October 3rd, 2019

Daily Market Commentary

Canadian Headlines

• The Toronto housing market continued to rebound in September, with prices rising the most in 21 months, bringing the cost of a typical home close to the record high set in 2017. The benchmark price across all types of homes rose 5.2% from a year earlier to C$805,500 ($604,957), the highest annual rate of growth since December 2017. That’s about C$10,000 short of the record set more than two years ago when soaring prices prompted a series of government policy changes to cool the market. Prices were driven higher by a decline in supply, with active listings down 14% to 17,254.

World Headlines

• European shares were little changed on Thursday, extending this week’s sharp sell-off amid mounting worries over the outlook for the global economy and after the U.S. announced new tariffs on as much as $7.5 billion of European exports. The Stoxx Europe 600 was down 0.1% in early trade, after losing 4% over the past two sessions. British stocks extended declines and the FTSE 100 dropped to its lowest level since Aug. 29, after they fell the most since 2016 on Wednesday.
• U.S. equity futures climbed on Thursday and European stocks drifted as investors looked ahead to key data on the health of the world’s biggest economy. Contracts on the S&P 500 ticked higher hours before a reading on U.S. service-sector sentiment was due. The string of weak growth data adds to challenges facing a global economy already grappling with political risk from Brexit to the protests in Hong Kong, as well as U.S.-China trade tensions. Figures from the euro area on Thursday showed the economy stagnated at the end of the third quarter, fueling fears of a slowdown. Focus now turns to U.S. services PMI data on Thursday and the nonfarm payrolls figure on Friday, numbers that will be closely watched by investors.
• Shares fell across most of Asia, while government bonds advanced. Japan and Australia slumped, with Hong Kong stocks paring an advance on reports the city will invoke emergency powers to ban face masks at public gatherings.
• Oil held near the lowest level in almost two months as American crude inventories expanded the most since May and disappointing U.S. economic data added to pessimism over the demand outlook. Futures in New York were steady after settling 1.8% lower on Wednesday. U.S inventories swelled by a more-than-expected 3.1 million barrels last week, according to Energy Information Administration data. American private payrollsfor September fell short of estimates, a day after a manufacturing gauge slumped to the lowest in a decade, spurring losses in financial markets.
• Gold advanced for a third day, shrugging off recent losses and getting back above $1,500 an once, as investors brace for more signs the U.S. economy needs lower interest rates from a slew of reports coming Thursday and Friday. Bullion rallied most in a month on Wednesday after U.S. private companies’ payrolls rose less than forecast, bolstering the case for further dovish moves from the Federal Reserve. Investors added to gold holdings in ETFs for a 13th consecutive day, the longest streak since July.
• Boris Johnson is outlining his new Brexit proposals in Parliament. The prime minister said he has been encouraged by constructive conversations he has had with European Union leaders but a deal is still some way away. EU ambassadors will also discuss the proposals later this afternoon, after early reactions from the bloc on Wednesday suggested that, while some of Johnson’s points are welcome, there remain some major stumbling blocks.
• Democrats have set a blistering pace for their impeachment inquiry of Donald Trump with a lineup of depositions — including the recently departed U.S. envoy to Ukraine — stoking the president’s fury and feeding efforts to discredit the investigation. Kurt Volker, who stepped down last week from his unpaid role representing American interests in Ukraine, will give a closed-door deposition Thursday to the three House committees looking into Trump’s pressure on a foreign power to investigate a political rival, Joe Biden. Lawmakers want to talk to Volker and others mentioned in the whistle-blower complaint of Trump’s July 25 call with Ukrainian President Volodymyr Zelenskiy.
• Federal Reserve Chairman Jerome Powell, who’s noncommittal about further interest rate cuts, is facing new pressure to make a third-straight reduction in response to weakening data, volatile markets and a continued bashing from President Donald Trump. Markets placed about a 75% chance of a quarter-point rate reduction at the Oct. 29-30 meeting, up from 40% on Monday, after manufacturing and employment figures slumped this week. U.S. stocks tumbled to the lowest since August as fears of a recession increased.
• Abu Dhabi’s government-owned energy giant has kicked off the potential sale of a stake in its natural gas pipelines, in a deal that could fetch about $5 billion, people with knowledge of the matter said. Abu Dhabi National Oil Co., producer of about a tenth of OPEC’s oil, is seeking to bring in outside investors to take a minority interest in the gas pipeline network, according to the people. It has started a formal process and sent information on the assets to potential bidders, the people said, asking not to be identified because the information is private. The sale is likely to draw interest from infrastructure funds and private equity firms, the people said. Adnoc, as the company is known, aims to reach an agreement in the first half of next year, the people said.
• Tata Steel Ltd. is weighing a sale of its stake in an e-commerce joint venture as India’s largest steel manufacturer looks to offload non-core assets to pare debt, people with knowledge of the matter said. The company is working with advisers on a potential sale of its 50% stake in mjunction Services Ltd., an online marketplace for commodities from steel, diamonds to grains and tea, said one of the people, who asked not to be named as the discussions are private. The steel maker is seeking a valuation of about 14 billion rupees ($197 million) for its stake, the person said. State-owned Steel Authority of India Ltd. holds the rest of mjunction.
• Murray Energy Corp., the U.S. coal giant that had pressed the Trump administration for help averting bankruptcy, may be headed toward default. The largest closely held coal miner in America failed to make multiple payments to lenders this week, the company said in a statement on Wednesday. Creditors have agreed not to take legal action until Oct. 14, buying Murray some time to figure out how to shore up its balance sheet, the St. Clairsville, Ohio-based company said. Murray Energy is struggling to stay afloat, along with the rest of America’s coal miners, as cheap natural gas and renewable energy resources cut into coal’s share of the U.S. power market. At least four miners including Cloud Peak Energy Inc. and Blackjewel LLChave gone bankrupt this year, laying bare the decline of a fuel that once accounted for more than half of all U.S. power generation. Today it’s less than 25%.
• The last time U.S. payroll forecasts were this low, hurricanes had slammed the country in 2017, temporarily closing businesses. Or go back to 2013 when there was a federal government shutdown. But for the September jobs report due Friday, Wall Street economists see a more persistent storm at play: The trade war and manufacturing recession. Those factors are starting to permeate the economy at a time when companies are already struggling with a shrinking pool of qualified workers. The combination of forces has pushed down the median estimate for private payrolls to a gain of just 130,000 last month. That’s the weakest projection heading into a jobs report in seven years, outside of months affected by events such as major storms or the shutdown. Estimates for total nonfarm payrolls are higher, at 148,000, because of an expected boost from temporary census hiring.
• As crude prices sink again — completely erasing the surge caused by attacks on Saudi Arabia — OPEC+ ministers acknowledged the growing risks to oil demand but gave no indication of a change in strategy. “Of course, demand is affected by the status of the global economy, and the economy is slowing down,” Russian Energy Minister Alexander Novak said in Moscow. “There are no crisis events that call for an emergency meeting.” Less than three weeks after missile and drone strikes on Saudi Arabia’s main oil facility caused a record price spike, crude has slipped below $60 again in London. The kingdom has now stabilized output back at pre-attack levels and investors are once again turning their focus to signs of an economic slowdown.
• Indonesian President Joko Widodo said he’ll introduce sweeping changes to labor rules by the end of the year and open up more sectors of the economy to foreign investment, delivering on some of the major reforms investors have been demanding. Jokowi, as the president is known, said planned changes to the labor law will now only apply to new employees, proposals he’ll discuss with labor unions before taking them to parliament. By restricting the rules to new jobs only, Jokowi can attract businesses wanting to set up shop in Indonesia or looking to expand, while defusing opposition from labor groups.
• India’s worsening banking problems are adding a new layer of complexity to the central bank’s monetary policy as it prepares to cut interest rates again to spur economic growth. The Reserve Bank of India is set to lower its benchmark repurchase rate for a fifth time this year on Friday, days after it issued a statement to reassure the public that the banking system is “safe and stable.” It recently imposedwithdrawal curbs on a small bank and lending restrictions on another lender.
• Citigroup Inc. and Zenith Bank Plc face the stiffest penalties among a dozen lenders being punished by Nigeria’s central bank for failing to meet a target to provide more credit. A combined sanction of 500 billion naira ($1.4 billion) has been imposed on the 12 banks, according to a circular sent to the institutions and seen by Bloomberg. Other Lagos-based lenders such as Guaranty Trust Bank Plc and United Bank for Africa Plc are among those who fell short, as well as the local unit of Standard Chartered Plc, the central bank list shows. “This is a negative signal to the market because it compels banks to risk assets in an economy where you rarely find viable businesses given the macroeconomic conditions,” said Christian Orajekwe, head of securities trading at Cordros Securities in Lagos. “This could lead to some credit creation and new jobs in the short term, but in long term there will be concerns about the performance of those loans. It may not be sustainable.”
• Tokio Marine Holdings Inc. plans to acquire U.S. insurance group PURE for about $3 billion, the Nikkei newspaper reported. The Japanese insurer aims to complete the deal as soon as the year ending March, the newspaper reported Thursday, without saying where it got the information. Tokio Marine executives including Chief Executive Officer Satoru Komiya will brief the media at 4:30 p.m. in Tokyo about an investment, the company said, without giving details. Tokio Marine and its Japanese competitors have been making acquisitions abroad to diversify geographic risk and make up for diminishing prospects at home. The company has spent more than $17 billion in the past 11 years on a string of large takeovers abroad, data compiled by Bloomberg show.
• Topsports International Holdings Ltd. raised HK$7.9 billion ($1 billion) after pricing its initial public offering near the bottom of a marketed range, people familiar with the matter said. The Chinese sportswear retailer, backed by private equity firms Hillhouse Capital Management Ltd. and CDH Investments Fund Management Co, sold shares at HK$8.5 each, said the people, who asked not to be identified as the details are private. Topsports was marketing about 930 million shares at HK$8.3 to HK$10.1 apiece.
• PepsiCo Inc. said it expects to meet or exceed its full-year revenue growth target after sales and earnings beat expectations in the latest quarter, helped by strength in Frito-Lay snack foods. Third-quarter sales of $17.2 billion were ahead of analysts’ estimate of $16.9 billion. Earnings per share, excluding some items, amounted to $1.56, which also topped expectations.
• Failed efforts to ease U.S.-Iran tensions on the sidelines of the United Nations have left both sides hardening their positions and diplomats warning of growing mistrust and a risk of escalation. French President Emmanuel Macron, Pakistan’s prime minister, Imran Khan, and Japanese Prime Minister Shinzo Abe each tried unsuccessfully to bridge the gap between Donald Trump and Hassan Rouhani as they shuttled around midtown Manhattan during the UN General Assembly last week.
• Alphabet Inc.’s cloud business alone is now worth almost twice the market value of IBM Corp., a leader in the space for decades, according to analysts at Deutsche Bank AG. The bank values Alphabet’s Google Cloud at $225 billion, analysts led by Lloyd Walmsley wrote in a note to clients, saying the unit could report compound annual growth of 55% between 2018 and 2022, and reach annual sales of about $38 billion by 2025. IBM, which reported cloud revenue of $19.2 billion in 2018, had a market capitalization of $126 billion at the close of trading on Wednesday.

*All sources from Bloomberg unless otherwise specified