October 6th, 2020

Daily Market Commentary

 

Canadian Headlines

1. Canadian stocks rose Monday for a third-straight session, gaining alongside U.S. shares after President Donald Trump said he planned to leave the hospital Monday evening. The S&P/TSX Composite Index gained 1.3%, the most since Sept. 9. Health care and tech rallies were among leaders as all sectors gained. Meanwhile, oil climbed the most since May in New York, rallying in tandem with equity markets on optimism over the potential for more U.S. fiscal relief. Gold and silver also rose. Cineplex Inc. plunged 29% to a record low on Monday, following the decline of cinema stocks after Metro-Goldwyn-Mayer delayed the release of the James Bond movie ‘No Time to Die’ until April due to the pandemic.
2. Thomson Reuters Corp. is exploring the sale of its 50% stake in Manhattan office tower 3 Times Square, becoming the latest media giant to rethink its property holdings, according to people with knowledge of the matter. The company has tapped an adviser to solicit potential interest in buying Thomson Reuters’ stake in the property, which it co-owns alongside Rudin Management Co., said the people, who asked not to be identified because the matter is private. The 32-story building serves as a hub for the news service. No final decisions have been made and the company could retain the property, which opened in 2001 and includes roughly 885,000 square feet (82,000 square meters) of space — as well as outdoor billboard space for rent. It’s not immediately clear how much the building would fetch in a sale, but at $800 per square foot, it could be valued at roughly $700 million.
3. Toronto’s flourishing housing market is beginning to show signs of strain, particularly in a condo segment suddenly flooded with new listings. September data released by the Toronto Regional Real Estate Board and research firm Urbanation show a surge of units for sale, the beginning of a weakening trend for condos, along with a sharp decline in rents. That’s in spite of a boom in other segments such as single-family homes in Canada’s financial capital. The weakness suggests the rosy picture that emerged over the past few months may be overstated in a city that UBS Group AG said in a report last week is among the world’s most vulnerable to a “sharp correction.”
4. Newcrest Mining Ltd., Australia’s largest gold producer, will be better positioned to push ahead with growth in the Americas after winning approval for a new listing in Toronto, according to its top executive. The producer won conditional clearance to list on the Toronto Stock Exchange from next week, and is returning to the bourse amid renewed investor appetite for gold equities and to reflect the company’s emphasis on growth in the region, Chief Executive Officer Sandeep Biswas said Tuesday in a phone interview. Melbourne-based Newcrest has spent about $1.3 billion since last year to acquire the Red Chris mine in Canada and to increase its exposure to the Lundin Gold Inc.’s Fruta del Norte operation in Ecuador. It’s also focused on exploration in the U.S., Mexico and Chile.

World Headlines

1. 1. European stocks fell, ending three days of gains, as investors focused on U.S. President Donald Trump’s health and awaited progress on an American virus relief package. The Stoxx Europe 600 Index dropped 0.3% as of 9:48 a.m. in London, ending its longest winning streak in more than two weeks. Growth and defensive shares underperformed, with technology shares leading declines amid concern that a U.S. Democratic panel is pushing for a breakup of the country’s tech giants. Gains in travel shares and banks tempered the broader gauge’s losses. European equities are off to a volatile start in October following last month’s biggest drop since March. Trump’s health condition is in focus after he returned from three days of hospital treatment for Covid-19, with weeks to go before the presidential election. Investors are also closely watching U.S. lawmaker negotiations on a pandemic relief package that hasn’t yielded a deal so far.
   2. U.S. equity futures slipped and Treasuries rose before a speech by Federal Reserve Chair Jerome Powell on the outlook for the economy. Futures on the tech-heavy Nasdaq 100 Index dropped 0.4%, while contracts on the S&P 500 slipped 0.2%. After the S&P 500’s biggest advance in almost four weeks yesterday, investors seem to be taking a break to digest new information. Powell and European Central Bank Chief Economist Philip Lane are set to deliver the keynote addresses at a meeting by the National Association for Business Economics on Tuesday.
   3. Japanese stocks rose for a second day as optimism grew over the stability of U.S. leadership and the prospects for more American stimulus. Electronics makers were the biggest boost to the Topix index. President Trump was discharged after receiving treatment for the coronavirus, during which he had tweeted about the necessity of reaching a deal on a recovery package. Data showing that U.S. service industries expanded in September by more than forecast also helped buoy sentiment.
   4. Oil rose further after the biggest gain since May on growing optimism for more U.S. fiscal stimulus and as President Donald Trump left hospital following treatment for Covid-19. Futures added 1.2%, following Monday’s surge above $39 a barrel. House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin will resume talks on Tuesday on another round of pandemic relief funding, but there’s no sign yet they are close to a deal despite Trump’s urging to get it done. The president will recuperate in the White House after his diagnosis last week roiled markets and pushed oil into the biggest weekly loss since June.
   5. Gold was little changed as President Donald Trump returned to the White House following treatment for Covid-19, with his doctor saying that the medical team are cautiously optimistic. Holdings in bullion-backed exchange-traded funds rose to a record. Trump’s departure from hospital comes amid a growing list of infected associates. White House Press Secretary Kayleigh McEnany has tested positive, while First Lady Melania Trump, at least two White House aides and three Republican senators have also contracted the virus. The U.S. 30-year Treasury yield surged to the highest since June on Monday as traders adjusted their election bets. Rates moved as Trump’s diagnosis supported the prospects both for fiscal stimulus and an easier election win by his Democratic opponent.
   6. Germany’s new coronavirus cases jumped the most since mid-April, highlighting Europe’s struggles to keep the pandemic in check. Italy’s government is set to order stricter measures, including a decree that masks be worn outdoors. Europe’s drugs regulator started reviewing data on an experimental Covid-19 vaccine from Pfizer Inc. and BioNTech SE, potentially speeding the shot’s assessment and reducing its time to market. British and Dutch hospitals reportedly face shortages of Gilead Sciences Inc.’s remdesivir, the antiviral drug that President Donald Trump has received as part of his treatment for the disease. The U.K.’s chancellor of the exchequer rejected the idea that his program to subsidize dining to boost the economy increased transmission of Covid-19 over the summer. The virus is spreading again across most of the U.S. while India, the newest epicenter of the pandemic, reported the lowest number of new infections in more than a month.
   7. The European Union has no plans to offer concessions to Boris Johnson before next week’s Brexit deadline, betting that the U.K. prime minister won’t make good on threats to walk away from trade negotiations if he doesn’t get what he wants. The bloc is ready to let U.K. talks drag on into November or December, and even take a chance on Johnson pulling the plug on the deliberations rather than compromise on its red lines, according to a senior EU diplomat. The high-stakes strategy was confirmed by a second EU official. Johnson is already softening his demands somewhat, telling the EU last week that Oct. 15 — the first day of an EU summit — isn’t the final date for concluding a deal but rather for establishing that an agreement is possible. U.K. officials are nonetheless adamant they need to see significant progress.
   8. House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin will resume negotiations Tuesday on another round of pandemic relief for the U.S. economy yet there’s still no clear path to a deal before Election Day. Pelosi and Mnuchin have spoken regularly by phone over the past week after reviving talks with their first in-person meeting since early August on stimulus legislation. While both sides have reported progress, significant gaps remain between the Democrat’s $2.2 trillion proposal and a $1.6 trillion offer backed by the White House. Even with President Donald Trump urging the two parties during his recent hospital stay to “get it done” on a stimulus bill, Congress would have just four weeks to finalize and pass any legislation before the Nov. 3 election. And it’s unclear that an agreement authored by Mnuchin and backed by the White House would have the necessary support in the Republican-led Senate.
   9. Singapore’s sovereign wealth fund GIC Pte plans to invest more than $1 billion in Ant Group’s mega initial public offering as early investors look for a bigger slice of the Chinese payments behemoth, according to people familiar with the matter. GIC and Singaporean state investor Temasek Holdings Pte are considering participating in both the Hong Kong and Shanghai legs of the listing, which could together raise as much as $35 billion, the people said. China’s $318 billion National Council for Social Security Fund plans to purchase shares in the mainland sale, they added, asking not to be named because the matter is private. Jack Ma’s Ant is poised to list as early as this month in Hong Kong and on the tech-focused STAR board in what could be the world’s biggest IPO, topping Saudi Aramco’s record sale. Interest in the Alibaba Group Holding Ltd. affiliate prompted it to increase its IPO target based on a valuation of about $250 billion, up from previous estimates of $225 billion, people familiar have said. At that market capitalization it would be bigger than Bank of America Corp. and twice the size of Citigroup Inc.
   10. President Donald Trump’s return from three days of hospital treatment for Covid-19 left unanswered questions about his condition and doubts about his willingness to abide by constraints needed to keep a virus outbreak at the White House from worsening. Ahead of Trump’s release on Monday evening, his physician, Sean Conley, said that while the president was fit enough to go home, he “may not be entirely out of the woods” and that further care would be provided at the White House over coming days. Within hours of Trump’s arrival at the White House, officials announced measures including restricting access to the president and offering protective gear to those who meet with him. The steps seek to prevent further infections following positive coronavirus tests among several key aides, including Press Secretary Kayleigh McEnany.
   11. Hurricane Delta continued to strengthen as it hurtled toward the Gulf of Mexico, where it’s poised to clip the Yucatan Peninsula before becoming the record 10th storm to hit the U.S. this season. Delta intensified to become a Category 2 hurricane with maximum sustained winds of 100 miles (160 kilometers) per hour and “extremely dangerous conditions” expected for the northeast Yucatan peninsula starting early Wednesday, the U.S. National Hurricane Center said in an update at 4:55 a.m. New York time. The storm became hurricane strength Monday night local time, and it could reach tree-snapping Category 3 power on the five-step Saffir-Simpson scale as it hits Mexico, said Ryan Truchelut, president of Weather Tiger LLC.
   12. Mike Pence and Kamala Harris will take the stage Wednesday night under extraordinary circumstances that will elevate the oft-forgotten vice presidential debate to the highest-stakes running mate matchup in years. With President Donald Trump fresh out of the hospital but still battling the coronavirus, both Pence and Harris will have to reassure voters that they can step into the presidency if either of the septuagenarians who top the tickets become incapacitated.
   13. Boris Johnson will commit to boosting U.K. offshore wind power as part of his delayed plan for a “green industrial revolution” as he seeks to get his stalled domestic agenda back on course. In a speech aimed at regaining a grip over the political agenda after months of negative headlines over his handling of the pandemic, the prime minister will say renewable energy can help drive Britain’s economic regeneration. He will announce 160 million pounds ($208 million) for infrastructure at ports to support companies building turbines off the British coast. “As Saudi Arabia is to oil, the U.K. is to wind — a place of almost limitless resource, but in the case of wind without the carbon emissions and without the damage to the environment,” Johnson will say Tuesday, according to extracts of the speech released by his office. “We believe that in 10 years time offshore wind will be powering every home in the country.”
   14. AirAsia Group Bhd.’s long-haul arm will undergo a sweeping overhaul that includes restructuring its debt and consolidating its shares as it attempts to weather aviation’s worst-ever crisis. AirAsia X Bhd. will seek to restructure about 63.5 billion ($15.3 billion) of debt and reduce 90% of the company’s capital, according to an exchange filing late Tuesday. Fulfilling these proposals will be key to the survival of the company as well as its ability to remain as an ongoing concern, it said. “To avoid a liquidation and to allow the airline to fly again, the only option is for AirAsia X to undertake a group-wide debt and corporate restructuring and update its business model to survive and thrive in the long term,” AirAsia Xsaid. “Based on its current financial position and the industry outlook, the group will not be able to meet its immediate debt and other financial commitments.”
   15. Mercedes-Benz, which has fixated for years on leading the auto industry in luxury-vehicle sales, will rethink its ambitions and restructure operations to be more profitable in the midst of a costly shift to electric cars. Daimler AG’s main division will aim for a return on sales in the mid to high single-digit range by 2025, even if market conditions are unfavorable. Its ambition will be to earn a double-digit profit margin if the environment is strong. Investor confidence in Daimler gradually improved in recent months after the German manufacturer navigated the unprecedented industry slump triggered by Covid-19 better than feared. But electric-car leader Tesla Inc. zoomed past all traditional manufacturers to become the world’s most valuable automaker while Daimler and others wrestle with revamping their legacy operations.
   16. Alphabet Inc.’s Google and Oracle Corp. will face off in the U.S. Supreme Court on Wednesday in a multibillion-dollar copyright dispute with sweeping implications for technology and media companies worldwide. But the finale of the high-stakes litigation, which has been grinding through the federal courts for a decade, may be remembered for another reason: as a case study in the subtle art of influencing Supreme Court justices. The bare-knuckle Google v. Oracle brawl features dozens of outside groups that have written, signed or recruited others to join friend-of-the-court, or amicus curiae, briefs. Many have received funding from one of the companies for reasons unrelated to the case but didn’t disclose it.
   17. U.S. Navy analysts are placing 4-to-1 odds against meeting cost targets of $12.2 billion and $12.9 billion for the last two aircraft carriers in the next-generation Gerald R. Ford class, the latest budgetary warning sign for one of the Pentagon’s costliest weapons program. An internal Defense Department “information paper” prepared by the Navy and obtained by Bloomberg News sees just a 20% chance that the USS Enterprise and USS Doris Miller will meet those goals. Like Las Vegas odds makers, analysts for the three military services regularly rank their “confidence level” on meeting cost targets for major weapons as an internal reality check. “The Navy often prefers to get to a 50% confidence level on its shipbuilding programs,” O’Rourke said.
   18. The Food and Drug Administration said it’s made clear to drug makers the standards for a vaccine to be cleared for emergency use, obviating a more formal FDA guidance document that is still under review by the White House. As final-stage trials of Covid-19 vaccines proceed, the FDA has worked to make clear what standards would have to be met to authorize use of the shots. One such path is an emergency-use authorization, or EUA, a fast-track procedure that relies on less safety and efficacy data than a full approval.
   19. Companies around the world are scrambling to harden their supply chains through the pandemic and beyond. In countries like Italy, the government is even lending a bigger hand. Restrictions on cross-border commerce offer firms an opportunity to strengthen supplier networks, according Mauro Alfonso, CEO of Italy’s Simest, a state-controlled company within the Cassa Depositi e Prestiti Group. The agency has received requests totaling 3 billion euros ($3.5 billion) this year, the highest on record. That compares with 290 million euros worth of projects in 2019. Companies can seek loans of as much as 4 million euros, with a maximum of 800,000 euros for grants, with no required guarantees until the end of this year.
   20. Swedish telecoms giant Telia Company AB has agreed to sell its carrier unit to Polhem Infra in a deal worth more than $1 billion. The Stockholm-based company said the 9.45 billion-krona ($1.06 billion) agreement with Polhem is on a cash and debt free basis, according to a statement on Tuesday. After securing the cash injection, Telia plans to bring back a dividend payment that was shelved as a result of the Covid crisis earlier this year. It cited “improved visibility” and a “strengthened balance sheet” after it sold stakes in Turkcell Holding and Telia Carrier.

*All sources from Bloomberg unless otherwise specified