October 13th, 2020

Daily Market Commentary

Canadian Headlines

  1. Canada’s bond buyers and issuers are mirroring the country’s prime minister by trying to get ahead of a potentially long, drawn-out drama surrounding the U.S. presidential election. Corporate bond sales last week rose to C$3.57 billion up from C$1.85 billion and C$1.035 billion in the previous two weeks respectively, according to Bloomberg data. At least another three other firms and one pension fund manager plan to conduct investor outreach or have recently done so, a move often a precursor to new issuance. Elections in the U.S. have been always a major event in Canada, as its southern neighbor is its largest trade and investment partner. Still, on this occasion Prime Minister Justin Trudeau’s government is bracing for potential “disruptions” should the outcome of the election not be immediately clear.
  2. The oil market will suffer a long-lasting blow from the coronavirus, with demand taking years to recover and peaking at a lower level, the International Energy Agency said. After an unprecedented 8% drop this year, global oil consumption will return to pre-crisis levels in 2023, provided Covid-19 is brought under control next year, the Paris-based agency said on Tuesday. Even in that case, which is the most optimistic scenario for oil considered by the IEA, the pandemic has an enduring impact. The IEA reinforced its view that global oil demand will plateau around 2030, topping out at lower levels than forecast last year.

World Headlines

  1. European stocks declined as a setback in coronavirus vaccine development was tempered by China trade data pointing to continued recovery. The Stoxx Europe 600 Index was down 0.5% as of 8:19 a.m. in London, after Johnson & Johnson temporarily halted its Covid-19 vaccine study saying a clinical trial participant experienced an unexplained illness. Defensives such as utilities and real estate shares outperformed, while travel and leisure shares fell the most. European equities regained momentum in recent weeks after a pullback in late September. With the Stoxx 600 near a one-month high, investors are watching for updates on key catalysts such as U.S. stimulus talks and signs of corporate health in the earnings season.
  2. U.S. futures drifted lower with European stocks as investors weighed a potential setback on progress toward a coronavirus vaccine ahead of a busy period for corporate earnings. The dollar and Treasuries advanced. S&P 500 contracts traded modestly lower after falling as much as 0.6% on a report that Johnson & Johnson’s Covid-19 vaccine study has been paused due to an unexplained illness in a participant. Futures on the Nasdaq were up nearly 1%. BlackRock Inc. rose in pre-market trading after earnings beat estimates and assets under management surged to a record, while JPMorgan Chase & Co. climbed after revenue topped expectations.
  3. Japanese stocks advanced as investors kept an eye out for signs of a recovery in domestic corporate earnings, while remaining concerned over the progress of a Covid-19 vaccine. Electronics and auto makers provided the most support for the Topix, helping the benchmark to recover from early losses and achieve its first gain in three days. Some investors took comfort in Monday’s machinery orders data that beat analyst estimates. Shares of iPhone suppliers rose ahead of an Apple Inc. event, where the company is slated to announce its new iPhone with 5G.
  4. Oil edged higher as data showed Chinese crude imports rose last month. Futures in New York rose around 1.3% toward $40 a barrel. Chinese crude imports climbed 2.1% in September from August, the General Administration of Customs said Tuesday, in a positive sign for global demand. Buying was resilient against expectations for a slowdown and volumes are likely to stay high through to the end of the year, Australia & New Zealand Banking Group Ltd. said in a note. The data underscore China’s role in the oil market’s recovery as a renewed coronavirus spread impinges on the rebound in consumption elsewhere. The U.K. is tightening restrictions as infections rise, while Italy and the Netherlands are also considering new measures. Demand will fall 8% this year and only return to pre-crisis levels in 2023, the International Energy Agency said.
  5. Gold was steady as investors weighed a further stall to stimulus talks, while tightening virus restrictions in Europe dimmed hopes for growth. Prospects for a quick end to the stalemate over a new stimulus package faded Monday, with House members being told not to expect any action this week and many Senate Republicans rejecting the White House proposal for a deal. The dollar edged higher after back-to-back weekly losses. Several European nations are beefing up measures to tackle surging virus case numbers, putting the continent’s fragile recovery in doubt and damping prospects for inflation. Even in Germany, considered one of the best-performing nation’s at controlling the pandemic, investor confidence plungedafter infections rose.
  6. U.K. job cuts jumped the most on record in the three months through August even as lockdown eased, raising concern that the worst is yet to come. The number of redundancies climbed 114,000 in the June-August period, the most since 1995, the Office for National Statistics said Tuesday. That left the total at 227,000, a rate of more than 8 per 1,000 employees. The figures follow data last week showing the nation’s economic recovery slowed dramatically in August. With more curbs now in place to limit the spread of the virus, the fear is the winter will see more economic turmoil and a painful spike in joblessness.
  7. JPMorgan Chase & Co., in its third quarter under the shadow of the pandemic, showed that the surge in trading is holding up — and so are borrowers. The biggest U.S. bank posted a surprise increase in earnings, fueled by a 30% jump in markets revenue as elevated volume kept its stock and bond traders busy. The lender also defied expectations by cutting its reserve for loan losses by $569 million, after adding $20 billion to the allowance in the first half, as charge-offs of bad loans were lower than a year ago. Those improvements and a 9% gain in investment-banking fees led to the most profitable quarter of 2020.
  8. SSE Plc rose after it agreed to sell its 50% stakes in two energy from waste ventures as part of its plan to focus on renewable generation. The Scottish utility will sell its holdings in Multifuel Energy Ltd. and Multifuel Energy 2 Ltd. to the European Diversified Infrastructure Fund III, a fund managed by First Sentier Investors, for a total of 995 million pounds ($1.3 billion) in cash, the company said in a statement. After the sale of its retail arm for 500 million pounds in January, SSE is restructuring to focus just on generation and networks. The company has 2.8 gigawatts of British offshore wind farms under construction as it tries to position itself as a leading developer of the technology.
  9. China Evergrande Group is seeking as much as HK$8.43 billion ($1.09 billion) in a share placement, accelerating efforts to shore up its balance sheet after a liquidity scare that rattled investors and Chinese regulators last month. The world’s most indebted developer is selling 490 million shares in a top-up placement for HK$16.50 to HK$17.20 each, a discount of as much as 14.7% to the last closing price in Hong Kong, according to terms of the deal obtained by Bloomberg News. Evergrande, which is also expected to price a new yuan-denominated bond as soon as Tuesday, has an option to sell an additional 120 million shares.
  10. Johnson & Johnson halted clinical trials of its Covid-19 vaccine after a participant fell ill, the second time that a front-runner developer has paused testing in the race to create a viable immunization against the virus. The participant’s illness is being evaluated, the New Brunswick, New Jersey-based company said late Monday, adding that it would share information after further investigation. J&J shares fell 2.4% in trading before U.S. exchanges opened. The vaccine is undergoing tests in as many as 60,000 volunteers from Peru to South Africa. J&J is racing along with rivals such as Moderna Inc., Pfizer Inc. and AstraZeneca Plc to deliver a shot to help blunt the pandemic. Drugmakers must balance time pressures — especially as coronavirus cases set new records — with safety considerations in the crucial last stage of testing.
  11. BlackRock Inc.’s shares surged in pre-market trading Tuesday after the firm said assets under management rose to a record $7.81 trillion in the third quarter. The stock was up about 5% at 7:28 a.m. in New York as investors reacted strongly to an earnings report that showed the world’s biggest asset manager was buoyed by a rising stock market and flows into all its product lines. BlackRock benefited as global markets rebounded from the wreckage of the Covid-19 pandemic. The S&P 500 gained 8.5% in the period, and the Federal Reserve signaled it intends to keep interest rates near zero until at least 2023 to bolster the economy.
  12. Centerbridge Partners LP has carved out a key role for itself in the upcoming talks between Cineworld Group Plc and creditors to overhaul the debt pile of the world’s second-biggest cinema chain. In June, the U.S.-based hedge fund provided the bulk of a $250 million secured loan that helped see the London-based firm through the first wave of the virus, according to public filings and people familiar with the matter, who asked not to be named as it’s private. That puts the fund and other lenders that contributed to the secured loan in a privileged position in negotiations with the company and other creditors.
  13. PG&E Corp. said it may need to cut power to 48,864 customer accounts, or about 146,600 people, in parts of Northern California to reduce the chances of its equipment starting blazes as fire risk rises. California’s largest utility is forecasting a so-called Diablo wind event developing by Wednesday that could require PG&E to turn off power in 21 counties including parts of Oakland and in the Northern California wine country resort town of Calistoga, according to a statement posted Monday on the company’s website. PG&E has been resorting to power shutoffs to prevent its electrical lines from sparking wildfires after its equipment was blamed for causing some of California’s worst blazes, forcing the company into bankruptcy last year. PG&E emerged from Chapter 11 in July after having paid $25.5 billion to resolve fire claims.
  14. The Covid-19 pandemic will exact a $16 trillion toll on the U.S. — four times the cost of the Great Recession — when adding the costs of lost lives and health to the direct economic impact, according to former U.S. Treasury Secretary Lawrence Summers and fellow Harvard University economist David Cutler. About half of that amount is related to lost gross domestic product as a result of economic shutdowns and the ongoing spread of the virus, while the other half comes from health losses including premature death and mental and long-term health impairments, Cutler and Summers wrote in an essay published online Monday in in the Journal of the American Medical Association.
  15. The U.K. and European Union have made only limited progress toward a trade deal and the onus is on the British to move, the bloc’s chief negotiator Michel Barnier told a meeting of EU European affairs ministers. Not enough progress has been made yet for the negotiations to enter the so-called tunnel, the intensive final phase of negotiations, Barnier said, according to officials close to the meeting in Luxembourg on Tuesday.
  16. The Czech Republic is closing schools as France, Italy, and the Netherlands prepare to widen restrictions to contain surging coronavirus cases around Europe. U.K. Prime Minister Boris Johnson announced bars and pubs will be closed in the worst-hit parts of England from Wednesday, but his top health adviser said it won’t be enough. The latest bout of harsher curbs comes as Germany’s new coronavirus cases increased at the fastest pace since the height of the pandemic in the latest sign of how the region is struggling to keep the disease in check. Europe’s largest economy will evaluate its own next steps on Wednesday.
  17. U.K. Chancellor Rishi Sunak’s Treasury is locked in a battle with Alok Sharma’s Business Department over how to ensure polluters pay for their emissions after Brexit. The Treasury is pushing to replace the European Union’s cap-and-trade system with an economy-wide carbon tax, which would come into effect after Britain exits the bloc in January. The Department for Business, Energy and Industrial Strategy is drawing up a new emissions-trading system to start in January similar to the EU program that the U.K. currently participates in. One person familiar with the debate predicted that an ETS was a likely option, and a hybrid is also being considered. A decision is expected soon. It is likely to be announced by Dec. 12, when Prime Minister Boris Johnson will co-host a United Nations meeting on climate action, where he is expected to reveal a new 2030 climate pledge and encourage other countries to set their own goals to bring net emissions to zero.
  18. Demand for cars in China is going from strength to strength, making the automobile market in Asia’s biggest economy a lone bright spot as the coronavirus pandemic puts a damper on sales in Europe and the U.S. Sales of sedans, SUVs, minivans and multipurpose vehicles jumped 7.4% in September from a year earlier to 1.94 million units, the China Passenger Car Association said Tuesday. That’s the third straight monthly increase, and it was driven primarily by demand for SUVs. Passenger vehicle deliveries to dealers rose 8% to 2.1 million units, while total vehicle sales, including trucks and buses, expanded 13% to 2.57 million, data released later by the China Association of Automobile Manufacturers showed.
  19. Flame and the Energy Intelligence Forum are two of the biggest annual events in Europe for oil and gas traders and financiers. The Energy Intelligence Forum kicked off Tuesday, offering a new look for what used to be called the Oil & Money conference. The lineup on the first day still skews heavily toward petroleum, including speeches from Saudi Energy Minister Prince Abdulaziz bin Salman, Aramco Chief Executive Officer Amin Nasser and a question and answer session with Chevron Corp. CEO Mike Wirth. Industry executives from giant producers such as Total SE and Cheniere Energy Inc. are at the Flame Virtual meeting Monday and Tuesday, traditionally a gathering for traders. They’re discussing the outlook for markets such as oil, where prices have lingered just above $40 a barrel for four months, and natural gas, which has rebounded in Europe with the onset of cooler weather and supply cuts.
  20. Billionaire Anil Agarwal’s group will return money raised from banks and bondholders after shareholders scuttled a plan to wrest greater control of his Indian commodities unit. He may also appease the latter with larger dividends, according to analysts. Buyback of $1.4 billion bonds and repayment of a $1.1 billion loan, with a small amount of interest, could happen as early as this week, according to people with knowledge of the matter. Meanwhile CLSA India predicts Vedanta Ltd. could offer a high dividend, a positive for minority shareholders who last week rejected Agarwal’s attempt to take the firm private. The failure of the plan to withdraw Vedanta from India’s two main stock exchanges follows a series of moves by Agarwal to simplify his investments. These include the delisting of London-based Vedanta Resources in 2018 and the merger of Cairn India Holdings Ltd. with the Mumbai-listed unit. The group had also faced a backlash in 2019 when analysts downgraded Vedanta after its subsidiary bought an economic interest in Anglo American for $200 million.
  21. China’s government is expected to price a potential $6 billion bond sale as early as Wednesday, ahead of possible volatility from U.S. elections next month. The Ministry of Finance is arranging investor calls for 144a and Regulation S senior bonds Tuesday, according to people familiar with the matter who aren’t authorized to speak publicly. The ministry is seeking to raise about $6 billion via multi-tranche notes that will likely include three-year, five-year, 10-year and 30-year maturities, Bloomberg reported last week.
  22. Democrats will get their first crack at questioning Amy Coney Barrett on Tuesday during her U.S. Supreme Court confirmation hearing, where they plan to focus on how she might move the court in a more conservative direction on issues such as health care and abortion. Asking their pointed questions for American voters to hear, and drawing whatever answers they can from President Donald Trump’s nominee, may be all Democrats can hope to achieve, since Senate Republicans have the numbers and the determination to seat Barrett before the Nov. 3 election. Democrats say the confirmation of Barrett, a federal appeals court judge who is a former clerk and protege of the late conservative Justice Antonin Scalia, could yield a high court that restricts abortion and consumer rights, relaxes gun restrictions and casts aside the 2010 health-care law known as Obamacare, which provides health insurance to more than 20 million Americans and protects people with pre-existing conditions.
  23. Americold Realty Trust has agreed to buy the cold storage company Agro Merchants Group in a deal valued at $1.74 billion, according to a statement on Tuesday. Atlanta-based Agro, which owns and operates temperature-controlled warehouses around the globe, is owned by Oaktree Capital. The deal includes$554 million in Americold stock and $519 million in cash, according to the statement. Institutional investors have flocked to cold storage because of its vital role in the global food supply chain. For Americold, one of the largest players in the industry, the deal helps it expand in Europe and the U.S.
  24. Royal Caribbean Cruises Ltd. is raising $1 billion between stock and convertible bonds, the latest capital raise as cruise ships may stay docked for the foreseeable future. The company is selling an equal amount of common stock and convertiblenotes due 2023, each of which can be increased by up to $75 million should the respective underwriters choose to purchase as well, according to separate statements Tuesday. The proceeds of the notes will help repay Royal Caribbean’s 2.65% bonds due next month, while the remainder, as well as the new equity, will be used for general corporate purposes. The new funds come as cruise ships have yet to return to sea amid the coronavirus pandemic. The Centers for Disease Control and Prevention has had a “no sail” order in place since the early days of the outbreak. It expires at the end of the month, but has been repeatedly renewed.
  25. Democratic presidential nominee Joe Biden said Monday that he is “not a fan” of expanding the Supreme Court, his clearest answer on the issue after weeks of dodging the question. “I’ve already spoken on — I’m not a fan of court packing, but I don’t want to get off on that whole issue,” Biden said in an interview with WKRC-TV in Cincinnati. “I want to keep the focus — the president would like nothing better than to fight about whether or not I would in fact pack the court or not pack the court.” Biden, who served as chairman of the Senate Judiciary Committee during his decades as a senator from Delaware, had expressed opposition to adding to the number of justices on the high court as recently as last year.
  26. Facebook chief executive Mark Zuckerberg and his wife, Priscilla Chan, announced Tuesday an additional $100 million in donations to local governments to pay for polling place rentals, poll workers, personal protective equipment and other election administration costs over the coming weeks. The donation, which follows a previous gift of $300 million for state and local governments to help fund U.S. elections, comes in the face of a lawsuits from a conservative legal group seeking to block the use of private funds for the state and local administration of elections, an expense that has historically been paid for by governments. But Zuckerberg has been unmoved by legal threats, arguing in a Facebook post expected to go live Tuesday that his decision to fund election administration does not have a partisan political motive.
  27. While the world looks to next month’s U.S. election for clues on the future of the standoff with Iran, candidates are preparing for another vote that may prove just as pivotal. Next June, Iranians will also elect a new president, as the era of Hassan Rouhani, who staked his career on clinching the historic nuclear deal with world powers in 2015, comes to an end, his legacy upended by hardliners in the U.S. and at home. As always, presidential hopefuls will be vetted by the powerful Guardian Council, whose members are appointed by Supreme Leader Ayatollah Ali Khamenei. But the field is set to be dominated by military men and stalwart conservatives whose influence has surged since 2018, when President Donald Trump abandoned the nuclear accord Rouhani had pledged would be a ticket to international acceptance and economic prosperity.
  28. Walt Disney Co. is shaking up its operations to refocus on the thriving Disney+ business, redoubling its push to become a global streaming giant like Netflix Inc. The company is putting its TV networks, film studio and direct-to-consumer divisions inside one big group called Media and Entertainment, Disney said on Monday. Existing content chiefs will continue to oversee their businesses, but they will now be directly able to choose what movies and TV shows air on Disney’s growing lineup of streaming services. “It’s about streamlining the decision making, looking at it from a 50,000-foot view,” Chief Executive Officer Bob Chapek said in an interview, “as opposed to a movie that’s made in the studio, therefore it goes to the studio, or a television show that’s made at ABC studios, therefore goes on ABC.”
  29. The fuel that was once the staple of utilities will probably never return to pre-pandemic levels of demand. By 2040, coal’s share of the energy mix will fall below 20% for the first time since the industrial revolution, the International Energy Agency said. Meanwhile, power produced from solar photovoltaics has become cheaper than electricity from plants fired by fossil fuels in most nations. Renewables will push coal off the grid, taking 80% of demand growth to 2030, the IEA said in its 2020 World Energy Outlook published Tuesday

*All sources from Bloomberg unless otherwise specified