August 14th, 2020

Daily Market Commentary

Canadian Headlines

  1. Canadian equity markets fell on Thursday, led by energy and communication stocks. The S&P/TSX Composite index fell 0.3% in Toronto. Energy stocks underperformed after oil fell the most in nearly a week as investors assessed the International Energy Agency’s reduced forecasts for global oil demand, in part due to a slowdown in air travel. On the deals front, Brookfield Asset Management Inc. said it raised a record $23 billion during the second quarter and expects to accelerate the pace of investments after the disruption caused by Covid-19. Meanwhile, Ontario is willing to increase the amount of debt it raises in foreign currencies as it seeks to fund a record long-term borrowing plan. “While our target remains to complete 70% to 80% of our long-term funding in Canadian dollars, we will respond to market conditions and investor demand and adjust this target if necessary,” a spokesperson for the Ministry of Finance said.
  2. A family feud that tore apart one of Canada’s richest families has been settled by splitting the company that owns some of America’s most famous racetracks. Frank Stronach and daughter Belinda Stronach said Thursday they have ended a long and public battle for control of the family business. Belinda will get control of the Stronach Group’s thoroughbred racing and gaming businesses, which include Santa Anita Park and Gulfstream Park, plus related real estate. Frank Stronach and his wife, Elfriede Stronach, will take full ownership of a thoroughbred stallion and breeding business, including Stronach Stables, and farming operations in Florida, Kentucky and Ontario. They will no longer have any interest in Stronach Group.
  3. Huawei Technologies Co.’s Chief Financial Officer Meng Wanzhouis seeking access to hundreds of confidential documents pertaining to her arrest by Canadian authorities as her next round of extradition hearings in Vancouver kicks off Monday. Wanzhou has been pressing for additional disclosure about the circumstances of her arrest at Vancouver’s airport on a U.S. handover request in December 2018. She argues her arrest was unlawful and that the extradition request should be dismissed. Meng claims there was an abuse of process during her arrest, accusing border agents, police and the U.S. Federal Bureau of Investigation of unlawfully using the pretext of an immigration check to get her to disclose evidence they could use against her. Border agents have admitted that they shared “in error” her device passwords with police. Those abuses are serious enough to warrant a stay of extradition proceedings, Meng says.

World Headlines

  1. European stocks fell in a broad retreat, after strong gains earlier in the week, with travel shares leading losses following the U.K.’s expanded quarantine rule. The Stoxx Europe 600 Index declined 1.6% as of 9:30 a.m. in London, with all 19 sectors down. Travel and leisure stocks slid 3% after the U.K. added countries including France and the Netherlands to its 14-day quarantine rule for travelers. Oil stocks dropped, with PGS ASA tumbling 4.8% after rejecting an offer from TGS NOPEC Geophysical Co. for its multi-client data library. Banks also underperformed. Concern about rising coronavirus infections cut into European stocks’ second straight weekly gain, with Germany adding the most cases since May 1. Investors are also awaiting progress on a U.S. stimulus package. The Stoxx 600 briefly broke above its 200-day moving average this week for the second time in less than a month, a level technical analysts say it needs to overcome for further gains.
  2. U.S. futures edged lower ahead of retail sales data for July, while European stocks slumped as fresh quarantine rules took hold in the U.K. Treasury yields declined after rising for five days and the dollar was steady. Traders continue to bank on further fiscal stimulus to help the nascent recovery, after U.S. and Asian stocks erased most of their pandemic-related losses. Retail sales figures on Friday will offer clues about the health of the consumer recovery following a report that showed weekly jobless claims in the U.S. dropped below 1 million for the first time since March.
  3. Stocks in Asia Pacific have dug their way out of a hole for the year as the global market recovery from the coronavirus continues to grind higher. A record high set in early 2018 seems to be the next target for investors. The MSCI Asia Pacific Index closed up 0.5% to 171.05 as of 4:50 a.m. in Hong Kong, erasing its year-to-date loss after the S&P 500 Index closed just shy of a record high. Health-care and communications shares have been the top performers this year as investors pile into sectors closely related to the pandemic and remote-working arrangements, while finance and real estate have fared the worst. The Asian index has rebounded after a sell-off that erased almost $6 trillion of its market value, thanks in no small part to a rally in Chinese shares that ranks among the best in the world.
  4. Oil followed European markets lower on Friday as the demand impact of the coronavirus pandemic continues to cap price gains. Futures were down 1% in New York, mirroring a drop in stock markets, as the U.K. placed new rules on arrivals from some countries. It’s the latest measure that shows the potential for a patchy recovery in oil products consumption, underscored by the International Energy Agency’s downward revision to the majority of its demand forecasts for the next 18 months in its most recent report. Despite Friday’s losses, crude is set to eke out a small weekly gain following a slew of encouraging data on U.S. crude stockpiles, gasoline consumption and refinery activity. Though many, including the IEA, expect the oil market to tighten for the rest of the year, flare ups in the virus are stymieing the resurgence of demand and gasoline production in Europe is currently unprofitable.
  5. Gold headed for the first weekly drop in more than two months after being buffeted by climbing real yields, profit-taking and a stalemate in U.S. stimulus negotiations. Bullion is ending a week filled with wild swings on a relatively tame note, and more than $100 an ounce below last week’s record. This comes as Treasury yields steadied near an eight-week high, with the number of Americans applying for unemployment benefits falling below 1 million for the first time since the coronavirus pandemic began in March. Data Friday showed China’s economic recovery continued in July, though retail sales were weak.
  6. Alibaba Group Holding Ltd. will be included in Hong Kong’s Hang Seng in one of the biggest revamps in the benchmark index’s 50-year history. Xiaomi Corp. will also be joining the index, as will Wuxi Biologics Cayman Inc., according to Hang Seng Indexes Co. on Friday as it unveiled the first major changes since the compiler began allowing dual-class shares and secondary listings. The move could affect tens of billions of dollars in pension fund assets and exchange-traded funds that track the index. Sino Land Co., Want Want China Holdings Ltd and China Shenhua Energy Co. were forced out of the 50-member gauge.
  7. Germany added the most new cases since May, while the head of the French Health Agency Jerome Salomon said the situation in his country is worsening. Travel stocks slumped after the U.K. government said it will require travelers from France, the Netherlands and four other countries to quarantine. Infections rose in Spain, prompting warnings from business leaders about the cost to the economy if new lockdown measures have to be imposed, and an Austrian government minister called the surge in cases ‘alarming.’ In New Zealand, Prime Minister Jacinda Ardern extended the lockdown in Auckland. Democratic nominee Joe Biden said U.S. governors should require masks for the next three months, an approach he said would save more than 40,000 lives, though President Donald Trump said this would be unenforceable. More than a third of Americans surveyed said they won’t get vaccinated when a shot is available.
  8. The coronavirus pandemic has wiped out nearly half of the 12 million euro-area jobs created since the last recession, in another sign of the enormous damage wreaked on the economy. Employment slumped by 4.9 million in first half of the year, almost all in the second quarter when the most stringent measures to contain the spread of the virus were in place. More declines are likely. Generous furlough programs across the 19-nation bloc have so far contained the fallout on the labor market from a record economic contraction, with a rise in unemployment that is more modest than in the U.S.
  9. Hundreds of thousands of British tourists face being forced to quarantine for two weeks on their return home after the government added France, the Netherlands and Malta to its list of virus trouble-spot destinations. Prime Minister Boris Johnson’s administration warned Britons against all non-essential trips to these countries and said the quarantine requirement would come into force from 4 a.m. Saturday, sending travel industry stocks tumbling. The measures, to deal with a surge in Covid-19 infections, are likely to spark a chaotic scramble for tickets on flights, trains and car ferries for 160,000 Britons currently holidaying in France. The French government said the decision was regrettable and warned it would lead to reciprocal action.
  10. Donald Trump hasn’t yet delivered the “deal of the century” he’s long sought in the Middle East, but his administration’s efforts have produced an agreement between Israel and the United Arab Emirates that even opponent Joe Biden is calling a historic step. It’s an accomplishment that comes with plans for a White House signing ceremony on the cusp of the November presidential election. And it lets President Trump claim a foreign policy win after he failed to deliver on efforts to secure a nuclear deal with North Korea’s Kim Jong Un or force Iran’s leaders to the negotiating table through a “maximum pressure” campaign of sanctions.
  11. There’s little chance of agreement on a new federal coronavirus relief plan without a compromise on the roughly $1 trillion in aid to beleaguered state and local government that Democrats demand and the White House opposes. Democrats have offered to cut their original stimulus proposal totaling $3.5 trillion by roughly one third, but insist on keeping help for states, cities and other municipalities. President Donald Trump’s negotiators, in addition to rejecting the Democrats’ topline number, have offered to put in no more than $150 billion for local assistance. Negotiations are at a standstill heading into two weeks in which the Democratic Party then the Republican Party hold their respective presidential nominating conventions.
  12. CureVac BV, a competitor in the race for a coronavirus vaccine, priced its U.S. initial public offering at the top of a marketed range to raise $213 million. The company sold 13.33 million shares for $16 each after marketing them for $14 to $16, according to a statement Friday. The company is also raising 100 million euros ($118 million) in a private placement concurrent with the IPO, according to CureVac’s filings with the U.S. Securities and Exchange Commission. CureVac, based in Tubingen, Germany, is valued in the listing at about $2.8 billion based on the outstanding shares listed in its filings. The company’s valuation could change depending on whether regulators approve a vaccine.
  13. Senate Minority Leader Chuck Schumer is backing a bipartisan bill that would create a $120 billion fund for restaurants, which have been ravaged by the coronavirus pandemic, as senators headed home until September without a broader accord for a new stimulus package. Schumer, a New York Democrat, said in a statement on Friday that lawmakers should “act now to pass this important legislation and other critical assistance that struggling small businesses and workers are in desperate need of.” His support increases the possibility that the bailout for restaurants could move forward on its own, but it comes as talks between Republicans and Democrats over a comprehensive relief plan have collapsed over disagreements regarding unemployment aid, help for local and state governments and funding for the postal service — as well as how much money the government should spend.
  14. Britain’s power industry lost 1.1 billion pounds ($1.4 billion) in the five months to August as reduced electricity demand and wholesale prices cut revenues for suppliers, generators and grid companies. The drop in consumption meant that 3.4 million tons of carbon dioxide emissions weren’t pumped into the atmosphere, according to analysis by Hartree Solutions. That’s about 1% of the U.K.’s annual CO2 emissions in 2019. Just under half of the income loss can be attributed to lower wholesale power prices with the rest down to lower earnings from transportation costs, renewable subsidies, network charges and balancing costs, Hartree said in the report.
  15. Indonesia will ramp up government spending to a record high next year and seek the central bank’s help in financing the budget deficit as it seeks to revive an economy reeling from the coronavirus pandemic. Gross domestic product is forecast to grow 4.5%-5.5% next year, while the fiscal deficit is expected to narrow to 5.5% of GDP from this year’s 6.34%, President Joko Widodo said Friday in his annual budget speech in Jakarta. Spending is projected to rise 0.3% to 2,747.5 trillion ($185.2 billion), while revenue is seen rising 4.5% to 1,776.4 trillion rupiah. Southeast Asia’s largest economy is experiencing its worst crisis in more than two decades as restrictions on movement to fight the pandemic and a plunge in global demand have wreaked havoc on households and business. With government revenue falling, Jokowi, as the president is known, has turned to Bank Indonesia to help share the burden, and said he intends to ask the central bank for help again next year.
  16. More than a dozen trade groups are launching a new coalition aimed at forcing e-commerce companies such as take stronger measures to fight stolen or counterfeit goods sold on their platforms. The industry associations, which represent Walmart Inc., Target Corp., and Best Buy Co. Inc. among other companies, announced on Friday they are founding The Buy Safe America Coalition to back legislation that would require digital marketplaces to verify information about third-party merchants. The lobbying push by retailers will only add to the scrutiny facing companies such as Amazon and EBay Inc. over their role in allowing counterfeit products from bicycles to jeans to be sold around the world. Lawmakers, President Donald Trump and companies have all been exploring ways to curb the deluge of fake goods online.
  17. As the presidential election nears, American voters are sure to be asked if they’re better off financially than they were four years ago. Donald Trump isn’t. The president’s net worth has declined $300 million in the past year to $2.7 billion, erasing 10% of his fortune since he took office, according to the Bloomberg Billionaires Index. The drop marked the sharpest decline since Bloomberg began tracking his fortune in 2015. It started with a decrease in income across the Trump Organization’s portfolio of office buildings and was compounded by the coronavirus pandemic’s impact on property markets.
  18. Daily fantasy sports companies like FanDuel and DraftKings must pay federal excise tax on their entry fees, the IRS has decided, in an internal memo that could cause a major shakeup in the industry.  An IRS Chief Counsel Memorandum said those companies must pay tax on every wager—the entry fee—they accept as well as an annual occupational tax on each person accepting those wagers. Those taking wagers must also register with the IRS.
  19. Pinterest Inc. is planning to announce a new board member Friday, according to people familiar with the matter, in a move to appease employees who are demanding change after claims of discrimination by management. More than 160 of Pinterest’s 2,400 employees are planning a virtual walkout on the same day. Because they’re already working from home, instead of walking off the job, they just won’t sign in, borrowing a protest strategy from Facebook Inc.’s employees. “We want systemic change so that we can remain proud of where we work,” the employees wrote anonymously in a petition asking for transparency on pay and on promotion and retention of minority workers.
  20. U.S. stocks likely have more upside as they factor in American growth prospects and the Covid-19 vaccine outlook, according to Goldman Sachs Group Inc. The implied level of the S&P 500 could be above 3,600, strategists Dominic Wilson and Vickie Chang wrote in a note Thursday. That’s if markets move toward Goldman’s “comparatively more optimistic” U.S. growth forecast, and real yields move higher but then further optimism pushes breakeven inflation rates higher without sending nominal yields up significantly, bringing the real yields down, they said. The gauge closed at 3,373.43 on Thursday. “There is still room for market pricing of U.S. growth views to move higher, particularly given improving prospects for an early vaccine,” the note said. “While a back-up in real yields would be a potential drag on equity returns, as long as it is driven by an upgrade to the market’s cyclical views, the improved cyclical outlook would dominate the effect of rising real yields and drive equities higher.”
  21. An unlikely consensus developed soon after Joe Biden selected Kamala Harris as his running mate. President Donald Trump and his petroleum-industry allies fell into near perfect agreement with climate activists and environmental groups on one thing: Harris is an aggressive crusader against fossil fuels. While that position might be useful for riling political bases on both sides, a review of evidence from her career as a prosecutor and legislator indicates that Harris appears more moderate than either side admits. And her record shows that her motivation has been driven more by climate justice than climate change.
  22. Dubai is likely to benefit the most in aviation from the United Arab Emirates’ historic deal to normalize relations with Israel, gaining a new stream of travelers that can help the Gulf travel hub bounce back from the coronavirus crisis that has decimated air traffic. The agreement announced Thursday sets aside decades of enmity between the UAE and Israel, opening ties through air travel, tourism, investment, security and telecommunications. Delegations from the two countries are set to meet soon to work out the details. The opening will give the UAE’s biggest carriers — Emirates and Etihad — an opportunity to feed Israeli passengers through their airport hubs in Dubai and Abu Dhabi, respectively, connecting to destinations farther east and west. Currently, Royal Jordanian and Turkish Airlines are the only carriers in the Middle East that fly to Israel.

*All sources from Bloomberg unless otherwise specified