November 15th, 2019

Daily Market Commentary

Canadian Headlines

• Canada’s equity benchmark hit a record high, posting its 10th consecutive gain even as pot and energy stocks slumped. The S&P/TSX Composite Index rose 0.1% to 16,972.18. Rate-sensitive stocks led the way as bond yields retreated, with real estate up 0.9% and utilities both gaining 0.9%. Canopy Growth Corp. posted the steepest declining, losing 14% to the lowest since December 2017. The company reported revenue that missed the lowest analyst estimate and said it’s unlikely to meet its previous sales guidance.
• Bank of Canada Governor Stephen Poloz said history shows major technology advances — like the current digitalization of the global economy — need to be accommodated by monetary policy, in part to help people who are negatively impacted by change. In a paper about the implications for monetary policy of the “Fourth Industrial Revolution,” Poloz argued lessons can be drawn from the way Alan Greenspan, former chairman of the U.S. Federal Reserve, managed policy in the 1990s, when he correctly spotted productivity benefits of the last technological revolution and held back on rate hikes.
• A little-known Canadian health-care company is getting the nod from hedge funds. They are betting on the U.S.-listed shares of Laval, Quebec-based Bellus Health Inc. which has gained more than 122% this year as it works on a breakthrough drug for the chronic cough market. It now has a market value of about $339 million. Adage Capital Partners bought 1.3 million shares and took a 2.3% stake in the biopharma company, while AWM Investment Co. purchased 1.46 million in stock, according to their most recent 13F filings with the Securities and Exchange Commission.
• Aurora Cannabis Inc. shares fell 9% in post-market trading as it became the latest pot company to miss estimates. Aurora reported quarterly net revenue of C$75.2 million ($56.8 million), below the average analyst estimate of C$90.6 million. Sales into the Canadian recreational market tumbled 33% to C$30 million. The company’s adjusted loss before interest, taxes, depreciation and amortization was C$39.7 million, wider than the expected C$20.8 million. It also appeared to walk back its statement last quarter that it “continues to track toward positive adjusted Ebitda,” citing “near-term challenges to achieving positive adjusted Ebitda.”

World Headlines

• Asian stocks advanced, led by technology firms, as optimism grew for Beijing and Washington to close an initial trade deal. Most markets in the region were up, with South Korea and Australia leading gains. The Topix climbed 0.7%, recovering from its biggest two-day decline in six weeks, as electronic companies offered strong support. The Shanghai Composite Index fell 0.6%, dragged down by PetroChina and Jiangsu Hengrui Medicine. Hong Kong’s Hang Seng Index closed little changed to cap its worst week since early August, as protesters continued to block roads in the city. India’s Sensex rose, heading for a third week of gains, amid hopes that borrowing costs will drop further.
• U.S. equity-index futures climbed with Asian stocks after a senior American official signaled progress on a trade deal between the world’s two largest economies. European shares erased gains and Treasuries slipped. Contracts for all three main U.S. benchmarks traded in the green in the wake of White House economic adviser Larry Kudlow’s comments that an agreement is “coming down to the short strokes.” The Stoxx Europe 600 Index fluctuated as the prospect of a money laundering scandal widening weighed on bank shares. Equities climbed in Seoul, Tokyo and Sydney but fell in Shanghai. China’s yuan strengthened against the dollar.
• Gold declined, trimming its fourth weekly gain in five, after White House economic adviser Larry Kudlow signaled progress on a trade deal with China. Negotiations over the first phase of an agreement were coming down to the “short strokes” with the two sides in daily communication, Kudlow told reporters late Thursday in Washington. A deal is close though “not done yet,” he said.
• Oil headed for a weekly decline as rising U.S. crude inventories and new production elsewhere signaled that global markets will remain comfortably supplied. Futures slipped 0.5% in New York, bringing the loss this week to 1.3%. U.S. government data showed stockpiles expanded by 2.22 million barrels last week as production rose to a record, while the International Energy Agency said fresh supplies from America and beyond will continue to “calm” world markets in 2020. OPEC gave further signals it won’t step up efforts to support prices.
• Hong Kong revised down its estimate for economic growth this year as political unrest grips the city, with the government now forecasting the first annual contraction since the global financial crisis a decade ago. Gross domestic product will contract 1.3% in 2019 from the previous year, the government said Friday as it released final output calculations for the third quarter. In the three months to September, GDP contracted 3.2% from the previous quarter, the government said, confirming an initial estimate. The grim outlook brings the official view of the economy in line with what’s visible in Hong Kong’s streets, with shopping malls, restaurants and stores shuttered or on shorter hours in many districts amid unpredictable and often violent protests against the government.
• White House economic adviser Larry Kudlow said negotiations over the first phase of a trade agreement with China were coming down to the final stages, with the two sides in close, regular contact including a call planned for Friday. Speaking after an event at the Council on Foreign Relations late Thursday in Washington, Kudlow told reporters that a deal was close though “not done yet.” President Donald Trump’s top trade advisers met on Thursday evening to discuss the China talks, said Kudlow, who heads Trump’s National Economic Council. “We are coming down to the short strokes,” Kudlow said. “We are in communication with them every single day right now.”
• U.S. hedge funds bought shares of Facebook Inc. and Netflix Inc. despite steep declines in the technology darlings during a volatile third quarter. Chase Coleman and David Tepper were among the money managers who increased their Facebook holdings during the three-month stretch that saw the social-media giant fall nearly 8%. Netflix was favored by firms including Lee Ainslie’s Maverick Capital Ltd. and Dan Sundheim’s D1 Capital Partners despite a 27% drop in the three months ending Sept. 30. Hedge fund managers, who have long adored FAANG stocks, had to navigate a tumultuous period. While Amazon.com Inc. also fell, down 8%, Google parent Alphabet Inc. and Apple Inc. both rose more than 13%. At the same time, the S&P 500 index gained 1.2% amid an escalation in the U.S.-China trade war and dovish moves by central bankers.
• Billionaires are circling the distressed U.S. oil and gas patch, looking to pick up assets on the cheap at a time when the state of the industry is scaring off other investors. Sam Zell has teamed up with Tom Barrack Jr. to buy oil assets in California, Colorado and Texas at fire-sale prices from companies trying to get ahead of a coming credit crunch. Dallas Cowboys owner Jerry Jones said his Comstock Resources Inc. is in talks to acquire natural gas assets in Louisiana from struggling Chesapeake Energy Corp. “I compared it recently to the real estate industry in the early 1990s, where you had empty buildings all over the place, and nobody had cash to play,” Zell said in an interview on Bloomberg TV Thursday. “That’s very much what we’re seeing today.“

*All sources from Bloomberg unless otherwise specified