August 18th, 2020

Daily Market Commentary

Canadian Headlines

  1. Canadian stocks rose Monday, buoyed by materials after Warren Buffett’s Berkshire Hathaway Inc. added Barrick Gold Corp. to its portfolio. The S&P/TSX Composite Index gained 0.9% to its highest level since March 4. Materials and information technology stocks were among gainers while financials retreated. Gold and silver headed higher, paring some of last week’s losses, as the dollar remained under pressure and fresh worries over U.S.-China relations supported demand for a haven. Oil jumped to a five-month high alongside a surge in U.S. equities as optimism that an economic recovery may be on the horizon. Lenders to Cirque du Soleil Entertainment Group are leading the race to take control of the live-performance company when it emerges from a court-supervised restructuring, people with knowledge of the matter said.
  2. Canadian Finance Minister Bill Morneau resigned after a rift with Justin Trudeau proved impossible to repair, leaving the cabinet with a major hole in the midst of a deep recession. Morneau made the announcement at a press conference in Ottawa on Monday evening, saying he told the prime minister earlier in the day that he doesn’t intend to run in the next election. Trudeau didn’t immediately name a replacement, but the job won’t be filled by former Bank of England governor Mark Carney, according to two people familiar with the matter. The departure comes at a critical moment for Trudeau as his government crafts a plan for economic recovery amid historically high unemployment. Morneau was seen as one of the more fiscally cautious members of the cabinet, and the prime minister’s office and the finance department have disagreed over how to direct C$240 billion ($182 billion) in Covid-19 emergency spending. Canada is poised to run a record deficit of about 16% of gross domestic product this year.
  3. Canada’s Maple Leaf Foods Inc. and U.K.’s Cranswick Country Foods (Ballymena) have voluntarily suspended exports to China from Aug. 6 and Aug. 13 respectively, according to a list from China Customs recently updated on Aug. 17.

World Headlines

  1. European stocks rose, reversing an earlier loss as travel shares outperformed and investors awaited updates on a U.S. stimulus package. The Stoxx Europe 600 Index rose 0.3% as of 11:02 a.m. in London, erasing a drop of as much as 0.8%. Travel and leisure shares and carmakers outperformed, with most industry groups in the green. The FTSE 100 Index added 0.2%, with Brexit talks set to resume between the U.K. and the European Union in Brussels Tuesday. European stocks have traded in a range since reaching a four-month high in July, with strong macroeconomic data and better-than-expected corporate earnings offset by worries about rising coronavirus cases, a U.S. stimulus impasse and U.S.-China tensions. The Stoxx 600 last week briefly climbed above its 200-day moving average, but failed to overcome the technical resistance level decisively.
  2. U.S. equity futures climbed with European stocks on signs of strength in the housing market. A dollar gauge slid to the lowest since 2018. Home Depot Inc. rose in pre-market trading after reporting sales growth that was more than double analyst estimates as Americans opened their wallets for home improvement. Investors will get further hints on the state of the U.S. housing market when July housing starts data is published later on Tuesday. Meanwhile, traders remain preoccupied with the prospect for more government stimulus. Democrats and Republicans have been deadlocked in negotiations over a stimulus package and the S&P 500 has stalled just below its February closing record.
  3. Japan’s Nikkei 225 Stock Average fell on Tuesday as the yen’s strength kept investors cautious despite gains in U.S. equity benchmarks overnight. Electronics makers were the heaviest drag on the Topix as the yen advanced for a third day against the dollar amid Sino-U.S. tensions and weaker U.S. economic data. Demand for technology shares was damped after the U.S. announced new restrictions on Huawei Technologies Co., adding 38 of the Chinese firm’s affiliates in 21 countries to an economic blacklist as the U.S. seeks to limit adoption of its 5G technology.
  4. Oil traded near a five-month high in New York, supported by the dollar’s tumble to its lowest level in 18 months. Futures slipped 0.4%, and were trading in a tight band near $43 a barrel. The broad support from the dollar comes as U.S. crude inventories probably declined for a fourth straight week, according to a Bloomberg survey before government data on Wednesday. Prices are being kept in check as the physical market deteriorates. Much of weakness in real oil barrels is due to the return of some OPEC+ output this month. Ministers from the group are scheduled to meet on Wednesday to assess the the impact of the easing of their record supply deal. Russian Energy Minister Alexander Novak is expected to participate via video-link even after contracting Covid-19.
  5. Gold climbed back above $2,000 an ounce as renewed tensions between the U.S. and China boosted demand for haven assets, and the dollar weakened. The Trump administration announced further curbs on Huawei Technologies Co. aimed at cutting its access to commercially available chips. The move is the latest tit-for-tat in escalating tensions between Washington and Beijing over everything from the pandemic to China’s tight grip over Hong Kong. Equities drifted, while a dollar gauge slid to the lowest since 2018. Gold has surged this year on rising haven demand and as investors bet central banks and governments will maintain support for economies hit by the coronavirus. Bullion hit an all-time high on Aug. 7, before posting its first weekly drop in more than two months, buffeted by an uptick in real yields.
  6. Finland’s prime minister is being tested for coronavirus while Germany recorded the highest number of new cases in almost four months, adding to concern about renewed curbs on people’s movement in Europe. The U.K., the continent’s hardest hit country, reported the lowest tally of deaths in 20 weeks as retailer Marks & Spencer Group unveiled plans to cut about 7,000 jobs over the next three months. Norway’s sovereign wealth fund, the world’s biggest, lost $21 billion in the first half of the year. Hong Kong’s government will roll out a third round of anti-epidemic measures, Chief Executive Carrie Lam said. A flareup in South Korea continued to grow, with 246 more cases reported Tuesday, and the country banned large gatherings in and around Seoul.
  7. Inc. unveiled better-than-expected revenue and a major investment from Hillhouse Capital, after China’s second-biggest e-commerce firm rode a bounce-back in spending across its online malls. Shares in JD rose 7.9% in New York after it reported a 34% jump in sales to 201.05 billion yuan ($29 billion) in the June quarter, its fastest pace of revenue growth since 2017. The company also disclosed its JD Health division would get more than $830 million from Hillhouse — the investment firm founded by Zhang Lei with money from Yale University — through the purchase of Series B preference shares. The funds will also be used to strengthen its pharmacy supply chain.
  8. Democrats kicked off their convention with a show of unity and a rallying cry fueled more by animosity toward Donald Trump than affirmations for their own nominee Joe Biden — enlisting progressives, centrists and even Republicans to paper over differences and oust the incumbent. The debut night, held virtually, put on display the Biden campaign’s desire to make the election a referendum on Trump, unleashing broadsides against the president over the coronavirus, racial justice, character, the shattered economy and the U.S. Postal Service. It included speeches from Michelle Obama, Bernie Sanders and four disaffected Republicans, but it was Obama who jabbed the president hardest.
  9. Boeing Co. is preparing to offer buyouts to employees for a second time this year as the virus-stricken planemaker extends its workforce cuts beyond the original 10% target unveiled in April. The “voluntary layoff” will be offered largely to staffers in the company’s commercial airplanes unit, services division and corporate operation, Chief Executive Officer Dave Calhoun said Monday in a message to employees that was seen by Bloomberg News. More details will be made available to workers beginning Aug. 24.
  10. Tesla Inc. has found itself entangled in an escalating dispute with Chinese e-commerce giant Pinduoduo Inc., which ran a promotion for Model 3 sedans that the U.S. carmaker says broke its policies. At the center of the stoush, which surfaced last month, is Tesla’s direct-sales model. Unlike most carmakers that sell via franchised dealerships, Tesla has its own network of showrooms where customers can view a vehicle before placing an order online. Customers can also just go direct to the official online channel, which comes with a price-match guarantee. In this instance, a customer in Wuhan saw an offer for a Tesla Model 3 on Pinduoduo via YiAuto. YiAuto, a car retailer based in the southeastern province of Fujian, had advertised the sedan for 251,800 yuan ($36,320), around 7% cheaper than the official post-subsidy price set by Tesla.
  11. China denounced the U.S.’s latest moves to curb Huawei Technologies Co.’s access to commercially available chips, the latest blow in an increasingly tense relationship between the world’s two biggest economies. The changes announced by the Commerce Department on Monday build on restrictions announced in May, adding 38 Huawei affiliates in 21 countries to an economic blacklist as the U.S. seeks to limit adoption of the company’s 5G technology. In an interview on “Fox and Friends,” President Donald Trump said he doesn’t want Huawei’s equipment in the U.S. “because they spy on us.”
  12. Oracle Corp. is weighing a potential bid for part of TikTok’s business, seeking to rival Microsoft Corp. in the race to acquire the viral video streaming app, according to people familiar with the matter. The company controlled by billionaire Larry Ellison has made a preliminary approach to other parties, including the venture capital firm Sequoia Capital, to partner with it in a bid for the app’s operations in the U.S., Canada, Australia and New Zealand, the people said, asking not to be identified. The entry of Oracle could challenge Microsoft’s bargaining position, as the Redmond-based company had been the only party to publicly confirm it was in talks with TikTok owner ByteDance Ltd.. President Donald Trump on Friday ordered ByteDance to sell its U.S. assets within 90 days, adding to an earlier executive order that would prohibit U.S. persons and companies from doing business with TikTok effective 45 days from Aug. 6.
  13. The world’s biggest wealth fund said it’s eager to get clarity on who will lead it, after a botched recruitment process to find a new chief executive triggered a political storm that’s still playing out. Norges Bank Investment Management on Tuesday revealed a $21 billion loss for the first half of 2020. The result caps a turbulent period that’s been overshadowed by a CEO succession drama. “It’s now been almost a year since Yngve Slyngstad announced his resignation” as the fund’s CEO, Trond Grande, his deputy, said by phone after a press conference in Oslo. “Everyone’s looking forward to getting clarification and a new leader in place.”
  14. Opposition leaders in Belarus are seeking to reassure Russia about future relations as the biggest challenge to Alexander Lukashenko’s 26-year rule continues with nationwide strikes. Russia is an important partner for Belarus and “we recognize and accept that,” Maria Kalesnikava, a top ally of opposition candidate Svetlana Tikhanovskaya, wrote in a message published Tuesday on Telegram by the editor-in chief of Russia’s Ekho Moskvy radio. Belarus should maintain “all existing agreements” with foreign partners including Russia, she said. Russian President Vladimir Putin “emphasized the unacceptability of any attempts at external interference” in Belarus in a phone call Tuesday with German Chancellor Angela Merkel, according to a Kremlin statement. Merkel stressed that “the Belarusian government must refrain from using violence against peaceful demonstrators, release political prisoners immediately and enter into a national dialog with the opposition,” her spokeman Steffen Seibertsaid in a statement.
  15. BHP Group says it’s getting rid of thermal coal mines to help prepare for a lower-emissions future, yet the company’s still counting on fossil fuels to drive its business for another decade. The world’s biggest miner is accelerating the sale or spinoff of interests in mines in Australia and Colombia, and it’s planning to shed two coking coal operations and a share in an Exxon Mobil Corp.-controlled oil and gas business. The announcements came Tuesday as the company reported steady full-year profit. Chief Executive Officer Mike Henry is starting a long-term transition of BHP’s portfolio to benefit from rising demand for renewable energy, food and electric vehicles through growth in copper, nickel and potash. At the same time, BHP wants to profit from a shift to higher-quality raw materials in China’s steel sector and an oil market that Henry said has passed though the worst virus-related risks.
  16. Daimler AG could face a sales ban in Germany after Nokia Oyjwon a court ruling in a patent dispute, giving the Finnish company leverage in its fight over mobile technology in automobiles. Daimler, owner of the Mercedes-Benz brand, violated Nokia’s mobile-technology patents in its cars, judges in Mannheim said Tuesday. The ruling would would allow Nokia to stop Daimler from selling vehicles in Germany, but doing so would require Nokia to post collateral of 7 billion euros ($8.3 billion) in a separate proceeding.
  17. Goldman Sachs Group Inc. and Malaysia have signed an agreement to finalize the $3.9 billion settlement over the 1MDB scandal, according to people familiar with the matter. The U.S. bank formalized the deal on Tuesday and must make a $2.5 billion cash payment to Malaysia within 10 days, said the people, who asked not to be identified as the information is private. The pact reached in July was a major step toward resolving the scandal surrounding 1MDB, a Malaysian state fund that’s at the center of global investigations into corruption and money-laundering. It involved Goldman Sachs agreeing to pay $2.5 billion in cash and guaranteeing the return of $1.4 billion of 1MDB assets seized by authorities around the world, in exchange for Malaysia dropping charges against the bank.
  18. Catcher Technology Co., a key provider of metal frames for iPhones, has agreed to sell two businesses in China to Lens Technology Co., joining a cohort of Taiwanese companies in diversifying away from the country and adding production capacities elsewhere amid worsening ties between Washington and Beijing. Lens Tech will pay cash for the two units located in the eastern Chinese city of Taizhou and the transaction is expected to be completed before the end of this year pending government approval, Catcher said in a statement. The deal is tentatively priced at $1.43 billion and involves a plant that accounted for 40% of Catcher’s total sales in 2019, spokesman James Wu said at a briefing. The U.S.-China trade war and increasing price competition is facilitating supply chain consolidation, Wu added. Catcher still maintains some operations in China.
  19. Walmart Inc. posted stronger-than-expected quarterly sales fueled by soaring online orders and its market-leading grocery business, but added costs from the pandemic plus a $380 million charge related to layoffs weighed on profitability. Shares rose in early trading. Comparable-store sales, a key retail metric, increased 9.3% for U.S. Walmart stores in the period, compared with the 6.4% estimate compiled by Consensus Metrix. Revenue of $137.7 billion in the quarter also beat expectations. The retailer, which withdrew guidance in May, didn’t offer a fresh outlook on Tuesday due to uncertainty about the virus and the timing and scale of additional government stimulus spending.
  20. Joe Biden will send an unmistakable message about his vision for the Democratic Party on Tuesday night, and it will sound a lot more like him than the party’s progressive wing. Rather than the traditional convention keynote that can fuel one star’s rise — like young Senate candidate Barack Obama in 2004 — Biden’s team chose 17 people to share in delivering the coveted slot, all of whom largely share his center-left philosophy. The move, despite Bernie Sanders’s plea for unity on Monday night, frustrated progressives for not sufficiently highlighting the left wing of the party — Representative Alexandria Ocasio-Cortez of New York, for example, is the only member of the Squad of four liberal first-term congresswomen to get a speaking slot and it’s only one minute.
  21. Kohl’s Corp. rose in early trading after reporting a smaller second-quarter loss than analysts had been expecting in what continues to be an extremely challenging time for brick-and-mortar retailers. The company posted an adjusted loss of 25 cents a share, better than the estimated 70-cent loss. Sales fell 23% year on year but still outpaced analyst expectations.
  22. As many as 10 million Californians were supposed go dark on Monday in an unprecedented series of rolling blackouts designed to save the power grid from the worst heat wave in 70 years. But temperatures fell, people turned down their air conditioners and utilities called off the outages. They may not be so lucky on Tuesday. According to Accuweather Inc., temperatures in Los Angeles will climb to 99 degrees Fahrenheit (37 degrees Celsius), up 10 degrees from a day earlier. In Sacramento, they’ll peak at 108. If those projections hold true, another call for rotating blackouts is all but certain.

*All sources from Bloomberg unless otherwise specified