January 2nd, 2019
Daily Market Commentary
- Canadian stocks rose on the final trading day of the year but it wasn’t enough to prevent them from posting their worst annual performance since 2008. The S&P/TSX Composite Index gained 0.7 percent to 14,322.86 on thin New Year’s Eve volume after U.S. President Donald Trump reported “big progress” in trade talks with China. The benchmark lost 5.8 percent in December, 11 percent in the fourth quarter and 12 percent for the year amid concerns about global trade, rising interesting rates and plunging oil prices. On Monday, the materials sector led the gains, rising 1.7 percent as gold stocks climbed. Technology stocks also rose 1.7 percent as Shopify Inc., one of the best-performing stocks on the S&P/TSX this year, added 3.7 percent.
- A group of Guyana Goldfields Inc. investors is seeking a complete overhaul of the miner’s board, after the company’s market value shrank by more than $1 billion from a peak over two years ago. Guyana’s former chief executive officer Patrick Sheridan, Northfield Capital Corp. and other investors who together own more than 5 percent of the Toronto-based miner plan to seek a mandate from shareholders to replace the gold producer’s directors. The gold miner with operations in Guyana slumped by almost half in late October after the company lowered its production guidance and raised costs for a second time last year. The first time it delivered similar bad news in 2018 was in mid-July, when its market value plummeted by more than a fifth.
- European equities also retreated, with the Stoxx Europe 600 index 1 percent lower, led down by sectors sensitive to global growth such as basic resources and autos. Banks and insurers were among the laggards. Europe’s Purchasing Managers’ Index (PMI) readings showed weakness, with Italy contracting, while France’s survey signaled activity shrank for the first time since late 2016. The euro-zone reading was the lowest in almost two years.
- U.S. stock-index futures extended declines after a gauge for manufacturing output in China fell into contraction territory for the first time since May 2017, fueling global growth concerns. March contracts on the S&P 500 Index fell as much as 2.3 percent, after a closely watched gauge of Chinese manufacturing had its lowest reading since May 2017.
- The benchmark gauge of Asia-Pacific stocks excluding Japan slumped 1.9 percent at 4:39 p.m. in Hong Kong as traders returned to work in key regions including Hong Kong, China, Taiwan and Korea. Japan markets are closed and reopen on Jan. 4. Wednesday’s plunge, which is the worst start to the year in three, has one culprit: China’s factory conditions slumped in December. To be precise, the Caixin Media and IHS Markit PMI fell to 49.7 from 50.2, its lowest reading since May 2017.
- Oil started 2019 with another price slide as weaker Chinese manufacturing data pointed to slowing demand in the world’s second-biggest consumer of the fuel and to growing risks of a global crude surplus. Futures declined about 1.3 percent in New York and London after a turbulent 2018 that saw volatility soar in its final weeks as concerns over the U.S.-China trade dispute and an uncertain economic outlook roiled stock markets. Though the two crude benchmarks rallied in the last days of 2018, they each lost 20 percent or more during the year on expectations that booming U.S. shale output could unleash a new glut.
- Gold’s year-end rally is pushing into 2019, with bullion advancing for a fifth straight day as equities posted fresh losses after the worst year since the financial crisis. The metal hit a six-month high nearing $1,300 an ounce, even as some daily technical indicators highlighted the potential for a reversal after recent gains. The advance came as fresh figures showed China manufacturing shrinking and U.S. equity futures tumbled as stocks slumped across Europe and Asia.
- India’s central bank will permit lenders to restructure stressed loans to small companies, breaking from a five-year-old policy of eschewing sweeping corporate debt overhauls. The Reserve Bank of India will allow one-time restructuring of loans to micro, small and medium-sized companies that are in default, the regulator said in a statement on Tuesday. To be eligible for the program, the loan should not exceed 250 million rupees ($3.6 million), according to the statement.
- Coal’s three-year run of blistering gains in Europe is set to end, clobbered by a combination of weakening demand and energy polices aimed at phasing out the dirtiest fossil fuel. After prices more than doubled since 2016 as Asian importers drove demand, coal is expected to fall more than 10 percent to $76.50 a ton next year in Europe, a Bloomberg survey shows. That’s a far cry from October’s five-year high of $100 a ton. A return to those levels any time soon may be difficult. Slowing growth in China and other Asian countries is damping demand at a time when India’s mines are set to churn out more supplies. In Europe, pressure to cut use of the fuel in power generation is intensifying, while the cost for polluting is near the highest in a decade and expected to climb further.
- U.K. manufacturers are intensifying their stockpiling efforts as they brace for a potentially disruptive Brexit. Factories reported an almost record increase in stocks last month, IHS Markit said in a report Wednesday. New orders also picked up as firms and their clients rushed to protect themselves before the March exit date.
- Factory conditions across Asia’s most export-oriented economies slumped in December amid a U.S.-China trade war and a fading technology boom, while momentum in the euro region also weakened. A Chinese manufacturing gauge is signaling contraction for the first time since mid-2017, while measures for Taiwan, Malaysia and export bellwether South Korea also point to declines in activity. Factory growth in the euro zone fell to the lowest in almost three years.
- Major parts of the U.S. government will remain shuttered for a 12th day as President Donald Trump invited congressional leaders from both parties to a White House briefing Wednesday on border security. It will be the first face-to-face meeting between Trump and the leadership of the House and Senate since the shutdown began and the first potential opening for negotiations to end it. Democrats are set to take control of the House on Thursday and vote on a plan to end the shutdown without including money for building a border wall, a challenge to Trump and to the Republican-controlled Senate.
- The Federal Trade Commission’s anti-monopoly lawsuit against Qualcomm Inc. is scheduled to go to trial Jan. 4., regardless of when the partial government shutdown ends. The commission is accusing the company of violating antitrust laws by employing abusive patent licensing tactics that have allegedly harmed chip competitors, cell phone manufacturers, and consumers. It’s just one of several ongoing antitrust cases the FTC staff will be working on in 2019 involving companies like Tronox Ltd, Impax Laboratories Inc., and ViroPharma, a unit of Shire Plc.
- Deutsche Telekom AG, Vodafone Group Plc and Telefonica SA have sued Germany’s government over a planned auction of wireless frequencies, a move that could delay mobile network upgrades in Europe’s biggest economy. The country’s three largest mobile operators say the rules governing the sale of bandwidth they need for fifth-generation networks are so onerous that they outweigh the value of the spectrum being sold. The companies argue it’s impossible to meet a requirement for coverage of 98 percent of German homes, every highway and all federal roads with download speeds of 100 megabits per second by the end of 2022, with the frequencies on offer. They’re also concerned that smaller carriers will be allowed to piggyback onto their networks without making the upfront investments.
- The 150+ handle bounce in the S&P 500 since Christmas has yielded sharp moves to the upside for a number of important stocks in this market, but a continuation over the next week or two should be served with a side of caution. This last rally came during a holiday week when trading pads were half empty and at a juncture when big swings are the norm, as Mohamed El-Erian stated last week when he said 1,000-point jolts in the Dow Jones Industrial Average are the “new reality.” Thus, I highly doubt that the recent upticks will sway the naysayers or remove any trepidation in this tape.
- China National Tobacco Corp., a state monopoly that’s by far the biggest cigarette maker in the world, plans to list its international unit on the Hong Kong stock exchange even as pressure increases on the government to curb smoking. The unit, China Tobacco International Inc., is primarily responsible for procuring overseas tobacco leaf from countries like Brazil and Canada for the cigarette giant, which churns out four of every 10 sticks made in the world. The parent company may clock more profit than either HSBC Holdings Plc or Walmart Inc., according to a rare glimpse of financial data in 2012.
- Faroe Petroleum Plc said its value far surpasses a bid by DNO ASA, citing an independent assessment in a last-ditch effort to persuade shareholders to reject the hostile offer just hours before the deadline. A report prepared by Gaffney, Cline & Associates Inc. concludes that the U.K. oil company is worth $879 million to $1.076 billion, exceeding the $723 million valuation implied by DNO’s offer of 152 pence a share, Faroe said Wednesday. It’s a response to repeated criticism from DNO, which is seeking full control after amassing a 30 percent stake.
*All sources from Bloomberg unless otherwise specified