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Msg  68253 of 68434  at  9/30/2020 11:28:52 AM  by

carswell


The Launch Pad

 

Daily market commentary
The Launch Pad
September 30, 2020
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Today

The big debate last night was a raucous affair with no shortage of name calling and personal jabs. At times it was as if we were watching schoolboys argue over who had the best Pokémon cards, not debate over who deserved the most powerful office in the world. As we pointed out yesterday, we doubt the performance will swing any voters. But Trump's refusal to soften his stance on a contested election scenario appears to have spooked investors. Markets are poised to drop following the debate, though to put all the blame it might be a stretch.

Perhaps news of Disney cutting 28,000 jobs has something to do with reigniting fears that this recession is far from over. Though 67% of the works are part-time, it’s one of the biggest layoffs of the covid era. Disney’s announcement could signal more challenges in the labor market’s recovery, with analysts already expecting Friday’s jobs report to show moderation in September’s gains compared with August.

Doh! ISM Chicago has inadvertently published the results of the September survey early. They were supposed to come out at 9:45 this morning, but someone jumped the gun. Good news though. The PMI numbers crushed estimates and rose to 62.4. The biggest three month improvement on record for that gauge of manufacturing activity.

On the stimulus front, Treasury Secretary Steven Mnuchin and House Speaker Nancy Pelosi are expected to talk again today despite skepticism on Capitol Hill that a deal is possible at this stage.

The U.S. Dollar rebounding after two big down days. The DXY Index is back up over 94, over two full points above the lows set on September 2nd. Which not surprisingly coincided with the recent market peak. Some say nothing is certain in life except for death and taxes. Perhaps a negative correlation between the stock market and the U.S. dollar should be added to that list.

Loonies are struggling to find much of a bid this morning despite the dollar weakness. FX traders may be looking for clues from the commodity markets which continue to struggle to find their step after the recent slide. The deflation trade is back on for the moment, as concerns over continued economic strength mount.

Times are continuing to be tough in Venezuela as a refiner in India, Reliance Industries Ltd, secured a deal to purchase 2 million barrels/month of heavy Canadian oil for the next 6 months. Normally those oil exports would be coming from Venezuela, as they are the third largest supplier to Reliance. The US sanctions on Venezuela have made this environment very challenging for them to operate in. However, rightfully so, with the suspicion of corruption by President Nicolas Maduro. Trump has now zeroed in on Venezuela’s pivot to crude-diesel swaps with Asia and Europe. Ending the swaps could result in a large increase to the already ongoing humanitarian crisis caused by lack of fuel.

Amid growing coronavirus cases Quebec is ordering a 28 day shutdown for restaurants. The move has surprised restaurateurs who continue to struggle. Authorities moved Montreal and Quebec City to the highest COVID-19 alert level, banning private indoor gatherings and shutting bars, cinemas and restaurant dining rooms for 28 days. Here we go again.


Diversion: Bikes had a 121% spike in demand during the pandemic – check out how these American shops kept up with demand.

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Company news

Tim Cook, Apple’s CEO, is getting stock based compensation that could provide him 1 million shares. That could be worth about $114mm if he performs. Royal Dutch Shell might cut 9,000 jobs by 2022. That would be about 11% of their workforce. They forecast saving $2.5bb annualized because of the measure. William Hill has accepted an offer from Caesars Entertainment. The deal could cost them a breakup fee as their were being suited by a private equity firm. Facebook is taking steps to integrate messenger and Instagram chat. Some users can already use the functionality. It is their first step towards integrating the platforms. Westjet has made a deal with China Development Bank to sell and lease back 9 of their aircrafts. The airline is getting creative as their cash burn remains in the millions.

Commodities

Coronavirus continues to devastate the economy and the demand outlook for oil. At the time of writing, NYM WTI Crude futures are down -0.81% to US$38.97/bbl. ICE Brent Crude, the global benchmark, is down -1.32% to US$40.49/bbl. Many analysts believe that the easiest demand gains in the energy space are far behind us, it will be much more difficult to recover from this point without a working vaccine in hand. American Petroleum Institute reported that crude oil inventories saw a draw of 831,000 barrels last week. This was easily offset by a build in Gasoline inventories of 1.623 million barrels for the same week. Analysts had expected a small draw of gasoline, not a build, which is worrisome for gasoline demand moving forward. In addition, the International Energy Agency cut their 2020 demand outlook by 200,000 bpd.

Gold Spot is down this morning and is on schedule for its worst month in almost 4 years. At the time of writing, the yellow metal is down -0.71% to US$1,884.29/oz. After the chaotic election last night, we saw the U.S. dollar become a bit more of a safe haven as investors prepare for some election volatility. Independent Analyst Ross Norman stated ‘I think from gold’s perspective, it (the election debate) was a non-event and all we saw gold doing was honoring its inverse relationship with the U.S. dollar’. The worst month in gold in a long time is coincided with the best month for the dollar index since July 2019.


Fixed income and economics

Bonds are little changed overnight, holding on to yesterday’s slight gains. Credit spreads meanwhile have become more sensitive to moves in equity markets, and yesterday’s sell-off was echoed by wider spreads yesterday, especially in high yield markets. Both sectors are looking to post a small loss for the month, though we will see what today’s session brings, given a busy slate of releases and Fed speakers come on top of rebalancing flows.

Today does see the release of GDP data in both Canada and the US. For Canada, July’s GDP is expected to rise +2.9%, adding to June’s +6.5% bounce, as the economy continues to rebound from the pandemic shutdowns. However, this will still leave Canadian GDP down -5.3% year-over-year. In the US, we get another reading on Q2 GDP, but economists are not calling for any revision to the previously reported -31.7% annualized drop. The more important number is ADP employment, as a precursor to Friday’s full employment report. Consensus forecasts are calling for 649,000 new jobs in September.

We also have a busy slate of US Federal Reserve speakers, with Federal Reserve Bank of Minneapolis President Kashkari at 11am ET, Governor Bowman at 1:40pm ET, and St. Louis President Bullard at 4pm ET.

Chart of the day

Markets

Quote of the day

Be as you wish to seem.

- Socrates



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