U.S. futures and Asian stocks rose Tuesday ahead of the American presidential election, while currency traders braced for increased volatility.
Shares in Hong Kong, Australia and South Korea climbed more than 1%. Japan is closed for a holiday and Treasuries won’t trade until London opens. S&P 500 contracts advanced after the benchmark equity gauge gained Monday following last week’s 5.6% drop. Australian bond yields and the dollar fell after the central bank cut the cash rate and said it planned to buy A$100 billion ($70 billion) of five- and 10-year bonds over the next six months.
Implied volatility for the offshore yuan spiked. The one-week tenor -- often used as a proxy of market risk -- has more than doubled in the past week to the highest since Bloomberg began compiling the data in 2011. Overnight gauges for other currencies, such as the Australian dollar and sterling, also jumped as the presidential vote and its aftermath loom.
“Uncertainty will likely remain until Wednesday morning when we should have clarity on who holds the Presidency and Senate, assuming and this is a big if, the polls are correct,” Sebastien Galy, a senior macro strategist at Nordea Investment Funds SA, wrote in a note.
US After Hours CRUS +9.6%, MED +9.6%, INSP +9.8% up big on earnings; SEDG -18.9%, FRPT -7.2%, PYPL -6.1% down on earnings
Nikkei +1.39% Hang Seng +2.35% CSI +0.99% Shanghai +1.25% Shenzen +1.24%
Eur$ 1.1655 CNH 6.6891 CNY 6.6925 JPY 104.71 GBP 1.2928 CHF 0.9181 RUB 80.4375 TRY 8.4414 WTI$ 36.76 -0.14%
S&P +0.53% Nasdaq +0.30% EuroStoxx +0.93% FTSE +0.82% Dax +0.88% SMI +0.83%
Macro :
- France Reports Record 52,518 New Coronavirus Cases; Deaths Climb
- Pershing Square Holdings Oct. Net Performance -2.2%
Keep an eye on :
- ADEN SW : Adecco 3Q Net Income Beats Estimates
- AIR FP : Airbus Wins Satellite Mission to Gauge Global Warming Accuracy
- AKE FP : Bpifrance Fund Takes 5% Stake in Arkema
- AAPL US : Apple to Start Intel Breakup Next Week With New Mac Laptops (1)
- ARYN SW : Aryzta Gets AGM Resolutions to Not Re-Elect Some Board Members
- ASCL LN : Ascential Asks Bankers to Auction DeHavilland Unit, Sky Says
- B2H NO : B2Holding 3Q Net Income Misses Estimates
- BATS LN : BAT Buys Dryft Sciences’ Pouches Business in Oral Nicotine Push
- BMPS IM : Paschi Board Said to Discuss Possible Capital Hike on Provisions
- BNP FP : *BNP PARIBAS 3Q FICC TRADING RISES 36%, BEATS ESTIMATE
- BNP FP : BNP Traders Beat Estimates Amid Smaller-Than-Forecast Provisions
- BAYN GY : Bayer 3Q Adjusted Ebitda Misses Estimates
- BAYN GY : Bayer Fails to Settle Roundup Suits, Risking a Restart of Trials
- CA FP : Carrefour Buys Bio C’ Bon for EU60M; Deal Is Positive: Analyst
- DBK GY : Deutsche Bank Looking for Ways to End Ties With Trump: Rtrs
- DSM NA : DSM 3Q Adjusted Ebitda Misses Estimates
- ENI IM : Eni Free to Unload Stricken Oil Tanker Without Risk of Sanctions
- EI FP : EssilorLuxottica 3Q Revenue In Constant Currency -1.1%
- RF FP : Eurazeo Sells Farfetch Stake, Net Proceeds EU90.4m
- FPE GY : Fuchs Petrolub Maintains FY Ebit -15%
- GFS LN : G4S Is Said to Reject Takeover Proposal From Allied Universal
- HFG GY : HelloFresh 3Q Adjusted Ebitda EU114.7M Vs. EU15.5M Y/y
- BOSS GY : Hugo Boss 3Q Ebit Beats, Sales Miss Estimates
- BAER SW : Julius Baer Is Open to Bigger Acquisitions: CEO in The Market
- SDF GY : Intrepid Potash 3Q Adjusted Ebitda Misses Estimates, Mosaic 3Q Adjusted EPS Beats Estimates
- KCO GY : Kloeckner 9M Adjusted Ebitda EU72M
- LEHN SW : Lem 1H Ebit Margin 19.7%
- LUN DC : Lundbeck Narrows FY Sales Guidance, Raises Core Ebit Outlook
- MERY FP : Mercialys Suspends Year Guidance, Citing Lockdown
- NIO US : Nio Gains 21% in Three Trading Days on October Sales Surge (1)
- NRS NO : Norway Royal Salmon 3Q Operating Ebit NOK35M
- OCDO LN : Ocado Allegations Over Warehouse System to Be Probed By ITC
- OCY NO : Ocean Yield 3Q Ebitda Misses Estimates
- OERL SW : *OERLIKON 3Q EBITDA CHF92M, +8.2% Y/Y, EST. CHF70M
- PNDORA DC : Pandora Keeps 2020 Guidance But Sees ‘Clear Downside Risk’
- UG FP : PSA Calls Off Adding Shift at French Plant Due to Virus Measures
- PFV GY : Pfeiffer Vacuum 3Q Sales EU152.0M
- PHIA NA : Philips Sues Boston Scientific for Diagnostics Patent Royalties
- PHTM LN : Photo-Me Says Tibergest Buys 5m Shrs at 51p/Share
- DIM FP : Sartorius Stedim Biotech Closes Purchase of BIA Separations
- SHOT SS : Scandic 3Q Adjusted Ebitda SEK90M
- SON PL : Sonae Capital Agrees to Sell Real Estate Asset for EU20.65m
- TCM LN : Telit Communications Gains After Betaville Speculates on M&A
- RIN FP : Vilmorin Sees FY Like-for-like Sales At Least +3%
- UNI SM : Unicaja 3Q Net Income Misses Estimates
- VOW3 GY : Volkswagen May Meet Tougher EU Carbon Emission Limits: FT
- YPSN SW : Ypsomed 1H Sales CHF199.3M
>>> Up
* AB InBev Raised to Buy at Renaissance Capital
* Ambev Raised to Buy at Citi; PT 15.50 reais
* Adapteo Raised to Buy at Handelsbanken; PT 95 kronor
* Arjo Raised to Buy at Handelsbanken; PT 70 kronor
* BP Raised to Equal-Weight at Morgan Stanley
* Centrica Raised to Outperform at RBC; PT 55 pence
* DBV Tech Raised to Hold at SocGen
* Deutsche PBB Raised to Buy at Deutsche Bank; PT 8 euros
* Jungheinrich Raised to Add at Baader Helvea; PT 35 euros
* Kion Raised to Buy at LBBW; PT 78 euros
* RSA Raised to Overweight at Morgan Stanley; PT 600 pence
* Saipem Raised to Buy at Goldman; PT 2.40 euros
* Shell Raised to Overweight at Morgan Stanley
* Sparebank 1 Oestlandet Raised to Buy at DNB Markets
* SSE Raised to Overweight at Morgan Stanley; PT 1,550 pence
* Vossloh Raised to Buy at Berenberg; PT 38 euros
>>> Down
* Atlas Copco Cut to Neutral at Redburn
* Centamin Target Cut to 170p From 218p by Peel Hunt
* ContourGlobal Cut to Equal-Weight at Morgan Stanley
* Equinor Cut to Equal-Weight at Morgan Stanley; PT 137 kroner
* Kiadis Pharma Cut to Hold at Canaccord; PT 5 euros
* PSI Cut to Add at First Berlin; PT 26 euros
* SNP Schneider-Neureither Cut to Hold at M.M. Warburg
* Wood Cut to Neutral at Goldman; PT 241 pence
>>> Initiation
* Air Liquide Rated New Overweight at Barclays; PT 155 euros
* Alcon Rated New Outperform at Exane; PT 62 Swiss francs
* Centrica Assumed Equal-Weight at Morgan Stanley; PT 50 pence
* Drax Reinstated Equal-Weight at Morgan Stanley; PT 300 pence
* Hensoldt Rated New Buy at Deutsche Bank; PT 12 euros
* Hensoldt Rated New Overweight at JPMorgan; PT 13 euros
* National Grid Raised to Overweight at Morgan Stanley
* Pennon Resumed Equal-Weight at Morgan Stanley; PT 1,070 pence
* ProSieben Resumed Underweight at Morgan Stanley; PT 7.50 euros
* Unifiedpost Group Rated New Neutral at Kempen & Co
* United Utilities Reinstated Overweight at Morgan Stanley
>>> Call
* Centrica Double-Upgraded With Risk/Reward Now Attractive: RBC
* Energy Transition, Regulation Key Issues in U.K. Utilities: MS
* EssilorLuxottica 3Q an Improvement, Outlook Uncertain: Jefferies
* Jungheinrich Raised on Strong Results, Confident Outlook: Baader
* ProSieben’s TV Business Faces Major Challenges: Morgan Stanley
* RSA Insurance Has Material Discount to Peers: Morgan Stanley
* Shell, BP Upgraded at Morgan Stanley, While Equinor Gets Cut
After Hours Summary: CRUS +9.6%, MED +9.6%, INSP +9.8% up big on earnings; SEDG -18.9%, FRPT -7.2%, PYPL -6.1% down on earningsAfter Hours Gainers:
Companies trading higher in after hours in reaction to earnings/guidance: INSP +9.8%, ANET +9.7%, CRUS +9.6% (also names new CEO), MED +9.6%, HALO +9.2%, CDLX +8.6%, JAZZ +8.5%, VNOM +5.3%, PAA +5.2% (also announces $500 mln common equity repurchase program), JCOM +5.1%, RMBS +3.6%, MATX +3.4%, SIMO +3.1%, AMC +2.8%, FANG +2.6%, MIME +2.5%, TREX +1.7%, ECPG +1.6%, WPX +1.2%, SRC +1%, KFRC +0.8%, SBAC +0.2%, OGS +0.1%, ONTO +0.1%, STE +0.1%, VNO +0.1%, WMB +0.1%
Companies trading higher in after hours in reaction to news: IEA +19.4% (announces JV with FH Paschen for the West Lake Corridor rail expansion, valued at over $550 mln), KPTI +10% (announces Phase 3 SEAL study of XPOVIO met primary endpoint; also announces earnings), NGL +4.1% (provides update on bankruptcy proceedings), PAGP +3% (PAGP and PAA announce $500 mln common equity repurchase program), HII +1.7% (awarded $280 mln Navy contract), TWTR +1.5% (announces conclusions from Mgmt Structure Committee evaluation; to begin authorized share repurchase program), NEE +0.3% (to sell interests in portfolio of renewable assets for $1.3 bln in total proceeds, to NEP and KKR), EVR +0.1% (stock offering)
After Hours Losers:
Companies trading lower in after hours in reaction to earnings/guidance: SEDG -18.9%, OSPN -15.4%, KMT -9.8%, FRPT -7.2%, BRKR -6.2%, DOOR -6.2%, LEG -6.2%, PYPL -6.1%, PACB -5.7%, NPTN -5.5%, OMI -5.5%, ICHR -5.3%, ESPR -4.3%, MOS -3.5%, NTR -3.2%, O -2.7%, AIZ -1.8%, MDLZ -1.5%, SWKS -1.1%, NCMI -1%, EVER -0.6%, FMC -0.2%, PUMP -0.2%, ADTN -0.1%, CNO -0.1%, DEI -0.1%, IR -0.1%, KMPR -0.1%
Companies trading lower in after hours in reaction to news: AUPH -10% (Phase 2/3 data for dry eye syndrome did not meet primary endpoint), DRRX -5.6% (names new Chief Medical Officer), TRIL -2.5% (names new Chief Medical Officer; announces formation of Scientific Advisory Board), COUP -2% (stock offering), VOXX -1.6% (enters standstill agreement with Avalon Park and Kahli Holding), BAND -1.2% (stock offering), RCL -1.2% (extends suspension of cruising), GILD -0.1% (GILD and GLPG announce EMA validation of marketing application for filgotinib for ulcerative colitis), HRTG -0.1% (new CEO), AMZN -0.1% (AWS announces general availability of Amazon EC2 P4d Instances)
Malls’ Decline Pushes Landlords CBL, PREIT to Bankruptcy
While retailers have reopened, foot traffic is still down, putting mall owners at odds with impatient lenders
Two major mall owners, CBL & Associates Properties Inc. and Pennsylvania Real Estate Investment Trust, filed for bankruptcy protection as sharp declines in retail foot traffic continue to devastate commercial property landlords even as businesses have reopened.
CBL, the larger of the two landlords, operates 107 shopping centers concentrated in the Midwest and Southeast, and counts more than 30 retail tenants that filed for bankruptcy in 2020, including J.C. Penney Co. and GNC Holdings Inc.
PREIT, which owns stakes in 26 retail properties mostly in the mid-Atlantic region, also relies on department chains that are slimming down store counts. Retailers under bankruptcy protection have more leverage over their landlords to break leases and negotiate rent reductions.
Even those stores that have stayed afloat have skipped rent in unprecedented numbers, squeezing landlords. Mall owners, particularly those with properties in saturated markets already weakened by changing consumer habits and the growth of e-commerce, have taken the brunt of the pain as tenants struggled with or withheld rent.
Lenders, meanwhile, are running out of patience to allow rent deferrals and other concessions.
In recent years, mall owners have tried to sell noncore properties to strengthen their balance sheets while renovating to draw more relevant tenants. Still, values for retail property have tumbled—for some malls by as much as 80%—hurting owners’ access to the capital and debt markets they once enjoyed.
“Families used to come on weekends, drop their children off, get a burger and their entertainment fix. People don’t spend six to seven hours in a mall anymore,” said Abdi Mahamedi, president of privately held Carlyle Development Group, which has owned, managed and redeveloped malls in New York, Arizona, Massachusetts, Missouri and Tennessee.
Even before the pandemic, CBL faced a challenging environment with some retail tenants closing stores and seeking breaks on rent last year, according to documents filed by the company’s financial adviser, Mark Renzi.
PREIT said the once-in-a-century global pandemic has devastated many of its tenants. Those retailers’ distress had a “trickle-up effect” on the landlord, it said.
All mall owners, including CBL and PREIT, temporarily shut down enclosed shopping malls in March to curb the spread of Covid-19. Many tenants stopped paying rent for a few months. Almost all of CBL and PREIT’s malls have since reopened.
Yet more customers than ever are shopping online, driving purchases to the mall industry’s biggest disrupter, Amazon.com Inc., which capitalized on pandemic-era demand to post record sales and profits.
For landlords, the picture has brightened somewhat as the country has reopened and tenants have resumed paying rent. But ongoing social-distancing guidelines and less traffic meant many have had to cut rents by around 25% to retain their tenants, property brokers said.
CBL’s rents have been picking up after they slowed to a trickle in April, returning to 100% of the totals owed in September, the company said in a regulatory filing Monday. Foot traffic has also picked up at some of CBL’s malls, though the number is still off by 30% to more than 40% compared with last year, according to the filing.
“Although restrictions are being relaxed in various jurisdictions and the malls have reopened, the financial losses suffered by properties in those jurisdictions will not be easily recovered,” Mr. Renzi said.
PREIT said it believes it will continue to have difficulty collecting all rents it is owed so long as worries about the coronavirus make shoppers hesitant about returning to malls.
After months of leniency, banks and other lenders have started to crack down on mall owners and other landlords of retail properties.
CBL’s bank lenders took steps in the middle of debt restructuring talks to collect rents for themselves that would otherwise have gone to the company, forcing an “emergency” chapter 11 filing, Mr. Renzi said. The agent for CBL’s bank lenders, Wells Fargo Bank NA, declined to comment.
CBL carries more than $4 billion in debt, including $2 billion in mortgages on its properties, while PREIT owes more than $900 million in debt.
CBL is proposing to use chapter 11 powers to slash nearly $1.5 billion in debt and other payment obligations while handing over 90% of the company to bondholders. Common and preferred stockholders are in the money under CBL’s proposal, receiving shares and warrants in the restructured company.
PREIT’s restructuring offer includes extending its debt maturities and converting unsecured debt into secured debt while retaining equity for shareholders. While PREIT has convinced most creditors to go along with its restructuring, the company said one investor, Strategic Value Partners LLC, is holding out. Strategic Value Partners declined to comment.
CBL and PREIT require court approval to put their proposals in motion.
A terrible, horrible, no-good year for quants
Many popular quant strategies are struggling but to varying degrees we are all quants now
The omnishambles in value investing has naturally stirred a lively debate in financial circles. The investment strategy is now on its worst run since the death of Thomas Jefferson. Yet the length and depth of its woes obscure the fact that it is far from the only casualty of the Covid-19 market environment.
Value is just one of several major investment “factors” that economists had discovered tend to lead to above-average returns in the long run. They essentially involve grouping stocks according to some defining characteristic, such as their size, the health of their balance sheet or — in the case of value — their cheapness. Systematically mining factors is at the heart of the computer-powered, algorithm-driven quantitative investment industry that has grown dramatically over the past two decades.
The severity of the value drawdown is admittedly extreme. However, what is interesting is just how many of the strategies based on these factors are struggling at the moment. For some quantitative analysts, it is enough to make them question their entire premise.
“Why I am no longer a quant,” was the provocative title of a recent report from Inigo Fraser-Jenkins, head of quantitative strategy at Bernstein, a pedigreed investment research house. He argues that the original sin of quants like him is mining historical data for clues to what works in the long run, but glossing over the fact that market regimes come and go. That can mean that what worked in the past can fizzle out in the future.
“At their core, quant funds try to apply backtests to future investment decisions. But what does it mean to do quant research and run backtests if the rules have changed?” he asked. “There is a challenge to quant beyond a recent patch of poor returns. If Covid doesn’t count as a regime change I don’t know what does.”
He is not alone in thinking the world has changed. Almost three-quarters of quants surveyed by Refinitiv in October said that their models had been hurt by Covid-19, and a small but eye-catching minority of 12 per cent declared that their models were obsolete.
In short, Mr Fraser-Jenkins thinks that the central idea of mean reversion — that old market patterns will eventually reassert themselves — might be dead in this new regime. As Ted Aronson, a value-oriented quant investor recently noted to the Wall Street Journal after shuttering his hedge fund AJO after a dismal performance stretch: “It can all work for years, for decades, until or except when the not-so-invisible hand comes down and slaps you and says, ‘That’s what worked in the past, but it’s not going to work now, nope, not any more’.”
Not every quant fund has done poorly. Quantitative investing can range from cheap, simple exchange traded funds to complex hedge funds that sift through the global economy’s digital exhaust for profitable but fleeting patterns.
However, it is clear that quants on the whole are having a bad time. The average quant US equity mutual fund is up just 3.3 per cent in the year to end-September, compared with the average stockpicker’s 8.3 per cent gain, and the Russell 1,000’s 6.4 per cent return, according to Bank of America. Crucially, what is more unusual about the current predicament is how many factors are fizzling out at the same time.
Higher-octane strategies have done even worse, despite leaning less on well-established mainstream strategies. Weighted by assets, the average quant hedge fund lost 5.7 per cent in the year to end of August, compared with the average hedge fund’s 5.2 per cent gain, according to Aurum Fund Management. In fact, Aurum says the rolling three-month performance of the most popular quant strategies is as bad or worse than during the “quant quake” of August 2007 and subsequent financial crisis.
However, there have been many market regimes in the century of data upon which most major investment factors are based. It may just be that the unique nature of the Covid-19 shock was perfectly designed to short-circuit many of them — and the effect will fade as the pandemic eventually recedes.
The big technology “growth” stock boom accounts for much of the underperformance of everything else this year. It is no coincidence that the only major quant factor that has performed well this year is the trend-surfing momentum, as winners have won big and losers have been left for dead.
It would be a brave person who declares that the sun has set on quantitative investing. One could argue that the entire money management industry is — to varying degrees — nowadays driven by quantitative research in some form or fashion. This is a trend that is only likely to accelerate in the coming years. We are all quants now.
VW within ‘1 gramme’ of compliance with EU carbon targets
Carmakers must cut average fleet emissions to 95g of CO2 per kilometre or face significant fine
Volkswagen will be within only “a gramme or so” of tough new EU carbon emission limits, according to CEO Herbert Diess, even if it does not manage to sell as many low-emission vehicles as expected because of the pandemic.
Starting this year, carmakers in the EU must progressively lower average fleet emissions to 95g of CO2 per kilometre driven or face significant fines.
“We haven’t given up yet, but it will be very tight to achieve the fleet targets,” Mr Diess told the Financial Times. “There’s still a chance to get there,” he added, if sales of low-emission cars continued to pick up in the last months of the year.
The penalty for missing the target is €95 for each gramme per kilometre above the limit, multiplied by the number of newly registered vehicles in a year. This could leave VW with a bill of hundreds of millions of euros if it does not “pool” fleet emissions with another carmaker as the rules allow.
It already has one such pooling agreement — with MG, owned by its Chinese joint venture partner SAIC. But MG sells only about 1,200 electric vehicles a month.
Volkswagen, which also owns the Audi, Porsche and Seat brands, started the year in a good position to meet the EU targets. It recently became the largest electric vehicle seller in Europe, but the launch of its first mass-market electric car the ID.3 was delayed to September, while software and battery supply problems plagued other low-emission models.
It now faces a last-minute rush to make up ground lost during lockdowns, while rival Daimler looks set to reach the target despite its many large, polluting models, such as the Mercedes-Benz G-Class.
VW, which is reliant on sales of profitable mid-market SUVs, had planned to compensate for a high carbon footprint in the first half of the year with deliveries of new electric vehicles such as the ID.3, the Audi e-tron, and the Porsche Taycan, but these were affected by the pandemic. As part of the phase-in of the new emission rules, electric cars sold in 2020 are counted twice in a carmaker’s CO2 calculations.
“The first thought was that the pandemic would help us because we would keep on producing electric vehicles and plug-in hybrids, so the mix would become better, but it turned out to remain difficult because we lost electric vehicle sales as well,” said Mr Diess.
He dismissed the idea that failing to meet the European targets would be a public relations problem for a company that is betting €33bn on becoming the world’s largest electric vehicle manufacturer.
“It is a marathon and it will take years,” he said. “It will be a bit easier next year,” he added, when several more electric models, such as the ID.4 SUV, will arrive on forecourts, “and from 2023 onwards, we shouldn’t have any problems any more”.
EXCLUSIVE-Tired of Trump, Deutsche Bank wants out but sees no good options - sources - Reuters News
03-Nov-2020 07:00:00
By Matt Scuffham, Tom Sims and John O'Donnell
NEW YORK/FRANKFURT, Nov 3 (Reuters) - Deutsche Bank AG DBKGn.DE is looking for ways to end its relationship with President Donald Trump after the U.S. elections, as it tires of the negative publicity stemming from the ties, according to three senior bank officials with direct knowledge of the matter.
Deutsche Bank has about $340 million in loans outstanding to the Trump Organization, the president's umbrella group that is currently overseen by his two sons, according to filings made by Trump to the U.S. Office of Government Ethics in July and a senior source within the bank. The three loans, which are against Trump properties and start coming due in two years, are current on payments and personally guaranteed by the president, according to two bank officials.
In meetings in recent months, a Deutsche Bank management committee that oversees reputational and other risks for the lender in the Americas region has discussed ways in which it could rid the bank of these last vestiges of the relationship, two of the three bank officials said. The bank has over the years lent Trump more than $2 billion, one of the officials said.
One idea that has come up in the meetings: sell the loans in the secondary market, two of the bank officials said. But one of the officials said that idea has not gained traction, in part because it is not clear who would want to buy the loans and the attendant problems that come with it.
While it was known that Deutsche Bank has been closely examining its relationship with Trump, including by setting up a working group in 2016 to review the bank's relationship with him, its recent eagerness to end all ties and the contours of discussions in light of the election have not been previously reported.
Deutsche Bank declined to comment. The Trump Organization did not respond to requests for comment. The White House declined to comment.
WARREN'S WARNING
The German bank, which first started lending to Trump in the late 1990s, has been dragged into congressional and other investigations into the real estate mogul-turned-politician's finances and alleged Russia connections. (Full Story)
The probes and the bad press, seen by one senior executive as "serious collateral damage" from the relationship, are an unwelcome distraction for the bank, the three officials said. It comes at a time when Chief Executive Christian Sewing is trying to turn Deutsche Bank around after its decades-long run at becoming a major Wall Street bank left it nursing huge losses.
Elizabeth Warren, a Democrat member of the Senate banking committee, has previously called for an investigation into Deutsche Bank over its money laundering controls and has demanded answers from the lender about its relationship with Trump and his family. She told Reuters that she intended to keep pushing for a probe in the next administration.
"You bet I'm going to continue to fight for accountability and strong enforcement of our banking laws, especially for giant institutions like Deutsche Bank," she said.
What happens next for the bank rests on the outcome of Tuesday's elections, according to the three bank officials.
If the Republican president loses, and Democrats take control of the White House and Congress, senior Deutsche Bank executives believe congressional investigations that have stalled amid a court battle over access to Trump's financial records could be rejuvenated, the three bank officials said.
In this scenario, however, Deutsche Bank executives believe they will also have more freedom to deal with the loans and end their relationship with Trump, the officials said. They hope doing so might help reduce some of the scrutiny, they said.
DIFFERENT SCENARIOS
The loans, which are against Trump's golf course in Miami, and hotels in Washington and Chicago, are such that the Trump Organization has only had to pay interest on them so far, and the entire principal is outstanding, two of the three bank officials said. They come due in 2023 and 2024, the filings show.
The businesses backing the loans face challenges. The coronavirus-driven economic slowdown has hit the travel industry, including hotels. Moreover, last month Reuters reported that Trump's plan to make money by developing houses and hotels on his golf courses, including the one involving the Deutsche Bank loan, had not panned out so far. (Full Story)
The Deutsche Bank executives are not unduly concerned about Trump's ability to repay the loans, given the president's personal guarantees and the time left before they come due, the three bank officials said.
If Trump is not in office, Deutsche Bank executives feel that it would be easier for them to demand repayment, foreclose if he is not able to pay it off or refinance, or try to sell the loans, according to two of the three bank officials.
Since Trump has personally guaranteed all the loans, Deutsche Bank could also seize the president's assets if he is unable to repay, two of the three bank officials said.
If Trump wins a second term, Deutsche Bank executives feel their options would be fewer, the three bank officials said. The bank wouldn't want the negative publicity inherent with seizing assets from a sitting president and would likely extend the loans until he is out of office, two of the bank officials said.
The bottom line, the three bank officials said, is that the matter won’t be resolved until well after the election.
Closing Stock Market SummaryThe S&P 500 advanced 1.2% on Monday in a cyclically-led rebound. The value-oriented Dow Jones Industrial Average (+1.6%) and Russell 2000 (+2.0%) outpaced the benchmark index, while the Nasdaq Composite (+0.4%) underperformed amid relative weakness in the mega-cap/growth stocks.
Last week was the worst week for the market since March, and investors viewed the weakness as a good time to buy the dip. Money appeared to disproportionately flow into the cyclical stocks in part due to the better-than-expected ISM Manufacturing Index for October, which checked in at 59.3% (consensus 55.7%), versus 55.4% in September.
The energy sector rose 3.7% amid a turnaround in crude futures ($36.79, +1.09, +3.1%), which were down 5% from Friday's settlement price after several European countries announced renewed lockdowns. The materials (+3.4%), industrials (+2.7%), and financials (+1.9%) sectors were other notable gainers.
At the other end, the information technology (+0.3%), consumer discretionary (+0.3%), and communication services (+0.1%) sectors struggled to keep pace due to renewed selling pressure in their mega-cap components, which were also among the weakest performers last week.
Note, the session high for the S&P 500 was set in the first hour of trading. The lack of follow-through buying suggested that the market retained a wait-and-see mindset for the presidential election tomorrow. News that Massachusetts announced a stay-at-home order might have also tempered gains in the cyclical stocks.
In earnings news, Clorox (CLX 216.03, +8.78, +4.2%) was a clear winner as the company continued to benefit from strong demand caused by the pandemic. In addition to beating revenue estimates, the company guided FY21 revenue above consensus.
U.S. Treasuries finished mixed and little changed. The 2-yr yield increased one basis point to 0.16%, and the 10-yr yield declined one basis point to 0.85%. The U.S. Dollar Index finished little changed at 94.06.
Reviewing Monday's economic data:
- The ISM Manufacturing Index for October checked in at 59.3% (consensus 55.7%), which is an improvement from 55.4% in September and the highest level since September 2018. The dividing line between expansion and contraction is 50.0%.
- The key takeaway from the report is the understanding that the New Orders Index hit its highest level (67.9%) since January 2004, signaling that the recovery in the manufacturing sector is running at a fast pace still despite the lack of a new stimulus package, the election uncertainty, and the new wave of coronavirus cases in the U.S. and Europe.
- Total construction spending increased 0.3% m/m in September (consensus +0.9%) on the heels of a downwardly revised 0.8% increase (from +1.4%) in August. Total private construction spending rose 0.9% m/m and total public construction spending declined 1.7%.
- The key takeaway from the report is that residential construction spending is healthy and the main driver behind total construction spending increasing 1.5% year-over-year.
Looking ahead, investors will receive Factory Orders for September and auto and truck sales for October on Tuesday.
- Nasdaq Composite +22.1% YTD
- S&P 500 +2.5% YTD
- Dow Jones Industrial Average -5.7% YTD
- Russell 2000 -6.0% YTD