October 9th, 2020

Daily Market Commentary

Canadian Headlines

1. Canadian equities advanced to their highest level since Sept. 2. The S&P/TSX Composite Index rose 0.7% on Thursday, with marijuana shares leading after positive commentary from U.S. vice president candidate Kamala Harris. Six of eleven sectors rose. Oil climbed to the highest in more than a month as Hurricane Delta forces operators to shut in nearly 92% of crude output in the Gulf of Mexico. RP Investment Advisors LP raised C$213 million ($161 million) from University of Toronto Asset Management, the manager of the university’s pension, endowment and short-term working capital funds, at the beginning of this year. It will invest in the debt of companies that have committed to reducing their carbon footprint. Bank of Canada Governor Tiff Macklem said negative interest rates remain an option, even if policy makers aren’t currently considering such a move.
2. Huawei Technologies Co. Chief Financial Officer Meng Wanzhou failed to convince a Canadian judge to grant her access to confidential documents pertaining to her extradition fight. Meng has pressed for additional disclosure about the circumstances of her arrest at Vancouver’s airport on a U.S. handover request in December 2018. She argues her arrest was unlawful and that her extradition case should be dismissed. In August, she sought an order from the Supreme Court of British Columbia to force the Canadian government to authorize full access to documents she said had been redacted or withheld arbitrarily. Canada argued that divulging them would violate confidentiality agreements with clients and third parties.
3. G4S Plc, the British security company, is approaching firms including Allied Universal in an attempt to solicit rival offers and fend off a 3 billion-pound ($3.8 billion) hostile bid from GardaWorld, people with knowledge of the matter said. Allied Universal, a U.S.-based competitor to G4S, has been evaluating whether it should pursue its own bid amid consolidation in the industry, the people said, asking not to be identified because the information is private. G4S may also draw interest from private equity firms, which could potentially allow management to stay in place under a new owner, the people said. Garda made a hostile takeover bid for G4S last month after failing to convince its management to come to the negotiating table. It’s been seeking meetings with G4S shareholders to persuade them to accept the proposal, which G4S has rejected on the grounds that it undervalues the company.

World Headlines

1. European equities rose on Friday, set for a second consecutive weekly gain as investors weigh stimulus prospects in the U.S. and positive guidance updates. The Stoxx Europe 600 index was up 0.3% at 8:18 a.m. in London, led by miners and energy shares, while autos underperformed. The benchmark advanced after the Trump administration seemed to lean toward a large-scale stimulus bill. “The lower level of uncertainty with regards to the U.S. election combined with the prospect of additional stimulus measures is probably behind the latest positive inflection in equity markets,” says Sylvain Goyon, strategist at Oddo BHF. That’s because Democratic contender Joe Biden’s “increasing lead in the polls gives credence either to a ‘blue wave’ scenario and more stimulus, or more political pressure for President Trump to offer something prior to the vote,” he added.
2. U.S. futures climbed and global stocks headed toward their biggest weekly gain since July after the White House signaled an openness to large-scale stimulus and companies raised profit forecasts. Investors are winding up a volatile week with a mild risk-on attitude. With Trump recuperating from Covid-19 in the final stretch of the election campaign, they’re increasingly betting a Joe Biden victory is likely. Speculation is moving now to whether Democrats will sweep Congress too and then enact massive stimulus.
3. Japanese stocks fell as a strengthening yen and uncertainty over the upcoming U.S. presidential election added to investors’ concerns that recent gains in the equity market were excessive. The Topix slid for the first time in five days, paring the benchmark’s weekly advance to 2.4%, still its best performance since mid-August. Automakers were the heaviest drag on the gauge, which erased gains as the yen halted a two-day drop against the dollar. The Nikkei 225 Stock Average pared losses toward the close, but failed yet again to erase its loss for the year.
4. Oil is poised for the biggest weekly gain since June with Hurricane Delta forcing the shutdown of almost 92% of crude output in the Gulf of Mexico. Delta regained strength to become a major hurricane and is forecast to slam into the already battered Louisiana coast later on Friday. While that has helped drive crude futures in New York 10% higher this week, they slipped on Friday as Norwegian oil workers were set for mediation talks to avoid a strike that threatens 1 million barrels a day of oil and gas output.
5. Gold rose as the dollar weakened after the White House signaled it’s leaning toward a large-scale stimulus bill, days after publicly rejecting the possibility. Treasury Secretary Steven Mnuchin told House Speaker Nancy Pelosi in a 40-minute call that President Donald Trump wants agreement on a comprehensive stimulus package. The shift in tack comes after Pelosi pushed back on the idea of individual measures for parts of the economy hit by the Covid-19 crisis. Still, prospects for coming to an agreement have proved uncertain since Trump pulled his negotiators out of talks on a comprehensive package on Tuesday, leaving some investors doubting progress will be made prior to next month’s presidential election.
6. Billionaire investor Bill Ackman has provided further hints on the potential targets of his blank-check company. Pershing Square Tontine Holdings Ltd., which had the largest initial public offering ever of a special-purpose acquisition company when it debuted in July, is not only looking at mature “unicorns” and private-equity-sponsored companies but also family-controlled and employee-owned businesses, Ackman said in an interview with Whitney Tilson. SPACs have gained popularity this year as investors look beyond simply buying shares of publicly traded companies to reap gains. The vehicles raise money in public markets and don’t choose their target until after shares begin trading. Pershing Square Tontine units had an IPO price of $20 and closed Thursday at $22.50.
7. Financial markets are warming to the idea that the U.S. economy could get a Biden bounce — but it hinges on a new government being able and willing to run big budget deficits. Democratic challenger Joe Biden is promising more than $3 trillion in extra spending over a four-year term if he beats President Donald Trump next month. On top of that, pandemic relief measures worth another couple of trillion — which got stalled in the current legislature for months — are likely to get pushed through, especially if Democrats win Congress as well as the White House.
8. The Spanish government is reportedly set to declare a state of emergency for the Madrid region. Russia and Romania posted record numbers of new cases, while German infections topped 4,000 for a second day. The U.K. will announce a new job support plan, which is likely to include paying two-thirds of the wages of workers in companies affected by lockdown measures. India continued on a trajectory to overtake the U.S. as the country with the most cases, as infections neared 7 million. More than 2.75 million migrants have been stranded due to restrictions on mobility.
9. While the lesson of the 2016 campaign was never to count out Donald Trump, his path to re-election is narrowing dramatically as Democrat Joe Biden’s lead continues to grow and voters sour on the president’s handling of the coronavirus pandemic. Trump now trails Biden by an average of 9.7 percentage points nationally, and by about 5 to 7 points in key battleground states, according to the RealClearPolitics average of polling. With 25 days left, it’s not clear how Trump can make up lost ground. The challenge got even harder Thursday when Trump rejected the idea of a virtual debate with Biden next week, erasing one of his few remaining opportunities to change the trajectory of the race.
10. Advanced Micro Devices Inc. is in advanced discussions to buy Xilinx Inc. in a takeover that could be valued at $30 billion, according to people familiar with the matter. The deal could come together as early as next week, though things remain in flux, the people said, asking not to be identified discussing a private deal. A combination with Xilinx would give AMD Chief Executive Officer Lisa Su more of the pieces needed to break Intel Corp.’s stranglehold on the profitable market for data-center computer components. It would follow moves by rival Nvidia Corp., which bought Mellanox Technologies Ltd. and aims to use its pending acquisition of Arm Ltd. to grab more of that business.
11. Made stingy by the pandemic and gun-shy by the election, U.S. companies have reconsidered spending plans on everything from shareholders to factories. As a result, cash is pooling on balance sheets, swelling rainy day funds to an unprecedented $2 trillion. While analysts have a million ways to spend it, the market’s preference is clear: don’t. Doing so has been bad for your stock. Companies laying out the most for share repurchases and capital investments have trailed the S&P 500 since its March low, according to data compiled by Goldman Sachs Group Inc. and Bloomberg. Over that stretch, firms with sturdier finances beat weaker ones by almost 20 percentage points.
12. London Stock Exchange Group Plc agreed to sell Borsa Italiana to Euronext NV and two Italian lenders for more than 4.33 billion euros ($5.1 billion), in a deal that will create the largest listing venue in Europe. LSE, which is selling Borsa Italiana to get approval from the European Union for its $27 billion Refinitiv deal, announced the transaction in a statement Friday after exclusive talks between the parties started last month. The London exchange will sell its entire shareholding for 4.3 billion euros in cash plus an unspecified additional amount reflecting the unit’s performance through to the deal’s completion. Euronext shares fell 3.6% in morning trading and LSE shares were up 0.7%. Bloomberg News first reported the agreement Thursday.
13. Total SE is making an investment as part of a small funding round in U.S. fuel-cell truck startup Hyzon Motors, an effort by the French oil giant to boost development of cleaner energy sources. The strategic investment was made by the company’s venture-capital arm, Total Carbon Neutrality Ventures, and included other investors such as Ascent Hydrogen Fund, Hydrogen Capital Partners and Audacy Ventures Ltd. The size of the round was not disclosed but totaled more than $15 million and valued Hyzon at around $200 million, according to people familiar with the matter. It could rise to $20 million, said the people, who asked not to be named discussing private information. The funding follows other recent alternative-energy investments made by Total, including production of electric-vehicle batteries and biofuels. It and other European oil companies are ramping up their exposure to renewable energy as governments, consumers and investors demand swifter moves to tackle climate change.
14. The World Food Programme was awarded the 2020 Nobel Peace Prize as the fight against hunger takes on greater urgency in a world shaped by conflict and the coronavirus pandemic. The organization is being honored “for its contribution to bettering conditions for peace in conflict-affected areas and for acting as a driving force in efforts to prevent the use of hunger as a weapon of war and conflict,” the Norwegian Nobel Committee said on Friday. It pointed to the threat of a “hunger crisis of inconceivable proportions,” unless the WFP and other groups with a similar focus get the financial backing they need to do their work.
15. Russia posted a record number of new Covid-19 cases Friday as the government has resisted returning to a lockdown to battle the second wave of infections. There were 12,126 new cases in the past day, breaking the previous record of 11,656 on May 11, according to data from the government’s National Virus Response Center. President Vladimir Putin imposed sweeping restrictions for two months during the initial wave of coronavirus infections that helped slow the spread of the illness. However, the authorities are hesitant to resume unpopular measures that would hurt the economy, which has so far fared better than initially feared during the pandemic.
16. Vanguard Group Inc. returned about $21 billion in managed assets to government clients in China as part of a global shift to focus on low-cost funds for individual investors, according to people familiar with the matter. BlackRock Inc. and Amundi SA are being considered to manage a portion of the funds returned by Vanguard. The assets include about $10 billion that Vanguard had managed for each of China’s State Administration of Foreign Exchange and the China Investment Corp. sovereign wealth fund, the people said, declining to be identified as the matter is private. More than $1 billion was returned to the national pension fund, they said. The currency regulator will probably transfer oversight of its money to other managers including BlackRock, while the pension fund is likely to pick Paris-based Amundi to manage some of its accounts, the people said. CIC folded the Vanguard funds into its own index investment platform, they said.
17. The White House shifted tack on Thursday, signaling that the administration is again leaning toward a large-scale stimulus bill after House Speaker Nancy Pelosi pushed back on the idea of individual measures for parts of the economy hit by the Covid-19 crisis. Treasury Secretary Steven Mnuchin told Pelosi in a 40-minute call that President Donald Trump wants agreement on a comprehensive stimulus package, according to Drew Hammill, a Pelosi spokesman. Meanwhile, White House spokeswoman Alyssa Farah said, “we’ve made very clear we want a skinny package,” though she later clarified that position, telling reporters the administration is “open to going with something bigger.” She reiterated opposition to the $2.2 trillion plan from House Democrats.
18. Hurricane Delta regained strength in the warm waters of the U.S. Gulf of Mexico, threatening to bring powerful winds and a dangerous storm surge to an area of Louisiana still recovering from Hurricane Laura. Delta had sustained winds of 120 miles (193 kilometers) per hour, making it a Category 3 hurricane on the five-step Saffir-Simpson scale, according to a 5 a.m. New York time advisory by the National Hurricane Center. While the storm could make landfall at near Category 3 strength, it will be weaker than the ferocious blast that Laura unleashed. However, Delta will still bring flooding and a storm surge that could reach as high as 11 feet in some places. Delta has slowed down, giving it more time to strengthen, said Jim Rouiller, lead meteorologist with the Energy Weather Group. The storm has a healthy structure, which means it will be able to hold onto its dangerous storm surge as it makes landfall later Friday east of Cameron, Louisiana. Flooding will be a concern as far east as New Orleans.
19. Apple Inc. is set to embrace 5G as one of its most significant additions to this year’s iPhones, but the technology is still not ready for the masses in the U.S. That’s because the country’s three largest wireless carriers, Verizon Communications Inc., AT&T Inc. and T-Mobile US Inc., have yet to roll out 5G in a way that provides consistently higher data speeds or widespread coverage. If these companies do not dramatically upgrade their networks soon, many consumers buying the latest iPhones could find this year’s premier feature underwhelming. The addition of 5G will be a key talking point at Tuesday’s iPhone event, underscored by Apple’s tagline: “Hi, Speed.” The new wireless technology lets phones download data from a cellular connection many times faster than 4G LTE, the current standard — but 5G coverage remains scarce in many advanced markets.
20. Kelcy Warren, the Dallas billionaire known for controversial pipelines and aggressive dealmaking, is stepping down as chief executive officer of Energy Transfer LP. But if the move is anything like those of fellow moguls in the pipeline industry, he isn’t going far. The company late Thursday named Chief Operating Officer Mackie McCrea and Chief Financial Officer Tom Long as co-CEOs. Warren, 64, will stay on as executive chairman and remains the top investor. He’ll also retain a majority stake in the so-called general partner that controls Energy Transfer’s board.
21. President Donald Trump’s hospitalization for Covid-19 rumbled through the 2020 race in one noticeable way: a sharp, if temporary, drop in negative campaign ads. Advertisements from Trump and Democratic nominee Joe Biden have shifted toward more positive spots over the past week since the president’s diagnosis, according to data compiled by Advertising Analytics. Biden’s campaign ads were already remarkably positive compared to previous elections, with less than 10% of his ads qualifying as the 30-second attack ad genre that’s become a staple of modern campaigns.

*All sources from Bloomberg unless otherwise specified