July 16th, 2020
Daily Market Commentary
Canadian Headlines
- Canadian Headlines
- Canada’s stock benchmark rallied for a second day, climbing over a milestone that hasn’t been seen since March as investor confidence burgeoned over the development progress of a vaccine for Covid-19 and after the Bank of Canada said interest rates will stay low for some time. The S&P/TSX Composite Index surged about 1% in Toronto, putting it above the 16,000 mark, its highest level since March 6. Two major drug developers surged in the U.S. after promising trial results were reported on a potential vaccine for the coronavirus. Health care, real estate and consumer discretionary were among the best-performing sectors while, tech and materials were among the worst. Bank of Canada’s pledge to keep interest rates at historically low levels for years to come also gave Canadian stocks a boost Wednesday. The central bank also promised to keep the benchmark there until unemployment falls closer to levels seen before the virus outbreak and inflation returns sustainably to their 2% target. The Canadian dollar strengthened about 0.8% against the greenback, coming close to its pre-pandemic level.
- Barrick Gold Corp. says its costs to produce gold and copper rose in the second quarter as the global pandemic raged, while production fell. The so-called all-in-sustaining cost to produce an ounce of gold will likely be 7% to 9% higher in the second quarter, compared with the first three months of the year, the Toronto-based miner said Thursday in a statement. Copper’s all-in-sustaining costs per pound will be 4% to 6% higher, according to preliminary estimates. The global pandemic has caused disruptions to mining operations around the world. Second-quarter gold production fell largely because of Covid-19 disruptions at Barrick’s Veladero mine in Argentina, as well as a planned maintenance shutdown in the Dominican Republic and reduced production in Papua New Guinea.
World Headlines
- European stocks declined alongside U.S. futures and Asian stocks after disappointing retail data from China, as the region prepares for a European Central Bank rate decision and new comments on emergency asset purchases. The Stoxx Europe 600 Index was down 0.7% as of 11:14 a.m. in London, with defensive industries including personal goods and food & beverage leading declines. Mining stocks also underperformed, as tepid Chinese retail data and signs of a new outbreak in Hong Kong cast doubts on the pace of Asia’s demand recovery. Anglo American Plc weighed on the sector gauge the most, after diamond sales data fell short of expectations. Automotive stocks outperformed, after European car registration data for June showed easing year-on-year declines for a second consecutive month. July could be the first “almost normal” month with an even smaller shortfall compared to last year, Bankhaus Metzler analyst Juergen Pieper told Bloomberg.
- U.S. equity futures fell along with stocks on Thursday as investors parsed mixed economic data from China and waited for guidance from the European Central Bank over its stimulus program. Treasuries edged higher. Nasdaq 100 futures led declines among the main American equity benchmarks, with Twitter Inc. falling 6% in the pre-market after accounts of some of America’s most prominent political and business leaders were hacked. Tesla Inc. dropped in early trading.
- The rally in Chinese shares is unraveling almost as quickly as it began, with losses accelerating Thursday after state media criticized one of the country’s most popular stocks. The CSI 300 Index closed 4.8% lower, its biggest loss since markets reopened in February following the Lunar New Year break. Crowd favorite Kweichow Moutai Co. slumped 7.9%, wiping out a record $25 billion in value and dragging down an index of consumer shares by the most since 2018. The ChiNext Index, which had earlier this week turned hotter than any benchmark in the world, fell as much as 6.2%.
- Oil retreated from its highest close in four months after the OPEC+ alliance confirmed it would start tapering output cuts from next month. Futures in New York dropped below $41 a barrel. Saudi Arabia and Russia said the producer bloc would proceed with its plan to add more supply next month and were confident that it wouldn’t hurt oil’s rally, with the tapering to be offset by extra cuts from countries that didn’t meet their targets. Oil was also under pressure from a drop in equities in Europe and Asia. That was despite figures that showed China’s economy returned to growth and expanded more than forecast last quarter.
- Spot gold steadied as investors weighed geopolitical tensions and grim virus figures in some U.S. states. Silver futures on the Comex slipped from near the highest level since 2016. President Donald Trump has indicated to aides that he doesn’t want to further escalate tensions with Beijing, and has ruled out additional sanctions on top officials for now, according to people familiar with the matter. Asian stocks were lower Thursday along with European and U.S. equity futures as investors parsed a slew of economic data in China that showed the path of recovery from the pandemic remains bumpy.
- Domino’s Pizza Inc. sidestepped the carnage that has crippled other restaurant chains during the coronavirus pandemic, posting rapid same-store sales growth that beat Wall Street’s high expectations. The chain, whose delivery and take-out model helped shield it during lockdowns across the U.S., reported same-store sale gains in its home market of 16.1% in the second quarter ended June 14. That’s better than analysts had predicted and up sharply from the 2.1% growth logged in the same period last year.
- Donald Trump has insisted for weeks that he is in good shape to win a second term in November. But on Wednesday, the president acknowledged the trouble he is facing by reshaping his campaign leadership, ousting manager Brad Parscale. Trump announced in a Wednesday night Facebook post that Bill Stepien, the former deputy campaign manager, will now lead his re-election operation. Parscale, who had led the campaign since 2018, will remain as senior adviser for digital and data.
- Morgan Stanley wrapped up a week of wins for Wall Street trading desks, capitalizing on the Federal Reserve’s extraordinary rescue measures with record profit. Fixed-income trading revenue almost tripled, driving a 73% jump in total trading that surged past expectations. That spurred firmwide revenue and earnings to an all-time high amid wild market swings caused by the coronavirus pandemic. The gains brought the overall trading haul total for the five biggest U.S. investment banks to $33 billion, a windfall that helped all of them survive the brunt of the coronavirus pandemic with profits intact.
- Hong Kong reported a record 63 local cases on Thursday, the third time in about a week that the city’s new outbreak has breached previous highwater marks. Swedish Prime Minister Stefan Lofven defended his country’s controversial strategy to fight the pandemic. Fewer Covid-19 patients are dying in intensive-care units. Overall mortality of patients treated in ICUs had fallen to just under 42% at the end of May from almost 60% in March, according to an analysis of studies involving more than 10,000 patients in Asia, Europe and North America. Quarterly earnings out Thursday are showing the hit to companies on the wrong side of shifts in how people spend their money. Luxury-goods maker Richemont saw almost half of its sales wiped out while brewer Heineken NV reported a plunge in profit as lockdowns decimated sales to bars and restaurants.
- Prime Minister Boris Johnson is fighting to restore his authority after his preferred candidate lost his bid to take over the watchdog overseeing the U.K.’s spy agencies. Former Cabinet minister Chris Grayling was Johnson’s choice to head up Parliament’s powerful Intelligence and Security Committee but was defeated by Julian Lewis, who launched a last-minute campaign for chairmanship of the panel. Despite being a Tory like Johnson and Grayling, Lewis won with the support of opposition politicians, a move seen as an act of disloyalty by the prime minister, who then fired him from the ruling Conservative party.
- The European Union’s top court struck down the so-called Privacy Shield, a key method to transfer data across the Atlantic, amid fears over potential U.S. surveillance. Thursday’s decision by the EU Court of Justice means thousands of businesses that ship commercial data across the Atlantic risk turmoil in their day-to-day activities. While a second, contract-based system to transfer data was approved, the judges saved their critiques for U.S. surveillance.
- The Twitter accounts of some of the most prominent U.S. political and business leaders, from Barack Obama and Joe Biden to Jeff Bezosand Warren Buffett, were hacked Wednesday afternoon in an apparent effort to promote a Bitcoin scam. The attacks were stunning in scope and almost certainly coordinated. Others whose Twitter accounts were caught up in the security incident included Bill Gates, Elon Musk, Kanye West, Uber Technologies Inc., Apple Inc. and Michael Bloomberg, the founder and majority owner of Bloomberg News parent Bloomberg LP. The accounts sent out tweets promising to double the money of anyone sending funds via Bitcoin within 30 minutes.
- The Federal Reserve has bought trillions of dollars in Treasuries just to fix the bond market. It may need to buy a lot more to help repair the economy. A surge of new coronavirus cases is clouding the economic outlook in the U.S., and that’s likely to translate into pressure for more action from the Fed -– maybe as soon as this month’s meeting. Fed Governor Lael Brainard hinted as much on Tuesday, saying the central bank should pivot its policies toward providing longer-run accommodation. Wall Street strategists and Fed officials say the focus will now be on sustaining a recovery and potentially keeping a lid on long-term yields as the government pumps in even more fiscal stimulus. The Fed has also been compressing yields with emergency lending facilities supporting everything from muncipal to corporate debt. But those programs are temporary.
- Johnson & Johnson boosted its financial guidance for the year, a sign the health-care giant believes it can successfully navigate the strains placed on the industry by the pandemic. But its second-quarter profit was weaker than analysts had expected. After reining in its outlook earlier this spring, the company said it now expects adjusted earnings for the full year of $7.95 to $7.75 a share, and revenue of $81 billion to $82.5 billion.
- Kweichow Moutai Co. fell the most in nearly two years after the influential People’s Daily took aim at the high price of the liquor it makes, saying the alcohol was often used in corruption cases. Moutai, China’s biggest domestically listed company, tumbled 7.9% in its worst decline since October 2018, wiping out a record $25 billion of value. Moutai’s products are often involved in the country’s official corruption cases and used for bribery given their high prices, according to a commentary carried by a WeChat account owned by the People’s Daily. The plunge reverberated across China’s almost $10 trillion stock market, with the SSE 50 Index of the nation’s largest companies sinking 4.6%, its worst decline since early February. Other liquor makers also plummeted, with Wuliangye Yibin Co., Jiangsu Yanghe Brewery Joint-Stock Co. and Luzhou Laojiao Co. all falling by the 10% daily limit.
- Norwegian Cruise Line Holdings Ltd. said it seeks to raise $925 million in debt and $250 million in an underwritten public offering of shares as its sailings have been canceled due to the coronavirus pandemic, drying up revenue. Norwegian said it is proposing to sell $675 million in senior secured notes due 2026 and $250 million in exchangeable senior notes due 2025. Norwegian said it plans to grant the exchangeable notes’ initial buyers an option to purchase up to an additional $37.5 million in notes. The company said it plans to use the debt offerings’ proceeds to repay its $675 million senior secured revolving credit facility and fund its operations.
- Bank of America Corp.’s profit slid 52% as it joined rivals in preparing for an onslaught of consumer defaults spurred by the pandemic’s economic fallout. Profit at the consumer-banking unit plunged 98% as the coronavirus shuttered much of the U.S. economy and caused tens of millions of Americans to lose their jobs. The company allocated $5.1 billion for loan losses in the second quarter, the most since 2010, as Bank of America joined its biggest rivals in predicting pain to come that contrasts with stock market optimism for a quick economic rebound.
- Warren Buffett’s $9.7 billion bet on natural gas looks even more contrarian today. As Democrat Joe Biden unveils a staggering $2 trillion clean-energy plan—the most ambitious climate package ever offered by a presumptive presidential nominee—Buffett’s recent deal to buy Dominion Energy Inc.’s natural gas assets is a stark sign he’s expecting that the market’s shift away from fossil fuels won’t happen overnight. The deal is “a bet that the future doesn’t come as fast as some people think,” said Jim Shanahan, an analyst who covers Buffett’s Berkshire Hathaway Inc. at Edward Jones. “I think they want to be bigger in renewables, but it’s going to take time. In the meantime, they have to be able to provide power generation to their customers.”
- The U.S. is moving toward sanctions against energy companies involved in Russian pipelines to Europe and Turkey, escalating a threat to punish allies for pursuing projects that the U.S. argues will only benefit Russia. As Europe’s domestic gas supplies decline, the region is becoming more dependent on imported fuel. The almost 10 billion-euro ($11 billion) Nord Stream 2 project from Russia to Germany is being financed by companies including Royal Dutch Shell Plc, Germany’s Uniper SE and Wintershall AG and France’s Engie SA. Allseas Group SA is helping to expand the Turk Stream link.
- BMW AG signed a deal with Goldman Sachs Group Inc.-backed Northvolt AB for 2 billion euros ($2.3 billion) of battery cells to power the German company’s electric cars. Northvolt, a Swedish firm started by two former Tesla Inc. executives, will manufacture the cells using renewable electricity and deliver them from 2024 as part of a long-term contract, BMW said in a statement Thursday. Local access to batteries is becoming key for automakers trying to become less dependent on dominant suppliers in Asia. Northvolt will become BMW’s third major supplier for the technology, along with China’s Contemporary Amperex Technology Co. Ltd. and South Korea’s Samsung SDI Co.
- Bank Indonesia lowered its key interest rate for a second straight month to bolster economic growth, and signaled further easing will depend on inflation and how the recovery from the coronavirus pandemic unfolds. The central bank cut its seven-day reverse repurchase rate by 25 basis points to 4%, the lowest since the current rate system was adopted in 2016, as predicted by 18 of 30 economists surveyed by Bloomberg. One expected a 50 basis-point cut, while 11 forecast the bank to hold rates steady. Bank Indonesia has been one of the more aggressive central banks in Asia, cutting rates four times this year and pledging to buy billions of dollars of government bonds to help finance the budget deficit. The central bank expects the economy to grow just 0.9%-1.9% this year, and inflation has slumped to a two-decade low as the pandemic has crippled businesses and rendered millions of people jobless.
- Procter & Gamble Co. products are bought by 5 billion people, and everything involved in the manufacture, sale and use of those goods generates more than 230 million metric tons of greenhouse gas each year. The consumer-goods giant is now moving to cut some of its climate-warming emissions while continuing to send the vast majority into the atmosphere. The new commitment announced by P&G on Thursday moves to neutralize emissions from its factories and operations. By 2030, the company will cut those emissions in half and invest $100 million over the coming decade in nature-based projects, such as tree planting, to offset the rest. But direct emissions, known in climate accounting as Scope 1 and 2, make up only a small fraction of P&G’s total greenhouse-gas footprint: about 4 million metric tons of carbon dioxide per year.
*All sources from Bloomberg unless otherwise specified