January 6th, 2020
Daily Market Commentary
- Canadian stocks ended the first week of 2020 lower after mounting tension between the U.S. and Iran saw investors hitting the sell button globally. Soaring oil and gold prices weren’t enough to offset the decline. Investors flocked to defensive stocks as real estate and utilities were the best performing sectors in Toronto. Energy stocks also gained as oil climbed. Meanwhile, gold rallied but failed to pull gold stocks with it. The S&P/TSX Composite Index fell 0.2% to 17,066.12. Health-care stocks led the market lower, as 7 of 10 sectors fell. Industrial metal miners were among the decliners as metals such as copper, aluminum slumped. First Quantum Minerals contributed the most to the index decline and had the largest move, decreasing 6.4%. Canadian Natural Resources provided the biggest boost to the index, advancing 0.8%. MEG Energy had the biggest gain, rising 4.2%.
- Investors in Canadian markets might have been on to something last year. They piled into fixed-income and cash ETFs in an effort to seek shelter even as equity markets soared to levels unseen in a decade and the nation’s economy chugged along. Bonds dominated with more than C$14 billion ($11 billion) of net inflows, making up about 50% of the record C$25 billion of capital into Canada ETFs, according to data compiled by Bloomberg. For those who missed the run-up in stocks, they might have had a FOMO moment or two late last year. Those haven bets are looking better in the early days of 2020 after renewed U.S.-Iran tensions roiled equities and sent bonds soaring Friday. Even in equity ETFs, which raked in about C$11 billion of flows last year, defense was a key theme as investors flocked to low-volatility funds with more than C$2 billion of fresh capital, according to National Bank Financial.
- Hudson’s Bay Co. Chairman Richard Baker raised his offer to take the struggling retailer private, handing a victory to minority shareholders including Catalyst Capital Group Inc. that fought to derail the original bid. Hudson’s Bay said in a statement late Friday it agreed to a new bid by Baker and a group of allies, who together control the company. The offer was increased for a second time to C$11 ($8.46) a share from C$10.30. Baker’s first offer was for C$9.45 apiece in June.
- European equities began the week on a negative note as investors fled riskier assets amid heightened tensions in the Middle East, outweighing a positive surprise from economic data. The Stoxx Europe 600 Index dropped as much as 1.4%, led by banks, chemicals and automakers. Oil shares advanced, with a gauge for the sector gaining 0.7%, as the commodity jumped above $70 a barrel. After a powerful rally in 2019, European stocks are starting 2020 in the red as the U.S. killing of a top Iranian military commander in Iraq sparks worries of an escalation in tensions in the Middle East. President Donald Trump threatened major retaliation if Iran did anything and vowed to slap sanctions on Iraq if U.S. troops were expelled from the country.
- U.S. stock-index futures pointed to a weaker open and European shares traded lower after last week’s killing of a top Iranian military commander by a U.S. drone in Baghdad damped investors’ appetite for riskier assets. S&P 500 Index futures contracts expiring in March were down 0.7% as of 8:54 a.m. in London, after the attack prompted Iraq’s parliament to vote to expel U.S. troops from the country. Iran said it would no longer abide by any limits on its enrichment of uranium. Futures on the Nasdaq 100 Index and Dow Jones Industrial Average each declined 0.8%.
- Japanese stocks fell the most in three months amid heightened global tensions following the U.S. assassination of a top Iranian general. Auto and drugmakers weighed the most on the benchmark Topix index. The market was closed Tuesday through Friday last week for New Year. The yen traded near a three-month high, while Brent crude futures rose above $70 a barrel. The Iraqi parliament voted to expel U.S. troops from the country following the U.S. attack in Baghdad. Iran said on Sunday that it will no longer abide by any limits on its enrichment of uranium, while U.S. President Donald Trump said that his nation has “52 Iranian sites” picked out as targets should Tehran retaliate.
- Oil extended its dramatic surge, surpassing $70 a barrel in London for the first time since September, as Middle East tensions flared after the U.S. assassinated one of Iran’s most powerful generals. Futures jumped by another 1.4% on Monday as the U.S. State Department warned of a “heightened risk” of missile attacks near military bases and energy facilities in Saudi Arabia. President Donald Trump reiterated threats of retaliation should Iran “do anything” and vowed heavy sanctions against Iraq if American troops are forced to leave OPEC’s second-biggest producer.
- Gold surged to its highest since 2013 as rising tensions in the Middle East stoked demand for havens, with Goldman Sachs Group Inc. seeing more room to run. Palladium extended gains to a fresh record. Bullion neared $1,600 an ounce after Tehran said it would no longer abide by any limits on its enrichment of uranium following the killing of General Qassem Soleimani. President Donald Trump said he’s prepared to strike Iran “in a disproportionate manner” if it retaliates against any U.S. target.
- Investors added money to exchange-traded funds that buy emerging market stocks and bonds last week. This was the 13th straight week of inflows. Inflows to U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $1.61 billion in the week ended Jan. 3, compared with gains of $1.67 billion in the previous week, according to data compiled by Bloomberg. So far this year, inflows have totalled $1.4 billion.
- The Chinese trade delegation plans to sign the first phase of its trade deal with the U.S. in Washington on Jan. 15, according to people familiar with the matter. The plan is still to send its top negotiator, Vice Premier Liu He, to ink the deal, said the people, who asked not to be identified discussing the private plans. The team will be in Washington from Jan. 13 to Jan. 15, one of the people said. The South China Morning Post earlier reported the dates. The group had originally aimed to travel earlier in the month, but had to alter its plans after U.S. President Donald Trump sent a tweet saying the deal would be signed Jan. 15 at the White House, according to the SCMP.
- The two bronze lion statues standing guard over HSBC Holdings Plc’s main offices in Hong Kong still bear the marks of an attack by protesters, who last week daubed them with red and black paint, setting at least one ablaze. Graffiti declared that HSBC had been dyed the red of China. HSBC has vowed to restore the iconic lions to their former glory. But the Asia-focused lender may not find it so easy to disentangle itself from deepening tensions in its biggest market at a time when its new leadership must also repair a relationship with Beijing that’s been weakened by the Huawei Technologies Co. probe.
- Takeaway.com NV is set to declare final victory in the five-month takeover battle for U.K. food-delivery company Just Eat Plc, people with knowledge of the matter said. Investors holding more than half of Just Eat stock have indicated they’ll agree to Takeaway’s all-stock bid, which values the company at about 6 billion pounds ($7.8 billion), according to the people. The preliminary tally includes those who plan to formally tender in the coming days, the people said, asking not to be identified because the information is private.
- U.K. auto sales fell for a third straight year in 2019, dragged down by uncertainty surrounding Brexit and a slump in demand for diesel cars. Registrations dropped 2.4% to 2.31 million vehicles, the lowest tally since 2013, the Society for Motor Manufacturers and Traders said in a statement Monday, citing preliminary data. While gains in December hinted at a recovery in confidence, the industry group forecasts a further annual slide in 2020. The decline from record sales in 2016 has been partly triggered by the saga of Britain’s break from the European Union, with confusion around exit dates and terms of the split hurting consumer sentiment. Diesel-model sales have been hit by mixed messages over their future, with registrations down 22% in 2019.
- China’s new top official in Hong Kong said he is certain the city will stabilize following months of political unrest, backing leader Carrie Lam and her administration in his first public comments since being appointed. “I am fully confident about this,” Luo Huining, the new director of the Hong Kong Liaison office, said at a media briefing Monday. “Everyone fervently hopes that Hong Kong can get back on track. As President Xi Jinping said in his New Year’s address, without a harmonious and stable environment, how could there be a peaceful home? I sincerely wish Hong Kong and Hong Kongers well.”
- Citigroup Inc. plans to recruit 2,500 programmers this year for the unit that houses its traders and investment bankers, bulking up on coders and data scientists as technology reshapes the business. Roughly three-quarters of the company’s trade orders last year were electronic, according to Stuart Riley, global head of operations and technology for the bank’s Institutional Clients Group. The ICG arm will add programmers in locations from New York to Chennai, India.
- Elon Musk plans to attend a ceremony to mark the first deliveries of made-in-China Tesla Inc. vehicles to customers on Tuesday, according to people familiar with the matter. Tesla, which is already churning out more than 1,000 Model 3 sedans a week at its plant on the outskirts of Shanghai, handed over a batch of cars to a select group of employees on Dec. 30, but Tuesday marks the first deliveries to the general public. The ceremony is due to start at 3 p.m. local time at Tesla’s first factory outside the U.S., a milestone in Musk’s plans for the company he founded to go global.
- Apple Inc.’s price target was raised to $350 from $280 at Needham, which wrote that the iPhone maker had a number of tailwinds in 2020 that could help it extend last year’s strong rally. The new target matches the Street-high view on the shares, and implies upside of almost 18% from its most recent close. Because Apple surpassed Needham’s previous price target of $280, the firm lowered its rating on the stock to buy from strong buy.
- William Dudley, who used to oversee the Federal Reserve’s interaction with financial markets, said the central bank should introduce a long-discussed but never implemented tool to ensure U.S. cash markets remain calm. In a column published Monday by Bloomberg Opinion, the Fed Bank of New York’s former president recommended creating a standing repurchase-agreement facility, joining a chorus of proponents. It should be open, he argued, to a broad set of counterparties and accept Treasury and agency mortgaged-backed securities as collateral.
- Boeing Co. is considering plans to raise more debt to bolster finances strained by the grounding of its 737 MAX, according to people familiar with the matter. The aerospace giant isn’t running out of cash. Boeing had about $20 billion in available funds at the end of the September quarter, according to the company’s financial statements. But costs associated with the MAX crisis are rising. Boeing faces compensation claims from airlines and families of the 346 victims of two MAX crashes over the past 15 months. This month, Boeing halted production of the plane, lowering some costs but pushing back the likely date at which payments for finished planes would resume. Analysts expect Boeing to raise as much as $5 billion in additional debt to help cover expenditures that could top $15 billion in the first half of this year. In addition to spending on maintenance for the MAX’s stalled production facilities and finished planes, the company plans to close its $4 billion acquisition of an 80% stake in the Brazilian plane maker Embraer SA’s commercial airliner business. Boeing also has to repay some existing debt and fund shareholder dividends.
*All sources from Bloomberg unless otherwise specified