November 28th, 2018
Daily Market Commentary
- Royal Bank of Canada is enjoying its highest domestic net interest margins in five years, helping the lender boost quarterly earnings in its Canadian banking division and beat analysts’ estimates. Canadian banks have been benefiting from rising interest rates, which boost NIM — the difference between what a bank charges for loans and pays for deposits — as well as net interest income. In Royal Bank’s case, margins in Canadian banking reached 2.77 percent, the Toronto-based lender said Wednesday in its fourth-quarter earnings statement. That’s the highest since the third quarter of 2013. Overall net income for the quarter ended Oct. 31 rose 15 percent to C$3.25 billion, or C$2.20 a share, from C$2.84 billion, or C$1.88, a year earlier. Adjusted earnings, which exclude some items, were C$2.24 a share, beating the C$2.12-a-share estimate of 14 analysts surveyed by Bloomberg.
- Canada’s lingering crude glut isn’t hindering the country’s growing oil output, according to the National Energy Board’s most recent forecast. The country’s oil production will average 4.59 million barrels a day, 22,000 more than previously forecast, data from the Canadian energy regulator show. The raised production outlook comes even as pipeline bottlenecks have driven Canadian crude prices to record lows and prompted some producers, including Canadian Natural Resources Ltd. and Athabasca Oil Corp., to reduce output by about 160,000 barrels a day, according to estimates by TD Securities Inc.
- European shares stabilized after initial gains, amid caution ahead of the G-20 meeting. Brexit is also high on the agenda, with the finishing line for the U.K. parliamentary vote nearing. Prime Minister Theresa May is said to have backed down in a key battle on the matter, clearing the way for lawmakers to vote on potential changes to her motion. The Stoxx Europe 600 Index rose 0.1 percent at 11:15 a.m. CET, with technology leading the way, gaining 1 percent. U.S. cloud software firm Salesforce.com surprised with its revenue forecast that came in ahead of expectations, helping its European peers higher. On the other end of the scale, autos were the worst performers, -0.9 percent, with Continental AG and Faurecia SA leading declines.
- Stocks in Europe rose alongside U.S. futures, tracking gains in Asia as investors rekindled their risk appetite before a speech by the chair of the Federal Reserve. The dollar and Treasuries were steady. The debate on the pace of monetary policy tightening in the U.S. next year has intensified this week ahead of Powell’s speech that will be parsed for any hints on prospects for a pause in rate increases next year. On the outlook for trade, a lot also rides on the meeting between President Donald Trump and his Chinese counterpart Xi Jinping in Argentina this week. Trump is open to a deal with China but is ready to impose more tariffs if the upcoming talks don’t yield progress, Larry Kudlow, the president’s top economic adviser, told reporters Tuesday.
- Japanese stocks rose after comments by President Donald Trump’s top economic adviser Larry Kudlow spurred cautious optimism for a breakthrough in the U.S-China trade war. Technology and telecommunications shares boosted the Topix index, while automakers fell. Trump is open to a deal with China but is ready to impose more tariffs if the upcoming talks don’t yield progress, Kudlow told reporters Tuesday. He said Trump will meet with Chinese President Xi Jinping over dinner on Saturday in Buenos Aires where both leaders will be attending the Group of 20 meeting.
- Oil pared gains as traders awaited weekly U.S. inventory data and any signs of whether Saudi Arabia and Russia will take steps to prevent a global surplus. Futures were 0.2 percent lower in New York after rising as much as 1.9 percent. Russian President Vladimir Putin and Saudi Crown Prince Mohammed bin Salman will meet at the Group of 20 summit in Argentina and may discuss oil markets before OPEC and its allies review output policy next week in Vienna. U.S. government data will probably show that crude inventories increased by 1 million barrels last week, according to a Bloomberg survey, while an industry report showed they rose by 3.45 million.
- Gold nudged lower for a fourth day after dropping the most in two weeks Tuesday. The dollar remains a primary drag on gold prices with the greenback trading near its highest in 18 months. Investors are digesting recent comments from Federal Reserve officials and Chairman Jerome Powell is due to speak later Wednesday. Despite the recent run of losses, gold continues to find support from exchange-traded funds with holdings gaining for a seventh session to the highest in almost four months.
- Deutsche Bank AG’s management changes have yet to run their course. Germany’s largest lender is replacing senior executives in the U.S. and is considering changing staff who tend its relationships with regulators, according to a person with knowledge of the matter. The moves come on the heels of strong cuts to the U.S. operations and after authorities in the country — and in Europe — expressed frustration with the firm’s efforts to prevent financial crime.
- President Donald Trump threatened to cancel a scheduled meeting with Vladimir Putin at the Group of 20 summit in Buenos Aires later this week, after Russia captured three Ukrainian naval vessels in the Black Sea. “Maybe I won’t have the meeting. Maybe I won’t even have the meeting,” Trump said Tuesday in an interview with the Washington Post. “I don’t like that aggression. I don’t want that aggression at all.”we
- President Donald Trump feels no urgency to nominate a new attorney general and is content with Matthew Whitaker in place as acting head of the Justice Department, said people familiar with his deliberations. He isn’t concerned by demands to move quickly to nominate a successor to fired Attorney General Jeff Sessions from key Republican senators including Judiciary Chairman Chuck Grassley and Lindsey Graham, who is set to take over the panel in January, the people said.
- Treasury Secretary Steven Mnuchin privately asked bond dealers and investors in October whether they want the Federal Reserve to tighten monetary policy by raising interest rates or through faster cuts in its securities portfolio, six people familiar with the matter said. Mnuchin’s question could be seen as suggesting a way for the central bank to accomplish its goal of preventing a strong economy from overheating without triggering the ire of President Donald Trump, who has blasted Fed Chairman Jerome Powell for raising rates. For his part, Mnuchin has refrained from commenting on monetary policy, citing the importance of the Fed’s independence.
- UniCredit SpA turned to Pacific Investment Management Co. to raise $3 billion, offering spreads that are six times greater what the bank was paying in January amid stress in the market. Pimco was the sole buyer of the bank’s surprise sale of five-year bonds, two people with knowledge of the transaction said, asking not to be identified because the matter is private. The coupon on the bonds, which were issued in dollars, is 7.83 percent, compared with just 1 percent for a euro-denominated bond sold in January, according to data compiled by Bloomberg.
- India is considering a proposal to combine two state-run lenders to utilities, REC Ltd. and Power Finance Corp., according to people familiar with the discussions, as it seeks to raise funds to bridge a budget gap. The first phase of the deal will see REC acquiring a majority stake valued at about $2.5 billion in Power Finance, possibly by the year ending March 2019, the people said, asking not to be named as the talks aren’t public. Subsequently, the plan is to merge the subsidiary with REC, a departure from the original plan to keep their operations separate. Power Finance had a market value of 268.8 billion rupees ($3.8 billion) on Tuesday.
- Bitcoin is headed for the biggest gain since July, providing some welcome relief to battered cryptocurrency investors — but it may be too soon to call a bottom. That’s the assessment of Kenetic Capital’s Jehan Chu after the largest digital token rallied on Wednesday, climbing 5.8 percent to $3,987 at 11:23 a.m. London time. Gains in Ether and XRP helped propel the Bloomberg Galaxy Crypto Index to a 6 percent increase, paring this month’s rout to 37 percent.
- Ford Motor Co., banking on China to revive its long-lagging Lincoln brand, is trying to accelerate plans to begin building its luxury models there and avoid profit-sapping tariffs brought about by President Donald Trump’s trade war. Ford, which had planned to start production of Lincoln models in China in late 2019 with a local partner, is trying to move that timing up, even if slightly, to help overcome tariffs China has imposed in retaliation to levies by the Trump administration.
- One of J.P. Morgan Asset Management’s largest mutual funds is betting junk bonds will help shelter it from the trade war. The firm’s $49.6 billion Global Income Fund has slashed its equities exposure to 31 percent at the end of October from 43 percent at the beginning of the year and put part of the proceeds into U.S. and European high-yield debt, according to co-manager Eric Bernbaum. The fund cut its stock holdings before the October sell-off, and turned to junk bonds where low default rates, declining leverage and strong fundamentals abound, he said.
- CVC Capital Partners’s appliance warranty issuer, Domestic & General Group, has attracted offers from buyout firms including Apax Partners and Centerbridge Partners in an advanced bidding round, people familiar with the matter said. Warburg Pincus has also made an offer, the people said. While a sale is the likeliest option, CVC hasn’t ruled out an initial public offering for the business, said the people, who asked not to be identified because the deliberations are private. CVC, which invested in the business in 2013, may be seeking about 1.3 billion pounds ($1.5 billion), one person said.
- WuXi AppTec Co., the Shanghai-listed contract medical researcher, is seeking as much as $1.06 billion in a Hong Kong first-time share sale. The Chinese company is offering 116.5 million shares at HK$64.10 to HK$71.50 apiece, according to terms for the deal obtained by Bloomberg. WuXi AppTec expects to price the offering Dec. 6 and begin trading Dec. 13, the terms show.
- Malaysia is seeking direct talks with Goldman Sachs Group Inc. to recoup more than $600 million the bank earned from raising funds for troubled state fund 1MDB, the country’s leader-in-waiting Anwar Ibrahim has confirmed. Goldman has lost $11 billion from its market value since Ibrahim said on Nov. 12 that the country is seeking a “full refund” of what the bank made for arranging bond sales for scandal-ridden 1MDB. Anwar expects that market pressure will be enough to push the lender to come to the negotiating table but notes a lawsuit is a second option.
- The Senate is emerging as a breeding ground for Democratic challengers to President Donald Trump in the 2020 election, with each contender looking for chances to stand out in the crowd. Even though their party remains the Senate minority, nearly a dozen Democrats with presidential aspirations will face intense scrutiny in coming months as they maneuver on legislation and nominations—as well as their battles with Trump.
- The U.K. will suffer a major economic hit over 15 years if Parliament rejects Theresa May’s Brexit deal and the country crashes out of the European Union with no new trade arrangements in place, according to official analysis. A government report on Wednesday said GDP will be as much as 10.7 percent lower by 2034 if there’s no orderly exit and the supply of workers from the bloc dries up. The new analysis paints a dire picture of the worst-case scenario but does not provide a clear picture of the economic impact of the deal May finalized with the EU last week. Instead it provides an analysis based loosely on a plan that’s already been rejected by the bloc.
*All sources from Bloomberg unless otherwise specified