January 19th, 2018

 

Daily Market Commentary

 

Canadian Headlines

• Canadian stocks retreated as the likelihood of a U.S. government shutdown grew and gold prices fell the most in six weeks. The S&P/TSX Composite Index lost 42 points or 0.3 percent to 16,284.47, the lowest in more than a week. Materials stocks tumbled 1.2 percent, with gold miners dragging the index down. Barrick Gold Corp. lost 2.5 percent and Goldcorp Inc. fell 2.2 percent.
• The U.S. is running out of patience with Canadian and Mexican resistance to key American proposals ahead of talks next week on a new North American Free Trade Agreement, two people familiar with the matter said. The U.S. is serious about its threat to withdraw from the North American Free Trade Agreement if there’s no breakthrough on proposals the Trump administration has made that are intended to rebalance trade, said one of the people, who spoke on condition of anonymity because the negotiations aren’t public. The Trump administration wants to see serious counteroffers to U.S. demands like tightening content requirements for cars.
• Home Capital Group Inc. debt investors who took a bet on the Canadian mortgage lender when its survival was in doubt are poised to reap the rewards of their gamble. Bonds of the beleaguered lender fell below 90 Canadian cents on the dollar last year and some yields hovered near 16 percent as the Toronto-based company was engulfed by accusations that its portfolio was tainted by falsified home-loan applications.
• Recreational pot should be legal in Canada by summer, but it won’t be glamorous. Producers trying to market their product face a battery of proposed government restrictions similar to those governing the sale of cigarettes. Labels may have to display graphic health warnings, adhere to standardized lettering and limit the use of colors and “brand elements.” Celebrity endorsements and consumer testimonials are banned.

 

 

World Headlines

• The moves in American assets dominated global markets, with the euro, yen, gold and base metals among the beneficiaries of dollar weakness. The risk-on mood that helped drive up Treasury yields this week was still in evidence, with European stocks following Asian peers higher, U.S. futures green and emerging-market equities climbing for a sixth day. West Texas crude extended a retreat.
• Equities waffled as the S&P 500 Index rallied from early losses, led higher by technology, materials and financial shares. Treasuries fell as the possibility of a government shutdown appeared to increase. Speculation Apple may sell some securities to pay its tax bill from its planned cash repatriation also weighed; Apple shares higher by 0.5%.
• Even after handily beating American stocks last year, Asian shares have actually got cheaper relative to their U.S. counterparts. On a forward price-to-earnings basis, the MSCI Asia Pacific is trading close to at least a 13-year low relative to the S&P 500, according to data compiled by Bloomberg. And on a price-to-book basis, it is at the cheapest in 16 years.
• Oil slipped as the International Energy Agency became the latest to warn of a jump in U.S. production. Futures tumbled as much as 1.7 percent in New York and are poised for the first weekly decline since mid-December. The IEA said it sees “explosive” growth in U.S. oil supply this year. OPEC and the Energy Information Administration also recently boosted their outlooks for American production.
• Gold climbs to pare first weekly drop since early December as dollar slips amid selloff in Treasuries on concerns over possibility of U.S. government shutdown.
• India is considering a plan to hand over control of iron ore and coking coal mining to the steel ministry to boost supplies of the key steelmaking materials as the country is poised to become the world’s second-biggest producer, according to a person with knowledge of the plan.
• Coal’s share of China’s energy mix slipped further as the world’s biggest consumer and producer of the fuel seeks cleaner sources to satisfy its growing energy use. Coal’s share of total energy consumption inched lower by 1.7 percentage points last year, while natural gas, hydro, nuclear, wind and other less-polluting sources gained 1.5 percentage points, the National Bureau of Statistics said on its website Friday, without providing detailed figures.
• U.K. retail sales fell the most in 18 months in December as a post-Black Friday lull rounded off a rough year for British shops. It’s further evidence that inflation and shaky consumer confidence are hitting British stores, many of whom remain cautious about the outlook for the coming year. Fourth quarter sales gained just 0.4 percent, half the pace seen in the previous three months.
• Temporary government funding runs out at midnight Friday and the House and Senate are seeking an agreement on a temporary extension. Democrats are demanding that spending legislation include a provision permanently shielding about 690,000 undocumented immigrants brought to the U.S. as children from deportation, while Republican want to keep that issue separate from funding and budget negotiations.
• The largest labor federation in the U.S. said new legislation in Mexico would encourage more jobs to flee south of the border and could throw a spanner into the works of North American trade talks next week. The AFL-CIO said the legislation would undermine the negotiating position of labor unions, driving down already low wages. It was proposed by two senators from Mexico’s ruling PRI party and is scheduled for debate after congress reconvenes Feb. 1.
• The U.S. securities regulator raised a series of investor protection concerns about cryptocurrency mutual and exchange-traded funds, the strongest sign yet that the world’s biggest market isn’t likely to see the products any time soon. In a letter to two leading industry groups on Thursday, the Securities and Exchange Commission asked a series of questions on topics including the risks of manipulation, whether funds could accurately value the volatile products, and how they’d meet demands to redeem virtual currency.
• The Federal Reserve is working to relax a key part of post-crisis demands for drastically increased capital levels at the biggest banks, according to people familiar with the work, a move that could free up billions of dollars for some Wall Street’s giants.
• Germany’s Social Democratic Party is looking for ways to sweeten another stint in government with Angela Merkel as the political impasse in Europe’s biggest economy comes to a head. When 600 SPD delegates vote Sunday on a proposal by party leaders to start formal coalition talks with the chancellor’s bloc, they’ll also be deciding whether Germany heads back to stability or lurches toward a repeat election that risks being as inconclusive as last year’s.
• Economists brought forward their estimate of when the European Central Bank will set an end-date for its bond-buying program, amid signs that more optimistic views on inflation might be gaining sway among policy makers.
• The meltdown at South Africa’s Steinhoff International Holdings NV was felt in U.S. bank earnings this week as lenders disclosed more than $1 billion of mark-to-market losses and charge-offs on margin loans. Now, the shockwaves are set to ripple back across the Atlantic as European banks prepare to disclose fourth-quarter earnings.
• Indonesia’s central bank signaled the end of monetary policy easing as it focuses on inflation risks, such as rising food and oil costs. After keeping the benchmark interest rate at 4.25 percent — as forecast by all 24 economists surveyed by Bloomberg — Assistant Governor Dody Budi Waluyo indicated there’s limited room for rate cuts after eight reductions in the past two years.
• OPEC’s fear that another surge of shale oil could neutralize its production cuts might be coming true. U.S. oil output is set for “explosive” growth this year as prices rally, the International Energy Agency said on Friday. That was just one of a chorus of voices from Goldman Sachs group Inc. to OPEC itself warning of a looming output surge reminiscent of the “heady days” of the first shale boom.
• IBM managed to increase sales for the first time in almost six years, but that growth wasn’t fueled as much by cloud computing and other new products as some analysts had projected, causing shares to tumble.
• Uber Technologies Inc. completed its deal with SoftBank Group Corp., triggering a slate of governance reforms at the ride-hailing company. Uber shareholders sold about $8 billion at a discounted price to a group of investors led by SoftBank, making the Japanese conglomerate the largest shareholder. SoftBank also invested $1.25 billion directly into Uber at a valuation of about $70 billion, the same as 2016. The blended valuation is about $54 billion, said a person familiar with the matter.
• A closely watched Apple Inc. analyst has whacked about 23 percent off his initial projections for iPhone X shipments, citing weak Chinese demand. Apple should move 62 million units of its most expensive smartphone over its lifetime, down from an earlier estimate of 80 million, Kuo Ming-chi of KGI Securities wrote in a note dated Jan. 18. Kuo’s was the latest in aseries of downgrades since December, as analysts re-assess the global reception for the U.S. company’s most advanced device. He expects production to stop sometime this year as Apple rolls out newer versions in the second half.
• Long-time Federal Reserve insider John Williams has been interviewed by the White House for the post of vice chairman of the U.S. central bank, according to a person familiar with the discussions, though he was not viewed as being on the short-list for the job. Williams, 55, is currently president of the Fed’s regional bank in San Francisco, where he took the reins in 2011 from Janet Yellen, who went on to become Fed Chair. He began his Fed career in 1994 in Washington and has also lectured at Stanford University. Williams served as a senior economist in President Bill Clinton’s Council of Economic Advisers.
• Drugmakers including U.S. biotechnology behemoth Biogen Inc. and Belgium’s UCB SA are among companies considering bids for Acorda Therapeutics Inc. to secure potential treatments for neurological disorders, according to people familiar with the matter. Talks are ongoing and other potential bidders may emerge, the people said, asking not to be identified because the deliberations are private. The company has also drawn interest from Asian drugmakers, they said.
• Byton, the Chinese electric-car startup founded by former BMW AG executives, is seeking about $400 million in a new round of funding, people with knowledge of the matter said. The Nanjing-based company, which showcased a concept car at the Consumer Electronics Show in Las Vegas this month, has been reaching out to potential investors to gauge their interest, according to the people, who asked not to be identified because the information is private.

 

 

*All sources from Bloomberg unless otherwise specified