September 3rd, 2020
Daily Market Commentary
- Canadian equities gained Wednesday after corporate earnings from a pair of retailers, and helped by M&A activity. The S&P/TSX Composite Index rose 0.3%. Consumer staples led nine of eleven sectors higher, with Alimentation Couche-Tard Inc beating earnings expectations. Cogeco Inc.’s controlling family spurned a plan by Altice USA to acquire the business for $7.8 billion — a deal that would let it obtain the Canadian cable company’s U.S. assets and sell the rest to Rogers Communications Inc. Meanwhile, Exxon Mobil Corp.’s Imperial Oil shut down its oil-sands mine after a spill from a pipeline that supplies diluent to the operation, adding to the woes of Canada’s beleaguered energy industry.
- After years biding its time, Rogers Communications Inc. is hoping Altice USA Inc.’s $7.8 billion hostile bid for Cogeco Inc. will help it land the long-coveted, family-controlled telecom prize — but it’s not going to be easy. Investors have long speculated that Rogers might be interested in buying up Montreal-based Cogeco. The Toronto-based telecom giant has held a minority position in much-smaller Cogeco for decades, instigated by the late founder Ted Rogers. If his intention was to work toward a takeover, those plans have been thwarted by the founding Audet family, whose holding company controls the voting shares and hasn’t wanted to sell. A bid by Altice USA to buy Cogeco, and then sell the Canadian assets to Rogers, could offer a way to break the impasse. For C$4.9 billion ($3.8 billion), Rogers would gain instant scale to Cogeco’s highly profitable broadband business, according to Bloomberg Intelligence analyst John Butler, while Altice would gain U.S. customers.
- The initial quick recovery in Canada’s labor market is set to fade, with many of those initially displaced by the pandemic already back at work and the economy as open as it can be for now. Canada’s economy added 250,000 jobs in August, according to the median forecast in a Bloomberg survey, which would mark a deceleration from 418,500 in July and 952,900 in June. The data are due to be released Friday at 8:30 a.m. in Ottawa. The latest numbers should capture the reopening of Toronto, Canada’s biggest city and one of the last to ease restrictions due to high Covid-19 counts. If the August results are in line with forecasts, it would mean almost two thirds of the 3 million jobs lost in the first two months of lockdowns have been recouped.
- DP World and Caisse de Depot et Placement du Quebec have agreed to invest an additional $4.5 billion in their global portfolio of port terminals. The Dubai-based ports operator and Canadian pension fund manager announced the injection of the funds into their existing venture in a statement Thursday, confirming an earlier Bloomberg News report. DP World and the Caisse agreed in 2016 to set up a platform for investing in ports around the world. An initial investment target of $3.7 billion has been hit, they said, with the portfolio holding ports across North America, Latin America and Asia Pacific.
- Japan’s largest private life insurer is looking to add Canadian municipal bonds to its portfolio of overseas investments while continuing to favor Australian sovereign and semi-government debt. While Nippon Life Insurance Co. still wants to focus more on foreign corporate bonds than government debt, this is proving challenging. Below are comments from an Aug. 25 interview with Teruaki Hori, a deputy general manager in the firm’s international investment department, on where to find value in bond markets.
- European stocks climbed for a second day amid signs of progress in coronavirus vaccine distribution, while French equities rallied after the government unveiled stimulus measures. The Stoxx Europe 600 Index added 1.1% as of 9:26 a.m. in London, after the U.S. Centers for Disease Control and Prevention told states to prepare for a Covid-19 vaccine to be ready by Nov. 1. All 19 industry groups rose, with travel shares, autos and banks leading gains. The CAC 40 Index jumped 1.7% after the French government unveiled a 100 billion-euro ($118 billion) stimulus plan. European stocks are rising this week after being stuck in a range since early June. The Stoxx 600 extended its ascent above the 200-day moving average, a level that analysts say is key for the gauge to overcome to unlock further gains. The euro extended declines, supporting exporters, following a reportthat European Central Bank policy makers are concerned about the currency’s strength.
- Global equities are rising on renewed hopes for a coronavirus vaccine, fueling a catch-up trade in markets that had lagged the U.S. The S&P 500 jumped 1.5% yesterday to hit another record and Japanese stocks are trading at the highest since February.
- Japanese stocks rose to the highest level since February after U.S. equities reached fresh records and as a sales-fueled rally in Fast Retailing Co. helped lift the Nikkei 225 Stock Average. Electronics and chemicals shares were the biggest boosts to the Topix index, which reached its highest close since Feb. 21. Fast Retailing climbed 3.6% after reporting domestic Uniqlo same-store sales for August rose about 30% from a year ago. The helped lift the Nikkei 225 to within about 0.8% of erasing its 2020 loss.
- Oil fell further in New York after the deepest drop since July as concerns mount over OPEC supply and fuel demand. Iraq, a regular laggard in the output curb deal between OPEC and its allies, may seek a two-month extension to implement its compensatory cuts, indicating it won’t be able to reduce production as quickly as previously promised. That comes as other members of the club, including Saudi Arabia and Russia, are bringing some supply back in line with their agreement. In Europe, profit from making diesel on Thursday plunged to the lowest since at least 2011, signaling that demand is still weak. The global Brent benchmark was also under technical pressure as it broke below its 50-day moving average for the first time since May.
- Gold declined for a second day as the dollar extended its rebound and rising risk-on sentiment damped demand for the traditional haven asset. The equity rally continued in Europe amid hopes for a coronavirus vaccine and bets that a flood of liquidity from central banks will make its way into stocks markets. The U.S. Centers for Disease Control and Prevention has told states to prepare for a vaccine to be ready by Nov. 1, just days before the presidential elections. Palladium gained, touching the highest since April, as traders bet on stronger demand. China’s auto sector, a major consumer, saw an 11% rise in car sales last month, according to preliminary data. Spot palladium is nearing a golden cross, a bullish pattern indicated by the 50-day moving average crossing above its 200-day counterpart.
- India performed a record 1.17 million daily tests after the country’s government faced criticism that it wasn’t doing enough to map the coronavirus outbreak. India accounts for the world’s third-largest number of cases. Sanofi administered its experimental Covid-19 vaccines to patients for the first time in preparation for late-stage trials before year-end. The U.S. Centers for Disease Control and Prevention told states to prepare for a Covid-19 vaccine to be ready by Nov. 1. French President Emmanuel Macron’s government unveiled its 100 billion-euro ($118 billion) stimulus plan for an economy that was among the worst-hit by lockdowns in Europe. The euro area’s economic recovery is running out of steam, with gauges of activity pointing to contractions in Italy and Spain.
- Chancellor Angela Merkel is under pressure from within her own party to drop support for a controversial gas pipeline with Russia after links point to the Kremlin in the poisoning of Russian opposition leader Alexey Navalny. Norbert Roettgen, head of the German parliament’s foreign affairs committee and a candidate to head Merkel’s Christian Democratic party, said the Nord Stream 2 pipeline needs to be stopped because completing it would reward rather than punish Russian President Vladimir Putin. “After the poisoning of Nawalny we need a strong European answer, which Putin understands: The EU should jointly decide to stop Nord Stream 2,” he said Thursday on Twitter. “Diplomatic rituals are no longer enough.”
- The euro area’s recovery ran out of steam midway through the third quarter, with gauges of activity pointing to contractions in Italy and Spain. While manufacturing output rose markedly in August, the larger services sector saw only marginal growth, according to an IHS Markit report. Orders increased at a slower pace, job cuts continued and confidence about the outlook eased. A separate report showed an unexpected decline in retail sales in July. Coming in a week that saw the euro-area inflation rate drop below zero for the first time in four years, the PMI weakness is another worrying sign for the European Central Bank. Policy makers meet next week, though it’s not clear if they’ll boost stimulus again just yet.
- The battered U.S. labor market probably saw a fourth month of improvement in August, but chances of further outsize gains are diminishing without the widespread stimulus payments and small-business aid that have sustained incomes and spending. Economists project Friday’s jobs report will show the unemployment rate dropped below 10% for the first time since March, with employers adding 1.35 million people to payrolls, a figure boosted by the Census Bureau’s hiring of about 240,000 temporary workers to help conduct a decennial count that’s been delayed by the pandemic. August’s gains likely reflect additional rehiring from businesses that have reopened as the pandemic’s surge eased, while the expiration of supplemental unemployment benefits in July may have motivated some Americans to look for jobs.
- Portfolios consisting of 60% equities and 40% bonds have had an incredible run, both this year and over the long term. However, with yields on long-term Treasuries near all-time lows, the chorus of naysayers toward the so-called 60/40 portfolio has grown. The criticism is based on the very reasonable grounds that you’re not getting paid much to hold bonds and there isn’t much scope left for capital appreciation. But to understand the real risk to the 60/40 strategy, it’s first helpful to understand the dynamics that have made the portfolio such a winner all this time. The key is that in the short term, Treasuries and stocks tend to move inversely to each other. When people are bullish on risky assets, they tend to lighten up on safe-haven Treasuries. When investors are fearful and stocks are tanking, Treasuries tend to do well. This nice inverse correlation dampens volatility for the portfolio overall.
- Tesla Inc. shares are poised to extend losses after the electric-car maker’s largest shareholder behind Elon Musk cut its stake. The stock slumped 6.7% to $417.54 at 6:02 a.m. New York time in premarket trading, having fallen 5.8% on Wednesday after Baillie Gifford & Co. disclosed that it reduced its holding to 4.25% of Tesla’s shares from 7.67% in February. With the sale, the Edinburgh-based firm is now Tesla’s fourth-biggest investor, according to data compiled by Bloomberg.
- Facebook Inc. is expanding its policies to guard against voter suppression and removing a wider swath of misleading posts ahead of the 2020 U.S. election. The company will also block campaigns from submitting new ads in the week leading up to November’s poll, preventing candidates from posting uncontested messages ahead of the vote. The changes are part of a broader update on Facebook’s election strategy, which was outlined Thursday in a post by Chief Executive Officer Mark Zuckerberg. The CEO is particularly worried about election night uncertainty, when there may be hours or even days between the polls closing and any valid results. Facebook will add labels to posts from politicians that try to claim victory before official results on the night, Zuckerberg wrote. The labels will direct users to accurate updates compiled by Reuters.
- Democratic nominee Joe Biden retains his lead over President Donald Trump in national polls two months before the election, with neither candidate seeing a bounce in surveys after their party conventions last month. Because of the coronavirus pandemic, both the Republican and Democratic gatherings in August were almost entirely virtual, and the race remains largely where it was three weeks ago, with Biden ahead by at least a half-dozen points in national surveys. Two polls released Wednesday showed the former vice president holding a sizable lead. Biden led Trump by 10 percentage points in a Quinnipiac University survey of likely voters and by 8 percentage points in a CNN poll of registered voters.
- Daimler AG is offering a debut sale of green bonds just a day after Germany racked up huge demand for its first sale of the environmentally-friendly securities. The Mercedes Benz automaker received more than 6.5 billion euros ($7.7 billion) of investor orders for its 1 billion euro 10-year notes, according to a person familiar with the offering, who asked not to be identified because they’re not authorized to speak about it. It plans to use the proceeds to develop emission-free vehicles, according to its green bond framework. The offering is Europe’s sixth green deal marketwide this month already, as issuance rebounds from a slump earlier in the year amid the coronavirus-triggered market selloff. Spanish lender Banco de Sabadell SAand Amsterdam airport operator Royal Schiphol Group NV joined Germany in offering new green bonds this week, helping push year-to-date sales of socially-responsible bonds to about 105 billion euros and within sight of 2019’s full-year record tally.
- The French government plans to spend 2 billion euros ($2.4 billion) in the next two years to support green-hydrogen development, an industry earmarked for expansion in the transition to cleaner energy. A global race to scale up hydrogen has begun, with Europe pushing the fuel as key to the bloc’s future energy mix. But producing green hydrogen, which is done using water electrolysis and emits no carbon dioxide, is costly, and companies need state funding to do it. The French government will grant subsidies, part of a 100 billion-euro stimulus package unveiled Thursday, to finance research into reducing the cost of the clean gas, a government official told reporters, asking not to be identified. The government will next week announce a longer-term, 7.2 billion-euro plan to support the green-hydrogen industry through to 2030, the official said. The package will help boost investment in the electrolyzers that produce the gas, as well tanks, materials and fuel cells that generate electricity from it.
- Emmanuel Macron’s government unveiled the long-awaited 100 billion-euro ($118 billion) stimulus plan the French president is betting on to transform the economy and his political fortunes with less than two years to go until elections. The plan, dubbed “France Relaunch,” includes wage subsidies, tax cuts for businesses and funding for environmental projects. It aims to shift away from the emergency spending of the Covid crisis to addressing longer term problems of weak investment and job creation in the euro area’s second largest economy. The fiscal reboot — much of which was announced over the summer — will be spread over two years and is split in roughly equal parts between competitiveness, jobs and social policies, and financing the transition to a greener economy.
- Dozens of people were detained and hurt in Bulgaria as protests against Prime Minister Boyko Borissov’s government erupted in violent clashes with police. Thousands gathered on the streets Wednesday night, renewing pressure on the government after two months of demonstrations and calls for the premier’s resignation over his failure to fight graft. Bulgaria has been repeatedly criticized for its poor rule of law and is the European Union’s worst-ranked member in Transparency International’s Corruption Perceptions Index. After hours of calm demonstration, several hundred “well organized” people wedged into the otherwise peaceful crowd, throwing bottles, rocks, chairs and firecrackers at officers, Anton Zlatanov, deputy head of the Sofia police, told reporters Thursday. Police officers responded with pepper spray and divided the crowd, forcing smaller groups from the square in front of the parliament building, the former headquarters of the Communist Party that ran the country until 1990. More than 80 policemen were hurt.
- China is planning a sweeping set of new government policies to develop its domestic semiconductor industry and counter Trump administration restrictions, conferring the same kind of priority on the effort it accorded to building its atomic capability, according to people with knowledge of the matter. Beijing is preparing broad support for so-called third-generation semiconductors for the five years through 2025, said the people, asking not to be identified discussing government deliberations. A suite of measures to bolster research, education and financing for the industry has been added to a draft of the country’s 14th five-year plan, which will be presented to the country’s top leaders in October, the people said.
- Thailand detected its first locally transmitted Covid-19 case since late May, snapping a streak of 100 days without community transmission. The new case on Thursday was confirmed in an inmate of a prison in Bangkok shortly after incarceration. The patient’s history showed that he stayed with his family of five and worked as a disc jockey before being lodged in jail, health ministry officials said in Bangkok. He had no history of traveling outside the country, they said. There was no immediate risk of infections among other inmates because all new prisoners are quarantined for a 14-day period, officials said. Health authorities are carrying out tracing of all high-risk contacts of the patient, they said.
- Vodafone Group Plc’s India unit is planning to raise about $1.5 billion as it seeks to turn around its fortunes in the country’s fiercely competitive wireless market, people familiar with the matter said. Vodafone Idea Ltd. is discussing a funding plan that could include a share sale, according to the people, who asked not to be identified because the information is private. It is working with advisers including New York-based investment bank PJT Partners Inc. as it seeks potential strategic partners to buy stakes, the people said. The telecom operator is working to identify potential investors in the U.S., the people said. It could also raise part of the funds through other methods such as an offering of equity-linked securities, one of the people said.
- President Donald Trump is taking to the airwaves in the once reliably Democratic state of Minnesota, launching an attack ad that paints opponent Joe Biden as “taking a knee” when protests in Minneapolis turned violent. The Trump campaign’s foray into Minnesota — including at least $12.9 million in advance ad buys after Labor Day — represents an audacious attempt to win a state that has gone to Democrats in every presidential election since 1972. Trump lost the state by only 1.5 percentage points in 2016, and Minnesota was ground zero for summer-long protests and civil unrest after the police killing of George Floyd in Minneapolis in May.
- The euro extended its losing run to the longest since June after European Central Bank officials expressed concern over its strength, spurring speculation that they may consider easing monetary policy further. The common currency weakened as much as 0.6% on Thursday, while Italian government bonds added to their gains from the previous two sessions, when they outperformed most European peers. Better-than-expected U.S. economic data and the ECB remarks have driven some investors to take a profit on long-euro trades, said Georgette Boele, a strategist at ABN Amro.
*All sources from Bloomberg unless otherwise specified