September 5th, 2019
Daily Market Commentary
- The Bank of Canada’s reluctance to signal a potential interest rate cut created some unease with stock investors Wednesday. The S&P/TSX Composite Index reversed an early morning rally and closed 0.3% higher after the central bank’s decision, which contained few hints on future policy, bucking a global trend toward easing. The probability of a rate cut in October dropped to about 50% compared with about 60% on Tuesday, according to data compiled by Bloomberg. In comparison, the S&P 500 Index soared 1.1%.
- Louis Dreyfus Co. agreed to sell all of its inland grain elevators in Canada as one of the world’s largest traders of agricultural commodities seeks to raise capital and revamp its struggling business. Closely held Canadian trader Parrish & Heimbecker agreed to buy the 10 elevators at an undisclosed price, according to a statement on its website. The deal still has to pass through regulatory approvals in Canada. That will leave the Rotterdam-based firm controlled by billionaire heiress Margarita Louis-Dreyfus with just an oilseed crush plant and a port asset in Canada.
- The Canadian and Australian dollars are both in demand after their nations’ central banks left rates unchanged this week and signaled they weren’t in a hurry to ease. The loonie is the best performer among Group-of-10 currencies this year. Traders expect it may hold steady as the central bank said Wednesday that stronger-than-expected growth and inflation on target mean the current degreeof monetary stimulus is appropriate. The market had been poised for more dovish language amid increasing global trade friction.
- When Sears Canada announced it was closing all of its stores in 2017, Hudson’s Bay Co. saw an opportunity: HBC’s Canadian department store chain would swoop in and snatch Sears’s customers. Managers gradually added mid-price apparel to stores from Nova Scotia to British Columbia and waited for sales to take off. The plan worked at first. But then the Bay—as the Canadian division is popularly known—started losing fashionistas in cities like Montreal and Toronto. The numbers tell the story: Comparable sales—an industry benchmark the retailer recently resumed sharing after five years—fell for the past two quarters.
- European equities rallied on Thursday, as sentiment improved after the U.S. and China agreed to hold trade talks in October, and the risk of the U.K. crashing out of the European Union without a deal receded. The pan-European Stoxx 600 Index was up 0.4% by 8:13 a.m. London time, led by industrials, autos and tech shares. The U.K.’s FTSE 100 Index advanced 0.3% as sterling gave up earlier gains made after members of Parliament backed a draft law blocking a no-deal Brexit. Among notable stock moves, Safran SA’sshares rose 5% after the maker of plane parts raised its outlook for this year’s earnings and revenue thanks to rising demand.
- Hong Kong stocks are still undervalued relative to other markets and their history, even after a rally triggered by Chief Executive Carrie Lam’s peace offering to protesters. The city’s stocks are the developed world’s cheapest on a relative basis and almost one standard deviation undervalued by some measures on a historical basis. The last time they saw such a low broad-market book value in 2011 and 2016, a rebound followed.
- Hong Kong stocks slumped as a technical problem forced the city’s exchange operator to suspend derivatives trading, driving sellers to the cash market. The MSCI Hong Kong Index slid as much as 2.1%. Developers led declines, with Wharf Real Estate Investment Co. tumbling 5%. The equity index rallied 5.4% Wednesday, the most since 2011, amid optimism the formal withdrawal of a controversial bill would help ease tensions in the city.
- Silver climbed to the highest since 2016 and platinum continued its week-long rally as widening demand for haven assets boosts other precious metals following gold’s gains earlier this year. In the spot market, the gold-silver ratio fell to the lowest since August 2018 as silver gained on its costlier cousin amid a weakening dollar. Precious-metals refiner Heraeus said silver could surge to $21 by the end of 2019. The rally may mean that producers are poised for even stronger gains. While the benchmark Solactive Global Silver Miners Index has only recovered to early 2018 levels, it has outperformed the metal at times during past bull markets.
- Oil steadied near $56 a barrel as China said it will resume talks with the U.S. to try and resolve a trade impasse that has weighed on global growth and fuel consumption. Futures in New York were little changed after jumping 4.3% Wednesday in the biggest advance since July 10. Chinese trade negotiators will head to Washington in early October for talks, the nation’s commerce ministry said in a statement on Thursday. Crude surged the previous day as the White House placed new sanctions on Iran, while Russia said it would keep to its OPEC+ output limits this month.
- French insurer AXA SA and Affin Bank Bhd. are exploring options including a potential sale of their life and general insurance business in Malaysia that could fetch about $650 million, according to people with knowledge of the matter. Kuala Lumpur-based Affin Bank and AXA are working with advisers on the potential deal, said the people, who asked not to be identified as the information is private. The financial firms are seeking around $500 million on AXA Affin General Insurance Bhd., while they are looking to raise as much as $150 million from AXA Affin Life Insurance Bhd in a transaction.
- China and the U.S. announced that face-to-face negotiations aimed at ending their tariff war will be held in Washington in the coming weeks, amid skepticism on both sides that any substantive progress can be made. Chinese Vice Premier Liu He agreed to a visit in “early October” during a telephone call on Thursday morning Beijing time with U.S. Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lighthizer, according to a statement from China’s Ministry of Commerce. A cautious statement from the USTR’s office confirmed that ministerial-level discussions will take place in “the coming weeks,” without specifying when.
- The canaries in the U.S. jobs market are showing signs of drooping. Two key indicators — hiring for temporary-help positions and weekly working hours — have declined this year even as unemployment has remained near a half-century low. The softening could be significant because, much like the proverbial canary in the coal mine, it often presages wider weakness in the jobs market. Companies worried about a downdraft in demand reduce hours and temporary staff first before laying off full-time workers. That’s why economists are keeping an eye on these figures in Friday’s employment report even as the main payrolls number is expected to show steady hiring.
- Jo Johnson’s decision to quit his own brother’s Cabinet and not stand as a Conservative member of Parliament is a knife to the heart for the prime minister from his own family. It’s also the most vivid example of how Boris Johnson is splitting his Conservative Party. “In recent weeks I’ve been torn between family loyalty and the national interest,” Jo Johnson said in the tweet announcing his decision. “It’s an unresolvable tension.”
- Hurricane Dorian, working its way up the U.S. East Coast, is nearing Georgia and the Carolinas after sweeping past Florida with nowhere near the force it brought to bear killing at least 20 people in the Bahamas. Dorian brought life-threatening storm surges as it reached about 105 miles (170 kilometers) south-southeast of Charleston, South Carolina, the National Hurricane Center said in an 2 a.m. New York time advisory. The storm’s sustained winds strengthened to 115 miles per hour, regaining Category 3 status.
- Apple Inc. borrowed $7 billion in its first bond sale in nearly two years, as cheap funding costs tempt even companies flush with cash. The tech giant joined a slew of companies that rushed to borrow in investment-grade debt markets after the Labor Day holiday, taking advantage of yields near all-time lows. Tuesday saw a record 21 bond sales totaling almost $27 billion, led by Walt Disney Co. More than a dozen companies priced deals Wednesday. Apple, which has more than $200 billion in cash and securities on its books, sold senior unsecured bonds in five parts. The longest portion of the offering, a $1.5 billion 30-year security, will yield 1.03 percentage points above Treasuries, after an initially discussed spread of about 1.25 percentage points, according to a person with knowledge of the matter.
- Federal Reserve officials are weighing two competing forces in the U.S. economy: the resilience of the consumer versus the fallout from uncertainty around trade disputes and weaker global growth. “The consumer is now carrying all of the weight, or much of the weight, for growth going forward,” Federal Reserve Bank of New York President John Williams told reporters Wednesday after giving a speech in New York. “One thing, though, about consumer spending that you have to be careful about is it’s not really a leading indicator.”
*All sources from Bloomberg unless otherwise specified