July 24th, 2020

Daily Market Commentary

Canadian Headlines

  1. Canadian stocks fell Thursday as investors reassessed economic headwinds stemming from the coronavirus. The S&P/TSX Composite Index lost 0.9%, the most since June 26. Ten of 11 sectors retreated. Ballard Power Systems Inc., the second-best performing stock in Canada this year, is a new short at Lakewood Capital, the firm said in its quarterly letter, calling it a “consistently loss-making and cash-burning Canadian company.” Shares fell 10%.
  2. Teck Resources Ltd. is gradually ramping up activity at Quebrada Blanca Phase 2 in Chile after suspending work along with other big projects owned by companies including Codelco and Antofagasta Plc to contain the virus. Work on QB2, as the almost $5 billion project is known, will steadily increase from about 4,000 people on site by the end of July to 8,000 by end-October subject to conditions, the company said Thursday.

World Headlines

  1. European stocks fell, poised to halt a three-week spell of gains, on concern over escalating U.S.-China tensions. The Stoxx Europe 600 Index dropped 1.7% as of 8:17 a.m. in London, erasing a weekly advance. All industry groups declined, with chip stocks dragging the tech sector to the worst performance.
  2. U.S. stock-index futures declined, indicating losses at the open, on worries over escalating tensions with China. Contracts on the S&P 500 and the Dow each dropped 0.7% as of 8:40 a.m. in London, while those on the Nasdaq 100 slid 1.3%. Tech shares may come under pressure after Intel Corp. warned of another production delay. The chip giant fell 11% in premarket trading. A rally in U.S. stocks is losing steam this week, with an unexpected increase in jobless claims stoking worries about a stalling economy. Further sapping sentiment, China ordered the U.S. to close its consulate in the city of Chengdu, following through on its threat of retaliation after it was asked to shut down its facility in Houston.
  3. Gold traded near $1,900 an ounce, edging closer to its all-time high set almost nine years ago, as flaring political tensions and worries over global growth added fuel to the rally. Increasing signs that the prolonged pandemic is stalling an economic recovery and the recent spat between the U.S. and China are underpinning the metal’s appeal. Gold’s also getting support from a confluence of low or negative real rates, a weaker dollar and expectations of rising inflation amid massive liquidity injections from central banks.
  4. Oil swung between gains and losses as deteriorating U.S.-China relations cast doubt over the strength of the demand recovery, but European economic data showed a return to growth.
  5. Rising tension between the U.S. and China has fueled demand for the world’s safest assets, pushing the yield on five-year Treasuries down to an all-time low. The rate dropped to a record low at 0.2548%, bringing the yield’s decline this year to about 145 basis points. Its premium over similar maturity German bonds, widely considered Europe’s haven securities, is about five basis points away from the lowest level in more than six years.
  6. Europe’s economy is finally showing signs of growing again after months of an unprecedented slump caused by the coronavirus pandemic. Private-sector activity in the euro area rose to the highest in more than two years in July, with both services and manufacturing showing expansion. In the U.K., retailers saw sales volumes rise in June close to pre-lockdown levels, even as social distancing measures prevented a complete return to normal.
  7. U.K. retail sales jumped by a record in June as a lifting of coronavirus restrictions allowed more stores to open up. Sales volumes including fuel rose 13.9% from May, the most since records began in 1996, the Office for National Statistics said Friday. That left a measure of total sales 0.6% below the level seen in February, while a reading that excludes fuel was higher than its pre-virus position.
  8. U.K. consumer confidence remained weak in July as the government prepared to start winding down pandemic wage subsidies next month. GfK’s survey of households showed sentiment had lifted only slightly from June and was unchanged from a flash reading two weeks ago. While optimism about personal finances improved, the key measure of willingness to make large purchases stayed low..
  9. Japan’s government upgraded its assessment of the economy in July for a second month, saying conditions are picking up even as they remain severe amid reopening from coronavirus shutdowns. In its monthly report released Wednesday, the Cabinet Office said it saw improvement in 6 out of 14 economic categories, including consumer spending, exports, production and public investment.
  10. Federal Reserve policy makers will most likely link their guidance on the future path of interest rates to inflation, and will reveal that guidance by September, according to economists surveyed by Bloomberg. The Federal Open Market Committee holds its next meeting July 28-29. Survey respondents expect minimal change in the policy statement released at 2 p.m. Washington time at the conclusion of that gathering.
  11. Goldman Sachs Group Inc. has reached a deal that would see Malaysia drop all criminal charges against the bank in exchange for $3.9 billion of reparations for its role in raising money for the troubled sovereign wealth fund 1MDB. The deal includes a cash settlement of $2.5 billion paid to Malaysia, the ministry of finance said on Friday. At least another $1.4 billion will come from seized 1MDB assets being returned with the help of the U.S. Department of Justice and Goldman Sachs, it said in a statement.
  12. Centrica Plc is selling its North American energy business in a $3.6 billion deal as Britain’s largest household energy supplier seeks to focus on its home market. Its stock rose by a record. The sale of Direct Energy to NRG Energy Inc. is a decisive move by new Chief Executive Officer Chris O’Shea as he seeks to convince investors he can turn the company around after it was demoted from the FTSE-100 U.K. benchmark stock index after 33 years. O’Shea is building on a restructuring announced last month to create a more simple business.
  13. Schlumberger Ltd. warned that new waves of Covid-19 would derail the nascent recovery in global energy demand after the oilfield giant posted its weakest sales in 14 years. The second-quarter rout was so bad for Schlumberger that it’s spending $1 billion to eliminate 21,000 jobs. Various restructuring and impairment charges cost it another $2.7 billion on restructuring and impairments, it said Friday in a statement.
  14. The U.S. is poised for two tropical hits this weekend, as storm Hanna heads for Texas and Hurricane Douglas draws Hawaii in its sights. Tropical Storm Hanna was spinning 315 miles (507 kilometers) southeast of Corpus Christi, Texas, on Friday and has already led to the evacuation of some offshore oil and natural gas platforms. Meanwhile, Hurricane Douglas strengthened slightly, bringing maximum sustained winds of 130 miles per hour as it bore down on the Big Island of Hawaii, according to an advisory from the U.S. National Hurricane Center.
  15. British Prime Minister Boris Johnson warned the U.K. will still be dealing with the pandemic in mid-2021 and said his government is preparing for a second wave of infections over the winter. Hong Kong reported a record115 new local cases, as the city’s outbreak worsens despite tightened restrictions.
  16. Testing deficiencies are clouding the picture of the U.S. coronavirus pandemic, as case counts in some hot spots wane but health officials warn that new infections may be significantly undercounted. The U.S. outbreak remains on a troubling trajectory, surpassing the grim milestone of 4 million infections Thursday as deaths continue to hit records in some states. But new cases in Florida and Arizona showed signs of slowing after a surge that jarred residents, businesses and policy makers.

*All sources from Bloomberg unless otherwise specified