October 14th, 2020

Daily Market Commentary

Canadian Headlines

    1. Even a once-in-a-century pandemic isn’t enough to cool the Canadian housing market, with prices nationwide now forecast to end the year higher than where they started. The median home price in Canada is expected to reach C$693,000 ($527,000) by the end of the year, a 7% increase from the end of 2019, according to a projection from brokerage Royal LePage. The market continues to show strength across the country, with 97% of regions reporting higher home prices in the past three months, the company said. In Toronto, which UBS says has one of the greatest housing bubble risks of any major city in the world, the average price reached C$975,980 by the end of September, up 11% from the same period a year before.

World Headlines

    1. European stocks erased earlier gains and fell ahead of the start of the corporate earnings season as investors weighed the longer-term impact of the Covid-19 pandemic on profits as well as the U.S. stimulus impasse. The Stoxx Europe 600 Index retreated 0.2% as of 11:52 a.m. in London. Insurance and travel stocks paced the declines. Gerresheimer AG tumbled 6.2% after Tuesday reporting third-quarter revenue that missed estimates. U.S. equity futures edged lower as investors prepared for banks, including Wells Fargo & Co., Bank of America Corp., to report earnings. After kicking off October with strong gains, European stocks are losing momentum. Investors expecting a deal on a U.S. virus relief package have been disappointed by a lack of progress in talks just weeks before the presidential election. A setback in vaccine progress also damped spirits this week. Still, the earnings season may provide triggers for further moves.
    2. U.S. equity futures edged lower as some of the biggest banks began reporting earnings. The pound steadied after the U.K. signaled it wouldn’t immediately abandon Brexit trade talks. Bank of America Corp. fell in the premarket after its trading revenue missed estimates. Wells Fargo & Co. and Goldman Sachs Group Inc. are due to release results later in the day. Investors are looking to earnings season to provide a spark for equity markets amid the dwindling prospects for more U.S. economic stimulus before next month’s election. Treasuries turned higher while the greenback held steady. Oil driller Concho Resources Inc. jumped after a report that the company is in talks to be acquired by ConocoPhillips.
    3. Japan’s Topix index fell for a third time in four days as uncertainty over U.S. stimulus and issues with the development of a vaccine soured sentiment. Transportation and bank stocks were the heaviest drags on the Topix. Asian shares were broadly lower Wednesday as U.S. House Speaker Nancy Pelosi demanded the White House revamp its latest stimulus offer. Separately, Eli Lilly & Co. said that enrollment in a government-sponsored clinical trial of its antibody therapy had been paused out of safety concerns.
    4. Oil held near $40 a barrel in New York as the IEA cautioned on a fragile outlook and hopes for more U.S. fiscal stimulus faded. OPEC+ plans to boost production in January will leave the market in a precarious balance, and potentially unable to handle higher supply from elsewhere or a drop in demand, the International Energy Agency said. The warning came amid renewed roadblocks for U.S. stimulus. Still, crude was steady as the dollar declined. Other bright spots are also emerging. A Chinese mega-refiner is snapping up barrels of Middle Eastern crude to feed trial runs of its expanded plant. At the same time India’s refiners have cranked up processing to meet higher demand during a festive period.
    5. Gold snapped a two-day drop as the dollar halted recent gains, with investors weighing uncertainty around negotiations for further U.S. stimulus and a trade deal between the European Union and U.K. Prospects for U.S. stimulus have dimmed, with House Speaker Nancy Pelosi demanding the Trump administration revamp its latest offer on Tuesday, while Senate Republican leader Mitch McConnell pushed a smaller-scale strategy that she quickly rejected. A gauge of the dollar was little changed, after climbing on Tuesday. Gold backed exchange-traded funds recorded a fifth consecutive day of inflows, adding about 1 ton on Tuesday, according to an initial tally by Bloomberg. The funds were crucial to bullion’s surge to a record in August, and have helped soften falls in the price seen in recent weeks.
    6. The world’s top central banks are urging governments to put concerns about mounting debt aside for now and keep spending until the economic recovery from coronavirus is complete. Their calls are being met with pushback in some countries, where the question of how to pay for rescue efforts is creeping up the agenda. But the International Monetary Fund, historically a champion of budget restraint, says they have a point.
    7. Bank of America Corp.’s traders didn’t seize on the markets boon that lifted rival banks in the third quarter. Revenue from trading rose 3.6% to $3.34 billion, falling short of the $3.5 billion that analysts had forecast. While JPMorgan Chase & Co. and Citigroup Inc. each posted jumps of at least 17% at their trading desks, Bank of America’s small increase wasn’t enough to boost overall revenue as the bank’s consumer unit saw a 17% slide. Wall Street trading desks have benefited from active markets during the pandemic, and those results have propped up lending units that are grappling with broader economic hardship in the U.S. after the coronavirus pandemic shuttered businesses and put millions of Americans out of work. Chief Executive Officer Brian Moynihan has called for another round of federal stimulus to keep businesses afloat and promote economic recovery. With its 4,300 branches across the country, Bank of America is often seen as a bellwether for the U.S. consumer. And while it increased loan-loss reserves, the company’s leaders have expressed more optimism than their peers on the economy, citing a rebound in consumer spending and robust credit quality.
    8. U.K. Prime Minister Boris Johnson faces growing pressure to order a national lockdown as Europe’s leaders labor to contain an alarming increase in Covid-19 cases. Johnson has tried to strike a balance between targeted restrictions and keeping as much of the economy open as possible. But opposition leader Keir Starmer warned local measures aren’t working and demanded a two-to three-week lockdown after documents revealed a scientific advisory group had called for the same action three weeks ago. Other countries across Europe widened curbs, with the Dutch prime minster ordering a partial lockdown. German Chancellor Angela Merkel will consult with regional leaders and French President Emmanuel Macron is due to appear on national television. Both may announce new restrictions.
    9. China is pressing ahead with a dollar bond sale amid growing uncertainties over U.S. elections and tensions with Washington. For a fourth straight autumn, China is looking to sell dollar notes with three-year, five-year, 10-year and 30-year maturities Wednesday, according to people familiar with the matter who aren’t authorized to speak publicly. Some of the shorter-dated bonds have lower premiums than in 2019 during the initial marketing phase of the nation’s last dollar bond sale. The country’s Ministry of Finance is seeking to raise about $6 billion via the new notes, Bloomberg reported previously. The sale had attracted orders of about $28 billion as of around 4:30 p.m. in Hong Kong, according to people familiar with the matter. The notes are expected to price overnight.
    10. President Donald Trump’s once-tight grip on Republican lawmakers is showing signs of slipping as he falls further behind Democrat Joe Biden, making the GOP path to keeping control of the Senate increasingly fraught. Republicans continue to line up behind Trump where their core interests coincide, such as solidifying a conservative majority on the Supreme Court by quickly confirming Judge Amy Coney Barrett. GOP candidates also are eager to tout tax cuts and deregulation under the president, longtime campaign themes that pre-date Trump. But the president’s handling of the coronavirus pandemic and his attempt to force through a stimulus deal with Democrats are exposing fractures at a time when Republicans are facing grim Election Day prospects in three weeks.
    11. ConocoPhillips is in talks to acquire rival Concho Resources Inc., according to people familiar with the matter, as one of America’s largest independent oil explorers looks to make a bold bet on shale during an historic industry downturn. The companies may announce a deal in the next few weeks, said the people, who asked to not be identified because the matter isn’t public. Shares of Concho declined 1.3% in New York trading Tuesday, giving the Midland, Texas-based company a market value of $8.7 billion. Conoco was down 2% at $34.88, translating into a market value of about $37 billion. No final decision has been made and talks could fall through, the people said. Representatives for Conoco and Concho didn’t immediately respond to requests for comment. The potential combination would be the latest sign that long-expected consolidation in the shale patch has finally arrived. A purchase of Concho, which has an enterprise value of $12.3 billion, could become the year’s largest takeover of an oil and gas company, according to data compiled by Bloomberg. It would likely surpass Chevron Corp.’s all-stock acquisition of Noble Energy Inc., which was valued at about $11.8 billion including debt when it closed in October.
    12. Apple Inc.’s latest iPhones won Wall Street over by dint of lower prices and a major design overhaul, fueling expectations of a new cycle of sales growth for the world’s largest corporation. At a virtual event on Tuesday, the company showed off the iPhone 12 in black, red, blue, green and white with a 6.1-inch screen, part of the biggest re-design of Apple’s signature device in three years. It starts at $799 but a smaller version, the iPhone 12 mini, costs $699. Analysts praised a pricing strategy that may entice users with older, smaller iPhones to upgrade. They were also bullish on Apple’s ability to take on rivals like Huawei Technologies Co. in China, the world’s largest smartphone arena, where 5G networks are considerably more built-out than in Europe and the U.S.
    13. The U.K. will continue efforts to reach an agreement with the European Union on their future relationship beyond Prime Minister Boris Johnson’s Oct. 15 deadline, according to a person close to the negotiations. Johnson will make a decision on whether to end talks after EU leaders meet on Thursday and Friday for a summit, said the person, who asked not to be identified because the discussions are private. The person said that U.K. officials still believe a deal is possible as long as both sides enter into a period of intense negotiation in the coming days. Talks have heated up in recent days, with the British government deriding the EU for its hard-line stance on fisheries and the EU calling for the U.K. to cede ground in other key areas such as business subsidies.
    14. Two Turkish construction groups in a consortium that includes General Electric Co. started talks to restructure 900 million euros ($1.1 billion) of loans, the latest sign of corporate distress following a plunge in the local currency. The firms, which used the debt to build hospitals, are negotiating with lenders on the foreign-currency loans, according to two people familiar with the matter, who asked not to be identified as negotiations are private. The consortium is made up of Gama Holding AS and Turkerler Insaat AS, while Boston-based GE’s stake is around 10%. Gama Holding and GE Healthcaredeclined to comment. A representative for Turkerler wasn’t immediately able to comment.
    15. President Xi Jinping vowed to press ahead with plans to gain the global lead in technology and other strategic industries, despite expanding efforts from the U.S. and its allies to check China’s rise. The Chinese president reaffirmed his commitment to “opening up and reform” as a strategy for gaining economic advantage in a 50-minute speech Wednesday to mark the 40th anniversary of Shenzhen’s establishment as a special economic zone. With hundreds of local officials and executives present including Huawei Technologies Co. founder Ren Zhengfei, Xi called for the making of the southern metropolis into a “model city for a great, modern socialist country.”
    16. China Evergrande Group’s largest strategic investor is leaning toward demanding repayment of the $3.4 billion it’s sunk into the embattled developer, according to people familiar with matter, adding pressure on the company as it races to cut its massive debt load. Investors linked to Shandong Hi-Speed Group, a state-owned conglomerate based in northeastern Jinan, can demand to be repaid if Evergrande fails to get a long-delayed backdoor listing of its main real estate assets in China by Jan. 31. Negotiations to waive those rights are ongoing, though Shandong Hi-Speed is keen to recoup the money, the people said, asking not to be named discussing private deliberations. A final decision hasn’t been made.
    17. Contemporary Amperex Technology Co. Ltd. and LG Chem Ltd., two of the world’s top producers of batteries for electric vehicles, have signaled they may join projects that could see $20 billion more invested in supply chains in Indonesia, according to the country’s government. The firms signed separate heads of agreement with Aneka Tambang Tbk last month aimed at manufacturing higher value products for batteries from the state-owned miner’s nickel output, said Septian Hario Seto, deputy for investment coordination and mining at the coordinating ministry for maritime affairs and investments. It’s a strategy that would involve development of new capacity for metals processing to battery pack assembly, according to Seto. “This is a race on technology,” he said in an interview. “LG Chem and CATL are two front-runners in lithium battery technology.”
    18. UnitedHealth Group Inc. raised its earnings forecast for the year and beat analysts’ quarterly estimates as the pandemic continued to discourage some patients from accessing medical care. The company increased its 2020 forecast for adjusted earnings per share to $16.50 to $16.75, from the prior range of $16.25 to $16.55.
    19. Infosys Ltd. raised its annual revenue forecast, underscoring how IT spending is bouncing back globally and propping up India’s giant technology services sector. The company now projects a rise in revenue of 2% to 3% in constant currency terms this financial year, up from an outlook for flat to 2% growth. Net income rose to a better than expected 48.5 billion rupees ($662 million) in the three months ended September, compared with an average estimate of 44.7 billion rupees. Infosys and larger rival Tata Consultancy Services Ltd. are benefiting as lockdowns ease, encouraging clients to spend on digital infrastructure and services from cloud migration to security and work tools. TCS last week reported better-than-expected revenue growth and said tech spending is recovering much faster than anticipated.
    20. The U.K. will continue efforts to reach an agreement with the European Union on their future relationship beyond Prime Minister Boris Johnson’s Oct. 15 deadline, according to a person close to the negotiations. Johnson will make a decision on whether to end talks after EU leaders meet on Thursday and Friday for a summit, said the person, who asked not to be identified because the discussions are private. The person said that U.K. officials still believe a deal is possible as long as both sides enter into a period of intense negotiation in the coming days. Talks have heated up in recent days, with the British government deriding the EU for its hard-line stance on fisheries and the EU calling for the U.K. to cede ground in other key areas such as business subsidies.
    21. Russia sold the most bonds on record at its weekly auction as the government targets local banks to raise money for economic stimulus. The Finance Ministry placed 350.6 billion rubles ($4.52 billion) of debt due in 2032, beating last week’s record 315.7 billion ruble sale. The floating-rate notes sold are popular with local investors because they offer protection against interest-rate moves. They’ve helped the ministry raise funds to plug a budget gap caused by stimulus spending and a drop in oil revenue.
    22. The European Union is opening a new front in the fight with China over the supply of next-generation telecommunications equipment for the bloc — moving from the security realm to trade. To date, the EU has used security grounds to grapple with the question of whether Huawei and other Chinese telecom companies should be restricted from deploying 5G networks across the 27-nation bloc. In a step late last month that was as quiet as the security debate has been loud, the European Commission began an investigation into whether Chinese exporters of core broadband gear for future 5G networks should face EU tariffs to counter alleged unfair price undercutting known as dumping.
    23. Chancellor Angela Merkel will push for sharper coronavirus restrictions in talks with regional German officials, as Europe’s leaders labor to contain the alarming increase in cases. Like her counterparts across the continent, Merkel is striving to avoid re imposing the broad curbs that brought economic activity to a near-standstill in the second quarter, pushing instead for localized constraints targeted at virus hotspots. The German leader will host state premiers at the chancellery Wednesday afternoon in Berlin to discuss how best to coordinate measures for Europe’s biggest economy. Her government is pushing for compulsory mask-wearing to be expanded to all spaces where people gather in groups, as well as a possible curfew for restaurants and the closing of bars and clubs in areas with relatively high infection rates, according to a briefing paper for the talks seen by Bloomberg.
    24. AMC Entertainment Holdings Inc.’s chief executive officer says the cinema chain is doing everything it can to raise fresh cash to weather the Covid-19 pandemic and isn’t considering bankruptcy at the moment. “We’re going to throw all of our efforts now into raising additional capital, primarily equity, to lengthen our runway even more,” CEO Adam Aron said late Tuesday in an interview with Bloomberg News. “We’d like to succeed in this effort. If we don’t, obviously we’ll have to consider other options down the road. But that time has not yet arrived, and any reports to the contrary are wholly inaccurate.” Bloomberg News reported earlier, citing people with knowledge of the matter, that the company was considering a range of options that include a potential bankruptcy to ease its debt load as the pandemic keeps moviegoers from attending and studios from supplying films.

*All sources from Bloomberg unless otherwise specified