November 25th, 2020

Daily Market Commentary

Canadian Headlines

  1. Cirque du Soleil Entertainment Group emerged from court protection with new owners, a focus on the world’s biggest cities and a plan to open U.S. shows as early as next summer. Cirque’s Las Vegas-based shows and a new production at Walt Disney Co.’s Florida resort are likely to resume first, according to Chief Executive Officer Daniel Lamarre, who kept his job after the restructuring. While some touring shows may get back on the road next year, the Montreal-based company targets 2022 to return to levels seen before the Covid-19 pandemic.

World Headlines

  1. European shares erased an early gain amid a warning on bad debts tied to the pandemic, though stocks in the region remain on track for a record monthly jump. The Stoxx Europe 600 index was down 0.2% as of 10:30 a.m. in London, with financials among the underperformers as the European Central Bank said lenders will probably have to set aside more money to soak up losses when government support ends. Energy shares also slipped, while utilities and health care outperformed. Developments toward coronavirus vaccines have spurred bets of a return to economic normalcy, prompting a strong rotation into economically sensitive sectors and pandemic laggards in November. Investors are now assessing the strength of recent gains, however, with near-term optimism tempered by rising infections, according to UBS Global Wealth Management Chief Investment Officer Mark Haefele.
  2. Global stocks paused amid their best monthly rally in three decades as a call for more bad-loan provisions depressed European banking shares. U.S. futures fluctuated before key economic data. Futures on the S&P 500 Index and Dow Jones Industrial Average wavered after the gauges closed at record highs on Tuesday. The caution came as U.S. economic data, from jobless claims to consumer confidence, were due before markets close and traders head off for the Thanksgiving holiday. A gauge of Asia-Pacific shares erased earlier 1.1% gain.
  3. Japanese shares finished higher, though sharply off intraday highs as local media reported that Tokyo plans to ask restaurants and stores to close early in a bid to combat a surge in coronavirus infections. The Topix capped its fourth-straight advance, up 0.3% after an earlier rise of as much as 1.6%. Electronics and chemicals makers were the biggest boosts to the benchmark gauge, while service-sector companies and food makers fell. The Nikkei 225 Stock Average pared an early gain of 2.1% but still managed to close at its highest since May 1991. The capital city’s government will call on establishments to shut at 10 p.m. for three weeks starting Saturday, local broadcaster TBS reported, citing an unidentified person. Tokyo also will urge residents to refrain from going out when possible, public broadcaster NHK reported.
  4. Oil extended gains, trading at its highest level since March, on mounting optimism that recent breakthroughs on a Covid-19 vaccine will lead to a swift recovery in global energy demand next year. Futures in New York rose 1.3% to trade above $45 a barrel. That followed a flurry of tenders from Chinese and Indian refiners seeking crude oil for January, the latest sign of roaring strength in Asian markets. With the prospect of a coronavirus vaccine improving oil’s longer-term outlook, there’s been a renewed rally in the forward curve. On Wednesday the much-watched spread between Brent’s nearest two December contracts briefly flipped into a bullish backwardation for the first time since March.
  5. Gold traded near $1,800 an ounce as progress on vaccines and the start of President-elect Joe Biden’s formal transition damped demand for the haven. Investors are rotating into risk assets, with a global equity rally picking up steam on Wednesday after U.S. stocks climbed to fresh records. Although Covid-19 infections continue to rise in some parts of the world, positive vaccine news has helped fuel optimism over an economic recovery. Biden said his transition team will not be “so far behind the curve” now that the Trump administration has begun cooperating on the fight against the coronavirus and providing access to intelligence reports after a three-week delay.
  6. President Donald Trump plans to travel to Pennsylvania on Wednesday for a meeting of state Republican lawmakers examining accusations of election impropriety, according to three people familiar with the matter. Trump’s visit to Gettysburg for a hearing by the Pennsylvania Senate Majority Policy Committee was not listed on the president’s public schedule. He is expected to appear alongside former New York Mayor Rudy Giuliani, who has been leading a longshot legal effort in several states to reverse the results of the Nov. 3 election, the people said. Giuliani’s efforts have gained little traction – and widespread derision – and the president’s appearance alongside his longtime private lawyer risks further tarnishing his legacy.
  7. Investments in U.S.-listed fixed income exchange traded funds declined 10% last week for the third straight week of inflows. Corporate bond ETFs led the inflows. Government bond ETFs had the biggest change from the previous week. Net inflows to ETFs totaled $4.27b in the week ended Nov. 24, including the effect of leveraged funds, compared with $4.77b the prior week
  8. Volkswagen AG’s chief is struggling to win support for his picks to fill top executive posts and is pushing the carmaker’s board to back more significant reforms, according to people familiar with the matter. Herbert Diess has proposed more than three candidates to succeed Chief Financial Officer Frank Witter that didn’t win backing from key stakeholders ahead of a vote by the automaker’s supervisory board, said the people, who asked not to be identified as the discussions were confidential. One of the candidates was Audi CFO Arno Antlitz, who moved to the luxury-car division in March after clashing with powerful labor leaders in his previous job as finance chief for the main VW car brand, the people said. There’s also no agreement yet on filling the vacant purchasing chief position. The two roles are key to Diess’s efforts to cut costs and boost efficiency at VW, which just approved a 150-billion euro ($178 billion) investment plan.
  9. The European Commission failed to fully consider conflicts of interest when it appointed BlackRock to advise on new sustainable-finance rules for banks, according to a ruling by the European Union’s watchdog. BlackRock’s segregation of its advisory arm from its investing unit was not enough to prevent staff from being “influenced by the general strategic interests of the company,” according to the Wednesday ruling by EU ombudsman Emily O’Reilly. The decision has no legal power to force the Commission to cancel the mandate, but may pressure the body to do so
  10. French telecommunications billionaire Xavier Niel is planning to raise capital through a blank-check firm, people with knowledge of the matter said. Niel is teaming up with others including Centerview Partners banker Matthieu Pigasse to set up a new vehicle targeting acquisitions in the Europe consumer sector, according to the people, who asked not to be identified because the information is private. They may announce plans as soon as the next few weeks for a listing in France, though the timing could slip into 2021, the people said. Deutsche Bank AG is leading preparations for the special purpose acquisition company, which aims to seek targets with an environmental, social and governance focus, one of the people said. Societe Generale SA is also working on the deal, according to the person.
  11. FedEx Corp. and United Parcel Service Inc. are running into a shortage of delivery vans, prompting a surprise cost squeeze that’s cutting into profits during a record surge in package volumes. Urged by the couriers to purchase any vans they can scrounge up, leasing companies are dipping into the used market. Added demand in the rental market “is creating shortages,” a UPS spokesman said by email. FedEx is even paying a stipend to its contractors to offset the extra cost of renting. The van drought sprang from pandemic-induced shutdowns at factories that build the high-ceiling and box-like vehicles — just as soaring e-commerce ratcheted up demand for home deliveries. While FedEx and UPS don’t expect the scarcity will hobble delivery capacity, it adds to the rising expense of doing business as Covid-19 rages on.
  12. Chileans are gearing up for a second round of early pension withdrawals after tapping $17 billion in retirement funds to buy consumer goods and pay off debts when a similar measure passed earlier this year. A bill granting fresh access to pension money amid the coronavirus outbreak will be voted in the senate as soon as Wednesday, while separate, government-backed legislation could be debated later this week. If one of the proposals becomes law, as is expected, total withdrawals may drain some $30 billion of the $200 billion held in the funds.
  13. A top European Union official said relaxing restrictions too swiftly could unleash a fresh pandemic wave onto already strained hospitals. Officials from New York to California warned of a worsening virus surge. Many health-care systems are still overwhelmed, the president of the European Commission, Ursula von der Leyen, told lawmakers. German Chancellor Angela Merkel is proposing tighter restrictions to regional leaders and France’s Emmanuel Macron said restaurants must remain shut until late January, even as he detailed how France will end its lockdown.
  14. Joe Biden on Tuesday introduced the team of foreign policy experts he plans to nominate to his administration, led by Antony Blinken as secretary of state, as the president-elect seeks to calm international relations after a tumultuous four years under President Donald Trump. The appointees, all experienced in their fields, will work with Biden on his goal of restoring U.S. relations with international organizations that Trump spurned in his “America First” approach to foreign policy. Biden has promised to seek multilateral approaches to common problems like climate change, the coronavirus pandemic and arms control.
  15. The European Union’s top energy official said the bloc should try to create a euro-denominated benchmark for hydrogen, the use of which is expected to surge in the coming decades as governments and companies invest in cleaner fuels. “We have now the opportunity to develop the new hydrogen economy reference market, and establish a reliable benchmark for euro-denominated transactions,” EU Energy Commissioner Kadri Simson said during a virtual conference on Wednesday. Governments, energy firms and car companies say hydrogen is pivotal for cutting greenhouse-gas emissions and preventing the worst effects of climate change. That’s triggered a global race to stake claims in what could be a $700 billion business by 2050, according to BloombergNEF.
  16. Euro-area banks will probably have to set aside more money to soak up losses when government pandemic support ends and the economy grapples with massively increased debt, the European Central Bank said. Provisions for losses on loans to companies are lower than in previous crises and below those seen in the U.S., the ECB said in its Financial Stability Review. That’s partly because measures by European governments and the central bank have reduced default risks, and partly because of weak profitability at banks. The worry is that once emergency aid is pulled, some companies won’t be able to cover repayments, putting lenders under renewed stress.
  17. As Treasury secretary, Janet Yellen is almost certain to pursue tighter coordination with the U.S. Federal Reserve next year — repairing recent frictions — though observers say she will be careful to avoid any specific move that could trigger a wave of Republican protests. President-elect Joe Biden’s pick for Treasury was at the Fed for the better part of two decades, and saw first-hand how vital the cooperation of the two agencies is to ensuring the flow of credit amid stressed economic times. Step one, after winning Senate confirmation, will be deciding how to proceed with several emergency Fed lending facilities backed by Treasury money and authorized by Congress through the Cares Act, after outgoing Treasury Secretary Steven Mnuchin announced he would sunset them by year-end.
  18. Deere & Co., the largest maker of agricultural machinery, projected higher-than-expected earnings for the year ahead, helped by cost-cutting and surging crop prices that brighten the outlook for spending on farm equipment. Net income for fiscal 2021, is forecast at $3.6 billion to $4 billion, the Moline, Illinois-based producer said in a statement Wednesday. That compares with the $3.37 billion average of analysts’ estimates compiled by Bloomberg. “Higher crop prices and improved fundamentals are leading to renewed optimism in the agricultural sector and improving demand for farm equipment,” the company said in the statement. “At the same time, we are looking forward to realizing the benefits of our smart industrial operating strategy, which is designed to accelerate the delivery of solutions that will drive improved profitability and sustainability in our customers’ operations.”
  19. Nordnet AB gained as much as 14% in its Stockholm debut after its initial public offering raised 9 billion kronor ($1.1 billion), marking the company’s return to public markets amid a boom in demand for its online savings services. The company’s shares were trading at 105.06 kronor as of 11:05 a.m. in Stockholm, 9.4% above the IPO price of 96 kronor each. Shareholders sold 94 million shares at that price, the middle of an initial range, according to a statement. If the sellers exercise an option to offer additional existing shares in full, proceeds could rise to 10.4 billion kronor. Nordnet, which did not raise any money in the IPO, marks Sweden’s largest listing since private-equity firm EQT AB made its Stockholm debut in September 2019.
  20. Nikola shares fell Wednesday after the company’s recently minted CEO failed to reassure investors that the electric truck maker’s $2 billion pact with General Motors will still go through. Speaking with TheStreet’s Jim Cramer on his CNBC “Mad Money” show, Nikola CEO Mark Russell said discussions with GM about supplying fuel cell and battery technologies as well as an all-electric pickup are ongoing, though stopped short of confirming the deal that would see GM take an 11% stake in Nikola. New York-based Hindenburg Research in September released a research report calling Nikola an “intricate fraud” and outlining what it said were instances of the company allegedly misrepresenting its technology and its progress toward developing its trucks.
  21. Moderna’s Covid-19 vaccine is set to generate $305 million in fourth quarter sales before surging to $13.3 billion in 2021, Goldman Sachs analysts estimate. An estimate from the head of Operation Warp Speed, Moncef Slaoui, that the U.S. can achieve herd immunity in May, “seems feasible from a supply standpoint,” analyst Salveen Richter said
  22. Private equity firm CVC Capital Partners is nearing an agreement to buy Myanmar’s biggest telecommunications tower company for close to $700 million, according to people with knowledge of the matter. The buyout firm could sign a deal to acquire Irrawaddy Green Towers Ltd. as soon as next week, said the people, who asked not to be named as the information is confidential. CVC is talking to bankers to secure financing for the deal, the people said. Deliberations are ongoing and the parties could decide not to proceed with a transaction, said the people. A representative for CVC declined to comment. Irrawaddy Green did not respond to calls and emailed requests for comment.
  23. International Business Machines Corp. is planning to cut about 10,000 jobs in Europe in an attempt to lower costs at its slow-growth services unit and prepare the business for a spinoff. The wide-ranging losses will affect about 20% of staff in the region, according to people familiar with the matter. The U.K. and Germany are set to be most impacted, with cuts also planned in Poland, Slovakia, Italy and Belgium. IBM announced the job cuts in Europe earlier in November during a meeting with European labor representatives, according to a union officer briefed on proceedings. The person asked not to be identified because the talks are private.
  24. Private financial technology business Stripe Inc. is in talks to raise a new funding round valuing it higher than its last private valuation of $36 billion, according to people familiar with the matter. The valuation being discussed could be more than $70 billion or significantly higher, at as much as $100 billion, said one of the people, who asked not be identified because the matter is private. That would make it currently the most valuable venture-backed startup in the U.S., according to CB Insights.
  25. European Commission President Ursula von der Leyen said the coming days will be “decisive” for trade negotiations with the U.K. and crucial differences between the two sides remain. “Frankly I cannot tell you today if there will be a deal,” von der Leyen told the European Parliament in Brussels. “There are still three issues that can make the difference between a deal and no deal.” Von der Leyen said the disagreements that have bedeviled the talks since the beginning are still proving difficult: the level playing field for business, the enforcement of any agreement and access to British fishing waters.
  26. Google was ordered by a U.S. judge to turn over the content of emails of the son of Farkhad Akhmedov to the Russian oligarch’s former wife in her pursuit of a 450 million-pound ($601 million) divorce judgment. The skirmish over the email accounts is part of one of London’s largest divorce fights — involving a super yacht in Dubai and litigation funder Burford Capital Ltd. — which landed before a judge in San Jose, California, in the federal court closest to Google’s Mountain View headquarters 14 miles away.
  27. Germany’s elite soccer body is attracting fresh private equity interest in its overseas media rights, as cash-hungry European leagues explore ways to unlock value from the world’s most popular sport. Advent International and BC Partners are among suitors that have approached Germany’s DFL sporting organization about potentially acquiring a minority stake in Bundesliga International GmbH, which manages the rights for the nation’s top two divisions, people with knowledge of the matter said. DFL officials plan to discuss at a Dec. 7 meeting whether to pursue a sale process, according to the people, who asked not to be identified discussing confidential information. Other potential bidders could include Bain Capital, CVC Capital Partners, General Atlantic and KKR & Co. if DFL decides to invite proposals, one of the people said.
  28. Chinese and Indian refiners have issued a flurry of tenders seeking crude oil for loading in January, providing additional support to an already-bullish market. Rongsheng Petro Chemical Co. is seeking spot crude supplies for delivery to Zhoushan and is also looking for term supplies for next year. That followed a purchase of about 4 million barrels from Abu Dhabi and Iraq last week and at least 15 million barrels in October as it prepared to start a new crude unit. Indian Oil Corp., the nation’s biggest refiner, is looking for Middle East and West Africa crude for December and January loading, with offers due Thursday.
  29. International donors have pledged about $13 billion over the next four years for war-stricken Afghanistan — about $2 billion less than the last pledge in 2016 — at a time when the U.S. is accelerating its plan to exit the country following a peace deal with Taliban militants. About 70 countries and more than 30 international organizations during a one-day meeting in Geneva on Tuesday offered $3.3 billion for 2021 “with annual commitments expected to stay at the same level year-on-year” for the next four years, the United Nations said in a statement in Kabul. International donors set conditions including protection of human rights, tackling corruption, rule of law and gender equality for contributing $13 billion through 2024, Shamruz Khan Masjidi, the spokesman of Afghan Finance Ministry said in a WhatsApp message.
  30. Nintendo Co. has added Sharp Corp. as an assembler of its Switch console, according to people directly involved in the matter, as it works to stabilize production and hedge against U.S.-China trade tensions. The video game giant has struggled to produce enough units for most of this year as the hit game Animal Crossing: New Horizons and stuck-at-home consumers fueled demand. While the coronavirus outbreak hurt production early on, Nintendo President Shuntaro Furukawa said this month that output has returned to normal and the Switch is now made in Malaysia, in addition to existing China and Vietnam locations. That Malaysia factory is owned by Sharp, said the people, who asked not to be identified because the information isn’t public. Nintendo’s main assembly partner Foxconn Technology Co., a key unit of Foxconn Technology Group, owns a Sharp stake and helped connect the two Japanese companies, they added. Sharp continues to operate separately from its Taiwanese owner and its stock will be added to the Nikkei 225 Stock Average next week after a four-year absence.


*All sources from Bloomberg unless otherwise specified