January 29th, 2020

Daily Market Commentary

Canadian Headlines

• Tim Hortons restaurants have stopped selling Beyond Meat products at its coffee and donut shops across two of Canada’s biggest provinces. The chain had been serving the Beyond Burger and a Beyond Meat breakfast sandwich made with the company’s imitation sausage products. After an initial launch starting in June at nearly 4,000 Canadian locations, the items were scaled back to the provinces of Ontario and British Columbia in September. Beyond shares sank as much as 3.9% to $115.40 in early trading Wednesday after Bloomberg’s report. The stock had tumbled almost 4% in New York trading Tuesday after it was downgraded to neutral by JPMorgan. Beyond Meat has soared more than fourfold since it went public last year.
• Enbridge Inc.’s proposal to convert its Mainline crude pipeline network to long-term contracts is hitting a fresh round of opposition, with Canada’s largest oil producer asking regulators to reject the plan. Canadian Natural Resources Ltd. said in a filing with the Canada Energy Regulator on Tuesday that Enbridge’s bid to change the Mainline from monthly service to long-term contracts is an abuse of market power and isn’t in the public interest. The producer asked the regulator to split its review of the proposal into two parts, with the first addressing whether the conversion should even be allowed.
• The oil and gas producer formerly known as Encana Corp. has completed its corporate overhaul with a new domicile and a new name. It has yet another hurdle to cross. Now based in Denver, Ovintiv Inc. will update investors Wednesday on its progress for the shale oil assets in Oklahoma it amassed after the $5.5 billion acquisition of Newfield Exploration Co. in 2018. The Stack and Scoop fields in the Anadarko Basin have faced investor scrutiny and operational challenges that sent a handful of small explorers into bankruptcy. The company is also set to host a tour of its Stack operations Thursday.

World Headlines

• European stocks inched higher as investors weighed positive earnings reports from Banco Santander SA and Telenor ASA, while assessing the risks from the coronavirus. The Stoxx Europe 600 Index added 0.2% at 8:03 a.m. in London. Santander and Telenor gained at least 2% after reporting profit that exceeded forecasts, while LVMH dropped 1.3% after its growth slowed in the fourth quarter amid protests in Hong Kong. Chip companies including AMS AG and Dialog Semiconductor Plc advanced after Apple Inc. beat sales expectations. European equities kicked off this week with their biggest sell-off in almost four months on worries about the coronavirus, before trimming some of the losses on Tuesday as investors turned to corporate news.
• U.S. equity futures climbed along with stocks in Europe as corporate earnings and the Federal Reserve rates decision later Wednesday gave investors a fresh focus while concerns linger over the deadly coronavirus. Contracts on the three major American indexes edged up, suggesting they may extend Tuesday’s rally. General Electric Corp. rose in the pre-market after its earnings beat the highest estimate.
• Most Asian benchmarks gained, though Hong Kong’s tumbled in a catch-up with the global sell-off since that market shut for holidays. China remains closed, but futures on Chinese shares nudged higher after two days of losses. The offshore yuan steadied in the wake of a senior White House official denying a report that suspending U.S.-China flights was under consideration, helping ease some concerns amid mounting evidence of a near-term economic hit from the illness.
• Oil continued its recovery from a three-month low as traders reassessed the threat to demand from China’s coronavirus, and as U.S. industry data showed a drop in crude inventories. Futures traded near $54 a barrel in New York in tandem with improved sentiment across financial markets, which pushed equities slightly higher. While the number of confirmed infections in China has overtaken the official number recorded during the 2003 SARS epidemic, it’s still unclear how severely world oil consumption will be affected.
• Gold held a drop as investors weighed the threat from the deadly coronavirus after a rally overnight on Wall Street signaled reduced demand for haven assets.
• Saudi Telecom Co. agreed to pay $2.39 billion for Vodafone Group Plc’s Egyptian business as part of an expansion outside its home market. The cash offer is for Vodafone’s 55% stake in Vodafone Egypt, the country’s largest mobile operator, and gives the North African firm an enterprise value of $4.35 billion, according to a statement from Saudi Telecom. Bloomberg reported on Tuesday that the companies were in talks. The deal gives STC, as the Riyadh-based firm is known, access to a country of some 100 million people where Vodafone Egypt has a market share of about 44%. STC still gets more than 90% of revenue from its domestic market. It helps Vodafone further streamline its focus on Europe and sub-Saharan Africa, and cut debt.
• The European Union stopped short of an outright ban of Chinese suppliers such as Huawei Technologies Co. from lucrative 5G contracts, as warnings and threats by Donald Trump’s administration failed to convince the U.S’s closest allies to risk provoking Beijing. In a set of commonly agreed guidelines on how to mitigate risks stemming from the roll-out of next generation telecoms networks, the EU said companies based in non-democratic countries could be excluded from the procurement of certain core components, following assessments by security agencies. But despite intense U.S. lobbying, the so-called toolbox of measures released Wednesday doesn’t recommend a preemptive blanket ban of Chinese equipment, a decision that follows the U.K. on Tuesday allowing Huawei components into non-core networks. EU member states have until April 30 to implement the mitigating measures included in the toolbox.
• Toyota Motor Corp. is halting production in China and other companies suspended operations or asked employees to work from home as they grapple with a SARS-like coronavirus that has killed more than 130 people and is threatening a key growth market. Wuhan, the epicenter of the coronavirus that has infected almost 6,000, is a manufacturing, shipping and business hub. Apple Inc. is working with its suppliers in the city to mitigate any production loss, but the impact outside of the region is less clear, Chief Executive Officer Tim Cook said Jan. 28. Toyota said Wednesday it is suspending operations in its China plants until Feb. 9.
• The global stash of gold in exchange-traded funds hit the highest level in seven years as the impact of the novel coronavirus on markets and sentiment reinforced demand for havens at a time of low interest rates, and the addition of just a few more tons would lift the total to a record. The latest influx into bullion-backed ETFs follows four straight years of inflows, and comes as prices trade near the highest since 2013. The number of confirmed virus cases in China has soared to overtake the official number of infections during the SARS epidemic, and at least 132 people have died.
• Credit Suisse Group AG ignored warnings from its outgoing regional chief executive officer on the risks of lending $2 billion to Mozambique in a scandal that has landed the Swiss bank in a lawsuit and opened up questions about its due diligence. A legal filing from Credit Suisse published last week has revealed that Fawzi Kyriakos-Saad, at the time the chief of the bank’s EMEA business, warned a group of dealmakers not to proceed with the initial stage of the multi-billion dollar financing.
• Germany’s government raised its 2020 growth projection and pledged investment to keep Europe’s largest economy competitive as it turns more digital and climate-aware, and its population ages. The administration’s first major assessment of the economic situation this year comes amid signs that Germany is putting the worst of its troubles behind it. Surveys of activity have picked up, reinforcing the view that the pace of growth may slowly pick up through 2020.
• Kotak Commodity Services Pvt., one of India’s top cotton exporters, will stop selling new cargoes to China on concern the spread of coronavirus may force the top buyer of the fiber to close ports and banks. The Mumbai-based company will look for new buyers of cotton in countries such as Bangladesh, Indonesia, Taiwan and Vietnam to make up for any possible shortfall in sales to China, Vinay Kotak, director of the company, said in an interview by phone on Tuesday.
• General Electric Co. jumped after the company said cash from its manufacturing operations will probably rise in 2020, supporting Chief Executive Officer Larry Culp’s effort to rescue the iconic maker of jet engines and power equipment. Industrial free cash flow, a closely watched metric that’s viewed as an indicator of earnings potential, is projected to climb to as much as $4 billion this year from $2.32 billion in 2019, GE said in a statement Wednesday as it reported results. Wall Street had been expecting $2.2 billion for this year.
• Leslie Wexner, the billionaire behind Victoria’s Secret, is in discussions to step aside as chief executive officer of his retail empire and is exploring strategic alternatives for the lingerie brand, according to people familiar with the matter. The discussions are ongoing and could result in a full or partial sale of Victoria’s Secret, some of the people said. The chain, with about $7 billion in annual sales, has long dominated the U.S. lingerie market but has struggled in recent years with falling sales. The company is looking to reach a decision on the potential deal and succession plans in coming weeks, they said, though there is no guarantee it will reach an agreement.
• Jerome Powell will likely face questions about the Federal Reserve’s plans to slow its asset purchases as well as potential fallout from a deadly virus when he faces reporters after a policy meeting Wednesday. The Fed is all but certain to keep interest rates steady following December forecasts that showed no change in 2020, and is expected to reinforce the signal that policy is on hold. Officials could tweak a secondary rate, known as the interest on excess reserves, in a technical move. The Federal Open Market Committee will announce its decision in a policy statement at 2 p.m. in Washington and the chairman will hold a press conference 30 minutes later. There are no economic forecasts published at this meeting.
• Apple’s first-quarter results spurred optimism among analysts that demand for the tech giant’s iPhones will endure, especially as the company is said to be preparing to launch a new low-cost model and a 5G-enabled device later this year. Analysts were particularly positive on growth in China, as well as the outlook for the second quarter, even as the performance of the services division disappointed. Analysts at Cowen also cautioned of the potential impact of the coronavirus outbreak on demand in the all-important Asian region. The shares rose 2.2% in the U.S. pre-market and are poised to open at a record high. Apple stock has gained this year as analysts have become increasingly positive on the potential boost from 5G iPhone upgrades.
• Airlines across the globe suspended more flights to China, as governments clamped down on travel to help stop the spread of the deadly Wuhan virus. British Airways halted daily routes to Beijing and Shanghai from London’s Heathrow airport, after U.K. officials advised against non-essential travel. The U.K. flag carrier said it would reassess over the next few days. Hong Kong’s Cathay Pacific Airways Ltd. said separately it would cut capacity to China by 50% or more starting Thursday, while United Airlines Inc. in the U.S. said it would reduce flights to Beijing, Shanghai and Hong Kong.
• AT&T Inc. topped earnings estimates as cost cuts helped offset steep TV-subscriber losses and higher spending on its media business, a positive sign as the company tries to mend its balance sheet and turn attention to the launch of its HBO Max streaming service. Fourth-quarter earnings excluding one-time items were 89 cents a share. Analysts had predicted 87 cents, according to estimates compiled by Bloomberg. The company, which operates DirecTV, the largest U.S. TV service, lost 1.2 million subscribers, more than the 640,000 decline analysts expected.

*All sources from Bloomberg unless otherwise specified