October 11th, 2019

Daily Market Commentary

Canadian Headlines

• China Minmetals Corp., Jiangxi Copper Co. and Zijin Mining Group Co. are among companies considering bids for Barrick Gold Corp.’s Zambian copper mine that could fetch about $1 billion, people with knowledge of the matter said. China Molybdenum Co. and Aluminum Corp. of China, known as Chinalco, were also invited to bid, said the people, who asked not to be identified as the information is private. Barrick, the world’s second-largest bullion producer, is working with advisers to solicit interest for the Lumwana mine, the people said. The Toronto-based miner continues to target $1.5 billion of asset sales by the end of 2020, Chief Executive Officer Mark Bristow said in August.
• Elizabeth May has been the lone green voice in Canada’s legislature for most of the eight years since she became her party’s first elected member of parliament. She may soon have more company. Polls indicate the Oct. 21 election could be a breakthrough for the Green Party as climate change climbs front and center for many voters — a groundswell captured late last month when half a million people poured onto the streets of Montreal alongside Swedish teen activist Greta Thunberg in the largest protest in Quebec history. The Green Party is poised to win a handful of seats. Some polls show its support at a record high, nipping at the heels of the New Democrats as No. 3 by popular support. May, herself, has the highest approval rating of any leader, considerably better than that of Prime Minister Justin Trudeau, who faces long odds in his bid for a second majority government.

World Headlines

• The Stoxx Europe 600 Index advanced a third day, with tech firms and banks pacing gains. Investors appear to be growing more optimistic after trade headlines roiled markets this week, with both China and the U.S. having signaled progress in securing a partial deal for a temporary truce on tariffs. Trump said he will meet with China’s lead negotiator Vice Premier Liu He on Friday. Reports of a potential breakthrough on Brexit have also gone some way toward removing a persistent source of worry for markets.
• Stocks rallied on Friday amid growing hopes that the U.S. and China can negotiate a trade truce as high-level talks progress into a second day. Treasuries fluctuated after Thursday’s slump while the pound surged on optimism for a Brexit deal. U.S. equity-index futures also jumped as President Donald Trump said the first senior-level in-person talks since late July are going “really well” and will continue on Friday.
• Equities rallied throughout Asia, with shares in Hong Kong getting an extra lift as protesters discussed scaling back vandalism ahead of planned protests this weekend.
• Oil jumped to $60 a barrel after reports of missile strikes on an Iranian tanker off the coast of Saudi Arabia reignited fears over military escalation in the world’s most important crude-producing region. Brent futures surged about $1 a barrel after the Islamic Republic News Agency reported a National Iranian Tanker Company tanker caught fire after a blast, taking the day’s gains to more than 2%. Two tanks in the Sabiti vessel were damaged in explosions while the tanker was hauling 1 million barrels of crude near the Saudi port of Jeddah, according to Iranian state media.
• Gold is back hovering around the $1,500 mark after the metal was buffeted Thursday by conflicting signals on trade talks and comments from Federal Reserve officials. Palladium hit a fresh all-time high. Still, exchange-traded fund investors continue to pile into precious metals. Gold-backed ETFs expanded for a 19th day, extending the longest run of inflows in a decade.
• Iran said missiles struck one of its tankers in the Red Sea, the latest in a series of attacks on oil infrastructure in the region that have roiled energy markets. The Islamic Republic’s tanker company initially said the attacks probably came from Saudi Arabia, but later withdrew the claim. The incident, which caused a spill and a jump of as much as 2.6% in crude prices, comes weeks after a devastating attack on major Saudi oil facilities that Riyadh blamed on Tehran. Tensions have been rising steadily in the region since U.S. President Donald Trump unilaterally withdrew from an international nuclear deal with Iran and imposed harsh sanctions on the Islamic Republic. Although so far all sides have said they want to avoid war, there’s a growing risk to supplies from the world’s most important oil-producing region.
• After decades of waiting, foreign firms have a clear road map for full ownership of financial services companies in China. Overseas institutions can apply for total control of onshore ventures starting in 2020, the China Securities Regulatory Commission said Friday. The first round of applications for futures firms can begin on Jan. 1, while fund management businesses can apply from April 1 and the securities industry will be able to file for 100% stakes on Dec. 1 next year, the CSRC said at a media briefing. The agency didn’t provide further details.
• Faced with mounting public anger over massive blackouts, California Governor Gavin Newsom blamed PG&E Corp. for years of “greed and neglect” and demanded major structural changes at the bankrupt utility. Newsom’s comments came as many Californians questioned whether PG&E overreacted to a windstorm that didn’t prove as powerful as forecast. The company cut electricity to more than 2 million people — the largest preemptive blackout in the state’s history — to prevent its power lines from sparking wildfires.
• President Donald Trump said the first day of high-level trade negotiations between the U.S. and China on Thursday went “very well” and that he plans to meet with the top Chinese negotiator Friday. The talks between Chinese Vice Premier Liu He, U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin are expected to resume Friday, Trump told reporters as he left the White House. It’s the first senior-level in-person talks since late July to try and end an 18-month trade war that is taking a toll on the global economy and U.S. manufacturing.
• Renault SA appointed Clotilde Delbos interim chief executive officer after ousting CEO Thierry Bollore, as the French carmaker seeks to turn the page on the Carlos Ghosn era. Delbos, currently chief financial officer, will take over immediately from Bollore, making her one of the highest-ranking women in the auto industry. Renault’s board will begin looking for a permanent replacement, according to a statement Friday.
• Takeda Pharmaceutical Co. is nearing the sale of a portfolio of assets in the Middle East, Africa and Russia to separate buyout firms that could help the drugmaker raise about $1 billion to reduce debt, according to people familiar with the matter. The Japanese company is in advanced talks to sell over-the-counter and prescription-drug assets in Russia to Stada Arzneimittel AG, the German pharmaceutical firm owned by Cinven and Bain Capital, the people said, asking not to be identified because the deliberations are private.
• Hong Kong protesters are debating whether to lower the temperature as the battered financial center girds for another weekend of tear gas and petrol bombs. Worried that violence and destructive tactics risk alienating more moderate supporters, some activists have urged others to scale back vandalism that has shut shops, banks and train stations across the city. Their concerns include giving Chief Executive Carrie Lam a reason to delay local elections next month or discouraging U.S. lawmakers from passing a bill to support the protest movement.
• Japan’s governing Liberal Democratic Party has decided to delay a plan to increase reporting requirements for foreign investors in stocks tied to national security. More study is needed to determine whether the proposed rules are in line with those of other countries, LDP lawmaker Masahiko Shibayama said in an interview on Friday. Under the measure proposed by the Finance Ministry this week, foreign investors would need to report in advance when they plan to buy more than 1% of shares in companies related to national security. The threshold is 10% currently.
• Higher interest rates were supposed to be a godsend for U.S. bank earnings this year. But with borrowing costs falling instead of rising, CEOs will have to lean on cost cutting to reach their goals. When the biggest lenders report third-quarter results next week, investors will be gauging their success in grappling with ever-shrinking projections for net interest income. Estimates for revenue at the six biggest banks have plunged $13 billion since the start of 2019, with muted capital markets and signs the economy is slowing adding to the profit pressure.
• Rising tensions between Washington and Beijing have prompted some White House officials to fixate on a provocative question with big implications for global markets: Why can Chinese companies sell shares in the U.S. when American regulators are barred from inspecting their books? At issue is China’s longstanding refusal to allow the Public Company Accounting Oversight Board to examine audits of firms whose shares trade on the New York Stock Exchange, Nasdaq and other U.S. platforms. Alibaba Group Holding Ltd. and Baidu Inc. are among Chinese companies that have raised billions of dollars in the U.S. while avoiding PCAOB scrutiny, something the two countries have fought over for more than a decade.
• Infosys Ltd. posted a 2% fall in quarterly profit after nervous clients held off on spending and growth in traditional service contracts stalled. Net income slipped to 40.2 billion rupees ($566 million) in the three months ended September, the Bangalore-based company said Friday, compared with the 40.3 billion rupee average of analysts’ estimates compiled by Bloomberg. Still, Asia’s second most-valuable outsourcer raised the lower end of its outlook for revenue in the year ending March 2020. It’s now projecting growth of 9% to 10% in constant currency terms, versus 8.5% to 10% previously. That earlier forecast had been raised just last quarter, after a focus on improving efficiencies boosted its confidence in the business.
• Jeff Wlodarczak has been one of Netflix Inc.’s biggest advocates on Wall Street since he took over coverage of the company at Pivotal Research Group in 2015. Over four years, he never wavered from recommending the stock, and this summer the analyst predicted the streaming giant would eventually be worth more than $200 billion. But in September, Wlodarczak slashed his price target by a third to $350 — the largest cut since he began coverage. While he still recommends the stock, Wlodarczak is part of a growing chorus of analysts who now worry Netflix is headed for a slowdown. Goldman Sachs Group Inc. and UBS AG were among the latest to cut their expectations Thursday.
• South America controls about 70% of the world’s reserves of lithium, the metal used in rechargeable batteries for mobile phones and electric vehicles, but none of the infrastructure needed to put it to work. Lithium refining and battery-assembling facilities could help kick start industries in economies that are largely dependent on commodities for revenue, putting them at risk from sharp price swings. But so far, public and private initiatives in Argentina, Bolivia, Brazil and Chile have failed to deliver even a single lithium cell factory. And none are set to be built through 2025.

*All sources from Bloomberg unless otherwise specified