February 26th, 2019
Daily Market Commentary
- Canadian stocks advanced Monday, following early gains in global stocks after U.S. President Donald Trump postponed the date for boosting tariffs on Chinese imports, taken as a sign of progress in the trade talks. The S&P/TSX Composite Index rose 0.3 percent to 16,057.03, its highest closing level since October 3. Industrial companies, financials, and communication services outperformed while health care dropped. Oil tumbled the most in four weeks after Trump tweeted that prices are too high and called on OPEC to “relax and take it easy.”
- Bank of Nova Scotia’s foreign lending is outpacing its performance in its home market — even as Canada’s most international bank chooses to focus on fewer countries. Scotiabank has seen loan growth in international banking outstrip its Canadian division for a year and a half, thanks in part to acquisitions. Average international loan balances rose 32 percent to C$148.6 billion ($112.5 billion) in the fiscal first quarter, eclipsing the 3.9 percent growth in Scotiabank’s domestic business. The lender’s July takeover of BBVA Chile helped bulk up its loan book at the international unit, which posted record profit in the quarter.
- Bank of Montreal improved adjusted first-quarter profit by 8 percent, driven by strong results in its U.S. banking division. Toronto-based BMO reported profit of $1.51-billion, or $2.28 per share, compared with $973-million, or $1.43 per share, a year earlier. BMO held its quarterly dividend steady at $1.00 per share. The bank also announced plans to buy back up to 15 million shares. (Globe and Mail)
- The market for industrial space is so hot in Vancouver the city may run out of land for the sector, according to brokerage CBRE Ltd. The city’s location between the mountains and the Pacific Ocean have always led to elevated real estate prices but the e-commerce revolution has turbo-charged demand for warehouse space. Industrial rents spiked 16 percent to a record C$11.86 ($8.99) per square foot last year, the highest in Canada, according to a report Tuesday by the Toronto-based brokerage.
- European equities started Tuesday trading on a negative note, with all the sectors opening in the red as automakers and miners paced the declines amid tariff concerns. The Stoxx Europe 600 Index fell 0.4 percent. Britain’s FTSE 100 Index retreated 0.9 percent as Prime Minister Theresa May is said to be considering a delay to Brexit. All eyes remain focused on tariff talks after U.S. President Donald Trump raised the possibility of signing a new trade deal with Chinese counterpart Xi Jinping, though he also said on Monday that an agreement “might not happen at all.” European stocks are poised for another monthly advance in February on the back of global optimism about the dovish U.S. Fed and trade negotiations, which remain fragile.
- Global stocks dropped on Tuesday as the rush of optimism over U.S.-China trade talks from earlier in the week faded. Lacking fresh developments on trade after President Trump’s announcement Monday that he will postpone the date for boosting tariffs on Chinese imports, investors are left contemplating a mixed picture in the global economy, such as ebbing forecasts for growth. Monetary policy is also in focus, with semiannual testimony on the U.S. economy from Federal Reserve Chairman Jerome Powell on Tuesday and Wednesday.
- China’s outsized stocks rally has had an undersized impact on the Asia regional equity gauge, underscoring the debate over wider inclusion of the country’s domestic shares in global index benchmarks. On a banner day for domestic A-shares Monday, when the CSI 300 Index jumped 6 percent — the most since 2015 and enough to propel the market into bull territory — the MSCI Asia Pacific Index advanced only 0.8 percent. That was its biggest increase since… last Wednesday. On Tuesday, the regional gauge slipped just 0.4 percent as the CSI 300 and Shanghai Composite Index fell 1.2 percent and 0.7 percent, respectively.
- Oil steadied after falling the most in almost a month on Monday, when President Donald Trump called on OPEC to temper prices. Futures traded above $55 a barrel in New York after sliding 3.1 percent on Monday. While crude is still about 25 percent below the four-year high reached in October, the U.S. president tweeted on Monday that prices are rising too much and called on the Organization of Petroleum Exporting Countries to “relax and take it easy.” Oil’s recovery in 2019 has been propelled by output curbs by OPEC, with top member Saudi Arabia making the deepest cuts.
- The pound rallied to the highest level versus the euro since 2017 and U.K. government bonds slipped as both the government and the opposition gave signs of changing strategy on Brexit. Sterling gained for a third day against the common currency after the Labour party came out in favor of a second Brexit vote and Prime Minister Theresa May was expected to bring up the topic of extending the Brexit deadline beyond March 29 at a meeting of her cabinet on Tuesday.
- Caterpillar Inc. was downgraded by two notches to sell from buy at UBS on Tuesday, with the firm writing that it expects more than half of the company’s end markets to “peak” in 2019, “pressuring revenue and margins in 2020 as demand declines.” It also cut its price target to $125 from $154. Shares of the Dow component fell 3.3 percent in pre-market trading. The stock has risen by more than 25 percent from an October low, and it ended at its highest level since Oct. 16 on Monday.
- Elon Musk is facing a new round of regulatory trouble for tweets about Tesla Inc., raising fresh concerns about the billionaire CEO’s ability to keep his impulses in check and responsibly run a public company. The U.S. Securities and Exchange Commission on Monday asked a judge to hold Musk in contempt for violating a settlement that required him to get Tesla approval for social media posts and other writings that could be material to investors. He breached that deal with a Feb. 19 tweet that said Tesla would make about half a million cars in 2019, the agency claims. The CEO posted a few hours later that deliveries would only reach about 400,000.
- Michael D. Cohen, President Trump’s former personal lawyer and fixer, is planning on portraying his onetime client in starkly negative terms when he testifies Wednesday before a House committee, and on describing what he says was Mr. Trump’s use of racist language, lies about his wealth and possible criminal conduct. Mr. Cohen’s plans were laid out in broad strokes by a person familiar with what he intends to say in his testimony. And they indicate that Mr. Cohen will use documents and his personal experiences to support his statements.
- Credit Suisse Group AG Chief Executive Officer Tidjane Thiam named Lara Warner chief risk officer and elevated two other women to the bank’s executive board in the largest shakeup of senior management since he took charge more than three years ago. Warner, who as head of compliance and regulatory affairs led a review last year into how the bank handled an alleged sexual assault, will succeed Joachim Oechslin, the company said Tuesday in a statement. Her former operations will be split, with Lydie Hudson overseeing compliance and joining the executive board. Antoinette Poschung also joins the panel as the new head of human resources, replacing Peter Goerke.
- The European Union has made no secret that it thinks Prime Minister Theresa May should delay Brexit day. The question is, for how long. EU officials were relieved to hear that May is considering a move that would postpone the departure to avoid a crash-out Brexit. EU President Donald Tusk said such a step would be “rational.’’ The problem is that there isn’t a united position among the 27 EU countries on how to play the negotiation and how long an extension to offer. Most governments and the European Commission oppose the prospect of a rolling three-month “serial extension,’’ which they fear would merely prolong uncertainty and lead to episodic crises.
- Poland’s ruling populists, faced with sagging opinion-poll ratings and a growing challenge from a freshly united opposition, are about to fire off a set of new stimulus measures, reaching back to the policy that’s been the backbone of their popularity. Central bankers were quick to indicate that the spending boost is likely to fuel arguments for the country’s first rate increase since 2012. Earlier this month, policy makers thought that the chance of rising interest rates had declined, according to the minutes of their Feb. 5-6 meeting. Poland will spend as much as 40 billion zloty ($10.5 billion) to raise pensions and expand family subsidies, will cut the income tax for workers under 26 and invest in the transport infrastructure. Most of the incentives will kick in either before European Parliament ballots in May, or ahead of general elections in the fall.
- Indonesia’s sovereign bond auctions continued to draw foreign investors, with bids at its latest auction jumping to a record $6.7 billion. Incoming offers at 93.9 trillion rupiah were six times the 15 trillion rupiah the government sought to raise at Tuesday’s auction, according to the finance ministry. The government sold 22 trillion of sovereign notes, which included a new series of notes maturing in May.
- Prime Minister Narendra Modi’s 750 billion-rupee ($10.6 billion) annual plan to provide cash to small farmers is likely to do little to end farm distress. Modi unveiled the program with fanfare on Sunday, depositing the first installment of 2,000 rupees each to 10 million farmers directly in their bank accounts. About 110 million more people will receive the funds by March 31 — weeks before the world’s largest democracy goes to polls. According to the plan, farmers with as much as 2 hectares (4.9 acres) of land will get 6,000 rupees ($84) a year in three equal installments.
- Home Depot Inc. plans to buy back as much as $15 billion of stock after quarterly earnings fell short of analysts’ expectations, casting doubt on a growth story that has lifted the stock 50 percent in the past three years. Fourth-quarter earnings per share were $2.09, the retailer said. Analysts had estimated $2.16. Same-store sales rose 3.2 percent, trailing estimates of 4.5 percent.
- The Bank of England stepped up its defenses against a disruptive Brexit and Governor Mark Carney offered more warnings about the damage that a no-deal withdrawal from the European Union could do to the economy. The central bank will offer lenders extra liquidity provisions around the March 29 exit date, a measure designed to smooth the plumbing of the market operating in times of potential stress. It mirrors its actions around the 2016 referendum.
- Everbright Bank Co., the Beijing-based lender, is among parties in talks to contribute capital to a joint investment fund being set up by China and Saudi Arabia that’s targeting as much as $20 billion, people with knowledge of the matter said. China’s state-owned Silk Road Fund is separately discussing participating in the investment vehicle, the people said, asking not to be identified because the information is private. The Gulf kingdom’s Saudi Industrial Development Fund is also backing the pool of capital, according to the people.
- JPMorgan Chase & Co. is under pressure to do more to fund transit improvements near its expanding midtown Manhattan headquarters, the latest instance of community leaders pushing a company to shoulder more of the costs of growth. The bank plans to tear down its existing 52-story office tower at 270 Park Ave. so it can build a more modern skyscraper of approximately 70 floors on the site, a short walk from Grand Central Terminal. Ultimately, about 12,000 employees are expected to work there, twice as many as before.
- Donald Trump’s attack on the World Trade Organization has U.S. farmers worried that the president’s ‘America first’ foreign policy approach will hamstring efforts to defend their interests. The U.S. is strangling the ability of the WTO, which oversees the rules for nearly $23 trillion in commerce every year, to resolve disputes among its 164 members. But when the WTO’s appellate body becomes incapacitated later this year, even the U.S. cases, of which there are at least two pending meant to protect American agriculture, would be derailed.
*All sources from Bloomberg unless otherwise specified