November 27th, 2020

Daily Market Commentary

Canadian Headlines

  1. Canada’s tax authority is expanding its dragnet in cryptocurrency transactions by issuing court orders and launching audits as it becomes increasingly aware of risks surrounding the use of the digital assets. The Canada Revenue Agency currently has 120 active audits related to cryptocurrency underway and a pending request to have a court compel a major cryptocurrency exchange to divulge information on customers, according to CRA. Cryptocurrencies like Bitcoin, Ethereum, and Litecoin are digital assets created, managed, and kept secure using online and computational tools outside of the control of a central bank. Their global rise has attracted the attention of government agencies that want to prevent their use in financial wrongdoings like tax evasion and avoidance.
  2. Hydrogen is the clean energy investment that appeals the most to Canadian asset managers, while companies prefer solar, according to a survey carried out for HSBC Holdings Plc. Interestingly, among 17 options for the reduction of greenhouse-gas emissions, the most favored by each group, hydrogen and solar, was among the least liked by the other, a report released Friday showed. The survey conducted by GlobalCapital and Euromoney Data in September involved 91 Canadian equity and bond investors, along with 91 corporate security issuers. “Issuers in particular are cold to hydrogen because of a perceived lack of communications about the technology and investment opportunities,” Dan Leslie, senior vice president and deputy head of commercial banking for HSBC Bank Canada, said in an emailed response to questions.

World Headlines

  1. The Stoxx Europe 600 index edged lower at the open, with energy companies leading the decline. Banco de Sabadell SA plunged 18% after terminating talks with Banco Bilbao Vizcaya Argentaria SA. Stocks are ending the week on a cautious note as investors assess valuations following a rapid rise in equities this month and the enduring pandemic in parts of Europe and the U.S. Oil retreated amid rising tensions within OPEC+ members.
  2. Futures on the S&P 500 were little changed. Shares underperformed in Australia but climbed in China, as the MSCI Asia Pacific Index remained on course for a 12% November surge. Treasuries advanced and the dollar slipped, on track for a second weekly decline. Market volumes may be lower than average on Friday with reduced trading hours for U.S. stocks and bonds. Global stocks remain on course for the best month on record, up 13%, and that’s lifted valuations to near the highest in about 20 years. Still, sentiment remains fragile as the virus toll continues to rise in Europe and the U.S. The task of vaccinating the world’s population is rife with logistical problems, while the virus gains ground and economic recoveries wobble.
  3. Chinese stock market ended Friday being Asia’s top performer as data showed improving industrial profits in October and rebounding lending rates in the third quarter. The CSI 300 rose 1.2%, boosted by banking and industrial stocks. Industrial & Commercial Bank of China surged 5.9%, the most in more than four months, while AVIC Shenyang Aircraft Co. jumped 10%, the top gainer on the index. Chinese industrial profits grew at the fastest pace in a single month in almost nine years in October, pointing to an economic rebound, and the central bank’s latest quarterly study revealed weighted average interest rate on new loans increased to 5.12% at end-September from 5.06% at end-June.
  4. Brent oil edged higher near $48 with market focus shifting to an OPEC+ ministerial gathering that will take place early next week. Futures, which fluctuated between gains and losses, are up about 6% this week. Saudi Arabia and Russia have convened informal OPEC+ talks for Saturday, according to a letter. That will precede the formal ministerial meetings scheduled for Monday and Tuesday, where producers will decide whether to postpone a planned output hike. Algeria, which holds the OPEC presidency, said the group must remain cautious because the organization’s internal data point to the risk of a new oil surplus emerging next year. That’s if the cartel and its allies go ahead with a supply hike.
  5. Gold declined, heading for a third straight week of losses as positive vaccine news and a clearer political picture continued to undermine the haven. Bullion fell steeply on Monday after news of AstraZeneca Plc’s effective vaccine and positive U.S. economic data hit demand. The metal is now hovering over $1,800 an ounce amid a more mixed outlook for the recovery from the pandemic. Applications for U.S. state jobless benefits unexpectedly rose in the first back-to-back increase since July, a report Wednesday showed, while Astra’s shot looks like it is heading for an additional global trial as the drugmaker tries to clear up uncertainty surrounding the initial results.
  6. U.K. and European Union officials will resume face-to-face trade negotiations this weekend amid last-minute warnings from both sides of large disagreements that could scuttle a trade deal. Prime Minister Boris Johnson said there are “substantial and important differences to be bridged” — a sentiment echoed by the EU’s chief negotiator, Michel Barnier. The pound extended its fall, hitting its lowest against the euro in a week. Each side says the onus is on the other to make a decisive move if a deal is to be reached. With little more than a month before the U.K. leaves the bloc’s single market — with or without an accord — time is now running short. If no agreement is reached, millions of consumers and businesses will face disruption and additional costs from Dec. 31.
  7. Ireland, the first western European country to reimpose a lockdown, will order an easing of coronavirus curbs on Friday. Germany’s patients in intensive care rose to record levels. AstraZeneca Plc’s vaccine looks like it’s headed for an additional global trial as the drugmaker tries to clear up uncertainty and confusion surrounding favorable results in its current study. Malaysia agreed to use Pfizer Inc.’s Covid-19 vaccine for 20% of its population. Tokyo posted a record 570 cases just one day before a request for bars and restaurants to close early takes effect. New York’s new infections reached a seven-month high, while hospitalizations rose to their highest level since June.
  8. Mitsui Fudosan Co. announced a 120.5 billion yen ($1.2 billion) bid for Tokyo Dome Corp., the operator of the landmark Japanese baseball stadium that’s facing pressure from activist investor Oasis Management Co. The Japanese real estate company plans a tender offer of 1,300 yen a share, it said in a statement Friday. Yomiuri Shimbun, the owner of the Tokyo Giants baseball team, is seeking to purchase a 20% stake after the deal is completed. Tokyo Dome said it supported the offer. Tokyo Dome has been fending off a campaign by Seth Fischer’s Oasis Management to seek changes to improve its business. As the stadium operator’s largest investor, the hedge fund has called for a shareholder meeting to vote on whether its president and two board directors should stay in their jobs. Shareholders are scheduled to meet on Dec. 17.
  9. Chinese flexible display maker Royole Corp. is seeking to raise as much as 12 billion yuan ($1.8 billion) in an initial public offering on Shanghai’s Star Market board after its U.S. listing plan was shelved, according to people familiar with the matter. The company plans to file the application to China’s Nasdaq-style trading venue as soon as December, said the people who asked not to be identified as the matter is not public. Royole could see its valuation rise to over $8 billion, said the people, more than what it was seeking in a private funding round last year, which never closed. Royole, known for manufacturing the world’s first commercial foldable phone, had initially filed confidentially for a U.S. IPO that could raise about $1 billion, Bloomberg News reported earlier this year. It then decided to pursue a listing in mainland China instead.
  10. Health Secretary Matt Hancock asked the U.K. medical regulator to potentially bypass its European Union counterpart and approve the supply of AstraZeneca Plc’s coronavirus vaccine to speed its deployment. Until the end of the year, when the U.K. exits a post-Brexit transition period, vaccines there must be authorized by the European Medicines Agency. But on Friday, Hancock said he invoked a special rule allowing Britain’s Medicines and Healthcare products Regulatory Agency to authorize a temporary supply of the vaccine Astra is developing with Oxford University if the data is robust enough, after it showed positive results in trials this week. “We have formally asked the regulator to assess the Oxford/AstraZeneca vaccine, to understand the data and determine whether it meets rigorous safety standards,” Hancock said in a statement. “This letter is an important step toward deploying a vaccine as quickly and safely as possible.”
  11. SBB, a Swedish real estate firm, is moving ahead with its unsolicited bid for office provider Entra ASA, even after a rival suitor secured the backing of a key shareholder in the Norwegian company. The bidding war suggests there’s pent up demand for companies that rely on office rents, despite the pandemic and the work-from-home era it’s created. Entra owns about 90 predominantly office properties around Norway, spread across its four largest cities. Entra has already said it would rather remain an independent company, but that it will consider official bids. In a separate statement on Friday, the company advised shareholders to “refrain from taking any action” as the bidding war plays out. It also said “there can be no certainty” that any talks will result in a deal.
  12. German federal government new borrowing will rise to just under 180 billion euros ($215 billion) next year to help fund spending to offset the impact of the coronavirus pandemic. The budget plan for 2021 foresees new debt of 179.8 billion euros, almost double the amount initially envisaged, according to Eckhardt Rehberg, budget spokesman for Chancellor Angela Merkel’s CDU/CSU caucus. It also includes spending of 498.6 billion euros and investments of 61.9 billion euros. “The huge debts are required to get our country safely through the pandemic of the century,” Rehberg said in an emailed statement. He cautioned that spending by the federal government “has its limits” and urged the 16 federal states to help fund measures to offset the fallout from the disease.
  13. Ray Dalio, the billionaire founder of Bridgewater Associates, is opening a family office in Singapore to run his investments and philanthropy throughout the region. Dalio has long held ties to Asia and Singapore, and felt it was “high time” to open a family office there, the hedge fund manager’s spokesperson said in a statement, without elaborating on the timing or staffing plans. The Bridgewater founder “has had for the last three decades excellent relationships in Singapore and China,” according to the statement. “He likes and admires both and he is excited by what is happening in the region.”
  14. North Korea has greeted the last two U.S. presidents with tests of missiles or nuclear bombs within weeks of taking office. And experts see something similar happening with Joe Biden, whom the regime has called “a rabid dog.” Kim Jong Un is one of the few world leaders who has yet to congratulate — or even acknowledge — the president-elect, particularly after Chinese President Xi Jinping did so on Wednesday. While it’s not unusual for North Korea to stay silent on the results of U.S. elections, Kim held unprecedented meetings with President Donald Trump that broke the mold of relations between the long-time adversaries. Ties now are poised to revert to the frostier days of the Obama administration, when the U.S. deployed “strategic patience” to avoid rewarding North Korea for provocations — a policy that stayed in place after Kim took power in 2011. For North Korea, it may not make too much of a difference: Under both Barack Obama and Trump, Kim steadily increased his ability to threaten the U.S. homeland with nuclear weapons even in the face of ever-tighter sanctions.
  15. Bitcoin and many of its major peers edged lower on Friday in the wake of some of the biggest declines since the onset of the pandemic, a sell-off that has stirred fresh doubt about this year’s craze for cryptocurrencies. The most-traded digital coin slipped as much as 2.6% to $16,613 before paring the decline. The Bloomberg Galaxy Crypto Index has dropped 14% drop since Wednesday — its biggest two-day plunge since mid-March — but that’s only erased gains notched earlier in the week. The sell-off was kicked off by worries over the prospect of tighter crypto rules in the U.S. and profit-taking after a big rally, investors said. Even with the slump, Bitcoin has more than doubled this year — an advance that has split opinion.
  16. Saudi Arabia and Russia summoned the OPEC+ alliance for last-minute talks on Saturday, just before it’s due to decide whether to delay January’s output increase. A clear majority of OPEC+ watchers expect the group to maintain their supply curbs at current levels for a few months longer due to lingering uncertainty about the strength of demand. However, the decision is by no means certain amid public complaints from Iraq and Nigeria, and private discord with the United Arab Emirates. The two leading members of the Organization of Petroleum Exporting Countriesand its allies, Russian Deputy Prime Minister Alexander Novak and Saudi Energy Minister Abdulaziz bin Salman, requested an informal video conference with their counterparts from the Joint Ministerial Monitoring Committee, which includes Algeria, Kazakhstan, Iraq, Nigeria and the UAE, according to a letter seen by Bloomberg.
  17. Large hospital systems are grappling with how best to decide which health-care workers will be vaccinated first for Covid-19, a daunting task when it’s unclear which shots they’ll get, how many and when they’ll arrive. The first Covid-19 vaccine could be cleared for U.S. use as soon as next month, with Pfizer Inc. and BioNTech SE’s candidate already under review and Moderna Inc.’s shot not far behind. Federal officials, meanwhile, have signaled that health-care workers and older Americans at high risk should be vaccinated as step one in what could set off months of fraught decisions involving other key priority groups. But following those initial guidelines could prove difficult. With 21 million health-care workers in the U.S., there almost certainly won’t be enough doses to reach them all at once. That’s forcing hospitals to categorize their workers based on best-guess distribution estimates, a task made even more complex for some systems by a patchwork state-by-state approach.
  18. Biogen, Sage Therapeutics sign global collaboration and license pact to jointly develop and commercialize zuranolone in depression and movement disorders. Sage to receive $1.525b cash comprised of upfront payment of $875m and $650m equity investment as well as potential milestone payments, profit sharing and royalties
  19. China is set to import more U.S. corn, with volumes for next year seen hitting the top end of market expectations and squeezing global grains prices. State-owned food titan Cofco Corp. has sold 10 million tons to domestic private mills and will probably boost purchases from the U.S. even further, according to people familiar with the matter. This could put China’s total imports of the American crop on track to hit 30 million tons next year, the people estimated. The purchases — which are in addition to China’s annual corn import quotas — could drive up Chicago futures that are already trading near their highest since July last year. Grains have been surging amid robust Chinese consumption, with domestic corn prices near a record as demand for hog and poultry feed grows and state reserves dwindle.
  20. A growing number of top European Central Bank officials are voicing support for ending the de facto ban on banks paying dividends during the pandemic, laying the groundwork for a resumption next year and a return of investor confidence to the sector. Bank of France Governor Francois Villeroy de Galhau on Friday became the third ECB governing council member this week to signal support for a resumption in payouts. Their comments will influence the debate on whether to end the ban at a meeting of the central bank’s supervisory arm next month. European lenders, which saw their shares lag the market this year, have repeatedly warned that extending the measure would risk cutting them off from investors. Yet despite optimism that the end of the pandemic is in sight, some regulators are worried that if they allow payouts, banks may lack the financial reserves to bear losses without taxpayer bailouts.
  21. Volkswagen AG is accelerating development of a compact electric car that will cost less than 30,000 euros ($35,800) as tightening emissions rules and generous subsidies bolster sales of battery-powered vehicles, according to people familiar with the matter. The VW-branded car may be introduced as early as 2023, flanking the ID.5 crossover to be sold from next year as well as an electric iteration of the iconic hippie-era minibus slated for 2022, said the people, who asked not to be identified discussing internal plans. VW is also working on a fully electric station wagon, dubbed Aero, with a battery range of as much as 700 kilometers (435 miles) to be sold from 2023, the people said.
  22. Fidelity Investments is the latest of the world’s biggest money managers vying for a piece of Brazil’s booming fund industry. The Boston-based financial powerhouse will start selling one of its European stock funds to Brazilians through a partnership with XP Inc., hoping to capitalize as the nation’s investors look abroad to spruce up their dwindling returns, according to Fabiano Cintra, head of international funds at XP.
  23. France and Germany are leading efforts in Europe to make early contact with President-elect Joe Biden’s team, with the aim of accelerating talks to normalize trade relations between the U.S. and the European Union. At the top of the agenda for Paris is resolving an aircraft dispute that has seen tariffs imposed on more than 10 billion-euros ($12 billion) of transatlantic goods, while Berlin is keen to revive free-trade talks, according to senior officials in both countries. “We’re ready and in a position to hold talks immediately,” said Johann Wadephul, a foreign policy expert and deputy caucus leader in parliament for German Chancellor Angela Merkel’s Christian Democrats. French Finance Minister Bruno Le Maire, who had planned to speak with the president-elect’s team earlier this week, said, “I really hope that this new Biden administration will mean a new start in the relationship between Europe and the U.S.”
  24. Goldman Sachs Group Inc. expects large swathes of the public across major developed economies to receive a vaccine against the coronavirus by the middle of next year, driving a “sharp pickup” in global growth. The bank’s economists predict that half the U.K. public will be vaccinated in March, with the U.S. and Canada reaching that threshold a month later. The European Union, Japan and Australia are due to follow in May. “We expect large shares of the population to be vaccinated” toward the end of the second quarter, economists Daan Struyven and Sid Bhushan wrote in a report to clients. With production increasing, the vaccination rate is set to exceed 70% in the autumn.

*All sources from Bloomberg unless otherwise specified