October 22nd, 2019

Daily Market Commentary

Canadian Headlines

• Stocks rose and the loonie gained to its highest in three months as Canadians headed to the polls Monday, bolstered by positive signs on trade talks. The S&P/TSX Composite Index added 0.3% to 16,418.45. Knight Therapeutics Inc. was the biggest gainer on the benchmark, adding 14% after it said it will buy a majority stake in a competitor. Hudson’s Bay Co. added 6.1% on a C$1.9 billion take-private deal.
• Canadian Prime Minister Justin Trudeau won a second term in national elections, displaying once again a remarkable ability to overcome scandal and controversy to remain in power. Trudeau’s Liberal Party won or was leading in 156 of Canada’s 338 electoral districts, as of 1:33 a.m. Ottawa time, losing his majority in parliament and the popular vote, but gaining enough seats to secure a stable government with support from smaller parties. The most likely partner for Trudeau would be the pro-labor New Democratic Party, which is on track to win 24 seats, giving the two parties a combined 180.
• The prospect of Canadian Prime Minister Justin Trudeau sharing power with parties that are more stridently in favour of fighting climate-change is already causing concern among leaders of the nation’s energy industry. Trudeau won reelection Monday night, but lost his majority in parliament, meaning the New Democratic Party will likely have a say in how the nation is governed. NDP Leader Jagmeet Singh has said the federal government shouldn’t be allowed to push through pipelines in provinces that don’t want them. The Liberals and NDP combined have more than enough seats to form a majority, though Trudeau can also turn to other parties for support.

World Headlines

• European equities were little changed in early trading on Tuesday as gains among cyclical stocks amid encouraging developments in trade talks between the U.S. and China were not enough to outweigh results-driven losses for large consumer-goods stocks. Europe’s Stoxx 600 Index was flat at 08.17 a.m. in London, though remained close to year-highs. Reckitt Benckiser shares tumbled 5.2% after the maker of household products lowered its full-year sales goal, while Husqvarna also weighed on the Stoxx Personal & Household Goods Index after its adjusted operating profit missed estimates.
• U.S. equity-index futures fluctuated along with European stocks on Tuesday as investors weighed a flurry of company results and the odds of the world’s biggest economies agreeing on a trade deal in November. Treasuries rose and the pound drifted. S&P 500 futures were little changed after the underlying gauge closed above 3,000 on Monday, less than 1% from a record.
• Earlier in Asia, shares jumped in South Korea — which is seen as a proxy for global trade — while they posted more modest increases in Hong Kong, Australia and China. Japan was closed for a holiday.
• Oil held steady as estimates of brimming U.S. crude stockpiles added to signs that, with demand constrained by weak economic growth, markets remain comfortably supplied. West Texas Intermediate futures were little changed above $53 a barrel after falling for the past two days. U.S. crude inventories probably rose for a sixth time last week, the longest run of gains in almost a year, according to a Bloomberg survey before government data due Wednesday.
• Gold reversed earlier losses as investors digest the latest trade and Brexit news. Holdings in gold-backed exchange-traded funds continue to close in on a record set in 2012. Gold ETFs expanded for a third day Monday, extending this year’s increase to 16%. Central banks including Turkey and Germany also added gold holdings last month, joining major buyers like Russia and China, data from the International Monetary fund show.
• Prime Minister Boris Johnson will find out Tuesday evening whether he has any chance of getting his Brexit deal through Parliament — and whether he can do it ahead of his Oct. 31 deadline. Having twice been denied a vote on whether members of Parliament support his deal, Johnson has introduced the Withdrawal Agreement Bill, which would implement the deal in law, and plans to push it through Parliament at a breakneck pace. His moment of truth will come at around 7 p.m. in London, with what’s known as the Second Reading vote — on whether Parliament agrees with the general principles of the bill.
• About $50 billion in settlement offers by drugmakers and distributors have sparked a fight between state attorneys general and thousands of local governments over how much the pharmaceutical industry should pay for its role in creating the U.S. opioid epidemic. Drugmaker Teva Pharmaceutical Industries Ltd. said Monday it offered $23 billion in treatment medications and $250 million toward a settlement of more than 2,700 lawsuits by states and municipalities. That follows a proposal by Johnson & Johnson for $4 billion and another for $18 billion by opioid distributors McKesson Corp., Cardinal Health Inc. and AmerisourceBergen Corp., along with $2.5 billion in distribution services.
• Biogen Inc. will ask U.S. drug regulators to approve the company’s experimental Alzheimer’s therapy, reviving the nearly abandoned treatment after a new analysis of data from two failed clinical trials showed promising results. The company said it made the decision after talking with the Food and Drug Administration, and reviewing data from a set of experimental trials showing that the therapy appeared to help Alzheimer’s patients’ cognitive function and their ability to perform basic tasks. Biogen surged 22% in trading before the market opened in New York. The Cambridge, Massachusetts-based drugmaker said in a statement that it plans to send its application to the FDA early next year. It is developing the treatment in partnership with Japanese drugmaker Eisai Co.
• Boeing Co. is close to selling 24 Chinook helicopters to the United Arab Emirates and the U.K., according to Army Secretary Ryan McCarthy, a move that may assuage U.S. lawmakers who have rejected his service’s plans to curtail its purchases of the aircraft. “I believe we will be the position here very shortly to take the next step for notification to Congress” of a proposed sale of 10 additional Chinooks to the U.A.E, with the U.K. likely to buy an additional 14, McCarthy said in an interview. “I’m personally involved with those efforts.”
• President Donald Trump said China has indicated that negotiations over an initial trade deal are advancing, raising expectations the nations’ leaders could sign an agreement at a meeting next month in Chile. “They have started the buying,” Trump said Monday during a Cabinet meeting at the White House, referring to Chinese purchases of U.S. agriculture products that the president has pushed for as part of a deal. “I want more,” he added. Earlier Monday, Commerce Secretary Wilbur Ross said that it was more important to get details of the agreement right than it was for Trump to sign it at an expected meeting with Chinese President Xi Jinping next month in Chile.
• The Trump administration extended Chevron Corp.’s waiver to operate in Venezuela, allowing the second-largest U.S. oil explorer to keep its toehold in the crisis-stricken Latin American nation as U.S. sanctions severely restrict crude exports. The 90-day reprieve lets Chevron continue its role as the last major U.S. oil producer in the country until Jan. 22. The Treasury Department on Monday also extended waivers for four U.S. oil services providers: Baker Hughes Co.,Halliburton Co., Schlumberger Ltd. and Weatherford International Ltd.
• Naspers spinoff Prosus NV swooped in with a 4.9 billion pound ($6.3 billion) hostile offer for U.K. food delivery company Just Eat Plc, challenging a deal with Takeaway.com NV. Prosus offered 710 pence a share in cash for Just Eat, it said in a statement Tuesday. Takeaway’s original all-stock offer valued Just Eat’s shares at about 731 pence apiece as of July. By Monday’s close, the figure had dropped to about 595 pence as Takeaway’s shares declined following the deal’s announcement.
• Europe’s liquefied natural gas import terminals are preparing for life after fossil fuels. The facilities have already helped tap a global glut of LNG, helping reduce the use of dirtier power sources such as coal. With rising calls to skip natural gas altogether in the transition to cleaner energy, they are now looking to use their pipes, jetties and storage tanks to carry hydrogen or biogas produced using renewable energy or by breaking down organic matter. That is helped by a European Union goal to become carbon neutral by 2050 as nations race to halt climate change before it becomes irreversible. Cleaner fuel might need to be shipped in to offset reduced solar and wind generation on cloudy or still days and to address energy storage issues.
• Indonesian President Joko Widodo reappointed Sri Mulyani Indrawati as finance minister in a new cabinet, providing stability to his team as he seeks to deliver on pledges to boost Southeast Asia’s biggest economy. A former World Bank managing director, Indrawati, 57, joined Widodo’s first-term cabinet as finance minister in July 2016. She’s been credited with stabilizing government finances, helping Indonesia earn multiple credit-rating upgrades.
• Kweichow Moutai Co.’s shares have more than doubled since late last year as the maker of baijiu liquor repeatedly hit fresh records. But by one measure, the rally may be under threat. A 123% advance since October 2018 has increased the Chinese firm’s market capitalization to about $208 billion, making it the world’s most valuable distiller and one of the country’s biggest listed companies. Moutai has climbed to an all-time high 28 times this year as investors piled into a stock that’s widely considered a safe harbor.
• Under Armour Inc. founder Kevin Plank is stepping aside as head of the company he started in his grandmother’s basement, elevating the executive he brought in two years ago during a painful restructuring of the apparel maker. Patrik Frisk, Under Armour’s president since 2017, will become chief executive officer on Jan. 1, the company said Tuesday. Plank, 47, will remain head of the board, taking the title of executive chairman. The change comes at a logical time. Plank led Under Armour through a multiyear restructuringthat he’s called one of the most challenging periods for the company. Frisk, an apparel industry veteran, came aboard in June 2017 to retool Under Armour’s distribution strategy and develop its long-term growth plan.
• Billionaire cable mogul John Malone’s plan for a $6.4 billion sale of UPC Switzerland fell apart after would-be purchaser Sunrise Communications AG concluded its shareholders won’t support the move. Sunrise Chief Executive Officer Olaf Swantee said Tuesday in an interview that the deal was “dead.” The company had earlier called off a shareholder vote scheduled for Wednesday on a rights offering to fund the purchase. UPC parent Liberty Global Plc has yet to say it has walked away.
• SoftBank Group Corp. offered to take a majority stake in WeWork, one of two rescue packages that the board of the troubled company is weighing, according to people familiar with the matter. The deal from SoftBank is currently in the lead among some directors, according to a person familiar with the board’s thinking. A decision is likely to be made Monday night, though the process is fluid, said the person, who asked not to be identified discussing private deliberations.
• Hasbro Inc. reported weaker-than expected third-quarter earnings as tariffs weighed on sales growth and profitability. Adjusted earnings per share were $1.84 for the owner of My Little Pony and Play Doh. Analysts expected $2.21. Investors are watching closely for an update on Hasbro’s acquisition of Entertainment One Ltd., the studio that makes popular children’s shows such as Peppa Pig and PJ Masks. The company reported a foreign exchange loss related to its hedging for the deal that cut 16 cents of its EPS.
• United Parcel Service Inc. is seeing more signs of success for Chief Executive Officer David Abney’s spending spree on new aircraft and upgraded sorting hubs, even as a U.S.-China tariff war casts a pall on global trade. Adjusted operating profit climbed to 12% of sales from 10.5% a year earlier, UPS said in a statement Tuesday. The courier has been investing heavily to push down the cost of residential deliveries and expand in the health-care market.
• As currency traders gird for parliamentary votes on Boris Johnson’s Brexit deal, their opportunity to win big on the pound is fading fast. The U.K. Prime Minister will find out Tuesday whether lawmakers are willing to back his plan, but if they reject it, the risk of a no-deal Brexit that would cause sterling to plummet is now minimal. On the other hand, after an 8% rally from September’s low, potential gains versus the dollar may also be limited. In fact, for all the recent volatility, the pound is slap bang on its average level since the Brexit referendum in 2016. A crash-out scenario is unlikely even if an election is called to resolve a parliamentary deadlock because Johnson was obliged to ask for an extension to the Oct. 31 deadline. But there’s a long way to go before the U.K.’s departure from the EU is resolved, limiting the pound’s potential to climb far from its current $1.30 level.

*All sources from Bloomberg unless otherwise specified