December 11th, 2018
Daily Market Commentary
- Canadian stocks clawed back from their session low, as the U.S. market advanced on a technology rally. The S&P/Toronto Stock Exchange Composite Index closed lower by 0.5 percent after an intraday decline of 1.3 percent. Auto parts and energy were the worst performing sectors. The energy sector took a beating as oil prices fell to their worst in two weeks due to growing doubts about whether OPEC and its allies can deliver enough output cuts to offset oversupply. Telecommunication stocks also closed lower today amid concern over equipment supplied by Huawei Technologies Co.
- Escalating tensions between China and Canada triggered by the arrest of Huawei Technologies Co.’s finance chief is having a dramatic impact on two of the world’s hottest apparel stocks. Canada Goose Holdings Inc., the trendy maker of premium parkas, has tumbled almost 20 percent over the past four days. At the same time, Bosideng International Holdings Ltd., a Hong Kong-based downy apparel maker, has jumped nearly 13 percent to a five-year high.
- European shares U.S. equity futures rallied while Asian shares slipped as investors weighed the prospects for success in American-Chinese trade talks. The pound rebounded. Miners and builders led the advance in the Stoxx Europe 600 Index, which played catch-up to a late recovery for shares in the U.S. on Monday while still heading for its worst year since 2008.
- Futures on the Dow Jones, S&P 500 and Nasdaq indexes also turned higher, shrugging off losses in the Asian benchmark and a drop in Japanese equities. The pound rallied, trimming some of its tumble from a day earlier. The dollar weakened while Treasuries and European sovereign bonds fell.
- Even signs that trade discussions between the U.S. and China are still ongoing are doing little to assuage the discontent that’s settled on Asian markets. While news that top Chinese and American trade officials talked over the phone helped the region’s shares almost erase early Tuesday losses, the MSCI Asia Pacific Index soon headed back in the red. S&P 500 Index futures showed a similar trading pattern. There’s been a deluge of bad news in recent days — from the unsolved caseabout the arrest of Huawei Technologies Co.’s chief financial officer to the surprise exit of India’s central-bank governor on Monday evening — and the optimism seen after the 90-day trade truce between the U.S. and China is far gone. Since Dec. 3, Asian stock markets have already lost more than $1 trillion in market value, with the regional gauge trading at a six-week low.
- Oil rose on renewed optimism that production cuts announced by the OPEC+ coalition will rebalance the market, while a giant Libyan field remained shut and U.S. inventories were estimated to have shrunk. Futures in New York gained 0.8 percent after slumping 3.1 percent Monday amid uncertainty over how the OPEC+ curbs would be implemented. Saudi Arabia has said it plans to slash output to about 10.2 million barrels a day in January, down 900,000 a day from November — a cut equivalent to the entire production of a country like Libya. Meanwhile Libya itself kept its largest oil field offline.
- Gold holds onto recent gains within reach of its 200-day moving average, with rising exchange-traded-fund holdings and an unwinding of net short positions pointing to renewed enthusiasm for the metal. Among its precious-metal peers, gold has seen the biggest change in sentiment in the last two months, with the net-short position held for much of the year close to being eradicated, according to the latest CFTC data. Still, today’s gains weren’t enough to outrun palladium, which again jumped ahead in value.
- Jerome Powell is ramping up Federal Reserve communication to build public trust and help insulate it from political attack. In recent weeks, the Fed has announced a series of initiatives, including a monetary-policy review roadshow, a semi-annual assessment of financial stability, and its inaugural Supervision and Regulation Report. These follow Powell’s early promise of “plain-English’’ explanations and a doubling of his press conferences starting next year.
- U.K. labor-market figures Tuesday paint a picture of an economy operating at or close to full capacity amid record employment. Basic wage growth accelerated to a near 10-year high between August and October and unemployment was just shy of its lowest rate since 1975, the Office for National Statistics said.
- China is moving toward cutting its trade-war tariffs on imported U.S.-made cars, a step already brandished by President Donald Trump as a concession won during trade talks in Argentina. A proposal to reduce tariffs on cars made in the U.S. to 15 percent from the current 40 percent has been submitted to China’s Cabinet to be reviewed in the coming days, according to people familiar with the matter. The step hasn’t been finalized and could still change. Top Chinese and American trade officials spoke by phone Tuesday morning Beijing time, signaling that dialog between the two nations on trade issues is at least continuing despite a diplomatic row over the arrest of a senior Chinese businesswoman.
- CVC Capital Partners offered shareholders in Ahlsell ABalmost $2 billion to buy out the remaining three quarters of the Swedish building-products supplier, whose shares have slumped amid worsening global markets. The private-equity firm, which is making the bid through a vehicle called Quimper, already holds 25 percent of Ahlsell through another company, Keravel. CVC is offering 55 kronor a share in cash to take the company private, for a total of 18 billion kronor ($1.99 billion) for the stake it doesn’t own, according to a statement on Tuesday.
- Turkey’s economic woes may cost UniCredit SpA more than 1.5 billion euros ($1.7 billion) this year after the Italian bank’s venture in the country sought funds for a second time in eight months. Italy’s biggest bank plans to buy about 40 percent of the $1 billion in additional Tier 1 bonds that Turkish unit Yapi Kredi is planning to sell, according to two people with knowledge of the plan. Koc Holding AS, the Italian lender’s partner in the joint venture, is said to be buying the same amount.
- Tencent Music Entertainment Group, China’s largest music-streaming service, is guiding potential investors that it could price its $1.2 billion U.S. initial public offering around the midpoint of a marketed range. The company sees price sensitivity in the middle of the range based on current orders, according to a message communicated to fund managers Tuesday. The final price hasn’t been set yet and the pricing level is subject to change.
- Danske Bank A/S has agreed to sell its Swedish pension assets for 2.6 billion kronor ($286 million) to private equity firms Polaris and Acathia. With the deal, Denmark’s biggest bank is exiting a business that includes about 60 employees, 150,000 personal customers and 15,000 business customers, it said on Tuesday. Danske will get around 2.35 billion kronor in cash, while the remainder will be paid in the form of a debt instrument from the seller, it said. Shares in the bank rose as much as 3.8 percent in Copenhagen, beating the increase in the Bloomberg index of European financial stocks, which was up 1.2 percent.
- French President Emmanuel Macron has emboldened Italy’s populists in their standoff with the European Union by embarking on a spending spree of his own. The promises Macron unveiled Monday night in a bid to defuse the Yellow Vest protests, from a 100-euro ($114) a month hike in the minimum wage to abolishing a tax on pensions, could play into the hands of Italian Deputy Premiers Matteo Salvini and Luigi Di Maio as they challenge EU budget rules to start delivering on election promises.
- The Trump administration has insisted the arrest of a top Huawei executive has nothing to do with trade talks. In Beijing, it’s just the latest U.S. move to contain China’s rise as a global power. Bail hearings proceeded this week after Meng Wanzhou, the chief financial officer of Huawei Technologies Co., was arrested in Canada on Dec. 1 because of alleged violations of U.S. sanctions against Iran. The case threatens to derail a trade truce struck the same day between Donald Trump and Xi Jinping.
- China is nearing a long-mooted megamerger of China National Chemical Corp. and Sinochem Group after top executives completed preparatory work for the deal, people with knowledge of the matter said. Significant issues around how the companies will be combined have largely been resolved, according to the people, who asked not to be identified because the information is private. A deal is ready to be announced as soon as the coming weeks, the people said.
- Russia played a big part in making possible a new OPEC+ deal to curb production, but initially it’s letting Saudi Arabia shoulder the bulk of actual cuts. OPEC’s largest ally aims to reduce its January production by at least 50,000 to 60,000 barrels a day compared with October levels, Russian Energy Minister Alexander Novak said Tuesday. That’s about 11,000 barrels a day below November output, Bloomberg calculations based on government data show. If Saudi Arabia sticks to its plan, it will cut supply about 80 times faster, with a promised decrease by January of about 900,000 barrels a day compared with November.
- President Donald Trump will meet Tuesday with the top two Democrats in Congress for the first time in a year to seek a deal over a southern border wall to avert a government shutdown. Their last meeting didn’t go so well. The three — Trump, Senate Minority Leader Chuck Schumer and House Minority Leader Nancy Pelosi — have until Dec. 21 to resolve their differences over how much to spend on the wall, or trigger a partial government closure. When the leaders met in December 2017, they couldn’t work out a spending agreement and the government shut down a month later.
- As private companies, Uber Technologies Inc. and Lyft Inc. became markets unto themselves, where investors poured in capital and traded stakes worth billions of dollars. Since both companies filed paperwork confidentially Thursday for an initial public offering, several investors are poised to cash in on their bets next year in a big way. The filings submitted by Uber and Lyft aren’t yet public, but people familiar with each business outlined the largest shareholders. They aren’t, for the most part, Silicon Valley venture capitalists. The top holders of America’s main ride-hailing companies are both from Japan: SoftBank Group Corp. and Rakuten Inc., said the people, who asked not to be identified because they weren’t authorized to discuss the information publicly.
- Brazil’s incoming government won’t sign a broad United Nations migration treaty, following in the footsteps of the U.S. and Chile in a crackdown on open borders. Ernesto Araujo, who will be Foreign Minister under President-Elect Jair Bolsonaro, said on Twitter that the United Nations Global Compact for Migration is “an inadequate instrument to deal with the problem” and that migration should be dealt with by countries individually. Brazil will seek a regulatory framework compatible with its own reality, he said.
*All sources from Bloomberg unless otherwise specified