August 2nd, 2019

Daily Market Commentary

  • Canadian Headlines
    • Canadian stocks erased earlier gains to close lower, along with U.S. markets, after President Donald Trump abruptly escalated his trade war with China, announcing that he would impose a 10% tariff on $300 billion in Chinese imports that aren’t yet subject to U.S. duties. The S&P/TSX Composite Index fell 0.2% to 16,377.04 in Toronto. Technology was the best performing sector, led by Shopify Inc. The e-commerce company shares continued their record-breaking rally after it reported second-quarter sales that beat analysts’ average estimate and gave a more optimistic full-year outlook.
    • Canadian securities regulators and police have opened an investigation into CannTrust Holdings Inc., the company said Thursday. The Ontario Securities Commission has advised the special committee of CannTrust’s board that it’s investigating “matters and parties related to CannTrust.” The investigation has been assigned to the Joint Serious Offences Team, an enforcement partnership between the OSC, the Royal Canadian Mounted Police and the Ontario Provincial Police Anti-Rackets Branch.
    • Canada’s taxpayer-funded health-care system has many benefits, but painfully long wait times to see a doctor isn’t one of them. This is where innovators like Felix Health Inc. see the most potential for disruption. The seven-months old firm offers the first “asynchronous” health-care service in the country, where a patient and a doctor don’t need to meet in person to discuss a diagnosis.
    • Cronos Group Inc., the first marijuana company to list on a U.S. exchange, is nearing a deal to pay about $300 million for the owner of pricey CBD-brand Lord Jones, according to people familiar with the matter. Cronos could announce an acquisition as soon as Friday for Redwood Holding Group LLC, said the people, who asked to not be identified because the matter isn’t public. Cronos intends to retain the Lord Jones management team with an eye toward expanding the brand internationally, regulations permitting, the people said.
    • U.S. refiners want more Canadian oil, and pipeline companies are finding ways to get it to them. Companies are adding space to their congested oil export pipelines from Canada even as plans for bigger expansions and new lines face delays. TC Energy Corp. will offer as much as 50,000 barrels a day of new capacity on its Keystone pipeline as early as next year by using chemicals, called drag resistance agents, to ease flows thorough the system.

     

  • World Headlines
    • The Stoxx Europe 600 index fell the most since December, led by automakers and miners. Stoxx Europe 600 basic resources index (SXPP) falls as much as 4.4%, and is set for the worst week in more than three years, as President Donald Trump unveils new tariffs on Chinese goods, escalating the trade war between the two countries.
    • U.S. equity futures indicated a weak opening on Wall Street, although they came off session lows reached earlier. While China has yet to offer details on what measures it would take, the sudden escalation of the trade war has put markets in a spin in an already action-packed week. The developments come after the Federal Reserve chief cast doubt about a long cycle of interest-rate cuts, provoking the president’s ire and disappointing many investors. The monthly U.S. jobs report will be the next big event later Friday, while corporate earnings continue to roll in.
    • Stocks slumped and bonds and the yen jumped in the wake of President Donald Trump’s move to escalate the trade war, with China pledging “countermeasures” if the U.S. steps up tariffs on its goods. Japanese and Korean benchmarks slumped amid a trade spat between the neighbors, with a yen rally also weighing on the former’s stocks. Ten-year U.S. yields fell further and the dollar was little changed after each saw declines Thursday. China’s onshore yuan hit the weakest point since November.
    • Oil is set for a weekly loss after the steepest one-day drop in more than four years as U.S. President Donald Trump abruptly escalated the trade war with China, deepening concerns over slowing growth. While futures in New York rebounded on Friday, prices are still far from recovering Thursday’s 7.9% slump, the most since February 2015. Trump said 10% levies will be imposed Sept. 1 on $300 billion of Chinese goods after a round of trade talks ended without a breakthrough. The threat compounded fears about declining American manufacturing activity after the Federal Reserve dashed prospects for a series of rate cuts to boost growth.
    • Gold fell from near a six-year high as Beijing pledged to respond if U.S. President Donald Trump adds extra tariffs to Chinese imports. Prices retreated after posting their biggest gain in a month on Thursday as Trump said that he would impose a 10% tariff on a further $300 billion in Chinese imports from Sept. 1. The levies will come on top of the 25% duty already in place on some $250 billion in Chinese goods. China will have to take necessary countermeasures if the U.S. goes ahead with the plan, Foreign Ministry spokeswoman Hua Chunying said in Beijing on Friday.
    • Iron ore is being battered as signals of recovering supply, weakening demand and a darkening economic and trade backdrop prompt investors to drive prices lower, with gathering expectations among banks there’ll be a slump back below $100 a ton. Miners’ shares fell. In China, most-active prices tumbled into a bear market — losing more than 20% from a peak last month — as worsening fundamentals coincided with a recent contract rollover. Futures in Singapore are headed for a third daily decline, and have sunk almost 7% this week, dropping below $110 a ton.
    • The world’s biggest pension fund posted its second straight quarterly gain as overseas stocks and bonds generated returns even as most major currencies depreciated against the yen. Japan’s Government Pension Investment Fund returned 0.2%, or 257 billion yen ($2.4 billion), in the three months ended June 30, with assets totaling 159.2 trillion yen, it said Friday in Tokyo. Overseas stocks were the fund’s best performing investment, returning 1.3%, followed by overseas debt and domestic bonds. Its Japanese stocks lost 2.3%. The allocation to foreign debt and equities reached record highs in percentage terms, according to the GPIF.
    • Beijing pledged to respond if the U.S. insists on adding extra tariffs to the remainder of Chinese imports, as President Donald Trump’s abrupt escalation of the trade war between the world’s two largest economies sent stocks tumbling from Asia to Europe. Trump announced Thursday that he would impose a 10% tariff on a further $300 billion in Chinese imports, a move set to hit American consumers more directly than his other tariffs so far. The new import taxes, which Trump later said could go “well beyond” 25%, will be imposed beginning Sept. 1 on a long list of goods expected to include smart-phones, laptop computers and children’s clothing.
    • Apple Inc. said on Thursday it is suspending its global internal program for “grading” a portion of user Siri commands after some consumers raised concerns about the program. The Cupertino, California-based technology giant employs people that listen to less than 1% of Siri commands in order to improve the voice-based digital assistant. Concerns over technology companies listening to and analyzing what is spoken to voice assistants started to be raised after Bloomberg News first reported that Amazon.com Inc. and Apple had teams analyzing recordings earlier this year. Last week, the Guardian reported that Apple contractors said that they often hear sex, drug deals and confidential medical information.
    • The U.S. is planning to conduct tests soon on new missile technology that would have violated a treaty with Russia that expired Friday, senior administration officials said. President Donald Trump announced he would withdraw the U.S. from the 1987 Intermediate-Range Nuclear Forces Treaty in 2018 after accusing Russia of developing a weapon that violated the pact. The U.S. formally suspended its participation in February, starting a six-month clock to end the pact. The U.S. withdrawal is official as of Friday, Secretary of State Michael Pompeosaid, adding in a statement that Russia had a long history of noncompliance and “is solely responsible for the treaty’s demise.” Russia’s violation of the INF accord poses “significant risks” to the security of states in the North Atlantic Treaty Organization, which “will respond in a measured and responsible way,” according to a NATO statement Friday.
    • Royal Bank of Scotland Group Plc slid as the state-controlled lender indicated it’s unlikely to reach key profitability targets next year given the political and economic tension around Brexit. Outgoing Chief Executive Officer Ross McEwan blamed an “uncertain and competitive environment” as the bank reported second-quarter net interest income that missed analysts’ estimates. The bank said it’s very unlikely to meet some targets, including return on tangible equity of more than 12% and a cost-to-income ratio of less than 50% next year.
    • U.S. President Donald Trump will formally announce a deal to open up the European Union to more beef exports after the bloc carved out quotas from other nations earlier this year, people familiar with the plans said. U.S. Trade Representative Robert Lighthizer and the European ambassador to the United States on Friday will sign an agreement to increase the amount of American beef that can be sold in the EU market, the people said, speaking on condition of anonymity ahead of the announcement Friday.
    • The European Commission said Ryanair marketing agreements to promote Montpellier airport amount to illegal state aid and ordered authorities to claw back 8.5 million euros ($9.4 million) from the carrier.
    • South Korea and Japan stepped up their fight over trade, leaving little room for a quick way out in the dispute that threatens to damage security ties and global supply lines. South Korean President Moon Jae-in called Japan “reckless” in a national address Friday and his country planned to cross its neighbor off a preferred-trade list. The move came hours after Japanese Prime Minister Shinzo Abe’s cabinet removed South Korea from its list of trusted export destinations.
    • Asia is bracing for a deeper economic downturn and financial market turmoil after U.S. President Donald Trump announced a new round of tariffs on China. Japanese Finance Minister Taro Aso said the additional tariffs signal the conflict between the world’s two biggest economies is expanding beyond a trade war. Australia’s Trade Minister Simon Birmingham said the escalation in tension could hurt global growth. Trump’s planned 10% import tax, expected on Chinese goods from smartphones to clothing, marks the end of a truce that has held since he met with President Xi Jinping in late June.
    • Exxon Mobil Corp. beat earnings estimates as refining bounced back from a disastrous first quarter, indicating the division may not weigh on Chief Executive Officer Darren Woods’ turnaround plan as much as some analysts feared. Second-quarter earnings per share came in at 73 cents, exceeding the 66-cent average of 18 estimates in a Bloomberg survey.
    • The anti-Brexit Liberal Democrats won a by-election in Brecon and Radnorshire, reducing Prime Minister Boris Johnson’s House of Commons majority to a single seat and making his balancing act more difficult as he seeks to deliver Brexit by Oct. 31. Jane Dodds of the Liberal Democrats won 13,826 votes, beating Conservative Chris Davies on 12,401. Dodds overturned Davies’s majority of 8,038, as he stood for re-election in the Welsh constituency even after being recalled in a petition prompted by his conviction for faking expenses claims.
    • Campbell Soup Co. inked a deal to sell international operations including Arnott’s Biscuits to KKR & Co. for $2.2 billion, bringing to a close the spate of asset sales the soupmaker announced last August to pare down debt. KKR will acquire a portfolio that includes Arnott’s and Campbell’s simple meals and snacking brands in markets across Asia, according to a statement Friday. KKR will also purchase manufacturing operations in Australia, Indonesia and Malaysia.
    • London Stock Exchange Group Plc plans to sell $10 billion of high-grade bonds for its $27 billion takeover of Refinitiv, in a deal that will lift the data provider out of the depths of the corporate debt market and potentially hand some creditors a juicy payout that few saw coming. The bond sale will help LSE repay $13.5 billion of junk-rated debt that Refinitiv, formerly a unit of Thomson Reuters Corp., issued less than a year ago to finance Blackstone Group Inc.’s acquisition of a majority stake in the business — the largest leveraged buyout since the financial crisis.
    • WeWork Cos. is setting up $6 billion in financing to pursue its global ambitions, but there’s an unusual catch: It must first succeed in its initial public offering next month. The company has been meeting with analysts this week, outlining its business and plans for expansion as it prepares for a stock-market debut. Behind the scenes, the firm is seeking to borrow in two ways: a $2 billion letter-of-credit facility and a $4 billion delayed-draw term loan, people with knowledge of the matter said, asking not to be named because terms are private.
    • 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.
    • Apple Inc. and Barclays Plc have dropped the rewards program from their longtime credit-card partnership in advance of the debut this month of a new Apple Card with Goldman Sachs Group Inc. The Apple-branded Barclays card is no longer offering $50 worth of Apple gift cards to new customers and no longer provides three points per dollar spent on Apple products, according to changes on its website. Card users had been able to convert every 2,500 points into $25 of credit toward Apple merchandise.
    • Alphabet Inc.’s Google will require rivals to bid in order to become listed as alternative search providers on Android smartphones, a move to try to keep additional antitrust scrutiny at bay. Starting next year, Google will prompt users to make a choice between Google and three other rival options as their default search provider. Google invited search providers to bid as part of an auction on the new choice screen, which will appear when a user sets up a new Android smartphone or tablet in Europe for the first time.
    • After President Donald Trump blindsided Xi Jinping by raising tariffs just days after the end of trade talks that China had called “constructive,” the next step lies in Beijing’s hands. Yet there’s one immediate hurdle: many of China’s most senior decision makers may not even be in the nation’s capital. They’re likely on their way to an annual leadership seaside retreat or already there. China’s Foreign Minister Wang Yi made the first official response to Trump’s escalation from Bangkok, where he’s attending an ASEAN meeting.
    • Ferrari NV fell the most in almost ten months after growth in profits and shipments slowed, in a sign elite brands aren’t immune from the deep slump engulfing in the car industry. The shares declined as much as 6.9% after the maker of supercars saidFriday deliveries grew 8% during the second quarter, less than the 23% during the first three months of the year. The result echoed disappointing results at rival Aston Martin Lagonda this week reporting lower vehicle prices, an ominous development for an elite brand.

*All sources from Bloomberg unless otherwise specified