January 10th, 2020

Daily Market Commentary

Canadian Headlines

• Yes Bank Ltd. approved raising 100 billion rupees ($1.4 billion) of capital but once again stopped short of offering concrete details, risking investor confidence given the urgency of its funding needs. The Mumbai-based bank announced the decision after a board meeting on Friday and, similar to an earlier statement, it didn’t share the names of any definite new investor. It also rejected a previous offer from Canadian investor Erwin Singh Braich and Hong Kong-based SPGP Holdings.
• Jobs data on Friday are poised to reveal just how weak the Canadian economy is. Canada has posted less than stellar economic statistics recently, including weak retail spending and combined jobs losses of 73,000 in October and November, indicating the economy barely eked out growth beyond 1% on an annualized basis in the fourth quarter. Economists see a bounce back heading into 2020 but just how vigorous that is will depend largely on the labor market, which the Bank of Canada will be watching closely. Analysts forecast 25,000 jobs were created in December with the unemployment rate dipping to 5.8% from 5.9%, according to the median estimate of a Bloomberg survey.
• Canada agreed to help Iran investigate Wednesday’s crash of a Boeing Co. 737-800 near Tehran, joining a team of Ukrainian investigators and local officials already on site. France has also been invited. The Transportation Safety Board of Canada said in a statement it is making travel arrangements. Meanwhile, the U.S. National Transportation Safety Board said it continues to monitor the situation surrounding the crash and is evaluating what its level of participation is going to be. The Iranian foreign ministry said Boeing has been invited to join the probe.

World Headlines

• The Stoxx Europe 600 Index came off earlier highs as banking and retailer shares declined. Bonds mostly rose in Europe, while Treasuries moved in a narrow range. Gold slipped for a third session, winding up its most volatile week since August.
• American equity futures advanced while European stocks edged higher as all eyes turned to the U.S. jobs report after a tumultuous week in global markets. Treasuries drifted. Contracts on Wall Street’s three main stock gauges signaled further gains on Friday after the indexes all closed at record highs, part of a broad relief rallyon bets the U.S.-Iran conflict wouldn’t escalate.
• Japanese stocks completed a weekly gain as investors shifted their attention to upcoming U.S. labor data from tensions in the Middle East. Electronic manufacturers and drugmakers supported the benchmark Topix the most. The latest reading on U.S. jobless claims fell to a five-week low, and Federal Reserve Vice Chairman Richard Clarida said there is no reason the U.S. economy can’t continue to keep growing in 2020. Separately, the U.S. and China are locking in their plans to sign the first phase of the trade deal next week, with Chinese Vice Premier Liu He traveling to Washington for the signing. Japan’s stock market will be closed on Monday for a national holiday.
• Oil headed for its biggest weekly loss since July as the prospect of an immediate confrontation between the U.S. and Iran abated, allaying fears of disruption to Middle East energy supplies. Futures initially soared to an eight-month high above $65 a barrel in New York on Jan. 8 as Washington and Tehran faced-off after the killing of a top Iranian general, but all of this year’s gains dissipated as the two adversaries backed away from a full-scale conflict. Crude is now trading back below $60, down 5.9% for the week.
• Palladium is headed for its biggest weekly advance since June after the metal’s record-setting rally gathered pace. Gold steadied before U.S. payrolls data due later Friday. Palladium prices have nearly doubled in the past two years and topped $2,100 an ounce on Thursday for the first time. While global car sales remain weak, autocatalyst producers need to use more of the metal per vehicle to meet stricter pollution limits amid tight supplies. Gold has erased all of the week’s earlier gains after tensions between the U.S. and Iran eased. Investors now turn their focus to U.S. jobs data due Friday.
• Iraqi Prime Minister Adel Abdul Mahdi asked U.S. Secretary of State Michael Pompeo to send officials to Iraq to work out a mechanism for the withdrawal of American troops, according to his office, as the fallout from the U.S. assassination of a top Iranian general in Baghdad roils ties. The statement on Friday, citing a phone call the previous day between the two men, suggests that Abdul Mahdi is standing by demands from Iraqi lawmakers for American troops to leave following a killing which threatened to turn Iraqi territory into a proxy battleground.
• The new year has started, but for European equities it’s the same old story. European stock funds began 2020 with the biggest outflows in 14 weeks, shedding $1.7 billion in the week through Jan. 8, according to Bank of America Corp. and EPFR Global data. The investor exit follows about $100 billion in almost non-stop redemptions that European equity funds saw last year as traders fled Brexit uncertainty and hid in havens, such as bonds. This week marked a return to defensive instruments after the flare-up in U.S.-Iran tensions whipsawed risk assets, fueling a record $23 billion inflow into bonds and a $47 billion addition to money-market funds.
• South Korean regulators, already moving to protect retail investors from risky hedge-fund investments and complex derivatives, are turning their sights to a fresh target: suspected fraudsters in the nation’s small-cap stocks. In a scheme with parallels to the “pump-and-dump” practice for penny stocks made famous by the film “Wolf of Wall Street,” ill-intentioned investors are suspected of taking majority shares of small firms. They then release news designed to inflate the share price, or pave the way for selling convertible bonds, by which the actors enrich themselves, according to the Financial Supervisory Service, South Korea’s top financial watchdog.
• Yes Bank Ltd.’s board approved raising 100 billion rupees ($1.4 billion) of capital needed to cope with rising bad loans that are hobbling the Indian lender. The money will be raised by methods including by placing shares with qualified institutional investors, via global depositary receipts or foreign currency convertible bonds, the Mumbai-based bank said after a board meeting on Friday. Friday’s decision comes after Yes Bank late last year received offers for $2 billion of capital injections from various parties including Braich, some of which led to questions from analysts over their credibility. Caught in a prolonged shadow-banking crisis, the private-sector lender has seen its shares plunge in recent months over concerns about its asset quality and delays to the fund-raising plan.
• Germany’s government is set to offer RWE AG a significant compensation package to close its lignite-fired power plants as part of a plan to eliminate the polluting fossil fuel from the country’s energy mix. RWE and Economy Minister Peter Altmaier are near an agreement that could amount to as much as 2 billion euros ($2.2 billion), Rheinische Post reported, citing unidentified people in the ruling CDU party.
• Boeing Co. released a new batch of internal messages in which company employees discussed deep unease with the 737 Max and problems in flight simulators used to train pilots on the new jetliner, while also trying to avert greater regulator scrutiny of the plane. “This airplane is designed by clowns, who in turn are supervised by monkeys,” said one company pilot in messages to a colleague in 2016, which Boeing disclosed publicly late Thursday. The company had already provided the documents to lawmakers and the U.S. Federal Aviation Administration, who are investigating the 737 Max and the process that cleared it to fly.
• Iran accused Western governments of engaging in “psychological warfare” in claiming the Boeing Co. jet that crashed near Tehran on Wednesday was brought down by a missile, as the tragedy became further embroiled in geopolitical tensions. “If they are certain and have the courage, they should share any finding that has scientific and technical backing,” Ali Abedzadeh, head of Iran’s Civil Aviation Organization, said in a televised briefing Friday. The comments intensify a standoff over the crash, which came hours after Iran struck at U.S. bases in Iraq in response to the killing of a top general. Canada, the U.K. and Australia all said they have intelligence showing the plane was shot down, while U.S. sources have said two surface-to-air missile launches were detected soon after the Ukrainian jet took off, followed by an explosion.
• Juul Labs Inc. had a tough 2019. In 2020, a new breed of vaping startups aim to learn from their biggest rival’s plight—and take on big tobacco. Would-be pretenders to Juul’s throne have watched as the company’s easy-to-conceal devices became immensely popular with teens, leading regulators to fear Juul could addict a new generation to nicotine. Several companies believe they have come up with technological and regulatory approaches that will avoid Juul’s troubles and potentially disrupt both the tobacco and cannabis industries.
• Donald Trump’s decision to authorize the killing of an Iranian general and reignite Middle East tensions briefly roiled energy markets and underscored a U.S. political reality: Higher gasoline prices can tip elections. The president, who is counting on a robust economy to win re-election in November and maintain Republican control of the Senate, is banking on record-shattering surges in domestic oil production to absorb any shocks unleashed by his moves on Iran. “We do not need Middle East oil,” he said Wednesday. But Trump’s confidence belies U.S. refineries’ continued reliance on heavy grades of crude from the Middle East as well as warnings from oil analysts that renewed tensions — or a strike on energy infrastructure — could still pinch American consumers at the pump.
• Lawmakers expect House Speaker Nancy Pelosi will soon end her delay of President Donald Trump’s impeachment trial without any notable concessions from Senate Republicans, leaving her allies stumped about her strategy in the three-week standoff. Senior Democrats in the House insisted publicly that the speaker has given them no hints on timing for sending the two articles of impeachment over to the Republican-controlled Senate, the step that would trigger an immediate opening of the historic impeachment trial. Amid speculation about her rationale and expressions of exasperation from Democrats in the House and Senate — delivered almost exclusively on condition of anonymity — Pelosi offered only cryptic clues.
• Macquarie Group Ltd.’s infrastructure arm agreed to acquire a majority stake in AirTrunk in a deal valuing the data center operator at about A$3 billion ($2.1 billion), people with knowledge of the matter said. Macquarie Infrastructure & Real Assets signed a deal this week to take control of the business, according to the people, who asked not to be identified because the information is private. AirTrunk CEO Robin Khudawill keep a minority stake after the transaction, the people said.
• Germany’s government is set to offer RWE AG a significant compensation package to close its lignite-fired power plants as part of a plan to eliminate the polluting fossil fuel from the country’s energy mix. RWE and Economy Minister Peter Altmaier are near an agreement that could amount to as much as 2 billion euros ($2.2 billion), Rheinische Post reported, citing unidentified people in the ruling CDU party. Shares in the nation’s biggest power generator rose the most since June. The scale of the compensation could soften the impact of coal-plant closures. Power companies, which also include Uniper SE and STEAG GmbH, have focused on what payouts they can get for going along with the government’s plan to clean up Germany’s energy sector. Chancellor Angela Merkel’s blueprint for exiting coal targets a final date of 2038.
• U.K. Prime Minister Boris Johnson wants to “unleash Britain’s potential.” First the economy has to catch back up with the rest of the world. Research by Bloomberg Economics estimates that the economic cost of Brexit has already hit 130 billion pounds ($170 billion), with a further 70 billion pounds set to be added by the end of this year. That’s based on the damage caused by the U.K. untethering from its Group of Seven peers over the past three years.
• Airline shares surged in Europe after Ryanair Holdings Plc said it expects to post a bigger-than-expected full-year profit following a spike in lucrative last-minute bookings over the Christmas and New Year holiday. Europe’s biggest discount airline now anticipates earnings for the 12 months through March of between 950 million euros ($1.06 billion) and 1.05 billion euros, and most likely in the middle of that range, according to a statement on Friday. It had previously forecast 800 million euros to 900 million euros.
• China’s social media and e-commerce startup Xiaohongshu, or “Little Red Book,” is in early talks to raise funds at a valuation of about $6 billion, according to people familiar with the matter. The online platform, backed by Tencent Holdings Ltd. and Alibaba Group Holding Ltd., aims to raise about $400 million to $500 million, said the people. The company is working with an adviser on the financing plan and has sounded out potential investors, said the people, who asked not to be identified as the discussions are private. Its valuation reached about $5 billion last year, one person said.
• Eli Lilly & Co. agreed to acquire Dermira Inc. for $1.1 billion, snapping up the maker of an experimental treatment for skin disorder dermatitis that was recently placed on a fast track to approval by U.S. regulators. Under the terms of the proposed transaction, Eli Lilly will pay $18.75 in cash for each Dermira share, the companies said in a statement Friday. That’s 2.2% higher than Thursday’s closing price. In premarket trading in New York, Dermira shares gained about 2.3%.
• Bain Capital Credit is seeking to raise $1 billion for a new private-credit vehicle as the firm pushes further into the booming market for alternative debt. The new global direct-lending fund would focus on providing senior secured financing to midsize companies, according to people with knowledge of the matter who asked not to be identified because the information is private. The move comes as cash pours into the $800 billion private-credit asset class. Direct-lending fundraising had a strong 2019, with $25.1 billion raised for North America-focused deals, according to London-based research firm Preqin, down slightly from $26.4 billion a year earlier.

*All sources from Bloomberg unless otherwise specified