November 14th, 2019

Daily Market Commentary

Canadian Headlines

• The S&P/TSX reached all-time highs yesterday and today, recording its ninth-straight day of positive momentum, even as U.S. stocks fell on Wednesday. The S&P/TSX Composite Index rose 0.3% at 10:40am to 16,962.38. Utilities stocks led the market higher, as 8 of 11 sectors climbed and 132 shares rose, while 96 fell. Enbridge Inc. contributed the most to the index advance, increasing 0.9%. Home Capital Group had the largest gain, rising 11%. CCL Industries was the biggest drag on the index, declining 4.3%. Canada Goose had the biggest drop, falling 11%. The healthcare sector was the worst performer as pot stocks fell amid producers releasing their third quarter earnings.
• Royal Dutch Shell Plc is reassuring investors, workers, and anyone else who will listen that it’s the international oil major that’s staying in Canada as others pull up stakes. Shell’s future in the country is largely as a natural gas producer and exporter focused on the $30 billion LNG Canada project, though the company is also committed to its local chemicals and retail businesses, Shell Canada head Michael Crothers said in an interview. A number of large multinational energy companies have either left or reduced their presence in the country in recent years, including Norway’s Equinor ASA, France’s Total SA and ConocoPhillips. Independent explorers like Devon Energy Corp., Apache Corp. and Marathon Oil Corp., as well as pipeline giant Kinder Morgan Inc., have gotten in on the act, too. Even Encana Corp., a Canadian company born out of the nation’s 19th-century railway boom, said last month that it’s moving to the U.S. and dropping the link to its home country from its name.
• Canada’s economic outlook isn’t exactly flashing green but you wouldn’t know it by looking at the stock market, fresh off Wednesday’s record high. The Bank of Canada has begun to consider lowering borrowing costs as growth starts to sputter and corporate profits come in below expectations. Yet the country’s stock market has reached a new peak amid its longest winning streak since January as tensions over trade and Brexit ease. David Rosenberg, chief economist at Gluskin Sheff + Associates Inc. was quick to note the dichotomy between current macro conditions and market sentiment. “I can understand how less uncertainty is a good thing, but it’s not as if all uncertainty is gone — but that is how investors, at the margin, are behaving,” Rosenberg said in a research note. “When it comes to data, ‘less bad’ is also being treated as ‘good’. “Oh, yes, earnings are declining but at least they’re beating expectations!”
• Alberta’s government is considering an oil industry proposal for royalty relief to stimulate new drilling in Western Canada’s struggling oil patch. “CAODC and others have recommended, for example, a potential royalty holiday on new drilling activity and such concepts are under active consideration,” Premier Jason Kenney said in a speech Wednesday before the Canadian Association of Oilwell Drilling Contractors in Calgary. The CAODC, a trade association representing drillers and contractors, has proposed two options to the government: a royalty credit for each meter drilled and a royalty holiday that would start immediately and last until late June, capturing the winter drilling season, according to Mark Scholz, the organization’s chief executive officer.

World Headlines

• Asian stocks slid for a second day, led by material producers, as China’s economy slowed further in October, with factory output, retail sales and investment all below estimates. Most markets in the region were down, with Japan leading declines. The Topix fell 0.9%, dragged down by Sony and Toyota Motor, as Japan’s economy slowed sharply in the third quarter amid shrinking exports. The Shanghai Composite Index reversed earlier losses to close 0.2% higher, supported by Jiangsu Hengrui Medicine and Kweichow Moutai. Hong Kong’s Hang Seng Index retreated as violent protests disrupted public transport for a fourth day in the city. India’s Sensex climbed as positive earnings continued to fuel optimism among investors.
• Sentiment in Hong Kong’s equity market worsened as protests continued into Thursday, Tencent Holdings Ltd.’s profit slumped and China reported weaker-than-expected economic data. The Hang Seng Index fell 0.9% for its lowest close in a month. Landlords were among the biggest losers, and Tencent led declines. Investors got more bad news as China reported retail, output and investment data that fell short of estimates.
• European stocks slipped, led lower by the auto sector after China’s industrial output and retail sales both came below estimates and Daimler outlined its cost-cutting strategy. The Stoxx Europe 600 Index was down 0.1% as of 8:24 a.m. in London, as investors awaited further updates on U.S.-China trade talks. Meanwhile, a preliminary report on German GDP showed that Europe’s biggest economy narrowly avoided a recession. Burberry jumped 9% after confirming its full-year view and announcing an alliance with Tencent Holdings. Qiagen jumped 13% after Thermo Fisher was said to weigh buying the diagnostics firm.
• U.S. equity-index futures edged lower with stocks in Europe and shares were mixed in Asia as investors digested the latest economic data and trade developments. Treasuries and most government bonds advanced. Contracts on the S&P 500, Dow Industrials and Nasdaq 100 gauges all drifted lower after briefly paring losses on news that China said it will allow imports of qualified poultry from the U.S. starting Thursday. The Stoxx Europe 600 Index also slipped despite data showing Germany narrowly dodged a recession last quarter. Stocks extended declines in Hong Kong and Tokyo after China’s factory output, retail sales and fixed-asset investment all missed estimates and data revealed Japan’s economy slowed sharply in the third quarter. Shares rose in Shanghai, Seoul and Sydney.
• Gold advanced for a third day as investors turned back to havens amid gloomy economic data out of Asia and trade-talk uncertainty. China’s October factory output, retail sales and fixed-asset investment all missed estimates and Japanese data showed the economy slowed sharply in the third quarter. Still, while gold prices are rallying amid haven demand, exchange traded funds backed by the metal continue to see outflows. ETF investors cut holdings for a sixth straight session Wednesday, the longest run of declines since April, according to data compiled by Bloomberg.
• Oil rose for a second day after an industry report pointed to a drop in U.S. inventories, and as OPEC said it sees potential for a “sharp” slowdown in American shale output next year. Futures added 1.1% in New York. Expectations that the U.S. government will report that crude inventories increased last week eased after data from the American Petroleum Institute, an industry body, signaled that stockpiles fell by 541,000 barrels. Meanwhile, OPEC Secretary-General Mohammad Barkindo said there will likely be downward revisions to U.S. shale output going into 2020.
• Walmart Inc. is approaching the crucial holiday season on a high note, posting solid third-quarter sales and raising its full-year outlook again, showcasing its resilience in the face of Amazon.com Inc.’s advances. Shares rose. Comparable sales excluding gas for Walmart stores in the U.S. rose 3.2% in the period, beating analysts’ 3.1% growth estimate and marking the 21st straight gain. Both the number of customers and the size of their average orders were up, fueling the growth.
• Nigel Farage announced he will fight all Labour-held seats, despite calls to stand his candidates down and clear the path for Prime Minister Boris Johnson to win a majority and deliver Brexit. The pound gained on speculation that Farage could pull out of more seats but fell after he confirmed he would not. Farage’s decision makes it more difficult for Johnson to win the seats he needs to take from Labour if he is to secure a majority in Parliament for the Conservatives. On Monday, Farage announced he would not contest seats that the Tories won at the last election in 2017. But Conservatives and pro-Brexit campaigners said this did not go far enough and urged him to stand aside in the seats the Tories are targeting.
• Hong Kong was left crippled for a fourth straight day, as protests paralyzed parts of the city and residents questioned how much longer they could endure the disruptions. The unrest on Thursday prompted companies to tell employees to work from home while some train lines were suspended, major events were canceled and public schools were closed through Sunday. Speculation spread about measures the government might take to stop the violence after Chief Executive Carrie Lam held a late-night meeting on Wednesday with top officials.
• Germany narrowly dodged what would have been its first recession in six years, putting a damper on speculation that the government will add fiscal stimulus any time soon. The surprise expansion doesn’t change the fact that the economy is going through a torrid period that’s turned it from the euro area’s traditional growth engine into a source of weakness. Expansion was just 0.1% in the third quarter, with the 19-country currency bloc only a little better, at 0.2%.
• A U.S. demand that China detail how it plans to reach as much as $50 billion in agricultural imports annually has become a sticking point in negotiations on a phase one trade deal, according to people familiar with the matter. Chinese negotiators are resisting a proposal from American officials that it provide monthly, quarterly and annual targets for purchases, said the people, who asked not to be named discussing the private talks. China also insists that the two sides must agree to rollback tariffs in phases if a deal is reached, the people said. U.S. President Donald Trump said earlier he had not agreed to ease any levies. There have been small signs that China and the U.S. are easing restrictions on imports of each other’s goods. On Thursday, China lifted a ban on American poultry that began in 2015, saying it would allow imports from qualified suppliers. The move comes after the U.S. Department of Agriculture made a similar decision to allow Chinese poultry into the U.S.
• Alibaba Group Holding Ltd. started taking investor orders for its Hong Kong share sale, which could raise more than $11 billion in the city’s largest equity offering since 2010. The New York-listed tech giant is offering 500 million new shares, according to terms for the deal obtained by Bloomberg on Wednesday. The base offering could raise about $11.7 billion based on Alibaba’s Tuesday close in New York, though it’s possible the stock will be priced at a discount. Alibaba’s American depositary shares, which represent 8 ordinary shares of the internet company, closed at $186.97 in U.S. trading Tuesday. The shares fell 2.4% on Wednesday. Asia’s largest corporation is proceeding with what could be one of this year’s biggest stock offering globally despite violent pro-democracy protests gripping the city. Alibaba aims to price the offering before U.S. market open on Nov. 20 and start trading in Hong Kong on Nov. 26, the terms show.
• President Donald Trump said Wednesday that Turkey’s purchase of a Russian anti-aircraft missile system presents “some very serious challenges” for the U.S., and directed Secretary of State Michael Pompeo to work on resolving the impasse. Trump made the comments during a joint news conference with at the White House with President Recep Tayyip Erdogan, indicating he and a small group of Republican senators were unable to persuade the Turkish leader to reconsider the acquisition during a day of meetings. Earlier Wednesday, Trump said the dispute over the S-400 missile system “will work out fine.” The Russian S-400 system, which Turkey began purchasing earlier this year, was designed to shoot down U.S. and allied aircraft at greater ranges and altitudes than older systems. U.S. officials are concerned that sensitive technology in its advanced F-35 fighter plane designed to evade such a system could be compromised and used to improve the Russian air defense system if Turkey, a NATO member, has both.

*All sources from Bloomberg unless otherwise specified