June 11th, 2020

Daily Market Commentary

Canadian Headlines

  • Canadian stocks dropped Wednesday as investors assessed the Federal Reserve’s views on the economy. The Federal Reserve pledged to maintain at least the current pace of asset purchases and projected interest rates will remain near zero through 2022, as Chairman Jerome Powell committed the central bank to using all its tools to help the economy recover from the coronavirus pandemic. The S&P/TSX Composite Index fell 0.8%, with eight of 11 sectors lower. Energy and health care were especially weak while materials was among gainers. Gold prices rebounded after the Federal Reserve signaled it would maintain asset purchases and unprecedented stimulus aimed at stemming the impact from the pandemic.
  • The worst may be over for Canada’s economy, but the nation’s more cautious approach to reopening means a slower rebound than in the U.S. Real-time data such as online job postings, restaurant bookings and mobility tracking show economic green shoots in Canada after nearly three months of Covid-19 restrictions. However, the data also suggest its economy is “about two to three weeks behind” its largest trading partner, said Frances Donald, chief economist at Manulife Investment Management Ltd. The divergence can be explained in part by regional differences and which parts of each country the virus hit hardest. Canada’s Covid-19 hot zones — Ontario and Quebec — are also its economic growth engines. The two provinces, which account for nearly 60% of national output, have seen 95% of its virus deaths.
  • Bank of Canada plans to buy provincial debt that matures between two and nine years tomorrow. The central bank is considering notes from 16 transactions, according to its website. The debt matures between July 2022 and June 2029, according to people familiar with a list of securities distributed to bond dealers. Bank of Canada kicked off a plan to purchase as much as C$50 billion ($37.4 billion) of provincial bonds last month. The program is one of a number of measures meant to restore liquidity to the country’s financial markets after the coronavirus pandemic caused risk premiums to widen to record levels. As of Wednesday, the central bank has bought C$3.55 billion of provincial bonds under the plan.

World Headlines

  • European stocks suffered deep losses after the Federal Reserve signaled a long road ahead for an economic rebound, and worries rose over a potential second wave of infections in the U.S. The Stoxx 600 Index was down 2.7% by 8:15 a.m. London time, with shares in banks, autos and travel stocks leading losses. Among single stocks, Unilever rose 3.1% after the consumer giant scrapped a plan to consolidate into a Netherlands-based entity. Fiat Chrysler Automobiles NV dropped 5% and PSA Group fell 6% on concerns the automakers will face a longer probe of their merger. Although European stocks had rallied around 30% to a hit a high at the beginning of June, the recovery has since stalled as investors have taken profits on recent gains for cyclical stocks with defensive sectors such as health, food and beverages and utilities outperforming so far this week. Today marks a fourth straight day of declines for the Stoxx 600.
  • Losses picked up in U.S. stock index futures after the Federal Reserve signaled that the path to economic recovery will be long and as worries over a second wave of coronavirus infections grew. June contracts on the S&P 500 fell 1.6% as of 8:28 a.m. in London, extending earlier declines. Those on Dow Jones Industrial Average dropped 2%.
  • Japanese stocks dropped by the most in six weeks as a cautious outlook from the Federal Reserve and an increase in U.S. coronavirus cases to over 2 million spurred a selloff in a market that has showed signs of excessive gains. All but one industry group in the Topix index fell, with electronics and auto makers the biggest drags. The Nikkei 225 Stock Average closed below 23,000 for the first time this week. S&P 500 futures slipped and Asian stock markets extended declines in afternoon trading following a data showing a surge in virus cases in Texas, Florida and California.
  • Oil slumped in New York as the Federal Reserve forecast a long road to recovery for the U.S. economy and American crude inventories rose to a record. Futures lost 3.5% to trade near $38 a barrel. Fed Chairman Jerome Powell said the pandemic could inflict long-lasting damage on the economy and signaled it would keep rates near zero possibly for years to come, weighing on equity markets globally. There were also fears a second wave of infections in the U.S. may derail its fragile recovery. Meanwhile, American crude inventories rose unexpectedly last week, while gasoline stockpiles also saw a surprise increase.
  • Iron ore held above $100 a ton amid a gathering wave of concern about the supply risks from virus-hit mines in Brazil, with the tightening market prompting Citigroup Inc. both to raise near-term forecasts and warn that the commodity could yet go much higher. Prices could “easily spike to $120 a ton on another major mine closure and further outperformance of Chinese steel demand,” analysts including Tracy Liaosaid in report, outlining the bank’s bull case, which carries 35% odds. The bank raised its third-quarter outlook to $100 a ton and the fourth to $80.
  • U.S. President Donald Trump sets off on a road trip on Thursday intended to underscore his commitment to reopening the nation as soon as possible. Meanwhile, a second wave of cases in America is raising alarm after new infections pushed the overall count past 2 million. In Britain, Prime Minister Boris Johnson is battling to contain a public split with his own top scientific advisers, after they warned the government must learn from the catalog of failures it made during the coronavirus crisis. Regeneron Pharmaceuticals Inc. said it had begun human trials of a new antibody cocktail for Covid-19. Stocks tumbled amid rising cases and as the Federal Reserve indicated the pandemic could inflict lasting damage, while job losses mounted in Britain.
  • Amazon.com Inc. will get a formal antitrust complaint from European Union regulators as soon as next week, according to a person familiar with the case who spoke on condition of anonymity. Issuing a so-called statement of objections would ramp up a probe into the potential misuse of merchants’ data on the online sales platform. The move raises the risk of fines as it lays out the EU’s evidence in the probe opened last year into how Amazon handles data of smaller sellers that it also competes against when it offers products.
  • The rebound in global stocks back to December levels — before the world had heard of Covid-19 — has outstripped the monetary stimulus pumped into economies by global policy makers, raising the stakes for the V-shaped rebound that has been priced in. The global stock market’s capitalization has climbed by roughly $22 trillion from the March low. Tallies of central bank stimulus are fraught with challenge, but Morgan Stanley last month predicted $13 trillion in cumulative balance-sheet expansion during the current easing cycle from the U.S., euro region, Japan and U.K. through the end of 2021.
  • Ocado Group Plc is raising just over 1 billion pounds ($1.3 billion) through a share placement, retail offer and convertible bonds to fund expansion of online grocery shopping in an era of social distancing. The company said Thursday it’s getting 657 million pounds via the share placement and retail offer and 350 million pounds through the convertible bond offering. The stock fell as much as 7.5% to 1,960 pence, which was the offer price. Ocado, which provides technology for automated grocery delivery warehouses, said proceeds will be used to support its nine current partners, as well as new clients. The company works with the likes of Casino Guichard-Perrachon SA in France and Kroger Co. in the U.S.
  • China’s No. 2 online retailer JD.com Inc. raised HK$30.1 billion ($3.9 billion) in its Hong Kong share sale, people familiar with the matter said, cementing the world’s second-biggest listing this year. The company priced 133 million new shares at HK$226 each, according to the people, asking not to be identified as the information isn’t public. The price represents a 3.9% discount to the Nasdaq-listed JD’s closing price of $60.70 per share on Wednesday. JD trades in the U.S. via American depositary receipts, one of which represents two ordinary shares.
  • President Donald Trump says the U.S. economy will be back and better than ever next year. Federal Reserve Chairman Jerome Powell begs to differ. In an almost hour-long virtual press conference Wednesday after the Fed left interest rates pinned near zero, Powell repeatedly played down the surprise, welcome news of a pick-up in jobs growth in May that Trump hailed last week as the “greatest comeback in American history.” Instead the Fed chairman spotlighted the many millions of American still out of work and suggested it would take years for a return to anything like the strong labor market that the U.S. enjoyed before the coronavirus pandemic.
  • A massive wave of corporate distress is pitting beleaguered companies against their lenders in brawls that are shaping up to be nastier than ever before. Desperate firms and their private equity owners are seeking to take advantage of years of weakening creditor protections to help cut obligations and raise cash after the coronavirus outbreak brought businesses to a standstill. Be it via allowances written into borrowing documents when times were good or simply loopholes in deal terms, they’re siphoning collateral and transferring assets while pushing deeply discounted debt swaps onto investors, who risk seeing the value of their bonds and loans plunge if they don’t go along.
  • The new coronavirus was a test of America’s ability to protect the health of its people, and the country failed. The U.S. has the greatest number of confirmed cases and deaths in the world. Months after arriving in the U.S., the virus that wrecked the economy with disorienting velocity continues to inflict an unfathomable human toll. The U.S. isn’t alone in failing to stop the coronavirus. But it is unique in how much of the nation’s economic resources are devoted to health care—about 18% of gross domestic product, more than any other country. The spending, approaching $4 trillion a year from taxpayers, employers, and households, is what makes America’s vulnerability to Covid-19 striking. What are we spending $4 trillion for, if not to avert disease and death?
  • Europe’s Just Eat Takeaway.com NV agreed to acquire U.S.-based Grubhub Inc. for $7.3 billion, in a deal that creates one of the world’s largest meal-delivery companies as the coronavirus pandemic drives a surge in orders. Amsterdam-based Just Eat Takeaway said it will pay $75.15 per share for Grubhub in an all-stock deal. Grubhub’s share price rose 4% in extended trading to about $62, while the European company fell 13%. The deal sidelines Uber Technologies Inc., which had been in acquisition talks with Grubhub for months. Political pressure raised questions about whether U.S. regulators would approve such a deal. The two companies had nearly aligned on a price but remained at odds over other issues, including terms of a breakup feefor Grubhub if the deal couldn’t be completed, people familiar with the matter said last month.
  • A second wave of coronavirus cases is emerging in the U.S., raising alarms as new infections push the overall count past 2 million Americans. Texas on Wednesday reported 2,504 new coronavirus cases, the highest one-day total since the pandemic emerged. A fresh onslaught of the novel coronavirus is bringing challenges for residents and the economy in pockets across the U.S. The localized surges have raised concerns among experts even as the nation’s overall case count early this week rose just under 1%, the smallest increase since March.
  • Ukraine cut interest rates to the lowest level since leaving the Soviet Union in 1991 after getting the long-awaited green light for $5 billion of foreign aid. The International Monetary Fund signed off on the funding this week, ending months of talks that grew in urgency as Covid-19 struck. With the Washington-based lender warning of a deep economic slump followed by a lackluster recovery, the central bank lowered benchmark borrowing costs to 6% from from 8% on Thursday — more than most economists surveyed by Bloombergpredicted.
  • Turkish food producer Tat Gida Sanayi AS has drawn interest from potential international buyers for its dairy business, according to people familiar with the matter. The company, which is owned by Turkey’s largest conglomerate Koc Holding AS, hired Unlu & Co. in December on the potential sale of Sek Sut, the company said in a filing on Thursday, confirming an earlier story by Bloomberg News. No decision has been made on any of the alternatives the firm is considering for the division, it said.
  • Equinor ASA and Aker BP ASA ended years of bickering over one of Norway’s biggest remaining oil projects, agreeing to proceed with the North Sea development just days after a tax change designed to boost investment. The so-called NOAKA project’s 60 billion kroner ($6.4 billion) of investments and more than 500 million barrels of oil and gas resources will be key in sustaining activity in Norway’s supplier industry and stemming a drop in the country’s production in the second half of this decade. The agreement shows that temporary changes in the petroleum tax system — denounced by critics as too generous — have had an immediate effect.
  • Assicurazioni Generali SpA is exploring strategic options for its Swiss insurance operations, according to people familiar with the matter. The Italian company is working with advisers to study alternatives including a potential sale of part or all of the business, the people said, asking not to be identified because the information is private. Generali Switzerland makes about 194 million Swiss francs ($205 million) of net income, according to its website. It has about 1 million customers and 2 billion Swiss francs in booked premiums.
  • European Union regulators proposed to ease a pandemic-induced ban on most travel to the bloc as of July 1 while leaving the details to be worked out later this month. A curb on non-essential travel to the EU is due to lapse on June 15 after being introduced in mid-March for 30 days and extended twice as Europe stepped up the fight against the coronavirus. The European Commission on Thursday recommended prolonging the external border closure for two more weeks. During that time, the commission said EU governments should draw up a common list of countries outside the bloc from which visitors would be allowed starting next month.
  • Fortunes have been made — and lost — in the oil market this year on an unprecedented scale, but it looks like the world’s traders will have to forgo their last chance to get together and celebrate or commiserate. That’s because S&P Global Platts, the organizer of Singapore’s Annual Asia Pacific Petroleum Conference, just announced that it’s going to hold the event virtually because of the coronavirus. The gathering, in its 36th year, is the biggest of its kind in Asia and one of the industry’s three most important global conclaves, all of which have now been disrupted by the pandemic. London’s IP Week was significantly scaled back in February while CERAWeek in Houston was canceled altogether days before it was due to start in March.
  • India’s top court agreed to consider a government plan designed to rescue the nation’s beleaguered mobile-phone service providers, with riders. The Supreme Court on Thursday sought the government’s response on what guarantees the court can seek to ensure telecom companies abide to a timeframe and payment schedule it decides. Prime Minister Narendra Modi’s government had sought approval for several telecommunications firms, including Vodafone Idea Ltd., to pay combined back-fees worth 1.4 trillion rupees ($19 billion) over 20 years.

*All sources from Bloomberg unless otherwise specified