September 16th, 2020
Daily Market Commentary
- Canadian equity markets continued their rally for a third day, led by real estate and utilities. The S&P/TSX Composite index rose 0.4% in Toronto. The energy sector was the only sector that was on the red. Canada’s housing market hit new all-time highs in August, with sales and prices reaching records. Transactions jumped 6.2% in August, the fourth straight month of strong gains after the market froze at the height of Covid-19 concerns, the Canadian Real Estate Association said Tuesday in a statement. Sales are now 33.5% above year-earlier levels. Benchmark prices rose 1.7% in August and are now 9.4% higher than in August 2019. Meanwhile, the U.S. announced the removal of aluminum tariffs it slapped on Canada last month, after being threatened with retaliatory duties. The decision impacts the 10% tariff on non-alloyed, unwrought aluminum and comes a month after the administration reimposed the tariffs on Canada, citing a “surge” of imports coming from the country.
- Canada’s immigration slump deepened in July, reflecting the impact of closed borders and highlighting a potential downside risk to the economy. The latest government data show Canada admitted 13,645 permanent residents in July, down 63% from the same period last year as Covid-19 travel restrictions continue. July’s figures are in line with the nearly two-thirds drop between April and June, pouring cold water on hopes for a quick rebound. Immigration had been one of the main catalysts of Canada’s economic growth before the pandemic, a driver that looks increasingly under threat. Immigration Minister Marco Mendicino unveiled targets in March for 341,000 permanent residents this year, but through the first seven months only 34% of that number had been granted entry.
- Cominar Real Estate Investment Trust said its board has started a strategic review and hired two investment banks to help it evaluate alternatives. The process will be overseen by a special committee of independent trustees and advised by National Bank Financial and BMO Capital Markets
- The U.S. removed aluminum tariffs it slapped on Canada a little more than a month ago, after being threatened with retaliatory duties. The 10% tariff on non-alloyed, unwrought aluminum was lifted a month after the Trump administration re-imposed them on Canada, citing a “surge” of imports coming from the country. During the summer, U.S. Trade Representative Robert Lighthizer had expressed concern about recent struggles by American aluminum producers. The decision to reverse course in a matter of weeks comes in the shadow of President Donald Trump’s re-election efforts, in which major polls show him trailing Democratic nominee Joe Biden in key battleground states. The tariffs increased domestic aluminum prices amid a shortage of beverage cans in North America, heightening concerns that an increase in the raw material could fall on the shoulders of domestic brewers and soda companies, and eventually consumers.
- European stocks advanced for a fourth day on optimism the global economic slump won’t be as bad as feared, with investors also awaiting the Federal Reserve’s rate decision. The Stoxx Europe 600 Index was up 0.6% at 10:43 a.m. in London, extending gains after the OECD said the world economy will shrink 4.5% this year, less than the 6% forecast in June. Retailers posted the biggest gains after Zara owner Inditex SA surged on earnings that beat analysts’ estimates. Shares in Europe have been in a relatively tight range during the third quarter amid uncertainty around the timing of a potential Covid-19 vaccine, as well as other risks, including continued Brexit wrangling, the upcoming U.S. election and the ongoing trade war between Washington and Beijing. The World Trade Organization warned Tuesday that American tariffs on Chinese goods violate international rules.
- U.S futures advanced with European stocks as investors waited for the outcome of the Federal Reserve’s policy meeting later Wednesday. Treasuries were steady and the dollar slipped. Contracts on the three main American stock gauges pointed to modest gains at the open on Wall Street. FedEx Corp. surged in the pre-market after earnings topped analysts’ estimates on Tuesday. Investors are looking for catalysts to take markets higher after an impressive global recovery sputtered in the first half of September. The Fed is expected to maintain its dovish stance after adopting a more relaxed approach on inflation last month. That’s shoring up sentiment in the face of risks ranging from U.S. presidential elections and the prospect of a no-deal Brexit.
- Japanese stocks closed slightly higher, shaking off a three-day rise in the yen ahead of central bank rate decisions this week. Telecommunications providers and drug makers were biggest boosts to the Topix index, while automakers and banks fell. Both the Topix and Nikkei 225 Stock Average fluctuated between gains and losses in early trading, as the yen strengthened as far as 105.25 per dollar. The U.S. Federal Reserve is expected to maintain a dovish stance in its policy meeting Wednesday, weighing on the greenback. The Bank of Japan, due to unveil its decision Thursday, is also expected to keep policy unchanged.
- Oil extended gains to near $39 a barrel in New York, buoyed by an industry report of a surprise drop in U.S. crude stockpiles and advances in other financial markets. The American Petroleum Institute reported crude stockpiles declined by 9.52 million barrels last week, according to people familiar with the numbers. That contrasts with an increase forecast in a Bloomberg-compiled survey for government data due Wednesday. While the global economy is still expected to shrink this year, the slump won’t be as sharp as previously feared, according to the OECD. Still, oil investors are processing a slew of bearish calls this week. The International Energy Agency warned on Tuesday that the outlook is “even more fragile” due to a resurgence of the coronavirus. That followed weak demand forecasts from BP Plc, Trafigura Group and OPEC. On the other hand, trading giant Vitol Group was more upbeat, saying inventories will likely fall even further this year.
- Gold climbed as the dollar weakened, with investors awaiting the outcome of a key Federal Reserve meeting for more clarity on its approach to stimulating growth and managing inflation. Traders are looking for catalysts to break gold out of its current narrow trading range, after bullion lost momentum since rallying above $2,000 an ounce in early August. The Fed slashed its benchmark interest rate to nearly zero at the onset of the coronavirus pandemic — aiding bullion — and announced there would be no hikes until the economy was “on track.” The Fed’s statement is due at 2 p.m. in Washington, followed by a press conference by Chair Jerome Powell, who said last month the central bank would now seek inflation that averages 2% over time.
- The global economic slump ignited by the pandemic won’t be as sharp as previously feared this year, according to the OECD. The Paris-based institution upgraded its outlook in response to rebounds in activity since lockdowns eased, saying the world economy will probably shrink 4.5%. Even so, the toll is mounting for airlines. British Airways is expecting to cut as many as 10,000 jobs due to the pandemic and Deutsche Lufthansa AG is preparing for more drastic cutbacks in its workforce and airline fleet after a hoped-for recovery of air traffic fizzled out. President Donald Trump said a vaccine may be ready within four weeks. JPMorgan Chase & Co. sent some Manhattan traders home after an employee tested positive, highlighting the challenges of New York City’s reopening.
- Federal Reserve officials, who recently unveiled a more relaxed strategy on inflation, have an opportunity Wednesday to back up the plan with details as they look to accelerate the U.S. economic recovery. The Federal Open Market Committee is all but certain to keep its benchmark overnight rate in a target range of 0% to 0.25%, where it’s been since March 15 to help soften the Covid-19 pandemic’s blow. The committee, in its final scheduled meeting before the U.S. election on Nov. 3, will release a statement and economic forecasts at 2 p.m. Washington time. Chair Jerome Powell will hold a press briefing 30 minutes later. Officials are expected to project rates staying near zero though 2023, reinforcing the message delivered by Powell in late August that they will delay tightening policy to achieve inflation that averages 2% over time. The new strategy, announced at the Fed’s virtual Jackson Hole conference, tolerates inflation overshooting to make up for past misses and explicitly views maximum employment as a broad-based and inclusive goal.
- THG Holdings Ltd.’s shares surged as much as 32% after the online shopping emporium raised 1.88 billion pounds ($2.4 billion) in a London initial public offering, cashing in on consumers turning to digital retail during the coronavirus pandemic. The stock was trading up 29% at 645.50 pence at 11:34 a.m. in London from the fixed IPO price of 500 pence. The sale is the biggest float on the London Stock Exchange since Allied Irish Banks Plc’s $3.8 billion offering in June 2017, according to data compiled by Bloomberg. Shares opened at 600 pence, up 20% on the issue price, making it the best debut in London for an IPO worth more than $100 million since Codemasters Group Holdings Plc’s 24% pop in May 2018, the data show.
- Pension and sovereign wealth funds are set to offload about $200 billion of equities as they rebalance their portfolios, posing a risk for global shares, according to JPMorgan Chase & Co. This would be the most negative quarterly adjustment since the pandemic hit, strategists led by Nikolaos Panigirtzoglou said Tuesday. The overall figure stems from calculations spanning U.S. defined-benefit pension portfolios, Japan’s Government Pension Investment Fund and Norway’s oil fund. Institutions tend to adjust portfolios each quarter to maintain their target asset allocation. A gauge of global stocks has climbed about 10% since the end of June, exceeding returns from fixed income and pointing to the need for some funds to adjust their investment mix back to preferred limits.
- Amazon.com Inc. plans to open 1,000 small delivery hubs in cities and suburbs all over the U.S., according to people familiar with the plans. The facilities, which will eventually number about 1,500, will bring products closer to customers, making shopping online about as fast as a quick run to the store. It will also help the world’s largest e-commerce company take on a resurgent Walmart Inc. Amazon couldn’t fulfill its two-day delivery pledge earlier this year when shoppers in Covid-19 lockdown flooded the company with more orders than it could handle. While delivery times have improved thanks to the hiring of 175,000 new workers, Amazon is now consumed with honoring a pre-pandemic pledge to get many products to Prime subscribers on the same day. So with the holidays approaching, Chief Executive Officer Jeff Bezos is doubling down by investing billions in proximity, putting warehouses and swarms of blue vans in neighborhoods long populated with car dealerships, fast-food joints, shopping malls and big-box stores.
- The global economic slump won’t be as sharp as previously feared this year, though the recovery is losing pace and will need support from governments and central banks for some time yet, according to the OECD. The world economy will shrink 4.5% this year, less than the 6% forecast in June, the Paris-based institution said on Wednesday, upgrading its outlook in response to rebounds in activity since lockdowns ended. There were big revisions for the U.S. and the euro area, as well as China, which is now forecast to grow modestly, the only Group of 20 country with such a prospect.
- Bank of England officials are expected to lay the groundwork this week for yet more monetary stimulus as optimism over the U.K.’s economic rebound from the coronavirus pandemic fizzles out. While economists and investors don’t see immediate action, they widely predict the BOE’s bond-buying program will be expanded again before the end of the year. The latest policy decision, released at noon London time on Thursday, will likely back that view. With job losses mounting, new social restrictions to counter rising infections, and trade talks with the European Union in peril, Britain looks set for a turbulent end to 2020. Inflation data Wednesday came in far below the central bank’s target.
- China’s policy makers are in no rush to rein in a rapid advance in the yuan, as traders push the currency toward its largest quarterly rally on record. The yuan has strengthened 4.5% since the end of June to 6.7566 per dollar, set for the biggest ever quarterly gain in Bloomberg data going back to 1981. The currency is the best performer in Asia in the third quarter, with the buying momentum close to the strongest since January. The yuan is being supported by a slump in the dollar, while Chinese media has been attributing the gains to the nation’s economic recovery. The People’s Bank of China has also helped by not standing in its way, which for some in the market is an incentive for the currency to push higher. Beijing’s daily fixings have tracked the spot rate, and officials have not expressed any concern over the currency’s strength.
- Job losses at banks this year are on course to be the deepest for half a decade. After a pause during lockdown, lenders from Citigroup Inc. to HSBC Holdings Plchave restarted cuts, taking gross losses announced this year to a combined 63,785 jobs, according to a Bloomberg analysis of filings. That puts the industry on track to exceed the almost 80,000 disclosed last year, the biggest retrenchment since 2015. More than 30 lenders — from Europe, North America, Asia and Africa — are behind the planned reductions. The actual total is probably higher because many banks eliminate staff without disclosing their plans. The banks cited a need to reduce expenses to offset the cost of credit souring during the pandemic as well as spending to comply with stricter regulation and invest in digital technology.
- Hurricane Sally made landfall in U.S. Gulf Coast, where it could inflict as much as $5 billion in damage and losses across Mississippi, Alabama, and the Florida Panhandle from “catastrophic” flooding in the region. Sally came on land near Gulf Shores, Alabama at 5:45 a.m. New York time Wednesday, according to the National Hurricane Center. The storm had wind speeds of 105 miles (169 kilometers) per hour, making it a Category 2 hurricane on the five-step Saffir-Simpson scale, as it moves toward the coast at 3 mph. “Historic, life-threatening flash flooding is likely,” Dan Brown, a hurricane center forecaster, wrote in his outlook. “In addition, this rainfall will lead to widespread moderate to major flooding on area rivers.”
- The European Union will sell 225 billion euros ($267 billion) of green bonds as part of its pandemic recovery fund, in what could be a watershed moment for the expanding market. The debt will make up about 30% of the EU’s 750 billion euro rescue package, Commission President Ursula von der Leyen said in a policy address. She also proposed tightening its emissions-cutting goal to at least 55% by 2030 to cut industrial pollution and spur a green economic recovery
- Adobe Inc. shares rose 2.8% in premarket trading on Wednesday, after the software company reported third-quarter results that beat expectations and gave an outlook that analysts said appeared conservative. Analysts singled out the company’s Digital Media business as a bright spot, especially strength in its net new annual recurring revenue. At least two firms raised their price target on the stock, which has already been a notable outperformer this year.
- Coronavirus vaccine shots will be ready for public use as early as November or December in China, said the country’s top bio-safety scientist this week, a timeline that would make the Asian giant one of the first in the world to reach the milestone. Final stage clinical trials of several vaccine candidates have progressed very smoothly, said Wu Guizhen, chief bio-safety expert at China’s Disease Control and Prevention Center, in an interview with state television on Tuesday. She herself took a vaccine shot in April and has felt “nothing abnormal.”
- Uber Technologies Inc. has agreed to sell its European freight business in an all-stock transaction to Berlin-based logistics startup Sennder. The deal values the unit at less that 900 million euros ($1.1 billion), a person familiar with the situation said, asking not the be identified as the details are private. Uber will acquire a minority stake in Sennder as part of the transaction, the companies said in a statement Wednesday. The partnership includes a program in which Sennder will refer customers seeking services in North America to Uber Freight and vice versa.
- President Donald Trump is preparing to decide whether to approve Oracle Corp.’s alliance with the Chinese-owned video app TikTok after security experts examined the companies’ proposal. A U.S. national security panel reviewed the bid Tuesday afternoon, but didn’t make a recommendation that the president approve or reject the deal, according to a person familiar with the matter. Speaking to reporters on the South Lawn of the White House, Trump said his staff are “very close to a deal” and signaled what could be telling support for Larry Ellison, Oracle’s chairman.
- Cloud-data software maker Snowflake Inc. raised $3.36 billion in the year’s biggest U.S. initial public offering for an operating company, pricing its shares above the marketed range. The San Mateo, California-based company sold 28 million shares Tuesday for $120 apiece, according to a statement. Snowflake had marketed the shares for $100 to $110 apiece, a range that was boosted from $75 to $85 on Monday. The listing ranks as the biggest U.S. IPO this year, excluding the $4 billion offering by the special purpose acquisition company, or SPAC, backed by billionaire Bill Ackman.
- Former Deutsche Bank AG analyst David Liew told a Chicago jury he saw two senior traders he worked with manipulate precious-metals prices using bogus orders intended to “spoof” the market. Liew, who already pleaded guilty to spoofing charges and is cooperating with the government, said Cedric Chanu and James Vorley put in orders for trades they never intended to execute so they could reap illegal profits. Liew said he sat next to Chanu in the bank’s Singapore office from 2009 to 2012 and communicated daily on a live video chat with Vorley in London. Vorley and Chanu are on trial for fraud and conspiracy, accused of issuing multiple trade orders between 2008 and 2013 that they canceled before executing in a bid to influence gold and silver prices. The case is the latest prosecution of a “spoofing” case brought by the U.S. since the so-called “flash crash” a decade ago.
- Joe Biden’s climate plan promises to put the U.S. on a path to 100% clean energy and net-zero carbon emissions “no later than 2050.” It also vows that greening the U.S. economy will create millions of good-paying jobs, many of them in unions. With this plan, the Democratic nominee for president has achieved an extraordinary feat: winning over both environmental activists and organized labor. But keeping those often-opposed constituencies happy inside the Democratic Party’s big tent will get tougher if the former vice president manages to get elected in November and has to choose between them. “As an environmental economist, I would be very skeptical about trying to combine an environmental policy with a jobs policy,” says Robert Stavins of the Harvard Kennedy School. “It sounds good, but there’s always the risk that as a result of trying to hit two birds with one stone, I miss both birds.”
*All sources from Bloomberg unless otherwise specified