March 15, 2019
Daily Market Commentary
- Canadian Headlines
- Canadian stocks fell after a three-day rally, as U.S. stocks retreated amid concern a trade deal with China will be further delayed. The S&P/TSX Composite Index declined 0.3 percent to 16,107 after the benchmark had climbed to the highest intraday since Oct. 1 on Wednesday. Most sectors were in the red, with materials and consumer discretionary companies falling the most. Energy stocks were the biggest gainers. Canadian home values fell last year for the first time in three decades amid falling prices in some of the country’s priciest markets. The value of residential real estate in Canada held by households dropped C$30 billion ($22.5 billion) in the fourth quarter to C$5.10 trillion, from C$5.13 trillion in the same quarter the previous year, Statistics Canada reported Thursday.
- Air Canada suspended its financial guidance for the first quarter and full year, citing the grounding of Boeing Co.’s 737 Max and the planemaker’s suspension of deliveries. The Montreal-based carrier said is continuing to develop a contingency plan to address the situation and will provide updates. Certain forecasts for the next two years remain in place.
- Unlike his Federal Reserve counterpart, Stephen Poloz doesn’t have Donald Trump breathing down his neck. But there’s still no getting away from the U.S. president. The Bank of Canada governor has been pulled in different directions by the policy swings next door. Trump’s fiscal expansion tugged interest rates higher in Canada, given their close economic ties. His penchant for trade fights has had the opposite effect — casting a shadow over growth prospects, and prompting Poloz to rethink the merits of higher borrowing costs.
- Ren Zhengfei, the billionaire founder of Huawei Technologies Co., told a Canadian TV channel his daughter won’t succeed him but her battle against potential U.S. extradition has brought them closer. Meng Wanzhou — the Huawei finance chief who’s living on bail in Vancouver — has been a good manager but a leader needs to foresee things 10 or 20 years ahead, Ren said in an interview with CTV News at the Chinese technology giant’s Shenzhen headquarters. Meng had in fact been contemplating quitting before her arrest, Ren said, according to a translation the media outlet provided.
- Bombardier Inc. is extending the duration of its debt and bolstering liquidity as the Canadian manufacturer of planes and trains moves ahead with a turnaround plan. On top of canceling $850 million of its 7.75 percent bonds due 2020, investors of $778.5 million of bonds due in 2021 have accepted the tender offer so far for their securities, according to regulatory filings on March 7and March 14. That compares with $2 billion that the Montreal-based company raised in eight-year securities on Feb. 28.
- Treasuries were steady and the dollar gained, holding those moves as data showed U.S. jobless claims rose to a four-week high. The Stoxx Europe 600 Index climbed, with shares in the U.K. also rising after a night of voting that saw the British government once again defeated in Parliament over Brexit.
- U.S. stocks halted a three-day rally, while the dollar surged amid concern a trade deal with China remains elusive. The S&P 500 spent most of the session fluctuating between gains and losses in thin trading, before a slight fade at the close. News that a meeting to end the trade war with China won’t happen this month weighed on sentiment. The index had jumped 2.5 percent in the prior three days, pushing past the 2,800 level that had capped prior advances. Consumer and material shares were the worst performers Thursday. Bank and technology shares led gains.
- Japanese stocks rose for a fourth week in five after the Bank of Japan maintained its stimulus and China announced plans for a tax cut. Chemical and drug makers provided the biggest boosts to the Topix on Friday, after the BOJ left its monetary stimulus program unchanged as it downgraded its assessment of exports, factory output and overseas economies. Exporters such as electronics and auto makers climbed after Chinese Premier Li Keqiang said his nation will stick to its current targeted economic support strategy.
- Oil headed for a second weekly gain as the world’s top crude producers are scheduled to discuss extending their pledged output curbs to avert a global glut. Futures in New York traded near a four-month high, on course for a 4.4 percent weekly advance. OPEC’s secretariat urged producers to continue efforts to prevent a surplus this year, ahead of a weekend gathering of the cartel and its allies. A surprise drop in U.S. crude inventories reported on Wednesday added to signs of a tightening market.
- Gold climbed above $1,300 an ounce as the dollar retreated after investors weighed comments by China’s Premier Li Keqiang on monetary policy together with continued uncertainty over Britain’s withdrawal from the European Union.
- For four decades the specter of high inflation haunted the Federal Reserve. Now it has an equally ominous flip side. “We need to make sure inflation doesn’t keep slipping down toward zero, because then the central bank really does have less and less ability to react to downturns,’’ Fed Chairman Jerome Powell said during a Q&A at Stanford University on March 8. Fed officials have long called their 2 percent inflation target “symmetric,” but now they want you to know they really mean it. They’re so concerned that policy makers are contemplating creative, and politically risky, strategies for raising long-run inflation rates.
- Sweden’s oldest bank may have handled considerably more in suspicious transactions tied to an Estonian money laundering scandal than first reported. Swedbank AB, which dominates financial markets in the Baltic region, allegedly let about 95 billion kronor ($10.2 billion) in questionable flows move through its accounts between 2007 and 2015, according to Sweden’s main television broadcaster, SVT, which cited a 2018 internal review by the bank.
- Uncertainty over U.S. waivers for buyers of Iranian oil is starting to grip the market again, under very different circumstances than when American sanctions were set to go into effect last year. Before existing exemptions were granted in early November, Saudi Arabia was pumping at record levels, benchmark Brent futures rose to a four-year high, traders were predicting $100 oil, and Donald Trump was seeking lower fuel prices ahead of U.S. mid-term elections. The waivers blindsided the market, which had assumed America would bring Iranian exports to zero, and sparked a 40 percent collapse in crude.
- Venezuela’s opposition leader Juan Guaido plans to appeal a $8.75 billion award issued to ConocoPhillips by the World Bank’s arbitration tribunal last week, arguing the amount was overestimated. Jose Ignacio Hernandez, newly appointed as attorney general for Guaido’s growing parallel government, said there are “severe miscalculation errors” in the award, which resulted from the International Centre for Settlement of Investment Disputes’ decision to uphold Conoco’s claim that Venezuela unlawfully confiscated in 2007 its Hamaca and Petrozuata heavy crude oil projects in the Orinoco River basin.
- Deutsche Bank AG is seeking political cover from Chancellor Angela Merkel as it tries to move forward a possible merger with Commerzbank AG. Executives are looking for reassurances they’ll get government backing for potential job cuts as they consider going public with their potential plans, according to people involved in the discussions. While the German Finance Ministry has encouraged the struggling banks to combine, Merkel has stayed on the sidelines so far, the people said, asking not to be identified discussing private deliberations.
- Power and carbon prices across Europe may rally if U.K. Prime Minister Theresa May succeeds in getting Parliament to approve a deal for leaving the European Union this month, according to Alfa Energy Ltd. Britain is a key member of the EU’s emissions trading system, and the risk of Brexit without agreement has weighed on carbon prices in recent weeks. Relieving that risk may push the cost of those allowances higher and drive up power prices as a result, according to Alfa, a London-based consultant that handled about $2 billion of energy trading last year.
- Hennes & Mauritz AB tried to narrow the gap with rival apparel chain Zara by cutting prices over the Christmas season, raising concerns about its profitability and sending its stock lower. The Swedish chain’s sales beat analyst estimates in the latest quarter, but much of the gain came from a favorable currency translation. H&M set lower prices on some items in an effort to challenge Zara owner Inditex SA, which earlier this week reported the weakest earnings growth in five years, but that prompted some investors to worry about an earnings erosion.
- Are UBS Group AG executives in denial about a looming French tax fine, or will their decision to make only a small provision for the payout turn out to be a masterstroke? The world’s largest wealth manager has set aside just one-tenth of the 4.5 billion-euro ($5.1 billion) it was ordered to pay by a French judge last month as it appeals one of the highest penalties ever imposed on a Swiss bank. UBS gambled earlier by taking the case to trial rather than settling for what might have been a much lower amount.
- Shashikant Rathi, who has dominated India’s local bond underwriting business for over a decade at Axis Bank, says the industry now faces its biggest challenge since the global financial crisis. Shock defaults since last year by shadow bank IL&FS group and a new electronic bidding platform have disrupted the $108 billion market where underwriters like Rathi help companies raise money by selling debt securities. Sales of rupee corporate bonds that tend to pay the highest fees have fallen this quarter to a 2016 low.
- France has frozen the assets of Pakistani militant leader Masood Azhar on Friday after China blocked an attempt to list him as a global terrorist at the United Nations. France’s foreign, interior and finance ministries said in a joint statement that the action was linked to the Feb. 14 attack in Indian-administered Kashmir that killed 40 security personnel. While Islamabad denied involvement in the suicide bombing, Azhar’s group — Jaish-e-Mohammed — claimed the attack. France said it would also ask the 28-member European Union to add Azhar on its terror list.
- Bank of Japan Governor Haruhiko Kuroda said he’s still seeking to deliver 2 percent inflation after the government voiced support for a more flexible approach to the goal, which hasn’t been hit in a decade. Japan must reach 2 percent to achieve a self-sustaining cycle of economic growth, where higher corporate profits and wages fuel consumption and investment, Kuroda said after a BOJ board meeting on Friday, when policy makers maintained stimulus while downgrading their economic assessment.
- New Zealand suffered its worst mass shooting of modern times, with 49 people dead and more than 20 seriously injured after a terrorist attack at two mosques in the South Island city of Christchurch. A man in his late 20s has been charged with murder and should appear in a local court tomorrow morning, Police Commissioner Mike Bush told a news conference late on Friday. Three other armed people were apprehended but police are unsure of their possible involvement and are still working through events, he said.
- A screw-like device found in the wreckage of the Boeing Co. 737 Max 8 that crashed Sunday in Ethiopia has provided investigators with an early clue into what happened, as work begins in France to decode the black boxes recovered from the scene. The so-called jackscrew, used to set the trim that raises and lowers the plane’s nose, indicates the jet was configured to dive, based on a preliminary review, according to a person familiar with the investigation. The evidence helped persuade U.S. regulators to ground the model, said the person, who requested anonymity to discuss the inquiry.
- Royole Corp., a maker of flexible displays, is seeking about $1 billion in a funding round ahead of an initial public offering, people familiar with the matter said. The Shenzhen, China-based company is seeking a valuation of at least $8 billion in the round as it seeks to expand its sales and marketing and research facilities, the people said, requesting not to be named because the matter is private. While the company is weighing an IPO, it hasn’t set a listing destination, the people said.
*All sources from Bloomberg unless otherwise specified