November 26th, 2019
Daily Market Commentary
- Canadian equities snapped their five-day losing streak, led higher by the retail sector. The broader market also climbed on optimism over China trade relations. The S&P/TSX Composite Index rose 0.5%, or 78.02 to 17,032.86 on Monday. The move is the biggest since the 0.7% gain on Nov. 1. Couche-Tard rose 3.5%, contributing the most to the index advance, after as BMO upgraded the stock, saying fresh food will boost sales. Martinrea had the largest gain, rising 4.6%. Kirkland Lake Gold was the biggest drag on the index and had the biggest drop, declining 17%, after announcing a C$4.9 billion ($3.7 billion) agreement to buy Detour Gold.
- Bank of Nova Scotia was at last look down 0.12% in US pre-market trade on Tuesday after it kick started the fourth quarter earnings season for Canada’s big banks in reporting EPS diluted — adjusted for acquisition and divestiture related amounts — of $1.82, meeting forecasts. That stemmed from Q4 adjusted net income of $2,400 million, compared to $2,345 million a year earlier. Among other highlights, return on equity was 13.8%, compared to 14.1% in the prior corresponding period. And the provision for credit losses was $502 million, compared to $395 million. Scotia in a statement said the provision on impaired loans was $477 million compared to $449 million, up 6% due primarily to volume growth in the retail portfolios.
- Canadian convenience-store giant Alimentation Couche-Tard Inc. offered A$8.6 billion ($5.8 billion) for fuel retailer CaltexAustralia Ltd., sweetening its bid for about 2,000 sites as it seeks to broaden a global expansion. Couche-Tard offered A$34.50 cash per share, higher than an earlier proposal of A$32 a share that was rejected as too low, Caltex said in a statement Tuesday. The fresh bid is 16% higher than Monday’s closing price.
- European shares opened little changed, after jumping to the highest level since 2015 on Monday, as the world’s two largest economies continue to engage in trade talks. The Stoxx 600 Index moved between little gains and losses, with travel and leisure stocks falling the most — dragged down by Compass Group Plc after it booked a charge. French car rental agency Europcar Mobility Group jumped 4.5% following a Bloomberg report that it’s drawing interest from suitors as it explores a potential sale of the company.
- U.S. equity futures drifted with stocks in Europe as investors searched for signs of progress in China’s comments about prospects for a “phase-one” trade deal. Treasuries and European sovereign bonds edged higher. S&P 500 futures were little changed and Asia stocks were mixed after China said that Sino-American trade negotiators “reached consensus” on certain issues in another phone call and agreed to stay in contact on the remaining points.
- A rally in Japanese stocks lost some of its strength after the Topix index touched a 13-month high. Gains in electronics makers were the biggest boost to the benchmark gauge, while declines in food companies were the biggest drag. The Topix had a strong start Tuesday morning after the S&P 500, Dow Jones Industrial Average and Nasdaq Composite Indexes reached all-time highs, boosted by expectations over a U.S.-China trade deal.
- Oil steadied on signs of progress in trade talks between the U.S. and China, and estimates that American crude inventories retreated for the first time in five weeks. Futures traded little changed near $58 a barrel in New York. Washington and Beijing “reached consensus on properly resolving relevant issues” to pursue a “phase one” trade deal during a phone call on Tuesday, China’s Ministry of Commerce said. U.S. oil stockpiles fell by 939,000 barrels last week, according to a Bloomberg survey before official data due Wednesday.
- Palladium’s premium over gold reached the highest in 17 years as optimism over a U.S.-China trade pact boosted the demand outlook for the metal used in autocatalysts. An ounce of palladium bought about 1.24 ounces of gold on Tuesday, the highest since 2002. Palladium prices may rise to fresh records this week, although the metal is starting to look overbought, said Mitsubishi precious metal strategist Jonathan Butler. Gold, meanwhile, is in danger of falling below its $1,450 support level, Butler said. Prices were little changed on Tuesday. Chances for a renewed rally are slim given flagging demand, especially in China and India, according to Capital Economics.
- China and the U.S. “reached consensus on properly resolving relevant issues” and agreed to stay in contact on the remaining points for a “phase one” trade deal during a phone call Tuesday morning Beijing time, the Ministry of Commerce said in a statement. Chinese Vice Premier Liu He, U.S. Trade Representative Robert Lighthizer and U.S. Treasury Secretary Steven Mnuchin discussed core concerns, according to the statement, which didn’t provide further details. It follows a phone conversation earlier this month that the ministry called “constructive.”
- Abu Dhabi is planning to put as much as $1.5 billion into Saudi Aramco’s initial public offering, as the oil giant taps friendly neighbors to prop up a deal that’s so far failed to draw foreign investors, people with knowledge of the matter said. The emirate is seeking to make the investment through one or more state-linked entities, according to the people, who asked not to be identified because the information is private. Aramco representatives are meeting officials of some top Abu Dhabi funds and companies this week to discuss the potential commitments, the people said.
- XP Inc., Brazil’s largest brokerage by equity trading, and its shareholders are seeking to raise about $1.5 billion on Nasdaq in the biggest initial public offering for a Brazilian company this year, according to people with knowledge of the matter. General Atlantic and Dynamo VC Administradora de Recursos Ltda., which hold a combined 20%, plan to sell some of their shares, said the people, who asked not to be identified because the information hasn’t been disclosed. XP managing partners, who own about 30% via XP Controle, also intend to sell, but Itau Unibanco Holding SA won’t divest any of its 49.9% stake, the people said.
- Mitsubishi Corp. and Chubu Electric Power Co. are expected to buy Dutch utility Eneco NV for about 4.1 billion euros ($4.5 billion) after being selected as the preferred bidders. The deal may offer the Japan firms expertise into the operation of offshore wind assets amid a push in Asia to expand the clean power generation that already has a strong foothold in Europe. Mitsubishi closed down 0.4% while Chubu slipped 0.3% on Tuesday.
- Nongfu Spring Co., one of China’s biggest bottled water and beverage companies, is weighing an initial public offering in Hong Kong that could raise at least $1 billion, people familiar with the matter said. The Hangzhou-based company is working with financial advisers for the potential first-time share sale, according to the people, who asked not to be identified as the information is private. The offering could happen as soon as the first half of 2020, the people said.
- U.S. pork producers see a potential $24.5 billion market in China within 10 years if the Trump administration can gain unrestricted trade access after the Asian country’s hog herd has been devastated by disease. The National Pork Producers Council released the forecast on Tuesday as they pressed the Trump administration to emphasize access for pork products in ongoing talks with Beijing for a partial trade agreement. The spread of African swine fever has ravaged China’s hog herd and by September had driven up the price of pork more than 69% from a year earlier. The meat is a staple in the Chinese diet. While American exports have climbed amid the Chinese protein gap, meat suppliers in Brazil have seen even stronger demand.
- Alibaba Group Holding Ltd. rose 6.6% in its Hong Kong debut, fueling the ambitions of China’s largest internet company as well as an Asian city rocked by violent anti-government protests. Chairman Daniel Zhang, lieutenants wearing Alibaba lapel pins and Hong Kong dignitaries were on hand to strike the opening gong Tuesday at a celebration of the city’s biggest stock listing this year. The company presented a Chinese-style painting to the exchange — a souvenir to go with the showy coming-out party. The Chinese e-commerce giant’s shares rose to HK$187.60, versus a HK$176 issuance price. They traded under the code 9988 — auspicious numbers in Chinese culture that signify prosperity.
- Thirteen French soldiers were killed when their two helicopters slammed into each other during an anti-terrorism combat operation in Mali, marking the single biggest loss of life in years for France’s army. The collision took place in low altitude during a mission to support ground forces battling terrorist groups late on Monday, according to the French ministry of defense.
- Turkish and Qatari central banks are boosting the size of a currency-swap deal that dates back to last year’s lira crisis, extending the gas-rich Gulf nation’s support for its ally by adding to its foreign-exchange reserves. Clinched during President Recep Tayyip Erdogan’s visit to Doha, the agreement will raise the limit on the existing arrangement to $5 billion from $3 billion. The goal is to boost “bilateral trade in respective local currencies and to support financial stability of the two countries,” Turkey’s central bank said in a statement on Tuesday.
- It will be no ordinary general election. Voters in Britain are now focusing their minds on the decision they will make in two weeks’ time. The result will determine not just the next government, but the fate of Brexit. From crashing out without a deal to holding another referendum and remaining in the European Union, the range of outcomes is still wide open. Here’s a guide to how it could all play out.
- Anta Sports Products Ltd. is considering a sale of its fitness equipment brand Precor Inc. after receiving approaches from potential buyers, according to people familiar with the matter. The biggest sportswear maker in China is working with an adviser for a potential sale of the U.S. business that could fetch about $500 million, said the people, who asked not to be identified because the discussions are private. A number of companies and private equity funds have shown preliminary interest in acquiring Precor, which designs and makes gym products such as indoor cycling bikes, running treadmills and elliptical machines, the people said.
- Buyout frenzy is gripping boardrooms from Tokyo to Paris to San Francisco, adding fuel to a record-breaking rally in global stocks. Companies kicked off the week by announcing more than $70 billion of deals, led by Charles Schwab Corp.’s $26 billion buyout of discount brokerage TD Ameritrade Holding Corp. Multibillion-dollar transactions involving luxury goods giant LVMH, Swiss drugmaker Novartis AG and Japanese conglomerate Mitsubishi Corp. added to the buoyant mood, sending the MSCI World Index to an all-time high. While the deals have no single theme — ranging from industry consolidation to diversifying revenue away from flagging home markets — one common thread is acquirers availing themselves of cheaper financing as central banks shift toward stimulus mode. Receding fears of a global recession and tentative signs of progress in U.S.-China trade talks may be giving executives confidence to pull the trigger.
- Turkey’s decision to move forward with the deployment of a Russian-made air defense system has sparked new urgency in the the U.S. Senate to punish the NATO ally. Tests in Ankara this week of the S-400 anti-aircraft missile system will increase pressure on the U.S. Treasury to impose sanctions mandated by current law. The move will also provide more incentive for the Senate to advance additional sanctions drafted last month in response to Turkey’s invasion of northern Syria — as Republican senators personally warned Turkish President Recep Tayyip Erdogan during his visit to the White House.
- In early 2018, the founders of Chinese artificial intelligence startup SenseTime Group Ltd. flew to Tokyo to see billionaire investor Masayoshi Son. As they entered the offices, Chief Executive Officer Xu Li was hoping to persuade the head of SoftBank Group to invest $200 million in his three-year-old startup. A third of the way into the presentation, Son interrupted to say he wanted to put in $1 billion. A few minutes later, Son suggested $2 billion. Turning to the roomful of SoftBank managers, Son said this was the kind of AI company he’d been looking for. “Why are you only telling me about them now?” he asked, according to one person in the room.
*All sources from Bloomberg unless otherwise specified