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Msg  68175 of 68382  at  9/18/2020 10:49:09 AM  by


The Launch Pad

Daily market commentary
The Launch Pad
September 18, 2020
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Markets are mixed this morning after yesterday’s price action which saw markets lower for the second day in a row led by major tech names. We continue to see mixed messaging around a vaccine as well as further fiscal stimulus. Expect volumes and volatility to be heightened today as Wall Street braces for a quadruple witching. This refers to a day on which stock index futures, stock index options, stock options, and single stock futures expire simultaneously.

Government bonds remain well bid, with yields across Europe, Canada and the U.S. lower on the day. Inflation expectations measured by 5-year breakeven are also beginning to move lower after peaking at the beginning of the month. This can explain part of the recent slide in yields along with a shift in risk sentiment.

The currency market is all over the place. U.S. and Euro pairs are mixed, the Yen is strongest of all the majors typically a clear sign of risk-off sentiment. Loonies are lower against the U.S. dollar but are holding their own versus other commodity exporting countries such as Australia and Norway. Oil markets are weaker following yesterday’s surprise advance on the stern words Saudi Arabia had for other OPEC members who are cheating their quotas and traders betting on oils collapse.

"Saudi Energy Minister Prince Abdulaziz bin Salman dropped clear hints that there could be a change of direction in production policy before the group’s next ministerial meeting in December. “We will never leave this market unattended,” he said. “I want the guys in the trading floors to be as jumpy as possible. I’m going to make sure whoever gambles on this market will be ouching like hell.”

The Fed has indicated that they can only do so much to ensure the economic recovery continues, as much of the heavy lifting must come from fiscal policy. CNBC notes that this could be aided by commodity-intensive infrastructure investment setting the stage for continued strength in base metals and eventually filter its way down to oil.

The U.S. is on the cusp of a grim milestone, it will likely top 200,000 deaths in the coming days, roughly eight months after it first started to appear. With just 4% of the world population, the U.S. accounts for just over 20% of global coronavirus deaths. Sure, without accurate recording and tracking in developing nations these numbers are likely off a little, but this does not hide the fact that before years end the death toll will be higher than even some of the most pessimistic models developed in the early months. It’s our job to monitor the markets and the recovery has been remarkable, but it’s not lost on us the truly tragic situation the virus has brought on so many individuals and families.

Meanwhile, in Canada daily cases are now double what they were in July and Ontario is lowering the number of people permitted at social gatherings in Toronto, Peel Region and Ottawa. The changes – only 10 people allowed to gather indoors and 25 outdoors. These will not apply to businesses such as restaurants and banquet halls.

Diversion: This is what sweat production looks like up close. This channel also regularly posts interest things found across the internet; definitely worth the watch if in need of a distraction.

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Company news

The Trump administration is poised to block U.S. downloads of TikTok and WeChat on Sunday. ByteDance is still racing to clinch a deal over its U.S. assets while Tencent has prepared for the ban by renaming WeChat's work app as WeCom. Facebook has been accused of spying and is again being sued for watching Instagram users, this time through their phone cameras when they weren't actively being used. The tech giant has denied these allegations and blamed a bug, which it said it was attempting to fix. Tesla jumped +4% premarket after Piper Sandler and Wedbush analysts raised their price targets on the stock ahead of its key "Battery Day" event next week. Nuvei stock soared and made history as the largest tech IPO in TSX history. The stock opened at C$45.25/sh, which marks a +30% gain on its issue price. The IPO also made another Canadian billionaire, CEO Philip Fayer, who's stake is now worth roughly C$1.5bb.

Oil prices receded this morning as a Libyan blockade imposed by one faction in the country's civil war ended; at the time of writing, NYM WTI Crude futures were down -1.1% to US$40.52/bbl and ICE Brent Crude futures were down -1.3% to US$42.75/bbl. Elsewhere, Goldman released a report detailing their outlook for global supply. In it, the bank iterated their conviction that global supplies should draw down this month and that the market will likely face a deficit of 3mm bpd throughout 4Q20. Their year-end Brent forecast stood at ~US$49.00/bbl.

Gold prices, meanwhile, edged higher by +30bps to US$1,950.56/oz. A landslide at the Gwalia gold mine in Western Australia is poised to temporarily interrupt operations. In other commodities news, copper inventories rose to their highest levels in four months, exhibiting a pronouncedly weaker demand in what is usually peak season. LME Copper futures were up +4 bps to US$6,783/mt.

Fixed income and economics

Relatively quiet start for markets this morning with bonds, equities and commodities (save for crude) all higher at time of writing. Little carrying the momentum so expect a volatile session with quad witching grabbing most of the headlines (volumes have been +30% higher over the past seven of them). Yesterday we saw jobless claims in the September employment survey week decline on both a seasonally and unadjusted basis from prior. Having said that, while initial claims (NSA) fell by 100,000 between the reference weeks for the September and August payroll reports, the recovery in the labor market appears to be slowing and not actually reversing. Fault the end of the Federal unemployment support ending August (and lack of follow through from Congress) for this and the NFP report in two weeks will certainly be a doozy. On queue ahead of the equity open is Canadian July retail sales (up +0.6% to miss the +1.0% consensus with seasonal factors an issue similar to our southern neighbours) and a University of Michigan Confidence update after the bell.

Chart of the day


Quote of the day

It is always the simple that produces the marvelous.

- Amelia Edith Huddleston Barr

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