April 25th, 2019
Daily Market Commentary
- Canadian Headlines
- The Bank of Canada fully abandoned its bias toward raising interest rates as the economy grapples with a slowdown, bringing its policy in line with the Federal Reserve and other major industrial central banks. Policy makers in Ottawa left their benchmark overnight rate unchanged at 1.75 percent for a fourth straight decision Wednesday, and dropped a reference to future increases that had been in every rate statement since the end of 2017. The bank cited a series of factors — from slower global growth to sluggish housing and oil sectors — that brought Canada’s economy to a near halt over the past six months. Officials also laid out a more dour growth forecast for this year than economists are expecting.
- Cenovus Energy Inc. reduced its full-year oil sands production forecast following Alberta’s move to curtail supply, but said improved Canadian crude prices “more than offset” the impact of lower output. The company said Wednesday it now expects total oil sands production will average 350,000 barrels to 370,000 barrels per day in 2019, a 7 percent cut at the midpoint of the range compared with its projection made in December.
- Bombardier Inc. said full-year sales and profit will be lower than expected as it struggles with a slower project ramp up at its rail arm. Consolidated revenue for the 12 months will be about $1 billion less than forecast, while earnings before interest and tax may drop below the previously guided range, Montreal-based Bombardier said in a statement Thursday. The Canadian transportation giant revised its outlook amid a slower than anticipated acceleration in production on key rail projects. The timing of aircraft deliveries also led to a soft first quarter for the group, though the shortfall should be recovered and financial targets for the division met, Chief Executive Officer Alain Bellemare said.
- World Headlines
- European equities fell at the open as investors weighed the latest earnings results. The Stoxx Europe 600 Index was down 0.2 percent. Wireless-equipment maker Nokia slumped 8.5 percent after reporting a surprise quarterly loss. Bank results were a mixed bag today as UBS jumped 1.4 percent after reporting net income that beat analyst estimates while Barclays was down 1.6 percent after saying its corporate and investment-banking markets income in the first quarter was weaker. Health-care stocks were among the biggest advancers. Novartis gained 1.2 percent after raising its profit estimate on Wednesday and Bayer added 2.9 percent after its earnings met estimates and it confirmed its 2019 forecast.
- Japanese stocks rose, boosted by corporate earnings and as the Bank of Japan said it intends to maintain “extremely low” interest rates through at least around spring 2020. A gauge of land transportation stocks contributed most to the gain in the Topix index. Kao Corp. climbed after it met analyst profit expectations and announced a share buyback. Hitachi Ltd. group shares advanced after a Nikkei report the conglomerate may sell its stake in Hitachi Chemical Co. Japanese markets will be shut from April 27 through May 6 for the Golden Week holidays. “The BOJ’s clarification on the forward guidance provided a sense of security to the Japanese stock market somewhat,” said Hiroshi Matsumoto, head of Japan investment at Pictet Asset Management Ltd. in Tokyo. “Earnings results so far don’t look that good, but some companies have announced share buybacks, providing comfort to the market.”
- Chinese stocks sank the most in six weeks as concern deepened about the prospect of the government scaling back stimulus. The Shanghai Composite Index slumped 2.4 percent at the close, taking its loss this week to 4.5 percent. That would be the worst weekly performance this year. Telecom, technology and consumer discretionary shares led declines as more than 10 stocks dropped for each that gained. Bonds rose, with the yield on 10-year debt falling 1 basis point, while the yuan weakened to its lowest level since February against the dollar.
- U.S. equity-index futures were mixed on Thursday and European shares edged lower as investors parsed a slew of earnings against a backdrop of global growth concerns. The dollar hit a four-month high. Technology shares were poised to jump at the New York open following strong results from Microsoft and Facebook after the Wednesday close, but contracts for the S&P 500 were flat and those on the Dow Jones Industrial Average nudged lower. The Stoxx Europe 600 slipped for a second session on a mixed day for bank earnings and as two major European mergers appeared to flounder. Asian shares were mostly lower, with sharp declines in China. The euro traded at the lowest since 2017 against the dollar and South Korea’s won slumped after the country’s economy unexpectedly contracted in the first quarter. The yen rose after the Bank of Japan cut its economic growth forecasts and committed to keeping rates low, and Sweden’s krona dropped after the Riksbank said rates will stay low for longer.
- Brent crude reached $75 a barrel for the first time since October as the U.S. decision to remove Iran sanctions waivers combined with a drop in Russian flows to fuel supply fears. Futures in London rose as much as 1.4 percent, gaining for a fifth session. Saudi Arabia on Wednesday responded to the U.S. move to tighten sanctions on Iran, saying it saw no immediate need for action in the oil market. Separately, Russian crude deliveries to parts of Europe have been halted amid complaints of contamination.
- Gold extended Wednesday’s advance amid concerns about global growth and as investors assessed corporate earnings. The metal edged higher even as the U.S. dollar climbed to a four-month high — the two typically trade in opposite directions — and holdings of exchange-traded funds backed by bullion dropped further, to lowest since Jan. 1. Palladium also rose Thursday, while silver and platinum declined.
- Deutsche Bank AG and Commerzbank AG ended talks on a historic tie-up, throwing the future of the lenders into question after a series of failed turnaround plans. More than five weeks of negotiations and the Finance Ministry’s push to forge one strong institution out of two struggling firms failed to overcome the economic and political obstacles to combining the country’s biggest listed banks. The failure to agree on a deal now forces Deutsche Bank, once Europe’s dominant financial institution, to come up with its fifth turnaround plan since 2015 and allay investor concern about how it will revive growth and boost shareholders returns. For Commerzbank, still 15 percent-owned by the federal government, a foreign takeover may be in the cards down the road, with lenders including ING Groep NVand UniCredit SpA said to be interested in an acquisition.
- In a win for Wall Street banks, the latest effort to overhaul the post-crisis Volcker Rule is moving toward a narrower and clearer definition of what types of trades are prohibited, said people familiar with the matter. Regulators appointed by President Donald Trump took a first stab last year at toning down Volcker’s trading limits, which were meant to prevent bankers from threatening the financial system. However, bankers blasted the revamp, arguing it might make it even harder for firms to buy and sell securities. In response to that criticism, the watchdogs are now focused on erasing the 2018 proposal’s centerpiece — known among regulators as the “accounting prong” that would have determined which trades are banned.
- Facebook Inc. analysts were essentially unanimous in their praise of first-quarter results, in which the social media company reported strong revenue growth and user engagement. The results, along with a signal that it may be close to resolving a U.S. privacy investigation, were seen as moving the company past a series of controversies that have weighed on the stock for several months. As RBC Capital Markets wrote, the company could “could be in a period of sustained re-rating,” as the worst fears “appear not to have been realized.”
- Occidental Petroleum Corp.’s $38 billion bid for Anadarko Petroleum Corp. is one of the boldest moves in the 99-year history of a company that has never lacked ambition. While being meet with skepticism from analysts — who have called the bid “ill-advised” and “a very bad idea” — the proposal shows the appetite of Chief Executive Officer Vicki Hollub, 59, who took over in 2016 as only the fourth CEO in the company’s history and is one of the few women leading a major oil producer.
- The biggest threat to President Donald Trump’s hopes for low gasoline prices is his growing entanglement in the politics of OPEC nations. The White House plans to choke off oil exports from Iran without triggering a spike in prices largely by getting Saudi Arabia, the only OPEC member with significant spare capacity, to make up the shortfall. Yet his parallel interventions in Venezuela and, more recently, Libya could test the kingdom’s ability to deal with further disruptions. Crude prices have already climbed almost 40 percent this year, hitting $75 a barrel in London this week for the first time in six months. If reserve output is exhausted by multiple supply crises, it could surge to levels that hurt the global economy.
*All sources from Bloomberg unless otherwise specified