December 4th, 2020

Daily Market Commentary


Canadian Headlines

  1. Canadian equities gained Thursday but came off their high late in the session after a report that Pfizer Inc. will deliver fewer doses of its vaccine this year than earlier expected. The S&P/TSX Composite Index rose 0.2%, with nine of eleven sectors higher. Tech and materials retreated while communication services led the advance. Global crude oil prices surged to the highest since early March after OPEC+ agreed on a compromise deal to gradually ease production limits beginning early next year. Gold rose on a weaker U.S. dollar. Canada’s resilient housing market is proving a boon for Toronto-Dominion Bank and Canadian Imperial Bank of Commerce, helping their domestic banking franchises step up earnings.

World Headlines

  1. European stocks inched higher, trimming their first weekly drop in five, as oil companies gained and investors awaited a key U.S. jobs report. The Stoxx Europe 600 Index added 0.2% as of 8:06 a.m. in London. Energy shares led sector gains as oil rose toward $50 a barrel after OPEC+ reached a compromise deal to gradually taper production cuts. Travel and leisure shares also outperformed, while banks were the biggest laggards. European stock gains have plateaued near a February high after last month’s record rally, fueled by optimism that coronavirus vaccines would enable a return to normality. The Stoxx 600 is down 0.2% this week. U.S. labor data due later today may offer investors clues about the health of the world’s largest economy.
  2. Stocks edged higher on Friday as investors mulled the recent strength in global equities while awaiting key data on the U.S. labor market. S&P 500 futures ticked higher. The dollar headed for its biggest weekly decline in five, while Treasury yields nudged higher. The euro strengthened for a fourth day after data signaled the German economy’s resilience to the coronavirus pandemic. A report later Friday is expected to show U.S. employment gains slowed only modestly in November despite a record surge in virus cases. Global equities remain around record highs as investors bet positive vaccine developments can help sustain an economic recovery next year. Uncertainty remains about a U.S. stimulus package, where a bipartisan proposal endorsed by Democratic leaders as a basis for negotiations is luring increased interest from Republicans, lifting the chances for a deal by year-end.
  3. Japan’s Topix closed little changed after swinging between gains and losses Friday, capping its first weekly loss since October. Telecom stocks weighed the most on the benchmark index, while automakers advanced. Fast Retailing Co. and Tokyo Electron Ltd. were the biggest drags on the Nikkei 225 Stock Average, which fell on the day but managed its fifth-straight weekly gain.
  4. Oil extended gains toward $50 a barrel after OPEC+ reached a compromise deal to gradually taper production cuts. Futures rose 1.1% in London after closing at the highest level in nine months on Thursday. After five days of talks, the group will start adding 500,000 barrels a day of crude to the market in January, with ministers holding monthly meetings to decide on the next steps. The deal avoided a breakdown of OPEC+ unity after a tense split between Saudi Arabia and the United Arab Emirates. The oil futures curve, meanwhile, is signaling tighter supply as demand in Asia booms and the key North Sea market strengthens. The prompt timespread for global benchmark Brent crude moved further into backwardation, while the nearest December contract is trading at a higher level than the same contract for December 2022.
  5. Gold is heading for the first weekly advance in a month even as investors continued to offload metal from exchange-traded funds. Platinum extended its rally to a four-year high. Bullion steadied on Friday as investors weighed progress on coronavirus vaccine rollouts and possible further lockdowns, and awaited U.S. jobs data. Prices are poised to cap the biggest annual gain in a decade as the pandemic hurt economies and prompted unprecedented measures to try and shore up growth. Still, the metal is more than $200 an ounce below August’s peak as investors swapped the haven for riskier assets. ETF holdings have fallen for the past nine days, the longest rout in almost four years, an initial tally by Bloomberg showed.
  6. European Central Bank policy makers would probably agree to extend their pandemic bond-buying program by a full year until the middle of 2022 if that is proposed by the Executive Board next week, according to officials familiar with the situation. Several members of the Governing Council would support a 12-month extension, even those who have a personal preference for six months, the officials said. Such a move would beat expectations. Economists surveyed by Bloomberg this week predicted the crisis measures — intended to keep borrowing costs low to help the euro-area economy through the pandemic — will be stretched out by six months to the end of 2021, and expanded by 500 billion euros ($608 billion) to 1.85 trillion euros. The decision is scheduled for Dec. 10.
  7. The U.K. is hoping to inoculate millions of Britons against Covid-19 before the year is out, and most of the first batch of the Pfizer Inc.-BioNTech SE vaccine secured by the government have already reached the nation, according to Business Secretary Alok Sharma. Sweden expects to get enough doses in the first quarterto immunize a fifth of the population and Norway sees vaccinations starting in early 2021. Poland’s virus death toll approached 20,000 with 531 more reported in the past 24 hours, while Hungary and Slovenia saw record fatalities. A Covid-19 vaccine project supported by GlaxoSmithKline Plc is headed for advanced trials after showing a strong immune response in early studies. In Asia, Osaka raised its virus alert to the highest level following a rise in serious cases in the Japanese prefecture. South Korea’s number of newly confirmed cases climbed to the highest since early March and its capital Seoul calls for cutting late night activities. India said its scientists are working on a vaccine that could be ready in the next few weeks.
  8. Donald Trump late Thursday repeated his threat to veto a crucial defense policy bill after a bipartisan deal omitted a provision the president demanded, which would strip social media platforms of a key legal shield. The president issued his warning in a tweet after Republicans and Democrats on both the House and Senate armed services panels had reached agreement on the National Defense Authorization Act, a massive piece of legislation that, among many things, authorizes military pay raises and extra pay for troops on dangerous missions.
  9. Prospects for a pandemic relief package before the end of the year grew substantially as senior Republicans warmed to the idea of using a $908 billion proposal from a bipartisan group of lawmakers as a basis for a deal. The plan outlined by Republican and Democratic lawmakers in the House and Senate has emerged as the first real chance for a compromise that has eluded party leaders and the White House for months. Still, Senate Majority Leader Mitch McConnell hasn’t publicly thrown his support behind the plan, after having won President Donald Trump’s backing for his own, narrower proposal. That stance risks leaving him increasingly isolated as support shifts among Republicans eager to get some kind of agreement.
  10. Shares of Europe-listed cinema firms drop after Warner Bros. announced all major 2021 releases will be available on its HBO Max streaming service on the same day that they hit theaters. Cineworld slumps as much as 19% and Kinepolis drops 15%, while projector-maker Barco falls 3.5%; all stocks later pared declines. The decision seems worse than Universal’s 17 day theatrical release windows, according to ING, though the broker highlights that HBO Max is so far a very limited threat compared with Netflix and Disney+
  11. DoorDash Inc., the biggest U.S. food delivery company, is seeking to raise as much as $3.1 billion after boosting the price range for its U.S. initial public offering. The San Francisco-based company is marketing 33 million shares at $90 to $95 apiece, it said in a filing Friday. DoorDash was initially targeting to raise as much as $2.8 billion, with a price range of $75 to $85 per share. DoorDash is part of a cadre of consumer-oriented, web-based companies led by home-rental platform Airbnb Inc. that have lined up IPOs for December. The group includes video-game company Roblox Corp., installment loans provider Affirm Holdings Inc. and ContextLogic Inc., the parent of online discount retailer Wish Inc.
  12. The deputy governor of Norway’s central bank, which oversees the world’s biggest sovereign wealth fund, is stepping down immediately after failing to get security clearance due to his ties to China. Jon Nicolaisen, who’s had the role of deputy at the Oslo-based bank since 2014, said he “will not receive a renewed security clearance,” because his wife is a Chinese citizen and resides in China, “where I support her financially.” Nicolaisen had his tenure extended in April, when he was asked to focus on the central bank’s role managing Norway’s $1.2 trillion sovereign wealth fund. Among his most recent public statements relating to the fund was a decision to hand a larger chunk of its portfolio to external managers.
  13. Brexit trade talks that were on the verge of a breakthrough descended into a fight between the U.K. and France as the British government said the prospects of an imminent deal had receded. With negotiators working around the clock in London, optimism had been growing for days that an agreement could be struck this weekend. But British officials said the European Union had suddenly turned up with a new set of demands on Thursday, sending the talks backward. They didn’t say what the demands were, and EU officials denied it. The U.K.’s assessment came after French diplomats raised concerns a day earlier that the EU was making too many concessions to get a deal over the line. On Friday, France’s European Affairs Minister, Clement Beaune, reiterated his government will veto any deal if it isn’t in the national interest.
  14. The Czech Republic aims to stop using coal to produce electricity by 2038, highlighting the urgency for power utility CEZ AS to build a new nuclear reactor the country considers vital for energy security. An advisory committee recommended on Friday that the government adopt the same goal for phasing out the the dirty fossil fuel as its bigger neighbor Germany, saying the timetable will be reviewed at least once every five years. The landlocked country with limited options for wind turbines and solar panels has made atomic power its cornerstone for moving toward cleaner energy. After years of delays, the state-controlled CEZ and the government in July signed a contract effectively providing price guarantees and financing help for the project, which has been causing concerns among CEZ investors.
  15. Carmakers registered their lowest November sales in the U.K. since 2008 as lockdowns forced dealerships to shut back down. Registrations slid 27% from a year ago to 113,781 cars, according to data from the Society of Motor Manufacturers and Traders. That’s the steepest decline since a 35% plunge in June. England imposed a four-week lockdown that shuttered all non-essential stores after soaring infection rates risked overwhelming the health-care system. Other regions of the U.K., including Wales and Scotland, imposed similar measures.
  16. Ant Group Co. and a venture led by Grab Holdings Ltd. won licenses to run digital banks in Singapore, paving the way for the technology giants to expand their financial services in the Southeast Asian hub. Sea Ltd. is also among the four winners announced Friday by the Monetary Authority of Singapore after almost a year of deliberation. A consortium involving China’s Greenland Financial Holdings Group Co. is the other successful candidate. Singapore joins the U.K. and Hong Kong in opening up its banking system to purely digital entrants, as it seeks to inject innovation and competition into a market dominated by traditional lenders. The permits are coveted given the city’s status as a rapidly growing wealth management center and a gateway to Southeast Asia, where the digital lending market is expected to quadruple in five years.
  17. The U.S. Justice Department is in talks about a possible resolution in the legal case against the chief financial officer of Huawei Technologies Co., according to a person familiar with the matter, a simmering dispute that has fueled a clash between the world’s two biggest economies. No deal or terms have been reached in the discussion about the fate of Meng Wanzhou, said the person, asking not to be identified because the matter is private. Justice officials and lawyers have discussed the prospect of a deferred prosecution agreement related to wire and bank fraud charges, which would allow Meng to return home to China from Canada in exchange for admitting wrongdoing in the criminal case, Dow Jones reported earlier, citing people familiar with the matter. She was arrested two years ago in Vancouver and has been confined to the city since then.
  18. Donald Trump’s plan to campaign in Georgia for two Republican candidates for the U.S. Senate has sparked concern within the party that the president’s efforts could backfire, jeopardizing their bid to keep a majority in the upper chamber. Several GOP figures have raised alarm before Trump’s expected visit to Valdosta on Saturday evening for a rally with Senators David Perdue and Kelly Loeffler — both of whom face Jan. 5 run-off elections that will determine which party controls the Senate. Ahead of his trip, Trump has repeatedly alleged — without offering evidence — that widespread fraud cost him victories in Georgia and other key states in his Nov. 3 loss to Joe Biden. He has disparaged the state’s most prominent Republicans, including Governor Brian Kemp, who has been a staunch ally of the president.
  19. It’s been a wild ride for Pfizer Inc. shares as the S&P 500 heavyweight got caught up in the vaccine-stock euphoria. A key panel next week could mean even more volatility. A Food and Drug Administration advisory committee meeting scheduled for Dec. 10 is believed to be a means for the agency to assure the public about Covid-19 vaccine safety, and a U.S. emergency use authorization could follow within days. Pfizer shares have gained about 20% since late October even after a dip on Thursday, on optimism that its shot will be approved. Options prices imply a more than 9% move over the next two weeks. Pfizer stock fell less than 1% in premarket Friday trading, dipping below $40 a share.
  20. The biggest ESG-focused exchange-traded funds that concentrate investments in U.S. stocks have outperformed the Standard & Poor’s 500 Index in 2020. The top performer is BlackRock’s $12.6 billion iShares ESG Aware MSCI USA ETF (ESGU), up 17.9% (excluding reinvested dividends) since the start of the year, compared with the S&P 500’s 13.5% advance
  21. UBS Group AG plans to give up another office building in the City of London, the firm’s latest move to reduce surplus space in the capital. The Swiss bank won’t renew its lease on 1 Golden Lane when it expires next year, with staff likely to be relocated to its main London base or allowed to work from home, according to people with knowledge of the plan, who asked not to be identified because the information is private. UBS has been cutting down the number of offices it rents in London ever since moving into its new purpose-built premises at 5 Broadgate, which has more efficient layouts and uses shared desks to reduce the amount of space needed by the lender. Buildings previously occupied by the bank include 100 Liverpool Street and 2-3 Finsbury Avenue.
  22. There are plenty of obstacles standing in the way of developing the first zero-emission, hydrogen-powered plane. It’s tricky to safely store and use the highly combustible fuel. There aren’t any airports equipped to refuel jets with it. And the cost of hydrogen itself is prohibitive, at least if you want to avoid producing greenhouse gases. Yet in September, Airbus SE gave itself five years to develop a commercially viable hydrogen aircraft. The world’s biggest planemaker has the backing of its stakeholders—the French, Spanish, and German governments, who have pledged to be carbon neutral by 2050—and billions of euros in government subsidies. Even with help it’s going to be a herculean task that will require reinventing the trillion-dollar aviation industry.


*All sources from Bloomberg unless otherwise specified