January 21st, 2019
Daily Market Commentary
- The S&P/TSX Composite Index has gained 6.9 percent since the close of trading on Dec. 31, the largest increase over the first 18 days of the year since 1980, when the benchmark was up 8.5 percent, data compiled by Bloomberg show. The index is up 11 straight days.
- Pot stocks have broken their three-week winning streak, a somewhat ironic shift in sentiment given that last week was full of positives on the U.S. cannabis policy front. In separate addresses, the governors of New York and New Jersey each said they’ll make legalization of recreational cannabis a priority for 2019, potentially opening up a new market with a combined population of close to 30 million. Perhaps more importantly for the future of the industry, U.S. Attorney General nominee William Barr said he’ll respect state marijuana laws even though he personally disapproves of legalization. He also urged Congress to make a country-wide decision on the drug’s legality.
- Alberta’s crude curtailment plan has caused a dramatic rise in the price of heavy Canadian oil. But for shares of energy companies, it hasn’t been as much of a help. Since the production curtailment was unveiled early last month, Western Canadian Select crude has almost doubled to about $43 a barrel, narrowing its discount to benchmark U.S. oil to an almost decade-low of $6.95 a barrel on Jan. 11. Yet in that same time, the S&P/TSX Energy Index is up less than 4 percent.
- European stocks and U.S. equity futures slipped on Monday while Asian markets posted modest gains as investors assessed the latest headlines on the economy and trade. The dollar was steady, while bonds in Europe were mixed. The Stoxx Europe 600 Index was on course for its first drop in five days, tracking S&P 500 futures lower on what is a holiday in America.
- U.S. stock-index futures fell in Asian trading amid signs ending the trade dispute between Washington and Beijing will take longer than thought. Futures on the S&P 500 Index expiring March slipped 0.3 percent as of 3:01 p.m. in Tokyo, after the gauge rose a fourth day Friday amid optimism of progress in U.S.-China trade talks. Contracts on the Dow Jones Industrial Average and Nasdaq 100 Index also fell about 0.3 percent and 0.4 percent, respectively. The U.S. stock market will be closed Monday to observe a holiday.
- Chinese equities were largely unmoved by data showing the economy grew at its slowest pace in a decade last quarter, while the yuan was slightly weaker along with bonds. The Shanghai Composite Index spent the day in positive territory, finishing with a 0.6 percent gain that extended its advance this month to 4.7 percent. The rebound from its worst year since 2008 has come as the government looks to support growth with steps such as tax breaks and looser liquidity. There are also hopes that China and the U.S. will reach an agreement on trade.
- Oil steadied near a two-month high in New York amid a pullback in U.S. drilling activity, while ongoing U.S.-China trade talks left an uncertain outlook for demand. Futures declined 0.3 percent after surging 3.3 percent on Friday. The number of rigs drilling for oil in the U.S. fell to the lowest since May, according to data from Baker Hughes. China and America, the world’s biggest oil consumers, have made little progress in talks on intellectual property, a major sticking point as they pursue a deal to end a tariff battle, according to people familiar with the discussions.
- Gold fell for a third day to trade at the bottom end of the range that the precious metal has held so far this year, amid signs the U.S. economy is improving. Silver also dropped. Still, gold remains popular among investors as they continue pour into bullion-backed exchange-traded funds. Holdings in gold ETFs rose to the highest level since April 2013 as of Friday, climbing for a 16th straight day.
- Early signs that China is cushioning its economic slowdown won’t prevent it adding to downward pressures on the global expansion this year. December gauges of consumption and factory output in the world’s second-largest economy accelerated and investment held up even as expansion in the fourth quarter dipped to 6.4 percent. That slowing trajectory is seen continuing, with the slowest annual growth since 1990.
- Takeda Pharmaceutical Co. is considering a sale of some emerging-market drugs, as the Japanese drugmaker expands a push to cut debt after its $62 billion takeover of Shire Plc, people familiar with the matter said. The company is working with Bank of America Corp. to gauge potential buyer interest in emerging-market assets it acquired through its 2011 purchase of Swiss rival Nycomed, according to the people, who asked not to be identified because the information is private. The medicines, which include over-the-counter and prescription drugs, could fetch about $3 billion, the people said.
- Private equity duo Hellman & Friedman and Blackstone Group LP have decided against raising their 4.68 billion-euro ($5.3 billion) Scout24 AG bid for the time being after the online classified ads company spurned the only takeover offer it received, according to people with knowledge of the matter. Scout24’s top executives late Friday disclosed that they had rejected the joint bid of 43.50 euros a share as “inadequate.” The private equity firms view their current valuation as fair based on their knowledge of the company, the people said, asking not to be named as the discussions were confidential. No final decisions have been made. Representatives for the two suitors declined to comment.
- Ever since negotiators from the U.S. and China sat down in Beijing after a Christmas meltdown in global markets, President Donald Trumphas sought to calm investors and claim his trade talks are making great strides. But that glosses over a more uncomfortable reality. According to people close to the discussions, the two sides have so far made little progress on the issue any deal Trump strikes with China may ultimately be judged on: ending what the U.S. has dubbed as decades of state-coordinated Chinese theft of American intellectual property.
- JA Solar Holdings Co. moved forward with a backdoor listing in mainland China after Qinhuangdao Tianye Tolian Heavy Industry Co. said it would buy the cell maker in a 7.5 billion yuan ($1.1 billion) deal. Tianye will acquire JA Solar’s equity interest by issuing almost 953 million shares at 7.87 yuan apiece through a private placement, according to a filing to the Shenzhen stock exchange on Monday. The two companies signed a letter of intent in July after JA Solar completed a deal valued at about $360 million to delist its American depository receipts.
- CSC Financial Co. plans to raise as much as 13 billion yuan ($2 billion) through a private placement of shares, joining a rush of Chinese brokerages looking to boost buffers. Stronger capital will protect securities firms against a market plunge that threatens the value of more than $600 billion worth of shares pledged as collateral
- U.S. officials are planning for President Donald Trump to hold his second summit with North Korean leader Kim Jong Un next month in Vietnam, people familiar with the plans said, suggesting negotiations for the meeting were gathering pace. The late-February summit would probably take place in the capital Hanoi, but Danang — the site of the 2017 Asia-Pacific Economic Cooperation meeting — and Ho Chi Minh City in the country’s south have also been considered, the people said. The details came to light as nuclear envoys for the U.S., North Korea and South Korea held talks at a resort outside Stockholm, the Associated Press reported, citing the Swedish foreign ministry.
- Theresa May returns to Parliament to explain what she’s going to do next. She’s ditched cross-party talks and will instead seek to do what the European Union has long rejected — rewrite the Irish backstop.
- Italy’s communications regulator rejected Telecom Italia SpA’s plan to legally separate the carrier’s domestic landline network, saying it wouldn’t boost competition. Separating the network while retaining majority control would let the Milan-based company continue to enjoy “a significant competitive advantage” nationwide, except in Milan, regulator Agcom said in a document posted on its website over the weekend. It said it also wouldn’t ease any regulatory burden.
- SMBC Aviation Capital Ltd. agreed to buy 65 narrow-body aircraft from Airbus SE to meet growing travel demand. The lessor ordered 50 A320neos and 15 A321neos that will be delivered between 2023 and 2025, Airbus said in a statement Monday. The order is valued at $7.5 billion at list prices, excluding discounts that are customary for large orders, and follows a pact in March for six A320neos.
- European Union governments disagree over how long they think the U.K. should delay Brexit, with some pushing for an extension of as much as a year, diplomats said. While some countries think the EU should offer Britain a generous period to negotiate a deal that will win the backing of Parliament, possibly after a second referendum, others oppose a postponement of any sort and want pressure to be put on the U.K. to accept a deal as soon as possible, according to four EU diplomats.
- Tesla Inc. received permission to start selling its Model 3 in Europe, clearing the final hurdle in bringing the electric-car maker’s top seller to the home turf of Audi, BMW and Mercedes-Benz. Deliveries should start in February for the Long Range Battery version of the midsize sedan — the same variant first sold in the U.S. — according to Tesla, after Dutch vehicle authority RDW issued the OK.
- GlaxoSmithKline Plc plans to start looking for a new chairman as U.K. business stalwart Philip Hampton said the timing is right for him to step down, with the drugmaker preparing to split up its consumer and prescription-drug businesses. The 65-year-old Hampton, who joined Glaxo almost four years ago, oversaw a change of chief executive officer as longtime leader Andrew Witty was replaced by insider Emma Walmsley. He also changed the makeup of the company’s board. The Brentford, England-based company didn’t give timing for his departure in a statement Monday.
- India is considering a plan to transfer cash to farmers to ease their financial burden instead of offering subsidies, people with knowledge of the matter said. Prime Minister Narendra Modi’s government is planning to combine all farm subsidies, including fertilizer costs, and instead pay farmers cash, the people said, asking not to be identified as the discussions aren’t public. The additional cost will be limited to 700 billion rupees ($9.8 billion) annually after a full roll-out of the program, the people said. Finance Minister Arun Jaitley had budgeted 701 billion rupees for farm subsidies in the year ending March 31.
- PetroChina Co. brushed off a $1.5 billion writedown from the disposal of some assets as it estimated full-year net income more than doubled last year thanks to higher crude prices. China’s biggest oil and gas producer said net income could have jumped as much as 132 percent in 2018, according to a filing Monday to the Hong Kong stock exchange, which cited Chinese accounting standards. That would take it to 52.8 billion yuan ($7.8 billion) for the year, according to Bloomberg calculations, compared with a 61 billion yuan average of 13 estimates that are based on international standards.
*All sources from Bloomberg unless otherwise specified