June 19th, 2020
Daily Market Commentary
- Chinese authorities have indicted two Canadians on spying allegations, pressing ahead with a case diplomatically entwined with U.S. efforts to extradite a top Huawei Technologies Co. executive from Canada. The formal charges against Michael Kovrig, a Hong Kong-based International Crisis Group analyst and a former Canadian diplomat, and Michael Spavor, who organized trips to North Korea, suggest they’ll soon face trial after more than 18 months of detention.
- European stocks rose as investor optimism in the economy ahead of negotiations for a recovery fund outweighed concerns over an increase in new coronavirus cases. The Stoxx Europe 600 Index advanced 0.6% as of 8:15 a.m. in London, led by the banks, energy, food and beverage sectors. Market moves could be exacerbated later during the so-called “quadruple witching” expiry, a simultaneous expiration of single-stock and indexes’ options and futures.
- U.S. index futures rose amid investor optimism following a breakthrough in the country’s trade negotiations with China and the start of stimulus talks in Europe. S&P 500 contracts rose 0.8%, after China was said to plan to accelerate purchases of American farm goods to comply with the phase one trade deal with the U.S. following talks in Hawaii this week.
- Oil rallied as stronger consumption continued to push physical markets higher, even as many countries struggle to bring the coronavirus under control. Futures in New York traded above $40 a barrel on Friday and are up about 11% this week. .
- Gold rose, erasing a weekly retreat, as investors weighed prospects of a second wave of coronavirus infections and Goldman Sachs Group Inc. said there’s room for gains even amid improved risk sentiment.
- In a month where U.S. stock trading has surged and reversals ruled the market, traders are facing another layer of uncertainty on Friday. Options and futures on indexes and equities are scheduled to expire, a quarterly event known as quadruple witching that typically spurs trading volume as large derivatives positions roll over. While spikes in volume usually occur around the open and close, providing windows of robust liquidity, large price swings can happen suddenly at any time of the day.
- The U.K. lowered its Covid-19 alert level by one rank to Level 3, reflecting the fact the coronavirus is no longer spreading exponentially in the community after almost three months of lockdown. China’s capital shouldn’t loosen restrictions even though it probably saw a peak in cases, top virus expert Wu Zunyou said.
- China agreed with global experts that it’s unlikely food trade is responsible for causing a fresh outbreak of the coronavirus in Beijing, indicating it’ll no longer consider imposing restrictions.
- President Donald Trump said the U.S. could pursue a “complete decoupling from China” in response to unspecified conditions, his most forceful statement yet on the souring ties with Beijing. In a tweet Thursday, Trump refuted comments a day earlier by U.S. Trade Representative Robert Lighthizer, who said a full decoupling of the world’s two biggest economies was not “a reasonable policy option.”
- Some of the largest U.S. steel producers offered upbeat outlooks for the rest of the coronavirus-hit year, indicating that the worst of the dismal market may be behind them. Industry leader Nucor Corp. said nonresidential construction has remained resilient and that automotive-related steel demand is showing a strong rebound. Commercial Metals Co. Chief Executive Officer Barbara Smith told analysts on an earnings call that the latest quarter showed construction isn’t as weak as the consumer sector, and the company hasn’t seen any change in the normal pattern of its backlog. Later Thursday, Steel Dynamics Inc. provided quarterly guidance that beat analysts’ estimates, saying its performance was “tremendous given the circumstances.”
- Wirecard AG’s Chief Executive Officer Markus Braun has resigned after the German payments company disclosed 1.9 billion euros ($2.1 billion) of missing cash. James Freis has been appointed interim CEO, Wirecard said in a statement Friday. Freis was appointed as a member of the management board on Thursday. Braun’s exit comes after a catastrophic few days for Wirecard, which suffered a share price collapse after the two Asian banks that were supposed to be holding the missing cash denied any business relationship with the company.
- The Bank of England’s surprisingly restrained tone on the economy hasn’t gone down well with investors, who worry that it may have tightened policy just as a number of political and economic risks converge. Both the pound and U.K. government bonds sold off after the central bank said Thursday it would slow the pace of its asset purchases, despite a 100-billion-pound ($124 billion) boost to the size of the program. With the BOE aiming tocomplete the program later this year, its weekly bond buying will likely be about half its current 13.5 billion-pound binge, making it the only major central bank to scale back the speed of quantitative easing.
- The Bank of Russia pushed out its biggest interest-rate reduction in five years and signaled another cut to help stimulate an economy heading toward a deep recession. The benchmark interest rate was cut 100 basis points to 4.5%, the lowest level since inflation-targeting began in late 2014, the central bank said in a statement on Friday.
- European Central Bank President Christine Lagarde and German Chancellor Angela Merkel warned European Union leaders meeting Friday by video conference that if they fail to agree on a stimulus package the consequences could be dire. The leaders began negotiations on a 750 billion-euro ($840 billion) plan to help their economies rebound from the Covid-19 lockdown, with Germany and France pushing for a deal to be wrapped up next month. Lagarde warned national leaders that the recent calm in financial markets is in part because investors have priced in action from governments.
- Engineering firm John Wood Group says it forecasts like-for-like profits falling by 19 per cent in the first half of 2020 due to the coronavirus pandemic and the related collapse in oil prices.
- China plans to accelerate purchases of American farm goods to comply with the phase one trade deal with the U.S. following talks in Hawaii this week. The world’s top soybean importer intends to step up buying of everything from soybeans to corn and ethanol after purchases fell behind due to coronavirus disruptions, said two people familiar with the matter, who asked not to be named because the information is private.
- Fears of a second wave of coronavirus infections and renewed geopolitical tensions haven’t stopped Asia’s sell-side community from adding more optimism to their stock projections. Analysts covering members of the MSCI Asia Pacific Index have boosted more price targets than they cut in the week through June 16, a trend that has been in place for three straight weeks now.
- Joe Biden, who says he wants to tax capital gains at the same rate as ordinary income and pushes left-of-center economic policies, seems an unlikely favorite of private equity firms and hedge fund managers. But supporters linked to those industries have poured more than $21 million into his campaign and outside groups backing him, according to the Center for Responsive Politics, a rate much higher than the support they gave Hillary Clinton in 2016. By contrast, they’ve given President Donald Trump and his allied super-PACs just $3.6 million.
- Senator Amy Klobuchar of Minnesota took herself out of contention to be Joe Biden’s running mate Thursday, saying the Democratic nominee should select a woman of color for the ticket as the country grapples with racial injustice. “This is a historic moment and America must seize on this moment,” Klobuchar said in an interview with Lawrence O’Donnell on MSNBC. “And I truly believe, as I actually told the vice president last night when I called him, that I think this is a moment to put a woman of color on that ticket.”
- Donald Trump’s decision to pack thousands of people into an arena for his first campaign rally in three months, intended to reinvigorate both his re-election effort and the candidate himself, has instead kept the president on the defensive. The Tulsa, Oklahoma, rally set for Saturday was supposed to signal that America is well on its way back to normal after weathering both the coronavirus outbreak and nationwide protests against police brutality.
- Former National Security Advisor John Bolton’s pending memoir is living up to its publisher’s hype as “the book President Donald Trumpdoesn’t want you to read.” Trump’s Justice Department is heading to court Friday in a last-ditch attempt to block the publication of “The Room Where It Happened: A White House Memoir,” due to be released June 23, even as excerpts that have already appeared in the media paint a damning picture of Trump as an incurious president driven by his political self-interest.
- MSD Partners has raised about $1.1 billion for a fund dedicated to bets on structured credit secured by real estate, beating an initial target of $750 million. The MSD Real Estate Credit Opportunity Fund gathered about $300 million from Michael Dell and his family, as well as MSD employees. The vehicle will make and purchase commercial real estate loans and securities, in addition to structured investments.
*All sources from Bloomberg unless otherwise specified