November 26th, 2020

Daily Market Commentary

Canadian Headlines

  1. Bank of Montreal and Canadian Imperial Bank of Commerce are extending work-from-home plans for some employees by at least four months as coronavirus cases surge across the country. The majority of CIBC employees who are already working off-site will continue to do so until at least April, Sandy Sharman, head of the bank’s people, culture and brand team, said in a memo to staff Wednesday. The bank had originally advised the employees they’d be working from home until at least the end of the year. BMO doesn’t “foresee any broad-based changes for employees who are currently working from home any sooner than April 2021, unless a specific business need exists,” a spokesperson said in an emailed statement. It had previously said the workers would remain out of the office through year-end.
  2. Strong homebuilding activity in North America will mean tight wood supply and demand for several more years, according to the top executive of the world’s largest lumber producer. “In the next five years, we see housing starts continuing to be strong and an industry that will be working hard to keep up with demand,” West Fraser Timber Co. Ltd. Chief Executive Officer Ray Ferris said Wednesday in a phone interview. West Fraser sells about 30% to 40% of its products into the housing industry, according to Ferris, which means his outlook bodes well for the Vancouver-based firm. Demand and prices for lumber and other wood materials soared during the pandemic on a surge in renovations and home construction, benefiting producers. West Fraser deepened its commitment to the industry last week with a $4-billion ($3.1 billion) offer to acquire Norbord Inc., the world’s largest producer of a plywood stand-in known as oriented strand board.

World Headlines

  1. European stocks were steady as this month’s strong rotation into value shares reversed on Thursday, with tech shares outperforming energy peers. The Stoxx Europe 600 Index added 0.1% as of 8:11 a.m. in London, with U.S. markets closed for the Thanksgiving holiday. Technology and health-care shares advanced, while energy firms and carmakers were lower. European stocks have surged in November as breakthroughs in vaccine development spur bets of a return to economic normalcy. The Stoxx 600 is up 15%, poised for a record monthly gain, beating the U.S. S&P 500 Index. While value shares are lagging on Thursday, they have surged sharply this month as investors backed pandemic laggards.
  2. Cyclical companies including banks and energy firms that had led the post-vaccine surge retreated while more defensive tech shares gained. That was mirrored by equity futures in the U.S., where contracts on the main gauge were flat while those on the tech-heavy Nasdaq 100 rose. Even with three successful vaccines on the table, sentiment turned cautious Thursday as the virus toll continued to rise in Europe and the U.S., leading German Chancellor Angela Merkel to call on Europe’s ski resorts to close this winter. The task of a global vaccination comes with logistical problems, all while the virus gains ground and economic recoveries wobble.
  3. Japanese stocks quickly reversed opening losses and climbed, with the Topix reaching a fresh two-year high, lifted by gains in technology shares. Electronics and telecommunications sector shares provided the biggest boosts to the Topix, while automakers and financials declined. The benchmark measure is on pace for its best monthly gain since 2013. The Nikkei 225 Stock Average advanced for a third day, continuing to trade at its highest level since April 1991. “The pace of recent gains had been so fast that there were investors who were left behind – these people are coming in to buy when the market falls,” said Masahiro Ichikawa, a senior strategist at Sumitomo Mitsui DS Asset Management Co. The virus situation “is something worrying but we’re not at an emergency state,” he added.
  4. Oil fell from an eight-month high as the dollar recovered, while disparities in demand set the stage for OPEC+’s key policy meeting next week. Futures in New York dropped 1.6%, with the dollar erasing earlier declines to trade higher. After stellar gains so far this month, both West Texas Intermediate and Brent crude futures settled technically overbought on Wednesday, a sign that a possible reversal had been on the cards. Oil has jumped around 27% this month as signs that Covid-19 vaccines are imminent boosted expectations for a swift recovery in energy demand next year. However, while there are indications that Asian consumption remains healthy, Europe is still lagging. On Wednesday, Germany extended a partial lockdown to curb the spread of coronavirus for at least three more weeks.
  5. Gold continued to hover above $1,800 an ounce after disappointing economic data pointed to a rocky recovery in the U.S., while bullion-backed exchange-traded funds saw further outflows. Applications for U.S. state unemployment benefits unexpectedly posted the first back-to-back weekly increase since July, while Americans’ incomes and savings fell last month. The data indicate the economic rebound is becoming more tenuous amid soaring coronavirus cases, fresh lockdowns and an extended deadlock in Congress over a new stimulus package. Still, gold prices are heading for a fourth straight monthly decline as progress on Covid-19 vaccines lifted risk sentiment and damped demand for havens. Some investors appear to be abandoning bullion, with ETFs poised to post the first month of outflows this year after holdings surged to a record in October.
  6. Global coronavirus cases topped 60 million. German Chancellor Angela Merkel urged Germans to do more to rein in the pandemic as the nation saw a record daily jump in new cases and virus-related deaths reached a seven-month high. Merkel also called on Europe’s ski resorts to close this winter to halt the spread of the illness. Elsewhere, London will avoid the toughest coronavirus restrictions when England’s partial lockdown ends next week, under plans laid out Thursday. In the U.S., the Supreme Court blocked New York Governor Andrew Cuomo from imposing attendance caps at synagogues and Roman Catholic churches in Covid hotspots. California and Texas broke daily infection records. Meanwhile, the White House is considering lifting entry restrictions on non-U.S. citizens arriving from Europe.
  7. The global stock market is ripe for more gains as the world edges closer to the deployment of a Covid-19 vaccine, according to a professor who has developed a quantitative measure tracking the latest developments in the hunt for a shot. Fund managers and policy makers will soon be able to access the vaccine-progress indicator, which is based on trial updates and related news, its developer Viral Acharya, professor of economics in the department of finance at New York University Stern School of Business, said in an online interview from New York. As well as a useful tool for policy makers navigating an exit strategy from the pandemic, the data can also help equity investors as a rotation into cyclical sectors ramps up, said Acharya, who also advises the Federal Reserve Bank of New York and its Philadelphia counterpart. He is a former deputy governor of the Reserve Bank of India.
  8. In the week through Nov. 24, equity funds saw inflows, with ETFs attracting $13.7b and mutual funds bringing in $3.8b, while precious metals/gold funds had their ninth-largest outflow ever with $2.2b, according to BofA note citing EPFR Global data.
  9. Entra ASA, a Norwegian property firm, said it will look into a takeover proposal by Castellum AB after ending earlier talks with the firm and rebutting a bid by a rival suitor. Entra, which specializes in office spaces, said it will “diligently consider” the latest proposal, in a statement on Thursday. The company highlighted a decision by Norway’s government to sell its 8.2% stake to Castellum, as part of its decision-making process. Entra this week became the target of multiple bids, in a sign that demand for office property is heating up despite the pandemic. SBB, another Swedish real estate firm, was first to announce an offer. Castellum’s proposal is about 3.6% higher than SBB’s, representing a total value of about 31.1 billion kroner ($3.5 billion), compared with the roughly 30 billion Norwegian kroner SBB is willing to pay.
  10. Mitsui Fudosan Co. is poised to make a bid for Tokyo Dome Corp., helping the operator of one of Japan’s largest stadiums push back against activist investor Oasis Management Co. The Japanese real estate company is preparing to make a tender offer of about 100 billion yen ($960 million) for Tokyo Dome, according to people with knowledge of the matter. An announcement could come as soon as this month, said the people, who asked not to be identified because the discussions are private.
  11. BP Plc said it will invest more money in Middle Eastern oil and natural-gas fields even as it transitions to renewable energy and tries to lower emissions. The company is a major producer in countries such as Iraq, where it operates the world’s third-largest oil field of Rumaila, the United Arab Emirates and Oman. It’s focusing on their low-cost oil, while also boosting output of gas, according to Stephen Willis, BP’s senior vice president for the Middle East. “We will continue to invest in these,” Willis said in a video interview from Oman, without specifying how much BP planned to spend. Deposits in Iraq, the UAE emirate of Abu Dhabi and Oman have “world-leading operating cost, capital cost and production efficiency performance.”
  12. The incoming and outgoing U.S. presidents offered starkly different messages on the eve of Thanksgiving — with Joe Biden focusing a holiday speech on the need to quell the coronavirus while Donald Trump pardoned a longtime ally and called for overturning the election. The president continues to dispute the results of the Nov. 3 vote, even as states certify their results and his legal challenges fail so far to gain ground. Biden has begun the transition, is naming his cabinet and has assumed the mantle of president-elect even though Trump digs in and refuses to concede. Trump on Wednesday scrapped a visit to a Republican hearing in Gettysburg, Pennsylvania, but called in by phone to demand that the results of the presidential election in that state, which was called for Biden, be overturned.
  13. Mexico’s economy grew at the fastest pace in at least three decades in the third quarter, as a surge in manufacturing to meet U.S. demand helped claw back a portion of the output lost since last year. Gross domestic product rose 12.1% from the previous quarter, according to final data released by the national statistics institute Thursday. The expansion, the best in data going back to 1990, was slightly higher than the 12% growth both estimated by economists in a Bloomberg survey and also recorded in preliminary data published last month. On an annual, non-seasonally adjusted basis, GDP plunged 8.6% in the third quarter, matching the median estimate among analysts surveyed by Bloomberg and also last month’s preliminary report.
  14. China’s imports of U.S. goods under the phase-one trade deal slowed last month after hitting a high in September, leaving the full-year target well out of reach. As of the end of October, China had purchased about $75.5 billion of targeted goods, according to Bloomberg calculations based on Customs Administration data. That was 43.9% of the total 2020 target of $172 billion in goods, meaning China needs to buy more than $95 billion worth in the remaining two months of the year to fulfill January’s trade agreement with the U.S.​
  15. London will avoid the toughest coronavirus restrictions when England’s partial lockdown ends next week, Boris Johnson’s government announced. The U.K. capital has been placed into tier 2 — which means pubs, restaurants and bars can open for business, but alcohol can only be served as part of a meal. Households will not be allowed to mix indoors. The regional three-tier system is tougher than before lockdown because ministers want to make sure they get a grip of the virus before people are allowed a five-day relaxation of the rules during the Christmas holidays.
  16. Repsol SA will reduce its dividend next year as it outlined plans to wind down the search for oil and expand its renewable capacity fivefold during the next decade. The Spanish company, which was the first oil major to set a net-zero emissions target a year ago, will put its projects into “harvest mode” as it refocuses on higher-value oil production in fewer countries. While the dividend will be lower in 2021, it will be paid out entirely in cash, unlike the current distribution which is mostly given as new shares. Repsol expects to start growing the payment again from 2023. Repsol’s decision last December to write down the value of its oil assets by 4.8 billion euros ($5.7 billion) and a promise to eliminate net emissions of greenhouse gases from its operations by 2050 was the first step in a dramatic shift for the oil industry. It plans to funnel cash from the petroleum business into an expansion of renewable capacity to 15 gigawatts — including wind and solar — from the current 2.95 gigawatts.
  17. The leaders of Poland and Hungary, who effectively vetoed the European Union’s $2 trillion spending package last week, are pushing back against pressure to relent on their opposition to tying funding to upholding the rule of law. Prime Minister Viktor Orban is hosting Polish counterpart Mateusz Morawieckion Thursday in Budapest as the rest of the EU looks for any sign of compromise. The two leaders stopped the bloc’s coronavirus fund and seven-year budget in its tracks last week, delaying the flow of billions of euros in aid to countries suffering record economic downturns caused by the pandemic. That’s not the most pressing issue for Hungary and Poland. Their governments are already under formal EU probes into whether they have violated democratic norms, making them prime candidates for potential funding cuts in the future.
  18. Foxconn Technology Group will move the manufacturing of some Apple Inc. iPads and MacBooks to Vietnam from China, a person familiar with the matter said, as the company aims to mitigate the risk that a trade war with the U.S. could continue after U.S. President Donald Trump leaves the White House. The person asked not to be identified because the plans are still private. The company, whose formal name is Hon Hai Precision Industry Co., is building assembly lines for Apple’s tablet and notebook products at its plant in the northern Vietnamese province of Bac Giang, which will come online in the first half of 2021, Reuters reported earlier Thursday, citing an unidentified person familiar with the plan. Apple didn’t immediately respond to an email seeking comment. Foxconn said in a statement it doesn’t comment on its work for specific customers.
  19. Malaysia Prime Minister Muhyiddin Yassin survived a key test of his leadership on Thursday when he won enough support in parliament for his 2021 budget. House Speaker Azhar Azizan Harun determined that the budget was passed in a voice vote. Just 13 lawmakers called for votes to be counted individually, fewer than the 15 required for bloc voting to be held. The results will ensure Muhyiddin, who took power in March, remains in office for now as the budget enters a second round of debates next week. Muhyiddin’s victory on Thursday came after months of pressure on him to prove he commands majority support in parliament. Still, it’s unclear how long he can hang on: His coalition allies have urged him to allow for a confidence motion to be tabled in parliament, and to hold an election once the pandemic is under control.
  20. Bitcoin plunged on Thursday in a sell-off that saw other digital assets fall as much as 27%, a slide likely to stoke speculation about the durability of the latest boom in cryptocurrencies. The largest token slumped as much as 13%, potentially heading for its worst day since the pandemic was declared in March. The rout began just hours after Bitcoin rose to within $7 of its record high of $19,511, the culmination of a 250% surge in past nine months. Fears over tighter crypto regulation and profit-taking after a frenetic rally were among the reasons cited for the sudden drop.
  21. China’s state-owned food trader Cofco has sold 10 million tons of U.S. corn to domestic private mills and may further boost purchases from the world’s biggest grain supplier, according to people familiar with the matter. The purchases are in addition to China’s annual corn import quota of 7.2 million tons, which is allocated to state and private firms. They also come as inbound shipments of U.S. grains have surged in recent months as China rebuilds its hog herd after the ravages of African swine fever. Cofco has signed supply deals for the 10 million tons with private mills, with part of the shipment set to arrive in the first half of 2021, said the people, who asked not to be identified as the information is confidential. The company may also be on track to purchase more U.S. corn, said the people, estimating that China’s total imports of the American crop may hit 30 million tons next year.
  22. Walt Disney Co. announced another 4,000 job cuts after virus lockdowns forced the closure of its theme parks. It takes the number of layoffs in the first half of 2021, mostly at Disney’s parks, experiences and products divisions, to 32,000 — more than one tenth of its total workforce. The company’s parks in California remain closed due to a standoff with the state over lockdown measures. Results earlier this month revealed how the coronavirus pandemic has hammered Disney’s traditional businesses like studios, parks and cruises while accelerating a pivot to streaming.
  23. Deutsche Bank AG’s top accounting executive, Andreas Loetscher, is being investigated over his role as the auditor of Wirecard AGwhile he was with his former firm, Ernst & Young, two people familiar with the matter said. Germany’s accounting regulator, APAS, is looking at his role as part of a review of EY’s auditing, said the people, who declined to be identifiedbecause the information isn’t public. Loetscher and three EY auditors are scheduled to testify at a parliamentary committee Thursday about their work for Wirecard. They are expected to invoke legal privilege and not answer any questions about their accounting work. Loetscher, a two-decade veteran at the accounting firm, oversaw the Wirecard audits for the financial years 2015 through 2017, filings show. He left in 2018 to become chief accounting officer at Deutsche Bank, taking over after the bank struggled for years with legal and regulatory mishaps.
  24. China’s top diplomat wound down a trip to Japan and South Korea aimed at boosting ties with the U.S. allies, as the region prepares for the Trump administration to end. China’s Ministry of Foreign Affairs said Wang Yi and South Korean counterpart Kang Kyung-wha reached a 10-point consensus in talks on Thursday that included strengthening cooperation on pandemic controls and looking at expanding fast-track travel between the two countries. President Donald Trump’s election loss to Joe Biden has thrown a new element of uncertainty into relations that U.S. allies Japan and South Korea have with China, the top trading partner for both countries as well as a key security risk. Biden called the leaders of Japan and South Korea this month to reassure them on U.S. alliance commitments.
  25. Inc. founder Jeff Bezos is being targeted by shipping groups to support some 400,000 seafarers stuck on merchant vessels because of port and border restrictions to stop the spread of Covid-19. While consumer giants such as Unilever Plc and Procter & Gamble Co. have called for measures to allow more crew changes at ports, ensure the safety of overworked seafarers and make sure supply chains don’t use forced labor, the world’s largest ecommerce retailer has so far remained silent on the issue, according to the International Chamber of Shipping. “The strength of Amazon’s (and others’) supply chain is central to the success of red-letter retail days like Black Friday,” groups including the ICS wrote in an open letter to Bezos released with a joint statement Thursday. “Without these seafarers, global trade as we know it would simply cease to exist.”

*All sources from Bloomberg unless otherwise specified