December 20th, 2019

Daily Market Commentary

Canadian Headlines

• Enbridge Inc. submitted to regulators its plan for long-term contracts for its giant Mainline crude pipeline system linking the oil sands to refineries in the U.S. and eastern Canada. The plan was sent to Canadian regulators on Thursday, the company said in a statement. The Mainline is a group of pipelines carrying a collective 2.85 million barrels of oil a day from Alberta to refineries and crude hubs in North America. Enbridge has been seeking to sign customers on the Mainline up for contracts as long as 20 years, a shift from the current system in which space on the system is allocated on a monthly basis. The plan hit a bump in September, when regulators halted the move after an outpouring of opposition from producers who said Enbridge was abusing its market power. The regulators required Enbridge to have the terms and conditions of the new firm-service agreement approved before it could offer contracts to customers, and Thursday’s filing represents the next step forward in that process.

World Headlines

• European equities were little changed on Friday, set for a gain of less than 1% in the last full week of the year, while trading may be volatile due to the quarterly “quadruple witching” expiry. The Europe Stoxx 600 Index was up 0.1% at 8:15 a.m. in London, with financial services and basic resources shares leading the advance, as telecoms fell. On corporate news, Prosus NV and Takeaway.com made their final offers for Just Eat Plc. and Royal Dutch Shell Plc said it sees fourth-quarter impairment charges between $1.7 billion and $2.3 billion.
• U.S. equity futures fluctuated in a tight range while European stocks climbed as investors counted down to the holiday season. The dollar edged higher and Treasuries declined. Contracts on three main American equity indexes all swung between small losses and gains. Both markets are expected to be volatile as major indexes are rebalanced and options and futures on indexes and stocks expire in what’s known as quadruple witching. Nike Inc. retreated from a record in out-of-hours trading after releasing earnings late on Thursday that appeared to disappoint some investors.
• Elsewhere, shares rose in Hong Kong and Seoul but fell in Tokyo, Shanghai and Sydney. Oil dipped and gold was range-bound. With many of the world’s benchmark stock gauges near records, investors have largely been in a holding pattern this week, buffeted by conflicting macro winds. President Donald Trump’s impeachment has morphed into a standoff, yet U.S. lawmakers managed to pass spending bills Thursday to avoid a partial government shutdown. The signing of a first-phase trade deal was set for January, though terms remain unclear.
• Oil is on track for a third weekly advance as the U.S. and China made progress toward a phase-one trade deal, supporting the outlook for fuel demand. Futures in New York steadied near $61 a barrel after settling on Thursday at the highest in more than three months. China said its negotiating team was in close contact with its American counterparts for the signing of an agreement, which is expected in January. U.S. crude inventories fell to the lowest level since the beginning of November, government data showed earlier this week.
• Gold continued to drift in a narrow trading range as investors awaited fresh data from the U.S. for potential drivers. So far this week, bullion has traded in a range of just over $11 an ounce, as investors weigh near-record stock levels and conflicting macro data as the year draws to an end. Gold edged up slightly on Thursday after several U.S. economic indicators trailed estimates. Data due later Friday includes U.S. GDP figures. In other metals, palladium headed for a fifth weekly gain after touching a new record on Tuesday. Platinum is set for a sixth weekly gain, the longest streak of gains in almost two years.
• Copper pared a weekly rise after Chinese President Xi Jinping was reported to be skipping next month’s Davos gathering, puncturing hopes of a face-to-face meeting with U.S. counterpart Donald Trump. The metal, a barometer of the global economy, fell as much as 0.7% to $6,169.50 a ton on the London Metal Exchange, reversing an earlier gain. It closed at $6,215 a ton on Thursday, the highest since May 3. Copper has found a firmer tone in recent weeks as the U.S. and China moved closer to solving their protracted trade confrontation, and stockpiles tracked by leading exchanges fell. Still, that bullish narrative took a knock as Xi isn’t planning to attend January’s World Economic Forum, according to people familiar with the matter. Beijing still plans to send its top negotiator, Vice Premier Liu He, to Washington to sign the phase-one deal in early January, said one official.
• Japan’s cabinet approved a record budget for next fiscal year, with social security costs pushing up the bill for a government already struggling to rein in the developed world’s biggest public debt load. Spending by the Japanese government will increase by about 1.2% to 102.7 trillion yen ($939 billion) in the year starting April, the Finance Ministry confirmed Friday. Outlays on social security will account for about 57% of spending outside of debt servicing and transfers to regional governments. While Prime Minister Shinzo Abe’s administration is emphasizing that another planned reduction in bond issuance shows the government’s commitment to putting Japan’s finances in order, economists don’t see any major change in the status quo.
• Andrew Bailey will be the next head of the Bank of England after the government chose to replace Mark Carney with the U.K.’s top financial regulator, just as Britain faces the next phase of Brexit. He’ll start on March 16, with Carney, who was scheduled to leave at the end of January, extending his term until then to allow for a smoother handover. The U.K. is set to leave the European Union on Jan. 31, a deadline that is virtually guaranteed after Prime Minister Boris Johnson was returned to power this month.
• Boeing Co. launched a crew capsule on its debut test flight to the International Space Station, a milestone for NASA’s private-public efforts to resume U.S. trips to the orbiting laboratory. The CST-100 Starliner capsule took off aboard a United Launch AllianceAtlas V rocket at 6:37 a.m. Friday near Cape Canaveral, Florida. The capsule separated and began flight on its own at 6:52 a.m. Starliner, with no crew on board, was scheduled to rendezvous with the ISS about 25 hours later.
• Google was fined 150 million euros ($167 million) in a French antitrust case involving online advertising as regulators throughout Europe criticize the tech giant’s business practices. The French authority found Google abused its dominant position in search when it set “opaque and difficult to understand operating rules” for its Google Ads advertising platform that it applied unfairly and randomly. It’s the first time France’s Autorite de la concurrence has fined Google, its president Isabelle de Silva told reporters at a Paris press conference Friday. While the fine is a fraction of Google’s revenue, the company has had several run-ins with antitrust watchdogs in Europe. Earlier this week, U.K. officials said splitting Google’s ad-server operations from the rest of its business could be an option to counter its dominance. European Union antitrust chief Margrethe Vestager has fined the U.S. technology giant 8.2 billion euros in three probes over the last two years.
• Banco Bilbao Vizcaya Argentaria SA blamed the fall in U.S. interest rates for a $1.5 billion charge that it expects to take on its business in the country, adding to a string of writedowns at the unit. The impairment will be included in the Spanish lender’s annual statements for 2019, BBVA said in a regulatory filing on Thursday. It won’t affect tangible net equity, capital, liquidity, or ability to distribute dividends. The shares fell as much as 0.9% when trading opened in Madrid on Friday.
• India expects to raise as much as 5.22 trillion rupees ($73.4 billion) from auctioning airwaves next year, even as its wireless carriers struggle under a heavy debt load and see their earnings eroded by years of brutal price war. The government will auction 8,305 megahertz of spectrum, including 6,050 Mhz of 5G airwaves, between March and April next year, India’s Telecom Secretary Anshu Prakash told reporters in New Delhi. The latest round of spectrum auction promises revenues for the government but could deepen the pain for country’s debt laden carriers — Bharti Airtel Ltd.and Vodafone Idea Ltd. Both have reported record losses after being hit by an adverse court ruling asking them to pay $7 billion in past dues to the government. Reliance Jio Infocomm Ltd., the carrier to report a profit, is also looking to pare debt.
• Chinese President Xi Jinping isn’t planning to attend the World Economic Forum in January, according to people familiar with the matter, taking one option for a face-to-face meeting with his U.S. counterpart Donald Trump off the table. Beijing still plans to send its top trade negotiator Vice Premier Liu He to Washington to sign the phase-one deal in early January, an official said separately, asking not to be identified because the discussions were private. U.S. Trade Representative Robert Lighthizer has said he expects the 86-page agreement to be signed by Liu and him around that time.
• The Democratic presidential candidates turned on each other in a feisty and wide-ranging debate that frequently put Pete Buttigieg, who’s been rising in polls, in the middle of attacks from both the party’s moderate and progressive wings. Joe Biden, who has enjoyed front-runner status despite numerous gaffes and at times uninspiring campaign, gave one of the strongest performances of his third presidential run. But Buttigieg drew more attention as the target of Bernie Sanders and Elizabeth Warren from the left and Amy Klobuchar from the right.
• Apple Inc. has a secret team working on satellites and related wireless technology, striving to find new ways to beam data such as internet connectivity directly to its devices, according to people familiar with the work. The Cupertino, California-based iPhone maker has about a dozen engineers from the aerospace, satellite and antenna design industries working on the project with the goal of deploying their results within five years, said the people, who asked not to be identified discussing internal company efforts. Work on the project is still early and could be abandoned, the people said, and a clear direction and use for satellites hasn’t been finalized. Still, Apple Chief Executive Officer Tim Cook has shown interest in the project, indicating it’s a company priority.
• Junk debt investors, cautious for most of this year, are starting to get exuberant again. The riskiest high-yield bonds have been on a tear this month, gaining 4.4% through Thursday, or more than double the returns for the broader speculative-grade market. In the credit derivatives market, insuring junk bonds against default hasn’t been this cheap since before the financial crisis. Amid the strong demand, banks have been able to offload some of the loans they struggled to sell earlier this year.
• Boris Johnson’s Brexit deal is set to speed past its first hurdle in Parliament on Friday, putting the U.K. on course to leave the European Union next month. Opening the Commons debate on his deal, the prime minister declared his legislation offers “no possibility” of any further delay, with the transition period due to end on Dec. 31, 2020. That sets the clock ticking on U.K.-EU trade talks, which are likely to dominate British politics next year.
• China’s top legislative body has been advised to legalize same-sex marriage in the updated civil code, Global Times reported on Friday. The Commission for Legislative Affairs of the National People’s Congress Standing Committee has received more than 237,000 online suggestions and 5,600 letters requesting to clarify the “scope of close relatives, improving the common debt of spouses and legalizing same-sex marriage,” according to the report, which cited Yue Zhongming, spokesman of the commission.
• Just Eat Plc chose a revised offer by Takeaway.com NV to merge and spurned a final all-cash bid by Prosus NV, which appears all but set to lose the drawn-out fight to claim ownership of the British food-delivery firm. The U.K. company on Friday said its board recommended Takeaway’s final offer because it would deliver greater value to Just Eat shareholders than Prosus’s final revised bid. Just Eat has also rejected Prosus’s previous bids. Takeaway said Thursday it increased its offer to 916 pence per share, with Just Eat holders to own 57.5% of the combined group. Just moments before, Amsterdam-listed Prosus increased its cash offer to 800 pence per share, valuing the company at about 5.5 billion pounds ($7.2 billion). Both companies said these were their final offers and they would not be increased.

*All sources from Bloomberg unless otherwise specified