November 20th, 2019

Daily Market Commentary

Canadian Headlines

• Canadian equities fell for a second session as investors weighed the latest trade developments and crude oil dropped the most in seven weeks. The S&P/TSX Composite declined slightly to 17,011.40 in Toronto. Marijuana stocks rebounded after a weak session Monday, with the Horizons Marijuana Life Sciences Index ETF advancing 4.6%. Also, for the first time this year, the Canadian economy is coming in below analyst expectations, according to a closely watched gauge of economic surprises.
• Lowe’s Cos. raised its adjusted earnings outlook for the year and said it plans to reorganize in Canada, even as the home-improvement chain reported third-quarter sales that trailed analysts’ estimates. The shares advanced in early trading. Adjusted diluted earnings per share will be between $5.63 to $5.70 for the fiscal year ending Jan. 31, the company said Wednesday. That’s above an earlier estimate of as much as $5.65. Same-store sales increased 2.2%, missing projections for 3.2% growth. The company also said it plans to shut 34 under-performing stores in Canada.
• The price of Canadian heavy crude weakened Tuesday as a worker strike at the nation’s largest railway curbed oil shipments, exacerbating a supply glut that’s crippled Canada’s oil industry. Crude-by-rail volumes have largely halted as Canadian National Railway Co. prioritizes shipments of perishable goods such as grain amid a shortage of workers, according to people familiar with the matter. Western Canadian Select crude’s discount to West Texas Intermediate futures widened $2.90 to $18.90 a barrel, the weakest level in a week, data compiled by Bloomberg show.
• The Bank of Canada has released a multi-year plan to study the economic impacts of climate change and the transition to a low-carbon economy. In a paper published Tuesday, the central bank described what it believes will be the main research questions involved in understanding what the changes mean for the macro-economy, for example, how models can be augmented to gauge the effect of more severe weather on forecasting or to analyze the structural shifts associated with climate policy. The central bank will also look more closely at how severe weather events or an abrupt transition to a low-carbon economy could affect the Canadian financial system.
• One of the largest Encana Corp. shareholders says the oil and natural gas producer’s plan to move to the U.S. is “highly discriminatory” against Canadian investors. Letko, Brosseau & Associates Inc., which has a stake of about 4%, will vote against Encana’s plan to relocate to the U.S., the investor said Tuesday in a statement. The Montreal-based firm says the move would force investors holding the shares through indexed Canadian funds or Canadian-only investment policies to sell the stock, likely at a loss given where the shares are now trading. “This is an example of very poor corporate governance,” co-founder Peter Letko said in an interview. “The company is openly discriminating against certain types of shareholders.”

World Headlines

• Japanese stocks fell on Wednesday after China reiterated a threat to retaliate for a U.S. bill that supports protesters in Hong Kong. Banks and electronic appliance makers’ shares weighed on the benchmark Topix index the most. Earlier in the morning, the Chinese foreign ministry released a statement following the U.S. Senate’s passing of the Hong Kong bill, urging the U.S. to prevent it from becoming law. The yen strengthened against other major currencies following the announcement. Investors may be betting on the risk that protests in Hong Kong will affect trade negotiations, said Toshio Sumitani, chief market analyst at Tokai Tokyo Research Institute Co. in Tokyo. “Japanese stocks have been overheating as of late,” he said. “Investors are adjusting, with headlines related to Hong Kong and trade negotiations acting as a catalyst for the selloff.”
• European equities tumbled as investors fled riskier assets amid renewed concerns about U.S.-China trade negotiations following the U.S. Senate’s Hong Kong bill. The Stoxx Europe 600 Index fell 0.8%, with all the sectors in the red. Royal Dutch Shell Plc, BP Plc and Total SA dropped at least 0.9% each as Brent oil declined. HSBC Holdings Plc, which has a big exposure to Hong Kong, was down 0.9%. European equities have staged a powerful rally this year, with the benchmark index hitting a 2015 high last week amid optimism about trade and growth. However, the approval by U.S. senators of legislation supporting Hong Kong protesters fueled new concerns about repercussions for Washington-Beijing tariff talks.
• American equity-index futures declined along with stocks in Europe and Asia after the U.S. Senate passed legislation supporting Hong Kong protesters, drawing a rebuke from China and potentially complicating trade talks. Bonds gained. Contracts on all three major U.S. indexes declined, signaling a weak open in New York. The 10-year Treasury yield fell to an almost three-week low and the offshore yuan slipped after China’s threat of unspecified retaliation following the Senate vote. The dollar edged higher. Travel and leisure companies led the retreat in the Stoxx Europe 600 index, with all major regional benchmarks in the red. Swedbank AB dropped after a report that American authorities are investigating possible breaches of sanctions against Russia by the Swedish lender.
• Investors sold the most platinum held in exchange-traded funds in two months after prices rallied back above $900 an ounce, while gold holdings expanded amid signs of increased tension in U.S.-China trade talks. Combined assets in platinum-backed ETFs fell by about 27,300 ounces, the most since Sept. 16, data compiled by Bloomberg show. Prices rallied almost 6% in the past week. Gold holdings rose by almost 30,000 ounces, snapping nine consecutive declines. The U.S. Senate passed legislation yesterday supporting Hong Kong protesters, drawing a rebuke from China that might complicate trade negotiations.
• Oil held near a two-week low on signs of swelling American crude inventories, while investors monitored developments on the U.S.-China trade war. Futures were steady in New York after slumping 3.2% on Tuesday, the most since the end of September. Industry data showed crude stockpiles rose by 5.95 million barrels last week, about fourtimes the increase analysts expect the government will report Wednesday. The U.S. Senate passed legislation supporting Hong Kong protesters, potentially complicating trade talks with Beijing.
• Alibaba Group Holding Ltd. has raised about HK$88 billion ($11.2 billion) in its Hong Kong share sale, marking the biggest equity offering in the financial hub since 2010. The company confirmed that it has priced 500 million new shares at HK$176 each in a statement on Wednesday. The price represents a 2.9% discount to the last close of Alibaba’s American depository shares in New York, with each equal to eight ordinary shares of the internet company. This Hong Kong share sale is also one of the largest globally this year. The mega share sale comes as Hong Kong’s economy has been hurt by months of increasingly violent protests and growing anti-China sentiment. Alibaba’s return will please Chinese officials who’ve watched many of the country’s largest private firms flock overseas for capital. With a Hong Kong listing in sight, Alibaba will challenge Tencent Holdings Ltd. for the title of the largest listed corporation in the city.
• Target Corp. surged after raising its full-year outlook again on strong sales and profitability, providing a safe haven after several retailers unnerved investors. Third-quarter comparable sales, a key retail metric, rose 4.5%, a full percentage point above what analysts polled by Consensus Metrix had projected. Profit this year excluding some items will be between $6.25 and $6.45 a share, Target said Wednesday. The shares rose as much as 12% in early trading, nearing what would be an intraday high.
• China had a swift and forceful response on Wednesday after the U.S. Senate passed legislation supporting Hong Kong’s pro-democracy protesters, with multiple government agencies threatening some sort of unspecified retaliation. “Don’t say I didn’t warn you,” said a statement issued by the foreign ministry’s office in Hong Kong, using a Chinese phrase that prior to this year was used only in rare cases like before a 1962 war with India. But President Xi Jinping’s government has a problem: Any strong measures against the U.S. also risk backfiring on China. That’s particularly dangerous as he struggles to contain escalating violence in Hong Kong and negotiates a trade pact with the U.S. all while the economy grows at its slowest pace in decades. China’s retaliation since President Donald Trump kicked off a trade war last year has mostly been tit-for-tat tariffs, and always with the caveat that it was left with no other choice. In other areas where it’s been hit by the U.S. — Taiwan arms sales, sanctions over human-rights abuses in the far west region of Xinjiang, putting Huawei Technologies Co. on a blacklist — China has held fire despite threats to hit back. “It’s worth noting that the U.S. can do more damage to China than China can do to the U.S.,” said Shi Yinhong, an adviser to China’s cabinet who is a professor of international relations at Renmin University in Beijing.
• The U.S. Senate unanimously passed a bill Tuesday aimed at supporting protesters in Hong Kong and warning China against a violent suppression of the demonstrations — drawing a rebuke from Beijing. China reiterated Wednesday a threat to impose unspecified retaliation if the bill became law and urged the U.S. to stop meddling in Hong Kong affairs. Ma Zhaoxu, vice minister of foreign affairs in Beijing, later summoned William Klein, a U.S. embassy official, and raised strong objections about the bill. Separately, Hong Kong’s government expressed “extreme regret” and the legislation would negatively impact relations with the U.S.
• Pacific Gas and Electric to move forward with shutting off power, which will impact 150,000 customers in portions of 18 California counties beginning Wednesday morning, company says in emailed statement. Counties affected include portions of the Sierra Foothills, the North Bay and the North Valley. Decision was based on weather forecasts indicating the potential for high winds and dry conditions leading to increased fire risk.
• Labour Leader Jeremy Corbyn outperformed expectations in a crucial television debate against Prime Minister Boris Johnson, ahead of the U.K.’s general election on Dec. 12. The opposition leader, who has been lagging behind Johnson in personal approval ratings, almost tied with the premier in a snap poll on which candidate won the contest on Tuesday night. The YouGov/Sky News survey of 1,600 people gave Johnson the narrowest victory, with 51% saying he won the debate, against 49% saying Corbyn performed best.
• HSBC Holdings Plc is set to replace its investment banking chief as part of an overhaul by interim Chief Executive Officer Noel Quinn, according to people familiar with matter. Samir Assaf, head of global banking and markets, will be moved to a non-executive role at the bank, said one of the people, who asked not to be named discussing an internal matter. The decision will be announced later this year or early next, according to the person. Assaf started leading GBM in 2011 and has been at the bank and its predecessors for a quarter of a century. He steps back as Quinn seeks to put his mark on the firm and gain the top job permanently, having replaced John Flint on an interim basis after his ouster in August.
• Federal Reserve Chairman Jerome Powell and his colleagues have been especially chatty since cutting interest rates last month, yet a record of that meeting may still shed light on the strength of conviction among officials that monetary policy is probably poised for a long pause. Powell addressed Congress twice last week. He maintained his view that rates are in a good place following this year’s third cut on Oct. 30, provided the outlook doesn’t suffer a “material reassessment.” Minutes of that Federal Open Market Committee meeting will be released at 2 p.m. Wednesday. This year’s final gathering is set for Dec. 10-11.

*All sources from Bloomberg unless otherwise specified