September 18th, 2020

Daily Market Commentary

Canadian Headlines

  1. Canadian miner Kinross Gold Corp. is boosting output and paying its first dividend in seven years after gold prices surged to a record. The Toronto-based company will give shareholders 3 cents a common share, and resume quarterly dividends of the same amount, taking the total distribution to 12 cents a year, according to a statement Thursday. Production is expected to increase 20% by 2023. The move comes after investors flocked to the yellow metal as a safe haven, with the pandemic threatening to derail global economic growth. Spot gold climbed to a record $2,075.47 an ounce in August and while prices have declined since then, they are still up 28% this year, making it the second-best performer in the Bloomberg Commodity Index of 22 raw materials.

World Headlines

  1. European equities fluctuated on Friday amid investor caution over the path of the economic recovery, while travel stocks slipped on the prospect of further restrictions. The Stoxx Europe 600 Index is set for a second week of gains, though was down 0.1% at 10:58 a.m. in London. Basic resources and technology advanced and travel, real estate and banks were the worst performers. Some increased volatility is expected as options and futures for single stocks and indexes expire on a so-called “quadruple witching” day. Travel and tourism industries have appealed to the European Commission to push governments to end quarantine requirements, while Ryanair Holdings Plc said it would reduce its October capacity by a further 20%, in addition to a cut announced in mid-August. Banks remained in the red even after European regulators were said to move closer to lifting a de-facto ban on dividends at the start of next year.
  2. U.S. equity-index futures were mixed and European stocks fluctuated as investors searched for new catalysts to give direction to global markets. Treasuries nudged higher and the dollar was steady. S&P 500 futures were flat ahead of a so-called “quadruple witching” on Friday that will see the expiry of options and futures for single stocks and indexes, which may fuel volatility towards the close. Contracts on the tech-heavy Nasdaq 100 rose, while those on the Dow Jones Industrial Average declined. Investors are on the lookout for more U.S. fiscal stimulus after the Federal Reserve indicated this week that interest rates will stay low for years to come. Data continues to show a patchy recovery path around the world as coronavirus infections surge.
  3. Japan’s Topix booked its fourth weekly consecutive gain, the longest winning streak since November, as investors moved back in following this week’s central bank rate decisions at home and in the U.S. Electronic makers and chemical shares gave biggest boosts to the benchmark index. Technology infrastructure-related stocks including NTT Data Corp. and Fujitsu Ltd. rose on expectations for a ‘digital agency’ that the Suga administration plans to set up. Telecommunication stocks underperformed after Suga reiterated his call for the country’s mobile carrier fees to be lowered.
  4. Oil is poised for its biggest weekly advance since early June after Saudi Arabia piled pressure on fellow OPEC+ nations to deliver on promised output cuts. Futures in New York are up about 10% this week, despite bearish calls on the outlook from industry heavyweights such as BP Plc and Trafigura Group to the International Energy Agency. Saudi Arabia showed its determination to protect the recovery at an OPEC+ committee meeting on Thursday, lambasting members that have cheated on production quotas.
  5. Gold headed for a second weekly advance as the dollar steadied, with investors weighing climbing coronavirus cases and a lukewarm Federal Reserve meeting. Global Covid-19 infections exceeded 30 million, according to data from Johns Hopkins University. The U.S., India and Brazil remain the countries with the highest number of cases, though the virus is also surging in Europe. Earlier this week, Fed officials indicated interest rates will stay low for years to come, but stopped short of tweaking bond purchases as some had expected.
  6. Global Covid-19 infections passed 30 million, according to data from Johns Hopkins University, with the U.S., India and Brazil recording the largest number of cases. London Mayor Sadiq Khan said further measures may be announced amid reports of a surge in virus numbers. The situation continued to deteriorate in Europe with Germany’s economy minister warning of the impact of further restrictions. Thailand recorded its first coronavirus death since June. Democratic nominee Joe Biden, speaking in a CNN town hall, blasted President Donald Trump’s virus response as “almost criminal.” Roche Holding AG said its Actemra drug reduced the need for ventilation in a third-phase clinical trial on hospitalized patients with Covid-19 and pneumonia.
  7. President Donald Trump has begun promising that a coronavirus vaccine will be approved within weeks — a gambit to turn a pandemic cure into an October surprise for his struggling re-election campaign. Trailing Democratic challenger Joe Biden in the polls, and with voters giving Trump’s response to the coronavirus outbreak poor marks, the president has championed his administration’s aggressive vaccine push as part of an effort to sway public opinion in his favor. Democrats have responded by raising doubts a shot approved under Trump can be trusted, making the coronavirus vaccine an election flash-point.
  8. The U.S. is emerging as an early favorite in the all-out showdown to rekindle inflation in the world’s major economies. With the Federal Reserve planning to hold interest rates near zero until at least 2023 and Congress working on another fiscal boost, a pocket of the debt market is starting to see consumer prices modestly over 2% in years to come. That’s in stark contrast to Europe where deflation fears have reawakened, and Japan, which has battled moribund price pressures for decades to no avail. It’s early days, of course, and investors are still quibbling over whether the Fed will succeed in spurring price gains. But they’re ramping up bets that its new inflation policy, aggressive bond buying and its slate of liquidity programs will help the U.S. reflate its economy more convincingly than in other developed nations. With many central banks backed into a corner with ultra-loose monetary policy even before the crisis, the U.S. has quickly out-eased its peers, squelching criticism — from the president, among others — of earlier rate hikes and widening the gap between price expectations in the U.S. and euro area to a decade high.
  9. JD Health has selected banks for its planned Hong Kong initial public offering, which it could file for as soon as this month, according to people familiar with the matter. The online health care unit of China’s No. 2 e-commerce giant Inc. has picked Bank of America Corp., Haitong International Securities Group Ltd. and UBS Group AG to work on the listing, the people said. JD Health aims to raise at least $1 billion from the share sale, the people said, asking not to be identified as the matter is private. Details of the offering including the size and timeline are subject to change, they said. A representative for JD didn’t respond to requests for comment. Representatives for Bank of America, Haitong International and UBS declined to comment.
  10. CaixaBank SA agreed to take over Bankia SA in a deal valuing its Spanish rival at about 3.8 billion euros ($4.5 billion), adding to signs that long-awaited consolidation in European banking is kicking off. The purchase will create the biggest lender operating in Spain and CaixaBank said it will deliver combined annual cost cuts and increased revenue of about 1.1 billion euros. Bankia investors will get a premium of about 20% to the bank’s closing price on Sept. 3, the last before a potential deal was reported. The biggest Spanish banking deal in two decades is the latest indication that European lenders are warming to the idea of buying or joining their rivials. Italy’s Intesa Sanpaolo SA is taking over domestic rival Unione di Banche Italiane SpA to be in a stronger position for cross-border deals, and Spain’s Banco de Sabadell SA is exploring strategic options including a sale or merger or buying a smaller competitor.
  11. TikTok-owner ByteDance Ltd. is getting more confident its envisioned alliance with Oracle Corp. will pass muster with China’s regulators, a critical step in the political clash over the popular video app, people familiar with the matter said. While Beijing has asserted its right to block the sale of critical technologies, it is likely to greenlight a deal as long as it doesn’t involve the transfer of the artificial intelligence algorithms that drive TikTok’s service, they said, asking not to be identified discussing a private deal. That’s true even if ByteDance were to cede majority control over TikTok, they said. ByteDance struck a deal with Oracle and later made revisions put forward by the Treasury Department aimed at addressing U.S. national security concerns, Bloomberg reported Thursday. The proposal calls for ByteDance to own most of a ringfenced TikTok, with Oracle, Walmart Inc. and venture capital investors holding a minority of a new company that will pursue an initial public offering in about a year. But President Donald Trump has the final word and has said he doesn’t want the Chinese parent to retain majority control.
  12. The U.S. ban on Huawei Technologies Co. was supposed to hand leadership of the lucrative market for wireless base stations to Ericsson AB and Nokia Oyj. It’s not working out that way. The crackdown on China’s largest technology company has given startups such as Altiostar Networks Inc. and new entrants including Qualcomm Inc. a rare opportunity to grab a slice of the $35 billion the telecom industry spends each year on this crucial part of mobile phone networks. “This could break up that tech vendor lock-in that’s been around for decades,” said Andre Fuetsch, chief technology officer of network services at AT&T Inc., the third largest U.S. wireless carrier. “It’s about how do you create a much more competitive, innovative ecosystem.”
  13. European regulators are moving closer to lifting a de-facto ban on bank dividend payments at the start of next year, according to people familiar with the matter. Several members of the European Central Bank’s supervisory board, who supported initial requests that banks forgo dividends, see further extensions of the ban doing more harm than good, the people said, asking not to be named because the deliberations are private. European banking stocks pared losses, with the 22-member Euro Stoxx Banks Index falling 0.9% as of 11:33 a.m. in Frankfurt after dropping 1.6% earlier. The index, which includes many of the largest banks overseen by the ECB, has fallen 38% this year.
  14. Alphabet Inc’s Google has removed Paytm, the dominant financial services app run by India’s most valuable startup, from its Play Store for violating gambling policies. Paytm, which provides an array of financial services and competes with Google Pay, has been heavily advertising a “Scratch and Win” promotion for all payments made via its app. A spokeswoman for the U.S. search giant said the app has since been removed for violating its policies against online betting, without elaborating. “We don’t allow online casinos or support any unregulated gambling apps that facilitate sports betting,” the search giant said on its official India blog. “This includes if an app leads consumers to an external website that allows them to participate in paid tournaments to win real money or cash prizes, it is a violation of our policies.”
  15. Qantas Airways Ltd. Chief Executive Officer Alan Joyce’s compensation fell 83% to A$1.7 million ($1.2 million) in the year ended June as the airline slashed salaries and bonuses to save money during the coronavirus crisis. Joyce went without pay from early March until August, when he started taking 65% of his base salary, Qantas said in a statement Friday. He got no bonus for the fiscal year, and opted not to receive 343,500 shares tied to his long-term incentive from 2017.
  16. The Trump administration’s push to kill off what’s left of the 2015 nuclear deal with Iran comes to a head this weekend at the United Nations, where allies and adversaries argue the U.S. effort to restore sanctions is groundless and a diplomatic crisis is set to explode. The U.S. bid to restore all UN sanctions on Iran — which Secretary of State Michael Pompeo contends will go into effect on Sunday in the middle of the UN General Assembly — deepens a chasm between the U.S. and most other nations. Even European allies say the U.S. has no right to invoke the accord’s “snapback” provision because President Donald Trump quit the multinational deal to restrain Iran’s nuclear program two years ago.
  17. HSBC Holdings Plc is exploring plans to cut the jobs of almost all its Paris-based bankers working on structured derivatives products, according to people familiar with the matter. The move would affect the equity and fixed-income derivatives teams, the people said, asking not to be identified discussing private information. It’s not clear how many jobs will be affected. Europe’s biggest bank aims to cut 255 jobs throughout the 678-person French investment bank by early 2022, Bloomberg News has reported.
  18. Companies that took advantage of federal pandemic-relief efforts like payroll tax deferrals will face bigger bills next year, possibly complicating an already-challenging climb out of the Covid crisis. In recent 10-Q filings and investor calls, companies have started to outline some of the hundreds of millions of dollars worth of immediate cash benefits reaped from the tax holiday, even as they warn of the headwinds it may create when the bills eventually come due. In other words, the quick-fix measures hold some potential risks. “While this may be good for a short-term cash flow, it may backfire,” said Cameron Hess, a tax attorney with Wagner Kirkman Blaine Klomparens & Youmans LLP in Sacramento, California. Instead of making prudent cost cuts, employers “are now under an even more serious financial crisis, with obligations owing to the U.S. Treasury.”
  19. The European Union will consider new efforts to grow its capital markets now that London, the region’s biggest financial hub, is outside the bloc, according to a document seen by Bloomberg. The European Commission is planning to remove roadblocks that have hampered the development of a pan-European market with conflicting national regulations and tax and insolvency policies. It intends to present the document next week.
  20. Commodities recovered their poise this week, with a solid gain in crude plus a notable shout-out from former Goldman Sachs Group Inc. Chief Executive Officer Lloyd Blankfein, who says now’s probably a good time to invest in raw materials. Next week, there’ll be insights into energy, metals and agricultural markets that’ll shed light on whether that’s looks right. Base and precious metals feature prominently. The heavyweights of global gold mining, including the chief executive officers of Newmont Corp. and Barrick Gold Corp., speak at the Gold Forum Americas. Nickel traders will zero on Tesla Inc.’s Battery Day for Elon Musk’s take on the shape of things to come.
  21. Inc. made the first five investments for its $2 billion climate fund. They included Rivian, a maker of electric delivery vans, and Redwood Materials, which recycles lithium-ion batteries. The other companies are CarbonCure Technologies, which focuses on carbon removal technologies; Pachama, which develops technology to measure the impact of carbon capture in the world’s forests; and Turntide Technologies, which makes motors that reduce energy use
  22. World Trade Organization members eliminated three candidates from the race to be the next director general of the trade body and plan to narrow the field to two final candidates in the coming weeks. The Geneva-based WTO said Mexico’s Jesus Seade, Egypt’s Hamid Mamdouh and Moldova’s Tudor Ulianovschi didn’t secure enough support in a first of three rounds of voting. The second phase of consultations will begin on Sept. 24 and run until Oct. 6 after which the WTO will announce two final candidates. The goal is to name a new leader by Nov. 7.

*All sources from Bloomberg unless otherwise specified