February 28th, 2019
Daily Market Commentary
- Canadian stocks managed to eke out a small gain Wednesday, recovering from a 0.46 percent decline as U.S. market eased about two-thirds of a percent . The S&P/TSX Composite Index gained 0.04 percent to 16,074.30. Materials and health care (mainly marijuana) were the key laggards while information technology gained. Oil prices jumped by the most in almost a month after a plunge in U.S. stockpiles showed OPEC and its allies tightening global supplies despite President Trump’s protests.
- Toronto-Dominion Bank’s rapid growth in Canadian home-equity loans has eased up just a bit. After posting year-over-year growth of more than 30 percent in hybrid home loans pitched as mortgage substitutes for the past five quarters, Toronto-Dominion’s growth streak in its fiscal first quarter cooled slightly. Amortizing home equity line of credit balances totaled C$51.3 billion, up 28 percent from C$40 billion a year earlier.
- Difficult markets have taken a toll on Canadian Imperial Bank of Commerce. Trading revenue at the company fell 18 percent to C$341 million ($259 million) in the fiscal first quarter from a year earlier, when it had one of its best trading quarters in the past two years. The decline pared earnings in CIBC’s capital-markets business by 38 percent, contributing to an 11 percent decline in overall profit for the first quarter to miss analysts’ estimates. CIBC’s struggles were similar to those at Canada’s other large lenders, including Royal Bank of Canada, Bank of Nova Scotia and Bank of Montreal, all of which posted earnings declines in their capital-markets divisions in a period executives described as challenging with significant market volatility.
- Justin Trudeau is facing the most explosive crisis of his administration after his former attorney general detailed a months-long campaign by the Canadian prime minister’s office to quietly end a legal problem for an iconic Quebec construction firm. In dramatic testimony that lasted nearly four hours, Jody Wilson-Raybould broke her silence with a detailed account of efforts by Trudeau and top aides to persuade her to step in and end prosecution of SNC-Lavalin Group Inc. She argues it amounted to interference in the judicial system, though concedes it wasn’t illegal, while Trudeau says he was trying to prevent job losses in his home province of Quebec.
- Donald Trump might have to drop tariffs on steel and aluminum if he wants his new North American trade deal to see the light of day. U.S. lawmakers and business groups are joining Canada and Mexico in pushing the president to lift the so-called Section 232 levies on those nations as, essentially, a condition of enacting the trade deal Trump signed at the end of November. The tariffs took effect earlier last year and were immediately met with retaliatory measures. There are growing warnings in all three countries, including from Republicans in Congress, that the deal’s passage hinges on lifting the tariffs. The chief White House economic adviser, Larry Kudlow, and Agriculture Secretary Sonny Perdue have already acknowledged a push within the administration to eliminate the tariffs — either entirely, or to replace them with quotas.
- European shares opened lower following Asian markets after the summit between U.S. President Donald Trump U.S. and his North Korean counterpart ended without a deal. The Stoxx Europe 600 Index dropped 0.5 percent, led down by basic resources and technology shares. Anheuser-Busch InBev NV jumped 4 percent after the world’s largest brewer reported stronger-than-expected earnings growth on higher demand. IAG SA, the parent of British Airways, rose 3 percent as adjusted operating profit beat analysts estimates.
- Stocks dropped as disappointing manufacturing data out of China and an abrupt end to the U.S.-North Korea summit added to woes facing investors. Havens, including gold and the yen, climbed. Contracts on the Dow, Nasdaq and S&P 500 all fell, with South Korean shares the biggest losers in Asia as President Donald Trump and Kim Jong Un departed the summit venue in Hanoi without a deal, even as expectations for a breakthrough were low. Treasuries climbed, most European bond slipped and the dollar held steady.
- The slide in Korean stocks and the won following the failure of the Trump-Kim summit Thursday has all the signs of being a one-day wonder, with little longer-term impact on global markets. The benchmark Kospi index plunged 1.8 percent Thursday — the most since Oct. 23 — while the South Korean won slipped 0.5 percent against the U.S. dollar after the discussions between the two leaders collapsed without an agreement. The cost of insuring the nation’s sovereign bonds against non payment increased.
- Oil fell to near $56.50 a barrel following more bearish Chinese manufacturing data while U.S. imports crude plunged and Saudi Arabia defied President Donald Trump’s call for lower prices by signaling it intends to keep cutting output. Futures in New York edged lower after a 2.6 percent gain Wednesday, the most in almost a month. U.S. inward shipments fell to the lowest in 23 years last week as crude inventories dropped for the first time since early January, according to Energy Information Administration data. Saudi Arabian Energy Minister Khalid Al-Falih said OPEC and its allies may continue production cuts in the second half of this year.
- Gold’s run of monthly gains is at risk of ending in February after bullion failed to break above $1,350 an ounce, holdings in exchange-traded funds contracted, and investors weighed the outlook for the Federal Reserve’s monetary policy and whether the U.S. can avoid a recession. Prices were steady on Thursday after Fed Chair Jerome Powell told lawmakers he’ll soon announce a plan to stop shrinking the bank’s $4 trillion balance sheet. On the trade front, U.S. Trade Representative Robert Lighthizer struck a cautious tone on prospects for a deal with China, saying much work still needs to be done. His remarks came days after President Donald Trump suggested he was already planning to sign an accord with Chinese leader Xi Jinping.
- Net migration to Britain from other European Union countries is at its lowest level in a decade as Brexit uncertainty escalates. EU citizens arriving in the U.K. outnumbered those leaving by just 57,000 in the 12 months through September, the least since 2009 and half the number recorded a year earlier, the Office for National Statistics said Thursday. Overall net migration, including from non-EU countries, was little changed at 283,000.
- Doubts are beginning to gather around the pharmaceutical industry’s biggest-ever takeover after Bristol-Myers Squibb Co.’s second-largest shareholder said that it doesn’t favor a $74 billion takeover of Celgene Corp. Wellington Management Co., which manages about $1 trillion in assets, said in a news release that it “does not believe that the Celgene transaction is an attractive path” for broadening Bristol-Myers’s business. The firm holds 7.7 percent of Bristol-Myers shares, and said Wednesday that it had sold some of what was until recently the biggest stake in the New York-based drugmaker.
- President Donald Trump said he walked out of his second summit with Kim Jong Un after the two leaders couldn’t agree on a deal to relieve North Korea of U.S. sanctions in exchange for Pyongyang giving up much of its nuclear weapons program. Trump said Kim “wanted the sanctions lifted in their entirety, and we couldn’t do that.” In exchange, the North Korean leader had offered to dismantle its main nuclear facility at Yongbyon. The U.S. presented Kim with evidence of additional secret nuclear sites, surprising the North Koreans, according to Trump. Secretary of State Michael Pompeo said that even without Yongbyon the country would still possess missiles, warheads and other elements of a nuclear program that were unacceptable to the U.S.
- IAG SA will order as many as 42 Boeing Co. 777 jets valued at up to $18.6 billion, handing the U.S. planemaker a victory over rival Airbus SE as it replaces its aging long-haul fleet. British Airways will take 17 of the largest 777-9 version of the wide-body jet, the company said in a statement Thursday. IAG also took options on an additional 24 of the aircraft, which carries a list price of up to $442.2 million before customary discounts. Bloomberg News reported earlier that IAG was leaning toward Boeing.
- Cellnex Telecom SA is setting the stage for more acquisitions. The Spanish phone-tower operator is turning to investors for a 1.2 billion euros ($1.4 billion) capital increase to support growth. New shares will be sold at 17.89 euros each, 24 percent below Wednesday’s closing price, Cellnex said in a filing. Investors appear to back the share sale, driving down the stock by less than the offer’s dilution ratio. Still, they might have preferred a fund-raising directly tied to a specific acquisition, according to Banco Sabadell analyst Andres Bolumburu.
- As Tesla Inc. closes in on the deadline to make its largest debt payment ever, markets are signaling that the electric-vehicle maker will do so with what amounts to barely a blip in its notoriously volatile stock. Options prices indicate a 3.7 percent move in Tesla’s shares between now and Friday, when the $920 million debt comes due. The implied volatility is around 2.5 times lower than levels reached when the stock was roiled last October. The company said in its fourth-quarter shareholder letter that it had sufficient cash to “comfortably” settle the convertible bond. It had about $3.7 billion of cash and equivalents as of Dec. 31.
- ZF Friedrichshafen AG is in talks to buy Wabco Holdings Inc. in a potential $9 billion deal that would put the auto-parts maker on par with fellow German peers Robert Bosch GmbH and Continental AG. Shares of Wabco — a supplier of braking and driver-assistance systems — jumped as much as 9.4 percent to $142.80 after Wednesday’s close in New York. The company confirmed it’s in preliminary discussions with ZF after the German manufacturer’s approach and said there’s no assurance a deal will be reached.
- Rolls-Royce Holdings Plc shares fell as the jet-engine maker missed delivery targets, booked 1.3 billion pounds ($1.7 billion) in charges and withdrew a bid to power the industry’s only new aircraft platform. Production fell short as Rolls wrestled with supplier and testing issues, while it incurred costs for job cuts, compensating airlines for groundings of the Trent 1000 model that powers Boeing Co.’s 787 Dreamliner, and Airbus SE’s decision to wind down production of the A380 superjumbo.
- With global stocks rallying since the start of the year and recession fears easing in at least some quarters, preparing for the next crisis isn’t top-of-mind for many market players just now. That hasn’t stopped one Goldman Sachs Group Inc. strategist from game-planning. “On the macro side, I really think dollar-yen for me is the key pressure point,” to consider in the next downturn, Bernhard Rzymelka, Goldman’s head of rates-market strategies Europe, said at a conference in Sydney Wednesday. “I keep asking people where do you think that’s going to go if the Fed cuts to zero” given what happened the last time the Federal Reserve applied extraordinary stimulus, he said, predicting next time it hits a record.
- One of Asia’s leading steel mills has warned that rising iron ore costs after Vale SA’s dam burst may crimp profit margins, while flagging that the uncertainty generated by the upheaval may drag on for months as users seek assurances about supplies beyond April. Output cuts and costlier raw materials as a result of the fatal spill and related mine curtailments “could cause our margins to shrink, even temporarily,” Shinichi Okada, executive vice president of JFE Holdings Inc., said in an interview in Tokyo. The company, which will seek to pass on any higher costs to customers, is Japan’s second-biggest steelmaker.
- India, which jostles with Brazil for the title of the world’s top sugar producer, is to consider providing subsidized loans to mills and refiners to help pay off some of the money owed to farmers, and to expand ethanol manufacturing capacity, according to a government official. Shares of most India sugar mills jumped. The government will ask commercial banks to lend 230 billion rupees ($3.2 billion), said the official, who asked not to be identified as the information is not public. The proposal will likely be discussed by India’s cabinet on Thursday. A food ministry spokeswoman declined to comment on the matter.
- BNP Paribas SA won dismissal of a German lawsuit by a trader seeking 163 million euros ($186 million) for a “fat-finger” mistake in a 2015 transaction. The Frankfurt Regional Court on Feb. 26 ruled it can’t look into merits of the case, which involved an error on the bank’s system that displayed derivatives priced at 108.80 euros each instead of 54,400 euros each. Judges held the investor should have sued in France rather than Germany, a spokeswoman for the tribunal said Thursday.
- Bharti Airtel Ltd. is planning to raise as much as 320 billion rupees ($4.52 billion) for preparing a war chest to fend off competition from Asia’s richest man, who continues to disrupt India’s telecom industry with a price war. The company’s board approved raising up to 250 billion rupees through a rights issue and another 70 billion through perpetual bonds with equity credit, an exchange filing on Thursday showed. The rights issue will be priced at 220 rupees per share, according to the filing.
- HP Inc. was downgraded by two notches at BofAML, to underperform from buy, which wrote that it had “lower confidence” in the company’s print supplies business following the company’s first-quarter results. The firm also slashed its price target to $19 from $30, which represents a new Street low. BofAML’s downgrade came one day after HP reported quarterly sales that were below expectations; it also gave a disappointing outlook for the printer supplies business, a high-margin division.
- Huawei Technologies Co. faces its first U.S. court date stemming from a criminal indictment alleging trade-secret theft, a day before the company learns if Canada will start extradition proceedings for its chief financial officer in a pivotal week that could see diplomatic tensions flare. China’s biggest smartphone maker and its U.S. affiliate are set to appear in federal court in Seattle at 9 a.m. to face charges that they engaged in a scheme to steal trade secrets from T-Mobile US Inc. They are expected through lawyers to plead not guilty to trade-secret theft, wire fraud and obstruction of justice.
*All sources from Bloomberg unless otherwise specified