October 27th, 2020
Daily Market Commentary
- Canadian shares fell with the broader equity markets, on rising investor concerns that climbing coronavirus cases will hurt the global economy, and on dimming prospects for fiscal aid from Washington before the presidential election. The S&P/TSX Composite index fell 1.4% in Toronto, the most since Sept. 23. Almost all sectors were in the red, except for tech, which was helped by Shopify Inc. Meanwhile, healthcare and consumer discretionary were the worst performers.
- Barack Obama tried to stop the Keystone XL pipeline. Donald Trump tried to revive it. If Joe Biden is elected, he says he’ll block it again — and the pandemic may help him kill the project for good. Biden has pledged to rescind a key permit granted by Trump for the pipeline, a 1,210-mile (1,950-kilometer) project designed to take 830,000 barrels of crude a day from Alberta to Nebraska. Keystone XL has been on its death bed before, only to come back. But this time the politics are shifting at a moment when demand for oil is weak and other pipelines are moving toward completion more quickly.
- A catalyst is emerging for the Canadian dollar that is gnawing at the central bank’s influence and potentially its monetary policy: the performance of global equities. The loonie has traditionally been seen as a commodity-linked currency because of the country’s vast natural resources. But trillions of dollars of stimulus, along with interest rate cuts from the Bank of Canada, the Federal Reserve and other central banks have realigned those forces. The one-year rolling correlation of the dollar-loonie to world equities is stronger than the pair’s relationship with base metals, crude oil and yield differentials, according to the Royal Bank of Canada. That means strategists may have to modify their models to better reflect global risk appetite. It also gives the BOC more leeway in policy without worrying about currency effects.
- Li Ka-shing, Hong Kong’s richest man, is unwinding a bet he placed on oil more than three decades ago by paring his group’s stake in Husky Energy Inc., a Canadian asset dealing with mounting losses. The tycoon’s CK Hutchison Holdings Ltd. and a Li family trust, which together own almost 70% of Husky, agreed over the weekend to sell a part of their stakes to Cenovus Energy Inc. in an all-stock deal. The $2.9 billion merger of two of Canada’s biggest oil-sands players would reduce Li’s and CK Hutchison’s combined holdings in the new entity to 27%. By cutting their Husky stake, Li and his older son Victor — the chairman of CK Hutchison — are seeking to reduce the drag on the earnings at their group, which has been buffeted by the coronavirus pandemic. Shares of Calgary-based Husky have plunged more than 85% in the past 10 years, and the company has reported a total $3.3 billion of losses in the three quarters through June.
- Spin Master Corp., the company behind the Etch A Sketch and Paw Patrol brands, has agreed to acquire Rubik’s Brand Ltd. for about $50 million, tying together two of the world’s most iconic toy brands. The merger comes at a boom time for classic toymakers, as parents turn to familiar products to entertain kids stuck in lockdown. Like sales of Uno, Monopoly and Barbie dolls, Rubik’s Cube purchases have spiked during the pandemic, according to the puzzle maker’s chief executive officer, Christoph Bettin. He expects sales to jump 15% to 20% in 2020, compared with a normal year, when people purchase between 5 million and 10 million cubes.
- European stocks dropped on Tuesday amid concern about the relentless spread of coronavirus, while U.S. equity futures turned higher before some of the biggest drug companies report results. The Stoxx Europe 600 Index fell toward its lowest close since June. Declines in miners and energy firms overshadowed positive earnings from banking powerhouses HSBC Holdings Plc and Banco Santander SA, which both signaled a brighter outlook for dividends. BP Plc warned of many challenges ahead as the pace of recovery in oil demand remained uncertain.
- U.S. equity futures extended gains and European stocks pared their declines as some of the biggest drug companies reported results and Advanced Micro Devices Inc. announced a $35 billion takeover. The dollar slipped. Chipmaker Xilinx Inc. jumped in pre-market trading after AMD’s offer. Merck & Co. climbed after the drugmaker boosted its guidance. The move up in S&P 500 futures comes after the index suffered its biggest daily loss in a month on Monday.
- Chinese stocks could be headed for more declines after the benchmark CSI 300 Index closed below its 50-day moving average on Monday. The gauge has been confined to a narrow trading band since it reached a five-year high in July and could now revert to the lower end of the range, as an intraday rebound failed to boost the index back above the 50-day support. Still, China remains as one of the best performing equity markets in the world this year, with the CSI 300 measure up more than 14%.
- Oil clawed back some losses in New York as Tropical Storm Zeta shut in production in the Gulf of Mexico. Futures rose 1.1% after tumbling below $39 a barrel on Monday. A slightly weaker dollar boosted the appeal of commodities priced in the currency. At the same time Zeta became the latest storm to threaten U.S. Gulf output. Prices fell sharply at the start of the week as Libya moved closer to boosting output back to 1 million barrels a day. There’s also a lack of agreement on stimulus in the U.S., clouding the broader market outlook.
- Gold steadied to trade near $1,900 an ounce as investors weighed fading prospects for fiscal aid before next week’s U.S. presidential election and losses in equities. Bullion held in a narrow range even as the dollar rose on Monday after House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin again failed to close major differences on a fresh package for a U.S. economy facing a renewed surge in Covid-19 cases. The lack of a deal and concern over rising infections saw the S&P 500 Index log its biggest drop in a month.
- Germany is looking at closing restaurants and prohibiting large events as infections continue to surge across Europe. Italy, the continent’s original epicenter of the pandemic, is coming up with more aid for businesses hardest hit by restrictions as cases rise at a record pace. U.K. Prime Minister Boris Johnson faces growing discontentment within his party over lockdown measures imposed on the country’s northern regions. Hong Kong will ease some social distancing rules and announced plans for mandatory testing of specific groups. India’s daily infections fell below 40,000 for the first time in more than three months.
- President Donald Trump’s push for a second poll-defying victory is relying on a hallmark of his first — raucous campaign rallies that Trump sees as a crucial sign of voter enthusiasm but that pollsters say may only be cementing his defeat. Trump held three rallies Monday, all in Pennsylvania, with three more scheduled Tuesday and as many as five or six a day expected by the weekend. The rallies befit the showman with roots in reality television: blaring music, slick production, video montages, warm-up speeches, Air Force One as a backdrop and the president himself as the headline attraction. Attendees erupt in screams and cheers at his arrival, and local Republicans say it’s unlike any political event they’ve seen. Trump has held five rallies each in Florida and Pennsylvania since his recovery from the coronavirus, more than any other states, along with repeat stops in North Carolina, Wisconsin and Arizona. Democrat Joe Biden has kept a limited travel schedule, holding two events since last Thursday’s debate. And when he does, they are sparsely attended by design, often staged as drive-in rallies, to prevent the spread of coronavirus.
- Advanced Micro Devices Inc. agreed to buy Xilinx Inc. for $35 billion in stock, taking the chipmaker into more diverse and profitable markets and adding to its data center offerings. Xilinx investors will get 1.7234 AMD shares for each Xilinx stock they own. That values Xilinx at about $143 a share, 25% more than the closing price on Monday and 35% above the price before news of a possible deal was reported earlier in October. The deal is a coup for AMD Chief Executive Officer Lisa Su, creating a company with a larger research-and-development budget and a broader array of products to take on Intel Corp.
- The Cboe Volatility Index climbed to its highest since early September on Monday, but traders continued to pile into bets on its eventual demise. A sell-off in U.S. stocks amid the stimulus stalemate and resurgent coronavirus helped push the VIX up almost 5 points to 32.5 — a level not seen since Sept. 8. But the 10-day moving average of total put volume relative to total call volume for the gauge — a measure of demand for short volatility bets — extended its recent rise to the highest in 14 years, according to data compiled by Bloomberg. Investors are choosing to buy puts instead of sell calls likely due to the asymmetric risk of the election result, wrote Susquehanna derivatives strategist Chris Murphy in a note Monday. For a trader betting on a decline in volatility, selling a call would leave them exposed to a greater-than-expected spike in the VIX, he said.
- Rolls-Royce Holdings Plc shareholders backed a 2 billion-pound ($2.6 billion) equity raise, a key step toward shoring up its finances as the British engine maker struggles through the Covid-19 pandemic. Investors voted to approve the rights issue ahead of a meeting on Tuesday, heeding the company’s call for help, Chairman Ian Davies said. The support of shareholders means Rolls-Royce can access a further 3 billion pounds of funds, through a bond offer and a 1 billion-pound term loan, both of which were conditional on the rights issue passing. Rolls-Royce’s engine business has been dealt a heavy blow by the coronavirus, with both unit sales and maintenance revenue hurt by a mass grounding of widebody planes. The company announced a 5 billion-pound refinancing plan at the start of this month, funded through a combination of debt issuance, a rights offer and loans.
- The U.S. strategy to rely on vaccines and treatments, rather than emphasizing social distancing, masks and testing nationwide, threatens to delay the return to normal life for Americans. While the U.S. has committed more than $10 billion to develop new shots to fight Covid-19, about half of Americans say they are wary of taking them, according to a Gallup poll reported this month. Meanwhile, any shortfalls in the vaccine program could mean the country will struggle with the virus well into 2023, according to the London-based firm Airfinity Ltd. Other parts of the world are also in trouble. Some European countries are seeing more new infections each day than in the dismal spring outbreak. But those regions are considering re-instituting containment measures that have become anathema in the U.S. Parts of Asia, meanwhile, seem poised to recover faster.
- Ford Motor Co. is enjoying a run-up in its long-lagging stock as Wall Street sees stronger-than-expected third-quarter earnings leading to better times ahead under a new management team. Since Chief Executive Officer Jim Farley took the wheel from retiring Jim Hackett Oct. 1, the automaker’s shares have soared 21%, signaling improved sentiment after a six-year rout. Analysts are increasing estimates, price targets and, in one case, upgrading the stock to a buy. That’s a reprieve for shares out of favor since superstar CEO Alan Mulally retired in 2014. When Ford reports third-quarter results after the market close Oct. 28, it’s forecast to post adjusted earnings per share of 19 cents and earnings before interest and taxes of $1.34 billion, according to analysts’ estimates compiled by Bloomberg. That’s down substantially from 34 cents and $1.8 billion a year ago. But thanks to a resurgent auto market following a pandemic-induced drop in the spring, it’s better than initially expected when the company predicted its first annual loss in more than a decade.
- Sheldon Adelson’s Las Vegas Sands Corp. is exploring the sale of its casinos in Las Vegas, according to people with knowledge of the matter, a move that would leave the mogul focused on Asia and mark his exit, for now, from the U.S. gambling industry. The world’s largest casino company, Sands is working with an adviser to solicit interest for the Venetian Resort Las Vegas, the Palazzo and the Sands Expo Convention Center, which together may fetch $6 billion or more, said the people, who asked to not be identified because the talks are private. The properties are all connected along the city’s famous strip.
- The drastic step that no European politician wanted to take again is back on the agenda: lockdown. French President Emmanuel Macron — whose government carefully avoided publicly discussing a national shutdown through a recent surge in coronavirus cases — relented on Friday, acknowledging that the country could be heading back toward broader restrictions on movement. Like other leaders in the region, Macron is running out of options. As officials from Dublin to Prague grapple with the resurgent pandemic, their efforts to limit the virus’s spread with softer measures — from mandatory mask-wearing to partial curfews — aren’t working.
- China’s currency weakened after Reuters reported the country’s central bank has asked lenders to suspend a key factor used to calculate the yuan’s daily reference rate. The People’s Bank of China has “neutralized” the use of the so-called counter-cyclical factor by asking some of the 14 banks that help set the fixing to adjust their models, Reuters said, citing people familiar with the matter. The offshore yuan fell as much as 0.3% to 6.7234 per dollar after the report. Such a change would in effect allow Beijing to give up some influence over the exchange rate. Under the reported tweak, lenders would have more room to submit quotes for a weaker fixing and guide the currency lower in the spot market.
- U.S. Secretary of State Michael Pompeo and Defense Secretary Mark Esper pushed for closer ties with India at a high-level ministerial meeting with their Indian counterparts, at a time when New Delhi is facing a prolonged border conflict with China. “The United States will stand with the people of India as they confront threats to their sovereignty and to their liberty,” Pompeo said after the U.S. officials met with foreign minister Subrahmanyam Jaishankar and defense minister Rajnath Singh at the 2+2 meeting in New Delhi Tuesday. The two sides discussed cooperation on pandemic response and challenges in the Indo-Pacific region. They signed a number of agreements including one that will give New Delhi access to U.S. geo-spatial intelligence to help improve the accuracy of automated hardware systems, missiles and drones, according to an Indian defense ministry statement.
- Newly confirmed U.S. Supreme Court Justice Amy Coney Barrettwill immediately be embroiled in some of the nation’s biggest legal battles, including cases that could determine whether the president who nominated her gets four more years in the White House. The 48-year-old Barrett, who will take her seat just a week before Election Day, joins a court already deliberating pending voting disputes from North Carolina and Pennsylvania. She could play a pivotal role in any post-election legal fights, and will take part when the court hears a challenge to the Affordable Care Act a week after the election. The Republican-controlled Senate confirmed Barrett on an almost party-line 52-48 vote Monday night. Barely an hour later, she appeared alongside a beaming President Donald Trump at the White House, where arch-conservative Justice Clarence Thomas administered one of the two required oaths of office.
- HSBC Holdings Plc has given the clearest sign yet that it will aim to pay a full-year dividend, as losses stemming from the pandemic ebbed and helped Europe’s biggest bank beat third-quarter earnings estimates. HSBC said it would pay a “conservative dividend” if allowed, the latest lender to push for an end to the British authorities’ ban on shareholder handouts introduced in March to ensure U.K. banks could weather the crisis. Chief Financial Officer Ewen Stevenson said it would not be a “token” amount when asked about the likely size of any payout. The lender said adjusted pretax profit dropped 21% to $4.3 billion in the period, beating the $2.8 billion estimate. The bank also pared back its expected loans losses to the lower end of a previously announced range of $8 billion to $13 billion, while signaling that it would step up its cost-cutting plans with more aggressive measures. HSBC unveiled a sweeping restructuring earlier this year, announcing jobs cuts of about 35,000 over the next three years as the lender navigates rising geopolitical tensions in China and Hong Kong, one of the key drivers of its profits. The bank said it would announce a further revision to its overhaul when it reports its full-year figures next year, with fresh details of the company’s plans on capital deployment and costs.
- Caterpillar Inc. said it sees “positive signs in certain industries and geographies” while failing to give reassurance that the worst of the hit from the coronavirus pandemic is behind the heavy-equipment maker. Adjusted profit for the three months through September was $1.34 a share, down from $2.66 in the same period a year earlier, the company said Tuesday in a statement. Analysts expected the company to report $1.13, based on the average of analysts’ estimates compiled by Bloomberg. The company said it will discuss the outlook on its earnings call Tuesday. Caterpillar, which has been cutting costs to blunt the impact of still-sluggish orders in energy and mining, said machine sales fell 20% in September on a rolling three-month basis. The report comes as a resurgent virus hampers efforts to reopen economies, renewing concerns over the global demand outlook. Caterpillar was among the best-performing stocks the past few months on bets that the worst of the pandemic hit was behind the industrial bellwether.
- DTE Energy, a power company operating in the Midwestern U.S., plans to spin off its pipeline and storage business and become a pure natural gas and eclectric utility. DTE is the latest power supplier to retreat from energy pipelines after growing aggressively in the sector. Investor and political pushback against fossil fuels is making it difficult to build new pipelines for expansion. Dominion Energy Inc. agreed to sell almost all of its gas pipeline and storage assets in July to Berkshire Hathaway Inc. DTE investors will get shares of the new Midstream company in a deal that’s expected to be tax-free to them and to DTE for U.S. federal income tax purposes, the Detroit-based company said Tuesday in a statement.
- Harley-Davidson Inc. shares jumped as much as 12% early Tuesday on better-than-expected profit as Chief Executive Officer Jochen Zeitz’s moves to cut costs and boost margins on a smaller revenue base paid off in the third quarter. The Milwaukee, Wisconsin-based manufacturer reported $964 million in motorcycle and related-products revenue, beating analysts’ consensus for $843.7 million. Zeitz’s strategy has been to shrink supply and shore up pricing. Zeitz, the former CEO of sneaker company Puma SE, has narrowed the motorcycle maker’s focus to core markets and model segments and scaled back ambitions for expansion overseas. Motorcycle sales in the U.S., Harley’s biggest market, logged a 15th consecutive quarterly decline — falling 10%. But that was better than the 27% drop in the previous quarter.
- Samsung Electronics Co.’s North American headquarters building was sold to a South Korean real estate investment trust for its pre-pandemic asking price, according to the seller, a sign of the persistent interest in office properties with long-term leases even during the Covid-19 era. Office values have been under question since the pandemic started, with transactions scarce and companies in big U.S. cities allowing employees to continue working from home. An index of U.S. office prices dropped 1.5% from a year earlier in the quarter ended Sept. 30, while the value of transactions fell 60% to $13.6 billion, according to Real Capital Analytics Inc.
- Energy Transfer LP unexpectedly slashed partnership distributions in half just weeks after billionaire founder Kelcy Warren stepped down as chief executive officer. In the first payout cut in at least 14 years, the pipeline operator announced it will distribute 15.25 cents per common unit on Nov. 19, according to a statement on Monday. Energy Transfer had been expected to maintain the payout at 30.5 cents, according to Bloomberg Dividend Forecasts. The company is curbing outlays as the pandemic-driven drag on energy demand ripples through every corner of the industry, from fracking crews to refiners to drill-ship operators. The move will enable Energy Transfer to retain more than $1.6 billion in cash annually, according to Fitch Ratings Inc.
- Exact Sciences Corp. said it will acquire Thrive Earlier Detection Corp. to gain technology for cancer screening in a deal worth as much as $2.15 billion. The cash and stock agreement will bring closely held Thrive’s CancerSeek technology to Exact Sciences, helping establish the Madison, Wisconsin-based company as a competitor in blood-based, multi-cancer screening, according to a statement. Testing companies are increasingly developing liquid biopsies that sift through patients’ blood for early signs of tumors hoped to help doctors begin treatment before the disease gets out of control. CancerSeek looks for gene mutations and other markers that can potentially help spot several forms of cancer.
*All sources from Bloomberg unless otherwise specified