October 7th, 2019

Daily Market Commentary

Canadian Headlines

• Major Drilling Group International Inc. is pleased to announce that it has entered into an agreement to acquire all of the issued and outstanding shares of Norex Drilling Limited a family-owned drilling company and a leading exploration drilling contractor based in Timmins, Ontario, Canada.

World Headlines

• European shares opened little changed on Monday after a bumpy start to the month, marked by weak macroeconomic data. Trade talks will return to the fore this week with Chinese and U.S. officials set to meet again, while the earnings season will gather pace. The Stoxx 600 Index was up 0.1%, with autos and basic resources dropping the most and health care shares gaining. Bayer AG jumped 2.5% after a trial over the alleged cancer links of one of its products was postponed. SIG Plc plummeted 27% after it warned that trading has deteriorated.
• Futures on U.S. equity indexes ticked lower while the yuan slipped on Monday on concern China may be increasingly reluctant to agree a broad trade deal with the Trump administration. Contracts for the three main U.S. gauges came off their session lows but still pointed to a weak start on Wall Street after Bloomberg reported that senior Chinese officials have indicated the range of topics they’re willing to discuss at upcoming talks has narrowed considerably.
• Japanese stocks were mostly lower as investors weighed Friday’s mixed U.S. jobs data and signals that China is increasingly reluctant to agree to a broad trade deal. A dip in banks weighed most heavily on the benchmark gauge. While U.S. hiring missed projections in September, the jobless rate unexpectedly dropped to 3.5%, its lowest since 1969. Average hourly earnings rose 2.9% from a year earlier, the weakest in more than a year. The U.S. economy is in a good place though it faces some risks, Federal Reserve Chairman Jerome Powell said Friday in a speech.
• Oil pared its biggest weekly drop since July ahead of the resumption of U.S.-China trade talks later this week that may sway a cloudy demand outlook. Futures in New York added as much as 0.8% after losing 5.5% last week. Chinese officials are signaling they’re increasingly reluctant to agree to a broad deal pursued by President Donald Trump, according to people familiar with the discussions, before high-level talks that are set to resume Thursday.
•  Bullion’s rally has slowed in the past month amid a stronger dollar, and the metal saw turbulent trading on Friday after a mixed U.S. jobs report. Still, central banks have continued their gold-buying spree, with net purchases in August reaching 57.3 tons, the World Gold Council said Monday. China added more than 100 tons to its reserves since resuming buying in December.
• Boris Johnson is calling his counterparts in the European Union as he tries to convince the bloc to accept his latest proposals for the Irish border with the clock ticking down to his Oct. 31 deadline for leaving. A court in Scotland will rule if the prime minister can be forced to obey a law passed by Parliament last month requiring him to seek a delay if he can’t reach a deal.
• Europe’s troubles intensified on Monday, with German industry suffering a fresh blow and investors turning more gloomy about the region’s economy. German factory orders fell 0.6% in August, twice as much as forecast by economists. While the number can be volatile, it means demand has now fallen on a year-on-year basis for 15 straight months. The decline is just the latest in a string of negative news that’s driving increased pessimism about the euro area. In a separate report, Sentix said its gauge for the region fell to a six-year low this month, and investors downgraded their view to “recession” from “downturn.”
• President Donald Trump faces new peril heading into this week — not just from Democrats seeking to impeach him but from his own administration, as there are now at least two whistle-blowers coming forward to talk about his actions. There’s doubt over whether the Trump administration will let several witnesses speak to House panels this week as planned, and signs some Republican lawmakers are growing restive about what else might surface regarding Trump’s requests of foreign leaders. Lawyers representing an intelligence official who filed a formal complaint over the president’s July phone call with the president of Ukraine, in which Trump pushed the Ukrainian government to dig up damaging information about a political rival, said on Sunday they’re now representing multiple whistle-blowers. It wasn’t clear how many more there are.
• Investors withdrew money from exchange-traded funds that buy emerging market stocks and bonds in the second straight week of outflows. Outflows from U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $768 million in the week ended Oct. 4, compared with losses of $17.8 million in the previous week, according to data compiled by Bloomberg. So far this year, inflows have totaled $84.7 million.
• It’s too early to bid farewell to the decade-long equity bull market as stocks are still providing healthy returns for investors, according to Goldman Sachs Group Inc. “Even with low profit growth the corporate sector has a high free-cash-flow yield and the dividend yield (plus buybacks) ought to still provide a reasonable relative return,” Peter Oppenheimer, Goldman’s chief global equity strategist, wrote in a note on Monday. The bank’s call comes after Citigroup Inc. last week anticipated a continuation in the strong run of equities and JPMorgan Chase & Co. analysts said in an Oct. 4 note that the current market correction will be less painful than last December’s rout.
• China National Petroleum Corp. is no longer a partner in Iran’s biggest natural gas project, and the Persian Gulf nation will develop Phase 11 of the giant South Pars field on its own, Oil Minister Bijan Namdar Zanganeh said. CNPC was the only international partner left in the project, after Total SA of France withdrew last year when U.S. President Donald Trump abandoned the 2015 nuclear accord and reimposed sanctions on Iran. Phase 11 was the biggest infrastructure development project with major foreign participants that Iran arranged after the accord took effect.
• Chinese officials are signaling they’re increasingly reluctant to agree to a broad trade deal pursued by President Donald Trump, ahead of negotiations this week that have raised hopes of a potential truce. In meetings with U.S. visitors to Beijing in recent weeks, senior Chinese officials have indicated the range of topics they’re willing to discuss has narrowed considerably, according to people familiar with the discussions. Vice Premier Liu He, who will lead the Chinese contingent in high-level talks that begin Thursday, told visiting dignitaries he would bring an offer to Washington that won’t include commitments on reforming Chinese industrial policy or the government subsidies that have been the target of longstanding U.S. complaints, one of the people said.
• Equinor ASA said costs for two key Norwegian oil projects have ballooned by about 12.4 billion kroner ($1.4 billion) in the past year. The increased investment estimate for the Martin Linge project was only the latest in a series of setbacks for the development that Equinor took over from Total SA in 2018. A 28% spending hike for Njord Future was an unexpected upset for Equinor’s record of delivering projects below budget in recent years, such as the giant Johan Sverdrup field that started over the weekend. Costs for the Martin Linge and Njord Future projects rose by 7.9 billion kroner and 4.5 billion kroner, respectively, the state-controlled company said in a statement on Monday that coincided with updates on ongoing offshore developments in the Norwegian state budget. The increases were due to a larger-than-expected work scope, Equinor said.
• The U.S. said it will stand aside when Turkey’s military launches an operation against America’s wartime Kurdish allies in Syria, a significant shift in American policy that raises questions over the fate of thousands of Islamic State detainees. The Kurdish-led Syrian Democratic Forces have been a close U.S. ally in the fight to defeat Islamic State. But Turkey considers Syria’s Kurdish militants a threat to its national security and President Recep Tayyip Erdogan has said his forces were ready to begin a military operation against them in northeastern Syria imminently.
• General Electric Co. said it would freeze pension plan benefits for about 20,000 U.S. employees as it takes steps to slash its pension deficit and improve its financial position. The industrial giant aims to cut its pension shortfall by $5 billion to $8 billion, it said in a statement Monday. GE shares rose about 2 percent in pre-market trading in the U.S. The company had 97,000 U.S. employees at the end of 2018, or about a third of its worldwide workforce. In other measures, the company will pre-fund $4 billion to $5 billion of its estimated requirements for 2021 and 2022 under the Employee Retirement Income Security Act, and offer a lump-sum payment to eligible former employees who haven’t started receiving their monthly pension payments.

*All sources from Bloomberg unless otherwise specified