June 7th, 2019

Daily Market Commentary

• Canadian Headlines
  • Technology stocks rose to their highest level since 2008, leading Canada’s equity benchmark to a third consecutive gain. The S&P/TSX Composite Index added 0.1% to 16,227.80. The S&P 500 increased 0.6% as the U.S. weighs delaying President Donald Trump’s threatened tariffs on Mexico. Technology stocks rose 1% in Toronto, while defensives like real estate, utilities and telecom companies also gained. Consumer staples were the biggest decliners, falling 0.9% as dairy producer Saputo Inc. tumbled 6.6%, the most since 2011. The company missed earnings and revenue estimates due to lower international prices and a fluctuating Canadian dollar.
  • Four months before an election, Canadians remain split on whether they see Prime Minister Justin Trudeau or his main rival, Andrew Scheer, as the best manager of the nation’s economy. Asked which leader they trusted to support growth, 30% of Canadians picked Trudeau and 29% chose Scheer, according to a survey this week by Nanos Research Group for Bloomberg News. About a quarter of respondents didn’t trust any of the leaders or were unsure, with the rest trusting leaders of smaller parties.

   

• World Headlines
  • European stocks are set for a weekly gain, just the second positive week since April as investors bet that looser monetary policy will be used to mitigate the effect of international tariffs. Investors are awaiting a potentially key U.S. jobs report today. The Stoxx 600 index rose 0.6% at the open on Friday, with technology and financials among the industries showing gains, while energy was the best performing sector as crude futures jumped overnight. Among individual stocks, Danish biotech Novozymes slumped following a profit warning Thursday.
  • U.S. equity futures rose with European stocks on Friday in the run-up to a key American jobs report. The dollar climbed and Treasury yields nudged higher. Contracts on the S&P 500 and the Dow Jones Industrial Average signaled a positive start in New York. Traders will be watching the U.S. employment report due later Friday for clues on the strength of the economy, after Federal Reserve Chairman Jerome Powell signaled this week he’s open to easier policy as trade tensions persist.
  • Japanese and South Korean equities advanced, while China’s markets were closed for a holiday. Traders are closely watching developments in U.S.-Mexico trade talks after Vice President Mike Pence said his country still plans to impose tariffs on its neighbor next week. The offshore yuan fell to its weakest level since November 2018 before paring its loss slightly as People’s Bank of China Governor Yi Gang said in an interview with Bloomberg that the nation has tremendous room to adjust policy.
  • Oil continued its rebound, heading for the biggest two-day gain since April, as Saudi Arabia and Russia reiterated their commitment to working together to keep the market balanced. Futures in New York advanced 1.4%, bringing their increase over two days to more than 3.2% after dropping into a bear market earlier this week. Saudi Arabian Energy Minister Khalid Al-Falih said in St. Petersburg he was “sure” that OPEC and its partners will prolong supply restraints into the second half of the year. His Russian counterpart, Alexander Novak, said the two countries have agreed to take coordinated action.
  • Gold is poised for the biggest weekly advance in six months as investors await key employment numbers from the U.S. later Friday and weigh latest developments on tariff negotiations between the Trump administration and Mexico. The jobs report for May will be especially scrutinized by economists, investors and Federal Reserve policy makers watching for signs of cracks in the labor market as trade tensions weigh on the economy and spur bets interest-rate cuts are coming. On the trade front, Vice President Mike Pence said the U.S. still plans to impose tariffs on Mexico next week.
  • Iron ore inventories at China’s ports contracted to the lowest since January 2017 as the impact of supply disruptions seen by top miners earlier this year drags holdings down, with the volume of ore from Brazil now lower than the level when Vale SA’s dam disaster hit in January. Total holdings at ports in the world’s largest importer contracted for the ninth consecutive week, shrinking 2.6% to 121.6 million tons, according to Shanghai Steelhome E-Commerce Co. Brazilian material tumbled 4% to 34.5 million tons, while Australia-origin ore spiraled to a three-year low.
  • Beleaguered bookseller Barnes & Noble Inc. has a buyer. Elliott Management Corp. agreed to purchase the chain for $6.50 per share in an all-cash transaction valued about $476 million, including the assumption of debt, the company said in a statement Friday. Barnes & Noble shares rose 8.4% to $6.46 in early trading. They had surged 30% on Thursday on news that Elliott was close to a deal.
  • China’s central bank governor said there’s “tremendous” room to adjust monetary policy if the trade war deepens, joining counterparts in Europe and the U.S. in displaying readiness to act to support the economy. In an exclusive interview with Bloomberg in Beijing, People’s Bank of China Governor Yi Gang also signaled that he’s not wedded to defending the nation’s currency at a particular level, and stressed that the value of the yuan should be set by market forces.
  • The longest run of gains in Treasuries since the Federal Reserve started raising borrowing costs may still continue if Friday’s jobs report disappoints investors. Benchmark two-year yields are heading for a fifth weekly drop, a duration of declines not seen since July 2016. Traders have driven down yields on conviction that policy makers in the world’s largest economy will lower interest rates on a lack of inflation, and Friday’s non-farm payrolls data may confirm if growth is slowing as well.
  • No matter how much business groups and Republican senators hate President Donald Trump’s Mexico tariffs, there may be no stopping them before Monday, and rolling them back if they’re put in place is a daunting prospect. Congress has constitutional authority over trade and could pass a law to block the president’s action. But partisan gridlock and decades of delegating responsibility to the president will complicate any legislative challenge to Trump’s tariff threat. And while legal scholars say Trump’s decision to tap emergency powers to leverage trade policy over Mexico’s immigration laws is questionable, it’s also hard to defeat in a lawsuit, given legal precedent and the ambiguity of the statute the administration is citing in this case. Many business groups have criticized the policy, and the U.S. Chamber of Commerce has said it is “exploring what legal options might be available,’’ according to Chief Policy Officer Neil Bradley.
  • Texas drillers may have found a solution to the stubborn natural gas glut that’s forced them to either burn it off into the air, or pay others to take it away. At least five producers, led by EOG Resources Inc., are experimenting with shooting highly-pressurized natural gas into past-their-prime wells that have seen their output slip. The wells are then capped to build up pressure inside with the aim of dislodging any oil still hiding in the rock.
  • Vice President Mike Pence said the U.S. still plans to impose tariffs on Mexico next week, as American and Mexican officials planned further talks aimed at defusing a crisis between the two countries over the flow of undocumented migrants into the U.S. Negotiations wrapped up on Thursday evening without an agreement, Mexican Foreign Minister Marcelo Ebrard said, adding that another round of discussions would take place on Friday in Washington to head off the tariffs.
  • Sanofi poached a top manager from Novartis AG in a bid to accelerate delivery of new blockbuster drugs to the market and catch up with competitors in the lucrative cancer field. Bringing in Paul Hudson as its next chief executive officer will help the French pharma giant bolster its pipeline of medicines and deal with growing U.S. pressure on drug prices. The 51-year-old British executive will take over in September from Brandicourt, 63, who’s retiring. The shares rose as much as 5.1% in Paris trading, the biggest intraday increase since October.
  • The pound may slide to a two-year low if a hardline euroskeptic takes over as the U.K. prime minister, according to a Bloomberg survey of analysts. Sterling could drop more than 2% to $1.24 in the event a Brexiteer such as favorite Boris Johnson replaces Theresa May after she formally steps down as the leader of the Conservative Party Friday, according to the poll. While the survey sees a hard Brexiteer taking over as the most likely scenario with a 70% probability, analysts expect lawmakers to provide a barrier against a no-deal exit and prevent a bigger drop in the currency.
  • Saudi Arabia’s top oil official said he was sure that OPEC+ will extend production cuts into the second half of the year after holding talks with Russia. Ministers from the countries voiced similar concerns about the impact of a slowing global economy on oil prices and talked up the benefits of cooperation. The unified front presented on Friday appeared to resolve signs of division visible in the previous days. Still, the two leaders of the coalition between the Organization of Petroleum Exporting Countries and several non-members stopped short of any specific commitments on production volumes after the current output deal expires at the end of this month. They were also unable to fix a date for a meeting to discuss the matter with fellow ministers.
  • U.S. President Donald Trump said he’ll decide whether to enact tariffs on another $325 billion in Chinese imports after the Group of 20 summit at the end of the month in Japan, where he’s expected to meet with Chinese President Xi Jinping. U.S. and Chinese negotiators hit an impasse in trade talks last month, which Trump said happened because Beijing reneged on provisions of a tentative deal. He raised tariffs on about $200 billion in Chinese imports to 25% in response, and at the time hung out the possibility of further action.
  • Fiat Chrysler Automobiles NV bonds suggest investors haven’t abandoned hope of a potentially ratings-boosting merger with Renault SA, even after the Italian automaker withdrew from talks on forming the world’s third-largest carmaker. Fiat’s 1.25 billion-euro ($1.4 billion) 2024 notes are quoted at 110 euro cents on Friday, about 1 cent higher than the close on the last day of trading before the Renault merger proposal. The bond jumped almost two cents on May 27, fueled by the prospect of mainly junk-rated Fiat joining forces with solidly investment-grade Renault.
  • Beyond Meat Inc. shares rallied to a record high in early Friday trading, following the faux meat-maker’s inaugural earnings report as a public company, yet investors should wait for the exuberance to cool before buying in, according to analysts at Jefferies. Beyond Meat shares surged 26% in U.S. pre-market trading, reaching as high as $125 each, an all time high for the stock since its May 2 debut, after its full-year sales outlook topped analyst expectations. The company said that the guidance was “very conservative.” Prior to Thursday’s report, the stock had surged nearly 300% since its initial public offering. That’s left it trading at 15.5 times 2021 enterprise value to sales ratio compared with an average of 4.1 times for consumer growth companies, Jefferies said, maintaining a hold recommendation.

*All sources from Bloomberg unless otherwise specified