October 25th, 2019

Daily Market Commentary

Canadian Headlines

• Canadian equities gained as gold prices rebounded past the $1,500 mark, boosting mining stocks. The S&P/TSX Composite Index added 0.2% to 16,369.32, its first gain since Monday. Technology shares led the increase as Shopify Inc. jumped 8.8%, the most since December, although shares were weaker in post-market trading. Materials also gained 1.8% as the S&P/TSX Gold Index rose to its highest in more than five weeks.
• Canadian hydrogen fuel-cell pioneer Ballard Power Systems Inc. has hung on for four decades without posting a profit, waging a battle far head of its time against the combustion engine. Fuel-cell and hydrogen costs are falling, while emissions rules are tightening. That’s broadening the appeal of a technology that allows vehicles to run on the universe’s most abundant element, releasing only water and heat as byproducts. “There’s been a real change over the last 12 months,” said Randy MacEwen, chief executive officer of Ballard, based in Burnaby just outside of Vancouver. In parts of Europe, operating a fuel cell-powered electric bus is now cost competitive with a traditional fuel-burning version, he says. Use of the technology is diversifying into ships, trains and forklifts.
• Alberta’s new conservative government announced spending cuts and some tax increases in an effort to balance the budget by 2023 even as the oil-producing province reels from sluggish economic growth. Just months after winning the provincial election, Jason Kenney’s government plans to cut the budget deficit to C$5.9 billion ($4.5 billion) in the fiscal year that starts in April, from C$8.7 billion in the 2019-2020 fiscal year ending in March, according to a report released Thursday. The goal is to reach a C$600 million surplus in the 2022-2023 budget.

World Headlines

• European stocks held steady near a 21-month high, poised for a weekly gain, as investors assessed mixed earnings updates. The Stoxx Europe 600 Index was down 0.1% at 8:17 a.m. in London. Barclays, Kering and WPP rallied on better-than-expected results, while AB InBev tumbled after lowering its profit guidance. Drillisch plunged in Frankfurt after cutting its earnings forecast following a ruling in a dispute with Telefonica Deutschland.
• U.S. equity-index futures edged higher while stocks in Europe fell as earnings weakness from the likes of Amazon.com and Anheuser-Busch InBev kept a lid on positive sentiment. The dollar weakened slightly as European bonds retreated. Futures on the S&P 500 Index moved in a tight range, after the underlying gauge finished Thursday just 0.5% from its highest-ever close.
• The economy is heading for a recession, violent protests show no sign of easing and yet Hong Kong’s financial markets are enjoying an unusual period of calm. A gauge of Hang Seng Index volatility has fallen more than 20% this month to the lowest level since mid-July, while the local dollar has barely moved in weeks. Even U.S. speculators are giving up, after their bearish bets in August sent short interest on a Hong Kong stocks fund to a six-year high. The city’s interbank borrowing costs have also eased, a sign of looser liquidity.
• Oil held steady amid signs of weaker demand, but remained on track for the biggest weekly gain in more than a month as supplies tightened. Futures were little changed in New York, on course for a weekly increase of more than 4%. U.S. government data on Wednesday showed a surprise pullback in the nation’s crude stockpiles last week, and on Thursday a critical North Seapipeline was briefly halted by a power loss. Yet weak economic data from Germany and South Korea fanned concerns that world fuel demand is flagging, and the U.S.-China trade clash continued to put a dampener on investor sentiment.
• Gold is poised for a weekly advance as weaker-than-expected data from the U.S. underscored threats to global growth and reinforced expectations that the Federal Reserve will reduce borrowing costs again. Fed policy makers gather next week, with officials seen delivering a third straight interest-rate reduction, although there’s little clarity on policy actions after that. Lower borrowing costs increase the appeal of non-interest bearing precious metals.
• China fired back at Vice President Mike Pence’s criticism on human rights, calling his speech “lies” and chiding him for ignoring U.S. problems like racism and wealth disparity. Pence on Thursday gave a long-anticipated speech in which he criticized China’s actions against protesters in Hong Kong while calling for greater engagement between the world’s two biggest economies. He said the U.S. stands with demonstrators in Hong Kong and accused Beijing of curtailing the rights and liberties of the city’s residents.
• Boris Johnson’s efforts to break three years of gridlock in the U.K. Parliament with another election were thrown into doubt after his main opponent demanded he rule out a no-deal Brexit first. Labour Party Leader Jeremy Corbyn said Thursday that his decision on backing the prime minister’s bid for an election depends on the length of a Brexit extension granted by the European Union. The prime minister needs Corbyn’s support for an early election in order to get the two-thirds majority in Parliament required for it to take place. Johnson earlier Thursday had announced that a motion for a Dec. 12 general election would be put to MPs for a vote Monday.
• ESR Cayman Ltd., a logistics real estate developer, is set to raise $1.6 billion as it’s planning to price its initial public offering at the middle of a marketed range, people familiar with the matter said. The company and shareholders including Warburg Pincus LLC and Goldman Sachs Investments Holdings (Asia) Ltd. could price the shares at HK$16.80 apiece, the people said. The shares were marketed at HK$16.20 to HK$17.40 each. An upsize option to sell an additional 15% of shares will be exercised in full, said the people, asking not to be identified because the information is private. That would increase the total number of shares sold to about 752 million, based on Bloomberg calculations.
• Ubisoft Entertainment SA plunged the most in six years after the poor performance of two recently released video games forced the company to slash its full-year targets. The stock fell as much as 29% in Paris after Ubisoft cut its forecast for net bookings to about 1.45 billion euros ($1.61 billion) from a previous guidance of 2.19 billion euros. The company also slashed projected operating income to between 20 million and 50 million euros, from a previous target of 480 million euros.
• Indonesian investigators found scores of problems and missteps in connection with last year’s fatal Lion Air crash, ranging from design flaws in Boeing Co.’s 737 Max airplane to certification failures by the U.S. regulator and pilot errors. In a much-anticipated report released Friday, the National Transportation Safety Committee listed its findings and recommended fixes to Boeing, Lion Air and aviation authorities in the U.S. and Indonesia. A significant amount of the focus centered on a flight-control feature called the Maneuvering Characteristics Augmentation System, which has also been implicated in an Ethiopian Airlines crash in March.
• A growing percentage of Santander Consumer USA Holdings Inc.’s subprime auto loans are turning out to be clunkers soon after the cars are driven off the lot. Some loans made last year are souring at the fastest rate since 2008, with more consumers than usual defaulting within the first few months of borrowing, according to analysts at Moody’s Investors Service. Many of those loans were packaged into bonds. Santander Consumer is one of the largest subprime auto lenders in the market. The rapid failure of some of its loans implies that a growing number of borrowers may be getting loans based on fraudulent application information, a problem the company has had before, and that weaker consumers are increasingly struggling. During last decade’s housing crunch, mortgage loans started souring within months of being made, signaling growing problems in the market.
• Wildfires are raging across California. Half a million people are recovering from a deliberate blackout designed to keep more from erupting. And the worst is yet to come. Even as utility giant PG&E Corp. restores power to customers in Northern California that went dark on Wednesday, it was preparing to cut the lights again across much of its territory this weekend in anticipation of the strongest wind storm in years. It may prove to be the biggest, longest blackout planned yet to keep power lines from sparking fires.
• Citigroup Inc. promoted Jane Fraser to president, its second-highest post, making her the obvious candidate to someday succeed Chief Executive Officer Michael Corbat and become the first woman to run one of the largest U.S. banks. Fraser, who oversaw the lender’s sizable operations across Latin America, also will take over as head of consumer banking, replacing Stephen Bird, who’s leaving to pursue an opportunity elsewhere, the company said Thursday in a statement. Fraser’s profile rose this year as her name popped up among potential candidates to run Wells Fargo & Co. or HSBC Holdings Plc.
• Barclays Plc’s investment bank rallied, outperforming Wall Street peers in the third quarter, as revenue from fixed-income and equities trading advanced. The corporate and investment bank’s third-quarter income jumped 17% from the same period a year earlier, Barclays said in a statement on Friday. Trading income rose 13%, compared with an average of 6.4% for its U.S. peers. Still, Chief Executive Officer Jes Staley struck a cautious note, warning that low interest rates and Britain’s Brexit-hit economy will make it tougher to meet the bank’s targets next year.
• Ursula von der Leyen is likely to announce details of her Green Deal for Europe well before her first 100 days on the job. The incoming European Commission president is planning to propose during the first few weeks in office a package including legislation to enshrine the goal of climate neutrality in European Union law, according to two people with knowledge of the matter. Her team is also set to lay out the rules on a special fund to aid the bloc’s countries in the unprecedented transition. Zeroing out greenhouse gases by the middle of the century is a top priority for von der Leyen as voters across the continent are growing increasingly concerned about rising temperatures and extreme weather events. The Just Transition Fund is a key financing pillar of the Green Deal, and the climate neutrality goal estimated to require an extra 175 billion euros ($190 billion) to 290 billion euros a year in investment for energy systems and infrastructure from 2030.
• Japanese Prime Minister Shinzo Abe named a new economy minister after the man he appointed a little more than a month ago stepped down over allegations that one of his aides made an illegal funeral donation. Isshu Sugawara, 57, told reporters Friday that he had resigned, becoming the first member of Abe’s cabinet to leave after being appointed in September to the post responsible for the economy, trade and industry. Abe said he would install Hiroshi Kajiyama — a veteran in his ruling Liberal Democratic Party and a former minister for regional economic revitalization — in Sugawara’s place.
• U.S. Vice President Mike Pence criticized China’s actions against protesters in Hong Kong while calling for greater engagement between the world’s two biggest economies, delivering a long-anticipated critique of Beijing’s human rights record as the two nations try to resolve their trade war. “Beijing has increased its interventions in Hong Kong and engaged in actions that curtail the rights and liberties that Hong Kong’s people were guaranteed through a binding international agreement,” Pence said Thursday in a speech at the Wilson Center in Washington.
• State Bank of India Ltd. posted a bigger-than-expected profit in the fiscal second quarter as asset quality improved. Shares jumped. Net income more than tripled to 30.1 billion rupees ($424 million) for the three months ended Sept. 30 from 9.4 billion rupees a year earlier, India’s largest lender said Friday. Analysts had expected a profit of 22.9 billion rupees on average, according to estimates compiled by Bloomberg.
• Yanlord Land Group Ltd. offered to buy Singapore property company United Engineers Ltd. in a S$1.7 billion ($1.2 billion) deal Friday, two years after an earlier bid for control failed. Yanlord offered S$2.60 per United Engineers share, a slight discount to the S$2.66 at which the stock last traded Oct. 22 before being halted. Yanlord has already agreed to buy a 35.3% stake in the target company from Perennial UW Pte. and Heng Yue Holdings, it said in a statement on Friday.
• France was the only country which didn’t support granting a Brexit extension until the end of January at a meeting of European Union ambassadors, two diplomats said, pushing instead for a one-month delay to Nov. 30 at the latest. The bloc put off a decision until after British politicians vote Monday on Boris Johnson’s proposal for an early general election. In a pooled interview, Johnson contradicted comments by Chancellor of the Exchequer Sajid Javid that the U.K. will not meet the prime minister’s “do or die” pledge to leave the EU on Oct. 31. The premier said the U.K. could and should leave by the current deadline.
• Swiss consulting firm SoftwareONE AG raised 694 million francs ($699 million) in its initial public offering in Zurich, adding to the busiest year for European technology IPOs since 2000. The shares rose. Shares were priced at 18 francs, the lower half of the initial price range of 16.50 francs to 21.00 francs. The sale gives SoftwareONE a market value of 2.8 billion francs. The stock climbed 2.6% to 18.47 francs at 9:41 a.m. in Zurich.
• Verizon Communications Inc. exceeded Wall Street estimates for third-quarter profit and subscriber growth, boosting investor confidence as the company expands its costly launch of next-generation 5G wireless services. Total wireless subscribers rose by 601,000, which includes new phones, hot spots, smartwatches and other connected devices. Earnings, excluding special items, were $1.25 a share. Analysts expected 536,000 new wireless subscribers and earnings of $1.24 a share. Revenue of $32.9 billion was just ahead of estimates.

*All sources from Bloomberg unless otherwise specified