June 20th, 2019

Daily Market Commentary

• Canadian Headlines
  • The oil pipeline that Canadian Prime Minister Justin Trudeau’s government approved on Tuesday is slated to start shipping crude as early as 2022 and cost more than C$7.4 billion ($5.6 billion) after legal delays hampered the construction process. The Trans Mountain expansion, which would carry 590,000 more barrels of crude from Alberta’s oil sands to a port in Vancouver, was delayed for eight months as the federal government conducted additional environmental reviews and consultations with indigenous groups. That setback added more than a year to the project’s timeline as windows for sensitive steps such as work around fisheries were missed, Trans Mountain Chief Executive Officer Ian Anderson said on a conference call.
  • Canadian Prime Minister Justin Trudeau plans to take up trade disputes with President Donald Trump in Washington on Thursday and meet with congressional leaders on the proposed U.S.-Canada-Mexico trade pact. Trudeau is set to talk with Trump and U.S. cabinet officials at the White House before meeting with House Speaker Nancy Pelosi and Senate Majority Leader Mitch McConnell, as lawmakers weigh ratification of the three-country trade deal. The prime minister will make the case against potential U.S. tariffs or quotas on uranium, a nuclear power plant fuel produced in his country, and American tariffs on softwood lumber, a dispute that predates the administrations of both countries, two Canadian officials said, speaking on condition of anonymity.
  • Shopify Inc. plans to spend $1 billion to set up a network of fulfillment centers in the U.S. to help merchants using its e-commerce platform deliver products more quickly and cheaply, much the way Amazon.com Inc. does. “A large number of orders are lost in the final stages due to complex shipping costs,” Craig Miller, Shopify’s chief product officer, said at the company’s annual developer conference in Toronto. The service will use machine learning to predict demand and suggest closest fulfillment centers to merchants. The Ottawa-based company unveiled the plan, along with new features such as video and 3D modeling for products, the ability to edit orders and a better user interface. It also added 11 new language capabilities and rolled out a multi-currency payments system to all merchants. It’s planning a new point of sale system for later this year.
  • Shareholders of Acreage Holdings Inc. have voted in favor of a proposed acquisition by Canopy Growth Corp. that will only close if cannabis becomes federally permissible in the U.S. Acreage said its shareholders voted 95% in favor on Wednesday, while Smith Falls, Ontario-based Canopy said separately its investors voted 99% for the deal. To pass, two-thirds of Acreage shareholders and a majority of Canopy holders had to say yes.

   

• World Headlines
  • European equities advanced at the open, with miners and tech leading the gains, after the U.S. Federal Reserve followed the European Central Bank in taking a dovish stance amid slowdown concerns. The Stoxx Europe 600 Index added 0.6%. Delivery Hero jumped 14% after increasing its full-year revenue forecast by 200 million euros ($226 million). Software company SAP climbed 1.6% after U.S. giant Oracle returned to sales growth. Rio Tinto was up 1.5% after iron ore rose and the miner cut output guidance, boosting concerns about global supply.
  • U.S. stocks looked set to test their all-time high on Thursday, while Treasuries extended gains and the dollar slumped as the Federal Reserve’s dovish shift reverberated through markets. Gold rose to the highest in more than five years. Futures for the S&P 500 Index pointed to a big jump at the New York open after the benchmark closed about 0.7% away from a record on Wednesday. The 10-year Treasury yield at one point dropped below 2% for the first time since November 2016 on the prospect of easier monetary policy in the world’s biggest economy.
  • Japanese shares rose after the U.S. Federal Reserve struck a dovish tone at its latest policy meeting and as the Bank of Japan kept is monetary policy unchanged. The telecommunications and electronics groups were the biggest contributors to the Topix index’s rise. U.S. stocks rallied for a third day and yields on shorter-maturity Treasuries tumbled after the Fed’s statement. The yen climbed against the dollar. Fed Chairman Jerome Powell and colleagues dropped a reference in their statement to being “patient” on borrowing costs and forecast a larger miss of their 2% inflation target this year. The BOJ maintained its asset purchase programs and ultra-low interest rates on Thursday. All 50 economists surveyed by Bloomberg had predicted no change from the Japanese central bank.
  • Oil rose after Iran said it shot down a U.S. spy drone in its airspace, stoking Middle East tensions further after the attack on two tankers last week, while a more dovish stance from the Federal Reserve lifted financial markets. Futures climbed as much as 3.3% in New York. The reported drone downingfollows a missile strike by Yemeni rebels overnight on Saudi Arabia. The Fed’s readiness to lower interest rates for the first time since 2008 boosted stock markets and weakened the dollar, spurring demand for commodities priced in the U.S. currency. Oil also gained after U.S. government data showed inventories declined by 3.1 million barrels last week, more than analysts had estimated.
  • Spot gold climbed to close at the highest in more than two years after the Federal Reserve signaled a readiness to cut U.S. interest rates, citing increased economic uncertainties. While policy makers left their key rate unchanged on Wednesday, they dropped a reference in their statement to being “patient” on borrowing costs and forecast a larger miss of their 2% inflation target this year.
  • The Bank of England said the perceived risk of crashing out of the European Union without a deal had risen as policy makers unanimously voted to keep policy unchanged. While officials, led by Governor Mark Carney, said they still see the need for interest-rate hikes in coming years if their forecasts bear out, they also acknowledged that investors are taking a different view than the bank’s assumption of a smooth Brexit. That has pushed down the pound and market expectations for future interest rates, the Monetary Policy Committee said in the minutes of its June meeting. The pound declined after the report .
  • BCA Marketplace Plc, an online used-car seller backed by troubled Woodford Investment Management Ltd., said it is in advanced talks over a 1.9 billion-pound ($2.4 billion) takeover offer from TDR Capital LLP. The company, which runs webuyanycar.com, said Thursday that TDR proposed paying 243 pence a share, which is 25% higher than Wednesday’s closing price. BCA said its board intends to unanimously recommend the offer to shareholders if TDR announces a firm intention to proceed. BCA shares surged as much as 23% to 239 pence.
  • Iran said it shot down a U.S. drone near the entrance to the Persian Gulf, escalating tensions in a region that’s been on the brink of a military confrontation for weeks. Oil prices surged. “We will defend Iran’s airspace and maritime boundaries with all our might,” Ali Shamkhani, secretary for the Supreme National Security Council, was quoted as saying by state-run Iranian Students’ News Agency. “It doesn’t matter which country’s aircraft cross our airspace.” Iranian media described it as a spy drone and said it was hit inside Iranian airspace near Kuh Mobarak, on Iran’s southern coast. The U.S. disputed the account.
  • Airbus SE vowed to contend for a mammoth narrow-body order that its chief rival Boeing Co. announced in stunning fashion at the Paris Air Show. Speaking at a final press conference from Le Bourget airfield outside of Paris on Thursday, Airbus sales chief Christian Scherer said the European planemaker never received a request for proposals — a document that formally launches most major aircraft contracts — from British Airways owner IAG SA.
  • Russia’s state-controlled oil giant, Rosneft PJSC, is extracting concessions from crisis-ridden Venezuela to enter the offshore natural gas market on the cheap, a potential headache for the U.S. and Europe. An accord signed by both Russia and Venezuela earlier this month will give Rosneft tax breaks to produce and export gas from the Patao and Mejillones fields off Venezuela’s east coast. The document, which also includes a “fair market price” in the event of an expropriation, makes changes to a bilateral agreement reached in 2009, according to a filing by the Russian government.
  • Treasuries led a global bond rally, with 10-year yields dropping below 2% for the first time since November 2016 as expectations grow that major central banks will ease policy. The U.S. 10-year yield slid as much as five basis points to 1.9719% after the Federal Reserve signaled it was ready to cut interest rates. Japan’s benchmark yield dropped to minus 0.185%, near the bottom of the central bank’s targeted range after Governor Haruhiko Kuroda suggested policy makers won’t step in to prevent further declines. Similar rates in Germany fell deeper into the negative, approaching a record low reached earlier this week.
  • President Donald Trump has told confidants as recently as Wednesday that he believes he has the authority to replace Jerome Powell as chairman of the Federal Reserve Board, according to people familiar with the matter. In Trump’s line of thinking, he could demote Powell to be a board governor, but isn’t planning to do so right now, the people added. Their account of the president’s conversations emerged just hours after Powell said he intends to serve his full four-year term despite Trump’s continuing criticism of Fed policy. Earlier this year, Trump asked White House lawyers to explore options for removing him, Bloomberg reported on Tuesday.
  • Indonesia’s central bank signaled it’s ready to cut interest rates in coming months after adding stimulus to the economy by easing reserve limits for banks. Bank Indonesia left its seven-day reverse repurchase rate at 6% on Thursday, as predicted by 28 out of 35 economists surveyed by Bloomberg. The primary reserve ratio for commercial and Shariah lenders was lowered by 50 basis points from July 1 and is expected to add 25 trillion rupiah ($1.76 billion) in liquidity to the banking system. Central banks in the region from India to New Zealand have eased monetary policy in recent weeks amid worsening global growth prospects and an escalating U.S-China trade war. The U.S. Federal Reserve also signaled on Wednesday its willingness to cut.
  • Suzlon Energy Ltd. jumped the most in five months a day before its lenders are poised to consider the beleaguered wind-turbine maker’s plan to sell its operations and maintenance business to pare debt. Suzlon shares gained 22.4% Thursday to close at 4.1 rupees in Mumbai paring its losses for the year to 24%. The benchmark BSE Sensex index gained 9.9% this year. Lenders led by State Bank of India are expected to consider the company’s debt restructuring plan on Friday, people familiar with the matter said, asking not to be identified as the information is not public. Suzlon had a net debt of 95 billion rupees ($1.4 billion) as on March 31, according to data compiled by Bloomberg.
  • Xi Jinping received a full state welcome from North Korea’s Kim Jong Un — with a 21-gun salute and convertible ride past cheering crowds — as the Chinese president began the first such visit in 14 years. The two leaders held talks after Xi’s arrival in the North Korean capital, Chinese state media said, without elaborating. Besides showcasing ties that stretch back to the 1950-53 Korean War, Xi and and Kim were expected to use the visit to stake out common ground in their current struggles with U.S. President Donald Trump.
  • Carnival Plc shares fell the most in six months after the world’s largest cruise-ship operator cut its full-year earnings forecast for the second time in three months, citing lower ticket prices and a U.S. crackdown on travel to Cuba. Adjusted earnings per share will be in the range of $4.25 to $4.35, compared with a March guidance of $4.35 to $4.55, Miami-based Carnival said in a statement on Thursday. The stock dropped as much as 9.1% in London, where the company has one of its listings. A U.S. ban on travel to Cuba affects “a tiny share” of Carnival’s capacity, Bloomberg Intelligence analysts said earlier this month. But the issue was compounded by lower booking volumes and therefore prices, while disruptions to the Carnival Vista ship also weighed.
  • Facebook Inc.’s decision to create its own digital money –- with the grandiose ambition of establishing an alternative global financial system –- is jumpstarting a long simmering debate in Washington over how to regulate cryptocurrency. For years, U.S. regulators and lawmakers have bickered over how to tackle the thorny issues surrounding the emergence of cryptocurrencies, like protecting consumers and preventing crime. But the entry of a big and controversial company like Facebook could force their hand.

   

*All sources from Bloomberg unless otherwise specified