Friday Wrap-Up (September, 25)

The S&P and Dow are now on four-week losing streaks. Investors’ confidence has taken a hit from elevated levels of new coronavirus infections.

(Arvind Rajaraman – Head of Investments at UCLIF & Lead Editor)

Welcome to the UCLIF Friday Wrap-Up, our weekly newsletter that brings you the most important market events and information during the past week! So what’s moving markets?

Markets: Despite today’s solid gains, the S&P and Dow are now on four-week losing streaks. Futures are down. Investors’ confidence has taken a hit from elevated levels of new coronavirus infections in the U.S. and Europe, as well as signs that the global economic recovery is slow and uneven.

Economy: : House Democrats will reportedly bring a $2.4 trillion coronavirus relief bill to the negotiating table. That’s about $1 trillion less than their previous proposal, but talks have stalled so compromise is in the air. US Jobless claims ticked up to 870,000 last week, a stable but very high number compared to pre-pandemic levels. Some good news? The overall number of people receiving unemployment benefits fell to 12.6 million, showing that some employers are re-hiring. U.S. home sales hit a nearly 14-year high in August. A huge problem for the housing market right now is a lack of supply.

COVID-19 update: More than 200,000 people have died from the coronavirus in the U.S., according to Johns Hopkins data. The country accounts for more than one-in-five Covid deaths globally.

Central Bank: In their testimony on Capitol Hill, Fed Chair Jerome Powell and Treasury Sec. Steve Mnuchin agreed that the economy was rebounding, but more government aid will be needed to make sure the recovery doesn’t stall

Markets in a Minute:


Information Technology (Maria Lomaeva)

Last week’s tensions regarding the TikTok deal seem to have peaked, at least for now. Last Saturday, President Trump gave his ‘blessing’ to the deal between ByteDance, Oracle (ORCL) and Walmart (WMT). If the deal goes through, TikTok will be owned by a new company, TikTok Global, based in the US with Oracle and Walmart taking a 12.5% and 7.5% stake pre-IPO, respectively. That, together with American investors currently owning about 40% of ByteDance, would result in about 53% of TikTok Global owned by US parties. Now ByteDance has applied to the Chinese government for permission to export its powerful AI algorithm as China restricted its technology exports in August to leverage Beijing’s position in the deal.

The deal might seem as an odd choice for Oracle (and more so for Walmart) but it could help the company to strengthen its role within the cloud computing sector as all US user data will be stored in its cloud. Oracle has fallen behind in the race for IT dominance in recent years: for example, the annual sales generated by Oracle Cloud Infrastructure (OCI) are reportedly less than $2bn, compared to $40bn for Amazon Web Services (AWS). TikTok could significantly boost these numbers as its estimated yearly spending on cloud-computing services amounts to $1bn.

Oracle shares jumped almost 4.5% Monday, but these gains have since been lost. 

The gaming industry has also seen tough rivalry this week. Microsoft (MSFT) announced a $7.5bn purchase of a private gaming company ZeniMax. Analysts say the acquisition will potentially double the subscriber numbers to the company’s Xbox Game Pass and contribute over $4bn to its annual top line. Just days after the news, Amazon (AMZN) announced a launch of its own streaming gaming services, Luna, challenging Microsoft, Google and Sony. Gaming has already been growing at a high pace which is now being further accelerated by the pandemic. There is still a lot of room for growth, and the mega-cap tech companies want to take advantage of that.  

Healthcare (Christine Chan)

Over the past week, we have seen some fluctuations in the Health Care Select Sector SPDR exchange-traded fund (NYSEARCA:XLV). It ends the week at $103.02 but did breach the $100 level on a few occasions on Thursday 24th September and Friday 25th September.

This week, the death of Supreme Court justice Ruth Bader Ginsburg has led to a mass sell-off of health insurer shares, as uncertainty looms over the future of the Affordable Care Act, more widely known as Obamacare. Shares of Medicaid insurance companies such as Molina Healthcare (NYSE:MOH) and Centene (NYSE:CNC) dropped about 8% in the beginning of the week. It will be interesting to see whether Obamacare can continue to thrive, or whether it will be abolished with a new Supreme Court justice.

On Wednesday 23rd September, Johnson & Johnson (NYSE:JNJ) announced that they have commenced their international Phase III (late-stage) trials for their coronavirus vaccine candidate. Upon this news, their share price went up 1.5% overnight. Moreover, positive results from early trials were published on Friday 25th September, demonstrating that a single dose of their vaccine was capable of producing a strong immune response against coronavirus. Novavax (NASDAQ:NVAX) is another company that has announced the launch of their Phase III coronavirus vaccine trials, which will be conducted in the UK. Their share price jumped nearly 13% on Friday morning.

Beyond the coronavirus vaccine, the share price of GoodRx (NASDAQ:GDRX), a telehealth company providing a free online price comparison platform for prescription drugs, shot up 58% after raising $1.14 billion through their IPO on Wednesday 23rd September. They debuted at $33 per share and ended the week at an impressive $52.26. Even so, some may find it extremely disappointing that such a platform needs to exist in the first place, as Americans become increasingly priced out of their costly prescription medicines.

Consumer Staples and Consumer Discretionary (Jun Wei)

This week, the markets continue to be jittery as the spectre of Covid-19 continues to strike fear in the hearts of investors. Both American and European equities were volatile this week and generally down. Consumer equities were slightly down as well, with both the Consumer Staples and Consumer Discretionary indices of the S&P 500 down 2-3%. We look at the contrasting fortunes of Nike and Superdry this week, and again see how retailers with a strong online presence were clear winners following the effects of Covid-19. 

Superdry (LON: SDRY) announced its financial results for the fiscal year ending April 2020 on the 21st of September, and shocked investors with its poor performance. While full year revenue of £704 million was in line with analyst expectations, Superdry slumped to a full-year EPS of -£1.75 due to sizeable store impairment charges. Shares in Superdry plummeted as much as 17% on the 21st of September before recovering slightly. Superdry, well known for its large and bold Japanese characters on its apparel, is now trading at more than 90% down from its peak share price of £2074 it reached in January 2018. Superdry has lost popularity as a brand in a competitive retail sector, and its turnaround plans led by its founder-cum-CEO Julian Dunkerton have been put on hold due to Covid-19. It is difficult to see a way back for Superdry, which is struggling from poor demand and a large debt burden. 

In contrast, Nike (NYSE: NKE) exceeded all expectations for its latest quarterly earnings report, as it reported a 82% increase in online sales and a booming women’s clothing business. Nike recorded a revenue of $10.59 billion vs. expectations of $9.15 billion, and earned more than double EPS estimates, with EPS of $0.95 vs. expectations of $0.47. Nike is one of many athletic brand retailers that have seen good results in recent weeks, including Lululemon Athletica and Peloton. Covid-19 has accelerated the digitalisation of Nike’s sales, with 30% of its sales coming from online retail. This achieved a target that Nike originally set for end-2023 and bodes well for Nike’s future as it implies improved margins and lower costs. 

Communication Services (Katarina Lau)

Verizon is buying mobile provider Tracfone from Amercia Movil for about $6.9 billion in a 50/50 cash and stock deal. Both companies’ stocks gained with Verizon (NYSE: VZ) up 1% and America Movil (NYSE: AMOV) up nearly 4%. More specifically, Verizon will pay $3.125 billion in cash and $3.125 billion worth of its common stock with an additional $650 million if certain performance measures are reached. With Tracfone as the largest reseller of wireless service in the U.S., Verizon hopes to achieve greater network synergies 

French telecoms Iliad (EPA: ILD) fell 3%, after move to buy Polish mobile group Play for $4.2 billion. The deal will make Iliad Europe’s sixth largest mobile operator, however investors were bearish because many hoped to see better progress with existing heavy investments in France and Italy, before newly investing in Poland. Play already has ample competition against Orange Polska, Deutsche Telekom’s T-Mobile and Polkomtel, however the industry as a whole is due to encounter heavy costs of upgrading to 5G in the future, so outlasting both internal and external changes is key.

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UK’s Vodafone comes out on top in a long-running €3 billion Indian tax battle. Indian tax authorities wanted Vodafone to pay taxes/penalties related to its £7.1 billion acquisition of Hutchison Essar in 2007, India’s second-largest mobile phone network then, using a Netherlands-based company. The tax dispute overshadowed Vodafone’s growth strategy in India and the company has since merged its Indian business with rival Idea to form Vodafone Idea, after pledging to avoid India in future investments. Vodafone (LON: VOD) slipped 0.7%, while Vodafone Idea (NSE: IDEA) rose 12%.

Financial Institutions (Jamie Biswas)

This week saw large losses within financial institutions, with the Vanguard Financials ETF (VFH) falling 4.36%. The losses within the sector can be attributed more heavily to banks and less so to insurance firms, although both had a very poor week. The financial institutions sector performed much worse than the S&P 500 this week, which bounced back on Friday to see only a small drop of 63 basis points.

Banks are set to report record profits from trading gold and silver this year. Following a record-breaking price rally and disruption to global supply chains triggered by coronavirus, precious metals revenues at the world’s 50 largest investment banks are set to double this year to a nine-year high of $2.5bn. According to analysts, the massive revenue growth stems from a steep rise in interest among investors for exposure to gold, either as a hedge against stocks or as a bet on rising prices, as well as from rare anomalies thrown up by disruptions to global gold deliveries.

For example, in March, disruptions to flights and refineries due to the Covid-19 pandemic caused the price of gold per troy ounce in New York to rise to $70 above the price in London, representing a dislocation much greater than the normal gap of a few dollars. This meant for certain banks with large precious metals businesses, they had a unique opportunity. Banks that could transport gold to New York were able to benefit from the dislocation. They could deliver physical gold to settle against futures contracts trading at a higher price. To complete the trade, banks converted 400-ounce gold bars traded in London to the smaller 100-ounce bars to be delivered on to the CME. Gold stored on the CME Group’s Comex exchange has risen fourfold since March to more than 37m ounces of gold worth around $69bn. As a result, the premium for gold futures on Comex has now fallen to about $4 over the London price of gold, meaning the market has adjusted to remove the inefficiency. 

Gold prices hit a record high of over $2,000 per ounce in August while silver prices rose to a seven-year high of $30. Gold has since fallen back to trade at $1,870 an ounce. This year, banks including Morgan Stanley, Barclays, Deutsche Bank and Goldman Sachs have increased their precious metals trading.

Industrials (Ed Collins)

The Industrials sector has been very slightly down this week. The Vanguard Industrial Index (VIS) has fallen by just 0.15%, whilst the S&P 500 Industrials Sector (SPLRCI) is down by 0.54%, since the start of the trading week.

Rolls-Royce plc. (RR) is in talks with a number of sovereign wealth funds as part of an attempt to raise around £2.5bn from investors next month.

The UK industrials group is working with Goldman Sachs on the planned equity raise. The plan is for Rolls Royce to repair its pandemic-damaged balance sheet by tapping stock market investors.

One of the sovereign wealth funds that Rolls Royce is talking to is Singapore’s GIC. GIC is the state fund of Singapore, a country where Rolls Royce has significant operations.

On Friday last week, Rolls-Royce shares fell to a 16-year low of 180p, giving it a market value of £3.45bn. Its net debt is £4.4bn. This week, the share price has fallen even lower: Rolls Royce shares dropped by 12.4% this week, closing on Friday at 154p, the lowest the share price has been since August 2003.

Airbus (AIR) is forecasting that the first zero-emission commercial aircraft will take to the skies by 2035. This week, the European aerospace manufacturer released computer-generated images of hydrogen-powered planes that could be the future of commercial air travel.

The images suggest the ambition that Airbus has for driving the future of clean air travel. Airbus’ chief executive, Guillaume Faury, also seemed excited at hydrogen’s potential to “significantly reduce aviation’s climate impact.”

Despite this seemingly exciting news, investors did not seem too enthralled: Airbus’ share price fell 12.1% this week, as of market close on Friday. The hydrogen-powered plane forecast was announced on Monday.

Utilities (Katarina Lau)

Tesla revealed its ambition to halve batteries costs, in hopes of lowering electric car prices to $25,000 within 3 years. The price is on par with traditional internal combustion engine vehicles. These new plans continue to fuel the increasingly widespread bullish sentiment towards Tesla, despite Tesla (NASDAQ: TSLA) stock dipping 5% earlier this week after CEO Elon Musk warned of new technology production scaling difficulties. Some say Tesla’s transparency about its technical plans demonstrates its confidence in remaining an industry innovator and leader in the coming decade.


After Hong Kong-based SPI Energy (SPI) announced its new electric-vehicle subsidiary, shares rocketed 3,100%. The surge pushed its market value from roughly $15 million to $460 million, with shares trading from $1.05 to $33.53. SPI Energy runs a diverse solar business, providing photovoltaic (PV) solutions for business, residential, government and utility customers/investors globally. Its new EV subsidiary EdisonFuture will develop electric-vehicles and EV charging solutions. Seeing the success of Tesla, investors clearly caught on to CEO Xiaofeng Peng’s statement ‘…an end-to-end business model in the renewable energy space can generate significant value.’

Materials (Ed Collins)

The Materials sector seen a slow down this week. The Vanguard Materials Index (VAW) is down 2.41%, whilst the S&P 500 Materials Sector exchange (SPLRCM) is also down by 2.45%.

Despite having a down week this week, the Materials sector was the best performer amongst the 11 sectors in the S&P 500 this quarter. The group has climbed 16% this quarter.

The S&P 500’s materials sector is up around 5.4% this month. This comes despite the wider S&P 500 falling more than 4%, likely due to the tech sector seeing its third consecutive weekly decline this past Friday, its longest string of weekly losses this year.

Materials, which includes companies such as Linde PLC, Air Products & Chemicals Inc. and Sherwin-Williams Co., has climbed 16% this quarter.

Certain companies have performed particularly well: crop-nutrient producer Mosaic Co. (MOS) has risen 54% this quarter, while miner Freeport McMoRan Inc. (FCX) is up 47%.

Wheaton Precious Metals Corp. (WPM), a multinational precious metals streaming company from Canada, one of the world’s largest companies involved in buying gold and silver, is planning to list on the London Stock Exchange. The company will be looking to tap pent-up demand for precious metals from investors, with gold having risen 28% this year, hitting a record high above $2,000 an ounce in August. Silver is also up 50% while silver is up 50 per cent to $27 an ounce. 

Wheaton has a market capitalisation of about $23bn and is already listed in Toronto and New York, where its shares have risen more than 70% this year.

Wheaton specialises in royalty and streaming transactions; it acquires long-term rights to buy metal from mines in return for an upfront payment.

This structure allows for incredibly low overheads and costs, making streaming companies some of the most profitable in the Materials sector. Despite having a market cap. of $23bn, Wheaton employs just 40 people.

Following the news breaking on Sunday, Wheaton’s share price in New York dropped 4.43% this week.

Fixed Income

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Rates (Harrison Knowles)

The European Central Bank has launched a review of its pandemic bond-buying program to consider how long it should continue and whether its exceptional flexibility should be extended to older programs, the Financial Times reported, citing two Governing Council members that it didn’t identify. The 1.35 trillion euro-program was aimed at calming markets and supporting the economy as coronavirus lockdowns hit.

While in the US, since the March shock, it’s been one of the smartest simple trades in the U.S. rates market. Buy inflation-linked bonds, because the economy isn’t headed for another Great Depression and it’s a cheap hedge against a pickup in price pressures. Some also thought, what with all this stimulus, inflation will be back in force as soon as the economy is back on its feet.

Those more-ambitious reflation bets were always going to struggle while the pandemic’s got the upper hand. It’s hard to spot their next catalyst, with inflation expectations — measured by breakeven rates — already restored to their pre-March levels. And we’re past the Federal Reserve’s big announcement, that it’s now targeting an average 2% inflation rate, meaning it will tolerate more than 2% for a while to make up for previous undershoots (which span much of the past decade.)


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What the market needs to see now is either the economic recovery taking the baton, or further action to keep it from backsliding. Unfortunately, neither has happened so far in the U.S. 

As for further action, the Fed isn’t offering new stimulus, at least not yet. Chairman Jerome Powell made clear again in his testimony on Capitol Hill this week that the onus now lies on the government to spend more. An agreement from lawmakers on the widely anticipated Phase 4 fiscal package looks less and less likely as GOP members recalibrate their priorities from economic support to filling a Supreme Court seat.

Credit (Alexander Kaiser)

With more and more turbulent times ahead investors have withdrawn almost $4.9bn from high-yield funds with BlackRock’s iShare (HYG) ETF alone seeing close to $2bn being withdrawn. This has been the biggest withdrawal since the beginning of the pandemic’s major impact on the financial markets back in March. Numerous compounding factors ultimately resulted in this event, including increased worries about the potentially unstable recovery, Trump’s refusal to commit to a peaceful transfer of power and the recent death of a supreme court judge which has shifted attention away from another relief package. With Jay Powell, the chairman of the federal reserve, openly stating that continued recovery depends on further government intervention, these shifts in priority were clearly a startling development for investors, forcing them to pull back from the endless chase for returns that seemed to dominate the market during the past weeks. Whether there will be more withdrawals or renewed investment will depend on the response from the central bank and the government, though it seems unlikely that investments will continue to grow as they have been lately.

Meanwhile, Sweden’s central bank, Riksbank, has released some worrying information regarding its countries bond market following a freedom of information request from Bloomberg. While only a heavily redacted version of a report about the bond market that the bank requested from BlackRock in May, it did reveal that there are severe issues. Following the lockdown of withdrawals at the end of March, liquidity issues and immaturity plague the Swedish investment landscape currently. Due to Riksbank just starting its own bond-buying programme earlier this month, they did not go in-depth about the report to avoid invalidating it, however, they did express intent to go as far as buying non-financial company debt, a move that has been described by the parliamentary advisor in charge of Riksbank as illegal. The bank itself refuted such claims, stating their lawyers ensure complete compliance. Whether the situation will improve remains to be seen.

Real Estate

Real Estate Investment Trusts (REIT’s) (Claire Willemse)

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FTSE 100 REITs have done well in this year’s Sustainability Reporting Performance ranking by EcoAct, an international climate and sustainability consultancy. Landsec, the largest UK commercial property development and investment company scored third in the ranking while British Land, another large company in the same area, scored sixth. This reflected their detailed strategies and reporting in place to reach net zero emissions by 2030, as well as plans to incorporate sustainable finance into their investment framework.  

Brookfield, one of the largest US mall operators, has continued to suffer from the Covid-19 lockdown, as malls were forced to stay shut and footfall remained heavily suppressed even as conditions eased at times. Following poor Q2 rental collections (only 35% of rent due collected) from retail properties, they have now announced plans to cut headcount, by 20% in its retail unit and even in its head office. Furthermore, Brookfield has seen more than 5 of its malls default on their mortgages in H1 2020 and are looking to dispose of a few of their properties. Their share price (NYSE: BAM) is down 6% this week.UK Commercial Property REIT (UKCM) has also continued to suffer from the pandemic. They announced a 6.6% fall in net asset value (NAV) for H1 2020. NAV total return is therefore down by 5.1%. This comes as the Covid-19 pandemic has led to reduced rent collections (only 77% of rent due was collected), resulting in a sharp hit to their property portfolio’s value, by 11.6% to £1.22bn. They have therefore cut their quarterly dividend to 50%. Their share price (LON:UKCM) has fallen by 1.2% this week.


Oil & Precious Metals (Oliviero Sacchet)

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This week the oil industry registered: WTI -2.4% ($40.05) and BRNT -2.06% ($41.72)

In these days there were new problems related to the North Stream 2 pipeline. Us Secretary of State Mike Pompeo said that Washington wants to create a coalition in order to block Nord Stream 2. There are only 150 km left to complete the pipeline in Danish and German waters, but troubles related to the poisoning of Russian politician Alexei Navalny have stopped the construction. However, the Russian government urged Berlin to make its decisions not under US pressure.

Libya resumed its exports after the oil blockade of mid-January. These new shipments took place thanks to an agreement between the Government of National Accord and the Libyan National Army signed on September 19 in order to restart oil production. On September 25 a tanker with 1 million barrels left the port of Marsa el Hariga. In addition, Libya is planning another cargo of the same amount in the following weeks. The actual Libyan oil output is of 70,000-120,000 barrel per day compared to the 1.1 million barrel per day before the blockade. However, the National Oil Corporation announced that will increase the production to 260,000 barrel per day.

This week the metal industry suffered some problems. An increasing in the US dollar lead to a fall for precious metals. Specifically, Silver decreased of 18 percent and Gold reached his minimum in two months. Dollar and precious metals move in opposite directions and, actually, silver is the most volatile in price. Silver reached its highest price in August (29$), because it was considered undervalued compared to gold. However, analysts believe that silver prices will return to grow in the next weeks.  

Foreign Exchange

G10 & EMFX (Krisztián Sudár)

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This week continued the trend, in that economic recovery is seemingly slowing down, COVID-19 cases are rising, and that investors are growing more and more concerned about the volatility that the US. Presidential Election is set to bring. Investors turned to the Dollar, historically perceived as a safe asset, and this has resulted in a demand and spot price surge for the greenback. On Thursday, equities gained on the expense of the Dollar, as hopes for additional stimulus fueled a short rally in the Stock Markets. Afterwards, new economic data was released on Friday by the Department of Commerce, showing that economic recovery is in fact underway, albeit slow, causing the greenback to resume its rally. This all culminated into the Dollar Index reaching 94.69, in its best week since April.

In response, the Euro got pushed down to 1.1656$, on track for its worst week since March, mostly attributable to the growth in COVID-19 cases in the area. The other major European currency, Sterling, erased its gains from earlier in the week on fears of sub-zero interest rates this Thursday. The following trading day, however, it strengthened its position and rose against both the Dollar and the Euro, by 0.3 and 0.4 percent, respectively. This was caused by the announcement that a new scheme to support jobs would be instated, which sparked hopes in investors for additional stimulus measures.

It should also be noted that investors might want to exercise caution regarding the Swiss Franc. The Swiss National Bank has issued a statement, in which they detailed that the extended upward pressure that has been placed on the Franc for months now is contradictory to their ultra-expansionary monetary policy, and that they are ready to intervene in the Foreign Exchange market to achieve their goals.

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