July 19th, 2019
Daily Market Commentary
- Canadian Headlines
- Canadian stocks finished higher Thursday, with material producers leading the way after gold and silver rose amid weaker U.S. dollar and Iran geopolitics. The S&P/TSX Composite Index up less than 0.1% to 16,494.23. Material stocks jumped 1.7% while Aurora Cannabis Inc. paced losses among pot shares. Meanwhile, energy shares slipped along with oil. Crude prices slid to the lowest in almost a month as pessimism about a trade truce between the U.S. and China continued to dog markets, while the resumption of Russian pipeline flows fed worries about a supply glut.
- For the past two years, Acacia Mining Plc has faced deteriorating relationships with its largest shareholder, Barrick Gold Corp. and the government of Tanzania. Now, one of those battles has found a truce. In an announcement on Friday, the two companies said they reached a deal for Barrick to buy the roughly 36% stake in Acacia it doesn’t already own. Barrick sweetened its offer to win over Acacia shareholders, some of whom had decried the previous bid as too low. The new offer has an implied value of about 232 pence per Acacia share, a 24% premium to the closing price on Thursday.
- World Headlines
- European equities advanced early on Friday as Anheuser-Busch InBev NV rose after agreeing to sell its Australian operations. The Stoxx Europe 600 Index added 0.5%, with AB InBev rising 3.9%, the gauge’s fourth-biggest gain. Bayer AG advanced 1.8% after a California judge issued a tentative ruling slashing a $2 billion verdict against the firm. On the other hand, Boliden AB tumbled 3.8% after second-quarter revenue missed estimates.
- U.S. equity futures point to a higher open as comments from Fed officials stoke investor optimism about a bigger rate cut than initially anticipated. Mounting bets on a 50 basis-point cut at the next FOMC meeting earlier supported stocks in Asia. The dollar climbs.
- Benchmarks in Japan, China and Hong Kong climbed, while the dollar gained after slumping Thursday. Investors are also looking to next week when the ECB could shed light on plans to ease monetary policy. Meanwhile, European bond yields mostly inched lower, with the exception of Italian BTPs. The Italian government debt saw increased yields after a solid rally this month and speculation over early elections. The pound and the euro weakened.
- Oil snapped four days of losses after the U.S. said it downed an Iranian drone near the Strait of Hormuz, stoking concern crude flows from the Middle East may be disrupted. Futures rose as much as 1.9% in New York, paring their steepest weekly decline since the end of May. A U.S. warship “immediately destroyed” the drone that approached the USS Boxer, President Donald Trump said on Thursday at the White House. Iran’s Deputy Foreign Minister Seyed Abbas Araghchi denied his country lost a drone.
- Gold touched a fresh six-year high amid dovish comments from Federal Reserve officials and increased Middle East tensions. Silver headed for the biggest weekly gain since 2016. Both metals got a boost Thursday after two senior Fed officials stressed the need to act quickly if the U.S. economy looked likely to stumble, and after President Donald Trump said the U.S. military downed an Iranian drone in the Strait of Hormuz. That pushed spot gold to $1,453.09 an ounce early Friday, the highest since May 2013, before prices pulled back as the dollar advanced. Silver rallied for a sixth day to the highest in more than a year.
- U.S. and Chinese senior officials spoke by phone this week, the second call since the late June summit at which the two sides agreed to a truce in their ongoing trade conflict. U.S. Trade Representative Robert Lighthizer and U.S. Treasury Steven Mnuchinspoke to the Chinese side earlier, a USTR spokesman said. China’s Commerce Ministry said Vice Premier Liu He and Commerce Minister Zhong Shan were among those on the call. There were no details released from both sides on what was discussed.
- The Federal Reserve is widely expected to reduce interest rates this month. That probably means its campaign to shrink its balance sheet is over, leaving the central bank hoarding trillions of dollars more than before the 2008 financial crisis. Beginning a decade ago in a bid to fight the calamity, the Fed by 2015 accumulated as much as $4.5 trillion of debt, including Treasuries and mortgage-backed securities. When policy makers began unwinding the portfolio at the end of 2017, primary dealers expected them to get it down to around $3 trillion or $3.5 trillion. But they’re not going to make it: Even after almost two years of cutbacks, the balance sheet is still brimming at $3.8 trillion.
- Boeing Co. plans to report a $4.9 billion accounting charge related to its beleaguered 737 Max jetliner, and said the plane would return to service in the fourth quarter, easing fears the timetable could slip into next year. The after-tax writedown, equivalent to $8.74 a share, covers potential concessions and considerations for airline customers who have been forced to cancel flights and line up replacement aircraft as the Max’s grounding enters its fifth month, Boeing said in a statement Thursday. The costs will clip $5.6 billion from revenue and pretax earnings in the quarter.
- Two senior Federal Reserve officials stressed the need to act quickly if the U.S. economy looked likely to stumble, reinforcing bets the central bank could cut interest rates by as much as half a percentage point later this month. Fed Vice Chairman Richard Clarida and New York Fed chief John Williamsbuoyed stocks with their dovish remarks Thursday afternoon, in some of the final comments from central bankers before they enter their blackout period ahead of a July 30-31 policy meeting.
- PepsiCo Inc. agreed to buy South Africa’s Pioneer Foods Group Ltd. for about 24.4 billion rand ($1.8 billion), adding local brands such as Weet-Bix breakfast cereal and Ceres fruit juice to ignite a push across the continent. The deal gives the U.S. drinks giant a hub from which to expand more aggressively in sub-Saharan Africa, said Eugene Willemsen, who is moving to Cape Town from PepsiCo’s New York headquarters to oversee the region. “This transaction is all about growth. We are looking to expand our footprint,” he said by phone on Friday.
- Toyota Motor Corp. will lead 50 trillion rupiah ($3.6 billion) in investments that global carmakers have pledged to plow into Indonesia’s electric-vehicle program in the next five years, Industry Minister Airlangga Hartarto said. The Japanese carmaker’s commitment — it plans to spend $2 billion to build hybrid vehicle plants in Southeast Asia’s largest car market — will help the country triple its total car exports to 1 million units per year by 2025, Hartarto told reporters Thursday on the sidelines of the Gaikindo Indonesia International Auto Show. Hyundai Motor Co. plans to start producing conventional and electric cars in 2021, Jongkie Sugiarto, chairman at Indonesian Automotive Industry Association, said in an interview Thursday but declined to specify how much the South Korean carmaker will be investing.
- President Donald Trump’s attacks on four minority congresswomen have stoked a backlash in the media and condemnation in Congress. But he’s betting the political benefits are worth it — and that the comments fire up his base more than they drive away independents. One reason: Trump’s insults raise the profile of the most liberal members of the Democratic Party, playing into his hopes of making the 2020 campaign in key battleground states like Wisconsin into a referendum on socialist policies. Polls show that the term “socialism” is a big loser for Democrats.
- Bayer AG is poised to get a $2 billion verdict from the most recent trial over its Roundup weed killer chopped by 90% or more. The German health-care and agricultural giant is set Friday to ask a California judge for a new trial in the Oakland case after a jury concluded an elderly couple’s exposure to Roundup caused their cancer. In a tentative ruling late Thursday, the judge rejected that request. And in line with what experts predicted, the judge said she’s inclined to whack the 10-figure damage awards to the husband and wife to about $250 million — or down as low as about $150 million — because they’re beyond the limits allowed by legal precedent. Bayer shares rose as much as 2.2% in early Frankfurt trading.
- Anheuser-Busch InBev NV bounced back quickly from the failed initial public offering of its Asian unit, selling Australian beer assets in a deal valued at A$16 billion ($11.3 billion) and keeping alive the prospect of a share sale. The disposal of Foster’s and other brands to Asahi Group Holdings Ltd. less than a week after the IPO was pulled shows that the world’s largest brewer means business about cutting its $100 billion-plus debt pile. AB InBev shares rose as much as 5.6%, the steepest gain in almost five months. The bonds also climbed.
- Matteo Salvini needs to make up his mind, and markets are becoming impatient with his indecision on whether he’s ready to pull the plug on Italy’s populist government. With his closest advisers egging him on, Italy’s most powerful politician has been dangling the prospect of a snap election in recent weeks, and now President Sergio Mattarella wants him to make his intentions clear in the next 48 hours, local media reported.
- Less than a year after President Xi Jinping first touted the project, China’s new stock venue designed for technology startups will start trading on Monday. Twenty-five companies will be part of the launch in Shanghai, out of the more than 100 hopefuls that applied to go public on the platform. Endorsement from top officials helped generate such enthusiasm that the firms raised a combined $5.4 billion, about 20% more than planned. Demand from retail investors has outstripped supply by an average 1,800 times, even as some analysts voiced concern over lofty valuations. One company priced its shares at 171 times earnings.
- Investors are sanguine about Singapore’s equity market even as the nation faces the risk of a technical recession, as a positive outlook for dividends and earnings overshadows threats from the U.S.-China trade spat. Singapore’s trade-reliant economy unexpectedly contracted by 3.4% in the June quarter from previous three months, reflecting sluggish global tradeand electronics cycles. Following the data release, the International Monetary Fund on Monday cut Singapore’s 2019 growth forecast to 2% from 2.3%. The benchmark Straits Times Index, on the other hand, has surged 9.8% this year. The gauge is among the best performers in Southeast Asia and is expected to rise further. The reason behind such optimism is more than half of the 30-member gauge generate 50% or more of their revenues outside the city-state, hence less influenced by the domestic economy, data compiled by Bloomberg show.
- BlackRock Inc. benefited from blockbuster net inflows in fixed-income in the second quarter, a period in which trade tensions roiled markets and investors sought safe haven assets. Fixed-income products brought in net flows of $110.4 billion in the quarter, according to an earnings statement Friday. That compares to $26.4 billion in the same period a year earlier. The strength of the results builds on last quarter.
- SAIC Motor Corp. expects annual sales to fall for the first time in at least 14 years as China’s biggest automaker battles through a slump in demand roiling the world’s largest car market, according to people familiar with the matter. The Shanghai-based company, Volkswagen AG and General Motors Co.’s biggest auto-making partner in China, projects 2019 sales will fall about 7%, said the people, who asked not to be identified because the information hasn’t been made public. The new target of 6.54 million is about 8% below SAIC’s public forecast for a slight increase in sales and would represent the first full-year drop on record, based on data compiled by Bloomberg back to 2006.
- Recently launched CrowdStrike Holdings Inc. rose 16% in early trading Friday after delivering what Piper Jaffray called an “exceptionally strong” forecast in its first earnings report as a public company. The cybersecurity company was “well ahead of expectations” with its outlook for both the fiscal second quarter and full year, Piper analyst Andrew J. Nowinski wrote in a note to clients. Results for the prior quarter were solid, as expected, and Nowinski says CrowdStrike may win more market share from Symantec Corp. due to its recent M&A distractions. Piper reiterated its overweight rating on CrowdStrike and lifted its price target to $90 from $75.
*All sources from Bloomberg unless otherwise specified