January 31st, 2020
Daily Market Commentary
- Enbridge Inc. said opponents of its plan to convert the Mainline oil pipeline network to a contract system may be stalling for time, hoping to see what happens on other lines that are in the works before making long-term commitments on its system. Opponents of Enbridge’s proposal, including Canadian Natural Resources Ltd. and the Explorers & Producers Association of Canada, have asked that the Canada Energy Regulator split the approval process for the plan into two. The first part would address whether the conversion should even be allowed. That scenario would be unique, and would likely make the entire regulatory process longer, said Vern Yu, the head of Enbridge’s liquids pipelines business. Pipeline projects including the Trans Mountain expansion, TC Energy Corp.’s Keystone XL and Enbridge’s Line 3 expansion face key obstacles this year that could affect their timelines or even their ultimate fate.
- Teck Resources Ltd.’s proposed Frontier oil-sands mine won votes of confidence from the heads of two rival crude producers as Canada weighs a decision on the project. The mine in Alberta won the green light from a government panel last year, and Prime Minister Justin Trudeau’s cabinet may decide on the project’s fate by the end of next month. The mine would cost about C$20 billion ($15 billion) to build and produce 250,000 barrels a day after going into operation by 2026. Cenovus Energy Inc. Chief Executive Officer Alex Pourbaix, speaking at an event in Calgary, said the industry is seeking certainty that it can get projects approved if they meet regulators’ requirements and go through “tough, transparent and challenging” assessments.
- Canadian convenience-store operator Alimentation Couche-Tard Inc. could turn to socially-conscious debt financing to support its activities, as long as it’s worthwhile for stockholders. “We are looking at all opportunities to have a good balance sheet and bring value to our shareholders,” Chief Financial Officer Claude Tessier said in a telephone interview. “If ESG finance is part of it, we are going to look into it.” While environmental, social and governance-tied debt offerings are booming worldwide, their ability to be priced at more advantageous terms than regular bonds is limited. This is partly due to scale as the market is still small relative to other sectors. The Bloomberg Barclays U.S. Green Bond Index — which tracks corporate green bonds — has gained about 12.6% over the past 12 months. That’s less than the broad investment-grade corporate debt benchmark, which has returned about 15%.
- European stocks erased their earlier advance after the U.K. confirmed two cases of coronavirus, fueling investor flight from risk assets. The Stoxx 600 Index was down 0.2% after having earlier gained as much as 0.4%. The index is now poised for a 0.4% drop in January. The FTSE 100 of U.K. large-caps extended declines after the news, falling as much as 0.6%. After last year’s powerful rally, European equities have faced volatility in early 2020 as the rapidly spreading Chinese coronavirus spooked investors. The World Health Organization on Thursday declared the pandemic a global health emergency, though commended China’s efforts to contain the disease.
- Futures for the S&P 500 Index dipped, while benchmarks in Europe and Asia declined as investors weighed the latest earnings and economic indicators amid ongoing concerns over the spread of the coronavirus. Amazon soared at the close Thursday after reporting blow-out earnings, defying analysts. Investors pulled $3.8 billion from global equity funds in the week through Jan. 29, while putting about $16 billion into bond funds, according to Bank of America Corp. and EPFR Global data. The World Health Organization declared the pandemic a global health emergency on Thursday. A rally in Asian equities fizzled during Friday’s session, with Japan losing more than half its gains and most major benchmarks seeing declines.
- Oil headed for its biggest monthly drop since May as Asia’s coronavirus spread, stoking concerns that demand for transportation fuels will shrink. Futures were little changed in New York on Friday, after sliding to a five-month low on Thursday, as the World Health Organization declared the outbreak a global health emergency. Prices have slumped 14% in January as the disease locks down entire cities in China, the largest importer, and shows no sign of abating. The rout has alarmed Saudi Arabia, prompting the biggest member of the OPEC cartel to push for an emergency meeting that could deepen production cuts already being made by the group. However, the overture hasn’t yet secured support from Russia, the most important player in a broader coalition known as OPEC+.
- Gold is poised to rise for a second straight month as concerns about the fast-spreading coronavirus support demand for haven assets. The global health emergency has helped bullion extend gains seen earlier this month, when rising tensions between the U.S. and Iran drove investors away from risky assets. Still, the relatively muted increases this week suggest gold’s upside may be limited in the short term, according to Ole Hansen, head of commodity strategy at Saxo Bank A/S. Spot gold gained 0.3% to $1,579.45 an ounce at 10:15 a.m. in London. The metal has risen 4.1% in January and is headed for the first consecutive monthly increase since August. Among other precious metals, palladium was little changed, heading for a monthly advance of 18%, the most since November 2016.
- Iron ore is at risk of sinking back into the $70s after a torrid month, with declines spurred by a powerful combination of expectations that global supplies are poised to expand this year with concerns near-term demand in China will be damaged by the spread of the coronavirus in the top user. Futures in Singapore have collapsed almost 10% this week, and are heading for lowest close since mid-November. The rapid retreat has come as investors drove down global prices of other industrial raw materials including copper this month as the outbreak worsened. China’s markets reopen on Monday.
- The most consequential day in Donald Trump’s impeachment trial begins in the Senate on Friday, with Republican leaders likely to muster enough votes to block witnesses and rapidly move to acquit the president. The decision late Thursday by Senator Lamar Alexander of Tennessee, a Republican who had been considered a potential supporter of testimony, to vote against new evidence largely dashed Democrats hopes of prevailing.
- Private equity firm Partners Group Holding AG is considering a sale of its health-care services business PCI Pharma Services, according to people with knowledge of the matter. Partners Group has been interviewing financial advisers about a potential sale of PCI Pharma that could value the business at about $2 billion, said the people, who asked not to be identified because the discussions are private. The firm is likely to start an auction to sell the company later this year, the people said. Philadelphia-based PCI helps pharmaceutical companies develop, test, package and launch new drugs, according to its website. Partners Group bought a majority stake in PCI from Frazier Healthcare Partners in 2016.
- Volkswagen AG offered to buy the rest of Navistar International Corp. in a $2.9 billion bid to secure a bridgehead in the U.S. heavy-truck market and step up its challenge to Daimler AG and Volvo AB. The expansion was somewhat offset by Volkswagen’s first major divestment since the German automaker skidded into the diesel-emissions scandal in 2015. An agreement to sell industrial machinery unit Renk AG, valued at 760 million euros ($840 million), indicates VW is more inclined to bulk up than slim down, even amid the costly shift to electric cars.
- Hitachi Ltd. agreed to pay about $4.9 billion for the shares it doesn’t already own in chipmaking equipment and medical devices maker Hitachi High-Technologies Co. The Japanese industrial conglomerate will pay 8,000 yen a share, or about 531 billion yen ($4.9 billion), in a tender offer starting Feb. 17, the company said Friday in a statement. The offer is in line with the stock’s closing price of 7,920 yen. Hitachi already holds a 52% stake in the unit.
- The U.K. Financial Conduct Authority said it’s examining the spike in the British pound about 15 seconds before Thursday’s Bank of England’s interest-rate decision. Sterling shot up toward $1.31 just before BOE officials surprised markets by announcing that they had voted 7-2 for no change to policy, even though many analysts and investors had expected a closer decision or a rate cut. The move prompted traders and analysts to wonder if there had been a leak.
- Turkey’s government is in talks with the country’s banks about cutting the fees and commissions they earn on transactions, as pressure mounts on commercial lenders to do more to support the economy. The government is working with the banking association to cut the number and size of fees, according to people familiar with the matter, who asked not to be identified because the talks aren’t public. Details will be discussed by Turkey’s Financial Stability Committee in the coming weeks, said one of the people. The committee is overseen by Treasury and Finance Minister Berat Albayrakand also includes the governor of the central bank and chairman of the country’s banking watchdog. The banking association and finance ministry declined to comment.
- More than a dozen Chinese provinces announced an extension of the current Lunar New Year holiday by more than a week as the nation attempts to halt the spread of the novel coronavirus that has killed hundreds of people and sickened thousands. Fourteen provinces and cities have said businesses need not start operations until at least the second week of February. They accounted for almost 69% of China’s gross domestic product in 2019, according to Bloomberg calculations.
- Amazon.com Inc. was on course to exceed $1 trillion in market value again after results beat expectations, with analysts applauding the popularity of the e-commerce giant’s one-day shipping initiative and the performance of its cloud-computing business. The shares surged 8.7% in U.S. pre-market trading after reporting what Robert W. Baird & Co. analysts called an “impressive quarter from top to bottom.” Goldman Sachs analysts pointed out that it was the first time the company beat the upper end of its revenue guidance since the first quarter of 2018. The results sparked a rush on Wall Street to raise price targets for the stock, with RBC Capital Markets analysts giving it a new Street-high target of $2,700, implying 44% upside from Thursday’s close.
- Caterpillar Inc.’s 2020 profit outlook trailed analysts’ estimates, with “further economic uncertainty” expected to pressure sales, adding further gloom to global markets already reeling from the coronavirus. The heavy-equipment maker expects 2020 profit to be in a range of $8.50 to $10 per share. Analysts had forecast $10.55 on average. Per-share profit in the fourth quarter topped analysts’ estimates. Shares of Caterpillar have dropped this month after surging last quarter, with markets roiled by the coronavirus at a time when money managers are seeking signs of improvement in the global economy after the U.S.-China trade deal. The outlook may signal further headwinds for machine sales. They’ve been sliding as global manufacturing slumps, business investment declines and miners hold back on spending.
- The U.K. confirmed its first two cases of coronavirus on Friday, while the U.S. and Japan advised citizens to avoid traveling to China. Singapore and Vietnam suspended visas issued to Chinese citizens. U.S. futures dropped alongside stocks in Europe and Asia as the virus continued to spread. The World Health Organization had on Thursday declared the outbreak a global health emergency. Cases have now soared to more than 9,950 globally, higher than the number of officially reported cases during the SARS epidemic.
- Aston Martin Lagonda Global Holdings Plc secured a 500-million-pound ($656 million) lifeline to restore the balance sheet and help build a new sport-utility vehicle after agreeing to sell a minority stake to billionaire Lawrence Stroll. The deal agreed late Thursday gives the U.K. luxury carmaker much-needed breathing space as it looks to get back in track following a turbulent start to life as a public company.
- Thyssenkrupp AG is in an “extremely difficult situation,” according to Chief Executive Officer Martina Merz, who said the company’s restructuring will hurt profits for years. Once a symbol of German engineering prowess, Thyssenkrupp is fighting for survival amid a manufacturing slump. The company, which dropped out of the country’s DAX index last year, is in the process of selling its elevator business that’s valued at more than 15 billion euros ($16.5 billion), and burning cash in other business including steel and engineering.
- Honeywell International Inc. is predicting more earnings growth this year as the manufacturer extends a cost-cutting effort and benefits from steady aerospace demand. Adjusted earnings will be $8.60 to $9 a share this year, Honeywell said in a statement Friday. The midpoint of the forecast matches the $8.80 average of analyst estimates compiled by Bloomberg. But revenue is projected at no more than $37.8 billion. Analysts had expected $38.1 billion.
*All sources from Bloomberg unless otherwise specified