July 23rd, 2019

Daily Market Commentary

  • Canadian Headlines
    • Canadian stocks rose, with tech companies including Shopify Inc. and Sierra Wireless Inc. leading the way as their U.S. counterparts rallied in anticipation of earnings reports. The S&P/TSX Composite Index rose 0.2% to 16,518.88 on Monday in Toronto. Health care stocks were the worst performers, led by marijuana companies as pot policy review in the U.S. weighed on producers. Meanwhile, wholesale sales in Canada pulled back by the most since 2016 in May on declines in motor vehicles, while a measure of sales to inventories rose to the highest in more than two decades. The value of wholesales fell 1.8% on the month, the biggest decrease since March 2016, Statistics Canada said. That missed the median forecast in a Bloomberg survey for a gain of 0.5%.
    • Private equity firm Catalyst Capital Group Inc. is offering to purchase up to C$150 million ($114 million) worth of shares of Hudson’s Bay Co. as it builds a stake in the Canadian retailer in an effort to thwart a proposed takeover of the company. The Toronto-based firm said in a statement Monday it was was prepared to pay C$10.11 per share in cash for up to roughly 14.8 million common shares. That’s a 7% premium on the C$9.45 a share the company’s chairman, Richard Baker, and his partners offered to take the company private last month.
    • Rogers Communications Inc. added fewer net wireless subscribers in its fiscal second quarter amid a price war among Canadian telcos. The Toronto-based company’s postpaid net subscriber additions, a key metric for telecom companies, were 77,000, short of analysts’ estimate of 99,250. Revenue was C$3.78 billion ($2.88 billion), also missing estimates of C$3.86 billion. Revenue at the wireless division, Rogers’ largest, rose 1% to C$2.24 billion.

     

  • World Headlines
    • Europe’s stocks trailed Asia higher, as the earnings flood continued with big banks UBS and Santander putting their cards on the table. Meanwhile, the U.S. and China have stepped toward their first face-to-face trade talks in months. The Stoxx Europe 600 Index rose 0.5%, with the banking sector gaining 0.7%. Switzerland’s UBS Group AG and Spain’s Banco Santander SA both reported net income that topped estimates. Continental AG didn’t rattle the automotive sector, despite cutting its earnings outlook after shrinking vehicle production. The Auto & Parts sector was the best performer, rising 1.3%.
    • U.S. equity futures rose alongside stocks in Europe and Asia Tuesday amid a busy week of corporate earnings and encouraging signs for a U.S. debt-ceiling deal and trade negotiations. Oil stabilized and the dollar climbed. Futures on the S&P 500, Dow Jones and Nasdaq pointed to a solid green open after President Donald Trump said he would support a deal to suspend the U.S. government’s borrowing limit and boost government spending levels for two years.
    • Oil held steady as heightened tensions in the Persian Gulf threatened to disrupt energy flows from the crude-rich region, while a tepid demand outlook kept a lid on gains. Futures in New York traded little changed after climbing 1.7% over the past two sessions. Secretary of State Michael Pompeo said Monday that the U.S. had sanctioned a Chinese state-run oil trader for violating White House-imposed restrictions on Iranian crude. Meanwhile, U.K. Foreign Secretary Jeremy Hunt announced that European governments will assemble a naval mission to provide safe passage for ships through the gulf after Iran seized a British tanker.
    • Gold dropped after U.S. lawmakers agreed on a debt-limit deal, boosting investors’ appetite for riskier assets as the dollar ticked higher. Silver reversed earlier losses to trade near the highest level since June 2018. Holdings of exchange-traded funds backed by both precious metals continue to rise, with assets in silver ETFs reaching a fresh record Monday and gold funds at the highest since 2013.
    • Iron ore’s impressive rally is showing signs of strain. Futures fell for the fifth time in six days in Singapore amid concern that seaborne supplies will pick up this half, while port stockpiles in China start to bounce back and mills’ profit margins contract in the world’s top steel producer. The most-active contract sank as much as 4.4% to $109 a ton on the Singapore Exchange, the lowest intraday price since July 8. That brings futures down from a five-year peak of $120 a ton hit on July 1, and coincides with forecasts from banks and users that the raw material is set to ease.
    • U.K. manufacturers are more pessimistic than at any time in the past three years after order books shrank at a pace last exceeded during the financial crisis a decade ago, according to the Confederation of British Industry. The gloomy assessment adds to evidence that the economy suffered a Brexit hangover in the last quarter after orders were brought forward to the start of the year ahead of the original March 29 deadline to the leave the European Union.
    • Boris Johnson, the public face of the Brexit campaign, won the contest to succeed Theresa May as British prime minister, taking over a country in crisis and a government on the brink of breaking apart. After a six-week leadership race, which he led from the start, Johnson defeated his rival Foreign Secretary Jeremy Hunt in a ballot of the Tory party’s 180,000 members.
    • White House and congressional negotiators reached accord on a two-year budget on Monday that would raise spending by $320 billion over existing caps and allow the government to keep borrowing, most likely averting a fiscal crisis but splashing still more red ink on an already surging deficit. If passed by Congress and signed by President Trump, the deal would stop a potential debt default this fall and avoid automatic spending cuts next year. The agreement would also bring clarity about government spending over the rest of Mr. Trump’s term, though Congress must still fill in the details, program by program.
    • Daimler AG’s Chinese partner Beijing Automotive Group Co. is buying a 5% stake in the Mercedes-Benz maker to cement industrial ties between the two automotive companies. BAIC, backed by the Beijing municipal government, has acquired 2.48% holding and the right to buy an additional 2.52% stake, Daimler saidTuesday. The stakes have a combined valuation of 2.5 billion euros ($2.8 billion). Together with Daimler’s biggest shareholder — Zhejiang Geely Holding Group Co.’s billionaire owner Li Shufu — the transactions would take the level of Chinese ownership in the world’s biggest luxury carmaker to 14.7%.
    • The government’s plan to sell over $10 billion worth of shares in Japan Post Holdings Co. has been clouded by a scandal at its insurance unit. The subsidiary, Japan Post Insurance Co., is voluntarily refraining from active product sales amid allegations of inappropriate sales practices. Both stocks have tumbled and concerns have grown over demand for the 1.06 billion shares Japan is looking to sell as early as September.
    • Toyota Motor Corp. shares are outpacing gains in the broader equity market this month amid investor speculation that China will ease emissions rules so that Prius-like cars that pollute just a little aren’t penalized as much as normal gas guzzlers. The world’s most valuable automaker reached a nine-month intraday high of 7,128 yen on Monday. It climbed on Tuesday, pushing its gain so far this month to 6.3%, compared with 2.5% for the Topix Transportation Equipment Index and 1.1% for the Topix index. Toyota’s hybrid vehicle sales in China are about six times that of Honda Motor Co. and Nissan Motor Co. combined. Honda is up 0.8% this month, while Nissan is down 0.1%.
    • Indian billionaire Mukesh Ambani’s Reliance Industries Ltd.’s talks to sell a minority stake in its refinery business to Saudi Arabian Oil Co. have stalled on differences over the deal’s structure, people with knowledge of the matter said. Aramco is concerned about Reliance’s proposal to shift some debt of the wider group to its refinery business ahead of the transaction, said the people, who asked not to be named as the discussions are private. The Indian company is working on alternatives and negotiations could still resume and lead to a compromise in the coming months, the people said.
    • The most eagerly awaited part of Boeing Co.’s second-quarter results Wednesday will be any update to the full-year forecast. Boeing abandoned its prior 2019 forecast when it reported first-quarter results in late April as troubles befell the 737 Max aircraft. The planes were grounded following two fatal crashes within a span of five months and last week the company announced a nearly $5 billion charge related to the jets.
    • Democratic campaigns and party operatives are quietly expressing consternation that the budget agreement in Washington risks saddling the next president with a debt limit crisis that could hijack any chance to advance a first-term agenda. The deal announced by President Donald Trump on Monday afternoon would suspend the debt ceiling until July 31, 2021 — setting the stage for a bigger budget fight only six months into the next president’s tenure. In a joint statement, House Speaker Nancy Pelosi and Senate Democratic Leader Chuck Schumer said they were “proud” to secure the debt limit extension because lawmakers “must never let the full faith and credit of the United States come under threat.”
    • Lloyds Banking Group Plc and Standard Life Aberdeen Plc are set to settle a dispute over the bank’s decision to pull its 109 billion-pound ($136 billion) contract from the asset manager. Lloyds would pay Standard Life 140 million pounds in cash as compensation and leave 30 billion pounds of the total under their management for three years, according to a person familiar with the matter, who asked not to be identified because the talks are private. The settlement is expected to be completed later this week.
    • Europe’s beaten down auto stocks are finally getting a break. Shares of the region’s carmakers and suppliers jumped the most in more than six months as investors focused on positive news, including a stake purchase by Daimler AG’s main Chinese partner and a confirmation of guidance from parts manufacturer Faurecia SA. All 15 members of the gauge rose, despite a profit warning from Continental AG. Tuesday’s 3.6% gain for the Stoxx 600 Automobiles & Parts Index comes after a bad year for the group, which had fallen 14% in the past 12 months before today. While the index has been climbing from a five-month low in early June, it’s been held back as companies predict a global car-market contraction because of slowing economies and U.S. trade disputes with China and potentially the European Union.
    • The Bank of Japan will probably lower its inflation forecast for this fiscal year and could also downgrade some of its economic growth projections at its meeting next week, according to people familiar with the matter. The BOJ will likely lower its price forecast of 1.1% for the year ending in March 2020 to reflect subdued price growth in recent months and the impact of cheaper cell phone charges, the people said. The central bank will also discuss how a downgrade would weigh on price forecasts for later years, the people said. Growth projections could also be lowered given mounting uncertainties over the direction of the global economy, they added.
    • Vale SA’s Indonesian unit and partners plan to spend about $5 billion on nickel projects over the next few years to tap bullish demand from the battery sector and the steel market in China. PT Vale Indonesia and Sumitomo Metal Mining Co. Ltd. aim to make the final investment decision for their $2.5-billion battery-grade nickel plant in the first quarter, Febriany Eddy, deputy chief executive officer of PT Vale, said in an interview. The Jakarta-based company also plans to spend about $1.8 billion on a ferronickel smelter and several hundred million dollars to expand its nickel mines, she said.
    • The U.S. has sanctioned a Chinese state oil trader for violating restrictions on Iranian crude, an attempt to tighten restrictions on the Islamic Republic and cut off one of its biggest buyers. Zhuhai Zhenrong Co., the secretive company with links to the Chinese military, has a history of taking Iranian crude and fuel, at times as part of barter deals for goods or services, and then selling it on to refiners in China. The U.S. move comes at a delicate time for relations with Beijing as the two nations attempt to kick-start negotiations aimed at resolving their broader trade conflict.
    • Biogen Inc. beat second-quarter sales estimates and raised its revenue guidance for the year, a sign that the biotechnology giant is seeking to stem the bloodletting that has claimed more than $30 billion of its market value over the last twelve months. The Cambridge, Massachusetts-based company said it expects revenue this year to be between $14 billion and $14.2 billion, up from $13.6 billion to $13.8 billion. Its adjusted earnings-per-share for the quarter were $9.15, while analysts anticipated $7.53.
    • Blackstone Group is considering selling its stake in Cheniere Energy Partners LP, according to people familiar with the matter, seven years after agreeing to invest about $1.5 billion in the owner of the first major liquefied natural gas export terminal in the U.S. The private equity firm is working with an adviser on a potential sale of its interest in Cheniere Energy Partners, a limited partnership created by Cheniere Energy Inc., said the people, who asked to not be identified because the matter isn’t public. Blackstone is seeking a premium for its stake and marketing it to a small number of infrastructure, pension and sovereign wealth funds, said the people.
    • Apple Inc. is negotiating to buy Intel Corp.’s struggling cellular modem unit, said a person familiar with the matter. A deal would give Apple key engineering talent and patents that would help it develop new devices to connect to the mobile internet. The Intel assets could be valued at about $1 billion in a transaction, said the person, who asked not to be identified because the matter was private.
    • Major economies around the globe all seem to covet a weaker currency as risks to growth mount. That makes engineering a lower dollar, euro or other heavyweight all the harder. President Donald Trump has repeatedly badgered the Federal Reserve to cut rates and complained that the U.S. dollar is too strong. But he’s got competition. It might not mention the exchange rate explicitly, but the European Central Bank is poised to loosen policy, weighing on the common currency. Bank of Japan Governor Haruhiko Kuroda said the bank will “persistently continue with powerful monetary easing” to boost inflation. In China, the central bank looks set to step up stimulus to revive growth.

*All sources from Bloomberg unless otherwise specified