November 3rd, 2020

Daily Market Commentary

  1. Canadian Headlines
    1. Canadian equities advanced Monday as marijuana shares gained on the prospect of Democrats winning in Tuesday’s U.S. elections, ushering in a new era for pot legislation. The S&P/TSX Composite Index rose 0.8% as pot producers including Aurora Cannabis and Cronos Group Inc. gained over 10%. Nine of eleven sectors rose. Joe Biden’s favorable odds have also been helping clean energy stocks in recent months. However, if the former vice president does win, there could be some pullback right after the election, Jefferies said. Ontario’s online gaming industry is anticipating the provincial government will move ahead soon with regulatory changes to allow private operators into the market.
    2. G4S Plc said it recently rejected a takeover proposal from U.S. competitor Allied Universal Security Services LLC, with the British guarding company now at the center of a potential tussle between two suitors. Allied Universal on Oct. 28 tabled a “highly conditional indicative offer” of at least 210 pence per share, subject to due diligence, G4S said in a statement Tuesday. The board rejected the proposal on the grounds it “significantly undervalues G4S and its prospects,” it added, confirming an earlier Bloomberg News report. The move marks the second suitor to be turned away by the British firm, which is publicly fighting a hostile bid from Canada’s GardaWorld. G4S Chief Executive Officer Ashley Almanza said in an interview last week that the company hasn’t seen any mergers that make sense and will push ahead with a turnaround plan.

    World Headlines

    1. European stocks extended gains following October’s worst rout in seven months as investors look forward to the U.S. presidential election. The Stoxx Europe 600 Index added 1.7% as of 11:57 a.m. in London after rising as much as 1.8%. Energy, mining and bank shares led the advance. France’s BNP Paribas SA surged after recording a bigger-than-expected boost from trading. Stocks are rebounding after worries about fresh lockdowns across Europe sparked a selloff that dragged the Stoxx 600 to a five-month low last week. Investors are bracing for the results of Tuesday’s electoral contest between U.S. President Donald Trump and Democrat Joe Biden, which has been a key source of market uncertainty besides Covid-19 developments.
    2. Stocks rallied with U.S. futures on Tuesday as a gust of optimism swept through global equity markets with millions of Americans headed to vote. Currency traders braced for increased volatility. Banks and oil drillers including Chevron Corp. rose in U.S. premarket trading. Futures on the blue-chip Dow Jones Industrial Average surged as much as 1.8%, outperforming contracts on the tech-heavy Nasdaq 100. Treasuries fell and a gauge of the dollar dropped the most in three weeks as a risk-on mood prevailed. While trades reflecting a Democratic sweep held firm, betting markets aren’t convinced. They slipped to just over 50% odds of the so-called Blue Wave – that Democrats take the presidency as well as Congressional majorities. Traders hedged prospects of post-vote volatility, driving a measure of expected swings in China’s yuan to its highest level in more than nine years.
    3. Oil gained following the broader risk-on sentiment in markets, and as OPEC+ inches closer to delaying a planned easing of output cuts. Futures in New York climbed near $38 a barrel after rising 2.9% in the previous session. Equities were rallying ahead of the U.S. election, while the dollar lost 0.5%, adding to positive sentiment in crude. On Monday, Energy Minister Alexander Novak met with Russian producers to discuss delaying an easing of production cuts by three months. The Organization of Petroleum Exporting Countries and its allies were set to add almost 2 million barrels a day of supply from January, but the group’s secretary general said Tuesday that demand is recovering at a “very slow speed.”
    4. Gold was steady, trading near $1,900 an ounce ahead of Tuesday’s U.S. presidential election as uncertainty boosted demand for the haven asset. “Safe-haven flows continue to pour in on contested-election concerns, delays in knowing the Senate race outcomes, and fears of post-election unrest,” said Edward Moya, senior market analyst at Oanda Corp. Bullion rose, with President Donald Trump’s and Democrat nominee Joe Biden’s campaigns both claiming the inside track to victory on election eve, but girding their supporters to prepare for a photo finish. The incumbent may jump to initial leads in many states because early returns traditionally come from rural areas where he’s expected to perform well.
    5. The dollar slid as U.S. voters took to the polls, with investors rushing to make tweaks to portfolios at the start of the year’s biggest risk event. A gauge of the currency fell the most in nearly two weeks as the dollar lost ground against all its peers. The decline comes as other havens such as Treasuries also slipped, while equities climbed. Investors may be squaring positions rather than putting on new bets on the outcome, strategists said. “The market might be a bit thin and dealers won’t want to leave open positions overnight, and that can make the market move a bit more than usual,” said Steven Barrow, head of FX strategy at Standard Bank. “There has not been much happening in recent days poll-wise to suggest that the odds have changed that much.”
    6. Chinese President Xi Jinping said the economy can double in size by 2035 and the country can reach high-income status in the next five years as the Communist Party outlined ambitious plans for the nation’s future. “It is entirely possible to reach the high-income country status by current standards by the end of the 14th Five-Year Plan, and to double the total economic output or per capita income by 2035,” Xi said in a speech to the party’s Central Committee, according to state media Xinhua. “Based on a rough estimate, doubling economic output by 2035 would mean an annual growth rate of nearly 4.7%, said Hong Hao, chief strategist for Bocom International in Hong Kong. “This is ambitious, as the Chinese economy is already of significant size.”
    7. Italy is laying out new curbs, while France’s health minister said it’s urgent people follow the rules to ease “very strong” pressure on hospitals. The virus continued its unrelenting surge across the U.S., with cases soaring in key battleground states ahead of the presidential election. In Asia, Hong Kong extended social distancing rules by another week. Thailand is considering reducing mandatory quarantine to 10 days, while Indonesia reported the fewest new cases since August.
    8. Boris Johnson said there is “no alternative” to imposing a coronavirus lockdown across England to stop the health service being overwhelmed, as he revealed plans for whole cities to be tested to root-out asymptomatic carriers of the disease. Mass checks will be trialled in Liverpool, northwest England, from Friday with everyone in the city to be offered repeat testing — even if they don’t have symptoms. If the program is successful, millions of the test kits will be distributed in other places in the coming weeks, the government said. “This kind of mass testing has the potential to be a powerful new weapon in our fight against Covid-19,” Johnson said in a statement. On Monday, the prime minister told the House of Commons rapid test kits could be used in schools and elsewhere to allow the economy to keep moving before the much-anticipated roll-out of a vaccine next year.
    9. Election Day 2020 is underway and for American voters the choices couldn’t be more stark. Donald Trump was a novelty four years ago, a reality television star and real estate developer with a penchant for bombast and Twitter insults. The 74-year-old president has erased any notion that the Oval Office would tame him, thrilling Republicans by cutting regulations and taxes, restricting immigration and appointing three Supreme Court justices. Joe Biden, 77, passed on a chance to run in 2016 but said Trump’s reaction to racial protests in Virginia the following year convinced him to return to politics. After lagging in the primaries, the former vice president emerged as a unity candidate, portraying himself as a man of decency who would listen to scientists fighting the Covid-19 pandemic, restore America’s overseas alliances and confront climate change.
    10. Dealmakers are in a record-breaking rush to get transactions done before what could be one of the most contentious U.S. presidential elections ever. Companies have announced $143.1 billion of mergers and acquisitions globally in the past seven days, the highest for any week preceding a U.S. presidential vote since Bloomberg started collecting data. It’s more than double the tally for the lead-up to the 2016 election. Deals have ranged from one of the chip industry’s biggest-ever transactions to a fast-food megadeal, with bankers scrambling to get things done before Americans head to the polls. They’re fearful that further volatility in the days after the election could scuttle carefully-laid plans for the next blockbuster merger.
    11. JPMorgan Chase & Co joined rivals in asking the vast majority of its employees in England to work from home following government rules to stop a surge in coronavirus infections. The Wall Street bank told staff in a memo Tuesday that most workers will be required to work from home from Thursday until further notice after government advice at the weekend. The new measures mean that about 5% of workers will be in the office, including around 20% of its traders. The bank had as many as 30% of staff return to its London offices in recent months, although most recently that was around a fifth.
    12. OPEC and its allies will “accelerate” the recovery in oil markets at their next meeting, the group’s top official said, dropping another hint about a delay to the production hike scheduled for January. “We continue to see headwinds,” the Organization of Petroleum Exporting Countries’ Secretary-General Mohammad Barkindo said in an interview with the head of the International Energy Forum. “Demand is recovering, so also is the global economic rebound, but at a very slow speed.” The 23-nation OPEC+ alliance, led by Saudi Arabia and Russia, is due to meet Nov. 30 to Dec. 1 amid growing expectations that they’ll choose to maintain current supply curbs, which amount to almost 8 million barrels a day.
    13. German regulators fell short in their oversight of Wirecard AG, the European Union’s top markets watchdog said in a review of the country’s handling of the payments company which collapsed earlier this year. The European Securities and Markets Authority, which coordinates standards across the bloc, found several “deficiencies, inefficiencies and legal and procedural impediments.” German regulator BaFin isn’t sufficiently independent from the companies it oversees and the government, while the country’s accounting enforcement watchdog didn’t look closely enough at Wirecard, ESMA said. Once praised as a home-grown technology giant, Wirecard collapsed in June when it said a quarter of its balance sheet probably didn’t exist. That set off a blame game among banks, auditors, politicians and regulators and revealed large gaps in the country’s oversight of non-financial companies.
    14. Bristol-Myers Squibb rose as much as 3.6% after a late-stage trial evaluating deucravacitinib (BMS-986165) met its main goals in a placebo controlled study of patients with moderate to severe plaque psoriasis. The study, which evaluated a 6 mg dose once daily, showed more patients achieved at least a 75% improvement in Psoriasis Area and Severity Index (PASI) 75, and a static Physician’s Global Assessment (sPGA) score of clear or almost clear (sPGA 0/1) after 16 weeks of treatment with deucravacitinib, the company said in a statement
    15. A federal appeals court denied a request from a group of Texas Republicans for a ban on drive-through voting in the state’s most populous county on Election Day. In a three-line order the appeals court in New Orleans on Monday denied the request a preliminary injunction, without an explanation. The Republicans said they sought the injunction to prevent “election violations which would otherwise occur” on Tuesday. U.S. District Judge Andrew Hanen had suggested that while the state legislature that makes voting law might be qualified to bring the suit, which names Harris County Clerk Chris Hollins as defendant, the plaintiffs — including voters and candidates for state and federal office — lacked that standing.
    16. Hurricane Eta has strengthened into one of the Atlantic’s most powerful storms of the year, packing winds of 150 miles (240 kilometers) an hour as it roars toward Central America. The storm, a Category 4 major hurricane, is expected to cause life-threatening storm surges, flash floods and landslides when it slams into the coast of Nicaragua early Tuesday, the National Hurricane Center said. Eta, forecast to dump as much as 25 inches (64 centimeters) of rain after crashing ashore, is the Atlantic’s 28th storm of 2020, tying a 2005 record for the most named systems in a single year. So many have formed that the hurricane center has used up all its official names and has resorted to designating storms with Greek letters.
    17. A Twitter Inc. board committee reviewing the social network’s leadership and management structure concluded that Chief Executive Officer Jack Dorsey should maintain his role at the helm of the company. The committee was asked to formally review Twitter’s leadership as part of an agreement in March with activist investor Elliott Management Corp. and private equity firm Silver Lake, which took stakes in the San Francisco-based company earlier this year. The independent board panel, which included representatives from Elliott and Silver Lake, concluded that the current management structure is sufficient, and the full board accepted that recommendation, according to a company filing on Monday.
    18. Credit risk is easing alongside rising stock futures, in a last sweep of optimism hours before the election. LQD, BlackRock’s iShares iBoxx $ Investment Grade Corporate Bond ETF, saw a record outflow in the latest session, while secondary high-grade spreads remain resilient. LQD lost $1.4 billion of cash in the latest session, its largest outflow ever. Meanwhile, IG spreads have barely budged, widening 1 basis point Monday
    19. Donald Trump claims his tariffs saved U.S. steel companies. But with production still slumping and jobs near an all-time low, the iconic U.S. industry is seeking a long-term solution. The 25% tariffs Trump introduced in March 2018 gave a brief jolt to American steel producers. U.S. Steel’s annual profit more than doubled that year and the domestic steel price hit the highest in a decade. Jobs rose as much as 9% from the all-time low in April 2017, the month Trump launched a national security investigation into steel imports. Three years on and pummeled by a pandemic, steel’s gains have stagnated amid a persistent global oversupply. Trump is locked in a close battle with Democratic candidate Joe Biden in battleground states Ohio, Michigan and Pennsylvania, and the votes of blue-collar workers are key to his chances for a second term.
    20. Clearlake Capital Group said it will buy Endurance International Group Holdings Inc. in an all-cash deal for about $1.34 billion. Clearlake will acquire Endurance shares for $9.50 apiece, a 79% premium over the share price on Sept. 25 before reports of a potential sale, the company said in a statement on Monday. Including debt, the offer is about $3 billion, the company said. Endurance, a web-hosting company based in Burlington, Massachusetts, offers technology to help small and midsize businesses with email marketing, building an online presence and connecting with customers on social media. It was founded in 1997 and is led by Chief Executive Officer Jeff Fox. The company began talking with an adviser about a sale earlier this year, people with knowledge of the matter told Bloomberg at the time.
    21. New Oriental Education & Technology Group Inc., the Chinese tutoring provider, has raised about HK$10.1 billion ($1.3 billion) in its second listing in Hong Kong, according to terms of the deal obtained by Bloomberg News. The company has priced the Hong Kong offering at HK$1,190 per share, representing a discount of 4.8% to Monday’s $161.36 close in New York. It set a maximum price of HK$1,399 for the portion of the deal being marketed to Hong Kong’s retail investors.
    22. Stonepeak Infrastructure Partners said it would acquire Astound, the sixth-largest U.S. cable and broadband provider, from private equity firm TPG for $8.1 billion including debt. TPG is selling the company, which serves over a million customers under the brands RCN, Grande, Wave and enTouch, after it built it up through a series of acquisitions starting in 2016. “We are very eager and excited to partner with a premier investor such as Stonepeak to further accelerate our growth and take our companies to new levels of customer satisfaction and performance,” Astound Chief Executive Officer Jim Holanda said in a statement that confirmed an earlier Bloomberg News report.

*All sources from Bloomberg unless otherwise specified