February 12th, 2020
Daily Market Commentary
- Canadian shares rose for a second-straight session, closing at a record high. Meanwhile, Canadian National Railway Co. said it will have to shut down “significant” parts of its network as an Indigenous protest against a west coast pipeline escalates, the latest backlash against the country’s oil and gas industry.
- Barrick Gold Corp., the world’s second-largest producer of the metal, will exceed its target of selling $1.5 billion in assets by the end of this year, Chief Executive Officer Mark Bristow said. “We’re going to beat it,” Bristow said Wednesday in an interview following the release of the miner’s fourth-quarter earnings. “We still have some work to tidy up the portfolio.”
- Canadian Prime Minister Justin Trudeau’s desire to be seen as a climate-change crusader is again butting up against the reality of the nation’s formidable oil industry. This time the conflict is over Teck Resources Ltd.’s proposed Frontier oil-sands mine, which Trudeau’s cabinet is expected to approve or reject this month. Approving the mine would hurt Trudeau’s standing among his environmentalist base, many of whom already are disappointed with his C$4.5 billion ($3.4 billion) purchase of the Trans Mountain pipeline and now sometimes refer to him as “Justin Crudeau.” Meanwhile, rejecting Frontier would cause an uproar in conservative Alberta, where recent struggles in the oil industry have given birth to a fringe separatist movement.
- Canada’s big banks may be embracing green, but that hasn’t stopped them from lending more and more money to fossil-fuel companies. The six largest lenders had C$58.8 billion ($44.2 billion) in energy loans on their books at the end of the fiscal year, a 59% jump from five years ago, even after touting billions of dollars in climate-friendly commitments. There’s little sign of that trend abating even as oil and gas companies face increasing scrutiny over the the roles they play in climate change. Much like their counterparts in the U.S. and globally, Canadian lenders are under pressure to show they’re doing their part in fighting carbon emissions and rising temperatures. They want to show they’re delivering on green promises they’ve made, yet they’re steadfast in supporting an industry that is key to Canada’s resource-heavy economy. Energy accounts for about 10% of the Canadian economy and a fifth of exports.
- Shopify Inc. reported fourth-quarter revenue that topped analysts’ estimates and gave an optimistic forecast for this year, boosted by holiday sales and add-on services such as payment and marketing tools. Sales grew by 47% to $505.2 million in the quarter, Ottawa-based Shopify said in a statement Wednesday. Analysts expected $481.6 million, according to data compiled by Bloomberg. For 2020, Shopify said it sees revenue of $2.13 billion to $2.16 billion, compared with analysts’ projection for $2.12 billion.
- European stocks extended gains into a third day, boosted by positive earnings reports and the latest data from China signaling the virus outbreak may be easing. The Stoxx Europe 600 Index added 0.2% as of 8:05 a.m. in London. Heineken NV climbed 3.4% after its earnings beat estimates. Luxury company Kering SA also advanced after quarterly sales at its Gucci brand topped forecasts. ABN Amro Group NV slid the most among Stoxx 600 members after the Dutch lender reported worse-than-expected net income and pushed back any decision to change its dividend policy.
- U.S. equity-index futures gained along with European stocks on Wednesday and crude oil rallied amid signs the spread of the coronavirus in China is slowing and investor optimism the global economy can weather the storm. Treasury yields edged higher. Contracts on all three major American gauges pointed to a firm open after China’s Hubei province reported the lowest number of new virus cases this month and suspected infections on the mainland fell.
- Most Japanese stocks fell, resuming trade following a national holiday, as investors continued to speculate over the impact of the coronavirus outbreak on corporate earnings. The benchmark Topix index ended slightly lower after swinging between a gain of 0.1% and loss of 0.5%. Decliners outnumbered advancers 1,273 to 795. Chemical companies including cosmetics makers weighed most heavily on the market. The Nikkei 225 Stock Average rose as much as 0.8%, thanks to a sharp gain in SoftBank Group Corp.
- Oil rallied back above $50 a barrel as tentative signs that Asia’s coronavirus may be easing spurred speculation that the worst of crude’s sell-off could have passed. U.S. futures climbed 1.4% in a second daily gain, having lost about 20% during the preceding month amid fears the disease would slash fuel consumption in China. The latest data from the country showed a drop in suspected infections on the mainland and the number of cases in the virus’s epicenter, Hubei province, at the lowest level this month.
- Gold steadied around $1,560 an ounce, holding a trading range that’s persisted all year. Prices were little changed on Wednesday, even after data showed a deep slump in euro-area industrial output. The outlook for gold is positive, according to State Street Global Advisors, which sees prices rallying above $1,600 an ounce in the next three months on momentum buying and as investors position themselves for a potential correction in stocks. Investor demand for gold is also continuing to increase and holdings in bullion-backed exchange-traded funds are at a record, according to data compiled by Bloomberg.
- A deep slump in euro-area industrial output at the end of last year highlights the scale of the challenge the sector will face in 2020. The 2.1% drop — the steepest in almost four years — will raise doubts about a meaningful rebound in momentum. The economy barely expanded in the fourth quarter and the outlook at the start of the year has been dented by the coronavirus.
- President Xi Jinping said China would meet its economic goals while battling the coronavirus that has now claimed 1,115 lives. Economists are turning more pessimistic about the chances of a speedy recovery for China’s economy. OPEC slashed its forecasts for global oil demand. A cruise ship, turned away by multiple countries, is now headed to Cambodia. The Chinese Grand Prix and the Hong Kong Sevens Rugby tournament will be postponed, while a mobile conference in Barcelona is close to being canceled.
- Bernie Sanders’ narrow win in New Hampshire makes him the undisputed leader of the Democratic Party’s left flank, with a second powerful showing that puts him in position to stake a claim to the Democratic presidential nomination as the race turns west and south. A surprisingly strong third-place showing from Amy Klobuchar in New Hampshire further scrambles the race and the efforts by moderate Democrats to unite behind a candidate to stop Sanders, only strengthening the hand of the 78-year-old democratic socialist. Klobuchar’s rise shows that moderate Democratic voters weren’t completely sold on their other choice, Pete Buttigieg, who had hoped that his Iowa win would crown him the candidate to beat Sanders. Buttigieg lost New Hampshire by about 4,000 votes.
- Attorney General William Barr is confronting one of the biggest crises of his tenure after the Justice Department reversed course on a recommendation about how long one of President Donald Trump’s allies should go to prison, prompting a team of career prosecutors to quit the case. Coming after he helped the president navigate the special counsel’s probe of Russian election meddling and prevail in the third presidential impeachment trial in U.S. history, Barr will be pressured to prove he’s not a political hired hand just doing the White House’s bidding.
- A fire erupted at Exxon Mobil Corp.’s Baton Rouge oil refinery in Louisiana, potentially jeopardizing output at one of the biggest plants in the U.S. The blaze has been contained to the area where it occurred, the company said in a statement without specifying where or how the fire began. There were no injuries. The local WAFB TV station’s website showed images of the fire, and said local people reported their houses being shaken by the incident. There was no initial off-site impact to air quality, or an immediate call for an evacuation of the nearby area, WAFB said.
- As BP Plc’s new chief delivers his vision to transform the company on Wednesday, investors and activists want to know just how much appetite he has to take on the existential crisis facing the oil industry. Bernard Looney’s big challenge will be to navigate BP through an energy transition with the world falling out of love with oil, and louder demands from investors to pivot toward clean energy. When climate protesters forced the company to shut its London headquarters last week, the 49-year-old Irishman promised them he would address their concerns.
- Nissan Motor Co. is stepping up its pursuit of claims against former Chairman Carlos Ghosn, suing for 10 billion yen ($91 million) in damages from the former leader of the Japanese automaker and its alliance with Renault SA. The lawsuit filed in Yokohama District Court seeks to “recover a significant part of the monetary damages inflicted on the company by its former Chairman as a result of years of his misconduct and fraudulent activity,” Nissan said in a statement Wednesday. The amount of the claim may rise depending on fines and penalties that Nissan will be obliged to pay, the carmaker added.
- Global funds are selling Indonesian sovereign bonds at the fastest pace in almost a decade, endangering a rally that had made the nation’s debt one of the world’s best performers. Overseas investors cut holdings by a combined $1.94 billion in the past two weeks, the most since a similar period in September 2011, according to finance ministry data. The risk aversion that has swept emerging markets due to the coronarivus has also pushed down the rupiah from a two-year high.
- India’s biggest iron ore miner plans to raise production by as much as 50%, potentially boosting supplies and alleviating concerns of shortages of the key raw material. State-run NMDC Ltd. is targeting production of 48 million tons in the year starting April, and will surpass 32 million tons this year, Amitava Mukherjee, director of finance, said. The growth in supplies will come mainly from its mines in Chhattisgarh and includes 7 million tons of iron ore from the Donimalai mine in Karnataka state that is currently closed.
- The outbreak of the coronavirus and China’s efforts to stop the spread mean the economy will grow slower this quarter than first thought, according to economists. Goldman Sachs Group Inc, UBS Group AG and Macquarie Group Ltd. are among those cutting their growth forecast for both the first quarter and the full year, while others expect material shocks to gross domestic product.
- Marathon Petroleum Corp.’s Speedway gas-station division has drawn interest from potential buyers including the owner of convenience-store chain 7-Eleven as well as TDR Capital, people familiar with the matter said. Seven & i Holdings Co., the Japanese company that controls 7-Eleven, is working with advisers as it considers a takeover of Speedway, according to the people. Any acquisition of Speedway could value the business at more than $20 billion, the people said, asking not to be identified because the information is private.
- SoftBank Group Corp. founder Masayoshi Son opened the door to making at least some of the changes championed by activist investor Paul Singer, after the Japanese company reported a second quarter of losses from its startup investing. Son called Singer’s Elliott Management Corp. an “important partner” and said he is in broad agreement with the investor about SoftBank buybacks and share value. Son said he is on the side of shareholders, especially since he is the largest stockholder at the company. The two billionaires held discussions a couple weeks ago, he said.
- The coronavirus outbreak rocked Singapore’s financial district after an infection at the country’s biggest bank prompted it to evacuate 300 workers. DBS Group Holdings Ltd. told employees on Level 43 at its Marina Bay Financial Centre Tower 3 headquarters to work from home after a staff member tested positive for the disease. The case is at least the third to strike the business district, where other firms have been sending workers home and setting up temperature-screening checkpoints to stem any further spreading of the deadly disease.
- Now that the Sprint acquisition has been approved, the focus turns to T-Mobile’s pending financing in the investment-grade market, where deals have been getting done with zero hesitation as investors pile into new offerings. T-Mobile is expected to issue $19 billion of secured IG debt for the deal, which would make it a top 10 communications issuer
- CVS Health Corp. shares gained in premarket trading Wednesday after the health-care conglomerate projected strong 2020 sales, driven by growth in its pharmacy-benefit management business. In an investor presentation, CVS said it sees 2020 revenue between $261.97 billion and $265.48 billion, above Wall Street analysts’ average expectation of $256.89 billion.
- Kraft Heinz Co., which reports fourth-quarter earnings Thursday, has a plan to move on from a disastrous 2019. Chief Executive Officer Miguel Patricio says the path forward depends on streamlining the company’s sprawling product lines while putting renewed emphasis on its proven winners. “The business is extremely complex,” Patricio told Bloomberg in a recent interview, rattling off the various products the company makes at its eighty factories around the world, from fruit juice and coffee to ketchup and macaroni and cheese. “What we’re trying to do is to see what are really the similarities among these businesses, to see if we can group and give a better purpose for these groups for the future. Simplifying.”
- Investments in U.S.-listed fixed income exchange traded funds expanded 29% last week for the second week of inflows. Corporate bond ETFs led the inflows. Government bond ETFs had the second biggest change from the previous week. Net inflows to ETFs totaled $8.22b in the week ended Feb. 11, including the effect of leveraged funds, compared with $6.37b the prior week.
*All sources from Bloomberg unless otherwise specified