January 15th, 2019
Daily Market Commentary
- A Canadian investment firm that crushed the returns of its peers last year is looking to raise C$500 million ($377 million) for what would be one of the country’s largest hedge funds. Waypoint Investment Partners generated a 6.2 percent return in its segregated accounts in 2018 by investing in companies that pay fat dividends, then using those payouts to buy options to bet on market volatility. That compared with a 1.6 percent loss for Bank of Nova Scotia’s Canadian Hedge Fund Index in the 12 months through November, and an almost 12 percent decline in the S&P/TSX Composite Index for 2018.
- A Chinese court sentenced a Canadian man to death for drug trafficking, a move Prime Minister Justin Trudeau denounced as “arbitrary” as the two nations feud over last month’s arrest of a Huawei Technologies Co. executive. Robert Lloyd Schellenberg was convicted and given a death sentence after a one-day retrial, according to a statement posted on the website of the Dalian Intermediate People’s Court. Schellenberg was initially sentenced to 15 years in prison after his conviction, but the penalty increased after an appeal. He can still appeal the latest decision.
- The Stoxx Europe 600 Index was still higher for the fifth day from six, though the rally across Asia was more pronounced as Japan’s market reopened after a holiday. Gauges in Hong Kong and Shanghai were among the biggest gainers after senior Chinese officials vowed tax cuts to boost growth, while lending data from the country beat estimates in December. Contracts on the S&P 500, Nasdaq and Dow Jones indexes all rose. The dollar strengthened and the yen fell. The euro dropped after German data confirmed the weakest year for growth since 2013. Treasuries edged higher as most European bonds gained.
- U.S. stock-index futures climbed after a positive session in Asia as China signaled it will shore up its sagging economy after disappointing trade numbers. Stocks rose in Europe as investors focus on the U.K. Parliament’s Brexit vote. Futures on the S&P 500 Index expiring in March advanced 0.5 percent as of 8:28 p.m. in London after the underlying gauge slipped 0.5 percent Monday. Contracts on the Dow Jones Industrial Average climbed 0.6 percent, while those on the Nasdaq 100 Index added 0.7 percent. The Stoxx Europe 600 Index rose 0.7 percent with all subgroups in the green. Autos and tech stocks led gains.
- A day after Asian markets fell, investors found a reason to buy shares: China’s promised more measures to help support its slowing economy. That sent markets across the region higher, led by Hong Kong and Shenzhen bouncing back to recover from Monday’s losses. South Korea, Singapore, Taiwan and India also posted solid gains, and Japan reopened in positive territory after a holiday. The benchmark MSCI Asia Pacific Index advanced as much as 1.1 percent to hit an almost six-week high, while S&P 500 Index futures climbed as much as 0.8 percent at one point.
- Oil rose amid estimates of another decline in U.S. crude inventories and signs that China is stepping up efforts to combat an economic slowdown. Futures in New York climbed as much as 1.6 percent after dropping 4 percent over the past two sessions. American stockpiles probably fell for the sixth time in seven weeks, according to a Bloomberg survey of analysts before government data due Wednesday. Equities advanced across Europe and Asia after senior Chinese officials promised tax cuts to boost growth.
- Gold continued to trade within the narrow range of $1,280-$1,300 an ounce that has characterized the precious metal’s slowest start to a year since 2013. The sluggish performance, which follows a blockbuster end to 2018, comes despite a wealth of bullish factors mounting up in favor of gold. These span political uncertainty, with Brexit in the spotlight on Tuesday, an ever-increasing flow of money into bullion-backed exchange-traded funds and — from a technical perspective — the formation of a golden cross.
- The U.S. growth outlook hangs more than ever on American consumers’ resilience amid stock-market swoons and trade-war tensions, but key data on their spending — the biggest part of the economy — will be missing due to the government shutdown. Was it a gangbusters Christmas shopping season as forecasts and anecdotal evidence suggested? Were consumers making big discretionary purchases in addition to essential spending as they entered 2019, even as some surveys showed confidence was waning? The answers will have to wait, as the December retail-sales report won’t be released as scheduled Wednesday while the Commerce Department remains closed. Failure to reopen soon also would delay last month’s personal income and spending data, due by Jan. 31.
- China may boost its liquefied natural gas import capacity by nearly fourfold within two decades as it pushes toward using more of the fuel. The Ministry of Transport has proposed the nation operate 34 coastal terminals with total annual import capacity of 247 million tons by 2035, according to people with knowledge of the draft plan. That compares with the nation’s total nameplate capacity of 67.5 million tons at the end of last year, according to BloombergNEF. The plan is preliminary and could change, said the people, who asked not to be identified as the information isn’t public.
- Prime Minister Theresa May is set to see her Brexit deal rejected in the biggest Parliamentary defeat for a British government in 95 years after her last minute pleas for support appeared to fall on deaf ears. The battle now is over not whether May loses, but how badly. At least 70 of her Conservative Party, as well as sometime allies in the Democratic Unionist Party, are publicly pledged to join opposition Members of Parliament in voting against her agreement Tuesday. That would translate into a defeat by a margin of 150 or more, the largest in over a century. Even if some abstain, a defeat by more than 100 would be the worst since 1924.
- China’s government is turning increasingly to tax cuts as the first line of defense against a slowing economy, as credit data released Tuesday showed some vindication of its gradual stimulus strategy. Further evidence of the dominance of fiscal measures emerged, as senior policy officials pledged that tax reductions on a “larger scale” are in the pipeline, amid worsening output and trade data. JPMorgan Chase & Co. economists estimate the total impact will be around 2 trillion yuan ($300 billion), or 1.2 percent of gross domestic product.
- China asked some state-run enterprises to avoid business trips to the U.S. and its allies and to take extra precautions to protect their devices if they need to travel, according to people familiar with the request. In recent weeks, the State-Owned Assets Supervision and Administration Commission — a regulatory body that oversees about 100 government-run companies — has told some firms to only take secure, company-issued laptops meant for overseas use if traveling is necessary, the people said. They said the warning extended to the other countries in the Five Eyes intelligence-sharing pact: the U.K., Canada, Australia and New Zealand.
- JPMorgan Chase & Co.’s bond traders just suffered their worst quarter in a decade. Revenue from fixed-income trading, typically the biggest contributor to the company’s markets business, plunged 18 percent in the fourth quarter to the worst since the depths of the financial crisis as wild markets kept clients on the sidelines. The drop offset an increase in equity-trading revenue and advisory fees, contributing to the worst quarter for the corporate and investment bank in three years. The bleak bond-trading results followed a similar drop Citigroup Inc. reported on Monday, shedding further light on Wall Street’s struggle to cope with one of the most volatile fourth quarters in recent memory. Citigroup Chief Financial Officer John Gerspach said Monday the trading environment had started to improve this month.
- Delta Air Lines Inc. warned that its ability to raise fares is likely to slow this quarter as the U.S. government shutdown weakens travel demand, adding pressure to the carrier as a rising industry seat supply weighs on ticket prices. Revenue from each seat flown a mile will rise no more than 2 percent this quarter from a year earlier, Delta said as it reported earnings Tuesday. That pricing-power gauge, also known as unit revenue, climbed 3.2 percent in the final three months of last year.
- Ren Zhengfei, the billionaire founder of Huawei Technologies Co., broke a years-long silence to dismiss U.S. accusations the telecoms giant helps Beijing spy on Western governments. Ren denied suggestions that Huawei aids the Chinese government in espionage, saying it has no regular contact with Beijing as his technology empire faces its biggest crisis in its three decades of existence. He also called Donald Trump “a great president” and said he’ll take a wait-and-see approach as to whether the U.S. leader will intervene on behalf of Huawei finance chief Meng Wanzhou. Meng — Ren’s eldest daughter — is in Canada facing extradition to the U.S. on allegations of helping defraud banks to avoid sanctions on Iran.
- Sinopec, China’s top oil refiner, won approval from the country’s cabinet for a long-awaited initial public offering of the retail unit that runs its vast chain of gas stations and convenience stores, people with knowledge of the matter said. The green light from the State Council clears the final Chinese regulatory hurdle for the deal and means the IPO arrangers can move forward with detailed work on the listing, according to the people. Sinopec aims to sell shares of the business in Hong Kong this year, though it hasn’t set a definitive timetable for when preparations will start, the people said, asking not to be identified because the information is private.
- Talks on the latest Sears takeover bid from Chairman Eddie Lampert continued late into Monday evening as stakeholders tried to reach an agreement on whether Sears Holdings Corp. should live on. Negotiators initially didn’t embrace Lampert’s revised rescue plan for the bankrupt retailer, but they were concentrating on his proposal rather than competing bids from liquidators, according to people with knowledge of the discussions. Sticking points still include whether he should be insulated from lawsuits over his previous turnaround deals, said the people, who weren’t authorized to speak publicly.
- Navitas Ltd., an Australian educational services provider that operates in 24 countries, agreed to be acquired by BGH Capital and AustralianSuper Pty. after the group raised its offer 6 percent from a proposal rejected in November. BGH will pay A$5.825 a share cash for Navitas, valuing it at A$2.1 billlion ($1.5 billion), according to a statement. The consortium, which also includes former Navitas Managing Director Rodney Jones offered A$5.50 a share in October.
- Now that Airbus SE is starting to see fresh sales momentum for its sleek A220 jet, it faces a different challenge: getting the small single-aisle planes to impatient customers. The airliner formerly known as the C Series has amassed a backlog of 480 unfilled orders under Airbus and Canada’s Bombardier Inc., which handed control of its marquee jet to the European planemaker in July after years of disappointing orders.
- Germany’s economy narrowly avoided a recession at the end of 2018 after a slump in industry raised concerns over Europe’s growth engine. There was a “slight” increase in gross domestic product in the three months through December, according to the Federal Statistics Office, which will publish official figures next month. But the quarter rounded out a year in which overall growth was the weakest since 2013. “We do not expect a minus in the fourth quarter, but see signs of a slight recovery,” said Tanja Mucha, who helps compile GDP figures at the statistics office. “We expect a small plus,” she added, cautioning that the estimate is preliminary and based on only about half the information for the quarter.
- BNP Paribas SA is shuttering its U.S. commodities derivatives desk, according to people familiar with the matter, the second trading unit to be wound down within days as France’s largest bank seeks to protect profitability. The closing of the business, which had 16 people and traded energy, metals and some agricultural products, dovetails with an earlier decision by BNP to stop financing shale and oil sands projects. But the timing — days after Bloomberg reported the bank is said to be closing its proprietary trading arm Opera Trading Capital — suggests broader adjustments at the investment bank, analysts said.
*All sources from Bloomberg unless otherwise specified