September 30th, 2020
Daily Market Commentary
- GardaWorld made a 2.97 billion-pound ($3.8 billion) hostile takeover offer for rival G4S Plc after failing to convince management of the U.K. security-services company to come to the negotiating table. The Canadian group will now seek meetings with investors to discuss the 190 pence-a-share proposal, and criticized G4S’s board for having “behaved in a cavalier way” by rejecting an earlier approach. “G4S is a deeply troubled business which needs a committed owner-operator team that understands the sector and has a definitive and comprehensive plan,” Garda Chief Executive Officer Stephan Cretier said in a statement on Wednesday. “Stakeholders can take no confidence in the promises of a senior management team that has been in place for seven years and has not delivered.”
- Venezuela’s dwindling oil exports were dealt another blow as one of India’s top refiners secured millions of barrels of Canadian crude on concern that the U.S. is poised to step up sanctions against Caracas. Reliance Industries Ltd, owner of the world’s largest refining complex, signed a deal to purchase 2 million barrels of heavy Canadian oil a month for the next six months, according to people familiar with the situation, who spoke on condition of anonymity. Venezuela has been the third-largest supplier of crude to Reliance so far this year, according to data compiled by Bloomberg. While U.S. sanctions have all but crippled Venezuela’s oil export trade, so-called crude-for-diesel swaps between national oil company Petroleos de Venezuela SA and Asian and European refiners were permitted for humanitarian reasons. The Trump administration was reported last month to be considering additional measures to cut off these remaining fuel transactions. Reliance’s decision to buy Canadian crude in these volumes may be a sign that it doesn’t expect the status quo to last much longer.
- European stocks fell on Wednesday on the final trading day of the third quarter, led lower by travel stocks and banks as sentiment took a knock following a chaotic first U.S. presidential debate. The Stoxx 600 Index was down 0.3% by 8:13 a.m. London time. Among individual stocks, deal making was in focus with shares in Italy’s Mediobanca SpA down 1.5% after the lender was said to have made a recent approach to Assicurazioni Generali SpA about acquiring one of the insurer’s units. Although European stocks have been largely range-bound over the third quarter, with the Stoxx 600 Index little changed over the period, concerns of further restrictions to contain the spread of the coronavirus and their impact on businesses has seen the European equity benchmark dip 1.6% in September. Banks, insurers and travel stocks have been among the biggest sectoral losers this month.
- U.S. equity-index futures dropped alongside most stock markets after an acrimonious American presidential debate highlighted the risk of a contested vote in November. The dollar fluctuated. S&P 500 and Nasdaq 100 contracts slipped in the hours after the chaotic sparring between Donald Trump and Democratic hopeful Joe Biden during which the president suggested vote-by-mail could be rife with fraud.
- Japanese stocks fell by the most since July 31, extending losses in afternoon trading as the U.S. presidential debate stoked concerns about the leadership of the world’s largest economy. Electronics makers and banks weighed most heavily on the Topix index as the yen strengthened against the dollar. Telecommunications was the only sector that finished in the green, as NTT Docomo Inc. surged for a second day on its parent’s $40 billion buyout offer. Futures on the S&P 500 Index slid more than 1% in Asian trading. President Donald Trump and Democratic nominee Joe Biden hurled insults and repeatedly interrupted each other in their first debate Tuesday. Trump wouldn’t commit to urging supporters to wait for the results of the election if there is a delay, saying that if he sees “tens of thousands of ballots being manipulated, I can’t go along with that.”
- Oil extended its decline below $39 a barrel in New York, heading for the first monthly loss since April, as the world’s biggest trading houses signaled a meaningful recovery in demand is some way off. Global oil consumption may rebound from its virus-driven collapse in about 18 months, according to the head of Mercuria Energy Group, while Gunvor Group Ltd. and hedge-fund manager Pierre Andurand predict a recovery may be closer to two years. Meanwhile, the American Petroleum Institute reported a weekly drop in U.S. crude stockpiles, while Cushing supplies and gasoline inventories rose, people familiar said. Government figures are due later on Wednesday.
- Gold headed for the biggest monthly loss in almost four years as investors sought a haven in the dollar. The U.S. currency is poised to snap a five-month losing streak and extended gains on Wednesday. The dollar has been a key driver of gold in recent weeks, eroding the metal’s status as a haven even as coronavirus cases keep rising in major economies. Gold is still headed for an eighth quarterly gain though, supported by flows into exchange-traded funds. On Wednesday, the gold market appeared to shrug off a chaotic U.S. presidential debate, in which President Donald Trump and former Vice President Joe Biden hurled insults and repeatedly interrupted each other. Investors are also watching talks in Washington for a new stimulus package, with Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin set to speak again Wednesday, according to Pelosi’s spokesman.
- Investments in U.S.-listed fixed income exchange traded funds swung to inflows last week. Broad bond-market ETFs led the inflows. Corporate bond ETFs had the biggest change from the previous week. Net inflows to ETFs totaled $1.17b in the week ended Sept. 29, including the effect of leveraged funds, compared with outflows of $78.5m the prior week
- Morgan Stanley has begun looking for a major new London headquarters, countering fears the coronavirus crisis will crush demand for office space in the world’s financial capitals. The U.S. lender has contacted a handful of developers as it assesses options for a potential move from its current premises in Canary Wharf, people with knowledge of the process said. The bank wants at least 600,000 square feet (about 55,740 square meters) of space and will likely focus on options in the east London financial district as well as developments in the City of London, the people said, asking not to be identified as the process is private. The search is at an early stage and is unlikely to result in a deal until late next year at the earliest, with no certainty a move will take place at all, the people added. A spokesman for Morgan Stanley declined to comment.
- German Chancellor Angela Merkel warned against virus complacency and Spain prepared to impose travel restrictions as Europe battles a Covid-19 resurgence. “We’re risking everything that we’ve achieved in the last few months,” Merkel told German lawmakers. “We can’t let nationwide restrictions threaten huge economic and emotional losses once again.” Vaccines alone won’t be enough to fight the pandemic, said Novartis AG Chief Executive Officer Vas Narasimhan. In an interview, he emphasized the role of treatments. An early study showed Regeneron Pharmaceuticals Inc.’s experimental antibody cocktail may help reduce virus levels in patients.
- The European Union can impose tariffs on about $4 billion of U.S. exports annually in retaliation for government aid to Boeing Co. deemed illegal by the World Trade Organization, according to people familiar with the ruling. The WTO decision, released privately to EU and U.S. officials, is one-third of the EU’s request for a $12 billion award and lower than the $7.5 billion retaliation judgment the WTO granted the U.S. last year in a parallel dispute against Boeing’s European rival, Airbus SE. The trade body’s decision will be published in coming weeks, the people said. The ruling, reported earlier by Reuters, marks a key milestone in the WTO’s longest-running dispute that could create momentum for an aircraft settlement accord or boil over in a tit-for-tat transatlantic trade war.
- President Donald Trump and Democratic nominee Joe Bidenhurled insults and repeatedly interrupted each other in their first debate Tuesday, sparring over topics that included the coronavirus, the economy and their families as moderator Chris Wallace tried mostly in vain to control the conversation. The chaotic debate left commentators across cable television stunned and groping for adjectives, in some cases settling on profanities. The exchanges made clear — if nothing else — the level of disdain the two men vying for the most powerful office in the world hold for each other. In a statement afterward, the Trump campaign suggested that disorder had been the strategy. “President Trump in charge, Biden weak,” the campaign said, claiming that Trump had delivered “the greatest debate performance in presidential history.”
- TP ICAP Plc tumbled after proposing a dividend cut and stock sale to fund the purchase of Liquidnet Holdings Inc., the dark-pool operator it’s betting on for technology-driven growth. The shares slid as much as 18% on Wednesday, the most since March. London-based TP ICAP also warned it needs trading volatility to pick up from its post-lockdown lull to meet revenue targets. The world’s biggest inter-dealer broker said late Tuesday that it was in advanced talks to buy New York-based Liquidnet for as much as $700 million. The London-based company pointed to growth opportunities from electronic credit trading with Liquidnet, whose private equity-trading venue services more than 1,000 asset managers and hedge funds.
- Veolia Environnement SA raised its bid for most of Engie SA’sstake in Suez SA by 16%, making a final push to clinch a deal that would be a prelude to a full takeover. The French waste and water giant is now offering 18 euros a share, or about 3.4 billion euros ($4 billion), for 29.9% of Suez held by Engie, according to a statement on Wednesday. It also committed to maintain full employment of Suez workers in France if it takes control of the company. Engie’s board is due to meet later on Wednesday to determine whether to accept the offer, before an end-of-day deadline. Chairman Jean-Pierre Clamadieu has described the decision as a “a very, very heavy responsibility.”
- American Airlines Group Inc. and United Airlines Holdings Inc.are among seven carriers taking federal loans that are capped at $7.5 billion apiece, the Treasury Department announced late Tuesday. Accepting federal loans is seen as a last resort if no other funding comes through because of the government’s restrictions. Companies accepting federal loans are required to put a cap on executive compensation offer equity or other financial stakes to the government in exchange for the aid. Nearly all major airlines signed letters of intent in July to tap the $25 billion loan fund carved out in the Cares Act to help an industry reeling from the pandemic.
- Amazon Inc. is planning to take over some of Citigroup Inc.’s office space in Singapore at a time when a number of the e-commerce giant’s Chinese tech rivals expand in the city state. The online retail giant will lease three floors covering about 90,000 square feet (8,360 square meters) at Asia Square Tower 1 in the heart of the financial district, according to people with knowledge of the plans. Staff will move into the new offices early next year, the people said, asking not to be identified because the plans aren’t public. Citigroup, currently the building’s largest tenant with nine floors, is trimming its office space to better use its real estate as its 10-year lease is due to expire soon, the people said.
- Royal Dutch Shell Plc will cut as many as 9,000 jobs as crude’s crash forces billions of dollars in cost savings and the oil and gas giant overhauls its business to embrace clean energy. The move reflects the challenge facing Big Oil as the virus pandemic persists, with some in the industry believing the era of demand growth is already over. As the crisis hastens the shift to low-carbon energy, oil majors are axing jobs, taking multibillion-dollar write-downs and slashing once-sacrosanct dividends. At Shell, 7,000 to 9,000 job losses are expected by the end of 2022 — as much as 11% of the workforce. The total includes around 1,500 people taking voluntary redundancy this year, the company said Wednesday. It predicts sustainable annual cost savings of $2 billion to $2.5 billion by that time.
- Vietnam’s central bank cut policy interest rates for the third time this year, seeking to bolster a recovery gradually taking hold in the economy. The State Bank of Vietnam cut its refinancing rate to 4.0% from 4.5%, effective Thursday, the regulator announced on its website Wednesday. It also lowered the discount rate to 2.5% from 3%, and cut the repurchase rate — known as the open-market operations rate — to 2.5% from 3%. The rate cuts are intended “to help the economy overcome difficulties” as the government has been trying to support businesses coping with the impact of the coronavirus pandemic, the regulator said in its statement.
- Asian gasoline has surged to a record premium to diesel as the use of private vehicles rise while public transport and industrial activity remain sluggish, highlighting the uneven demand recovery from Covid-19. After a brief slump in early September, motor fuel prices have rebounded amid signs cars and motorbikes are being favored to avoid infection. Diesel — commonly used by buses and trains — has fallen amid weak demand and a global glut of middle distillates that’s being caused by many refiners having only limited scope to adjust the mix of oil products they’re making. In the Asian oil hub of Singapore, 92-RON gasoline’s front-month swap was at a $3.26 per barrel premium to diesel on Monday, the most in figures going back to 2017, Bloomberg Fair Value data show. Motor fuel, which is normally cheaper than diesel, was at a discount of $25 to the industrial fuel in March. The premium was $1.99 late on Wednesday.
- Alibaba Group Holding Ltd. foresees its cloud services arm turning profitable for the first time this year, a milestone for the decade-old business that underscores how Asia’s largest corporation expects a return to pre-pandemic levels as China’s economy rebounds. Alibaba’s shares rose 3.8% on Wednesday in Hong Kong, their biggest gain in over a month. Its internet computing business is growing roughly 60% at an annual revenue run rate of about $7 billion, Chief Financial Officer Maggie Wu told investors at an annual company conference. The unit should turn profitable in the year ending March, she said. Cainiao, the logistics service Alibaba folded fully into its broader empire in 2017, should generate positive cash-flow on an operating basis over the same period, she added.
- Japan Post Holdings Co. said it will book a 3 trillion yen ($28 billion) charge on the value of its bank unit stake, after a weak outlook pushed down the share price. The writedown won’t affect Japan Post’s consolidated earnings and there is no change to its earnings and dividend forecast, the holding company said in a statement Wednesday. Chief Executive Officer Hiroya Masuda said the charge will be finalized based on Japan Post Bank Co.’s share price when the fiscal year ends on March 31. The impairment is the latest headache for the former state-owned giant, which has been suffering from mishaps at its two financial units. Its insurance arm was penalized last year after employees improperly sold policies, and more recently the banking unit has faced online thefts involving its savings accounts. Both are struggling to prop up investment returns amid ultra-low interest rates.
- Investors in two subordinated bonds from Lehman Brothers received word that a payment is coming, just two weeks after the 12th anniversary of one of the world’s most spectacular banking collapses. A proposed “initial interim payment” will go to owners of a 200 million euro ($234 million) note and a $500 million issue, according to a statement from liquidators distributed on Tuesday. The size of this payment will be disclosed in a formal payment notice. The collapse of the one of the world’s largest investment banks on Sept. 15 2008 was the iconic moment of the great financial crisis, prompting fear among policymakers that the global economy would seize up. While the Federal Reserve’s subsequent intervention staved off total disaster, Lehman Brothers has since become a byword for the nadir of the crisis.
- Automakers are climbing out of the ditch they fell into this spring, with U.S. auto sales expected to rebound strongly in the third quarter thanks to cheap borrowing costs and a shift toward private transportation amid the pandemic. The seasonally adjusted annualized selling rate likely reached 15.7 million new vehicles in September, down 1.6 million from a year ago, according to researcher J.D. Power. Retail sales, which exclude deliveries to fleet buyers such as rental-car companies, probably grew year over year in September, the first time that’s happened since February thanks to a couple of extra selling days on the calendar. Sales have rebounded after touching a multi-decade low of 8.6 million vehicles in April, when factories were idled and buyers across the country were quarantined at home.
- Speaker Nancy Pelosi and congressional Democrats are awaiting Treasury Secretary Steven Mnuchin’s counter-offer to their stimulus plan as time is running out to get a deal before the election. Pelosi and Mnuchin are scheduled to talk again Wednesday, the day after a 50-minute conversation in which she laid out more details of the Democrats’ latest proposal for a $2.2 trillion pandemic relief package. At the same time, Pelosi has already asked Democrats to deliver a “strong vote” for the package they unveiled Monday. In a letter to colleagues, she said the Democratic plan is a “proffer” in talks aimed at breaking the deadlock with Republicans.
- The transatlantic trade conflict isn’t showing signs of winding down any time soon, and a ruling from the World Trade Organization means that a fresh round of retaliatory tariffs could jeopardize the nascent economic recoveries in both the U.S. and the European Union. The WTO gave the EU authorization to impose tariffs on $4 billion of U.S. exports over illegal government aid provided to Boeing Co., according to two people familiar with the decision. The EU previously said it would act on the levies immediately to counteract $7.5 billion of tariffs Washington placed on European goods in a separate case involving Toulouse, France-based Airbus SE.
- Apple Inc. said it is giving Chief Executive Officer Tim Cooknew equity awards that could provide him with as many as 1 million shares by 2025. The compensation, currently worth $76 million to $114 million depending on Apple’s share performance, gives Cook a new reason to keep running the world’s largest technology company. The equity comes in two packages, according to a regulatory filing on Tuesday. The first comprises 333,987 restricted stock units that vest in thirds on April 1 in 2023, 2024 and 2025. The other has 333,987 units that will vest Oct. 1, 2023 and is based on Apple’s relative share performance over three years. Cook may get none of this award or 200%, depending on stock returns. If all goes well, Cook would get about 1 million shares in total.
- Walt Disney Co. is slashing 28,000 workers in its slumping U.S. resort business, marking one of the deepest workforce reductions of the Covid-19 era. The belt-tightening move affects the company’s theme-park, cruise-line and retail businesses, Disney said on Tuesday. That includes executives and salaried employees, although 67% of those being terminated are part-time workers. Disney is offering benefits to the workers being eliminated, including 90 days of job-placement services.
*All sources from Bloomberg unless otherwise specified