December 13th, 2019
Daily Market Commentary
- Canadian stocks rose Thursday for the first time this week as Bloomberg reported that U.S. negotiators reached terms for a phase-one trade deal with China that awaits President Trump’s approval. The S&P/TSX Composite advanced slightly to 16,946.90 in Toronto. Health care stocks led six of 11 sectors higher. Barrick Gold Corp.’s chief said the gold miner has the financial heft it needs to support its loftiest ambitions — and some day those might include a merger with Freeport-McMoRan Inc. Meanwhile, Bank of Canada Governor Stephen Poloz said he expects global interest rates to remain low for years, due to the effects of structural forces such as sluggish productivity and population growth.
- Andre Desmarais and Paul Desmarais Jr. are stepping down as co-chief executive officers of Power Corp. of Canada as part of a massive reorganization at one of the country’s largest financial services firms. The Desmarais brothers, sons of the founding family that runs the Montreal-based firm, will stay on as chairman and deputy chairman. Jeffrey Orr, current CEO of the Power Financial business, takes the top job at a new entity combining the two main units of the insurance and asset management company, according to a statement Friday.
- In Europe, the benchmark Stoxx 600 Index soared as much as 1.8%, vaulting above its record closing level, after pro-Brexit Prime Minister Boris Johnson’s Conservative party won a large majority in the U.K. general election. The victory gives Johnson the mandate he needs to pull the U.K. out of the European Union next month. The pound surged against the dollar, while the U.K.’s blue-chip FTSE 100 Index jumped as much as 1.9%, led by stocks exposed to the domestic economy such as housebuilders and banks.
- Stocks climbed around the world and bonds fluctuated before the expected unveiling of a partial trade deal between the U.S. and China to avert more tariffs. The pound leaped as pro-Brexit Prime Minister Boris Johnson’s party won a resounding election victory in Britain. Futures on the three main U.S. equity gauges all pointed to a firm open on Wall Street, while stocks marched upward from Beijing to Paris as two key risks for investors — more punitive duties and political deadlock in the U.K. — appeared to recede.
- China’s yuan eased in offshore trading, after punching through 7 per dollar with the biggest advance in a year on Thursday, when Bloomberg first reported that a trade deal had been agreed in principle. Treasury 10-year notes, the global benchmark, fluctuated after yesterday’s tumble. The yen retreated. The phase-one U.S.-China trade agreement is expected to be announced as soon as Friday Washington time, people familiar with the plans said. The clock had been ticking on a tariff hike scheduled for Sunday on a $160 billion swathe of Chinese imports to America, a key risk for financial markets that were anticipating a deal. Thursday’s gains on Wall Street pushed the MSCI All-Country global stock benchmark to a record.
- Oil rose to $60 a barrel for the first time in almost three months after U.S. President Donald Trump signed off on a partial trade deal with China, giving a boost to the fragile outlook for global oil demand. Futures climbed 1.4% in New York, reaching $60 for the first time since Sept. 17, and are on track for a slight weekly increase. The phase-one agreement averts new U.S. tariffs that were set to be introduced Dec. 15, although the legal text hasn’t been finalized, according to people familiar with the matter.
- Gold held its own on Friday as investors weighed bullion’s merits heading into 2020 after the U.S. and China managed a breakthrough in their bitter and drawn out trade dispute, with the commodity’s initial losses driven by weaker haven demand offset by a slump in the dollar. Bullion fluctuated after President Donald Trump signed off on a phase-one deal with China, averting the introduction of more U.S. tariffs, according to people familiar with the matter. Traders were also watching the U.K. general election, the governing Conservative Party was on course for a big majority. Sterling rose.
- Boris Johnson won an emphatic election victory that redraws the political map of Britain and gives the prime minister the mandate he needs to pull the U.K. out of the European Union next month. The result spectacularly vindicated Johnson’s gamble on a snap election to break the deadlock in Parliament over Brexit, as his Conservatives won their biggest majority since 1987 under Margaret Thatcher. The pound rose by the most in almost three years as the scale of the Tory victory became clear.
- President Donald Trump is expected to formally present an interim deal with China as soon as Friday that will avoid further escalation of a trade war that for almost two years has hung over the world’s largest economies and thus almost any country or company doing business with them. But that agreement is already facing a question from political allies, foes, analysts and business groups alike that is likely to define the deal’s place in economic history: What if, after all those tariffs and all that drama, that’s it? What if it’s cursed to be Phase One and Done? Trump and his aides have promised that the partial deal the president first announced on Oct. 11 will be followed by others. That’s because while the initial accord may see China increase its agricultural purchases to as much as $50 billion annually and make commitments on currency and intellectual property enforcement, it includes nothing on more potent structural issues such as the vast web of subsidies that has fueled the global rise of many Chinese companies.
- An initial U.S.-China trade accord includes a promise by Beijing to buy more American agricultural goods. That’s likely to spark relief and questions for farmers and crop traders. President Donald Trump signed off on a so-called phase-one trade deal, for which terms have been agreed but the legal text has not yet been finalized, according to people familiar with the matter. An announcement is expected on Friday Washington time. Farmers and agriculture traders are hungry for more details. The more than yearlong tariff spat between the two nations weighed on commodity prices and upended global crop shipments, benefiting Brazil as an alternative supplier. While grower incomes have been insulated by U.S. government aid, many in the agriculture community have said they’d rather see the return of trade flows into China than continue to be supported by federal payments.
- It started last Friday, with a blowout U.S. jobs report that beat all expectations. Then in quick succession late Thursday investors got news that the guns will be holstered in the U.S.-China trade war, and that Britain is lifting itself out of the quagmire of a hung parliament. Suddenly, all the worries about a global recession, yet another wave of tariff hikes between the world’s two largest economies and a messy U.K. breakup with the European Union are fading from view. It may be Friday the 13th, but those who made an early start on JPMorgan Chase & Co.’s call for risk-on trades in 2020 can count themselves lucky.
- Bangkok Bank Pcl’s $2.7 billion takeover of a mid-sized Indonesian lender is giving investors the jitters. The Thai firm’s shares tumbled 6.2% Friday to the lowest level since 2016, extending a drop that began the previous day after Bloomberg reported a deal for PT Bank Permata was brewing. The decline over the week is the worst in more than a decade.
- Altice Europe NV sold a stake in its Portuguese fiber assets to Morgan Stanley Infrastructure Partners for about 2.3 billion euros ($2.6 billion), advancing its push to cut debt. The fund will buy a 49.99% holding in the fiber-to-the-home venture, partnering with Altice Europe’s subsidiary MEO to create a national wholesale business. The deal gives the venture an enterprise value of 4.63 billion euros, Altice Europe said in a statement on Friday. The company’s shares and bonds rose.
- Delivery Hero SE will take control of South Korea’s biggest food delivery app, Woowa Brothers Corp., at a $4 billion valuation in a major push into Asia. The German company’s shares jumped the most in almost five months. Delivery Hero will buy an 87% stake in Woowa from the existing investors and the remaining 13% held by Woowa’s senior management, including its founder Kim Bong-jin, will be converted into Delivery Hero shares, it said in a statement on Friday, confirming an earlier Bloomberg News report. Delivery Hero will pay as much as 1.7 billion euros ($1.9 billion) in cash and up to 1.9 billion euros in shares.
- AT&T Inc. has switched on its 5G service in 10 markets, including the biggest cities in California, as it jockeys with Verizon Communications Inc. and T-Mobile US Inc. to build a next-generation network. Millions of customers in places such as Los Angeles, San Diego and Pittsburgh can now access the service, AT&T said in a statement Friday. But users will have to upgrade to the Samsung Galaxy Note10+ to take advantage of the new network. AT&T is selling the phone for as little as $350 to consumers who meet certain qualifications and trade in an old device. It will take time before 5G is a must-have for most consumers. It’s still unavailable in most of the country, and the current version of 5G doesn’t offer the kinds of speeds that carriers hope to eventually achieve. The initial 5G rollout uses so-called low-band spectrum, delivering performance that’s comparable to the current AT&T network.
- European Union leaders pledged to eliminate net carbon emissions by the middle of this century in a historic move that sets in motion a radical overhaul of the continent’s economy, while also laying bare divisions over the costs of the transition. Twenty-six nations gave an unqualified endorsement to the goal of achieving zero net emissions by 2050. Poland, in an unusual fudge, endorsed the objective without committing to meeting it. The statement at a summit in Brussels seeks to add political momentum to the Green Deal announced by the European Commission this week, albeit with one reservation.
- Royal Dutch Shell Plc signed a $10 billion revolving credit facility tied to the Secured Overnight Financing Rate, the first syndicated loan to use the Federal Reserve’s replacement for Libor. The facility will initially track Libor before switching to SOFR as early as one year after the signing date, according to a statement. The deal, which also has sustainability-linked pricing, comprises an $8 billion five-year tranche and a $2 billion one-year tranche, both with two one-year extension options.
- Japan will spend an extra 4.5 trillion yen ($41 billion) this fiscal year to boost an economy that’s facing sputtering growth and a difficult recovery from recent natural disasters, according to documents released by the Finance Ministry Friday. The extra spending comes amid a rising awareness around the world that more government help is needed to keep economies growing in the face of a global slowdown that is exposing the limits of relying on central banks to do the heavy lifting of economic management. Japan’s economy has slowed all year and is forecast to shrink 2.6% this quarter as a sales tax hike weighs on consumer spending, which has been a key prop to growth amid slumping exports.
- Telefonica SA is considering seeking a strategic partner for its new Latin American unit or listing the business as it looks to monetize its position in the region outside of Brazil, according to people familiar with the matter. The phone carrier is holding early talks with potential advisers about the options and is working on two different paths: seeking an industrial investor or selling down its holding through an initial public offering or distribution of shares to existing investors, according to the people, who asked not to be identified because the matter isn’t public.
*All sources from Bloomberg unless otherwise specified