August 25th, 2020
Daily Market Commentary
- Canadian stocks advanced with global equity markets on signs that the Trump administration may fast-track vaccines and treatments for coronavirus. The S&P/TSX Composite index rose 0.7% in Toronto, led by financials. Canadian banks rose ahead of their earnings season, which should show improved results from last quarter. However, the group still is likely to see profits plunge for a second quarter due to economic fallout from the Covid-19 pandemic. Energy shares rose, helped by a rise in oil prices in advance of two storms heading for the U.S. Gulf Coast that spurred offshore operators to curtail production. Meanwhile, Northern Dynasty Minerals Ltd. plunged after reports the Trump administration is planning to block the controversial Pebble mining project in Alaska. The project has drawn opposition from prominent Republicans. On Monday, an Army Corps of Engineers letter was made public demanding a mitigation plan for “unavoidable adverse impacts.”
- Bank of Nova Scotia is setting aside more money than previously planned for souring loans amid the coronavirus pandemic, indicating the lender sees a need to further shore up reserves to weather a wave of impairments. When Scotiabank reported second-quarter earnings that included a record amount for provisions in May, Chief Executive Officer Brian Porter said third-quarter set-asides would be similar. He underestimated, with the bank on Tuesday reporting provisions of C$2.18 billion ($1.65 billion), a new high, in earnings that missed analysts’ expectations.
- Bank of Montreal didn’t go as far as its Canadian peers in setting aside money for souring loans in the early days of the Covid-19 pandemic, a strategy that may have worked in its favor. Canada’s fourth-largest lender by assets set aside less for provisions in its fiscal third quarter than the record amount earmarked in the second, supporting the firm’s earlier view that its allowances are “appropriate” for navigating the crisis. Still, provisions of C$1.05 billion ($798 million) eroded earnings in results that beat analysts’ estimates.
- Superior Plus Corp. is pleased to announce that one of its wholly-owned subsidiaries has entered into an agreement to acquire the assets of a retail propane and heating oil distribution company based in New Hampshire, operating under the trade name, Rymes Propane and Oil for an aggregate purchase price of approximately US $159 million (CDN $210 million) before adjustments for working capital. Superior anticipates drawing on its credit facility to fund the amount of the purchase price due on closing.
- European stocks climbed for a second day on optimism around the development of a Covid-19 vaccine and on signs of progress in U.S.-China trade talks. The Stoxx Europe 600 Index climbed 0.5% as of 9:58 a.m. in London. The travel sector rallied, advancing more than 2%. The U.S. and China reaffirmed their commitment to the phase-one trade deal in a biannual review, while investors are also focused on coronavirus vaccines being developed. The DAX Index jumped 1% after data showed rising optimism among German companies. European stocks have been largely rangebound since early June, after a sharp rebound from the sell-off through March. Trade tensions and worries about rising coronavirus cases have tempered optimism about an economic recovery. The Stoxx 600 is once again testing its 200-day moving average, which it has struggled to clear decisively since July.
- U.S. futures climbed with global stocks as America and China signaled progress on their phase-one trade deal. Treasuries slipped with the dollar. S&P 500 contracts advanced and shares rose throughout most of Asia as the two countries reaffirmed their commitment to a deal despite disagreement over issues such as tech security and Hong Kong.
- Japan’s Nikkei 225 Stock Average rose to its highest since February, following U.S. equities upward amid optimism over coronavirus drugs and signs that the pandemic is slowing in Tokyo. Fast Retailing Co., SoftBank Group Corp. and Shiseido Co. rallied, bolstering the blue-chip measure. The broader Topix benchmark advanced to an 11-week high, with banks providing the biggest boost. The S&P 500 and the Nasdaq Composite climbed to all-time highs on expectations the Trump administration may fast-track Covid-19 vaccines and treatments. Japan’s capital reported 95 new virus cases on Monday, the lowest daily figure since early July.
- Oil traded near $42.50 a barrel as Laura was predicted to become a major hurricane, menacing crude production and refineries in the U.S. Gulf of Mexico close on the heels of an earlier storm. Futures in New York traded lower, while those in London edged higher. Tropical Storm Marco faded and safety warnings were dropped, but Laura is expected to make landfall on Thursday as a Category 3 hurricane with winds as strong as 115 miles per hour. Some 82% of oil output in the Gulf has been halted as operators braced for the weather systems to hit. Refinery closures from companies including Motiva Enterprises LLC and Valero Energy Corp. could shut in more than 1 million barrels a day of processing capacity before the storm threat passes. U.S. gasoline futures rose to the highest since before the pandemic on concern over possible fuel shortages.
- Gold steadied after two days of losses, as investors weighed progress on a U.S.-China trade deal against the metal’s continued appeal as a haven asset. Risk appetite got a boost as Washington and Beijing reaffirmed their commitment to the phase-one trade deal, helping push European equities higher. While that may curb gold’s appeal, holdings in bullion-backed exchange-traded funds remain near a record. Traders are also awaiting Federal Reserve Chair Jerome Powell’s scheduled speech on Thursday for more clues on the central bank’s inflation strategy, which may aid gold. Bullion has scope to extend gains as real interest rates remain low, Pacific Investment Management Co.’s Nicholas Johnson said in a blog post.
- German infections increased at a pace close to a four-month high and a senior lawmaker said the government would likely extend a state wage-support program designed to help Europe’s biggest economy weather the pandemic. Finnair Oyj and Qantas Airways Ltd. said they would eliminate thousands of jobs, while Wizz Air Holdings Plc is seeking to expand in London and grab market share from rivals. In Asia, Hong Kong will ease some social-distancing rules after new cases fell. Infections in Seoul may have peaked over the past weekend, health officials said. The head of the U.S. Food and Drug Administration walked back his claim that an experimental therapy had provided a dramatic benefit to Covid-19 patients. President Donald Trump put his response to coronavirus center stage on the first night of the Republican National Convention.
- President Donald Trump’s convention opened with a dark portrait of fear in America painted largely for the benefit of his base — mixing appeals to Black and Latino voters with warnings of “mobs” bent on destroying the status quo. Monday’s Republican convention programming offered few appeals for independent voters disenchanted by Trump. Instead, it stitched together a series of tributes to Trump himself, leaned heavily on accusations that Democrats would damage the very fabric of American society and offered a revisionist vision of his handling of the coronavirus pandemic, which now threatens his re-election chances.
- Aveva Group Plc has agreed to buy Osisoft in a deal that gives the SoftBank Group Corp.-backed industrial software maker an enterprise value of $5 billion. About $4.4 billion of the deal will be paid in cash, funded by the balance sheet and a $3.5 billion rights issue, Cambridge, England-based Aveva said in a statement on Tuesday. Osisoft is jointly owned by SoftBank’s Vision Fund and founder and Chief Executive Officer J. Patrick Kennedy’s family as well as Mitsui & Co. with a 5% stake. The deal plays into industrial companies’ broader shift toward software-based automation that helps factories run more efficiently. Osisoft, founded in 1980 and based in San Leandro, California, makes data-management tools for the utility, pharmaceutical and oil and gas industries and says its PI System helps customers identify areas for cost savings, extend the life of their equipment and expand production capacity. Kennedy’s fund will get about $600 million in the deal, and he’ll remain at the company as chairman emeritus, Aveva said.
- The dominance of technology companies has eclipsed every other story in 2020’s pandemic-upended stock market. Now it’s helping speed changes to the world’s most famous equity benchmark. In the biggest reshuffling in seven years, Exxon Mobil Corp, Pfizer Inc. and Raytheon Technologies Corp. were kicked out of the Dow Jones Industrial Average, making way for Salesforce.com, Amgen Inc. and Honeywell International to enter the 124-year old equity gauge a week from today. The actions were prompted when Apple Inc. — currently 12% of the 30-stock index — announced a stock split that reduced the sway of computer and software companies in the price-weighted average.
- Apple Inc.’s ascent to more than $2 trillion in market value may have led to sticker shock for analysts covering the iPhone maker. Monday’s close was 17% above the average price estimate, generally for the next 12 months, according to data compiled by Bloomberg. The gap was the widest in Apple’s favor since the average was first produced in 2011. Apple’s peak on Monday exceeded the second-highest target price among 36 analysts. The projection, by Wedbush’s Dan Ives, stood at $515 after being raised 8.4% on Aug. 9. Morgan Stanley’s Katy Huberty was first at $520 after a 21% increase last weekend.
- Spending by shoppers, drinkers and diners is vital to Britain’s effort to emerge from its deepest recession for three centuries. News last week that retail sales rebounded by more than forecast in July stood out against a backdrop of unprecedented job cuts at Marks & Spencer Group Plc, a report that consumer confidence remains in the doldrums and the prospect of more local lockdowns after a spike in infections. The U.K. economy relies on consumer spending more than most other countries in Europe, accounting for 63% of output compared with around half in Germany and France. The retail industry has been open for almost two months in much of the U.K. following a lockdown imposed in March, following similar reopenings across the continent. But people in Britain seem to be venturing back out to stores, restaurants and bars more slowly.
- German companies have turned slightly more optimistic that the economy will continue on its long road to recovery, after the pandemic eroded spending and investment in the first half of the year. Business confidence rose to 92.6 in August from 90.4 in July, the Ifo Institute said Tuesday. That beat the median forecast of economists in a Bloomberg survey. Expectations also improved to 97.5 from 96.7.
- The hedge fund manager set to run Norway’s sovereign wealth fund has agreed to sever all ties to the investment firm he founded, in a move that looks set to end a political storm that had threatened to derail his appointment. Nicolai Tangen and Norges Bank, which manages the wealth fund, agreed to new contractual terms for the incoming CEO during a meeting on Monday. The revised agreement followed demands made last week by Norway’s parliament targeting potential conflicts of interest tied to Tangen’s controlling stake in AKO Capital LLP.
- Virgin Atlantic Airways Ltd. is set to find out whether it has enough support from creditors for a 1.2 billion-pound ($1.6 billion) rescue or if it will need a judge to overrule them in order to stave off collapse. The U.K. carrier founded and controlled by billionaire Richard Branson has already secured the backing of three creditor classes and is now seeking approval from the fourth, comprising trade suppliers, in a vote Tuesday. Support from the suppliers would eliminate the last potential obstacle to Virgin’s proposal ahead of a legal hearing next week. Should the creditors vote against the plan, the airline will have to persuade a judge, who under a new U.K. procedure can rule that a restructuring is preferable to insolvency even without the support of all relevant parties.
- Billionaire Jack Ma’s Ant Group filed for an initial public offering in Hong Kong and Shanghai to bankroll its expansion in financial services and bolster its lead as China’s largest online payments platform. The Hangzhou-based company will issue no less than 10% in new shares of its total capital, according to its filing with the Shanghai exchange. Ant generated 72.5 billion yuan ($10.5 billion) in revenue in the first half, after full-year sales of 120.6 billion yuan in 2019, it said. The firm posted a profit of 21.2 billion yuan in the first half. The crown jewel of the sprawling Alibaba empire, Ant has been accelerating its evolution into an online mall for everything from loans and travel services to food delivery, in a bid to win back shoppers lost to Tencent Holdings Ltd. With data from a billion users of its Alipay app at its back, Ant is pushing broadly into financial services, delivering technology such as artificial intelligence, robo investing and lending platforms.
- The U.S. and China reaffirmed their commitment to the phase-one trade deal in a biannual review, demonstrating a willingness to cooperate even as tensions rise over issues ranging from data security to democracy in Hong Kong. The two countries discussed steps China has taken, including ensuring greater protection for intellectual property rights and removing impediments to American companies in financial services and agriculture, the U.S. Trade Representative said. Both sides agreed to create conditions to push the deal forward, according to China’s Ministry of Commerce. Resolving the trade war between the U.S. and China has emerged as a rare area of cooperation as the relationship sours on a number of other fronts. Yet Beijing is far behind where it needs to be to meet its promises to increase purchases of agricultural, energy and manufactured goods from the U.S.
- A double-whammy scenario of Japanese Prime Minister Shinzo Abe stepping aside due to ill health and Donald Trump losing the U.S. presidential election would be enough to push the yen to 100 against dollar, at least temporarily. That’s the view of strategists at JPMorgan Chase & Co. who are starting to map out how a confluence of leadership changes could impact currency markets. While any moves are still purely speculative, the broad outlines of Abenomics — the fiscal and monetary stimulus that has kept the yen in check since 2013 — would likely continue under a successor to Abe, but the yen could initially rally on risk aversion.
- Best Buy Co. benefited from Americans splurging on household upgrades but warned the boost it received from reopening stores won’t last through the current quarter, disappointing investors and sending the shares down. Comparable-store sales in the U.S. — a key gauge of performance — rose 5%, beating analysts’ projections for a 3.9% gain, according to Consensus Metrix. U.S. revenue of $9.13 billion also beat. But like other retailers, Best Buy said it wouldn’t provide financial guidance, and the hints it did give about third-quarter sales were less robust.
- Citigroup Inc. is chalking up its wayward $900 million payment to lenders of the embattled cosmetics giant Revlon Inc. to one thing: human error. The bank — which said on Monday it has been in the process of upgrading its loan operations platform after a review it undertook last year — said it mistakenly transmitted the payments after an employee didn’t manually select the correct system options in its loan operation software. The dueling court filings late Monday came after Citigroup has recovered hundreds of millions of dollars, but some of the lenders are balking at its demand to return the payments, saying that Revlon was in default on their loans and owed them the money.
- Global bonds slumped from the U.S. to Europe in a sign the quiet summer trading period may be ending as a deluge of new supply is coming up. Long-dated Italian debt led the fall in Europe, while German securities were close behind, with the country likely to extend a wage-support program, according to a senior lawmaker. U.S. Treasuries fell amid signs of progress between the U.S. and China on a trade deal. Bonds have so far stayed supported through enormous stimulus measures taken by central banks’ purchase programs. But that could later come into question if the coronavirus’ economic impact continues into the end of 2020, with around $1 trillion of debt still to come to market this year.
- Medtronic Plc posted stronger-than-expected quarterly results, a sign that the medical-device maker pulled through the darkest days of the coronavirus pandemic in better shape than some investors had feared. Its shares rose in early U.S. trading. Adjusted earnings per share for the first quarter were 62 cents, lower than $1.26 a year earlier but much better than the 22 cents analysts had expected, according to Bloomberg data.
- Grocery stores are booming as the coronavirus pandemic drives Americans to stock up their pantries. But the nation’s biggest grocer is largely missing out. Walmart Inc., which has sat at the top of the food chain for years, has lost market share to companies like Kroger Co. and Albertsons Cos., whose quarterly sales have risen by double-digit percentages. While much is made of Walmart’s high-stakes battle with Amazon.com Inc., right now it’s mainstream supermarkets who are nibbling away at Walmart’s dominance in the nation’s $900 billion grocery market. Walmart investors are concerned, with shares down 3.1% over the past week. Meanwhile, Kroger is up 10% since it reported better-than-expected sales in its first quarter, while Ahold Delhaize, the European owner of U.S. chains like Stop & Shop and Food Lion, rose 7.6% in August through Monday’s close. The setback could just be temporary, though, as pandemic-inspired spending habits revert back to normal.
*All sources from Bloomberg unless otherwise specified