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Our briefing for Thursday November 26, 2020:
Nov 26, 2020 4:10:44 PM
- In the United States as families potentially gather for Thanksgiving and other holidays in the near future, the Supreme Court struck a ruling on religious gatherings in regard to COVID-19. In a 5-4 ruling, America’s highest court knocked down an attempt from New York state Governor Andrew Cuomo to limit religious gatherings. Governor Cuomo had made a similar move earlier in the year when the first wave of the coronavirus ran through his state, particularly in New York City. The injunction, which was granted on the grounds of maintaining freedom of speech and religious practice, will apply until the case is heard in the Appeals court. The deciding vote was cast by new conservative Supreme Court Justice Amy Coney Barrett, who replaced Ruth Bader Ginsburg after her passing earlier this year.
- In Canada, Ontario Premier Doug Ford is asking his citizens to stay home and celebrate on their own for the upcoming holiday season. In a news release on Wednesday, the government stated the safest way to spend this holiday season is only celebrating in-person with the people you live with, or if you live alone, choose one household to bubble with. The recommendations are for the entire province and not just the lockdown areas of Toronto and Peel Region. The news comes as Premier Ford and his government are trying to defend themselves against the province’s Auditor General report who cited delays, conflicts and confusion has hampered Ontario’s response to the pandemic. Health Minister Christine Elliott defended the government’s handling of the pandemic and stated the Auditor General made, “factual inaccuracies” in her report.
- In the United Kingdom, the government laid out who will be in their strictest Tier 3 zone when the current lockdown is lifted on December 2nd. The cities of Manchester and Newcastle will face at least two more weeks of tough restrictions while London was spared the worst and bumped down to Tier 2. In a news conference on Thursday, Prime Minister Boris Johnson defended his government’s positioning due to the lingering signs of coronavirus spread in certain regions. Starting next week, those regions in Tier 3 can apply for support from the National Health Service (NHS) Test and Trace Programme, which will roll-out six weeks of rapid community testing. Up to 14,000 military personnel will be on stand-by to help out if need be. “Your tier is not your destiny,” said Johnson noting regions can move out of tighter restrictions once they show improvement.
- In Germany, Chancellor Angela Merkel agreed with her 16 state leaders as their current coronavirus restrictions will be extended until at least December 20th. Merkel met with the 16 state governors via a video call on Wednesday and agreed measures such as the closing of bars and restaurants will remain while shops and schools remain open. From December 1st, private gatherings will be limited to five people and be increased to 10 around Christmas time. However, Wednesday’s decision did include an appeal to avoid social contact a week prior to family visits. “This must not be a lonely Christmas for people in vulnerable groups,” said Merkel.
- The Philippines are set to sign a supply agreement with AstraZeneca for their potential COVID-19 vaccine as early as Friday. A top coronavirus task force official said the deal would be for two million doses. Private firms will pay for the vaccine and give half of the supply to the government, with the other half to be used to cover employees in the private sector, but the private companies involved in the purchasing weren’t identified. The government also said it was in talks with China’s Sinovac for a vaccine deal in the $20-$50 million range, as well as United States drugmaker Pfizer.
- The Philippines though will want to keep their eyes on AstraZeneca as the drugmaker along with their partner, the University of Oxford are now facing mounting questions about their trial results after acknowledging a manufacturing error. Earlier this week, AstraZeneca and Oxford announced their shot was 70% effective in a late-stage study. In a later statement, the pair said a difference in the manufacturing processes led to some participants being given a half dose instead of a full one. Ironically those given the mistake of a half-dose before given a full second dose proved to have a 90% efficacy while those who received two full doses showed only a 62% efficacy. None of this information though was disclosed in AstraZeneca’s original statement, thus forcing the drugmaker to likely conduct an additional global trial to assess its effectiveness.
Covid-19 – Due Diligence And Asset Management
European Asset Management Industry to Reach New Record High by Year-End, says EFAMA
Brief: The European asset management industry is back on track for another year of growth, according to industry body The European Fund and Asset Management Association (EFAMA) – with assets under management rebounding strongly after being hit by the coronavirus crisis in the first quarter of 2020. In its yearly report, EFAMA estimates that total assets under management in Europe stood at EUR25.8 trillion at the end of 2019, a figure that fell by 11 per cent to EUR23 trillion by the end of the first quarter of 2020. A rebound of 8.3 per cent in the second quarter took assets back up to EUR24.9 trillion. “Thanks to the positive news on the Covid-19 vaccine front, it is likely that the value of assets under management will reach another historical height by the end of 2020”, comments Bernard Delbecque, senior director for economics and research at EFAMA. The amount of assets managed within Europe has more than doubled in a decade, starting from EUR10.8 trillion in 2008 and going up to EUR23.1 trillion by the end of 2018. EFAMA’s report also looked at the asset management industry’s contribution to the real economy, and found that asset managers in Europe held an estimated 25 per cent of all debt securities and 30 per cent of listed shares issued by Eurozone residents at the end of 2018.
Brexit Negotiations and Covid Surge Erode Investor Confidence
Brief : European investor confidence fell to its lowest level this year due to Brexit concerns and an EU budget impasse, while risk appetite overall increased at a global level. The latest State Street Investor Confidence Index saw European investors register a reading of 92, down 1.8 points on the revised total for October, marking a second consecutive month of declining sentiment. Any reading on the scale below 100 means investors are selling more risk assets than buying. Marvin Loh, senior macro strategist at State Street Global Markets, said: “Risk appetite fell to its lowest levels of the year in Europe, as surging virus cases resulted in another round of lockdowns and restrictions.” He added: “Ongoing Brexit negotiations and an EU budget impasse further sapped investor confidence, although most European bourses are set to report double-digit gains for the month.” At a global level, however, investor confidence overall was on the rise, increasing to 90.7 – up over 10 points on October’s final total. This, according to State Street, was primarily driven by a “jump” in the North American confidence index to 87.4 points. The Asian investor confidence index also increased, rising from 91.8 to 95.1.
Delta and Alitalia are Bringing Back Quarantine-Free Flights Between U.S. and Europe
Brief: Through the use of repeated COVID-19 testing, Europe and the U.S. are going to establish the first quarantine-free air corridors since the coronavirus pandemic led countries to isolate arrivals. Delta and Alitalia will be operating the flights from next month. However, with both the U.S. and Europe maintaining heavy restrictions on who can enter from the other side, these are still just trials of procedures that are only likely to be widely rolled out in the summer of 2021. From December 19, Delta said Thursday, it will start operating test flights between Atlanta and Rome in which passengers do not have to go into quarantine on either end. However, they will have to take a series of tests to make this possible. Those travelling from Hartsfield–Jackson Atlanta International Airport to Rome-Fiumicino International Airport will first need to take a high-assurance PCR test, up to 72 hours before departure. If the result is negative, they'll get a rapid test at the Atlanta airport, and another on arrival in Rome. Travelling in the other direction will require a rapid test at Rome-Fiumicino.
Japan Bond Market in the Dark on New Sales as Virus Spikes
Brief: As coronavirus infections in Japan spark increasing alarm, the government has left investors guessing on how much money it will pump into the economy through a third extra budget. This presents a huge challenge for the bond market trying to gauge how much additional debt will be issued in the current fiscal year through March, along with which maturities will be in focus and the likely impact on yields. Primary dealers told the government that the market has the capacity to absorb more 20- and 40-year bonds, an official at the Finance Ministry said after a meeting on Thursday. Here are some of the main scenarios seen by interest-rate strategists in Tokyo. The issuance pipeline for this fiscal year is already at a record 212.3 trillion yen ($2 trillion), which puts pressure on the government to limit additional sales, if it can. But the risk of a big jump is very real if virus infections increase significantly. Tokyo last week raised its Covid-19 alert to the highest of four levels amid a resurgence of the pathogen across the country -- a spike that’s come after Prime Minister Yoshihide Suga called on officials to prepare the third extra budget.
Canadian Banks’ Return-To-Office Plans Thwarted by Virus Surge
Brief: A recent surge in COVID-19 cases is derailing Canadian banks’ plans to bring employees back to offices, with one lender even asking some workers who had already returned to go back home. Canada is now facing about 5,000 new COVID-19 cases a day, prompting provinces and cities including Toronto -- home to the country’s five biggest banks -- to implement new restrictions to limit the virus spread. Even Prime Minister Justin Trudeau recently returned to working from home in an attempt to set a national tone of caution. Bank of Montreal and Canadian Imperial Bank of Commerce are extending work-from-home plans for some employees until at least April, while National Bank of Canada is prolonging such measures for corporate-office staff until the end of June. Toronto-Dominion Bank hasn’t set a firm date for a return, but said in a memo last week that most people working from home won’t come back “until at least the spring.” Royal Bank of Canada even encouraged employees who had gone back to offices to return to working at home as of Nov. 16, according to a memo from Chief Human Resources Officer Helena Gottschling. Canada’s second-largest lender by assets said it will continue pre-screening and requiring masks and distancing for those who can’t work remotely.
After Years of Famine, This Distressed Debt Pro Predicts a Feast
Brief: The coronavirus pandemic and resulting economic conditions have presented a “once-in-a-decade” opportunity for distressed debt investors, according to SVPGlobal. The high yield, leveraged loan, and direct lending markets in the United States are worth $4.5 trillion, according to a new paper from the distressed debt and private equity firm. With a projected 10 percent default rate for 2020, distressed investors will have many options to choose from. “If you use the default rate as a proxy, we think that for us and people who do what we do, we are going to be feasting for the next two or three years,” said Victor Khosla, SVPGlobal’s founder and chief investment officer, by phone. Khosla’s $9.8 billion SVPGlobal, previously known as Strategic Value Partners, has the dry powder available to do it: the firm closed a $1.7 billion distressed debt fund in late October, Institutional Investor previously reported. When the pandemic came stateside in March, a wave of debt holders unloaded their now-distressed investments following downgrades. “In almost all markets, the first 60 days of the pandemic were bedlam,” Khosla said. Then, the Federal Reserve stepped in with an open market buying program that injected liquidity into the debt markets, slowing the sale of debt.
