August 9th, 2019

Daily Market Commentary

  • Canadian Headlines
    • Sun Life Financial Inc. reached its lowest ever coupon for any of its bonds with the issuance of its first sustainable notes in a fresh sign that demand for such debt is increasingly driven by general investors scratching for some yield above inflation. The Toronto-based insurer priced C$750 million ($567 million) of sustainable subordinated debt due 2029 on Wednesday after garnering demand of close to two times the deal’s size, said David Mathews, Sun Life Financial’s assistant vice president of capital markets & rating agencies. Over one-third of the 2.38% coupon bonds, which aren’t callable for five years, went to investors without specific environmental, social and governance (ESG) mandates.
    • Prime Minister Justin Trudeau has ramped up loans to boost rental housing in Canada and developers are snapping them up. Demand has been so hot for the low-cost loans from Canada Mortgage & Housing Corp. that the government plans to increase the program to almost C$14 billion ($11 billion) over the next nine years. That’s up from C$2.5 billion when it was launched in 2017.

     

  • World Headlines
    • U.S. equity futures fell with European shares while Asian stocks were mixed as positive sentiment from a strong day on Wall Street was offset by resurfacing trade tensions. Italy’s sovereign bonds tumbled as the government coalition teetered. The Stoxx Europe 600 index’s decline was led by automaker shares and a more than 2% drop in Italian stocks, with the nation’s debt also slumping on the prospect of snap elections.
    • Global equities are ending the week still struggling to recoup Monday’s plunge amid ongoing concern over trade, the weakening yuan and more violent protests in Hong Kong. As the protectionist showdown with the U.S. drags on, China’s producer-price index contracted for the first time in nearly three years, complicating efforts by its central bank to support the second-biggest economy. Investor focus will now turn to the release on Friday of American producer prices for July.
    • Asia stocks were up overall, though Shanghai equities finished lower for the seventh time in eight sessions, and Hong Kong shares fell. Bloomberg reported the White House is holding off on licensing decisions for American companies to restart business with Huawei Technologies after Beijing said it was halting purchases of U.S. farming goods. China’s yuan weakened.
    • Oil is poised for a second weekly loss as investors weigh the deteriorating U.S.-China trade dispute against the latest steps from Saudi Arabia to stabilize the market. Brent crude rose 1.4% in London, but is down 6% for the week. The deepening spat between Beijing and Washington and a surprise gain in U.S. stockpiles helped drive prices to a seven-month low on Wednesday. The International Energy Agency on Friday called the demand outlook “fragile.” Saudi Arabia has responded to the rout with a plan to limit output and exports in September.
    • Gold headed for a second weekly advance as spot prices trade near six-year highs, fueled by uncertainty around trade tensions and monetary policy. The White House is holding off from allowing some U.S. companies to restart business with China’s Huawei Technologies Co. after Beijing said it was halting purchases of U.S. farming goods, according to people familiar with the matter.
    • Italian bonds and stocks plunged after one of the coalition partners withdrew support to a government that has been in power for a little more than a year. Benchmark 10-year yields were headed for the biggest increase since 2018 after Deputy Prime Minister and League leader Matteo Salvini said late Thursday that the administration no longer held a majority in parliament and called for “swift” elections. Italy’s banking stock index hit the lowest level in three years.
    • Foxconn Technology Group fired two executives at a Chinese plant that assembles devices for Amazon.com Inc., responding to a labor group’s allegations it slashed wages and flouted laws to help deal with rising U.S. tariffs. It’s the second time Amazon and the Taiwanese company, which makes many of the world’s most popular gadgets, have come under scrutiny for the treatment of workers at the plant in the central city of Hengyang. China Labor Watch last year criticized the facility, which produces Echo speakers and Kindle e-readers for Amazon, for relying on temporary workers — including high school interns — and overtime beyond limits set by law. Foxconn said in a statement on Friday it had dismissed the plant’s chief and head of human resources, and punished managers responsible for overseeing use of interns.
    • The trade war’s August escalation has spooked markets — and central banks — around the world. The bad news, though, is that while President Donald Trump has fired two large weapons in the past week by green-lighting his biggest swathe of tariffs yet and formally branding China a currency manipulator, his arsenal is far from exhausted. The loudest shot Trump could take may be the one that he increasingly appears focused on: weaponizing the dollar, the world’s reserve currency. In a series of tweets on Thursday he called for the Federal Reserve to cut rates and weaken the dollar to benefit American exporters, effectively shrugging off a long-standing G-20 compact the U.S. signed again just weeks ago for the world’s major economies not to engage in competitive currency devaluations.
    • ING Groep NV-backed TMB Bank Pcl and Thanachart Bank Pcl approved their planned merger to forge Thailand’s sixth-largest lender with about 1.9 trillion baht ($62 billion) of assets. The combined entity will have roughly 10 million customers, according to filings late Thursday and early Friday. The transaction value has yet to be finalized but was estimated at 156 billion baht as of December, with TMB planning to raise 130 billion baht via debt and equity as part of the deal, a presentation shows.
    • Uber Technologies results disappointed analysts after the ride-hailing company failed to beat sales estimates even as competitor Lyft recently posted expectation-busting earnings. Analysts called the quarter “messy” and offering “more bad news than good.” With a loss of $5.2 billion for the second-quarter, the business update also reignited debate about when the company might turn a profit. Uber shares dropped 7.5% in pre-market trading on Friday, following results on Thursday after market close. The company’s shares are 4.5% below their May 9 IPO price of $45. Lyft shares also slid 1.8% pre-market, giving back some of Thursday’s gains after its beat-and-raise report.
    • The White House is holding off on a decision about licenses for U.S. companies to restart business with Huawei Technologies Co. after Beijing said it was halting purchases of U.S. farming goods, according to people familiar with the matter. Commerce Secretary Wilbur Ross, whose department has vetted the applications to resume sales, said last week he’s received 50 requests and that a decision on them was pending. American businesses require a special license to supply goods to Huawei after the U.S. added the Chinese telecommunications giant to a trade blacklist in May over national-security concerns.
    • Britain succumbed to its first economic contraction since the aftermath of the financial crisis, raising the stakes for Boris Johnson’s government as it seeks an imminent exit from the European Union. The unexpected 0.2% decline in gross domestic product during the second quarter — the worst performance since 2012 — provides a foretaste of the potential damage to growth that most economists are warning of if Brexit happens without any transition. The pound fell after the report, sliding to $1.2117 as of 10:17 a.m. in London.
    • WPP Plc shares rose the most in over a decade after the advertising giant reported better-than-expected sales in the first half, an indication that Chief Executive Officer Mark Read’s restructuring effort is starting to have an impact. Like-for-like revenue less pass-through costs, WPP’s measure of organic sales growth, fell 2%, the London-based company said in a statement Friday, beating the average estimate for a 2.9% decline in a company-compiled survey of 11 analysts.
    • The Treasury curve steepener was shaping up to be the bond market’s trade of the year. Without the Federal Reserve’s help, it will struggle to survive the month. Just weeks ago, the likes of Pacific Investment Management Co. and Vanguard Group Inc. were predicting the death of the multiyear trend of curve flattening. But the near-consensus call for a steeper curve is unraveling. The spread between two- and 10-year yields touched 7 basis points this week, the slimmest since the eve of the financial crisis. And the widely watched three-month to 10-year gap plumbed its deepest inversion — a reliable precursor to recession — since the same period.
    • Broadcom Inc. said it agreed to buy Symantec Corp.’s division that serves business customers for $10.7 billion in cash, adding software designed to keep hackers out of corporate systems. The deal, which is expected to close in Broadcom’s fiscal first quarter ending in January, comes less than a month after the two companies’ discussions for a full merger fell apart over disagreements about the price. The transaction announced Thursday will refocus Symantec on its consumer-facing products, such as the LifeLock identity-protection brand and Norton antivirus software.
    • President Donald Trump said Joseph Maguire, head of the National Counterterrorism Center, will take over as Acting Director of National Intelligence when Dan Coats leaves the post next week. Maguire has had a “long and distinguished” career in the military, Trump said in a pair of tweets late Thursday. “He commanded at every level, including the Naval Special Warfare Command. He has also served as a National Security Fellow at Harvard University. I have no doubt he will do a great job!”
    • Declining costs of materials used by America’s manufacturers may be starting to help diminish the impact of tariffs for some as the U.S.-China trade war rages on. An examination of select transcripts from U.S. earnings calls in the most recent quarter reveals that cheaper materials are emerging as a silver lining for margins and operating costs as end-use product makers remain under a dark cloud of sluggish global growth and turbulent trade policy. As worldwide demand began to stumble over the last 12 months, the price of steel plunged 34%, oil slumped 21%, aluminum dropped 15% and copper dove to a two-year low. While slowing export markets that threaten to cascade into the domestic economy remain the primary concern for manufacturers such as General Motors Co. and Caterpillar Inc., retreating input prices represent a potential, albeit modest, tailwind for margins and operating costs.
  • *All sources from Bloomberg unless otherwise specified