November 12th, 2019
Daily Market Commentary
- Canada’s main stock market, the Toronto Stock Exchange, closed Monday slightly higher at 16,883, well above days lows near 16,820 in very light trade as investors appeared to be awaiting firm news on US and China trade talks. Also, there was some profit taking as the local index here had gained about 370 points over the last week and a half. The gains today came despite losses in some of the heavyweight sectors, with Energy down 0.27%, Industrials down 0.2% and Financials slightly lower. Real Estate, which has been performing well of late, was again a star performer in rising near 0.2%. Looking ahead, focus now turns to the Health Care sector, or more particularly the Cannabis space with the four largest Canadian pot companies by market value reporting results for the quarter ended Sept. 30 this week. According to Bloomberg News, the expectations are low and this doesn’t bode well for stock prices, which are already down nearly 60% for the sector from recent highs in March. Much like recent quarters, investors are likely to be laser focused on “timetables toward Ebitda profitability,” which probably isn’t in the cards until 2020 or 2021, according to Bloomberg Intelligence analyst Kenneth Shea.
- Open Text Corp. announced a deal to acquire Carbonite Inc., a provider of data-protection services, for about $800 million in cash, according to a statement. The transaction of $23 per share for the Boston-based Carbonite is a 25% premium to the close of trading Friday. Bloomberg first reported the deal earlier Monday, and that Carbonite was mulling a sale in early September.
- The slowdown in Canadian oil & gas drilling continues to plague oilfield service providers and offset industries. A key Canadian supplier of sand used for hydraulic fracturing, Source Energy Services Ltd., has seen a collapse in its stock since going public in 2017 at C$10.50 apiece. Shares are down about 6.5% Monday, hovering around a record low after plunging 30% Friday. Meanwhile south of the border, Carbo Ceramics Inc. plunged over 47% Monday after warning investors it may fail as a going concern, in part because its largest frack-sand customer halted purchases.
- Asian equities drift sideways in broadly uneventful trading; S&P futures 0.1% softer. Hang Seng index little changed; Shanghai Composite 0.3% lower. Treasury 10-year yield eases 2bps to 1.92%; Aussie yields ~2.5bps weaker across the curve. JGB futures remain lower after poor 30-year auction while Japan’s 10-year yield briefly climbs to -0.04%. Kiwi drops ahead of Wednesday’s RBNZ rate decision as inflation expectations fall to fresh three-year low. WTI crude steady near $56.90; Dalian iron ore jumps 2.1%, first gain in five days.
- European shares opened Tuesday higher, with almost all industry sectors advancing, as investors await developments on trade talks and the earnings season rolls on. The Stoxx 600 Index is up 0.2%, led by basic resources and tech stocks. Autos shares also rose after a report that the U.S. administration may delay a decision on whether to put tariffs on imported European vehicles. Vodafone Group Plc led telecoms higher after beating estimates and French phone carrier Iliad SA soared 20% as it announced a 1.4 billion-euro ($1.5 billion) share buyback.
- U.S. equity-index futures edged higher on Tuesday as European and Asian stocks rose amid a lull in trade-war headlines and simmering tension in Hong Kong. Treasuries fluctuated after a long weekend. Contracts for the main American gauges were all slightly firmer a day after the S&P 500 Index fell for the first time in four sessions. The Stoxx Europe 600 Index headed for its first gain in three days as most major national benchmarks in the region advanced. Automakers climbed amid reports the U.S. may delay tariffs on European cars. Shares in Hong Kong climbed after sharp losses on Monday, while stocks saw modest gains in Tokyo and Shanghai, and outperformed in Seoul.
- Gold fluctuated near its lowest level in three months as investors await fresh U.S. comments on trade. Palladium rebounded to trade back above $1,700 an ounce. Precious metals have tumbled in the past week after hopes for a first-phase deal between Washington and Beijing fueled a risk rally. Lack of clarity on further moves from key central banks also added to pressure, with German Chancellor Angela Merkel noting Tuesday that ECB monetary easing won’t continue indefinitely.
- Oil steadied as investors awaited further details on negotiations between the U.S. and China to secure a trade deal, and on measures OPEC may take to keep energy markets balanced. Futures rose 0.6% in New York after sliding on Monday. Analysts at Morgan Stanley and brokers PVM Oil Associates Ltd. warned that prices may falter next year unless OPEC and its allies make deeper production cuts, though Oman’s Oil Minister Mohammed Al Rumhy said this week that the group isn’t likely to do so.
- Federal Reserve Chairman Jerome Powell is likely to signal again this week that monetary policy is on hold, buttressing the belief that he may steer clear of action through 2020. Surprisingly, that would be an historic anomaly for a U.S. presidential election year. Rather than keeping its head down, the Fed has changed policy in one direction or another in each of the last 10 presidential polling years — though in 2016 it didn’t act to raise interest rates until after the November election. In 2012 the Fed didn’t move its benchmark rate, which was already at zero, but did announce its third round of large-scale asset purchases in September.
- Traders and bankers hoping a better-than-expected third quarter would boost their year-end pay are likely to be disappointed. Bonuses across Wall Street are poised to drop in 2019, according to a report Tuesday by compensation consultant Johnson Associates Inc. Equity traders are likely to fare the worst, with a drop of as much as 15% from a year earlier, while debt and equity underwriters may see a 10% decline. Fixed-income traders may do slightly better, with their bonuses falling only as much as 5%.
- Hong Kong police fired tear gas in the city’s financial district on Tuesday afternoon for the second straight day after demonstrators blocked roads, disrupted the morning commute and clashed with police. The chaos follows a flare-up in violence after Hong Kong last week saw its first fatality linked to the protests that began in June against a bill that would’ve allowed extraditions to mainland China. While the proposal has since been withdrawn, demonstrators have widened their demands to include an independent inquiry into police violence and the ability to nominate and elect their own leaders — both of which Beijing has rejected.
- Billionaire Xavier Niel will finance a 1.4 billion-euro ($1.5 billion) share buyback at Iliad SA, bolstering his control over the French phone carrier he founded. The shares rose as much as 20%, the most since Iliad’s 2004 stock-market debut. The company plans to repurchase 11.7 million shares — 20% of its share capital — at a price of 120 euros apiece, representing a 26% premium to Iliad’s closing price on Monday. The offering will be funded by a stock issuance guaranteed by Niel, who doesn’t plan to tender any of his shares. In another investor-friendly move, Iliad said it will also boost its dividend by almost three times.
- Saudi Aramco’s gigantic initial public offering could see retail investors returning to the Riyadh stock exchange as local individuals snap up shares in the world’s most profitable company. As much as 0.5% of the stock will be allocated to individual investors, the oil behemoth said over the weekend in its offering prospectus, while leaving potential buyers in the dark about the size of the stake it plans to sell and the pricing range.
- Wealthy people around the globe are hunkering down for a potentially turbulent 2020, according to UBS Global Wealth Management. A majority of rich investors expect a significant drop in markets before the end of next year, and 25% of their average assets are currently in cash, according to a survey of more than 3,400 global respondents. The U.S.-China trade conflict is their top geopolitical concern, while the upcoming American presidential election is seen as another significant threat to portfolios.
- In a disappointing third-quarter earnings season for Japan Inc., one prominent theme is that moves in the yen have been a particular headache. A total of 438 Tokyo-listed companies have cut their full-year earnings guidance, according to data compiled by Bloomberg. Fifty-six of them announced a change to their currency expectations in addition to their lowered profit forecasts. Prominent corporates Asahi Group Holdings Ltd., Mitsubishi Motors Corp. and Shiseido Co. all highlighted the impact of currencies when they revised their earnings guidance lower.
*All sources from Bloomberg unless otherwise specified