May 31st, 2019

Daily Market Commentary

  • Canadian Headlines
    • Canadian stocks dropped Thursday despite climbing in early trading, while U.S. stocks rebounded from a slump that took them to a 12-week low. The S&P/TSX Composite Index dropped 0.3 percent to 16,089. Health care and energy shares led the decliners, while information technology and materials rose. Bank of Canada officials continue to characterize the country’s economic performance as “solid,” despite a recent soft patch they believe is only temporary. Separately, U.S. Vice President Mike Pence promised the new trade pact between the U.S., Canada and Mexico will pass this year.

     

  • World Headlines
    • European equities tumbled after U.S. President Donald Trump announced tariffs on Mexican products, with the White House’s latest attempt to stem immigration from the Latin American country risking jeopardizing a new North American trade agreement. The Stoxx 600 Index fell 0.9%, with all 19 industry sub indexes down, led by drops on autos and basic resources shares. European equities are set for the worst monthly drop since January 2016, with the gauge down 5.8% in May.
    • U.S. stock-index futures slid after President Donald Trump said he will place tariffs on all goods coming from Mexico. Contracts on the S&P 500 Index lost 1% as of 8:55 a.m. in London. The tech-heavy Nasdaq 100 futures dropped 1.2%, while those on the Dow Jones Industrial Average gauge edged 0.9% lower. The S&P 500 Index gained 0.2% on Thursday in New York.
    • Chinese investors were not overly bothered by a deteriorating outlook in the manufacturing sector, mostly because they expect Beijing to come to the rescue. Stocks fluctuated before closing slightly lower and the yuan pared a drop as many observers interpreted weakness in the economy as a sign the government will roll out some stimulus. Data released Friday morning by the National Bureau of Statistics showed that China’s manufacturing purchasing managers’ index dropped to 49.4, worse than the 49.9 forecast in a Bloomberg survey of economists.
    • Oil headed for its biggest monthly slump this year as fears that the U.S.-China trade war will hurt demand overshadowed concern over rising political tensions in the Persian Gulf. Futures slipped to the lowest in more than two months in New York and London on Friday. Trade friction between the world’s two biggest economies escalated this week as Beijing threatened to restrict the sale of rare-earth minerals, fanning worries that global growth will be affected. Meanwhile, a jump in U.S. gasoline inventories countered speculation that oil markets are tightening.
    • Gold is finally seeing some bullish momentum as trade war ructions escalate. President Donald Trump’s tariff salvo trained at Mexico boosted the metal, which has been weighed down by the strong dollar. Bullion prices advanced to a two-week high to head for a monthly gain after Trump said that he would impose a 5% tariff on Mexican goods, effective June 10, until that country stops immigrants from entering the U.S. illegally. Gold also got a boost after reports China will establish a list of so-called “unreliable” entities in order to target firms it says damage the interests of domestic companies.
    • China said it will establish a list of so-called “unreliable” entities it says damage the interests of domestic companies, a sweeping order that could potentially affect thousands of foreign firms as tensions escalate after the U.S. blacklisted Huawei Technologies Co. China will set up a mechanism listing foreign enterprises, organizations and individuals that don’t obey market rules, violate contracts and block, cut off supply for non-commercial reasons or severely damage the legitimate interests of Chinese companies, Ministry of Commerce spokesman Gao Feng said. Details of the list were not immediately available, though more will be announced “soon.”
    • U.S. autos makers and parts suppliers were among the sectors hit hardest in early Friday trading after President Donald Trump’s threat to impose a tariff of up to 25% on Mexican goods. General Motors Co. and Ford Motor Co. each fell more than 3%. The latest blow in the trade disputes adds to a month that has trimmed 12% from the 24-member S&P Supercomposite Automobiles and Components Index, shaving $18.4 billion in market value in May through Thursday. It was on track to be the worst month for the sector since December’s 14% slump, although Friday’s declines could push the group to its worst month since November 2016.
    • Emerging markets are catching up with developed ones in the growing arena of environmental, social and governance investing, according to JPMorgan Chase & Co. The active and systematic asset management universe for ESG has grown about 10% from the end of last year to $720 billion as of the first quarter, JPMorgan estimated in a report Thursday led by global research chair Joyce Chang. The firm said it’s now favoring emerging-market stocks tied to the sector versus developed-country counterparts because the two sides should converge.
    • Nomura Holdings Inc. has suffered another setback after losing a key role in a $12 billion share sale following its censure for mishandling stock-market information. Japan’s biggest brokerage was omitted from the list of securities firms chosen by the government to manage its latest sale of Japan Post Holdings Co. shares, a Ministry of Finance statement showed Friday. Nomura was a lead underwriter of the postal group’s three-pronged initial public offering in 2015, along with an additional sale.
    • Melco Resorts & Entertainment Ltd.’s $1.2 billion deal to take an almost 20% stake in Crown Resorts Ltd. helps set the stage for a global expansion as high rollers increasingly seek out gambling centers away from Macau. The transaction turns one of Macau’s biggest gaming operators into the second-largest investor in Australian billionaire James Packer’s casino company, and Melco Chief Executive Officer Lawrence Ho said the company is interested in eventually increasing its stake above 20%. Ho said the deal fits Melco’s global strategy, including increasing the chances that it will win a resort license in Japan, the region’s next gambling goldmine.
    • President Trump and Chinese President Xi Jinping will meet at next month’s G20 Summit in Osaka as U.S. remains hopeful that China will step forward and agree to structural changes that U.S. is seeking, Vice President Mike Pence tells Fox Business in an interview.
    • Amazon.com Inc. is interested in acquiring prepaid wireless phone service Boost Mobile from T-Mobile US Inc. and Sprint Corp., Reuters reported, citing people familiar with the matter. Amazon is considering buying Boost for an attached wholesale deal that would allow the buyer to use T-Mobile’s wireless network for at least six years, according to the report on Thursday. Amazon and Sprint declined to comment, and T-Mobile didn’t immediately respond to a request for comment.
    • German bonds extended gains, driving benchmark yields to the most negative on record, as investors sought safety in sovereign debt amid global trade tensions, faltering growth and Italian political risks. The securities, perceived to be among the world’s safest assets, headed for a fourth weekly advance after U.S. President Donald Trump vowed to impose tariffs on Mexican goods. Ten-year German yields fell below the previous low set three years ago when Brexit and European Central Bank stimulus were the main market drivers.
    • Allianz SE agreed to buy two insurance businesses in the U.K. in deals valued at a combined $1 billion, transforming the firm into the second-biggest general insurer in the country. The Munich company agreed to acquire the general-insurance business of Legal & General Group Plc for 242 million pounds ($305 million), and said it would buy the remaining 51% in LV General Insurance Group that it doesn’t already own, according to statements from Allianz and L&G.
    • Philippine central bank Governor Benjamin Diokno pledged to cut interest rates further and lower the reserve ratio for lenders to support the economy as inflation pressures ease. “We have more room for monetary easing,” Diokno, 71, said in an interview with Bloomberg TV’s Stephen Engle in Tokyo. “I can promise more cuts,” but the timing will depend on upcoming economic data, he said. The governor said he also wants to lower the ratio of deposits banks must hold as reserves to “single digits” by the end of his term.
    • China’s manufacturing sector slowed more than expected and further signs of stress in the labor market appeared, adding to a weakening currency and financial nervousness on the list of problems faced by President Xi Jinping as the trade war worsens. The manufacturing purchasing managers’ index for May slid into contraction at 49.4 and its employment sub-index tumbled to the lowest level since the aftermath of the global financial crisis. The yuan has fallen 2.5% in May, and stocks had a tough month as turbulence from Trump’s tariff hike hit home. If that wasn’t enough, the first government seizure of a Chinese bank in 20 years also has spooked markets.
    • President Donald Trump’s vow to impose a 5% tariff on Mexican goods comes just in time to hit exports from a $1 billion BMW AGfactory that opens in the country next week. A swathe of the 3-Series sedans to be made at the plant in San Luis Potosi are destined for U.S. dealers. Higher duties mean a hard choice for the Bavarian automaker — raise sticker prices or take the hit to profits on its best-selling model. It’s not the kind of calculation executives were expecting to make when they chose to build BMW’s first factory in Mexico, with its low labor costs and zero duties on exports to the world’s second-biggest car market. The tariffs will take effect on June 10, the U.S. President said in a Twitter post on Thursday night.
    • Lyft Inc. and Beyond Meat Inc., two of this year’s highest-profile stock debuts, have seen wildly different performances. But they have one thing in common: Short sellers have borrowed more than 50% of their shares outstanding to bet on declines. Ride-sharing group Lyft’s shares have lost 21% since listing on March 28, while plant-based food maker Beyond Meat’s stock has risen by 244% after coming to the market on May 1.
    • T-Mobile US Inc. and Sprint Corp. are considering the divestiture of some airwaves to win Justice Department approval of their $26.5 billion merger, a proposal that’s already attracted interest from Comcast Corp.and Charter Communications Inc., people with knowledge of the matter said. Justice officials met Wednesday with Comcast and Charter over their possible interest in the airwaves and a potential role as a fourth wireless competitor, according to the people, who asked not to be identified because the talks are private. Both cable operators already offer wireless service.
    • Uber Technologies Inc., in its first financial report as a public company, posted first-quarter sales near the high end of its previously disclosed preliminary results. The company also reported a $1.01 billion quarterly loss, among the largest of any public company. Nelson Chai, the chief financial officer, laid out a path for costs to eventually come down. On a conference call after the report, Chai said Uber will cut back on customer promotions and that marketing expenses as a percentage of revenue should decline in the second quarter. Shares jumped as much as 4.3% in after-hours trading, following Chai’s comments.

*All sources from Bloomberg unless otherwise specified