November 4th, 2020

Daily Market Commentary

Canadian Headlines

  1. Canadian equities rose for a second straight session ahead of results from Tuesday’s U.S. presidential election. The S&P/TSX Composite Index gained 1.5%, most since September 9. Ten of eleven sectors rallied, with health care being the only laggard. Tech and financials led the way. Oil rose to the highest in a week alongside a broad market rally, drawing support from signs that OPEC+ may delay a planned output increase as well as a weaker dollar. Ontario unveiled a new five-color system for deciding when to ramp up or relax Covid-19 restrictions and said it will allow restaurants, gyms and other businesses to reopen in some regions where they’re currently closed.
  2. Toronto’s condo market showed more signs of cooling in October, as people sought more spacious accommodation outside the core of Canada’s biggest city with the coronavirus pandemic still raging. Condominiums in Toronto’s central 416 area code were the only segment of its housing market to register a decline in the number of sales in October, falling 8.5% compared to the same month last year, according to data from the Toronto Regional Real Estate Board. Despite the sales drop for downtown condos, prices are still up from October 2019 levels, registering a slight 0.8% increase. In Toronto’s suburbs, where buyers can often afford a little more space, condo sales picked up 28% compared to last year and prices rose almost 7%, mirroring a pattern of more sales and higher prices for larger homes across the region.
  3. Brookfield Renewable Partners LP, one of the world’s largest clean-energy providers, is set to join Poland’s drive toward the industry by an acquisition of Polenergia SA. Canada’s Brookfield, together with Polenergia majority owner Dominika Kulczyk, an heir to late Polish billionaire Jan Kulczyk, will bid about 1.06 billion zloty ($272 million) to buy out minority investors and take the company off the Warsaw Stock Exchange, the Polish company said in a regulatory statement. Brookfield, which has over 19 gigawatts in renewable power worldwide, also pledged to invest a further 150 million euros ($175 million) in the company within two years after its delisting.

World Headlines

  1. European equities swung between gains and losses as the presidential battlefield in the U.S. narrows to a smaller number of states, with the outcome still too close to call. The Stoxx Europe 600 Index advanced 0.1% as of 10:32 a.m. in London, erasing a decline of as much as 1.3% shortly after the open. More defensive sectors such as healthcare, food and beverage and technology shares rose the most while cyclical sectors such as banks, miners and energy paced the retreat. The U.S. election remains up in the air with results from some key states possibly taking until at least midday Wednesday to resolve. Stocks had declined earlier after President Donald Trump falsely declared he had won re-election and said he would ask the Supreme Court to intervene, even as several states continue to count votes.
  2. Treasuries jumped, sending the 10-year yield to the biggest drop since June amid uncertainty over who will be the next American President. Equities were marked by sharp volatility throughout the day. U.S. election results so far suggest Congress is likely to stay divided, and for investors, that means that it’ll likely be harder for lawmakers to approve a big new stimulus deal. Futures on the tech-heavy Nasdaq 100 Index, sometimes viewed as a defensive sector, jumped 2.6%, while contracts on the small-cap Russell 2000 Index sank 1.1%. Futures on the S&P 500 Index swung between gains and losses during the European morning. Prices recovered from the dive they took earlier when Trump falsely claimed victory and threatened to ask the Supreme Court to intervene in the election.
  3. Elsewhere, the dollar erased earlier gains against many of its major peers, while gold slipped. In Asia, Alibaba Group Holding Ltd. tumbled 7.5% in Hong Kong after China halted the initial public offering of Ant Group Co., in which Alibaba owns about a one-third stake.
  4. Most commodities were dragged lower as the dollar rallied, with the unexpected closeness of the race sparking risk aversion across financial markets and spurring a flight to the safety of the greenback. Oil rose after fluctuating earlier in the day, supported in part by a better-than-expected showing from President Donald Trump. Gold and copper slumped while oil rose, as tight races in battleground states in the U.S. election raised the prospect of a prolonged wait for the final result.
  5. Donald Trump won two key states where hospitalizations for Covid-19 were among the highest in the U.S. in the past few days — Florida and Ohio. The two states and Michigan, which is still up for grabs, all saw admissions for the virus surge more than 10% since Oct. 30, suggesting the jump in cases during the election campaign may have done less harm to the Republican camp than expected. In Europe, the resurgent coronavirus unleashed new restrictions and lockdowns. The U.K., Italy, Sweden, Hungary and the Netherlands all laid out new curbs. Belgium reported record hospital admissions, while French fatalities rose by the most since April. Total cases in India, second to the U.S. in the number of infections, rose to 8.31 million. In Australia, the state border between the two biggest urban centers will reopen on Nov. 23 after the city of Melbourne ended a lockdown last week.
  6. Billionaire Li Ka-shing is closing in on a sale of his European telecommunication towers to Spain’s Cellnex Telecom SA for about 10 billion euros ($11.7 billion). Li’s Hong Kong-based conglomerate CK Hutchison Holdings Ltd. has reached a “substantial agreement” on terms but hasn’t taken a final decision, according to a filing Wednesday. Cellnex separately confirmed the talks that Bloomberg News reported last month, without disclosing a value. CK Hutchison is the latest mobile network operator to carve out mast infrastructure to cut debt and help pay for costly 5G network upgrades. Cellnex is snapping up a chunk of those assets, making it one of the fastest-growing players in Europe’s telecom industry.
  7. Alfa Laval AB has officially abandoned a $2 billion takeover of Neles Oyj, ending what would have been one of the biggest Nordic deals this year, after it failed to secure enough shareholder support. The offer, first made in mid-July, was derailed after rival Valmet Oyj started hoarding stock in Neles, a valve maker. The stalemate that ensued left more than a third of the target company’s shareholders on the fence, even after the board gave its blessing for the deal to go ahead. “We do not believe that Neles would be well served by having two large shareholders with conflicting strategic agendas for the long-term,” Alfa Laval said in a statement on Wednesday. Final results of its tender showed it got only 32.82% of shares, significantly below its 50% acceptance threshold.
  8. Drugmaker Perrigo Co. lost a legal bid in Dublin to overturn a 1.6 billion-euro ($1.9 billion) tax demand, one of the largest in Irish history. Perrigo didn’t establish any basis to undermine the bill, which was linked to the 2013 sale of multiple sclerosis drug Tysabri, High Court Judge Denis McDonald ruled on Wednesday. The company’s shares fell 5.2% in U.S. pre-market trading after losing the case, which centered on whether Irish tax collectors had the right to issue the demand rather than the detailed merits of the bill itself. Perrigo will either seek to contest Wednesday’s ruling or reactivate an appeal to the tax authorities, Chief Executive Officer Murray Kessler said in a statement. Against that backdrop, he said the company doesn’t have to pay anything now.
  9. BMW AG ended an upbeat quarter for European automakers by warning that the rapidly resurging coronavirus pandemic could wreck a sales recovery driven by strong demand in China. BMW confirmed its full-year profit forecast on the back of rising sales in China. Still, the German luxury carmaker cautioned that Covid-19 is worsening in Europe’s biggest markets, with fresh lockdowns threatening to crimp demand for its automobiles. Governments across Europe have in recent days restricted public life to contain the spread of the virus, with the U.K. and France announcing partial lockdowns that will also close car dealerships. While those businesses remain open in Germany, Chancellor Angela Merkel’s government is urging citizens to stay home whenever possible.
  10. Traders are rapidly unwinding their wagers on global reflation as Wall Street frets over protracted post-election wrangling. With the prospect of a divided Congress making it harder to pass fresh stimulus, investing strategies acutely sensitive to the economic cycle are getting punished. Among the risk-off moves: Value stocks are underperforming, inflation expectations are dropping and defensive tech stocks are reclaiming market leadership. In the run-up to Tuesday, reflation trades had been all the rage as money managers looked forward to massive new government spending to battle the pandemic with the White House and Congress both under Democratic control.
  11. Gig economy giants including Uber Technologies Inc., Lyft Inc. and DoorDash Inc. have won their effort to pass a hotly contested ballot measure that will exempt the companies from a state law requiring them to classify most of their workers as employees. Uber and Lyft soared more than 14% in pre-market trade after California voters, in the most expensive ballot initiative in state history, approved a ballot measure exempting gig-economy companies from the state labor law known as A.B. 5. Almost 58% of voters were supporting the proposition versus 42% against, with more than 80% of the vote reported, according to the California Secretary of State’s Office. Drivers for Uber, Lyft, DoorDash and their ilk will receive some new corporate perks but won’t be eligible for full employment benefits and protections as lawmakers had intended. Uber and Lyft alone will save more than $100 million a year on employment costs, according to one estimate.
  12. Executive-turned-international fugitive Carlos Ghosn is gunning for revenge in a new book published this week about the events surrounding his arrest in Tokyo two years ago, 130-day Japanese imprisonment and dramatic escape to Lebanon. The former high-flying chairman of Nissan Motor Co. and Renault SA, who has denied financial misconduct charges leveled against him, has long said he was set up to prevent deeper integration between the two automakers, part of a three-way alliance with Mitsubishi Motors Corp. Ghosn remains holed up in Beirut after jumping bail in December and fleeing Tokyo with the help of a former Green Beret, who with his son is now facing extradition to Japan from the U.S. Earlier this year, Ghosn promised the book would contain fresh revelations that would add to a narrative worthy of a Hollywood movie. It would show “clear evidence” of collusion between Nissan, Japanese prosecutors and the government, he said.
  13. Italy is poised to ban people from leaving or entering cities and towns in high-risk areas, likely including the financial capital Milan, as part of the government’s latest attempt to check the rapid spread of the coronavirus. A 10 p.m. to 5 a.m. curfew will also be imposed across the country, according to a draft decree seen by Bloomberg. Prime Minister Giuseppe Conte signed off on the new restrictions overnight, said a government official, who asked not to be identified in line with policy. Italians in the highest-risk zones will be told to stay within their city or town and will be allowed to leave only for specific business or health reasons, according to the draft. Provisions are subject to change as the government discusses details.
  14. While the U.S. waits for a result in its most fractious election in decades, China’s President Xi Jinping is taking to the stage in Shanghai to spell out his vision for China’s economic future. The contrast could hardly be more stark. Hours after President Donald Trump crowned himself the winner of the still-undecided election, decrying anything less as a fraud, an embarrassment and legally suspect, Xi will likely deliver another message that China is open to the world and ready to do business with anyone. The platform will be the opening of the China International Import Expo, an annual event Xi has used since 2018 to tout China’s importance in global trade.
  15. For bankers, Ant Group Co.’s initial public offering was the kind of bonus-boosting deal that can fund a big-ticket splurge on a car, a boat or even a vacation home. Hopefully, they didn’t get ahead of themselves. Dealmakers at firms including Citigroup Inc. and JPMorgan Chase & Co. were set to feast on an estimated fee pool of nearly $400 million for handling the Hong Kong portion of the sale. Instead, they were left reeling after the listing there and in Shanghai abruptly derailed days before the scheduled trading debut. Top executives close to the transaction said they were shocked and trying to figure out what lies ahead. And behind the scenes, financial professionals around the world marveled over the surprise drama between Ant and China’s regulators and the chaos it was unleashing inside banks and investment firms. Some quipped darkly about the payday it’s threatening. Banks on the Hong Kong initial public offering haven’t yet been paid any sizeable fees on the transaction, since nearly all were tied to the completion of the deal, people with knowledge of the matter said.
  16. The U.S. election remains too close to call after a dramatic night of swinging fortunes for Democratic nominee Joe Biden and President Donald Trump. In the latest twist, Trump falsely declared early Wednesday that he’d won re-election and said he would ask the Supreme Court to intervene, even as key battleground states continued vote counts that may take some time to resolve. The Senate appears likely to remain in the hands of Republicans. Investors were whipsawed by volatile markets. S&P 500 futures gyrated between a gain of 2.1% and a loss of 1.3%. The yield on 10-year Treasuries fell as low as 0.76%, a decline of 14 basis points. The Bloomberg Dollar Index rallied 1% before giving up a slice of the gains.
  17. New Jersey will become the fourth most-populous state and the biggest on the East Coast to legalize marijuana sales for adult recreational use as voters approved ending a prohibition of the drug. Voters passed the initiative after Governor Phil Murphy and other state lawmakers failed to legalize adult marijuana use through the legislature. The measure was ahead with 67% of voters in favor and 33% against with more than 58% of precincts reported, according to Associated Press. New Jersey will join 11 states that have already fully legalized cannabis, including Maine and Massachusetts. Similar referendums are on Nov. 3 ballots in Arizona, Montana and South Dakota while Mississippi voters will decide whether to allow medical marijuana sales.
  18. The U.S. has officially become the first nation to quit the Paris climate agreement, even as the outcome of the country’s presidential race remains undetermined. President Donald Trump, who’s fighting for re-election, moved to withdrawfrom the landmark environmental accord exactly one year ago, abandoning a global effort to curb carbon emissions and slow global warming. The U.S. exit formally took effect Wednesday, the day after the vote. The fate of the global climate now rests, in part, on who ends up in the White House. Former Vice President Joe Biden has said he will rejoin the Paris pact immediately if he wins. His clean-energy agenda is one of the most ambitious in the world, and could help significantly lower global emissions.
  19. Investors withdrew from U.S.-listed fixed income exchange traded funds last week following five straight weeks of inflows. Corporate bond ETFs led the outflows. Broad bond-market ETFs had the second biggest change from the previous week. Net outflows from ETFs totaled $2.28b in the week ended Nov. 3, including the effect of leveraged funds, compared with inflows of $1.16b the prior week


*All sources from Bloomberg unless otherwise specified