May 14th, 2020
Daily Market Commentary
- Canadian equities fell Wednesday alongside U.S. shares after Fed Chair Jerome Powell warned economic risks from the coronavirus pandemic are significant and as tensions with China flared. The S&P/TSX Composite Index retreated 2.5%, the most since April 30. Ten of 11 sectors fell, with information technology gaining as Shopify Inc. rose 1.5%. Meanwhile, oil fell as investors weighed stockpile declines against a darker outlook for demand and economic recovery. Gold prices advanced the most in a week as Powell’s comments added to worries that the pandemic is taking too heavy a toll on the economy.
- The Canadian government is worried about the country’s food security as the Covid-19 pandemic disrupts supplies and causes labor shortages. Food prices may rise and some products could become unavailable in supermarkets, Agriculture Minister Marie-Claude Bibeau said. The threat comes after the spread of Covid-19 temporarily shut down one of Canada’s largest beef processing plants in April and forced some poultry and pork facilities to temporarily idle or slow output. A similar wave of outbreaks at meat plants in the U.S. has already withered available supplies at grocery stores and driven up retail prices for beef and pork.
- European stocks declined for a second day as concern lingered about the long-term economic risks from the pandemic. The Stoxx Europe 600 Index fell 1.6% as of 11:01 a.m. in London after briefly reaching its lowest level since April 22. While all 19 industry groups fell, cyclical sectors such as carmakers and insurers led losses, while defensives such as telecom and health-care shares fared better. A rebound in European stocks is losing steam in May as some major economies’ efforts to revive economic and public life have met with rising infection rates. Large-cap stocks in the Euro Stoxx 50 Index are on course to complete a bearish head-and-shoulders pattern, signaling more potential declines.
- U.S. equity futures edged lower and European stocks declined on Thursday as investors awaited the latest American jobless data after another steep sell-off on Wall Street. Treasuries gained alongside the dollar. Contracts on the S&P 500 Index and Dow Jones Industrial Average dropped modestly following a report that President Donald Trump is “looking at” Chinese companies that trade on American exchanges. The futures fluctuated earlier in the wake of a gloomier outlook from Goldman Sachs Group Inc. on the American labor market and warnings from the Federal Reserve about a lasting downturn. Norwegian Cruise Line Holdings, the S&P’s worst performer since the sell-off began in February, rose in the premarket after saying there continues to be demand for cruise vacations, particularly beginning in the fourth quarter.
- Japanese stocks dropped as comments from the U.S. Federal Reserve chairman on the bleak economic outlook damped global investor sentiment. Electronics and automakers weighed on the benchmark Topix index the most as the yen strengthened for a third day. Sony Corp. slid after warning that its operating profit could fall 30% or more in the current fiscal year as the coronavirus hampers production and consumer demand. U.S. stocks slumped to a three-week low. Fed Chair Jerome Powell warned of unprecedented risks to the U.S. economy from Covid-19. He said that the central bank was not considering negative rates as a policy measure, though stopped short of completely ruling out the option.
- Oil rose as Saudi Aramco slashed its sales to key buyers and the IEA said that the market is showing signs of improving. Futures in New York added as much as 4.4%. Saudi Aramco cut sales to the U.S. and Europe by about half and reduced supplies to at least 12 customers in Asia for June as OPEC and its allies curb daily output by almost 10 million barrels. The International Energy Agency said the outlook for global oil markets has improved as demand firms. In a sign that output cuts are starting to take hold, key gauges of market strength are rallying. The price difference between Brent’s two nearest contracts have reached their narrowest in almost two months, signalling the oversupply is reducing. Dated Brent, which prices more than two-thirds of the world’s oil, was assessed by S&P Global Platts at $28 a barrel on Wednesday, up almost $10 from a month ago.
- Gold held gains after warnings from the Federal Reserve, that the U.S. faces lengthy and unprecedented risks to its economy, added support to the safe haven. Gold futures in New York headed for a third day of increases as traders turned their focus to the upcoming U.S. jobless data due later Thursday, after a gloomier outlook from Goldman Sachs Group Inc. for the American labor market. The damage from the virus is expected to be far-reaching — a study by the United Nations showed that the health crisis is projected to remove four years of growth from the global economy and will likely cause an estimated 34.3 million people to fall below the extreme poverty line in 2020.
- U.S. homeowners hurt by coronavirus were told they could delay their mortgage payments without facing consequences. Now, some are learning they’re at risk of being shut out of the housing market. The snafu has been triggered by the hastily drafted $2.2 trillion stimulus bill that Congress passed in March. The law allowed borrowers with government-backed loans to postpone payments for as long as 12 months if they’re dealing with financial hardships stemming from the pandemic. It even specified that mortgage firms must report homeowners in forbearance as being “current” on payments, thus preventing any damage to their credit scores.
- The Bank of England isn’t currently considering using negative interest rates, according to Governor Andrew Bailey, a day after the U.S. central bank chief also pushed back against the idea. “It is not something that we are currently planning for or contemplating,” Bailey said an FT web conference Thursday. Such a move would be a major communications challenge and would prove difficult for banks, he said. Money markets are betting that the BOE will lower interest rates below 0% in May 2021. The benchmark rate currently stands at 0.1%.
- A French government minister slammed Sanofi’s plans to give Americans priority over any successful vaccine for Covid-19, highlighting conflicts as companies race to develop drugs. The World Health Organization said vaccines should be distributed fairly among countries. Treasury Secretary Steven Mnuchin sought to reassure investors after Federal Reserve Chair Jerome Powell warned of unprecedented risks. Filings for unemployment claims will probably stay elevated and Goldman Sachs now expects the jobless rate to peak at 25%.
- The U.K.’s plan to revive the battered housing market could help unlock about 82 billion pounds ($100 billion) of deals put on hold by the government’s coronavirus lockdown, though prices could take some time to recover. Housing Secretary Robert Jenrick has taken the shackles off the market as part of a broader easing of restrictions imposed in March to slow the outbreak. That means realtors can show homes again and moving companies can get back to work, as well as easing some rules for homebuilders. This should allow about 373,000 stalled sales to move forward, giving a boost to the slumping economy, according to Charlie Bryant, chief executive officer of property portal Zoopla Ltd.
- Hackers working for the Chinese government are trying to steal valuable research on coronavirus vaccines and treatments from U.S. health care, pharmaceutical and research organizations, the FBI and the Department of Homeland Security warned Wednesday. “China’s efforts to target these sectors pose a significant threat to our nation’s response to Covid-19,” the Federal Bureau of Investigation and DHS’s Cybersecurity Infrastructure Security Agency said in a joint statement. The announcement represents an escalation in U.S. efforts to combat Chinese espionage and cyber-attacks. It comes as President Donald Trump attempts to blame the Chinese government for not doing more to prevent the global spread of the coronavirus, which has killed more than 80,000 people in the U.S. and ravaged the economy.
- The outlook for global oil markets has “improved somewhat,” with demand a little stronger than expected and supply reined in by a brutal price crash, the International Energy Agency said. World oil production is on track for a “historic decline” this month to the lowest level in nine years, the IEA said in a monthly report. OPEC and its partners are slashing output, while others like the U.S. are forced to scale back drilling. “It is on the supply side where market forces have demonstrated their power and shown that the pain of lower prices affects all producers,” said the Paris-based agency, which advises major economies. “We are seeing massive cuts in output from countries outside the OPEC+ agreement and faster than expected.”
- Intelsat SA, the satellite company weighed down by almost $15 billion of debt, filed for bankruptcy protection as part of efforts to raise cash needed to prepare its spectrum for a U.S. government auction. With its Chapter 11 filing in Virginia, the Luxembourg-based company said it lined up $1 billion in financing to fund operations during bankruptcy proceedings and make investments required ahead of the auction. Under rules set by the Federal Communications Commission, Intelsat may collect $4.86 billion for quickly giving up the so-called C-band spectrum so the airwaves can be used by mobile phone companies to provide 5G services. The satellite company uses the spectrum to beam TV and radio programs to stations, but can give up part of it while still serving customers on frequencies it retains.
- Not all of Elon Musk’s projects have been thwarted by the coronavirus pandemic. While the billionaire clashed this week with local officials over restarting production at a Tesla Inc. factory in California, his tunnel-drilling company hit a new milestone in Nevada. A giant drill called Godot Plus broke through a wall near the spot where it will connect to the Las Vegas Convention Center. The event marked the final phase of excavation for the project’s two main transportation tunnels and will allow Musk’s Boring Co. to collect its next portion of a total $48.7 million in payment from the Las Vegas Convention and Visitors Authority.
- Sanofi Chief Executive Officer Paul Hudson’s suggestion that the U.S. may get the French drugmaker’s coronavirus vaccine first sparked outrage in France, with one government minister calling the prospect “unacceptable.” “For us, it would be unacceptable that there be privileged access for this or that country on a pretext that would be a financial pretext,” Junior Economy Minister Agnes Pannier-Runacher said in an interview Thursday on Sud Radio. The U.S. will likely be first in line should Sanofi succeed in developing a vaccine because the country was the first to fund the French company’s research, Hudson said this week in an interview with Bloomberg News. The U.S., which expanded a vaccine partnership with the company in February, expects “that if we’ve helped you manufacture the doses at risk, we expect to get the doses first,” Hudson said.
- Just as Germany starts counting the cost of the coronavirus’s damage to economic growth, officials will get another glimpse of the shaky foundations it was built on. Gross-domestic-product data this week will reflect not only how Europe’s biggest economy began a nosedive in March, but also that its stalling engine was already in need of repair — a legacy of Chancellor Angela Merkel’s rule that will probably outlast the outbreak. While the virus-induced crash in activity may temporarily drown out any narrative of neglect, it might not silence observers who had long pushed for a large-scale budget stimulus to reinvigorate growth that was outpaced last year by all major euro-area peers, apart from Italy.
- Video-conferencing company Pexip Holding AS gained after its initial public offering as investors flock to lockdown-proof stocks, with social-distancing measures boosting demand for remote working software. The stock rose as much as 54% on its first day of trading in Oslo after the company sold 2.4 billion kroner ($237 million) of shares at 63 kroner each. It is Norway’s biggest IPO this year and the first announced on a main market exchange in Western Europe since the coronavirus outbreak torpedoed stock markets nearly three months ago. Social-distancing measures and restrictions on movement have driven up demand for remote working technologies, sending some shares to dizzying heights. Fellow virtual meeting app provider Zoom Video Communications Inc.’s shares have surged more than 140% this year.
- India plans to switch to locally-made fighter jets, two years after asking global companies to submit proposals to supply 114 combat aircraft in the world’s biggest warplane contract. The country’s air force is finalizing plans to induct indigenously made Light Combat Aircraft, Tejas to boost the capability of its aging combat aircraft fleet, Chief of Defence Staff Bipin Rawat said in an interview in New Delhi. It will buy an additional 83 jets, apart from an earlier deal for 40 aircraft, for $6 billion, he said.
- BMW AG’s plan to pay out $1.8 billion in dividends while the coronavirus crisis drains the German carmaker’s cash reserves is drawing the ire of investors. BMW should consider a lower payout to protect its balance sheet, Deutsche Bank AG’s fund management arm DWS Group said ahead of the carmaker’s annual shareholder meeting on Thursday. Germany’s DSW investor lobby group said separately it wants BMW to be more frugal, given that it’s asking for state-funded car-buying incentives and is sending thousands of workers home at reduced wages.
- Japanese Prime Minister Shinzo Abe will maintain a state of emergency for Tokyo and Osaka due to the coronavirus while lifting it for 39 of the country’s 47 prefectures earlier than scheduled, as infection cases have waned. Abe also told a news conference Thursday that the government will immediately start work on a second extra budget to aid people and businesses reeling from the effects of the pandemic. The plan will include handouts to help with rent, and raise the maximum subsidy for furloughed workers to 15,000 yen ($140) a day, he said.
- Tesla Inc. is cutting prices of cars sold in China for a second time this month as competition starts to heat up again in the world’s largest electric-vehicle market. The reduction applies to the long-range version of the locally built Model 3, lowering the sticker price by about 20,000 yuan ($2,818), a company representative said Thursday. The cut of about 6% would make up for a rebate that is going away later this year, meaning consumers would continue to pay 344,050 yuan for the car, the representative said. The move may help Tesla stay competitive against Daimler AG, Volkswagen AG, General Motors Co. and other rivals as car demand in China gradually recovers from a slump worsened by the coronavirus outbreak. The price of the entry-level Model 3 was reduced to below 300,000 yuan this month to qualify for the latest state subsidies.
- In nearly three years at the helm of Uber Technologies Inc., Dara Khosrowshahi has focused mostly on cutting costs. Now he’s seeking a return to what defined his career before Uber: buying things. Uber is negotiating a potential acquisition of Grubhub Inc. as the coronavirus pandemic drives a surge in demand for food delivery, people familiar with the negotiations said. If a deal is reached, Grubhub, with a market value of $5.3 billion, would be the biggest Khosrowshahi has ever done.
- The World Trade Organization’s top official plans to step down before his term ends in 2021, setting up a potentially contentious search for a successor at an organization caught in the middle of an economic fight between the U.S. and China in the early days of a global recession. Roberto Azevedo, a 62-year-old Brazilian, will announce the decision to WTO delegates later Thursday, people familiar with the matter said. He has served as its director-general since September 2013 and his second four-year term began in September 2017.
- For once in California’s fight against climate change, lower greenhouse gas emissions aren’t cause for celebration. The recent drop in pollution as many factories sit idle is temporary, but it could hurt the state’s anti-global warming programs while it lasts. Many of those green initiatives are funded through a cap-and-trade system and the sale of permits to businesses that pump heat-trapping gases into the atmosphere. Last year, California spent about $2 billion from the sales to continue building a high-speed rail system, buy electric school buses and prevent wildfires — all steps to chip away at emissions. Now emissions have decreased as the pandemic has closed offices, factories and schools. State revenue from selling permits in is in jeopardy.
*All sources from Bloomberg unless otherwise specified