February 21th, 2019
Daily Market Commentary
- Bank of Canada Governor Stephen Poloz gives his last speech Thursday before next month’s rate decision, with investors looking for indications on whether he will follow the Federal Reserve toward a more dovish tilt on policy. While Poloz has signaled he’s in no rush, he has stuck to messaging that more hikes will eventually be needed. That position is now considered more assertive than the Fed, which is signaling a firmer pause on policy action. Poloz is due to speak in Montreal at 1 p.m., with the text of his remarks released on the central bank’s website at 12:45 p.m.
- Manulife Financial Corp. plans to more than double assets in its wealth unit and hire five new portfolio managers as it targets the growing business of Canada’s rich. Canada is about 10 years behind the U.S. in offering financial services to the wealthy under one umbrella — from investment management to tax planning — and the industry is ripe for growth and consolidation, said Glen Brown, head of Manulife Private Wealth.
- European stocks fluctuated between gains and losses at Thursday’s open as optimism over trade talks was countered by a spat over coal imports between Australia and China. Barclays shares jumped as the British lender announced a buyback plan. The Stoxx 600 Index was steady, after gaining 0.7 percent on Wednesday. Basic resources and travel stocks led declines, while real estate and utilities shares advanced the most. The oil & gas sector weakened, dragged down by TechnipFMC Plc, which fell as much as 10 percent after reporting an unexpectedloss. Telefonica SA rose after fourth-quarter results beat analyst estimates and the Spanish phone carrier sold some assets in Central America.
- U.S. equity futures pared a gain, European stocks edged lower and Asian shares rose as investors grappled with a mixed bag of headlines on global trade. The greenback was slightly stronger and the Aussie dollar slumped. The mixed trade headlines follow the release of minutes from the Federal Reserve, which seemed to have a little something for bulls and bears alike. Policy makers signaled that a rate increase remains on the table, but also that they are contemplating the end of the balance sheet roll-off this year.
- The slow but apparently steady progress toward a trade agreement between the world’s biggest economies could give fresh impetus to a rally in risk assets that had been showing signs of faltering, with MSCI’s global gauge of stocks up about 15 percent since Christmas Day. But the new front in the global spat, this time between China and Australia, risks denting investor sentiment before concrete progress is seen in Washington.
- Oil extended gains from a three-month high as industry data signaled a limited increase in American crude stockpiles, and on signs that the U.S. and China are moving closer to a trade deal. Futures rose 0.7 percent in New York. The American Petroleum Institute was said to report nationwide crude inventories climbed 1.26 million barrels last week. That’s less than half the 3.1 million-barrel gain forecast in a Bloomberg survey before government data due Thursday. U.S. and Chinese negotiators are working on multiple memorandums of understanding that would form the basis of a final trade agreement, according to a person briefed on the talks.
- Gold steady near a 10-month high as investors weigh U.S.-China trade talks together with the Federal Reserve’s policy stance, with optimism over progress in the fight between Washington and Beijing and signals from the U.S. central bank that hint at the possibility of further hikes. On the technical side, gold’s 14-day relative strength index hovers near 70, indicating the metal may have been overbought.
- Britain posted a record budget surplus last month, providing a welcome boost for Chancellor of the Exchequer Philip Hammond in the wake of a threatened credit-rating downgrade over Brexit. January normally sees revenue exceed spending as taxpayers rush to beat a month-end deadline to settle self-assessed liabilities. This year the surplus was 14.9 billion pounds ($19 billion), the highest for any month since records began in 1993 and well above forecasts, Office for National Statistics figures Thursday show.
- U.S. and Chinese negotiators are working on multiple memorandums of understanding that would form the basis of a final trade deal, according to a person briefed on the talks. The MoUs would cover areas including agriculture, non-tariff barriers, services, technology transfer and intellectual property, said the person, who asked not to be identified because the discussions are private. The enforcement mechanism remains unclear, but would likely be a threat that tariffs would be reimposed if conditions aren’t met, the person said.
- A group led by the private equity firm GTCR LLC agreed to buy a majority stake in AssuredPartners Inc., the U.S. insurance broker from Apax Partners. The financial terms of the transaction were not disclosed, Apax said in a statement on Thursday. The deal would value the broker at about $5.1 billion including debt, people familiar with the matter said on Wednesday. Private equity firms are drawn to insurance brokerages because they have strong cash flow and tend to perform well through economic cycles. Also, brokerages operate in a fragmented industry, allowing for consolidation. KKR & Co. agreed this month to buy a stake in Swedish insurance broker Soderberg & Partners.
- Johnson & Johnson said it has received subpoenas and inquiries on its talc baby-powder products from federal prosecutors and securities regulators, opening a new front in the health giant’s mounting legal woes assailing one of its signature products. The requests for documents have come from the U.S. Justice Department, the Securities and Exchange Commission and the top Democrat on the Senate Committee on Health, Education, Labor and Pensions, the company said in a filing to the stock regulator Wednesday.
- Danske Bank A/S said that the U.S. Securities and Exchange Commission is now conducting an investigation into the Danish lender’s money laundering case. The bank is already the target of criminal probes in Denmark, Estonia and France. It’s also being investigated separately by the U.S. Justice Department, and is “cooperating with all relevant authorities in order to clarify the full details of the case,” it said in a statement on Thursday.
- American shale output growth is at risk unless more export infrastructure is built along the Gulf Coast in Texas, according to a reportreleased Thursday by Wayfinder Analytics. Production in Texas’s Permian and Eagle Ford oil plays is poised to eclipse domestic refining capacity by 2023, driving U.S. crude exports to 6.5 million barrels a day — more than triple what they are today. With Gulf Coast ports capable of shipping just 3.5 million barrels a day now, new export terminals are essential to maintaining output growth, the report said.
- Barclays Plc’s Jes Staley promised more buybacks and dividends to shareholders as the bank’s traders outperformed most of their Wall Street and European peers. Fourth-quarter income at the London-based firm’s markets unit fell 2.5 percent from a year earlier to 945 million pounds ($1.2 billion), a performance that beat many of the bank’s rivals. The stock rose the most in almost a year, giving Staley more ammunition as he pushes back against Edward Bramson, the activist investor.
- A major port in northern China has reportedly banned coal imports from Australia — in a sign that Beijing may be flexing its economic muscles and warning nations not to bar its next-generation wireless technology. The indefinite coal restrictions at Dalian started this month and are part of an overall plan to cap imports into the customs region this year, Reuters reported, citing an unnamed Dalian Port Group official. China’s foreign ministry wouldn’t say if it was specifically targeting Australia, only that it regularly inspects coal imports for environmental reasons.
- Some of the top Democratic presidential candidates are trying to make a name for themselves by calling for higher taxes on the wealthy. And for some wealthy donors, that’s not a problem. Senators Elizabeth Warren of Massachusetts and Bernie Sanders of Vermont are focusing their 2020 campaigns on trendy new tax-the-rich plans, like Warren’s 2 percent wealth tax or Sanders’ expanded estate tax, as they make their cases against President Donald Trump. The proposals are exciting small-dollar political donors — and so far aren’t scaring off wealthy contributors, said Rachael Rice, who advises Maryland Democrats on fundraising. Those deep-pocketed donors are more motivated to unseat Trump than worry about their own wallets, she said.
- Warren Buffett has praised pessimism as an investor’s friend, but there’s only so much a friend can do. As U.S. stocks rounded out the worst year since the financial crisis, Berkshire Hathaway Inc. spent less than $2.2 billion on net purchases of common stock in the fourth quarter. That means its cash pile, which had remained above $100 billion the last five quarters, probably stayed stubbornly high barring any unusually large amounts of repurchases. And that’s bound to raise questions about Buffett’s outlook ahead of Saturday’s planned release of the company’s annual letter.
- Theresa May has sent two of her key ministers to Brussels for talks to find a way out of the impasse with the threat of a chaotic no-deal breakup growing. May needs at least some evidence of progress by next week, when lawmakers are once again threatening to wrest control of the Brexit process from her.
- GAM Holding AG dismissed Tim Haywood, the bond manager at the center of a scandal that’s sent assets tumbling. Investors have fled the investment firm, cutting assets under management by almost 3 billion Swiss francs ($3 billion) since the end of November, the company said. The drop for the full year was the worst in a decade and missed the company-compiled analyst estimate by about 4 billion francs. GAM also suspended its mid- to long-term financial targets.
- Lyft Inc. could file as soon as next week for an initial public offering and plans to target a valuation of $20 billion to $25 billion, a person familiar with the matter said. The ride-hailing industry’s No. 2 plans to begin marketing shares in a roadshow the week of March 18, said the person, who asked not to be identified because the plans weren’t public. That may put Lyft ahead in its race to go public against its larger rival, Uber Technologies Inc.
- More than half the registered voters in Republican-controlled South Carolina supported Donald Trump in a poll last month, but there’s at least one area where state leaders are ditching the president to join rival Democrats: a fight against oil exploration off the Atlantic coast. While no new drilling has been approved in U.S. Atlantic waters, the Interior Department said in 2014 the region may contain 90 billion barrels of oil and 300 trillion cubic feet of gas. The Trump administration, eager to promote new sources of domestic energy, cleared the way in November for an essential first step to future drilling: geologic surveys using sound waves to pinpoint potential oil deposits. Permits could be issued as soon as next month.
- Millicom International Cellular SA agreed to acquire Telefonica SA’s assets in three Central American nations in a $1.65 billion deal, expanding its reach in the region. The transaction values Telefonica’s operations in Costa Rica, Panama and Nicaragua at 6.7 times their estimated earnings before interest, taxes, depreciation and amortization, the companies said in a statement late Wednesday. Luxembourg-based Millicom will get a bigger footprint in Central America, where it’s focusing as part of a Latin American push, while exiting Africa. Millicom will be able to combine its cable units with Telefonica’s mainly mobile business. Millicom Chief Financial Officer Tim Pennington had said the company was looking at the assets in an interview.
*All sources from Bloomberg unless otherwise specified