March 8, 2019
Daily Market Commentary
- It’s jobs day in Canada (and the U.S.), with economists estimating a net gain of 1,200 positions in February, which would mark a sharp decline from January’s hiring spree.
- Norway’s sovereign wealth fund, which has ~$1.4 trillion in assets, is going ahead with a divestment of pure play upstream oil stocks (while sparing integrated companies). As of the end of 2018, the fund had 341 oil and gas equity holdings – including dozens in Canada, valued at US$37 billion.
- Canadian Natural Resources Ltd. is taking the delay to Enbridge Inc.’s Line 3 project and the potential cancellation of Alberta’s crude-by-rail plan in stride, saying that a refinery project and natural output declines should help prevent another crash in local oil prices.CNRL, as the oil-sands producer is known, expects its North West Redwater refinery joint venture to start taking 80,000 barrels a day of heavy crude off of pipelines this year, executives said on a call. The Western Canadian Sedimentary Basin also has natural decline rates, and without any drilling activity by producers, that could take as much as 300,000 barrels a day off the market, they said.
- Lightspeed POS Inc. raised C$240 million ($178 million) in its initial public offering after increasing the price above the marketed range because of strong investor demand. The Montreal-based payments technology company sold 15 million subordinate voting shares at C$16 each on Thursday, it said in a statement. The IPO could now value Lightspeed at about C$1.4 billion, people familiar with the matter said earlier. Lightspeed said in February that it would seek to raise C$200 million in its IPO with plans to price its shares at C$13 and C$15 apiece. Lightspeed is expected to start trading Friday on the Toronto Stock Exchange under the symbol LSPD, the company said.
- Manitoba plans to ring in Canada Day, the national holiday on July 1, with a sales tax cut. The Progressive Conservative government announced Thursday in its budget it will drop the tax to 7 percent from 8 percent, while still pledging to whittle down the provincial deficit. The tax move will save Manitoba residents C$325 million ($241 million), according to budget documents. It will save a family of four an estimated C$500 per year and a single individual approximately C$180 per year. The government also projects it will help Manitoba’s economy grow by an estimated C$97 million.
- Key Fed Gauge Flashes Warning Signal for Second Time This Year. A gauge of U.S. economic health closely watched by the Federal Reserve is flashing warning signs for the second time this year. The near-term forward spread, which reflects the difference between the forward rate implied by Treasury bills six quarters from now and the current three-month yield, fell back below zero on Friday for the first time since January. A negative reading shows the market expects monetary policy easing during the next 12 to 18 months. Its last foray into negative territory was the first time it had done so in ten years, and preceded Chairman Jerome Powell’s signals that the central bank was in no rush to hike interest rates.
- A plunge in Chinese stocks set the tone for global markets on Friday, with equities in Europe retreating alongside U.S. futures amid renewed concerns about global growth. The yen climbed with gold as investors sought havens. The Stoxx Europe 600 Index sank the most in a month, with carmakers and miners leading declines, while S&P 500 index futures dropped. Shares from Sydney to Hong Kong fell, with China’s market slumping the most since October as traders interpreted a rare sell rating from the nation’s largest brokerage as a sign the government wants to curb gains. Weak Chinese trade data added to the negativity. The euro steadied after closing at its lowest level since 2017 on Thursday, when the European Central Bank slashed growth forecasts. Core European bonds continued higher. The dollar weakened after seven days of gains and Treasuries were steady.
- The U.S. Securities and Exchange Commission is considering a broad review of rules that have underpinned trading on the New York Stock Exchange and Nasdaq markets since 2005, according to excerpts of a speech to be delivered Friday by the agency’s chief.
- Goldman Says `Public Discourse’ Gets It Wrong About Buybacks. Buybacks have gotten an unfairly bad name in the U.S., according to a defense of the practice by Goldman Sachs Group Inc. U.S. companies have “consistently” returned cash to shareholders for almost 140 years, so it’s far from a new development, strategists led by David Kostinwrote in a note Thursday. And buybacks don’t dominate corporate spending, they said — growth investment has been the largest share of U.S. companies’ spending every year since at least 1990.
- China’s $345 Billion Stock Rout Shows Beijing’s Fear of Bubbles. It started with a single sell rating on one stock. By the time China’s exchanges shut on Friday, equity investors were sitting on $345 billion of losses and the realization that Beijing is in no mood for another bubble. The bearish call on shares of a state-owned insurer, delivered by analysts at China’s biggest state-owned brokerage, was widely interpreted as a sign that the government wants this year’s world-beating surge in Chinese stocks to slow down. The Shanghai Composite Index tumbled 4.4 percent, snapping an eight-week winning streak and closing at its low for the day after disappointing export figures gave investors another reason to sell.
- China Export Slump Adds to Concerns Over Weakening Global Growth. China’s exports slumped in February as seasonal factory shutdowns and continued uncertainty from the trade war combined to drag on shipments, adding to concerns over a weakening global economy. Exports dropped 20.7 percent in February, the biggest plunge since February 2016. Like this year, the 2016 week-long Lunar New Year holiday fell earlier in the month than it had the previous year, meaning orders ramped up in January to beat factory closures. After averaging the first two months data to smooth the holiday fluctuations, shipments still dropped almost 5 percent.
- Oil fell as a weakening outlook for the global economy and rising crude stockpiles in the U.S. signaled that markets will remain comfortably supplied. Futures in New York retreated 1.7 percent. They have this week held in the narrowest range since December 2017 as traders balance concerns over fuel demand and economic growth with OPEC’s aggressive supply cuts. U.S. crude inventories surged far more than expected last week, according to government data.
- Flows of U.S. WTI Oil to Asia Seen Viable After Saudi Price Hike. Arbitrage window for U.S. West Texas Intermediate crude to Asia seen open after Saudi Aramco raised official prices for Arab Extra Light oil, according to Bloomberg calculations and traders who monitor the market.
- China Stashes Away Tons and Tons of Gold as Tensions Pick Up. China expanded its gold reserves for the third straight month, strengthening the bulls’ case that central bank demand will remain elevated this year and putting Asia’s top economy on track to be the biggest buyer after Russia should its recent pace of accumulation be sustained.
- Sibanye Says Higher Power Prices Threaten Gold-Mine Viability. Sibanye Gold Ltd. said South Africa’s double-digit electricity price increase undermines the viability of the country’s gold industry. The nation’s power regulator on Thursday approved an effective 13.8 percent hike in tariffs by state-owned utility Eskom Holdings SOC Ltd. That’s higher than the 9 percent increase planned for by Sibanye, said James Wellsted, a spokesman for South Africa’s biggest gold producer.
- Ex-Credit Suisse Bankers Fight Extradition Over Hidden Debt. Three former Credit Suisse Group AG bankers charged by the U.S. with helping to arrange more than $1.4 billion of hidden loans to Mozambique will fight extradition from the U.K. Andrew Pearse and Surjan Singh, former managing directors, and Detelina Subeva, a vice president in the global financing unit, appeared in a London court Friday.
- Deutsche Bank AG and Commerzbank AG are intensifying discussions about a potential merger as their turnaround efforts sputter and after the German government put pressure on the firms, according to a person familiar with the matter. The talks are informal and the supervisory boards of the companies haven’t given a mandate to pursue a deal, said the person, asking not to be identified in disclosing internal deliberations.
- Berry Global Group agreed to buy RPC Group Plc for 3.34 billion pounds ($4.4 billion) to create one of the world’s largest plastic-packaging companies, derailing a rival takeover plan by Apollo Global Management. Once a holding of private equity firm Apollo itself, Evansville, Indiana-based Berry upped the cash part of its proposal to win backing from RPC’S board. Shareholders are being offered 793 pence a share in cash, 11 pence higher than Apollo’s offer, Berry said in a statement on Friday.
*All sources from Bloomberg unless otherwise specified