January 25th, 2019
Daily Market Commentary
- Canadian banks are issuing record levels of covered bonds, mortgage-backed debt pioneered in Prussia, helping them to lower funding costs in volatile markets. The country’s lenders have sold 5.75 billion euros ($6.5 billion) of covered bonds this year, up about 50 percent from the same period last year and the highest in Bloomberg records dating to 2008. Two developments have driven the surge: investors are demanding higher yields to hold bonds over safer government debt, and new rules require Canada’s six-biggest banks to issue costlier bail-in debt, which converts to equity in a bank failure.
- Uranium’s enduring glut has flipped the market on its head as one miner shifts from major producer to top buyer. Cameco Corp. will seek to purchase about 12 million pounds this year to help meet its contract obligations after shutting mining and milling operations in 2018 due to sustained lower prices, Chief Executive Officer Tim Gitzel said at a conference in Whistler, Canada. Stepping into the market to buy is a “fabulous way” of finding out how much uranium is available, Gitzel said.
- European shares opened higher after Asia was positive and U.S. markets were mixed as the government shutdown continues into Friday. The Stoxx Europe 600 index rose 0.7 percent, the highest since early December. U.K.’s exporter-heavy FTSE 100 saw a more moderate increase, up 0.1 percent, after the pound gained against the euro. In terms of Brexit developments, the Sun newspaper reported that Northern Ireland’s Democratic Unionist Party has decided to back Theresa May’s divorce deal for Britain next week.
- U.S. stock-index futures rose, with optimism creeping back worldwide as investors awaited progress in trade talks to be held next week between the world’s two largest economies. Futures contracts on the S&P 500 Index climbed 0.6 percent as of 10:20 a.m. in London after the underlying gauge nudged higher on strong gains in semiconductor stocks. Contracts on the Dow Jones Industrial Average and Nasdaq 100 rose 0.5 percent and 0.9 percent respectively. European and Asian benchmarks also edged higher.
- Japanese stocks rose as advances in technology companies continued to boost sentiment while investors wait for more earnings reports next week. Electronics makers and machinery stocks bolstered the Topix index after U.S. semiconductor stocks, including logic chips maker Xilinx Inc., surged after reporting third-quarter earnings that beat analyst estimates. The Philadelphia semiconductor index closed with its biggest gain in almost a month. The upside may be tempered as Intel Corp. reported after the market close fourth-quarter sales that missed estimates.
- Oil climbed for a third day as Venezuela’s deepening crisis raised the prospect of a major disruption in a market that’s otherwise comfortably supplied. Futures rose 0.5 percent in New York. President Donald Trump’s recognition of Venezuela’s political opposition, along with the threat of sanctions on oil exports, is heightening the risk that the turmoil will hit the OPEC member’s crude production. Still, as the U.S. hasn’t yet approved any new punitive measures and President Nicolas Maduro’s hold on power remains stable for now, the oil-price gains have only tempered this week’s overall loss.
- Gold rose as investors awaited further clarity on the U.S.-China trade dispute ahead of talks next week. Palladium is poised for the biggest weekly retreat in two months on concern that demand may slow. Secretary of Commerce Wilbur Ross said the world’s two biggest economies remain “miles and miles” apart on trade. A Chinese delegation will arrive in Washington on Monday to prepare for further talks.
- The pound headed for its best week against the euro since 2017 on speculation that the chances of a no-deal Brexit are receding. Sterling has climbed nearly 2 percent against both the common currency and dollar this week, ahead of voting next week on various amendments to Prime Minister Theresa May’s Brexit plan. The latest leg-up on Friday followed a report on talks between May and Northern Ireland’s Democratic Unionist Party and Thursday’s dovish European Central Bank meeting.
- The European Union is used to having the upper hand in the Brexit negotiations. Its surefootedness and unified communications have helped it get most of what it’s wanted since talks started 18 months ago. But with nine weeks left until the U.K. is scheduled to leave the bloc, and still no British parliamentary approval for the agreement struck between the two sides, the pressure may be starting to tell.
- Roger Stone, a longtime Republican strategist and sometime confidant of President Donald Trump, was arrested in Fort Lauderdale on Friday after being indicted by a grand jury as part of the U.S. probe into possible coordination between the Trump campaign and Russia before the 2016 U.S. election. Stone, 66, is facing seven counts: one count of obstruction of an official proceeding, five counts of false statements, and one count of witness tampering, according to the U.S. Justice Department.
- New negotiations between the Senate’s top Republican and Democrat and the White House signaled the potential for a deal to end the partial government shutdown even as President Donald Trump continued to insist on money for a border wall that Democrats reject. Senate Majority Leader Mitch McConnell, who until now has publicly sat on the sidelines during the 35-day government shutdown, opened negotiations with Minority Leader Chuck Schumer Thursday after the chamber blocked two rival spending bills to reopen the government.
- California has cleared PG&E Corp. of responsibility for one of the deadliest blazes in its history. And that still probably won’t be enough to prevent the state’s largest utility from going bankrupt as it faces billions of dollars in wildfire liabilities. The state’s finding that PG&E’s equipment isn’t responsible for the Tubbs fire, which tore through wine country in 2017, may slash the company’s estimated $30 billion in liabilities — but not by enough to offset damages from other fires and mounting lawsuits, analysts said. PG&E itself said it still faces “significant costs,” and it’s continuing to plan for a bankruptcy filing as soon as next week, according to people familiar with the matter.
- Intel Corp.’s first forecasts for 2019 sent a signal to investors that a torrent of spending on data centers, which has nourished sales and earnings growth for years, is beginning to dry up. The chipmaker’s revenue and profit projections for the current quarter and the year fell short of analysts’ average estimates, sending shares tumbling in late trading on Thursday. Intel, whose processors are the main component in most of the world’s personal computers and servers, cited a slowdown in spending at large cloud-computing customers, softness in China and the impact of geopolitical concerns.
- Europe’s primary bond market is awash with cash as investors start the year with a hunger for new notes. Volkswagen AG’s bank arm pulled in more than 9.75 billion euros ($11 billion) of bids for an upsized 2.5 billion-euro sale on Thursday, while two Accor SA notes got more than 5 billion euros of offers. Earlier in the week, investors placed more than 46.5 billion euros of orders in a record-breaking Spanish sovereign sale.
- A Chinese delegation including deputy ministers will arrive in Washington on Monday to prepare for high-level trade talks led by Vice Premier Liu He, according to people briefed on the matter. Vice Commerce Minister Wang Shouwen and Vice Finance Minister Liao Min will arrive in the U.S. on Jan 28, according to two of the people, who asked not to be named as the discussions aren’t public. China’s central bank governor Yi Gang will join the talks, one of the people said. It wasn’t immediately clear which other officials will attend.
- China’s largest oil refiner said its trading unit lost almost $700 million last year after being wrong-footed by zigzagging markets, revealing one of the biggest losses by a commodity trader in the last decade. Sinopec blamed the losses at its Unipec unit in part on “inappropriate hedging techniques” and said it closed its positions after discovering the problem. Oil plunged sharply in late November and December, prompting traders to speculate that Unipec may have contributed to the price drop as it unwound positions.
- The production-weighted cash cost to create one Bitcoin averaged around $4,060 globally in the fourth quarter, according to analysts with JPMorgan Chase & Co. With Bitcoin itself currently trading below $3,600, that doesn’t look like such a good deal. However, there’s a big spread around the average, meaning that there are clear winners and losers. Low-cost Chinese miners are able to pay much less — the estimate is around $2,400 per Bitcoin — by leveraging direct power purchasing agreements with electricity generators such as aluminum smelters looking to sell excess power generation, JPMorgan analysts led by Natasha Kaneva said in a wide-ranging Jan. 24 report about cryptocurrencies spearheaded by Joyce Chang. Electricity tends to be the biggest cost for miners, needed to run the high-powered computer rigs used to process data blocks to earn Bitcoin.
- Anbang Insurance Group Co., which symbolized the era of mega-acquisitive Chinese companies that later had to reverse their buying binges, is continuing to whittle down its empire. The Beijing-based conglomerate is exploring the sale of the Manhattan office building that houses its U.S. headquarters, according to people with knowledge of the plans. It’s also in advanced talks to sell its domestic health-insurance arm to Fujia Group, a petrochemicals-to-finance group in northeastern China’s Liaoning province, other people familiar with the matter said.
- Linde AG and Praxair Inc. will get an extra month to complete divestitures required for their $43 billion merger, after regulators extended the deadline on the sales because of the U.S. government shutdown. The Federal Trade Commission gave its approval in October, contingent on the German and U.S. industrial gas giants selling a package of assets by Jan. 29. That deadline has been moved to March 1, according to a statement Friday. The October approval capped several months of drama for both companies, who had been racing against the clock to get their merger approved or risk it falling apart for a second time.
- Hong Kong’s billionaire Cheng family, which controls a real estate and jewelry empire, is exploring a bid for European fuel supplier Varo Energy BV, people with knowledge of the matter said. The companies have held talks about a deal that could value Varo Energy, backed by investors including Carlyle Group LP, at about 2 billion euros ($2.3 billion) including debt, according to the people. No final agreements have been reached, and there’s no certainty the negotiations will lead to a transaction, the people said, asking not to be identified because the information is private.
*All sources from Bloomberg unless otherwise specified