September 24th, 2020

Daily Market Commentary

Canadian Headlines

  1. Canadian equities fell Wednesday as confidence in the economic recovery waned. Shares in the U.S. also retreated amid warnings from Federal Reserve officials on the need for more stimulus. The S&P/TSX Composite Index sank 2%, the most since June 11. Nine of 11 sectors retreated, with materials and health care among the laggards. Aurora Cannabis Inc. lost 28% after a weak earnings report. Gold’s slump this week is forcing investors to ask whether the haven asset is taking a breather or facing an even sharper decline. Prime Minister Justin Trudeau says his government will launch a campaign to create 1 million jobs in Canada, returning employment to pre-pandemic levels.
  2. Prime Minister Justin Trudeau promised to do “whatever it takes” to keep Canada’s economy afloat through the coronavirus. It might not be enough to stave off an election. In one of the most anticipated speeches of Trudeau’s five years in power, the prime minister outlined plans to keep the fiscal taps open to surmount short-term challenges. He also used the address to lay out a list of longer-term policy plans, including a national daycare system, pharmacare and more spending on housing and the environment. It’s a far-reaching and potentially expensive agenda that poses a major risk for Trudeau, since the governing Liberals lack a majority in the legislature. If he can’t win support for the plan from at least one opposition party over the next week, Canada will be headed for elections.

World Headlines

  1. European stocks trimmed losses as banks reversed an earlier decline after a fresh round of targeted loans from the European Central Bank. The Stoxx Europe 600 Index dropped 0.3% as of 11:40 a.m. in London. Banks climbed 0.7%, reversing a slide of as much as 1.9% after the ECB alloted $203 billion in targeted loans to help boost lending in a pandemic-stricken economy. Europe’s main benchmark had fallen as much as 1.2% earlier, after a plea from the Federal Reserve for more fiscal stimulus spurred worries that Congress may not deliver on such a package. The Stoxx 600 is on track for its worst week since the end of July on concern that fresh restrictions to curb the rise in coronavirus cases will hurt economic recovery. France is the latest to impose tougher rules. U.K. Chancellor of the Exchequer Rishi Sunak is expected to announce new Covid-19 job-protection measures on Thursday.
  2. U.S. futures fluctuated as European stocks fell on concern the economic recovery is flagging amid a resurgence of coronavirus and fears of tighter measure to contain it. Treasuries were steady. Contracts on the S&P 500 Index and the Dow Jones swung between gains and losses while those on the tech-heavy Nasdaq 100 edged lower. The dollar paused in an advance that pushed it to a two-month high as investors flock to safer assets. A rebounding greenback has depressed the price of gold, now in the grip of its longest decline since June. West Texas Intermediate futures erased earlier losses to trade towards $40 a barrel.
  3. Japanese shares fell, with the Topix index capping its worst slide in almost two months, following U.S. peers lower on renewed concern over the pace of the global economic recovery. Auto and electronics makers were among the biggest contributors to the Topix index’s decline. The Nikkei 225 Stock Average dropped to a two-week low, with SoftBank Group Corp. weighing most heavily.
  4. Oil dropped in London and New York following warnings over global energy demand and the state of the U.S. economy. Crude fell along with other risky assets after Federal Reserve officials said more fiscal stimulus is critical to sustain the U.S. recovery. In Europe, the head of commodity trader Mercuria Energy Group said global oil markets won’t be able to absorb OPEC+ production increases as demand is weaker than expected.
  5. Gold fell to the lowest in two months as the dollar extended gains, with investors weighing comments from Federal Reserve officials on the need for more stimulus to aid the virus-hit U.S. economy. Silver plunged after entering a bear market. Chairman Jerome Powell continued to wave the fiscal flag at a congressional hearing — amid a political stalemate — saying that more support was likely to be necessary. Others were more full-throated, with Cleveland Fed President Loretta Mester saying it was very much needed given the “deep hole” the economy is climbing out of.
  6. Mexican inflation stayed above the upper limit of its target range in early September, bolstering expectations that the central bank will slow the pace of interest rate cuts when its board meets on Thursday. Consumer prices rose 4.1% from a year ago, while fruit and vegetable prices spiked 13.35%, the national statistics agency reported on its website. The increase was less than the 4.11% recorded in the previous reading and above the 4.03% median estimate in a Bloomberg survey.
  7. California just started the clock on a future that a few years ago would’ve been unthinkable: dealerships full of nothing but zero-emissions cars. On Wednesday, Governor Gavin Newsom ordered regulators to phase out the internal combustion engine and ban the sale of all new gasoline-fueled cars after 2035. With that, California became the first state in America to impose such a prohibition and delivered the biggest jolt yet to automakers already under pressure to give up fossil fuels and deliver a new generation of electric vehicles.
  8. Goldman Sachs Group Inc. economists halved their forecast for U.S. growth in the fourth quarter after deciding there will not be additional fiscal stimulus until next year. The researchers led by Jan Hatzius now predict the world’s largest economy will expand 3% on a quarterly annualized basis, down from the 6% they previously anticipated. “It is now clear that Congress will not attach additional fiscal stimulus to the continuing resolution,” they said in a report. “This implies that after a final round of extra unemployment benefits that is currently being disbursed, any further fiscal support will likely have to wait until 2021. “
  9. E.W. Scripps said it will buy national broadcast network IONMedia for $2.65 billion, combining the business with its Katz networks and Newsy to create a full-scale national television networks business. The deal is expected to be financed with $1.85 billion of secured and unsecured debt and a $600 million investment from Berkshire Hathaway in preferred stock
  10. Before the pandemic emptied the city, few lenders benefited from the heady local real estate market as much as regional players New York Community Bancorp Inc. and Signature Bank. Now they’re becoming a case study for potential trouble from a sudden downturn in the Big Apple’s property sector, and their share prices are suffering. New York Community Bancorp and Signature were among the top five most-active lenders in New York in the first half of the year, and almost all of their portfolios are tied to the area. With retail and apartment vacancies rising and rents falling, and with the prospect of employers cutting their office space looming, the question is whether the hundreds of millions of dollars the banks have set aside for commercial-property loan losses will be enough. An epicenter of Covid-19, the city shut down in March, earlier than many parts of the U.S., and its reopening has been cautious, with workers still at home and restaurants not yet open for indoor dining.
  11. India stocks slumped by the most since May as foreign investors sold shares at the fastest pace in about three weeks. The S&P BSE Sensex slid 3%, the most among Asian markets, led by lenders and finance shares. All but two stocks on the NSE Nifty 50 Index ended in the red — indicating poor market breadth — as the gauge retreated 2.9%. Volatility was elevated because of the monthly expiry of derivative contracts. Foreign investors sold a net $241 million worth of Indian stocks so far this week, contributing to a 0.46% decline in the rupee to 73.90 against the U.S. dollar. Meanwhile the yield on the benchmark 10-year government bond was little changed at 5.99%.
  12. Turkey’s central bank raised interest rates for the first time since a currency crisis in late 2018, surprising most economists after a series of backdoor measures fell short of stabilizing the lira. The Monetary Policy Committee led by Governor Murat Uysal increased the benchmark one-week repo rate to 10.25% from 8.25% on Thursday. Most economists in a Bloomberg survey predicted no change. The lira surged after the announcement and traded 1.2% stronger against the dollar as of 2:35 p.m. in Istanbul. The decision caps a period of tightening by stealth since August as the central bank tried to contain the lira’s weakness by using fringe tools and ceasing to provide funding at its cheapest benchmark rate. Investors questioned the approach for its lack of transparency and the ease with which the measures can be unwound.
  13. U.K. Chancellor of the Exchequer Rishi Sunak set out his plan to rescue millions of jobs and businesses as the virus pandemic threatens to derail the economy again. The measures include an extension of value-added tax relief for hospitality businesses and pay subsidies for part-time workers. The Israeli government tightened restrictions in a second lockdown for the next two weeks despite opposition from senior officials. France introduced new steps to fight a rapid resurgence, including an earlier closing time for bars and limiting public gatherings in several cities. U.S. President Donald Trump signaled he could veto any tightening of rules for the emergency clearance of a coronavirus vaccine, a move that could increase concerns that the race to find a shot is becoming entangled with politics before the election.
  14. The South Korean maker of the smash hit mobile game PlayerUnknown’s Battlegrounds is seeking arrangers for an initial public offering that could value the company at about $26 billion, according to a local media report. Krafton Inc. is planning to list shares on the Korea Stock Exchange next year, Maeil Business Newspaper reported, citing unidentified people in the investment banking industry. A total market value of “at least” 30 trillion won ($25.6 billion) is estimated, based on current multiples for fellow Korean game makers Netmarble Corp. and NCSoft Corp., with around 10 trillion won worth of shares that may be sold in the IPO, the report said.
  15. Penn National Gaming Inc. is taking advantage of its nearly three-fold surge this year, helped by its minority interest in Barstool Sports, to sell 14 million shares of its stock. The company Thursday announced the offering, underwitten by Goldman Sachs, BofA Securities and JPMorgan. Penn’s shares traded to a record high Tuesday after analysts at Morgan Stanley said its Barstool Sportsbookbetting app reached 21,000 downloads per day in its first weekend, breaking records set by competitors DraftKings Inc. and Flutter Entertainment Plc’s FanDuel. Penn National fell 5.8% to $65.00 in premarket trading. The stock was also downgraded Thursday to neutral from outperform by Macquarie analyst Sarah Stein. The shares have gained 170% this year through Wednesday.
  16. A group of investors led by Bain Capital Private Equity has offered to buy Ahlstrom-Munksjo Oyj in a cash deal valuing the Finnish supplier of fiber-based materials at about $2.5 billion. Taking Ahlstrom-Munksjo private with Bain Capital as a partner is “the best route for developing the company to its fullest potential,” its biggest owner, Ahlstrom Capital, said in a statement on Thursday. Bain is set to hold 55% of shares after the transaction, while Ahlstrom Capital will raise its stake to 36% from the current 18.7%. The shares rose almost 24% when the market opened in Helsinki to trade near the offer price of 18.10 euros per share. The deal represents a roughly 30% premium relative to Ahlstrom-Munksjo’s volume-weighted average price over three months to Sept. 23. It’s recommended by board members not already connected to the deal, and has the backing of owners representing 35% of its shares.
  17. Euro-zone banks took 174.5 billion euros ($203 billion) in another dose of ultra-cheap funding as the European Central Bank gives them every possible incentive to keep lending to the pandemic-stricken economy. The bids for the targeted loans, known as TLTROs, came from 388 banks, and the takeup was at the high end of economists’ expectations. The loans will likely push excess liquidity in the euro zone above 3 trillion euros for the first time on record. The euro fell as much as 0.2% to $1.1633.
  18. A handful of European airports are implementing trials of quick-fire coronavirus tests, working with airlines to push technologies still being developed as a way to revive stunted international air travel. The tests, which can be carried out in 30 minutes, are seen as the best hope for the aviation industry to overcome new travel curbs that have brought a modest traffic rebound over summer to a shuddering halt. Other initiatives include a Finnish experiment with dogs that can sniff out the virus. Rome’s Fiumicino hub became the first worldwide to introduce rapid screening, while London Heathrow, Europe’s busiest airport, has trialed three rival technologies. The International Air Transport Association is backing mandatory checks on departure to unlock flights before the arrival of a Covid vaccine, and Deutsche Lufthansa AG wants to use tests to reopen the trans-Atlantic market.
  19. Foreign investors are likely to have a new channel to invest in China’s government bonds. FTSE Russell will announce whether it will add the nation’s sovereign debt into its indexes after U.S. markets close on Thursday, a year after rejecting the notes. Morgan Stanley puts the odds of inclusion this time round at 90%. With yields near zero for most developed nation bonds, the nearly 3.1% offered by China’s benchmark 10-year notes has been pulling in investors from Singapore to the U.K. Inflows into the nation’s debt market from overseas investors jumped nearly 40% a year since 2017 to a record $383 billion by the end of June, central bank data as of the end of June showed. That’s yet to have much impact on the bonds given foreigners account for less than 3% of the $16 trillion market.


*All sources from Bloomberg unless otherwise specified