August 6th, 2020

Daily Market Commentary

Canadian Headlines

  1. Canadian shares advanced Wednesday amid a slew of corporate earnings while insurance stocks rallied. The S&P/TSX Composite Index gained 0.8%, with nine of 11 sectors rising. Great-West Lifeco Inc. jumped the most since June 8 after posting second-quarter financial results that crushed analysts’ estimates. After months of lagging behind their equity counterparts, fixed-income ETFsattracted net capital of C$3.7 billion ($2.8 billion) in July, their highest month of inflows this year, according to data from National Bank of Canada.
  2. More than half of Canadians are afraid to go back to their workplaces and 77% are worried their colleagues might show up infected with the coronavirus, according to research from consulting firm KPMG. About six in 10 say they’ll will refuse to go back if they believe their place of work is not safe enough and 57% are concerned about sharing meeting rooms and other common areas. The survey polled more than 1,000 Canadians online and was conducted July 22 to 24. Major Canadian employers including Royal Bank of Canada, Bank of Nova Scotiaand Telus Corp. have told many employees to continue working from home for the rest of the year. One potential issue for workers in Toronto’s financial district is its often-crowded subway system. The city has one of the busiest transit networks in North America, trailing only New York City and Mexico City.
  3. Bausch Health Cos. plans to spin off its faster-growing eye-care business from its core pharmaceutical operations, breaking apart a company previous management had built through such acquisitions, according to people familiar with the matter. The transaction could come as soon as Thursday, the people said. The eye-care unit, known as Bausch & Lomb, accounted for nearly half of the company’s $8.6 billion in revenue last year, they said. The eye-care business would return to being a separate company, as it was before Valeant Pharmaceuticals International and its then-Chief Executive Michael Pearson acquired Bausch & Lomb for $8.7 billion in 2013.
  4. Manulife Financial Corp.’s Asian business — once the biggest earnings contributor for the Canadian life insurer — is showing resilience in the face of added challenges in the region. The Covid-19 pandemic, social unrest in Hong Kong and new rules for corporate-owned life-insurance products in Japan have been working against Manulife’s Asian operations in recent months. Yet Manulife shrugged off those issues in its second quarter, as the Asia division returned to growth after a drop in profit in the previous period. Overall earnings at the Toronto-based company beat analysts’ estimates.

World Headlines

  1. European stocks fell as investors assessed earnings reports and growing signs of U.S.-China trade tensions. The Stoxx Europe 600 Index dropped 0.2% as of 8:14 a.m. in London. Glencore Plc led miners to the worst performance among sectors as it fell 2.8% after scrapping its 2020 dividend. Deutsche Lufthansa AG climbed 7.1% after reporting a smaller loss than expected. Equities have lost steam after surging to a four-month high in late July, as investors question whether much of the economic recovery is already priced in and assess the risk of it being derailed by rising coronavirus cases. Adding to geopolitical tensions, U.S. Secretary of State Michael Pompeo on Wednesday urged U.S. companies to bar Chinese applications from their app stores.
  2. U.S. futures turned lower alongside European stocks before jobs data and word on the latest American stimulus package. Tech shares including Western Digital Corp. and Micron Technology Inc. led declines in the premarket. Bristol-Myers Squibb Co. and Pfizer Inc. rose after winning a court ruling that upheld patents on their blockbuster blood-thinner Eliquis.
  3. Japanese stocks fell as traders adjusted positions ahead of the traditional summer holiday season while looking for evidence of a recovery in economic data and corporate earnings. The food and railway groups were the biggest drags on the Topix index, which dropped after early swings. Volume on the benchmark gauge was 10% below the 30-day average. Toyota Motor Corp. extended its gain in afternoon trading after posting a surprise profit. Honda Motor Co. and Suntory Beverage & Food Ltd. were among stocks that slumped after disappointing reports.
  4. Oil fell from a five-month high in New York, fluctuating with other risk assets, even as investors look for clear signs about a sustained recovery in demand. Futures closed at the highest level since early March on Wednesday after U.S. inventories fell to the lowest in more than three months. Still, gasoline and distillate stockpiles rose by a combined 2 million barrels last week as the summer driving season nears its end, capping further gains in prices. Oil has closely followed the dollar in recent weeks. The currency declined 0.5% on Wednesday, making commodities such as crude more attractive for investors. It was little changed on Thursday, after swinging between gains and losses. European equities edged lower.
  5. Spot gold climbed further above $2,000 an ounce for a third day as investors weighed the approaching deadline for a U.S. stimulus deal and growing animosity between the world’s two largest economies. Bullion has advanced 35% this year, pushed higher by declining real bond yields, a weakening dollar and chronic uncertainty over the global economy. Gold’s haven status is being cemented as governments and central banks bring more stimulus to bear on their virus-stricken economies. The price is trading near Wednesday’s record, and many analysts predict it could go higher in the coming months.
  6. The White House and congressional Democrats are running up against a self-imposed Friday deadline to strike a deal on a virus relief package with little sign they’ve narrowed most fundamental differences. Neither side indicated they would walk away from negotiations if an agreement can’t be reached. But Treasury Secretary Steven Mnuchin and White House Chief of Staff Mark Meadows said unless some compromise can be found soon, more negotiations may be fruitless. “Our objective is to try to reach an understanding of the major issues by Friday,” Mnuchin told reporters after meeting with House Speaker Nancy Pelosiand Senate Democratic leader Chuck Schumer on Wednesday. “If we can’t reach an agreement on the major issues, it’s going to be hard to complete a deal.”
  7. Germany reported the highest number of new coronavirus cases in more than three months, though still well below the peak reached in early April. Poland will introduce new containment measures in some counties after fresh infections set records in the past weeks. Investors should consider the risk of a successful vaccine unsettling markets by sparking a sell-off in bonds and rotation out of technology into cyclical stocks, Goldman Sachs Group Inc. said. Cases in the Philippines have surged to almost 120,000, eclipsing Indonesia to become the region’s biggest outbreak.
  8. The Bank of England sought to reassure investors that it won’t tighten monetary policy anytime soon despite the U.K. economy showing signs of a faster rebound than initially expected. The pound gained after the central bank’s relatively robust projections and policy makers also hinted that they’re not ready to follow other central banks in taking borrowing costs below zero. Still, he also said the BOE is ready to do more if needed, and the Monetary Policy Committee stressed the economy is unlikely to fully recover before the end of 2021, slightly later than the previous scenario.
  9. Investors should consider the risk of a successful coronavirus vaccine unsettling markets by sparking a sell-off in bonds and rotation out of technology into cyclical stocks, according to Goldman Sachs Group Inc. The increased probability of an approved vaccine by the end of November is underpriced by equity markets, wrote strategists including Kamakshya Trivediin a note Wednesday. Over the next few months, the ramifications of the U.S. election and the evolution of the virus — in part as schools reopen — are also likely to be key drivers of the market, they said. Approval of a vaccine could “challenge market assumptions both about cyclicality and about eternally negative real rates,” the team wrote, adding such a scenario may support steeper yield curves, traditional cyclicals and banks, while challenging the leadership of technology stocks.
  10. Meggitt Plc is considering selling as much as $600 million of new stock as it prepares for another wave of the coronavirus outbreak that’s hobbled its planemaker clients, according to people familiar with the matter. The U.K. engineering group is working with advisers to review equity and debt funding options, according to the people, who asked not to be identified because the information is private. One measure under consideration is a share sale equal to as much as 20% of the company’s issued capital, they said. An offering could be announced as early as this month, the people said. No final decisions have been made, and Christchurch, England-based Meggitt may also choose not to proceed with a transaction, they said.
  11. U.S. billionaire Dan Friedkin agreed to buy the AS Roma soccer team, ending days of speculation about the Italian club’s future ownership. The Friedkin Group will purchase Roma’s main shareholder plus two affiliated companies in a transaction valued at 591 million euros ($701 million) and then launch a mandatory tender offer for the remainder of the stock, about 13.4% of the total, according to a statement from the company. The transaction should be completed by the end of the month. Soccer is far from the origins of Friedkin’s fortune. His Houston-based Friedkin Group owns Gulf States Toyota, an independent distributor of vehicles and parts and owner of more than 150 dealerships across five U.S. states. The Texan has been in talks to buy the team for weeks, according to the Il Messaggero newspaper.
  12. It looks like a real cable subscription, with familiar television shows, advertisements and even a customer-service line. But the product, known as a pirated internet-protocol television service, is illegal. Last year, thieves that stole live TV feeds and resold them online generated about $1 billion in sales, according to a report from nonprofit group Digital Citizens Alliance and Nagra, a unit of antipiracy consulting firm Kudelski Group. The practice has likely ballooned during the coronavirus pandemic, as homebound Americans search for ways to stay entertained indoors, they said. The investigation shows that the entertainment industry is still struggling to contain piracy, which is siphoning off a major chunk of revenue. It also reveals a gap in policy may be making the problem worse: Reselling stolen television channels is a misdemeanor in the U.S., and rarely punished, allowing content to proliferate, representatives from the groups said.
  13. Chicago Public Schools will begin the academic year with all-virtual classes this fall after administrators bowed to pressure from nervous staff and parents, rebuffing President Donald Trump’s calls to reopen classrooms to avoid further strain on the U.S. economy. The Wednesday decision by the nation’s third-largest district leaves only New York among major U.S. systems planning on in-person classes; Governor Andrew Cuomo has said he will make a final decision this week. The national rush to all-remote learning will keep parents struggling to work and teach their children simultaneously, businesses navigating those conflicts, and the virus-wracked country that much farther away from normality. “It’s a huge blow to the economy, and to the long-term potential for growth,” said Diane Swonk, chief economist at Grant Thornton in Chicago. “Unfortunately we’ve put ourselves in a position where it’s getting harder to see how we’re going to sustain a rebound in the third quarter.”
  14. Twitter Inc. and Facebook Inc. blocked a video shared by accounts linked to U.S. President Donald Trump for violating their policies on coronavirus misinformation. The Trump re-election campaign’s Twitter account, @TeamTrump, was briefly banned from sending new tweets after it posted a clip of an interview Trump did Wednesday with Fox News in which he said children were “virtually immune” from the Covid-19 coronavirus. “[Children] don’t have a problem, they just don’t have a problem,” Trump said in the video as part of an argument for why schools should reopen. “It doesn’t have an impact on them. I’ve watched some doctors say they’re totally immune.” Trump posted the same video to his account on Facebook, which removed the clip shortly before Twitter froze the campaign’s account. Both social-media companies have policies that forbid sharing misleading information about the coronavirus that could cause people harm.
  15. The stakes are higher than ever for Uber Technologies Inc. and Lyft Inc. as they line up Thursday against their most fearsome opponent yet — their home state of California — in the fight to determine whether ride-share drivers should be treated as employees with benefits. Until now, for years, most gig-economy companies, and Uber and Lyft in particular, have successfully deflected lawsuits that threatened their business model. They face an unprecedented threat, experts say, as the ride-hailing companies try to fend off California’s enforcement of Assembly Bill 5, the yearold state law that vastly expands the universe of workers who qualify for overtime, health care and other benefits.
  16. The number of new Covid-19 cases in Singapore is set to fall after the city-state nears clearing its migrant worker dormitories of the virus, paving the way for 90% of these laborers to return to work by the end of the month. Testing for all workers in the facilities will be completed by tomorrow, the health ministry said in a statement on Thursday. Several standalone blocks that serve as quarantine facilities are the exception and workers there will be tested when their isolation ends, it said.
  17. Turkey’s lira tumbled to its lowest level against the dollar as interventions by state banks failed to reassure investors. The lira depreciated as much as 3.2% on Thursday to 7.2775, and traded at 7.2627 versus the U.S. currency as of 1:15 p.m. in Istanbul, leading declines in emerging markets. The previous all-time low was set in May. The cost of insuring the nation’s bonds against default climbed to the highest in three months, while the main stock gauge lost 4.8%, making it the worst performer among developing-nation peers.
  18. It didn’t take long for Donald Trump to throw out the long-established diplomatic rulebook on Taiwan: A month before taking office in January 2017, he accepted a telephone call from President Tsai Ing-wen. That 10-minute conversation amounted to the first time a president-elect had spoken to a Taiwanese head of state since the U.S. cut ties with Taipei in favor of Beijing in 1979, and it infuriated President Xi Jinping’s administration. Trump threw fuel on the fire a few days later by questioning whether the U.S. needed to abide by its “one-China” policy. While Trump soon backpedaled, displaying an inconsistency that has become a hallmark of his presidency, it showed China that relations with the U.S. were changing quickly. And Sunday’s visit by Health and Human Services Secretary Alex Azar, the highest-level trip since the U.S. recognized China 41 years ago, marks yet another step toward America treating Taiwan like any other country in the world — an outcome that Beijing has threatened could lead to war.
  19. Airbus SE managed to expand deliveries to its airline customers last month, even as the coronavirus outbreak weighed on travel demand, people familiar with the matter said. The tally for July handovers exceeded the 36 recorded in June, and was boosted by a system that delegates some essential customer checks to the manufacturer’s own engineers, according to the people, who asked not to be named discussing data that’s due to be made public later Thursday. Deliveries may have reached the low 40s, one of them said. Airbus declined to comment on the July report, while acknowledging shipments are being bolstered by the so-called e-delivery option. The process “continues to facilitate our ability to deliver aircraft during an unprecedented time of travel restrictions and quarantines,” said Stefan Schaffrath, an Airbus spokesman.
  20. Facebook Inc. is buying a huge amount of clean power across the U.S. and Ireland to support its operations. The social-media giant — already one of the world’s biggest corporate consumers of renewable energy — signed contracts to buy 806 megawatts of additional solar and wind power, the company said. The contracts support eight projects in Utah, Ohio, Illinois, Tennessee and Ireland, and involve several different developers, including Brookfield Renewable Partners LP, D.E. Shaw Renewable Investments and Apex Clean Energy. Corporate appetite for cheap clean power has been a big recent driver of wind and solar growth in the U.S. and beyond. Tech giants including Facebook have led that push, in part to power their data centers.
  21. Deutsche Lufthansa AG warned that compulsory dismissals are likely in Germany amid slow progress in talks with unions, stiffening its tone as it braces for years of reduced demand. Europe’s biggest airline posted an adjusted operating loss of 1.7 billion euros ($2 billion) in the second quarter — its biggest ever — wrapping up a dismal set of results for carriers in the region after the coronavirus grounded virtually all passenger flights. Lufthansa has set a goal of slashing 22,000 full-time positions as it trims the fleet by at least 100 planes to clamp down on expenses and pay back some 9 billion euros in state aid. Like full-service peers IAG SA and Air France KLM, the German company faces a slow recovery because the long-haul flights it most profits from remain largely idled amid travel restrictions and flareups in the coronavirus pandemic.

*All sources from Bloomberg unless otherwise specified