November 2nd, 2020

Daily Market Commentary

Canadian Headlines

  1. Miners are engaging in plenty of takeover talks despite a tepid year for acquisitions, but few deals will get done without greater clarity on the economy and an ebbing of Covid-19, said the industry’s top dealmaker. “There’s lots of conversations going on, lots of people exploring new ways to think and new ways to operate,” Dan Barclay, who heads Bank of Montreal’s capital-markets division, said in an interview last week. “The probability of a lot of action is going to be conditional on that economic recovery.” For years, mining executives including Barrick Gold Corp.’s Mark Bristow have been saying that consolidation in the industry is inevitable given the abundance of companies and increasing difficulty of finding new high-grade deposits. That could be a boon for investment banks including BMO Capital Markets, among the most active dealmakers in mining and the No. 1 adviser for acquisitions last year.
  2. Air Canada’s outgoing Chief Executive Calin Rovinescu will join the board of directors of The Bank of Nova Scotia, the Canadian bank said in a statement.

World Headlines

  1. Equity markets started Monday with gains as investors prepared for a crucial week spanning the U.S. election and a Federal Reserve meeting. Futures on the S&P 500 climbed 1.4% following last week’s sharp selloff. Equity benchmarks across Europe and Asia were also higher, and investors took comfort in data that showed strength in China’s economic expansion. Apple Inc., Tesla Inc. and Twitter Inc. were about 1% higher in U.S. pre-market trading.
  2. Japan’s Topix rose the most since Aug. 11 as investors positioned ahead of a holiday for a slew of key events this week including the U.S. presidential election, a Federal Reserve meeting and major corporate results. All industry groups in the benchmark index advanced, with auto and electronics makers the biggest boosts. KDDI Corp. gained after beating profit expectations, while Japan Tobacco Inc. rose after boosting its outlook. A bit less that halfway through results season, 60% of companies in the Topix have beaten earnings expectations, according to Bloomberg data. Tokyo markets will be closed Tuesday for a national holiday. Results from U.S. voting should come in during the Japan trading day Wednesday but it’s unclear when they will become final. Democratic nominee Joe Biden led President Donald Trump in a series of polls released Sunday. The Fed rate decision is due before the Tokyo open Friday.
  3. Oil plunged to a five-month low as gains in Libyan production coincided with a wave of new virus-lockdown measures in Europe. The double whammy of growing supply and dwindling demand pushed crude futures down as much as 6% in New York. That could be just the curtain-raiser for a turbulent week of trading as Americans head to the polls Tuesday in an election that could reshape U.S. policy on everything from coronavirus lockdowns to Iran and fracking. U.K. Prime Minister Boris Johnson announced at the weekend that England would join other countries in western Europe in imposing tougher restrictionsto fight the spread of Covid-19. Trafigura Group boss Jeremy Weir said the second wave of the virus around the world could push global oil demand to as low 88 to 89 million barrels a day, down 11% or 12% from last year.
  4. Gold climbed at the start of a crucial week that brings the U.S. presidential election and a Federal Reserve policy meeting — events set to dictate the trajectory of the dollar, appetite for risk, and the precious metal. Bullion was up for a second day, with Democratic nominee Joe Biden leading President Donald Trump nationally in the latest crop of polls, although some state races are still extremely close. The New York Times/Siena College polls showed Biden leading the race in Pennsylvania, Florida, Arizona and Wisconsin, key swing states that Trump carried in 2016.
  5. Democratic presidential nominee Joe Biden warned Sunday that he wouldn’t let President Donald Trump declare victory in Tuesday’s election before the results are clear. “My response is the president is not going to steal this election,” Biden told reporters during a campaign stop in Philadelphia. He also condemned Trump supporters’ efforts to intimidate Biden backers, including a Friday incident on a Texas highway and a partial shutdown of New Jersey’s Garden State Parkway earlier Sunday.
  6. Italy laid out new plans to try to halt the spread of the virus, as large swathes of Europe prepare to enter lockdown this week and global fatalities top 1.2 million, after the deadliest week for the pandemic since April. Daily cases are surging, with the U.S. seeing a bigger wave than in the spring as it approaches Tuesday’s election. The World Health Organization’s director-general is in self-quarantine after coming into contact with someone who tested positive. Goldman Sachs Group Inc. and Deutsche Bank AG were among companies to tell staff that only essential employees can work from their U.K. offices. Chancellor of the Exchequer Rishi Sunak said England’s nationwide lockdown will legally expire on Dec. 2, but the government will look at a range of indicators before easing restrictions, with one minister signaling the curbs may be extended. Large swathes of Europe are entering lockdown this week.
  7. Royal Dutch Shell Plc has acquired full control of one of its gas station joint ventures in China as the oil major doubles down on the fuel retailing market in the world’s second-largest economy. Shell has agreed to buy the stake it didn’t already own in Chongqing Doyen Shell Petroleum & Chemical Co. and completed the deal on Oct. 19, a company representative said following a Bloomberg inquiry. The oil major paid about 1 billion yuan ($149 million) for 51% of the joint venture, according to a person familiar with the matter. That marked the full exit of Chongqing Doyen Shuorun Petrochemical Group Ltd. in the gas station chain, which was founded in 2006.
  8. Sweden’s Alfa Laval AB warned it may have to abandon a takeover of valve-maker Neles Oyj after it was nowhere near securing enough shares to push through the deal just two days before the deadline. What at first seemed like a straightforward acquisition has turned into an ugly battle between Alfa and its Finnish rival, Valmet Oyj. The Neles shareholder opposed Alfa Laval’s July offer and has since gone on an aggressive buying spree of its own to block the deal. Shares in Neles fell as much as 5.9% in Helsinki trading on Monday. Alfa Laval and Valmet were little changed, while European stocks traded higher.
  9. Investors withdrew money from exchange-traded funds that buy emerging market stocks and bonds last week, ending four weeks of inflow that reached $3.09 billion. Outflows from U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $103 million in the week ended Oct. 30, compared with gains of $59.3 million in the previous week, according to data compiled by Bloomberg. So far this year, outflows have totalled $12.8 billion.
  10. While spending more than $200 million on a California ballot measure campaign they call essential to their futures, gig-economy companies are relying on an ultra-low-cost system to help spread their message: their own vaults of customer data. Californians with ride-hailing apps on their phones have gotten notifications to vote yes on a measure (Proposition 22) that seeks to permanently classify drivers for companies such as Uber Technologies Inc.,Lyft Inc., and DoorDash Inc. as independent contractors rather than employees under state law. Polls have indicated the race will be tight, with many voters undecided. It’s part of a growing trend to deliver political messages by text as voters skip commercials and toss away paper ads. One researcher says it’s a tactic that could become more prevalent as legislators crack down on how political campaigns send out their digital messages.
  11. Mall owner CBL & Associates Properties Inc. filed for court protection from creditors, following some of its biggest tenants into bankruptcy after the pandemic kept consumers at home, forcing many retailers already weakened by e-commerce to quit paying rent. The filing in the Southern District Court of Texas will give the company a chance to keep operating while reorganizing its finances and business. It listed estimated assets at about $1 billion to $10 billion, and estimated liabilities at around the same amount. Some of CBL’s biggest renters, including J.C. Penney Co. and Ascena Retail Group Inc. have already filed for bankruptcy with plans to close stores. Analysts have long predicted a shakeout in malls and strip shopping centers serving less affluent areas, which dominate CBL’s roster.
  12. Abu Dhabi’s government has stumped up around $22 billion for Etihad Airways since it began flying in 2003, underscoring the ambition of the oil-rich emirate to turn its national carrier into a global player before the effort faltered in recent years. The heavy investments, made before Covid-19 lockdowns strangled demand for air travel, were likely a prelude to support for the carrier this year, given the sector’s dire need for cash during the pandemic. The extent of assistance could also return the spotlight to an agreement reached two years ago that settled a long-running dispute over government aid in the region, which pitted the largest U.S. airlines against rivals in Qatar and the United Arab Emirates. American carriers were pushing for a crackdown on what they described as more than $50 billion in unfair subsidies for Qatar Airways, Emirates and Etihad.
  13. Blackstone Group Inc. is investing in a group of U.S. data centers as more consumers shift to the internet during the pandemic. A unit of the private equity giant is acquiring a roughly 90% interest in the real estate for eight single-tenant centers in Northern Virginia, according to a statement Monday announcing a joint venture with Maryland-based Corporate Office Properties Trust. The sites are valued at nearly $300 million and span 1.3 million square feet (121,000 square meters). Data centers are gaining popularity among investors as people spend more time online. During the pandemic, the rise in work-from-home, e-commerce and streaming have helped fuel the sector’s growth. Goldman Sachs Group Inc.’s infrastructure arm agreed to invest $500 million in the industry last month.
  14. U.K. and European Union officials are zeroing in on a solution to break the eight-month deadlock over one of the biggest obstacles to their planned trade deal. In a sign that an agreement could be struck by the mid-November deadline set by both sides, a compromise is emerging on the issue of what access EU boats will have to U.K. fishing waters, according to two people with knowledge of the EU side of the discussions. The potential solution would allow Britain to claim it has won back control of its seas — a key government demand — and pave the way for the country’s fishing industry to catch more than it does currently. Quotas would be set to the principle of zonal attachment, the formula the U.K. had been seeking.
  15. Pacific Investment Management Co LLC and ​​​​​Davidson Kempner Capital Management LLC have submitted binding offers to buy up non-performing loans from Greece’s Alpha Bank AE and to acquire the lender’s bad-loan servicing unit, people familiar with the matter said. The sale of the soured credit and the disposal of Alpha’s Cepal unit are key pillars in the lender’s Galaxy Project, which includes three rounds of NPL securitizations with a total book value of 10.8 billion euros ($13 billion). Alpha’s NPL ratio was 30% at the end of June and the lender says that will fall to 13% after the plan is finished. Alpha Bank said earlier Monday it has received two binding offers for Galaxy. A spokesman for the lender declined to provide further details. A spokeswoman for Pimco declined to comment.
  16. Russia kept its oil production in October nearly unchanged amid a second wave of the coronavirus pandemic in the U.S. and Europe crushing hopes of a speedy recovery in global crude demand. The nation pumped 42.19 million tons of crude and condensate in October, preliminary data from the Energy Ministry’s CDU-TEK unit show. That’s a daily average of 9.976 million barrels, when applying a 7.33 barrel-per-ton conversion ratio. Russia’s oil production grew just 0.1% compared with September. As Russia kept its crude output steady last month, demand in Europe is under increasing pressure amid tighter restrictions aimed at stemming the spread of new virus cases. At the same time, Libya has been restoring its oil production rapidly after a truce in its years-long civil war, adding to concerns of a new glut.
  17. Ryanair Holdings Plc said losses are set to worsen this winter as a new wave of coronavirus lockdowns frustrates attempts to bring back flights at Europe’s biggest discount carrier. The shortfall in the fiscal second half, which began on Oct. 1, is set to exceed the 197 million-euro ($229 million) loss of the first six months, Ryanair said in a statement Monday. By comparison, the Irish firm recorded a profit of 1.15 billion euros in summer 2019. Airlines across Europe have been paring back already reduced schedules as a resurgence in the virus prompts a return of restrictions. Ryanair will offer 40% of its usual capacity this winter and said the figure could drop further, with revised full-year passenger targets also under pressure. Chief Executive Officer Michael O’Leary said the fresh curbs reflect a deficit of government policy.
  18. Sanofi offered to buy Dutch immunotherapy company Kiadis Pharma NV for about 308 million euros ($359 million), to restock its pipeline with promising cancer medicines as some former blockbusters age. The French drugmaker entered into a definitive agreement to make a public offer for the entire share capital of Kiadis for 5.45 euros apiece, the company said Monday. That’s more than three times Friday’s closing price. Kiadis, based in Amsterdam, has a proprietary platform based on “off-the-shelf” cancer-seeking NK cells from a healthy donor. It’s developing several therapies with that technology, which could allow for cheaper treatments across a range of cancer types, Sanofi said.
  19. Institutional investors are buying Ant Group Co.’s shares at a 50% premium, signaling the Chinese fintech giant is poised to soar in its debut this week following the world’s largest initial public offering. Some trades were executed at HK$120 ($15.50) apiece in gray-market trading Monday, compared with the listing price of HK$80, according to people familiar with the matter who declined to be identified as they aren’t authorized to speak to the media. Billionaire Jack Ma’s Ant IPO has become the most anticipated in years, attracting at least $3 trillion in orders for its dual listing in Hong Kong and Shanghai ahead of its trading debut on Nov. 5. The stampede for shares is fueling predictions of a first-day pop, even as skeptics warn of risks including the U.S. election, tightening regulations in China and rising Covid-19 infections worldwide.
  20. Just two years after its founding, Inspire Brands Inc. took a major step toward its goal of building a full-spectrum collection of restaurants with the $11.3 billion acquisition of Dunkin’ Brands Group Inc. The deal announced Friday, whose price includes assumed debt, is the restaurant industry’s second-largest transaction and its most expensivebased at about 23 times Ebitda. Adding Dunkin’ Brands gives Roark Capital Group-backed Inspire its first chain focused on coffee and breakfast, a market facing turbulence from the Covid-19 pandemic. Since bursting onto the scene in 2018 with the merger of Arby’s and Buffalo Wild Wings, Inspire has acquired Sonic Corp. and Jimmy John’s, giving it more domestic locations than industry stalwarts such as Wendy’s. One analyst said that while the breakfast chain has done well in the shifting environment, the valuation is “aggressive” and unlikely to stir any rival bids.
  21. Ray Dalio sees the need to have “a significant portion” of its portfolio in Chinese assets for long-term diversification and shorter-term tactical trading purposes. Regardless of who wins the presidential election, the U.S. will run bigger deficits and sell more debt, and because investors globally are overweight in U.S. bonds they will diversify, including by investing more in China, the Bridgewater Associates founder said. He favors Chinese bonds over U.S. debt and expects the Chinese currency to benefit from capital inflows.
  22. Chinese companies have made a seemingly unstoppable push to the front of the race for a coronavirus vaccine. Yet their speedy ascent has been unhindered by common scientific setbacks being reported by Western rivals, raising questions about how stringently they are vetting and reporting potential safety issues. The lack of clarity over the standards and safeguards used by Chinese developers is drawing concern because some of their vaccines are being distributed in China under an emergency use program before full regulatory approval. In the U.S., President Donald Trump repeatedly claimed a working shot would be available there ahead of the Nov. 3 election. That hasn’t panned out as the most optimistic timelines for U.S. emergency use authorization now go into late November and December, well behind China on this front. There are potentially far-reaching implications for the way China goes about its vaccines. The Asian country has the largest number of candidates in late-stage trials, and Chinese shots could be used by millions worldwide because President Xi Jinping has pledged to share successful ones overseas.

*All sources from Bloomberg unless otherwise specified