July 8th, 2019

Daily Market Commentary

• Canadian Headlines
  • Bank of Canada Governor Stephen Poloz may have reason to start worrying about the strengthening Canadian dollar when he sets interest rates this week. Poloz has overseen the world’s best-performing currency this year, in part because he’s one of the few major central bankers still reluctant to toy with the idea of cutting interest rates. That means the loonie’s ascent of about 4% so far in 2019 could give policy makers some pause about their more hawkish stance, especially if there’s concern the dollar’s momentum continues. An appreciating currency is a particular worry for a Canadian economy weighed downed by household debt and banking on its exporters to carry more of the growth burden.
  • Regulatory delays to new pipelines like TC Energy Corp.’sKeystone XL and Enbridge Inc.’s Line 3 have Canadian midstream companies’ existing conduits running at full capacity, boosting earnings and pushing their shares to the top of the charts among Canadian energy stocks. Midstream companies make up six of the 10 best performers in the 40-company S&P/TSX energy index so far this year. TC Energy, formerly known as TransCanada, is leading the charge, posting a 34% increase that’s more than triple the index’s 10% gain.
  • Encana wholly owned subsidiary, Newfield Exploration Mid-Continent, in pact to sell its natural gas assets in Oklahoma’s Arkoma Basin to an undisclosed buyer for total cash consideration of $165 million.

   

• World Headlines
  • The Stoxx Europe 600 Index drifted, with Deutsche Bank surrendering earlier gains as traders weighed a plan to to cut its workforce by one-fifth.
  • U.S. equity futures edged lower and stocks in Europe struggled for direction following steep declines in Asia as investors kicked off the busy week in a cautious mood. Gold and Treasuries advanced. Contracts for all three main U.S. gauges pointed to a small retreat at the open. This week is stacked with both central banker speeches and key data. The main focus looks set to be Federal Reserve Chairman Jerome Powell, who will testify to Congress just days after the latest labor report delivered signs the American economy remains on track. U.S. stocks hit a record last week and a bond rally took yields to multiyear lows amid expectations the Fed will lower interest rates by at least a quarter percentage point at its July meeting, though fed fund futures showed traders trimming the amount of easing they expect.
  • Asian equities posted heavy losses, with technology stocks taking a hit from fresh tension between Japan and South Korea over exports. The euro held steady after German industrial production data just missed expectations. Greek bonds rose amid hope a new government elected over the weekend will prove to be market-friendly. Gold gained for the first day in three and the Treasury 10-year note yield ticked down toward 2%.
  • Oil held above $57 as rising tension in the Middle East kept investors wary of potential supply disruptions. Futures in New York were little changed after rallying 2.2% over the previous three sessions. European powers urged Iran to reverse its decision to breach the levels of uranium enrichment restrictions under the 2015 nuclear accord, but stopped short of threatening sanctions. Tensions remain high after British forces seized a tanker carrying Iranian crude near Gibraltar last week.
  • Gold shrugged off Friday’s better-than-expected U.S. payrolls data to climb back above $1,400 an ounce, as China said it increased holdings of the precious metal for a seventh straight month. Gold is bouncing back after posting its first weekly decline in seven weeks. Holdings in exchange-traded funds backed by the metal declined Friday but remain near the highest in six years. Investors will also be watching for delayed positioning data from the CFTC, expected later Monday.
  • Investors added money to exchange-traded funds that buy emerging market stocks and bonds for the third straight week. It was the biggest week for inflows in four months. Inflows to U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $508.4 million in the week ended July 5, compared with gains of $311 million in the previous week, according to data compiled by Bloomberg. This was the biggest weekly inflow since March 8. So far this year, inflows have totaled $12.4 billion.
  • Saudi Arabian budget carrier Flyadeal reversed a commitment to buy as many as 50 Boeing Co. 737 Max jets, becoming the first airline to officially drop the plane since its grounding following two deadly crashes. Flyadeal will operate an entirely Airbus SE fleet, the company said Sunday in a statement, buying as many as 50 A320neo-family planes from Boeing’s European rival. The Airbus order was booked last month at the Paris Air Show by the discounter’s parent, Saudi Arabian Airlines. That announcement had sparked speculation about whether the planes would be allocated to Flyadeal, which had said in December it would spend up to $5.9 billion on Boeing Max jets.
  • Amazon.com Inc. warehouse workers in Minnesota plan to strike during the online retailer’s summer sales extravaganza, a sign that labor unrest persists even after the company committed to paying all employees at least $15 an hour last year. Workers at a Shakopee, Minnesota, fulfillment center plan a six-hour work stoppage July 15, the first day of Prime Day. Amazon started the event five years ago, using deep discounts on televisions, toys and clothes to attract and retain Prime members, who pay subscription fees in exchange for free shipping and other perks.
  • Resurgent tensions between Japan and South Korea threaten to wallop chipmakers from Samsung Electronics Co. to SK Hynix Inc., upsetting a carefully choreographed global supply chain by smothering the production of memory chips and other components vital to widely used devices. As the world fixates on Donald Trump’s campaign to contain Huawei Technologies Co. and China’s ambitions, a concurrent dispute between Beijing’s two richest neighbors also has far-reaching implications for the production of everything from Apple Inc. iPhones to Dell Technologies Inc. laptops. The industry is now scrambling to gauge the fallout after Japan — citing longstanding and unresolved tensions — slapped restrictions on exports to Korea of three classes of materials crucial to the production of semiconductors and cutting-edge screens.
  • China’s passenger-car sales showed signs of recovery from a historic rut as dealers offered discounts to clear inventory before new emissions rules kicked in. Retail sales of sedans, sport utility vehicles, minivans and multipurpose vehicles rose 4.9% to 1.8 million units in June from a year earlier, according to preliminary numbers from the China Passenger Car Association Monday. That’s the first increase since May 2018 for the world’s biggest market. The report offers some hope for automakers and dealers struggling with the first slump in demand in a generation, caused by slowing economic growth, rising trade tensions and stricter emissions rules. Yet a sustained recovery is far from certain, with researcher LMC Automotive last month estimating a decline of about 5% for the full year.
  • Turkey’s lira declined after President Recep Tayyip Erdogan’s dismissal of the central bank governor fueled concern monetary policy will be eased too quickly. Yet with hefty rate-cuts already priced in and the high yields on offer, the fallout has been relatively contained. The currency was trading 1.9% weaker against the dollar, tracing back almost half the plunge posted earlier in the day. Its implied volatility, which was already the highest in the world, rose the most since early May. Istanbul’s main stock index suffered its biggest drop in almost a month on a closing basis.
  • The beer business has gone flat globally, but it’s booming in parts of Asia. Anheuser-Busch InBev NV is counting on demand from Chinese drinkers as it prepares for the year’s biggest initial public offering, a sale of shares in its regional unit that could raise as much as $9.8 billion. The world’s largest brewer is expected to set the IPO price on Thursday, after flagging a valuation of as much as $64 billion for Budweiser Brewing Co. APAC. The amount raised could top the more ballyhooed listing of Uber Technologies Inc., which fetched $8.1 billion in May.
  • Broadcom Inc. has secured financing and identified cost savings for the acquisition of Symantec Corp. in an all-cash deal that could value the cybersecurity firm at more than $22 billion including debt, according to people familiar with the matter. The chipmaker received lending commitments from several banks and sees annual synergy potential of about $1.5 billion, said the people, who asked not to be identified because negotiations are private. An agreement could be reached around mid-July, though the talks could also still drag on or fall apart, the people said.
  • Thyssenkrupp AG is planning to begin formal talks to sell a stake in its 15 billion-euro ($16.8 billion) elevator unit in the autumn after the German industrial firm was approached by a number of potential bidders, people familiar with the matter said. Competitor Kone Oyj as well as private equity firms including CVC Capital Partners and KKR & Co. have expressed interest in part or all of the Thyssenkrupp division, the people said, declining to be identified because the deliberations are private. Sovereign wealth and pension funds are also interested in investing in the unit, they said.
  • BNP Paribas SA became the first bank to take advantage of Deutsche Bank AG’s retrenchment in equities, agreeing to back up and potentially assume control of electronic trading and prime services for hedge funds now run by the German lender. France’s largest bank entered a preliminary agreement “to provide continuity of service to prime finance and electronic equities clients,” Frankfurt-based Deutsche Bank said in a statement Sunday. The agreement is still subject to approvals and would allow a transfer of technology and staff to BNP Paribas in due course.
  • Microsoft Corp. signed Providence St. Joseph Health as a customer of its Azure and artificial intelligence tools to help the hospital chain track electronic health data such as surgery outcomes and cancer therapies. Providence, which operates hospitals in seven U.S. states, will shift data and applications from its own data centers to Microsoft’s cloud as part of the five-year agreement. The company’s 119,000 doctors and caregivers will also get access to Microsoft’s Office productivity software and its Teams chat service.

*All sources from Bloomberg unless otherwise specified