November 12th, 2020

Daily Market Commentary

Canadian Headlines

  1. The Canadian equity market advanced on Wednesday, hitting its highest level since August after tech stocks outperformed. The S&P/TSX Composite Index rose about 1% in Toronto, bringing its three-day increase to 3%. The gauge is just shy of erasing its yearly losses. The tech index rose 5.3% on Wednesday, the most since Sept. 1, driven by Shopify Inc. Materials were the worst performers as gold miners fell. Meanwhile, Canada is struggling to contain rising Covid-19 infection rates as a second wave engulfs the nation, threatening to stifle an economic rebound that began in summer. Ontario, where nearly 40% of the country’s population lives, reported a record 1,388 new cases Tuesday. The province’s capital, Toronto, said it’s forcing casinos, meeting centers, indoor bars and restaurants to stay closed into December.
  2. Intact has entered into subscription agreements with Canada pension funds for gross proceeds of C$3.2 billion for RSA deal funding. Agreement includes an aggregate issuance of 23.8m subscription receipts at a price of C$134.50 per subscription receipt. Each subscription receipt will entitle the holder to receive one common share of Intact as well as a commitment fee upon closing of the acquisition of RSA. Intact entered into the subscription agreements with Caisse de dépôt et placement du Québec, the Canada Pension Plan Investment board and the Ontario Teachers’ Pension Plan board. CDPQ will commit C$1.5b, CPP Investments will commit C$1.2b and Ontario Teachers’ will commit C$0.5b.
  3. Manulife Financial Corp., Canada’s largest life insurer, is benefiting from resilience in its Asia business as the Covid-19 pandemic drags on globally. Chief Executive Officer Roy Gori said the wide scope of the company’s Asia business — which has a presence in markets including Hong Kong, Japan, China, Vietnam and Singapore — helped it withstand the disruptions of the pandemic. “It’s the breadth and depth of our business in Asia and the diversity of the different geographies that allowed us, when we had lockdowns in certain markets, to offset that with strength in others that were coming out of lockdown,” Gori said in an interview after the insurer reported third quarter results.

World Headlines

  1. European stocks fell as investors assessed a rally that pushed shares to an eight-month high against the backdrop of worsening Covid-19 cases in major economies. The Stoxx Europe 600 Index dropped 0.6% as of 12:03 p.m. in London, after a strong start to the month. Among industry groups, leaders in this week’s surge — banks and energy shares — underperformed the most, while telecom and tech shares advanced. European equities soared this week as optimism about progress in developing a coronavirus vaccine spurred a rotation into market laggards that had been weighed down by the lockdowns and economic woes. Technical indicators show signs of the rally overheating, with the Stoxx 600 testing its March resistance after entering overbought territory. While the value rally is on pause, many strategists see the trend sustaining in the coming months on bets of a return to economic normalcy.
  2. Futures on the S&P 500 pared a decline of as much as 0.8% to trade little changed as traders assessed whether markets had overheated amid a deteriorating coronavirus situation in many large economies. Oil advanced while the dollar slipped. Fears that an intensifying pandemic will curb the economic rebound threaten this month’s almost 10% surge in global equities. The International Energy Agency on Thursday cut forecasts for global oil demand amid new lockdown measures and cautioned that the vaccine breakthrough won’t quickly revive markets. Investors are keeping an eye on new restrictions emerging from Hong Kong to New York.
  3. Most Japanese stocks fell, as investor enthusiasm cooled following a seven-day rally amid growing coronavirus cases at home and abroad. The Topix dropped as much as 0.8% in afternoon trading, erasing an early gain of 0.4%. Auto and real-estate shares weighed most heavily on the benchmark. Meanwhile, the Nikkei 225 Stock Average extended its rally into an eighth day, boosted by large stocks including Fast Retailing Co. and SoftBank Group. Japan confirmed at least 1,546 new cases nationwide on Wednesday, topping 1,500 for the first time since Aug. 8 and nearing the one-day record, according to a tally by NHK. In the U.S., Texas became the first state to see more than a million cases, while the early epicenter of New York ordered measures to tamp down a new wave.
  4. Oil steadied as the International Energy Agency warned the coronavirus vaccine breakthrough won’t quickly revive markets. Futures fluctuated between gains and losses near $41 a barrel. The IEA cut its forecasts for global oil demand this quarter by 1.2 million barrels a day as the pandemic continues to pressure consumption, most notably in Europe. The weakness adds to the challenges faced by OPEC+ when it meets at the end of the month to decide whether to delay an output hike in January. The producer group is considering maintaining its existing cuts for an extra three to six months, according to several delegates, asking not to be identified because the talks are private.
  5. Gold gained as investors await results from another Covid-19 vaccine candidate, while the world recorded its deadliest day yet of the pandemic. The same jump in virus cases in the U.S. that helped Pfizer Inc. get results for its vaccine trial earlier this week is helping speed along Moderna Inc.’s trial. Moderna said Wednesday its study has accumulated more than 53 infections, allowing a preliminary analysis of the shot’s effectiveness to begin. The company didn’t offer a prediction of how long it would take.
  6. New cases may be steadying or easing in some of Europe’s virus hot spots, offering glimmers of hope to some of the worst-hit countries. Meanwhile, the global death toll jumped by more than 12,000, a daily record, according to data from Johns Hopkins University. Over the past week, the number of new cases has plateaued or begun to drop in the U.K., Germany and France. Harder-hit smaller countries such as Belgium, the Netherlands and the Czech Republic have posted big declines in daily infection rates. Many enacted new restrictions, including closing non-essential shops, bars and restaurants, to slow the pandemic. German Chancellor Angela Merkel warned the restrictions may be extended into December. Cases worldwide have topped 52 million. U.S. new daily cases set a record, with the early epicenter of New York ordering measures to tamp down a fresh wave. Covid hospitalizations climbed by more than 10% in five days across six U.S. states. Japan hit a new daily record of coronavirus infections.
  7. America’s European allies have struggled to keep the Iran nuclear deal alive after President Donald Trump quit the accord more than two years ago. Joe Biden’s election victory won’t provide a quick resuscitation. Biden said during the presidential campaign that Trump’s Iran policy weakened U.S. national security and left Tehran closer than ever to being able to build a nuclear bomb. He vowed to get on the phone with allies on “day one” to begin rebuilding strained ties and said he’d give Iran a “credible path back to diplomacy.” But Iran’s mid-2021 presidential election, as well as likely continued Republican control of the U.S. Senate, will put the brakes on quick, substantive action, according to U.S. and Iranian diplomats and analysts. In addition, Biden has signaled that his priorities starting Jan. 20 will be on the economy and getting the coronavirus pandemic under control.
  8. Tropical Storm Eta made landfall on Florida’s west coast Thursday, bringing heavy rain and gusty winds to northern parts of the peninsula. Eta came ashore near Cedar Key at 4 a.m. New York time, with maximum sustained winds of 50 miles (85 km) an hour, the National Hurricane Center said in an advisory. Localized flash and urban flooding is possible over a wide area. This is Eta’s second strike after it hit the Florida Keys late Sunday as the record 12th named storm to target the U.S. in 2020. It had already left a path of destruction through Central America, killing more than 100 people across the region last week, according to the Associated Press.
  9. Blackstone Group Inc. has agreed to acquire the glass unit of Indian conglomerate Piramal Enterprises Ltd. for about $1 billion, according to people with knowledge of the matter. The transaction could be announced as soon as in the next few weeks, one of the people said, asking not to be identified as the details are private. The U.S. private equity giant is in talks with banks for about a $400 million, five-year loan to fund the deal, another person said. Piramal Enterprises is looking to sell some non-core businesses to boost capital. In June, the group agreed to sell a 20% stake in Piramal Pharma Ltd. to private equity firm Carlyle Group Inc. for $490 million, giving the business an enterprise value of $2.7 billion.
  10. Hospital beds are filling up across the U.S., bolstered by a surge in coronavirus cases in the Midwest, government data show. Illinois, Michigan, Ohio, Minnesota and Iowa are among states recording the biggest increases in Covid-19 hospitalizations over the past week, according to Department of Health and Human Services data analyzed by Bloomberg News. In North and South Dakota, more than one in five hospital patients has the pandemic disease. The U.S. set a new daily record of over 146,000 cases this week amid a new wave of infection that officials caution could be the worst the country has faced yet, as cold weather descends over many parts.
  11. The U.K. government is intensifying talks with industry as it seeks to avert Brexit disruption at year-end, with companies facing upheaval even if Britain and the EU sign a trade deal. Ministers will hold weekly meetings with the country’s five biggest business groups and particularly-affected sectors to discuss Brexit preparations, the Cabinet Office said in an e-mailed statement. The government has previously expressed concern that many firms have their “heads in the sand” and are ill-prepared for Brexit. When Britain leaves the EU’s single market and customs union, and irrespective of whether there’s a free-trade agreement, firms will face a wave of new red tape and regulatory barriers on commerce with the bloc. The U.K. government has warned of 7,000 truck-long queues around the port of Dover in a reasonable-worst-case scenario due to firms not being ready for new EU customs checks.
  12. Now it’s Moderna Inc.’s time to be in the spotlight. The same U.S. explosion of Covid-19 cases that helped Pfizer Inc. get results for its vaccine trial earlier this week is helping speed along Moderna’s trial. Moderna said Wednesday its study has accumulated more than 53 infections, allowing a preliminary analysis of the shot’s effectiveness to begin. The shares jumped. Moderna didn’t predict how long it could take an independent monitoring committee to analyze the data, but said the company could get the data to the committee within days. The company said it is still blinded to the data.
  13. President-elect Joe Biden has stocked his transition team with policy experts, academics and former Obama administration officials, a contrast with the industry-friendly figures President Donald Trump sent into the government upon winning office. The roughly 500-person group Biden’s campaign announced on Monday will prepare federal agencies for the incoming administration and draft plans to overhaul their operations after four years under Trump. The president-elect’s team includes people who favor stronger government regulation than Trump — particularly for the financial and energy sectors — and greater consumer protections. Four years ago, Trump stocked his so-called agency “landing teams” with conservatives from think tanks and advocacy groups — including people who had been openly hostile to the agencies they were charged to review. It foreshadowed an aggressive rollback of regulations under Trump’s watch.
  14. The U.S. will impose new sanctions on Iran while President Donald Trump remains in office, according to a senior American diplomat who described speculation over military action against the Islamic Republic as “garbage.” Elliott Abrams, the State Department’s Special Representative for Iran and Venezuela, declined to specify which Iranian entities would be targeted or when penalties were likely in an interview with Bloomberg TV. The U.S. has ratcheted up its pressure on Iran since Trump left the 2015 multi-party deal that offered sanctions relief in return for caps on the Iranian nuclear program.
  15. Just eight months after they swung into action to avert a crippling depression and credit crunch, central banks are in the uncomfortable position of relying on governments to power fragile economic rebounds. The decisions their counterparts make will affect not just the growth outlook for the next few quarters, but could shape central banks’ policy options, and even their credibility, for years to come. Monetary authorities entered the Covid-19 crisis with the least conventional policy space — namely, interest-rate cuts — of any postwar downturn. After pulling down borrowing costs near or even below zero and deploying massive asset-purchase programs, they are now practically begging governments to step up.
  16. Europe’s No. 1 rival to ride-hailing giant Uber Technologies Inc. plans to invest more than 100 million euros ($118 million) next year to expand its fleet of rentable electric scooters and bicycles across the continent, even as governments clamp down on personal mobility to battle the pandemic. Bolt Technology OU wants to boost its network to 130,000 scooters and bikes in more than 100 European cities following a 100 million-euro funding round in May. The expansion includes first-time inroads into countries like Germany and the U.K. Ride-sharing has recovered from Covid-19’s spring outbreak and scooter rentals never dipped. But the next three to six months may be more “difficult” overall amid the virus’s resurgence. The Estonian company’s strategy pits it against Lime, which in May bought Uber’s Jump scooter unit and received a $170 million infusion from an investors’ group led by the U.S. ride-sharing company. It also comes in the wake of growing tension with city officials across Europe, who increasingly consider the recent rise in on-street scooter rentals a hazard to pedestrians and traffic. Riding restrictions have been placed by cities in contries such as the Czech Republic, Sweden, France and the U.K.
  17. A senior aide to Boris Johnson has resigned after a power struggle inside the prime minister’s office, in a move that threatens to destabilize the British government. Lee Cain announced he was standing down as Johnson’s director of communications in a statement on Wednesday evening. His exit raised questions over the future of his close ally and friend Dominic Cummings, Johnson’s most powerful — and controversial — adviser. David Frost, Johnson’s chief Brexit negotiator, and his deputy Oliver Lewis were also unhappy with the situation, according to a person familiar with the matter. According to one version of events, Cain and Cummings lobbied the prime minister to make Cain chief of staff. But Johnson was unhappy that the potential appointment was made public in Wednesday’s newspapers before he had reached a final decision, people familiar with the matter said.
  18. Tencent Holdings Ltd.’s revenue rose a better-than-expected 29%, riding a pandemic-era gaming boom that’s persisted in defiance of an economic downturn. Sales rose to 125.45 billion yuan ($18.9 billion) in the three months ended September, versus the 123.8 billion yuan average forecast. The world’s largest gaming company reported net income of 38.5 billion yuan, surpassing projections of 30.3 billion yuan after it recorded a gain of 11.6 billion yuan from rising valuations for its tech holdings. Shares in top shareholder Naspers Ltd. and its unit Prosus NV climbed roughly 4%. The strong results should help reassure investors scrambling to assess the fallout from Beijing’s broadest attempt yet to rein in the country’s giant internet sector. Chinese regulators on Tuesday unveiled detailed guidelines to curtail monopolistic practices among digital platforms, just a week after new restrictions on digital lending triggered the shock suspension of Ant Group Co.’s $35 billion initial public offering.
  19. Cellnex Telecom SA has agreed to buy CK Hutchison Holdings Ltd.’s European telecommunication towers for around 10 billion euros ($11.8 billion), the biggest ever acquisition by the Spanish mast operator. Cellnex will make an initial payment of about 8.6 billion euros in cash, with the rest paid with new Cellnex shares, according to filings from the companies. The deal will add around 24,600 new towers to Cellnex’s existing 60,000 sites. CK Hutchison is the latest mobile network operator to carve out mast infrastructure to cut debt and help pay for costly 5G network upgrades.
  20. BNP Paribas SA’s deal for Deutsche Bank AG’s business catering to hedge funds is being scrutinized by French regulators over a fee to a middleman. The bank paid hundreds of thousands of pounds to former Goldman Sachs Group Inc. banker Simon Lloyd months after the transaction was completed in September 2019, according to people familiar with the matter. The French anti-corruption agency, known as AFA, identified the incident during a routine audit and is due to issue a report in the next few weeks. Britain’s Financial Conduct Authority has also received complaints about the payment, the people said, although it isn’t clear if it will open a formal inquiry.
  21. Walt Disney Co. analysts are bracing for another tough quarter as the Covid-19 pandemic continues to ravage the entertainment giant’s businesses, but Wall Street is hopeful updates on the company’s streaming service could provide a bright spot. Cowen predicts fiscal fourth-quarter results will show “meaningful” year-over-year declines in every business segment. The firm said the Media Networks unit will be hurt by advertising declines, while lower park attendance will weigh on Parks, Experiences and Consumer Products, and a lack of new theatrical releases will hit Studio Entertainment. Meanwhile, Cowen said Disney’s Direct-to-Consumer & International segment will be affected by continued investments in over-the-top streaming services.
  22. Gamblers who made big bets on the results of the U.S. presidential election are still waiting for their money. News networks on Saturday called the contest for former Vice President Joe Biden, but major betting companies are withholding payouts on hundreds of millions of wagers throughout the world. In the meantime, they’re continuing to take bets as the odds fluctuate and President Donald Trump continues to press his legal case. People have been gambling in record numbers with prediction markets and betting platforms. By the time polls closed on Election Day, London-based betting site Betfair had booked $440 million in wagers on the winner of the presidency, a figure that grew to nearly $600 million by the next day — more than double the $258 million bet on the 2016 contest.


*All sources from Bloomberg unless otherwise specified