December 27th, 2018
Daily Market Commentary
- The Canadian stock sell-off continued Monday, falling for a fourth-straight session as crude extended its plunge along with the S&P 500falling to the lowest since April 2017. The S&P/TSX Composite Index fell 1.1 percent to 13,780.19. Energy and utilities led the decline while materials and health care edged higher. Energy stocks fell 3.4 percent to the lowest since January 2016. Oil extended declines as worries over rising U.S. supplies and the global economy overshadowed signals from OPEC that it may extend or even deepen its pledged output curbs.
- The Canadian oil industry could be in for another turbulent year in 2019, depending on how some pivotal events pan out. Government-mandated production cuts and the potential startup of a key crude pipeline are among key developments to watch for next year. Here’s a look at each one: While the announcement of production curtailments by Premier Rachel Notley has succeeded in lifting Canadian crude prices from record lows even before their implementation starts next month, the province’s ability to wind down that policy without crashing the market will be crucial. The province has said it only expects the full 325,000-barrel-a-day output cut to be in place for the first three months of the year, while the amount of oil in storage is drawn down to historical levels. The government will then work to match production with transportation and storage policy, reviewing the levels every month.
- As Canadian grain companies spend millions to upgrade and build new export terminals in Vancouver, a new problem is threatening to cause transportation bottlenecks at the nation’s largest port: vessels can’t load grain in the rain. And it rains a lot in Vancouver. In Canada’s wettest major city, the practice of loading ocean-bound vessels with grain in rainy weather has been halted since January amid safety concerns for marine crews. Every time there’s a wet period, crews stop loading and wait for the skies to clear.
- European equities failed to sustain the optimism from Wednesday’s rally in U.S. stocks as the region’s markets reopened after the Christmas holiday to elevated volatility and thin volumes. The Stoxx Europe 600 Index extended losses to 1.1 percent, after reversing opening gains of 0.5 percent. The Euro Stoxx 50 Index was also down, poised to enter a bear market. Leveraged sectors such as utilities and real estate paced the retreat, along with trade-sensitive equities, such as miners and automakers.
- The biggest one-day rally in American equities since 2009 faltered as U.S. stock-index futures tumbled alongside European shares on Thursday. Treasuries climbed, as oil and the dollar gave up some of the previous session’s advances. Contracts on the S&P 500, Dow and Nasdaq all retreated after the underlying benchmarks soared about 5 percent Wednesday on signs of robust consumer spending.
- Japanese shares rose for a second day, erasing the losses from Christmas Day, as the Topix index posted its biggest advance in two years. The broader benchmark and the Nikkei 225 Stock Average were bolstered by gains in electronics makers after U.S. stocks staged one of the biggest rallies of the 9 1/2-year bull market as holiday sales kicked off in earnest. The Topix has climbed 6.1 percent in the past two days after dropping 4.9 percent on Christmas Day. Japan has one more day of trading tomorrow before a four-day holiday next week.
- Oil slumped again in New York, just after recovering from a pre-Christmas plunge, amid ongoing concern about the global economy. West Texas Intermediate futures retreated 1.8 percent after surging 8.7 percent on Wednesday. A rebound in equities also struggled to sustain momentum. There was turbulent trading in crude amid low holiday volumes, with prices slumping to an 18-month low on Dec. 24 before posting their biggest rally in two years on Dec. 26.
- Spot gold holds near highest in six months as investors weigh risks in 2019, even after recovery in global equities and prospects for progress in trade talks. ETF holdings expand for 14th day, longest run since Feb. 2017. Gold in British pounds has surged above 1,000 pounds an ounce to the highest since September 2017 as Brexit concerns invigorate demand before a vote in January. This month, bullion’s been aided by volatility in equity markets, turmoil in Washington and the prospect of fewer U.S. rate hikes in 2019.
- Copper rebounded from a three-month low in London as trade resumed on the world’s largest metals exchange, with commodities tracking a recovery in U.S. stocks and oil that eased the febrile mood in global markets. The metal rose as much as 1.8 percent to $6,059.75 a ton on the London Metal Exchange, after closing Monday at its lowest since September heading into the two-day Christmas break. The trigger was the about-turn in U.S. equities on Wednesday, which added a fresh twist in a festive week that’s seen trade roiled by concerns over dysfunction in Washington and the global economic outlook.
- U.S. filings for unemployment benefits decreased for the third time in four weeks, hovering near an almost five- decade low that reflects a robust job market. Jobless claims fell by 1,000 to 216,000 in the week ended Dec. 22, matching the median estimate in a Bloomberg survey of economists and following a revised reading of 217,000 for the prior week, Labor Department figures showed Thursday. The four-week average, a less-volatile measure, fell to a six-week low.
- China enters trade talks said to begin early next month in Beijing having made concerted efforts to end the standoff with the U.S., and also unsure it’s done enough. Since Presidents Xi Jinping and Donald Trump came to a temporary truce almost a month ago, China’s removed a retaliatory duty on U.S. automobiles and is drafting a law to prevent forced technology transfers. It’s also slashed import tariffs on more than 700 products and began buying U.S. crude oil, liquefied natural gas and soybeans again.
- Vinci SA agreed to acquire control of Gatwick Airport for 2.9 billion pounds ($3.7 billion) as the French construction company jumped on the chance to add a major London hub to its aviation portfolio. The purchase of the 50.01 percent stake in London’s second-busiest airport from a group of investors including sovereign wealth funds from Abu Dhabi and Australia will be completed in the first half of 2019, Vinci said Thursday. Existing shareholder Global Infrastructure Partners will manage the remaining holding.
- A U.S. government delegation will travel to Beijing in the week of Jan. 7 to hold trade talks with Chinese officials, two people familiar with the matter said. Deputy U.S. Trade Representative Jeffrey Gerrish will lead the Trump administration’s team, which will also include Treasury Under Secretary for International Affairs David Malpass, according to the people, who spoke on the condition of anonymity. Neither the USTR nor Treasury responded to requests for comment. Chinese Ministry of Commerce spokesman Gao Feng confirmed that the two sides planned to sit down for talks next month, although he didn’t provide a date for the meeting during his regular briefing in Beijing on Thursday.
- Tim Sloan’s biggest achievement of 2018 might be surviving the year as chief executive officer of Wells Fargo & Co. And there’s no sign that 2019 will be easier. Sloan is finishing a year in which the Federal Reserve told the bank to stop growing, scandals emerged in more divisions, and the stock tumbled 25 percent — harder than at its biggest rivals, JPMorgan Chase & Co. and Bank of America Corp. Politicians including Senator Elizabeth Warren repeatedly demanded Sloan be ousted. At one point, the bank’s chair, Betsy Duke, denied rumors the board was working on it.
- The U.S. oil industry is delivering a one-two punch to Middle East producers already reeling from a collapse in prices. A tussle is playing out in the market for so-called light oils, which have a lower sulfur content and are less dense than heavier varieties. When processed, these grades typically yield a higher amount of fuels like gasoline and naphtha. And now, American supplies are weighing on prices for such crudes as well as fuels made from them. Light oil pumped in U.S. shale fields is increasingly making its way to Asia, undercutting sales by the likes of Saudi Arabia. Additionally, America is exporting a record amount of refined fuel, contributing to a global glut in gasoline and naphtha. That’s hurting some of the biggest members of the Organization of Petroleum Exporting Countries as they prepare to curb crude output in a bid to stabilize the market.
- Two years after the U.S. Federal Trade Commission sued Qualcomm Inc., unleashing a series of existential challenges to the company’s business model, the chipmaker is about to get its chance to square the record. Lawyers for the regulatory agency and the company are set to begin presenting arguments on Jan. 4 in a 10-day jury trial over claims that Qualcomm is abusing its strength in the market for smartphone components to force Apple Inc. and others to pay inflated license fees.
- More than a year after Russia nationalized three leading private lenders, the magnitude of the losses is starting to take shape and criminal investigations are being opened against former owners and management. The bad bank that took on some 2 trillion rubles ($30 billion) in non-performing assets from Bank Otkritie FC, B&N Bank and Promsvyazbank still isn’t ready to estimate how much it will ultimately recover. But Bank Trust PJSC’s Chief Executive Officer Alexander Sokolov is trying to manage expectations.
- DNO ASA urged shareholders of Faroe Petroleum Plc to accept its hostile bid ahead of a Jan. 2 deadline, arguing that the recent tumble in crude prices made its offer even more attractive. Exchanges between the two oil companies have grown increasingly heated, with DNO escalating criticism of Faroe’s corporate-governance culture, operational abilities and deal-making, and Faroe insisting the 152-pence-a-share offer undervalues its business.
- NEC Corp., the Japanese technology company, agreed to pay about 8 billion Danish kroner ($1.2 billion) for KMD Holding ApS to expand its services in Europe. NEC is buying the business from private equity firm Advent International with the transaction expected to close by the end of February, according to a statement on Thursday.
- Indonesian authorities widened an area marked as a danger zone around the Mount Anak Krakatau as the volcano continued to send hot ash clouds into the sky after a weekend tsunami triggered by a landslide killed more than 400 people. The Center for Volcanology and Geological Hazard Mitigation barred people from a five-kilometer radius from the crater of the Mount Anak Krakatau on Thursday and issued a red alert for the aviation industry, citing ash clouds as high as 23,482 feet from the sea level. The state-run air navigation agency has ordered airlines to avoid the airspace above the volcano and use alternative routes.
- Hong Kong property conglomerate New World has agreed to buy FTLife Insurance Co. for HK$21.5 billion ($2.75 billion), beating out rivals for the fast-growing insurer and deepening its presence in financial services. Infrastructure unit NWS Holdings Ltd. and controlling shareholder New World Development Co. said Thursday they’ve struck a pact to take over FTLife from the Jiuding group in an all-cash deal. The entities of New World, one of the city’s biggest developers of real estate, gain an insurer that’s grown new business premiums at an average of 36 percent over 2015 to 2017.
- India tightened rules for foreign investment in e-commerce companies to check predatory pricing and deep discounts that threatened the domestic retail industry. E-commerce companies like Amazon.com Inc and Walmart Inc.’s Flipkart, which act as a facilitator between the buyer and seller by providing an online market place, must treat all vendors equally by providing the same terms, the trade ministry said in a circular Wednesday. Cash back provided to buyers shall be fair and the company will not influence the price of goods or services. The new rules will be effective Feb. 1.
- China is the latest victim of the wild swings in oil prices that have roiled trading firms across the globe this year. Two top officials at Unipec, one of the country’s most powerful trading companies, were suspended this week following losses on bets related to oil prices in the second half of the year, according to people with knowledge of the matter. The parent company, state-run refining giant Sinopec, confirmed the move, saying only that it was related to work matters.
*All sources from Bloomberg unless otherwise specified