September 14th, 2020

Daily Market Commentary

Canadian Headlines

1. Prime Minister Justin Trudeau will convene his cabinet ministers for two days of closed-door meetings starting Monday as a rising number of new COVID-19 cases threatens to pull the Liberals’ attention from long-term rebuilding to surviving a second wave. The past several weeks have seen a resurgence in COVID-19 across Canada, with the trendlines increasing after a summer lull, sparking reminders from the country’s top public health officer for Canadians not to let their guards down as colder temperatures come. It is in this context that the Liberals’ two-day cabinet retreat will be held. Originally focused on building a post-pandemic economy, the meeting will now also have to contend with the immediate challenge of limiting the damage from a second wave.

World Headlines

1. European equities erased most of their early gains as vaccine optimism quickly faded, with gains in travel, retail and technology stocks offset by declines in oil, health care and financial services. The Stoxx Europe 600 Index was up 0.1% as of midday in London, after rising as much as 0.8% earlier in the day. The gauge is still struggling to cross its 200-day moving average, which has acted as a ceiling to the market in recent weeks.
2. U.S. equity-index futures rose amid a flurry of deal activity and signs of progress toward a vaccine. European shares gave up early gains, while the pound rebounded. Oracle Corp. jumped 7% in pre-market trading on reports the company beat Microsoft Corp. in negotiations for the U.S. operations of TikTok. Immunomedics Inc. doubled after Gilead Sciences Inc. agreed to buy the cancer drugmaker for $21 billion. Global stocks are coming off the back of the first consecutive weeks of declines since March and traders remain on edge given the recent reassessment of valuations and volatility in options markets. The Federal Reserve is expected this week to maintain its dovish stance on policy as investors look for signs the global economy is recovering from the pandemic. Strategists at Goldman Sachs Group Inc. and Deutsche Bank AG suggested the recent pullback in the U.S. is nearing an end.
3. Oil declined as companies from BP Plc to Trafigura Group questioned the future of demand growth days before OPEC and its allies meet to assess whether they’re still managing to shore up the market. The rebound has stalled as OPEC+ returns some supply to the market, with prices last week slipping to the lowest since mid-June. A meeting of the Joint Ministerial Monitoring Committee is scheduled for Thursday. Commodity trader Trafigura Group expects the market to return to surplus, while BP Plc said the relentless growth of oil demand is over and consumption may never return to the levels seen before the pandemic took hold.
4. Gold was little changed as traders await a key Federal Reserve meeting later this week that could provide more clues on the policy outlook. Bullion pared earlier gains and has traded in a tight range in the past month. The Federal Open Market Committee meets Sept. 15-16, and policy makers aren’t expected to change the current guidance on how long interest rates will stay near zero, though it could be a close call. In other markets, U.S. equity futures rose amid amid a flurry of deal activity and signs of progress toward a coronavirus vaccine. Pfizer Inc. Chief Executive Officer Albert Bourla said it’s “likely” the U.S. will deploy a vaccine by year-end.
5. Delta Air Lines Inc. will use its frequent-flyer program as collateral in a $6.5 billion debt sale, mirroring other U.S. carriers that have tapped the valuable assets to build cash as the coronavirus pandemic and travel restrictions suppress demand. The Atlanta-based airline and SkyMiles IP Ltd., a newly created subsidiary named for the loyalty plan, will be co-issuers of the senior secured notes and co-borrowers under the credit facility, Delta said in a statement Monday. The size of each offering were among details not disclosed. Sale of the bonds isn’t contingent upon closing of the term loan, Delta said. United Airlines Holdings Inc. previously tapped loyalty programs to back debt, signaling that financial pressure on carriers isn’t easing as demand for domestic travel remains about 70% below a year ago and international service is almost non-existent. A bid to extend federal payroll aid for carriers remains bogged down in Congress, and airlines continue to burn through tens of millions of dollars daily.
6. The top U.S. diplomat in China, Terry Branstad, is retiring, the American Embassy confirmed Monday, after President Donald Trump touted the former Iowa governor’s expected campaign help in a key swing state. The embassy’s statement resolved hours of uncertainty about Branstad’s status after Secretary of State Michael Pompeo thanked the envoy for his service in a series of tweets, without explicitly whether saying whether he was resigning. Branstad was planning to depart Beijing early next month and return to Iowa, the embassy said.
7. Uber Technologies Inc. returns to a London court this week as it fights to continue operating in the British capital. On Tuesday, Uber will begin a three-day trial at Westminster Magistrates Court by outlining why Transport for London’s decision to strip its operating license should be appealed. It’s the second time the ride-hailing app has faced a legal battle to stay in London in two years. Now, it will have to persuade the magistrate that it’s not a repeat offender, after the court criticized the “gung-ho attitude” of the previous management team at its 2018 appeal.
8. The chairmen of UBS Group AG and Credit Suisse Group AG are exploring a potential merger to create one of Europe’s largest banks, Inside Paradeplatz reported, citing unidentified people inside the two lenders. The project, nicknamed Signal, is being driven by UBS Chairman Axel Weber, who is working on it with his counterpart at Credit Suisse, Urs Rohner, the Swiss finance blog said. Weber has discussed the idea with Swiss Finance Minister Ueli Maurer and an agreement could happen by early next year, according to the report.
9. Global coronavirus cases surpassed 29 million as India, the epicenter of the pandemic, reported more than 90,000 for a fifth straight day. Countries ranging from Iran to Czech Republic are reporting a rise in new cases. Pfizer Inc.’s chief executive officer said it’s likely the U.S. will deploy a Covid-19 shot before the end of the year, though another vaccine maker’s CEO warned global supplies won’t be sufficient until late 2024. AstraZeneca Plc restarted testing after its vaccine trial was halted last week. Israel’s cabinet backed a second national lockdown, while gatherings in the U.K. will be restricted as new cases climb at a pace not seen since May. U.K. bar operator J. D. Wetherspoon’s shares dropped after the company said many customers continue to steer clear of pubs.
10. Boris Johnson puts his law-breaking Brexit plan to its first debate and vote in the House of Commons, amid a growing rebellion in the prime minister’s own Conservative Party over legislation that would override key elements of the divorce treaty signed with the European Union. The bloc has threatened legal action against Johnson if he proceeds — but he’s showing no sign of backing down. The prime minister’s immediate challenge is seeing off the Tory revolt after party heavyweights including former Attorney General Geoffrey Cox criticized the government.
11. Alibaba Group Holding Ltd. is in talks to invest $3 billion into Southeast Asian ride-hailing giant Grab Holdings Inc., according to people familiar with the matter. The Chinese e-commerce giant, a sole investor in the round, will spend a portion of the funds to acquire some of the Grab stock held by Uber Technologies Inc., one of the people said, asking not to be named as the discussions are private. The deal may represent one of Alibaba’s biggest bets on Southeast Asia since its first investment in Lazada in 2016.
12. Merck & Co. plans to take an equity stake and pay as much as $4.5 billion in a series of deals with Seattle Genetics Inc. for two of its cancer drugs. The pair have worked together before, studying combinations of Seattle Genetics cancer drugs with Merck’s blockbuster medicine, Keytruda. Now Merck will take a $1 billion stake in the biotech firm. An investment of 5 million shares to be purchased at $200 a piece — a 33% premium from Friday’s close — will put Merck among Bothell, Washington-based Seattle Genetics’ top ten holders.
13. Gilead Sciences Inc. agreed to acquire Immunomedics Inc. for about $21 billion, a substantial premium for the maker of a promising breast-cancer therapy, and another big bet by Gilead that an innovative tumor-fighting drug can boost its fortunes. The proposed $88-a-share deal values Immunomedics at more than twice its closing price of $42.25 on Friday. The New Jersey-based company makes a breast-cancer treatment called Trodelvy that gained approval from the U.S. Food and Drug Administration in April. Since then, its stock has soared on bets that the clearance could make Immunomedics an attractive takeover target. Trodelvy’s approval came after clinical trial data showed it beat back triple-negative breast cancer for almost four months longer than chemotherapy in patients getting the medication as a third line of therapy. The hard-to-treat disease — which accounts for about 10-15% of all breast cancers — doesn’t respond to many of the current treatment regimens. Immunomedics plans to file for full approval of the medicine later this year.
14. Apple Inc.’s major iPhone assemblers are among the companies expected to win approval to participate in a $6.6 billion stimulus program to bring manufacturing to India, according to people familiar with the matter, a potentially seismic shift as the world’s most valuable company diversifies beyond China. At a cabinet meeting on Wednesday, the Indian government is expected to approve a plan aimed at bringing $150 billion in mobile-phone production over the next five years, said the people, asking not to be identified because the matter is private. Among the dozen phonemakers already cleared by a high-powered government committee are Apple’s primary supplier Foxconn Technology Group, which had submitted two applications, and peers Wistron Corp. and Pegatron Corp., the people said. The three companies make virtually every iPhone sold globally in sprawling factories currently located mainly in China.
15. SoftBank Group Corp. will raise about 1.2 trillion yen ($10.4 billion) from selling about a third of its domestic wireless arm, marking Japan’s biggest secondary share sale in a decade. The Japanese firm said it will sell SoftBank Corp. shares at 1,204.50 yen apiece. Including an over-allotment option, the group will raise about $11.6 billion in total from the deal before fees, the largest sale of stock since 2009.
16. OPEC downgraded its outlook for the global oil market a few days before ministers meet, amid faltering demand and signs of a recovery in supply from U.S. shale drillers. The figures raise questions about the group’s decision to ease production cuts last month. The Organization of Petroleum Exporting Countries added 760,000 barrels a day to global markets in August, just as its analysts were revising down demand for its crude by more than 1 million barrels a day. OPEC and its allies will hold an online monitoring meeting on Thursday to assess whether the vast production curbs they’ve been making are still sufficient to stave off an oil glut as the resurgence of coronavirus batters the world economy.
17. Oracle Corp. edged out rival Microsoft Corp. in negotiations for the U.S. operations of TikTok, people familiar with the talks said, as the Chinese-owned music-video app attempts to avoid getting shut down in a clash between the world’s two superpowers. A deal between TikTok owner ByteDance Ltd. and Oracle will look more like a corporate restructuring than the outright sale Microsoft had proposed, though it is likely to include a stake in a newly configured American business, said one of the people, who asked not to be identified because the information isn’t public. The terms being discussed with Oracle are still evolving, one of the people said. One of the options being explored is that Oracle could take a stake in a newly formed U.S. business while serving as TikTok’s U.S. technology partner and housing the video app’s data in Oracle’s cloud servers. Early offers from both parties valued the U.S. business at about $25 billion, but that was before Chinese officials weighed in with new rules imposing limits on technology exports, said people with knowledge of the matter.
18. Nvidia Corp. agreed to buy SoftBank Group Corp.’s chip division Arm Ltd. for $40 billion, taking control of some of the most widely used electronics technology in the semiconductor industry’s largest-ever deal. Nvidia will pay $21.5 billion in stock and $12 billion in cash for the U.K.-based chip designer, including a $2 billion payment at signing. SoftBank may receive an additional $5 billion in cash or stock if Arm’s performance meets certain targets, the companies said Sunday in a statement. An additional $1.5 billion will be paid to Arm employees in Nvidia stock.
19. China’s record steel output, fueled by a government-aided push to build infrastructure, may keep iron ore prices at more than six-year highs, according to one of Japan’s top steelmakers. “We must prepare for iron ore to move at the current levels” of $120 a ton toward the end of the fiscal year in March, although a slight fall is probable, Masashi Terahata, chief financial officer of Japan’s second-biggest steelmaker, JFE Holdings Inc., said in an interview in Tokyo on Thursday. Iron ore, a key ingredient used to make steel, has rallied nearly 40% this year, and was headed for the highest close since 2014 in Singapore on Monday. The gains have been underpinned by Chinese crude steel output, which topped 90 million tons for a third straight month in July. Strong appetite for the raw material could continue as Beijing’s return to its stimulus playbook will see local governments borrow record amounts to spend on infrastructure this year.
20. Amazon.com Inc. is hiring 100,000 full and part-time employees across the U.S. and Canada, offering starting wages of at least $15 an hour, the latest announcement in the Seattle-based e-commerce giant’s hiring spree. The new jobs include benefits and sign-on bonuses of as much as $1,000 in select cities and access to training programs, the company said in a statement on Monday. This is in addition to the 33,000 corporate and technology employees the Seattle-based e-commerce giant announced last week, it said. Amazon also plans to open 100 new operations buildings in September across fulfillment centers, delivery stations, sorting centers and other sites, the company said the statement.
21. The owner of the New York Sports Clubs chain sought court protection from its creditors, unable to keep up with debt payments after the shutdown caused by the coronavirus outbreak. Town Sports International LLC filed a Chapter 11 bankruptcy petition in the District of Delaware. The move allows the company to keep operating while it works out a plan to pay creditors and turn the business around. It listed both estimated liabilities and assets of $500 million to $1 billion. A number of gym chains were struggling with heavy debt loads even before the virus shuttered the global economy, and now the fitness industry is reeling from forced closures. Gold’s Gym International Inc. sought court protection from its creditors in May. 24 Hour Fitness Worldwide Inc. filed for bankruptcy in June. New York and New Jersey recently allowed fitness centers to re-open, but at limited capacity and with customers and staff required to wear masks.
22. Treasury Secretary Steven Mnuchin opened this month by saying that despite the stalemate over Covid-19 relief funding, the Trump administration and Congress could agree on one thing: a stimulus package was needed. That hasn’t produced serious negotiations, however, and prospects for a relief bill before the November election are dwindling fast. Speaker Nancy Pelosi welcomes the House back on Monday, but that’s unlikely to give fresh impetus to the discussions. Republicans and Democrats both are testing a risky strategy that the public — and voters — will blame the other side for failing to deliver help to millions of households and companies.

*All sources from Bloomberg unless otherwise specified