September 11th, 2020
Daily Market Commentary
- Canadian equities reversed course Thursday after rising in early trading. The S&P/TSX Composite Index dropped 1.2%, with all sectors declining. Energy stocks were among the laggards as oil dipped on growing crude stockpiles. The Bank of Canada plans to maintain extraordinary stimulus for as long as needed to help the nation’s economy fully recover from the crisis, Governor Tiff Macklem said. CI Financial Corp., Canada’s largest independent mutual fund manager by market value, may seek a U.S. listing as it ramps up a strategy of buying smaller wealth management firms.
- The Stoxx Europe 600 Index was little changed at the open. The euro extended its advance against the dollar. Core European bonds gained, while Treasuries were steady. Traders will be closely watching comments from several European Central Bank officials that are scheduled to speak today. On Thursday, President Christine Lagarde spurred a rally in the euro when she delivered relatively mild comments on the currency’s surge.
- U.S. futures climbed, while stocks in Europe and Asia were mixed at the end of a week in which concerns over valuations in some pockets of the market whipsawed global equities. The British pound headed for its biggest weekly drop since March as Brexit talks frayed. Nasdaq 100 futures pointed to gains following a topsy-turvy U.S. session which saw the tech-heavy gauge lose more than 2%. Global stocks remain on track for the first back-to-back weekly declines since March after a rally that added $7 trillion to U.S. equity values. The pandemic is continuing to upend the global economy, with U.S. data showing cracks in recent labor-market strength. Global virus cases reached 28 million, and Europe has re-emerged as a hot spot.
- Japanese shares staged a rebound ahead of the weekend and a vote that is expected to confirm Yoshihide Suga as the successor to Prime Minister Shinzo Abe. Pharmaceutical makers and service providers were the biggest contributors to the Topix index’s rise. Suga appeared to backtrack from earlier comments and align himself with Abe in saying there is no need for another sales tax hike in the next decade. Suga is expected to win the Liberal Democratic Party’s leadership vote and be elected prime minister next week following Abe’s resignation due to health issues.
- Oil headed for its first back-to-back weekly losses since April’s price rout, driven by a sharp slump in risk sentiment earlier in the week and a patchy demand recovery. Futures in London fluctuated around $40 a barrel on Friday, down about 6% for the week. U.S. crude inventories rose, with stockpiles at the Cushing storage hub reaching the highest since May, according to Energy Information Administration data on Thursday. While the recovery in road-fuel demand is gaining speed in Asia and Europe, American figures continue to lag.
- Gold drifted, holding on to a weekly gain, as investors weighed developments in the euro area and Citigroup said the current bull run has further to go. European Central Bank Chief Economist Philip Lane signaled that more monetary stimulus might be needed, using tougher language than President Christine Lagarde. Aggregate open interest in Comex gold futures climbed to the highest since July on Thursday, as traders prepared for the Federal Reserve’s policy meeting next week. Citigroup expects that the Fed’s loose monetary policy, a bearish environment for the dollar and continued economic uncertainty to bolster bullion. The bank lifted its base-case outlook for gold next year to a record $2,275 an ounce.
- Some of the world’s biggest oil traders are getting ready for the possible resurgence of a coronavirus-induced glut of crude and fuels, snapping up giant tankers for months-long charters so that they can be ready to store excess barrels if necessary. The chartering spree is likely to alarm Saudi Arabia, Russia and their allies as it indicates that the oil traders believe the crude market is moving into a surplus after OPEC+ managed to create a deficit earlier this summer with its output cuts. Trafigura Group, the world’s second-largest independent oil trader, in recent days booked about a dozen supertankers that can hold a total of 24 million barrels of oil, according to people familiar with the matter. All in, about 18 similar charters have been arranged with Royal Dutch Shell Plc, Vitol Group and Lukoil among those also hiring the vessels, according to shipbrokers’ lists of bookings seen by Bloomberg.
- The Pentagon’s five-year budget plan for the F-35 falls short by as much as $10 billion, the military’s independent cost analysis unit has concluded, a new indication that the complex fighter jet may be too costly to operate and maintain. The Defense Department’s blueprint for the next five fiscal years calls for requesting $78 billion for research and development, jet procurement, operations and maintenance and military construction dedicated to the F-35 built by Lockheed Martin Corp. But the cost analysis unit estimates $88 billion will be needed. The estimated shortfall was set out in a four-page review dated June 17 and marked “For Official Use Only.” The document, obtained by Bloomberg News, provides the first comprehensive estimate through 2077 for the Pentagon’s costliest weapons program since it underwent a major reorganization in 2012.
- Apple Inc. Chief Executive Officer Tim Cook and his top deputies are focusing greater attention on developing a new generation of leaders to eventually run some of the iPhone maker’s most important divisions such as hardware development, services and marketing. As Cook begins his 10th year at the helm, his management group is filled mostly with senior vice presidents who have worked at Apple for more than two decades, made tens of millions of dollars and are at or near the ages of 55 to 60 when many previous executives have stepped aside. That, along with typical corporate planning, has spurred the Cupertino, California-based company to cultivate its next class of top managers, said people familiar with the matter who asked not to be identified talking about internal company discussions. Apple declined to comment.
- Federal Reserve officials will link interest-rate increases to inflation outcomes when they provide more guidance on the future path of monetary policy, economists said in a Bloomberg survey. They’re just not sure when that guidance is coming. The Federal Open Market Committee meets Sept. 15-16. Just 39% of respondents to the Sept. 4-10 poll said they expect officials to alter their guidance next week. Almost a third don’t predict the change until 2021, or later. They also saw the central bank’s updated quarterly projections showing interest rates near zero through 2023. “The Fed will adopt explicit guidance, but it could take years before it is necessary because the FOMC is likely to wait until the market starts pricing in rate hikes,” Christopher Low, chief economist at FHN Financial, said in comments submitted with the survey.
- Boris Johnson is facing a revolt from his own party over his plan to breach international law and rewrite the Brexit deal. Tories have proposed an amendment to the bill which would give Parliament a veto over the move. Opposition to Johnson in Europe is hardening, with Germany and Ireland stepping up their criticism of the U.K. prime minister’s position. Even so, negotiators are still talking about trade and both sides say they want a deal, though time is running out before the Brexit transition phase ends in December.
- Investors agreed to pay the U.K. government for lending it cash for short periods, a sign they anticipate a Bank of England interest-rate cut and more economic pain. The Debt Management Office sold six-month bills with an average yield of minus 0.0005% in an auction on Friday. It’s the first time investors bought the short-term debt at a negative rate. The drop comes after trade talks between the U.K. and the European Union frayed, spurring bets the BOE may cut its main rate by almost 20 basis points by the end of next year. The yield on two-year government bonds fell this week to record negative territory, and the average rate on one and three-month bills are close to slipping below zero for the first time since 2017.
- China began testing a nasal spray vaccine for the coronavirus in what would be a world first. Austria added new restrictions after a surge in cases. Japan and Singapore plan to open a reciprocal green lane for travel next week, while global cases topped 28 million. French President Emmanuel Macron will meet with his government Friday to discuss how to curb a surge in coronavirus infections without endangering a tentative economic recovery. Munich Re has stopped selling coverage to protect against business losses in future pandemics. U.K. lawmakers are urging the government to extend wage support.
- Orix Corp. has agreed to buy a roughly 20% stake in Indian renewable energy developer Greenko Energy Holdings for $980 million, the Japanese conglomerate’s biggest investment in the sector overseas. Under the deal terms, the Tokyo-based company will acquire new shares along with existing stock from Greenko founders. It will transfer its entire wind power generation business in India to Greenko, Orix said in a statement Friday. Currently, Singapore’s GIC Pte holds 65.8% of Greenko, Abu Dhabi Investment Authority has a 16.5% stake and the remainder is held by its founders. The Economic Times reported the deal earlier Friday.
- Zomato Pvt, an Indian food delivery startup, will file for an initial public offering in the first half of 2021, joining a rash of consumer internet companies raring to go public. “Our finance/legal teams are working hard to take us to IPO sometime in the first half of next year,” Deepinder Goyal, Zomato’s founder and chief executive officer, told employees in an email on Thursday, a copy of which Bloomberg News has obtained. In response to a query, Goyal declined to comment on the size of the IPO or the valuation. Technology companies are set to raise more capital via IPOs in 2020 than at the height of the dotcom bubble, an extraordinary showing in a year fraught with uncertainty. Zomato, backed by Sequoia Capital and Jack Ma’s Ant Group among others, represents a clutch of high-flying Indian startups now riding a smartphone boom in the world’s second-most populous nation.
- Just when OPEC seemed to have finally mastered the long-running problem of members breaching their oil-output targets, a new offender is emerging. The United Arab Emirates — traditionally a loyal partner of group leader Saudi Arabia — pumped a little bit over its agreed limit in July, according to OPEC data. It has admitted doing so again in August. Now, many traders are turning their attention to data showing the Gulf state’s excess may be far greater than previously believed, contributing to the drop in crude prices to a two-month low. The strongest signal that something was amiss came last month from the International Energy Agency, which estimated in its closely watched oil market report that the UAE pumped 3 million barrels a day in July. According to Petro-Logistics SA, which tracks international oil-shipping movements, the country supplied even more than that in August.
- The U.S. government is paying less as it borrows more, one reason investors appear more comfortable than Congress about funding another leg of stimulus. Interest payments in the federal budget declined about 10% in the first 11 months of this fiscal year, when America was running up its biggest deficit since World War II. Over the next few years, servicing the national debt will be cheaper than any time in the past half-century when measured against the size of the economy, according to the Congressional Budget Office. That’s because yields in the $20 trillion U.S. Treasury market plunged to record lows early in the pandemic — and they’ve risen only slightly since then, even though the supply of debt has surged to a record.
- With his most prominent critic hit by a near-fatal poisoning that opponents and the West blame on the Kremlin, President Vladimir Putinfaces a key test of support in regional elections ahead of a national vote next year. About a third of the electorate is eligible to vote in the ballot that’s being held over three days starting Friday to choose representatives at different levels of government in 83 regions including 18 governors. The contest takes place amid unprecedented anti-government protests in neighboring Belarus and daily demonstrations since July in Russia’s far east Khabarovsk region over the arrest of a popular governor from outside the ruling party. The authorities are taking all possible measures to limit opposition gains, analysts say.
- A French court quashed evidence-gathering raids conducted by tax authorities last year at the Paris headquarters of LVMH Moet Hennessy Louis Vuitton SE. The Paris court of appeals said that tax officials had obtained a warrant to conduct the searches based on an “unfounded” presumption of fraud. French inspectors were investigating suspicions LVMH was pretending it carried out treasury operations in Belgium to lower its tax bill. The judges said in a Wednesday ruling that LVMH Finance Belgique appeared to have enough staff to carry out its treasury activities, rebuffing an argument brought forward by French tax officials. The court further said that pointing out that the unit filed no tax returns in France isn’t enough to warrant raids given that it holds accounts in Belgium, where it is based.
- Billionaire Patrick Drahi is offering 2.5 billion euros ($3 billion) to shareholders to take Altice Europe NV private, in a bid to end five years of share volatility at the French telecommunications company. Drahi, the founder and largest shareholder, will pay 4.11 euros a share through his Next Private vehicle, the companies said in a statement Friday, valuing the entire company at 4.9 billion euros. The offer represents a 24% premium over Thursday’s closing price, and the shares jumped as high 4.22 euros in early trading Friday. The offer “undervalues the company materially – and so we would recommend that shareholders do not accept the offer,” Russell Waller, analyst at New Street Research, said in a research note. “But we do have some sympathy with Patrick Drahi for taking the company public given the depressed valuations.”
- Russian, Chinese and Iranian hackers have stepped up efforts to disrupt the U.S. election by targeting the campaigns of President Donald Trump and Democratic nominee Joe Biden, a Microsoft Corp. investigation found. Cyber-attacks have also been aimed at political parties, advocacy groups, academics and leaders in the international affairs community, according to a blog post Thursday from Tom Burt, corporate vice president of customer security and trust at Microsoft. SKDKnickerbocker, a public affairs and political consulting firm working with Biden’s campaign, was also recently targeted in an unsuccessful hack by suspected Russian state-backed hackers, according to a Thursday report by Reuters, which said that Microsoft had alerted the firm.
- The results of India’s first nationwide serological survey suggests that more than six million people were infected with the coronavirus as early as May, which would place the country well ahead of the current official tally in the U.S. The survey enrolled 28,000 individuals across 70 districts in 21 of India’s 29 states. The study was conducted from May 11 to June 4. The number of infections is an estimate, extrapolating the results of the study to encompass the entire population. “The findings of the first national population-based serosurvey indicated that 0.73 percent of adults in India were exposed to SARS-CoV-2 infection, amounting to 6.4 million infections in total by early May 2020,” the Indian Council of Medical Research said in its survey note.
- ByteDance Ltd., the Chinese owner of video-sharing app TikTok, is planning to make Singapore its beachhead for the rest of Asia as part of its global expansion, according to people familiar with the matter. The Beijing-based company is looking to spend several billion dollars and add hundreds of jobs over the next three years in the city-state, where it has applied for a license to operate a digital bank, said the people, who asked not to be identified because of confidentiality. The investment would come at a crucial time as the technology firm is forced to sell TikTok operations in the U.S. under pressure by the Trump administration.
- Beijing said it will take unspecified retaliatory measures against U.S. diplomats in China, including those working in Hong Kong, following earlier moves by the Trump administration to limit the ways Chinese diplomats can operate on U.S. soil. China notified the U.S. of the “reciprocal” measures being taken against its diplomats, Foreign Ministry spokesman Zhao Lijian said in a statement on Friday evening, without giving any details. “The U.S. practice has severely violated international law and basic norms governing international relations and disrupted China-U.S. relations and normal exchanges between the two sides,” Zhao said.
- Rio Tinto Group Chief Executive Officer Jean-Sebastien Jacqueswill step down amid an investor backlash over the destruction of ancient Aboriginal heritage sites in Australia. The change comes only weeks after Chairman Simon Thompson said Jacques had the board’s backing to handle the fallout from the company’s destruction of the ancient sites. Chris Salisbury, iron ore unit CEO, and Simone Niven, group executive of corporate relations, will also exit. Jacques will remain in his role until the end of March next year, or a successor is appointed, Rio said Friday in a statement.
- Tesla Inc. plans to ship cars made at its Shanghai Gigafactory to other markets in Asia and Europe, according to people familiar with the matter, as the company looks to realize its plan to reduce shipping costs and manufacture vehicles closer to customers. China-built Tesla Model 3s for delivery outside the country likely will start mass production in the fourth quarter, the people said, asking not to be identified because the details are private. They said the markets targeted include Singapore, Australia and New Zealand, as well as Europe. Shipments could start as soon as the end of this year, or early 2021, according to the people.
*All sources from Bloomberg unless otherwise specified