October 1st, 2020
Daily Market Commentary
- Canadian equity markets fell for the first time since the pandemic-induced March selloff, led by the energy sector, which was the worst performing group in September. The S&P/TSX Composite index fell 2.4% in the month, the first monthly decline since an 18% slump in March. The S&P/TSX Composite Energy Sector Index led the way down, falling more than 10% in September, led by Vermilion Energy. The S&P/TSX index also fell 0.6% on Wednesday. For the entire third quarter, the index rallied 3.9%, making it the second up quarter this year. Meanwhile, it took four months for Canada’s economy to recover almost three-quarters of its pandemic losses. Repairing the remaining damage could take years. Output jumped 4% in July and August, Statistics Canada reported Wednesday, bringing gross domestic product to about 95% of levels in February, the last full month before lockdowns began. At the depth of the recession in April, that number was 82%.
- Canopy Growth Corp., the cannabis company that attracted Corona beer producer Constellation Brands Inc. as an investor, is moving to bring cannabis beverages to the U.S. in 2021. The drinks will contain THC, the psychoactive compound found in marijuana, in dosage amounts designed to keep people buzzed and social in a similar way to beer, cocktails or wine. Canopy, based in Smiths Falls, Ontario, said it will start selling the drinks in California and Illinois next summer with the distribution network of Acreage Holdings Inc. and move into other states in following months. They’ll appear first in dispensaries, with aims to get them in liquor stores or other retail locations once that becomes legally permissible.
- The risk of a housing-market bubble increased in cities across the globe during the pandemic, as prices continued to rise despite warning signals, according to a new report. Munich, Frankfurt, Toronto and Hong Kong topped the list of cities most vulnerable to a “sharp correction,” according to UBS Group AG’s annual Real Estate Bubble Index released Wednesday. Government support of personal income and property markets to combat the economic hits from the coronavirus lockdown, along with low interest rates and suspended foreclosures, pushed values higher in many cities, according to the report, which analyzed prices in the second quarter of 2020.
- The team behind the proposed Alaska to Alberta railway aims to start prep work for construction in December, with a goal of getting the $17 billion cross-border railroad running by 2025. Sean McCoshen, founder and chairman of the company behind the project, said he has spent $100 million on studies and engineering reports and now has private funds backing the Alaska to Alberta Railway Development Corp., or A2A Rail, to start construction. The railway will connect Fort McMurray, in the heart of Alberta’s oil sands, with the Alaska Railroad southeast of Fairbanks. “This project is extremely viable,” McCoshen, 53, said in an interview that also included A2A Rail’s finance and strategy head Robert Dove, who previously led the Carlyle Group’s infrastructure fund. “It’s a win-win for all concerned.”
- European equities started the final quarter of 2020 with gains as investors focused on the outlook for pandemic relief funding. The Stoxx 600 index rose 0.6% at 8:48 a.m. in London with retail, financials and technology leading the move higher. On stimulus negotiations, U.S. Treasury Secretary Steven Mnuchin was reported to have offered more assistance than Republican negotiators had done previously, though there were concerns the European Union’s package may be delayed. Global political issues linger too, with professional forecasters raising the probability of a Joe Biden victory at next month’s election following the first debate earlier in the week, and the final scheduled round of Brexit talks continuing.
- U.S. equity futures jumped and the dollar weakened amid signs of progress in Washington toward a fresh fiscal-stimulus package. European stocks advanced, led by technology firms. Nasdaq 100 futures jumped 1.3%, with electric-car maker Tesla Inc. and Workday Inc., a producer of human-resources software, rising in the premarket. U.S. stock markets were whipsawed this week by speculation over whether lawmakers will agree to provide more economic aid. House leaders postponed a vote on Wednesday on a Democrat-only stimulus bill to give Treasury Secretary Steven Mnuchin and House Speaker Nancy Pelosi one more day to negotiate a compromise pandemic relief package.
- The Tokyo Stock Exchange halted trading for the entire day Thursday. Japan Exchange Group Inc., the operator of the TSE, said the problem occurred due to a failed switchover to backups following a hardware breakdown. The exchange will replace hardware and restart its system, aiming to resume trading as normal on Friday.
- Oil flipped between gains and losses near $40 a barrel with a challenged demand outlook weighed against a potential U.S. stimulus package. Futures in New York reversed an earlier gain to trade lower. Broader markets rallied on signs of progress for stimulus measures in the U.S. on Thursday. That followed a drop in American crude and distillate inventories in a report by the Energy Information Administration Wednesday. Despite that support, the market is facing a steadily deteriorating demand backdrop. A 7-day moving average of worldwide commercial flights declined to the lowest since mid-August, according to Flightradar24, a website that tracks flights in real time. All the while, Europe’s oil refineries are struggling to cope with a diesel glut, limiting their prospects for extra crude buying.
- Gold rose on the weakening dollar as risk sentiment improved, while investors monitor U.S. stimulus negotiations for signs of progress.
- The U.K. extended a ban on household mixing to the city of Liverpool and several other parts of northeast of England, and a key public health official in London said the city is at a “tipping point.” Spain ordered additional restrictions on movement and gatherings in Madrid. Germany reported its highest number of infections since April, while Israel saw a record 8,919 new cases after a dip over the holiday weekend. Rolls-Royce Holdings Plc unveiled plans to raise $6.5 billion in a bid to survive the Covid downturn, the morning after U.S. carriers American Airlines Group Inc. and United Airlines Holdings Inc. said they would start laying off a combined 32,000 workers.
- U.S. Treasury Secretary Steven Mnuchin and House Speaker Nancy Pelosi plan to resume discussions Thursday on a new pandemic relief package, racing against the clock to resolve their differences on another round of coronavirus stimulus. Mnuchin and Pelosi held their first in-person talks since August on Wednesday, yet fell short of reaching an agreement that would bridge the gaps between the administration and Democrats on further aid for the U.S. economy. Both sides face increased pressure to act as more companies announce job cuts, including airlines that had received help under earlier rounds of federal support. “The president has instructed us to come up significantly, so we have come up from the trillion-dollar deal,” Mnuchin said on Fox Business on Wednesday evening, adding that he and White House Chief of Staff Mark Meadows had met with President President Donald Trump before they went to Capitol Hill for negotiations.
- Rolls-Royce Holdings Plc unveiled a long-awaited financing plan, targeting up to 5 billion pounds ($6.5 billion) of fresh capital to buttress the U.K. jet-engine-maker against an historic aerospace downturn that still has years to go. The London-based company will tap existing shareholders for 2 billion pounds in a rights issue, and is seeking to borrow a further 3 billion pounds in bonds and loans, it said in a statement Thursday. Rolls-Royce shares fell as much 11%, extending a months-long decline, while its euro bonds jumped by the most since they were issued. The funding is aimed at seeing Rolls-Royce through to 2022, when it expects to resume strong cash generation. Chief Executive Officer Warren East, who has been working on the plan for months, sought to reassure investors that it would suffice, and give the company breathing room to sell assets from a stronger position as he repositions to focus more on defense and sustainable aircraft propulsion.
- Holiday giant TUI AG could seek to raise about 1.5 billion euros ($1.8 billion) through a rights issue and asset sales once bookings recover and the company starts generating meaningful revenue again. TUI will look at selling some of its 400 hotels and U.K. cruise arm Marella, Chief Executive Officer Fritz Joussen said in a briefing at the Frankfurt press club. A rights issue would also require a recovery in the share price, he said. Debt at the Hanover-based travel firm has been inflated by a 3 billion-euro German government bailout after the coronavirus pandemic wiped out much of the summer vacation season. Joussen said TUI will also trim its aircraft fleet by as many as 30 planes.
- The global cull of banking jobs continues with Goldman Sachs Group Inc. joining the growing list of lenders resuming cuts paused during the coronavirus pandemic. The Wall Street firm is embarking on a plan to eliminate about 1% of its workforce, or roughly 400 positions, according to people with knowledge of the matter, who asked not to be identified as the information isn’t public. Adding that to disclosures this week by other banks would take the total announced this year to 67,844, according to figures compiled by Bloomberg. More than 30 lenders — from Europe, North America, Asia and Africa — are behind the planned reductions. The actual total is probably higher because many banks eliminate staff without disclosing their plans. The banks cited a need to reduce expenses to offset the cost of credit souring during the pandemic as well as spending to comply with stricter regulation and invest in digital technology.
- Alphabet Inc.’s Google will start paying select media outlets to display curated content on its news app in a concession to the industry which has accused the search engine and other tech giants of unfairly using content for years. The company has set aside more than $1 billion to cover the program’s first three years, and will extend the program beyond that, Google said in a statement on Thursday. The search giant will pay publishers to provide blurbs for its news app and to give readers free access to certain paywalled articles, Google said. The Google News Showcase product, which launches Thursday in Brazil and Germany, will display branded story panels curated by partner publishers, allowing them to highlight their content using timelines, bullets and related news articles. Panels will also link directly to the news publisher’s website, Google said.
- The European Union is starting legal proceedings against the U.K. over Boris Johnson’s plan to breach terms of its Brexit divorce deal and break international law. “The commission has decided to send a letter of formal notice to the U.K. government,” European Commission president Ursula von der Leyen announced in Brussels on Thursday. “This draft bill is by its very nature a breach of the obligation of good faith laid down in the Withdrawal Agreement.” The pound dropped by 0.7% against the dollar on the news. The letter is the first step in a legal process against the U.K.’s Internal Market Bill that could result in a lawsuit at the European Court of Justice.
- Financial services firms operating in the U.K. have shifted about 7,500 employees and more than 1.2 trillion pounds ($1.6 trillion) of assets to the European Union ahead of Brexit — with more likely to follow in coming weeks, according to EY. About 400 relocations were announced in the past month alone, the consulting firm said in a report on Thursday that tracks 222 of the largest financial firms with significant operations in the U.K. Since Britain voted to leave the bloc in 2016, the finance industry has added 2,850 positions in the EU, with Dublin, Luxembourg and Frankfurt seeing the biggest gains. From next year, firms in Europe’s financial capital will lose their passport to offer services across the EU. They will have to rely on the bloc granting the U.K. so-called equivalence for them to do business with customers in the region, who account for up to a quarter of all revenue in London. With the EU far from certain to grant that access, firms are having to beef up their continental presence.
- British beef is on the way to the U.S. for the first time in at least two decades, at a time when food remains a sticking point between the countries in post-Brexit trade talks. The first shipment left on Wednesday from a plant in Northern Ireland, and trade could total 66 million pounds ($85 million) over the next five years, the U.K. government said in a statement. The U.S. had banned British supplies since a mad-cow disease outbreak in Europe in 1996, but lifted restrictions earlier this year. “The free trade deal we are negotiating with the U.S. will create a host ofexport opportunities for British agriculture,” International Trade Secretary Liz Truss said. “We are seeking an ambitious and high-standards agreement that benefits farmers and delivers for consumers.”
- The Trump administration plans to announce an investigation into Vietnam’s currency practices, according to three people familiar with the matter. The probe, undertaken through section 301 of the 1974 Trade Act, would come after the Departments of Commerce and Treasury in August determined Vietnam had manipulated its currency in a specific trade case involving tires, the people said. The announcement could come as soon as this week, said the people, who asked not to be identified.
- A pair of insurance companies made a bid for American Equity Investment Life Holding Co. last month, in a bet that the small Iowa insurer’s retirement-income products will continue to be popular with conservative savers. Massachusetts Mutual Life Insurance Co. and the publicly traded Athene Holding Ltd. offered American Equity $36 a share in cash on Sept. 8, according to a letter sent to American Equity’s chief executive that was viewed by The Wall Street Journal. At that price, the bid would amount to a value of more than $3 billion. The transaction would be the latest consolidation in the insurance industry, in which Athene has been front and center. Athene was founded in 2009 and specializes in annuities. The company, which is about 35% owned by Apollo Global Management Inc., has about $162 billion in assets.
- PepsiCo Inc. reported a stronger-than-expected summer as consumers loaded up on the company’s snack and breakfast foods. North America beverages also saw renewed growth. The shares rose in early trading. PepsiCo sales rose 5.3% to $18.1 billion in the third quarter, compared to the estimate of $17.2 billion from analysts. The company also joins a handful of consumer companies in providing guidance after the disruption of the pandemic. The company sees organic revenue growth, which strips some items like currency effects, at about 4% for the full year.
- President Donald Trump is running out of time to reverse his campaign’s downward trajectory after a widely criticized debate performance that left him little room to pick away at Democrat Joe Biden’s lead with just 33 days to go until the election. Biden has maintained a persistent lead both in national polling and in key states while Trump is defending parts of the map he should be able to take for granted, including reliably Republican Iowa and Georgia. In fact, nearly every state that pollsters view as competitive is a state the president won in 2016, meaning Biden is able to take the fight to Trump country.
- Bayer AG slumped after the agriculture and pharma giant said it would have to slash costs as the pandemic’s impact on farm commodities extends into next year, further undermining the rationale for its $63 billion purchase of Monsanto Co. The stock fell as much as 13% in German trading, knocking 6.6 billion euros ($7.7 billion) from a market value that has sagged well below the price paid for Monsanto. Bayer, already reeling from a legal battle over its Roundup herbicide, said late Wednesday it would cut 1.5 billion euros of annual costs and may also eliminate jobs and sell businesses. Chief Executive Officer Werner Baumann is confronting multiple challenges just after getting his contract extended. Besides Roundup, the German company faces slumping crop prices and weakening demand for biofuel that threaten its agriculture unit two years after the controversial Monsanto takeover.
- Bed Bath & Beyond Inc. posted quarterly sales that outpaced market expectations, a sign that turnaround efforts are paying off at the home-furnishings chain. Shares surged on the news. Revenue of $2.69 billion beat the average estimate from analysts, with e-commerce underpinning the improvement and offsetting a decline of in-store sales. Comparable-store sales, a key metric, rose 6% in the period ended Aug. 29. Analysts had expected a decline of 1.3%, according to Consensus Metrix.
- Walt Disney Co.’s new streaming service gets its first big test of subscriber loyalty next month, when a free trial with Verizon Communications Inc. starts to expire. Beginning Nov. 12, many of Verizon’s Disney+ customers will face a choice. They can starting paying $7 a month for the service, they can upgrade to $80- or $90-a-month wireless plans that include Disney+, ESPN+ and Hulu at no additional cost, or they can cancel Disney+ altogether. Both Disney and Verizon have a lot riding on their partnership. While neither company will reveal how many mobile and broadband customers took the free 12-month trial offer, Disney said in February that about 20% of its customers — or about 5.3 million — had come from Verizon in the first two months. Ampere Analysis in London says the number today is higher. The Disney+ service, which launched on Nov. 12 last year, signed up a total of 60.5 million customers in its first nine months.
- Private equity firms are betting that the rise in online shopping is here to stay, with some of the world’s biggest investment funds eyeing deals for everything from warehouses to delivery companies. Clipper Logistics Plc, which supports the e-commerce operations of retailers from Asos Plc to Superdry, is attracting interest from buyout firms, people with knowledge of the matter said. Cinven is among potential suitors that have been evaluating the 496 million-pound ($638 million) company, while CVC Capital Partners has also looked in the past, according to the people, who asked not to be identified because the information is private.
*All sources from Bloomberg unless otherwise specified