January 15th, 2020
Daily Market Commentary
- Canadian stocks rose to a second straight record high, shrugging off a report that U.S. tariffs on Chinese goods are likely to stay in place until after the November presidential election. The S&P/TSX Composite Index added 0.3% to 17,352.90. Health-care stocks led the gains amid strength in most cannabis stocks, even as Aphria Inc. tumbled 8.6% following a reduced full-year outlook. Materials were also strong as gold shares rallied. Suncor Energy Inc. contributed the most to the index gain, measured in index points, increasing 1.5%. Ballard Power Systems Inc. had the largest percentage increase, rising 6.4%.
- TC Energy Corp. plans to begin pre-construction work on the Keystone XL oil pipeline next month, moving the long-delayed project forward even as opponents continue to fight it in court. Heavy construction equipment will be moved to worker campsites and pipeline storage sites in Montana, South Dakota and Nebraska in February, the Calgary-based company said in a filing with the U.S. District Court in Montana on Tuesday. TC then plans to start building the part of the conduit that crosses the U.S.-Canada border in April.
- European equities were little changed as investors analyzed U.S.-China trade relations and weighed earnings reports for signs of a recovery in growth. The Stoxx Europe 600 Index was up less than 0.1% as retail industry shares led the gainers and the chemicals sector led the declines. While the U.S. and China are expected to sign the phase-one deal in Washington Wednesday, reports that a swathe of tariffs on China will remain until after November and that the Trump administration is drafting rules allowing the blocking of more sales to Huawei Technologies Co. weighed on sentiment. The likes of JPMorgan Chase & Co. and Citigroup Inc. kicked off the U.S. earnings season yesterday.
- U.S. equity-index futures slipped and stocks in Europe struggled for traction as concern over trade tensions lingered even as America and China were set to sign their initial accord. Treasuries rose and the dollar was steady. Contracts on the S&P 500 ticked lower as traders awaited earnings reports from some of America’s biggest banks, including Goldman Sachs Group Inc. and Bank of America Corp.
- Equities across most of Asia fell amid reports that a swath of tariffs on China will stay in place for now. Just hours before the phase-one China deal is inked in Washington, details emerged that are damping risk appetite. The accord leaves in place tariffs on almost two-thirds of U.S. imports from China until at least November’s presidential election, and would also punish Beijing if it fails to deliver on pledges related to its currency, intellectual property and trade balance. No time was line set for further talks, leaving investors uneasy about future relations between the worlds biggest economies.
- Oil traded near a six-week low as industry data showing an increase in U.S. crude stockpiles re-affirmed expectations that global markets will be oversupplied in the first part of the year. Futures slipped as much as 0.7% in New York to near $58 a barrel as traders focused on the approaching seasonal lull in demand once winter ends, and amid signs of plentiful supply around the world. The American Petroleum Institute reported inventories expanded by 1.1 million barrels last week, according to people familiar with the data.
- Gold rose on renewed concerns over trade relations between China and the U.S. Palladium surged above $2,200 an ounce to a fresh record, while platinum touched the highest in nearly two years. Existing tariffs on billions of dollars of Chinese goods coming into the U.S. are likely to stay in place until after the American presidential election, and any move to reduce them will hinge on Beijing’s compliance with the terms of a phase-one trade accord, people familiar with the matter said. Palladium gained for a 10th straight session, expanding this year’s advance to 14% and outperforming any other major commodity.
- President Donald Trump is poised to sign a deal with China on Wednesday that leaves significant tariffs in place and for the first time would punish Beijing if it fails to deliver on pledges related to its currency, intellectual property and the trade balance. But the question set to dog Trump the moment the ink dries is whether the pact will rewire the relationship between the world’s biggest economies. For many in Washington, U.S.-China economic ties have become an example of the evils of globalization, the tensions of 21st century technology and geopolitics, and the missteps of past presidents.
- Saudi Aramco’s share price already reflects co.’s strengths such as a leading cost position, Morgan Stanley says, rating the oil producer the equivalent of a sell as banks begin coverage following the world’s largest IPO.
- Bharti Airtel Ltd., an Indian wireless carrier, raised $3 billion from the sale of shares and bonds to help pay government fees falling due in about a week. The New Delhi-based company, which was ordered by the nation’s top court to pay $3 billion in airwaves and license fees, raised $2 billion from a so-called qualified institutional placement, according to a statement on Wednesday. It also collected $1 billion from the issuance of convertible bonds.
- The hard-fought battle that has kept the biggest utility bankruptcy in U.S. history dragging on for almost a year may finally be coming to an end. PG&E Corp. is nearing a deal with a group of noteholders led by bond giant Pacific Investment Management Co. and activist investor Elliott Management Corp., who’ve repeatedly sought to derail the company’s $46 billion restructuring plan. The agreement would entitle them to a mix of equity and new debt in the California power giant if they scrap a rival proposal, people familiar with the matter said, asking not to be identified because the information isn’t public.
- Vladimir Putin outlined a raft of proposed constitutional changes aimed at strengthening the powers of the parliament and other government bodies, fueling speculation that he’s laying the groundwork for keeping power beyond the end of his current term in 2024. The plans, announced unexpectedly at the end of his annual state-of-the-nation speech Wednesday, come as Putin is widely expected to seek a way to hold onto control in some form beyond the constitutional limit at the end of his current term. Putin hasn’t commented on his plans and his proposals didn’t include any major overhauls that would have created a new post for him. But the shifts could reduce the sweeping powers currently held by the president, potentially reining in any successor while making the parliament and the State Council more influential.
- The path to a Bank of England interest-rate cut as soon as this month became clearer on Wednesday after inflation unexpectedly slowed to a three-year low. The pound fell and traders increased bets that policy makers would reduce rates on Jan. 30, as the shock reading reinforced speculation fueled by dovish comments from BOE Governor Mark Carney and others in recent days. Less than an hour earlier, policy maker Michael Saunders, who’s been voting for lower rates, said the U.K. economy needs an injection of stimulus to avoid a prolonged period of below-target inflation.
- The absence of a long-speculated bid for ITV Plc hasn’t deterred merger and acquisition desks from naming the U.K. broadcaster as Europe’s most likely takeover target for a fourth year in a row. ITV appeared on the M&A watch lists of 6 out of 20 event-driven traders, analysts, brokers and fund managers surveyed by Bloomberg News. That follows a year in which the shares hit a multi-year low, before rallying to post a first annual gain in four.
- Mitsubishi UFJ Financial Group Inc. will name Hironori Kamezawa as chief executive officer, succeeding Kanetsugu Mike at the helm of Japan’s biggest bank, a person with knowledge of the matter said. The appointment of Kamezawa, 58, will take effect in April, just one year after Mike took the post, according to the person, who asked not to be identified before an official announcement. Mike, 63, will remain chief of MUFG Bank Ltd., the main lending subsidiary, the person said.
- China added liquidity to the financial system Wednesday, helping to offset a cash squeeze ahead of the Lunar New Year holiday. It kept interest rates on the loans unchanged. The People’s Bank of China added 300 billion yuan ($44 billion) through the medium-term lending facility at 3.25%, according to a statement from the central bank. It also injected 100 billion yuan via open market operations after a 15-day hiatus, selling 14-day reverse repurchase agreements at 2.65%. There were no funds maturing Wednesday. Some 257.5 billion yuan worth of targeted medium-term loans will come due on Jan. 23. Traders had been expecting a liquidity injection before the week-long holiday, and some saw China’s decision to hold interest rates as a disappointment. Bond futures fluctuated Wednesday, and the CSI 300 Index of Chinese shares closed 0.6% lower.
- India is considering a plan to offer subsidized loans to mobile handset manufacturers in a bid to attract Apple Inc. and Samsung Electronics Co.’s suppliers to open factories in the nation, said a government official. The proposals by the Ministry of Electronics and Information Technology includes offering interest subsidy on local borrowing by manufacturers, may form part of the federal budget to be unveiled on Feb. 1, the official said, asking not to be identified citing rules on speaking to the media. It also includes setting up of industrial zones equipped with taxation and customs clearance, along with infrastructure such as roads, power and water supply, the official said.
- Financial markets beat to the rhythm of economic reports, so the possibility the U.S. will shake up how that data is released has Wall Street pondering the consequences. Right now, journalists, including those from Bloomberg News, get advance copies of market-moving reports from the federal government without the ability to disseminate them until an agreed-upon time. Donald Trump’s administration may stop this practice at the Department of Labor, which releases figures such as monthly employment numbers, according to people familiar with the matter. While the reason for the potential shift wasn’t immediately clear, the previous administration argued that the setup was risky from a security standpoint and cited high costs for providing security and staff.
- BlackRock Inc. saw total assets hit a record $7.43 trillion in the fourth quarter, bolstered by investor confidence in equity and fixed income markets that carried through the end of the year. The world’s largest asset manager posted net inflows to both its bond and equity products in the period ended Dec. 31, on the heels of robust market performance in 2019. Shares rose 1.3% to $525 in pre-market trading. The firm reported net flows of $38.3 billion into its fixed income products in the period ended Dec. 31, according to a statement Wednesday. That compares with $3.1 billion a year earlier. Its fixed income business accounts for 31% of total assets. Equity net inflows were $38.6 billion.
- The Trump administration is preparing possible cuts of $250 million in military aid to Iraq, funds already approved by Congress, if the government expels U.S. troops, and is reconsidering a broad spectrum of other economic and military assistance that isn’t yet committed. The State Department and the Department of Defense have discussed the military assistance funds in emails reviewed by The Wall Street Journal. The emails indicate that the State Department’s Bureau of Near Eastern Affairs is working to cut all $250 million in funds under the U.S. foreign military financing program for Iraq for the current fiscal year.
- Investments in U.S.-listed fixed income exchange traded funds more than doubled last week for the ninth straight week of inflows. Corporate bond ETFs led the inflows. Government bond ETFs had the second biggest change from the previous week. Net inflows to ETFs totaled $9.1b in the week ended Jan. 14, including the effect of leveraged funds, compared with $3.69b the prior week.
*All sources from Bloomberg unless otherwise specified