November 9th, 2018
Daily Market Commentary
- Canadian stocks closed lower on Thursday for the first time this week, as Wednesday’s rally for weed stocks took a quick turn, pushing shares of cannabis companies into the red. The S&P/TSX Composite Index fell less than 0.1 percent, with the health care and energy sectors adding the most downward pressure to the benchmark. Consumer discretionary and telecommunications stocks led gains. In energy, oil producers are pressing the government to consider how to revive Enbridge’s proposed Northern Gateway pipeline in a bid to add capacity, but there’s no sign that’s likely.
- Four of Canada’s largest pot companies report earnings next week and while it’s too early for any post-legalization numbers, executive commentary should begin to divide the winners from the losers. Aurora Cannabis Inc. will report pre-market Monday, followed by Cronos Group Inc. on Tuesday morning, Tilray Inc. post-market Tuesday and Canopy Growth Corp. on Wednesday morning. It will be the first chance for many analysts and investors to hear from executives since Canada legalized recreational cannabis use on Oct. 17, a move that was immediately followed by supply shortagesacross the country.
- TransCanada Corp.’s long-delayed Keystone XL pipeline project was blocked by a Montana federal judge pending further environmental review. Thursday night’s ruling is the latest set-back for the Calgary-based pipeline company in its decade-long push to construct a 1,179-mile long conduit to deliver crude from Alberta’s oil sands to a Nebraska junction, en route to refineries near the Gulf of Mexico.
- Mining and energy shares led a drop in Europe’s main equity gauge and most industrial metals fell, while disappointing forecasts from Richemont and Thyssenkrup AG also weighed on the index.
- U.S. equity-index futures fell for a second day as crude oil’s slide into a bear market and concerns over the health of China’s economy weighed on global stocks. The dollar continued its advance after the Federal Reserve stayed on track for a December rate hike. Futures on the Dow Jones, S&P 500 and Nasdaq slipped. Oil extended a run of declines, heading for its longest losing streak on record.
- In Asia, financial shares performed particularly poorly following news that Beijing plans to set quotas for banks to pump credit into private companies. Softer Chinese producer-price gains, weak car sales and a disappointing outlook from a top online travel company combined to reignite lingering concerns about the health of the world’s second-biggest economy.
- Oil extended a run of declines after falling into a bear market, heading for its longest losing streak on record. Futures in New York fell for a 10th day, extending a dramatic plunge that’s dragged prices down more than 20 percent from a four-year high reached in early October. In London, Brent sank to a six-month low below $70 a barrel. The drop comes days before the Organization of Petroleum Exporting Countries meets with partners in Abu Dhabi, having signaled it may cut output next year.
- After a brief rally, the optimism is starting to fade from the gold market. Prices have fallen for six straight days, the longest stretch since May 2017, as risk appetite returns. The Fed is on track to hike interest rates in December and said Thursday that the economy has been growing at a “strong rate.” Bullion is down 1.2 percent this week, the most since mid-August. The moves in silver were even steeper, registering a decline of 2.6 percent for the week.
- Britain posted its fastest calendar quarter of economic growth in almost two years, but a sudden loss of momentum from August pointed to a slower pace of expansion in the run-up to Brexit. Gross domestic product increased 0.6 percent in the third quarter from the previous three months, the most since the end of 2016, the Office for National Statistics said Friday. The figure was in line with forecasts.
- UBS Group AG’s two biggest legal cases in years are entering the final stretch in a test of Chief Executive Officer Sergio Ermotti’s strategy of taking on French and U.S. authorities. The Swiss bank was hit with a long-expected U.S. fraud lawsuit that accused it of fueling the 2008 financial crisis by deceiving investors who bought billions of dollars of risky mortgage-backed securities. In France, the state and prosecutors are seeking as much as 5.3 billion euros ($6 billion) in fines and damages over allegations it helped clients hide money from authorities. That would be easily the largest criminal penalty ever levied in the nation.
- The White House is unprepared to defend itself against a coming wave of investigations by newly empowered House Democrats, who have vowed to probe everything from cabinet members’ ethics scandals to conflicts of interest involving the president’s business empire. President Donald Trump doesn’t have a chief lawyer at the moment. Three weeks after White House Counsel Don McGahn departed, replacement Pat Cipollone hasn’t started on the job as he wraps up ties with his law firm, said a person familiar with the situation.
- II-VI Inc. has agreed to buy Finisar Corp. for $3.2 billion in cash and stock, bringing together two firms focused on semiconductor lasers and optics. The deal will give the companies a stronger position in optical communications, used in “hyperscale” data centers and high-speed fifth generation infrastructure, technology used in 3-D sensing and driverless cars as well as access to larger markets, the firms said in a statement on Friday.
- The Pentagon’s top weapons buyer has issued new language applying to future contracts that’s intended to put companies on notice that they must elevate cybersecurity protection. “We are coming out with standard contract language that all the services will use,” Ellen Lord, the under secretary of defense for acquisition and sustainment, said in an interview Thursday. “We’ve just sent out our first formal communication” that says “we are going to do it and providing standard language that can be tailored as needed.”
- The Federal Reserve left interest rates unchanged and stayed on course to hike in December despite recent jitters in financial markets and a critical president. The U.S. central bank said “economic activity has been rising at a strong rate” and job gains “have been strong,” acknowledging a drop in the unemployment rate, while repeating its outlook for “further gradual” rate increases in its statement Thursday following a two-day meeting in Washington.
- E-cigarettes will face strict new limits imposed by the U.S. Food and Drug Administration, according to a senior FDA official, restricting sales of many popular fruit flavors amid what the agency has called an epidemic of youth use. Sales of popular e-cigarette fruit flavors will be limited to adult-only establishments, such as vaping stores. The restrictions will apply only to cartridge-style devices, such as a popular product from startup Juul Labs Inc., according to the official.
- Chevron Corp. plans to stay the course in Venezuela despite the Latin American country’s deteriorating economy and growing humanitarian crisis, the oil major’s top executive for the region said. “We’re committed to Venezuela and we plan to be there for many years to come,” Clay Neff, Chevron’s president for Africa and Latin America, said in an interview late Thursday. Any suggestion the company is considering leaving “is not accurate.”
- Russia is challenging the U.S. by hosting the Taliban at a Moscow peace conference in the latest source of friction between the two former Cold War foes. Representatives from the Afghan militant group joined the talks on Friday to which Russia’s invited a dozen countries. Afghan President Ashraf Ghani, who pressed Russia to cancel a similar meeting in September, sent four senior members of his nation’s High Peace Council. The two groups were seated around an oval table either side of the Russian chairman.
- Thyssenkrupp AG shares plunged the most in two years after cutting its profit forecast, another sign that the crisis at the German industrial giant is far from over. The company said there could be “substantial adverse consequences” because of a German investigation into steel-price fixing, and cited weakness at its elevator division. The company has also been affected by shipping delays due to low water levels in the Rhine river.
- Telecom Italia SpA abandoned a debt-reduction target and plans to write down the value of its assets by about 2 billion euros ($2.3 billion), highlighting competitive pressures facing the former monopoly. The double dose of bad news underscores the challenge facing Chief Executive Officer Amos Genish, who has been trying to revive the debt-ridden company under pressure from a U.S. activist shareholder. Telecom Italia hasn’t paid a dividend on its ordinary shares since 2013 and is having to spend billions of euros on frequencies for faster 5G mobile services.
- India’s government is asking the central bank to hand over a part of its surplus reserves and loosen liquidity norms for lenders — demands that are likely to escalate a standoff with the monetary authority that’s fiercely protective of its independence. The matter is pending before the board of the Reserve Bank of India and may be taken up at its next meeting likely on Nov. 19, a government official told reporters in New Delhi, asking not to be identified citing rules. The norms for sharing excess capital reserves should be set in line with established global practices, the official added.
- Takeda Pharmaceutical Co., the drug maker whose planned $62 billion acquisition of Shire Plc would rank as the biggest overseas takeover by a Japanese company, has received renewed warnings on its credit ratings. Hours after people familiar said Takeda has picked banks to arrange a euro bond offering to help finance a portion of the Shire deal, S&P Global Ratings and Moody’s Investors Service said its ratings remain at risk of a downgrade.
- Continental AG picked investment banks including Bank of America Corp. and JPMorgan Chase & Co. to manage an initial public offering of its powertrain unit, according to people with knowledge of the matter. Deutsche Bank AG was also selected to advise on the stock sale, the people said, asking not to be identified as the details aren’t public. The IPO could value the business at as much as 5 billion euros ($5.7 billion), based on preliminary estimates, when Continental sells a roughly 25 percent stake in Frankfurt next year, they said, though no final decisions have been made. Lazard Ltd. is an independent adviser on the transaction, the people said.
- Minerva SA is in talks with China’s Fosun International Ltd.to invest in the Brazilian beef producer’s businesses overseas, according to a person with direct knowledge of the matter. The Sao Paulo-based company is looking for anchor investors for a possible initial public offering of its Athena Foods unit in Chile that could be priced as early as March, or even a private placement, the person said, asking not to be named as discussions are private. It’s part of a plan to cut leverage after a slump in the Brazilian real inflated external debt.
*All sources from Bloomberg unless otherwise specified