November 9th, 2020

Daily Market Commentary

Canadian Headlines

  1. Air Canada said flight capacity will drop 75% in the fourth quarter but that it will put off decisions about suspending even more routes while it talks with the Canadian government about financial aid. Canada’s largest airline reported third-quarter revenue of C$757 million ($581 million), down 86% from a year earlier, and suffered an operating loss of C$785 million. The Montreal-based company said it expects to burn between C$1.1 billion and C$1.3 billion in cash in the fourth quarter, higher than in the third quarter, partly because of payments it must make to end leases with aircraft owners. Transport Minister Marc Garneau said Sunday the federal government is ready to start discussions with Canada’s major airlines on a bailout package, but that the government wants to see them bring back regional routes that were cut because of the pandemic.
  2. Canaccord Genuity Group Inc. expects the surging capital markets activity that drove the investment bank’s record results to continue, with the year’s frenzy of equity sales giving way to a steady increase in mergers. A jump in new equity offerings from companies seeking capital to withstand the recession or to take advantage of other opportunities helped Canaccord to record revenue of C$390.4 million ($301 million) in its fiscal second quarter, which ended Sept. 30. Net income rose to C$33 million, the Toronto-based company said Friday. Profit excluding some items was 28 Canadian cents a share, topping analysts’ 17-cent average estimate.

World Headlines

  1. European equities advanced the most in more than seven months as fresh hopes for a coronavirus vaccine added to investor optimism about the outlook under a Joe Biden presidency. The Stoxx Europe 600 Index was up 5.1% as of 12:17 p.m. London time, with travel, banks, energy and autos leading the climb. The benchmark sharply extended gains on news that a vaccine developed by Pfizer Inc. and BioNTech SE prevented more than 90% of infections in a study of tens of thousands of volunteers.
  2. Stocks are extending a global rally on the clearest sign of progress yet in developing a vaccine to stem the Covid-19 pandemic. Futures on the S&P 500 jumped 3% after news that the vaccine being developed by Pfizer Inc. and BioNTech SE prevented more than 90% of infections in a study of tens of thousands of volunteers. Contracts on the Russell 2000 Index of small-cap stocks surged 7%. The vaccine announcement gives investors another dose of good news after the end of the U.S. election. Global markets have rallied for the past week on optimism over American policy, speculating that there’s likely to be some easing in the trade war tensions with China and another stimulus package.
  3. Global equities jumped to a record high amid optimism about the outlook for risk assets during a Joe Biden presidency. The MSCI All-Country World Index rose as much as 0.5% to 595.98 on Monday, surpassing the intraday high of 595.24 set Sept. 3.
  4. Oil in London jumped by the most since June as Pfizer Inc. reported a potential Covid-19 vaccine breakthrough. Futures in London rose by 8.3% to $42.74 a barrel following a broad rally in equity markets, while West Texas Intermediate also jumped. Futures in London rose by 8.3% to $42.74 a barrel following a broad rally in equity markets, while West Texas Intermediate also jumped. The vaccine being developed by Pfizer and BioNTech SE prevented more than 90% of infections in a study of tens of thousands of volunteers, the most encouraging scientific advance so far in the battle against the coronavirus.
  5. Gold rose for a third day as President-elect Joe Biden prepared to transition into the White House, after bullion-backed exchange-traded funds saw their biggest daily inflows in seven weeks. Risk sentiment remained buoyant amid optimism about the outlook under a Biden presidency, causing global stocks to rally to an all-time high. Gold gained as the dollar weakened. The president-elect promised swift action to control the coronavirus pandemic, though the unresolved status of Senate control may dampen prospects for a major stimulus package before January. Donald Trump’s campaign continued to file lawsuits in key states alleging election fraud.
  6. Boris Johnson faces a pivotal week for his leadership as the U.K. stands on the brink of completing its separation from the European Union. Over the course of the next seven days, the premier needs to deliver a trade deal with the EU or risk a chaotic and economically damaging rupture, and avoid a rift with U.S. President-elect Joe Biden over the U.K.’s controversial Brexit laws. After eight months of negotiations between the sides, Johnson and European Commission President Ursula von der Leyen used a phone call over the weekend to plot the way toward a trade deal ahead of the Nov. 15 deadline set by both parties.
  7. President-elect Joe Biden is moving ahead with plans to address the coronavirus pandemic and shape his incoming administration, steps aimed at strengthening his claim on the White House even as President Donald Trump continues to dispute the results of last week’s election. Biden is largely ignoring Trump’s efforts to undermine his victory. The president-elect on Monday unveiled his transition team’s coronavirus task force, a step toward fulfilling his central campaign promise: He will make containing the pandemic his first priority. He is in other ways methodically moving on with the work expected of a newly elected president, launching his transition, moving toward appointments to White House staff jobs, and giving a traditional victory speech on Saturday night. He seemed to acknowledge the sharp partisan divide in pledging to work for those who didn’t vote for him, and saying he expected a good working relationship with Republicans in Congress.
  8. The Covid-19 vaccine being developed by Pfizer Inc. and BioNTech SE prevented more than 90% of infections in a study of tens of thousands of volunteers, the most encouraging scientific advance so far in the battle against the coronavirus. Eight months into the worst pandemic in a century, the preliminary results pave the way for the companies to seek an emergency-use authorization from regulators if further research shows the shot is also safe. The findings are based on an interim analysis conducted after 94 participants, split between those who got a placebo and those who were vaccinated, contracted Covid-19. The trial will continue until 164 cases have occurred. If the data hold up and a key safety readout Pfizer expects in about a week also looks good, it could mean that the world has a vital new tool to control a pandemic that has killed more than 1.2 million people worldwide.
  9. QT AB, the European private equity firm, is considering an initial public offering of pest control business Anticimex, people familiar with the matter said. The buyout firm is in talks with advisers about a potential listing of Stockholm-based Anticimex as soon as next year, the people said. EQT may seek a valuation of at least $5 billion for the business if it decides to proceed, according to the people, who asked not to be identified because the information is private. Morgan Stanley, Deutsche Bank AG and Swedish lender SEB AB are expected to have roles on any IPO, the people said. EQT may also consider a sale of Anticimex, one of the people said.
  10. China’s move to halt Ant Group Co.’s massive stock debut could reduce the fintech giant’s value by as much as $140 billion, according to analysts’ revised estimates. New regulations that could force Ant to raise more capital to back lending and seek national licenses to operate across the country may reduce the firm’s valuation by about half, according to estimates from Morningstar Inc. and other firms. The regulatory details are preliminary and could be subject to change. If Ant’s $280 billion pre-IPO valuation is halved, it would essentially mean the company is worth less than what it was two years ago when it raised money from some of the world’s largest funds including Warburg Pincus LLC, Silver Lake Management LLC and Temasek Holdings Pte.
  11. Investors added money to exchange-traded funds that buy emerging market stocks and bonds last week. Inflows to U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $2.36 billion in the week ended Nov. 6, compared with losses of $101.3 million in the previous week, according to data compiled by Bloomberg. This was the biggest weekly inflow since Jan. 17. So far this year, outflows have totalled $10.4 billion.
  12. A rally in pot stocks is gathering steam amid investor optimism the Biden-Harris presidency may be more favorable to the cannabis industry. The ETFMG Alternative Harvest exchange-traded fund, or MJ, climbed 19% in premarket trading on Monday. Tilray Inc., which is reporting quarterly results after the close today, surged 33%. Small cap share Sundial Growers Inc. skyrocketed over 200%. A task force Biden formed with Senator Bernie Sanders calls for legalized medical cannabis and supports states’ rights to govern the implementation of adult-use programs. The presence of a pro-cannabis running mate in Kamala Harris — sponsor of the Marijuana Opportunity Reinvestment and Expungement Act — is also point a potential win for the sector.
  13. VF Corp. is buying Supreme, a streetwear fashion label, for $2.1 billion in a cash deal that will add to its portfolio of apparel and footwear brands. The transaction, expected to be completed by the year-end, marks VF’s largest acquisition since it bought Timberland in 2011 for $2.3 billion. The Denver-based company also owns Vans and the North Face brands. The deal comes at a time when the apparel sector has been upended by the coronavirus pandemic as consumers move away from discretionary items in favor of groceries and other essential goods. Still, the Supreme brand remains a gem in the industry because of its cult following among younger millennials and Generation Z consumers.
  14. Tropical Storm Eta made landfall in the middle Florida Keys overnight, becoming the year’s record 12th named storm in the U.S. It’s then set to drift west, build in strength, and make a second run at the Sunshine State north of Tampa. Eta made landfall in the area at around 11 p.m. local time on Sunday and has since moved across Florida Bay. It’s now located off the coast of southwestern Florida, the U.S. National Hurricane Center said in a notice issued 4 a.m Monday in New York. The storm has maximum sustained winds near 65 miles (100 kilometers) an hour and it may strengthen to become a hurricane when it moves over the southeastern Gulf of Mexico. “The storm has generally changed little in strength overnight,” the NHC said. “Bands of heavy rain and tropical-storm-force winds continue over portions of the Florida Keys, and south and central Florida.”
  15. Adipec, one of the biggest energy events in the Middle East and North Africa, kicks off on Monday. Usually hosted in Abu Dhabi, capital of the United Arab Emirates, this year’s conference will be virtual. Energy ministers from Saudi Arabia, the UAE, Japan, India and Thailand and Russia’s deputy energy minister are among those speaking on Monday. The heads of Total SE and BP Plc are also on panels. Energy traders will be watching for any signs from Saudi and Russian officials that OPEC+ will delay a plan to ease production cuts in January. The alliance between the Organization of Petroleum Exporting Countries and others such as Russia started curbing supplies in May at the height of the pandemic. While Brent crude’s more than doubled since then, it’s still down almost 40% this year.
  16. Germany is seeking to mend transatlantic trade relations and is mulling a more conciliatory approach that would see the European Union delay tariffs set to hit $4 billion of American products as soon as Tuesday, according to a senior official familiar with the government’s thinking. Germany will raise the issue on Monday at a meeting of the EU’s trade ministers, where Berlin will support rekindling the bloc’s relationship with the U.S. rather than escalating the 16-year-old trade conflict, which is over illegal subsidies provided to Boeing Co. and rival Airbus SE, said the official, who asked not to be identified because the discussions are private. The European Commission, which will make the decision on the duties, stands by the tariffs.
  17. Mark Carney is calling on banks, insurers and fund managers to play their part in “re-engineering” the global economy towards net-zero greenhouse gas emissions and says there’ll be great rewards from doing so. The former Bank of England Governor, who’s finance adviser to the U.K. prime minister for the upcoming United Nations climate summit, said if the goals of the Paris climate agreement are to be reached, every financial institution will have to change the way they do business. That means greater reporting on climate-change exposures. The financial sector will have to measure and manage those risks, while investors should learn to identify opportunities in the transition to net zero, Carney said. The comments, released in a statement on Monday, form part of Carney’s private finance agenda for COP26, the UN climate summit to be hosted by the U.K. next year. Six years after the momentous Paris convention, in which governments pledged to limit global temperature increases to below 2 degrees celcius from pre-industrial levels, the upcoming event in Glasgow is billed as a significant moment for world leaders to review their promises to cut carbon emissions and mobilize financial markets to support the transition to a net-zero world.
  18. China Evergrande Group scrapped plans for a backdoor listing and struck deals with more investors to avoid a wave of repayments, capping a four-year saga that had recently raised fears of cash crunch at the world’s most indebted developer. While it was widely anticipated that Evergrande would fail to win regulatory approval for its listing, the deal’s demise underscored China’s focus on containing risks posed by fast-growing real estate and financial firms. Evergrande’s announcement came less than a week after the shock suspensionof Ant Group Co.’s blockbuster initial public offering. The backdoor listing’s fate was a key concern for Evergrande earlier this year because the company had promised to repay strategic investors as much as 130 billion yuan ($19.7 billion) if regulators didn’t approve the transaction by Jan. 31. But after worries of a liquidity squeeze caused Evergrande’s shares and bonds to tumble at the end of September, the developer reached agreements with investors to avoid 86.3 billion yuan of repayments.
  19. Apple Inc. suspended new business with iPhone assembler Pegatron Corp. after discovering labor violations at a student workers’ program, taking strong action to clean up a Chinese-based production chain long accused of worker abuse. The Cupertino, California-based technology giant said it discovered several weeks ago that the Taiwanese manufacturer misclassified student workers and allowed some to work nights and overtime in violation of Apple’s Supplier Code of Conduct. Employees then “went to extraordinary lengths” to cover up the violations. It’s since placed its partner on probation until corrective action is completed, the U.S. company said in a statement.
  20. Democrats’ failure to secure a Senate majority in last week’s election has heightened the importance of Tuesday’s Supreme Court showdown over the Affordable Care Act, increasing the chances the court will get the final word on a law that provides health insurance to 20 million people. President Donald Trump’s administration is joining Republican-led states in challenging the law, known as Obamacare, which the GOP has been trying to wipe out since it was enacted in 2010. They’re banking on the court’s strengthened conservative majority with new Justice Amy Coney Barrett. With health care accounting for a sixth of the U.S. economy, the stakes were massive even before the election made Democrat Joe Biden the president-elect while leaving Republicans favored to retain control of the Senate. Now the prospect of a divided government could leave Democrats without the ability to override a ruling invalidating the law.
  21. McDonald’s Corp. reported better-than-expected results for the third quarter as the global pandemic continued to give restaurants with robust drive-thru and delivery footprints a lift. The chain posted revenue of $5.42 billion, surpassing analysts’ expectations for the fourth straight quarter. Adjusted earnings per share of $2.22 also beat. The burger chain had previously reported same-store sales for the quarter, including 4.6% growth in the U.S. that wasn’t enough to offset weakness abroad. Globally, same-store sales dropped 2.2%. The stronger-than-forecast results come as customers craving comfort food and touchless experiences increasingly turn to fast food. The burger giant had already been revamping digital options before the virus hit, including touchscreen ordering and increased delivery options, allowing it to maintain sales even when eat-in dining rooms were temporarily closed earlier this year in parts of the U.S. and beyond.
  22. Junk-rated companies are expected to hit the market to take advantage of a plunge in borrowing costs in the wake of the election. The risky debt gained more than 2% last week, the most in five months, while yields have record lows in sight with credit risk falling and stock futures rising amid hopes of a vaccine and the prospect of a U.S. presidency under Joe Biden.
  23. Chancellor Angela Merkel made clear that even with Donald Trump no longer president, Europe’s relationship with the U.S had changed and that the continent had to take on more collective responsibility. In private, she told senior figures within her Christian Democratic party that a plan with the U.S. was needed to reset ties beyond the next four years and look ahead to 2030, according to an official familiar with her remarks. “The United States and Germany as part of the EU have to stand together to overcome the big challenges of our times,” Merkel said in a brief public statement on Monday without taking questions. “We have to stand side by side in the difficult test of the coronavirus pandemic, side by side in the fight against global warming and its global effects, in the fight against terrorism, side by side for an open global economy and free trade.”


*All sources from Bloomberg unless otherwise specified