July 25th, 2019
Daily Market Commentary
- Canadian Headlines
- Stocks in Canada erased earlier losses, with the key benchmark ending Wednesday at a three-month high. Transportation shares paced the gains as Canadian National Railway Co. topped second-quarter earnings estimates. The S&P/TSX Composite Index rose 0.2% to 16,611.84 in Toronto, reaching the highest level since April. Industrials, technology and materials were the best-performing sectors, while energy and health-care posted the only losses. Energy shares slipped more than 1% after oil fell on news that Kuwait and Saudi Arabia will coordinate the resumption of crude output in a disputed neutral zone that could yield 500,000 barrels a day. Meanwhile, pot stocks declined as CannTrust Holdings Inc. slumped on a report that executives knew the cannabis company was growing pot in unlicensed rooms well before before government regulators unearthed the violation.
- Teck Resources Ltd. trimmed production guidance for its key money-making product, metallurgical coal, citing transportation problems, poor weather in northwestern Alberta and geotechnical issues at its Cardinal River project. The world’s second-biggest seaborne exporter of steelmaking coal cut output guidance for the commodity to 25.5 million to 26 million tons. Demand remained strong in the second quarter, the company said.
- As protests continue to rock Hong Kong, real estate brokers in Canada and the U.K. are fielding a flood of inquiries from investors in the former British colony who are eager to get out. Dan Scarrow, president of Macdonald Real Estate Group in Vancouver, said many of his Chinese agents saw an uptick in interest for both sales and rentals this month from Hong Kong. One of his agents is putting off her planned retirement this year to capitalize on the opportunity.
- AAA-rated issuers are turning to the Canadian debt market, taking advantage of investors seeking a haven in the best-performing reserve currency in an expanding universe of negative bond yields. Export Development Canada sold C$500 million ($380 million) of five-year green bonds in its first transaction in the currency since 2017. That deal came a few days after the World Bank priced C$1.5 billion of sustainable bonds in its first benchmark-size transaction of its fiscal year, while the European Investment Bank issued C$800 million of debt.
- Suncor Energy Inc. posted record second-quarter output, even in the face of Alberta’s mandatory crude-production curtailment program, by focusing on higher-value output from its Syncrude operation and buying other companies’ production allotments. Total upstream production climbed to a second-quarter record of 803,900 barrels of oil equivalent per day, a 21% increase from a year earlier, when it was dealing with an outage at Syncrude. Suncor’s share of the operation’s production, which comes in the form of higher value synthetic crude, was 188,700 barrels a day, up from 117,800 a year earlier. Suncor also purchased 24,000 barrels worth of other companies’ production allotments during the quarter.
- World Headlines
- European shares gained after U.S. indexes closed at records ahead of a European Central Bank meeting where the monetary authority is expected to signal more monetary stimulus. The Stoxx Europe 600 rose 0.4% as of 8:05 a.m. in London, led by the travel and leisure and auto sectors. Nokia OYJ surged 7.7% after its second-quarter earnings beat estimates, while Clariant AG plunged 7% after joint-venture talks with Saudi Basic Industries Corp. halted.
- U.S. equity futures were mixed on Thursday amid a cloudy picture for corporate earnings, while European stocks climbed ahead of a meeting of the region’s central bank. German government bonds gained with Treasuries. Contracts on the S&P 500 were little changed while those on the Nasdaq slid following Tesla’s worse-than-expected quarterly loss and another major management change.
- Most major indexes in Asia advanced, though Korean stocks declined for a second day. Germany’s 30-year bond yield fell to a record on deteriorating business confidence. The euro drifted with the dollar, while oil recovered some of the previous session’s losses.
- Oil held its biggest loss in a week as signs that growth is slowing in major economies overshadowed the longest run of declines in U.S. crude stockpiles since the start of 2018. Futures in New York edged higher after losing 1.6% on Wednesday, snapping a three-day gain. A gauge of American factory activity fell to the lowest in almost a decade and a German manufacturing index slumped to a seven-year low, putting Europe’s largest economy at risk of recession. U.S. crude inventories declined for a sixth week, the Energy Information Administration reported Wednesday, while production dropped the most since October 2017 in a reading that was affected by the impact of storm Barry.
- Gold is treading water ahead of upcoming key central bank policy-setting meetings. Platinum rose to the highest level in more than two months. Bullion surged last Friday to the highest level since 2013 on expectations that the Federal Reserve would reduce interest rates next week for the first time in more than a decade, but has traded in a narrow range of about $16 an ounce this week. Later Thursday, the European Central Bank is set to signal that it is once again preparing to step in to support the euro zone.
- Comcast Corp.’s second-quarter profit beat analysts’ estimates after new high-speed internet customers offset the loss of traditional cable-TV subscribers. The cable giant reported profit of 78 cents a share, excluding some items. That was up from 69 cents a year earlier and topped analysts’ estimates of 75 cents. Revenue was little changed at $26.9 billion, missing Wall Street projections.
- Southwest Airlines Co., the biggest operator of the Boeing Co. 737 Max, removed the plane from its schedule through Jan. 5, becoming the first carrier to drop the grounded aircraft for the rest of this year. Southwest expects the U.S. to approve a Max return to service in the fourth quarter, echoing Boeing’s best estimate. But Southwest will probably need one to two months to train pilots and make the aircraft ready to resume flights, according to a company statement Thursday.
- Tesla Inc. shares plummeted after a worse-than-expected loss and yet another major management change cast fresh doubts on the electric-car maker’s future. Despite delivering a record number of vehicles in the second quarter, Tesla lost $1.12 a share, a bigger deficit than any analyst projected. While Chief Executive Officer Elon Musk is hoping to earn a profit in the three months ending in September, he told shareholders he’ll prioritize other goals.
- Units of Gazprom PJSC plan to sell a stake of about 2.9% in the Russian natural gas producer Thursday after CEO Alexey Miller said he was looking to raise cash from quasi-treasury shares. Gerosgaz Holdings BV and Rosingaz Ltd., which are both 100%-owned subsidiaries, will offer 693.6 million common shares in Gazprom on the Moscow Exchange, the company said in a regulatory filing. The terms of the deal don’t allow a partial sale of the shares being offered.
- Newcrest Mining Ltd., Australia’s top gold producer, and Harmony Gold Mining Co. are facing a hurdle with the development of a key $5.4 billion mine in Papua New Guinea amid heightened political uncertainty. Permitting of the companies’ joint venture, the Wafi-Golpu gold-copper project, has been delayed for an unknown duration, Newcrest saidThursday. While the PNG government continues to signal support for the project, the deferment comes on the back of the election of a new prime minister and the delay associated with legal proceedings between national and provincial authorities, the company said.
- Trade tensions likely helped push down U.S. economic growth last quarter to match the slowest pace of Donald Trump’s presidency, with a robust consumer keeping things from looking even worse. Gross domestic product figures due Friday may show business investment posted the first decline in three years. Uncertainty from the yearlong U.S.-China tariff war compounded weakness stemming from slowing global growth and falling oil prices. GDP rose 1.8% on an annualized basis in the second quarter, according to the median projection of analysts, which would be the slowest since 2017.
- Bristol-Myers Squibb Co.’s results topped Wall Street estimates in the second quarter even as the drugmaker, which has bet heavily on cancer therapies to kickstart its growth, suffered a setback for its biggest-selling oncology medicine. Second-quarter adjusted earnings were $1.18 a share, up 17% from a year earlier and topping the $1.07 expected on average by analysts. The drugmaker also beat sales estimates, bringing in $6.27 billion, up 10% from the same period a year earlier and beating expectations of $6.11 billion.
- North Korea launched at least two short-range ballistic missiles into the sea off its eastern coast, signaling new strains with the U.S. just weeks after President Donald Trump and Kim Jong Un met and agreed to restart talks. South Korean officials said North Korea launched a new type of missile that traveled as far as 690 kilometers (430 miles) into the sea between the peninsula and Japan starting around 5:30 a.m. local time. The weapons, which officials said flew as high as 50 kilometers into the atmosphere, was fired from the coastal area of Wonsan just hours after U.S. National Security Adviser John Bolton departed Seoul.
- U.S. buyout firm Advent International Corp. agreed to acquire U.K. defense and aerospace company Cobham Plc for about 4 billion pounds ($5 billion), as cash-flush private-equity firms seek targets in Britain. Cobham shareholders will receive 165 pence a share in cash, a 34% premium to the closing price on Wednesday, the companies said in a statement Thursday. The stock traded 35% higher at 165.35 pence as of 10:53 a.m. in London.
- Nokia Oyj shares rose the most in 17 months after delivering an earnings beat that reassured investors the Finnish network-equipment vendor can capitalize on 5G. The company kept its profit guidance for 2019 and 2020 unchanged after topping analysts’ estimates for the second quarter, signaling management confidence that sales of fifth-generation mobile gear will kick in after an early stumble caused by shipment delays. The stock rose as much as 9% in early trading in Helsinki.
- Anglo American Plc plans to buy back up to $1 billion of shares after the diversified miner reaped bumper profits from its iron ore business, more than offsetting declines in diamond and copper. Anglo is the first to report earnings among the handful of giant miners that produce iron ore and investors have been preparing for big windfalls. The steelmaking ingredient surged to the highest in more than five years after a deadly Brazilian dam collapse and operational setbacks in Australian caused a supply shock.
- Yahoo Japan Corp., operator of the nation’s biggest web portalby user numbers, sold 230 billion yen ($2.1 billion) of yen bonds on Thursday, tapping investor hunger for positive spreads as underlying interest rates become more negative. It’s the biggest sale of senior notes targeting professional investors in the yen market this fiscal year, according to data compiled by Bloomberg. Yahoo Japan’s four-part deal, by far its largest ever, included three-year debt paying a coupon of 0.04%.
- Malaysia restarted the China-linked East Coast Rail Link project on Thursday after downsizing building costs by a third to lighten the government’s debt burden. The rail project, led by China Communications Construction Co. and Malaysia Rail Link Sdn., was canceled a year ago by Prime Minister Mahathir Mohamad’s new government after he balked at the 65.5 billion ringgit ($16 billion) cost. He revived talks later and in April struck a deal with China to cut it down to 44 billion ringgit.
- Buyout firm Apax Partners LLP is nearing an agreement to buy the German supplier of Dixi and Toi Toi portable toilets for as much as 800 million euros ($890 million), people familiar with the matter said. A deal between the London-based private equity firm and family-owned ADCO group could be reached in the coming weeks, the people said, asking not to be identified because the discussions are private. Talks are ongoing and no final decision has been made. Apax outbid several other private equity suitors, the people said.
*All sources from Bloomberg unless otherwise specified