November 27th, 2019

Daily Market Commentary

Canadian Headlines

• Canadian shares pared earlier losses on Tuesday to end the session in the green, led by a tech stock rally. The S&P/TSX Composite Index was slightly higher, up 0.02% to 17,035.88, for the second day in a row. Shopify was among the biggest contributors to the advance, increasing 5.2%. HEXO Corp had the biggest drop, falling 8.9%. Meanwhile, the MSCI Indexes re-balance will take place as of the close today. MSCI Canada additions to include Algonquin Power & Utilities Corp., Canadian Apartment Properties REIT and Parkland Fuel Corp. Deletions include SNC-Lavalin Group, Tourmaline Oil Corp. and Vermilion Energy Inc.
• Rio Tinto Group declared force majeure on its aluminum shipments from its Canadian operations as a result of backlogs created by a week-long rail strike. “The current situation constitutes an event of force majeure under the terms of the sales arrangements we have with you for aluminum sourced at our Canadian operations,” Rio Tinto said in a letter to customers seen by Bloomberg News. “Our ability to deliver under sales arrangements in accordance with volumes and schedules agreed to prior to the rail strike may be affected.”

World Headlines

• European equities advanced, led by mining shares, after comments from President Donald Trump made investors optimistic that a U.S.-China trade deal may be near. The Stoxx Europe 600 Index added 0.2%. Rio Tinto Plc gained 0.8% and BHP Group rose 1.2%, as the metals and mining sector is one of the most sensitive industries to trade war news.
• U.S. equity futures climbed with stocks globally as the risk-on mood that’s driven American benchmarks to record highs showed few signs of abating. The dollar and Treasuries were steady before the release of jobs and personal-spending data from the world’s biggest economy. Contracts on the S&P 500, Dow Jones Industrial Average and Nasdaq Composite all edged higher after the underlying index closed at all-time records Tuesday. Farm-equipment maker Deere & Co. fell in pre-market trading after income guidance missed estimates.
• Equities climbed across Asia except in China, where data showed the economy slowing further, as investors continue to monitor developments on trade. President Donald Trump declared Tuesday that talks on the first phase of a deal were nearly done after negotiators from both sides spoke by telephone. Treasuries were little changed before the economic data and on the last day before trading is halted for the nation’s Thanksgiving holiday.
• Oil held steady as traders weighed hopes for a limited U.S.-China trade deal against a reported increase in American crude stockpiles. Futures were little changed above $58 a barrel in New York after rising 1.1% over the previous two sessions. President Donald Trump said talks on the first phase of a deal were near completion. The American Petroleum Institute reported a 3.64 million-barrel weekly gain in inventories, according to people with knowledge of the data, though a Bloomberg survey showed a decline.
• Gold drifted in a narrow range as traders weighed progress in U.S.-China talks and rallying equities against fresh data indicating China’s economy is slowing. Gold’s volatility has slumped in recent weeks as traders grow weary of fluctuating sentiment over the prospects of a trade deal. Prices came under pressure Wednesday as investors looked for better opportunities elsewhere, DailyFX analyst David Cottle said in a note.
• A third Hong Kong stock in less than a week lost most of its value in a sudden one-day plunge, underscoring concern that the $5.2 trillion market has become a breeding ground for wild volatility. China First Capital Group, an investment company that focuses on financial and education services, plunged as much as 78% on Wednesday before trading was suspended. Virscend Education Co., which is partly owned by First Capital, also lost as much as 78% before paring its decline to close 33% lower. The moves wiped out a combined $1.2 billion in shareholder value.
• The Manchester City soccer team’s owner agreed to sell a stake to private equity firm Silver Lake in a deal that values the group at $4.8 billion, one of the highest ever for a professional sports organization. Silver Lake will pay $500 million for a stake of just over 10% in City Football Group, the group and the Menlo Park, California-based investor said in a joint statement Wednesday. The agreement shows global demand for professional sports teams, fueled by surging revenue from sales of television rights, is drawing professional investors like Silver Lake and driving up prices. The firm has about $43 billion under management and is plowing more into sports and entertainment, including an investment in Endeavor Group Holdings Inc., which runs sports leagues, hosts fashion events and represents top athletes and entertainers.
• Global central banks are approaching the end of the year with a collective shudder at the risky behavior that their low interest-rate policies are encouraging. Policy makers from European Central Bank and the Federal Reserve are among those raising cautionary flags at potentially unsafe investing stoked by their efforts to flood economies with ultra-cheap money. Stock indexes from the U.S. to India are at records, and low sovereign bond yields have pushed funds into property seeking better returns.
• U.S. aviation regulators will conduct the final approval of factory-fresh Boeing Co. 737 Max jets rather than allowing company employees to handle routine sign-offs before the planes are delivered. The plan amounts to the latest signal from the Federal Aviation Administration that it intends to retain full control over all aspects of the grounded jetliner as Boeing prepares to finalize fixes and restart shipments to customers. The Max, the company’s best-selling model, has been banned from flying since March after two deadly crashes killed 346 people.
• Federal prosecutors are investigating the role that at least six drugmakers and distributors played in the flow of opioids into cities and towns across the U.S., the latest turn in the crisis that has ensnared dozens of companies around the world. Pharma companies Johnson & Johnson, Teva Pharmaceutical Industries Ltd., Amneal Pharmaceuticals Inc. and Mallinckrodt Plc along with drug distributors AmerisourceBergen Corp. and McKesson Corp. have all recently said in filings that they received grand-jury subpoenas from the U.S. Attorney’s Office in the Eastern District of New York.
• The Wallenberg family has jumped to the defense of its bank, SEB AB, after it was accused of enabling Russian money laundering. Shares in SEB rose more than 4% on Wednesday after the Wallenbergs led investors in brushing off a report by Swedish state broadcaster SVT, which said the bank failed to stop dirty money from flowing through its Baltic operations over several years. Investor AB, the vehicle through which the Wallenbergs hold about 20% of SEB, said the bank is acting transparently. That’s after SEB identified almost $30 billion in non-resident Estonian flows that exposed it to an “increased risk for money laundering.”
• Labour Party Leader Jeremy Corbyn accused Boris Johnson’s Conservatives of seeking to sell out the U.K.’s National Health Service in secret trade talks with the U.S. The opposition leader released a 451-page document, which he said detailed preparatory trade meetings between U.K. and U.S. officials, as he sought to play on voter concerns about creeping privatization in the state-funded health care system. The previously redacted papers show the U.S. seeking “total market access” to the U.K. and suggest a no-deal Brexit is the preferred U.S. option because “there would be all to play for,” he said.
• India is considering a plan to exclude more than half of Air India Ltd.’s $11 billion of debt in the government’s latest attempt to lure investors to the struggling carrier, people with knowledge of the matter said. Prime Minister Narendra Modi’s administration plans to ask proposed investors to take over 300 billion rupees of the airline’s debt, which are backed by the carrier’s aircraft, the people said, asking not to be identified, citing private information. The government may call for the so-called expression of interest as early as Dec. 15, the people said.
• Deutsche Bank AG sold another chunk of unwanted assets to Goldman Sachs Group Inc. as part of a radical restructuring that’s seeing the German firm exit businesses where it’s been unable to compete. The nation’s largest lender recently sold securities with a notional value of about 40 billion pounds ($51 billion) to the U.S. bank, people briefed on the matter said. The assets are tied to emerging market debt and were previously housed in Deutsche Bank’s wind-down unit, one person said. They asked not to be identified discussing the private deal.
• Deere & Co. delivered a more cautious outlook than expected for the year ahead as simmering U.S.-China trade tensions and difficult growing conditions keep North American farmers from replacing large equipment, the company’s top moneymaker. Shares fell. Demand for machinery has taken a back seat as trade concerns have farmers worrying about who will buy their products, while financial-services results have come under pressure due to operating-lease losses. Construction equipment purchases are also set to decline. Giving his first guidance for fiscal 2020, newly appointed Chief Executive Officer John May projected net income in a range of $2.7 billion to $3.1 billion. That compares with the $3.46 billion average analyst estimate.
• Silver Lake’s expensive foray into British soccer reflects the soaring value of live matches in the streaming era and the potential for new apps to cash in on the global following of teams like Manchester City. The U.S. private equity firm is buying just over 10% of City owner City Football Group Ltd. for around $500 million, the companies said Wednesday, valuing the group controlled by Abu Dhabi’s royal family at $4.8 billion. That’s one of the highest-ever price tags for a professional sports organization.
• 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.
• Axa SA plans to double its green investments by 2023 and further restrict its underwriting of coal-related businesses as Chief Executive Officer Thomas Buberl vows to use the insurer’s massive asset pool to help address climate change. Green investments will rise to 24 billion euros ($26.4 billion) by 2023, Axa said Wednesday. That’s compares with an earlier target of 12 billion euros by 2020. It also aims to limit its investment portfolio’s “warming potential” by 2050 to 1.5 degrees Celsius, and invest in so-called transition bonds, which help companies move toward cleaner business models.
• Uber Technologies Inc. and its rivals disrupted global transport, riding on a lack of regulation to drive exponential growth. Now, regulators are closing in. London’s transport authority banned Uber for a second time on Monday, citing concerns about customer safety after vulnerabilities in the app let drivers fake their identities in thousands of rides. The decision shows that regulatory scrutiny of passenger safety is intensifying — adding a new front in a global crackdown that had focused on drivers’ rights. Uber isn’t just drawing ire in Europe. It faces problems related to sexual assault and a fatal roadside incident involving a self-driving car in the U.S. Rival Lyft is under pressure in San Francisco in sexual assault cases and Didi is under fire from regulators in China over its safety record.
• Investments in U.S.-listed fixed income exchange traded funds expanded 64% last week for the second week of inflows. Broad bond-market ETFs led the inflows. Corporate bond ETFs had the biggest change from the previous week. Net inflows to ETFs totaled $5.7b in the week ended Nov. 26, including the effect of leveraged funds, compared with $3.47b the prior week.

*All sources from Bloomberg unless otherwise specified