December 2nd, 2020

Daily Market Commentary

Canadian Headlines

  1. Canadian shares gained Tuesday after Monday’s retreat as gold prices advanced while domestic banks began reporting earnings. The S&P/TSX Composite Index rose 0.6% with materials and financials leading the charge. Pot shares retreated. Gold rebounded from an almost five-month low as the dollar retreated amid strong risk-on sentiment in equity markets. Meanwhile, BlackBerry surged the most ever after the company signed a multiyear agreement with Amazon Web Services to develop and market its “Intelligent Vehicle Data Platform,” called IVY.
  2. Royal Bank of Canada showed continued resilience during the Covid-19 crisis, helped by a gain in its capital-markets business and a smaller earnings decline in personal and commercial banking. Royal Bank’s capital-markets business has benefited from a surge in trading as the pandemic roils markets. Earnings at the unit rose 44% to C$840 million ($649 million) in the fiscal fourth quarter, helping the company post earnings that beat analysts’ estimates.
  3. Sun Life Financial announces President change in a statement issued today. Bill Anderson, Chairman of Sun Life Financial Inc., announced today that Sun Life President and Chief Executive Officer, Dean Connor intends to retire August 6, 2021. Kevin Strain, currently Executive Vice-President and Chief Financial Officer, will be appointed as President and a member of the Sun Life Board of Directors effective February 15, 2021.

World Headlines

  1. European stocks retreated as renewed worries over Brexit talks eclipsed positive news on the Covid-19 vaccine front. The Stoxx Europe 600 Index fell 0.2% by 11:16 a.m., led by the automotive, retail and travel sectors. U.K. banks, homebuilders and retailers declined after European Union’s chief negotiator Michel Barnier told envoys the outcome of post-Brexit trade deal talks is still too close to call. Concerns over negotiations outweighed the optimism over the U.K. becoming the first western country to approve a Covid-19 vaccine, with its regulator clearing Pfizer Inc. and BioNTech SE’s shot ahead of decisions in the U.S. and the EU. Investors are carefully monitoring Brexit talks as the next few days are crucial, with the U.K. and EU teams hoping that an agreement can be reached on Friday or over the weekend.
  2. Futures on U.S. equity indexes slipped a day after closing at record highs and European shares edged lower as investors struggled to find fresh catalysts to add more risk. Yields on Treasuries and German bunds held Tuesday’s spike. After vaccine breakthroughs fueled record monthly gains for global stocks, markets appear to have priced in an improved health outlook, and investors are turning some of their attention to bonds. One of the year’s biggest spikes in Treasury yields on Tuesday has spurred speculation about the potential impact of rising rates on stocks and corporate debt.
  3. Japanese equities advanced, following U.S. peers higher amid the latest signs of progress on U.S. stimulus and coronavirus vaccines. Autos, electronics and banks were the biggest boosts to the benchmark Topix, which added 0.3% to close at 1,773.97. Services and telecommunications providers fell. The Nikkei 225 Stock Average overcame early fluctuations to close 26,800.98, the highest level since April 1991. Among market tailwinds, the yen weakened for a third session to about 104.4 per dollar, and the MSCI Asia Pacific Index advanced. U.S. stocks rose to record highs on Tuesday as Congress discussed a relief package, and Pfizer Inc. and BioNTech SE sought clearance for their vaccine in the European Union.
  4. Oil held steady in New York, with OPEC and its partners engaging in a diplomatic push to agree on output levels before a key meeting on Thursday. Futures were little changed after fluctuating between gains and losses. The Organization of Petroleum Exporting Countries is working to gain consensus on a deal to delay a planned increase in production as the global market recovery remains fragile. Members need to thrash out a compromise before gathering for the meeting, which was postponed from Tuesday because of disagreements. Meanwhile, the American Petroleum Institute reported that U.S. crude inventories rose by 4.15 million barrels last week, according to people familiar with the data. Expanding stockpiles, strong demand in Asia and a suddenly resurgent North Sea market highlight the problems faced by OPEC and its allies as they consider whether a bifurcated market can handle more supply.
  5. Gold extended its rebound above $1,800 an ounce as investors weighed optimism over a renewal of stimulus talks in the U.S. with the latest vaccine developments. Congressional efforts to pass additional coronavirus relief crept ahead as House Speaker Nancy Pelosi presented a fresh Democratic proposal and Senate Majority Leader Mitch McConnell floated a revision of his much smaller plan to fellow Republicans. This came shortly after a bipartisan group of lawmakers proposed their own $908 billion compromise. Gold had come under pressure recently — declining the most since 2016 last month — as progress over vaccines lifted risk sentiment. The U.K. became the first western country to approve a vaccine, clearing Pfizer Inc. and BioNTech SE’s shot ahead of decisions in the U.S. and European Union.
  6. The U.K. became the first western country to approve a Covid-19 vaccine, clearing Pfizer Inc. and BioNTech SE’s shot before decisions by the U.S. and European Union. The daily death toll from the virus in Germany rose to the highest since mid-April, while total infections in neighboring Poland surpassed the one million mark. Italy’s government is set to tighten restrictions during the Christmas and New Year holiday season to prevent revelers from causing a worsening of the pandemic. New guidance from the U.S. Centers for Disease Control will cut quarantine time for individuals exposed to the coronavirus by as much as half, people familiar with the matter said.
  7. Reinsurer Conduit Holdings Ltd. rose as it started trading in London after a 826 million-pound ($1.1 billion) initial public offering, the second largest by a British company on the London Stock Exchange this year. The stock climbed as much as 7% to 534.9 pence from the offering price of 500 pence. The company sold 164.1 million shares, according to a statement Wednesday. The order book closed on Tuesday, two days earlier than planned. The newly established underwriting business is betting on rising prices for commercial insurance. Its cost, which had already been increasing for the last few years, has jumped as the coronavirus pandemic raises risks across multiple lines of business.
  8. Xiaomi Corp. dropped the most ever in Hong Kong after China’s No. 2 smartphone maker raised $3.1 billion in the city’s biggest top-up placement on record. The stock fell as much as 12% Wednesday, the biggest intraday loss since its 2018 listing. Xiaomi’s shares were halted during the morning session after the company failed to disclose the placement in time for the open, surprising some market participants. Xiaomi eventually confirmed it had sold shares at HK$23.70 apiece — a 9.4% discount to its last close — in a filing released during the midday break. Xiaomi closed 7.1% lower at HK$24.30. That wiped out about $5.8 billion in value from the stock, or almost twice what Xiaomi raised with its top-up placement.
  9. GardaWorld increased its hostile offer for G4S Plc to 3.68 billion pounds ($4.9 billion), the latest twist in the hotly contested pursuit of the British security provider. Canada’s Garda said in a statement Wednesday that its 235 pence-a-share cash offer is its final proposal, unless G4S gets a firm bid from someone else. To improve its chances, Garda slashed the investor acceptance threshold to proceed to 50% plus one share, from an earlier 90%. Garda will be hoping it has done enough to entice G4S investors away from rival suitor Allied Universal Security Services LLC. Some top shareholders had viewed 220 pence per share as a starting point for more serious negotiations, people with knowledge of the situation said earlier.
  10. Mexico will cash in its oil price insurance policy this year for the fourth time only in the last two decades, receiving a payout of about $2.5 billion from its 2020 sovereign oil hedge, people familiar with the transaction said. In an ironic turn of events, Mexico is making a hedging profit just as the OPEC+ deal the Latin American country walked away from earlier this year is threatened by infighting over production levels. For the past two decades, Mexico has locked in its oil revenue via options contracts it buys from a small group of investment banks and oil companies in what’s considered Wall Street’s largest — and most closely guarded — annual oil deal. The program gave President Andres Manuel Lopez Obrador leverage to abandon the OPEC+ agreement by shielding the country from oil market turmoil, and the payout comes at a time when his government is badly in need of cash.
  11. House Speaker Nancy Pelosi and Senate Majority Leader Mitch McConnell each took a stab at breaking the deadlock over a new stimulus, but it wasn’t clear that either side budged enough to get a deal in the short time Congress has left to act. Pelosi and Senate Democratic leader Chuck Schumer — who’ve previously stuck with a $2.4 trillion coronavirus relief package — presented a new proposal to McConnell and Treasury Secretary Steven Mnuchin, but refused to publicly release details. Schumer called it “a private proposal to help move the ball forward.”
  12. Nearly 1 million people in Southern California are facing blackouts as the state’s three biggest utilities weigh cutting power to prevent live wires from sparking fires during high winds. Edison International’s Southern California Edison warned it may need to shut off electricity to more than 230,000 homes and businesses in eight counties, the utility said on its website. That’s about 690,000 people based on the size of the average household, and would constitute the region’s largest public-safety blackout this year. Dry winds that can fan flames and knock power lines down are forecast to rattle Southern California through Friday, with the worst of it on Wednesday and Thursday, the National Weather Service said. California has already been charred by record fires that have burned 4.2 million acres and killed 31 people in 2020. Utilities including Edison and PG&E Corp. have cut power repeatedly to prevent live wires from falling into dry brush.
  13. The World Economic Forum has held preliminary talks with officials in Singapore about relocating its high-profile Davos annual meeting. The WEF is currently planning to hold the 2021 event at the Buergenstock resort in Lucerne, but is considering alternative locations because of the status of the coronavirus outbreak in Europe. While the Forum and Singapore have held discussions, no decision has been made, according to a spokesperson at Singapore’s Ministry of Trade and Industry. They also said health and safety is the priority and any international conferences must adhere to strict rules.
  14. British and European Union officials are racing to strike a post-Brexit trade deal before the start of next week, with EU chief negotiator Michel Barnier telling envoys the outcome is still too close to call. While intensive, round-the-clock talks in London are making progress, genuine disagreement remains on the two biggest obstacles, meaning it’s impossible to predict an outcome with any certainty, people with knowledge of the discussions said. A third issue — how the deal would be enforced — can only be overcome at the end. However, two officials said the general mood on both sides is one of optimism. Barnier told diplomats from the bloc’s 27 member states on Wednesday and that three disagreements, which have long bedeviled the talks, are still unresolved. There has been some movement, Barnier added, but it had mainly come from the EU side, according to one diplomat. The pound fell as much as 0.6% on the news.
  15. Orsted A/S, the world’s biggest developer of offshore wind farms, will appeal a decision by Danish tax authorities that would lump it with a 6.6 billion kroner ($1.1 billion) levy tied to U.K. wind farms. Copenhagen-based Orsted says it’s been told by the Danish Tax Agency that it’s required to pay Danish taxation on its British offshore wind farms Walney Extension and Hornsea 1, for the tax years 2015 and 2016. Denmark’s tax authorities are arguing that the future value of the U.K. farms was established in Denmark, in 2015 and 2016. Orsted, however, says that claim doesn’t take into account the fact that the farms are developed, owned, and operated by British subsidiaries and taxed in the U.K.
  16. Hong Kong said it is discussing plans with the Chinese central bank to allow mainland investors to trade bonds in the city via an existing link. The Hong Kong Monetary Authority and the People’s Bank of China will form a working group to study opening up the channel, an HKMA spokesperson said in an emailed statement. No time line was provided. China and Hong Kong opened a one-way bond connect in 2017 which gave offshore investors a new way to access the mainland’s debt market. Charles Li, chief executive officer of Hong Kong Exchanges & Clearing Ltd., said at the time the company would consider making it a two-way system if investors showed an interest.
  17. One of the year’s biggest spikes in Treasury yields has investors mapping out the impact of rising rates on markets ranging from stocks to corporate bonds. Renewed optimism about U.S. stimulus talks pushed the benchmark 10-year yield to a high of 0.94% on Tuesday, a move which if continued could spark a domino effect across risk assets trading at all-time highs thanks to low interest rates. At issue is whether the jump in yields is accompanied by an economic recovery and moderate levels of inflation that would allow the Federal Reserve to keep rates low. So far it seems investors are positioning for that scenario, with the Treasury curve — often a gauge of growth expectations — steepening overnight and U.S. stocks rallying to a fresh record. Ten-year breakevens — a measure of the market’s inflation expectations — rose to their highest level since May 2019.
  18. Inc.’s $27.7 billion takeover of Slack Technologies Inc. represents co-founder Marc Benioff’s most aggressive effort yet to challenge reigning software marker Microsoft Corp. The cash-and-stock deal, announced Tuesday and expected to close by July, will bring a workplace-communications application that’s grown more popular during the coronavirus pandemic to Salesforce’s ever-expanding platform. In the process, the app maker will come into greater conflict with the world’s largest software company, which offers a competing product named Teams. The purchase of Slack, an existing partner with less than $1 billion in annual revenue, fulfills Benioff’s long-held goal to make Salesforce’s software relevant to a broad swath of corporate employees, beyond the marketers and account representatives who log on to the company’s programs each day. At stake is the chance for Salesforce, a maker of cloud-based apps for managing customer relationships, to elevate itself to the very top of the software industry.
  19. A transatlantic alliance fractured by Donald Trump’s unilateral trade policies appeared headed for repair as both President-elect Joe Bidenand Europe signaled an urgency to rejoin a united front against China’s ascendancy in the global economy. “The best China strategy, I think, is one which gets every one of our — or at least what used to be our — allies on the same page,” Biden told New York Times columnist Thomas Friedman. “It’s going to be a major priority for me in the opening weeks of my presidency to try to get us back on the same page with our allies.” Meanwhile, in Brussels, the European Union is making a sweeping proposal for cooperation with the incoming Biden administration to counter the influence of countries like China and Russia.
  20. Walt Disney Co.’s Bob Iger would consider a job in the administration of incoming U.S. President Joe Biden, if the right position came along. “Giving back in some fashion — serving our country in some fashion — is certainly something that I would consider seriously,” Iger, 69, said in an interview on Bloomberg TV with the Carlyle Group’s David Rubenstein. “But a lot of it would depend on what it is, what the opportunity is, and whether I thought it would be something that I would both be stimulated by and be good at.” Iger’s name hasn’t come up on any short list of Biden nominees, and it’s unlikely he’d leave Disney now — given the strain the company is facing with theme parks and movie theaters closed or operating at reduced capacity due to the coronavirus.
  21. Petrobras is pledging a 25% cut in carbon emissions by 2030, but that hasn’t stopped Chief Executive Officer Roberto Castello Branco from dismissing pledges by peers to completely neutralize their carbon footprints two decades later. “That’s like a fad, to make promises for 2050. It’s like a magical year,” the head of Brazil’s state-controlled oil giant said in an interview. “On this side of the Atlantic we have a different view of climate change.” His stance more or less echoes those of U.S. oil giants Exxon Mobil Corp. and Chevron Corp., which have emission reduction plans but have been outspoken about their focus on crude. Shale explorer Occidental Petroleum Corp. recently became the first large American oil producer to aim for net zero emissions from everything it extracts and sells by 2050. Royal Dutch Shell Plc, BP Plc and other major European producers were the first to make similar pledges.

*All sources from Bloomberg unless otherwise specified