February 6th, 2018
Daily Market Commentary
- Canadian stocks fell the most in 17 months as a rapid crash in the Dow Jones Industrial Average led North American indexes lower. The S&P/TSX Composite Index fell 271 points or 1.7 percent to 15,334.81, the lowest since mid-September. The benchmark has now lost 5.6 percent in the past six tradings days.
- Toronto home sales tumbled in the first month of 2018, as tougher mortgage qualification rules came into play and borrowing costs rose. Sales in Canada’s biggest city fell 22 percent to 4,019 units from a year earlier, according to data released Tuesday by the Toronto Real Estate Board. It was the weakest month of sales for January since 2009. The average price of a home sold in Toronto was C$736,783 ($587,968), down 4.1 percent from January 2017, though little changed from December. Toronto’s once-hot housing market has been correcting as various levels of government and regulators took measures to curb spiraling prices and soaring debt in the country.
- Bombardier Inc. has regained momentum on sales campaigns with its customers, after a U.S. trade ruling last month blocked a proposed import duty on its planes, removing an uncertainty for a jet it spent $6 billion developing.
- Laurent Potdevin, who ran Lululemon Athletica Inc. for four years and brought a passion for “mindfulness” to the job, is now leaving the yogawear brand under a cloud of misconduct. The 50-year-old chief executive officer abruptly resigned on Monday in the wake of unprofessional behavior that the company declined to identify. Potdevin will receive a payment of $5 million from Lululemon, which has begun a search for a new leader.
- European stocks headed for their worst drop since the aftermath of the Brexit referendum as traders in the region caught up with an overnight selloff in the U.S. and Asia. The Stoxx Europe 600 Index fell 2.6 percent as of 8:16 a.m. in London, with all industry groups firmly in the red.
- U.S. stock-index futures were volatile in early London trading after three days of losses that culminated in the worst-ever point plunge for the Dow Jones Industrial Average. Contracts on the S&P 500 Index climbed 0.5 percent as of 10:43 a.m. in London, after earlier erasing a slide of 3 percent to rise as much as 1.4 percent.
- Asian equity markets tend to track what happens in the U.S. more than most, and Tuesday was no exception. As U.S. index futures signaled another session of pain ahead there, the MSCI Asia Pacific Index was down 3.5 percent as of 4:25 p.m. in Hong Kong, concluding a three-day rout that erased an advance this year that topped 8 percent.
- Oil slid to a two-week low and headed for its longest losing streak in two months as a plunge in U.S. equities dragged other markets lower. Crude futures in New York fell a third day, sliding as much as 1.3 percent. Stock indexes from Japan to Germany tumbled on Tuesday after a frantic sell-off in U.S. shares sent the Dow Jones Industrial Average to its biggest loss in 6 1/2 years. Nonetheless, oil market conditions look “solid” thanks to production cuts by OPEC, according to Vitol Group, the world’s largest independent energy trader.
- As the equities selloff spread from Asia to Europe, gold proved its status as a safe haven. The metal added 0.3 percent to $1,343.19 an ounce, extending yesterday’s 0.5 percent advance. FTSE/JSE Africa Gold Mining Index gained 1.7 percent, while silver and platinum also rose. But across other risk markets, screens flashed red as everything from bitcoin to Japanese stocks headed lower.
- India’s lenders, already struggling with $210 billion of stressed assets, may have to prepare for another hit as early as the coming financial year if new accounting norms kick in as planned on April 1. The IndAS — based on the IFRS9 standards created in the aftermath of the financial crisis — would require banks to make provisions for expected bad loans instead of the current system where they only cover actual losses incurred. CLSA estimates that would almost double stressed advances, boost provisioning by $30 billion and consume more than $26 billion in capital at state-run banks and $4 billion for private lenders.
- President Donald Trump has received a Democratic memo countering Republicans’ claims of FBI and Justice Department misconduct in the Russia probe and now has five days to decide whether to release it after backing disclosure of the GOP document.
- Chancellor Angela Merkel called on Germany’s prospective coalition parties to compromise, pointing to turbulence on global stock markets as adding urgency to talks to end the country’s political impasse. After more than four weeks of coalition negotiations between her Christian Democrat-led bloc and the Social Democratic Party, Merkel faces the most serious deadline yet in her bid for a fourth term. The deadlock, two days after a Sunday target came and went without a deal, comes as first Asian and then European markets tumbled, sending a gauge of world stocks toward the biggest three-day slide since 2015.
- Vistara, the Indian affiliate of Singapore Airlines Ltd., is in talks with Airbus SE and Boeing Co. to buy jets worth as much as $8.5 billion as the carrier seeks to tap India’s growing middle class, according to people familiar with the plans. Vistara, a joint venture with majority owner Tata Group, is seeking to buy about 50 narrowbody jets, typically used for shorter routes, and up to 10 widebodies, said the people, who asked not to be named discussing private negotiations. A final decision is likely by June, one of the people said.
- BlackRock Inc., the world’s biggest asset manager, called for regulation that would clearly spell out the risks associated with inverse and leveraged exchange-traded products after the collapse of two notes linked to volatility. Inverse and leveraged exchange-traded products don’t perform like exchange-traded funds under stress and regulators should acknowledge the difference, BlackRock said in a statement on Tuesday. BlackRock “strongly supports” a classification system that would label these ETPs differently than “plain vanilla” ETFs, the firm said.
- The plunge in U.S. equities is challenging China’s resolve to keep its equity markets stable. While signs of state support helped the Shanghai Composite Index be the only advancer in Asia on Monday, the severity of bearish sentiment dragged the gauge down 3.4 percent Tuesday. The Hang Seng China Enterprises Index in Hong Kong plunged 5.9 percent, its biggest loss since July 2015, even as mainland funds pumped a net $1.3 billion into the city’s shares.
- U.S. colleges led by Harvard and Stanford reaped a record $43.6 billion in charitable contributions in the last fiscal year, thanks to booming stock markets. The richest schools continue to get richer, with less than 1 percent of all colleges accounting for almost 30 percent of the total for the year ended June 30, the Council for Aid to Education, which tracks university giving, said in a survey released Tuesday. The previous record was set a year prior at $41 billion.
- Apple Inc. is pulling back on buying corporate bonds with its overseas cash as it prepares to bring the money home to the U.S., according to people with knowledge of the matter. About $157 billion of Apple’s $285 billion in cash, mostly held overseas, is invested in corporate debt, making it a leading lender. The cutback in buying, echoed by other tech firms with sizable overseas holdings, such as Alphabet Inc. and Oracle Corp., could have an impact on corporate borrowing costs.
- Federal Reserve Chairman Jerome Powell was met with a surging bout of market volatility in his first day in office, as stocks fell and long-term interest rates plunged in response. The 4.1 percent rout in the S&P 500 index on Monday, the steepest decline since 2011, poses more questions than answers so far for Powell and his team. The sell-off continued into Tuesday in Asia, with stocks plunging for a second day and U.S. stock futures continuing to decline.
- The House is scheduled to vote late Tuesday on Republicans’ proposed stopgap spending bill to keep the government open until March 23 and provide full-year funding for the Defense Department. The House legislation, introduced on Monday night, would avoid a shutdown after current funding ends Friday. It would extend most government funding at current levels until March 23 but would lift budget caps to provide $659 billion for the Pentagon through the end of the fiscal year on Sept 30.
- The rout in cryptocurrencies rolled on, sending Bitcoin to its lowest level since October, as worries over tighter regulation by U.S. authorities and central bankers elsewhere gave traders fresh reasons to sell after a brutal start to 2018. The selloff has now knocked more than half a trillion dollars from digital coins since early January. That’s shaken a nascent market whose core attraction — anonymity and decentralization — is being challenged as never before by regulators.
- The supervisory board of Poland’s biggest oil refiner appointed Daniel Obajtek, until now head of power utility Energa SA, to run the second-largest company traded on the Warsaw Stock Exchange. State-controlled PKN Orlen SA dismissed Chief Executive Officer Wojciech Jasinski, Deputy CEO Miroslaw Kochalski and Chief Investment Officer Maria Sosnowska late on Monday, without providing any reason for the moves. Jasinski, a former Law & Justice lawmaker and close aide to ruling party leader Jaroslaw Kaczynski, was picked to run the country’s biggest company by sales in December 2015.
- The turmoil in global equities has spurred a wave of deleveraging among volatility-targeting funds that’s set to unleash $225 billion of equity sales in the coming days, according to Barclays Plc. Some $500 billion of assets are tied to funds that target a given level of volatility — two-thirds of which are traded by algorithms that look poised to divest after Monday’s eruption of turbulence, according to the British bank. Volatility-targeting investment strategies have become popular in recent years, spurred by the market calm and equity bull run.
- Former White House strategist Steve Bannon is planning to skip a closed-door interview on Tuesday with a U.S. House committee looking into Russian interference in the 2016 election despite being subpoenaed to appear, two people familiar with the matter said Monday. Bannon told the House Intelligence Committee that he would show up if an agreement could be reached with the White House on the scope of the questioning, according to the people, who requested anonymity to discuss a sensitive legal matter.
- Singapore and Malaysia unveiled a plan to create a trading link that allows each country’s investors to access the other’s stock market. The news was announced by Malaysian Prime Minister Najib Razak at a Securities Commission conference in Kuala Lumpur on Tuesday. The link will be established by the end of the year, he said. Singapore and Malaysia’s regulators and national exchanges will work on the arrangements for the system, which will connect markets with more than $1.2 trillion in value and about 1,600 listed companies.
- Credit Suisse Group AG is considering buying back one of its exchanged-traded notes after volatility soared, triggering losses for the holders who had bet on muted market swings, according to a person familiar with the situation. Two of Credit Suisse’s exchange traded notes mirror the inverse performance of the Cboe volatility index, which on Monday soared by the most on record. The VelocityShares Daily Inverse VIX Short-Term ETN, known by its trading symbol XIV, dropped 14 percent during the session on Monday and its net asset value plunged more than 80 percent in late trading, according to data compiled by Bloomberg. It was halted from trading Tuesday.
- Vodafone Group Plc’s bid to bulk up its European business withLiberty Global Plc’s assets sets the carrier on a collision course with its biggest continental rival, Deutsche Telekom AG. Vodafone already competes head to head with Deutsche Telekom on wireless contracts in Germany. Taking over Liberty Global’s local cable unit would increase Vodafone’s fixed grid to near-nationwide coverage, letting it offer more customers bundles of landline and mobile services, an area now dominated by Deutsche Telekom.
*All sources from Bloomberg unless otherwise specified