October 31st, 2019

Daily Market Commentary

Canadian Headlines

• Encana Corp. will establish a corporate domicile in the U.S. as the Calgary-based oil explorer boosts production in Texas and Oklahoma. The move is expected to occur early next year, pending various approvals, Encana said Thursday in a statement. The company will rebrand under the name Ovintiv Inc. Encana reported third-quarter adjusted operating earnings that were in line with estimates. The company raised its 2019 production outlook while maintaining its capital spending guidance, and said Permian output rose to a quarterly record while Anadarko production climbed 13% from a year earlier.
• Bombardier Inc. agreed to sell a wing factory in Northern Ireland and two other facilities to Spirit AeroSystems Holdings Inc. for $500 million and the assumption of certain liabilities. The Belfast operation makes wings for Airbus SE’s A220 jetliner, an aircraft that cash-strapped Bombardier developed before handing control last year to the European planemaker. The deal also covers a plant in Morocco and a maintenance, overhaul and repair shop in Dallas, Bombardier and Spirit said Thursday.
• Suncor Energy Inc. showed it’s not entirely immune to the woes weighing on Canada’s oil industry as third-quarter production fell from the previous period, prompting the company to trim the top end of its output forecast for the year. Canada’s largest integrated oil company posted the third-quarter output of 762,300 barrels of oil equivalent a day, trailing analysts’ average estimate of 773,154 barrels and down from 803,900 in the second quarter. The figure still was up from 743,800 barrels in the same period a year earlier.
• The Keystone crude oil pipeline was shut following a spill in North Dakota, the third along the pipeline’s route in less than three years, roiling Canadian and U.S. oil markets. TC Energy Corp.’s 590,000 barrel-a-day pipeline that carries crude from Alberta to refineries in the U.S. Midwest and Gulf Coast ruptured overnight and caused a spill near the city of Edinburg in North Dakota, Brent Nelson, an emergency manager for Walsh County, said by phone.

World Headlines

• European stocks declined, reversing earlier gains after China was said to doubt whether a long-term trade deal was possible with the U.S. The Stoxx Europe 600 Index dropped 0.6% as of 9:58 a.m. in London, after earlier rising as much as 0.3%. Commodity stocks and carmakers led losses, while defensives such as utilities and food-and-drink shares advanced as investors sought havens amid fresh trade tensions.
• U.S. equity-index futures and European stocks fell on Thursday following reports that China doubts the possibility of a long-term trade deal with President Donald Trump. Haven assets including bonds, gold and the yen all advanced. Contracts for all three main American gauges turned lower along with the Stoxx Europe 600 Index after Bloomberg reported Chinese officials have warned they won’t budge on the thorniest trade issues and remain concerned about Trump’s impulsive nature. Earlier, stocks had been edging higher following the Federal Reserve’s third rate cut of the year and some solid corporate results.
• China’s uncertainty over sealing a long-term trade deal with the U.S. is testing investor confidence just hours after the Fed largely assuaged markets with its rate cut and signals that any policy tightening is a long way off. Even the prospect of a mini-deal between the two largest economies was dealt a blow, after Chile canceled a meeting where the nations intended to sign a partial pact. Xinhua reported that negotiators from both sides will have a phone call on Friday.
• Oil pared an earlier increase after China was said to doubt that a long-term trade deal is possible with the U.S. Futures fell as much as 0.5%. Chinese officials have warned in private conversations that they won’t budge on the thorniest issues in the trade dispute and remain concerned by President Donald Trump’s impulsive nature. The fall reversed gains after the Keystone pipeline, that carries oil from Canada to the U.S., ruptured overnight. The northern segment remains shut for an investigation.
• Gold rallied above $1,500 an ounce amid renewed concerns about the prospects of a long-term trade deal between China and the U.S. Traders are also weighing the latest signals from the Federal Reserve. Gold is headed for a fifth monthly gain in six as the metal benefits from haven buying amid geopolitical tensions and concerns about the global economy.
• Altria Group Inc., the U.S. maker of Marlboro cigarettes, reported a $4.5 billion charge related to its investment in Juul Labs Inc. as the nascent vaping market faces a reckoning. The company said the non-cash charge isn’t tied to a single event. Instead, it cited a slew of challenges: a high chance the U.S. Food & Drug Administration will remove flavored e-vapor products from the market, various bans already put in place by some cities and states and other factors.
• House Democrats hold a historic vote on Thursday to kick off the public phase of an inquiry of President Donald Trump that moves significantly closer to a vote to impeach him. The vote, which is expected to break down mostly along party lines, doesn’t make his conviction and removal from office by the Senate any more likely. But the rare step to consider removing a president from office makes a process that has been bitter and partisan even more intense and fraught for all sides. After weeks of testimony, Democrats and Republicans head into the Capitol firmly battened down for a fight over their views of the president: That his actions in office at least merit an investigation or that he’s done nothing wrong.
• Chinese officials are casting doubts about reaching a comprehensive long-term trade deal with the U.S. even as the two sides get close to signing a “phase one” agreement. In private conversations with visitors to Beijing and other interlocutors in recent weeks, Chinese officials have warned they won’t budge on the thorniest issues, according to people familiar with the matter. They remain concerned about President Donald Trump’s impulsive nature and the risk he may back out of even the limited deal both sides say they want to sign in the coming weeks.
• India’s Yes Bank Ltd. said it got a $1.2 billion binding offer from a global investor for a stake sale, resulting in a rally that helped make it the world’s best performing bank share this month. The Mumbai-based lender jumped 24% at the 3:30 p.m. close in Mumbai on Thursday following the announcement. The company didn’t name the investor in its exchange filing, though CNBC-TV18 said it was Hong Kong-based SPGP Holdings. The report didn’t cite anyone.
• Alibaba Group Holding Ltd. is deciding between launching a sharply reduced $10 billion Hong Kong share sale in November or delaying the deal till next year as global uncertainty mounts, people familiar with the matter say. China’s largest company is weighing its options for the city’s biggest first-time sale of stock since 2010, but the window for pulling off its mega deal in 2019 is closing fast. It can proceed with a required listing hearing — either after its Nov. 1 earnings or Nov. 11 Singles’ Day shopping gala — or risk postponing a deal altogether till 2020, people familiar with the matter say. Alibaba is reluctant to drag things out as uncertainty mounts around U.S.-Chinese tensions and the global macroeconomic outlook, they added, asking not to be identified talking about a sensitive matter.
• Samsung Electronics Co. posted better-than-expected earnings and projected a gradual recovery in the memory chip market in 2020 as fifth-generation wireless technology rolls out globally. Shares in South Korea’s largest company climbed as much as 2% after it posted net income of 6.1 trillion won ($5.2 billion) for the September quarter, surpassing the 5.5 trillion won average of projections. Samsung, which reported a 56% slump in operating profit earlier this month, said it expects memory chip demand to gradually climb out of its funk in the fourth quarter and bounce back next year. The company foresees capital spending of 29 trillion won in 2019, about the same level as it was last year.
• Royal Dutch Shell Plc said the worsening economy could slow the pace of returns to shareholders, overshadowing a strong third-quarter trading performance that yielded bumper profits. While the company comfortably beat even the highest analyst estimate for third-quarter profit, shares dropped the most in almost three months after Chief Executive Officer Ben van Beurden warned of uncertainty around the current pace of share buybacks and reduction in gearing — Shell’s ratio of debt to equity.
• The U.S. Justice Department has struck a deal with fugitive financier Jho Low in which it will recoup almost $1 billion of money looted from the Malaysian investment fund 1MDB, in what would be the biggest recovery from an American anti-corruption crackdown. The 1MDB global corruption scandal toppled the previous Malaysian government of Najib Razak, ensnared a Wall Street powerhouse and set off investigations across the globe. The proposed settlement was filed Wednesday in a California court.
• More than a million Californians from Los Angeles to San Diego may go dark by Thursday in a deliberate attempt by the region’s utilities to keep their power lines from igniting wildfires. Edison International and Sempra Energy had cut power to a total of 102,000 homes and businesses as of late Wednesday and were warning that more than 338,000 customers may join them as the utilities try to keep hurricane-strength winds from knocking down live wires and setting dry brush ablaze. Several massive wildfires have already erupted over the past week and continue to rage across California.
• Officials in the Trump administration are pushing for financial sanctions against Spain for what they say is its financial support of Nicolas Maduro’s regime in Venezuela, according to people familiar with the matter. The U.S. Treasury Department is considering sanctions against Spain’s central bank and measures against other entities where Venezuelan money is parked, the people said, without offering details. They said no action is expected before Spain’s Nov. 10 general election.
• Ford Motor Co. reached a tentative agreement with the United Auto Workers union on a new labor contract for its U.S. workers, likely avoiding a strike that cost crosstown rival General Motors Co.billions of dollars. The accord includes $6 billion of product investment in U.S. facilities and the creation and retention of more than 8,500 jobs, according to a statement. The contract will be subject to review by the UAW’s Ford council, and then a ratification vote. The union will meet on Friday in Detroit with hundreds of local leaders to go over the details.
• Fiat Chrysler Automobiles NV and PSA Group went out of their way to make their combination as equal as possible, shedding assets, paying special dividends and distributing board seats. It didn’t take long for investors to figure out who the buyer is. Shares of Fiat Chrysler jumped 10% Thursday after the two sides announced the deal, billed as a 50-50 merger. Peugeot owner PSA fell by about the same amount, taking the typical acquirer’s hit. The math bears it out. Fiat shareholders will get a premium of almost 5 billion euros ($5.6 billion), based on closing prices Tuesday, before reports of the talks, as both sides shed assets before throwing their remaining equity into the pot.
• BNP Paribas SA posted a third straight gain at its fixed-income trading business, outshining its Wall Street and European peers while keeping costs under control. Fixed income, currency and commodity trading revenue surged 35% to 915 million euros ($1 billion) in the three months through September, according to a statement on Thursday. That surpassed the performance of competitors including Barclays Plc and Deutsche Bank AG, and beat the 9% gain in the second quarter and a 29% rally in the previous three months.
• Boris Johnson suffered a surprise blow to his election campaign on day one of the contest when senior Cabinet minister Nicky Morganannounced she was quitting politics. Morgan, the culture secretary, said members of Parliament had suffered “abuse” and that her family had faced pressure because of her role in public life. She said she would continue to support Johnson in the election taking place on Dec. 12.
• China is considering raising as much 4 billion euros ($4.5 billion) in its first sovereign euro-denominated bond sale in about 15 years, according to people familiar with the matter. The deal will be launched next week, said the people who aren’t authorized to speak publicly and asked not to be identified. The Ministry of Finance is looking at tenors of 5-30 years with a preference for 7,12, 20 years for the sale, they said. The ministry didn’t immediately reply to a fax sent by Bloomberg outside office hours seeking comment.
• Marathon Petroleum Corp. buckled under pressure from activist investors by announcing the spinoff of its retail fuel-station business, while Chairman and Chief Executive Officer Gary Heminger, a four-decade company veteran, said he’ll retire. Marathon announced the plan Thursday, along with its intention to form a special board committee to review the Findlay, Ohio-based company’s pipeline business. In addition, Executive Vice chairman Gregory Goff said he’s also retiring.
• Bristol-Myers Squibb Co. said that U.S. sales have stalled for Opdivo, the cancer drug that makes up the core of the company’s growth. The drug is facing stiff competition from a rival therapy from Merck & Co. However, Bristol-Myers raised its 2019 adjusted earnings forecast to $4.25 to $4.35 a share, an increase of 5 cents from the outlook it provided in July. Third-quarter sales were $6.01 billion, outpacing the $5.90 billion average of analysts’ estimates.

*All sources from Bloomberg unless otherwise specified