May 7th, 2020

Daily Market Commentary

Canadian Headlines

  • Canadian stocks continued their rally for a third day as Shopify Inc. became the Canada’s largest public company, soaring past the nation’s largest bank RBC amid growing conviction the future of retailing lies online. The S&P/TSX Composite index rose 0.13% in Toronto, led in part by Shopify’s 7% rally. Materials and Energy were the worst performing sectors as gold and oil prices fell. Real Matters had the largest gain, rising 23%, after reporting second quarter earnings. Barrick Gold Corp. was the biggest drag on the index, declining 5.4%, after its outlook took a hit over a Papua New Guinea mine dispute. Elsewhere, Sun Life Financial Chief Executive Officer Dean Connor expects that more takeover opportunities may arise because of the coronavirus pandemic — and the Canadian insurer is ready to act.

World Headlines

  • European stocks climbed after the Bank of England showed willingness to boost stimulus if needed and investors assessed an unexpected increase in Chinese exports that’s likely to be temporary. The Stoxx Europe 600 Index added 0.5% as of 9:07 a.m. in London, with miners and retailers outperforming. A gauge of U.K. midcaps advanced 0.9% after Britain’s central bank kept policy unchanged and signaled it’s ready to take further action to combat an economic slump spurred by the pandemic. After rebounding from a mid-March low, the Stoxx 600 has struggled to break above its 50-day moving average as mixed sentiment reigns in markets. Investor optimism over easing lockdown measures is warring with bleak earnings and economic data, and renewed worries about U.S.-China trade war rhetoric. Top negotiators from the two countries will speak as soon as next week on progress in implementing a phase-one deal.
  • U.S. equity futures climbed alongside stocks in Europe on Thursday while Asian shares mostly fell as investors sift the latest company earnings and brace for more data that will show the extent of the fallout from the coronavirus. Contracts for all three of the main American equity benchmarks pointed to a positive start on Wall Street after a mixed session on Wednesday, when the S&P 500 finished lower but the Nasdaq advanced. News that top U.S. and Chinese negotiators will speak as soon as next week on trade helped boost sentiment.
  • The recent stock-market turmoil is fizzling, especially in Asia, where volatility has turned sharply lower as the region’s benchmark has recovered about a third of its coronavirus-fueled losses. Swings for the MSCI Asia Pacific Index have halved in the past month, reaching their lowest level since March. The region has been particularly quiet in recent days, with markets including China, Hong Kong and Japan closed for holidays.
  • Oil jumped after Saudi Arabia raised prices for refiners globally. Futures in London added as much as 7.1%, moving beyond $31 a barrel, while U.S. crude futures rose 10%. State-run Saudi Aramco, which earlier this year initiated a price war by offering massive discounts on crude, has raised prices on all the grades for June. The move comes as the kingdom and its OPEC+ partners embark on sharp production cuts in a bid to rebalance a glutted market.
  • Gold rebounded as worsening economic data highlighted the risks of a long-term hit to growth from the coronavirus pandemic. A report Wednesday showed U.S. companies cut 20.2 million jobs in April as the virus brought business activity to a near standstill. The data is a harbinger of the government’s April jobs report due Friday, which is projected to show a record decline in total nonfarm payrolls and a jobless rate surging to 16%. U.S. futures rose, European contracts traded flat and Treasuries halted a three-day slide. Elsewhere, China’s leaders are considering the option of not setting a numerical target for economic growth this year given the uncertainty caused by the global health crisis. Data showed the country’s exports unexpectedly rose in April aided by stronger shipments to South East Asia, though that increase is likely to be temporary as the coronavirus pandemic continues to damage global demand.
  • France is set to lay out its plan to roll back lockdown measures, following other countries in Europe gradually reopening their economies. The number of new cases in Russia surged above 10,000 for a fifth day and Germany announced the most new infections in almost a week. The Bank of England may expand monetary stimulus to help the battered U.K. economy amid an outlook for a 14% slump that could be the worst in Europe. Industrial production cratered in France and Germany and data due later will probably show another huge jump in U.S. jobless claims. Earlier, U.S. Secretary of State Mike Pompeo asserted that China covered up the origins of the coronavirus, while easing off of claims the virus escaped from a Wuhan laboratory. The World Health Organization is considering a new mission to seek the source of the virus in China.
  • Top Chinese and U.S. trade negotiators will speak as soon as next week on progress in implementing a phase-one deal after President Donald Trump threatened to “terminate” the agreement if Beijing wasn’t adhering to the terms. Chinese Vice Premier Liu He will be on the call, according to people familiar with the matter. The U.S. will be represented by Robert Lighthizer, one of the people said. The planned phone call will be the first time Liu and Lighthizer speak officially about the agreement since it was signed in January, just before the global coronavirus pandemic hit the world’s two biggest economies and upended global supply chains. The deal called for Liu and Lighthizer to meet every six months, making next week’s call slightly ahead of schedule.
  • Far Point Acquisition said its board has unanimously determined that the previously announced merger with Global Blue Group AG is not in the best interest of FPAC and its stockholders, and unanimously recommends that its stockholders vote against the transaction. In addition, FPAC is withdrawing all previously announced guidance regarding the Transaction, its timing and, based on information received from Global Blue’s management, the forecasted results of Global Blue.
  • Telefonica SA and Liberty Global Plc have agreed to create the U.K.’s largest phone and internet operator, threatening their rivals and marking another industry-defining deal for billionaire John Malone. The deal values the combination of Telefonica’s O2 with Liberty’s Virgin Media at 31.4 billion pounds ($39 billion). The companies said in a statement Thursday they plan a joint venture with equal stakes that will account for Virgin’s higher value — and debt load — with a payment to O2. The transaction, first reported by Bloomberg, is a chance for both parent companies to rework two mid-tier rivals into a fully-fledged competitor to BT Group Plc in so called converged services, which combine fixed and wireless phone, broadband and television. It is also one of the largest deals since Covid-19 was declared a pandemic in early March.
  • The U.K. is set to ease parts of its nationwide lockdown Monday, with more freedom for people to leave their homes, but companies warned continued social distancing will hurt any economic recovery. Prime Minister Boris Johnson said he wants to start relaxing some measures next week “if we possibly can,” and will make a full statement on his plans on Sunday. Under the changes, the government will stop ordering people to stay at home and allow them to sit or sunbathe in parks and exercise outdoors as much as they like, as long as they keep two meters apart from others. But officials cautioned the changes will be minor easements, rather than a big move to unlock the economy.
  • Inc. is considering adding to its investment in Future Retail Ltd. as the debt-ridden Indian retailer battles a cash crunch, according to people familiar with the matter. Amazon, which holds an indirect stake of 1.3% in Future Retail, is in talks with the company’s parent Future Group over the potential stock purchase, said the people, who asked not to be identified as the information is private. The U.S. online retail giant could raise its holdings in the retailer to as much as 49%, the people said. As a purchase of more than a 25% stake could trigger an open offer under stock exchange rules, Amazon is considering lining up local investors to join the deal, the people said. Under India’s rules, foreign ownership in the so-called multi-brand retail trading industry — including department stores and supermarkets — is capped at 51%.
  • Japan is set to approve on Thursday the antiviral drug remdesivir for use against the novel coronavirus, Prime Minister Shinzo Abesaid. The rapid move by Japan’s usually conservative authorities comes days after the U.S. authorized Gilead Sciences Inc.’s drug for emergency use on virus patients. Special approval in Japan is reserved for urgent situations, where there is no alternative, and the drug has already been authorized for use overseas. Finding a treatment for Covid-19, the respiratory disease caused by the novel coronavirus, could move the world closer to easing lockdown measures put in place to help slow its spread. One early analysis showed that about two-thirds of severe Covid-19 cases improved when treated with the drug, according to a report published in April.
  • Saudi Arabia moved to prop up a nascent recovery in the energy market by raising crude prices for its customers worldwide, triggering a rally in oil futures. State-owned Saudi Aramco increased pricing for most of its grades for shipment in June, according to a price list seen by Bloomberg. The world’s biggest exporter is simultaneously cutting production as part of a global pact aimed at tightening supply and buttressing prices. Brent crude gained as much as 7%. Saudi Arabia — which started a merciless price war in March that crashed the market — is now indicating it’s determined to do whatever it takes to support an oil price recovery. The kingdom narrowed discounts most notably for Europe and the Mediterranean, the main market for Russian crude. That appears to be a signal to the Kremlin after Riyadh and Moscow agreed last month to work together again through the OPEC+ alliance and bring the price war to an end.
  • CenterPoint Energy Inc., a struggling Texas-based utility owner, announced a $1.4 billion equity investment from Elliott Management Corp. and others, bolstering its financial position as it pushes to overhaul its strategy. The funding will reduce CenterPoint’s leverage, supporting its investment-grade credit rating, the company said in a statement on Thursday. CenterPoint’s shares surged as much as 11% before the start of regular trading in New York. The move will eliminate CenterPoint’s previously anticipated need for the company to raise additional equity through 2022. Two new directors will also join the company’s board: former Halliburton CEO David Lesar and Barry Smitherman, a former chairman of the Railroad Commission of Texas.
  • Bank of England Governor Andrew Bailey made clear that policy makers could expand monetary stimulus as soon as next month as the U.K. faces potentially the worst economic slump in Europe. His pledge to “act as necessary” suggests bond buying could be expanded for as long as needed, creating a program without limits. Bailey said he makes no distinction between having a target for quantitative easing and an open-ended commitment, as the Federal Reserve and European Central Bank have effectively done.
  • Governments must take advantage of a $3 trillion green investment opportunity to recover from the coronavirus shock, former Bank of England Governor Mark Carney said. Carney, now a United Nations adviser on climate finance, said airlines and other heavily polluting industries should be required to set climate change targets in exchange for government support. Governments are under pressure to get the most bang for their bucks as they seek ways to rescue their economies. More than $7 trillion has been committed to relief efforts in the past three months, and many more trillions will need to be injected into the global economy in the coming months.
  • Barclays Plc, Credit Suisse Group AG, Deutsche Bank AG, UBS AG and others stuck with a pile of high-risk debt they’ve been unable sell can breathe easier after a rebound in the leveraged loan market. Loans in Europe have staged a record rally since the end of March. That’s lessening the pain for banks that agreed to provide debt for M&A deals before the Covid-19 pandemic struck. They’d had to record a loss in the value of those loans in their first quarter results as prices slumped. A combination of the rising market and hedges against their exposure could reduce the pressure to sell the debt to third-party investors. Bank executives acknowledge that the continuing volatility in markets means they are not out of the woods yet. But in comparison with their position during the financial crisis, banks are now better capitalized and have a fraction of the exposure.
  • The World Health Organization is considering a new mission to seek the source of the coronavirus in China, amid growing controversy over the origin of a pandemic that has killed more than a quarter of a million people. “Without knowing where the animal origin is, it’s hard to prevent it from happening again,” Maria Van Kerkhove, a WHO epidemiologist, said at a press briefing Wednesday. “There is discussion with our counterparts in China for a further mission, which would be more academic in focus, and really focus on looking at what happened at the beginning in terms of exposures with different animals,” she added.

*All sources from Bloomberg unless otherwise specified