October 30th, 2019
Daily Market Commentary
- Canadian shares edged higher Tuesday as materials-exposed equities gained despite spot pricing dipping as traders awaited the outcome of a Federal Reserve meeting for clues on the pace of further U.S. monetary easing. The S&P/TSX Composite rose 0.2% to 16,418.14 in Toronto. The index advanced to the highest closing level since Oct. 21 after the previous session’s decrease of 0.1%. 129 of 233 shares rose, while 100 fell; 5 of 11 sectors were higher, led by materials stocks.
- The Bank of Canada is widely expected to hold interest rates steady for an eighth-straight meeting on Wednesday, probably leaving the country with the highest policy rate among the world’s major economies. All but two of 30 forecasters in a Bloomberg survey see Governor Stephen Poloz maintaining the benchmark overnight rate at 1.75% at 10 a.m. in Ottawa. Four hours later, in rare back-to-back decisions for Canada and the U.S., the Federal Reserve is expected to reduce borrowing costs for a third time since June.
- European equities opened little changed as traders weighed the prospect of consolidation in the car sector and looked forward to the U.S. Federal Reserve meeting. The Stoxx Europe 600 Index was down less than 0.1%. Renault SA slumped 4.2% and Peugeot SA surged 7.7% after Fiat Chrysler Automobiles NV and French car-maker PSA Group, whose brands include Peugeot, said they’re in talks about a possible combination. Fuchs Petrolub SE jumped 12% after expecting full-year sales and earnings to be at the upper end of the forecast.
- U.S. equity-index futures drifted on Wednesday while stocks edged lower in Europe and Asia as markets largely entered a holding pattern in the countdown to the Federal Reserve’s policy decision. Treasuries ticked higher and the dollar slipped. Contracts on all three main American equity gauges struggled for traction after the S&P 500 slipped from a record on Tuesday.
- Automakers bucked the drop after PSA Group and Fiat Chrysler Automobiles NV said they’re in talks about a tie-up. Shares gained in Tokyo but retreated in Hong Kong, Shanghai, Seoul and Sydney.
- Oil held steady as traders weighed a report of rising stockpiles at a U.S. storage hub against signs that Saudi Arabia is willing to make deeper production cuts. West Texas Intermediate futures recovered after dropping 0.7% earlier. The American Petroleum Institute reported that crude inventories at Cushing, Oklahoma, rose by 1.22 million barrels last week, according to people familiar with the data. Meanwhile Nigeria suggested Saudi Arabia is ready to cut output further, and the kingdom also extended a invitation to Brazil to join the group.
- Gold steadies as traders await the outcome of a Federal Reserve rate-setting meeting later Wednesday, with the U.S. central bank projected to lower borrowing costs for a third straight meeting and offer clues on the policy path into 2020 amid slowing growth and the trade war. Beyond the rate decision, the key for investors will be the tone and substance of Chairman Jerome Powell’s press conference after the move is announced, at which he may signal a pause in this year’s monetary-easing campaign while emphasizing flexibility should the economic outlook shift significantly.
- Economic confidence in the euro area extended its slide this month, lending credence to warnings by the European Central Bank that the region might not have seen the worst of its downturn. With an industry slump proving persisting, consumers are their most gloomy on the economy in six years and more reluctant to spend, a development that would deal another blow to growth. The euro-area economy is already faltering, and forecast to have barely expanded in the third quarter.
- General Electric Co. climbed after the manufacturer raised its 2019 cash-flow forecast for the second straight quarter, giving Chief Executive Officer Larry Culp’s turnaround effort a much-needed boost. The industrial businesses will generate as much as $2 billion in free cash this year, GE said in a statement Wednesday as it reported third-quarter earnings. The company had previously projected no more than $1 billion in cash flow.
- More than 1.3 million people remain in the dark across California as part of the latest deliberate blackout orchestrated by bankrupt utility PG&E Corp. The state’s largest power company said late Tuesday that about 435,000 homes and businesses were without electricity in the San Francisco Bay Area and elsewhere. Some had lost service amid a windstorm, but the vast majority were intentionally cut off so strong gusts wouldn’t knock down live wires and ignite wildfires. Southern California utilities warned that they, too, may cut service to 345,000 customers when the winds shift south.
- Mongolian state-owned coal miner Erdenes Tavan Tolgoi JSC is ramping up work on a planned Hong Kong initial public offering that could raise more than $1 billion, people familiar with the matter said. The coal miner has hired an adviser to oversee preparations for the share sale, including the underwriter selection process, said the people, who asked not to be identified as the information is private. The company has been interviewing banks seeking a role on the IPO and targets a listing as soon as next year, the people said.
- Digital financial services from lending to asset management are expected to generate at least $38 billion of annual revenue across Southeast Asia by 2025, more than tripling from $11 billion in 2019, according to a new study by Bain & Co., Google and Temasek Holdings Pte. Online lending will comprise about half that total for the region, which houses some of the world’s fastest-evolving internet and mobile industries. Growing smartphone penetration promises to unlock internet-based services such as insurance to more than 70% of an adult population neglected by traditional banks, according to the report.
- Soho China Ltd. is considering selling a majority of its commercial property holdings in deals that may fetch as much as $8 billion, according to people familiar with the situation. At least eight office towers in Beijing and Shanghai are being discussed as part of the planned sales, said the people, who asked not to be named because the discussions are private. An initial batch of projects worth as much as $3 billion is being shopped to potential buyers, the people said. Sovereign wealth funds and private equity groups are among those being approached, one of the people said. Talks are still at an early stage and the final number of projects is still to be decided, the people said.
- Honda Motor Co. and Hitachi Ltd. agreed to merge four of their car parts businesses to create a components supplier with almost $17 billion in sales, joining a wave of partnerships sweeping the global auto industry. Honda, Japan’s second-biggest carmaker, and Hitachi, one of the country’s biggest industrial conglomerates, said Wednesday they will combine Hitachi Automotive Systems and Honda affiliates Keihin Corp., Showa Corp. and Nissin Kogyo Co. Following a tender offer and an interim consolidation, Hitachi will own two-thirds of the new entity, with Honda owning the rest, the companies said. Shares of the partsmakers soared.
- Wall Street’s best minds are falling over themselves to describe the cataclysms that would befall equities should Elizabeth Warren get elected. It’s a brand of analysis whose recent track record is abysmal. The S&P 500 will plunge 25% if the Democrat becomes president, says Paul Tudor Jones, the hedge fund manager. Discovery Capital Management founder Rob Citrone says she’s “the single biggest risk for the market” and calculates the downside at up to 20%. Billionaire Leon Cooperman told CNBC earlier this month that the market would drop 25% if Warren or Bernie Sanders win.
- PetroChina Co., the country’s biggest oil and gas producer, said third-quarter profit fell amid lower crude prices and weaker refining and chemical operations. Net income dropped to 8.83 billion yuan ($1.3 billion) in the three months ended September, from 21.04 billion a year ago, the company said in a filing to the Shanghai stock exchange Wednesday.
- Apple Inc. expects iPhone sales to return to growth next year as the introduction of a line of 5G devices supercharges demand, a person familiar with the matter said. The company aims to ship more than 200 million handsets in 2020 after introducing more than four new iPhone models, possibly including 4G and 5G models and a low-cost successor to the budget iPhone SE device, the person said. That’s up from analysts’ estimates of about 170 million to 190 million for 2019, snapping at least a year of stagnant sales. The lineup however isn’t finalized and Apple’s plans may change, the person said, asking not to be identified discussing confidential plans.
- Yum! Brands Inc. shares slumped after the company posted sales that trailed estimates last quarter, as its Pizza Hut chain struggled to attract more diners as rivals ramp up delivery and mobile options. Same-store sales at Yum, which also own Pizza Hut, rose 3% in the third quarter, short of the 3.3% average of analysts’ estimates, according to Consensus Metrix. Pizza Hut’s same-store sales were flat, compared with projections they would grow 1.6%.
- Fiat Chrysler Automobiles NV’s talks to combine with French carmaker PSA Group point to intensifying pressure on global carmakers to join forces in squeezing costs and tackling the expensive shift to electric cars. Fiat and Peugeot maker PSA confirmed Wednesday they’re holding discussions aimed at creating one of the world’s leading auto groups. PSA shares rose the most in just over a year, while Fiat jumped as much as 11%.
*All sources from Bloomberg unless otherwise specified