January 29th, 2019

Daily Market Commentary

 

Canadian Headlines

• Canadian stocks recovered from early losses to close Monday session flat, helped by cannabis stocks. U.S. stocks traded lower after Caterpillar and Nvidia blamed slowing global growth for disappointing results, adding to concern the trade war with China is hitting corporate profits. The Canadian benchmark closed the Jan. 28 trading session up 0.08 percent in Toronto. Cronos Group helped marijuana stocks outperform, while and industrials underperformed after SNC-Lavalin’s slump.
• TransCanada has hired RBC Capital Markets to manage the planned sale of a majority stake in the Coastal GasLink pipeline, that has an estimated construction cost of C$6.2b, according to company filings.
• Prime Minister Justin Trudeau ousted his ambassador to China in the middle of a diplomatic feud with Beijing after a string of public remarks drew criticism. Trudeau asked for, and got, the resignation of John McCallum on Friday, according to a statement from his office issued Saturday. The move comes amid the fallout of Canada’s arrest in December of Huawei Technologies Co. Chief Financial Officer Meng Wanzhou, at the request of the U.S., which has angered China.

 

 

World Headlines

• It was a mixed picture across global stock markets on Tuesday, with European shares climbing, U.S. futures trimming a drop and Asian equities slipping as investors juggled concerns about the fallout from America’s trade war with China against hopes for progress in this week’s talks. Personal goods and travel companies were among the biggest gainers in the Stoxx Europe 600 Index as most sectors turned higher following a directionless start.
• U.S. stock futures fell in Asian trading after prosecutors filed criminal charges against Huawei Technologies Co., casting a shadow over planned trade talks in Washington beginning Wednesday. S&P 500 futures contracts expiring March were down 0.4 percent as of 10:22 a.m. in Tokyo after the underlying gauge fell 0.8 percent on Monday. Futures contracts on the Dow Jones Industrial Average and Nasdaq 100 Index lost 0.4 percent and 0.5 percent respectively.
• Asian shares pared most of their 0.8 percent decline, but the volatility seen on Tuesday shows how skittish the mood is. News that U.S. prosecutors filed criminal charges against Huawei Technologies Co. poured cold water on a region that recovered about $1.6 trillion in equity values since a December low. Adding to that, Caterpillar Inc. and Nvidia Corp. blamed a slowdown in Chinese demand for disappointing results, just as early data suggest the Chinese economy slowed for an eighth month in January.
• Oil rose above $52 a barrel as the White House announced new sanctions against Venezuela’s state oil company Monday, bringing another supply risk to the market. Futures rose as much as 1.2 percent in New York, following a 3.2 percent drop Monday. The Trump administration issued fresh sanctions on PDVSA which effectively block President Nicolas Maduro’s regime from exporting Venezuela’s crude to the U.S. That came hours after Saudi Arabia pledged deeper cuts in February as part of a deal with its allies to cut oil production.
• Gold propelled deeper into the $1,300s, rising to the highest level since June, as investors juggled concerns about the fallout from America’s trade war with China against hopes for progress in this week’s talks. U.S. prosecutors on Monday filed criminal charges against Huawei Technologies Co., accusing China’s largest technology company of stealing trade secrets. Meanwhile, President Donald Trump is expected to meet China’s top trade negotiator, with the talks to cover U.S. demands for structural changes to China’s economy. A Federal Reserve policy decision is due on Wednesday.
• Iron ore investors are attempting to gauge the fallout from the dam burst at one of Vale SA’s mines, amid concerns the disaster will have ramifications beyond the affected operation in Brazil that could tighten the market in the short term and offset weakness from a slowdown in China. Futures on the Dalian Commodity Exchange extended gains on Tuesday to head for the highest close in more than a year, after the benchmark price for immediate delivery surged to $78.80 a ton on Monday, the highest level since March. Shares of Australia-based miners rallied, with gains for BHP Group, Rio Tinto Group and Fortescue Metals Group Ltd.
• Boeing Co. and Airbus SE split a $5 billion ANA Holdings Inc. order for 48 single-aisle planes as Japan’s biggest airline expands its fleet amid rising competition in the Asia-Pacific market. ANA will buy 20 Boeing 737 Max 8 aircraft, with options on 10 more, at a list price of 383 billion yen, plus 18 Airbus A320neo aircraft at 166 billion yen, the carrier said in a statement Tuesday. Prices are before discounts that are customary for large orders. The planes will be delivered through March 2026.
• Theresa May has ripped up her Brexit plan in a bid to keep her party united and she faces key votes today that will put her plan B to the test. She’s backing an amendment that would give her a mandate to go back to Brussels to renegotiate her divorce deal. Another amendment aims to put Brexit on hold. Markets and the EU like that one much more than the first.
• Astaldi SpA, the cash-strapped Italian builder, and its Turkish partners are looking into the possible sale of their Istanbul-Izmir toll road. The company’s shares rose on the news. The joint venture that’s building the highway asked international banks to bid for the right to advise them on the future of the road, said Kerim Kemahli, chief financial officer of Nurol Holding AS, which holds a 27 percent stake in the partnership. Astaldi, which is a junior partner with 18 percent, is looking to sell assets wherever possible to raise money.
• Royal Philips NV started a new 1.5 billion euro ($1.7 billion) share buyback program after a growing order book helped the Dutch health-tech company beat estimates for fourth-quarter sales. The buyback will come on top of a 6 percent dividend increase to 0.85 euros a share, the company said in a statement on Tuesday. Comparable sales rose 5 percent in the final three months of the year, compared with a company estimate of 4.1 percent.
• A series of devastating wildfires that killed more than 100 people and scorched hundreds of thousands of acres in California over the course of two years just brought one of America’s largest utilities to its knees. PG&E Corp. and its Pacific Gas & Electric Co. utility filed for Chapter 11 bankruptcy in San Francisco as investigators probe whether its equipment ignited the deadliest fire in state history. The San Francisco-based company listed $51.7 billion in total debts and $71.4 billion in assets. A Chapter 11 filing allows a company to keep operating while it works out a plan to turn the business around and pay off creditors.
• FedEx Corp., looking beyond Amazon.com Inc. for growth in e-commerce, is introducing a new late-night shipping option for retailers who want to speedily send orders directly to online customers. The program will offer retailers the option to deliver items the next day when they are purchased online as late as midnight, said Brie Carere, FedEx’s chief marketing officer. Less than 1.3 percent of the courier’s total revenue comes from Amazon, she said — a figure that hasn’t previously been disclosed. The company doesn’t expect that to increase as it sees better prospects in helping customers compete against the e-retailing behemoth.
• Europe warned the world’s biggest tech and advertising companies that they need to intensify efforts to combat disinformation on their platforms ahead of European elections, or face regulation. The European Commission, the bloc’s executive body, acknowledged that companies such as Alphabet Inc.’s Google, Twitter Inc. and Facebook Inc., had made “some progress,” in particular with removing fake accounts and demoting sites that promote disinformation. But officials said that ahead of European elections in the spring, more needed to be done to ensure adequate transparency of the political ad-buying process, promote cooperation between platforms and EU member states, and promote access to firms’ data for research purposes.
• Chinese provinces are downgrading their targets for economic growth in 2019 as exports and consumption slow, pointing to a lower national goal likely to be agreed in March. Of the 30 provinces which have released their 2019 growth targets, 23 lowered their goals from those set for 2018, according to local government work reports. Guangdong — the nation’s manufacturing heartland — is seeking growth between 6 percent and 6.5 percent, while coastal Jiangsu is aiming for expansion above 6.5 percent, compared with about 7 percent targeted by both for last year. The regions have the two highest gross domestic product totals in the country.
• Pfizer Inc. issued a weaker forecast for its 2019 financial results than Wall Street expected, warning that fluctuations in the U.S. dollar are likely to erode the drugmaker’s bottom line. The drugmaker said the guidance reflects a currency impact of about 6 cents in its adjusted earnings per share, and about $900 million to revenue. That echoes guidance from rival Johnson & Johnson, which warned of similar currency woes this month.
• Harley-Davidson Inc. merely broke even in the last quarter of a year in which the iconic American motorcycle maker got caught up in President Donald Trump’s trade wars. Earnings per share on a GAAP basis was zero in the fourth quarter, the Milwaukee-based manufacturer said in a statement Tuesday. Excluding restructuring and tariff costs, profit was 17 cents a share, missing analysts’ average estimate for 29 cents.
• Verizon Communications Inc. posted fourth-quarter sales that missed analysts’ estimates, a disappointment to investors after the telecom giant’s deep cost cuts in the final months of 2018. The largest U.S. wireless carrier said revenue was $34.3 billion, slightly short of analysts’ expectation of $34.4 billion. Earnings, excluding special items, came to $1.12 a share, topping the $1.09-a-share average of analysts’ estimates.
• Among traditional media companies, no one is making a bigger bet on streaming than Walt Disney Co. Later this year, the entertainment giant will launch Disney+ — a third online video service alongside ESPN+ and Hulu — loaded with movies and TV shows from Marvel, Pixar and “Star Wars.” The Fox film studio and the FX and National Geographic networks also will play key roles as Disney wraps up the $71 billion takeover of 21st Century Fox Inc.’s entertainment portfolio. It’s all part of Chief Executive Officer Bob Iger’s master plan to corral many beloved brands, from “Avatar” to “Zootopia,” and deliver them to the millions of viewers who now stream TV via monthly subscriptions. But challenging Netflix Inc., the online pioneer with almost 140 million subscribers worldwide, will cost big money, especially with Disney digesting Fox.
• Wall Street has become obsessed with the Federal Reserve’s balance-sheet runoff, as investors debate why it’s suddenly roiling markets more than a year after it began. There’s been no shortage of industry veterans sounding the balance-sheet alarm in recent weeks. DoubleLine Capital Chief Executive Officer Jeffrey Gundlach says the unwind, interest-rate policy and guidance on where the two are headed have resulted in the equivalent of 15 implied tightenings. Billionaire Stanley Druckenmiller has called it a “double-barreled blitz” that could lead to a major policy error. And Guggenheim Partners Chief Investment Officer Scott Minerd has expressed concerns that liquidity constraints could give way to systemic risk.
• T-Mobile US Inc. Chief Executive Officer John Legere and Sprint Corp. Chairman Marcelo Claure agreed to testify about their planned $26.5 billion merger before a Democratic-controlled House panel that is expected to bring tougher scrutiny to the consolidation of telecom giants. The hearing, scheduled for Feb. 13, gives Representative David Cicilline of Rhode Island, the chairman of the House antitrust subcommittee, an opportunity to examine a deal that would reduce the U.S. wireless market to three carriers. Cicilline has vowed to look into the rising concentration and market power wielded by companies in industries like technology and health care.

*All sources from Bloomberg unless otherwise specified