September 2nd, 2020

Daily Market Commentary

Canadian Headlines

  1. Canadian equities reversed an early drop Tuesday with information technology shares leading the way. The S&P/TSX Composite Index rose 0.8%, ending a three-day decline, with nine of 11 sectors advancing. Health care and materials stocks fell. Oil edged higher with a pickup in economic activity in the U.S. and China stirring hopes that a recovery in crude consumption may be underway. One of the world’s fastest-moving efforts to develop a Covid-19 vaccine is falling behind rivals, its advance appearing to be stymied by political tensions between China and Canada and concerns the shot may not work as well as others.
  2. One of the world’s fastest-moving efforts to develop a Covid-19 vaccine is falling behind rivals, its advance appearing to be stymied by political tensions between China and Canada and concerns its shot may not work as well as others. CanSino Biologics Inc., the Chinese company which in March started the world’s first human tests on an experimental coronavirus shot, has yet to start administering shots in critical final-stage trials on the vaccine it developed with the Chinese military. Meanwhile, rivals like U.S.-based Moderna Inc. and Britain’s AstraZeneca Plc as well as China’s Sinovac Biotech Inc. and Sinopharm are well into this last phase of testing, giving test inoculations to thousands of people to find out if they work.
  3. Heavy Canadian crude rose after a spill led to the shutdown of a pipeline that supplies diluent to two major oil-sands sites in Alberta. Following the leak Saturday morning, Inter Pipeline Ltd. shut the west segment of its 240,000-barrel-a-day Polaris system. The diluent Polaris supplies to sites operated by Exxon Mobil Corp.’s Imperial Oil and by Husky Energy Inc. is mixed with the sticky bitumen they produce, so that it can be shipped by pipeline. The Western Canadian Select crude benchmark for October delivery rose 2.9% to $33.53 a barrel on Tuesday, narrowing its discount to West Texas Intermediate to $9.85, the first time the gap fell below $10 since Aug. 17, NE2 Group data show.

World Headlines

  1. European stocks rose on Wednesday, led by defensive sectors such as chemicals and telecoms and a rally in energy shares, as hopes for the development of a coronavirus vaccine boosted sentiment. The Stoxx 600 Index was up 1.2% by 8:18 a.m. U.K. time, boosted by a report indicating that a vaccine could be made available earlier than expected. Societe Generale SA and Banco Bilbao Vizcaya Argentaria SA underperformed after losing their spot in a reshuffle of the Euro Stoxx 50 Index. Credit Suisse Group AG’s was also in focus after Switzerland’s financial regulator started enforcement proceedings against the lender after a spying probe. European stocks have gained around 30% since hitting a March low as investors continue to bet on further stimulus measures from governments to prop up the economy following lockdowns.
  2. U.S. equity futures also pushed upward as investors anticipated positive reports on jobs and the economy later Wednesday in Washington. The dollar strengthened against its biggest peers. Nasdaq 100 and S&P 500 Index contracts added to earlier gains, hours before the ADP employment report may signal the pace of private-sector employment is picking up.
  3. Japanese stocks rose, supported by U.S. economic data and central bank commentary that boosted market optimism over a global recovery. Electronics makers and telecommunications providers were the biggest boosts to the Topix index, with shares of SoftBank Corp. gaining after the announcement of its addition to the Nikkei 225 Stock Average. The yen weakened, with the dollar rising above the 106 yen mark. Technology stocks led a U.S. rally Tuesday, while Institute for Supply Management data showed U.S. manufacturing expanded in August at the fastest pace since late 2018. Federal Reserve Governor Lael Brainard raised concerns over the U.S. economy, saying that it faces “considerable uncertainty” in the months ahead, and that fiscal and monetary support will continue to be essential in supporting the economy.
  4. Oil was trading near $43 a barrel in New York on signs U.S. crude stockpiles extended declines for a sixth week, easing a glut. The American Petroleum Institute reported crude inventories dropped by 6.36 million barrels last week, according to people familiar with the figures. That would be the longest run of declines this year if confirmed by government data on Wednesday. The dollar was stronger in European trading hours, causing crude to pare some earlier gains. There were also positive technical signs as U.S. crude’s 50-day moving average rose above the 200-day marker for the first time in more than six months, forming a so-called golden cross.
  5. Gold steadied after a three-day rally as the dollar ticked higher against its biggest peers, and investors weighed positive economic reports. Data on Tuesday showed U.S. manufacturing expanded last month at the fastest pace since 2018, supporting the dollar. That came after Chinese factory figures signaled rising global demand for exports, which fueled optimism over the world economic recovery. Investors are awaiting more data from the U.S. later Wednesday, including the ADP employment report and Federal Reserve’s Beige Book, for clues on the state of the economic health and further stimulus measures.
  6. Australia fell into its first recession in almost 30 years as it battles a resurgence of the virus with a lockdown in its second-biggest city. In the U.K., house prices jumped after movement restrictions were eased. Thailand marked 100 days with no new local infections, China will allow some international flights to land in Beijing, while India considered extending payment support for the urban poor. Hong Kong billionaire Li Ka-shing made $3.2 billion in one day from his Zoom stake after a huge increase in demand for virtual meetings and classes on the video-conferencing app.
  7. The U.S. can’t put Covid-19 behind it. New case counts are declining in some recent hot spots. But they’re spiking in places like Iowa and South Dakota, signaling what may be a new phase in the country’s virus fight as progress in one state is repeatedly offset by infections in others, with little improvement overall. Politics plays a role, as do events like college reopenings and the Sturgis motorcycle rally. But it’s also a sign of fatigue, the frustration and exhaustion Americans feel after months of masks and hand sanitizer, social isolation, shuttered businesses and closed beaches. People are putting their guard down, experts agree, leaving room for the virus to continue spreading as the country seeks to reopen the economy.
  8. Democratic nominee Joe Biden leads by eight points in the latest national poll. Pennsylvania’s state Supreme Court will take up a case on election rules. And a survey shows few undecided voters in North Carolina. There are 62 days until the election.
  9. Bumble, a dating app that lets women make the first move, is preparing for an initial public offering that could come early next year, according to people familiar with the matter. Bumble could seek a valuation of $6 billion to $8 billion, said one of the people, asking not to be named because the matter is private. While it is talking to banks, it hasn’t settled on a lineup, the people added. No plans have been finalized and the timing of Bumble’s IPO could still change. It would be the latest technology company to consider jumping into the hot IPO market, which could see listings this year from well-known brands including Airbnb Inc and Doordash Inc.
  10. Big Hit Entertainment Co., the manager of K-pop boy band BTS, is looking to raise as much as 962.6 billion won ($812 million) in a South Korean initial public offering that is set to be the country’s largest in three years. Big Hit set the price range for sale of 7.13 million new shares at 105,000 won to 135,000 won each, according to a statement filed on Wednesday. At the top of the range it would have a market capitalization of 4.6 trillion won ($3.9 billion), based on the number of common shares. Big Hit and BTS have helped popularize K-pop, adding to the rising global visibility of Korean entertainment including TV dramas popular across Asia and films like “Parasite,” the winner of this year’s Academy Award for best picture. BTS’s “Dynamite” topped the Billboard’s Hot 100, the first Asian act to be No. 1 on the U.S. Music chart since Kyu Sakamoto’s “Sukiyaki” held the No. 1 spot for 3 weeks in 1963.
  11. The life insurance arm of China Post Group Co. is seeking to raise about 15 billion yuan ($2.2 billion) from investors to broaden the state-backed firm’s ownership, people with knowledge of the matter said. China Post Life Insurance Co. is working with advisers on the stake sale and has approached potential suitors, the people said, asking not to be identified as the matter is private. The company is seeking a valuation of no less than its book value, the people said. China Post Life had assets of 192.4 billion yuan as of the end of 2019, according to its annual report.
  12. Treasury Secretary Steven Mnuchin denied meddling in U.S. Postal Service operations to aid President Donald Trump, saying he has focused on fixing its deteriorating finances. Mnuchin said in an interview that his financial review of the USPS was not used to illegally punish Inc. or interfere with the presidential election, as alleged by Democrats and a former postal overseer. Mnuchin’s review has come under scrutiny after Postmaster General Louis DeJoyenacted changes to the service’s operations this summer that led to nationwide delivery delays. Democrats say DeJoy, a major donor to the 2016 Trump campaign, was seeking to sabotage the Postal Service to hurt vote-by-mail, which Trump has claimed, without evidence, will lead to a fraudulent election outcome.
  13. The main responsibility for the failure to pursue alleged irregularities at Wirecard AG lies with the German finance ministry and Chancellor Angela Merkel’s office was also at fault, according to an opposition lawmaker. Members of the Bundestag’s finance committee continued grilling government and supervisory officials this week over Wirecard, including a top Merkel adviser and the head of financial market regulator BaFin. They want to know why authorities did not take a harder look at the payments company before it collapsed in June in the country’s biggest accounting scandal in modern history. After a hearing Tuesday in Berlin, the Greens and other opposition parties agreed to launch a full parliamentary probe — which will lead to several months of hearings and keep the scandal in the public eye as the country heads into an election year.
  14. Germany racked up 33 billion euros ($39.2 billion) of orders for its first green bond as it sets out to dominate the growing market by the end of the year. It looked set to raise 6.5 billion euros from the 10-year sale, at a price one basis point tighter than the existing conventional bond, according to a person familiar with the sale, who asked not to be identified because they’re not authorized to speak about it. The nation will now make up nearly a 10th of the entire green government bond market, according to Bloomberg calculations. The demand nearly matched a record set for its conventional bond sales earlier this year. Another green maturity is due to be sold in the fourth quarter, taking issuance this year to around 11 billion euros, Joerg Kukies, Germany’s Deputy Finance Minister, said last week.
  15. The fallout from Credit Suisse Group AG’s spying scandal deepened as Switzerland’s regulator escalated its investigation into an episode that ultimately led to the ouster of the bank’s chief executive officer. Banking regulator Finma said it would start an enforcement action against Credit Suisse to look into potential violations and scrutinize how the spying was documented and controlled. While Finma doesn’t have the power to fine a bank, it can take actions such as banning executives from the industry. Credit Suisse is struggling to move beyond one of the most damaging episodes in its recent history after it spied on star banker Iqbal Khan, who was leaving for rival UBS Group AG. Last year’s scandal tainted the bank’s reputation, led to the ouster of CEO Tidjane Thiam after a power struggle, and rattled the usually quiet world of Swiss banking.
  16. U.K. house prices increased by the most in 16 years in August after a tax cut stoked post-lockdown demand, but the revival could prove-short-lived as the government begins to withdraw its pandemic support. Values jumped 2% from a month earlier to an average of 224,123 pounds ($300,000), Nationwide Building Society said Wednesday. On an annual basis, prices rose 3.7%.
  17. Danske Bank A/S is the target of a fresh probe involving the police after it emerged that the lender may have misled Denmark’s financial watchdog about its handling of debt collection errors. The Financial Supervisory Authority has given Denmark’s biggest bank until Sept. 10 to answer a series of questions relating to the case, including exactly when Danske first discovered there was something wrong. Denmark’s economic crime squad, known locally as SOIK, said on Wednesday it is in talks with the FSA regarding the case. Danske, which is still being investigated separately for a $230 billion Estonian dirty money affair, has now landed in a new scandal after revelations that about 15,000 customers repaid too much in debt over a period of several years. The bank, Denmark’s biggest, has acknowledged the mistake and says it’s going over roughly 100,000 accounts in an effort to repair the damage.
  18. Hong Kong said it will allow gyms, massage parlors and some sports venues to reopen beginning Friday, as virus cases drop off from record highs. In a further relaxation of rules, dine-in services at restaurants will be extended by one hour, to 10 p.m., said Secretary for Food and Health Sophia Chan in a briefing Wednesday. A cap of two people per table will remain in effect at restaurants, while public gatherings will be limited to two people for another seven days. Hong Kong has been gradually easing social-distancing measures in the Asian financial hub as it brings its biggest Covid-19 outbreak under control. It announced earlier this week the reopening of schools in phases. The government is also in the midst of a Beijing-backed campaign to get everyone in the city tested, with about 745,000 residents registered for it as of Wednesday.
  19. SoftBank Group Corp. is leading a round of venture investment in India’s education startup Unacademy, boosting its valuation to $1.45 billion as online learning surges during the coronavirus pandemic. Investors in the $150 million funding include existing backers Facebook Inc. and Sequoia Capital, while SoftBank’s money is coming from Vision Fund 2, a successor to its initial $100 billion fund. The startup’s valuation is tripling from $510 million in February. Bangalore-based Unacademy has distinguished itself in test preparation classes by recruiting star teachers who help attract ambitious students taking everything from civil service and banking exams to programming languages. As classrooms shut during the pandemic, demand has soared for the startup and hundreds of other virtual learning companies in India. Byju’s, which focuses on K-12 online education, is raising funds at a valuation of more than $10 billion, Bloomberg News has reported.
  20. A snapshot of Airbus SE plane use outlines a tentative recovery still dependent on China, and continued challenges for wide-body aircraft as carriers adjust to a lack of demand. Of the 10,404 Airbus planes in global fleets, almost two-thirds had flown at least once in the previous five days, according to an Aug. 24 newsletter sent by the European manufacturer to operators and maintenance companies. The rest — more than 3,600 planes — had not flown, a reminder of the oversupply that Airbus and its U.S. rival Boeing Co. are grappling with six months into the coronavirus pandemic. The numbers help to fill in the contours of a lopsided recovery that’s seen Chinese travel bounce back while the rest of the world flounders. And even as other sectors of the global economy are looking up, air travel remains mired in a downturn that’s proving tough to shake.
  21. Macy’s Inc. is inching back toward normalcy as it approaches the critical holiday season, posting profit that beat expectations in the second quarter. The department store’s adjusted net loss of $251 million was well ahead of the $538 million loss anticipated by analysts. Comparable sales in the quarter ended Aug. 1, a key measure of retailer performance, fell 35%, roughly in line with expectations as it tries to recover from a sharper decline earlier in the pandemic.
  22. Virgin Atlantic Airways Ltd. secured backing from a U.K. court for a 1.2 billion-pound ($1.6 billion) rescue package Wednesday that will keep billionaire Richard Branson’s airline afloat amid the coronavirus pandemic’s ravaging of the travel industry. The ruling by Judge Richard Snowden clears the path for a bailout that will see U.S. hedge fund Davidson Kempner Capital Management provide funds to the carrier alongside Branson, its founder.
  23. The euro is about to extend its advance by another 5% in the coming months, if history is a guide. The currency seems to be mirroring a pattern from August 2017, when it briefly breached the $1.20 psychological mark, and retreated quickly due to large option barriers. The common currency then advanced to $1.25 within five months. That suggests the drop since Tuesday may be a breather amid a bull run, and the euro is probably on course to test $1.25, the next big level.

*All sources from Bloomberg unless otherwise specified