September 21st, 2020

Daily Market Commentary

Canadian Headlines

  1. A coalition of gold investors, including firms backed by billionaires John Paulson and Naguib Sawiris, is urging changes at miners as performance “continues to fall short” in some areas even as prices rise. In an open letter to the mining industry, prominent gold investors including money managers at Franklin Templeton, VanEck Funds and members of the Shareholders’ Gold Council are targeting issues including executive compensation and directors who don’t have enough skin in the game because they don’t hold a meaningful amount of shares in the firms they represent. The signatories offered 16 suggestions to better align the interest of managers, boards and shareholders. Gold has been on a record-setting tear as the pandemic threatens to derail global economic growth, sending investors on a flight to safe havens. That comes at a time when real yields are falling as governments unleash massive stimulus programs. Precious-metal miners have seen their shares skyrocket with a gauge of senior gold producers climbing almost 80% in the past year.
  2. Canada’s Wheaton Precious Metals Corp. is planning to list on the London Stock Exchange by the end of the year, seeking to tap into investor demand for so-called streaming deals that have been likened to exchange-traded funds “on steroids.” Vancouver-based Wheaton expects to join the LSE’s main market by the end of November, Chief Executive Officer Randy Smallwood said. It would be the first major streaming company to list there, and its stock would attract the interest of European funds that manage some $500 billion who can only invest in LSE-listed companies, he said. Streaming companies provide upfront payments to miners in exchange for the right to buy metals like gold at a discount in the future. That model allows investors to earn dividends and also benefit as the company grows its assets, whereas the gold in an ETF “doesn’t pay a yield and it doesn’t grow,” Smallwood said.

World Headlines

  1. European stocks fell the most in seven weeks on concern there will be further lockdowns as coronavirus cases rise, while HSBC Holdings Plc helped lead banks lower amid a potential threat to its expansion plans in China. The Stoxx Europe 600 Index dropped 2.7% as of 10:58 a.m. in London and the FTSE 100 Index slid on signs London is heading for a second lockdown. HSBC retreated after the Chinese Communist Party’s Global Times newspaper said that it’s a candidate for the country’s “unreliable entity list.” Banks also fell after an investigative report on lenders’ lapses in reporting suspicious activity. European equities are sliding on worries a resurgence of Covid-19 will prompt further restrictions and hamper a nascent economic recovery. Germany’s health minister said the trend of cases in Europe is “worrying,” while the U.K.’s Chief Medical Officer is set to warn on Monday that the country is at a “critical point.”
  2. U.S. equity-index futures extended declines, signaling losses at the open on Wall Street, as global stocks were hit by concern about new restrictions spurred by rising coronavirus cases. Futures contracts on the S&P 500 Index dropped 1.4% as of 10:20 a.m. in London, pointing to a fourth straight daily decline, the longest stretch of losses for the gauge since the end of February. Contracts on the Dow Jones Industrial Average and Nasdaq 100 fell 1.6% and 1.2%, respectively.
  3. In Asia, equities trading was subdued. Japan’s stock market was shut for a holiday. The Hang Seng Index slid 1.5%, while equities in China and Australia also retreated. Taiwan’s dollar strengthened to a level not seen in seven years.
  4. Oil declined as Libya signaled the resumption of some crude exports, while surging coronavirus cases clouded the outlook for demand and weighed on risky assets. Futures in New York fell 2.1% toward $40 a barrel. Libya is moving closer to reopening its battered oil industry after it told companies to resume production at some fields that are free of foreign mercenaries and fighters. This will add to already rising supply from OPEC+ nations, and comes as virus infections are starting to increase again in many places around the world. The U.K. said it’s close to a “tipping point” with the public health crisis, while there were predictions of at least one more virus cycle in America. That helped drive down European equities by the most since July, while U.S. stock futures also dropped.
  5. Gold dropped amid a firmer dollar, as investors awaited comments from Federal Reserve Chair Jerome Powell and insight from the mining industry at a conference this week. Markets opened the week under pressure as traders considered the prospect of fresh lockdowns in Europe, with equities tumbling and the dollar trading above recent lows. The U.S. approached 200,000 Covid-19 deaths, with former FDA Commissioner Scott Gottlieb saying he expects the nation to experience “at least one more cycle” of the virus in the fall and winter.
  6. U.S. deaths related to Covid-19 approached 200,000 and the nation’s new cases rose in line with a one-week average. Former FDA Commissioner Scott Gottlieb said he expects the U.S. to experience “at least one more cycle” of the virus in the fall and winter. Germany’s health minister said the trend of cases in Europe is “worrying” as the U.K. cautioned the rate of coronavirus infections could reach around 50,000 by mid-October. The warning comes amid expectations that local restrictions could soon be extended to London. Mayor Sadiq Khan will recommend tightened rules for the capital on Monday, LBC radio reported. U.K. shares extended losses. India’s virus tally is approaching 5.5 million while Indonesia’s capital is adding thousands of beds to house patients as its health system struggles with record infections.
  7. Nikola shares fell 34% in premarket trading in New York, poised to plunge to their lowest price since May, after founder Trevor Milton resigns as executive chairman. “Trevor stepping down voluntarily at Nikola will be perceived by the Street as a major near-term gut punch for the company’s lofty EV ambitions as he plays a key role strategically in driving the company’s vision,” Wedbush analyst Dan Ives wrote, reaffirming his neutral rating
  8. Shares in Snowflake Inc., which have doubled since their initial public offering last week, are “at risk of a violent sell-off,” according to Summit Insights, which started coverage of the software firm with a sell rating. Analyst Srini Nandury set a price target of $175, implying 27% downside from Friday’s close, citing competition and the stock’s expensive valuation. The initiation is the first among firms tracked by Bloomberg since shares started trading last week. The stock fell 6.3% in U.S. premarket trading on Monday.
  9. Jack Ma’s Ant Group is seeking to raise at least $35 billion in its initial public offering after assessing early investor interest, people familiar with the matter said, putting the Chinese fintech giant on track for a record debut sale. Ant lifted its IPO target based on an increased valuation of about $250 billion, up from previous estimates of $225 billion, said the people, who asked not to be identified discussing private matters. It was earlier expecting to raise at least $30 billion, people familiar have said. Ant’s simultaneous listing in Hong Kong and Shanghai may mark the biggest IPO ever, topping Saudi Aramco’s record $29 billion sale. Ant could exceed Bank of America Corp.’s market capitalization, and be more than twice the size of Citigroup Inc. Among U.S. banks, only JPMorgan Chase & Co. is bigger at $300 billion.
  10. SCG Packaging Pcl, Thailand’s biggest packaging company, plans to raise as much as 39.5 billion baht ($1.27 billion) in the nation’s second-largest initial public offering this year. The unit of Siam Cement Pcl, one of the country’s largest industrial conglomerates, set a price range of 33.50 baht to 35 baht for its 1.13 billion share offering, according to its filing with Securities & Exchange Commission Monday. The company will sell an additional 169 million new shares should a so-called greenshoe option be exercised in full, the filing said. SCG Packaging’s initial share sale is set to be Thailand’s second largest this year after Central Retail Corp.’s $2.5 billion offering in February. King Maha Vajiralongkorn is the biggest shareholder of its parent Siam Cement with 33.64% stake, according to the company’s website.
  11. Rolls-Royce Holdings Plc fell to its lowest in 17 years after detailing a plan to raise as much as 2.5 billion pounds ($3.2 billion) to brace against a drought in demand for aircraft engines. The U.K. company is reviewing options including a rights issue, other forms of equity and new debt, it said Saturday, confirming an amount reported by the Financial Times that was greater than in previous reports. The shares slid for a fifth straight session on Monday, dropping as much as 9.1%. Rolls-Royce has lost more than three-quarters of its value this year amid a broad industry downturn triggered by the coronavirus pandemic. The company has been particularly hard hit by the drop in long-distance travel, which has virtually eliminated demand for the wide-body planes its engines power. Many aircraft in the existing fleet have been temporarily or permanently grounded, depriving Rolls-Royce of vital maintenance revenue it collects when they fly.
  12. 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 $85.4 million in the week ended Sept. 18, compared with losses of $158.2 million in the previous week, according to data compiled by Bloomberg. So far this year, outflows have totaled $15.1 billion.
  13. A whistle-blower at Boeing Co. is urging aviation regulators to add additional protections to the grounded 737 Max. Curtis Ewbank, who has previously raised concerns about the plane’s design with congressional investigators, said in comments filed with the Federal Aviation Administration that a proposal to mandate fixes to the jet didn’t address multiple hazards identified in the two fatal Max accidents and earlier incidents involving the 737. “Clearly more actions are required to revise FAA processes so that it accurately assesses airplane design and regulates in the public interest,” Ewbank said in the comments, posted on the website.
  14. A new investigation by the International Consortium of Investigative Journalists says JPMorgan Chase & Co., Deutsche Bank AG and several global banks “kept profiting from powerful and dangerous players” in the past two decades even after the U.S. imposed penalties on these financial institutions. The report, based on leaked documents obtained by BuzzFeed News and shared with the consortium, said that in some cases the banks kept moving illicit funds after receiving warnings from U.S. officials. The documents identified more than $2 trillion in transactions between 1999 and 2017 that were flagged by financial institutions’ internal compliance officers as possible money laundering or other criminal activity, the report said. The top two banks are Deutsche Bank, which disclosed $1.3 trillion of suspicious money in the files, and JPMorgan, which disclosed $514 billion, the analysis found. Other lenders include HSBC Holdings Plc, Standard Chartered Plc and Bank of New York Mellon Corp., it said.
  15. The TikTok video-sharing app was already under U.S. scrutiny when users pranked President Donald Trump’s campaign by pretending to reserve thousands of tickets to a June re-election rally in Oklahoma. For Trump administration hardliners who wanted a tougher stance toward Beijing and viewed the Chinese-owned app as a national security threat, it was the perfect moment to pounce. The president, furious over the Covid-19 pandemic and embarrassed by empty seats at his campaign event, obliged. Linking TikTok to Beijing’s handling of the raging coronavirus outbreak, Trump in July threatened to ban the app used by 100 million Americans unless China handed over control of the company, its algorithms and data to the U.S. Hearkening back to his New York real estate days, he also insisted the U.S. government get compensated in the process.
  16. Norway wants its sovereign wealth fund to increase its exposure to North American stocks, which have outpaced European equities this year. “The changes we are proposing will ensure the investments better represent the distribution of value creation in listed companies globally,” Finance Minister Jan Tore Sanner said in an annual white paper on how the world’s biggest sovereign investor should be managed. The proposal from the minority Conservative-led government will now be submitted to parliament. The plan entails shifting about 6.5% of the fund’s equity portfolio to North American stocks from Europe, according to the finance ministry’s white paper. That’s equivalent to about $51 billion.
  17. China is ratcheting up the risk of military confrontation in the Taiwan Strait, as Beijing seeks to deter Taipei from continuing to deepen ties with the U.S. and other like-minded democracies. People’s Liberation Army aircraft repeatedly breached the median line between Taiwan and the Chinese mainland last week, in the latest of a series of military exercises in the area. The Chinese pilots signaled a willingness to continue the practice, telling Taiwanese personnel who attempted to warn them away that “there is no median line,” the Taipei-based China Times newspaper reported Friday, citing unnamed military officials. The report was widely circulated by Chinese state media, with the PLA’s Eastern Theater Command responding to one post by urging citizens to “discard any illusions and prepare to fight.” The PLA Air Force separately released a video Saturday showing H-6 bombers making a simulated strike on a runway that looked similar to one at Anderson Air Force Base on Guam, a key staging area for any U.S. support for Taiwan.
  18. Myanmar locked down most of Yangon province, home to its largest city, for two weeks to contain a record surge in coronavirus infections ahead of the general elections scheduled for November. The strict stay-at-home order from Monday bars more than one member of a family venturing out for shopping and curbs travel from Yangon township to other cities except for essential work, according to guidelines issued Sunday by the nation’s Central Committee on Covid-19 Control. Essential services such as banking, healthcare, fuel stations and food outlets will be allowed to operate as usual, it said.
  19. Donald Trump’s plans to name a replacement for Supreme Court Justice Ruth Bader Ginsburg this week offer Joe Biden the chance to galvanize newly energized Democrats, while providing the president a fresh battle in a culture war he’s waged for four years. Early reaction to Ginsburg’s death on Friday suggests Biden stands to gain more politically from the sudden vacancy, as it underscores the stakes of the contest for liberal voters who had been reluctant to endorse his centrist candidacy. A flood of Democratic fundraising since Friday signals that fear of a generation-long conservative hold on the Supreme Court has rallied support behind the former vice president, and gives Biden a new chance to extend his advantage with younger and female voters who viewed Ginsburg as an icon.
  20. Goldman Sachs Group Inc. has appointed Stephan Feldgoise and Mark Sorrell as co-heads of its global mergers and acquisitions practice. They are taking over from Michael Carr, Dusty Philip and Gilberto Pozzi, who will become co-chairs of the bank’s global M&A unit, according to an internal memo seen by Bloomberg. The trio join Tim Ingrassia and Gene Sykes in that role. Feldgoise, formerly co-head of M&A for the Americas, will continue his job as global head of consumer and retail. Sorrell, who previously led M&A in Europe, the Middle East and Africa, will continue as co-head of Goldman Sachs’s U.K. investment banking business and become a member of the division’s executive committee.
  21. Genetic sequencing giant Illumina Inc. agreed to acquire Grail Inc. in a deal valuing the cancer-detection startup at $8 billion. Grail shareholders will receive $3.5 billion in cash and $4.5 billion in Illumina common stock, the companies said on Monday. Illumina already holds 14.5% of Grail’s outstanding shares, and approximately 12% on a fully diluted basis. Illumina, a giant in the DNA sequencing space, serves as the backbone for consumer genetics tests and is becoming an integral part of pharmaceutical research efforts. Grail, originally founded by Illumina and later spun out as a standalone company, is developing a blood test that aims to detect cancers early.
  22. Chinese ride-hailing giant Didi Chuxing is partnering with automaker BYD Co. to produce customized electric vehicles for its transport business, according to people familiar with the matter. The two companies have already produced a test batch of the customized electric car, the people said, asking not to be identified because the details are private. The number of cars that will be produced is still to be determined as they undergo trials, one of the people said. Didi flagged as early as 2018 its intention to team up with car manufacturers to produce customized EVs for its ride-hailing service, which dominates in China and counts Uber Technologies Inc. as an investor. More than 969,000 EVs have registered with its passenger-transport service, representing around one-third of total EV owners nationwide, a white paper published by the company in April showed.
  23. Fox Corp. is willing to spend as much as $2 billion a year to maintain its rights to National Football League games on Sundays, a huge increase from its current contract, according to people familiar with the matter. Under the existing arrangement, the network airs games from the National Football Conference, featuring teams from the big media markets of New York, Chicago and Los Angeles. That makes it the most-coveted outlet for advertisers. Now Fox has to fend off other broadcasters, which also want to air high-profile matchups. Negotiations with the league are heating up because current broadcast rights begin expiring at the end of next year, starting with Walt Disney Co.’s ESPN and its deal for “Monday Night Football.” Talks between the league and the networks are already underway, but at an early stage, Fox Chief Executive Officer Lachlan Murdoch told investors this month.
  24. Investors betting on relative calm in global currency markets into year-end could be in for a surprise. Traders are insuring against sudden jolts in prices into the U.S. election, then see markets cooling off afterward. They risk being caught off-guard if Covid-19 cases continue to climb rapidly, trade war anxiety returns, the U.K. and European Union remain at loggerheads over Brexit, or a bitter dispute follows the vote in November. In spite of the looming risks, a Europe-based trader said institutional investors have generally held back from long-term currency hedging since early summer. And while pension funds have been considering options structures that span out to five years, they have yet to follow through, the trader said.
  25. With deep pockets, some of the best brains in robotics and its hallmark hustle, Uber Technologies Inc. was once a serious contender in the race to build self-driving cars and revolutionize global transportation. Today, the effort is lagging far behind rivals, and investors are getting antsy about the rationale for continuing a long-term science project that isn’t helping Uber become profitable or safeguarding its future. In recent months, the company’s two largest shareholders, SoftBank Group Corp. and the venture firm Benchmark, have privately encouraged Chief Executive Officer Dara Khosrowshahi to find more investors for the division, which is expected to exhaust its funds by the end of 2021, and re-evaluate its strategy, according to people familiar with the situation.

*All sources from Bloomberg unless otherwise specified