that will probably show the first effects of business closures in some regions. Early success controlling the spread of the virus allowed the economy to rebound quickly after collapsing in the second quarter. Stores and other businesses reopened to strong pent-up demand from consumers brandishing government support checks, while historically low interest rates spurred a mortgage binge, driving real estate prices to new highs.

World Headlines

  1. European stocks erased an early decline on Monday to remain on track for a record monthly gain. The Stoxx Europe 600 was little changed at 9:40 a.m. in London, having fallen as much as 0.6% earlier. Health-care and technology shares rose the most, while banking and energy stocks led declines. The benchmark is up 15% this month after optimism around Covid-19 vaccines fueled a rally in value and cyclical stocks. JPMorgan Chase & Co. upgradedeuro-zone equities to overweight on Monday, while cutting the U.S. market to neutral, with strategist Mislav Matejka saying a potential bounce in relative earnings for the trading bloc “could be on the cards.”
  2. Global stock markets are on the cusp of finishing a record-breaking month sparked by major progress toward a coronavirus vaccine. On Monday, the rotation in equities showed signs of a slight reversal. Futures on the tech-heavy Nasdaq 100 Index were little changed, while small-caps, banks and energy producers dropped.
  3. Oil dropped below $45 a barrel as a consensus within OPEC+ to postpone an output hike planned for January remained elusive ahead of a meeting of the cartel’s power brokers later on Monday. Futures in New York declined 1.7%. Most participants in an informal online gathering of OPEC+ ministers on Sunday supported keeping production curbs at current levels into the first quarter, said one delegate, although there was opposition from the United Arab Emirates and Kazakhstan.
  4. Copper powered to a seven-year high as the rush for growth played out in metals markets, with traditional haven gold dropping amid growing optimism for an end to the coronavirus pandemic. Bullion extended its slide below $1,800 an ounce and copper added to a four-week surge on bets the looming roll-out of Covid-19 vaccines will help drive an economic recovery. The moves deepen a wider pivot into risk assets in November, with global stocks heading for a record month.
  5. Moderna Inc. plans to request clearance for its coronavirus vaccine in the U.S. and Europe on Monday, after a new analysis showed it to be highly effective in preventing Covid-19, with no serious safety problems. Hong Kong’s civil servants are to start working from home on Tuesday, in an effort to contain the latest virus wave. Chief Executive Carrie Lam on Monday also announced a ban on public gatherings of more than two people and the closure of venues like mahjong parlors and swimming pools, while schools shut again from Wednesday. Vaccines are likely to begin rolling out in the U.S. before the end of December, according to Surgeon General Jerome Adams and Anthony Fauci, the nation’s top infectious disease specialist. The U.K. said it hopes to begin its own vaccination program before Christmas.
  6. S&P Global Inc. has agreed to buy IHS Markit Ltd. for about $39 billion in stock, a deal that accelerates the wave of consolidation among Wall Street’s biggest data providers. S&P is offering 0.2838 shares for each IHS Markit share, according to a statement Monday. That represents about a 4.7% premium to IHS Markit’s last close, according to Bloomberg calculations. After the deal, S&P shareholders will own approximately 67.75% of the combined company on a fully diluted basis. Douglas Peterson, chief executive officer of S&P, will serve as CEO of the combined company. Lance Uggla, CEO of IHS Markit, will stay on as a special advisor to the company for one year after the deal is closed. The proposed tie-up of S&P with IHS Markit, a research firm with more than 5,000 analysts, data scientists, financial experts and industry specialists, is part of a race for scale as the industry’s largest players try to capitalize on surging demand for data and analytics in increasingly computerized financial markets. This follows London Stock Exchange Group Plc’s $27 billion agreement last year to acquire Refinitiv.
  7. China unexpectedly added medium-term funding to the financial system on Monday, as the central bank sought to ease liquidity tightness in the final weeks of the year. The People’s Bank of China offered 200 billion yuan ($30 billion) of the medium-term lending facility at an unchanged rate of 2.95%, according to a statement Monday. It comes just two weeks after the central bank offered 800 billion yuan of the funds, already enough to more than offset the 600 billion yuan that were due this month. Concern over tighter cash supply sent China’s benchmark sovereign yield to its highest level since May 2019 earlier in November. The central bank’s drip-feed approach to offering funding has compounded the issue, indicating Beijing wouldn’t want to loosen monetary policy much more amid a growth rebound.
  8. Investors added money to exchange-traded funds that buy emerging market stocks and bonds last week. This was the fourth 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 $1.08 billion in the week ended Nov. 27, compared with gains of $1.95 billion in the previous week, according to data compiled by Bloomberg. So far this year, outflows have totalled $6.02 billion.
  9. Vienna Insurance Group AG bolstered its position as the biggest insurer in central and eastern Europe by agreeing to buy Aegon NV’s business in the region and in Turkey for 830 million euros ($990 million), outbidding NN Group NV and KBC Group NV. The deal will make VIG the largest insurer in Hungary, a country where the Vienna-based group has long fallen short of its goal to be a top three player wherever it’s active. The purchase will also strengthen its business in Poland, Turkey and Romania. That came at a price equivalent to 2.6 times book value, significantly more than analysts including KBC Securities analyst Jason Kalamboussis had expected.
  10. Axa SA sold its Persian Gulf business for $269 million to a Kuwait-based group, as the French insurance giant shifts its focus and exits some overseas investments to shore up its finances amid the coronavirus pandemic. The Paris-based insurer said on Monday it sold its stakes in Axa Gulf, Axa Cooperative Insurance Company and Axa Green Crescent Insurance Company to Gulf Insurance Group, a Kuwaiti insurance group in which Canada’s Fairfax Financial Holdings Ltd. is a major shareholder. Axa has been seeking to raise funds by divesting peripheral operations under Chief Executive Officer Thomas Buberl, who wants to focus on property and casualty insurance following a $15.3 billion purchase of XL Group Ltd. in 2018. It’s also looking to shore up its capital buffers as the global pandemic weighs on its profits.
  11. The parent of big Chinese courier SF Express is in talks with banks for a loan of around $4 billion for acquisitions, according to people familiar with the matter, who are not authorized to speak publicly and asked not to be identified. The size of the facility for SF Holding Co. hasn’t been finalized, and the firm could opt to raise some of the funds through other methods, one of the people said. A company spokesperson did not respond to requests for comment made through WeChat message and phone. SF Holding has been weighing multiple options to raise funds. Bloomberg News reported earlier this month the company is considering a second listing in Hong Kong, which could raise $5 billion, or hold an initial public offering there for SF Express. Shares of SF Holding have soared 115% this year in Shenzhen.
  12. Online shoppers in the U.S. are expected to drop a record-busting $12.7 billion on Cyber Monday — the busiest e-commerce day of the year — presenting a valuable opportunity for retailers whose websites, customer service departments and delivery operations can withstand the period of crushing traffic. Inc., Walmart Inc., Target Corp., Best Buy Co. and others have been preparing for the 2020 holiday deluge for months. This week will be the ultimate test for their new investments in ramping up delivery capacity and adding features like parking lot pickup for digital orders. The Covid-19 surge kept crowd-averse shoppers away from physical malls on Black Friday, reinforcing predictions that online shopping will soar this year. Adobe Analytics predicts that spending Cyber Monday spending for 2020 will climb by 35% — more than double the growth rate in the years prior to the pandemic. That also means that any service interruptions on Cyber Monday — slow websites, payment processing problems, shopping carts that vanish before checkout — could be painful for companies.
  13. President-elect Joe Biden will take a significant step this week toward addressing the damage to the U.S. economy inflicted by the coronavirus pandemic, as he names an economic team led by his choice for Treasury secretary, former Federal Reserve Chair Janet Yellen. In Yellen, Biden will have a battle-tested policy maker who can draw on her nearly two decades at the Fed to help rebuild an economy in dire need of government cash and confidence. Biden has called for trillions of dollars in new stimulus to aid the small and mid-size businesses that are the nation’s jobs engine. Yellen’s expected to champion what she’s called “extraordinary fiscal support” to support the pandemic-ridden economy — deficit spending that she says is affordable given extraordinarily low interest rates.
  14. The Covid-19 pandemic and stay-at-home orders have prompted many to re-think their relationships. In the case of industrial distributor HD Supply Holdings Inc., lock-down restrictions pushed it back into the arms of Home Depot Inc. 13 years after the two divorced. The $8.7 billion acquisition propelled North American building materials deals to an all-time high of $15.2 billion, and several more transactions are expected before the year ends. The previous record of $10.27 billion was set in 2007 at the peak of the pre-crash housing boom, according to data compiled by Bloomberg. The deal announced this month reverses Home Depot’s 2007 sale of HD Supply to a group of buyout firms and gives the Atlanta-based chain — already with legions of do-it-yourself customers — greater access to professional contractors. Business in both categories has been buoyed by families decamping from cities to buy larger homes in suburban and exurban areas, as well as by remodel projects to accommodate work-from-home living.
  15. ABN Amro Bank NV plans to cut about 2,800 jobs over four years as the Dutch lender retreats from large parts of its investment bank and digitization allows it to operate with a smaller staff. The company plans to reduce costs by about 700 million ($840 million) by 2024 to 4.7 billion euros. The workforce will shrink by about 15%, with most reductions to start in 2022, Chief Executive Officer Robert Swaak said in an investor update on Monday. In August, Swaak announced plans to cut a third of the lender’s business with corporate clients, dropping company finance outside of Europe and exiting trade and commodity financing altogether. ABN Amro posted losses in the first half after taking hits on individual corporate clients before returning to profit in the third quarter.
  16. Lloyds Banking Group Plc poached HSBC Holdings Plc’s Charlie Nunn to be its next chief executive, a choice that puts a wealth veteran at the helm of the British bank that’s making a bigger push into managing money for individuals. Nunn, 49, has been appointed to replace Antonio Horta-Osorio, according to a company statement Monday. Nunn is currently HSBC’s chief executive of wealth and personal banking and is a former partner at McKinsey and Accenture. The appointment completes a leadership overhaul at Lloyds, which tapped former investment banker Robin Budenberg as its new chairman in July. Horta-Osorio, who had already announced plans to leave by the end of June 2021 after a decade in charge, pushed Lloyds into wealth management and insurance to diversify revenue.
  17. Gazprom PJSC returned to a net loss in the third quarter, but may still eke out a dividend payment under its new policy. Facing calls for more generous payouts, both from investors and the government, the Russian gas giant approved a system last year aimed at boosting the distribution to 40% of adjusted net income for 2020 and 50% for 2021 and beyond. To calculate the payment, the company can adjust the bottom line for various non-cash items, which include foreign-exchange differentials and a range of impairments. The net loss was 251.3 billion rubles ($3.29 billion) in the three months through September, missing the average analyst estimate for a loss of 247.8 billion rubles. The depreciation in the Russian currency led to debt revaluation and caused a net foreign-currency loss of 464.3 billion rubles. The net loss for the nine-month period was 218.4 billion rubles.
  18. The Polish government is getting increasingly upset with European Union efforts to add conditions to budget funding, but the issue isn’t enough for them to consider quitting the bloc, a deputy minister said. While Hungary and Poland have long flouted democratic values that other European countries hold dear, officials in Brussels have struggled to discipline them as each can veto punishments against the other. That changed with a recent initiative tying development cash to rule-of-law standards, prompting the pair to threaten to block the EU’s seven-year budget, including 750 billion euros ($900 million) of pandemic aid.
  19. The chances that Jack Ma’s Ant Group Co. will be able to revive its massive stock listing next year are looking increasingly slim as China overhauls rules governing the fintech industry, according to regulatory officials familiar with the matter. Ant is still in the early stages of reviewing changes needed to appease regulators, who demand that its business comply with a slate of new and proposed guidelines in areas including lending to consumers, the officials said. With so much work needed and some rules not yet spelled out, the officials said the initial public offering may not get done before 2022. An additional delay of a year or more would be another setback for billionaire Ma, as well as the early-stage investors including Warburg Pincus LLC that were counting on a windfall from what was poised to be a record $35 billion IPO. It would also deal a potential blow to Alibaba Group Holding Ltd., which owns a third of Ant and saw its stock tumble after the deal was abruptly suspended this month. Alibaba fell 3% in Hong Kong Monday, the biggest drop in almost three weeks.
  20. OPEC and its allies headed into a two-day meeting with ministers still seeking a compromise on proposals to delay a production boost, after failing to reach consensus in talks on Sunday night. The 23-nation coalition led by Saudi Arabia and Russia is debating whether to maintain the output cuts at current levels, deferring the increase scheduled for January. Some members are concerned that global markets remain too fragile to absorb additional barrels — particularly after Libya’s output soared — while others are keen to sell more crude. Most of the producers who held informal discussions on Sunday supported maintaining the existing curbs into the first quarter, according to delegates who asked not to be identified. Last week, market-watchers were widely anticipating a three-month extension. But the plan didn’t get backing from two of the coalition’s major players: the United Arab Emirates and Kazakhstan, the delegates said.
  21. Zoom Video Communications Inc. is scheduled to report third-quarter results after the market closes on Monday, and while analysts are expecting another print with blistering growth, they’re likely to be more focused on the company’s less-certain 2021 prospects. The video-conferencing company is one of the stocks that has defined 2020 on Wall Street, with usage and revenue skyrocketing amid the pandemic. The stock has followed those metrics upward, with a year-to-date gain of nearly 600%, but progress toward a Covid-19 vaccine has cooled the rally significantly. With shares widely seen as having an elevated valuation, a key question will be what demand will look like if a vaccine does become widely available, and the number of people working and attending school remotely drops.
  22. Bitcoin is clawing back most of its losses from its biggest rout since March, showing a resiliency in the cryptocurrency rally that has outperformed most major asset classes in 2020. The most-traded digital coin rose over the weekend and added another 2% on Monday, reaching as high as $18,692. That’s near the $18,945 peak closing level reached last week, before prices started tumbling. A Bloomberg gauge of the biggest cryptocurrencies is up 12% from Friday. Bitcoin’s plunge drew particular attention because it began just hours after the currency failed to set a new intraday record. Strategists at JPMorgan Chase & Co. said that while the recent tumble cleared some speculative “froth,” further declines remain possible.
  23. Airbnb Inc. and DoorDash Inc. will disclose higher-than-expected valuation ranges for their initial public offerings when they start their roadshows this week, according to people familiar with the matter. Airbnb is targeting a range of $30 billion to $33 billion, up from the $30 billion that had been expected, the people said, asking not to be identified as the matter is private. Airbnb had been valued at $18 billion in April after raising additional debt to shore up its finances. DoorDash plans a range of around $25 to $28 billion, more than the expected $25 billion, according to one of the people.
  24. China’s economic rebound is gathering pace toward the end of the year, with an official gauge of manufacturing rising faster than expected in November, fueled by exports. The manufacturing purchasing managers’ index rose to 52.1 in November from 51.4 the previous month, according to data released Monday by the National Bureau of Statistics. That was the highest since September 2017 and beat the median estimate in a Bloomberg survey of economists. The data underlines China’s status as the only major economy to see a sustained and robust rebound from the pandemic-induced slump earlier this year. The pick-up in manufacturing orders was driven by strong domestic demand as consumer sentiment continues to recover — as well as an export boost ahead of the Christmas holiday period.

*All sources from Bloomberg unless otherwise specified