September 29th, 2020

Daily Market Commentary

Canadian Headlines

  1. Canada’s largest provinces are bringing in new limits on activity after a spike in Covid-19 cases, threatening to short-circuit an economic recovery. Quebec will force public places including bars, museums, cinemas and restaurant dining rooms to close from Oct. 1 to Oct. 28 in three regions, including greater Montreal and greater Quebec City. Schools and stores will remain open. The province, which has had more virus deaths than 40 U.S. states, is an epicenter of a second wave with about 5,000 active cases, a 71% jump from the beginning of August. Premier Francois Legault announced the measures Monday “with a heavy heart” and said his government is working on ways to support the businesses affected. People living in those regions also won’t be allowed to receive guests at home.

World Headlines

  1. European stocks slipped after Monday’s rally, as traders digested a scaled-back U.S. stimulus proposal and the potential return of economically disruptive virus-containment measures, while preparing for the first debate between U.S. presidential candidates. The Stoxx Europe 600 Index was down 0.5% as of 9:15 a.m. in London, with banks paring the previous session’s gains. Utilities was the only sector in positive territory among 20. Equities on Monday had seen their biggest one-day gain since mid-June, with banks leading the rebound. Although lenders remain Europe’s worst-performing industry in the year to date, the one-day rally was the strongest since early June and triggered a technical buy signal.
  2. Futures contracts on U.S. equities indexes turn negative alongside shares in Europe, with investors assessing the latest efforts toward U.S. fiscal stimulus and the rising toll of the pandemic. Contracts on the S&P 500 drop 0.3% as of 8:16am in London, after rising as much as 0.5%. As the global death toll from the pandemic exceeds one million, investors are pinning hopes on a $2.2 trillion stimulus proposal by Democrats. Markets are also girding for the first presidential debate on Tuesday, and traders have pushed up overnight implied volatilities on several major currencies including the yen against the dollar.
  3. Japanese stocks pared declines on a day when many traded without rights to their next dividends, as investors speculated on possible support from the Bank of Japan. The Topix index declined sharply in the morning session as more than 1,100 stocks traded ex-dividend, then swung to a gain in afternoon trading before closing slightly lower. Electronics makers were the biggest boost to the benchmark gauge, while banks fell. Futures contracts on the S&P 500 Index rose as much as 0.5% in Asian trading. The BOJ has made daily purchases of 81.3 billion yen ($770 million) worth of ETFs six times this month. While buys have been more frequent than in August, the daily amount has come down from the levels of over 100 billion seen through July.
  4. Oil edged lower toward $40 as a global market rally cooled and traders look to U.S. inventory data for clues on demand recovery. Futures slipped 0.7% in New York, after earlier trading near $40 a barrel. The end-of-quarter rebound in global stock markets stalled on Tuesday, while global confirmed deaths from the coronavirus — which has eviscerated energy demand — hit 1 million. U.S. gasoline inventories are forecast to fall in government data Wednesday as traders assess the health of American consumption.
  5. Gold held onto Monday’s rebound as investors weighed prospects for further stimulus in the U.S. and Europe. Speaker Nancy Pelosi said there’s a chance she and Treasury Secretary Steven Mnuchin can still reach a deal on a stimulus package. However, they’ll have to pick up the pace to complete an agreement before the Nov. 3 election. Meanwhile, the European Central Bank is ready to deploy more monetary stimulus if needed, according to President Christine Lagarde. Those initiatives are being assessed against the rising toll of the coronavirus crisis, as German Chancellor Angela Merkel warned of an infection surge. The pandemic is creating a class of “new poor” across East Asia and the Pacific, according to the World Bank.
  6. Economic confidence in the euro area improved for a fifth month, albeit at a slower pace as resurgent virus infections cast uncertainty over the outlook. A European Commission sentiment index rose more than expected in September, sending the euro to the highest level in nearly a week. Yet confidence remains more than 30% below its pre-crisis level and evidence is building that the steep rebound following the end of lockdowns has started to level off. Production expectations in industry, which initially bounced back sharply, have barely moved over the past two months, and the outlook for demand in services waned for a second straight month. A gauge measuring employment prospects also signaled a continued but weaker recovery in September.
  7. Tesla Inc. secured its own lithium mining rights in Nevada after dropping a plan to buy a company there, according to people familiar with the matter. The automaker held discussions in recent months with Cypress Development Corp., which is seeking to extract lithium from clay deposits in southwest Nevada, but the parties didn’t reach a deal, the people said, asking not to be named because the information isn’t public. The electric car maker, which has vowed to slash its battery costs by 50%, instead focused on the plan that Chief Executive Officer Elon Musk outlined last week to dig for lithium on its own in the state. Producing lithium from clay has so far proven difficult and costly. No company has been able to produce commercial quantities using the practice. But a push into mining is at the center of Tesla’s plan to cut battery costs and deliver on a promise to bring a $25,000 electric car to market. Musk told investors last week that Tesla has secured access to 10,000 acres of lithium-rich clay deposits in Nevada and planned to use a new, “very sustainable way” of extracting the metal.
  8. When Donald Trump ran for president, he boasted he would be the “greatest jobs president that God ever created.” Four years later, Trump heads into the November election on track to be the first U.S. leader since World War II to oversee a net loss of jobs during a four-year term. The pandemic upended the nation’s record-long expansion and triggered the sharpest recession since at least the 1940s. As a result, since Trump’s inauguration, the nation has shed a net 4.7 million positions as of August and more than 13 million people are unemployed, the rough equivalent of the combined populations of New York City, Chicago and Houston.
  9. E-commerce platform Allegro raised about 9.2 billion zloty ($2.3 billion) in Warsaw’s largest-ever listing after selling more shares than planned thanks to strong demand for technology-related stocks in Europe. Allegro sold 213.5 million shares at 43 zloty each, the top end of a marketed range, the company said in a statement Tuesday. On Friday, the group increased the total deal size by 14%. The company raised 1 billion zloty by selling 23.3 million new shares, while the remainder came from Allegro’s private equity owners Cinven, Permira and Mid Europa Partners. The stock is set to start trading on Oct. 12. If the underwriters exercise in full their option to sell more shares from the buyout firms, the size of the offering will increase to $2.7 billion, with 24% of the share capital available for trading. Allegro’s IPO is the biggest on record for the Warsaw bourse, surpassing insurer PZU SA’s 8.1 billion-zloty offering in 2010.
  10. A couple weeks from becoming Ford Motor Co.’s next chief executive officer, Jim Farley stopped to huddle with two young field sales representatives during an event to honor employees at a Dearborn, Michigan, dealership. “What’s the one thing at Ford Motor Co. you’d like to change?” he asked them, eliciting responses about the need for more models on the lot and financial assistance to market them. It’s a question Ford’s chief operating officer is asking everyone he encounters these days as he prepares to take control on Oct. 1 of the 117-year-old automaker, which is struggling to find its way in a new transportation reality of shared, electric and self-driving cars. He put the question to factory workers at Ford’s century-old Rouge manufacturing complex and middle managers at the automaker’s headquarters.
  11. A wildfire ripping through Northern California’s wine country has more than tripled in size, forcing thousands of evacuations and endangering properties in a region devastated by blazes just three years ago. The Glass Fire north of San Francisco reached more than 36,000 acres as of Monday evening, up from 11,000 acres in the morning, and is 0% contained, according to a briefing by officials in Sonoma County. A second fire that erupted over the weekend in Shasta County is also raging and has killed at least three people. PG&E Corp. said Monday evening that it restored power to nearly all of its customers after cutting service to about 195,000 people in an attempt to keep its electric lines from sparking blazes during hot weather and high winds. Much of California was under threat from critical fire conditions Monday, affecting about 5.8 million people, the U.S. Storm Prediction Center said. Winds were forecast to ebb in the northern part of the state in the evening, potentially giving firefighters a break.
  12. The world officially recorded 1 million deaths from Covid-19 in one of the most sobering milestones of the pandemic, but the real tally might be almost double that. Actual fatalities from the worst outbreak in a century may be closer to 1.8 million — a toll that could grow to as high as 3 million by the end of the year, according to Alan Lopez, a laureate professor and director of the University of Melbourne’s global burden of disease group. The coronavirus’s rapid spread and ability to transmit in people who show no signs of the disease have enabled it to outrun measures to accurately quantify cases through widespread diagnostic testing. “One million deaths has meaning by itself, but the question is whether it’s true,” Lopez said in an interview before the tally was reached. “It’s fair to say that the 1 million deaths, as shocking as it sounds, is probably an underestimate — a significant underestimate.”
  13. Tiffany & Co. stood by a legal push to uphold its $16 billion sale to LVMH, saying the French luxury giant’s justification for trying to back out of the deal is baseless and misleading. “LVMH’s specious arguments are yet another blatant attempt to evade its contractual obligation to pay the agreed-upon price for Tiffany,” the jeweler’s chairman, Roger Farah, said in a statement Tuesday. The riposte came after LVMH countersued Tiffany, weeks after moving to end its purchase of the iconic New York-based jeweler. The owner of Louis Vuitton said the decision was driven by the French government’s request to delay the deal’s closing and Tiffany’s mismanagement during the pandemic.
  14. The U.K. could be facing a long-term increase in the size of the state as well as a substantial tax increase as a result of the coronavirus pandemic, according to the Institute for Fiscal Studies. The influential research group said Tuesday it is “highly plausible” that government spending is around 45% of gross domestic product by the middle of the decade, a level not sustained since the 1970s. The prospect of a significant enlargement of the state underscores the major political shifts brought about by the pandemic. Once the party that prided itself on keeping tax and spending low, the ruling Conservatives are now presiding over unprecedented levels of debt in a bid to support the economy.
  15. China Evergrande Group won support from a group of strategic investors that agreed to hang on to their shares, allowing the embattled property developer to avoid billions in potential repayments. The bonds rallied. The world’s most-indebted property firm said investors holding equity stakes worth about 86.3 billion yuan ($12.7 billion) agreed to keep their shares and not require the company to buy them out. That group represents the majority of the 130 billion yuan in shares held by strategic investors in Evergrande’s Hengda Real Estate unit, who could demand repayment in January under certain conditions, according to a statement Tuesday. Evergrande bonds rallied, as investors speculated the deal will give it breathing room to reduce its $120 billion in debt and avoid a costly repayment to investors. Some of the dollar bonds jumped more than five cents on the dollar, extending gains, according to Bloomberg-compiled pricing. The firm’s note due 2025 climbed 5.1 cents on the dollar to 79.1 cents, while a bond due 2022 climbed 5.7 cents to 85.8 cents.
  16. Nippon Telegraph & Telephone Corp. plans to turn its wireless carrier unit NTT Docomo Inc. into a wholly owned subsidiary, a move that may help Prime Minister Yoshihide Suga’s policy push to lower phone tariffs. NTT will pay 3,900 yen a share to acquire the shares it doesn’t already hold, the companies said in a statement. The buyout is worth around 4.25 trillion yen ($40 billion), a more than 40% premium to Monday’s closing price in Tokyo. Given that parent NTT already controls 66% of the wireless carrier, any proposal is all but guaranteed to pass.
  17. Thailand will borrow $46 billion next year as the Southeast Asian nation expands its fiscal stimulus measures to counter the economic impact from the coronavirus pandemic amid dwindling state revenue. A cabinet meeting chaired by Prime Minister Prayuth Chan-Ocha on Tuesday approved borrowing of 1.47 trillion baht in the fiscal year starting Oct. 1, according to a government statement Tuesday. The fund-raising is seen down 11% from a revised 1.66 trillion baht this year, official data show. The borrowing will be used to finance various economic stimulus programs, budget deficit, infrastructure investments and bailout of some pandemic-hit state enterprises, the government said. The public debt-to-GDP ratio will widen to 57.23% in 2020-21, near the legal limit of 60%, it said.
  18. The Singapore government will spend S$2.2 billion ($1.6 billion) over the next three years to improve a medical insurance plan for the country’s citizens and residents amid the economic impact of the coronavirus. The funds will be used for premium subsidies for Medishield Life, a basic health insurance plan launched in 2015 to protect Singaporeans against large medical bills, the Ministry of Health said in a statement. The MediShield Life Council is recommending several improvements including raising the policy year claim limit to S$150,000 from S$100,000, separate claim limits for sub-acute care and removing some exclusions for treatments.
  19. The pandemic has battered New York City businesses, with almost 6,000 closures, a jump of about 40% in bankruptcy filings across the region and shuttered storefronts in the business districts of all five boroughs. This fall, the nation’s largest city will see even more padlocked doors as companies burn through federal and private loans they tapped in March, landlords boot businesses that can’t make rent, and plummeting temperatures chill outdoor dining and shopping. “By late fall, there will be an avalanche of bankruptcies,” said Al Togut, a lawyer who has handled insolvencies for small businesses and huge corporations like Enron. “When the cold weather comes, that’s when we’ll start to see a surge in bankruptcies in New York City.”
  20. Donald Trump and Joe Biden kick off their first debate Tuesday with contentious topics like the Supreme Court and the coronavirus pandemic suddenly joined by yet another potentially explosive question — whether the president ducked paying his taxes. Trump got elected in 2016 after boasting about paying little income tax, but Washington — and the candidates — are focused on a New York Times report that Trump paid just $750 in federal income taxes in 2016 and 2017. For Biden, the report that Trump minimized his tax bill allows him to draw a distinction, in his words, “between Scranton and Park Avenue” — his symbols for abundant wealth and the working-class environment into which he was born in Pennsylvania.
  21. A bruising Senate confirmation fight over President Donald Trump’s Supreme Court choice may seal the fates of several incumbent senators in the November election, though it has yet to drastically alter the odds for which party will control the chamber. Trump’s decision to nominate Judge Amy Coney Barrett to the high court with just weeks to go before Election Day has mostly hardened existing partisan lines, which favor Democrats gaining a slim Senate majority on Nov. 3. Jessica Taylor, Senate editor of the Cook Political Report, and other analysts said that while views could shift once confirmation hearings get under way, initial signs show the basic shape of the contest for Senate control hasn’t changed.
  22. Goldman Sachs Group Inc. is joining the likes of JPMorgan Chase & Co. and BNP Paribas SA in setting up a foreign-exchange trading and pricing platform in Singapore. The platform will go live in the first quarter of next year, with Singapore becoming the company’s fourth global currency pricing engine, Goldman said in a statement. The others are in London, Tokyo and New York. “We continue to actively develop our presence in Singapore and have seen consistent growth of our franchise here over a number of years in both FX and broader global markets,” E.G. Morse, Chief Executive of Goldman Sachs Singapore Pte., said in the statement.
  23. Commodities tycoon Anil Agarwal is seeking at least $5 billion for a fund targeting companies being sold off by the Indian government, according to people familiar with the matter, marking a return to the strategy that made him wealthy. Agarwal is targeting an initial close of $1 billion or more for the proposed India Direct Investment fund, the people said, asking not to be identified because the plans are private. He is already scouting for targets and could spend nearly $10 billion on the first few acquisitions, one of the people said. The billionaire is working with London-based Centricus Asset Management Ltd. on the fund, which will have a 10-year life span and use a private equity-type strategy, according to another person. He plans to buy companies over a five-year period and then boost their profitability before seeking an exit, the person said.
  24. Call it the DraftKings Inc. effect. Since the sports-betting operator announced plans to go public last December, its shares have soared nearly sixfold. Though the company loses money and had revenue of just $430 million or so last year, the business boasts a market value of $20 billion. Everyone in gambling has eyed that run-up and pondered how to get in on the action, especially Tom Reeg, the canny chief executive officer of Caesars Entertainment Inc. In July, he suggested combining his online business with the U.S. sports-betting operations of William Hill Plc. Now, under pressure from Apollo Global Management, he’s offering $3.7 billion (2.9 billion pounds) for all of William Hill.
  25. Uber Technologies Inc. is considering a purchase of Daimler AGand BMW AG’s ride-hailing joint venture Free Now, a deal that could boost its market share in Europe and Latin America, people with knowledge of the matter said. Uber expressed interest in a potential acquisition of Free Now after the venture’s efforts to attract additional investors struggled to gain traction amid the coronavirus pandemic, according to the people, who asked not to be identified because the information is private. Any deal could be complicated by the challenging market ride-hailing companies face, which could make it more difficult to agree on a price, one of the people said. Daimler and BMW merged their mobility operations last year and folded them into a joint venture called Your Now, which comprises five business including the Free Now ride-hailing service. Free Now used to operate as MyTaxi and has integrated ride-hailing apps including France’s Kapten, Greece’s Beat and Romania’s Clever Taxi. Daimler valued the equity investment in its half of the Your Now venture at 618 million euros ($720 million) at the end of June. Its activities also include much smaller operations dubbed Park Now and the car-sharing platform Share Now.
  26. Polaris Inc. plans to electrify its off-road vehicles and snowmobiles with powertrains purchased from Zero Motorcycles, a California maker of electric models. Polaris is buying the technology needed to take the leap into electrification through a 10-year exclusive supplier agreement, while Zero, a closely held 14-year-old company that’s yet to turn a profit, will be able to lower costs by buying parts through Polaris’s supply chain, the companies said. Polaris plans to offer electric options across its off-road-vehicle and snowmobile lines by 2025, with the first electric model due at the end of 2021.


*All sources from Bloomberg unless otherwise specified