September 8th, 2020
Daily Market Commentary
- Cogeco Inc.’s controlling family reiterated its rejection of a plan by Altice USAto acquire the business for $7.8 billion. Louis Audet, the designated representative of the Audet family, said that the controlling shares the family holds of Cogeco and indirectly of Cogeco Communications Inc. are not for sale. Altice announced an unsolicited offer Sept. 2 to acquire Cogeco — a deal that would let it obtain the Canadian cable company’s U.S. assets and sell the rest to Rogers Communications Inc. The Audet family, through its holding company Gestion Audem Inc., spurned the offer after Altice and Rogers unveiled their plan.
- Suncor’s full-year production guidance has been revised to 680,000–710,000 boe/d. Guidance in its 2Q earnings presentation had been for upstream production of 740,000-780,000 boe/d. 3Q production estimates are anticipated to be 305,000–320,000 bbls/d for Oil Sands Operations.
- European stocks climbed as analysts speculated the market could be relatively resilient to the tech-led downdraft in the U.S. The pound sank on concern the U.K. is inching closer to a no-deal Brexit. The Europe Stoxx 600 rose Monday with broad gains led by automakers.
- Investors returning Tuesday from the U.S. Labor Day holiday will need to take stock of a rally that’s fizzling as doubts grow over positioning and valuations that look extreme. While futures on the broader U.S. stock index climbed Monday, those on Nasdaq were down 0.4% in the aftermath of the steepest weekly decline in global equities since June. U.S. technology shares, which have posted stratospheric gains through the depths of the pandemic, showed signs of buckling at the end of the week amid reports that huge options bets were fanning their gains. The downturn embroiled SoftBank Group Corp., which slumped 7% after reports that the Japanese conglomerate made massive bets on tech-linked options trades.
- Oil fell to its lowest intraday level since July as signs of faltering demand continue to depress prices. Futures in London traded below $42 a barrel after dropping 1.5% on Monday. Only four of 10 Asian refiners surveyed by Bloomberg said they would be trying to buy more Saudi Arabian crude after the kingdom cut pricing for October as consumption remained below pre-virus levels. Abu Dhabi National Oil Co. joined in the price cuts on Tuesday, the latest response to a sluggish demand backdrop in the world’s biggest oil-consuming region.
- Gold slipped as a stronger dollar countered concerns over economic recovery and global trade. “Gold struggles to find buyers as the dollar trades well ahead of a mountain of new U.S. bond issuances this week,” said Stephen Innes, chief market strategist at AxiCorp. The Bloomberg Dollar Spot Index rose 0.2%. The precious metal declined even as President Donald Trump stoked tensions with China, putting pressure on European stocks. Trump said he intends to curb U.S. economic ties with China, threatening to punish any American companies that create jobs overseas and to forbid those that do business in China from winning federal contracts.
- The Trump administration is considering a ban on importing products containing cotton from the Xinjiang region of China in response to Beijing’s alleged repression of the Uighur Muslim minority group, according to two U.S. officials. The move would be carried out by U.S. Customs and Border Protection in response to concerns that some Chinese companies rely on forced labor by Uighurs, according to the officials, who discussed the matter on condition of anonymity ahead of an announcement that could come as soon as Tuesday. The measures could have a broad impact on the textile industry, which relies heavily on Chinese cotton. Xinjiang produces more than 80% of China’s cotton and the U.S. imports some 30% of its apparel from China, according to a report published last October by the Center for Strategic and International Studies.
- China on Tuesday outlined a slate of rules designed to prevent foreign governments from acquiring data stored locally, seeking to counter Washington’s accusations that services like TikTok and WeChat share sensitive user information with Beijing. Foreign Minister Wang Yi unveiled the proposals governing global data security after raising the plan with his Group of 20 counterparts last week, part of China’s attempts to set global standards for the digital sphere. They involve forbidding governments from gaining access to data acquired by companies’ overseas operations, according to a statement posted on the ministry’s website.
- President Donald Trump said he intends to curb the U.S. economic relationship with China, contrasting himself with Joe Biden by threatening to punish any American companies that create jobs overseas and to forbid those that do business in China from winning federal contracts. “We’ll manufacture our critical manufacturing supplies in the United States, we’ll create ‘made in America’ tax credits and bring our jobs back to the United States and we’ll impose tariffs on companies that desert America to create jobs in China and other countries,” Trump said at a White House news conference on Monday where he complained at length about his Democratic re-election opponent.
- Japan is pressing ahead with preparations for the Tokyo Olympics to be held next year even though there is no clear sign the Covid-19 pandemic will be under control by that time. International Olympic Committee Vice President John Coates, who heads the IOC’s coordination committee for the Tokyo event, reignited the debate over whether the games would be held next summer after he told AFP they will go ahead next year regardless of the coronavirus situation. When asked on Tuesday about the possibility of another postponement or cancellation of the Olympics, Chief Cabinet Secretary Yoshihide Suga said the government was working with related parties to hold the games next year.
- The Bank of England’s chief economist has thrown his weight behind the government’s controversial plan to let its wage-support program end, saying that prolonging it could delay the economy’s much-needed restructuring. Calls have been mounting for the subsidies to be extended beyond next month, but Andy Haldane said a better way might be to let pay levels and working hours adjust to the market. At the same time he signaled that companies may need help managing the debt burdens they’ve built up during the pandemic. A “more flexible approach to the world of work and the way of running businesses might be one of the things that protect us from too many more job losses,” he said in an interview with City A.M. published late Monday. “That would be a less painful way of businesses adapting now, if the burden was shared across the workforce.”
- Europe’s fears of a virus resurgence are becoming reality with France hitting a new peak and infections rising in Germany and the U.K. after a summer of lax containment. Meanwhile, the Bank of England’s chief economist threw his weight behind the government’s plan to let its wage-support program end. China’s President Xi Jinping took a victory lap in a ceremony hailing his country’s success in suppressing the pandemic first discovered on its soil. Hong Kong said it will double the number of people allowed to gather in public and reopen sports venues beginning Friday.
- President Donald Trump has discussed spending as much as $100 million of his own money on his re-election campaign, if necessary, to beat Democratic nominee Joe Biden, according to people familiar with the matter. The billionaire president has talked about the idea with multiple people, though he hasn’t yet committed to any self-funding, according to people briefed on internal deliberations. Though Trump personally contributed $66 million to his 2016 campaign, it would be unprecedented for an incumbent president to put his own money toward winning a second term. Trump has sought advice about whether he should self-fund as he scrutinizes heavy spending by his team earlier this year that failed to push him ahead of the former vice president in the polls. In addition, Biden’s campaign and associated Democratic entities have recently raised more than Trump and his allies.
- A $750 billion industry still struggling to bounce back from the last crisis is cracking under the Federal Reserve’s lower-for-longer mantra on U.S. interest rates. Prime money-market funds — a long-time favorite for anyone seeking a cash-like investment with a little extra yield — are facing an existential challenge, just four years after a regulatory overhaul to restore confidence in the wake of the global financial crisis. Assets in these vehicles dropped 20% in just six weeks earlier this year, spurring talk of new reforms. But some of the industry’s leaders are opting for another solution: Shutting them down. Vanguard Group, the world’s second-largest asset manager, is converting a $125 billion fund to buy government debt rather than the short-term corporate notes it’s invested in for decades, and Northern Trust Corp. and Fidelity Investments have recently axed funds with a similar focus altogether. The decisions entrench a prolonged decline for prime funds, and could hurt a market that thousands of companies rely on for funding.
- Drugmakers racing to produce Covid-19 vaccines pledged to avoid shortcuts on science as they face pressure to rush a shot to market. In an unusual public letter, the companies agreed to submit the vaccines for clearance only when they’re shown to be safe and effective in large clinical studies. The chief executive officers of nine front runners in the push for a coronavirus inoculation signed the pledge: AstraZeneca Plc, BioNTech SE, GlaxoSmithKline Plc, Johnson & Johnson, Merck & Co., Moderna Inc., Novavax Inc., Pfizer Inc. and Sanofi.
- Investors added money to exchange-traded funds that buy emerging market stocks and bonds last week. This was the second straight week of inflows. Inflows to U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $779.6 million in the week ended Sept. 4, compared with gains of $68 million in the previous week, according to data compiled by Bloomberg. So far this year, outflows have totalled $15.1 billion.
- Tesla Inc. shares slumped in U.S. pre-market trading on Tuesday after the electric-vehicle maker missed out on being included in the S&P 500 Index, taking investors who had bet on its entry to the benchmark by surprise. Tesla shares fell about 10% pre-market in the first day of trading since Friday’s news. Instead of Elon Musk’s Tesla, S&P Dow Jones Indices added online retailer Etsy Inc., chip gear maker Teradyne Inc. and medical technology firm Catalent Inc. “There may be question marks about the sustainability of regulatory emission credit sales which are currently underpinning earnings,” said Michael Dean, an analyst with Bloomberg Intelligence. “This may have influenced its failure to make it into the S&P 500.”
- In a matter of weeks, California has been hit with two record-breaking heat waves, hundreds of blazes, freak lightning storms and dangerously poor air quality. Now unusually strong winds are threatening to knock down power lines and ignite more wildfires, prompting the state’s largest utility to plan power cuts for more than 500,000 people. The shutoffs that PG&E Corp. began late Monday are the latest blow for the disaster-weary state, where climate change is making weather ever more extreme. Temperatures have soared to records from Napa to Los Angeles. Wildfires have torched 1.67 million acres — more than any other year aside from 2018 in data stretching back three decades. Hundreds of thousands of people may go dark for days while trapped indoors due to wildfire smoke and Covid-19 outbreaks.
- Europe’s fears of a coronavirus resurgence are becoming reality with France hitting a new peak and infections rising in Germany and the U.K. after a summer of lax containment. Earlier lockdowns decimated European economies and authorities are resisting renewed nationwide restrictions on movement. Despite thousands of more cases, the situation is very different than in March and April. Death rates are rising more slowly, and hospitals are still able to treat the sick, easing pressure on European leaders to take drastic action — at least for now. Confirmed cases in France rose by 4,203 on Monday. The seven-day rolling average has been rising steadily in recent weeks and surpassed 6,000 on Friday, above previous peaks in March and April.
- Rising tension between the U.K. and European Union over trade is proving to be a boon for the nation’s first syndicated bond offering since June. The U.K. will sell 8 billion pounds ($10.5 billion) of 15-year debt after attracting bids in excess of 76 billion pounds, according to a person familiar with the sale, who asked not to be identified because they’re not authorized to speak about it. The bonds were priced at about 13 basis points over similar-maturity debt. “The approaching Brexit deadline and trash talking ahead of the next round of negotiations is dampening risk appetite,” prompting investors to favor safer assets, said Antoine Bouvet, a senior rates strategist at ING Bank NV. Also, “the last Bank of England meeting boosted market hopes of another round of quantitative easing and seemed to downplay the odds of negative rates,” he said.
- The Finnish state is buying shares of Nokia Oyj to send a signal that it’s ready to protect the maker of 5G mobile networks amid a geopolitical battle in which the U.S. has expressed interest in owning a part of the company. The state’s equity-asset manager Solidium Oy recently crossed the 5% threshold in Nokia shares, and now has about 1 billion euros ($1.2 billion) worth of stock. The telecommunications-equipment maker was earlier this year reported to have hired advisers to consider strategic alternatives and U.S. Attorney General William Barr has suggested his government should buy a stake in Nokia or its rival Ericsson AB.
*All sources from Bloomberg unless otherwise specified