November 11th, 2020

Daily Market Commentary

Canadian Headlines

  1. Great Canadian Gaming Corp. agreed to be acquired by Apollo Global Management Inc. in a deal valued at more than C$3.3 billion ($2.5 billion), the latest shift for the casino industry that’s been hit by the Covid-19 pandemic. Apollo will pay C$39 a share for the Toronto-listed casino operator, Great Canadian Gaming said in a statement late Tuesday. That represents a 35% premium to the stock’s closing price of C$28.91. The transaction has been unanimously approved by Great Canadian’s board. Founded in 1982, Great Canadian operates 25 gaming, entertainment and hospitality facilities in Ontario, British Columbia, New Brunswick, and Nova Scotia. The company in March temporarily suspended operations at all its properties to contain the spread of Covid-19.
  2. Prime Minister Justin Trudeau said Canada and the U.K. could finish a trade agreement by the end of the year. “I think we’re ready to have it done before January 1,” the Canadian leader said in an online event Wednesday hosted by the Financial Times. “I know that rolling over and demonstrating free trade deals is important for the U.K. government. Canada is a really easy one. We’re there for it. We’d like to do it, so I am very hopeful that it’s going to get done but that’s up to the U.K. government,” Trudeau said

World Headlines

  1. European equities rose for a third day, though a recent rally across value stocks lost steam as investors bought back into more defensive areas of the market like health care, consumer stocks and utilities. The Stoxx 600 Index was up 0.7% by 10:29 a.m. London time, trading at its highest since March. Among the big movers, German IT supplier Bechtle AGsoared 12% after hiking its earnings forecast, while auto-parts supplier Continental AG declined as it sees profitability shrinking. A 3.8% slump in ABN Amro Bank NV’s shares weighed on the banking gauge, after the Dutch lender’s results. European stocks have been on a tear since Monday as positive news around the development of a coronavirus vaccine spurred a rotation into more value areas of the market, considered cheap, such as banks, insurers and autos stocks, while technology and more defensive sectors lagged. That shift slowed on Wednesday.
  2. In the U.S. the tech picture was more positive, with Nasdaq 100 futures rebounding as much as 1.2%. Contracts rose less on the S&P 500, whose underlying benchmark pulled back from a two-month closing high Tuesday. As the risk-on sentiment endured, a gauge of the dollar steadied at close to a two-and-a-half-year low.
  3. Asia’s tech sell-off follows moves this week out of expensive technology stocks in the U.S. that had become synonymous with the stay-at-home trade, and into shares depressed by the economic impact of lockdowns. The promise of an imminent vaccine helped lead Goldman Sachs Group Inc. on Wednesday to boost its price targets for Europe’s main equities gauge and for the S&P 500. Chinese technology giants from Alibaba Group Holding Ltd. to Tencent Holdings Ltd shed almost $290 billion of market value over two days of frantic selling, as investors scrambled to assess the fallout from Beijing’s broadest attempt to rein in its most powerful private-sector firms.
  4. Oil rose above $45 a barrel in London for the first time in 10 weeks as financial markets continued to advance on a vaccine breakthrough and U.S. crude stockpiles appeared to retreat. Brent futures advanced in tandem with equity markets, having been buoyed initially this week by the election of Joe Biden as U.S. president and then Pfizer Inc.’s vaccine announcement. At the same time, the overall price structure has strengthened with a sharp narrowing of the spreads between monthly contracts, signaling that fears of oversupply are abating. The discount on front-month Brent versus contracts three months out has shrunk to 75 cents, the smallest gap — known as “contango” — since July. In U.S. markets, the spread between June and December 2021 has narrowed to 34 cents from $1.34 at the start of the month.
  5. Gold steadied as investors weighed signs that the coronavirus pandemic is worsening in countries including the U.S. against prospects for a vaccine. Prices recovered a bit on Tuesday, after slumping the most in three months the previous day as signs of a vaccine breakthrough hurt haven demand. A vaccination campaign could begin by spring, U.S. Health and Human Services Secretary Alex Azar said. Still, America reported a record 142,907 infections Monday and may go on to hit the most hospitalizations yet later this week. the situation also looks dire in Europe amid rising fatalities in Germany.
  6. The U.K. plans sweeping powers to intervene in foreign takeovers of British assets deemed a threat to national security. A draft law to be published Wednesday would expand the range of transactions open to government intervention, the Department for Business, Energy and Industrial Strategy said. There will be scope for fines and retroactive interventions in deals that complete after the bill’s publication — a potentially controversial provision that critics warn could deter investors. The legislation does not explicitly identify any particular country, but comes against a backdrop of heightened political concerns in the U.K. over China’s involvement in critically important infrastructure projects.
  7. A resurgence of cases and deaths continued in Europe, with Germany reporting its highest daily fatalities since mid-April. A state premier warned that German Christmas markets and religious services may be in jeopardy with the current rate of infection. The developer of Russia’s flagship vaccine said it shows a 92% efficacy rate in preventing infections, as the country pushes for a top slot in the fight against the coronavirus after Pfizer Inc. reported a similar breakthrough for its shot. The coronavirus is also roaring back in U.S. cities. Hospitalizations in the country reached a record, and cases topped 1 million in the first 10 days of November alone. In Asia, a travel bubble that will let people move between Singapore and Hong Kong will begin operating on Nov. 22.
  8. President-elect Joe Biden shrugged off Donald Trump’s effort to challenge the election results, forging ahead with transition planning even as the president pursues a multi-state legal fight backed by Republican allies and the Justice Department. Trump’s campaign on Tuesday said it would file a federal lawsuit in Michigan that seeks to stop the state’s top election official from certifying Biden’s win. The campaign filed a similar suit in Pennsylvania a day earlier, which Secretary of State Kathryn Boockvar moved to dismiss Tuesday, arguing Trump’s lawyers failed to present a case.
  9. Nordea Bank Abp’s biggest owner Sampo has started a gradual exit from the largest Nordic bank as part of a planned shift toward insurance investments in the hope of generating better returns. Sampo got proceeds of 1.17 billion euros ($1.4 billion) after selling 162 million shares in Nordea, or 4% of the Helsinki-based bank’s outstanding stock. The offer to institutional investors will reduce its stake to 15.9%, Sampo said. The shares were sold at 7.25 euros a piece, which is about 4.5% lower than Tuesday’s closing price. Shares in Nordea, which are mostly traded in Stockholm, fell as much as 6.1% on Wednesday morning. Sampo gained more than 7% after trading started in Helsinki.
  10. Chinese technology giants from Alibaba Group Holding Ltd. to Tencent Holdings Ltd shed almost $290 billion of market value over two days of frantic selling, as investors scrambled to assess the fallout from Beijing’s broadest attempt to rein in its most powerful private-sector firms. Technology shares tumbled for a second day after Beijing issued regulations designed to curb the growing influence of internet-sector leaders including Inc., Meituan and Xiaomi Corp. The Hang Seng Tech Index slumped more than 6% on Wednesday in Hong Kong, taking its two-day loss to 11%. Shares in the quintet of firms have sunk at least 11% over two sessions. Beijing on Tuesday unveiled regulations to root out monopolistic practices in the internet industry, pivoting away from a mostly hands-off approach while dealing a blow to businesses at the heart of the world’s No. 2 economy. The vaguely worded edict landed a week after new restrictions on finance triggered the shock suspension of Ant Group Co.’s $35 billion initial public offering, scuppering founder Jack Ma’s ambitions to dominate online finance in the process. They also emerged on the eve of Singles’ Day, the event Ma invented a decade ago that’s evolved into the nation’s largest annual shopping spree.
  11. IHS Holding Ltd. is pushing its initial public offering into next year, according to people familiar with the matter, having seen plans to launch the deal delayed by a squabble with key shareholder Wendel SEand volatility around the U.S. election. The African wireless tower operator is now targeting a U.S. listing as soon as the first quarter of 2021, according to the people, who asked not to be identified because the information is private. IHS, which aims to seek a valuation of at least $8 billion including debt, had initially planned to launch the deal in October, the people said. Tensions have emerged between IHS management and Wendel in recent months over the French investment firm’s post-IPO voting rights, according to the people. Such disagreements are not uncommon before an IPO and there’s no indication that these will scupper IHS’s listing, the people said.
  12. SoftBank Group Corp. said it could book a profit of as much as $14.7 billion from its bullish bets on public stocks if the market rally persists. The company’s long call options would boost its profit before income tax by 1.54 trillion yen if the market prices climb 30%, SoftBank said in investor briefing materials released on Wednesday. A 10% gain would result in a 396.8 billion yen profit, while a 30% slide would hand it a 461.2 billion yen loss. SoftBank’s foray into derivatives trading proved costly when it was first disclosed in September. Founder Masayoshi Son defended the program on Monday as a way to put to use SoftBank’s massive cash pile. Son has also said the derivative bets are “a rounding error” relative to the company’s assets, accounting for just 1.2% of the $292 billion in shareholdings.
  13. One after another, some of the most embattled names in corporate America are racing to raise easy money while they can. With the coronavirus surging anew across the nation, two prominent companies in the stricken travel industry — American Airlines Group Inc. and Carnival Corp. — outlined plans Tuesday to sell stock. Meantime, in the junk bond market, corporations with weak credit ratings are hurrying to lock in today’s ultra-low interest rates. The rush underscores the angst gripping many companies even as global investors drive financial markets to giddy heights. With reduced odds for a large stimulus package, companies looking for money to tide them through the crisis are riding an election rally and progress toward a vaccine that could end the pandemic. Traders also cheered the prospect of a split Congress that may limit regulatory changes and tax increases. But it could be a short reprieve, with President-elect Joe Biden warning a “dark winter” lies ahead as the virus roars back, signaling some hard months before a vaccine is available.
  14. Joe Biden used his first phone call with Boris Johnson as U.S. president-elect to warn the British leader not to compromise peace in Northern Ireland in his pursuit of Brexit. During the course of a 20- to 25-minute conversation on Tuesday, Biden “reaffirmed his support” for the 1998 deal that put an end to the violence in Northern Ireland, according to a statement from the president-elect’s team. A British official confirmed that Biden raised the Good Friday Agreement in the context of Brexit negotiations, and that Johnson responded by promising the president-elect that Britain would uphold the peace accord. Biden spoke later to Irish Prime Minister Micheal Martin, and again made a point of emphasizing his backing for peace in the region.
  15. Italian payments processor Nexi SpA is nearing an acquisition of private equity-owned rival Nets A/S, the latest deal in a quickly consolidating industry, people with knowledge of the matter said. The companies have agreed to most of the details of an all-stock transaction and may announce a deal as soon as Wednesday, the people said, asking not to be identified because the information is private. The transaction could value Copenhagen-based Nets at about 7.8 billion euros ($9.2 billion), including debt, based on Nexi’s Tuesday closing price, according to preliminary terms revealed earlier this month. Chief Executive Officer Paolo Bertoluzzo has expanded Nexi through acquisitions, turning it into one of Europe’s biggest payments firms. The executive announced his pursuit of Nets just days after agreeing to a milestone acquisition of Italian state-backed competitor SIA SpA for 4.6 billion euros, as consolidation in the sector shows little sign of easing. The deal will extend the Italian company’s reach across Europe, with operations spanning Italy, German-speaking countries and the Nordics.
  16. China’s top banking watchdog doubled down on a push to rein in financial technology companies such as Ant Group Co., promising to eliminate monopolistic practices and strengthen risk controls in the industry. Liang Tao, a vice chairman of the China Banking and Insurance Regulatory Commission, said at a conference in Beijing on Wednesday that fintech companies don’t change the nature of the financial industry and regulators should be attentive to the risks and challenges of digitization. Firms should be subject to the same supervision and risk management requirements as banks, he said. Liang’s comments signal that a crackdown, which last week derailed Ant’s $35 billion initial public offering, has further to run. Fintech firms have built dominant positions in payments and online consumer lending over the past decade, free from the oversight applied to traditional financial companies. That’s changing rapidly as a spate of new rules since September tightens control over online lending and companies like Ant that operate across multiple financial business lines.
  17. Hong Kong and Singapore will start an air travel bubble that will replace quarantine with Covid-19 testing from Nov. 22, officials said in separate media briefings Wednesday. There will be several flights a week on Singapore Airlines Ltd. and Cathay Pacific Airways Ltd. from that date, rising to daily from Dec. 7. A maximum of 200 people will be permitted on each flight and details of the arrangement, released nearly a month after the two Asian hubs first announced they’d reopen their borders to one another, will be reviewed after one month. Singapore Minister for Transport Ong Ye Kung said at a news briefing that this was the first travel bubble of its type and may be used as a template for other countries, if successful. The travel bubble will help ensure a brighter future for the city-state’s Changi Airport and Singapore Airlines, he said.
  18. India approved an incentive program worth 1.46 trillion rupees ($20 billion) to attract companies to set up manufacturing in the South Asian nation, Finance Minister Nirmala Sitharaman said. The government will offer production-linked incentives to 10 sectors including automobile, solar panel and specialty-steel makers over a five-year period, she said after a meeting of a ministerial panel on Wednesday. Textile units, food processing plants and specialized pharmaceutical product makers are also eligible for the incentives.
  19. The Bank of Japan’s unprecedented step to offer interest payments to regional banks that overhaul their business may do little on its own to trigger a wave of long-awaited mergers. In a surprise move Tuesday, the BOJ said it will set up a deposit facility paying 0.1% interest on a portion of reserves held by local banks that commit to consolidation or cost cuts. The three-year program is aimed at shoring up the struggling industry, which is facing government calls for reform to contend with years of depopulation, rock-bottom interest rates and now a pandemic-induced recession. Yet the financial incentive is too small and the program too temporary to prompt regional banks to take the permanent step of combining with rivals, analysts said.
  20. Hong Kong’s opposition bloc resigned en masse on Wednesday after China moved to disqualify lawmakers who aren’t deemed sufficiently loyal, one of Beijing’s strongest actions yet to quash dissent in the territory. Fifteen members of the pro-democracy camp in the 70-seat Legislative Council quit following the disqualification of four members under Beijing’s new rules. The announcement was made at a joint briefing, at which the lawmakers held hands and chanted protest slogans including “Hong Kong add oil – together we stand.”
  21. Global financial regulators said JPMorgan Chase & Co. was no longer the world’s most systemically-important bank, recommending a lower capital burden for the firm and several of its rivals. JPMorgan, which has been alone at the top of the Financial Stability Board’s annual rankings since 2017, was reduced one rung on Wednesday to sit alongside Citigroup Inc. and HSBC Holdings Plc in the same risk category. JPMorgan declined to comment on the change, which was based on data from the end of 2019. Wednesday’s list uses banks’ size and complexity before the Covid-19 pandemic, which forced lenders to set aside tens of billions of dollars to cover potential credit losses, while authorities eased or delayed rules to help the industry respond.
  22. ByteDance Ltd., the Chinese owner of TikTok, asked the federal appeals court in Washington to intervene to prevent the U.S. government from requiring it to sell the popular video-sharing app or face a ban in America. The Beijing-based company is seeking to block an order forcing it to sell by Thursday its most important international business, a viral video service with upwards of 100 million users in the U.S. The Trump administration issued an executive order banning TikTok in the U.S. on national security grounds, and demanded the Chinese company cede control of TikTok to American investors.


*All sources from Bloomberg unless otherwise specified