November 16th, 2020

Daily Market Commentary

Canadian Headlines

1. Endeavour Mining Corp., the acquisitive gold producer backed by Egyptian billionaire Naguib Sawiris, agreed to buy Teranga Gold Corp. in the latest deal to reshape the sector. After Barrick Gold Corp. and Newmont Corp. two years ago created behemoths that dwarf the rest of the industry, other gold miners are trying to consolidate to remain relevant to shareholders. Helped by record gold prices, that’s led to a flurry of deals across the sector as smaller producers beef up their scale. Endeavour said last week it was discussing a “merger of equals style” deal with Teranga after the talks were first reported by Bloomberg. Endeavour is offering 5.1% premium to Teranga’s closing price on Friday, valuing its equity at C$2.44 billion ($1.86 billion), according to Bloomberg calculations.

World Headlines

1. The Stoxx Europe 600 also extended gains on the vaccine news. Global stocks are trading at an all-time high after optimism about a vaccine last week drove a rotation into value and cyclical sectors, and out of more defensive industries. Chinese data this week showed the country’s economic recovery strengthened in October, with consumer spending picking up steadily and industrial production and investment rising faster than expected.
2. U.S. equity futures extended their gains on Monday after vaccine results from Moderna Inc. were found to be highly effective at preventing Covid-19. Treasuries slumped. S&P 500 contracts jumped after the company said its vaccine was 94.5% effective in a preliminary analysis of a large late-stage clinical trial. They were up earlier after advisers to President-elect Joe Biden said they opposed a nationwide shutdown despite surging virus cases.
3. Asian equities jumped after a slew of countries on Sunday signed the world’s largest regional free-trade agreement, encompassing nearly a third of the globe’s population and gross domestic product. Meanwhile, Australia’s stock exchange was hit by a software issue that forced it to close for most of Monday’s session. Oil pushed higher.
4. Oil extended gains in New York as Moderna Inc. reported its Covid-19 vaccine is highly effective against the virus. Moderna’s shot had efficacy of 94.5% in a preliminary analysis of a large late-stage clinical trial. It follows similar positive developments in a vaccination being jointly developed by Pfizer Inc. last week, buoying risky assets globally. Though the full impact of a vaccine on crude demand is still a way off, China’s oil processing rebounded in October to match a record, as consumption in Asia continues to vastly outpace that of regions still afflicted with the virus. Brent’s nearest timespread — a gauge of market health –reached its strongest since mid-July on Monday, the latest sign that the recovery East of the Suez Canal is offsetting weakness in the West.
5. Gold dropped after Moderna Inc. said its vaccine was highly effective at preventing coronavirus and had a longer shelf life than expected, alleviating some of the challenges involved in distributing the shot. The company said its vaccine was 94.5% effective in a preliminary analysis of a large late-stage clinical trial. The company also said its vaccine would remain stable at standard refrigerator conditions for 30 days, up from its previous estimate of a week. Gold dropped on the news as haven demand ebbed. Signals that the shot will likely be easier to distribute than expected may also have reduced expectations for further economic stimulus, hurting bullion. Equities and oil rallied.
6. The Trump administration is rushing to issue permits, finalize major environmental regulations and even sell the rights to drill for oil in Alaskan wilderness before Inauguration Day in a push that could complicate Joe Biden’s climate and conservation agenda. The 11th-hour regulatory race underscores the extent to which federal agencies are anticipating Biden’s swearing-in as U.S. president on Jan. 20 even as President Donald Trump refuses to concede the election. It also reveals a widespread effort by Trump officials to leave their imprint on federal policy and — at least temporarily — tie the hands of their successors. “Everyone has to be vigilant over the next 60-odd days because the administration can create more work for the people coming in,” said David Hayes, a former deputy Interior secretary who leads New York University’s State Energy and Environmental Impact Center. “They can take additional actions here that will put sand in the gears of the early Biden administration.”
7. The German economy could stagnate or even shrink in the final three months of the year after a spike in coronavirus infections forced the government to impose new curbs on public life, the Bundesbank said. While domestic restrictions are weaker and more focused on hospitality and leisure activities than in the spring, exports are suffering from a resurgence of the virus across Europe, the institution said in its monthly report. On balance, it expects the hit to the economy to be less severe than after the lockdown in March and April.
8. President Donald Trump is coming to grips with his re-election defeat, according to aides and advisers, even as he continues to publicly discredit the outcome and delay the start of the official transition to President-elect Joe Biden’s administration. Trump began a tweet Sunday morning with the phrase “He won,” interpreted by even fellow Republicans as a possible concession. “I think that’s a start of an acknowledgment,” Arkansas Governor Asa Hutchinson, a Republican, said on “Meet the Press.” After news organizations published stories saying Trump had acknowledged defeat for the first time, the president followed up with a tweet proclaiming, “I concede NOTHING!” But pressure is growing both from Biden’s team and from within Trump’s party for the government to begin the formal transition process, delayed by the president’s refusal to concede.
9. Moderna Inc. said its Covid-19 vaccine was 94.5% effective in a preliminary analysis of a large late-stage clinical trial, another sign that a fast-paced hunt by scientists and pharmaceutical companies is paying off with potent new tools that could help control a worsening pandemic. The highly positive readout comes just a week after a similar shot developed by Pfizer Inc. and BioNTech SE was found to be more than 90% effective in an interim analysis. Both shots rely on a technology called messenger RNA that has never been used to build an approved vaccine. Soon, millions of people around the world could be spared from illness by the breakthroughs. A preliminary analysis of data from more than 30,000 volunteers showed Moderna’s vaccine prevented virtually all symptomatic cases of Covid-19, the disease caused by the coronavirus, the company said in a statement on Monday.
10. Investors added money to exchange-traded funds that buy emerging market stocks and bonds last week. This was the second straight week of inflows. Inflows to U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $1.38 billion in the week ended Nov. 13, compared with gains of $2.36 billion in the previous week, according to data compiled by Bloomberg. So far this year, outflows have totalled $9.08 billion.
11. PNC Financial Services Group Inc. agreed to buy Banco Bilbao Vizcaya Argentaria SA’s banking operations in the U.S. for $11.6 billion, vaulting past rivals to become the country’s largest regional bank. The cash deal will boost PNC’s earnings by about 21% in 2022 and generate more than $900 million of cost savings, the bank said in a statement on Monday. The addition of BBVA branches across the southern and southwestern U.S. gives PNC a presence in 29 of the country’s 30 largest markets. BBVA shares rose as much as 21% in early Madrid trading and gained 16% as of 10:36 a.m. local time. PNC, based in Pittsburgh, closed up 1.5% on Friday.
12. Sasol Ltd. has completed its Lake Charles Chemicals Project in Louisiana after struggling though issues ranging from mismanagement to cost overruns and a final onslaught of hurricanes in the U.S. Gulf Coast. The South African chemicals and fuel maker on Nov. 15 achieved beneficial operation of a low-density polyethylene unit, or LDPE, that had been damaged in a fire during commissioning in January, it said in a statement. “The LCCP is now 100% complete” with total capital expenditure forecast to be within $12.8 billion, it said. Sasol took a final investment decision on Lake Charles in 2014 at an estimated $8.9 billion, drawn to America’s shale boom and boosting chemicals production. But the company’s reputation would be tarnished by the execution of LCCP. An internal probe last year found the project management team acted inappropriately, lacked experience and was overly focused on maintaining cost and schedule estimates instead of providing accurate information.
13. Italian payments processor Nexi SpA agreed to buy private equity-owned rival Nets A/S, creating the Europe’s biggest payments firm by volume in a quickly consolidating industry. The all-share deal values Copenhagen-based Nets at 7.8 billion euros ($9.2 billion), including 1.8 billion euros of debt, the companies said in a joint statement Sunday. Nets shareholders will receive 406.6 million new Nexi shares, initially resulting in 39% of the combined entity. The transaction, finalized just a month after Nexi purchased another competitor, adds to a wave of consolidation sweeping the continent’s financial services industry, and will extend the Italian company’s reach across Europe, where it has operations spanning Italy, German-speaking countries and the Nordics.
14. South Korea’s two biggest airlines plan to merge, with Korean Air Lines Co. acquiring Asiana Airlines Inc. for 1.8 trillion won ($1.6 billion) following an injection via its parent, Hanjin Kal Corp. The main goal of the acquisition is to stabilize South Korea’s aviation industry amid the coronavirus pandemic and improve its competitiveness, said Hanjin Group, which operates airlines and logistics businesses through its subsidiaries. It expects Korean Air to be ranked as one of the world’s top 10 airlines once the deal is completed. The merger should streamline route operations and lower costs, while the consolidation of slots at Seoul’s Incheon International Airport may increase joint ventures with global airlines and demand for transit flights, the parent company said. That should also spur growth in the domestic aviation industry.
15. U.S. President Donald Trump plans several new hard-line moves against China in the remaining weeks of his term, according to a senior administration official, potentially tying the hands of President-elect Joe Biden. Actions under consideration include protecting U.S. technology from exploitation by China’s military, countering illegal fishing and more sanctions against Communist Party officials or institutions causing harm in Hong Kong or the far western region of Xinjiang, the official said, without providing specifics. “Unless Beijing reverses course and becomes a responsible player on the global stage, future U.S. presidents will find it politically suicidal to reverse President Trump’s historic actions,” John Ullyot, a spokesman for the National Security Council, said in a statement.
16. Walmart Inc. is selling most of Japanese retailer Seiyu to KKR & Co. and Rakuten Inc. in a deal that values the supermarket chain at 172.5 billion yen ($1.6 billion), as the U.S. giant retreats from its two-decade attempt to crack Japan’s retail market. Under the agreement, private equity fund KKR will become the majority owner with a 65% stake, while Japanese e-commerce giant Rakuten takes 20%, the companies said in a statement Monday. Walmart will retain a 15% minority interest. Rakuten and KKR will seek to shore up Seiyu’s digital operations as demand for online retail grows in Japan amid the pandemic. The new owners are retaining a previously announced plan to re-list Seiyu in the future. In June last year, Walmart said it would seek to relist Seiyu, following years of speculation that it was seeking to sell the chain after years of poor performance. While a 2018 report in the Nikkei newspaper said the Bentonville, Arkansas-based retailer planned to sell the business for as much as 500 billion yen, the company had repeatedly denied it was looking to exit. The price paid by KKR and Rakuten for the stakes was not disclosed.
17. House Speaker Nancy Pelosi faces the imminent challenge of uniting a divided Democratic Party behind President-elect Joe Biden’s agenda without endangering her slim majority in midterm elections two years from now. With the narrowest majority in decades, Pelosi’s ability to build consensus and keep Democrats moving in the same direction will be severely tested by the party’s two competing factions. After the Democrats lost as many as 10 House seats in the election, the tension spilled out on Twitter, in interviews and on a conference call, pitting representatives from swing districts like Pennsylvania’s Conor Lamb and Virginia’s Abigail Spanberger against the group of young, vocal progressives led by New York’s Alexandria Ocasio-Cortez.
18. SL Green Realty Corp. obtained a $1.25 billion loan to redevelop a skyscraper in Manhattan, pushing forward with investment even as New York offices remain largely empty and the city braces for a second wave of coronavirus. The construction financing deal for One Madison Avenue, in the city’s Flatiron district, is being led by Wells Fargo & Co., SL Green president Andrew Mathias said in an interview. The 1.4 million square foot project has already begun internal demolition, thought it hasn’t yet secured an anchor tenant.
19. Iran reported record numbers of new daily coronavirus cases and deaths as it prepares to reinstate tight restrictions to combat a surge that’s overwhelmed hospitals and cemeteries. Some 13,053 new infections and 486 deaths were reported on Monday, the Health Ministry said. Iran, which has the worst coronavirus outbreak in the Middle East, has seen new cases spike an average 5% each day over the past month. On Sunday President Hassan Rouhani said “severe restrictions” will be imposed from Nov. 21 for two weeks. Travel between cities will be banned, while all non-essential businesses and public places will be closed in over 100 cities with the highest infection rates, including the capital, Tehran, government spokesman Ali Rabiei said on Sunday.
20. French President Emmanuel Macron said the European Union must push on with its efforts to develop the capacity to act independently in technology, international finance and defense, even after President-elect Joe Biden takes over in the U.S. In an interview with Le Grand Continent, a Paris-based policy journal, Macron said that EU leaders mustn’t let the defeat of Donald Trump persuade them that they can return to relying on the U.S. to underwrite European security and to defend the bloc’s interests. As examples of EU vulnerabilities, Macron pointed to recent developments in cloud computing services that could leave European data subject to U.S. law and the tensions over the Iran nuclear accord, in which the Trump administration had leverage over the Europeans because of the dollar’s status as a global reserve currency.
21. Apple Inc.’s ad tracking is the target of two complaints to Spanish and German authorities by a privacy advocate whose earlier legal battles are forcing Facebook Inc. to change the way it transfers data. Noyb, a group founded by privacy activist Max Schrems, is accusing Apple of unlawfully installing so-called identification for advertisers on its devices. The service helps Apple and apps track users’ behavior and their consumption preferences without their consent, the group said. “With our complaints we want to enforce a simple principle: trackers are illegal, unless a user freely consents,” Noyb lawyer Stefano Rossetti said in a statement on Monday. “Smartphones are the most intimate device for most people and they must be tracker-free by default.”
22. With new restrictions and Brexit threatening to push the U.K. back into recession, the economy is probably more than a year away from recouping the staggering losses inflicted by the coronavirus. In broad terms, no sector has escaped the carnage. Economic output is still almost 10% below pre-pandemic levels, 800,000 fewer employees are on payrolls and the government is borrowing on a scale not seen in peacetime in a bid to avert mass unemployment and keep struggling businesses afloat. Beneath the surface, however, sharply diverging fortunes can be perceived. The housing market is enjoying its best run for years, buoyed by government stimulus and pent-up demand. Retail sales are at an all-time high. Job cuts, meanwhile, have fallen hardest on young people seeking a foothold in the labor market.
23. Didi Chuxing will begin rolling out an electric vehicle developed with BYD Co. to its drivers in coming months, aiming to reduce costs throughout the world’s largest ride-hailing network. The D1, the first model to have been built with ride-hailing in mind, will ship to the startup’s leasing partners across several Chinese cities, according to Didi. Made by BYD, in which Warren Buffett’s Berkshire Hathaway Inc. is the largest shareholder, the vehicle has power sliding doors and a driver-assistance system. Didi flagged as early as 2018 its intention to team up with car manufacturers to produce customized EVs for its ride-hailing service. The Chinese company that defeated Uber Technologies Inc. in China is hoping the EVs present a more efficient option than traditional fuel-guzzlers. It already hosts about a million electric vehicles, which can take advantage of a growing nationwide charging network, and operates as many as 60 million rides every day.
24. Japan and the International Olympic Committee are looking to have spectators attend next July’s Tokyo Games after putting together a raft of safety measures for the games, one of the biggest global events to be pushed back due to the coronavirus pandemic. IOC President Thomas Bach said after a meeting in Tokyo on Monday with Prime Minister Yoshihide Suga that the two sides were compiling a “huge toolbox” to counter the pandemic and the IOC would make great efforts to have participants and spectators vaccinated before arrival — if a vaccine was available by then. The IOC would collaborate with National Olympic Committees on vaccine for athletes and take on some of the costs, he said in a separate briefing. Vaccination won’t be a requirement for participants, he also said. “At the appropriate time, we will be able to take the right tools out of this toolbox and apply them in order to ensure a safe environment for all participants in the games,” Bach told reporters at the prime minister’s residence. “This makes us also very, very confident that we can have spectators in the Olympic stadia next year and that the spectators will enjoy a safe environment.”
25. U.S. universities experienced the biggest enrollment drop among international students in 16 years, even before Covid-19 ravaged the globe — a sign of how the Trump administration’s immigration policies have hurt American higher education. Attendance slid 1.8% in the 2019-20 academic year to 1.08 million, according to the Open Doors report released Monday by the nonprofit Institute of International Education. That’s the third-biggest drop in the report’s almost 70-year history. “This is largely driven by the unwelcoming message” from the federal government under President Donald Trump, said Donald Heller, professor of education at the University of San Francisco.
26. China’s economic rebound gathered pace in October, cementing the nation’s status as the only major economy tipped to grow this year. While the U.S. and Europe grapple with a resurgence in coronavirus infections, China’s early control of the pandemic means its economic recovery is expected to accelerate through the end of the year as consumers spend more. An export boom on the back of global demand for medical equipment and work-from-home electronics is also expected to sustain the momentum. Industrial output rose 6.9% in October from a year earlier, the National Bureau of Statistics said Monday, higher than the 6.7% median estimate in a Bloomberg survey of economists. Retail sales growth accelerated to 4.3% from 3.3% in September, though missing expectations for a 5% increase.

 

*All sources from Bloomberg unless otherwise specified