January 30th, 2020

Daily Market Commentary

Canadian Headlines

• A rift between between Teck Resources Ltd. and the company it uses to export its coal widened as the Vancouver-based miner publicly accused the shipper of charging too much and contaminating some freight. The head of Teck, already shifting some steel-making coal freight away from Westshore Terminals Investment Corp., said on Wednesday that the export facility had contaminated “dozens” of shipments. Teck was forced to build its own terminal quickly, before a permit lapsed and its contract with Westshore expired, which drove up capital costs, according to Chief Executive Officer Don Lindsay. “We had a lot of trouble with Westshore,” Lindsay told analysts at an industry conference in Banff, Alberta. “We’re not happy that the capex doubled. We had to get away from a company that used monopolistic pricing practices.”

World Headlines

• European equities slumped amid concerns that the coronavirus epidemic is crimping growth prospects in China and threatening the global economy as a result. The Stoxx Europe 600 retreated 0.9%. The decline was led by oil and gas as well as technology shares. Royal Dutch Shell Plc dropped 3.9% as it slowed the pace of share buybacks and profit missed expectations. Luxury stocks were also hurt, with LVMH Moet Hennessy Louis Vuitton SE falling 1.7%.
• U.S. equity futures slid with stocks on Thursday as investors mulled mounting evidence that the coronavirus epidemic is disrupting the world’s second-largest economy. Contracts for the three main American equity benchmarks pointed to losses at the open, and the Stoxx Europe 600 Index declined as all but two sectors traded in the red. Earnings continued to roll in. U.S. tech giants presented a mixed picture after the bell on Wednesday, with Facebook Inc.’s results underwhelming as Microsoft Corp. and Tesla Inc. topped expectations.
• Shares fell across Asia as a slew of companies suspended some of their China operations in an effort to help contain the illness, with economists starting to cut growth forecasts. Treasury yields added to declines, with the 10-year yield now at the lowest since October. Bonds gained and China’s offshore yuan briefly weakened past 7 for the first time this year.
• Oil resumed declines as the biggest jump in U.S. crude stockpiles in almost three months added to concern over demand in a market already grappling with China’s spreading coronavirus. Futures lost as much as 2% in New York, trading near the three-month low just above $52 a barrel reached earlier this week. U.S. inventories rose by 3.5 million barrels last week, fanning concerns that global markets soon face a renewed supply glut. Airlines across the world suspended flights to China as the death toll from the virus reached 170, with the World Health Organization meeting to consider issuing a global alarm.
• Gold held gains after the Federal Reserve continued to signal policy would stay on hold and as mounting fears over the coronavirus epidemic supported haven demand. Fed Chairman Jerome Powell said on Wednesday that monetary policy is well positioned to support economic growth. He also said that the outbreak of the virus will likely hit the Chinese economy and could spill wider, though it’s too early to assess a possible impact on the U.S. The World Health Organization holds a meeting of its Emergency Committee on Thursday to consider issuing a global alarm as the death toll and confirmed cases in China soar, while India reported its first case. Investors will be also watching a rate decision from the Bank of England.
• The coronavirus death toll rose to 170 and confirmed cases in China soared past 7,700, with ripple effects of the spreading illness raising threats to the economy. Asian and European stocks slumped with U.S. futures amid mounting evidence that the outbreak is disrupting company supply chains and consumer activity. Economists have started cutting growth forecasts as authorities tighten travel restrictions and lock down cities, while businesses suspend their China operations. With the disease spreading across the globe, the World Health Organization is gathering Thursday to consider issuing an international health emergency.
• The Bank of England kept interest rates on hold in Governor Mark Carney’s final meeting, waiting for more evidence of an economic rebound before supporting it with a cut. The pound gained. Policy makers voted 7-2 to keep the benchmark at 0.75%, an unchanged split that belied investor expectations the decision was on a knife-edge. Yet officials signaled easing may be needed soon, cutting their GDP forecasts and predicting inflation will only return to target by the end of 2021. The pound traded 0.5% higher at $1.3081 at 12:19 p.m. London time. Investors are now betting on a rate cut late this year. Carney will hold a press conference at 12:30 p.m.
• Democrats face dwindling chances to get testimony from former National Security Adviser John Bolton and others in the Senate impeachment trial as the pool of Republicans willing to even consider defying President Donald Trump keeps shrinking. The possibility of new, potentially damaging revelations emerging from testimony or documentary evidence has always been the greatest unknown in a process where there’s little chance that two-thirds of the Republican-controlled chamber would vote to oust the president.
• Shares of Advanced Info Service Pcl, Thailand’s biggest mobile phone operator, slumped after the company was ordered to pay 31 billion baht ($1 billion) in compensation to a state-owned agency. The company, controlled by Singapore Telecommunications Ltd., was told by an arbitration tribunal to make the payment, along with interest, to TOT Pcl, according to its filing to Thailand’s stock exchange after the market closed Wednesday. TOT is a state-controlled agency that granted a mobile phone concession to Advanced Info.
• U.S. Secretary of State Michael Pompeo said the so-called special relationship with the U.K. is “in a fantastic place today,” as he promised to put Britain “at the front of the line” for a new trade deal after Brexit. His comments, at an event in London, are a boost for Prime Minister Boris Johnson a day before the U.K. leaves the European Union. “We intend to put the United Kingdom at the front of the line” for a free trade deal, Pompeo said, speaking alongside British Foreign Secretary Dominic Raabat the Policy Exchange think tank in London.
• As Amazon.com Inc. prepares to report quarterly results on Thursday afternoon, some analysts warn that slowing growth and rising costs at the company’s most profitable division may ding earnings. Amazon Web Services, the biggest seller of rented computer processing power and data storage, has accounted for two-thirds of its parent company’s operating income during the last three years. That windfall gave Amazon a cash cushion to continue to make big bets in other areas. A consistently profitable AWS also gave investors confidence that the Seattle-based company had turned a corner despite occasional struggles to make money from the core e-commerce business.
• Hennes & Mauritz AB appointed Helena Helmersson as the first female chief executive officer of the fast-fashion pioneer, taking over from founding family scion Karl-Johan Persson, who struggled to contain competition from cheaper rivals and online platforms that revolutionized shopping. Helmersson was previously head of operations, and Persson moves to the supervisory board after more than a decade, where he succeeds his father, Stefan Persson, as chairman. Stockholm-based H&M announced the changes as it reported quarterly earnings that beat analyst estimates, pushing the shares to their biggest gain in more than seven months.
• China is expected to unveil efforts to cushion the economic blow from coronavirus, with the central bank set to keep liquidity ample and the government likely to step up spending. Authorities will need to break their fiscal rule of a 3% deficit relative to GDP to “slow the downward spiral of economic activities,” according to Li-Gang Liu at Citigroup Inc. Measures such as cutting interest rates and the proportion of deposits banks must set aside as reserves are possible, said Larry Hu, head of China economics at Macquarie Securities Ltd. in Hong Kong.
• Blackstone Group Inc. saw a record fundraising haul last year, as investors continue to hunt for returns in a low-yield environment. Steve Schwarzman’s firm took in $26 billion in the fourth quarter, it said Thursday, contributing to a full-year haul of $134.4 billion. Assets under management climbed to $571.1 billion, also a record. The New York-based firm is bringing in flows much faster than it can use the capital, highlighting a conundrum for many alternative asset managers. President Jonathan Gray said Wednesday that the investing environment is “very challenging,” due in part to high valuations and relatively low global economic growth. The firm deployed $62.9 billion in 2019, including its purchase of the Bellagio Las Vegas.
• Federal Reserve Chairman Jerome Powell signaled that the central bank would pull out the stops to combat a global disinflationary downdraft, foreshadowing a potential shift toward an easier monetary policy over time. Speaking to reporters on Wednesday after the Fed left its benchmark interest rate unchanged, Powell said he is intent on evading the downward spiral in inflation and inflation expectations that’s bedeviled other countries.
• Coca-Cola Co. reporting better-than-expected revenue growth for the fourth quarter, citing rising demand overseas and higher sales of its low-sugar offerings in the U.S. The shares rose in early trading. The Atlanta-based beverage giant said unit case volume gained 3%. Organic revenue, which strips out some items like currency effects, increased 7% — above analysts’ average estimate of 4.9% growth, according to Bloomberg Consensus. Quarterly earnings matched the average of analysts’ predictions
• Verizon Communications Inc. missed profit estimates while adding more than a million new wireless subscribers, a possible precursor to challenges ahead as the company expands its costly launch of next-generation 5G wireless services. Earnings excluding some items totaled $1.13 a share. The number of regular monthly wireless subscribers rose by 1.25 million, which includes new phones, hot spots, smartwatches and other connected devices. Analysts expected earnings of $1.15 a share and 1.23 million new wireless subscribers. Revenue of $34.8 billion was ahead of estimates.
• United Parcel Service Inc.’s profit outlook fell short of analyst estimates, held back by declines in global industrial production and spending to cope with soaring e-commerce deliveries. Earnings will be $7.76 to $8.06 a share this year, UPS said in a statement Thursday as it reported earnings. Analysts had predicted $8.07 a share on average, higher than the $7.91 midpoint of the UPS forecast.
• As the flat white trounces black tea, Lipton owner Unileveris weighing a sale of one of its best-known brands. The Anglo-Dutch giant initiated a review of its global tea business, which includes the more than century-old label and generates sales of almost 3 billion euros ($3.3 billion). The move comes after the company’s slowest quarterly growth in a decade. Unilever is following a consumer shift to coffee as a primary source of caffeine, with takeaway cafes proliferating from London to Beijing and capsule-spewing espresso machines supplanting kettles on kitchen counters around the world.

*All sources from Bloomberg unless otherwise specified