July 22nd, 2020

Daily Market Commentary

Canadian Headlines

  1. Canadian stocks closed lower Tuesday despite a strong start to the session, weighed down by technology shares. The S&P/TSX Composite Index lost 0.1%, with Shopify Inc. dropping 6.4%, leading tech equities lower. Energy posted a strong session as oil rose to the highest level since early March in London. Canadian retail sales have rebounded sharply after historic declines in March and April, with vendors making up almost all of their pandemic losses, Statistics Canada reported Tuesday. On the virus front, Covid antibodies in patients with mild symptoms fade quickly, raising concerns that their immunity from a future infection may not last very long, researchers said in the New England Journal of Medicine.
  2. Alstom CEO Henri Poupart-Lafarge tells lawmakers on Wednesday he hopes the European Commission will give the green light for its acquisition of Bombardier Inc.’s rail-transport business by the end of this month. The deal is “on a good path,” he says before the National Assembly economic affairs committee
  3. Rogers Communications Inc. said its profit fell for the second quarter as revenue in its wireless service and equipment as well as media segments fell due to the Covid-19 pandemic. The Canadian telecommunications company on Wednesday posted net income of 279 million Canadian dollars ($207.7 million), or C$0.54 a share, compared with C$591 million, or C$1.15 a share, in the year-ago period. Adjusted earnings were C$0.60 a share, lower than the C$0.91 a share analysts polled by FactSet had expected. Revenue fell 17%, to C$3.16 billion. Analysts were looking for C$3.44 billion.

World Headlines

  1. European stocks fell for the first time in four days, as investors weighed earnings reports and renewed U.S.-China tensions. The Stoxx 600 Index was down 1.2% as of 10:08 a.m. London time. Sentiment worsened as China vowed retaliation after the U.S. ordered the closure of its consulate in Houston. With the second-quarter earnings season underway, Melrose Industries Plc tumbled 17% after predicting it will “broadly break even” in 2020 and scrapping an interim dividend. Fresnillo Plc gained 8% after an update. Switzerland’s ABB Ltd. was an outperformer, up 2.5% after the factory automation gear supplier’s results beat analyst expectations.
  2. Futures on the S&P 500 Index slipped and European stocks fell after a diplomatic flare-up between America and China added to concerns over the deteriorating relationship between the economic superpowers. Treasuries edged higher and the dollar briefly rose on news that the U.S. ordered China’s Houston consulate to quickly close. The State Department later said the order was to protect intellectual property and “private information” of Americans. China’s Foreign Ministry said it would “react with firm countermeasures.”
  3. Japanese stocks fell ahead of a long weekend as investors tried to gauge the timeline for U.S. stimulus and the impact of a stronger yen. Drugmakers and railway companies were the biggest drags on the benchmark Topix index, which is still up 27% from its March coronavirus-led low. The yen was little changed after gaining more than 0.4% overnight. The Nikkei 225 Stock Average fell but stayed within the 22,000-23,000 range where it has been for about five weeks.
  4. Oil fell from a four-month high in New York as signs of a surprise increase in U.S. crude stockpiles added to fears that the world’s biggest economy is struggling to control the pandemic. The American Petroleum Institute reported crude inventories rose by 7.54 million barrels last week, according to people familiar with the figures, which would be the biggest increase since May if confirmed by government data on Wednesday. Meanwhile, President Donald Trump warned that the coronavirus outbreak in the U.S. will probably worsen before improving.
  5. Silver climbed to the highest in almost seven years and gold continued its march toward a record on expectations there’ll be more stimulus to help the global economy recover from the coronavirus pandemic. Investors have flocked to the metals on surging demand for havens amid a resurgence in virus cases, slowing growth, negative real interest rates in the U.S. and political tension. The vast amounts of stimulus unleashed by governments and central banks have also aided prices and, after the success of a European rescue package this week, focus turns to negotiations on legislation to prop up the American economy.
  6. Investors are bracing for 750 billion euros ($860 billion) of new bonds to come to the market after European Union leaders agreed on a landmark recovery plan. That’s more than twice Germany’s expected net bond supply in 2020, and will have to be issued at a pace of as much as 150 billion euros per year, according to Citigroup Inc. The EU’s top-rated bonds could provide an alternative for U.S. Treasuries, according to Credit Agricole SA, and may eventually challenge German securities as Europe’s benchmark assets.
  7. The differences between European and U.K. markets are looking starker than ever. As European Union leaders forge a historic rescue deal to save the bloc’s weakest economies, Brexit talks continue to fail in making any progress. By almost every market metric, investors are rewarding European unity and punishing the U.K.’s intractable problems. The euro is near the highest since early 2019, Germany’s DAX Index is almost positive for the year and the Stoxx Europe 600 Index has added $3.5 trillion in market value since the mid-March lows. In Bank of America Corp.’s latest fund manager survey, investors raised their allocation to euro-zone equities by 9 percentage points, the largest increase in weighting for any region.
  8. The U.S. government has ordered up to 600 million doses of Pfizer and BioNTech’s mRNA-based vaccine candidate against the virus that causes Covid-19, according to a statement from the companies. U.S. government will pay the companies $1.95 billion upon the receipt of the first 100 million doses, following FDA authorization or approval
  9. Chinese fintech giant Lufax, backed by Ping An Insurance Group Co., is targeting to raise at least $3 billion in a U.S. initial public offering, according to people familiar with the matter. The company is weighing a U.S. share sale as soon as this year after previously exploring an offering in Hong Kong, said the people, who asked not to be identified as the information is private. Deliberations are ongoing and details including the size and timeline of Lufax’s share sale could still change, the people said. Political tensions between the U.S. and China could also affect Lufax’s listing plans, one of the people said.
  10. Microsoft Corp. is set to post quarterly results after the closing bell and the tech bellwether’s performance will likely uphold its standing as a darling of Wall Street. The software company has seen steady share-price gains throughout the pandemic, with analysts almost unanimously pointing to its cloud-computing business as a primary tailwind. The strength stands in contrast to the broader economy or other parts of the tech sector, which have seen hits to demand as a result of the pandemic and related macroeconomic headwinds.
  11. China vowed retaliation after the U.S. forced the closure of its Houston consulate, prompting stocks to fall in one of the biggest blows to diplomatic ties between the two countries in decades. The U.S. government gave China three days to close its consulate in America’s fourth-most populous city in an “unprecedented escalation,” Chinese Foreign Ministry spokesman Wang Wenbin told a regular briefing Wednesday in Beijing. China planned to “react with firm countermeasures” if the Trump administration didn’t “revoke this erroneous decision,” Wang said. The U.S. State Department subsequently confirmed in a statement that it had ordered the consulate closed “to protect American intellectual property and Americans’ private information.” It said international agreements required diplomats to respect the laws and regulations of the host nation and not interfere in its internal affairs.
  12. As U.S. stocks climb to their most expensive levels in two decades, the executives in charge of the companies benefiting from the rally are showing signs of anxiety. Corporate insiders, whose buying correctly signaled the bottom in March, are now mostly sellers. Almost 1,000 corporate executives and officers have unloaded shares of their own companies this month, outpacing insider buyers by a ratio of 5-to-1, data compiled by the Washington Service showed. Only twice in the past three decades has the sell-buy ratio been higher than now. Data from InsiderInsights.com showed a similar trend. Over the past four weeks, companies with insider selling have outnumbered those with buying by 186%, approaching the 200% level that has tended to mark short-term market tops in the past decade, according to Jonathan Moreland, the firm’s director of research.
  13. Donald Trump has a message for voters who are concerned about his handling of the coronavirus pandemic, policing in the U.S. and China trade policy: Joe Biden would make everything worse. Trump and his allies have attacked Biden on television, social media and even from the White House Rose Garden as a left-wing radical who would ruin the country. But as Trump’s approval ratings plunge over his handling of the virus, the economy and race relations, his team is trying to pin Biden as a failure on those same issues. Biden will leave the economy in ruins, won’t improve life for African-Americans and doesn’t have the mental capacity to be president, Trump says.
  14. The U.K.’s $180 billion mortgage-bond market has come back to life, even with homeowners pausing payments on one in six housing loans due to coronavirus upheavals. Coventry Building Society has became at least the sixth lender to offer a residential mortgage-backed security since early June, as investors take comfort from greater protections and speculate that payment holidays won’t turn into a wave of home-loan defaults. For issuers, it has been a chance to resume RMBS syndications ahead of risks later in the year, including unemployment concerns, Brexit and a potential second wave for the pandemic.
  15. Renewable power for the first time contributed a bigger share in the European generation mix than fossil fuels as the fallout from the pandemic cut energy demand. About 40% of the electricity in the first half in the 27 EU countries came from renewable sources, compared with 34% from plants burning fossil fuels, according to environmental group Ember in London. As a result, carbon dioxide emissions from the power sector fell 23%. The rise is significant and encouraging for law makers as Europe prepares to spend billions of euros to recover from the virus and set the bloc on track to neutralize its carbon footprint by the middle of the century.
  16. Tokyo Governor Yuriko Koike told residents to avoid unnecessary trips outdoors as much as possible during a forthcoming four-day weekend as the total number of coronavirus cases in the city topped 10,000. Japan’s capital had another 238 cases on Wednesday, as the country heads into a long weekend that was originally scheduled to celebrate the start of the now-postponed Tokyo Olympic Games.
  17. Asian oil refiners, beware. China’s churning out cheap gasoline and it’s pulling the rug from under the sector’s recovery. Chinese fuel producers are ramping up gasoline exports as stockpiles stay swollen amid softer demand due to flooding and a resurgence of virus infections. This comes after a short reprieve in May when some state-owned refiners diverted more motor fuel to local markets when people opted for private over public transport, supporting post-lockdown consumption.
  18. They call it the big bang transition, the day when European interest-rate derivatives markets finally shift to a new benchmark next week. And in the run-up, banks and money managers that find themselves caught on the wrong side of trades are scrambling to limit their losses while their counterparts look to cement their gains. Nowhere is this tension more evident than in the market for swaptions. That’s because pivoting to the new benchmark — known as the euro short-term rate, or ESTR — to help value hundreds of billions of euros of swaption contracts is set to trigger a sudden shift in prices, magnifying in many cases the gains and losses that traders will book.
  19. The U.S. sealed a pact for up to 600 million doses of a Covid-19 vaccine Pfizer Inc. is developing with Germany’s BioNTech SE. President Donald Trump warned that the U.S. outbreak will probably get worse before it gets better. The coronavirus tightened its grip on the Asia Pacific region, with deaths reaching a daily high in Indonesia, a record number of local infections in Hong Kong and a warning against going outside in Tokyo. Australia, once hailed as a virus success, also saw a daily infection record. Aviation regulators in the European Union and Singapore are working together to establish health safety measures and facilitate a recovery of air travel.
  20. The European Union is planning to roll back landmark regulations on securities trading and investment research, arguing that softer rules on the finance industry are needed to help the economy recover. An EU plan to be unveiled in the coming days would loosen a key plank of MiFID II that forces investors to pay banks and brokerages for research separately from their trading fees. The “unbundling” rules have been criticized for removing the incentive for analysts to produce research, especially on smaller stocks that struggle to attract the attention of investors. The new rules by the European Commission, the EU’s executive arm, would allow payments to be re-bundled for research on fixed income markets and companies worth less than 1 billion euros ($1.15 billion), according to documents seen by Bloomberg News.
  21. United Airlines Holdings Inc. is extending its mandatory face-covering policy from aircraft cabins to airports, bolstering efforts to fight the coronavirus pandemic. The rule takes effect Friday at more than 360 airports served by the company and includes gate areas, baggage claim, United lounges and customer-service counters. Passengers who flout the requirement may be refused travel and barred from United flights “at least while the mask requirement is in place,” the company said in a statement Wednesday. “The most important thing any of us can do to slow the spread of the coronavirus is to simply wear a mask when we’re around other people,” said Scott Kirby, United’s chief executive officer. The policy will also apply to children two years and older.
  22. Microsoft said the first investment from its $1 billion climate fund will be in venture capital firm Energy Impact Partners to back new technologies for greener energy and transportation systems. The software giant provided $50 million to EIP, which has invested in companies that make software to improve energy networks and Urbint, an artificial intelligence company that has a methane-capture technology

*All sources from Bloomberg unless otherwise specified