August 12th, 2020

Daily Market Commentary

Canadian Headlines

  1. Canadian shares fell, led by mining stocks weighed down by gold and silver’s decline. The S&P/TSX Composite index fell 0.7% in Toronto after rising on Monday. The precious metal miners tumbled after the price of gold tumbled as bond yields spiked higher. In the deals front, Brookfield Asset Management’s infrastructure arm is in talks to acquire Blackstone’s minority stake in liquefied natural gas terminal operator Cheniere Energy Partners, according to people familiar with the matter.
  2. Brookfield Asset Management Inc.’s infrastructure arm is in talks to acquire Blackstone Group Inc.’s minority stake in liquefied natural gas terminal operator Cheniere Energy Partners LP, according to people familiar with the matter. The alternative asset manager is working with a partner to acquire Blackstone’s interest, said the people, who asked to not be identified because the matter isn’t public. No final decision has been made and Brookfield Asset Management could opt to not proceed, they said. Blackstone’s stake is worth about $7.8 billion, according to data compiled by Bloomberg.

World Headlines

  1. European stocks were steady on Wednesday, with a sector rotation in play as investors dumped this year’s top-performing sectors such as technology and health care, while boosting banks. The Stoxx Europe 600 Index added less than 0.1% at 8:09 a.m. London time, with doubts about the timing of a U.S. spending package in focus. Banks and telecoms rose, while gold miners were a weak spot as the price of the precious metal fell. European stocks have gained 4% so far in August following a dip in July. As the earnings season has progressed, investors have been buying back into sectors hit hardest by the pandemic, including travel stocks, autos and media firms, which are among the best-performing sectors so far this month.
  2. U.S. equity futures advanced and stocks edged higher in Europe as bank shares rallied and bond yields climbed globally. Gold rebounded after finding support below $1,900 an ounce. Contracts on the S&P 500 rose, with premarket gainers including Occidental Petroleum Corp., the gauge’s worst performer since late March. Nasdaq 100 futures also climbed after three sessions of declines for the tech-heavy gauge.
  3. Japan’s Topix index climbed to a two-month high, as a rally in bank stocks bolstered the benchmark. A subgauge of bank stocks jumped, posting its biggest three-day advance since May. Gains come after yields on 10-year Treasuries climbed almost 7 basis points Tuesday to 0.64%, the highest in more than four weeks. Chemical companies and technology firms also were among the biggest contributors to the Topix’s rise. The yen slipped for a fourth day against the dollar.
  4. Oil climbed to near a five-month high after an industry report pointed to a third straight weekly drop in American crude stockpiles. Futures in New York rose past $42 a barrel after losing 0.8% Tuesday. The American Petroleum Institute reported inventories fell by 4.01 million barrels last week, according to people familiar with the data. The improving picture in the U.S. overshadowed anxiety over the still-surging coronavirus. India’s oil product consumption was still down 12% compared to a year earlier in July, as the nation continues to grapple with the virus, while New Zealand’s largest city went back into lockdown.
  5. Gold rebounded Wednesday, extending a series of wild swings that saw the metal hit a record on Friday before plunging to below $1,900 an ounce. After surging more than 30% since the start of the year, gold’s rally came to a sudden halt as U.S. bond yields rose. Bullion had been one of the best-performing commodities in 2020, as the coronavirus outbreak pummeled the global economy, prompting central banks and governments to deploy massive stimulus. Its haven appeal was underpinned by a slide in U.S. Treasury real yields into negative territory.
  6. President Donald Trump is tapping his presidential authority to make tax changes that Congress is refusing to do, but his limited power means he could end up over-promising and under-delivering on his pledge to slash IRS bills. Trump has deferred hundreds of billions of dollars worth of payroll tax payments and is contemplating another executive action that would amount to a roughly $100 billion capital gains tax cut for investors by changing Treasury Department guidelines. The president is running for re-election in November trailing Democrat Joe Biden in every recent poll. Meanwhile, Congress is deadlocked on another stimulus as the country continues to struggle under a still-raging coronavirus pandemic. There are no immediate prospects for more negotiations and the stalemate could drag in September, leaving the economy limping as voters are getting ready to make their choices.
  7. U.S. and Chinese negotiators plan to discuss progress of their trade deal in the coming days, with Beijing pushing to widen the agenda to include Washington’s recent crackdown on businesses including TikTok and WeChat. A virtual meeting will likely take place as soon as this week though a date hasn’t been finalized, according to people familiar with preparations for the talks who asked not to be named. President Donald Trump’s chief economic adviser on Tuesday downplayed concerns the phase-one agreement will fall apart. Along with agricultural purchases and the dollar-yuan exchange rate, Chinese officials intend to bring up Trump’s prospective bans on transactions with the two apps on national security grounds, the people said without elaborating about what China hopes to achieve by doing so.
  8. Senator Kamala Harris brings an aggressive approach to politics and public policy, deep electoral experience and hands-on expertise in the beleaguered U.S. criminal justice system as Joe Biden’s running mate. Harris, at 55 a full generation younger than Biden, also imparts a youthful persona and diversity, with Jamaican and Indian ancestry that may help Biden, as a 77-year-old White man, energize a Democratic base that is rapidly becoming younger, more female and less White. But Harris comes with a track record as attorney general of California and district attorney of San Francisco, where she was known as being tough on minority defendants, an issue she will likely need to address in the 83 days remaining in the campaign.
  9. The Trump administration is abandoning Obama administration curbs on methane leaks from oil and gas wells, a move that even some drillers oppose and that could become a campaign issue in the swing state of Pennsylvania. The effort, which an administration official said would be finalized Thursday, represents the final Trump administration blow to former President Barack Obama’s three-part plan for stifling planet-warming emissions, following eased limits on power plants and automobiles. Methane is the chief component of natural gas, making it a valuable energy source and commodity. Yet it is also a climate menace — a powerful heat-trapping pollutant estimated to be roughly 80 times more powerful than carbon dioxide at warming the atmosphere over a 20-year period. Methane makes up roughly a 10th of U.S. greenhouse gas emissions, with much of that coming from the energy industry.
  10. The decisions by the Big Ten and Pac-12 college athletic conferences to postpone their football season endanger a huge chunk of sales for media companies such as Walt Disney Co. and Fox Corp. College football alone generated almost $1.2 billion in ad revenue for U.S. television networks last year. Its collapse could also hasten the loss of cable-TV subscriptions, putting billions of dollars more at risk. The Big Ten and Pac-12, home to schools like Ohio State University and the University of Oregon, joined smaller conferences this week that have put off a return to play this season due to the coronavirus pandemic. A similar move by more of the three other “Power Five” conferences, which make up the bulk of the college-sports audience, could kill a huge Saturday ritual for many Americans. One of those conferences, the Big 12, has decided to go ahead with its season, according to outlets including ESPN and Yahoo Sports.
  11. Russia defended the safety of what it said was the world’s first Covid-19 vaccine and announced it will start mass inoculation this month before clinical testing is completed. The pandemic hit the U.K. hardest in Europe with the country’s economy contracting more than 20% in the second quarter. That was the most since records began in 1955 and roughly double that of Germany and the U.S. Nations in Asia struggled to contain new waves of infections. Australia’s Victoria state had its deadliest day and New Zealand put its biggest city, Auckland, back in lockdown after the first outbreak in more than three months. The Philippines said it would begin clinical trials for the antiviral drug Avigan as it seeks to contain Southeast Asia’s worst outbreak.
  12. Russia brushed aside international concerns about the safety of the world’s first Covid-19 vaccine and announced it will start mass inoculation this month before clinical testing is completed. “Western colleagues, who can sense the competitive advantage of the Russian drug, are trying to express some opinions that are completely unjustified in our view,” Health Minister Mikhail Murashko told a briefing on Wednesday. “This vaccine is a platform that is already well-known and studied,” he said, adding that other countries have developed antidotes under accelerated testing programs.
  13. The U.K. economy suffered more than any major European nation during the coronavirus lockdowns, piling pressure on the government to ensure the withdrawal of its support programs doesn’t derail the nascent recovery. Gross domestic product plunged 20.4% in the second quarter, the most since records began in 1955 and roughly double that of Germany and the U.S. It also pushed Britain into its first recession since 2009. The report followed massive job losses since the start of the pandemic, and Chancellor of the Exchequer Rishi Sunak acknowledged that more pain is to come.
  14. Tencent Holdings Ltd. boosted revenue at the fastest pace in two years, defying an economic downturn in China as it prepares to face a ban on its WeChat messaging app by U.S. President Donald Trump.  Sales rose 29% to 114.9 billion yuan ($16.5 billion) in the three months ended June, beating estimates with a surge in online gaming revenue. It reported net income of 33.1 billion yuan that beat the highest of analysts’ projections, thanks to a gain of more than 8.6 billion yuan from asset disposals and valuation gains in its portfolio of investments. Shares in Prosus NV, which holds the internet assets of major shareholder Naspers Ltd., gained about 3% in Amsterdam.
  15. One of the last remaining deals of China’s now-aborted overseas acquisition spree is about to make its last attempt to limp across the finish line. China Oceanwide Holdings Group Co., backed by property tycoon Lu Zhiqiang, agreed in October 2016 to take over Genworth Financial Inc. for $2.7 billion. The idea was to give Richmond, Virginia-based Genworth a much-needed injection of capital, while providing the Chinese company a platform for further global expansion and expertise it could bring back home. It was just one of the ambitious deals announced that year by Chinese companies, which agreed to buy $235 billion of overseas assets ranging from Hollywood film studios to trophy hotel properties. Nearly 1,400 days later, the transaction is still dragging on and Genworth shares closed Tuesday at 55% below the bid price.
  16. Tesla Inc. is splitting its richly valued shares in a 5-for-1 exchange, a move designed to make the stock less expensive for individual investors after the company become the world’s most valuable automaker. Each stockholder of record on Aug. 21 will receive a dividend of four additional shares of common stock for each one they own, the electric-car maker said in a statement. The shares, which have more than quadrupled since March to close above $1,600 last month, rose 7% before the start of regular trading Wednesday. The split aims to capitalize on and support Tesla’s recent surge, which has pushed its market capitalization to more than $256 billion, exceeding the value of Toyota Motor Corp. and Ford Motor Co. combined. The massive rally for the shares has priced them out of reach for some smaller retail investors just as the EV industry is capturing their imagination.
  17. KE Holdings Inc., a Chinese online property platform backed by Softbank Group Corp. and Tencent Holdings Ltd., is poised to raise $2.1 billion as it plans to price its U.S. initial public offering above an indicative range, according to people familiar with the matter. KE, also known as Beike Zhaofang, is telling prospective investors that it’s planning to price the shares at $20 each,said the people, who asked not to be identified as the information is private. The company had been marketing 106 million American depositary shares at $17 to $19 apiece. The above-range pricing underscores the strong demand for KE’s offering, which is set to be the largest float by a Chinese company in the U.S. since iQiyi Inc. raised $2.4 billion in March 2018, according to data compiled by Bloomberg.
  18. Donald Trump’s WeChat ban targets a celebrated Chinese innovation at the heart of the world’s largest mobile gaming and social media empire, threatening one of the more eye-catching stock rallies of 2020. It’s hard to overstate WeChat’s importance to Tencent Holdings Ltd. It’s the means through which Tencent introduces a billion people to games and other online content, funneling trillions of dollars in annual payments to brands from Apple Inc. to Walmart Inc. WeChat’s reach underpinned Tencent’s $280 billion gain in market value since a March 18 Covid-19 trough — equivalent to one Samsung Electronics Co. and the fifth biggest dollar-gain on the planet over that period.
  19. Billionaire John Malone’s Liberty Global Plc has agreed to buy Sunrise Communications AG in a deal that values the Swiss phone carrier at about 5 billion Swiss francs ($5.4 billion) and revives a combination that fell through last year. The cable giant offered 110 Swiss francs per share, and Sunrise’s largest shareholder, Freenet AG, has agreed to sell its 24% stake, Liberty said in a statement on Wednesday. The offer is a 28% premium to Sunrise’s closing share price on Tuesday. Sunrise shares surged as much as 27% at the Swiss market open to 109.5 francs.

*All sources from Bloomberg unless otherwise specified