September 28th, 2020

Daily Market Commentary

Canadian Headlines

  1. Amazon.com Inc. expects to nearly triple its workforce in Vancouver, where software engineers are cheap, smart and plentiful. The online retail giant plans to occupy a bunker-like former Canada Post mailing center that’s being redeveloped into a new 680,000 square-foot office to house 8,000 jobs by 2023, Jesse Dougherty, a vice president and Vancouver site lead at Amazon, said by phone. Currently, the company has 2,700 full-time employees at its city hub. It also plans to add 500 jobs in Toronto, according to a statement released Monday. A weak loonie, lower wages and a steady flow of graduates make Canada an attractive place to expand for tech companies whose largest expense is labor. The average wage of a software developer in Vancouver last year was $92,726, compared to $141,785 in San Francisco or $128,067 in Amazon’s hometown of Seattle, according to a July report by real estate firm CBRE Group Inc. Once rental costs are folded in, the cost of running a 500-employee operation in the Canadian city is half that of a similar-sized operation in the Bay Area, it found.

World Headlines

  1. European stocks rose, rebounding from their biggest weekly drop in more than three months, with banks leading the advance. The Stoxx Europe 600 Index added 1.5% as of 8:18 a.m. in London, following Wall Street gains on Friday. HSBC Holdings Plc jumped 11% after Ping An Insurance Group Co., its biggest shareholder, raised its stake in the lender. Cyclicals outperformed, with a report over the weekend showing a fourth month of growth in Chinese industrial profits. After a summer lull, European stocks are heading for their worst monthly decline since March, although Monday’s rally is tempering the drop. Investors are bracing for a busy week of politics, with U.S. presidential candidates set to debate tomorrow, while the U.K. and European Union are starting a key round of Brexit talks.
  2. U.S. futures and Asian equities gained, while the dollar weakened and Treasury yields rose. The pound strengthened on hopes that U.K. and European Union officials will be able to make progress as a key week of Brexit talks begins. Still, global equities remain on course for the first month of losses since March after investors sold overheated technology stocks and fears about a resurgence in the virus weighed on airlines and retailers. Tensions between Beijing and Washington continue to simmer. President Donald Trump’s ban on TikTok was temporarily blocked by a federal judge, dealing a blow to the government in its showdown with the popular Chinese-owned app over national security concerns. China’s largest chipmaker, Semiconductor Manufacturing International Corp., sank to a four-month low in Hong Kong after the U.S. imposed export restrictions.
  3. Japanese equities rose on the last day many stocks traded with rights to the next dividend. Major gauges dramatically extended gains in the last hour of trading, one day before some 1,100 Topix names trade ex-dividend. Battered retail stocks including J. Front Retailing Co. and Isetan Mitsukoshi Holdings Ltd. were the biggest gainers on the Nikkei 225 Stock Average, while the Nikkei 500 climbed to a record high. The yen inched higher after retreating 1% against the dollar last week.
  4. Oil reversed an earlier decline following a weaker dollar and a broader rally in markets. The U.S. currency hit a session low, making commodities priced in the greenback more attractive, and European equities rallied the most in two weeks. The oil market, however, still faces an uncertain outlook with an executive at trading giant Vitol Group saying prices have little room to gain in the fourth quarter because the demand recovery is slowing amid new coronavirus restrictions. Additional supply from Libya is adding to those worries. After a blockade was partially lifted last week, output in the OPEC member has almost tripled to 250,000 barrels a day, according to people familiar with the matter. It’s set to expand further as ships load crude from storage, allowing fields to pump more, the said.
  5. Gold declined, after posting the biggest weekly drop since March, as stock markets climbed on optimism that the recent selloff was overdone. The metal touched a fresh two-month low as equities gained around the world, while the dollar’s recovery stalled. It could be a potentially volatile week for markets, with Tuesday’s first presidential debate between Donald Trump and Joe Biden, as well as Friday’s jobs report — the last before the November election — on the agenda. Investors are still on alert as risks mount for the world’s economic recovery from fresh waves of the coronavirus, and as U.S. stimulus measures hit an impasse. While weekend data on industrial profits in China showed a fourth month of expansion, a wider set of gauges point to a slowdown in the pace of the country’s post-virus bounce back.
  6. More than thirty of the largest U.S. companies have agreed to new disclosures of previously private race, gender and ethnicity workforce data as part of a push by the New York City comptroller and three city retirement funds. Amazon.com Inc., General Motors Co. and Goldman Sachs Group Inc. are among 34 companies that have agreed to share the regulatory filing when they report new numbers next year, Comptroller Scott Stringer said in a statement Monday. More than a dozen S&P 100 companies already release the detailed form but they are the exception, not the rule. The initiative is part of a broader push to compel workforce transparency at companies that have made explicit statements of support for equality after broad protest of the killing of George Floyd by Minneapolis police and disproportionate deaths of minorities from Covid-19. Two other groups were formed earlier this month to ensure all public companies have at least one Black director.
  7. The U.K. and European Union are starting a key week of Brexit talks, with the bloc stiffening its demands over how any trade deal will be enforced after losing trust in Boris Johnson because of the prime minister’s attempt to rewrite last year’s divorce agreement. The final round of scheduled discussions between the EU’s chief Brexit negotiator, Michel Barnier, and his British counterpart, David Frost, begins in Brussels on Tuesday with officials on both sides expressing cautious optimism a deal can be reached. If the two sides make enough progress by Friday, they could embark on a two-week period of intense discussions — the so-called Brussels “tunnel” — to hammer out a compromise in time for a summit of EU leaders on Oct. 15, Johnson’s self-imposed deadline for striking a deal.
  8. Germany lifted its planned government debt sales for the last three months of the year, capping a surge in issuance in 2020 to fund stimulus against the damage from the coronavirus, the country’s Federal Finance Agency said. The nation will issue 50.5 billion euros ($58.9 billion) of bonds and bills next quarter, 6 billion euros more than originally planned last year. That will include its second green bond, in a five-year maturity, after a debut sale this month drew huge demand. The agency usually uses the fourth quarter to cut issuance, though the coronavirus has thrown a spanner into its plans this year. The figure was still below the 146 billion euros issued in the third quarter.
  9. Uber Technologies Inc. was awarded an 18-month London license after a judge ruled that the ride-hailing app is “fit and proper” to operate in its biggest European market. “Despite their historical failings, I find them, now, to be a fit and proper person” to hold a London license, Deputy Chief Magistrate Tan Ikram said in his ruling on Monday. The duration of the permit was decided after submissions by Uber and its regulator Transport for London. When the company appealed the loss of its license the first time around, in 2018, it was granted a 15-month license by the court.
  10. Global Covid-19 cases topped 33 million as infections in India reached the 6 million mark. The official death toll neared one million worldwide, though experts say the real tally may be almost double that. Germany could face more than 19,000 new Covid-19 cases a day by Christmas, Chancellor Angela Merkel warned on Monday. Meanwhile, the U.K. is preparing to enforce a social lockdown across much of northern Britain and potentially London amid a second wave, the Times of London reported. On Monday, a U.K. health minister refused to rule out more restrictions, even as lawmakers pushed back against allowing the government unfettered power to introduce new curbs. Russia is also seeing a resurgence of cases, and Moscow has started to reopen temporary hospital wards after daily coronavirus infections in the Russian capital soared. The Group of 20 Leaders’ Summit planned for Saudi Arabia will now be held “virtually” in November.
  11. President Donald Trump and Democrat Joe Biden square off for 90 minutes in their first debate Tuesday and political pros on both sides are fretting the most about a viral moment that can turn a good performance into a disaster that’s remembered for generations. A single ill-advised answer could turn off a crucial demographic in a battleground state. A subconscious gesture could go viral, undermining the candidate’s carefully constructed image. Or the debate could simply prove a missed opportunity when there’s few of them left before the Nov. 3 election. Biden has to worry about looking confused or unsure, or even interrupting himself to note that his time is up, as he did several times during the primary debates.
  12. Devon Energy Corp. agreed to acquire WPX Energy Inc. in a $2.56 billion all-stock deal, creating one of the largest independent U.S. shale producers and answering investor calls for consolidation at a time of crisis for the sector. Devon shareholders will own about 57 percent of the combined company, Devon and WPX said Monday in a statement. The combination will create one of the biggest independent shale producers in the country, tying together two companies with sizable operations in the hottest part of the prolific Permian Basin, which straddles West Texas and southeastern New Mexico. U.S. shale company shareholders, frustrated after years of poor returns and missed targets, have long called for the industry to consolidate in order to cut costs, and some have advocated for low- to no-premium deals, just to get them across the finish-line. The plunge in oil prices this year, which has left much of the industry unprofitable, has only added to the impetus for mergers and takeout’s, particularly in the Permian, where scores of producers operate side by side.
  13. Investors withdrew money from exchange-traded funds that buy emerging market stocks and bonds last week. Outflows from U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $635.9 million in the week ended Sept. 25, compared with gains of $83.8 million in the previous week, according to data compiled by Bloomberg. So far this year, outflows have totaled $15.8 billion.
  14. Caesars Entertainment Inc. said William Hill Plc’s board would likely recommend its 2.9 billion-pound ($3.7 billion) takeover offer price, giving it an edge over rival suitor Apollo Global Management Inc. The British gambling group confirmed it received approaches from both U.S. companies after Bloomberg reported Apollo’s interest on Friday. William Hill shares fell 12% to 275.9 pence as of 10.18 a.m. in London — close to Caesar’s bid of 272 pence — as investors reined in expectations of a hefty counteroffer by the private equity firm. Caesars’ power over an existing joint venture with William Hill “makes rival offers unlikely,” said Goodbody analyst Gavin Kelleher. The bid represents a 25% premium over William Hill’s closing price before the takeover interest emerged.
  15. Cleveland-Cliffs Inc. will buy the U.S. operations of ArcelorMittal SA for $1.4 billion in cash and shares to become the biggest flat-rolled steel producer in North America. Ohio-based Cleveland-Cliffs expects its second major deal in less than a year to boost sales to the important automotive market and help reduce costs. Earlier this year, the global steel industry saw its biggest slump in production in a decade as demand from key consumers was hit hard by coronavirus lockdowns. Even before the pandemic, the sector had struggled for years with excess production capacity.
  16. Democrats are wading into the confirmation fight over Supreme Court nominee Amy Coney Barrett, aiming to avoid the vitriol that accompanied President Donald Trump’s last court pick and focusing on what they see is a winning election issue — the future of Obamacare. Party leaders from presidential nominee Joe Biden to Senate Minority Leader Chuck Schumer to House Speaker Nancy Pelosi delivered the cues for Democrats to follow over the next few weeks as the White House and Senate Republicans speed Barrett through to confirmation.
  17. The Turkish lira and Russian ruble came under fresh pressure on Monday as fighting between Armenia and Azerbaijan curbed appetite for the currencies of their bigger neighbors. The lira sank to a record and the ruble was trading near lows last seen at the peak of the coronavirus panic six months earlier. The reaction underscored the currencies’ vulnerability — a surprise rate hike last week in Turkey failed to stem the lira’s declines, while jitters about possible sanctions on Russia have hurt the ruble in recent weeks.
  18. Donald J. Trump paid $750 in federal income taxes the year he won the presidency. In his first year in the White House, he paid another $750. He had paid no income taxes at all in 10 of the previous 15 years — largely because he reported losing much more money than he made. As the president wages a re-election campaign that polls say he is in danger of losing, his finances are under stress, beset by losses and hundreds of millions of dollars in debt coming due that he has personally guaranteed. Also hanging over him is a decade-long audit battle with the Internal Revenue Service over the legitimacy of a $72.9 million tax refund that he claimed, and received, after declaring huge losses. An adverse ruling could cost him more than $100 million.
  19. Inovio Pharmaceuticals Inc. put a partial hold on a phase 2-3 study of its Covid-19 vaccine after U.S. regulators raised questions about a delivery device used in the inoculation. The U.S. vaccine maker is working to answer questions from the U.S. Food and Drug Administration about the Cellectra 2000 device used in the trial, Plymouth Meeting, Pennsylvania-based Inovio said Monday in a statement. The hold is not due to any adverse events from the vaccine, Inovio said. The company plans to respond in October, after which the FDA will have 30 days to notify Inovio with a decision as to whether the trial can proceed. The shares fell 35% in early trading before U.S. markets opened. Cellectra 2000 is an electroporation device designed to improve the delivery of vaccine particles. Inovio’s inoculation is based on messenger RNA, an approach similar to that used by rival Moderna Inc., which instructs the body’s cells to produce proteins that spark a protective response.
  20. Walmart Inc. has picked a consortium backed by TDR Capital as the preferred bidder for a majority stake in its U.K. grocery unit Asda, people with knowledge of the matter said. The investor group beat out rival private equity firm Apollo Global Management Inc. and is now negotiating details of a deal with Walmart, the people said, asking not to be identified because the information is private. TDR has partnered with the Issa brothers, the British billionaires behind gas station owner EG Group, according to the people. Bidders had been discussing a valuation of more than 7 billion pounds ($9 billion) when the sale started earlier this year, Bloomberg News reported in March. No final agreements have been reached, and talks could still fall apart, the people said.
  21. Caesars Entertainment Inc. said William Hill Plc’s board would likely recommend its 2.9 billion-pound ($3.7 billion) takeover offer price, giving it an edge over rival suitor Apollo Global Management Inc. The British gambling group confirmed it received approaches from both U.S. companies after Bloomberg reported Apollo’s interest on Friday. William Hill shares fell 12% to 275.9 pence as of 10.18 a.m. in London — close to Caesar’s bid of 272 pence — as investors reined in expectations of a hefty counteroffer by the private equity firm. Caesars’ power over an existing joint venture with William Hill “makes rival offers unlikely,” said Goodbody analyst Gavin Kelleher. The bid represents a 25% premium over William Hill’s closing price before the takeover interest emerged.
  22. President Donald Trump’s ban on TikTok was temporarily blocked by a federal judge, dealing a blow to the government in its showdown with the popular Chinese-owned app that it says threatens national security. After an unusual Sunday morning hearing, U.S. District Judge Carl Nichols granted a preliminary injunction against the ban on new downloads of the video-sharing network, which would have gone into effect at 11:59 p.m. in Washington. The judge declined to grant an injunction on a separate set of prohibitions scheduled for Nov. 12 that are designed to further curb the app’s use in the U.S. TikTok’s owner, ByteDance Ltd., requested the hold after the president ordered the app out of American stores unless the company sold a stake in its U.S. operations to a domestic buyer. The ban would have removed TikTok from stores run by Apple Inc. and Google’s Android, the most widely used marketplaces for apps. People who didn’t yet have the app wouldn’t have been able to get it, and those who already had it wouldn’t have access to updates needed to ensure its safe and smooth operation. TikTok has been downloaded by more than 100 million Americans.

 

*All sources from Bloomberg unless otherwise specified