December 5th, 2018
Daily Market Commentary
- Bank of Canada Governor Stephen Poloz is expected to hold borrowing costs steady Wednesday, with investors eager for clues on how the country’s unfolding oil crisis will affect plans for future rate increases. Analysts anticipate policy makers will leave the benchmark overnight interest rate at 1.75 percent in a rate decision at 10 a.m. in Ottawa, before returning to a hiking path next month. The central bank has hiked five times since mid-2017, including at its last meeting in October.
- Bombardier Inc., which has lost half its market value in the last six months, is about to get its chance to soothe Wall Street. Shareholders are still reeling from Bombardier’s cut last month to its cash-flow forecast, which the company blamed on its train business after years in which aircraft investments devoured resources. Chief Executive Officer Alain Bellemare’s mission at an analyst meeting in New York on Thursday is to explain why the struggles will be short-lived.
- Toronto’s housing market posted its biggest monthly sales decline since March while prices remained little changed. Sales in Canada’s biggest city fell 3.4 percent in November to 6,588 units from the previous month on a seasonally adjusted basis, the Toronto Real Estate Board reported Wednesday. That’s the biggest monthly drop in eight months. The benchmark price, which adjusts for the types of houses sold, fell 0.4 percent from last month to C$763,600 ($575,200).
- European and Asian stocks dropped on Wednesday following a rout on Wall Street, though declines were contained and U.S. equity futures rose after China pledged to start delivering on trade agreements reached with America. The pound stayed higher as the U.K. government published legal advice relating to its proposed Brexit deal.
- U.S. stock-index futures pointed to a rally after China said the trade meeting with the U.S. was “very successful” and it is “confident” of implementing the results agreed upon at the talks. December contracts on the S&P 500 Index rose as much as 0.6 percent. Futures on the Nasdaq 100 Index and Dow Jones Industrial Average gained a maximum of 0.8 percent and 0.5 percent, respectively. Futures regained their footing in the wake of the underlying market’s biggest rout in almost two months on Tuesday.
- After a seven-day rally, investors in the Japanese stock market opted to take profits, wiping out $133 billion in market value on the benchmark index. The yen spiked amid ongoing uncertainty surrounding U.S.-China trade negotiations. The Topix index slumped 2.4 percent Tuesday, the most in about six weeks, with electronics makers and banks as the biggest drags. The yen strengthened to a two-week high against the dollar. The plunge in stocks comes after a 4.5 percent gain over seven consecutive sessions. On Monday, global stock markets surged after U.S. President Donald Trump and Chinese President Xi Jinping called a truce to their ongoing trade war.
- Oil steadied following the biggest two-day gain since June as investors weigh whether OPEC and its allies will cut production in meetings in Vienna this week. Futures in New York erased earlier losses of as much as 2.1 percent. Saudi Energy Minister Khalid Al-Falih said it’s “premature” to say whether the producer group will agree on efforts to stabilize the oversupplied market and walked back recent statements about the size of any supply reduction. Meanwhile, Libyan oil ports were said to be shut due to bad weather.
- Gold drops after a Federal Reserve policy maker reiterates support for further gradual interest rate increases and as investors weigh the latest commentary in the U.S.-China trade dispute, with Beijing making a positive assessment of developments. Investors continue to watch shifts in the Treasury yield curve after portions of it inverted, something that’s historically been a warning sign about the economic outlook. Bullion’s decline followed advances on Monday and Tuesday.
- China swung into action to start delivering on the trade commitments that led to its weekend truce with the U.S., even as uncertainty over what was agreed lingers. Beijing will start to quickly implement specific items where there’s consensus with the U.S. and will push forward on trade negotiations within the 90-day “timetable and road map,” the Ministry of Commerce said in a statement on Wednesday morning in China.
- The euro area is showing no signs of a meaningful economic rebound, with Italy on the verge of recession after the populist government picked a fight with European authorities over spending plans. Momentum in the 19-nation region is at the weakest level in more than two years, and trade and political uncertainty are dragging confidence lower. Activity last month was weighed down by Italy, where the risks of a second quarterly contraction are rising.
- Investors primed for moderation in the U.S. labor market may be surprised by the strength of November’s jobs report, though some cooling is still likely in 2019. Seasonal, weather and industry factors are set to prop up the employment and wage figures due Friday from the Labor Department. Some Americans returned to work following hurricanes in the prior two months, while retail and related industries probably hired aplenty for what’s expected to be a strong holiday-shopping period. Also, Amazon.com Inc.’s Nov. 1 wage hike may help pay.
- Ukraine’s leader renewed appeals to his nation’s allies in Europe and the U.S. to punish Russia for a naval clash that’s reignited tensions between the two ex-Soviet neighbors. With initial talk of tighter sanctions now fading and Russia so far paying little cost for firing on Ukrainian ships in the Kerch Strait last month, President Petro Poroshenko reiterated calls for action from the West. That could include support from NATO and a new round of penalties on President Vladimir Putin’s government, he said.
- Xcel Energy Inc. became the first major U.S. utility owner to pledge to fully phase out carbon-dioxide emissions that cause global warming. The company, which serves 3.6 million customers from Michigan to New Mexico, plans to meet its objective using renewable energy and technologies that aren’t commercially available yet, according to a statement Tuesday. Xcel did not pledge to quit fossil fuels. The company would consider using systems designed to capture and trap carbon dioxide emissions from gas or coal plants, a spokeswoman said.
- Japan’s 10-year bond yield slipped to its lowest since July, tracking a slide in Treasury yields, as a global stock rout fueled demand for haven assets. The yield on benchmark Japanese government bonds fell two basis points to 0.05%, the lowest since July 31, when the central bank made the most significant changes to its policy in two years. The yields on Australian and New Zealand debt also dropped, following the 6-basis points decline in Treasuries on Tuesday.
- Former National Security Adviser Michael Flynn has provided so much help to prosecutors investigating the Trump campaign and Russia’s attempt to sway the 2016 election that Special Counsel Robert Mueller said he has earned a lenient sentence that doesn’t include time behind bars. After pleading guilty early last December to lying to federal agents, Flynn provided useful information during 19 interviews, Mueller’s prosecutors said in a court filing Tuesday. They noted that some of the benefit from Flynn’s cooperation may not be “fully realized at this time” because investigations are “ongoing.”
- As ministers from OPEC and its allies arrive in Vienna for crucial talks, all have made clear they agree on the need for a cut in oil production. But none have explained how they’ll turn that desire into a reality. With just a day to go before a critical OPEC summit, Saudi Arabia and Russia are set to meet Wednesday for make-or-break preparatory talks that’ll set the direction for the oil market. The stakes are high after prices suffered their largest monthly drop since the global financial crisis in November, and politicians including Donald Trump call on OPEC to keep energy prices in check.
- U.S. antitrust enforcers will take another shot this week at convincing a court that AT&T Inc.’s acquisition of Time Warner Inc. is bad for consumers. This time they’re bringing real-world examples. Six months after AT&T completed the $85 billion deal, many of the ills the government warned about when it sued to stop the takeover have come to pass: higher prices, a programming blackout and reduced choice for consumers. By some accounts, the largest U.S. pay-TV provider has played the role of big-media villain just the way critics scripted it.
- There’s no need to change the price of SoftBank Group Corp.’s 2.4 trillion yen ($21 billion) initial public offering of its telecommunications unit, even though there’s a global stock sell-off, people involved with the stock sale said. SoftBank and its underwriters opted not to set a range when they announced a preliminary price of 1,500 yen per share last week, the first time that’s ever happened on the Tokyo Stock Exchange. U.S. stocks tumbled overnight and the Nikkei 225 Stock Average fell as much as 1.5 percent in early trade in Tokyo, the third straight session of declines.
- Christophe Weber, the chief executive officer of Takeda Pharmaceutical Co., has faced a string of challenges in his $62 billion pursuit of U.K.-listed drugmaker Shire Plc. The Japanese company’s shares tumbled, dissident shareholders tried to derail the deal and Shire repeatedly rebuffed his initial bids. Now the Frenchman has scored a key victory with Takeda saying the deal received support from at least 88 percent of votes at a special shareholders meeting Wednesday in Osaka. That clears one of the last hurdles in the nine-month campaign to secure Shire.
- Unison Capital, a Tokyo-based private equity firm, is exploring a sale of Ayumi Pharmaceutical Corp., which makes drugs for rheumatic and orthopedic disorders, people with knowledge of the matter said. Unison is working with JPMorgan Chase & Co. to gauge potential buyer interest in the Japanese drugmaker, which may be valued at around $1 billion, according to the people. The business could attract suitors including buyout funds and health-care companies, the people said, asking not to be identified because the information is private.
- Exxon Mobil Corp. and Chevron Corp. are slimming down their overseas assets as they seek to focus on higher-return projects such as U.S. shale. Chevron has put its stakes in a giant Azerbaijan oil project and related pipeline assets up for sale, the company said in a statement Tuesday. Reuters, which first reported the story, said Exxon is also looking to sell out of the same projects, citing people familiar with the matter. Such projects used to be prized assets for Big Oil given their long life, consistent production and enormous reserves, but times have changed. U.S. shale offers fast-paced growth with investments that pay off in months, compared with years for mega-projects, and present little political risk. Companies also value the flexibility of shale to respond to major price moves, such as oil’s drop by about a third to $53 a barrel since October.
*All sources from Bloomberg unless otherwise specified