September 12th, 2019
Daily Market Commentary
- Canada’s equity benchmark rose as technology shares rebounded from a three-day slump, with Shopify Inc. gaining the most in three weeks. The S&P/TSX Composite added 0.5% to 16,611.14 in Toronto. The index advanced to the highest closing level since July 24. The technology sector gained 2.1% as the rotation from momentum to value stocks that began at the start of the week reversed. Shopify contributed the most to the index gain, increasing 3.5%. BlackBerry Ltd. had the largest increase, rising 5.5%.
- Shares in Aurora Cannabis Inc., the second-largest pot company by market value, tumbled almost 10% in post-market trading after it posted a loss, disappointing investors who had hoped it would buck the industry trend. Aurora said in January that it expected to achieve sustained earnings before interest, taxes, depreciation and amortization, beginning in the quarter ended June 30. It tempered that statement in August, saying it “continues to track toward positive adjusted Ebitda, and in particular adjusted Ebitda from cannabis operations.”
- European equities rose on Thursday, as miners and tech stocks were buoyed by positive developments in the U.S.-China trade war, though investors are keeping an eye on the European Central Bank policy decision due later in the day. The Stoxx 600 Index was up 0.3% at 08.05 a.m. London time, with a third session of straight gains taking the gauge to a six-week high. Anheuser-Busch InBev NV shares rose 3.2% after the Belgian brewer was said to be aiming to raise about $5 billion in the IPO of its Asian unit this month, while Wm Morrison Supermarkets Plc shares gained 3.2% after the company announced a special dividend and firmed up a partnership with Amazon.com Inc.
- U.S. equity futures climbed with Asia stocks on Thursday as signs of goodwill in the trade war boosted risk appetite, while European shares fluctuated ahead of a key meeting of the region’s central bank. Treasuries edged higher. The steps by China and the U.S. to ease tensions ahead of face-to-face talks in Washington in the coming weeks are helping support sentiment as investors await monetary policy decisions from the world’s major central banks. Trump said he was moving back a 5% increase in tariffs on a swathe of Chinese imports by two weeks, while Beijing may allow companies to resume purchases of U.S. agricultural products, according to people familiar with the situation.
- Asian markets have avoided the worst excesses of a blow-up in U.S. momentum stocks this week –- for the simple reason the factor hadn’t taken off as much in the region in the first place. The MSCI Asia Pacific Momentum Index fell about 0.8% through Wednesday, compared with a 2.7% decline for the equivalent gauge in the U.S. “While momentum has come down, it hasn’t really cratered to the same extent as it has in the U.S.,” said Puneet Singh, head of Asia-Pacific equity quant research at Societe Generale in Hong Kong. “This is highly likely because the same rotation which happened in the U.S., in our opinion between defensive assets and value, was not as pronounced in Asia.”
- Oil slid as the International Energy Agency highlighted the difficulty that OPEC and its allies will face in balancing the market as producers meet in Abu Dhabi. Crude futures reversed earlier gains of as much as 1.1% in New York. The Organization of Petroleum Exporting Countries faces a daunting task in balancing the market next year as supply from competitors grows, the IEA saidin its monthly report. Producers sought to offer reassurances that they are committed to maintaining pledged production cuts, although talks on deeper curbs will be left to December’s meeting, according to the Saudi oil minister.
- Gold continued its recovery from a one-month low to trade above $1,500 an ounce ahead of key central bank policy meetings. Investors are awaiting a potentially pivotal European Central Bank policy decision on Thursday, with the Federal Reserve gathering next week. Palladium, the best-performing precious metal this week, moved closer to its all-time high seen in March, supported by signs of easing U.S.-China trade tensions.
- Iron ore faces a long, slow slide over the coming half-decade. Prices are poised to decline over the long term as the impact of weakening demand in biggest buyer China will more than offset gains in consumption seen in other emerging markets including India, according to Citigroup Inc.
- The plan by Hong Kong Exchanges & Clearing Ltd. to take over London Stock Exchange Group Plc is running into multiple obstacles a day after the surprise bid was launched, with the U.K. bourse leaning toward rejecting the offer in its current form. LSE and its advisers have wide-ranging concerns, including the possible influence of China on the HKEX, and the deal could face pushback from U.K. and U.S. officials over security concerns, according to people familiar with the matter. LSE is also wary of a bid that is structured mainly in stock and has exposure to the volatile situation in Hong Kong, the people said.
- OPEC+ responded to growing concerns that a slowing economy could tip the oil market back into surplus by applying additional pressure to members that haven’t implemented their promised production cuts. It’s a familiar refrain from the group, which since its inception in 2016 has struggled to get members including Iraq, Kazakhstan and Russia to live up to their commitments. Oil prices fell. Ministers who gathered in Abu Dhabi on Thursday didn’t discuss deepening the supply curbs set out in last year’s agreement, although they could revisit the issue in December, Oman’s Oil Minister Mohammed Al Rumhy told reporters after the meeting. Instead they pressed all members to reduce output in line with their existing quotas.
- Mario Draghi is embroiled in one of the most contentious policy meetings of his European Central Bank presidency as he prepares to ramp up monetary stimulus again despite skepticism from the euro area’s biggest economies. The mood is expected to be tense on Thursday when the 25-member Governing Council discusses how to respond to fading growth and inflation, according to officials who spoke on condition of anonymity. The first day of the meeting on Wednesday, when the ECB presents economic scenarios, was difficult and longer than usual, with an awareness that market expectations for action are high, one official said. An ECB spokesman declined to comment.
- Bank of Japan officials see a need to keep a lower limit on Japanese government bond yields, with some of them seeing that limit around -0.3%, according to people familiar with the matter. Some officials at the central bank viewed rock-bottom yield levels that touched -0.295% earlier this month as close to a point requiring action, according to the people. More factors than simply the level would be taken into account before acting to keep yields in check, but a lasting move or a surge below a lower limit would prompt consideration of further action, the people said. Allowing yields to fall too freely would contradict the bank’s policy pledge to target a level around zero as part of the BOJ’s efforts to stimulate economic activity and price growth, the people said. The BOJ has said that a yield curve that is too flat could eventually harm the economy, as it concluded in September 2016.
- The U.S. and China are taking baby steps to ease tensions in their trade war, as negotiators prepare for the resumption of face-to-face talks in Washington in the coming weeks. On Wednesday, U.S. President Donald Trump said he was postponing the imposition of 5% extra tariffs on Chinese goods by two weeks, meaning Chinese officials can celebrate their Oct. 1 national day without a fresh escalation. Meanwhile, China is considering whether to permit renewed imports of American farm goods including soybeans and pork, according to people familiar with the situation, potentially taking some pressure off U.S. states with large numbers of Trump supporters. The Ministry of Commerce said Thursday Chinese companies have started inquiring about prices for U.S. agricultural products including soybeans and pork.
- Anheuser-Busch InBev NV is aiming to raise about $5 billion in a Hong Kong listing of its Asian unit by the end of September, people familiar with the matter said, reviving a plan scrapped two months ago for what would have been the world’s biggest initial public offering of 2019. The Belgian brewer is gauging investor demand and will launch the deal as soon as next week, said the people, who asked not to be identified as the information is private. On Thursday, the company said the resumed listing application involves its minority stake in Budweiser Brewing Company APAC Ltd., without its Australian operations, which it agreed to sell to Asahi Group Holdings Ltd. for $11.3 billion shortly after shelving the IPO in July.
- Chinese startup Kuaishou is considering to go public in the U.S. to bankroll its expansion in short videos and fend off competition from TikTok owner ByteDance Inc., according to people familiar with the matter. The company, backed by Tencent Holdings Ltd., plans to list next year, the people said, requesting not to be named because the matter is private. One person said Kuaishou also weighed the option of going public this year. The video startup is raising more than $1 billion at a $25 billion valuation in a pre-IPO round mostly from Tencent, one of the people said.
- Faced with a worsening epidemic of teenage vaping and a mysterious illness stalking users of cigarette alternatives, the Trump administration promised to ratchet up its oversight of a burgeoning but increasingly troubled industry. President Donald Trump said Wednesday that vaping had become an urgent public-health concern in the U.S., “specifically with respect to children.” Health and Human Services Secretary Alex Azar told reporters that 5 million kids say they’ve vaped this year, a steep and startling jump from the 3.6 million who told government surveyors they’d used e-cigarettes in 2018.
- Phone carrier Altice France SA is hoping to raise 1.5 billion euros equivalent ($1.65 billion) of high-yield bonds to refinance costly debt held at the holding company of the group, which is owned by billionaire Patrick Drahi. Proceeds of the planned sale will fully repay Altice Luxembourg SA’s dollar and euro notes maturing in 2022, with the remaining funds earmarked for the partial redemption of Altice France’s notes due 2024 and to pay transaction expenses, according to a bond prospectus seen by Bloomberg News.
- A Northern Irish court ruled that a no-deal Brexit wouldn’t violate the Good Friday peace accord, handing Prime Minister Boris Johnson a legal victory in one of a string of cases related to his plans to leave the European Union. Judge Bernard McCloskey in Belfast Thursday said the debate over the peace accord is a purely political matter in a ruling that was immediately taken up by an appellate court. The opinion is a boost for Johnson after a court a few hundred miles away in Edinburgh on Wednesday ruled that the prime minister’s plan to suspend Parliament in the run up to the Oct. 31 Brexit deadline was an unlawful abuse of power. A few days earlier, a court in London ruled, like McCloskey, that the issue was not for the courts.
- Babcock International Group Plc won a 1.25 billion-pound ($1.5 billion) contract to build a fleet of new warships for the U.K. government, throwing a lifeline to the company’s Rosyth dockyard in Scotland. The defense contractor emerged as preferred bidder in a “comprehensive, competitive” tender to build five warships at an average cost of 250 million pounds each, the London-based company said in a statement on Thursday. Design work will begin immediately, ahead of the formal award of the contract later this financial year, it added. Babcock pitched its Arrowhead 140 frigate as a value-for-money ship with the added advantage of supporting Britain’s shipbuilding industry. The Rosyth yard, near Edinburgh, has been downsized over the years as an aircraft-carrier project wound down and wind-energy work ceased. The contract’s boost to the facility will ripple out across the company’s U.K.-based supply chain, Babcock said.
- Investors are abuzz over the risk of a looming U.S. recession, yet economic indicators are giving mixed signals at worst that the record-long expansion will end soon. Yes, manufacturing is slumping, uncertainty is mounting globally and businesses are paring spending as global demand slows and the U.S.-China trade war rages. But unemployment near a five-decade low is buoying consumers, stock prices remain elevated and the Federal Reserve is already cutting interest rates, with further reductions expected. Economists surveyed by Bloomberg reckon there’s a 35% chance of a recession in the next 12 months, up from 15% a year earlier, based on median estimates. Even if the economy skirts a downturn, growth is still expected to slow, which will have implications for President Donald Trump’s re-election chances in 2020.
- Yusaku Maezawa, the flamboyant Japanese entrepreneur who’s set to become the first paying passenger aboard Elon Musk’s SpaceX ridearound the moon, is cashing out of the business that made him a billionaire. Maezawa steps down as chief executive officer of Zozo Inc. Thursday and plans to sell a chunk of his shares as part of a $3.7 billion takeover by Yahoo Japan Corp. Wearing a white T-shirt declaring “Let’s Start Today” atop a peace symbol, he said he was leaving his company behind to create a new business, without specifics. He’ll need to train for Musk’s mission and may even embark on another space project he said again without elaborating.
- Bouygues SA sold a 13% stake in French rail-equipment maker Alstom SA for 1.08 billion euros ($1.18 billion), raising the prospect of a complete exit from the long-held investment. The construction and telecommunications conglomerate said Thursday it sold 29.15 million shares in Alstom at 37 euros each in an accelerated book building process for institutional investors, and that it retains a 14.7% holding. Olivier Bouygues and Bouygues SA will remain board members of Alstom and the company has agreed to a 180-day lock up for its remaining stock. Alstom shares fell as much as 6.8% and Bouygues by as much as 2.1% in early Paris trading.
- Throw all the mud you want at the rally in semiconductor stocks this year. It’s paid to be bullish. From weak demand to shrinking profits and a trade war, nothing has been able to hold back the shares. While the surge has confounded skeptics, it’s been affirmation for bulls who kept faith despite two 10% corrections. Their faith keeps being tested. Right now, the Philadelphia Semiconductor Index is up 39% in 2019 after rising at least 4% for three straight quarters. The industry’s profits, meanwhile, fell more than 20% in the first two quarters and are poised to do the same again. Such a divergence was last seen in 2009 when the economy was rebounding from the financial crisis.
- A group of investors including the hedge fund founded by billionaire John Paulson said “significantly mismanaged” gold companies could unlock $13 billion in value through mergers and cost cuts. The Shareholders’ Gold Council of 18 investors including Egyptian billionaire Naguib Sawiris‘s La Mancha found that the median spending of senior gold producers is double that of mining companies that produce other metals, including Vale SA, the world’s largest iron ore producer. The investors are looking to boost shareholder value in gold mining companies to capture the benefits from the precious metal’s meteoric rise to a six-year high. In the three years through Wednesday, the VanEck Vectors Gold Miners ETFhas risen less than 5%, trailing the 13% rally in bullion.
*All sources from Bloomberg unless otherwise specified