December 4th, 2019

Daily Market Commentary

Canadian Headlines

• Canadian stocks fell the most in eight weeks but outperformed their U.S. counterparts as gains in gold miners and pot stocks were offset by declines in most other sectors. The S&P/TSX Composite Index lost 0.5% to 16,892.18, the lowest since Nov. 11. Industrials and financials led the drop, with Bank of Montreal falling 2.1%, the most since August. BMO is cutting about 2,300 positions, the most dramatic job cuts by a Canadian bank in more than 15 years. The sell-off was part of a broader global decline after U.S. President Donald Trump said he doesn’t have a deadline to reach a trade deal with China.
• Bank of Canada Governor Stephen Poloz, one of the few central bankers to resist the global push toward easier monetary policy, will probably maintain his wait-and-see approach this week. The central bank is widely expected to hold its benchmark overnight rate at 1.75% in a decision at 10 a.m. in Ottawa, keeping it unchanged for a ninth-straight meeting and leaving Canada with the highest policy interest rateamong advanced economies.
• Royal Bank of Canada’s record-breaking profit engine may be running out of steam. The lender has raised the bar each year since 2011 in terms of annual earnings, and fourth-quarter net income helped make fiscal 2019 no exception. Yet the pace is cooling, with the year’s 3.5% earnings increase to C$12.9 billion ($9.7 billion) making for the slowest annual growth in a decade. Fiscal fourth-quarter earnings missed analysts’ estimates.
• National Bank of Canada (NA.T) said its profit rose for its fourth quarter, beating Wall Street estimates as revenue grew 6%. The Montreal banking and financial-services company reported a profit of 590 million Canadian Dollars ($443 million), or C$1.67 a share, compared with C$550 million, or C$1.52 a share, a year ago. The company reported adjusted earnings of C$1.69 a share. Analysts polled by FactSet were expecting earnings of $1.62 a share on an adjusted and unadjusted basis.
• Toronto’s home prices extended gains in November, and are now accelerating at the fastest annual pace since 2017 as demand continues to outpace a dwindling supply of listings. Benchmark prices on home sold in Canada’s biggest city rose 0.6% in November from October, bringing the increase from a year earlier to 6.8%, the Toronto Real Estate Board said in a report Wednesday. The number of transactions also rose, with sales up 14% from November 2018. Toronto’s housing market has began bouncing back in recent months — driven by a combination of lower mortgage rates and rising population — after almost two years of adjustment to higher taxes and tighter regulations to tame soaring valuations.

World Headlines

• European stocks were little changed on Wednesday as worries over global trade kept gains in check, while investors looked toward upcoming services data for the euro-area for clues on the state of the economy. The Stoxx 600 Index edged 0.2% higher by 8:04 a.m. London time. Among single stocks, Airbus SE climbed 0.5% after United Airlines Holdings Inc. placed a $7 billion order for some of the French company’s jets. Orange SA meanwhile fell 3.7% after the French telecoms company said that it plans to extract greater value from its network infrastructure
• U.S. equity futures advanced with European stocks after a news report that China and America were moving closer to a trade deal, despite heated rhetoric. Treasuries slipped and gold erased a gain. Contracts on three main American index futures rebounded after Bloomberg reported U.S. negotiators expect a phase-one deal with China to be completed before tariffs are set to rise on Dec. 15, despite tensions over Hong Kong and Xinjiang.
• Japanese stocks fell for a second day as President Donald Trump raised the possibility that the initial phase of a trade deal with China could be delayed, reeling back expectations for global economic growth. Electronics and pharmaceutical makers weighed on the benchmark Topix gauge the most, while telecommunications and utilities rose. Trump told reporters in London that he has “no deadline” for a trade agreement with China, signaling that he is willing to wait until next year. The comment damped sentiment among investors, who were eyeing any hint on when a phase one of the trade deal could be signed. Treasury prices jumped, while the S&P 500 Index declined for a third day.
• Oil gained as the U.S. and China were moving closer to a trade deal and before OPEC+ decides on its output-cut policy later this week. Futures added as much as 1.8% in New York. The U.S. and China are moving closer to agreeing on the amount of tariffs that would be rolled back in a phase-one trade deal despite tensions over Hong Kong and Xinjiang, people familiar with the talks said. That came after U.S. crude inventories were reported to have fallen and before the OPEC+ meeting later this week.
• Signs that the U.S. and China are making progress on a trade pact took the wind out of the gold market. Gold was little changed at $1,476.40 an ounce on Tuesday after erasing gains made earlier in the session. The two countries are moving closer to agreeing on the amount of tariffs that would be rolled back in a phase-one trade deal despite tensions over Hong Kong and Xinjiang, people familiar with the talks said. The gold market has been sensitive to the back-and-forth sway of trade negotiations as traders try to figure out whether or not a deal will happen soon. On Tuesday, prices jumped 1% after President Donald Trump doused optimism of a quick deal with Beijing.
• The pound touched the highest level against the euro since May 2017 as traders stepped up bets on a win for the Conservatives in next week’s election. It advanced against all major peers as polls showed the ruling Tories holding their lead over Jeremy Corbyn’s left-wing Labour Party. Sterling reached the highest against the dollar since May as U.S. President Donald Trump’s visit to the U.K. unfolded comparatively smoothly, defying speculation his presence could undermine Prime Minister Boris Johnson.
• Almost a week after embattled Yes Bank Ltd. unveiled details of its plans to raise $2 billion in capital, shareholders remain unconvinced that a deal will take place. Shares of the Mumbai-based lender have fallen about 8% since it announced the names of the investors for its proposed preferential issue. Doubts over key foreign bidders have triggered concerns that the Reserve Bank of India might not allow them to take ownership of the bad-debt laden bank. The bank’s 3.75% dollar-denominated notes due February 2023 fell 1.9 cents to 88.7 cents, the biggest decline in more than two months, prices compiled by Bloomberg show.
• The U.S. and China are moving closer to agreeing on the amount of tariffs that would be rolled back in a phase-one trade deal despite tensions over Hong Kong and Xinjiang, people familiar with the talks said. The people, who asked not to be identified, said that U.S. President Donald Trump’s comments Tuesday downplaying the urgency of a deal shouldn’t be understood to mean the talks were stalling, as he was speaking off the cuff. Recent U.S. legislation seeking to sanction Chinese officials over human-rights issues in Hong Kong and Xinjiang are unlikely to impact the talks, one person familiar with Beijing’s thinking said.
• The U.S. House of Representatives overwhelmingly approved legislation that would impose sanctions on Chinese officials over human rights abuses against Muslim minorities, prompting Beijing to threaten possible retaliation just as the world’s two largest economies seek to close a trade deal. The bill is an amended version of the Senate’s S. 178 to support the Uighurs, a Muslim ethnic group in the Xinjiang region of western China, and it passed Tuesday, on a vote of 407 to 1. China’s foreign ministry on Wednesday urged the U.S. to stop the bill and vowed to further respond if the legislation progresses, without providing any details.
• Democratic presidential candidate Joe Biden plans to pay for $3.2 trillion in policy proposals with new and higher taxes on the wealthy and corporations, including a measure targeting companies like Amazon.com Inc.and Netflix Inc. that have reported paying no federal income taxes in recent years. The so-called minimum book tax, which his team estimates would raise $400 billion over a decade, would be coupled with increases in the top individual and corporate rates that Biden has already promised, according to a copy of the proposal obtained by Bloomberg News.
• United Airlines Holdings Inc. ordered its first long-range Airbus SE A321neo jets, dealing a new setback to Boeing Co. as the U.S. planemaker struggles through the grounding of its 737 Max. The carrier said it would take 50 of Airbus’s A321XLR jets, with deliveries to begin in 2024 — a year after the model’s planned debut. Valued at $7.1 billion before customary discounts, the order expands the U.S. foothold of a single-aisle variant capable of handling North Atlantic routes. United plans to start replacing its Boeing 757-200 jets with the XLR, the jet closest to the U.S. manufacturer’s aging model, which went out of production about 15 years ago. Boeing has postponed deciding whether to develop the “new midmarket airplane” or NMA, a new plane of comparable size while it attempts to end the grounding of its workhorse Max, which was banned from the skies in March after two deadly crashes.
• South Korea’s High Court ruled in favor of the Korean antitrust regulator over a record 1.03 trillion won ($864 million) fine against Qualcomm Inc. for the abuse of its market dominance in modem chipsets. The Seoul High Court acknowledged Qualcomm’s dominance in the sector but rejected the regulator’s argument that the company forced unfair licensing agreements on handset makers. The court upheld most of the remedies imposed upon the company by the Korean commission, but canceled some orders related to the amendment of agreements with handset makers. The amount of the penalty remained unchanged.
• It’s turning out to be one of the worst years ever for auto workers across the globe amid shrinking demand and a tectonic shift in vehicle technology, with Daimler AG and Audi announcing almost 20,000 job cuts in just the past week. All told, carmakers are eliminating more than 80,000 jobs during the coming years, according to data compiled by Bloomberg News. Although the cuts are concentrated in Germany, the U.S. and the U.K., faster-growing economies haven’t been immune and are seeing automakers scale back operations there.
• Indian Prime Minister Narendra Modi’s government is considering easing lending rules for shadow banks, according to people familiar with the matter, a move that would give the cash-starved financiers access to funds. Modi’s cabinet is likely to discuss allowing state banks to provide so-called credit enhancement against securities rated BBB+ to non bank financiers, the people said, asking not to be identified before a public announcement. That’s the fifth level below what’s permitted under the current plan.
• Japan exchange-traded funds ranked second in net inflows this year and many ETFs show characteristics that reflect Prime Minister Shinzo Abe’s push for better shareholder returns. Japan-focused ETFs drew $29 billion in net inflows this year, trailing the $270 billion for the U.S. and well ahead of $11.3 billion for third-placed Canada. It helps that the Bank of Japan invests in ETFs, including the JPX-Nikkei Index 400 designed to include only the most-profitable and well-managed companies in the country.
• The Hong Kong government announced further stimulus measures worth around HK$4 billion ($511 million) Wednesday, aiming to shore up businesses suffering from almost six months of political unrest. A list of nine new measures included subsidies for water and sewer bills as well as waivers on property tax rates for businesses. Individuals and companies also may apply to pay profits and salaries tax in installments, Financial Secretary Paul Chan said at a news conference Wednesday alongside other members of the administration.
• Carl Icahn is urging HP Inc. to push ahead with takeover talks with Xerox Holdings Corp., arguing the hardware maker’s standalone plans amount “to little more than rearranging the deck chairs on the Titanic.” A tie-up between the companies could yield more than $2 billion in synergies, the billionaire investor said in a letter to be sent to HP shareholders.
• Saudi Aramco is considering pricing its initial public offering at the top end of a marketed range, which would make it the world’s biggest-ever new listing, people with knowledge of the matter said. The Gulf energy giant has discussed pricing its IPO shares at 32 riyals apiece, after marketing them at 30 to 32 riyals each, according to the people. Many local fund managers placed orders at that level under the assumption strong domestic demand will lead the deal to price at the top, the people said, asking not to be identified because the information is private.
• Here’s the latest indicator of how hungry investors are to profit from clean energy: BlackRock just raised $1 billion for wind, solar and battery-storage projects. The world’s largest money manager received initial commitments from over 35 institutional investors in North America, Europe and Asia for its third global renewables fund. It’s the most BlackRock has raised yet for a clean-power fund’s first close.
• BlackBerry Ltd.’s push to fund its transition to a cybersecurity business by increasing patent royalties from social media companies like Facebook Inc. is faltering. A judge in California has invalidated a number of BlackBerry’s patents and the U.S. Patent and Trademark Office is reviewing others, undermining the storied Canadian tech company’s efforts to expand the licensing of its 37,000 patents. Licensing and intellectual property made up 21% of BlackBerry’s $932 million in revenue last year. The company has completely switched to making money from software for cars, cybersecurity products and patent licensing after shutting down its once-dominant phone business in 2016.

*All sources from Bloomberg unless otherwise specified