October 29th, 2020

Daily Market Commentary

Canadian Headlines

  1. JC Penney said it entered into an asset purchase agreement with Brookfield Asset Management, Simon Property Group and a majority of the company’s DIP and first lien lenders. The company is looking forward to operating under new ownership outside Chapter 11 in advance of the 2020 holiday season.
  2. Claret Asset Management took a new position in Just Energy Group Inc. in the third quarter, buying 1.8 percent of the company’s outstanding stock. The investment advisor bought 868,781 shares with a current market value of $4.22 million, according to its 13F filing with the Securities and Exchange Commission.

World Headlines

  1. European stocks rose after their worst rout in five weeks, as investors weigh earnings and concerns about new Covid-19 restrictions in France and Germany. The Stoxx Europe 600 Index was up 0.5% at 9:30 a.m. in London, led by real estate, technology and energy shares on a heavy day for earnings. Royal Dutch Shell Plc rose after beating estimates and raising its dividend, while banks fell after Credit Suisse Group AG and Standard Chartered Plc missed estimates. Looming additional restrictions across Europe have triggered fears of a repeat of February’s market selloff, pushing the Stoxx 600 into oversold territory for the first time since March. The U.S. election and difficult fiscal stimulus negotiations have added to the uncertainty, with European equities set for a second consecutive month of losses. Meanwhile, investors await further clues about monetary support from the European Central Bank during its policy announcement today.
  2. S&P 500 contracts recouped less than one-third of the benchmark’s 3.5% slide on Wednesday. The euro slipped for a fourth session before the European Central Bank’s policy decision later Thursday, with new coronavirus curbs from Berlin to Madrid boosting chances of preemptive monetary stimulus. Treasuries and European bonds held steady. Even with Thursday’s gains, global equities are still headed for the worst decline since June. Investors point to new lockdown measures and a trillion-dollar American stimulus plan failing to jell before the Nov. 3 election. Record one-day virus cases surfaced in Italy, Spain and Germany, where Chancellor Angela Merkel said authorities can no longer track infections back to their sources, opening the door to exponential growth.
  3. Oil fell to a four-month low, deepening Wednesday’s slump as lockdown restrictions grow in Europe. Futures in London lost 3.9%, declining as the dollar reversed an earlier loss to trade higher. Germany and France, the European Union’s two biggest economies, will clamp down on movement for at least a month to try and curb Covid-19’s spread. There are already signs that road use in Europe is slumping, weighing on oil consumption. As the impact of the virus rears its head across markets once again, oil is also contending with supply issues too. American crude inventories rose the most since July last week, while Libya output is also gaining rapidly. The head of Saudi Aramco’s trading unit warned there may not be enough demand to absorb the planned OPEC+ supply increase in January.
  4. Gold steadied above a one-month low as investors weighed the worsening coronavirus pandemic in Europe, the outlook for the dollar, and the possibility of further steps from the European Central Bank. Bullion tumbled on Wednesday as Germany and France said that they will clamp down on movement for at least a month, coming close to the stringent lockdowns in the spring. With record numbers of new cases seen in Spain, Italy and the U.K., the U.S. currency had rallied as traders shunned risk. Gold exchange-traded funds saw their biggest outflows in more than a month, according to an initial tally by Bloomberg.
  5. China unveiled the first glimpses of its economic plans for the next five years, promising to build the nation into a technological powerhouse as it emphasized quality growth over speed. Initial details released by the Communist Party’s Central Committee Thursday stressed the need for sustainable growth and also pledged to develop a robust domestic market. The communique released by state media following a four-day closed-door meeting didn’t specify the pace of growth policy makers would target. The statement elevated China’s self-reliance in technology into a national strategic pillar, a move signaled by officials from President Xi Jinping down in the lead up to the meeting. Central to that endeavor is self-reliance in chips, the building blocks for innovations from artificial intelligence to fifth-generation networking and autonomous vehicles.
  6. German Chancellor Angela Merkel defended her decision to once again severely limit movement in Germany, saying the country is in a “dramatic situation.” U.K. Prime Minister Boris Johnson is facing increasing pressure to introduce another national lockdown. Singapore will lift border restrictions for visitors from mainland China and Victoria state in Australia from Nov. 6, while Taiwan marked its 200th consecutive day without local transmission. Anthony Fauci, the U.S. government’s top infectious-disease expert, said a vaccine won’t be available until at least January and mask use is critical to avoid crippling shutdowns. A late-stage trial of Regeneron Pharmaceuticals Inc.’s antibody cocktail therapy showed the treatment significantly reducesvirus levels and the need for further medical care.
  7. A dramatic surge in early voting across Texas cities is infusing fresh hope in Democrats’ dream of shaking Republicans’ once-solid grip on the state. From Austin to Houston, and in their sprawling suburbs, voter turnout is shattering records in Texas, which hasn’t gone for a Democratic presidential candidate since 1976. Polls show the party’s nominee, Joe Biden, within striking distance of President Donald Trump, and the Cook Political Report on Wednesday moved Texas to a “toss up” from “leans Republican.” Biden’s running mate, Kamala Harris, will visit Houston, Fort Worth and McAllen this week. More than 8 million Texans had cast ballots by Tuesday, representing about 90% of the entire vote in 2016. Rapidly growing and increasingly diverse suburbs are the sites of some of the biggest upticks in early voting, and Democrats point to a surge in female voters as cause for optimism. Unmarried women make up a third of the Texans voting in this election who didn’t cast a ballot in 2016, according to the party’s state headquarters.
  8. LVMH agreed to buy Tiffany & Co. at a slightly reduced price of almost $16 billion, preserving the luxury industry’s biggest takeover and avoiding a courtroom battle over an earlier deal that soured. The compromise ends a yearlong saga characterized by accusations of bad faith, French government intervention and lawsuits. Both sides were due to meet in a Delaware court in January, after the Louis Vuitton owner walked away from their original agreement and Tiffany sued to keep it on track. Adding Tiffany at a lower price reinforces LVMH Chairman Bernard Arnault’s image as a hard-nosed bargainer, even though the savings — roughly $425 million — are a small fraction of his company’s $240 billion market value. The deal gives LVMH a major boost in the global jewelry market, adding a famous brand that can compete with Richemont’s Cartier.
  9. Tropical Storm Zeta is spinning across Alabama after walloping New Orleans, blacking out tens of thousands of homes and businesses and prompting President Donald Trump to declare an emergency for Mississippi. Zeta made landfall near Cocodrie, Louisiana, with winds of 110 miles (177 kilometers) per hour, before weakening to 60 mph, according to a National Hurricane Center advisory. It’s the fifth hurricane or tropical storm to hit the state this year. There’s never been so many major storms hitting Louisiana or the contiguous U.S. in a single season, said Phil Klotzbach, a hurricane researcher with Colorado State University.
  10. Italy sold benchmark bonds at the lowest average rate on record as support from the euro zone’s institutions and newfound political stability fueled demand for the securities. The Treasury auctioned 10-year notes at an average yield of 0.79%, breaking the previous low set in September 2019. It raised 3 billion euros ($3.5 billion) from the offering. Italian debt has led a rally across euro-zone bond markets this year, bolstered by the European Central Bank’s asset-buying programs, the European Union’s proposal for a recovery fund, and waning political risk after the coalition government staved off a challenge from opposition rivals in regional elections last month.
  11. Vestas Wind Systems A/S, the world’s biggest wind turbine manufacturer, will buy out its offshore joint venture partner in an all-share deal that looks to take advantage of an expanding industry at the heart of the energy transition. The 709 million-euro ($832 million) deal for Mitsubishi Heavy Industries, Ltd.’s 50% share in the partnership will integrate the offshore business into Vestas’s much bigger onshore wind operation. It’s a move that the Denmark-based manufacturer hopes will help it dominate the industry by 2025.
  12. For fragile oil markets, the outcome of next week’s U.S. election poses yet another risk: the prospect that major producer Iran may regain its role in international trade. Challenger Joe Biden, leading in most polls, has signaled he’ll seek to bring Iran back into the 2015 nuclear accord the U.S. brokered when he was vice president under Barack Obama. That means the economic sanctions President Donald Trump imposed — and tightened further this week — could eventually be eased, opening the sluices for more than 2 million barrels a day of Iranian crude exports. The timing for the oil market is fraught. The OPEC cartel, which includes Iran, is restraining supply to prop up prices as the coronavirus ravages demand. Brent crude dropped around 3% on Thursday to below $38 a barrel, extending its slump this year to more than 40%.
  13. Apollo Global Management Inc. added to its cash stockpile during the third quarter ahead of mounting challenges for the firm’s fundraising efforts. The New York-based firm took in $13 billion, led by inflows for credit strategies and real assets, the company said Thursday in a statement. Apollo is encountering fresh fallout from co-founder Leon Black’s links to convicted sex offender Jeffrey Epstein as it seeks money for a range of strategies. Investor pressure on the firm has grown since the New York Times reported this month that Black, 69, had wired at least $50 million to Epstein since his 2008 conviction for soliciting prostitution from a teenage girl. The article didn’t accuse Black of breaking the law.
  14. Credit Suisse Group AG missed analyst estimates in key businesses and failed to capitalize on a trading rally that lifted rivals as Chief Executive Officer Thomas Gottstein reins in risk-taking following a series of missteps. Net income dropped 38% to 546 million francs ($599 million), compared with expectations of 597 million francs, dragged lower by the key international wealth management and Swiss units. While the newly-formed combined investment bank did better, it still trailed Wall Street firms and peers such as UBS Group AG and Deutsche Bank AG in trading revenue. The results sent shares of Credit Suisse down by the most in five weeks, the worst performer among European banks in early Thursday trading, even as it pledged to return as much as 2.3 billion francs to shareholders next year through buybacks and dividends.
  15. The world’s biggest cruise lines have roughly doubled the number of lobbyists they’re dispatching to congressional offices and several federal agencies this year. But as they try to resume sailing from U.S. ports, one of their most effective targets has been the White House. A former adviser to the White House Coronavirus Task Force says she and other advisers fielded a stream of calls and emails from cruise line officials, including Carnival Corp.’s in-house lobbyist. Their message: Help lift a “no-sail” order from the U.S. Centers for Disease Control and Prevention that has banned passenger cruises from U.S. ports since March.
  16. Marvell Technology Group has agreed to acquire Inphi Corp. in a cash and stock transaction of approximately $8.2 billion. The transaction consideration will consist of $66 in cash and 2.323 shares of stock of the combined company for each Inphi share; price represents 42% premium to yesterday’s close.
  17. Facebook Inc. and Twitter Inc. rallied in premarket trading Thursday, ahead of the release of their own quarterly results after Pinterest Inc. became the latest social-media company to post better-than-expected growth in users and revenue. Pinterest reported third-quarter revenue that topped the highest analyst estimate, while monthly active users rose 37% from the same period a year ago. The report followed Snap Inc.’s last week that suggested user engagement is rising and advertisers have boosted spending on web platforms. Facebook gained 3.3% to $276.50 at 6:45 a.m. in New York, while Twitter rose 6.3% to $51.57. Both companies are due to report financial results after the market close.
  18. Kraft Heinz Co. boosted its outlook for the full year as amped up consumer demand and internal cost cutting together give it confidence in the near-term. It now expects mid single-digit organic net sales growth and high single-digit adjusted earnings growth for both the fourth quarter — already in progress — and for the full year. “We are building momentum, and we are confidently optimistic about our near-term performance,” Miguel Patricio, chief executive officer, said in a statement. “We are heading into 2021 with our new operating model fully implemented, our platform strategy coming to life in the marketplace, and our growth investments ramping up.”
  19. The ferocity of the U.S. stock rout on Wednesday sent a measure of selling pressure to near the most extreme on record — an occurrence that’s become increasingly frequent in the past two months. The number of shares falling on the New York Stock Exchange exceeded those rising by 1,957 at the height of the selloff, sending the NYSE TICK Index to the second-lowest level since June. The gauge registered its most extreme reading ever that month, and has come close six times since then.
  20. Amazon.com Inc. is scheduled to report third-quarter results after the market closes on Thursday, and Wall Street is almost unanimous in expecting another blowout. The company’s biggest businesses are all expected to have delivered robust growth in the quarter, as the pandemic continues to fuel demand for online retail, cloud computing and its advertising business. Those trends, along with a surge in profitability, are expected to persist through the key holiday season. Wall Street is looking for revenue to grow more than 30% to $92.71 billion, a consensus that has risen by nearly $6.4 billion over the past three months, according to data compiled by Bloomberg. That target would represent record revenue for Amazon, and its second straight quarter with growth above 30%. North American retail revenue is expected to grow almost 38%, per a Bloomberg Consensus estimate, while global retail revenue is seen topping 32%.
  21. Every year, students from around the world pump about $40 billion into U.S. colleges and their home towns — akin to spending Harvard University’s massive endowment — while helping subsidize the cost of education for Americans nationwide. But now the annual infusion is shrinking: Enrollment of freshmen from abroad is down 14% this fall, a drop set off by the coronavirus pandemic and spurred on by an onslaught of Trump administration proposals. Whether that money rebounds will heavily depend on next week’s election. Colleges and universities have been sounding alarms in the final months of the presidential contest between Donald Trump and Joe Biden, pushing back on the government’s recent proposal to limit how long foreign students can stay. That move followed a threat over the summer to deport international students who attend classes online, as well as suggestions by administration officials to limit students from specific countries including China.
  22. Asset management firms that bundle loans into securities known as collateralized loan obligations are adding language to new CLOs to help them recover more money when loans sour, as defaults climb and restructurings become more contentious. The bulk of new deals out of the U.S. and Europe in recent months now have “workout” or ‘loss-mitigation loan” provisions designed to give managers the flexibility to remain involved in financings even after they go south, according to people with knowledge of the situation. Efforts to change the terms of existing CLOs have been slower going given the need to secure consent from investors. The roughly $860 billion global CLO market has been racing to fix problems with the way the securities are put together, where safeguards intended to protect investors in the top rated parts of the structure have weakened managers’ positions in high-stakes restructuring brawls. The protections amount to constraints on managers that hedge funds and other sophisticated investors can exploit, cutting into the amount CLOs recoup by as much as 30 cents on the dollar relative to other creditors, according to Barclays Plc.
  23. Comcast Corp. signed up the most internet customers in its history last quarter, beating Wall Street forecasts for sales and profit, and showing the cable giant continues to benefit from the shift to remote work and learning during the pandemic. The company added 633,000 internet subscribers in the third quarter, a 67% increase from a year ago, according to a statement Thursday. Comcast also lost 273,000 video subscribers, or 15% more than a year ago. Its theme-park and film businesses continued to suffer from fallout from the Covid-19 pandemic.
  24. Novavax Inc. shares jumped in pre-market trading, adding to this year’s 1,900% surge, after the U.K. government agreed to buy the company’s experimental Covid-19 vaccine. Britain agreed to purchase 60 million doses of NVX-CoV2372, the company’s vaccine candidate, “plus such additional orders as the authority may make from time to time,” Novavax said in a statement after the close of trading Wednesday. The stock climbed 5% to $85.41 at 7:22 a.m. in New York. Novavax shares have soared this year amid optimism for the shot, which received funding from the U.S.’s Operation Warp Speed program. The company is testing the vaccine in the U.K. and South Africa, and plans a trial in the U.S. as well.
  25. Moderna Inc., the U.S. biotech that’s among the few companies in the late stages of developing a Covid vaccine, received $1.1 billion in customer deposits for the shots during the third quarter. Customer deposits for the supply of Moderna’s experimental Covid vaccine were recorded as as deferred revenue.
  26. U.S. House Speaker Nancy Pelosi told Treasury Secretary Steven Mnuchin in a letter Thursday that she’s still awaiting the administration’s response on a raft of outstanding issues blocking a deal on a fiscal-stimulus package. In a letter Thursday posted on her official website, Pelosi listed seven major areas of disagreement: a national virus testing-and-tracing program; funding for state and local governments; school safety measures; child-care funding; tax credits for working families; unemployment insurance; and workplace protections and liability issues. “Your responses are critical for our negotiations to continue,” Pelosi wrote. She and Mnuchin last spoke Monday, when they were unable to resolve what’s become a three-month impasse over a Covid-19 relief plan.
  27. Dunkin’ Brands Group Inc., which is in talks to sell itself to a private equity-backed firm, reported sales and earnings that surpassed analysts’ expectations. Third-quarter adjusted earnings per share of 93 cents topped analysts’ average estimate of 80 cents. Sales of $361.5 million rose 1.6% and were above the consensus estimate of $344.9 million. The results underscore the opportunities as the company navigates a pandemic that has upended consumer behavior and reshaped the restaurant industry. Breakfast-focused establishments have struggled amid widespread office closures, though those with drive-through and digital ordering capabilities have fared better.

*All sources from Bloomberg unless otherwise specified