July 30th, 2019
Daily Market Commentary
- Canadian Headlines
- Canadian stocks fell as tech heavyweight Shopify Inc. weighed on the benchmark and investors continued to flee pot companies. The S&P/TSX Composite Index lost 0.2% to 16,492.17. Technology shares led the decline as Shopify tumbled 5.1%, its biggest drop in a month. The move came as a report suggested Kylie Jenner’s beauty empire, a customer of Shopify’s, is experiencing declining sales. The health-care index slid 1% to the lowest since early January. All pot stocks fell with the exception of Hexo Corp., which posted a dramatic rebound after a short-seller report alleged it ran aggressive promotions that potentially violated Canadian advertising regulations.
- Some lawmakers from Emmanuel Macron’s Republic on the Move party were given police protection after at least eight offices were ransacked following the French parliament’s approval the European Union’s free trade pact with Canada last week. The attacks have ranged from dumping rotten fruit to spraying graffiti to attempted arson of local representative offices, according to French media reports. There have been no reports of direct attacks on members of parliament.
- World Headlines
- European stocks slumped as several critical corporations cut their outlook and France posted a surprise slowdown in economic growth. The region’s macro picture was again in the spotlight as France’s weaker-than-expected expansion in the second quarter added to concerns over German and manufacturing weakness. Among companies, Reckitt Benckiser Group Plc and Bayer AG plunged after warning about their outlook. The Stoxx Europe 600 extended its decline to 0.9% as of 10:26 a.m. London, with banks the biggest drag before results due from key French lenders on Wednesday. Italy’s FTSE MIB Index slid 1.6% while the German DAX lost 1.2%. All sectors other than food and beverage were in the red.
- U.S. index futures decline, following European stocks lower, as traders focus on earnings and the resumption of U.S.-China trade talks. The dollar trades higher for an eighth straight session. Contracts on the S&P 500, Dow Jones and Nasdaq pointed to a lower U.S. open as traders look for earnings reports due from heavy hitters including Procter & Gamble, Pfizer and Mastercard.
- Asian equity markets including Japan, South Korea and China closed higher. Chinese trade negotiators are due to host their U.S. counterparts in Shanghai, re-opening talks with a marked change of atmosphere after an almost three-month hiatus. U.S. delegates including Treasury SecretarySteven Mnuchin and Trade Representative Robert Lighthizer are said to be attending a dinner at the Fairmont Peace Hotel on Tuesday evening.
- Oil rose as expectations that the Federal Reserve will cut interest rates and the resumption of trade talks between the U.S. and China shored up the outlook for fuel demand. Futures advanced 0.8% in New York, trading above $57 a barrel, after climbing by the most in almost three weeks on Monday. Later this week, the Fed is expected to lower borrowing costs for the first time in more than a decade. Chinese and American negotiators gather for two days of talks on Tuesday, while U.S. government data on Wednesday is forecast to show crude stockpiles fell for a seventh week, by 2.5 million barrels last week in a Bloomberg survey of analysts.
- Gold held a back-to-back gain above $1,400 an ounce, supported by inflows into exchange-traded products, as investors counted down to this week’s Federal Reserve meeting. In addition, traders were set to track U.S.-China trade talks scheduled to resume in Shanghai on Tuesday. Prospects of a breakthrough are slim, with the two sides seen as further apart than they were three months ago.
- There’s no reprieve in sight for the ailing euro area, with economic confidence dropping to its lowest level in more than three years and French growth providing less support than expected. The European Commission’s monthly reading of sentiment fell as executives in industry worried about production and orders, and managers in the services sector became more pessimistic about future demand. In France, economic expansion slowed as consumer spending growth weakened despite President Emmanuel Macron’s tax cuts.
- China’s leadership announced priorities for economic policy in the second half of the year, pledging to tackle ongoing tensions over trade “effectively” while offering incremental additions to stimulus policies aimed at shoring up the economy. Policy makers vowed to maintain their pro-active fiscal policy and keep monetary policy not too tight or too loose. Meanwhile, officials should “effectively deal with trade frictions,” according to a statement carried on state media. The 25-member politburo, the Communist Party’s top ruling body, met in Beijing on Tuesday to review economic performance in the first six months and discuss plans for the second half. Authorities will need to come up with ways to support domestic demand amid the downdraft from the slowing global economy and trade war, while keeping a lid on debt.
- The pound headed for its worst run of losses in almost three years as investor concerns over a no-deal Brexit intensified. The pound has slumped almost 3% in the past four days, with investors pricing a higher chance of the U.K. crashing out of the European Union on Oct. 31. As differences between the two sides increase, Prime Minister Boris Johnson’s office said the U.K. will push the EU to negotiate a better divorce deal while preparing the country to leave the bloc without one if he fails.
- Beyond Meat Inc. plummeted 11% on a plan by inside shareholders and the faux-meat company to sell more than 3 million shares, just three months after it went public. The transaction will let early investors such as Kleiner Perkins and Obvious Ventures and executives including Chief Executive Officer Ethan Brown take profits on a small portion of their stakes after an almost 800% gain in the stock since the IPO. The offering will help Beyond fund increased production and marketing as the company battles it out in an increasingly crowded vegan marketplace.
- More than two weeks after a blackout plunged much of Manhattan’s west side into darkness, Consolidated Edison Inc. has identified the culprit: poor wiring. Faulty wiring was installed 11 years ago between sensors and a relay system designed to detect and keep electrical faults from spreading, ConEd spokesman Michael Clendenin said in a phone interview Monday. It came back to haunt the utility July 13, when a 13,000-volt underground cable broke down and sensors failed to alert the system to open breakers and isolate the outage.
- Japanese life insurers are piling into the nation’s longest-maturity bonds, causing the yield curve to flatten and complicating matters for the central bank. The quest for higher yields saw the companies snap up a net 921 billion yen ($8.5 billion) of 20- to 40-year debt in the three months through June, while selling 244.9 billion yen of shorter maturities. The shift out along the curve has seen the extra yield on 40-year bonds over 10-year ones shrink for nine straight months.
- Vietnam must take steps to cut its trade surplus with the U.S., Trade Representative Robert Lighthizer said in comments released Monday, as the Trump administration ramps up pressure on the Southeast Asian country. The U.S. has a growing trade shortfall with Vietnam, and the government “has been clear with Vietnam that it has to take action to reduce the unsustainable trade deficit,” Lighthizer said in written responses to the U.S. Senate Finance Committee. Measures Vietnam should take include “expanding its imports of goods from the United States and by resolving market access restrictions related to goods, services, agricultural products, and intellectual property,” he said.
- Only two of 11 elevators needed to lift munitions to the deck of the U.S. Navy’s new $13 billion aircraft carrier have been installed, according to a Navy veteran who serves on a key House committee. It’s another setback for contractor Huntington Ingalls Industries Inc. — and for the Navy, which had said in December it planned to complete installation and testing of all 11 elevators before the Ford completed its post-delivery shakedown phase this month, with at least half certified for operation.
- U.K. Prime Minister Boris Johnson will spend the next few weeks pressing the European Union to negotiate a better Brexit deal, his office said, while preparing the country to leave the bloc in case he fails. A messy no-deal divorce is a scenario that has concerned business leaders and weakened the pound since Johnson won the contest to become Britain’s new leader a week ago. Sterling fell to its lowest level against the dollar in more than two years on Monday. Johnson will travel to a farm in Wales Tuesday to hear the views of agricultural workers on their hopes for life after leaving the EU as his office said the government will throw itself into negotiations with Brussels.
- In a year when record heat is scorching Europe and the heaviest rain in decades has inundated parts of the U.S. Midwest, the Asia Pacific region is suffering from its own maelstrom of extreme weather. Drought, and floods in some areas, have devastated the livelihoods of thousands of people, and damaged crops in an area that produces most of the world’s palm oil, natural rubber and rice, and more than a third of its sugar. While parts of China endured the most rain in almost 60 years, water levels on the Mekong, one of Asia’s largest river systems, have fallen to among the lowest ever, and areas of southern India are battling relentless drought.
- Japan’s imports of Saudi Arabian oil slumped to the lowest level in 17 years as China took record volumes from the kingdom to replace lost barrels from Iran. The Asian nation received about 25.55 million barrels of oil from Saudi Arabia in June, the smallest amount of monthly crude since June 2002, according to customs data from the Ministry of Finance. Shipments slid 6.3% from a year earlier. Filling the void was the United Arab Emirates, which became Japan’s biggest supplier for the first time in about four years.
- Capital One Financial Corp. set up an email address for tipsters — including “white hat” hackers — to alert the company to potential vulnerabilities in its computer systems. On July 17, the company got a hit. It didn’t take Capital One long to figure out who had accessed its files. The GitHub address included a name, Paige Thompson, a former Amazon.com Inc. employee who used the online nickname “erratic” and discussed her exploits with others, according to federal prosecutors.
- Delivery Hero SE Chief Executive Officer Niklas Oestbergpoured cold water on speculation it may make a counter-bid for a U.K. food-delivery rival, saying the company has plenty of growth potential as it expands its offering to challenge Amazon.com Inc. in local shipments. Interest in Oestberg’s acquisition strategy has risen since Peel Hunt analysts named the Berlin-based food delivery company as a possible counter-bidder for Just Eat Plc, which is in talks to be sold to Dutch delivery firm Takeaway.com NV for about $6.2 billion. Delivery Hero could benefit from the deal indirectly via its 15% stake in Takeaway.
- A consortium that includes U.S. cable giant Comcast Corp., James Murdoch’s Lupa Systems and Blackstone Group Inc. has made an offer for a stake in Zee Entertainment Enterprises Ltd., India’s largest private broadcaster, people familiar with the matter said. The group plans to snap up a 51% stake, which has a market value of about 190 billion rupees ($2.77 billion), said one of the people, asking not to be identified as the discussions are private. The bid is non-binding, the people said.
- Barclays Plc is taking another shot at offloading $450 million of buyout loans stuck on its books, seven months after a year-end freeze in credit markets forced the bank to come up with the cash itself. The bank provided the loans at the end of last year to help closely held OSG Billing Services finance two acquisitions, according to people familiar with the matter. After a first attempt to refinance the debt faltered earlier this month, OSG’s private equity owner Aquiline Capital Partners has agreed to inject $100 million of additional equity into the company, the people said, asking not to be named because the details are private.
- As Ford Motor Co. bears down on a self-imposed deadline to field robotaxis and driverless delivery vehicles in two years, the automaker has acquired a small defense contractor whose experience could help get auto-piloted cars on the road. This month, Ford paid an undisclosed sum to acquire Quantum Signal AI, a 40-member team of roboticists operating out of a decommissioned 1930s-era high school in Saline, Michigan, just up the road from the University of Michigan. The 20-year-old firm has experience working with the U.S. military on sniper simulations and remote-controlled sentinel robots.
- When Apple Inc. launches a new iPhone, that usually means rising revenue. Chances are that won’t happen this year. Apple reports fiscal third-quarter results on Tuesday, but all eyes will be on its forecast for the fiscal fourth quarter. That’s when the Cupertino, California-based technology giant is expected to release new versions of its flagship handset. In the halcyon days of the smartphone industry, glitzy iPhone introductions would send Apple fans scurrying to stores to snap up the latest model. Nowadays, people are holding onto their devices for longer and growth has plateaued.
- American ethanol plants are closing, and the corn market is feeling the pinch. The weakest margins in more than 15 years means ethanol factories across the country are halting or slowing production, reducing demand for the grain. That, compounded with the largest stockpiles since the 1980s, has widened the discount of September futures to those for December to the lowest level in more than a month. Margins have turned negative as companies that had expanded capacity betting on demand from China found themselves without an export market due to President Donald Trump’s trade war with the Asian nation. Plymouth Energy LLC has shut its 50 million gallon a year corn-ethanol mill in Merrill, Iowa, Chief Executive Officer Eamonn Byrne told Bloomberg last week.
*All sources from Bloomberg unless otherwise specified