February 13th, 2019

Daily Market Commentary

 

Canadian Headlines

• Canadian stocks gained for the first time in four sessions amid a broader global rally kickstarted by optimism over trade talks and a possible deal to avoid a U.S. government shutdown. The S&P/TSX Composite Index added 0.5 percent to 15,642.10. Information technology was one of the strongest sectors, gaining 0.8 percent as Shopify Inc. reversed earlier losses to rise 1.1 percent. The company earlier lost as much as 7.4 percent after its full-year operating profit guidance missed analyst estimates by a wide margin. Health-care stocks added 1.1 percent as pot stocks rebounded from a two-day selloff. Aphria Inc. gained 7.9 percent, while Aurora Cannabis Inc. slipped 0.8 percent after reporting weaker quarterly margins.
• Barrick Gold Corp. says its costs to produce gold will be at least 7.9 percent higher this year following its recently completed merger with Randgold Resources Ltd. The higher cost guidance “primarily reflects the planned completion of mining at the comparatively high-grade, low-cost Cortez Hills open pit in the first half of the year,” Barrick said Wednesday in a statement.
• SNC-Lavalin Group Inc. had its credit rating cut by S&P Global Ratings after the Canadian engineering firm issued its second profit warning in as many weeks. S&P cut the Montreal-based company to BBB-, the lowest investment-grade rating, from BBB, according to a statement Tuesday. The downgrade reflects the reduced outlook for earnings and cash flow, and heightened risk from a global slowdown and potential fallout from corruption charges in Canada, S&P said.

World Headlines

• The Stoxx Europe 600 Index rose for a third day as beer maker Heineken and chemicals producer Akzo Nobel delivered upbeat reports. The euro fluctuated before trading little changed after a report showed industrial production across the 19-nation region is falling at the fastest pace since the financial crisis.
• Stocks extended gains around the globe on Wednesday after President Donald Trump signaled a more conciliatory stance toward China, fueling hopes of a breakthrough in the trade war when talks get underway later in the week. The dollar edged higher along with Treasuries. Futures on the S&P 500, Nasdaq and Dow Jones climbed as investors awaited earnings reports from companies including Cisco Systems.
• Equities advanced across Asia, with shares in Shanghai surging the most in five weeks, after Trump said he’s open to extending a March 1 deadline to raise tariffs on Chinese products if the two sides are near an agreement. With major central banks seemingly on pause or turning dovish, investor attention now appears firmly focused on the outlook for global trade and the chances of progress at the next round of talks between the U.S. and China in Beijing. Protectionist measures have been heaping pain on many large economies, many of which are also grappling with a slowdown in growth.
• Oil climbed for a second day after Saudi Arabia pledged to deepen production cuts and U.S. President Donald Trump said he might extend a deadline for additional tariffs on China. Futures in New York added as much as 1.2 percent after rising 1.3 percent Tuesday. The world’s biggest oil exporter will continue to curb output more than required by a December deal among top producers, Energy Minister Khalid Al-Falih told the Financial Times Wednesday. Trump said he’s open to extending the March 1 deadline if the U.S. and China are close to a trade agreement.
• Gold holds onto gains for a second day as investors track trade talks between the U.S. and China, while the dollar stabilizes after snapping an eight-day rally. President Donald Trump said he’s open to extending a March 1 deadline to raise tariffs on Chinese products if the two sides are near an agreement, fueling hopes of a breakthrough in the trade war.
• President Donald Trump is eyeing a path to avoid another government shutdown where he would reluctantly accept the congressional border-security deal and attempt to tap other funds for his wall. Trump is likely to grudgingly sign the legislation and then immediately use his executive authority to fund additional border measures, said a person who talked to the president Tuesday and asked not to be identified to discuss private conversations.
• The yuan is entering a critical period after posting its second-best monthly advance ever, with analysts sounding caution as a new round of China-U.S. trade talks gets underway. The Chinese currency could head to 7 per dollar if there’s a breakdown in the negotiations, while an agreement on no additional tariffs will send it on a sustained rally, Citigroup Inc. said. An extension of the trade truce with little meaningful progress on underlying issues may disappoint and pressure the yuan, Bank of America Merrill Lynch strategists led by Adarsh Sinha wrote on Feb. 11.
• India’s headline and core inflation rates are set to converge in the coming months as the economy slows, increasing the chance of more interest rate cuts. The core measure — which strips out volatile fuel and food costs — has remained sticky at around 6 percent and is a key reason economists cautioned against more rate cuts after last week’s surprise easing. It softened to 5.4 percent in January, and Pranjul Bhandari, chief India economist at HSBC Holdings Plc, sees it slowing to as low as 4 percent this year.
• Weaker-than-forecast U.K. inflation may be offering Bank of England policy makers a reprieve as they struggle to peer through the “fog of Brexit.” The rate fell back below the central bank’s 2 percent target for the first time in two years in January, reducing pressure on policy makers as they face a possible no-deal Brexit that could hit the economy with fresh barriers to trade as well as weaker productivity and investment.
• For all the palpitations that the trade war between the U.S. and China will knock out their economies, it is Europe that increasingly looks like the biggest threat to global growth. Industrial production across the 19-nation euro area is falling at the fastest pace since the financial crisis, and deteriorating demand is evident as the region finds itself squeezed between international and domestic drags. That leaves expansion at risk of barely topping 1 percent this year, a sharp slowdown from 2018, with even continental powerhouse Germany in trouble.
• At least three ships roughly the length of two football fields are slated to arrive at ports in China by the end of this month, each carrying precious cargo from Elon Musk. Tesla Inc. is loading as many Model 3 sedans as it can onto vessels destined for the People’s Republic ahead of March 1, when a trade-war truce between presidents Donald Trump and Xi Jinping is scheduled to expire. Musk fears the two countries could ratchet tariffs back up, which would make the chief executive officer’s electric cars more expensive in China and boost costs of key components the country sends to his U.S. assembly plant.
• Saudi Arabia, Panama and the U.S. Virgin Islands were included on a blacklist by European Union regulators seeking to stem the risks of money-laundering and terrorist financing. The European Commission on Wednesday identified 23 countries as posing a higher risk for illicit financial flows, adding regulatory hurdles for European banks dealing with clients from countries in these nations. The EU move follows a string of money-laundering cases involving some of the bloc’s biggest banks, highlighting shortcomings in the EU’s framework. Danske Bank A/S is at the heart of a dirty money scandal involving suspicious funds that flowed from Russia and elsewhere through its Estonian unit. Russia isn’t included on the list.
• T-Mobile US Inc. Chief Executive Officer John Legere says his company doesn’t use equipment from Huawei Technologies Co., and won’t after buying Sprint Corp. to form a bigger No. 3 in the U.S. wireless market. “Let me be clear –- we do not use Huawei or ZTE network equipment in any area of our network. Period. And we will never use it in our 5G network,” Legere said in written testimony prepared for a hearing Wednesday before the House communications subcommittee. The statement is in response to critics who’ve raised the issue of the Chinese equipment maker as a risk to national security to build opposition to the proposed $26.5 billion merger.
• London’s office market could be headed for a fall whether the U.K. leaves the European Union with or without a deal, according to one broker that predicts a downturn. London office values have held near record highs since the Brexit vote thanks to a flood of overseas capital attracted by the weak pound and resilient demand for space that’s been boosted by the rapid growth of operators like WeWork Cos. Those pillars of support could easily crumble, the Berenberg analysts said, with overseas demand vulnerable to sterling appreciation, Brexit or political intervention. Add to that the risk that flexible office operators may become distressed as rents begin to fall, putting more pressure on prices.
• The top U.S. envoy to the North Atlantic Treaty Organization said Washington was open to a broad treaty with Russia to curb the proliferation of nuclear weapons while also warning Turkey not to purchase a new arms system from Moscow. “Our government is firmly in the camp of looking for an opportunity to have an arms control agreement that would include all the countries that have these intermediate ballistic missiles,” U.S. Ambassador to NATO Kay Bailey Hutchisonsaid during a Tuesday call with reporters. “Now America is going forward with the treaty protocol to give notice that we need to begin to develop a defense to the violating missiles that Russia has been developing.”
• Greenland Holdings Group is planning to acquire China Minsheng Investment Group Corp.’s interest in a prime land plot in Shanghai, according to people familiar with the matter. China Minsheng invested in the land through a 50 percent holding in China Minsheng Bund Real Estate Development Co., which purchased the plot in 2014 for what was reported at the time to be a record price. The stake has been seized by a Shanghai court and it’s not clear how that will impact the sale. The people familiar with Greenland’s acquisition asked not to be named as the information is private, and Greenland referred Bloomberg to its stock exchange filings when reached for a comment. Calls to China Minsheng Investment’s financing manager went unanswered.
• Investors will have to wait another year at least for generic-drug maker Teva Pharmaceutical Industries Ltd. to post improved earnings as sagging sales of Copaxone, its top-selling branded drug, are expected to hold back growth. The shares plunged in pre-market trading.
• Buyout firms Bain Capital and Carlyle Group LP have teamed up to weigh making an offer for German lighting manufacturer Osram Licht AG, people familiar with the matter said. The suitors are conducting due diligence on Osram and could make a bid by the end of March if they decide to pursue taking the firm private, the people said, asking not to be identified because the deliberations are private. No final decisions have been made and the buyout firms may still decide against a formal offer given the challenges that the business faces, they said. Shares of the company surged as much as 14.3 percent, the biggest gain since November, and were up 10 percent at 38.54 euros at 1:18 p.m. in Frankfurt. Representatives for Bain, Carlyle and Osram declined to comment.
• Spain’s parliament blocked the ruling Socialist party’s 2019 budget, significantly increasing the chances that Prime Minister Pedro Sanchezwill call an early general election. The 473 billion-euro ($535 billion) spending plan was rejected, by 191 votes in the 350-seat chamber, after the government failed to secure backing from the Catalan independence parties it previously relied on for support. Sanchez’s effort to get the budget approved was doomed to failure. Talks with the Catalan parties broke down last week ahead of the trialof 12 pro-independence leaders accused of crimes linked to a 2017 attempt to force a secession. The lawmakers from Catalonia were reluctant to support the minority government in the middle of a trial that independence advocates have labeled as political persecution.

*All sources from Bloomberg unless otherwise specified