September 10th, 2020
Daily Market Commentary
- Canadian equities gained Wednesday after a three-day rout, while the Bank of Canada reiterated its pledge to keep interest rates at historic lows for years to come. The S&P/TSX Composite Index rose 1.8%, the most since June 5. Materials and consumer staples led all sectors higher. The Canada Pension Plan Investment Board has promoted Edwin Cass to the newly created role of chief investment officer amid a push to more than double its assets under management. Husky Energy Inc. said there is opportunity for a government equity stake in the partly-constructed White Rose platform.
- Canadians are evenly split on whether their government should reduce its Covid-inflated budget deficit, as Justin Trudeau prepares to push the nation deeper into debt. A Bloomberg News survey this month by Nanos Research found 41% of respondents are in favor of continuing with large shortfalls to provide ongoing support to Canadians, versus 43% who want them to be lowered to at least pre-pandemic levels even if it means fewer benefits. Trudeau, who is seeking to rejuvenate his government amid an ethics scandal, has promised an ambitious new spending planto drive the recovery and fill gaps in the public health and social safety nets exposed by the virus. That would likely keep deficits at historically elevated levels for years, building on the C$380 billion ($289 billion) in new debt, or about 17% of total output, already budgeted this year as response to the downturn.
- Turquoise Hill Resources and its controlling shareholder, Rio Tinto signed a non-binding memorandum of understanding to pursue a re-profiling of existing project debt that could cut the currently-projected funding requirements of Oyu Tolgoi by as much as $1.4 billion. The companies will further seek to extend political risk mitigation through the planned raising of supplemental senior debt in the form of amortizing term loans to Oyu Tolgoi in the aggregate amount of as much as$500 million from selected international financial institutions
- A high-profile charity that spawned a political uproar in Canada after Prime Minister Justin Trudeau’s government put it in charge of a nearly C$1 billion program for student pandemic aid has decided to shut down. WE Charity is closing its doors in Canada — winding down operations and selling assets to protect some of its international programs, the organization said in a statement Wednesday. The charity’s co-founders, brothers Craig and Marc Kielburger, said the organization was unable to weather the combined effects of the scandal and Covid-19.
- In Europe, the FTSE 100 Index led losses on fears that Brexit talks are falling apart. BP Plc slipped after making its first venture into offshore wind power with a $1.1 billion purchase of U.S. assets from Norway’s Equinor ASA. While the ECB is widely expected to keep policy steady, investors will be closely watching comments from President Christine Lagarde for any hints on whether the stronger euro is becoming a problem for the region. Analysts have speculated that Lagarde and her colleagues could start laying the groundwork for an intervention that would prevent the euro’s strength from slowing an economic recovery.
- U.S. futures dropped as investors weighed whether a recovery in technology shares could overcome lingering concern about valuations. The euro rose before today’s European Central Bank meeting. S&P 500 futures dropped 0.5% after the index rallied yesterday. After a volatile few days, technology stocks are still front and center on the minds of investors. Yesterday, the S&P 500 rose the most since June overnight and the Nasdaq rebounded following an 11% rout that took the gauge down to its 50-day moving average, a closely-watched technical level.
- Oil fell as industry data pointed to a rise in U.S. crude stockpiles. Futures in New York fell toward $37 a barrel after rising 3.5% Wednesday. The American Petroleum Institute reported crude stockpiles climbed by about 3 million barrels last week, according to people familiar with the data, though gasoline inventories fell by 6.89 million barrels. China’s next five-year plan beginning in 2021 will call for increases to its mammoth state reserves of crude, strategic metals and farm goods, said officials familiar with the discussions, a potentially bullish driver for crude in the longer-term.
- Gold was steady on the falling dollar as investors awaited the outcome of the European Central Bank’s policy meeting for clues on the potential for more stimulus and shifts in exchange rates. ECB President Christine Lagarde will have to walk a fine line as she portrays a euro-area economy that’s recovering as hoped from the pandemic, yet still in need of massive support. While new projections will confirm the worst downside risks haven’t materialized, they’ll still be bleak and subject to high uncertainty. Lagarde also now has to deal with a stronger euro. Frederik Ducrozet, a strategist for Pictet & Cie, believes its surge over the dollar could give the central banker cause to hint at more easing. Meanwhile, global deaths from the coronavirus pandemic approached 904,000. A day after pausing its Covid-19 vaccine trials due to a possible serious neurological problem in one patient in the U.K., AstraZeneca Plc faced questions about what caused the issue and whether it could be related to the vaccine. The company’s chief executive officer claimed the shot could still be ready by year-end.
- AstraZeneca Plc Chief Executive Officer Pascal Soriot said the coronavirus vaccine the company is developing with the University of Oxford could still be ready before the end of the year. Global deaths from the pandemic exceeded 900,000. Lloyd’s of London, the world’s largest insurance market, said it expects to pay out as much as 5 billion pounds ($6.5 billion) in claims related to coronavirus. Germany added four more French regions and two in Switzerland to its list of coronavirus risk areas. In Asia, China’s vaccine frontrunner said none of the recipients of its two shots has reported an obvious adverse reaction or infection. It is pressing ahead with testing after AstraZeneca suspended its trial. Tokyo is lowering its virus alert to one notch below the highest level.
- China’s latest threat to bar companies with ties to U.S. officials who visit Taiwan points to a weakness for Beijing in its sanctions battle with Washington: It can control its own borders, but the greenback rules the world. In recent months, the Trump administration has levied sanctions against more than a dozen Chinese officials and restricted access to scores of the country’s companies. The penalties have caused credit card headaches for Hong Kong Chief Executive Carrie Lam and, according to the South China Morning Post newspaper, forced the former British colony’s police credit union to relocate an estimated $1.4 billion of assets to Chinese banks.
- Donald Trump’s bid to focus his re-election campaign on anything but the pandemic hit another setback Wednesday, as the president acknowledged publicly downplaying the threat of the coronavirus in February even though he knew it was dangerous. Trump confirmed that he’d told journalist Bob Woodward the virus was easily transmitted and far more deadly than the flu at a time he was telling Americans not to worry about an outbreak he said would fade away. The revelation led swiftly to Democratic accusations that Trump had misled or outright lied to the public about the threat posed by the pandemic. The president, trailing Democrat Joe Biden in polls with the approach of the Nov. 3 election, has repeatedly sought to shift the focus away from the virus as surveys show a majority of Americans disapprove of his handling of the crisis.
- Investors will now have their first chance to buy collateralized loan obligations through an exchange-traded fund. The AAF First Priority CLO Bond ETF begins trading on the New York Stock Exchange under the ticker AAA on Wednesday. The fund tracks the highest-rated CLOs and is actively managed, according to Alternative Access Funds co-founder Peter Coppa, who previously worked as a money manager at Marathon Asset Management. While many loan ETFs exist, AAA is the first focused on CLOs to debut. CLOs, which package and sell leveraged loans into chunks of varying risk and return, have drawn scrutiny in recent months after the coronavirus pandemic ignited a wave of corporate distress. Veterans of the $4.7 trillion ETF industry have warned that packaging the loans into funds that are easily accessible could pose a risk to retail investors unfamiliar with the $700 billion CLO-market. But the industry’s performance through the 2008 financial crisis and the virus outbreak shows that it’s appropriate to offer CLOs in an ETF, Coppa said.
- Equinor ASA has been the quickest of the big oil companies to get into offshore wind, and it’s now reaping the rewards. The state-controlled Norwegian company will book a $1 billion gain on its sale of U.S. assets to BP Plc, meaning almost the entire transaction value was pure profit. That follows a deal last year where it recouped most of its investment in a German wind farm by selling half its stake. And there could be more to come: it’s seeking to reduce its ownership in the world’s biggest wind project at sea, Bloomberg reported in June. The transaction results may assuage fears among investors that returns will dwindle as the world’s largest oil companies move from super-profitable fossil fuel projects to a whole different kind of business model in renewable energy.
- British e-commerce operator The Hut Group Ltd. said its initial public offering could raise as much as 1.87 billion pounds ($2.4 billion), which would make it Europe’s second-largest listing of the year. Besides the 920 million pounds of new stock that the company already announced it will sell, investors are offering another 950 million pounds of existing shares, The Hut Group said in a statement Thursday. In all, about 374 million shares, or 35% of the company, are being marketed in the IPO at 5 pounds each. Shares flew off the shelves, attracting orders to cover the IPO within 40 minutes, according to terms seen by Bloomberg, showing strong demand even in volatile equity markets. Chief Executive Officer Matthew Moulding will have a 25.1% stake in the company after the IPO, which values the company at 5.4 billion pounds, making him a billionaire.
- ByteDance Ltd. is increasingly likely to miss a Trump administration deadline for the sale of its TikTok U.S. operations after new Chinese regulations complicated negotiations with bidders Microsoft Corp. and Oracle Corp., according to people familiar with the matter. ByteDance probably needs beyond the U.S. executive order ban on Sept. 20 to nail down an agreement with either party because of the regulatory review, said the people, asking not to be identified because the matter is private. In preliminary talks with Chinese officials, ByteDance has been told any proposal must be submitted for approval with detailed information about technical and financial issues, and the review will be substantial and take time, one of the people said. The officials haven’t been willing to give specific guidance on what kind of deal would work, the person said.
- Democratic presidential nominee Joe Biden’s plan to curb corporate offshoring and to renew domestic manufacturing may block companies from parking profits in tax havens, but may not do enough to make shuttered factories hum again. Biden’s proposal uses a carrot-and-stick approach that raises taxes on a corporation’s foreign profits but rewards companies with tax incentives for moving jobs and investment back to the U.S. Biden launched a renewed focus on economic issues this week, beginning with a push to boost American manufacturing and operations. He called for a 10% tax penalty on U.S. companies that move operations overseas and a 10% tax credit for companies that create jobs in the U.S.
- Detroit automakers have long relied on in-house innovation for competitive advantages and bragging rights, but for next-generation electric and driverless technologies they are adopting a new strategy: If you can’t beat ’em, join ’em. General Motors Co. and Ford Motor Co. have plug-in electric vehicles and a dominant share of the U.S. pickup-truck market, but they have tapped outside expertise and companies lauded by investors as EV pioneers for some of their first battery-powered trucks. GM grabbed a $2 billion stake on Sept. 8 in recently listed Nikola Corp. to build that startup’s Badger pickup a little over a year after Ford plowed $500 million into Rivian Automotive Inc. for access to its truck-sized electric “skateboard” platform.
- The European Union is studying the possibility of legal action against the U.K. over Prime Minister Boris Johnson’s plans to breach the agreement governing Britain’s exit from the bloc, according to a document seen by Bloomberg. European Commission vice president Maros Sefcovic is set to hold emergency talks with Cabinet Office Minister Michael Gove on Thursday as the bloc weighs how to respond. The EU may have a case to seek legal remedies under the Brexit Withdrawal Agreement even before controversial provisions in the U.K. internal-market bill are passed by Parliament, and would have a clear justification once the bill becomes law, according to the bloc’s preliminary analysis of the U.K. legislation.
- Turkey is in talks over oil and gas exploration in Libya, as President Recep Tayyip Erdogan’s administration seeks business opportunities in the conflict-ridden North African country. Turkey and Libya’s United Nations-recognized government, which controls the capital Tripoli and other parts of the west, are discussing onshore and offshore energy blocks, according to a Turkish energy official, who asked not to be identified because the information isn’t public. Turkish officials also held talks with Libya’s National Oil Corp. about power generation and pipeline operations, the person said. The official did not specify whether the NOC was included in negotiations about energy exploration.
- A deadly pig disease has just entered Germany for the first time, threatening to hammer exports from Europe’s biggest hog-producing nation. A confirmed case of African swine fever has been identified in the eastern state of Brandenburg, Agriculture Minister Julia Kloeckner said Thursday at a briefing in Berlin. The virus, which kills most infected pigs within 10 days but is not harmful to humans, was detected in the corpse of a wild boar found near the Polish border. Tests were conducted at Germany’s animal health institute and sensitive areas will now be cordoned off to try to prevent the disease spreading, Kloeckner said.
- Indian billionaire Mukesh Ambani’s Reliance Industries Ltd.is offering to sell a roughly $20 billion stake in its retail business to Amazon.com Inc., according to a person with knowledge of the matter. Amazon has held discussions about investing in the conglomerate’s Reliance Retail Ventures Ltd. unit and has expressed interest in negotiating a potential transaction, the person said. Mumbai-based Reliance Industries is willing to sell as much as a 40% stake in the subsidiary to Amazon, the person said, asking not to be identified because the information is private. A deal, if successful, would not only create a retail behemoth in India but will also turn Jeff Bezos and Asia’s richest man from rivals into allies in one of the fastest-growing consumer markets in the world. At $20 billion, the deal would be the biggest ever in India as well as for Amazon, according to data compiled by Bloomberg.
- One of the world’s oldest liquefied natural gas deals may be set to end as buyers face a supply glut and demand uncertainty exacerbated by the coronavirus pandemic. The almost 50-year old agreement to buy fuel from PT Pertamina’s Bontang terminal in Indonesia is set to expire at the end of this year. Kyushu Electric Power Co., one of six Japanese utilities in a buyers’ consortium, won’t renew its contract. Toho Gas Co. is also walking away, a person familiar with the matter said. The end of the accord would underscore how a global supply glut and persistently low spot prices are hurting the long-term agreements the LNG industry was built on. Such deals fell to 66% of the LNG trade by 2019 from 84% a decade earlier, according to the International Group of Liquefied Natural Gas Importers.
- A meteoric rise in China’s U.S.-listed electric-vehicle stocks that disrupted market-value rankings and left some industry observers scratching their heads is showing signs of fizzling. After reaching record highs in New York, EV makers NIO Inc., Xpeng Inc. and Li Auto Inc. each lost more than 10% over the past week. A dramatic drop by giant Tesla Inc. — amid intensifying competition and the company missing out on being included in the S&P 500 Index — has some investors questioning the prospects of smaller Chinese contenders.
- A Chinese property and financial group’s domestic bonds fell sharply after its unit proposed a plan to ease its own debt repayment pressure, the latest sign of stress plaguing the nation’s weaker developers. China Oceanwide Holdings Group Co.’s 8.9% 1 billion yuan onshore bond due in December 2021 fell 30% Thursday morning to a record low of 46.2 yuan ($6.76), according to data compiled by Bloomberg. The volatility prompted two brief trading halts for the note by the Shanghai Stock Exchange. Its 8.6% 2021 local note also dropped 9% to an all-time low.
- JPMorgan Chase & Co. found that some of its employees improperly applied for and received Covid-relief money that was intended for legitimate U.S. businesses hurt by the pandemic, according to a person with knowledge of the matter. The bank discovered the actions, all of which were tied to the Economic Injury Disaster Loan program, after noticing that suspicious amounts of money had been deposited into checking accounts owned by bank employees, said the person, who asked not to be identified because the information is private. The findings prompted an unusual all-staff message from JPMorgan Tuesday that puzzled many across the industry for its candid admission of potentially illegal acts by some of its own while not describing what they had done.
- A large fire broke out in Beirut port, a month after a catastrophic explosion in the area killed more than 180 people and injured thousands. Initial reports indicated that the fire started at a warehouse that has oil and tire deposits, the Lebanese Army said on Thursday. Firefighters and army helicopters are trying to extinguish the fire, which Al Arabiya said is now under control. The Red Cross in Lebanon said there was no danger of an explosion, LBCI reported. The fire comes a month after a consignment of explosive material detonated at Beirut’s port, ripping through central neighborhoods. In addition to the damage to homes, hospitals and schools, the blast forced many businesses to close, contributing to a loss of economic activity estimated at between $2.9 billion and $3.5 billion.
*All sources from Bloomberg unless otherwise specified