February 27th, 2019
Daily Market Commentary
- Canadian stocks advanced for a third consecutive day led by marijuana stocks. U.S. stocks pushed lower in the final hour of trading to close in the red as investors struggled to put an optimistic spin on Federal Reserve Chairman Jerome Powell’s testimony before Congress. The S&P/TSX Composite Index rose 0.1 percent to 16,067.91. Health care and consumer staples led the way. The Horizons Marijuana Life Sciences ETF (HMMJ CN) rose 3.1 percent.
- National Bank reported first-quarter net income of $552 million, up $2 million from the same period a year earlier. The Montreal-based lender’s earnings amounted to diluted earnings per share of $1.50 for the three-month period ended Jan. 31 , up from $1.46 a year ago. That’s lower than the $1.54 in diluted earnings per share expected by analysts surveyed by Thomson Reuters Eikon. The bank says its results this quarter were driven by growth in most of its businesses, tempered by a slowdown in its financial markets segment in the wake of the market volatility late last year.
- Alberta oil producers have found a way around production limits imposed on them by the provincial government: buy the right to pump barrels from other companies that don’t need them. The volumes aren’t huge — Husky Energy Inc. is buying rights to produce an additional amount of less than 1,000 barrels a day, Rob Symonds, chief operating officer, said Tuesday in an investor call. It’s not a transparent market, mostly operating “by people phoning people,” Robert Peabody, chief executive officer, said in the call.
- European equities started the day in the red as Unilever and Reckitt Benckiser Group Plc tumbled after full-year sales at Beiersdorf AG missed estimates and the consumer-products company reset margin expectations. The Stoxx Europe 600 Index declined 0.4 percent. The FTSE 100 Index dropped 0.5 percent as the U.K. prime minister heads into a Parliamentary vote on her strategy Wednesday appearing to have staved off a substantial rebellion by her own ministers. Unilever lost 1.4 percent, Reckitt fell 1.9 percent and Beiersdorf declined 8.8 percent. Marks & Spencer Group Plc dropped 7.9 percent after saying it plans a rights issue to raise as much as 600 million pounds ($797 million) to help finance the joint venture with Ocado Group Plc.
- The dollar and Treasuries steadied as traders await the second half of Federal Reserve Chairman Jerome Powell’s testimony to Congress. Investors have added the India-Pakistan flare-up to a host of uncertainties they’re tracking, from China trade talks to Brexit, that could rein in a recovery in global equities from December lows. U.S. President Donald Trump is in Hanoi for a second summit with North Korean leader Kim Jong Un, with the outcome uncertain. Powell’s testimony on Tuesday helped steady the ship, though, as he gave no indication that the Fed is ready to alter policy any time soon.
- Japanese shares rose as investors weighed the latest remarks from Federal Reserve Chairman Jerome Powell on the U.S. economy and implications for monetary policy. Pharmaceutical and telecommunications stocks bolstered the benchmark Topix index, which sharply pared its advance in the last minute of trading. Electronics were the biggest drag as the yen held Tuesday’s gain against the dollar. Speaking before a Senate panel, Powell indicated the central bank will be patient and see how headwinds to growth play out. Data showed U.S. consumer confidence improved in February, topping all forecasts and snapping a three-month losing streak.
- Oil climbed in New York as Saudi Arabia signaled that OPEC and its allies will keep going with production cuts despite pressure from U.S. President Donald Trump to moderate prices. West Texas Intermediate futures advanced as much as 1.4 percent, though trading was halted for three hours by a problem at CME Group Inc. OPEC’s most powerful member is inclined to extend the supply cuts into the second half of the year, Saudi Energy Minister Khalid Al-Falih said in Riyadh. U.S. stockpiles fell by 4.2 million barrels last week, the American Petroleum Institute was said to report, compared with a forecast for a 3 million barrel increase in a Bloomberg survey.
- Gold remains confined within a narrow trading range as investors weigh the latest remarks from Federal Reserve Chairman Jerome Powell on the U.S. economy and monetary policy. Palladium takes a breather from its dramatic rally, while platinum gains for a fourth consecutive day. Platinum seems to be benefiting from gold’s resilience, palladium’s strength and the widening gap between the metals, which raises the prospect of substitution in the auto sector, according to UBS AG. Strikes in South Africa are also supporting the price.
- Economic confidence in the euro area declined less than economists expected thanks to a solid service sector, suggesting the trade war-induced slide in sentiment over the past year may be bottoming out. The European Commission’s index — which assesses the mood of households and businesses — dropped to 106.1 in February from a revised 106.3 the month before. That’s the eighth consecutive monthly drop, though the pace slowed after sharp declines around the turn of the year.
- Donald Trump’s administration regularly denounces Nicolas Maduro as an autocratic Cuban puppet and may hit the Caribbean island with new sanctions over its support for the Venezuelan leader. The U.S. president is expected to decide soon whether to activate a controversial section of American law toward Cuba for the first time ever, with other measures meant to tighten the screws on Havana likely to follow. The first move, known as Title III, would allow Cuban Americans to sue companies “trafficking” in property confiscated during the 1959 revolution in U.S. courts. That would complicate Cuba’s attempts to bolster its economy by attracting foreign investors. The measure is one of the remaining pieces of leverage the U.S. has in its effort to pressure countries into paring support for Maduro’s regime, which has long depended on Cuban political and logistical backing that to some observers has more symbolic power than substantive impact.
- Warren Buffett’s Berkshire Hathaway Inc. dialed back its state and local government bond holdings in 2018 and boosted investments in corporate debt after the U.S. tax overhaul reduced the relative attractiveness of municipal bonds. Muni-bond investments fell 79 percent to $182 million in 2018, Omaha, Nebraska-based Berkshire said Saturday in its annual report. At the same time, Berkshire increased its bets on corporate bonds, which typically offer higher yields than safe-haven municipal bonds. Those investments rose 12 percent to $7.1 billion, based on the amortized cost.
- Private-equity firms Centerbridge Partners LP and Gallatin Point Capital LLC agreed to buy a controlling stake in one of Israel’s largest insurance companies, two years after a deal to sell Phoenix Holdings Ltd. to Chinese investors was blocked. The U.S.-based funds signed a non-binding memorandum of understanding to purchase about 30 percent of Delek Group Ltd.’s Phoenix for 1.6 billion shekels ($442 million), according to an emailed statement on Wednesday. That’s 3 percent less than the market value of Delek’s stake, according to Bloomberg calculations.
- Saudi Arabia is leaning toward extending OPEC cuts into the second half of 2019, potentially pitting the group against U.S. President Donald Trump’s demand to keep prices down. Oil inventories in the U.S. are “brimming,” and reducing that glut remains the main goal for the group, Saudi Arabian Energy Minister Khalid Al-Falih said in Riyadh. The kingdom plans further curbs to output in March, he said. Trump has renewed his pressure on OPEC and its allies, a coalition referred to as OPEC+, after they started a new round of production cuts last month.
- Vietnam’s Bamboo Airways and VietJet Aviation JSC signed deals to buy 110 aircraft from Boeing Co. during President Donald Trump’s visit to Hanoi for a summit with North Korean leader Kim Jong-Un. Bamboo agreed to purchase 10 787-9 Dreamliners worth about $3 billion, while VietJet’s order is for 100 737 Max planes valued at $12.7 billion, Boeing said Wednesday. VietJet’s 100-plane commitment was unveiled at the Farnborough air show last year. The accords were signed in the presence of Trump and Vietnam’s President Nguyen Phu Trong.
- The United Kingdom won approval to remain in a key World Trade Organization agreement that governs $1.7 trillion worth of annual public procurement opportunities. A group of 46 nations, including the U.S. and Japan, agreed on Wednesday to let Britain stay in the Government Procurement Agreement, according to a WTO statement. Maintaining membership ensures that U.K.-based contractors will retain their preferential access to foreign public procurement opportunities if Britain leaves the European Union without a withdrawal accord. It also ensures that the GPA’s signatories will continue to have access to the U.K.’s 67 billion-pound ($89 billion) public procurement marketplace in the case of a no-deal Brexit.
- India said an air force pilot was missing after Pakistan said it had shot down two Indian fighter jets, as relations between the arch rivals worsened amid the possibility of a full blown war. India has yet to ascertain that the missing pilot is in Pakistan’s custody, said Raveesh Kumar, foreign ministry spokesman in a media briefing in New Delhi, in India’s first statement on today’s events.
- President Donald Trump and North Korea’s Kim Jong Unsounded an optimistic note at the start of their second set of face-to-face meetings in eight months, as the U.S. leader sought to advance nuclear talks that have largely stalled since their first summit in June. The two leaders shook hands and made brief remarks ahead of a one-on-one meeting at a luxury hotel in Hanoi on Wednesday that kicked off their symbolism-rich follow-up to the unprecedented Singapore summit. They were slated to enjoy a “social dinner” at the century-old Sofitel Legend Metropole Hanoi along with a handful of senior officials including Secretary of State Michael Pompeo and Kim’s No. 2, Kim Yong Chol.
- Best Buy Co. lent a spark to a largely gloomy retail earnings season by delivering holiday sales that outpaced projections while providing a profit outlook for this year that topped analysts’ estimates. The shares jumped in early trading. Comparable-store sales in the U.S. — the retailer’s most-watched metric — rose 3 percent, beating projections of 1.8 percent. It sees adjusted profit for this year of $5.45 to $5.65 a share. The midpoint of that range also topped estimates.
- Elon Musk’s run-in with regulators and executive exits have made it all but certain that his electric-car company will have to pay $920 million to bondholders on Friday after Tesla’s stock failed to rise above a critical price level. Tesla Inc. is on the hook to settle the March 1 convertible bond maturity in cash, the largest debt payment to date in its almost 16-year history. To make some of the payout using stock, the shares would have had to reach a volume-weighted average price of $359.87 for the 20-day trading periodthat began Jan. 29. The figure was about $306.91 as of Tuesday, the final day of that span.
- U.S. companies are finally listening to stock and bond investors that have been pressing corporations to cut their debt loads. General Electric Co. is selling its biopharmaceutical business to Danaher Corp. for more than $21 billion, and using the money to pay down borrowings. Kraft Heinz Co. said last week it was slashing its dividend and using the proceeds of asset sales to reduce its liabilities. Randall Stephenson, AT&T’s chief executive officer, said last month that the company’s top priority in 2019 is to lower its debt. Plans like these are good news for bondholders who have spent years watching these companies borrow ever more to finance moves like acquisitions that are designed to boost share prices, said Brian Kennedy, a senior portfolio manager at Loomis Sayles & Co.
- China National Chemical Corp. is considering reducing its stake in Italian tiremaker Pirelli & C. SpA as part of a strategic review of the Chinese group’s overseas investments, according to people familiar with the matter. ChemChina, as the state-owned firm is known, is considering a number of options for its stake, including a block sale on the market that would increase Pirelli’s free float or selling to an investor, they said. Discussions are at an early stage and no final decisions have been made on the size or the timing of the potential sale, said the people, who asked not to be identified because the deliberations are private.
- Cathay Pacific Airways Ltd., Asia’s biggest international carrier, is studying a bid for stakes in two smaller Hong Kong airlines backed by embattled Chinese conglomerate HNA Group Co., people with knowledge of the matter said. Cathay Pacific has held preliminary talks with HNA about acquiring minority stakes in Hong Kong Express Airways Ltd. and Hong Kong Airlines Ltd., according to the people. A couple of local tycoons have also been considering investments in Hong Kong Airlines, one of the people said, asking not to be identified because the information is private.
- Axiata Group Bhd., Malaysia’s biggest wireless carrier, is reviving preparations for an initial public offering of its tower business Edotco, according to people familiar with the matter. Axiata’s advisers recently resumed work on the deal, which was shelvedlast year, said the people, who asked not to be identified because the information is private. Axiata aims to list the unit in Kuala Lumpur as soon as this year and may seek a valuation of around $2.5 billion for the company, they said.
- Marvin Ellison’s honeymoon at Lowe’s Cos. may be coming to an end. Investors have bid up the stock since he took over as chief executive officer in July, but a lackluster fourth quarter may change that. Fourth-quarter revenue was little changed at $15.6 billion, compared with estimates of $15.7 billion. A same-store sales gain of 1.7 percent also missed projections.
*All sources from Bloomberg unless otherwise specified