November 30th, 2018
Daily Market Commentary
- Canadian stocks inched up for a second day, fueled by a rally in heavy Canadian crude, outperforming the U.S. market where trade anxiety before the highly anticipated sit-down between the U.S. and China weighed on sentiment. The S&P/TSX Composite Index rose 0.2 percent, with energy and consumer staples pacing gains. Six of the 11 subsectors fell. Anticipation that the Alberta government might impose production cuts to reduce a glut of crude in the west of the country sent the price of heavy Canadian crude up. Meanwhile, Tenaris SA is suspending work at a steel-pipe plant in Sault Ste. Marie, Ontario, and put part of the blame on U.S. metal tariffs.
- A key question has emerged as investors pour billions of dollars into the marijuana industry: Will it be U.S. or Canadian companies that win the race for cannabis supremacy? Businesses in Canada licensed to grow and sell weed have a head start, thanks to their government’s legalization of pot for adult use in October. They’re well funded and are touting their ability to export medical marijuana to countries around the globe that are relaxing restrictions.
- The U.S., Canada and Mexico will sign their new trade deal Friday following a year of intense negotiations to revamp the continent’s free trade zone — and after President Donald Trump’s threats to kill it. The countries plan to ink the U.S.-Mexico-Canada Agreement in Buenos Aires at the start of the Group of 20 summit, three officials familiar with the matter said, speaking on condition of anonymity. Leaders from the three countries will be present for the ceremony, though it’s unclear whether the heads of state will sign the document or cabinet-level officials.
- U.S. President Donald Trump’s efforts to help domestic steelmakers by placing tariffs on imported metal is claiming a victim north of the border. Steel-pipe maker Tenaris SA said Thursday that it will lay off 90 employees and suspend operations for three weeks at its Sault Ste. Marie, Ontario, plant as it cuts production there by 25 percent. Tenaris put part of the blame on U.S. metal tariffs imposed by the Trump administration earlier this year.
- European shares opened down, and are poised to close another month with losses, while investors will look to the G-20 summit and any moves toward a resolution to the trade war. The Stoxx 600 Europe Index was down 0.3 percent at 8:19 a.m. London time. Telecom carrier Altice Europe N.V. jumped 7 percent after it agreed to sell a stake in its French fiber unit. The general benchmark’s decline in November sets this year’s losses to about 8 percent.
- U.S. equity futures dropped with European stocks as investors count down to a meeting between the American and Chinese presidents that could decide the course of the trade war. Benchmark Treasury yields fell and the dollar gained. Carmakers and banks led a retreat in the Stoxx Europe 600 Index, while futures for all three major U.S. indexes slid amid lingering doubts over the prospects for a thaw in relations between Presidents Donald Trump and Xi Jinping.
- Shares gained in Tokyo, slipped in Seoul and fell in Sydney, with Shanghai and Hong Kong stocks rising even after data showed that China’s economy remains in a weak patch. WTI crude dropped below $51 a barrel, on track for the biggest monthly slump in a decade. The euro weakened after data showed inflation in the common-currency region easing.
- Oil headed for its biggest monthly decline since 2008 as Russia reiterated it’s comfortable with current prices, just a week before it meets with OPEC in Vienna to discuss possible production curbs. Futures in New York pared earlier gains to fall as much as 1.8 percent. Russian Energy Minister Alexander Novak told Tass news agency that his nation’s oil output will hold steady until the end of the year, with current prices agreeable to both producers and consumers.
- Gold rose, heading for its first consecutive monthly gain since January, after Federal Reserve Chairman Jerome Powell opened the door for a slowdown in interest-rate hikes. Powell said Wednesday that rates are “just below” a range of estimates of the so-called neutral level, fueling speculation the Fed may pause in tightening monetary policy. The dollar erased gains for the month. Traders are also keeping an eye on the G-20 meeting this weekend, where any signs of a U.S.-China trade truce could further erode the greenback’s allure as a haven.
- Euro-area inflation eased off a six-year high and core inflation slipped just as the European Central Bank gets ready to pare back monetary stimulus. The data add to signs that the 19-nation economy is facing a more protracted slowdown after growth halved in the third quarter. While analysts have questioned whether the weaker momentum could force a policy rethink, ECB President Mario Draghi and his peers have stuck to their plans to cap quantitative easing at 2.6 trillion euros ($3 trillion) at the end of the year.
- Federal Reserve officials have stepped off a predictable path of interest-rate increases and are signaling to investors a hard truth about relying on increasingly contradictory economic data: There are no easy answers anymore. It’s going to be choppy. It’s going to bring more surprises. And it may get rough on those trying to track the the central bank’s strategy. A lot of reputable Wall Street forecasters will need to revise their predictions because even the Fed is less certain about what it is going to do.
- SoftBank Group Corp. dispensed with a price range and chose to set a single preliminary figure for the $21 billion initial public offering of its Japanese telecom business, showing that the company and its bankers are confident of their ability to gauge demand. It’s the first time that a stock will debut on the Tokyo Stock Exchange without a range, one of the lead underwriters said. The Japanese technology giant plans to sell shares for 1,500 yen apiece, it said in a filing Friday, the same price that it indicated when announcing the IPO earlier this month.
- Germany’s air force blamed an electronic fault aboard Chancellor Angela Merkel’s plane for delaying her trip to the Group of 20 summit in Buenos Aires. Radio communications and fuel dumping were disrupted while the flight was over Europe, prompting the Airbus 340’s pilots to turn back after less than an hour and land safely in Cologne on Thursday evening, Air Force Colonel Guido Henrich told reporters. Investigators found no evidence of criminal tampering, a Defense Ministry spokesman said in Berlin.
- Italy’s economy contracted in the third quarter, in a revision that will complicate the populist government’s growth plans. Statistics agency Istat’s final reading showed the economy shrank 0.1 percent in the three months through September, after a preliminary reading on Oct. 30 showed no change. It was the first contraction since the second quarter of 2014.
- Japanese prosecutors extended the jail detention of former Nissan Motor Co. Chairman Carlos Ghosn as French President Emmanuel Macron and Japanese Premier Shinzo Abe prepare to meet amid growing tensions over the affair. Under the extension granted by a Tokyo court, Ghosn will spend up to 10 more days in detention, people familiar with the matter said, asking not to be identified as the information isn’t public. Ghosn was arrested Nov. 19 upon landing in Tokyo. Nissan, the carmaker he helped resurrect, accused him of financial crimes, including understating income and misusing company funds.
- Altice Europe NV agreed to sell just under half of its French fiber-to-the-home venture to a group of infrastructure investors for 1.8 billion euros ($2.05 billion) as billionaire Patrick Drahi’s telecom carrier seeks to cut debt.
- Bulgaria approved construction of a 2.8 billion-lev ($1.6 billion) pipeline project to allow transit of natural gas from Turkey to western Europe, part of efforts to win Russian energy supplies from the TurkStream project. Bulgaria, which imports all of its gas from Russia, wants to lock in new routes after supplies were cut in 2009 amid a spat between the Kremlin and Ukraine. Russia aims to circumvent transit through its neighbor with alternative pipelines known as the North Stream and the Turkish Stream.
- HNA Group Co.’s airline, the core of the Chinese conglomerate’s sprawling business, is seeking 7.5 billion yuan ($1.1 billion) in loans and two top executives are stepping down as financial stress mounts at the once high-flying global acquirer. Hainan Airlines Holding Co. has applied to borrow from a group of government-affiliated lenders led by China Development Bank to cover expenses including fuel, maintenance and landing fees, the company said in a statement late Thursday. The airline also said separately that Liu Lu “ceases to be chief executive officer and executive vice chairman” and Zhou Zhiyuan was stepping down as president. The company didn’t elaborate when asked if Liu had left the company altogether.
- President Donald Trump and his party took a drubbing in the midterm elections. But the results held a bit of good news for Trump as he prepares to meet with Chinese President Xi Jinping at the Group of 20 meeting in Argentina: the $50 billion in retaliatory tariffs China targeted at Trump-friendly congressional districts failed utterly to cause the kind of political pain that would have weakened Trump’s bargaining position. Let’s rewind to March, when Trump fired the first big volley in the trade war by imposing tariffs on imported steel and aluminum. China’s foreign minister, Wang Yi, vowed a “justified and necessary response,” and in April, China hit back with levies on U.S. exports, including soybeans, wheat, sorghum, and other crops selected precisely to exact a political price on Republicans in November.
- The best-performing U.S. corporate debt market is showing a few cracks. A $6.5 billion loan that helped finance the leveraged buyout of a Thomson Reuters Corp. unit is quoted at around 97.25 cents on the dollar, after being sold for just shy of 100 cents. The $5.05 billion of loans for KKR & Co.’s buyout of Envision Healthcare are now quoted at about 96.125 cents on the dollar, around two months after being issued at 99.75 cents.
- The Federal Reserve is ramping up its investigation into how Goldman Sachs Group Inc. executives dodged the bank’s internal controls while helping Malaysian authorities raise billions of dollars that later went missing, according to people briefed on the matter. The probe examines the actions of the New York-based investment bank as well as individuals and has been gaining momentum in recent weeks, the people said, asking not to be identified because the inquiry is confidential. The Fed doesn’t have the powers of a criminal prosecutor, but it can and often does sanction people involved in banking scandals.
- The prospect of weaker returns in the U.S. is making emerging markets, especially Latin America, much more attractive, according to a strategist at the world’s second-biggest fund manager. “Emerging markets have been so beaten that they have started to look pretty cheap,” said Jonathan Lemco, a senior investment strategist at Vanguard, which manages $5.1 trillion of assets. “Latin America could have the best upsides in the world, but you have to be careful.”
*All sources from Bloomberg unless otherwise specified