August 1st, 2019
Daily Market Commentary
- Canadian Headlines
- Sun Life Financial Inc. Chief Financial Officer Kevin Strainis bracing for a market downturn — and the opportunities that may present. The Canadian insurer has C$2.2 billion ($1.67 billion) of excess capital and the ability to tap more, giving it strength to snap up assets or other businesses if prices drop, Strain said in a phone interview Wednesday after posting quarterly results that beat analysts’ estimates. Sun Life’s stress-tested capital position “behaves quite well in a downturn environment,” he noted.
- Shopify Inc. reported second-quarter sales and a full-year revenue outlook that beat analysts’ estimates after introducing new offerings for merchants using its site to set up shops online. Revenue grew 48% in the three months ending June 30 to $362 million, according to a statement Thursday. Analysts were projecting $350.5 million, according to data compiled by Bloomberg. Shopify raised its 2019 revenue guidance to a range of $1.51 billion to $1.53 billion but kept its outlook for adjusted operating income of $20 million to $30 million unchanged.
- Bombardier Inc. cut its sales and cash-flow forecast for this year as the company overhauls its aerospace businesses and makes additional investments in its rail-equipment operation. Revenue will be at least $16.5 billion to $17 billion in 2019, slightly lower than the previous outlook of no less than $17 billion, the company said in a statement Thursday as it reported earnings. Bombardier predicted free cash flow usage of $500 million, compared with the previous prediction that the cash burn would be no more than $250 million.
- Sales of new condos jumped to a near-record in the Toronto region in the second quarter amid lower borrowing costs, with most growth coming outside the city core. Sales surged 77% to 8,902 units from the same period last year, according to market research firm Urbanation Inc. That’s the second-highest level on record for the quarter, following the market peak of 11,413 pre-sales in the second quarter of 2017. Sales in the suburbs doubled from last year, while dropping 12% in the core, the lowest for that quarter since 2009. That could be due to higher costs and a jump in purpose-built rentals, Urbanation said.
- World Headlines
- European stocks rose, futures on the S&P 500 drifted and most shares retreated in Asia. The Stoxx Europe 600 Index reversed a decline, with banks and financial services shares leading the rebound after upbeat results from the likes of Societe Generale and Barclays.
- U.S. stock futures traded little changed after the S&P 500 slumped on Wednesday when Powell said in a press conference that the Fed’s quarter-point cut amounted to a “mid-term policy adjustment.” The greenback hit an almost eight-month high in the wake of the Fed’s first rate cut in a decade, which was largely priced-in by investors who instead focused on Powell’s hawkish tone. Ten-year Treasuries gave up Wednesday’s gains after the meeting, where policy makers had also brought forward their plan to abandon the run-down in the bond portfolio. Oil prices dropped.
- Japanese stocks rose, rebounding from early losses, helped by strong earnings at the country’s largest financial firms and a weakening in the yen. Banks and brokerages gained after Nomura Holdings Inc. and Mitsubishi UFJ Financial Group Inc. reported large increases in quarterly profit. Auto and electronics makers climbed as the Japanese currency slid against the U.S. dollar. Cosmetics makers declined after Kao Corp. and Kose Corp. reported earnings that fell short of analyst estimates.
- Oil retreated from a two-week high after the Federal Reserve said its interest rate cut was an isolated move, boosting the dollar and dimming demand for commodities priced in the U.S. currency. Futures slumped as much as 2% in New York, snapping five days of gains. The dollar reached an eight-month high against other major currencies after Chairman Jerome Powell said the Fed’s first rate cut in a decade isn’t the start of an extended cycle of monetary-policy easing to protect the economy. That offset any boost from another significant drop in U.S. crude inventories.
- Gold fell for a second day, while sustaining its hold above $1,400 an ounce, after the Federal Reserve signaled it probably won’t embark on a lengthy easing cycle following the first rate cut since the financial crisis. The drop came as investors in Asia reacted to the bank paring the target range for the benchmark rate by a quarter point, a move that was widely expected. Still, markets were whipsawed on remarks from Fed Chairman Jerome Powell, who struggled to define the path ahead. Two Fed rate-setters dissented.
- The Bank of England said it’s less confident than usual about the outlook for the economy because of Brexit and offered little new insight into the impact of no deal. The comments are the first from the bank since Boris Johnson became prime minster on a mission to leave the European Union on Oct. 31 with or without new trading arrangements in place. If there’s no deal, the BOE merely noted again that the pound will fall, inflation will accelerate and growth will slow. In its new forecasts Thursday, it specifically excluded the possibility of no deal. It assumes a smooth Brexit and reiterated that interest rates will need to gradually rise to bring inflation to target. That means Governor Mark Carney, who will hold a press conference at 12:30 p.m. in London, avoids a political headache, but it will disappoint others who are looking for more clues as to how the BOE might respond to no deal.
- Beyond Meat Inc. and its inside shareholders priced a secondary offering at $160 per share Wednesday, handing early investors a slice of profits and adding to company coffers as it looks to fund expanded production in an increasingly crowded vegan marketplace. The offering price represents an 18.58% discount to Wednesday’s close. Shareholders locked in gain after Beyond Meat’s nearly 700% rally in this year’s best-performing IPO, selling 3 million of the 3.25 million shares sold, according to a statement confirming an earlier report by Bloomberg. That amounts to proceeds of $480 million for holders, who sold off small portions of their stakes.
- London Stock Exchange Group Plc agreed to snap up Refinitiv in a $27 billion blockbuster deal, betting on a future dominated by data as the three-century-old exchange seeks to extend its global reach. Shares in LSE rose as much as 8% after the exchange operator unveiled details of the transaction for the data and trading provider, which Chief Executive Officer David Schwimmer said fulfilled his ambitions to expand the group further into analytics and the buy-side industry. The transformational deal promises to create global scale and growth in fast-growing markets such as Asia, Schwimmer said on a media call. It will also make Refinitiv’s owners, including Blackstone Group Inc., some of the biggest LSE shareholders with a combined 37% stake.
- Aviva Plc is considering options for its Asian business including a possible divestment of the unit as its new chief executive officer seeks to overhaul the British insurer, people familiar with the matter said. The Asian assets could be valued at about $3 billion to $4 billion and a formal process could kick off later this year, the people said, asking not to be identified because the deliberations are private. While Aviva is exploring options with potential advisers, the discussions are at an early stage and no final decisions have been made, they said.
- The biggest hedge fund startup so far this year is debuting with $2 billion in investor commitments and former Citadel traders Michael Rockefeller and Karl Kroeker at the helm. Their firm, Woodline Partners, will begin trading Thursday after the duo decided to cap the size of their fund, according to people familiar with the matter. They’ll be among a small group of well-pedigreed managers expected to open with at least $1 billion in 2019. While last year saw the mega-launches of ExodusPoint Capital and D1 Capital Partners, enterprising managers are facing an uphill battle with investors who have grown disillusioned with the $3.25 trillion industry’s lofty fees and mediocre performance. With the fear of missing out fading, the first three months of 2019 were the slowest start to a year for new hedge funds in at least a decade. Just 136 funds launched, according to Hedge Fund Research Inc.
- A multibillion-dollar push by private equity into America’s expanding oil and gas pipeline system has conduit owners rushing to put up for-sale signs on a wide range of assets. The sector’s Alerian Midstream Energy Index is down 10.3% since its January 2018 peak, mirroring a broader energy sellout as the stock market sours on the industry’s returns. Meanwhile, private money keeps gushing in — about $15 billion in the last year — drawn to the midstream sector at a time when a pipeline shortage in the nation’s shale basins is just starting to be addressed.
- Barclays Plc Chief Executive Officer Jes Staley said the bank cut 3,000 jobs in the second quarter as the firm sought to keep a tight grip on expenses and counter criticism over its ability to reach profitability targets. The London-based bank joined other European lenders who have been eliminating roles in recent months, including HSBC Holdings Plc and Societe Generale SA. Barclays Finance Director Tushar Morzaria told journalists on a call Thursday that the cuts were “not concentrated in a particular area, but across the board,” and in divisions that weren’t generating returns.
- U.K. Prime Minister Boris Johnson got another warning of the potentially dire effects of a no-deal Brexit, this time from lawyers who said that crashing out of the European Union would put 10,000 legal jobs at risk and may cost the industry about 3.5 billion pounds ($4.2 billion). In a report on Thursday, the Law Society called on Johnson’s government to reach an agreement with the EU that allows English and Welsh solicitors to maintain their right to practice in the soon-to-be 27 nation bloc. Without any accord preserving lawyers’ rights, U.K. legal services revenue could slump by nearly 10%, the professional body warned.
- Verizon Communications Inc. exceeded Wall Street estimates for profit and subscriber growth in the second quarter, easing investor concerns as the company begins the costly process of launching 5G wireless services. Total wireless subscribers rose by 451,000, which includes 245,000 new phone customers. The remaining additions were hotspots, smartwatches and other connected devices. Earnings, excluding special items, were $1.23 a share. Analysts expected 349,000 new subscribers and earnings of $1.20.
- Occidental Petroleum Corp., the U.S. oil producer that agreed to acquire Anadarko Petroleum Corp. in May, is forming a joint venture to boost activity in the Permian Basin. Colombian oil company Ecopetrol SA will pay $750 million in cash and $750 million of carried capital for a 49% stake in the venture, Occidental said Wednesday in a statement. Occidental will hold the remaining stake and be the operator.
- Cigna Corp. raised its forecast for annual revenue and earnings as the insurer reported quarterly results that beat analysts’ estimates. Earnings per share will be as much as $16.90 for the year, and revenue will reach as much as $137 billion, the U.S. insurer said Thursday in a statement. The company had earlier predicted profit as high as $16.65 and sales of as much $134.5 billion. Cigna last year acquired pharmacy-benefit manager Express Scripts as rising costs for prescription drugs raise expenses for insurers.
*All sources from Bloomberg unless otherwise specified