June 19th, 2019

Daily Market Commentary

  • Canadian Headlines
    • Canadian equities rose for a fourth straight session, following U.S. peers higher after President Donald Trump said he had a “very good” phone conversation with Chinese counterpart Xi Jinping. The S&P/TSX Composite Index gained 0.9%. All eleven sectors rose, led by materials and financials. Crude futures rose as much as 4.6% in New York, sending energy shares up. Elsewhere, Barrick Gold Corp.’s CEO has no intention of raising his offer to buy out the rest of troubled African unit Acacia Mining Plc. And investors await Canada’s decision on the Trans Mountain Pipeline.
    • Prime Minister Justin Trudeau’s government decided Tuesday to proceed with the construction of a major crude oil pipeline, saying the project has met strict requirements on safety and consultation with Canadian indigenous groups. Trudeau’s cabinet approved the expansion of Trans Mountain, a state-owned pipeline that runs from Alberta to Vancouver. The project will add 590,000 barrels of daily shipping capacity, a 15% boost to Western Canada’s current 4 million. Trudeau said the corporation responsible for building the pipeline hopes to have shovels in the ground in the current construction season.
    • Barrick Gold Corp.’s CEO has no intention of raising his offer to buy out the rest of troubled African unit Acacia Mining Plc — but he will use the next three weeks to talk. Barrick said on Tuesday it received a three-week extension to make a formal offer to minority shareholders for the roughly 36% stake in Acacia it doesn’t already own. In a separate statement, Acacia said it’s open to a formal offer, provided the price is fair and its shareholders support the transaction.

     

  • World Headlines
    • European stocks were little changed after their biggest rally in five months that was prompted by optimism about monetary easing. The Stoxx Europe 600 Index lost about 0.1% ahead of a much-awaited Federal Reserve rate decision due after European markets close. Gains in miners and banks offset losses in defensive sectors such as real estate shares and food-and-beverage makers. The benchmark jumped on Tuesday as the euro dropped after European Central Bank President Mario Draghi said rate cuts remain part of the toolkit if inflation doesn’t strengthen.
    • U.S. stock-index futures swung between gains and losses as traders await the outcome of the latest Federal Reserve meeting, with a growing expectation that policy makers will signal readiness to lower rates. The dollar traded slightly lower. The Federal Open Market Committee is likely to hold interest rates steady on Wednesday while opening the door to a cut — by dropping its commitment to being “patient’’ in its policy statement, according to a Bloomberg survey of economists. The decision will be announced at 2 p.m. and Chairman Jerome Powell will hold a press conference 30 minutes later.
    • Japan’s Topix index rallied from a two-day slump as exporters climbed after President Donald Trump tweeted that he will meet Chinese President Xi Jinping at the G-20 summit next week. Electronics were the biggest boost to the benchmark gauge, as all industry groups rose amid hopes for a thaw in U.S.-China trade relations and optimism the European Central Bank will increase stimulus. Shares of Nomura Holdings Inc. surged after Japan’s biggest brokerage announced Tuesday that it will use proceeds from trimming its holding in Nomura Research Institute Ltd. to buy back as much as 150 billion yen ($1.4 billion) of shares.
    • Oil held steady in New York after rising the most in more than five months as OPEC set a date for its next meeting after a month of bickering, and as the U.S. and China signaled trade talks would resume. Futures edged lower after climbing 3.8% on Tuesday. OPEC and its allies will hold their next meeting on July 1-2 to discuss production curbs. Extending the cuts would shrink global inventories by about 500,000 barrels a day in the second half of this year, according to an OPEC committee, helping boost prices. Separately, the U.S. and China said their leaders will meet in Japan next week to relaunch trade talks.
    • Gold is holding near a 14-month high as investors await the outcome of the U.S. Federal Reserve’s meeting, with the central bank widely expected to join its European counterpart in striking a dovish tone. Bullion for immediate delivery traded 0.3% lower at $1,342.40 an ounce by 10:43 a.m. in London after jumping on Tuesday on indications of more stimulus from the European Central Bank. Holdings in gold-backed exchange-traded funds expanded to the highest since Feb. 22.
    • Nomura Holdings Inc. surged the most in more than two years in Tokyo trading after it announced a surprise $1.4 billion share buyback along with plans to reduce its chairman’s role to bolster governance. Just days before its annual shareholder meeting, Japan’s biggest brokerage said on Tuesday that it will trim its stake in an affiliate that was involved in a damaging information leak and use the proceeds to fund the stock repurchase. The stock closed 11% higher on Wednesday, the biggest gain since November 2016, paring this year’s decline to 10%.
    • Peru is seeking investors to improve some of the worst infrastructure in South America and at the same time provide a boost to its weakening economy. The country will present next month a five-year plan to develop 60 projects requiring investment of 90 billion soles ($27 billion), according to Finance Minister Carlos Oliva. The works will spur construction activity in the short term and boost Peru’s annual growth by 1 percentage point in the medium term, he said.
    • American Airlines Group Inc. ordered 50 of the new, longest-range version of Airbus SE’s A321 aircraft, a person familiar with the matter said, adding to a spate of purchases that would limit room for Boeing Co.’s expected foray into mid-range flying. The deal, which could be announced as soon as Wednesday at the Paris Air Show, includes 20 new A321XLR planes and the conversion of 30 existing A321neo orders, according to the person, who asked not to be named because the agreement hadn’t been made public. With a list price of $142 million, the 20 additional planes would be valued at about $2.84 billion.
    • The Trump administration is weighing three sanctions packages to punish Turkey over its purchases of the Russian S-400 missile-defense system, according to people familiar with the matter. The most severe package under discussion between officials at the National Security Council and the State and Treasury departments would all but cripple the already troubled Turkish economy, according to three people familiar with the matter, who asked not to be identified discussing internal deliberations.
    • The world’s most powerful central bank is making clear it thinks the law is on its side if President Donald Trump tries to remove Jerome Powell as Federal Reserve chairman. White House lawyers have equipped Trump with a possible blueprint for demoting Powell by stripping him of his chairmanship and leaving him as only a governor, according to people familiar with the matter. But the Fed, which faces frequent attacks from Trump for not being more accommodating to his economic agenda, has hinted for the second time that it won’t back down easily.
    • New York’s Senate has passed the state’s own version of the Green New Deal — a climate bill that will set the most aggressive clean energy target in the country, more than triple the state’s solar capacity and unleash wind power off the coast. The legislation, which was approved 41-21 and is expected to clear the Democratic-led Assembly as soon as Wednesday, would boost the amount of solar power in New York to 6 gigawatts by 2025 from about 1.7 gigawatts currently. It also calls for 9 gigawatts of offshore wind power by 2035. None of the state’s electricity currently comes from offshore wind.
    • After being hit by the trade war and U.S. sanctions on Iran, some Chinese buyers of liquefied petroleum gas from the Persian Gulf nation are finding it’s too tough a habit to kick. China sourced around a fifth of its LPG — used as cooking fuel, in cigarette lighters and to make plastic — from the U.S before Beijing slapped a 25% tariff on the gas last August as the trade tussle heated up. Buyers then turned to Iran, which accounted for around a third of imports in April, before President Donald Trump blocked all energy exports from the country in May.
    • Airbus SE muscled its way to the front again on the third day of the Paris Air Show, adding orders for its newest plane after U.S. rival Boeing Co. stole the spotlight with a mega-deal for its grounded 737 Max. The new A321XLR now has seven customers lined up after Qantas Airways Ltd.and U.S.-based Indigo Partners LLC signed on, bringing overall orders to 156 for the narrow-body jet, which can fly farther than the Max and connect destinations that weren’t previously cost-effective. While 44 of those are upgrades of existing commitments, the totals are still impressive: A net 112 planes valued at $15.9 billion before customary discounts.
    • China is stepping up efforts to avert a funding squeeze among the nation’s banks and securities companies after a rare government seizure of a small lender triggered concerns about a vital part of the nation’s financial plumbing. The People’s Bank of China and the main securities regulator called on big banks and brokerages to increase financing support for leading securities firms at a meeting on Tuesday, according to people familiar with the matter. Regulators encouraged interbank lending and repurchase financing among the measures, said the people, who asked not to be identified as they’re not authorized to speak publicly. Such operations are crucial to the provision of credit and processing of financial transactions in the economy. Any seizing up of interbank funding could make it even tougher for private-sector companies to obtain financing, at a time when China’s growth is weakening.
    • Axalta Coating Systems Ltd. is considering selling the company as it initiates a review of strategic alternatives. The board formed a strategic review committee to be chaired by Mark Garrett, its independent presiding director, and will include Chief Executive Officer Robert Bryant and independent director Samuel Smolik, the Philadelphia-based maker of automotive coatings said in a statement Wednesday.
    • Apple Inc. has asked its largest suppliers to consider the costs of shifting 15% to 30% of its output from China to Southeast Asia in a dramatic shake-up of its production chain, the Nikkei reported. The U.S. tech giant asked “major suppliers” to evaluate the feasibility of such a migration, the newspaper cited multiple sources as saying. Those included iPhone assemblers Foxconn Technology Group, Pegatron Corp. and Wistron Corp., MacBook maker Quanta Computer Inc., iPad maker Compal Electronics Inc. and AirPod makers Inventec Corp., Luxshare-ICT and GoerTek Inc., Nikkei cited them as saying.
    • Elliott Management Corp. is preparing to compromise with Vivendi SA on board representation at Telecom Italia SpA to end their battle for influence over the indebted phone carrier, people familiar with the matter said. The agreement between two of Telecom Italia’s biggest shareholders will come with a pledge to pursue a common strategy, said the people, who asked not to be named as the plans are not public. The board changes are slated to be discussed by Telecom Italia’s directors later this month, they said. Telecom Italia shares were suspended from trading in Milan after rising as much as 5.6%, their biggest intraday gain in four months.
    • KKR & Co. is nearing a deal to exit part of its stake in Weststar Aviation Services Sdn., Southeast Asia’s biggest provider of helicopters for the offshore energy industry, people with knowledge of the matter said. The private equity firm is in advanced talks to sell a portion of its 40% Weststar holding to the company’s controlling shareholder, Malaysian businessman Syed Azman Syed Ibrahim, according to the people. Weststar could be valued at about $2 billion including debt, the people said, asking not to be identified because the information is private.
    • Facebook Inc.’s plans to create a new cryptocurrency that can be used for everything from commerce to money transfers is facing pushback from angry U.S. lawmakers. House Financial Services Committee Chairwoman Maxine Waters urged the company to halt development of the token until Congress and regulators can examine it. Other lawmakers demanded hearings and questioned whether the coin, called Libra, will have appropriate oversight.
    • Walmart Inc. came to dominate retailing through its mastery of logistics—the complicated choreography of getting goods from farm or factory to the consumer. But even the world’s biggest store doesn’t make money selling its wares online in the U.S., largely due to runaway shipping costs. So Walmart is turning to robots. On a drizzly morning earlier this month, Walmart’s U.S. chief Greg Foranled reporters to a curbside package pickup kiosk outside its supercenter in Rogers, Arkansas. Idling there were three Ford delivery vans outfitted with self-driving technology developed by a Gatik, a Silicon Valley startup charged with a trial run aimed at cutting Walmart’s middle-mile shipping costs in half. Going driverless in pursuit of profit is a “no-brainer,” Foran said.
    • Selling electronic cigarettes would be banned in San Francisco—home of the e-cig maker Juul Labs Inc.—under a pair of ordinances that won unanimous Board of Supervisors approval Tuesday. If the two measures are passed in a final vote next week, San Francisco would become the first city in the nation to ban e-cigarettes and vape products. One ordinance would restrict commercial tobacco activities on city property, aimed directly at Juul which operates on city-owned land.

*All sources from Bloomberg unless otherwise specified