July 23rd, 2020

Daily Market Commentary

Canadian Headlines

  1. Canadian stocks edged higher Wednesday while U.S. shares also rose. The S&P/TSX Composite Index gained 0.1%, with six of the benchmark’s 11 main sectors higher. Communication services fell after an earnings miss from Rogers Communications Inc. Silver futures 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. Canada’s oil-sands producers are taking their time at restoring production, leaving the country’s normally congested pipelines with room to spare.
  2. ConocoPhillips said it agreed to acquire additional Montney acreage in Canada from Kelt Exploration for cash consideration of approximately $375 million before customary adjustments, plus the assumption of approximately $30 million in financing obligations for associated partially owned infrastructure. This acquisition is 140,000 net acres in the liquids-rich Inga-Fireweed asset Montney zone, which is directly adjacent to the company’s existing Montney position.

World Headlines

  1. European stocks rose following a raft of better-than-feared earnings releases, as investors weighed the positive momentum of the region’s recovery fund against concerns over tensions between the U.S. and China. The Stoxx 600 Index was up 0.5% at 11:19 a.m. London time, with Unilever jumping as much as 8.6% in Amsterdam after the consumer goods giant’s second-quarter sales beat analyst estimates. Daimler AG rose as much as 6.7% after the German carmaker posted what Goldman Sachs Group Inc. called strong cost savings and a reassuring outlook in its results.
  2. U.S. equity futures climbed alongside shares in Europe as investors focused on earnings results while looking past the latest tensions between Beijing and Washington. Oil advanced while the dollar declined. Contracts on the three main American equity gauges pointed to a firm open on Wall Street. While Microsoft Corp. dropped in the premarket after its earnings showed slowing growth in the cloud-computing business, Tesla rose after its results beat estimates.
  3. Oil rose toward $45 a barrel in London, with a weaker dollar and stronger equity markets countering an expansion in U.S. crude stockpiles. Brent futures traded near their highest level since March as European stocks and U.S. equity futures advanced. Yet bearish signs persist in the physical market. China’s thawing oil demand has seen the value of Iraqi crude drop, and there’s renewed weakness in the key swaps that help value North Seagrades. In America, crude stockpiles rose by 5 million barrels last week.
  4. Spot gold climbed to the highest level since 2011 as investors weighed a weaker dollar and the potential escalation of U.S. tensions with China. Silver dropped from the highest in almost seven years. The unexpected U.S. decision to order China’s consulate in Houston to close — with staff given 72 hours to depart — delivers a severe diplomatic blow to a relationship already under strain. Beijing vowed retaliation. The geopolitical uncertainty is supporting demand for haven assets such as gold and silver, which have already rallied amid the coronavirus pandemic. The world topped 15 million Covid-19 infections, with new waves and resurgences seen in the U.S., Hong Kong and Australia
  5. Tesla Inc. managed to stay profitable even in the midst of a global pandemic, but something is still nagging at Elon Musk: the electric-car maker isn’t growing fast enough. The positive quarterly earnings Tesla reported Wednesday were its fourth in a row, again surprising Wall Street analysts and possibly paving the way for its soaring stock to join the S&P 500 Index. But its chief executive officer is in no mood to let his foot off the accelerator, announcing the company will build another new vehicle-assembly plant in Texas and keep lowering the cost of its models.
  6. Blackstone Group Inc. saw money pour in during the first half of the year, with investors betting on the firm amid the volatility and uncertainty caused by the Covid-19 pandemic. The alternative asset manager raised $20.3 billion in the second quarter, bringing inflows to $47.6 billion this year, it said in a statement Thursday. Clients sent the most money to Blackstone’s credit and insurance businesses. Blackstone and its peers are touting themselves as bastions of safety in the current environment, pointing to their resilience in the 2008 financial crisis. The industry was shaken in the first three months of the year as funds took big hits in line with public markets, but executives vowed that performance would bounce back. Blackstone, the biggest and first of the public managers to report earnings, saw all its segments appreciate last quarter.
  7. Tokyo and Hong Kong were among cities grappling with a spike in infections after worldwide Covid-19 cases exceeded 15 million. Signs of an economic revival emerged as a survey of U.K. manufacturers showed that the worst may be over, while Daimler AG forecast a return to profit. Australia, however, predicted the biggest budget deficit since World War II, while South Korea slid into recession. China will provide a $1 billion loan for Latin American and Caribbean countries to access its coronavirus vaccine. Demand for tests is higher than the industry can supply and that may continue for months, according to Roche Holding AG, one of the biggest diagnostics manufacturers.
  8. Twitter Inc. reported a second straight quarter of record user growth as people joined the service for news and entertainment during the global coronavirus outbreak, but its advertising business was hammered amid a global marketing retraction as businesses pulled back on spending. Twitter reported 186 million daily users for the period ended June 30, a 34% jump over the quarter a year earlier, and its largest year-over-year increase since first reporting the metric in 2016. Users jumped 24% in the first quarter, a record at that time. Shares gained about 6% in premarket trading. But second-quarter sales declined 19% to $683.4 million compared with a year earlier, the San Francisco-based social-media company said Thursday in a statement. Analysts, over average, projected $704.6 million, according to data compiled by Bloomberg.
  9. Hedge funds and mutual funds are among bond holders that could lose $2 billion as a consequence of U.S. lawmakers’ letting millions of homeowners delay their mortgage payments during the coronavirus pandemic. At stake are so-called credit-risk-transfer securities whose owners include fixed-income funds run by Franklin Resources and AllianceBernstein Holding LP. The securities, which threaten to lead to estimated losses of between $1 billion and $2 billion, are intended to shift the risk of borrower defaults on Fannie Mae and Freddie Mac mortgages to private investors. The issue is an unintended side effect of the response to the global health crisis. As the U.S. economy shut down in March, Congress rushed to pass the $2 trillion CARES Act, which included a provision that allowed forbearance on loans backed by Fannie and Freddie for as long as one year if borrowers were impacted by the pandemic.
  10. Amazon.com Inc. is in preliminary talks to acquire a 9.9% stake in Indian billionaire Mukesh Ambani’s retail venture, ET Now reported, citing unidentified people. Asia’s richest man and the chairman of Reliance Industries Ltd. told shareholders last week that Reliance Retail Ltd. is getting inquiries from investors and may start bringing some on board in the coming months. “We’ve received strong interest from strategic and financial investors in Reliance Retail,” Ambani told shareholders. “We will induct global partners and investors in Reliance Retail in the next few quarters.” Ambani’s dealmaking has lured about $20 billion of investments from Google to Facebook Inc. into his digital platform in recent months. The 63-year-old tycoon has identified technology and retail as future growth areas in a pivot away from the energy businesses he inherited from his father who died in 2002.
  11. Axis Bank Ltd., India’s third-largest private sector lender, has picked advisers including BNP Paribas SA and Credit Suisse Group AG to manage its proposed share sale, according to people familiar with the matter. The Mumbai-based lender has also chosen HSBC Holdings Plc and UBS Group AG for the offering, the people said, asking not to be named as the information is not public. Axis Bank plans to seek at least $1.3 billion from institutional investors, though it hasn’t finalized the fundraising target, the people said.
  12. Gulf Energy Development Pcl, a power producer controlled by Thailand’s second-richest man, plans to raise as much as 32 billion baht ($1.01 billion) to fund overseas and domestic investments in electricity and infrastructure projects. The Bangkok-based company will sell 1.07 billion new shares at 30 baht each in a rights offering, it said in a stock-exchange filing. The price is a 19% discount to the close Wednesday. The stock dropped Thursday as much as 10% to 33.25 baht before paring losses to end at 34.25 baht. Chief Executive Officer Sarath Ratanavadi joins other Thai tycoons in expanding overseas investments as Southeast Asia’s second-biggest economy faces a pandemic-triggered recession and an aging population. Proceeds from the offering will fund new power projects in Vietnam, Germany and Oman, as well as new opportunities overseas and in Thailand, the statement said.
  13. Waterdrop Inc. is preparing for an initial public offering as soon as this year, seeking a valuation of about $4 billion, according to people familiar with the matter. The insurance tech startup, backed by Tencent Holdings Ltd., is working with Bank of America Corp. and Goldman Sachs Group Inc. on the potential share sale, the people said. The U.S. is among potential listing venues that the Beijing-based firm is exploring and no final decision has been made, the people said. An offering could happen as soon as this year, according to the people, requesting not to be named because the matter is private.
  14. Talkdesk Inc., which makes cloud-based customer service software, has raised $143 million in a new funding round that pegs its valuation at more than $3 billion, roughly triple the prior mark. The San Francisco-based startup received backing from new investors including Franklin Templeton, Dan Och’s family office Willoughby Capital, Australian investment firm Skip Capital, Mitchell Green’s Lead Edge Capital and Top Tier Capital Partners LLC. Prior backers including Connecticut-based hedge fund Viking Global Investors and Threshold Ventures also participated in the funding.
  15. Prime Minister Boris Johnson will stress the value of the U.K. in a visit to Scotland on Thursday, seeking to head off growing support for Scottish independence. Tension has been growing between the administrations in London and Edinburgh in recent months, over issues including the handling of the coronavirus pandemic and calls by the governing Scottish National Party to hold a fresh independence referendum. “The last six months have shown exactly why the historic and heartfelt bond that ties the four nations of our country together is so important,” Johnson said in a 10 Downing Street statement, highlighting areas such as the coronavirus job retention program and the national testing effort that have benefited citizens in Scotland. “The sheer might of our union has been proven once again.”
  16. Italy’s benchmark bonds have recovered their losses since the coronavirus forced the nation into lockdown, sending the yield below 1% for the first time since March. That brings the decline in the nation’s 10-year debt rate to 200 basis points since a peak in March. Euphoria over the European Union’s 750 billion euros ($869 billion) recovery package, coupled with the European Central Bank’s bond-buying programs, have kept up demand for Italian debt, among the highest yielding in the bloc. “For Italy in particular there is an ongoing benefit from the flight into the euro, and resultant purchasing of ‘yieldy’ euro assets,” said Peter Chatwell, head of multi-asset strategy for Mizuho International. “The level is significant psychologically and there may well be some rotation out of 10-year BTPs into higher-yielding Italian credit risk — banks for example.”
  17. Most Wall Street firms are going to miss out on a chance to lead what could be China’s biggest stock deal when Ant Group goes public in Shanghai. Under a quirky rule for initial public offerings on China’s technology exchange, lead banks must buy at least 2% of the shares issued, up to a cap of 1 billion yuan ($143 million). Global firms such as Morgan Stanley and UBS Group AG, with limited capital on China’s mainland, are reluctant to commit that much money to one deal. That means most international lenders won’t seek top billing for the Shanghai portion of the IPO by the Alibaba spinoff that could raise more than $10 billion. With fees as high as 7% on the tech-focused Star board, Wall Street firms could be losing out on a revenue pool worth hundreds of millions of dollars. Lead, or sponsor banks, set pricing and manage IPOS, typically getting the lion’s share of the underwriting fees.
  18. The owners of Singapore’s two integrated resorts remain committed to delivering expansion plans that were pledged last year to the tune of S$9 billion ($6.5 billion) to keep their exclusive casino operating licenses. Las Vegas Sands Corp. and Genting Singapore Ltd. remain invested in the future of Singapore’s tourism market, the Ministry of Trade and Industry said Thursday in response to queries from Bloomberg News. That sector has been especially hard hit by the coronavirus pandemic as the city-state emerges from a partial lockdown and foreign tourists have been barred since March. Marina Bay Sands, which is operated by Las Vegas Sands, this week reported a $113 million loss for the second quarter, versus a $346 million profit a year ago, while occupancy rates for its hotel fell to 40%. Genting’s Resorts World Sentosa has said it will cut jobs, with The Straits Times reporting about 2,000 employees were laid off.
  19. Hyundai Motor Co.’s second-quarter operating profit exceeded analysts’ estimates, helped by resilient demand for its SUVs in South Korea even as the coronavirus outbreak pummeled the broader auto industry. Operating profit fell to 590 billion won ($492 million), the South Korean company said Thursday. Analysts predicted 297.8 billion won on average. Sales declined 19%, though still exceeded estimates.
  20. Ascena Retail Group, the owner of the Ann Taylor and Lane Bryant apparel chains, filed for bankruptcy protection on Thursday after its business was thrown into disarray by the Covid-19 pandemic. The filing in U.S. Bankruptcy Court in the Eastern District of Virginia is the latest from retailers that were pushed over the edge by the nationwide closure of stores to combat the outbreak. Bankruptcy protection allows the company to avoid a permanent shutdown, cut its borrowings and close weak stores to minimize costs. More than 50,000 jobs could be affected, based on data from Ascena’s most recent annual report. The company, which listed about $12.5 billion of debts, entered into a restructuring support agreement with over 68% of its secured term lenders, it said in a statement. The pre-arranged restructuring plan is expected to help the company reduce debt by about $1 billion. In addition, Ascena will be getting $150 million in fresh funds from existing lenders.
  21. Donald Trump spent the first three years of his presidency balancing the demands of hardliners who wanted a crackdown on China against his own desire to pursue a trade deal and cultivate a stronger relationship with Xi Jinping. The unexpected order Wednesday to close the Chinese consulate in Houston made one thing clear: the hawks are now in charge. Eager to blame China for the Covid-19 pandemic and fed up with what U.S. officials call a history of espionage and intellectual-property theft, Trump has allowed a small group of advisers led by Secretary of State Michael Pompeo to push U.S. policy toward its most antagonistic in decades. The result is a series of sanctions, restrictions and condemnations that culminated in the Houston decision.
  22. Dow Inc. said it would cut 6% of its global workforce and streamline operations in a restructuring prompted by the coronavirus pandemic. The job losses are part of an effort to boost annualized earnings before interest, taxes, depreciation and amortization by $300 million as of the end of next year, Dow said in a statement as it reported earnings. The company is also increasing its 2020 cost-reduction target to $500 million from $350 million and planning to “exit uncompetitive assets.”
  23. Southwest Airlines Co. plans to “aggressively” adjust its flight schedule to match demand that has stalled as U.S. coronavirus cases have climbed, and expects air travel to remain suppressed until there’s a vaccination or treatment. The airline will burn about $23 million in cash daily this quarter, about equal to the second quarter’s rate, and is re-evaluating its flying capacity as a result, Southwest said as it reported results that were better than analysts expected. Cash burn has become the most closely watched gauge for airlines as they struggle with the pandemic-induced collapse in demand that began in March. Southwest followed peers by issuing an increasingly grim outlook as cases continue to rise and states increase quarantine rules for travelers. About 27% of Southwest’s workers have agreed to leave or take extended time off, and the airline is now looking for more opportunities to cut costs.
  24. China embarked on its most ambitious space mission yet, launching a probe to Mars on Thursday that ramps up the nation’s challenge toNASA’s dominance in space. A Chinese-made rocket took off from Hainan Island carrying the Tianwen-1 probe, the People’s Daily said on its Twitter account, on the initial leg of its seven-month journey to Earth’s neighbor, traveling 3 miles per second as the program tries to make China a space superpower. Last year, it became the first nation to land a probe on the far side of the moon.

*All sources from Bloomberg unless otherwise specified