October 28th, 2020
Daily Market Commentary
- The Bank of Canada has made a long-term commitment to keep interest rates at historic lows, and will use its policy decision Wednesday to reinforce that guidance. That means holding its overnight interest rate at 0.25%, reiterating it will likely keep it there for years and pledging to continue buying government bonds. The bank releases its rate setting and Monetary Policy Report at 10 a.m. in Ottawa. Governor Tiff Macklem will give a press conference at 11 a.m. The central bank’s extraordinary measures have helped Canada emerge more quickly than expected from the worst of the economic crisis. It’s unlikely Macklem will choose to make any significant changes to the playbook now, with risks rising as the country enters a second wave of Covid-19.
- European stocks dropped to a five-month low and U.S. equity futures slumped as rising coronavirus infections and tougher lockdowns added to worries about the economic hit from pandemic. The Stoxx Europe 600 Index sank more than 2% after German Chancellor Angela Merkel proposed closing bars and restaurants for a month to curb the spread of the virus. The selloff across Europe was broad, with auto and construction shares seeing the steepest declines.
- Haven assets, such as Treasuries and the yen, rose. S&P 500 futures sank 1.5% and the VIX Index, a measure of U.S. equity volatility, climbed to the highest level since June. Markets in the U.S. and Europe have slumped this week as virus cases surge and American lawmakers fail to agree on an economic aid package before the election next week. Analysts are also warning about increased volatility in markets ahead of the vote, with some saying that a contested election is still a possibility.
- In Asia, stocks fared better. The MSCI Asia Pacific Index was almost flat on Wednesday, and markets in South Korea and Shanghai posted modest gains. In China, indicators tracked by Bloomberg showed the recovery continued to display mixed signals while remaining broadly steady in October.
- Oil fell sharply with broader markets as renewed restrictions on movement in Europe clouded the outlook for consumption once again. Crude futures in New York fell 4.6%, while those in London retreated below $40 a barrel, the lowest since Oct. 5. Germany is proposing widespread curbs for a month, while France is preparing tougher restrictions that may include a lockdown in the latest round of measures to limit the spread of Covid-19. That weighed on European and U.S. equity markets, while the dollar was stronger, souring oil market sentiment. Adding to the gloom, the American Petroleum Institute reported crude inventories expanded by 4.58 million barrels last week, while gasoline stockpiles rose for a second straight week, according to people familiar with the data. Official government figures are due later on Wednesday.
- Gold edged down as the dollar ticked higher, with risk sentiment and equities hit by stronger virus restrictions in Europe. German Chancellor Angela Merkel has proposed closing bars and restaurants for a month as part of tougher restrictions across the continent, which is grappling with a resurgent coronavirus outbreak. The Czech Republic, until recently one of the best performing countries at controlling the virus, reported a record number of cases. President Donald Trump and aides on Tuesday appeared resigned to waiting until after the election to get a stimulus package, blaming House Speaker Nancy Pelosi for the delay. The departure of senators from the Capitol on Monday makes passing a bill by Nov. 3 almost impossible.
- EQT Corp. agreed to buy Chevron Corp.’s Appalachian shale assets for $735 million as the biggest producer of U.S. natural gas takes advantage of an industry slump to expand. The transaction is expected to close by the end of the year, EQT said in a statement on Tuesday. Chevron has been trying to unload its Appalachian gas holdings since late 2019, when it recorded an $11 billion writedown for that asset and others amid a swelling domestic gas glut and cratering prices for the furnace and power-plant fuel. The acquisition is the latest in a string of recent deals where shale drillers are seeking to add scale to cope with a plunge in commodity prices that has left much of the industry unprofitable.
- Europe’s hospitals filled up, with admission rates reaching records in countries including Belgium as the pandemic continued its swift comeback across the region. German Chancellor Angela Merkel proposed closing bars and restaurants and French President Emmanuel Macron prepared to announce tougher restrictions that may include a lockdown. In a rare admission, U.S. President Donald Trump acknowledged that coronavirus cases are rising in “certain areas” of the Midwest. Covid-19 hospitalizations have risen at least 10% in the past week in 32 states and the nation’s capital. South Africa’s president is in self-quarantine.
- The U.S. is about to report the fastest quarterly growth on record after businesses reopened following pandemic shutdowns and consumers proved resilient. But the headline number, like the record contraction preceding it, obscures key parts of the story. Data due Thursday are forecast to show U.S. gross domestic product surged an annualized 32% in the third quarter, almost double the previous high. That figure will reflect activity switching back on across the country after Covid-19 fears and government stay-at-home orders ground the economy to a halt in April.
- LVMH’s planned takeover of jeweler Tiffany & Co. is seen as a near certainty, according to analysts and investors surveyed by Bloomberg, while the two luxury companies are said to discuss a price cut for the contested $16 billion deal. Odds of the transaction going ahead are at 90% on average, according to the 13 poll respondents, up from the 65% chance cited in a previous survey in September. The companies are said to be in talks to slash the original offer price of $135 per Tiffany share to somewhere within the $130 to $135 range. “The impasse between LVMH and Tiffany seems to be broken,” Bernstein analyst Luca Solca wrote by email in response to a Bloomberg query. “The parties are finally talking about a discount versus the previously agreed $135 share price. It seems more probable at this point, that they may be reaching a common ground.”
- Record-setting levels of U.S. coronavirus cases are coming at the worst possible time politically for Donald Trump. The president, who has spent months attacking mail-in voting, needs a dramatic turnout on Election Day to have any hope of overcoming his sagging poll numbers and the advantage Democrats have with mail-in voting. But the spiking cases numbers and rising hospitalizations in key battleground states could deter some Republicans from voting, even though the party insists that Trump’s supporters remain fiercely motivated to show up. The surge in cases also puts Trump on the defensive and keeps the focus at the end of the race on his handling of the pandemic, which Democrat Joe Biden has made a central part of his campaign, with the president spending the past eight months downplaying the virus and insisting it would go away.
- Bed Bath & Beyond Inc. is laying out its next round of plans to overhaul the business, from store updates and technology improvements to a new share repurchase program. The strategic goals are accompanied by financial projections that stretch through the company’s fiscal 2023. The forecasts show Bed Bath & Beyond expects to sustain its comparable-store sales at the 2020 level — bolstered by quarantined consumers — next year, and then grow again in 2023. It also sees free cash flow of up to $1 billion over the three-year period. In a bid to entice investors, the company will also buy back $225 million of stock through Feb. 27, part of a plan to repurchase $675 million from investors over the next three years. The company will speak to investors about its plans in a webcast today.
- As countries across the globe grapple with the prospect of renewed lockdowns, the Australian city of Melbourne offers a stark lesson on the costs of bringing the coronavirus under control. The city of 5 million people on Wednesday emerged from one of the world’s strictest and longest lockdowns that shuttered businesses and confined residents to their homes for more than three months. While infections have dropped from a daily peak of about 700 in early August to just two new cases on Wednesday, the economic and social impact of Melbourne’s second lockdown since the crisis began has been enormous. Australia’s government estimates 1,200 jobs have been lost on average a day across Victoria state, while demand for mental health services has surged by more than 30%.
- Volkswagen AG and Toyota Motor Corp.’s truck subsidiaries are joining forces on battery-electric and fuel-cell vehicles, enabling the companies to split the costs of developing technology needed to comply with stricter emission rules. The new initiative between VW’s Traton and Toyota’s Hino expands a purchasing collaboration forged two years ago and will include components, electric-vehicle underpinnings and software, the companies said Wednesday in a joint statement. The deeper tie-up between Traton and Hino echoes an agreement between global truck leaders Daimler AG and Volvo AB earlier this year to work together on fuel-cell technology. The trend toward closer cooperation between industrial giants raises the stakes for newcomers such as Nikola Corp., which is in talksto partner with General Motors Co. and plans to build a truck with CNH Industrial NV in Germany.
- General Electric Co. surged after the company reported a surprise profit and predicted gains in free cash flow late this year and in 2021. Adjusted earnings of 6 cents a share in the third quarter bucked Wall Street’s expectations for a 4 cent loss, and sales of $19.4 billion also exceeded analyst estimates. Industrial free cash flow, a key gauge of earnings power, will be at least $2.5 billion in the fourth quarter and positive next year, GE said in a statement Wednesday as it reported quarterly results. The financial improvement buoys Chief Executive Officer Larry Culp’s efforts to get his turnaround back on track after the coronavirus pandemic upended GE’s jet-engine division and slammed its other businesses. While orders still sank in the third quarter in GE’s aviation, power equipment and health-care units, the upbeat outlook underscores the company’s progress in stabilizing its operations amid the crisis.
- Blackstone Group Inc. is raking in money that the firm can hold for a longer period than traditional funds. The world’s largest alternative asset manager’s “perpetual capital” jumped 19% from a year earlier to $115.2 billion as of Sept. 30, according to an earnings statement released Wednesday. The growth was partly driven by clients who would rather leave their money in longer-term funds even if it could mean lower returns. For asset managers like Blackstone, the coveted vehicles mean stable fees and less-frequent fundraising.
- Deutsche Bank AG is planning bonus increases for top-performing investment bankers after posting a 47% rise in debt trading revenue and boosting its full-year forecast for the securities unit. “A company like ours needs to be able to pay for competitive performance,” Chief Financial Officer James Von Moltke said in a Bloomberg Television interview on Wednesday. “It is sensible to be able to protect the franchise by being able to compensate our employees in line with our performance.” Deutsche Bank and rivals are seeking to navigate a particularly difficult course through end-of-year pay discussions. The lender needs to ensure top staff remain motivated almost half way through a historic restructuring and during a trading boom, while avoiding the ire of regulators over bonuses after a year in which lenders benefited from unprecedented regulatory breaks.
- The U.S. government agreed to pay Eli Lilly & Co. $375 million for 300,000 vials of its experimental Covid-19 antibody, as it undergoes regulatory review for emergency authorization use. The funding from Operation Warp Speed, the White House-led effort to quickly secure supply of Covid-19 vaccines and therapeutics, will only be put into effect if Lilly’s antibody therapy receives a green light from the U.S. Food and Drug Administration. The initial agreement is for delivery over the first two months following an emergency authorization. Lilly is developing the Covid-19 neutralizing antibody with its Canadian partner AbCellera Biologics Inc. The two kicked off work in late February and formally launched a partnership in March. Lilly approached U.S. regulators for an emergency use authorization in early October after promising data showed that the therapy helped reduce hospitalizations.
- Bitcoin advocates say this time will be different as the virtual coin surges back to price levels last seen in the wake of the cryptocurrency market collapse almost three years ago. The largest digital coin has jumped more than 25% this month and grazed $13,858 on Wednesday, the highest since January 2018. It’s been quite a ride since the bubble burst: From an all-time high in December 2017 of nearly $20,000, Bitcoin tumbled to as low as $3,136 within a year. Proponents of digital assets say the recent rally isn’t another speculative frenzy among individual investors. They point to rising institutional interest, PayPal Holding Inc.’s decision to allow customers access to cryptocurrencies and the use of JPMorgan Chase & Co.’s JPM Coin to make a payment for the first time.
- Advanced Micro Devices Inc.’s $35 billion purchase of semiconductor maker Xilinx Inc. pushes 2020 toward a record year for chip deals, as large tech companies rush to consolidate the increasingly competitive industry. There have now been $110 billion of deals announced in the semiconductor industry this year, led by Nvidia Corp.’s $40 billion bid for Cambridge, England-based chip designer Arm, according to data compiled by Bloomberg. The Xilinx deal makes 2020 the biggest year at this point on record for pending and completed deals involving semiconductors, the data show.
- Whoop, the maker of a wearable device that tracks sleep among other health metrics, is valued at $1.2 billion after raising $100 million from investors including venture capital firm IVP, SoftBank Vision Fund and athletes including Eli Manning, Larry Fitzgerald and Patrick Mahomes. “Consumer demand is growing as people become more interested in taking health into their own hands,” Whoop founder and Chief Executive Officer Will Ahmed said in an interview. The Boston-based company will spend the newly raised capital on developing technology and accelerating growth by bolstering marketing in countries to which it already ships such as Australia, France, Germany and Spain, he said. Funds will also be used to bolster a recruiting effort that has already seen the company add more than 200 new staff this year, taking its headcount to over 325.
- Zeta is forecast to strengthen to a Category 2 hurricane before making landfall in southeastern Louisiana on Wednesday, possibly racking up $1 billion in damage. The storm’s maximum sustained winds are likely to increase to 100 miles (161 kilometers) per hour, the U.S. National Hurricane Center said in its latest advisory, making it a Category 2 hurricane on the Saffir-Simpson scale. Wind speed rose to 85 miles an hour as of 5 a.m. New York time. The hurricane is expected to “bring a life-threatening storm surge and strong winds, starting in southeastern Louisiana by midday Wednesday,” said Dan Brown and Andy Latto, meteorologists at the NHC. “Along the northern Gulf Coast, the combination of a dangerous storm surge and the tide will cause normally dry areas near the coast to be flooded by rising waters moving inland from the shoreline.”
*All sources from Bloomberg unless otherwise specified