August 14th, 2019

Daily Market Commentary

• Canadian Headlines
  • Prime Minister Justin Trudeau has forged a comfortable lead over his main political rival on the crucial question of economic stewardship, giving the Canadian leader a critical advantage in his bid for re-election in October. According to a monthly survey conducted by Nanos Research Group for Bloomberg News, 37% of respondents say they trust Trudeau the most to promote economic growth, compared with 27% for Conservative Party leader Andrew Scheer. Trudeau and Scheer had been neck-and-neck on the issue only two months ago, but the Liberal Party leader has pulled ahead as the nation’s economic performance firmed up. That includes a recovering housing market, a rebound in economic growth and one of the strongest job markets in the past four decades.
  • Slowing global growth and the threat of a drawn-out trade war between the two largest economies have impacted corporate profits across the world. Not so in Canada, where equity bulls have boosted their earnings expectations to a record high. Strategists are expecting profits for companies listed on the benchmark S&P/TSX Composite Index to climb to C$1,143 ($864) a share for 2019 thanks to the nation’s expanding economy, stronger commodity prices and a solid earnings season that’s currently underway. And even as yield curves invert in Canada, the U.S. and the U.K. — triggeringyet another global recession warning — profit forecasts on Canada’s benchmark index have risen at a faster pace than that of a gauge of developed-market equities.

   

• World Headlines
  • Hit by worsening economic data from Germany and China, European stocks on Wednesday retraced all the gains of the previous session sparked by hopes of progress in trade talks. The Stoxx Europe 600 Index declined 1.1% as of 11:27 a.m. in London, with miners and automakers suffering the most. Tuesday’s advance was prompted by news that the U.S. delayed tariffs on some Chinese products, but that wasn’t enough support for traders after data today showed industrial output growth in the world’s second-biggest economy weakened to a 17-year low.
  • American equity-index futures slumped alongside stocks in Europe as weak data from two of the world’s biggest economies overshadowed an apparent de-escalation in the trade war. Contracts on the S&P 500 fell alongside the Stoxx Europe 600 index as data showed Germany’s economy contracted in the second quarter. The dollar was steady as the yield on 30-year Treasuries fell to the lowest level ever and the gap between that of two-year and 10-year debt inverted for the first time since 2007. Investors are seeking shelter amid a fraught geopolitical backdrop and as concern increases about the impact of the global trade war on economic growth. Inverted yield curves are considered a recession warning signal by many analysts.
  • Asian stocks gained, tracking Tuesday’s move on Wall Street even as Chinese retail sales and industrial output data missed estimates. The data from China and Germany added to the gloomy outlook on Wednesday, souring the mood after President Donald Trump’s decision to delay tariffs on Chinese imports eased some tension. Gold reversed an earlier decline.
  • Oil declined after its biggest surge in five weeks as an industry report showed American crude stockpiles expanded, paring a rally that was fueled by signs the U.S.-China trade deadlock may be easing. Futures lost as much as 1.5% in New York after the American Petroleum Institute was said to report that crude inventories rose by 3.7 million barrels last week. If confirmed by government data Wednesday, it will be a second weekly increase, though a Bloomberg survey predicts a draw in stockpiles. Oil surged 4% on Tuesday after the U.S. postponed tariffs on some Chinese goods, offering a glimmer of hope for global demand.
  • Gold edges higher to recoup some of Tuesday’s losses as jitters over the global economic outlook overshadow the apparent de-escalation in the U.S.-China trade war, sending investors back to haven assets. Investors are weighing weak data from two of the world’s biggest economies, after Chinese retail sales and industrial output data missed estimates and data showed Germany’s economy contracted in the second quarter. U.S. 30-year yields fell to their lowest level ever and the U.K. yield curve inverted for the first time since the financial crisis in another sign that the global economy may be headed toward a recession.
  • China posted the weakest industrial output growth since 2002 and slumping retail sales in July, as a cyclical slowdown and trade tensions add to the case to roll out more stimulus. Industrial output rose 4.8% from a year earlier, retail sales expanded 7.6%, and fixed-asset investment slowed to 5.7% in the first seven months. While some seasonal effects likely compressed the data, all results were lower than forecast by economists in a Bloomberg survey. The output data coupled with weak credit demand in the month signal that the world’s second-largest economy is still struggling to stabilize. A partial delay of President Donald Trump’s next tranche of tariffs is cheering markets, but adds little in the way of certainty for export companies already reeling from the year-long standoff.
  • The stream of investors seeking refuge in the safest parts of the market has triggered yet another recession warning, with yield curves inverting from the U.S. to the U.K. The gap between two- and 10-year yields dropped below zero on both sides of the Atlantic after a wave of soft economic data globally. Weaker-than-forecast Chinese retail sales and industrial output set the mood for the markets, with data later in the day showing Germany’s economy contracted, adding to the gloom.
  • Ireland’s Green REIT Plc agreed terms to sell itself to an affiliate of private equity firm Henderson Park Capital Partners U.K. in a deal valued at about 1.34 billion euros ($1.5 billion). Henderson Park will pay 1.9135 euros per share in cash for Green, Henderson Park said in a statement on Wednesday. The price is a 24.7% premium to the real estate firm’s share price before it began a process to sell itself in April because it said investors were undervaluing the firm.
  • Prime Minister Boris Johnson’s staff talk about an imminent general election as though it were a fact, and on Tuesday, a Conservative politician accidentally published a draft email about his “GE2019 team.” But amid growing expectations that the next chapter in the U.K.’s political crisis will see the country go to the polls, it’s still not clear how it will happen. The argument for an election is clear. Johnson has a governing majority in Parliament of just one seat, meaning he doesn’t have the votes to pass any controversial legislation. It’s also far from clear there’s majority for any kind of Brexit deal, while MPs are plotting to block his “do or die” plan to take Britain out of the European Union on Oct. 31, without a deal if necessary.
  • Facebook Inc. risks another spat with European Union privacy watchdogs after Bloomberg reported that the social-media giant paid contractors to transcribe clips of audio from users of its services. The Irish Data Protection Commission said it’s “seeking detailed information from Facebook on the processing in question” after the company confirmed it had been transcribing audio from users in the Messenger app.
  • Chinese officials are sticking to their plan to visit Washington in September for face-to-face trade meetings, people familiar with the matter said, signaling that talks remain on track for now despite an abrupt escalation in tariff threats this month. The U.S. on Tuesday delayed the imposition of some new tariffs after top negotiators spoke on the phone, with President Donald Trump saying the encounter was “very productive,” and that he thinks Beijing wants to “do something dramatic” to end the impasse. That said, Chinese negotiators are not very optimistic of any imminent progress, one of the people said. Officials are unlikely to make concessions in the run up to October 1, the celebration of the 70th anniversary of the founding of the People’s Republic, the person said.
  • KKR & Co. is considering selling LGC Group, the British scientific measurement and testing company, people familiar with the matter said. The buyout firm is speaking to advisers as it reviews its holding in the business, which could fetch more than 1 billion pounds ($1.2 billion) in a sale, the people said, asking not to be identified because the deliberations are private. The deliberations are at an early stage, and KKR may decide to retain the company for longer, they said.
  • WeWork Cos. disclosed its plans for an initial public offering, revealing a net loss of $690 million in the first six months of this year as it moves toward a listing this fall. The office rental company listed an offering size of $1 billion in its filing with the U.S. Securities and Exchange Commission. That amount is typically a placeholder that will be revised when terms of the share sale are set later. The filing revealed that investment banks JPMorgan Chase & Co. and Goldman Sachs Group Inc. will be the lead underwriters on the offering. Executives from major banks had been courting the company for years. Its 2018 revenue more than doubled to $1.8 billion in 2018 compared to $886 million in the previous year. The company plans to list its shares on the under the symbol “WE,” although the exchange was not listed in the filing.
  • Hong Kong restricted access to the airport in a bid to stave off further demonstrations while China ramped up the rhetoric against protesters, saying they “acted like terrorists” while swarming the main terminal buildings. The aviation hub resumed normal operations on Wednesday after a chaotic night of protest in which demonstrators beat and detained two suspected infiltrators, and President Donald Trump warned of Chinese troops massing on the border.
  • As automation reshapes financial markets around the world, there’s still one place where handshake deals are the norm and using technology means bcc-ing bids and offers over email. The complex and antiquated world of steel — among the oldest industries in America — is one of the last lines of defense against the bots. Instead of a computerized market where orders ping-pong back and forth in milliseconds, a large bulk of the industry’s transactions are done in annual contract deals, with agreed-upon prices and volumes. Unlike most commodities, there’s hardly a futures market and when steel does trade, it’s by phone or email.
  • Oversea-Chinese Banking Corp. is weighing a bid for a controlling stake in PT Bank Permata, an Indonesian lender backed by Standard Chartered Plc, according to people with knowledge of the matter. OCBC is considering an offer for almost 90% of the $1.9 billion bank, said the people, asking not to be named as the deliberations are private. Singapore’s second-largest lender is interested in buying the stakes held by Standard Chartered and PT Astra International, said the people.
  • European buyout firm BC Partners has agreed to buy Presidio Inc. for about $1.3 billion in a deal that will take the New York-based information-technology services company private. The all-cash, $16-per-share offer is a 21% premium to Presidio’s closing price on Tuesday. The deal values Presidio at $2.1 billion including net debt, the companies said in a statement on Wednesday.
• *All sources from Bloomberg unless otherwise specified