September 17th, 2020
Daily Market Commentary
- Canadian equity markets halted their three-day winning streak as tech stocks under performed. The S&P/TSX Composite Index fell 0.8% in Toronto after rising for three consecutive sessions. Tech and consumer discretionary stocks were the worst performers, while health care and energy were the best. Air Canada rose 5.7% after Canada’s transportation minister said the government may loosen the country’s 14-day quarantine period for international travelers.
- The world’s biggest gold producer sees the price of the precious metal remaining “elevated” as governments continue pandemic stimulus spending, but don’t expect that to change Newmont Corp.’s focus on fiscal “discipline” any time soon. Gold skyrocketed to record heights above $2,000 an ounce in August, helping lift miners’ cash flow, stock prices and likely the hopes of shareholders expecting higher returns. Spot gold has since dipped a bit, but the haven metal is still trading in record territory above $1,900. “There are a lot of signals that point to gold staying at these elevated levels — with I think a lot of volatility around it — for some time to come,” Newmont Chief Executive Officer Tom Palmer said by phone.
- European stocks fell, ending their longest winning streak in a month, after Federal Reserve Chair Jerome Powell highlighted uncertainty about the path of economic recovery. The Stoxx Europe 600 Index dropped 1.1% as of 8:14 a.m. in London, after the Fed vowed to keep interest rates near zero through 2023, while announcing no new measures. All 19 industry groups were down, with automakers among them after a report showing car sales plunged by nearly a fifth in August, dashing hopes of a recovery. Banks and miners also underperformed, falling more than 2% each. While European shares rose for four straight days through Wednesday, today’s decline once again takes the Stoxx 600 below the 200-day moving average hurdle it struggled to overcome all summer. Investors seeking fresh catalysts for gains were underwhelmed by the Fed’s update, moving on to focus on the Bank of England’s decision due later today.
- Future contracts on U.S. equity indexes fell after Federal Reserve Chairman Jerome Powell’s guidance disappointed some investors. Equities futures pared some of their earlier drop, though remained weak in a signal that the underlying U.S. stocks will extend their losses from Wednesday after Powell highlighted uncertainty over the speed of the economic recovery. Technology stocks’ contracts led the decline with Apple Inc. and Tesla Inc. falling 1.1% and 2.5% respectively in pre-market trading. Sentiment remains weak for tech stocks despite occasional recovery attempts over the past week.
- Japanese stocks fell on a stronger yen as the U.S. Federal Reserve maintained its policy and Chair Jerome Powell highlighted the uncertainty of an economic rebound without further stimulus. Automakers and railway companies were the biggest drags on the benchmark Topix index. There was little change in the local equity market after the Bank of Japan’s midday statement, in which it maintained its monetary policy while giving a less pessimistic view of the economy.
- Oil steadied after its biggest surge since June as the OPEC cartel and its partners prepared to assess a downbeat outlook for the crude market. Futures slid 0.1% in New York to trade near $40 a barrel. Earlier, oil joined other commodities and European stocks in moving lower as the dollar climbed, though later steadied, after Federal Reserve Chair Jerome Powell highlighted uncertainty about the economic rebound. The OPEC+ Joint Ministerial Monitoring Committee convenes at 2 p.m. Vienna time to assess whether vast production cuts they’ve made are tackling a global oversupply.
- Gold slipped after the dollar steadied, while investors weighed signals from the Federal Reserve that interest rates would be kept near zero for at least three years as it seeks faster inflation. The guidance from the two-day Federal Open Market Committee meeting that ended Wednesday was another step in an evolving communication strategy, after the Fed said last month it would seek inflation that averages 2% over time. Some investors had expected more clarity on further steps, hoping gold could break out of its current narrow trading range. Bullion has gained 28% this year but has lost momentum since rallying above $2,000 an ounce in early August.
- Global coronavirus cases are nearing 30 million, with the death toll approaching 1 million. India reported almost 98,000 new infections, a fresh daily record that further added to what’s already the world’s second largest tally. European car sales plunged by nearly a fifth in August, dashing hopes that the industry was starting to recover and suggesting that the market could remain depressed through year-end. President Donald Trump said a coronavirus vaccine could be distributed widely to the public as early as October, contradicting statements by some of his top health officials with forecasts that ranged from the spring to the end of 2021.
- Las Vegas Sands Corp.’s Singapore casino has hired a law firm to conduct a new investigation into employee transfers of more than $1 billion in gamblers’ money to third parties, according to people familiar with the matter. Davinder Singh Chambers LLC, which specializes in dispute resolution and international arbitration, was appointed after Singapore police began a probe of third-party transfers at Marina Bay Sands Ltd., said the people, who asked not to be identified discussing private matters. The review by one of Singapore’s best-known law firms adds to scrutiny of the casino by the U.S. Department of Justice and Singapore authorities after a patron sued the firm last year alleging that S$9.1 million ($6.7 million) of his money was transferred to other gamblers without his knowledge. The lawsuit was settled out of court in June, with the casino agreeing to reimburse the full amount. There was a “non-admission” of liability from both sides.
- Uber Technologies Inc. is seeking to sell part of its $6.3 billion stake in China’s Didi Chuxing, as it begins to shed minority holdings to raise cash, according to people familiar with the matter. The San Francisco-based ride-hailing pioneer is beginning to monetize stakes in other companies in an effort to boost its own share price, the people said, asking not to be identified because the discussions are private. Uber closed at $37.66 Wednesday, well below the $45 a share at which it went public in May 2019. Uber Chief Executive Officer Dara Khosrowshahi is in discussions about the sale with Didi and SoftBank Group Corp., the Japanese conglomerate that is a major shareholder in both companies, the people said. While various scenarios are under discussion, one option is for SoftBank to team up with other investors to acquire a minority of Uber’s 15% stake, one person said. Didi, which needs to approve any sale, is unlikely to buy shares itself, another person said.
- Kioxia Holdings Corp., the memory chipmaker spun out of Toshiba Corp. in 2018, priced its initial public offering Thursday to raise as much as 306.7 billion yen ($2.9 billion). The company aims to sell 87.63 million new and existing shares at 2,800 to 3,500 yen apiece, in what would be Japan’s biggest IPO this year. That’s down sharply from an initial price of 3,960 yen proposed in August. Kioxia will determine final pricing on Sept. 28 before an Oct. 6 listing at a market value of up to 1.89 trillion yen. Shareholders including Toshiba and major backer Bain Capital will be offering shares as part of the debut. Toshiba, a Japanese conglomerate founded in the 1800s, invented flash memory three decades ago, but suffered a series of missteps in recent years. The Japanese company had to sell the business to a group of investors led by Bain two years ago to pay for losses at its bankrupt nuclear power unit, although Toshiba retained a 40% stake. The deal comes with an over-allotment option of an additional 7.9 million shares, according to a previous filing.
- The European Union’s antitrust arm would likely oppose Italy’s plan to create a single national broadband network controlled by former monopoly Telecom Italia SpA, according to people familiar with the matter. Telecom Italia shares fell as much as 7.4%. EU competition officials led by Margrethe Vestager are concerned that a proposed combination of Telecom Italia’s landline network and its smaller, state-backed rival Open Fiber SpA would create a monopoly, reversing two decades of deregulation, said the people, who asked not to be identified as the deliberations are private. Telecom Italia Chief Executive Officer Luigi Gubitosi has been pushing for an Open Fiber deal for months, and has made it clear the company won’t cede control of the network once it becomes Italy’s single provider of wholesale fixed-line broadband access.
- Democratic presidential nominee Joe Biden delivered a warning to Boris Johnson, ruling out any U.K.-U.S. trade deal if the prime minister’s plan to renege on parts of the Brexit agreement threatens peace in Northern Ireland. “We can’t allow the Good Friday Agreement that brought peace to Northern Ireland to become a casualty of Brexit,” Biden said on Twitter. “Any trade deal between the U.S. and U.K. must be contingent upon respect for the Agreement and preventing the return of a hard border. Period.” Johnson has long touted a free-trade accord with the U.S. as one of the key prizes of Brexit. However, Biden’s intervention underscores how the prime minister is struggling to contain the political fallout from his plan to unilaterally rewrite the divorce treaty he signed with the European Union less than a year ago.
- Less than a week after Senate Republicans united behind a slimmed-down fiscal stimulus package, President Donald Trump renewed divisions in the party over how much Covid-19 relief the U.S. economy needs. Trump urged the GOP in a tweet Wednesday to “Go for the much higher numbers” in new coronavirus stimulus. He followed up at a White House news conference by saying he liked “the larger numbers” in a compromise $1.5 trillion stimulus plan from a bipartisan group of House lawmakers.
- Oracle Corp. will get full access to review TikTok’s source code and updates to make sure there are no back doors used by the company’s Chinese parent to gather data on the video-sharing app’s 100 million American users, according to people familiar with the matter. TikTok parent ByteDance Ltd. and Oracle submitted these details in their proposal to the Trump administration with a goal of averting an outright sale of the app or a shutdown of its U.S. operations set to take effect Sept. 20. U.S. President Donald Trump has threatened to ban the app in a pair of executive orders issued last month based on U.S. national security concerns. The terms of the agreement seem to fall short of meeting those national security concerns expressed by administration officials including Secretary of State Mike Pompeo, according to people familiar with the matter. Pompeo, Attorney General William Barr and other members of the administration have been talking directly with Oracle executives, one person said.
- The Dakota Access oil pipeline is poised to stay in service at least through December under a new court schedule, assuming the Trump administration doesn’t force a shutdown. Under the proposed briefing schedule filed Wednesday, a federal court in Washington won’t be prepared to rule until late December, at the earliest, on a renewed bid to halt the line. The proposed schedule would give tribes opposed to the Dakota Access until Oct. 16 to file a new request to shutter it. Lawyers for the Army Corps of Engineers and pipeline operator Energy Transfer LP would have until Nov. 20 to respond, and the tribes would have until Dec. 18 for final briefs.
- The Bank of England gave the clearest signal yet that it may consider cutting interest rates below zero as the economy enters a period of unusual uncertainty. The pound fell. Policy makers, led by Governor Andrew Bailey voted unanimously to maintain their key interest rate at 0.1% and asset purchase target unchanged at 745 billion pounds ($966 billion) on Thursday. But they also said they’ll hold “structured engagement” with the Prudential Regulation Authority later this year on how negative rates could be implemented. “The MPC had been briefed on the Bank of England’s plans to explore how a negative bank rate could be implemented effectively, should the outlook for inflation and output warrant it at some point during this period of low equilibrium rates,” minutes of the meeting said.
- The European Central Bank offered lenders a fourth round of regulatory relief to help massive stimulus efforts feed through to a virus-stricken economy. Banks will be temporarily allowed to tweak the math behind a financial strength metric known as the leverage ratio to their benefit by stripping out deposits held at central banks, the ECB said in a statement on Thursday. With a looser leverage ratio for the next nine months, banks will be able to make more loans with less capital. The coronavirus plunged an already sluggish eurozone economy into its deepest recession in living memory. The ECB responded by ramping up bond purchases to keep borrowing costs low, while aiming to ensure banks are able to pass on cheap credit to companies and individuals.
- Traders at Barclays Plc’s London headquarters were sent home at the start of this month after two employees tested positive for coronavirus, according to Financial News. Staff on the British lender’s trading floor who had interacted with the pair were sent home to quarantine for 14 days and the entire floor was given a deep cleaning, Financial News reported, citing a Sept. 2 memo. Barclays declined to comment. The decision underlines the challenges companies face as they attempt to bring workers back to the office. JPMorgan Chase & Co. sent some of its Manhattan workers home this week after an employee in equities trading tested positive for Covid-19, just days after senior traders were told to return.
- Federal Reserve officials held interest rates near zero and signaled they would stay there for at least three years, vowing to delay tightening until the U.S. gets back to maximum employment and 2% inflation. The U.S. central bank “expects to maintain an accommodative stance” until those outcomes are achieved, it said in a statement Wednesday following a two-day meeting that beefed up its description of future policy. The fresh guidance is the Fed’s first step in an evolving communication strategy, after it unveiled a new long-term policy framework last month to allow inflation to overshoot its 2% target after periods of under-performance.
- Southwest Airlines Co. temporarily grounded 130 Boeing Co.737-800 jets after it discovered discrepancies in aircraft weight data. The carrier expects some flight delays and cancellations while it resets the program to enter the correct weights, it said in an emailed statement Thursday. The impact on operations is expected to be minimal. The discrepancy in weight was 75 pounds, Southwest said. It said it was idling the 130 jets out of an abundance of caution. The 737-800 is a different model than the 737 Max narrow-body that’s been grounded since March 2019 after two fatal crashes.
- Blackstone Group Inc. and billionaire Prem Watsa’s Fairfax Financial Holdings Ltd. are investing $500 million in an algorithm that could help transform the world’s oldest insurance exchange. The investment giants have thrown their backing behind an algorithm-driven insurance syndicate at Lloyd’s of London, according to a statement Thursday. The deal will fund the expansion of the business, called Ki, to be launched before the end of this year by Fairfax-owned Brit Insurance Holdings.
*All sources from Bloomberg unless otherwise specified