January 20th, 2020
Daily Market Commentary
- Canadian stocks notched their best week since August after posting five consecutive record closes. The S&P/TSX Composite Index rose 0.4% Friday to 17,559.02, bringing its weekly gain to 1.9%. Health-care stocks led the gain as cannabis stocks rallied to close out their best week since 2018. The only negative was energy stocks, which fell slightly as Canadian crude prices remained near the widest discount to West Texas Intermediate in more than a year. Today, 144 of 234 shares rose, while 87 fell. Brookfield Asset Management Inc. contributed the most to the index gain, increasing 1.1%, after S&P Dow Jones Indices said the company will be added to the S&P/TSX 60 Index next week. Ballard Power Systems Inc. had the largest increase, rising 9.3%.
- Tough times in the cannabis industry aren’t stopping its leaders from going to Davos. For the second year in a row, there will be a Cannabis House in Davos, Switzerland this week alongside the schmoozing and speeches of the World Economic Forum. The 2020 offering promises to be “a little more formal and more professional” than last year’s, according to Jason Paltrowitz, executive vice president of corporate services at OTC Markets Group, one of the sponsors of the Cannabis House. Cannabis House will feature a two-day conference focused on the themes of Davos 2020, including sustainability, climate change, social equity and impact investing.
- European equities slipped lower on Monday as most sectors fell after the index reached a fresh record high on Friday and investors’ attention shifted to the earnings season. The Stoxx Europe 600 was down 0.1%, with media, utilities and travel sectors pacing the declines. Oil stocks jumped with crude as supply disruptions in Iraq and Libya reignited concerns over the market’s vulnerability to geopolitical risk. European equities rallied to a new record high on Friday after strong U.S. economic data and the completion of an initial Sino-American trade deal reassured investors in risk assets. All eyes will now turn to the start of the earnings season as traders gauge corporate strength and the outlook for this year.
- Contracts on the main American equity benchmarks also pared their earlier losses. Jitters in the oil market have helped rein in optimism after recent bullishness, spurred by the signing of the initial Sino-American trade deal and economic indicators from China and the U.S. that provided signs the global outlook is improving. Investors now turn their attention back to corporate earnings after solid results from the biggest banks on Wall Street. Key central bank meetings in Europe and Japan are also on the agenda.
- Equities advanced in most of Asia, though shares in Hong Kong and India slumped. European bonds were mixed and range-bound, while the pound slipped ahead of U.K. jobs data due tomorrow.
- Oil rose to a more than one-week high in London as supply disruptions in Iraq and Libya reignited concerns over the market’s vulnerability to geopolitical risk in key production regions. Brent futures increased to more than $65 a barrel after Libya’s oil productionalmost ground to a halt as armed forces closed a critical pipeline, shuttering output from the nation’s biggest oil project. In fellow OPEC nation Iraq, escalating protests stopped work at a minor field on Sunday.
- Libya’s eastern warlord kept the nation’s oil fields shut, in a show of defiance after world leaders failed to persuade him to sign a peace deal ending a five-year civil war. Libya’s oil output plunged to the lowest level since August 2011, according to data compiled by Bloomberg. Its Sharara field, which can pump 300,000 barrels a day, will stop producing once its tanks are full, a person familiar with the situation said. Eastern commander Khalifa Haftar began a blockade of several ports last week. World leaders meeting in Berlin on Sunday agreed to work toward a more durable cease-fire in the North African nation, where Russia and Turkey provide military support to opposing groups as countries outside Libya jockey for access to its energy resources. Yet, the talks showed how global powers are struggling to find solutions to a conflict that’s raged for years.
- Chinese developers raised about $15 billion in equity and bond sales already in 2020. That signals both investor appetite for the securities and the need for cash to overcome a wall of maturing debt. China-based developers raised $1.9 billion through four additional share sales in January, a 3 1/2-year high, with a Hong Kong-based China developer raising $602 million. The sector’s dollar bond sales total $12.5 billion between Jan. 1 and Jan. 17, double the year-earlier period.
- Iran will withdraw from a major non-proliferation treaty if European nations attempt to refer the Islamic Republic to the UN Security Council over its infringements of the 2015 nuclear deal, the country’s foreign minister said. The U.K., France and Germany said last week they would trigger the accord’s dispute resolution mechanism, which could eventually mean the matter being referred to the Security Council. The move inflamed tensions with Tehran, which is locked in an economic confrontation with the U.S. that this month sparked a military exchange.
- Exchange-traded funds added 655,626 troy ounces of gold to their holdings in the last trading session, bringing this year’s net purchases to 202,592 ounces, according to data compiled by Bloomberg. This was the biggest one-day increase since Sept. 25, 2019. The purchases were equivalent to $1.02 billion at the previous spot price. Total gold held by ETFs rose 0.2 percent this year to 81.7 million ounces. Gold advanced 2.6 percent this year to $1,557.24 an ounce and by 0.3 percent in the latest session.
- BAE Systems Plc snapped up more than $2 billion in U.S. defense-technology assets that Raytheon Inc. and United Technologies Corp.were forced to sell in order to gain antitrust approval for their merger. Europe’s biggest defense firm will buy the military global positioning system arm of UTC’s Collins Aerospace unit for $1.93 billion, together with Raytheon’s airborne tactical radios operation at a cost of $275 million, it said Monday. The assets came to market following regulatory scrutiny of the Raytheon-UTC merger and the acquisitions are subject to successful closure of that deal, according to a statement from London-based BAE, which said both businesses are focused on areas of highest-priority U.S. defense spending.
- Hedge funds crimped bullish bets on U.S. oil for the first time in six weeks just as crude was poised to dip amid signs of swelling U.S. stockpiles of petroleum-based fuels. Money managers reduced net-wagers on rising West Texas Intermediate crude to the lowest since early December in the week ended Jan. 14, a day before the U.S. government disclosed a huge increase in domestic inventories of gasoline and distillate fuels. The bearish supply picture overshadowed a preliminary truce in the U.S.-China trade war that eased concerns about global demand growth.
- Hours before the seven House Democrats managers marched articles of impeachment across the Capitol last week, President Donald Trump secured what he’s relying on to counter any political damage — a cease-fire in the trade war with China. With little chance the Republican-controlled Senate will convict him on two articles of impeachment, the greatest danger to Trump is that the proceedings present an unfavorable portrait of the president durable enough to sway Americans against his re-election 10 months later. His hedge is the phase-one trade deal with China he signed on Wednesday. By calling a truce in a trade war that has dampened economic growth — historically one of the most powerful engines of support for incumbent presidents — Trump won what he’s counting on as a key element of his case for re-election.
- JPMorgan Chase & Co. is buying the former BNP Paribas SA offices in central Paris with space to house as many as 450 employees, as banks seek to bolster their footprint in the European Union after Brexit. JPMorgan, which currently has 260 staff in the city, is taking over the seven-story building a short walk from the Louvre museum, it said on Sunday without disclosing a price. The offices are set to open by the end of the year. Global banks that base their European operations in London are at risk of losing access to the European Union as British Prime Minister Boris Johnson threatens to use Brexit as an opportunity to break free from what he sees as the bloc’s restrictive rules. But officials in Brussels have warned that the more Britain diverges, the less access it will enjoy to the single market.
- Prime Minister Shinzo Abe faces almost insurmountable obstacles to completing his career-long quest to amend Japan’s pacifist constitution. That won’t stop him from trying. The premier opened a new session of parliament on Monday with a fresh call to revise the country’s U.S.-imposed postwar constitution. Abe has raised the issue at almost every public speaking opportunity since the new year, saying he wants to make full use of what he expects will be his final 20 months in office.
- A pneumonia outbreak in central China has widened with more than 200 people now diagnosed with the new SARS-like virus, as health experts say there’s now evidence that the illness is spreading from person to person. Amid increased searching and testing for the novel virus among people with symptoms like fever and coughing, the number of cases in China surged over the weekend. With the Chinese New Year just days away — a holiday season during which Chinese citizens rack up 3 billion trips across the country to reunite with family — the virus’s spread is likely to intensify. Wuhan, the central Chinese city at the center of the outbreak, now has almost 200 confirmed cases, including three fatalities. Cases were also reported in Beijing and the southern Chinese province of Guangdong. Across the region, South Korea detected its first case, adding to those found in Thailand and Japan last week.
- China will curtail its consumption of single-use plastic in an effort to tackle a soaring amount of the discarded material that has quickly become one of the world’s most pressing environmental crises. Non-degradable plastic bags will be banned in places such as supermarkets and shopping malls in major cities, as well as for the country’s ubiquitous food delivery services by the end of this year, according to a plan released by the National Development and Reform Commission on Sunday. “China is catching up with the rest of world,” said Leiliang Zheng, an analyst at BloombergNEF. “The EU is the leader in solving the plastic crisis and has already passed a law to widely ban single-use plastic items in 2019, and many developing countries in Africa and Southeast Asia are also tracking the problem.”
- South African Airways said all flights are operating normally as the government looks for ways to provide 2 billion rand ($138 million) in funding for the embattled national carrier. While there may be “flight schedule amendments” in the future, details of those changes will be announced when finalized, SAA said in an emailed statement on Monday. The airline has been in a local form of bankruptcy protection since last month. Lenders agreed in December to provide 2 billion rand to enable SAA to continue to operate, while the government committed an equal amount though the National Treasury. However, it has yet to pay the funds. President Cyril Ramaphosa’s government said over the weekend it continues to work toward finding ways to create “a restructured, modern airline.”
- Facebook Inc.’s Libra cryptocurrency starts 2020 looking no closer to release, with authorities in its base in Switzerland raising fresh questions about its suitability as a global currency. Swiss finance minister Ueli Maurer said on Dec. 27 in Bern that the country can’t approve Libra in its current form, telegraphing to Facebook that the product it wants to launch in Geneva isn’t going get a green light from regulators anytime soon. Maurer went further in an interview with Swiss broadcaster SRF that same day, saying the project “has failed” in its current form because the basket of currencies Libra proposed to back the digital currency haven’t been accepted by the issuing national banks.
- Ford Motor Co., LG Corp. and Pernod Ricard SA joined the ranks of the top global companies that are best prepared for the effects of climate change. They won the “A” grade last year for how aggressive they are setting and meeting carbon goals, as well as how forthcoming they are about their efforts, according to an analysis by nonprofit CDP. For instance, all three companies have made climate an issue with board-level oversight. Of 8,400 companies graded, they joined the 2% including Alphabet Inc., Walmart Inc. and Citigroup Inc. that have dominated the ranking, CDP said in a statement on Monday. CDP, formerly known as the Carbon Disclosure Project, encourages companies, cities and states to disclose and manage their environmental impacts. The data is used by shareholders and other stakeholders to assess company progress.
- Alphabet Inc.’s chief executive officer urged the U.S. and European Union to coordinate regulatory approaches on artificial intelligence, calling their alignment “critical.” In a rare public speech in Brussels at an event hosted by European economic think tank Bruegel on Monday, Sundar Pichai, who is also CEO of Google, said “there is no question in my mind that artificial intelligence needs to be regulated,” but that “we don’t have to start from scratch” with entirely new rules in some cases.
*All sources from Bloomberg unless otherwise specified