May 15th, 2020
Daily Market Commentary
- Canadian equities finished slightly higher Thursday after a weak open. U.S. shares advanced. The S&P/TSX Composite Index rose 0.04% after falling as much as 2.2%, with five of eleven sectors higher. Materials led the way, gaining 1.9%, closely followed by real estate, which advanced 1.3%. Industrials weakened. Quebec abandoned a plan to let children return to school this month in Montreal as dozens of people continue to die every day from Covid-19 in Canada’s second-biggest city. In contrast, Ontario announced it would allow the reopening of most stores, except for those in shopping malls, on Tuesday.
- Oil, mining, and forestry regulators across Canada may have to take First Nation rights into deeper consideration after a court undercut an Alberta agency’s long-standing refusal to address historic and ongoing indigenous treaty violations, lawyers watching the case closely said. The Court of Appeal of Alberta’s declarations that the Alberta Energy Regulator must tackle treaty impacts and address existing environmental effects when approving individual projects could lead to changes in five provinces that use similar approaches, they said.
- Members of the indigenous group at the center of protests that threatened Canada’s transportation network earlier this year have signed a preliminary deal with two levels of government regarding their grievances. The memorandum of understanding recognizes Wet’suwet’en rights and title throughout their territory and commits the group’s hereditary chiefs and the federal and provincial governments to negotiate agreements to resolve outstanding matters, British Columbia’s government said Thursday.
- U.S. equity futures turned lower on further signs of strained relations between America and China and ahead of more economic data. European stocks rose as investors weighed the latest figures on the spread of the coronavirus. Contracts on the three main U.S. equity gauges reversed earlier gains shortly after Reuters reported the country is moving to block global chipmakers from supplying Chinese telecom giant Huawei Technologies Co.
- European stocks pared an earlier advance as banks, retailers and travel shares lost momentum, while miners led gains following improving Chinese output data. The Stoxx Europe 600 Index added 0.8% as of 11:45 a.m. in London, still on track for its worst week since March. The benchmark almost halved an earlier rise as U.S. futures moved lower. Most industry groups remained in the green, after China’s industrial output increased in April for the first time since the coronavirus outbreak.
- Japanese stocks rose, erasing a midday decline, as optimism over the government’s moves to ease coronavirus prevention measures countered concerns over Chinese economic data.
- Gold and silver are finishing the week on a high note, lifted by concerns over economic growth, a second wave of virus infections and simmering tensions between the U.S. and China. Gold headed back toward its peak in April, when prices hit the highest since 2012. Silver jumped to a two-month high.
- Copper climbed in a mixed session for base metals, paring a weekly drop as investors weighed data that offered a mixed picture on China’s post-lockdown economic rebound.
- Oil is heading for a third weekly gain on signs the market is slowly rebalancing as major producers slash supply and consumption recovers after a historic collapse in demand due to the coronavirus. Futures in New York are up about 13% this week and traded near a six-week high on Friday around $28 a barrel.
- China has a lesson for the world: An economy is harder to reboot than it is to shut down. Fresh data for the month of April, covering a period when the government pushed hard to reopen the economy as the coronavirus came under control, show that retail sales continue to fall as consumers shun restaurants and curb spending on other non-essential items. China’s industrial output increased in April for the first time since the coronavirus outbreak, adding to early signs of a recovery that economists cautioned would be slow and challenging. Industrial output rose 3.9% from a year earlier, reversing a drop of 1.1% in March, data showed Friday. Fixed-asset investment decreased 10.3% in the first four months, a smaller decline than the 16.1% drop in the January-March period. Retail sales slid 7.5%, more than the projected 6% drop. The surveyed urban jobless rate, which doesn’t include all of the workforces, rose to 6.0%, from March’s 5.9%.
- The German economy shrank 2.2% in the first quarter, the most in more than a decade, offering an early flavour of the damage from the coronavirus outbreak. Less than two weeks of official lockdown caused slumps in consumer spending and capital investment. Government spending and construction provided some stabilization.
- Chip stocks fell in early trading Friday after Reuters reported that the U.S. moved to block shipments of semiconductors to China’s Huawei Technologies.
- American companies that moved their official headquarters offshore to avoid U.S. taxes could qualify for coronavirus aid from the Federal Reserve, tax lawyers say, raising new questions about which firms should get access to public money. Under guidelines published by the Fed, companies that engaged in so-called corporate inversion transactions while maintaining meaningful U.S. operations appear to be eligible for two new programs designed to provide credit to large employers by purchasing new or outstanding corporate bonds.
- Britain and the European Union’s talks about their future relationship are stumbling toward the brink, with few signs of progress being made ahead of a key deadline next month. As the latest round of negotiations end Friday, the U.K. is refusing to compromise in key areas — most notably on the conditions the EU wants the country to accept in return for a trade deal, but also on fisheries and on the role of the bloc’s courts.
- A fifth of global demand for oil will disappear this quarter. All three of the major forecasting agencies now agree that the world faces its biggest-ever slump in oil consumption, after governments imposed movement restrictions on billions of people to combat the coronavirus. The scale of the demand hit means that despite producers implementing unprecedented output cuts, stockpiles will soar this year. The International Energy Agency, the Organization of Petroleum Exporting Countries and the U.S. Energy Information Administration have all updated their oil market forecasts in the past week and they have come into much closer alignment in their views of the depth of demand destruction. The pessimistic stance adopted last month by the International Energy Agency has now become the consensus view — the world will use about 1.7 billion barrels less oil this quarter than it did during the same period last year.
- Italy will allow citizens to move freely between its regions in June after two months of lockdown. A rising number of cases in South Korea and China is fueling concern over a second wave, while an experimental vaccine developed by cigarette maker British American Tobacco is poised to begin testing in humans.
- Hon Hai Precision Industry Co. forecast another revenue decline after profit plunged by the most on record in the March quarter, when the novel coronavirus froze much of its China production and walloped global smartphone demand. Apple Inc.’s most important manufacturing partner recorded an 89% decline in net income to NT$2.1 billion ($70 million) in the first three months of 2020. Chairman Young Liu told analysts Friday the company anticipates a single-digit percentage decline in revenue in the June quarter from a year earlier. That would be its third consecutive quarterly sales drop.
- Argentina’s debt restructuring talks with foreign creditors are bogging down two months after they began, and one Wall Street firm — BlackRock Inc. — is a big part of the reason why. Representatives for the world’s biggest asset management firm have taken a hard line in negotiations, demanding the government drastically improve the terms of its original offer, which sought to saddle creditors with losses of almost 70% on $65 billion worth of bonds.
*All sources from Bloomberg unless otherwise specified