November 13th, 2020

Daily Market Commentary

Canadian Headlines

  1. Cineplex Inc. reached an agreement with lenders for relief on its financial covenants to the second quarter of 2021 after the movie theater chain saw revenue plummet due to capacity restrictions in cinemas. The Toronto-based company announced third quarter results that missed analysts’ expectations. Revenue declined 85%, to C$61 million ($46.4 million) from C$418.4 million a year ago. Analysts were looking for C$65.8 million.
  2. Methane emissions from Canada’s oil and gas industry in recent years were almost twice as high as previously thought, a study showed. Oil-sands mines and other fossil fuel developments in Alberta and Saskatchewan released 3 million metric tons of methane into the air between 2010 and 2017, according to a report published in Environmental Science and Technology that used hourly atmospheric measurements during winter months. That compares with 1.6 million estimated in Canada’s National Inventory Report. Alberta, which holds the world’s third-largest crude reserves, has struggled with a plunge in investments even before this year’s oil market crash partly because of growing concerns over climate change. Methane is one of the most harmful greenhouse gases.
  3. Commodities are at a crossroads: after rallying back to their highest level since 2018 as China recovers, the dollar declines, and food costs jump, a brutal wave of Covid-19 cases is threatening to derail that advance. Events next week will shed light on whether raw materials can withstand the latest challenges being thrown up by the global health crisis. In energy, a key OPEC+ committee will assess the crude market and help the alliance to determine whether it should delay next year’s planned oil-output increase, as seems probable. In metals, China will report data that’ll highlight the outlook for consumption over the final quarter of 2020. And in crops, the global grains industry gets together virtually in Geneva as food costs surge. Elsewhere, the U.S. calendar brings 13F filings, which will reveal how a swathe of the world’s top investors and hedge funds positioned themselves over what was volatile third quarter. The raft of disclosures may be particularly noteworthy for shifts in gold-linked securities. And among leading companies, Chile’s SQM — the second-largest lithium supplier — reports earnings.

World Headlines

  1. European equities fluctuated after global new virus cases and hospitalizations surged, while top central bankers warned about risks to the economy. The Stoxx 600 Index was little changed as of at 9:25 a.m. in London after dropping as much as 0.4%, with technology, banks, and insurers leading, while energy and basic resources stocks lagged. French utility Engie SA topped the index, surging as much as 4.5% after confirming its guidance. The rally in European stocks paused on Thursday after a three-day euphoric advance into value areas of the market, driven by a potential breakthrough in the development of a coronavirus vaccine. Optimism has been tempered by rising infections, while three of the world’s top central bankers warnedThursday that the prospect of a Covid-19 innoculation isn’t enough to end the economic challenges created by the pandemic.
  2. U.S. equity futures climbed and European stocks fluctuated as investors assessed the prospects for additional government stimulus to help economies battered by soaring coronavirus cases. Treasury yields rose and the dollar slipped. S&P 500 futures pointed to green at the open, while the Stoxx Europe 600 Index erased an earlier decline, with tech and banks among the winning sectors. The gains come a day after the U.S. benchmark fell 1% as New York prepared for the possibility of school closures and Chicago urged residents to stay at home. Meanwhile, progress on a U.S. stimulus package took another twist, with the Trump administration saying it was stepping back from talks on a relief package and leaving it up to Congress to revive negotiations with House Speaker Nancy Pelosi, according to people familiar.
  3. Japanese shares slid on worries over increasing global coronavirus cases and the possibility of further delays in fresh U.S. stimulus. All but one out of 33 industry groups on the Topix fell, with technology the biggest drag. The Nikkei 225 Stock Average snapped an eight-day winning streak after surging to its highest level since 1991. Both gauges still capped their second-straight weekly gains. Japan hit a new daily record of 1,634 virus cases Thursday as authorities began hinting they may take stronger measures to arrest the spread. California surpassed 1 million infections and the U.S. Centers for Disease Control and Prevention said almost no part of the country is being spared. The Trump administration is stepping back from negotiations on a new stimulus package and leaving it to Congress to revive stalled talks, according to people familiar.
  4. Oil fell for a second day — dropping below $41 a barrel in New York — as the ongoing spread of coronavirus dampens the demand outlook. As well as the ongoing surge in European coronavirus cases, there are also growing numbers in the U.S., Japan and South Korea, all of which are major oil consumers. This prompted both the International Energy Agency and the Organization of Petroleum Exporting Countries to revise down their demand estimates in their monthly reports as renewed lockdowns hit fuel use. Crude is still up about 10% this week, however, after news of a potential Covid-19 vaccine breakthrough spurred a sharp jump in global markets on Monday. Futures have also been supported by indications that the OPEC+ alliance is closing in on a deal to delay a planned easing of output cuts. Still, three of the world’s top central bankers warned that a vaccine wouldn’t be enough to put an end to the economic challenges created by the pandemic as the disease continues to spread further.
  5. Gold exchange-traded funds headed for the biggest weekly outflow since March as the prospect of a coronavirus vaccine curbed demand for a haven. Investors have sold almost 18 tons from ETFs so far this week after Pfizer Inc.’s announcement of progress on a shot sparked hopes of a turning point in the fight against the pandemic. Bullion prices are also on course for a weekly decline, even though virus cases are surging in many nations and top central bankers cautioned that a vaccine wouldn’t end the economic challenges.
  6. Ford Motor, trailing far behind Tesla in electric cars, is rolling out a battery-powered cargo van, while Fiat Chrysler, one of the carmakers that was slowest to embrace electrification, is signaling it’s serious about making a shift. Ford CEO Jim Farley unveiled an electric version of its Transit model, the ubiquitous airport shuttle, delivery and service van that is the top seller of its kind in the U.S. and Europe. It will face off against Daimler’s Mercedes-Benz EQV battery-powered van sold in Europe and electric vans made by startups such Rivian Automotive, in which Ford is an investor
  7. State and federal election officials, along with experts in the private sector, said they had “utmost confidence in the security and integrity” of the Nov. 3 vote, as President Donald Trump continues to make unfounded claims of fraud and key security officials involved in protecting elections leave the administration or expect to be fired. “The Nov. 3rd election was the most secure in American history,” the officials said in a statement Thursday. “There is no evidence that any voting system deleted or lost votes, changed votes, or was in any way compromised.” The statement acknowledged the “many unfounded claims and opportunities for misinformation about the process of our elections” and urged Americans to turn to election administrators and officials for accurate information.
  8. Investors withdrew from U.S.-listed commodity exchange traded funds last week for the fourth straight week of outflows. Energy ETFs led the outflows. Precious metals ETFs had the second biggest change from the previous week. Net outflows from ETFs that focus on commodities totaled $293.3m in the week ended Nov. 12, including the effect of leveraged funds, compared with outflows of $447.6m the prior week
  9. Germany dashed optimism about an easing of restrictions by Christmas, and Austria flagged plans for tougher rules, as infections continue to rise. Tesla Inc.’s Elon Musk tweeted that he may have Covid-19, while calling tests “bogus”. Italy will prolong a system of regional lockdowns, while Croatia reported a daily record 43 Covid-19 deaths. Japan may also introduce more stringent virus restrictions after suffering record infections on Thursday. The U.K. plans to announce changes to travel-quarantine rules. California passed 1 million infections as the U.S. Centers for Disease Control and Prevention said almost no part of the country is being spared in the surge. Still, the fatality rate for infected people in the U.S. has declined 30% since April due to improved treatment, according to a study by the University of Washington’s Institute for Health Metrics & Evaluation.
  10. Stock funds attracted a record amount in a busy week that included Joe Biden’s election victory and promising results for a coronavirus vaccine. Equity funds added $44.5 billion in the week through Nov. 11, dominated by inflows to the U.S. of $32.5 billion, according to Bank of America Corp. and EPFR Global data. Exchange-traded funds led the additions, pulling in $38.7 billion with the rest going into mutual funds, according to a BofA note. A study published on Monday showing that a vaccine developed by Pfizer Inc. and BioNTech SE protects most people from Covid-19 fueled global risk appetite, pushing the MSCI All-Country World Index to a record. Biden’s triumph in combination with a possibly divided Congress was also taken positively by investors who had feared higher corporate taxes and increased regulation.
  11. European Union officials say it’s make-your-mind-up time for Boris Johnson. Does he want a trade deal with the bloc, or not? Another week of negotiations — one that was supposed to be decisive — will end Friday with little progress made in the main areas of disagreement, according to three EU officials familiar with the situation. While both sides can see what a final agreement would look like, Brussels officials insist that reaching one will require the U.K. prime minister to move first, a stance their British counterparts reject. The exit of one of Johnson’s top aide less than 50 days before the U.K. is due to leave the single market, and the planned departure of another, has injected fresh uncertainty into the process. EU officials have been left speculating whether the departure of two of the most senior figures from the Leave campaign increases or reduces the likelihood that the prime minister will walk away without a deal.
  12. President Donald Trump has stayed silent as the U.S. coronavirus outbreak rages anew, a leadership vacuum that leaves governors and health authorities to grapple with record numbers of new cases and hospitalizations. Trump hasn’t spoken publicly in a week, as the virus surges across the country and sets records for hospitalizations and daily new cases. He’ll receive a briefing Friday on vaccine development, but has otherwise focused his public comments this week on circulating debunked allegations of voter fraud and criticizing Fox News on Twitter. The president could help by asking Americans directly to wear masks, encouraging Republican governors to do more to slow the spread, publicly backing health officials or even directing his staff to jointly coordinate with President-elect Joe Biden’s transition team, to ensure a smooth handoff, health experts say. Trump has instead been absent. He’s discouraged masks and social distancing and is blocking the start of Biden’s transition while refusing to concede defeat, compounding the federal inaction.
  13. Johnson & Johnson is turning to data experts at UnitedHealth Group Inc. to accelerate the recruitment of 60,000 participants for the drugmaker’s Covid-19 vaccine trial. Through the partnership, the companies aim to cut the trial time in half. So far, J&J has enrolled “just a few thousand” patients in its late-stage clinical trial, in part because it lost two weeks when recruitment was paused over a safety concern, Mathai Mammen, head of global research and development at the company’s pharmaceutical division, said in an interview. The trial resumed in late October, and J&J now expects to have an initial readout of results from the trial early next year. While the company previously said it may have data by the end of 2020, that’s now become “a bit of a stretch,” Mammen said. “But I’m hoping soon thereafter we’ll have some data to share.”
  14. A program that aims to supply low- and middle-income countries with Covid-19 vaccines said it has raised more than $2 billion, though it needs another $5 billion for next year. The vaccine initiative hit its 2020 funding target the same week Pfizer Inc. and BioNTech SE announced positive late-stage trial results showing their shot protects most people from the illness. The European Union, France, Spain, South Korea and the Bill and Melinda Gates Foundation pledged a combined $360 million, according to Gavi, the Vaccine Alliance, the group leading the effort. Those developments offer “a glimmer of light at the end of the tunnel,” Seth Berkley, chief executive officer of Gavi, told reporters on a call Friday. “The science is moving forward and so is the finance needed to ensure that the science will be available to all.”
  15. Meituan, Anta Sports, Budweiser Brewing will be included in the Hang Seng Index, Hang Seng Indexes Company says in statement on its quarterly index review.
  16. When President Trump leaves the White House on Jan. 20, one thing he’ll have to hand over to President-elect Joe Biden is his Twitter account. Well, not that one. Trump will get to keep @realDonaldTrump, but the @POTUS account, which has 32.6 million followers, belongs to the president, whoever that may be. And while Trump has rarely used @POTUS for the diatribes and ramblings that have become synonymous with his presidency, he has used it to retweet messages from his personal account to tens of millions of people. Trump’s loss of that additional megaphone is just one way the end of his term will set off a period of transition with his preferred online platform. While both sides have something to lose, Trump may be the one who will lose more.
  17. When Pfizer Inc. and BioNTech SE reported their successful coronavirus vaccine trial results on Nov. 9, the news sparked optimism around the globe that there was finally light at the end of the long, dark tunnel. Investors rushed to bid up stocks—not just those of vaccine makers, but of a wide swath of ordinary companies expected to benefit once the pandemic moves into the rearview mirror. Yet there are still many hurdles before vaccines get into widespread use and Covid-19 is history. Questions about production, distribution, and, most important, the capability of the shot itself still need to be answered. Pfizer’s late-stage trial started less than four months ago, and how long the vaccine will confer protection is unknown. “The key question still centers upon time,” says Michael Kinch, a drug development expert and associate vice chancellor at Washington University in St. Louis. “Will time tell us that the protection remains useful for the larger population?”
  18. The stock rally sparked by Pfizer Inc.’s promising Covid-19 vaccine trial results boosted many investors’ fortunes, but none so dramatically as a pair of German brothers. Andreas and Thomas Struengmann have collectively added about $8 billion to their wealth this year thanks to their stake in BioNTech SE, the German firm that’s developing the vaccine with Pfizer. BioNTech’s American depositary receipts surged this week after the U.S. drug giant reported the shot they’re working on prevented 90% of symptomatic infections in tens of thousands of volunteers. At $22 billion, the twins have one of the world’s biggest health-care fortunes, according to the Bloomberg Billionaires Index. The brothers, 70, formed their empire by reinvesting the proceeds of their family’s generic drugs businesses.
  19. Tesla Inc.’s Elon Musk tweeted he may have Covid-19 and renewed his conspiratorial posting about the virus that has infected almost 53 million people. “Something extremely bogus is going on,” the chief executive officer wrote late Thursday. “Was tested for covid four times today. Two tests came back negative, two came back positive.” The billionaire said he took a series of rapid antigen tests, which produce results within 15 minutes and are cheaper but less reliable than polymerase chain reaction tests. He’s now waiting for results from the latter type of test, which take longer to process.
  20. Analysts are positive on Disney’s latest earnings report as streaming subscriber numbers top estimates amid a boost from Covid-19 lockdowns, with Guggenheim and BMO raising their price targets. The stock gained 3.3% in after-hours trading. Morgan Stanley (overweight, price target $160): Results provided a reminder of the pandemic impact, namely higher than expected streaming subscribers and continued pressure on theme parks and movies.
  21. “Wonder Woman 1984,” the only big movie still scheduled to debut in theaters this year, may appear on AT&T Inc.’s HBO Max just a week or two after its release, according to people familiar with the matter, a move that could help the new streaming service add subscribers quickly and keep cinemas open at the same time. AT&T’s WarnerMedia is in the final stages of deliberations over the fate of the film, which is currently scheduled to open in theaters on Christmas Day. While the studio could delay the movie until next year, the quick-to-home-video release is another option gaining support, said the people, who asked not to be identified discussing internal deliberations. The plans haven’t been set and could change, they said, adding that some cinema owners are open to the idea in this instance.
  22. Volkswagen AG will reserve a bigger slice of its 150-billion euro ($177 billion) budget for electric cars and software in the next five years, stepping up technology spending to navigate a tectonic industry shift even as the Covid-19 pandemic continues to roil markets. Investments in battery-powered vehicles, autonomous driving and related future technologies will rise to about 73 billion euros, or half the company’s budget through 2025, VW said Friday. That’s up from 60 billion euros a year ago, or 40% of investments planned at the time. “The transformation of the company and its brands as well as the strategic alignment on the core areas of mobility are implemented consequently,” VW Chairman Hans Dieter Poetsch said in a statement. Board members greenlighted the additional funds at their annual financial-planning meeting.
  23. Danone SA likens doing business in Argentina to riding a roller coaster. Coca-Cola Femsa SAB calls it one of its most challenging markets. Steelmaker Ternium SA sees a “very volatile scenario” ahead. MetLife Inc. says Argentina just isn’t the right fit. It’s taking a toll on beer giant AmBev SA too. Global companies are growing ever more frustrated with Argentina, according to transcripts of quarterly conference calls reviewed by Bloomberg News. The specific gripes vary, but broadly speaking executives say it’s hard to make money in a backdrop that includes currency controls, uncontrolled inflation, price freezes, multiple exchange rates, the worst economic contraction on record and one of the region’s most severe pandemic lockdowns. All this has corporate officials wringing their hands about what’s next for the country. Some don’t have the patience to wait it out — Walmart Inc. agreed to sell its business in Argentina this month after a 25-year run in the country. Other multinational firms including LatAm Airlines Group SA, Chilean retailer Falabella SA and auto-paint firm Axalta Coating Systems stopped local operations this year. Honda Motor Co. halted automaking in Argentina in May, while Starbucks Corp. and American Airlines Group Inc. have reduced their footprint in the country too.
  24. Harvard University can continue to consider race in its admissions decisions, after a federal appeals court ruled that it isn’t intentionally discriminating against Asian-Americans and the policy doesn’t violate the Constitution. The U.S. Court of Appeals in Boston on Thursday ruled that race was an integral factor in the nation’s oldest college’s mission to educate “the citizenry and citizen leaders for our society” beyond considering only perfect grades and test scores. The two-judge panel noted that for each class of 1,600 freshman, the school receives about 35,000 applications and can’t admit all who would succeed academically. “Harvard has determined that academic excellence alone is not sufficient for admission,” the panel said, but seeks applicants who are “compelling candidates on many dimensions.”
  25. Joe Biden’s presidential transition has barely started but already banks and investment firms are anxious about two names they fear are in the running to lead the U.S. Securities and Exchange Commission. The uneasiness started late last week, when news broke that Gary Gensler — a scourge of Wall Street when he led the Commodity Futures Trading Commission — had been tapped to examine financial regulators for the president-elect. That fueled concerns that Gensler himself might be in line for the top job at the SEC or another agency he’s reviewing. Then Washington lobbyists and industry trade groups got wind of another SEC contender who they would find potentially more alarming: Preet Bharara, Manhattan’s former top federal prosecutor. Bharara loomed large over Wall Street in the decade following the 2008 financial crisis, when he aggressively investigated insider trading and contributed to SAC Capital Advisors, Steven Cohen’s old hedge fund firm, shutting its doors.


*All sources from Bloomberg unless otherwise specified