October 20th, 2020
Daily Market Commentary
- Canadian stocks reversed an early gain Monday, while U.S. shares fell to the lowest in almost two weeks as a stalemate over coronavirus relief legislation continued. The S&P/TSX Composite Index fell 1%, the most since Oct. 6, with 10 of 11 sectors losing. Health care was the lone gainer, with pot companies including Aurora Cannabis Inc. and Canopy Growth Corp. both rising over 10%. Business sentiment in Canada improved over the summer but remains near historical lows as uncertainty around the path of the virus curbs demand and sales prospects, according to the Bank of Canada. Brookfield Asset Management will buy an Indian developer’s commercial properties for $2 billion, the biggest real estate deal in the South Asian nation.
- The European Union plans to remove Canada, Tunisia and Georgia from its list of countries whose residents should be allowed to visit the bloc amid the coronavirus pandemic, according to EU officials familiar with the matter. The EU intends at the same time to reopen its doors to travelers from Singapore as a result of improved virus trends there, the officials said on the condition of anonymity because the deliberations on Tuesday in Brussels are confidential. The U.S. will remain blacklisted along with most other countries in the world. The changes would be the first in more than two months to the EU’s recommended travel “white list,” shrinking it from 11 foreign nations at present to nine. The other eight are Australia, China, Japan, New Zealand, Rwanda, South Korea, Thailand and Uruguay. The update of the list comes amid a resurgence in coronavirus cases in Europe itself and, barring any changes in the plan, is due to be endorsed by EU member-country envoys on Wednesday in the Belgian capital. In a third planned move, which affects the format of the list, the EU aims to identify the Chinese regions of Hong Kong and Macau as separate entities as a result of the bloc’s visa rules, one of the officials said.
- Magna said its board of directors has appointed Seetarama (Swamy) Kotagiri as CEO, effective Jan. 1, 2021, according to a statement. Don Walker, who served as CEO between 1994 and 2001, and since 2005, will retire at the end of 2020.
- European equities were mixed near mid-session as companies from Logitech International SA to Reckitt Benckiser Group Plc advanced on earnings, while investors awaited updates on U.S. aid talks. The Stoxx 600 Index was little changed as of 11:56 a.m. in London, after swinging between gains of 0.2% and losses of 0.5%. Stocks traded smoothly after exchange provider Euronext NV on Monday suffered its biggest outage in two years. Energy shares fell after OPEC+ warned of a precarious outlook for the market. The earnings season is picking up pace. Logitech surged 19% after boosting its full-year sales forecast, while UBS Group AG shares rose 4.3% after the Swiss bank posted better-than-expected profit. Reckitt Benckiser gained after hikingits revenue forecast, thanks to demand for disinfectant.
- U.S. equity futures extended gains on Monday as investors clung to hopes for a deal in stimulus talks. Europe equities fluctuated after a string of positive earnings. S&P 500 Index contracts rose as much as 0.9% after a spokesman for House Speaker Nancy Pelosi said differences were narrowing in negotiations. Goldman Sachs Group Inc. will be in focus after a report it reached a long-awaited pact in the U.S. to pay more than $2 billion for the bank’s role in Malaysia’s 1MDB scandal.
- Japanese stocks dropped in thin trading as investors eyed the fading prospect for a U.S. stimulus bill to be passed before the November election. Railway and telecom shares were the biggest drags on the benchmark Topix. The Nikkei 225 Stock Average slipped after erasing its loss for the year on Monday. Trading on both measures was about 20% below the 30-day average.
- Oil extended declines as OPEC+ warned of a precarious outlook for the market while a resurgent virus hits consumption. Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman, speaking at the coalition’s committee meeting on Monday, called on the group to be proactive in the face of uncertain demand. The comments are strengthening expectations that OPEC and its allies will delay plans to restore 2 million barrels of halted output at the start of next year. While demand from China is robust, prices are struggling to push higher as coronavirus cases rise and Libyan supplies recover after a lengthy halt. Meanwhile, more U.S. stimulus remains elusive as time draws short to reach an agreement on a bill that could pass by the election.
- Gold was little changed ahead of a crucial deadline for U.S. stimulus negotiations which could make or break chances for a pre-election aid package. Treasury Secretary Steven Mnuchin and House Speaker Nancy Pelosi will make another effort to patch up differences between Republicans and Democrats on a variety of issues which have prevented them reaching an agreement since talks began in July. Neither have indicated that a deal is likely, though a Pelosi aide said Monday that differences were narrowing. The passing of Tuesday’s deadline may have a short-term impact on gold, but “overall the market looks a bit stale, with the outcome and the impact of the U.S. election being an even bigger headache,” according to Ole Hansen, head of commodity strategy at Saxo Bank A/S.
- Copper headed for the highest close in more than two years in London as the yuan rallied and broader investor sentiment was boosted by signs of progress in U.S. stimulus negotiations and efforts to develop a vaccine for Covid-19. Moderna Inc. Chief Executive Officer Stéphane Bancel said the U.S. could authorize emergency use of its vaccine in December if it gets positive interim results in November from a large trial, the Wall Street Journal reported. On stimulus talks, House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin continued to narrow their differences on the relief package on a bill that could pass by Election Day. The latest leg in copper’s rally came as China’s yuan surged to the highest since July 2018, boosting the buying power of commodities consumers in the country. Investors are also assessing the supply outlook, with Lundin Mining Corp. planning to suspend operations at a mine in Chile.
- After months of on-again, off-again talks on an increasingly needed fiscal-stimulus package, Tuesday is shaping up as a do-or-die moment for Treasury Secretary Steven Mnuchin and House Speaker Nancy Pelosi to get a virus relief deal done in time for Election Day. With Mnuchin phoning in from a Middle East trip, he and Pelosi will make one more effort to patch up differences between the White House and Democrats on a welter of issues that have prevented agreement since talks began in July. “We’ll see what tomorrow will bring,” Pelosi said on MSNBC Monday night. “Let’s make a judgment. We may not like this, we may not like that. But let’s see on balance if we can go forward.”
- Brookfield Asset Management will buy an Indian developer’s commercial properties for $2 billion, the biggest real estate deal in the South Asian nation. The Canadian asset manager is acquiring 12.5 million square feet of rent-yielding offices and co-working spaces from RMZ Corp., the privately held developer said in a statement on Monday. The Indian firm said it will have zero debt after the transaction and will use the money to expand its portfolio. Large foreign investors are buying into the Indian office market in recent years. Since 2011, the segment has garnered $15.4 billion of equity investments, according to property research firm Knight Frank. Blackstone last week signed a non-binding agreement to buy some assets, a deal Bloomberg News previously reported could be worth $2 billion.
- The U.K. and European Union’s chief negotiators will hold talks for the second time in two days as they try to restart the Brexit discussions that Boris Johnson suspended last week. Michel Barnier, the bloc’s chief negotiator, will speak with David Frost, his British counterpart, on Tuesday afternoon, according to an EU official with knowledge of the matter. The call comes after the U.K rebuffed the EU’s push to revive the deadlocked trade talks, holding out for more concessions from the bloc. On Monday, Barnier said he would be willing to intensify the discussions and begin work on the legal text of the accord following a conversation with Frost.
- Leaders in Europe intensified efforts to slow contagion rates, reviving lockdowns in some areas as piecemeal curbs have made little impact on a disease that has infected 4.9 million people regionally. New cases in Germany and Bulgaria hit a record, and Hungary and Ukraine reported their highest daily virus death tolls. The first trials to deliberately infect people to accelerate development of vaccines could occur in the U.K. next year, while airports in London and Paris prepare to offer rapid Covid-19 tests to departing passengers. Soaring infections in U.S. battleground states are posing a challenge for President Donald Trump two weeks before the election. Meanwhile, the governments of Japan and China are reportedly close to an agreement to resume business travel.
- Goldman Sachs Group Inc. has reached a long-awaited pact with the U.S. Department of Justice to pay more than $2 billion for the bank’s role in Malaysia’s 1MDB scandal, and the deal may be announced within days, according to people familiar with the matter. The accord, part of an international action, will let the parent company avoid a U.S. criminal conviction, according to the people, who asked not to be named discussing the confidential talks. The payment to the Justice Department is broadly in line with the bank’s prior reserves and analysts’ estimates. The deal, expected to come just weeks before the U.S. presidential election, would remove uncertainty for the bank following years of investigations and negotiations with the Justice Department over the firm’s fundraising for the 1MDB investment fund. It follows an agreement in July to settle a related probe with Malaysia, in which the bank promised to pay $2.5 billion. Malaysia dropped criminal charges against the New York-based company in early September.
- President Donald Trump’s campaign found it harder to raise money from small-dollar donors in the final months before the election, spending 77 cents of each dollar it received in the third quarter on future fundraising efforts, according to federal disclosures that highlighted the funding gap with Democratic nominee Joe Biden. Spending by the campaign’s grassroots fundraising arm, Trump Make America Great Again, to pursue small donors was far higher than throughout his re-election campaign, when it spent 47 cents per dollar raised. Over the last three months, TMAGA paid $181 million of the $235.7 million it raised from small donors to vendors for more fundraising expenses, the organization’s latest filing with the Federal Election Commission shows.
- Nigeria reimbursed oil companies including Exxon Mobil Corp.and Royal Dutch Shell Plc $3 billion, moving closer to clearing operating expense arrears owed since 2010. The payment is being settled through a five-year crude oil sales deal agreed in 2016, Nigerian National Petroleum Corp. said in a statement. While a majority has been paid as of August, there’s still about $1.7 billion outstanding. Exxon has got $2.3 billion, clearing all dues. Shell has received $455 million, but is still owed $917 million. NNPC operates joint ventures with producers including Exxon Mobil, Shell, Chevron Corp., Total SE and Eni SpA that pump about 80% of Nigeria’s output. Lower revenue and demands for other payments hampered NNPC’s ability to contribute its share of expenses from 2010 to 2015, leading to the arrears.
- The Bank of England will probably have to provide additional support to the economy as the Covid crisis and Brexit weigh on employment and investment, according to policy maker Gertjan Vlieghe. “The risks to the economic outlook are skewed toward a longer period of labor market slack with weak inflationary pressure,” Vlieghe said on Tuesday. “The risks to the monetary policy stance are therefore skewed toward additional monetary stimulus.” Vlieghe joins fellow BOE officials Michael Saunders and Jonathan Haskel in indicating more policy easing to come. Governor Andrew Bailey and Deputy Governor Dave Ramsden have emphasized that they have more firepower to add stimulus if needed.
- Cathay Pacific Airways Ltd. will cut 6,000 jobs and close its Cathay Dragon brand, the South China Morning Post reported, as part of a strategic review to combat the deep damage caused by the coronavirus pandemic. The Hong Kong-based airline is expected to officially announce the plan after the market close on Wednesday, the newspaper said. It initially planned about 8,000 layoffs globally, but after government intervention reduced that to 18% of its total workforce, including some 5,000 jobs in Hong Kong, according to the report. The company, which posted a HK$9.9 billion ($1.3 billion) loss in the first half, has for months been working on the review that management presented to the board on Monday. Cathay said in September it wouldn’t survive unless it adapted its airlines for the “new travel market.” A Cathay representative didn’t immediately respond to requests for comment Tuesday.
- Hong Kong’s unemployment rate rose to a 15-year high in September as the city’s economy remained mired in a deep recession amid social-distancing measures put in place to control the coronavirus outbreak. The jobless rate for the July-to-September period increased to 6.4%, above the 6.2% median forecast among economists surveyed by Bloomberg. That matches the level last seen in January 2005, the data show. “As the overall economic situation remains weak and the global pandemic is still evolving, the labor market will remain under pressure in the near term,” Secretary for Labour and Welfare Law Chi-kwong said in the government report. “The labor market deteriorated for the third quarter of 2020 as a whole amid the third wave of the local epidemic.”
- Jack Ma’s Ant Group Co. won approval from the Hong Kong stock exchange for its initial public offering, clearing a key hurdle as the Chinese fintech giant races to complete the sale ahead of the U.S. election. Ant received a letter from the exchange to proceed with the Hong Kong IPO, a person familiar with the matter said. The firm now needs to complete a registration with Chinese regulators for the Shanghai portion of the sale, a person familiar said. A representative for the company declined to comment. The Hong Kong stock exchange declined to comment in an emailed statement. Once it has all the approvals in place, Ant will hold a roadshow of at least 3.5 days to pitch the shares to investors, the people said. That may give it enough time to price the offering as soon as next week, ahead of the U.S. election when some expect ballot counting delays to spark prolonged market volatility.
- Hindustan Unilever Ltd., Asia’s biggest maker of personal care products by market value, reported a 16% gain in revenue, signaling that demand in India may be reviving after an unprecedented economic contraction in the June quarter. Revenue at the local unit of Unilever Plc rose to 112.8 billion rupees ($1.5 billion), the biggest jump since December 2011. Net income increased 8.6% to 20.1 billion rupees in the quarter ended Sept. 30, according to an exchange filing. That beat the 19.1 billion rupees profit forecast by analysts surveyed by Bloomberg but volume growth was a mere 3%. Many global economies are seeing a rapid revival in consumer demand. U.S. retail sales rose in September at the fastest pace in three months, with China also seeing a rebound. Good monsoon rains bolstered demand in India’s rural areas and helped Hindustan Unilever, which sells its products through 8 million outlets in the nation. The maker of Dove soap and Surf detergent also benefited from the integration of GlaxoSmithKline Plc’s local consumer business in April.
- Sergio Ermotti is leaving UBS Group AG with one of the best quarters since he took over nine years ago, but incoming Chief Executive Officer Ralph Hamers still has plenty to fix when he takes over. The world’s largest wealth manager on Tuesday reported better-than-expected profit, helped by a booming investment bank, unexpected inflows from rich clients, and some of the lowest provisions for bad loans in Europe. UBS even set aside $1.5 billion for share buybacks next year and plans to resume dividend payments next month. Hamers, who is scheduled to take over next month, will now have to persuade regulators to allow payouts as the pandemic resurges. In the U.S., he’ll have to contend with the departure of several teams of financial advisers that left for rival wealth managers. And then there’s the threat of a $5 billion dollar fine still hanging over the bank for allegedly helping French clients evade taxes.
- BlackRock Inc. says that the scale of restructuring needs globally could exceed the previous peak that followed the 2008 global financial crisis. “One big reason is the significant growth in sub-investment grade debt,” the company’s research arm, BlackRock Investment Institute, said in a note dated Oct. 19. The amount of outstanding debt with ratings below investment grade, including loans and private credit, has more than doubled to $5.3 trillion since 2007, according to the asset manager. As the overall cost of borrowing fell, companies loaded up on debt. This has left many vulnerable as their revenues came under pressure from Covid-19 related disruptions.
- The two most senior commodities executives at Morgan Stanley are leaving the bank after compliance breaches linked to the use of communications tools, according to two people familiar with the matter. Nancy King, global head of commodities, and Jay Rubenstein, head of commodities trading, are leaving, the people said, asking not to be named discussing internal matters. Morgan Stanley declined to comment. The veteran executives’ departures come after the bank discovered the use of unauthorized electronic means of communication. It didn’t find any wrongdoing, but the use of those communication channels went against policy, the people said.
- There’s no doubt Netflix Inc. viewing has surged since the Covid-19 pandemic limited travel and out-of-home entertainment, but it remains to be seen whether the movie and TV streaming service can sustain that momentum and impress investors. The shares are prone to wide swings after earnings, and they plunged in July after the company’s forecast for subscriber growth fell short of analysts’ expectations. Yet for most Wall Street firms, the picture this time may be different. Analysts expect the streaming service to report 3.32 million new subscribers in the third quarter after markets close Tuesday. That would top the company’s guidance of 2.5 million. Goldman Sachs is especially bullish, anticipating roughly 6 million net subscriber additions. The firm expects Netflix to report third-quarter results “well above guidance and consensus expectations.”
- Amtrak supporters are counting on Joe Biden to deliver a long-sought victory on a rail tunnel between New York City and New Jersey that they say is pivotal to meeting passenger demand in the busy northeastern U.S. The tunnel, with an estimated cost of more than $11 billion, would carry Amtrak and New Jersey Transit commuter trains under the Hudson River as part of the Gateway Program. Supporters say the project has languished amid feuding between President Donald Trump and Democratic governors in New York and New Jersey — though the administration says it is working to complete an environmental review. Gateway advocates say Biden, whose commuting between Delaware and Washington aboard Amtrak as a senator became part of his biography, is likely to put his weight behind the new tunnel. He is so closely associated with the railroad that the station in his hometown of Wilmington, Delaware, is named after him.
- Procter & Gamble Co. raised its outlook after posting its best organic sales growth since 2005 amid a boom in at-home consumption of toilet paper and cleaning supplies. The maker of Tide detergent and Dawn dish soap said organic sales growth, which strips out some items like currency swings, rose 9% in the quarter ended Sept. 30. Sales grew in each of P&G’s business units, led by the fabric and home care segment, which has spiked as consumers do more dishes, laundry and cleaning at home. The performance signal consumers are sticking to behaviors they’ve adopted during the pandemic. As long as many remain homebound in its key North American market, a slowdown appears unlikely, and Moeller said he expects strength in fabric and home care to persist. Heightened awareness of wellness and digestive health are also helping to boost P&G’s health unit, which sells Oral-B toothbrushes and Metamucil fiber supplements.
- AMC Entertainment Holdings Inc., the world’s largest cinema chain, agreed to sell as many as 15 million shares of its stock to contend with a liquidity crisis that threatens its ability to remain a going concern. AMC said the equity distribution plan would help but might not be enough. With $417.9 million in cash on hand, the company still needs a material amount of new funding by the end of the year to stay in business, it said in a filing Tuesday.
- Intel Corp. agreed to sell its Nand memory unit to South Korea’s SK Hynix Inc. for about $9 billion, a deal that allows the U.S. chipmaker to concentrate on its main business while shoring up the Asian company’s position in a booming market. The chipmaker will pay 10.3 trillion won for the Intel unit, which makes flash memory components for computers and other devices. The acquisition, which will take place in stages through 2025, includes Intel’s solid-state drive, Nand flash and wafer businesses, as well as a production facility in the northeastern Chinese city of Dalian.
*All sources from Bloomberg unless otherwise specified