April 11th, 2019
Daily Market Commentary
- Canadian Headlines
- Canadian stocks rebounded from their first drop in seven days as oil prices rose and soft U.S. inflation was seen as encouraging a dovish tone from central bankers. The pot sector also rose after a two-day decline. The S&P/TSX Composite Index added 0.4 percent to 16,396.29 in Toronto. Energy stocks rose as crude traded near a five-month high, boosted by a sharp drop in U.S. gasoline stockpiles. Aurora Cannabis Inc. was among the best performers in pot stocks after saying it will expand a production facility by one-third to support global demand for high-quality medical pot.
- Canadian households are wallowing in debt. Home prices are falling. Credit growth, the key driver for bank earnings, is hovering close to its slowest pace since 1983. All of which should be bad news for the country’s lenders — and good news for investors betting against them. Even with danger signs piling up, the shares of the six biggest Canadian banks have stubbornly refused to drop, instead surging 9.4 percent this year — and frustrating short sellers hoping to make money on stock-price declines.
- Rogers Communications Inc. snapped up half the licenses in the Canadian government’s most recent auction of wireless spectrum — while rival BCE Inc. ended up on the sidelines. The Canadian government raised C$3.47 billion ($2.6 billion) in the sale of 104 licenses of 600 MHz spectrum, which it says is best suited for next-generation wireless service and Rogers says is critical for 5G technology. A total of 112 licenses were up for sale, with 43 percent set aside only for smaller players, the Department of Innovation, Science and Economic Development said Wednesday in a statement announcing the results.
- Jason Kenney has had it with the passive approach to fighting for Canada’s energy sector. The United Conservative Party leader, likely to become premier of Alberta in elections next week, is promising lawsuits, boycotts and tax cuts to revive an oil industry under siege. Whether he can do much to solve the sector’s intractable problems, many of which are beyond his control, remains to be seen.
- World Headlines
- U.S. equity-index futures turned higher with European shares after a downbeat session in Asia. Treasuries edged down while the dollar was steady. Contracts on the S&P 500, Nasdaq and Dow all advanced, and the Stoxx Europe 600 Index reversed earlier losses as gains in travel companies and carmakers outweighed declines in miners. Investor optimism on global stocks and commodities has endured as warnings about a global economic slowdown abound. Caution over economic pullbacks has emerged in comments from the European Central Bank, the IMF and in the Federal Reserve minutes — which reinforced expectations that interest rates should be on hold for the rest of this year.
- In Asia earlier, Chinese shares led a decline across the region’s markets. The pound fluctuated after the European Union agreed to give Britain until the end of October to avoid a chaotic Brexit. European sovereign bonds were mixed, and the single currency was steady against the greenback.
- Oil retreated from a five-month high as an increase in U.S. crude inventories overshadowed OPEC’s efforts to reduce production. Futures fell as much as 1.1 percent in New York after government data showed a 7.03 million-barrel jump in crude inventories last week to the highest since 2017. The International Energy Agency said that although global markets are tightening, it could lower demand forecasts because of economic threats.
- Gold, platinum and palladium all traded down on Thursday with investors taking money off the table after recent gains. Medium-term sentiment in gold is helped by investor expectations that the Federal Reserve would pause on raising U.S. interest rates for the remainder of this year, reinforced by comments from the central bank’s latest meeting and unexpectedly soft inflation. Prior to Thursday’s loss, gold had gained for the previous three sessions to trade at highest level since late March.
- China’s consumer prices surged on the back of temporary food supply factors, while factory inflation provided further evidence of a nascent economic recovery. Consumer inflation accelerated to 2.3 percent in March from a year earlier, up from 1.5 percent in February and posting the biggest jump in more than a year. The surge was mostly led by rising vegetable and pork prices, which drove the CPI up by more than half a percentage point, according to the National Bureau of Statistics.
- Pound traders are betting markets have little to fear from the Brexit deadline being pushed back to Halloween. Gauges of volatility in the currency that cover the new Oct. 31 exit date agreed by European Union leaders slid on Thursday. The extended delay removes the risk for markets of the U.K. crashing out of the bloc this week, yet still leaves all scenarios on the table, keeping many investors on the sidelines.
- Tesla Inc. slumped after Nikkei reported the electric carmaker and Panasonic Corp. are suspending plans to expand the capacity of their $4.5 billion U.S. plant in the face of uncertain demand for electric vehicles. The pair had intended to raise capacity at the gigafactory near Reno, Nevada, by about 50 percent by 2020 but financial problems forced a re-think, the newspaper said without citing its sources. Panasonic also intends to suspend planned investment in Tesla’s battery and electric vehicle plant in Shanghai, and instead provide technical support and a small number of batteries from the existing gigafactory, the newspaper reported.
- The world economy may be on the cusp of a new phase in monetary policy, and some form of potentially addictive helicopter money could be in the mix, according to analysts at Barclay’s. It’s a conclusion they draw in Barclay’s Equity Gilt Study 2019 as inflationtargeting approaches its 30th birthday. That’s roughly the life-span of previous monetary regimes including the Gold Standard (1870s-1914) and the Bretton Woods fixed exchange rate system (1948-1973), the report says.
- President Donald Trump wants to allow natural gas to be shipped in railroad cars, a move that would open new markets hungry for the fuel but could risk catastrophic accidents if one were to derail. Trump on Wednesday ordered the Transportation Department to write a new rule permitting super-chilled natural gas to be shipped in specialty tank cars. The order follows a multiyear lobbying campaign by railroads and natural gas advocates, who argue it is needed to serve customers in the U.S. Northeast, where there aren’t enough pipelines, and making it possible to use the gas to power ships and trains.
- China Vanke Co., the country’s largest developer by market capitalization, is considering a Hong Kong listing of its property management business, according to people with knowledge of the matter. The Shenzhen-based company has discussed with potential advisers a share sale that could raise as much as $1 billion, one of the people said. The offering could happen next year, said the people, who asked not to be identified because the information is private.
- Theresa May accepted the European Union’s offer to extend Brexit to Oct. 31, and must now sell it to skeptical members of Parliament and a Conservative Party losing patience in her leadership.
- Tens of millions of people use smart speakers and their voice software to play games, find music or trawl for trivia. Millions more are reluctant to invite the devices and their powerful microphones into their homes out of concern that someone might be listening. Amazon.com Inc. employs thousands of people around the world to help improve the Alexa digital assistant powering its line of Echo speakers. The team listens to voice recordings captured in Echo owners’ homes and offices. The recordings are transcribed, annotated and then fed back into the software as part of an effort to eliminate gaps in Alexa’s understanding of human speech and help it better respond to commands.
- Credit Suisse said its loss-making Asia-Pacific trading business will break even in the first quarter and tasked seasoned investment banker Yves-Alain Sommerhalder with boosting cross-selling with the bank’s millionaire wealth management clients in the region. Sommerhalder will lead APAC Trading Solutions, a new unit that includes the bank’s equities activities in Asia, Switzerland’s second-largest lender said on Thursday. He will take on the role in addition to his current job as co-head of a similar joint venture between traders and wealth management in Switzerland and the rest of Europe.
- Commerzbank AG supervisory board members representing workers are seeking to end talks about a tie-up with rival Deutsche Bank AG, according to people familiar with the matter. Several labor representatives, fearing the loss of thousands of jobs, are so opposed to a deal that they are seeking an extraordinary board meeting to shoot it down, said the people, asking not to be identified discussing confidential information. No such meeting has yet been set, and there are still questions as to whether they have enough support to schedule a vote, they said.
- A unit of China’s ENN Energy Holdings Ltd. informed Toshiba Corp. last night that it will no longer take over an agreement to process natural gas at the Freeport LNG project in Texas. ENN Ecological’s board decided to scrap the transfer and told Toshiba that required conditions couldn’t be met in a short time, leading to “considerable uncertainty,” Toshiba said in a statement Thursday. ENN will submit a termination agreement to its shareholders April 29. Toshiba is in the process of determining the financial impact.
- All the wonder and awe over Saudi Aramco’s blockbuster $12 billion bond sale this week obscured a fundamental fact about today’s global debt markets — they were red hot before this sale took place and will remain red hot afterward. Sure, the deal was a once-in-a-lifetime sort of spectacle — in which the world’s most profitable company lured more than $100 billion in bids from investors — but it still only accounted for less than 2 percent of global corporate debt sales this year. It’s a symptom of the long-running hunt for yield being back on — with some $10 trillion of bonds, mostly issued by governments, offering negative yields, sales of company notes have soared to a record of more than $695 billion this year.
*All sources from Bloomberg unless otherwise specified