October 7th, 2020
Daily Market Commentary
- Canadian equities reversed an earlier gain Tuesday after President Trump ended stimulus talks until after the election. The S&P/TSX Composite Index fell 1.1%, with 10 of 11 sectors falling. Materials led the decline as gold extended its drop after Trump signaled a stop to fiscal stimulus talks. Real estate shares advanced. Ontario raised C$1.5 billion ($1.13 billion) through its largest-ever sale of green bonds in a fresh sign that environmental, social and governance debt is gaining traction in Canada. Minority shareholders at a GMP Capital Inc. meeting voted 95% in favor of the firm acquiring shares it doesn’t already own in Richardson GMP Ltd. wealth manager.
- Prime Minister Justin Trudeau managed to pass an ambitious economic plan to get Canada through a second wave of Covid-19, averting an election at least until a fiscal update scheduled for later this fall. Known as the Throne Speech, his most anticipated economic recovery agenda since taking office in 2015 won a 177-to-152 vote in parliament on Tuesday. It amounts to a vote of confidence in his government, which lacks a majority and needed the backing of at least one of the three opposition parties to have enough seats to maintain power. Trudeau’s plan is to continue spending to support the nation through the second wave of the pandemic and longer-term items such as a national daycare system and environmental programs. Exactly how much that will cost will only be disclosed when the governments updates its spending plan.
- European stocks erased initial gains to trade lower at mid-session on Wednesday, weighed down by declines among insurers and banking stocks. The Stoxx 600 Index was down 0.2% at 11:45 a.m. London time, with investors looking ahead to the release of the minutes from the U.S. Federal Reserve’s September meeting and continuing to digest President Donald Trump’s decision to halt stimulus talks. While shares in U.K. food retailer Tesco Plc and chipmaker Dialog Semiconductor Plc rose after their respective updates, Allianz SE fell as much as 1.7% following a report it was restructuring its pension fund division. Roche Holding AG also weighed on the benchmark as an issue at its warehouse delayed shipping of some of its diagnostics tests in the U.K.
- U.S. index futures rose and pointed toward a rebound from Tuesday’s selloff as investors assessed the progress of a stimulus plan and a House panel proposal for far-reaching antitrust reforms to curb the power of American technology giants. Fresh comments from U.S. President Donald Trump calling for support for airlines and the Paycheck Protection Program helped reverse earlier losses. December contracts on the S&P 500 Index added 0.7% as of 8:25 a.m. in London, rebounding from a 0.6% loss. Futures on the Nasdaq 100 Index also advanced 0.7%, erasing a drop of as much as 0.6%.
- Japanese stocks erased early losses after a series of tweets from U.S. President Donald Trump swayed financial markets. The Topix index ended little changed with telecom shares and auto makers supporting the gauge, while drug companies fell. It started the day lower following Trump’s comments overnight that he was ending stimulus talks until after next month’s U.S. election. However, Japanese stocks recovered after Trump sent a series of tweets during Asian market hours, calling for support for airlines and the PayCheck Protection Program. He also tweeted that he is willing to sign a bill authorizing $1,200 stimulus checks. The Nikkei 225 Stock Average also pared the bulk of its intraday losses.
- Oil retreated after President Donald Trump said he’s halting stimulus talks until after the election and an industry report signaled U.S. crude stockpiles rose for the first time in four weeks. Trump told his negotiators to stop discussions with Democratic leaders just hours after Federal Reserve Chair Jerome Powell stepped up his call for more spending to avoid damaging the economic recovery. Futures in New York traded 1.8% lower on Wednesday, while other markets were mixed. The American Petroleum Institute, meanwhile, reported U.S. crude inventoriesexpanded by 951,000 barrels last week, according to people familiar with the figures. Government data is due Wednesday.
- Gold rebounded from the biggest slump in almost two weeks as the dollar pared gains triggered by President Donald Trump surprise decisionto end talks with Democrats on a new fiscal stimulus package until after the November presidential election. Trump’s announcement came even as Federal Reserve Chair Jerome Powell warned of a weak recovery from the pandemic without enough government support. The central bank cut its benchmark rate to near zero in March and has pledged to keep rates low until the economy returns to maximum employment. The collapse of the stimulus discussions threatens to inflict another wave of pain on Americans and curtail a recovery that’s already slowed. Aid might be delayed until January or February, after a new Congress is seated, meaning there could be a period of four or five months without additional support.
- Fortress Investment Group plans to sell a record $3.2 billion of unrated municipal securities next week to finance a passenger train to Las Vegas. The pricing will signal how far investors will go for higher returns amid persistently low rates and economic uncertainty. Morgan Stanley, the lead underwriter, intends to set pricing terms next week, according to people familiar with the matter who asked not to be identified because the discussions are private. The deal is listed as day-to-day. Samantha Kreloff, a spokesperson for Morgan Stanley, declined to comment on the timing. The company’s Brightline Holdings expects the rail to ultimately extend to Los Angeles. For now, the bond issue will cover a 169-mile (272-kilometer) line connecting Las Vegas to a southern California desert town called Apple Valley, 90 miles away from downtown. The venture plans to raise a total of $6.5 billion in debt for the $8 billion project. The first high-speed, fully electric rail in the U.S. will run in 2024, according to offering documents.
- Wells Fargo & Co. cut more than 700 commercial-banking jobs as it embarks on workforce reductions that could ultimately number in the tens of thousands, according to people with knowledge of the matter. The terminations affected positions across the division, the people said, asking not to be identified discussing details of internal decisions. The unit offers a variety of services to businesses that typically have more than $5 million in annual sales. Katie Ellis, a company spokeswoman, confirmed that at least some reductions have occurred. “We are at the beginning of a multiyear effort to build a stronger, more efficient company for our customers, employees, communities and shareholders,” Ellis said in a statement. “As part of this work, we will have impacts, including job reductions, in nearly all of our functions and business lines, including commercial banking where we have started displacements.”
- President Donald Trump stunned campaign advisers and allies in Congress by single-handedly torpedoing any chance of a fresh coronavirus stimulus, saddling himself with the blame for any more layoffs and market losses in the final weeks before the election. With the president already trailing badly in polls as he recovers from Covid-19, his decision to publicly scuttle talks toward a bill in excess of $1 trillion puzzled allies, who had accused House Speaker Nancy Pelosi and Democrats for overreaching in negotiations. Unless he backtracks, Trump’s decision ensures that Americans won’t receive stimulus checks before Election Day or an extension of at least $400 a week in enhanced unemployment benefits. Any stimulus measure would have also included billions for coronavirus testing and contact tracing, vaccine distribution, and financial assistance for the U.S. Postal Service ahead of Election Day.
- Indian stocks rose after a volatile start to the session as the central bank’s new monetary policy committee began meeting ahead of a decision later this week. The S&P BSE Sensex advanced 0.8% to 39,878.95 in Mumbai, the highest in more than seven months, after slipping as much as 0.3% in early trade. The NSE Nifty 50 Index added 0.7%. Gains were driven by India’s most valuable company, Reliance Industries Ltd., which said it will get a $750 million investment in its retail unit. The interest-rate decision due on Friday is likely to see borrowing costs held at a record low as inflation remains elevated, potentially benefiting lenders’ net interest margins. Meanwhile, signs of economic revival may bode well for consumer spending as India heads into its seasonal festive season.
- Poland’s antitrust watchdog slapped a $7.6 billion fine on Gazprom PJSC over the Nord Stream 2 pipeline, opening a new front in the bitter political battle over the natural gas project. The record fine adds to pressure against project — nearly complete — that will feed gas from Russia under the Baltic Sea into Germany. Poland and the U.S. have long objected to the pipeline, arguing it will deepen Europe’s dependence on energy supplies from Russia. Germany has taken a more commercial view of the project, leaving Poland frustrated by the EU’s approach. The regulator said the Baltic Sea pipeline impedes competition and “violates the interests of consumers.” It gave Gazprom and its partners 30 days to terminate financing agreements to “restore” competition. The fine amounts to 10% of the revenues of Russia’s primary gas export company, the maximum allowed penalty. Gazprom said it will appeal.
- President Donald Trump accused the Food and Drug Administration of carrying out a “political hit job” against him by setting new vaccine review guidelines. The strict standards may put a Covid-19 shot out of reach before the November election. Europe’s struggle to curb the virus prompted cities such as Berlin, Paris and Madrid to impose new restrictions on nightlife. The Czech Republic became the continent’s worst hotspot as nations in eastern European confront a rising wave of infections. The European Commission is due to announce a contract to procure as many as 500,000 treatment courses of remdesivir from Gilead Sciences Inc., an EU official said. Trump has taken the medication, among other treatments, during his bout with Covid-19.
- Nippon Telegraph & Telephone Corp.’s 4.25 trillion yen ($40 billion) buyout of wireless unit NTT Docomo Inc. will make it easier for the recombined company to sell assets, generate enough cash to deliver dividends and repay debt incurred from financing the deal, Chief Executive Officer Jun Sawada said. The merger will also help the Tokyo-based telecommunications giant keep up share buybacks and invest aggressively overseas, Sawada said in an interview. Greater cost savings as well as sales and securitization of real estate, data centers and other assets will deliver enough cash to revamp the business while rewarding shareholders and boosting its overseas portfolio, according to him.
- Saudi Arabia’s BinDawood Holding Co. is set to sell shares at the top of the price range for its initial public offering following a short delay to allow investors to amend their orders in light of previously undisclosed third-party loans. The offer was priced at 96 riyals ($25.59) a share, the company said on Wednesday. BinDawood is set to raise about 2.19 billion riyals from the listing and will be valued at just under 11 billion riyals. The listing was about 49 times oversubscribed, generating orders worth 106.9 billion riyals. This indicates investors were unfazed by the delay and the disclosure of 284 million riyals of related-party transactions midway through the bookbuilding.
- Britain is said to be weighing investing as much as 2 billion pounds ($2.6 billion) in a program to build small nuclear reactors. The amount the government is considering is about 1.5 billion pounds to 2 billion pounds and hasn’t been finalized yet, according to a person with knowledge of the matter, who asked not to be identified because the discussions are private. Small modular reactors have been promoted by the nuclear industry as a way to blend steady atomic generation with intermittent renewable energy. Prime Minister Boris Johnson touched on the role nuclear power will play in Britain’s future energy mix in his annual speech to the Conservative Party on Tuesday. He pledged the U.K. will become a “world leader in low-cost clean power generation.”
- Spain’s growing list of risks is starting to make investors nervous. The nation’s debt is lagging a regional rally that has driven the rate on Italian bonds — long regarded as the pariah of Europe and among the highest yielding — close to a record low. That’s narrowed the gap between Spanish and Italian yields to the smallest in more than two years. Citigroup Inc. this month recommended selling Spanish bonds versus their Portuguese peers, citing growing fiscal worries, renewed separatist tensions in the region of Catalonia, and the prospect of a credit downgrade after S&P Global Ratings cut the nation’s outlook to negative.
- England’s Premier League is suing a Chinese broadcaster for $215.3 million, saying the partner failed to make a payment for rights to show live matches from the world’s richest soccer league. The league accuses PPLive Sports International Ltd., a subsidiary of Suning, of skipping a $210.3 million payment for live matches and another $5 million for highlight packages and interest, according to a filing in its British court case. Sports around the world have been hurt by cancellations and restrictions on matches as governments restrict public gatherings to limit the pandemic. While the Premier League has some of the richest broadcast contracts, its clubs have suffered with empty stadiums and demands for rebates from broadcasters for re-arranged matches and schedules.
- About three months after a controversial debt deal rewrote the rules of the leveraged-loan market, tilting the landscape in favor of distressed borrowers and pitting creditors against each other, another transaction has pushed the newly established precedent even further. The deal last week — a $120 million loan to cash-strapped restaurant supplier TriMark USA — not only unilaterally placed the new lenders above everyone else in the repayment pecking order, but it also stripped some of the older creditors of safeguards they had written into the contracts to protect their investments, according to people with knowledge of the matter. When word of the deal, which was driven by Howard Marks’s Oaktree Capital Management, first hit the market in mid-September, it sparked a panic. Investors dumped the old loans at such a frenetic pace that the price on one of them cratered 20 cents on the dollar in a matter of days.
- Investments in U.S.-listed fixed income exchange traded funds expanded almost 10-fold last week for the second week of inflows. Corporate bond ETFs led the inflows. Government bond ETFs had the second biggest change from the previous week. Net inflows to ETFs totaled $12b in the week ended Oct. 6, including the effect of leveraged funds, compared with $1.21b the prior week
- Britain’s finance minister has charmed the public with his easy manner and empathy since the pandemic plunged the country into crisis in March. Over coffee and croissants in his rooms at No. 11 Downing Street, Rishi Sunak is now winning over his party—and a growing number of his colleagues want him to move next door to take over as prime minister. That the governing Conservatives are even contemplating their next leader is an extraordinary demonstration of how Boris Johnson’s fortunes have tumbled. It’s barely 10 months since he steered them to their biggest parliamentary majority since the 1980s and this week’s party conference ordinarily would have been a time for back-slapping.
- Vice President Mike Pence and Democratic vice-presidential nominee Kamala Harris face off Wednesday night in their first and only debate less than a month before the election, with coronavirus adding a sudden twist to the event. The showdown between vice-presidential candidates is more often a sideshow of U.S. presidential elections, but this year the encounter between President Donald Trump’s and Democrat Joe Biden’s running mates takes on far greater significance with the economy staggered by the pandemic. The virus hit home for the Republican ticket over the past week with Trump and a widening circle of his aides testing positive for the virus and the president eventually landing in a military hospital for three days.
- Emmanuelle Charpentier and Jennifer Doudna were awarded the 2020 Nobel Prize in Chemistry for their work in developing a method for genome editing. “This technology has had a revolutionary impact on the life sciences, is contributing to new cancer therapies and may make the dream of curing inherited diseases come true,” the Royal Swedish Academy of Sciences said in a statement on Wednesday. Charpentier, Director of the Max Planck Unit for the Science of Pathogens in Berlin, and Doudna, a professor at the University of California, Berkeley, will share the prize for discovering so-called genetic scissors.
- Hurricane Delta weakened to a Category 3 storm just before slamming into the coast of Mexico, but remains life-threatening. Delta came ashore along the northeastern Yucatan Peninsula near Puerto Morelos, the National Hurricane Center said at 6:49 a.m. in New York. Maximum sustained winds were near 115 miles per hour (185 kilometers per hour) and the storm surge will raise water levels by as much as 8-12 feet along the northern coast of the Yucatan Peninsula, the center said earlier Wednesday. The hurricane is predicted to strengthen again to Category 4 as it moves over the Gulf of Mexico toward the U.S. in the coming days.
*All sources from Bloomberg unless otherwise specified