October 5th, 2020
Daily Market Commentary
- TC Energy Corp. offered to buy all the outstanding units of affiliate TC PipeLines LP it doesn’t already own, the latest move to streamline a pipeline company’s corporate structure. TC PipeLines unitholders would receive 0.65 common shares of TC Energy for each outstanding publicly held common unit of the pipeline company, representing an implied value of $27.31 per common unit based on Friday’s closing price, TC PipeLines said Monday in a statement. That represents a 7.5% premium to the exchange ratio implied by the 20-day volume weighed average prices of TC PipeLines’ common units and TC Energy’s common shares as of Friday. TC Energy is the company behind the controversial Keystone XL pipeline. Pipeline structures known as master-limited partnerships have dwindled since the crude-market crash of 2014-2016 and a change to U.S. tax policy that pummeled companies’ unit prices. Last October, Hess Midstream Partners LP said it would ditch its master limited partnership structure and special payouts to its general partner in a $6.2 billion deal. DCP Midstream LP eliminated special payouts in November.
- European stocks rose Monday amid optimism over the health of U.S. president Donald Trump and a flurry of merger and acquisition news in this region. The Stoxx 600 index gained 0.7% at 8:18 a.m. in London, led by energy and autos, while technology and miners underperformed. The gains came after the president made a surprise outing from hospital to wave at supporters on Sunday, and a member of his medical team said he could be released as soon as today. Monday’s gain followed the Stoxx 600’s biggest weekly rise since early August, despite the uncertainty spurred by Trump announcing his diagnosis. Investors are waiting for good news on U.S. virus relief, with House Speaker Nancy Pelosi optimistic on Friday, and Trump tweeting from hospital at the weekend that a deal needs to get done.
- U.S. futures climbed with global stocks on optimism over economic stimulus and that President Donald Trump may soon leave the hospital. In U.S. premarket trading, Regeneron Pharmaceuticals Inc. rallied after Trump was given an experimental antibody treatment made by the drugmaker. Apple Inc., Tesla Inc. and Microsoft Corp. also rose. Traders also pointed to polls suggesting a stronger lead for Democrat Joe Biden and the possibility that a clear winner will emerge from the Nov. 3 election. U.S. markets have been nervous in recent weeks about a close election and the risk of a long and messy legal battle.
- Japanese stocks surged as investor sentiment was lifted by the prospects for a U.S. virus relief bill and word that President Donald Trump may be able to leave the hospital soon. All but one industry group advanced as the Topix index gained by the most since August 11. U.S. stock futures advanced and the yen weakened against the dollar. Trump made a surprise outing from the hospital to wave to supporters from his motorcade, and doctors said the president could be discharged as soon as Monday. Meanwhile, House Speaker Nancy Pelosi showed optimism about talks with White House negotiators on a new virus stimulus.
- Oil rose from a three-week low after a member of Donald Trump’s medical team said the U.S. president could leave hospital as soon as Monday, despite contradictory accounts about his health. Futures advanced as much as 3.7% in New York, mirroring a broader relief rally in stock markets, after the biggest weekly drop since June. Trump’s condition remained clouded by confusion, with the president making a surprise outing from the medical center in a show of strength. Meanwhile, a strike in Norway has cut about 330,000 barrels a day of production, though the country’s largest field is continuing to pump. Eqiunor ASA is shutting down four North Sea fields after employers and employees failed to find common ground on a wage deal.
- Gold steadied as investors weighed President Donald Trump’s health and the prospects for a fresh round of U.S. stimulus. The president’s doctors said he could be discharged as soon as Monday, buoying U.S. equity futures and European stocks. While Trump unexpectedly left hospital to greet supporters, before returning to the Walter Reed National Military Medical Center, his condition remains clouded by confusion over his treatment for Covid-19. European Commission President Ursula von der Leyen went into self-isolation after coming into contact with someone who tested positive.
- President Donald Trump resumed tweeting after going mostly silent since his coronavirus diagnosis. Last Tuesday’s debate between Trump and Democrat Joe Biden may be the first event to lead to a change in presidential polls. And Arizona and Florida are among the states with voter registration deadlines Monday. There are 29 days until the election and 70 days until the Electoral College meets.
- Global infections surpassed 35 million as the focus remained on the health of Donald Trump and potentially tighter curbs in parts of Europe. U.K. Prime Minister Boris Johnson warned of a “very tough” winter as Europe faces rising infections. France plans to shut down bars in the Paris region, according to a report, while Ireland is debating a return to full lockdown. In Germany, Berliners flouting rules on masks are helping fuel the pandemic, Germany’s health minister said. Iran recorded its worst day yet, with cases surging.
- Exxon Mobil Corp. has been planning to increase annual carbon-dioxide emissions by as much as the output of the entire nation of Greece, an analysis of internal documents reviewed by Bloomberg shows, setting one of the largest corporate emitters against international efforts to slow the pace of warming. The drive to expand both fossil-fuel production and planet-warming pollution comes at a time when some of Exxon’s rivals, such as BP Plc and Royal Dutch Shell Plc, are moving to curb oil and zero-out emissions. Exxon’s own assessment of its $210 billion investment strategy shows yearly emissions rising 17% by 2025, according to the internal documents. The largest U.S. oil producer has never made a commitment to lower oil and gas output or set a date by which it will become carbon neutral, and its near-term plans have been disrupted by fallout from the Covid-19 pandemic. Exxon has also never publicly disclosed its forecasts for its own emissions.
- Investors added money to exchange-traded funds that buy emerging market stocks and bonds last week. Inflows to U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $187.8 million in the week ended Oct. 2, compared with losses of $634.1 million in the previous week, according to data compiled by Bloomberg. So far this year, outflows have totaled $15.6 billion.
- Cineworld Group Plc said it will temporarily suspend operations at all its American and British movie theaters now that crucial income from winter blockbusters has been pushed into 2021 by the coronavirus pandemic. The world’s second-biggest cinema chain will on Thursday close its 536 Regal theaters in the U.S. and its 127 British locations, including the Picturehouse brand, affecting about 45,000 employees, the company said in a statement Monday. It is now “almost certain” that Cineworld will have to raise additional funds, Natasha Brilliant, an analyst at Citigroup Inc., wrote in a note to clients Monday. The London-listed chain has already said that all funding options are being considered to weather the pandemic, including obtaining around $200 million to $300 million of new funds.
- Not all of the old fuel-guzzling planes sidelined by commercial airlines end up in a desert boneyard during the pandemic. Many find a second life in the fleets of Amazon and other cargo carriers. Amazon has been among the biggest lessors of converted Boeing 767s in the past five years as online shopping soared — even more so since Covid-19 struck. A limited choice of converted planes and efforts to cap costs have left the virtual retailer with some of the freight industry’s oldest aircraft, many of them pre-dating the company itself. In June, Amazon said it was expanding its 70-strong fleet by leasing 12 converted Boeing 767-300 passenger jets, including a 29-year-old model delivered in May.
- Italy’s Nexi SpA agreed to buy SIA SpA to create one of Europe’s biggest payment providers, adding to the wave of consolidation sweeping the continent’s financial services industry. The all-share deal values closely-held SIA at 4.56 billion euros ($5.3 billion) and gives Nexi a 70% stake in the combination. It catapults the joint company into the nation’s top 10 publicly traded businesses, with annual revenue of about 1.8 billion euros and a market value of more than 15 billion euros. “The combination with SIA should create significant value for shareholders,” analysts at Kepler Cheuvreux wrote in a note to investors on Monday. The deal “looks fairly strategic and the deal should finally bring more synergies than initially expected.”
- Microsoft Corp. has agreed to build a series of new data centers in Greece, in a move the Greek government says will boost entrepreneurship and encourage other major companies to invest in the country. The “ongoing” investment will be the biggest by the U.S. technology giant in its 28 years of operations in Greece, Microsoft President Brad Smith said at a deal presentation in Athens Monday. The decision “shows confidence in the Greek economy, the Greek people and the government,” Smith said. “It’s not something we do in every country.” The new data centers “automatically upgrade the country as an investment destination,” Greek Prime Minister Kyriakos Mitsotakis said at the presentation, calling the move a vote of confidence in the country’s potential. Analysts estimate that over time the investment will have an economic benefit worth around $1 billion, he said.
- Alibaba Group Holding Ltd. agreed to buy as much as a 9.99% stake in Dufry AG, giving the Swiss duty-free giant a lifeline as the pandemic hammers the business. Dufry said Monday it’s proposing a capital increase that will raise up to700 million Swiss francs ($763 million), and Alibaba will participate. Advent International Corp., a private equity company, also plans to invest as much as 455 million francs. Dufry shares surged as much as 16%. The capital increase will bolster the company, whose market value has dropped to 1.6 billion francs as the shares trade near the lowest in a decade. The companies are also forming a joint venture in China that will combine Alibaba’s digital capabilities and network with Dufry’s travel retail business in that market.
- Deutsche Bank AG said its fixed-income traders are on track to match or beat the performance of their Wall Street peers, racking up a fourth straight quarter of revenue gains as a market rally that started late last year continues. Third-quarter trading revenue is “in line with or better” than the guidance for 12% growth that Wall Street peers had given on average, investor relations head James Rivett said on a recent call with analysts, according to a transcript published Monday. That performance excludes the impact from debt valuation adjustments and Tradeweb, which reduced revenue in the third quarter of last year by 99 million euros ($116 million).
- Bristol-Myers Squibb Co. will buy MyoKardia Inc. for $13.1 billion in cash in a deal to expand its offering of heart drugs. Bristol-Myers will pay $225 a share, according to a statement Monday from the companies, a premium of 61% over the stock’s Friday closing price. MyoKardia rose 59% in premarket U.S. trading. With the purchase, Bristol-Myers gets access to MyoKardia’s lead product mavacamten, an experimental drug that treats obstructive hypertrophic cardiomyopathy. Expanding Bristol-Myers’s lineup of heart drugs would help the maker of Opdivo for cancer diversify beyond oncology, an area where much of the industry has focused in recent years.
- It took New York City more than three months to reduce the spread of the novel coronavirus to a rate considered low enough to reopen the largest U.S. public school system. Just days after students returned to class, fear of resurgence is forcing Mayor Bill de Blasio to walk back that effort. After insisting for weeks he would keep all schools open unless the average citywide infection rate exceeded 3% for a week, de Blasio reversed course Sunday. He asked Governor Andrew Cuomo for permission to shut select schools and businesses starting Oct. 7 in nine problem ZIP codes. The areas in south Brooklyn and Queens show infection rates from 3.86% to 8.31%, pushing the citywide seven-day average to 1.72% after months in which it hovered near 1%. “This is out of an abundance of caution,” the mayor said on Sunday to explain his change of policy. “The plan is to rewind in these nine ZIP codes, to go back to address the problem by using the tools that we know work.”
- Almost three-quarters of the pandemic-driven jobs losses in the U.S. petroleum and chemical sectors may not come back before the end of next year, according to Deloitte LLP. The collapse in oil demand and prices spurred the fastest rate of oil- and chemical-industry layoffs in history, with about 107,000 jobs eliminated between March and August, Deloitte said in a study scheduled to be released Monday. The number is probably even higher when furloughs and other headcount measures are taken into account, according to Duane Dickson, vice chairman and U.S. oil, gas and chemicals leader for Deloitte. Oil explorers, gas drillers, frackers, refiners and equipment makers have shrunk their workforces to cope with the plunge in demand for the products they sell. Schlumberger, Halliburton Co. and Marathon Petroleum Corp. — some of the biggest operators in their fields — are among the companies casting thousands of people out of work in response to the crash.
- Once one of Hong Kong’s steadiest stocks, HSBC Holdings Plc is now more than three times as volatile as the city’s benchmark. Investors are betting that will continue. Options traders in Hong Kong are pricing in a volatile October, snapping up both bullish calls and bearish puts on HSBC. The cost of one-month contracts tied to HSBC’s Hong Kong shares has climbed to near the highest since May 2009 relative to those on the city’s Hang Seng Index, according to data compiled by Bloomberg. That indicated high demand to protect against further volatility in the stock.
- K+S AG confirmed it’s close to selling its Morton Salt unit to Kissner Group for $3.2 billion, providing the German potash miner with much-needed funds to pay down debt. Negotiations over its Americas salt division — famous for its “Umbrella Girl” logo — are at a “very advanced” stage, K+S said in a statement, confirming an earlier report by Bloomberg. K+S shares jumped almost 20%. Kissner, a producer and supplier of salt controlled by holding company Stone Canyon Industries Holdings, beat out other suitors including buyout firm Cerberus Capital Management, according to people familiar with the matter, who asked not to be identified because the information is private. Cerberus had no immediate comment to the Bloomberg report.
- San Francisco’s water and power utility will test European appetite for U.S. municipal green bonds with an inaugural listing on the London Stock Exchange. The Public Utilities Commission of the City and County of San Francisco, which provides water, wastewater treatment, hydroelectric power and solar power, is scheduled to sell $665.4 million in taxable bonds on Oct. 7. A $341.9 million slice of that will be designated as green bonds and listed on the London exchange, making the utility the first U.S. municipal issuer to do so. Green bonds are a growing segment of fixed-income markets, with $257.7 billion in debt and loans issued in 2019, up from $170.6 billion the year prior, according to the Climate Bonds Initiative. The growth was led by the broader European market, which accounted for 45% of the total issuance, the CBI said.
- NEC Corp. has agreed to buy Swiss banking software outfit Avaloq Group AG for $2.23 billion, as the Japanese company makes a push into technology for the financial services industry. Avaloq provides cloud-based banking software to private institutions looking to expand their digital and wealth management platforms, with about 150 clients managing roughly $4.9 trillion in assets. Private equity firm Warburg Pincus LLC owns a 45% stake in the company, with the remainder held by Avaloq Chairman Francisco Fernandez and employees. The buyout firm acquired an initial 35% holding in 2017 and has been exploring a potential sale since last year, Bloomberg News reported prior to the announcement Monday. Barclays Plc, and Goldman Sachs Group Inc.are advising on the deal, according to people familiar with the matter who asked not to be identified because the information is private.
- The pandemic turned out to be a short-lived blow to mergers and acquisitions. Dealmaking rebounded sharply in the last three months as companies revived deals that had been on hold. Now, Wall Street is worried about the rest of the year. It’s typically a strong period as companies race to complete mergers before year’s end. But 2020, of course, is far from typical. “The concern is that we’re not going to know who is president on election day, and maybe for a while longer,” said Marc-Anthony Hourihan, co-head of global M&A at UBS Group AG. “Regardless of who wins politically, we don’t want it to be similar to how it was in the early days of the global pandemic where there were days the market was off 1,000 points.”
*All sources from Bloomberg unless otherwise specified