August 19th, 2019

Daily Market Commentary

  • Canadian Headlines
    • Canadian stocks recovered some losses after a two-day slump, following U.S. stocks higher as investors got a break from a tumultuous week of concerns regarding trade. The S&P/TSX Composite Index rose 0.9% Friday. Pot shares led most of Canada higher, with only materials stocks lagging. TheScore Inc. jumped 10.2% after getting the green light to launch a mobile application for sports betting in New Jersey. And, looking ahead, the Royal Bank of Canada is set to report earnings Wednesday morning. Despite pressure on rates, the bank is expected to post 3Q earnings gains above its targeted 7%.

     

  • World Headlines
    • European equities rose on Monday as cyclical sectors, like miners and automakers, paced the gains amid optimism that the U.S.-China trade talks are going forward. The benchmark Stoxx Europe 600 Index gained 0.8% and is now back above its 200-day moving average. Royal Dutch Shell Plc and Total SA both increased 1.6% as oil climbed after a drone attack on a Saudi oil field. Banking giant HSBC Holdings Plc climbed 1.6%.
    • S&P 500 index futures extend gains to as much as 0.9%, as optimism prevails following comments from President Donald Trump on trade talks with China. Investors kicked off Monday on a more positive note after three weeks of declines in global stocks and a series of choppy trading sessions that shook markets from oil to bonds. With volatility jumping in August, traders’ focus will turn to Fed Chairman Jerome Powell’s address planned at the Kansas Fed’s annual Jackson Hole gathering on Friday, which will be key to gauging whether U.S. policy makers will add to July’s interest-rate cut.
    • Shares in Hong Kong and China climbed the most in Asia, where jumps across the region were helped by news of Beijing’s plan to reform its interest-rate system and cut borrowing costs. Treasury 10-year yields continued to rise from multiyear lows reached last week.
    • Oil rose for a second day as a drone attack on a Saudi Arabian oil field revived concerns that the tense Middle East political situation may jeopardize crude exports. Futures in New York advanced as much as 1.7% to trade above $55 a barrel. Yemeni rebels attacked oil and gas facilities at the Shaybah field in the southeast part of the kingdom over the weekend, although there was only a small fire and no disruption to production, Saudi Arabian Oil Co. said in a statement. Prices were also supported as President Donald Trump said the U.S. is talking with China on trade, but suggested he wasn’t ready to sign a deal yet.
    • Gold declined for a second day as investors favored riskier assets and weighed President Donald Trump’s comments on trade with China. Stocks in Europe and Asia rose alongside U.S. equity futures, while Treasury yields continued to recover from multiyear lows hit last week, when an inversion in the yield curve sparked recession worries.
    • Euro-area inflation was weaker than initially reported in July, raising pressure on European Central Bank policy makers to consider more stimulus in September. Eurostat revised its July estimate for consumer price growth to 1%, down from a reading of 1.1% reported on July 31. It’s the second consecutive revision to inflation data.
    • China is considering allowing provincial governments to issue more bonds for infrastructure investment, people familiar with the matter said, a move that would boost government stimulus as the economy continues to decelerate. Policy makers may raise the annual quota for so-called special bonds from the current level of 2.15 trillion yuan ($305 billion), according to the people, who asked not to be named as the matter isn’t yet public. The amount of the increase hasn’t been decided yet, one of the people said.
    • Investors withdrew money from exchange-traded funds that buy emerging market stocks and bonds for the sixth straight week. Outflows from U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $3.02 billion in the week ended Aug. 16, compared with losses of $3.61 billion in the previous week, according to data compiled by Bloomberg. Withdrawals totaled $11.4 billion in the six-week stretch. This year, inflows have totaled $1.02 billion.
    • President Donald Trump said the U.S. is “doing very well with China, and talking!” but suggested he wasn’t ready to sign a trade deal, hours after his top economic adviser laid out a potential timeline for the resumption of substantive discussions with Beijing. Trump vowed that the U.S. was “poised for big growth” after various trade deals are reached. But speaking to reporters as he departed New Jersey for Washington on Sunday, Trump said China needs a trade agreement more than the U.S. given the relatively weak condition of the Asian nation’s economy.
    • A top Latin American golf club is being offered as part of about $600 million in collateral to lenders as the corporate titan Aldo Navilli, owner of Argentine food producer Molino Canuelas SACIFIA, gets closer to restructuring $1.2 billion of debt, according to people familiar with the matter. Navilli, who had stridently resisted putting his Canuelas Golf Club in hock during more than a year of negotiations with creditors including ING and Rabobank, reversed course in recent days to get the deal done, the people said. The Canuelas Golf Club covers 178 acres (72 hectares) of grassland on the outskirts of Buenos Aires, and hosts a Latin American PGA Tour stop.
    • Federal Reserve Chairman Jerome Powell will have no lack of material to choose from when he kicks off the central bank’s annual Jackson Hole symposium Friday with a speech on the challenges for monetary policy. A deglobalization shock touched off by Donald Trump’s trade policy; super low interest rates, including $16.7 trillion in negative-yielding bonds; a never-ending presidential assault on the Fed; and a rising risk of a U.S. and worldwide recession.
    • Iran warned the U.S. against apprehending a supertanker carrying the Middle East country’s oil, leaving the fate of the vessel uncertain as it sailed east into the Mediterranean Sea from Gibraltar, where it been detained since last month. The tanker, formerly called the Grace 1 and now known as the Adrian Darya 1, was signaling — at least for now — Kalamata, Greece, with an arrival date of Aug. 25, tanker-tracking data compiled by Bloomberg at 11:30 a.m. London time show. It left Gibraltar Sunday night after being detained there since early July, when British forces seized it on suspicion of carrying oil to Syria in violation of European sanctions. The U.S., which has sanctions against Iran, is seeking to prevent anyone from doing business with the ship.
    • The German government is getting ready to act to shore up Europe’s largest economy, preparing fiscal stimulus measures that could be triggered by a deep recession, according to two people with direct knowledge of the matter. The program would be designed to bolster the domestic economy and consumer spending to prevent large-scale unemployment, said the people who asked not to be identified because the discussions are private. Similar to bonuses granted in the 2009 crisis to prod Germans to buy new cars, the government is studying incentives to improve energy efficiency of homes, promote short-term hiring and boost income through social welfare, the people said. Bunds extended declines while the euro briefly rose as much as 0.2% to $1.1114 before slipping back.
    • Thailand’s economy grew at the slowest pace in almost five years in the second quarter as exports and tourism were buffeted by U.S.-China trade tensions and a strong local currency. Gross domestic product rose 2.3% from a year ago, down from 2.8% in the first quarter, the National Economic and Social Development Council said Monday. That’s the slowest pace since the third quarter of 2014. The expansion matched the median estimate of 2.3% in a Bloomberg survey of economists. A slowdown both domestically and abroad affected the quarterly growth, Thosaporn Sirisumphand, the council’s secretary general, said at a briefing in Bangkok. The U.S.-China trade war, global jitters and a drought all remain as risks going forward, although a government stimulus package announced last week could help offset the damage, he said.
    • If the lament over a shrinking equity market has been momentarily drowned out in the U.S. by the opening bells rung by red-hot debutantes, it’s only gotten louder on this side of the Atlantic. Eighty-four companies have listed in Europe this year, the fewest in a decade by a mile, according to data compiled by Bloomberg. By deal value, it’s the lowest since 2013. Among those that debuted, Airtel Africa Plc and Finablr Plc flopped. Among those that almost debuted, Swiss Re AG last month pulled the IPO of its ReAssure Group Plc unit hours before its planned listing. Among those oft-rumored to be close to an initial public offering — anyone craving some Deliveroo?
    • The longest-dated bonds are feeling the heat globally, moving the Treasury yield curve away from inversion, as the U.S. government considers borrowing for a century. After the U.S. curve inverted last week, sparking debate over whether a recession could be 12-18 months away, it steepened Monday as yields on 10-year and 30-year bonds climbed faster than shorter maturities. That came after the U.S. government said Friday it would reach out to investors on the potential issuance of 50- or 100-year bonds.
    • China took a major step toward reforming its system of interest rates, in a move aimed at pushing down the cost of borrowing by households and companies as the economy slows. From August 20, new loans must be priced “mainly” with reference to a revamped benchmark that tracks the price of credit to banks’ best customers, the so-called Loan Prime Rate. In turn, that rate is linked to the price the People’s Bank of China charges lenders for cash over one year. The changes push China’s financial system further toward being truly market-led, and away from the Communist-era command economy where officials set both the price and quantity of credit. By unifying market and official rates, the PBOC also intends to bring down the stubbornly high cost of borrowing and aid pass-through of future changes in policy rates.
    • The relationship between President Donald Trump and the largest U.S. technology companies has often been frosty but a common opponent — France’s plan to tax U.S. tech giants — will bring the two sides together, at least temporarily. Alphabet Inc.’s Google, Facebook Inc. and Amazon.com Inc. are all scheduled to testify in Washington on Monday in support of the Trump administration’s efforts to potentially punish France for enacting a 3% tax on global tech companies with at least 750 million euros ($832 million) in global revenue and digital sales of 25 million euros in France.
  • *All sources from Bloomberg unless otherwise specified