December 17th, 2019

Daily Market Commentary

Canadian Headlines

• Canadian stocks rose for a third straight session as Cineplex Inc. surged on a takeover plan and investor optimism about a partial trade deal between America and China boosted global markets. The S&P/TSX Composite Index rose 0.3% to 17,056.36 on Monday. Utilities stocks led the market higher as eight of 11 sectors rose. Shopify contributed the most to the index’s advance, increasing 1.8%. Cineplex had the largest gain, rising more than 41%. Barrick Gold was the biggest drag on the index, declining 1.5%. On the M&A front, Britain’s Cineworld Group Plc is on track to become North America’s biggest operator of movie theaters with its plan to buy Canada’s Cineplex for C$2.15 billion ($1.64 billion). Meanwhile, Hudson’s Bay Co. Chairman Richard Baker may scrap an offer to take the struggling retailer private after regulators delayed a vote on the deal following complaints from a minority shareholder. And the bid by billionaire Jim Pattison to take Canfor Corp. private is facing growing opposition from shareholders, though the investment firm has no plans to sweeten its bid for the Canadian lumber company.
• It was only a year ago that exuberance enveloped the marijuana industry. Legalization was spreading and the growth potential seemed boundless. But that bubble has burst as the reality of a difficult regulatory landscape sunk in. Since March, stocks are down by about two-thirds. Capital markets have largely frozen for all but the strongest companies. And now a cash crunch is leaving some on the verge of going bust. Only, thanks to the illegal status of cannabis under U.S. federal laws, firms there are blocked from seeking protection in bankruptcy court. The industry’s problems have become so dire that one senior executive at a large cannabis company predicts that as many as a dozen smaller companies may fail by the second quarter of 2020. The executive, who asked not to be identified and declined to name specific firms, said that in the past three months companies have been calling more frequently with urgent, last-ditch attempts to be acquired.
• A plan of arrangement will be scrapped as Canfor shareholders do not agree with Great Pacific Capital Corp’s offer to take Canfor private, according to a statement.

World Headlines

• European equities dropped from a record high after four straight days of gains, with Unilever dragging down shares of personal and household goods. The Stoxx Europe 600 Index fell 0.5% as of 8:14 a.m. in London, with almost all industry groups in the red. Unilever slipped the most in more than two years after forecasting 2019 sales growth slightly below guidance.
• U.S. stock futures dropped along with European shares on Tuesday as the global rally in equities eased. With the sugar rush of a partial trade deal between the two largest economies fading, investors pushed up the dollar and Treasuries. Contracts on the S&P 500 index slipped from a record high close fostered by the partial U.S.-China trade agreement. Boeing Co. fell in pre-market trading after it decided to halt production of the grounded 737 Max model in January.
• Japanese stocks gained on Tuesday after U.S. equity benchmarks reached new highs amid continued optimism over a U.S.-China trade deal. Drug makers and telecommunication companies boosted the benchmark Topix the most.
• Oil held near $60 a barrel on optimism the partial U.S.-China trade pact will bolster demand, while analysts estimated a pullback in American crude stockpiles. Futures in New York were steady after rising 2.5% over the previous three sessions. A limited trade agreement, to be signed and released early next month, will see some tariffs reduced and prevent an escalation in the conflict between the world’s two largest economies. U.S. stockpiles are projected to have declined by 1.75 million barrels last week, a Bloomberg survey showed.
• Gold was little changed as investors weighed the implications of the partial U.S.-China trade deal, with the dollar rising slightly from near a five-month low. Palladium headed toward $2,000 an ounce. While global investor sentiment has climbed in the wake of the accord, with the S&P Index posting a fresh record, it remains unclear how China will follow through on pledges to boost American agricultural imports, or how quickly the U.S. promise to roll back half of a September tariff hike will happen. The Federal Reserve Bank of New York’s gauge of general business conditions in the next six months jumped to a five-month high, adding to the positive mood.
• Boris Johnson will change the law to ensure the Brexit transition phase is not extended, setting up a new cliff-edge for a no-deal split with the European Union at the end of next year. The pound erased all its gainsmade since last Thursday’s general election. The U.K. prime minister wants to deliver his election promise to ratify a new free-trade agreement with the bloc before the bridging period maintaining the status quo runs out on Dec. 31, 2020.
• Emerging markets are about to end a turbulent year in which U.S.-China trade tensions dominated headlines and central banks around the world came to rescue the global economy from falling into a recession. Stocks, currencies and local-currency sovereign bonds of developing economies are all eking out gains for 2019 after last year’s biggest annual losses in three years.
• Boeing Co. plans to halt production of its grounded 737 Max in January, a move that will deepen the crisis engulfing the planemaker, complicate its eventual recovery and ripple through the U.S. economy. The indefinite shutdown will help conserve cash but jolt a supplier base that stretches from Seattle to Kansas, adding a headwind for American industry ahead of the 2020 elections. At Boeing itself, employees will continue 737-related work or be temporarily reassigned to other teams, the company said in a statement Monday. No layoffs or furloughs are planned for now.
• Philippine authorities looked to soothe investor fears as uncertainty over the capital’s water service contracts triggered a stock rout of more than $2 billion. The government is “not thinking about” replacing Manila Water Co. and Maynilad Water Services Inc. as water concessionaires even as it seeks to renegotiate terms of their contracts, Justice Secretary Menardo Guevarra told reporters. The government plans to cut guarantees and increase oversight, Metropolitan Waterworks and Sewerage System chief regulator Patrick Ty said in an interview on Monday.
• Unilever slumped after Chief Executive Officer Alan Jopebacked away from his predecessor’s growth targets as consumers around the world jilt mainstream brands. The maker of Ben & Jerry’s ice cream and Dove soap said sales gains will be slightly below guidance for 2019 and in the lower half of its multiyear range of 3% to 5% in 2020. The stock fell as much as 6.6% in Amsterdam on Tuesday, the steepest intraday decline in almost three years. Analysts at RBC Europe said the new outlook implies fourth-quarter growth will be the Anglo-Dutch company’s weakest for more than a decade.
• Southwest Airlines Co. won’t schedule any flights on Boeing Co.’s 737 Max jets until April 13 — more than a month later than previously planned — further clouding the outlook for the best-selling aircraft that’s grounded globally after two fatal crashes. The airline, the biggest operator of the single-aisle jet, is extending the timeline from March 6 because of “continued uncertainty” around the plane’s return, it said in a statement on Tuesday. The announcement comes a day after Boeing said it would temporarily halt production of the 737 Max in January.
• Bankrupt utility giant PG&E Corp. has removed a requirement that California Governor Gavin Newsom sign off on its settlement with wildfire victims, trying to buy more time for its restructuring plan. PG&E reached an agreement Monday with representatives of the victims of fires ignited by its equipment to eliminate the provision after Newsom said Friday that the power company’s proposed reorganization plan doesn’t comply with state law. San Francisco-based PG&E announced the decision one day before it was required by the $13.5 billion fire victims deal to respond to Newsom’s rejection and address his concerns. The governor had described the utility’s restructuring plan as falling “woefully short” and called for an entirely new board and a better financing structure, among other things. Newsom’s office didn’t return a request for comment late Monday.
• Var Energi AS plans to dispose of some of the Norwegian oil and gas assets it acquired in a landmark $4.5 billion deal with Exxon Mobil Corp. The oil company, majority-owned by Eni SpA, is going through the portfolio of partner-operated fields it bought from Exxon and plans to offer some of them for sale during the first half of next year, Chief Executive Officer Kristin Kragseth said in an interview in Oslo on Tuesday.
• Escalating protests against India’s new citizenship law have raised concerns that Prime Minister Narendra Modi has gone too far in appealing to his Hindu nationalist base, increasing the risk of communal bloodshed and threatening to undermine his plans to attract investment. Police stormed university campuses across India to quell week-long protests by students against a law that bars undocumented Muslims from neighbors Pakistan, Bangladesh and Afghanistan from seeking citizenship while allowing migrants from other religions. Modi’s top political opponents organized rallies against the law, with the Congress Party’s Rahul Gandhi calling the legislation “mass weapons of polarization.”
• Malaysia signed a deal with developers to restart the $34 billion Bandar Malaysia project which languished for years after being conceived under the oversight of troubled state fund 1MDB. A consortium comprising Iskandar Waterfront Holdings Sdn. and China Railway Engineering Corp. will acquire 60% stake in the venture for 6.45 billion ringgit ($1.6 billion). That’s based on Bandar Malaysia’s 12.35 billion ringgit land value and accounts for its 1.6 billion ringgit outstanding debt. The joint venture known as IWH-CREC Sdn. will make payments over three years instead of the earlier agreed seven.
• Further details are emerging on how China would increase imports from the U.S. by as much as $200 billion over the next two years in order to meet its commitments under the phase one trade deal signed last week. That accord, yet to be officially signed, includes reaching purchases of $40 billion to $50 billion per year in agricultural commodities, a level some analysts have doubted is feasible. To help attain that figure, Beijing plans to restart purchases of ethanol by lifting or waiving trade war tariffs on the fuel, said people familiar with the matter, who asked not to be identified discussing the plans.
• Fujifilm Holdings Corp. is in talks to acquire Hitachi Ltd.’s diagnostics imaging unit as it pivots away from the dying film photography market toward the more lucrative health care sector. Fujifilm spokeswoman Yukiko Takabayashi said by phone on Tuesday that the two companies were in talks, but a deal had not been decided. She said that the company would announce the results of the discussion as soon as possible. The Nikkei reported Tuesday that the deal could be valued at 170 billion yen ($1.6 billion) without citing how it obtained the information.
• Royal Dutch Shell signed a $10 billion revolving credit facility linked to environmental performance, becoming the first primarily fossil fuel energy company to agree to a sustainability-linked loan. The loan’s interest payments depend on Shell’s progress regarding the carbon footprint of its energy products and the facility will be benchmarked against Shell’s target of reducing its net carbon footprint by 50% by 2050.
• House Democrats are nearing one of the most important decisions in their effort to impeach Donald Trump: Who will bear the historic duty of prosecuting the president in next year’s Senate trial. With the House planning to vote Wednesday on two articles of impeachment against the president, Democratic leaders including Speaker Nancy Pelosi must quickly settle on a team of so-called managers to present the case against Trump. Intelligence Chairman Adam Schiff, who led the House investigation into Trump’s dealing with Ukraine, and Judiciary Chairman Jerrold Nadler, whose committee drew up the articles of impeachment, are expected to be named by Pelosi to the trial managers team, according to people familiar with the deliberations.

*All sources from Bloomberg unless otherwise specified