October 19th, 2020

Daily Market Commentary

Canadian Headlines

  1. Altice USA Inc. raised its bid for Cogeco Inc. and Cogeco Communications Inc. to $8.4 billion, but the offer was quickly turned down by the Canadian cable firm’s controlling shareholder. “We are not interested in selling our shares,” Louis Audet, president of Gestion Audem Inc., said in a statement. Gestion is a private holding company that has 69% of Cogeco’s voting rights. Altice’s revised offer Sunday included C$900 million ($682 million) to the Audet family for their multiple classes of voting shares of both companies, as well as C$123 per share for the remaining Cogeco subordinate voting shares and C$150 per share for those of Cogeco Communications.
  2. Lundin Mining Corp. plans to suspend copper operations in Chile after failing to reach a wage accord with workers in a hectic period of labor negotiations in the top copper-producing nation. Members of the AOS union at the Candelaria mine rejected Lundin’slatest offer in meetings that concluded Saturday, union boss Evelyn Walter said. The 548 members will proceed with a strike on Tuesday unless the company makes another offer in the last day of mandatory mediation on Monday. About 350 members of another union at Candelaria downed tools Oct. 8, with groups of people blocking access roads. “Illegal and violent actions promoted under the guise of the legal strike of the Mine Workers Union, and the pending labor action of the Candelaria AOS Union, puts the safety of our Candelaria workforce at risk,” the Toronto-based company said Sunday. “Candelaria operations are currently in the process of planning for temporary suspension.”
  3. American Equity Investment Life Holding Co. confirmed it plans to launch a new partnership with Brookfield Asset Management Inc. after rejecting a proposed $3 billion takeover from Athene Holding Ltd. and Massachusetts Mutual Life Insurance Co. American Equity said in a statement that under the partnership, Brookfield will acquire a 19.9% stake in the insurer for roughly $37, or a 15% premium on where its shares closed Friday. Brookfield will also take a seat on American Equity’s board as part of the arrangement, the companies said in separate statements, confirming an earlier report by Bloomberg News. American Equity also formally rejected a $36-a-share takeover proposal from Athene and MassMutual on the grounds that it undervalues the company and is opportunistic. American Equity said it believes its current strategy will maximize long-term value for shareholders.

World Headlines

  1. European equities gained as trading in stocks and derivatives on Euronext NV markets resumed following a three-hour halt, with investors focused on a packed corporate earnings schedule and prospects for a breakthrough on a U.S. economic stimulus. The Stoxx Europe 600 index was up 0.3% at 12:07 p.m. in London, led by real estate, financial services and banks. Koninklijke Philips NV resumed trading after the Euronext halt, adding 3.2% after saying the lingering impact from the coronavirus and changes in the way health-care is delivered will help boost sales of its medical gear for years to come.
  2. U.S. equities futures indicated a positive start for the week, climbing alongside shares in Europe and most of Asia, on the back of renewed optimism about the progress of stimulus talks in Washington. Oil and the dollar declined. Speaker of the House Nancy Pelosi set a Tuesday deadline for more progress with the White House on a fiscal deal after lengthy discussions over the weekend with Treasury Secretary Steven Mnuchin. The S&P 500 Index closed higher for a third week on Friday.
  3. Oil slid near $41 a barrel in New York before an OPEC+ meeting to assess the state of the market as demand comes under pressure once again from a resurgent coronavirus. The Joint Ministerial Monitoring Committee, which typically reviews compliance with the group’s pledged output cuts, will meet online Monday. While no supply decisions are expected until the conclusion of a two-day gathering on Dec. 1, leading members Saudi Arabia and Russia have stepped up diplomacy in recent days. Ministers are meeting against a backdrop of uncertain oil demand. For months now, the recovery in consumption has been driven largely by China. The world’s largest importer refined about 13.5 million barrels a day of oil for a fourth month in September and its latest growth figures showed that it continues to be the world’s only major engine of economic expansion.
  4. Gold gained after a flurry of weekend developments that spurred some optimism a U.S. stimulus package may be agreed before the election. House Speaker Nancy Pelosi set a deadline for more progress toward a deal, while President Donald Trump said that he’d support a bigger package than what’s been floated. Gold has been largely rangebound for weeks amid uncertainties over the U.S. stimulus and the looming presidential election on Nov. 3. Gold may also be getting support from solid quarterly growth data released Monday for China, which continues to demonstrate its recovery from the depths inflicted by the pandemic
  5. China’s recovery from the coronavirus pandemic continued in the third quarter and showed signs of broadening in September as consumer spending accelerated, keeping the economy on track to be the world’s only major growth engine this year. Gross domestic product expanded 4.9% in the third quarter from a year ago, missing economists’ forecast for a 5.5% expansion. Both retail sales and industrial production gained momentum in September, reassuring markets that the recovery is on track. The numbers show China’s early and aggressive containment of the coronavirus has set the economy up for a faster rebound than any of its peers. That’s a rare positive for a world economy still clawing its way out of its worst slump since the Great Depression — a revival further complicated by the resurgent virus in Europe and the U.S.
  6. Investors added money to exchange-traded funds that buy emerging market stocks and bonds last week. This was the third straight week of inflows. Inflows to U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $1.54 billion in the week ended Oct. 16, compared with gains of $1.3 billion in the previous week, according to data compiled by Bloomberg. This was the biggest weekly inflow since June 5. So far this year, outflows have totaled $12.8 billion.
  7. Global coronavirus cases exceeded 40 million, with the pandemic showing no signs of slowing. Record numbers of infections are rolling across Europe while the U.S. and India are averaging more than 50,000 cases a day. Millions of Europeans are facing tighter restrictions on movement, with London, Paris and Vienna enforcing stricter curbs and Ireland preparing some of the region’s toughest measures. Iran again reported a record number of daily deaths linked to the virus. China’s economic recovery accelerated, aided by aggressive virus containment that has allowed factories to quickly reopen.
  8. The fate of additional stimulus for the U.S. economy before next month’s election will be decided this week, with House Speaker Nancy Pelosi setting a Tuesday deadline to reach an agreement with the White House — though it remains doubtful that the Republican-controlled Senate will accept any deal they strike. President Donald Trump said he’s ready to match the $2.2 trillion spending levels demanded by Democrats — or go higher — despite repeated warnings by Senate Majority Leader Mitch McConnell that most GOP senators will oppose any coronavirus relief package that big.
  9. ConocoPhillips agreed to buy Concho Resources Inc. for $9.7 billion in stock, the largest shale industry deal since the collapse in energy demand earlier this year and one that will create a heavyweight driller in America’s most prolific oil field. Investors will get 1.46 Conoco shares for each Concho share, the companies said Monday in a statement. The transaction represents a 15% premium over Concho’s closing price on Oct. 13, the last trading session before Bloomberg News first reported the companies were in talks. The pandemic-induced price crash and lackluster global economic recovery have accelerated the push for consolidation across the shale patch, which is under severe financial strain after years of debt-fueled growth. The combination Conoco and Concho will be one of the dominant operators in the Permian Basin of West Texas and New Mexico, rivaling only the likes of Occidental Petroleum Corp. and Chevron Corp. in terms of crude output.
  10. The U.S. pandemic is opening up jobs in at least one marketplace, with CVS Health Corp. announcing it will hire about 15,000 workers to help with flu season, coronavirus testing and possibly administering Covid-19 vaccines. Two-thirds of the new hires will be pharmacy technicians, the company said Monday. The announcement comes a month after the the Department of Health and Human Services authorized state-licensed pharmacists to order and administer Covid-19 vaccines to people ages 3 or older, subject to certain requirements. On Friday, CVS and Walgreens Boots Alliance Inc. were approved by the Department of Health and Human Services to give Covid-19 shots to residents and workers at U.S. nursing homes.
  11. American Airlines Group Inc. plans to make Boeing Co. 737 Max passenger flights at the end of this year for the first time since the aircraft’s grounding in March 2019. The Max will serve the busy Miami-New York corridor once a day starting Dec. 29 through Jan. 4, American said. The airline will “take a phased approach” to returning the Max to service once it’s approved to fly, including whether to extend the Miami-New York flight beyond Jan. 4. The carrier on Saturday removed from its schedule more than 1,900 flights that had been planned on 737 Max planes for December through March 21, 2021, and shifted them to other aircraft, the airline said in an email. The changes were made amid uncertainty over when the Max will be certified by aviation regulators to resume commercial operation, and to allow American pilots time to bid on new Max flights. The schedule isn’t final.
  12. The Federal Communications Commission is poised to delay $9 billion in rural 5G subsidies for 18 to 24 months so it can fix mapping flaws that bar the agency from determining which areas need the service. The holdup is the most recent delay in the FCC’s nine-year effort to pay wireless carriers to expand service to remote areas that otherwise are too unprofitable to serve. The FCC scrapped a similar subsidy effort last year, after it found carriers’ maps exaggerated existing coverage areas, meaning locations that needed the subsidies wouldn’t have gotten them.
  13. When OPEC and its allies met last month, Saudi Arabia’s energy minister dared oil speculators to test his determination to stabilize global markets. Now that a resurgent pandemic is threatening demand once again, the moment of reckoning is getting closer. The coalition of crude producers will hold a video conference at 3:30 p.m. Vienna time to assess the state of the market. No supply decisions are expected until Dec. 1, but leading members Saudi Arabia and Russia are already stepping up diplomacy. President Vladimir Putin and Saudi Arabia Crown Prince Mohammed Bin Salman have spoken twice by phone in a week — the first time the countries’ leaders have done that since the depths of the oil crisis in April, when they were hashing out a deal to cut supply and bring the price war to an end. The calls have been necessary to stay abreast of constant changes in the market, Kremlin spokesman Dmitry Peskov said Monday.
  14. Trading in all stocks and derivatives on Euronext NV markets shut down for three hours, the biggest outage to hit the exchange operator in two years. Stocks including L’Oreal SA, LVMH and Kering SA in Paris were halted as of 9:49 a.m. Paris time on Monday, with Euronext markets in Belgium, the Netherlands, Portugal and Ireland also affected. Companies on those exchanges make up about 22% of the components in the benchmark Stoxx Europe 600 Index. Trading in Euronext’s other market, Norway, wasn’t affected.
  15. British officials are prepared to water down Boris Johnson’s controversial lawbreaking Brexit legislation in a move that could revive failing talks with the European Union, according to people familiar with the matter. The pound rose. Negotiations over the two sides’ future relationship have stalled, with the prime minister announcing on Friday that he will focus on preparations to leave the EU’s single market and customs union at the year-end without a trade deal — though he is still open to talks if the bloc changes its stance. One obstacle negotiators face is rebuilding the trust that was badly damaged by Johnson’s U.K. Internal Market Bill, which rewrites parts of the Brexit withdrawal deal he struck with the EU last year. The bloc is taking legal action against the U.K., and European leaders have demanded that Johnson drop the controversial clauses relating to trade with Northern Ireland as the price of any wider accord.
  16. Google is in talks to buy a London office complex for as much as 800 million pounds ($1 billion), React News reported, in what would be one of the biggest such deals in the capital this year. The search giant has entered into negotiations to buy the Central Saint Giles development from joint owners Legal & General Group Plc and Mitsubishi Estate Co., React reported Monday, without saying where it got the information. No deal has been signed. Google already occupies about 40% of the office space in the complex near Tottenham Court Road. Spokespeople for Legal & General Investment Management and Mitsubishi Estate declined to comment on the article when contacted by Bloomberg News. Representatives of Google couldn’t immediately be reached for comment.
  17. Jack Ma’s Ant Group Co. won a key approval from the China Securities Regulatory Commission for its listing in Hong Kong, paving the way for what could be the world’s biggest initial public offering. The Chinese regulator has given Ant a green light to seek a listing hearing with Hong Kong Exchanges and Clearing Ltd., according to a notice on the commission’s website. A Hong Kong hearing could happen as soon as Monday, according to people familiar with the matter, requesting not to be named because the information is private. Ant still has to complete its registration for the Shanghai leg of the IPO. The Shanghai exchange website shows that Ant submitted an application for a listing on the tech-focused STAR board on Sept. 22. The China securities watchdog has 20 working days to accept or reject the registration. The exchange itself has already approved the listing.
  18. During a town hall meeting Thursday, Democratic presidential nominee Joe Biden again assured shale producers that he wouldn’t ban fracking if elected. Then, in virtually the same breath, he touted his $2 trillion clean-energy plan, which aims to edge natural gas out of the power mix within 15 years. The former vice president’s efforts to walk a tightrope on gas reflect the fossil fuel’s precarious place in the economy. For now, it’s an essential part of American life. Biden has been careful not to make an enemy of the industry, especially in the key battleground state of Pennsylvania, home to the largest U.S. shale-gas field. His policies may even, in the short-term, support the gas market.
  19. China is closing in on the U.S. as the most powerful country influencing the Asia-Pacific, as America’s handling of the Covid-19 pandemic tarnishes its reputation, a study showed. While America retained its place as the region’s top superpower, its 10-point lead on China two years ago has been halved, according to the Sydney-based Lowy Institute’s Asia Power Index for 2020, which ranks 26 nations and territories.  “The pandemic was a game changer,” he said in a phone interview. “It contributed to a double whammy of problems for the U.S. because on the one hand, its poor handling of the Covid-19 crisis has resulted in a diminished reputation. And on the other hand, obviously it will take many more years to recover from the economic fallout of the pandemic.”
  20. Ireland is poised to introduce some of Europe’s toughest measures to curb the coronavirus as countries across the region battle to overcome the pandemic. The Irish cabinet is due to meet on Monday to finalize the restrictions after health authorities recommended a move to the tightest lockdown tier. While the government may stop short of imposing a total shutdown, it has indicated that all non-essential stores, restaurants and bars could close. “There is a big hit to the economy, and that has to be paid for,” Europe Minister Thomas Byrne said in an interview with broadcaster RTE on Monday. “It is incumbent on the government to consider every single ramification of this.”

*All sources from Bloomberg unless otherwise specified