December 19th, 2019
Daily Market Commentary
- President Donald Trump’s demands for the Federal Reserve to loosen monetary policy do impact financial markets, according to new research published by the Bank of Canada. In the study released this month, Antoine Camous of the University of Mannheim and Dmitry Matveev of Canada’s central bank looked at Fed funds futures, a guide to where investors are betting monetary policy is headed, on the days that Trump tweeted about Chairman Jerome Powell and the Fed’s decisions. The study found expectations were revised between 0.3 and 2.3 basis points on the days with relevant tweets. The Bank of Canada says research reports it publishes may differ from its official view and that it’s not responsible for the findings of such studies.
- European stocks inched higher, following two days of losses, amid merger-and-acquisition activity and as oil shares advanced. The Stoxx Europe 600 Index added 0.2% as of 8:12 a.m. in London. Most industry groups were in the green, with energy and chemical shares leading gains, as investors largely shrugged off news that the U.S. House voted to impeach President Donald Trump.
- Government bonds fell around the world as a string of central banks either kept their benchmark interest rates steady or raised them. U.S. equity-index futures drifted while stocks fluctuated in Europe, leaving shares in major markets lingering close to record highs. Contracts on the S&P 500 index were steady, seeming to shrug off the impeachment of President Donald Trump Wednesday in the House of Representatives, which also passed two spending bills to avert a partial government shutdown. China said it was in close contact with the U.S. to sign an initial trade deal, and the dollar dipped against its major peers.
- Earlier in Asia, equities dipped in Tokyo, Sydney and Hong Kong while they edged higher in Seoul. Stocks in China were unchanged after erasing the day’s losses as its central bank mounted another liquidity injection before a year-end cash squeeze. With few new catalysts on the horizon to revive the equity rally and details of the trade deal remaining vague, equity traders appear to be in a holding pattern. Central banks are likewise on hold, with policy makers in Japan, Taiwan, Norway and the U.K. leaving interest rates unchanged on Thursday.
- Oil hovered near $61 a barrel for a second day after capping its longest streak of gains in almost two months as traders weighed bearish signs of swelling U.S. fuel inventories against a decline in domestic crude stockpiles. Futures in New York were little changed. Official U.S. data showed gasoline, diesel and heating oil stockpiles swelled last week, reigniting demand concerns. Nationwide crude inventories fell to levels not seen since early November, contradicting industry figures that pointed to a build.
- Gold trod water for a fourth day, kept in a narrow range by conflicting geopolitical risks. Futures trading meanwhile suggests investors are betting on further gains. Global stocks are close to all-time highs on trade optimism. At the same time, the U.S.-China trade accord has yet to be signed, while the U.S. House impeached President Donald Trump and concerns about a no-deal Brexit resurfaced, limiting declines in havens like gold.
- Iron ore will sink back to the $60s a ton in 2020 as a pick-up in supply eases a global crunch, the world’s biggest shipper warned, while cautioning investors that the expected slump won’t be immediate. Prices will average $63 next year as global mine output rebounds following disruptions in Brazil and Chinese steel production contracts, the Australian government said in a quarterly report. While that’s up slightly on a September forecast, it represents a 21% slump from this year’s average, it said.
- The U.S. House of Representatives impeached President Donald Trump on charges of abuse of power and obstructing Congress, the culmination of an effort by Democrats that further inflamed partisan tensions in Washington and deepened the nation’s ideological divide. The historic votes on Wednesday evening, which won the support of almost all Democrats in the House but not a single Republican, make Trump only the third president in U.S. history to be impeached — and likely the only impeached president to win his party’s nomination for re-election. The Senate will hold a trial early next year to decide whether the president should be convicted on the charges and removed from office, though the Republicans who have the majority in that chamber will almost certainly acquit him.
- Intesa Sanpaolo SpA agreed to sell its payment systems unit to Nexi SpA in a 1 billion-euro ($1.1 billion) deal that will also give the lender a stake in the Italian company as part of the transaction. Intesa will transfer to a Nexi subsidiary its acquiring business and get 9.9% of Nexi from its controlling shareholder Mercury UK HoldCo Limited, the Milan-based bank said in a statement. Intesa will post a 900 million-euro capital gain which might not be reflected entirely in the bank’s bottom line over the course of next year “if allocations are identified to sustain profitability,” it said.
- NASA’s effort to resume flying American astronauts on American spacecraft—something that hasn’t happened since the Space Shuttle program ended in 2011—faces a major test this weekend. Over the past decade, a lot of attention has been paid to billionaire space entrepreneurs like Elon Musk. His company, SpaceX, has been launching payloads into low Earth orbit for years, replete with balletic booster landings and even a space going Tesla Roadster. But as far as humans are concerned, the U.S. has been dependent on its chief geopolitical rival—Russia—to provide billions of dollars worth of taxi rides to the International Space Station.
- The Bank of England signaled it will focus on the next phase of Brexit negotiations as two policy makers continued to push for an immediate interest-rate cut. Officials said it was too early to tell whether the clearer path for the U.K.’s departure from European Union on the back of Boris Johnson’s election win will improve sentiment. They repeated that monetary policy may need to add stimulus if Brexit uncertainty remains entrenched or global growth failed to stabilize.
- Amazon.com Inc. published sales and taxes for its French business weeks before the company will have to start paying the new local levy on digital giants such as Facebook Inc. and Apple Inc. The Seattle-based company had sales of about 4.5 billion euros ($5 billion) last year and paid a total of 250 million euros in taxes for that period. The cloud service and market place company sought to underline in a statement published on its website late Wednesday that it is contributing to the “funding of public services and to the French social model.” The company said it employed 9,300 people at the end of 2019.
- China’s central bank injected the most liquidity via open-market operations since January, in a push to ensure ample cash supply ahead of seasonal tightness at year-end. The People’s Bank of China added 280 billion yuan ($40 billion) into the financial system with 7 and 14-day reverse repurchase agreements Thursday, while keeping the interest rates unchanged. That came after the authorities restarted such operations after a 20-day hiatus on Wednesday. The overnight repo rate — an indicator of interbank liquidity — plunged the most in a month, while the benchmark seven-day tenor saw its biggest decline since July.
- The world’s sovereign debt markets just got a little bit riskier as speculation grows that central banks will follow Sweden and edge away from uber-low rate policy. The Riksbank ended half a decade of subzero easing on Thursday in a test case for counterparts experimenting with negative borrowing costs, including the European Central Bank, Swiss National Bank and the Bank of Japan. Any signs of even a lurch by other central banks toward positive rates could drive down prices of longer-term bonds, which were already falling on Thursday.
- TiVo Corp., the inventor of the digital video recorder, and technology licensor Xperi Corp. have agreed to merge in an all-stock transaction valued at $1.21 billion. The deal values TiVo at a 21% premium to Wednesday’s closing price. TiVo shareholders would own 54% of the combined company, which would be run by Xperi Chief Executive Officer Jon Kirchner, according to a statement on Thursday, confirming an earlier Bloomberg News report. Combining the companies could create at least $50 million in savings, according to the statement. The transaction would also put on hold TiVo’s announced plan to spin off its intellectual property unit early next year, one of the people familiar with the matter has said.
- U.K. Prime Minister Boris Johnson set out his agenda for government in what he described as the “most radical” program of law-making in a generation after last week’s “seismic” election victory. Leading on his commitment to leave the European Union on Jan. 31, the legislative program, delivered by tradition in a speech to Parliament by Queen Elizabeth II, also includes campaign promises on spending on the National Health Service, infrastructure development and a review of the relationship between government and the courts.
- U.S. coal companies have been paying outsized returns to investors for the past two years, offering near-term compensation even as share values sank. That won’t last. Peabody Energy Corp. and Warrior Met Coal Inc. are among the miners that have paid out more than $1.25 billion to shareholders in dividends and share buybacks through the first three quarters of this year. That’s down from more than $1.5 billion for the same period last year. And as cash flow dries up, 2020 may be worse. Prices for the coal used to make steel are down about 30% since May, hurt by a slowing global economy. There’s been a similar decline in the thermal variety, used by utilities to generate power: prices for Central Appalachian fuel have slumped 24% this year and are down 1.7% for Powder River Basin supply. That’s shrinking the pool of money that miners can give back to shareholders who have seen the value of the stocks plunge.
- PolyOne Corp. agreed to buy an additives unit from Switzerland’s Clariant AG for about $1.5 billion to expand in the market for plastic pigments needed to color car parts and packaging. The U.S. company expects to generate $60 million in cost savings as it absorbs Clariant’s business, the Cleveland-based company said in a statement on Thursday. That should add $0.85 to adjusted earnings per share, it said.
- Nordea Bank Abp has agreed to buy Nordic assets from Société Générale SA in a deal valued at about $640 million. The biggest bank in Scandinavia is purchasing all the shares in SG Finans AS, which it plans to combine with its own pan-Nordic finance company, Nordea Finance, it said on Thursday. SG Finans is based in Norway and its roughly 360 employees handle equipment finance and factoring solutions.
- Normally, trillion-dollar deficits might be considered bad news for Uncle Sam. But these days, it seems there are fewer reasons to worry. With the Federal Reserve getting back into the business of buying Treasuries, the supply-demand picture for U.S. government debt is set to get a lot better in 2020. Not only will the central bank’s purchases reduce the amount the U.S. will need to borrow at auctions by almost a half-trillion dollars, but the Fed will also soak up nearly 60% of the Treasury’s net issuance to the public, according to JPMorgan Chase & Co. That, coupled with record homegrown buying this year, suggests America’s funding costs will likely remain in check — despite the fact the government is projected to sink deeper into the red. Yields on the benchmark 10-year note currently stand at about 1.9%, down from 2.68% at the end of 2018 and almost half the average in the past two decades.
*All sources from Bloomberg unless otherwise specified