November 6th, 2020

Daily Market Commentary

Canadian Headlines

1. Enbridge Inc. became the largest company in the North American oil industry to set a goal of eliminating all net emissions from its operations by 2050, joining major European producers in providing climate-conscious investors with a plan to tackle global warming. The pipeline giant also established an interim target of reducing the intensity of greenhouse-gas emissions from its operations by 35% by 2030, according to environmental, social and corporate governance, or ESG, targets it outlined Friday. It follows similar or tougher pledges by Royal Dutch Shell Plc, BP Plc, Total SE and Repsol SA, while top U.S. producers Exxon Mobil Corp. and Chevron Corp. have made clear they are not following suit. The oil and gas industry, which has long been the target of environmental groups, is under increasing pressure from shareholders managing trillions of dollars to address greenhouse-gas emissions such as methane. Those investors include AllianceBernstein Holding LP and California State Teachers’ Retirement System.
2. Telus said it agreed to buy Lionbridge AI through Telus International for a purchase price of approximately C$1.2b, consisting of debt and equity, according to a statement. Deal, subject to customary closing adjustments, expected to close on Dec. 31. Acquisition to be financed from Telus International’s non-recourse credit facilities and funds from an additional equity capital contribution from Telus Corp. and funds affiliated with Baring Private Equity Asia
3. Brookfield Asset Management Inc. is pushing to list a real estate investment trust in Mumbai before the end of this year, which could raise as much as 38 billion rupees ($513 million), according to people familiar with the matter. The Canadian asset manager has received good response from investors including sovereign wealth funds and pension managers at roadshows in the past two weeks, one of the people said. Brookfield plans to continue gauging investor demand for three more weeks before proceeding with a retail offer, the person said. While Brookfield is targeting to complete the offering by the end of the year, the deal could still be delayed if there’s any unexpected market volatility, the people said, who asked not to be identified as the information is private. A representative of Brookfield declined to comment citing regulations.

World Headlines

1. European equities fell for the first time in six days as investors assessed the extent of the recent rally, while Democrat Joe Biden tightened his hold on the U.S. electoral race with votes still being counted. The Stoxx Europe 600 Index fell 0.7% as of 9:08 a.m. London time, as technology and travel and leisure shares dipped. U.K. insurers outperformed after a takeover offer for RSA Insurance Group Plc and upbeat earnings in the sector. Luxury jewelery maker Richemont surged after a sales rebound in China eased a decline in earnings. The pullback in European stocks follows the Stoxx 600’s longest stretch of gains since April, with Biden on the brink of claiming the U.S. presidency even as Donald Trump opened legal fights in some states. However, concerns over new lockdown measures across Europe and their impact on the economy remain a worry for investors.
2. The global equity rally stalled on Friday, with U.S. futures unwinding some of this week’s surge as the presidential election count continued. The dollar extended its decline to a two-and-a-half-year low. Contracts on the S&P 500 retreated after the underlying index climbed almost 2% Thursday, heading for its best week since April. Futures on the tech-heavy Nasdaq 100, which is up over 9% this week, also dropped. Treasury yields ticked higher after Federal Reserve officials kept interest rates near zero on Thursday and ahead of closely-watched U.S. payrolls data later on Friday.
3. Japanese stocks rose, with the Nikkei 225 Stock Average closing at its highest level since November 1991, as investors saw a likely Joe Biden presidency and a divided U.S. Congress as positive for markets. Machinery makers were the biggest boost to the benchmark Topix index after strong earnings reports from companies including Daikin Industries Ltd. The strength in equities defied gains in the yen overnight to March levels of around 103.5 per dollar. The Japanese currency was slightly stronger Friday afternoon. The Nikkei 225 remains 37% below its all-time high set at the end of 1989 in the height of the country’s bubble era. But the blue-chip gauge has recovered from the coronavirus hit more quickly than the broader market, up 2.8% this year while the Topix is still in the red. Online health company M3 Inc. and game maker Nexon Co. have both doubled in 2020, leading Nikkei’s gains, while tech giant SoftBank Group. has been the biggest contributor to the measure’s advance.
4. Oil fell a second day, dropping below $38 a barrel in New York, as a surging coronavirus and uncertain U.S. elections weighed on sentiment. Futures dropped 2.7%, with equity markets also lower as investors took risk off the market. Joe Biden appeared to be on the brink of victory in the presidential race — amid increasing numbers of legal complaints from incumbent Donald Trump — but he may have to deal with a split Congress. Mounting coronavirus cases, with America becoming the first country to top 100,000 cases in a day, are also dragging oil lower.
5. Gold and copper headed for the biggest weekly gain since July as Joe Biden tightened his grip on the race for the White House, while investors also weighed prospects for further Federal Reserve stimulus. Bullion broke out of a narrow trading range seen over the past month as uncertainty over the election and renewed stimulus hopes boosted demand for the haven. Biden, who needs a win in one more state to be elected president, overtook Donald Trump in Georgia and also expanded his lead in Nevada. Trump meanwhile said the election was being stolen from him, though presented no evidence of widespread voting irregularities. The president’s campaign peppered courts with legal complaints, aimed at slowing or pausing counting of the votes, which were generally unsuccessful.
6. Democrat Joe Biden’s hold on the race for the White House continued to tighten as he overtook Donald Trump in a crucial swing state — and steadily chipped away at the president’s lead in another — amid mounting legal complaints from Trump’s campaign. Early Friday, the former vice president overtook Trump in Georgia, a state that last selected a Democratic presidential candidate in 1992. In a statement at the White House hours earlier, Trump said the election is being stolen from him, despite no evidence of widespread voting irregularities. “If you count the legal votes, I easily win. If you count the illegal votes, they can try to steal the election from us,” a downcast Trump said, reciting a litany of issues with vote-counting in key states. His campaign’s lawsuits to challenge the count, however, have gained little traction, with at least two being thrown out in Georgia and Michigan.
7. Federal Reserve Chair Jerome Powell opened the door to a possible shift in the central bank’s bond purchases in coming months, saying that more fiscal and monetary support are needed as rising Covid-19 infections cloud the outlook for the economic recovery. “At this meeting my colleagues and I discussed our asset purchases,” Powell told reporters Thursday after the Fed kept interest rates near zero and held bond purchases at a $120 billion monthly pace. With the Fed’s overnight policy rate near zero, it has sought to support the economy during the pandemic by buying bonds. Those purchases help to lower longer term borrowing costs for businesses and households. Powell said that the central bank could shift the composition, duration, size or the life cycle of the program to provide more aid.
8. RSA Insurance Group Plc received a 7.2 billion-pound ($9.5 billion) takeover proposal from Canada’s Intact Financial Corp. and Danish insurer Tryg A/S, paving the way for the biggest acquisition of a U.K.-listed company this year. The consortium is now conducting due diligence on the blue-chip British insurer after proposing a potential cash bid of 685 pence per share, RSA said in a statement late Thursday, confirming an earlier Bloomberg News report. The price represents a 49% premium to RSA’s last close before the announcement. RSA is set to be broken up under the plan, with Intact keeping its Canadian and U.K. and international operations. Tryg would take the Swedish and Norwegian operations, which will help make it Scandinavia’s biggest listed property and casualty insurer. RSA’s Danish business would be jointly owned by the two firms.
9. The U.S. became the first country to top 100,000 cases in one day, according to data compiled by Johns Hopkins University and Bloomberg. Illinois, Ohio, Michigan and Indiana were among states reporting record Covid-19 infections on Thursday. In Europe, the U.K. put Denmark on its quarantine list, surging new infections in Russia put a heavy strain on hospitals in certain regions, Poland breaks the daily cases threshold set by the government for a full lockdown and Austria reported a record number of deaths over the last 24 hours. In Asia, Japan recorded over 1,000 coronavirus infections on Thursday, the highest level the country has seen since August. South Korea reported 145 new coronavirus cases in 24 hours, the biggest gain in two weeks. China will temporarily halt entry by non-Chinese nationals who are in Russia and India, after doing so for those in the U.K. and Belgium.
10. A Joe Biden presidency will be negative for equities in the U.S. and positive for other markets given his plans to hike taxes on companies and wealthy Americans, according to veteran investor Mark Mobius. Biden’s tax increases will reduce the incentive for people to invest in the U.S. market, said Mobius, who set up Mobius Capital Partners after three decades at Franklin Templeton Investments. That will “be good for emerging markets and other global equities since there will be a retreat from the U.S. market,” he said in an emailed interview on Friday. Mobius’s comments on Biden come as the Democrat inches closer to unseating President Donald Trump in the White House, and this week’s global equity rebound shows signs of stalling. The MSCI All Country World Index was little changed on Friday, after advancing in each of the previous four days. That rally has pushed the gauge close to levels where it has faced resistance twice since August.
11. Japan Airlines Co. will raise as much as 168 billion yen ($1.6 billion) via an overseas and domestic share sale, using the proceeds to reduce debt and bolster its finances. The carrier, which is seeking to weather the coronavirus pandemic without making any major job cuts, will offer the shares at a 3% to 6% discount, it said in a statement Friday. The global airline industry is set to see revenue slashed by half this year, with carriers cutting jobs and securing funding to ride out the crisis. Japan Airlines and ANA Holdings Inc., Japan’s largest carrier, are suffering from a steep drop in domestic and international passenger traffic. Overseas visitors to Japan fell 99.4% in September from a year earlier as the country largely kept its borders shut.
12. Farfetch Ltd. shares rose in pre-market trading after Alibaba Group Holding Ltd. and Richemont agreed to invest $1.1 billion in luxury boutique platform, part of the U.K. company’s expansion into China. Alibaba and Richemont will each buy $300 million in convertible notes, the company said in a statement late on Thursday. The investors will also put in $250 million apiece in Farfetch China, giving them a 25% stake in the venture with an option to increase their holdings later. China’s Alibaba will also get to nominate one director to Farfetch’s board.
13. Kuaishou Technology has filed an application for a Hong Kong initial public offering, heading toward a listing that could raise as much as $5 billion and beat larger rival ByteDance Ltd. to market. Kuaishou, or “fast hand,” reported revenue climbed 48% to 25.3 billion yuan ($3.8 billion) in 2020’s first half, underlining the scorching pace of growth of a Chinese short video market. The Tencent Holdings Ltd.-backed startup is angling for a valuation of $50 billion in an offering as soon as the end of this year, almost twice its current price tag, people familiar with the matter said, asking not to be identified because the deal hasn’t been finalized. Kuaishou’s impending debut raises hopes the city will continue to attract listings from prominent internet companies despite the derailment of a highly anticipated debut by Jack Ma’s Ant Group Co. ByteDance itself is said to be in discussions to raise $2 billion before listing some of its businesses in Hong Kong, potentially as early as next year.
14. CVS Health Corp. named Karen Lynch as its next president and chief executive officer, putting a seasoned executive in place to succeed the health-care giant’s longtime leader Larry Merlo. Lynch’s appointment will be effective Feb. 1, 2021. She will join the company’s board upon assuming her new role, according to a statement from the company. Merlo will remain on the board until CVS’s next annual meeting in May 2021 and serve as a strategic adviser to assist with the transition until he retires on May 31, the company said. The executive shift came on the same day that the pharmacy giant boosted its outlook for the year and posted stronger-than-expected third-quarter earnings.
15. Rich countries risk missing their goal to provide $100 billion a-year by 2020 to help poorer nations combat climate change, after funding slowed in the year since President Donald Trump vowed to pull the U.S. out of the global Paris deal. Climate finance from developed countries reached $78.9 billion in 2018, far short of the target agreed in 2015 by 197 countries as part of the Paris Agreement, according to a OECD study published Friday. Even though climate finance rose 11% in 2018 from $71.2 billion in 2017, it was at a slower growth rate than seen in 2016 to 2017.
16. Germany called on Donald Trump to play by the rules and accept the result of the U.S. presidential election in a rare diplomatic intervention by a key Western ally. Trump’s appeal to end the counting of ballots “doesn’t comply with the democratic culture” of the U.S., Foreign Minister Heiko Maas told public broadcaster ARD Thursday. “It’s easy to be a winner, but sometimes it’s quite hard to be a loser,” Maas said. “It’s important that in the end the result will be accepted by everybody.”
17. Guo Wengui, a wealthy Chinese businessman with close ties to Steve Bannon, stepped up his fight to claim $500 million from UBS Group AGthat he lost after the bank called in a margin loan. Guo, who’s lived in exile in New York for more than five years, sued UBS in London, saying the bank pressured him into agreeing to borrow money tied to the purchase of shares in Chinese brokerage Haitong Securities Co. Guo said UBS forced the sale of the stock amid a market rout and a 45% plunge in Haitong’s Hong Kong-traded shares in 2015, wiping out his investment.
18. EasyJet Plc boosted cash reserves via a new round of aircraft sales as a wave of coronavirus lockdowns pushes it to deepen capacity cuts. Britain’s biggest discount carrier raised $169.5 million through the sale of 11 Airbus SE jets, which it will lease back, according to a statement Friday. The move takes the number of planes involved in such transactions above 40. EasyJet said that following curbs on flights in the U.K., France and Germany, it now plans to fly no more than 20% of its planned capacity in the three months through December. The Luton, England-based company had already slashed seating levels for the winter months to 25% of usual levels.
19. Charoen Pokphand Group won the Thai antitrust agency’s approval for its $10.6 billion acquisition of British retailer Tesco Plc’s local retail business with some conditions. Billionaire Dhanin Chearavanont’s CP Group is barred from other modern-retailing mergers for three years, excluding e-commerce, Thailand’s Office of Trade Competition Commission said Friday, while clearing the deal announcedalmost eight months ago. The agency’s approval marks the exit of Tesco’s 22-year-presence in Thailand under the Tesco Lotus brand and cements CP Group’s position as the nation’s dominant retailer. Dhanin, whose family ranked the world’s 13th richest in a Bloomberg report, will be adding Tesco’s supermarkets to his empire, which also includes one of the world’s biggest 7-Eleven convenience-store networks and the domestic operations of cash-and-carry specialist Siam Makro Pcl.
20. The U.S. Postal Service on Thursday told a judge that a review of processing data revealed roughly 4,250 mail-in ballots in Pennsylvania and North Carolina may have gone missing. It’s possible the ballots were delivered, but that workers skipped a final envelope-scan procedure to speed delivery under a court-ordered rush, the USPS told U.S. District Judge Emmet Sullivan in Washington. The data, which Sullivan ordered to be filed in a suit brought by the NAACP Legal Defense Fund, showed an estimated 150,000 mail-in ballots were delivered to election officials across the country on Nov. 4 — a day after the election and potentially too late to count in some states.
21. Toyota Motor Corp. might be losing to Tesla Inc. in terms of market value, but don’t underestimate the fact that the Japanese manufacturer has built more than 100 million cars, President Akio Toyodasaid in unusually direct comments at a competitor. “Tesla says that their recipe will be the standard in the future, but what Toyota has is a real kitchen and a real chef,” Toyoda, 64, said during an online briefing on Friday after more than doubling the company’s operating profit forecast for the current fiscal year. Tesla overtook Toyota as the world’s most valuable automaker in July, thanks to investor enthusiasm for next-generation electric vehicles. Indeed, Tesla is now worth more than Toyota and Japan’s six other major car manufacturers combined, Toyoda pointed out. That’s despite the fact that Tesla sold about 367,500 vehicles, or 3.4% of Toyota’s output of 10.74 million units, last year.
22. ViacomCBS Inc. reported strong growth at its three streaming services, a sign it is well-positioned as audiences shift online from its bread-and-butter business of pay TV. Domestic streaming revenue rose 56% to $636 million in the third quarter, with streaming subscribers to CBS All Access and Showtime OTT up 72% to 17.9 million. The ad-supported service Pluto TV saw a 57% gain in monthly active users, to 28.4 million. ViacomCBS also topped analysts’ estimates for earnings per share and revenue.
23. Volkswagen AG is at a critical juncture. It has weathered the pandemic relatively well but is fretting about cases going up again. It has electric cars rolling out but is well behind Tesla Inc. And it has massive manufacturing scale but desperately needs to rethink its vehicles as rolling software devices. It’s this last issue that Chief Executive Officer Herbert Diess drives home with VW’s more than 635,000 employees. The transition in competencies from industrial might to software prowess will be an immense challenge for automakers that are vast, deliberate and some say ripe for disruption. Car companies that get it wrong risk ending up like Nokia Oyj—failed hardware makers doomed by more nimble and technologically adept upstarts.
24. Food prices are on the rise with parched global crops adding to coronavirus-related disruptions to supply chains. Dry weather from Russia to South America is hitting yields for crops including wheat and soybeans, potentially further raising food inflation in the months ahead. The United Nations raised its gauge of global food prices to the highest since January, in the fifth straight month of gains. The UN’s index of grains surged 7.2% to a six-year high in October, outpacing the gain of 3.1% in overall food costs. Prices for vegetable oils, sugar and dairy prices also were higher.

 

*All sources from Bloomberg unless otherwise specified