October 29th, 2019

Daily Market Commentary

Canadian Headlines

• Canadian stocks reversed early gains to trade lower on Monday as materials were hurt by falling commodity prices. The S&P/TSX Composite fell 0.1% at 16,387.53 in Toronto. The move follows the previous session’s increase of 0.2%. 133 of 233 shares fell, while 97 rose; 7 of 11 sectors were lower, led by materials stocks.
• Air Canada on Tuesday reported lower-than-expected third-quarter profit, hurt by lower flight capacity in the wake of the grounding of Boeing Co’s 737 Max airplanes. The airline in July had warned investors that the grounding of its fleet of 24 Max jets would weigh on earnings during the third quarter, with capacity expected to decline 2 per cent during the busy summer travel season compared with a year earlier. The company has pulled the Max from its schedule until February 14, 2020. Canada’s largest carrier’s adjusted net income rose to $613 million, or $2.27 per share, from $580 million, or $2.10 per share, a year earlier. (Globe and Mail)

World Headlines

• European equities edged lower, cooling from recent year-highs as tech and energy stocks fell, while investors turn their attention to an upcoming rate decision from the U.S. Federal Reserve. Europe’s Stoxx 600 Index was down 0.3% by 8:16 a.m. London time. The U.K.’s FTSE 100 index dipped 0.3% after Prime Minister Boris Johnson lost a vote in the House of Commons to call an early election. Among individual movers, Fresenius Medical Care rose 4.5% after results, while BP Plc shares dipped after the oil major’s update.
• U.S. index futures drifted lower and European stocks dropped as investors awaited a possible Federal Reserve interest-rate cut and some of the season’s biggest corporate earnings. Treasuries edged higher and most European bonds rose. Contracts on the S&P 500 nudged down a day after the U.S. equity benchmark hit a record, and ahead of results from drug giants Pfizer Inc. and Merck & Co.
• In Asia, Japan’s Topix benchmark closed at a 2019 high, while equities dropped in Hong Kong and Shanghai. Yields on Japanese 10-year bonds hit the highest since June and their Australian counterparts jumped almost nine basis points, while peers in the U.S. and Germany halted a surge that’s lasted several days.
• Oil declined for a second day on expectations of rising inventories at a key pricing point in Oklahoma. Futures in New York fell as much as 1.4% after dropping 1.5% Monday. Genscape Inc. said oil stored at the Cushing storage hub expanded last week, reviving concerns over sluggish demand and ample inventories before industry stockpile data due later. Meanwhile, Citigroup said Saudi Arabia may have to consider deeper oil cuts without Russia, after the latter said it was too soon to talk about deeper cuts. The dollar also moved higher, while European equity markets fell.
• The U.K.’s main opposition Labour Party said it will back a December general election, putting the country on course for its third poll in four years. Boris Johnson promised not to push forward with his Brexit deal until a new Parliament has been elected, meeting Labour leader Jeremy Corbyn’s condition that a no-deal Brexit should be taken off the table before his party would back a national vote.
• House Speaker Nancy Pelosi moved the Democrats’ impeachment inquiry of Donald Trump into a new phase Monday that signals the public soon will get a look at the witnesses and evidence being assembled to build a case against the president. Amid Republican complaints that the investigation is illegitimate, Pelosi announced that the full House would vote this week on the next steps for the existing inquiry being run by three committees. Even before the House acts, the committees are set to get a key piece of evidence on Tuesday when a former Army officer assigned to the White House National Security Council testifies that he listened to Trump’s July telephone call with Ukraine’s president and was so disturbed by the conversation that he reported it to the NSC’s legal counsel.
• Saudi Aramco earned $68 billion in the first nine months of the year, cementing its position as the world’s most profitable oil company, according to people familiar with the figures. The unaudited net figure was given to financial analysts working on the company’s initial public offering, the people said, asking not to be identified because the information isn’t public. Aramco has not released comparative numbers for last year and its media office declined to comment.
• An investment fund backed by Hillhouse Capital won a bid to acquire a 15% stake in Gree Electric Appliances Inc., China’s largest air-conditioner maker, from its government-owned parent in a deal with an estimated value of $7.5 billion. A review board selected Hillhouse-backed Zhuhai Mingjun over a consortium led by buyout firm Hopu Investment Management Co., Gree Electric said in a statement Monday. Gree announced in April that its largest shareholder, state-controlled Gree Group, planned to sell a 15% stake. Gree Group had a total stake of 18.2% in the company, according to data compiled by Bloomberg. The 15% holding is worth about $7.5 billion based on the company’s market capitalization.
• Bharti Airtel Ltd., India’s third-largest wireless carrier, postponed its financial results announcement, saying it needs more time to assess a Supreme Court ruling ordering it to pay about $3 billion in additional fees. The company, previously scheduled to report earnings for the quarter ended Sept. 30 on Tuesday in Mumbai, is deferring the board meeting to approve the numbers until Nov. 14, it said in a statement. Bharti, once the top carrier in India by subscribers, is also reeling from a scathing tariff war unleashed by the entry of billionaire Mukesh Ambani’s Reliance Jio Infocomm Ltd. in 2016 with free calls and cheap data. Bharti reported its first-ever quarterly loss for the three months through June.
• Boeing Co. Chief Executive Officer Dennis Muilenburg is poised for a high-stakes appearance before U.S. lawmakers amid mounting pressure from his own board, global regulators and the flying public over the company’s 737 Max. At a Senate hearing Tuesday at 10 a.m. in Washington, the CEO is set to express sadness over the Max’s two deadly crashes and acknowledge “mistakes.” But he must also persuade Congress and a global audience that he and his team have addressed the Max’s problems as they await final approval for the plane’s return to service after a grounding that has cost Boeing more than $9 billion and counting.
• With the Federal Reserve projected to lower borrowing costs for a third straight meeting, a slew of economic reports this week will play a key role in whether the central bank needs to keep cutting or can take a breather. Figures due Wednesday are projected to show gross domestic product in the July-September period expanded at 1.6% annualized pace — the second-slowest quarter under President Donald Trump and about half the pace at the start of 2019 — as consumer spending pulled back from gangbusters growth.
• Alphabet Inc.’s quarterly earnings were dented by heavy investment in Google’s cloud-computing business, which is key to future growth but still runs a distant third in the market behind Amazon.com Inc. and Microsoft Corp. Executives said the company will keep spending to pursue opportunities in cloud, artificial intelligence and consumer hardware. Net income in the third quarter was $7.1 billion, or $10.12 a share, down from $9.2 billion, or $13.06 a share, in the same period a year earlier, the company reported on Monday. Analysts expected $12.35 a share, according to data compiled by Bloomberg.
• PG&E Corp. will cut the lights to about 1.8 million Californians on Tuesday in a deliberate mass shutoff — the latest in an unprecedented string of blackouts that the bankrupt California utility giant has orchestrated to prevent wildfires. PG&E will start cutting the lights to as many as 596,000 homes and businesses early Tuesday in parts of the San Francisco Bay Area, California’s iconic wine country and areas around Sacramento, to keep high winds from knocking down its equipment and sparking blazes. The company was trying to shrink the scope of the shutoff late Monday by returning some high-voltage lines to service. Gusts were forecast to pick up early Tuesday and die down by Wednesday.
• The Federal Reserve’s actions over the past six weeks have quelled turbulence in funding markets, but as policy makers gather in Washington it’s still not clear what their long-term plans are for stepping into this vital corner of the financial system. When the Federal Open Market Committee begins its two-day meeting Tuesday, investors and traders will be looking for Chairman Jerome Powell and his colleagues to clarify all this. There is, after all, a risk that repo could flare up again, especially with pressures from twice-monthly settlements of Treasury note and bond auctions and regulatory restraints on systemically important banks.
• Robert E. Murray, the U.S. coal baron who pressed the Trump administration to help save America’s struggling miners, placed his company into bankruptcy as demand for the fossil fuel continues to weaken. Murray Energy Corp. filed for Chapter 11 protection in the Southern District of Ohio bankruptcy court, and said that Robert Moore would become the new chief executive officer. The largest privately owned U.S. coal company said in a statement that it has reached a restructuring agreement with lenders, and would finance operations with available cash and a $350 million debtor-in-possession financing facility.
• IHS Holdings Ltd., Africa’s largest operator of wireless towers, is reviving plans for an initial public offering that could take place next year, according to people familiar with the matter. The company’s advisers are resuming preparations for an IPO and are considering seeking a valuation of about $8 billion, according to the people, who asked not to be identified as the plans are still private. The company is weighing New York or London as listing venues, the people said.
• Saudi Arabia’s Energy Minister Prince Abdulaziz said his country is ready to make deeper cuts in oil output than it agreed to with other global producers, according to Nigerian Minister of State for Petroleum Resources Timipre Sylva. “He assured me that they are very ready to even cut deeper,” Sylva told Bloomberg TV in Riyadh. The OPEC minister said he and Prince Abdulaziz didn’t discuss new output levels when they spoke on Monday. Saudi Arabia is leading the Organization of Petroleum Exporting Countries and other top producers like Russia into a collective production cut extending though the end of March. OPEC and its allies are due to meet in December to discuss whether steeper cuts to oil supply will be needed to shore up prices amid a surplus and signs of weaker demand.
• Airbus SE is close to winning an order for 300 jets from Indian budget carrier IndiGo, in what would be one of the European planemaker’s biggest-ever deals, according to people familiar with the matter. The purchase would involve single-aisle planes in the A320 family, including the latest XLR variant, according to the people, who asked not to be named discussing a private matter. A order, valued at more than $30 billion based on sticker prices, would represent the latest victory for Airbus as rival Boeing Co. reels from the grounding of its best-selling 737 Max. For IndiGo, which has already ordered more than 500 Airbus jets, the purchase would help widen its lead in the world’s fastest-growing major aviation market.
• The payday-loan business was in decline. Regulators were circling, storefronts were vanishing and investors were abandoning the industry’s biggest companies en masse. And yet today, just a few years later, many of the same subprime lenders that specialized in the debt are promoting an almost equally onerous type of credit. It’s called the online installment loan, a form of debt with much longer maturities but often the same sort of crippling, triple-digit interest rates. If the payday loan’s target audience is the nation’s poor, then the installment loan is geared to all those working-class Americans who have seen their wages stagnate and unpaid bills pile up in the years since the Great Recession.
• Merck & Co. raised its full-year sales and profit forecast for the third time in a row on Tuesday, after the drugmaker’s market-leading cancer drug Keytruda handily beat an average of analysts’ estimates for the third quarter. Merck now expects 2019 sales of $46.5 billion to $47 billion, and adjusted earnings of $5.12 to $5.17 a share. Both are increases from July.
• Beyond Meat Inc. fell in early trading despite an increased sales forecast and its first quarterly profit. Investors are bracing for a selloff Tuesday, when early backers of the faux meat maker will finally be allowed to cash out. The maker of meatless beef and sausages said third-quarter salesrose 250% to $92 million, outpacing analysts’ average estimate. The company now sees full-year revenue of $265 million to $275 million, compared with a July projection that it would surpass $240 million.
• ConocoPhillips followed BP Plc in posting higher-than-expected third-quarter profit as the U.S. oil producer continues to boost shale output. The Houston-based company on Tuesday reported production of 1.32 million barrels per day of oil equivalent, less than the median of analysts’ estimates of 1.34 million.

*All sources from Bloomberg unless otherwise specified