November 5th, 2020

Daily Market Commentary

Canadian Headlines

  1. Canadian equities rose for a third straight session Wednesday as investors awaited the final outcome of the U.S. presidential election. The S&P/TSX Composite Index rose 0.4%, with tech shares leading the way. Lightspeed POS Inc. and Shopify Inc. both rose more than 5%. It was a mixed session with five of 11 groups closing lower. Materials and some marijuana shares, including Aurora Cannabis Inc., dropped. The search is officially on for a new senior deputy governor at the Bank of Canada. With Carolyn Wilkins moving on when her term ends May 1, the Ottawa-based central bank published the job posting Wednesday.
  2. Parka maker Canada Goose Holdings Inc. posted better-than-expected revenue, showing the pandemic slump is easing just in time for the crucial winter period. “This is a strong backdrop as we head into peak Canada Goose season,” Chief Executive Officer Dani Reiss said in a statement. The company is recovering from the Covid-19 crisis that forced it to temporarily close stores from Beijing to Toronto earlier this year — though it’s not yet back to pre-pandemic levels as department stores who sell the brand continue to languish. Revenue for the second quarter ended Sept. 27 fell 34% year on year to C$194.8 million, above the average of C$166 million expected by analysts.
  3. Skyrocketing bullion prices helped propel Barrick Gold Corp. to post its highest quarterly revenue since last year’s merger with Randgold Resources Ltd. Barrick posted revenue of $3.54 billion in its third quarter, helping the world’s second-largest gold producer report adjusted earnings that beat analysts’ estimates. “In the face of unprecedented challenges we have succeeded in beating our earnings consensus, reinforcing our 10-year plan and capitalizing on the gold price to maintain an industry-leading balance sheet,” Chief Executive Officer Mark Bristow said Thursday in the company’s earnings statement.
  4. A second wave of Covid-19 is threatening to reverse Canada’s labor market recovery. Economists predict employment increased by 58,000 last month, according to the median of 16 forecasts in a Bloomberg survey. That would represent a marked deceleration from 378,000 jobs added in September, 246,000 in August and 418,500 in July. Statistics Canada is due to release the data at 8:30 a.m. Friday in Ottawa. The October forecasts range widely, from an increase of 185,000 to a decrease of 100,000, however the theme is consistent: the recovery is grinding to a near halt as public health officials grapple with rising cases of Covid-19.

World Headlines

  1. European stocks rose, poised for their longest rally since April, as Joe Biden stood on the brink of claiming the U.S. presidency, with a handful of states expecting to complete vote counts. The Stoxx Europe 600 Index advanced 0.8% as of 12:08 p.m. in London, led by a 2.7% gain in tech shares. U.S. futures also rallied. The advance in the FTSE 100 Index lagged European peers as the pound climbed after the Bank of England expanded its bond-buying program. European stocks are rising for a fifth day, following a slump in October, as the U.S. presidential battlefield narrows to a smaller number of states, even as Republicans open legal fights to stop counting in at least two of them. Biden held 264 Electoral College votes out of the 270 needed to win the White House, according to the Associated Press. Trump has 214.
  2. U.S. stock index futures rose as the presidential contest between Donald Trump and Joe Biden hinged on the outcomes of a handful of states and as technology stocks gained in premarket trading. S&P 500 futures for December climbed 2.1% by 06:00 a.m. in New York, hitting a session high, while Nasdaq 100 contracts gained 2.8%. The underlying S&P 500 advanced more than 2% on Wednesday, rising the most since June, and the Nasdaq 100 surged more than 4% in its best rally since April. The rally was dominated by technology and health-care sectors, whose relative immunity from the economic cycle has made them defensive havens during the pandemic.
  3. Japanese stocks rose, with the Nikkei 225 Stock Average closing at its highest level since October 2018, as no major changes were expected in U.S. interest rate or regulations following the U.S. elections. Electronics and drug makers were the biggest boosts to the benchmark Topix index. Financials fell with materials and infrastructure stocks. All major Asian markets and U.S. futures also climbed, and the yen strengthened against the dollar.
  4. Oil traded near $39 with the dollar slipping and Joe Biden on the brink of a narrow victory in the U.S. election. Futures in New York pared an earlier decline with the dollar down 0.6%. Biden needs six more Electoral College votes to claim victory, and with it looking less likely the Democrats will win the Senate, markets were betting there’ll be no major changes to taxes or regulations which have underpinned an equity bull market. Recounts and legal challenges could still lead to a prolonged period of uncertainty though.
  5. Gold climbed over $1,900 and copper fell as investors awaited the final outcome of the U.S. presidential election, with Joe Biden on the brink of taking the White House from Donald Trump, but Republicans likely to maintain their hold on the Senate. The still-unresolved outcome — due to an unusually large number of mail-in ballots because of the coronavirus — spurred the market to reassess the potential scale and timing of a much-needed U.S. fiscal stimulus package, the trajectory of the dollar and appetite for risk. Bullion rose past its 50-day moving average as the U.S. dollar fell amid improving risk sentiment, with investors beginning to price in a Biden presidency. The dollar weakness also helped boost crop prices.
  6. The Federal Reserve is likely to hold off from any major policy changes with the U.S. election still in the balance, even as pressure to act mounts amid diminishing prospects for aggressive fiscal stimulus. With no shift expected, officials could still open the door to adjusting their asset purchase program in either the statement issued by the Federal Open Market Committee at 2 p.m. Washington time, or during Chair Jerome Powell’s press conference 30 minutes later. “If I were Chair Powell and I was on the Fed, I would want to lay as low as I possibly could. I would not want to be making any sort of news that could be injected into the political fray,” said Stephen Stanley, chief economist at Amherst Pierpont Securities LLC. “They can certainly do whatever they want or need to do with regard to forward guidance on asset purchases in December, if they’re so inclined.”
  7. Joe Biden stood on the brink of claiming the presidency from Donald Trump on Thursday, with a handful of states expecting to complete their vote counts despite Republicans opening legal fights to stop counting in at least two states. Biden held 264 Electoral College votes out of the 270 needed to win the White House, according to the Associated Press. Trump has 214. Biden needs only to win an additional outstanding state, such as Nevada where he is leading, or Georgia, where his campaign believes absentee votes will push him over the top. Trump raged on Twitter about the increasing votes for Biden, and stoked rage among his most ardent supporters with the unfounded allegation that fraud kept him from winning. His campaign said it is suing in Pennsylvania and Michigan to halt vote counts that have been trending toward Biden.
  8. The Bank of England boosted its bond-buying program by a bigger-than-expected 150 billion pounds ($195 billion) in another round of stimulus to help the economy through a second wave of coronavirus restrictions. The BOE, which now expects the economy to shrink this quarter, has eased monetary policy four times since March, flooding the economy with cash to keep borrowing costs down in the hope of spurring demand. Chancellor of the Exchequer Rishi Sunak will address Parliament on the government’s support for businesses and households later on Thursday. He will further extend the furlough program beyond Dec. 2 in those areas kept in the highest levels of coronavirus restrictions, according to the Sun newspaper, citing unidentified sources. The Treasury didn’t immediately respond to a request for comment on that report.
  9. Greece became the latest European country to declare a national lockdown on the same day England entered a four-week shutdown to combat the accelerating spread of Covid-19. New cases in Germany, Poland and the Czech Republic climbed to record highs, while unprecedented numbers of coronavirus patients are in intensive care in Belgium. The European Commission cut its economic forecast for 2021, projecting growth of just 4.2%. AstraZeneca Plc said it is ready to supply hundreds of millions of doses of its Covid-19 vaccine, and will seek approval for its shot in many countries at once. The pandemic continued to spread in America with close to 100,000 new cases. Coronavirus deaths and infections worldwide surged by daily records, according to data from Johns Hopkins University.
  10. Shares of CK Hutchison Holdings Ltd. jumped the most in almost eight months after saying it’s nearing a deal to sell its tower assets in Europe to Spain’s Cellnex Telecom SA for about 10 billion euros ($11.7 billion). The conglomerate’s stock gained 8.9% on Thursday in Hong Kong, the most since March 20, outpacing the 3.3% rise in the benchmark Hang Seng Index, data compiled by Bloomberg show. The group, founded by Hong Kong’s wealthiest tycoon Li Ka-shing, said in a filing Wednesday that it has reached a “substantial agreement” on the terms of a potential transaction, though it hasn’t taken a final decision. Cellnex confirmed the talks but didn’t disclose a value.
  11. Merck & Co. agreed to buy VelosBio Inc. for $2.75 billion in cash, moving to bolster its lineup of cancer therapies. Privately held VelosBio, based in San Diego, has a treatment for certain blood cancers and tumors in clinical trials. The drug is a monoclonal antibody that binds to cancer cells, then releases a toxic agent into them. In October, VelosBio announced the initiation of a Phase 2 clinical trial to evaluate the VLS-101 treatment for patients with solid tumors, including certain kinds of breast cancer and lung tumors. In early clinical trials, it demonstrated a manageable safety profile and early signs of anti-tumor activity, according to a statement Thursday.
  12. The U.S. presidential election may not be settled for days, or even weeks. But don’t expect buyout bankers to be sitting around. Issuance of junk-rated bonds and loans — including debt to finance risky leveraged acquisitions — could resume in a matter of days, as the prospect of gridlock in Washington assuages fears of major regulatory overhauls, corporate tax hikes and rising borrowing costs. Debt sales for Blackstone Group Inc.’s acquisition of Inc. and Centerbridge Partners’s purchase of American Bath Group LLC are among offerings that could kick off in the coming weeks if the tone in credit markets remains positive, according to people with knowledge of the deals. Underwriters and issuers are carefully assessing the situation and plans are still tentative, the people said. Borrowers have largely stayed on the sidelines in recent days as they sidestepped election-related volatility.
  13. ByteDance Ltd. is in discussions to raise $2 billion before listing some of its businesses in Hong Kong, people familiar with the matter said, even as it seeks to avoid a ban on its TikTok service in the U.S. The Chinese company is in talks with a group of investors including Sequoia over funding that would boost its valuation to $180 billion, the people said, asking not to be identified discussing a private deal. ByteDance could then start preparing some of its biggest assets including Douyin and Toutiao for an initial public offering in Hong Kong, the people said. The company was last valued at $140 billion, according to CB Insights. The terms of the funding round may still change as negotiations are ongoing, the people said. A representative for ByteDance declined to comment, while a representative for Sequoia didn’t immediately respond to a request for comment.
  14. Airbus SE’s credit score at Fitch Ratings fell to levels last seen during the financial crisis as renewed restrictions aimed at stemming the coronavirus pandemic pummel the travel industry. Fitch cut the plane maker’s credit rating by one notch to BBB+, three steps above junk, as the recovery from the pandemic slump will be “more prolonged relative to our previous expectations, with a slower rebound in the large commercial aircraft market,” analysts led by Tomasz Chruszcz wrote in a report. Demand for planes is falling as the number of airline passengers plummets because of travel restrictions put in place to limit the spread of the virus. The rating company expects global airline traffic next year will be 30% lower compared with 2019.
  15. Volvo Group has announced plans to sell electric versions of its heavy-duty trucks starting in Europe from 2021. The range of the trucks could be up to 186 miles and volume production will begin in 2022, according to a statement by the Swedish truck-maker on Thursday. Volvo aims for 35% of the trucks it sells to be zero-emission vehicles by the end of this decade, and expects to have phased out production of combustion-engine trucks by 2040, a spokesperson said.
  16. The mid-level bureaucrats left China’s richest man waiting as they prepared for a meeting that would send shockwaves across the financial world. It was Monday morning in Beijing, and Jack Ma had been summoned to a conference room at the China Securities Regulatory Commission just days before he was set to take Ant Group Co. public in the biggest stock-market debut of all time. When the bureaucrats finally turned up, they skipped over pleasantries and delivered an ominous message: Ant’s days of relaxed government oversight and minimal capital requirements were over. The meeting ended without a discussion of Ant’s IPO, but it was a sign that things might not go as planned.
  17. The dollar plummeted to its lowest level in more than two years as Joe Biden looked increasingly likely to claim the U.S. presidency. The Bloomberg Dollar Spot Index fell as much as 0.8%, extending its decline to a third day to the lowest since May 2018. Investors have been bracing themselves for such a slide in the case of a Biden win, which could pave the way for more stimulus.
  18. Apple Inc. is grappling with a shortage of vital chips that manage power consumption in iPhones and other devices, people with knowledge of the matter said, complicating its ability to meet holiday demand for the latest version of its marquee gadget. It’s unclear to what extent the bottleneck may limit iPhone availability during its crucial launch quarter, typically Apple’s busiest. Despite the shortfall, suppliers are likely to prioritize Cupertino, California-based Apple and its power-hungry iPhone 12 over other customers lining up for scarce parts, said the people, who asked not to be identified discussing private matters. Increasing demand for silicon across a range of products and supply-chain disruptions from Covid-19 are the main causes of the shortage, according to the people. Main Apple chipmaker Taiwan Semiconductor Manufacturing Co. said in October that 5G smartphones require 30% to 40% more chip content versus 4G. That and uncertainty over the course of the pandemic is spurring customers to cache components for fear of running out, especially after major smartphone maker Huawei Technologies Co. had stocked up massively ahead of a September deadline for U.S. sanctions.
  19. Merck & Co. agreed to buy VelosBio Inc. for $2.75 billion in cash, moving to bolster its lineup of cancer therapies. Closely held VelosBio, based in San Diego, has a treatment for certain blood cancers and tumors in clinical trials. The drug is a monoclonal antibody that binds to cancer cells, then releases a toxic agent into them. Like several other pharmaceutical giants, Merck has been involved in the hunt for vaccines and new drugs to treat the coronavirus, while looking for new products to fuel future profits. For example, Gilead Sciences Inc. struck several recent deals focused on cancer drugs while also developing and winning approval for Covid-19 antiviral therapy remdesivir.
  20. Bristol-Myers Squibb Co. raised its full-year earnings forecast as better-than-expected sales of drugs treating conditions including cancer beat analyst estimates in the third quarter. Bristol-Myers forecast 2020 adjusted earnings per share of $6.25 to $6.35, up from $6.10 to $6.25. Quarterly revenue was $10.54 billion, beating a $10.34 billion estimate by analysts. The New York-based company said the health-care system, disrupted early on by the Covid-19 pandemic, is now recovering. “It’s a very resilient business, despite the global pandemic,” Chief Financial Officer David Elkins said in an interview. “People are continuing to get their medicines because these are very serious diseases they’re battling.”
  21. Papa John’s International Inc. reported third-quarter profit that surpassed analysts’ expectations as demand for takeout and delivery stayed strong while the coronavirus pandemic continues to spread. The shares rose. The pizza chain reported earnings of 35 cents a share for the period ended Sept. 27. That beat the average estimate for profit of 34 cents. The company had pre-reported comparable sales for the quarter in September.
  22. Teva Pharmaceutical Industries Ltd. raised the lower end of its profit guidance range for the year as sales of budding patented therapies gathered momentum. Teva lifted its 2020 profit forecast to $2.40 to $2.55 a share, from an earlier range that bottomed at $2.30. Third-quarter earnings excluding some items were 58 cents a share, Teva said in a statement, meeting analysts’ expectations.
  23. The pandemic is sinking one of the fast-food industry’s biggest bets: breakfast. Once the best hope for increasing sales, mornings are now the slowest time of day at fast-food restaurants, as many Americans work and attend school from home. Even as fast-food sales have recovered in recent weeks from the early months of the coronavirus pandemic, breakfast has trailed behind. Breakfast-dependent chains including Dine Brands Global Inc.’s IHOP and Dunkin’ Brands Group Inc. are closing hundreds of restaurants. McDonald’s Corp. and Restaurant Brands International Inc.’s Burger King have said sales of breakfast items remain weak. The operator of Friendly’s, an East Coast diner chain, has filed for bankruptcy protection.
  24. General Motors Co. reported a better-than-expected profit in the third quarter as strong demand for trucks powered its recovery from a slump in sales earlier this year. The Detroit automaker said Thursday adjusted earnings per share came to $2.83 in the quarter, beating an analyst consensus estimate for $1.45 a share. That was up from $1.72 a year ago and better than the second quarter, when GM posted its first loss in more than a decade.


*All sources from Bloomberg unless otherwise specified