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Msg  68650 of 68979  at  11/30/2020 11:20:24 AM  by


The Launch Pad

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The Launch Pad
November 30, 2020
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Investors are back from an American long weekend and are likely going to be making up for lost volume. North American equity futures edged lower as European shares traded relatively flat. Yields moved higher by +33 bps while the DXY index extended its losses into this week. Crude oil futures fell as uncertainty remains over an elusive OPEC+ output cut deal. Gold and silver also slipped, with notable gains in copper and aluminum contracts.

Still, this November is poised to be one of the best months for the equity markets in a long time (with the caveat there is still one day of trading to go). The TSX is up about 12%, which would rank this month as the 15th best dating back to the 1919. That is impressive and many other markets experienced a similar rally. What makes this even more notable is the environment. Usually these HUGE up months come after HUGE down months. Such as March’s 18% drop was followed by April’s 10% advance. And while markets were a bit weak in September/October, it wasn’t a big sell-off. One month left in this crazy year for the markets.

The big news headline this morning on the corporate front comes from S&P Global, who announced yesterday evening that it will be purchasing competitor IHS Markit in an all-stock deal at a valuation of ~US$44bn. If the deal is consummated, this would mark this year’s second largest transaction.

Overseas, China posted its manufacturing purchasing managers survey report which came in better than forecast. The economic data out of Asia has been improving more so than many more developed economies which are starting to experience a new wave of lockdowns. It is worth pointing out that spending patterns have migrated to more durable manufactured goods and less services. Services includes eating out, travel, etc. Now, most developed nations have a proportionately larger services component vs manufacturing component compared to many developing nations. Given how the pandemic has changed spending patterns, it would appear the economic mix of many developing nations may have an edge.

Back home, The Canadian government is expected to announce new rounds of stimulus and support today. Consensus has top-ups for existing support programs for businesses and individuals plus new spending on infrastructure, daycare and clean tech. With estimates of a $400B deficit, Canada is gaining the reputation as being the spendiest in counteracting the economic impacts of the pandemic. This size deficit would represent about 18% of total GDP.

Meanwhile, Prime Minister Justin Trudeau pushed back against critics of his government's COVID-19 vaccination plan with assurances most Canadians would be inoculated by September 2021. The emphasis for the rollout would be a balance between safety and speed. Ottawa has finalized agreements with five vaccine makers and is in advanced negotiations with two more. We’ll have to now wait and see just how many people decide to take the vaccine. Anecdotally, we often hear that most are willing, however they don’t’ want to be first in line. The deals would secure 194 million doses with the option to buy another 220 million. It seems a little overboard, considering Canada only has 38 million people.

Have you online shopped until you’ve dropped yet? Shopify announced Saturday that Black Friday sales were up 75% year-over-year, hitting $2.4 billion from its independent and direct-to-consumer brands. Last year, Black Friday accounted for more than 80% of the sales for the holiday shopping weekend for many of their merchants. As you likely know, it’s more of a Black Friday week and weekend than just one day and today is Cyber Monday, so the sales just keep rolling in. Here’s a few select highlights of the biggest shopping day in North America. We can’t say the world, as Singles Day in China now has that crown.
  • $2.4 billion in Black Friday sales globally, a 75% growth in sales from last year
  • New York, London, and Los Angeles were the top-selling cities worldwide on Black Friday, with top-selling countries including US, UK, and Canada
  • Mobile sales on Black Friday were 67% compared to 33% of sales made on desktop. In 2019, 69% of Black Friday sales were made on mobile and 31% on desktop
  • Top product categories globally during Black Friday were apparel and accessories with health and beauty and home and garden following
  • Average Black Friday cart price globally was $90.70, an increase of 11% from last year

Diversion: FedEx is testing out electric cargo bikes in Toronto. They're a mix of ice cream bikes + EV hype. Weird time to do so given the Winter season ahead.
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Company news

Lloyd’s and JP Morgan are looking at a deal to buy British start up Starling Bank. Their technology would help JP Morgan on their personal bank efforts in the UK. AstraZeneca has received approval in Japan for their drug that helps treat patients with chronic heart disease. Moderna shares are up 14% in premarket trading as the company seeks approval for their covid-19 vaccine in both the EU and US. Nikola shares are down after General Motors scaled back their deal to make and electric car with them. The NDA deal eliminates GM taking an equity stake in the business. Food delivery app Door Dash is looking to raise $2.8 billion in an IPO that would value the company around $32 billion dollars.


After an extended run for most of the month, crude oil futures extended its retreat from last week as an OPEC+ output delay deal continued to elude investors; at the time of writing, NYM WTI Crude futures were down -80bps to US$45.16/bbl while ICE Brent Crude futures were down -1.1% to US$47.65/bbl. Goldman Sachs' commodities research team also warned of a 3mn bpd hit to demand because of a winter wave. The bank still holds a pretty bullish target on the commodity; they expect prices to rebound to ~US$65/bbl through next year on the back of a supply / demand rebalance. Bloomberg's oil tanker tracker rolled in for this month. Some key highlights:
  • Saudi Arabia exports fell to 6.1mn bpd from a 6-month high in October
  • Iraqi exports fell -4% m/m to 3.1mn bpd
  • Libyan exports rebounded to 997k bpd from 571k bpd in October
Gold prices edged lower as ETFs continued to bail on the asset class; at the time of writing, spot prices were down -1% to US$1,769.53/oz. Citibank expects net inflows to gold ETFs to total ~800 tons, down 75 tons from prior expectations. ETFs also sold off a significant amount of silver holdings last week, with outflows representing the largest drawdown since 2011.

Fixed income and economics

With a quiet start in North America ahead of this Friday’s nonfarm payroll report, let’s traverse the globe and see what other financial musings are occurring around the world. In New Zealand, the Kiwi surged as much as 1.7% to its highest mark since June 2018 as prospects for a lower overnight carrying rate (OCR) were slashed following Finance Minister Robertson’s letter to RBNZ’s Orr to not ease policy further. The OIS market is currently pricing “just” a 9.8% probability for a rate cut by year-end 2021, down from 40.4% a day before the note. In the message, Robertson expressed concerns that low interest rates have overheated the housing market, which rose 8% annually in October as sales soared 25%, and requested the RBNZ to consider adding home prices as a mandate to monetary policy. In addition to zero odds for negative rates, the 10 year benchmark bond yield spiked 19 bps to nearly 1%. In the United Kingdom, the GBP/USD clawed gains of +0.3% ahead of a Brexit pact as EU President Ursula von der Leyen warned the next few days of negotiations “will be decisive for a UK deal”. Clear differences in three main sticking points remain --- level playing field for business, enforcement of any agreement, and access to British fishing waters. The Pound gained against the greenback despite data last week suggesting that unemployment is expected to reach 7.5% next year. Moving north, the Norwegian Krone gained 2% against the dollar as Brent crude elevated to an 8-month high of $49.09 per barrel amid improving sentiment a global recovery leads to fuel consumption normalcy. Also supporting the commodity, street consensus predicts OPEC+ will decide this week to delay a scheduled 2 million barrel per day ramp-up in January, by three months. As for local data, Norway’s jobless rate unexpectedly fell 0.1% to 5.2% in September and retail sales surged 1.2% in October.

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