October 9th, 2019

Daily Market Commentary

Canadian Headlines

• Bank of Montreal is pitching energy companies to issue sustainable bonds as the lender seeks to expand its ESG capital markets business amid pressure for the oil industry to move into greener technologies. “We feel there’s an opportunity in this space,” Dan Barclay, chief executive officer and group head of BMO Capital Markets, said in an interview at the firm’s Toronto headquarters. “We’re in discussions with lots of clients.” The Canadian bank published last month a sustainable finance framework, which doesn’t exclude the oil industry as a sector where the bank can allocate proceeds from its own sustainable debt issues. Canada’s financial industry is pushing carbon-footprint reduction projects from crude producers as among the potential recipients of proceeds from sustainable bonds, while global discussions continue to set a world-wide standard for finance driven by environmental, social and governance principles.
• Condensate prices in Alberta surged Tuesday as producers stock up on the light oil used to dilute denser barrels from Canada’s oil sands. Prices rose $2.20 a barrel to 50 cents over West Texas Intermediate futures, trading at a premium to the U.S. benchmark for the first time since early 2018, data compiled by Bloomberg show. Demand for condensate is increasing as Alberta’s government is expected to ease mandatory production limits this month, freeing producers to pump and ship more oil. Condensate is mixed with bitumen to help the viscous crude flow through pipelines and make it easier to transport.

World Headlines

• European equities raced higher on Wednesday as trade-sensitive autos and tech stocks jumped on news that China is still open to a partial trade deal with the U.S., ahead of a fresh round of talks due to start on Thursday. The Stoxx 600 Index was up 0.5% at 10:50 a.m. London time, reversing earlier losses, with all sectors in positive territory. Adidas AG and Wirecard were among the gauge’s biggest winners, each rising 2.4%. Gambling operator GVC Holdings Plc climbed 3% after raising its full-year earnings guidance.
• High-level U.S.-China trade talks are set to resume in Washington on Thursday even as relations deteriorated between the economic superpowers. While a broad agreement remains unlikely, China signalled it could accept a partial deal, even after the Trump administration slapped visa bans on some Chinese officials and placed a number of Chinese technology firms on a blacklist. Bloomberg also reported the White House is moving ahead with discussions about restricting U.S. government pension investments in China.
• Japan’s Topix index declined after tensions between the U.S. and China flared up, stoking concerns over their trade negotiations. Electronics and machinery stocks were the biggest drags on the benchmark gauge, following a slump in U.S. equities as the Trump administration placed visa bans on Chinese officials linked to the detention of minorities in Xinjiang province. Separately, the White House is moving forward with talks of possible restrictions on portfolio flows into China, people familiar with the deliberations told Bloomberg.
• Oil erased losses amid optimism on trade talks scheduled to take place in Washington and signs of unrest near the border between Turkey and Syria. Futures added as much as 1.3% in New York, after falling in the previous 2 sessions. China remains open to agreeing to a partial trade deal with the U.S., according to an official with direct knowledge of the talks. Separately, Turkish troops have begun crossing into northeastern Syria to force back Kurdish militants, a Turkish official told Bloomberg, after President Donald Trump said the U.S. wouldn’t stand in the way. The dollar also declined.
• As global tensions escalate and signs of a slowdown mount, more investors are turning to gold. Worldwide holdings in bullion-backed exchange-traded funds have expanded for 17 days in a row, the longest run of inflows since 2009. The total stash now stands less than 35 tons away from a record set in 2012, according to the latest tally by Bloomberg. The consistent influx has come even as prices struggled to extend gains above $1,500 an ounce in recent weeks.
• President Donald Trump’s counter-attack against House Democrats is taking shape as the White House moved to consolidate Republican support on Capitol Hill and vowed to block any cooperation with the spreading impeachment inquiry. The White House delivered its most forceful response yet late Tuesday in a letter to House Speaker Nancy Pelosi, declaring the inquiry unconstitutional and invalid, and saying neither the president nor his administration would participate in it.
• The first Turkish troops have crossed into northeastern Syria in preparation for a full-scale offensive to force back Kurdish militants controlling the border area, a Turkish official said, days after President Donald Trump said the U.S. wouldn’t stand in the way. A small forward group of Turkish forces entered Syria early Wednesday at two points along the frontier, close to the Syrian towns of Tal Abyad and Ras al-Ayn, said the official, who spoke on condition of anonymity.
• China is still open to reaching a partial trade deal with the U.S., an official with direct knowledge of the talks said, signaling that Beijing is focused on limiting the damage to the world’s second-largest economy. Negotiators heading to Washington for talks starting Thursday aren’t optimistic about securing a broad agreement that would end the trade war between the two nations for good, said the official, who asked not to be named as the discussions are private. But China would accept a limited deal as long as no more tariffs are imposed by President Donald Trump, including two rounds of higher duties set to take effect this month and in December, the official said. In return, Beijing would offer non-core concessions like purchases of agricultural products without giving in on major sticking points, the official said, without offering further details.
• Exxon Mobil Corp is considering a sale of its offshore Malaysia upstream assets as part of U.S. energy giant’s divestiture program, according to people with knowledge of the matter. The company is working with an adviser on the potential sale of the Malaysian assets, which could raise about $2 billion to $3 billion, the people said, asking not to be identified because the matter is private. Exxon has started sounding out potential buyers, although sale considerations are at a preliminary stage and the company could decide against a transaction, the people said. Potential bidders could include other major energy companies with an interest in the region, the people said.
• PG&E Corp., the California utility giant forced into bankruptcy by two years of devastating wildfires, is carrying out the biggest planned blackout yet to keep power lines from sparking more blazes. PG&E began cutting electricity as part of an orchestrated shutoff that will eventually plunge almost 800,000 customers into darkness across Northern California, including parts of Napa Valley and Oakland. Cutoffs began after midnight local time Wednesday, with the first phase impacting about 513,000 customers.
• The National Basketball Association lost almost all of its major Chinese sponsors in the country, the league’s biggest market outside the U.S., as the government flexes its economic muscle after a tweet backing Hong Kong’s protesters triggered a backlash. A local joint venture of Nissan Motor Co. was the latest to distance itself from the U.S. league, joining China’s largest sportswear maker, the second-biggest dairy firm and a smartphone brand who all said they were pulling out. State television CCTV and tech giant Tencent Holdings Ltd. said Tuesday they won’t show NBA’s pre-season games. In the latest China controversy involving the basketball organization, Beijing is resorting to a time-tested strategy of targeting businesses it deems to challenge its political interests — especially those questioning its sovereignty over certain territories. The furor, triggered by last week’s tweet by an official with the Houston Rockets, has imperiled the NBA in a multibillion-dollar market.
• Activision Blizzard Inc. is facing a fierce backlash and calls for a boycott after a unit of the American game company punished a player for supporting Hong Kong’s protest movement, the latest cultural clash between the U.S. and China. Blizzard Entertainment banned Ng Wai Chung, known as Blitzchung, from its Grandmasters esports competition for a year and withheld prize money he had already won after he used a slogan from Hong Kong’s pro-democracy movement. Players and fans around the world immediately responded with outrage over what they view as heavy-handed punishment and kowtowing to Chinese censorship. The topic erupted online, with #blizzardboycott trending on Twitter.
• General Electric Co.’s gaping pension deficit certainly stands out for its size. But the company is hardly the only one at risk of potentially shortchanging some of its employees come retirement. All across corporate America, underfunded pensions have become the norm. Even now, a decade after the financial crisis, the largest plans face a shortfall of $269 billion, right about where it was 10 years ago. Years of low interest rates have largely offset gains in the stock market. Companies haven’t helped matters by lavishing money on shareholder rewards and clinging to assumptions about returns that proved to be too rosy.
• Johnson & Johnson’s Janssen unit was hit with an $8 billion punitive-damages verdict — the largest jury award in the U.S. this year — over its alleged mishandling of an anti-psychotic drug blamed for causing adolescent boys to grow female-sized breasts. A state court jury in Philadelphia Tuesday concluded the Janssen’s wrongful marketing of its Risperdal drug to teens warranted the punishment award in the first Pennsylvania case in which such damages could be awarded under an appellate ruling. The award came in the case of Nicholas Murray, a Maryland resident who began taking Risperdal as a child to help battle autism. A separate jury awarded Murray $1.75 million in actual damages in 2015 on his claims the drug caused him to develop female breasts. That award later was cut to $680,000 under Maryland law.
• Italy has drawn over $10 billion of orders for its first sale of U.S. dollar-denominated bonds since 2010. The demand is concentrated on the shorter maturities offered, with nearly half for the sale of five-year debt, according to a person familiar with the matter who asked not to be identified because they’re not authorized to speak about it. The country is also selling 10-year and 30-year bonds, seeking to raise $3 billion and widen its investor base.
• One of China’s biggest lenders is marketing a new dollar note linked to a Libor replacement, as borrowers across the globe move away from the scandal-ridden pricing benchmark. Bank of China Ltd.’s Macau Branch is expected to price a floating-rate note tied to the Secured Overnight Financing Rate (SOFR) on Wednesday, according to a person familiar with the matter. Once priced, this would be the first foreign-currency bond from a Chinese issuer linked to SOFR, according to data compiled by Bloomberg.
• Chinese oil imports from ship-to-ship transfers surged last month as flows from some traditional suppliers were crimped by the White House’s aggressive trade and foreign policies. Some 910,000 tons of crude, three times as much as in August, was offloaded at Chinese ports after being transferred in the South China Sea, according to ship-tracking data compiled by Bloomberg. It’s unclear where this oil came from, but moving crude from one vessel to another at sea is a common way of disguising the origin of cargoes.
• DBS Group Holdings Ltd. is considering joining the race to acquire PT Bank Permata, the Indonesian lender in which Standard Chartered Plc holds a stake, according to people familiar with the matter. Singapore-based DBS is working with an adviser on the possibility of bidding for Permata, which has a market value of about $2.4 billion, said the people, asking not be identified as the discussions are private. Such a move would pit DBS against both its Singaporean competitor Oversea-Chinese Banking Corp. and Tokyo-based Sumitomo Mitsui Financial Group Inc., which are also interested in acquiring the Indonesian bank, Bloomberg has reported. Standard Chartered and PT Astra International each own 45% stakes in Permata.
• GAM Holding AG, the Swiss asset manager working on a turnaround, has halted sales talks with suitors including Italian insurer Assicurazioni Generali SpA, according to people familiar with the matter. The stock fell the most in two months. For now, GAM will focus on improving the business as a standalone company, said the people, who asked not to be identified because discussions are private. Italian insurer Generali had been studying a potential bid for the past months and held recent talks with GAM, the people said. Those discussions have now ended without an agreement, the people said.
• The first of three new destroyers for the U.S. Navy won’t be delivered with full combat capability until the first quarter of next year, another slip in a $23 billion program that’s now running six years late. The previously undisclosed delay for the first ship, the $7.8 billion USS Zumwalt, was confirmed by Colleen O’Rourke, a Navy spokeswoman, via email. It was supposed to hit the milestone of having full combat capability last month, which already was more than five years later than originally scheduled and 10 years after construction began.
• Banks are waiting until the last minute to move staff and resources to their new European Union divisions, risking disarray during a no-deal Brexit, according to Europe’s top banking regulator. With three weeks to go before Britain is due to leave the EU, banks have built the necessary infrastructure to handle the fallout but need to move employees more quickly, Jose Manuel Campa, chairman of the European Banking Authority, said in an interview on Tuesday.

*All sources from Bloomberg unless otherwise specified