October 21st, 2019
Daily Market Commentary
- Canada’s election and a handful of bellwether earnings should perk things up after a holiday-shortened week in which volume slumped on the Toronto Stock Exchange and the benchmark equity index went nowhere. Stocks fell marginally Friday with the S&P/TSX Composite Index having closed down by fewer than 40 points in each of the past two weeks. The key stock gauge had the lowest spread between weekly highs and lows in three months, according to data compiled by Bloomberg.
- Canadian Prime Minister Justin Trudeau appears set to retain power in a close election Monday but lose his parliamentary majority, forcing him to rely on a left-leaning party to survive a second term. A Trudeau victory would avert a historic collapse for the Liberal leader who was elected four years ago on a wave of optimism and change, only to hobble himself with a series of scandals, including revelations that he wore blackface when he was younger. Only four times in the nation’s history has a prime minister been ousted after one term.
- Canada’s economic landscape is poised to see some minor changes after Monday’s election, regardless of whether Justin Trudeau’s Liberals or Andrew Scheer’s Conservatives take power, though the big picture drivers and challenges to growth will largely remain unchanged. Over the next couple of years, Canada is in store for more federal stimulus, regardless of the winner. This is due to the Liberal government’s already budgeted spending increases which the parliamentary budget office projects will increase the deficit to C$21 billion ($16 billion) this year and C$23 billion in 2020, from C$14 billion in 2018.
- The board of Hudson’s Bay Co. said it entered into an agreement with investors led by Chairman Richard Baker after the group raised its offer price to C$10.30 a share, up from C$9.45 a share. The board made the decision after a recommendation by a committee of independent directors. The deal is subject to approval by minority shareholders.
- In Europe, gains for mining and banking shares helped drive the Stoxx Europe 600 Index higher, after equities in Asia gained late in the session. The pound fluctuated close to its strongest level since May as the U.K. Parliament prepared to consider Prime Minister Boris Johnson’s Brexit agreement.
- U.S. equity-index futures advanced alongside European and Asian shares as investors awaited fresh developments on foreign trade and this week’s slew of results from major companies. Bonds dropped. Contracts on the S&P 500 Index rose, pointing to a firm open that would keep the American benchmark within sight of a fresh all-time high. Boeing fell in the pre-market amid pessimism over the 737 Max crisis. With industry heavyweights McDonald’s, Procter & Gamble and Amazon.com all scheduled to deliver earnings this week, investors will get numerous chances to see how corporations are withstanding the effects of trade tension, slowing growth and Brexit. China’s Vice Premier Liu He said on Saturday there had been “substantial progress” with the U.S. to lay the foundation for an initial accord on trade.
- Japanese stocks rose in light trading ahead of a public holiday tomorrow as a steepening yield curve for U.S. Treasuries indicated improving sentiment about economic growth. Services, telecommunication, and banking shares supported the benchmark gauge. The spread between two-year and 10-year U.S. Treasury yields widened the most since the end of July, which Shoji Hirakawa, chief global strategist at Tokai Tokyo Research Institute, sees as a sign that markets are starting to factor in economic prospects.
- Oil fell again after a weekly loss amid ongoing concern that a fragile economic outlook will continue to weigh on fuel demand. Futures fell 1% in New York after dropping 1.7% last week. Policy makers in China, the world’s second-biggest oil consumer, are preparing for two key meetings with fresh evidence that economic growth will slip further from its lowest in almost three decades. Speculators have almost tripled short positions in U.S. crude futures since mid-September as Washington and Beijing struggle to finalize a trade deal, according to data released on Friday.
- Palladium resumed its upward march after a brief retreat late last week, boosted by concerns over South African mine supply in an already tight market. The metal, used to curb emissions from vehicle engines, reached a record $1,784.94 an ounce on Oct. 17. Gold is little changed as investors weigh the latest trade and Brexit developments ahead of the Federal Reserve’s monetary policy decision at the end of this month. Money managers have decreased their bullish gold bets to a 12-week low, Friday’s CFTC data on futures and options showed.
- In the latest signs the trade war is continuing to erode the global economy, exports in Japan and South Korea have extended their declines. The continued weakness from the two Asian bellwethers reinforces the view at the weekend meeting among global finance ministers and central bankers in Washington that more needs to be done to spur demand.
- Sterling rose above $1.30 for the first time since May amid speculation Prime Minister Boris Johnson may be able to win parliamentary backing for his divorce deal as soon as this week. The U.K. currency had slipped as trading resumed after the weekend, when politicians failed to deliver a decisive Brexit vote in an extraordinary session. But strategists argued the drop would prove short-lived, with Goldman Sachs Group Inc. among those to say a vote in favor of Johnson’s deal is likely to be carried. U.K. stocks rose, while gilts declined, underscoring the growing optimism.
- Singapore’s Temasek Holdings Pte plans to take control of Keppel Corp. for about S$4 billion ($3 billion) and undertake a review of the oil-rig builder’s business that could involve a board shakeup. The state-backed investor, which already owns about one-fifth of Keppel, offered to buy an additional 30.6% stake at S$7.35 a share, according to a statement Monday. That’s 26% higher than what Singapore-based Keppel traded at before its shares were halted, pending the announcement.
- ESR Cayman Ltd., a logistics real estate developer, is seeking to raise as much as HK$11.4 billion ($1.45 billion) in what could be Hong Kong’s second-biggest initial public offering this year. The company and some shareholders including Warburg Pincus and Goldman Sachs Investments Holdings (Asia) Ltd. are offering 653.7 million shares at HK$16.20 to HK$17.40 apiece, according to terms of the deal obtained by Bloomberg. ESR in June postponed its IPO attempt of raising as much as $1.24 billion, citing unfavorable market conditions.
- Donald Trump will try to turn the corner this week after one of the most calamitous stretches of his presidency but heads into that next phase weakened by self-inflicted missteps that have left him on the defensive. Trump had aimed to use a partial trade deal with China and a U.S.-brokered cease-fire in northern Syria to change the subject from impeachment, and demonstrate that he was still a consequential actor on the world stage, able to rise above the House Democratic attacks that he has described as a “coup.”
- The European Central Bank is running low on sovereign bonds to buy — that undermines the credibility of its pledge to keep going until inflation picks up. The easiest way to ensure the program can run, without changing its self-imposed guidelines, is to lean more heavily on private debt.
- Berlin’s governing parties struck a deal to freeze rents for five years, marking one of the most radical plans to tackle spiraling housing costs in a major city and hitting the shares of major apartment owners. The German capital’s aggressive efforts to clamp down on rent increases have sparked interest in cities from Amsterdam to New York. While renters’ groups in Munich are pushing for a six-year freeze, other German cities have yet to follow Berlin’s lead amid concerns that the action could complicate the development of new homes.
- Sterling traded above $1.30 for the first time since May on speculation Prime Minister Boris Johnson may win parliamentary backing for his Brexit deal as soon as this week. The premier will try Monday to get the House of Commons to endorse in principle the divorce agreement, after an attempt at the weekend failed. Although that triggered a knee-jerk drop at the market open, the pound recovered in London trading, with strategists arguing that any dip would prove short-lived. U.K. government bonds slid and stocks were little changed.
- Ford Motor Co.’s Jim Hackett and Wall Street analysts started this year frustrated with one another. Sure, the automaker had been underperforming, but the chief executive appealed for time to show he was fixing things. He assured them the redesigned Explorer SUV rolling out months later would be a proof point. But rather than help the earnings results Ford delivers this week, the Explorer will be a hindrance. Sales have plunged as a plant plagued by personnel problems has struggled to get the new sport utility vehicle out the door. Thousands have been shipped 270 miles away to another Ford factory for rework.
- Boeing Co. received at least two downgrades on Monday, with both UBS and Credit Suisse citing increased risk related to the company’s best-selling 737 Max jet. The moves follow reports that a pilot working on the 737 during its certification expressed concern about a feature that was subsequently implicated in two fatal crashes. UBS wrote that the news “reinforces the perception of and heightens the potential of incomplete disclosure, which inherently puts more money/trust & time at stake.” The firm cut its view to neutral from buy, and its price target to $375 from $470.
- Turkey gave Kurdish fighters until late Tuesday to leave a narrow strip of territory in northeastern Syria or face becoming targets, putting aside for now its demand for the militia to withdraw from a much larger “safe zone.” The Kurdish-led Syrian Democratic Forces must exit the 120-kilometer (75-mile) area between the Syrian border towns of Tal Abyad and Ras al-Ayn by 10 p.m. local time on Tuesday, a senior Turkish military official said, requesting anonymity. Turkey still wants the Kurds to withdraw from a swath of frontier territory more than 440 km long and 32 km deep, but recognizes that won’t happen before the expiry of a 120-hour truce negotiated by the U.S. last week, said the official.
- Facebook Inc. chief executive officer Mark Zuckerberg has privately recommended several potential hires to Pete Buttigieg’s presidential campaign, a rare example of direct political involvement from one of tech’s most powerful executives. Earlier this year, Zuckerberg sent multiple emails to Mike Schmuhl, Buttigieg’s campaign manager, with names of individuals that he might consider hiring, campaign spokesman Chris Meagher confirmed. Priscilla Chan, Zuckerberg’s wife, also sent multiple emails to Schmuhl with staff recommendations. Ultimately, two of the people recommended were hired.
*All sources from Bloomberg unless otherwise specified