October 2nd, 2020
Daily Market Commentary
- Canadian equity markets rose for the first time in three sessions Thursday as technology and real-estate stocks outperformed. The S&P/TSX Composite Index climbed 0.4%. Constellation Software led the rally in tech stocks, while Brookfield Property Partners was among the best real estate stocks. The energy sector was the worst performer, led by large to medium-cap companies such as Suncor and Cenovus. Meanwhile, Prime Minister Justin Trudeau mapped out a new plan for Canada’s infrastructure bank as his government looks for ways to spur long-term economic growth after the Covid-19 pandemic. The new strategy commits C$10 billion ($7.5 billion) over three years through the Canada Infrastructure Bank and is expected to create 60,000 jobs across the country, the government said Thursday. Moreover, the number of insolvency filings in Canada plunged to the lowest level since 1997 as massive cash injections from the federal government kept households afloat during the Covid-19 pandemic.
- Canada’s already slowing economic recovery risks losing further momentum, according to a set of high-frequency indicators. Alternative data from credit card transactions, restaurant bookings and job postings show the economy fell into a more uneven pace of growth in September after the initial strong summer rebound. With virus cases rising and provinces tightening restrictions, the path to a full recovery faces major obstacles. Consumer transactions appear to have hit a plateau in August and September after a strong initial rebound starting in May, spending data from Scotiabank through Sept. 25 show. Credit and debit card data from Toronto-Dominion Bank show a similar flat-line trajectory. Spending picked back up in September after an August lull, but the rebound was mainly driven by home-improvement purchases. That reflects the boom in the housing market — one of the few industries to remain resilient in the face of Covid-19.
- European equities retreated after President Donald Trump tested positive for the coronavirus, fueling uncertainty a month before the U.S. election. The Stoxx 600 index was down 0.6% at 10:49 a.m. in London, paring a drop of as much as 1.2%. While retail, oil and travel stocks led the declines, construction and media shares advanced. Still, European losses were muted compared with U.S. futures where S&P 500 e-mini futures tumbled 1.6%.
- U.S. futures fell with European stocks on Friday and the dollar rose after President Donald Trump said he had tested positive for the coronavirus. Trump said both he and First Lady Melania Trump have contracted the virus and will now quarantine themselves, adding to uncertainty in the runup to the U.S. presidential elections next month. S&P 500 futures fell as much as 2%, though they pared some of the drop as traders reassessed both candidates’ chances. The White House already announced that Trump was canceling all public events, including a rally in Florida, on Friday. Normal virus protocols could keep him off the campaign trail at least 10 days and possibly longer at a critical moment when he is trying to gain ground on Joe Biden, who polls show is holding steady with about a 7 percentage-point lead nationally.
- Japanese stocks fell in afternoon trading after U.S. President Donald Trump said that he and his wife Melania tested positive for the coronavirus, capping a tumultuous week that also witnessed the first-ever full-day halt of trading on the Tokyo Stock Exchange. The Topic index closed 1% lower at 1,609.22, with drug and electronics makers the biggest drags. The Nikkei 225 Stock Average fell 0.7%, with a measure of volatility on the blue-chip gauge surging 12% to the highest since Aug. 28.
- Oil and copper dropped while gold edged higher after President Donald Trump said that he tested positive for Covid-19 with just one month left until the U.S. presidential election. Brent crude slipped as much as 4.8%, slumping sharply for a second day. The global crude benchmark helped drag raw materials lower, with copper touching a seven-week low and crop futures falling. A Bloomberg gauge of commodity spot prices had already fallen about 4% from an early September peak amid a pickup in virus cases around the world, and Trump’s positive result fuels more uncertainty over the election.
- Spot gold added 0.3% to $1,910.96 an ounce, rebounding from an earlier loss and heading for a weekly advance, as the dollar came of the day’s high. Silver climbed 0.9%. Bullion has rallied this year as central banks pumped vast amounts of stimulus into economies to curb the damage from the pandemic. While prices have fallen from August’s record high, the precious metal is still being supported by low interest rates, a resurgence in Covid-19 cases in some parts of the world, and the heightened uncertainty heading into the U.S. elections.
- The last U.S. jobs report before November’s presidential election is projected to show a sharp deceleration in labor-market gains, suggesting the winner will inherit an increasingly shaky economic rebound. Employers probably added 859,000 workers in September following 1.37 million in August — a figure that was boosted by temporary Census hires — according to the median projection of analysts ahead of Friday’s Labor Department data. The jobless rate likely fell only slightly, to 8.2%. Such figures would represent the smallest improvement of the nascent recovery. The pace of future gains could slow further or even reverse: New federal stimulus — which kept businesses and jobless Americans afloat in earlier months of the crisis — is in doubt before the election, major corporations announced job cuts in rapid-fire fashion this week and Covid-19 cases picked up in late September.
- U.S. stimulus talks remain on life support after the House passed a Democrat-only $2.2 trillion package that did nothing to bridge the gap with Republicans. The 214-207 vote, which garnered no GOP support, followed the most concerted talks between the top negotiators since early August. House Speaker Nancy Pelosi told reporters Thursday evening that she would review documents that Treasury Secretary Steven Mnuchin had sent her to determine where to go next.
- Paris and London are both facing potential new measures to halt the spread of the virus amid rising concerns about infection rates. Germany reported its largest number of new cases since mid-April, while Ukraine and Hungary posted record numbers. Amazon.com Inc. said close to 20,000 of its employees had Covid-19 over almost a six-month period. A $1 billion funding package to help the U.S. Centers for Disease Control and Prevention fight Covid-19 has remained mostly unspent.
- At 7:04 a.m. on an autumn Thursday in Tokyo, the stewards of the world’s third-largest equity market realized they had a problem. A data device critical to the Tokyo Stock Exchange’s trading system had malfunctioned, and the automatic backup had failed to kick in. It was less than an hour before the system, called Arrowhead, was due to start processing orders in the $6 trillion equity market. Exchange officials could see no solution. The full-day shutdown that ensued was the longest since the exchange switched to a fully electronic trading system in 1999. It drew criticism from market participants and authorities and shone a spotlight on a lesser-discussed vulnerability in the world’s financial plumbing — not software or security risks but the danger when one of hundreds of pieces of hardware that make up a trading system decides to give up the ghost.
- Walmart Inc. agreed to sell a majority stake in Asda to investors including TDR Capital in a deal valuing the U.K. grocer at 6.8 billion pounds ($8.8 billion). TDR’s partners are the Issa brothers, the British entrepreneurs behind gas station owner EG Group, the companies said in a statement Friday. Walmart said it expects a non-cash loss of about $2.5 billion in fiscal 2021 related to the sale. Apollo Global Management Inc., Lone Star Funds and TDR Capital were competing for the business, Bloomberg News previously reported.
- Sasol Ltd., the South African chemicals and fuel manufacturer, agreed to sell a $2 billion stake in its U.S. base-chemicals business to LyondellBasell Industries NV to help pay down debt. The unit will become a joint venture between the Johannesburg-based company and the U.S. chemicals giant, Sasol said in a statement Friday. The deal is subject to a vote by shareholders and is expected to be completed this year. Sasol has been looking to reduce borrowings after a series of cost overruns and delays at its Lake Charles chemicals project in Louisiana were exacerbated by a historic rout in the oil market. The deal will cut debt to about $8 billion from $10 billion, the company said, building on the disposal of other assets such as last month’s sale of an air-separation unit to Air Liquide SA for 8.5 billion rand ($509 million).
- General Motors Co. is considering revisions to its deal with embattled Nikola Corp., according to people familiar with the discussions, and may seek a higher stake in the startup now that its valuation has fallen after allegations of deception. GM tentatively agreed to take an 11% stake in Nikola as part of a cash-free deal made public last month. The Detroit carmaker would supply hydrogen fuel-cell technology to its junior partner and manufacture a new battery-powered pickup for it called the Badger. Talks to finalize the agreement are ongoing ahead of a Dec. 3 deadline. Since the deal was announced on Sept. 8, Nikola stock has fallen by more than half and GM has sought better terms before closing, said the people, who asked not to be identified because the discussions are private. GM could push to raise its equity in Nikola beyond the planned 11% or seek warrants that would guarantee or even increase that level of ownership if the company raises more money.
- Spanish engineering company ACS is holding talks to sell its industrial division to French toll-road operator Vinci SA for about 5.2 billion euros ($6.10 billion). The Madrid-based company, whose full name is Actividades de Construccion y Servicios, received a non-binding offer from Vinci for the unit, including eight concessions and a renewable-energy development platform, ACS said in a filing Friday. Vinci would pay at least 2.8 billion in cash and the rest either in cash or through shares for the unit, ACS Servicios Comunicaciones y Energia SA. Due diligence will be carried out in coming months, when ACS will also carve out assets not to be sold to Vinci including renewable energy unit Zero-E and 15 other concessions.
- Google is expected in the coming days to be hit with the biggest U.S. antitrust lawsuit since the government went to battle with Microsoft Corp. two decades ago. Officially, the company hasn’t laid out its legal arguments yet. But piecing together submissions to other antitrust authorities, executive blog posts, and congressional testimony gives a picture of Google’s strategy. Justice Department investigators have been probing whether the Alphabet Inc.-owned company uses its dominance of online search, web browsers, and advertising technology to unfairly block out rivals, pressure businesses into buying more ads, and benefit the rest of its digital empire, people familiar with the investigation have said.
- Prime Minister Boris Johnson will intervene in the Brexit negotiations for the first time since June when he holds talks on Saturday with European Commission President Ursula von der Leyen in an attempt to unlock a deal. The prime minister and the EU chief will discuss how the two sides can get to an agreement on their future trade and security partnership and what compromises each is willing to make — a move seen by officials close to the negotiations as a positive step forward that could allow for more intensive talks in coming days. While the final scheduled round of negotiations is set to end on Friday after making only limited progress, officials said the antagonism that blighted earlier talks has dissipated in recent weeks and both sides are intent on getting a deal. They have made some headway on long-standing stumbling blocks, and officials believe they are now in a position to enable Johnson and von der Leyen to make a final push.
- Russia is planning to end the year with a record quarter of borrowing, as a steadily rising coronavirus infection rate threatens new lockdown restrictions. The Finance Ministry aims to sell 2 trillion rubles ($26 billion) in local-currency government debt in the final three months of the year, almost double the record it set in the third quarter. The borrowing will help plug Russia’s first budget deficit in three years, forecast at 4.4% of gross domestic product. This year’s borrowing boom is uncharacteristic for Russia, which has one of the lowest levels of outstanding debt in emerging markets. But extra spending to prop up the economy during virus lockdowns in the spring coincided with a slump in demand for oil exports, leaving the government reluctant to run down its $178 billion rainy-day fund.
- The countries that best controlled the coronavirus pandemic haven’t necessarily been rewarded with economic benefits. But one economic giant has, and its success is likely to resonate for years. That’s China. Among members of the Group of 20, the global club of leading economies, only China rebounded from a Covid-19 contraction as early as the second quarter of 2020, and its growth shows no signs of abating. In the U.S. and Europe, by contrast, where the virus arrived later, recoveries were slower and now face stiff headwinds. Since the coronavirus was first reported in Wuhan in December 2019, scientists, economists and many business experts agree that in China, saving lives has correlated with economic performance.
- On March 16, just two months after researchers deciphered the genetic code of the coronavirus that causes Covid-19, Moderna Inc.’s vaccine began human trials. Now, no less than four Covid vaccines are hurtling toward the finish line in the U.S. Moderna and Pfizer Inc., along with its German partner BioNTech SE, are leading the pack with vaccines that require two doses, while a single-shot vaccine from Johnson & Johnson began a late-phase trial last week. “This is beyond unprecedented,” says Otto Yang, a viral immunologist at UCLA. “It is crazy fast.” Safety problems are unlikely, but not unheard of. In 1999 a new vaccine for rotavirus in infants was recalled after it caused cases of bowel obstruction that were missed in trials. And in 1976, after federal officials rushed out a mass vaccination campaign for swine flu, the program was shelved after about 1 in 100,000 people who got the shot developed Guillain-Barré syndrome, a rare neurological disorder.
- A handful of blue-chip U.S. companies are starting to pay back the $350 billion that investment-grade corporations borrowed in total to get through the coronavirus pandemic. Target Corp. and CVS Health Corp. have recently announced that they are buying back investment-grade bonds, using cash plus in the case of CVS, some borrowed money as well. AT&T Inc. said last month it plans to use excess cash to further reduce debt. It’s unclear how many companies are joining in. Investment-grade corporations saw their indebtedness rise to a record high in the second quarter by at least one metric, according to a report from Barclays Plc on Sept. 30: the ratio of total debt to a measure of earnings known as Ebitda climbed to 4 times, compared with figures that since 1990 have ranged between 2 and 3 times.
- After six months virtually cut off from the world, the Caribbean nation of Saint Kitts and Nevis is trying to roll out the red carpet for tourists this month without also welcoming in the pandemic. The islands of 53,000 people have been almost completely unscathed by Covid-19, with no deaths and just 19 infections since it started. They’d like to keep it that way, but with the tourist industry on life support, they and neighboring islands have little choice but to end their isolation. Nations throughout the Caribbean are struggling to balance local health with their dependence on tourist dollars, as the region suffers its deepest slump in more than half a century. Jamaica and the Dominican Republic, among the first Caribbean nations to reopen, have seen increases in their infection rates as visitors began to trickle in. The Bahamas re-closed its borders in July, just three weeks after reopening them, amid a spike in infections.
- JPMorgan Chase tops the table of global underwriters of green bonds, ahead of Credit Agricole and Citigroup, as corporate and government issuance totaled $51 billion in September, more than triple the previous month, according to data compiled by Bloomberg. The influx of new deals pushed sales this year across all green bond types to more than $200 billion, with Germany, Sweden and Electricite de France the largest issuers
- Joe Biden’s campaign and other Democrats in key battleground states say they’re readying their own efforts to monitor balloting as they express concern about President Donald Trump’s call for supporters to show up at the polls to watch for problems with voting. Biden’s campaign has enlisted thousands of volunteers and the Democratic National Committee began building voter-protection teams in some states as early as last year, according to the campaign. Republicans have plans to use about 50,000 volunteers from early voting through Election Day, according to the Republican National Committee, and Trump is actively encouraging supporters to sign up to be a “Trump Election Poll Watcher” as part of the “Army for Trump.”
- Battles unfolding on several continents over who profits from connected cars, smarthomes, and robotic surgery may dwarf the size and scope of the tech industry’s first worldwide patent war — the one over smartphones. Automakers are now in court fighting some of the same companies that phonemakers such as Apple Inc. had to pay billions of dollars for use of their wireless standards technology. Those companies — Qualcomm Inc., Nokia Oyj, and other telecommunications developers — may reap 5G royalties not only from “talking cars” but from products that will communicate wirelessly being planned in agriculture, medicine, appliances and other sectors. “So many different types of companies have to find a way to get these deals done,” said Joe Siino, president of Dolby Laboratories Inc.’s patent licensing arm, which works with audio, wireless, broadcast and automotive industries. “It’s taking the problems we had with smartphones and multiplying it by 10.”
*All sources from Bloomberg unless otherwise specified