October 16th, 2020
Daily Market Commentary
- Air Canada said its president and CEO Calin Rovinescu will retire on Feb. 15, following completion of the company’s current fiscal year, after leading the company for almost 12 years. Deputy CEO and Chief Financial Officer Michael Rousseau will succeed him upon his retirement. Rovinescu has served as president and CEO of the company since April 1, 2009, having previously served as its executive vice president, corporate development & strategy and as its chief restructuring officer.
- Papua New Guinea’s push for greater sway over its own mineral wealth scored a win, with Barrick Gold Corp. agreeing to a deal that will see the South Pacific nation get a stake in a major gold mine. Barrick will give Papua New Guinea a “major share” of the Porgera mine, the country’s Prime Minister James Marape said Thursday in a joint statement with the Toronto-based miner. In exchange, Barrick can re-open and keep operating the facility, which had been suspended since April after the government didn’t extend its mining lease. The in-principle agreement follows a months-long showdown that escalated to legal challenges and tested Marape’s pledge to obtain a greater share of Papua New Guinea’s resources wealth. It echoes similar drives by other commodities-rich nations, including Indonesia, to direct more revenues to state coffers.
- European equities advanced as luxury goods, travel and autos sectors rose, outweighing concerns over rising coronavirus cases and the state of progress in Brexit trade talks. The Stoxx 600 Index was up 0.8% by 8:05 a.m. London time. LVMH shares bounced 6.3% after the firm benefited from a rebound in appetite for Louis Vuitton goods in the third quarter. Daimler AG shares gained 4.1% after profit beat estimates thanks to recovering car sales and cost cuts. Thyssenkrupp AGsurged 23% after Der Spiegel reported that Liberty Steel Group will bid for the German firm’s steel business. This week the Stoxx 600 Index has shed 1.2% as worries over a rise in infections and tighter restrictions across the region’s cities have weighed on risk assets. David Holohan, a senior equity portfolio manager at Mediolanum, said that further lockdown measures linked to an increase in virus cases will damage economic growth and make it harder to firms to plan for the final quarter of the year.
- U.S. equity-index futures edged higher along with stocks in Europe as positive corporate news lifted sentiment amid concerns about new restrictions to curb the pandemic and the stalemate over U.S. stimulus. Boeing gained in U.S. pre-market trading after its 737 Max airliner was judgedsafe to fly by European regulators. Pfizer also rose after saying it will seek emergency authorization for use of its Covid-19 vaccine as soon as November. Those helped push futures on the S&P 500 and Dow Jones Industrial Average into the green after they drifted most of the day. Treasuries held gains, while the dollar slipped with crude oil.
- Japanese stocks fell as investors monitored the progress of U.S. stimulus talks and remained wary of a surge in Covid-19 cases overseas. Electronics and drug makers weighed on the Topix, which slumped 1.8% for the week. Treasury Secretary Steven Mnuchin told House Speaker Nancy Pelosi Thursday that President Donald Trump would personally lobby to get reluctant Senate Republicans behind any stimulus deal they reach. On the pandemic front, restrictions are beginning to take place in European nations seeing a renewed surge of coronavirus cases. Londoners will be bannedfrom mixing with other households indoors as of Saturday. Covid-19 cases are also sweeping through U.S. Midwestern states.
- Oil dipped as the prospect of a resurgent virus, forcing more stay-at-home measures in Europe and the U.S., was weighed against signs of improved demand from China and India this week. Futures in New York dropped 0.5% Friday, paring earlier losses as the dollar erased gains. Covid-19 is surging in Europe, with tighter restrictions being imposed in London and Paris, while there’s also been a renewed spike in the U.S. Midwest. Adding to the gloomy price outlook, Libyan oil production is said to have reached about 500,000 barrels a day.
- Gold steadied, heading for the first weekly decline in three, as investors weighed the outlook for fresh U.S. stimulus and rising virus cases in Europe. Treasury Secretary Steven Mnuchin told House Speaker Nancy Pelosi Thursday that President Donald Trump would personally lobby to get reluctant Senate Republicans behind any deal that they reach. The dollar has been supported during the stalemate, while surging virus cases in Europe have also helped lift the greenback as investors seek safety amid new lockdown measures. Gold has traded in a narrow range this month on uncertainty surrounding the prospects for a stimulus deal being passed before the Nov. 3 election. The International Monetary Fund has said that more public spending will be needed to complete the economic recovery from the pandemic.
- Pfizer Inc. said it could seek emergency-use authorization for its Covid-19 vaccine in the U.S. by late November if the shot is shown to be effective in a large late-stage trial. Safety review dictates the timeline, with the Food and Drug Administration requiring that at least half the people in the study be watched for side effects for two months. That milestone should be achieved in the third week of November, Pfizer Chief Executive Officer Albert Bourla said in an open letter published Friday on the company’s website. “Let me be clear, assuming positive data, Pfizer will apply for emergency authorization use in the U.S. soon after the safety milestone is achieved,” Bourla wrote. An initial readout on whether the vaccine is effective could come later this month, depending on how quickly subjects in the trial — some of whom got a placebo shot — become infected with the virus.
- Donald Trump has begun openly acknowledging his precarious re-election chances, but is undercutting his own campaign’s attempts to tailor appeals to women and seniors as polls show them flocking toward Joe Biden. Recent polls have shown Biden with growing leads nationally and in key battleground states, an advantage driven largely by erosion in Trump’s support among women and people 65 and older. Trump’s campaign has begun running more ads aimed at seniors, and hopes some of the loss can be offset by gains among Latino and Black voters. But the campaign’s efforts to reverse the trends face a headwind: Trump himself. The president has undercut the outreach to seniors by continuing to downplay the coronavirus outbreak and by mocking Biden’s age.
- Europe’s top aviation regulator said he’s satisfied that changes to Boeing Co.’s 737 Max have made the plane safe enough to return to the region’s skies before 2020 is out, even as a further upgrade his agency demanded won’t be ready for up to two years. After test flights conducted in September, EASA is performing final document reviews ahead of a draft airworthiness directive it expects to issue next month, said Patrick Ky, executive director of the European Union Aviation Safety Agency. That will be followed by four weeks of public comment, while the development of a so-called synthetic sensor to add redundancy will take 20 to 24 months, he said. The software-based solution will be required on the larger Max 10 variant before its debut targeted for 2022, and retrofitted onto other versions.
- Boris Johnson’s coronavirus strategy descended into disarray three days after it was announced, as local leaders rejected his regional approach and U.K. government scientists pushed for an emergency national lockdown to slow the rate of infections. London will face tighter restrictions from Saturday, with a ban on households mixing indoors, but political leaders in Manchester, northern England, are now in open revolt, refusing Johnson’s request to move to the highest level of pandemic curbs unless he provides more generous financial support. Foreign Secretary Dominic Raab said Friday the government wants to keep working with local leaders but called Greater Manchester Mayor Andy Burnham’s position “crazy.” The way to avoid a national lockdown is for the regional strategy to be implemented “to the maximum,” Raab told Sky News.
- The Norwegian developer Scatec Solar AS is paying $1.2 billion to complement its solar installations around the world with the hydro-power assets of SN Power. For more than a decade, both Oslo-based companies have built renewable projects around the world in emerging markets from Africa to Asia and South America. One built solar plants and the other hydro stations. With the acquisition, Scatec Solar is bringing the two portfolios together. “Hydro power and solar PV are complementary technologies, resulting in new project opportunities, for instance floating solar on hydro reservoirs,” Raymond Carlsen, chief executive officer of Scatec Solar, said in a statement. “We see great potential in broader project origination and geographical expansion into growth markets in South East Asia and Sub-Sahara Africa.”
- Traton SE, the heavy-truck unit owned by Volkswagen AG, is holding last-minute talks with Navistar International Corp. to try and salvage a takeover deal ahead of a Friday deadline, according to people familiar with the matter. The boards are discussing whether they can reach a compromise on price or extend the deadline for the proposed $3.6 billion deal, said the people, who asked not to be identified because talks are private. The last-ditch negotiations may not lead to any agreement, the people said. Traton put out a surprise statement on Oct. 14 saying that its $43-a-share “best and final” offer expires at 6 p.m. Central European Time today and will be withdrawn unless it’s notified of a willingness to proceed.
- Members of the Paris Club, an informal group of rich nations, are close to suspending Cuba’s debt obligations for this year, in a move that defies U.S. attempts to block any financial relief to the communist island. A group of over a dozen countries at the Paris-based creditor group will likely agree to a request from Cuba to delay a debt payment with these nations due at the end of October, according to three people familiar with the negotiations. The decision seeks to help the Caribbean nation to mitigate the fallout of the pandemic, the people said, declining to be named because talks are private. Neither the total amount of the relief nor the length of the moratorium was immediately available. Cuba, which owed $5.2 billion to the Paris Club as of December 2019, initially requested a two-year suspension on payments.
- European leaders from London to Berlin face an alarming reality: lockdowns are creeping back on the agenda as the pandemic threatens the continent again. It’s a scenario many ruled out after the summer, when coronavirus cases were receding across Europe and borders were re-opening. A resurgence was expected, but the conviction was that a targeted approach would do. That early sense of victory has given way to disappointment, and set the stage for a deeper crisis with major cities under curfew and central governments openly clashing with local officials on the way forward.
- First, Hyundai Motor Co. made headlines about its electric cars catching fire. Five days later, it was General Motors Co. and Ford Motor Co. The next day, it was BMW AG. Vehicles going up in flames aren’t new to the electric era. An estimated 171,500 took place annually in the U.S. alone over a recent three-year period, and cars powered by the combustion of gasoline are plenty prone to catching fire. But the issues affecting some of the world’s largest automakers over the past week are both a reflection of plug-in models taking off in the market and a threat to more widespread adoption. The vehicle blazes are making a big impact before automakers have even managed to pin down their precise causes. A flaw affecting a plug-in hybrid SUV in Europe will keep Ford from complying with tougher emissions standards this year. BMW and Hyundai are recalling tens of thousands of cars, and GM is being probed by U.S. safety regulators.
- The Philippines lifted its moratorium on oil and gas exploration in disputed areas of the South China Sea, a move that was welcomed by China and boosted the shares of the Southeast Asian nation’s energy producers. Resume-to-work notices were issued to Philippine National Oil Company-Exploration Corp., PXP Energy Corp. and unit Forum Ltd., which operate service contracts within the disputed areas, according to Energy Secretary Alfonso Cusi. Bids of Udenna Corp. and PXP Energy to explore three new areas are under review and may be subject to competitive challenge. Philippine energy producers rallied, with PXP, the nation’s biggest listed oil and gas exploration company based on market capitalization, surging by the maximum daily limit of 50%.
- Apollo Global Management Inc.’s Jim Zelter says there will be a new spike in defaults next year as some companies struggle to service the extra debt they took on during the pandemic. An uneven economic recovery will keep companies in the travel, entertainment and lodging sector under pressure and could leave some of them insolvent in late 2021 and beyond, according to Zelter, who heads up Apollo’s $300 billion of credit investments. “I suspect many companies were in a rush for liquidity and they added a lot of debt on to make sure they got through the troubled period,” Zelter said in an interview with Bloomberg Television. “But when they turn around in 2021 and 2022, they’ll find themselves having just way too much debt.”
- Hertz Global Holdings Inc. shares surged 40% premarket after entering a commitment letter on Oct. 15 with holders of its prepetition first-lien debt for $1.65 billion in debtor-in-possession financing, the car rental company reported in a filing. Up to $1 billion can be used for new interim fleet financing for the future ability to replenish Hertz’s fleet
- Nikola Corp.’s chief executive officer sees a path ahead for his company even if the embattled electric-truck startup is unable to come to terms with General Motors Co. on a proposed strategic partnership. Talks between the two companies are ongoing, but if a tentative technology-sharing and manufacturing deal announced last month falls apart, Nikola will revert to a “base plan” without GM’s help, CEO Mark Russell said in an interview Thursday. “We have the ability and we have a base plan of doing it ourselves. If we have a partner, that just enables us to consider going faster and helps reduce the risk,” he said. “We’ve proven that over the years that we are a partnership company when those things are available to us.”
- Toward the end of 2019, Hulu delivered a proposal to Walt Disney Co., its controlling shareholder, outlining a strategy to expand the popular streaming service outside the U.S. After watching rivals Netflix and Amazon set up shop all over the globe, Hulu executives had spent the past couple of years drafting a plan to catch up. At first, Disney Chief Executive Officer Bob Iger and Chief Financial Officer Christine McCarthy expressed support and pledged to present the plan at a board meeting in January 2020, according to people familiar with the matter. But, ultimately, that didn’t happen. Instead, Disney announced in August that it will create a new general entertainment service outside the U.S. under the umbrella of Star, the company’s Indian media subsidiary.
- The punishing heat gripping California will continue into Friday as dry winds threaten to fan fires across the already charred landscape and trigger another round of power outages. Diablo winds roaring through Northern California prompted the state’s largest utility, PG&E Corp., to cut electricity to about 39,000 homes and businesses in a bid to keep downed wires from starting fires. The state’s grid operator, meanwhile, has called for utilities to postpone maintenance at power plants and on transmission lines Friday to avoid rotating blackouts as rising temperatures drives up demand. Los Angeles is forecast to hit 98 degrees Fahrenheit (37 Celsius) Friday, and Oakland is expected to reach 94 degrees. Those temperatures would top highs seen in past Octobers, including in 2017 when Oakland reached 92 during an active fire season. Next week will be cooler, but the untimely warmth will remain.
- Ant Group plans to increase the valuation target for its initial public offering to at least $280 billion due to strong demand, charging ahead with the sale even as the Trump administration weighs restrictions on the Chinese fintech giant, according to people familiar with the matter. The Hangzhou-based company is lifting the target by at least 12% from a previous estimate of $250 billion after initial discussions with investors, the people said, requesting not to be identified because the matter is private. Ant aims to raise about $35 billion in the sale, people familiar said. Despite the U.S. headwinds, Jack Ma’s Ant is moving ahead with what could be the world’s largest IPO, with same-day listings in Hong Kong and Shanghai, the people said. At $280 billion, Ant would be bigger than Bank of America Corp.and three times the size of Citigroup Inc., while its sale would top Saudi Aramco’s record $29 billion raise.
- If Joe Biden wins the presidency next month, he plans to fill his national-security team exactly the way Donald Trump didn’t — with officials well-known inside the Washington Beltway who carry resumes full of government experience. There won’t be any Rex Tillerson-type picks. The former Exxon Mobil Corp.chief was an outside-the-box choice for secretary of state who arrived with a stellar background but no government experience and quickly lost support in the Oval Office, Congress and his own building. He was fired by tweet. Biden has two top candidates for secretary of state, according to seven people familiar with the campaign’s thinking. They are longtime aide Antony Blinken, who served as Biden’s national security adviser, and Susan Rice, the Obama-era national security adviser who was on Biden’s short list for vice president.
- Millions of Americans are breaking voter-turnout records with three weeks to go before Election Day, with Democrats casting early ballots at a far higher rate than Republicans. Concerns about the coronavirus pandemic have increased mail-in voting and led to unprecedented levels of early voting, especially among Democrats. More than 17 million voters have cast their ballot early, either in person or by mail, in states that report voting data, according to the University of Florida Elections Project. As President Donald Trump and the Republican Party bet on Election Day in-person turnout, states that he won by a small margin in 2016 are seeing more Democrats voting early.
- Saying the expiration of the New START nuclear arms agreement with the U.S. in February would be “very sad,” Russian President Vladimir Putin proposed extending it for a year without conditions. “For all these years the treaty has worked well, fulfilled its role as a limit on the arms race,” Putin told a televised meeting of his Security Council on Friday. “I have a proposal, specifically, to extend the treaty without any conditions for at least a year.” The U.S. has insisted on broadening the terms of the 2010 treaty but hasn’t been able to win Russia’s support. Earlier this month, a senior U.S. official said the outlines of a deal had been reached, but Russian officials quickly said there was no agreement. Russia had earlier called for a five-year extension, as provided in the accord.
*All sources from Bloomberg unless otherwise specified