September 17th, 2019
Daily Market Commentary
- Canadian stocks rose for a fifth straight session as oil prices surged after a devastating attack in Saudi Arabia knocked out half its production. Additionally, nearly all of the kingdom’s oil shipments to Canada travel to New Brunswick, home to a single refinery, Irving Oil Ltd.’s Saint John plant, which can process about 299,000 barrels a day. The refinery relied on Saudi crude for more than 40% of its supplies in July, Statistics Canada data show. The S&P/TSX Composite gained 0.4% Monday, with energy lifting the index. Consumer staples lagged given weakness from Alimentation Couche-Tard Inc. Pot stocks also dropped. Aurora Cannabis Inc. was downgraded to hold at Stifel.
- Shopify Inc. is introducing new features for U.S. retailers of hemp and CBD, expanding its cannabis e-commerce platform south of the border. The Ottawa-based company plans to offer tools including online store design, payment, shipping and marketing in more than 40 states to merchants of hemp-derived cannabidiol, which was legalized in December and is found in everything from skin creams to snacks. Shopify’s platform is already widely used for online sales of recreational cannabis in Canada, where the drug was legalized 11 months ago. Government-run websites in several provinces including Ontario and British Columbia, as well as private companies like Canopy Growth Corp., Aurora Cannabis Inc. and Hexo Corp., use Shopify’s point-of-sale system.
- Alberta Premier Jason Kenney, whose province produces more oil than most OPEC nations, has a message for environmentalists, investors and anyone else who will listen: The world needs more Canadian crude, and standing in the way is foolish. Kenney’s United Conservative Party swept to power in April. He’s traveling to New York and Ohio this week and planning trips to the U.K., Germany and possibly Asia in the coming months to tout the benefits of Canadian oil, which he says has gotten a bad rap from critics that have unfairly demonized Alberta’s oil sands. Against the backdrop of a drone attack in Saudi Arabia that idled 5% of global oil production, Canada offers a safe, secure and socially responsible source of energy, Kenney said.
- Canada may hold the world’s third-largest crude reserves, but that’s little help to its largest refinery after a weekend attack disrupted production in Saudi Arabia, its biggest oil supplier. Nearly all of the kingdom’s oil shipments to Canada travel to New Brunswick, home to a single refinery, Irving Oil Ltd.’s Saint John plant, which can process about 299,000 barrels a day. The refinery relied on Saudi crude for more than 40% of its supplies in July, Statistics Canada data show. A drone attack Saturday on Saudi Arabia’s biggest crude-processing plant knocked out about half the country’s output. Saudi Aramco faces weeks or months before the majority of supply from its Abqaiq plant is restored, according to people familiar with matter.
- European equities fell for a second day as investor focus remained on geopolitical risks spurred by the strikes on a Saudi Arabian oil facility. The Stoxx Europe 600 Index dropped 0.2% as of 8:09 a.m. in London, with most industry groups in the red. Energy shares bucked the trend to lead gains as concerns about oil supply after the attacks boosted crude prices. Europe’s benchmark gauge last week closed within 0.3% of this year’s high, boosted by fresh stimulus from the European Central Bank. An easing in trade-war tensions has also helped shares rebound since a mid-August low.
- U.S. index futures edged lower with European stocks while Treasuries continued higher as investors weighed the fallout from a drone attack on one of the world’s biggest oil facilities and the record surge in crude prices that followed. Treasuries climbed with a gauge of the dollar. West Texas-grade crude oil gave back only a bit of Monday’s 15% surge. The pound weakened as Prime Minister Boris Johnson’s lawyers prepared to defend his Brexit strategy before the U.K.’s highest court on Tuesday. The euro strengthened against the greenback.
- China’s restrained approach to easing spooked financial markets Tuesday, with stocks and the yuan dropping the most in weeks. The Shanghai Composite Index retreated 1.7%, its biggest decline in more than two months, to close below the psychologically important 3,000 level. The onshore yuan fell 0.34%, the most in three weeks, to 7.0924 per dollar as of 3:26 p.m. in Shanghai. The yield on China’s 10-year government bonds rose for a sixth day. In Hong Kong, the Hang Seng Index lost 1.4%.
- Oil markets are grappling with uncertainty over how long it will take Saudi Arabia to restore output after the devastating attacks that knocked out 5% of global crude supply. As state oil giant Saudi Aramco grows less optimistic that there’ll be a rapid recovery after the strikes that cut the nation’s output by half, investors are seeking clarity on just how bad it could be. Initially, it was said significant volumes could begin to return within days, but Saudi officials later told a foreign diplomat they face “severe” disruption measured in weeks and months. Brent crude slipped below $69 a barrel on Tuesday after a record jump Monday.
- Spot gold clung to Monday’s gains, holding close to $1,500 an ounce as investors await critical policy decisions from central banks including the Federal Reserve. Gold rallied at the start of the week as the strike on Saudi Arabia’s crude production fanned demand for havens. Still, prices are drifting close to the 50-day moving average and a breach of that technical level would be a bearish signal for some traders. Platinum held near a two-week low as exchange-traded funds cut their holdings of the metal from record highs seen earlier this month.
- Iron ore futures headed for a back-to-back drop as investors weighed further evidence of slowing growth in China alongside comments from BHP Group flagging prospects for a continued revival in global supplies. After first-half disruptions, “in the longer term, supply is expected to return to a more normal trajectory,” BHP said in its annual report Tuesday. China’s GDP growth is expected to slow modestly this year and in 2020, it said.
- Bank of Japan officials think lowering the negative interest rate, if they chose to do so in the coming months, wouldn’t backfire in financial markets because investors are aware of the possibility, according to people familiar with the matter. While most officials wouldn’t be drawn on when the BOJ might act, some of the officials see little need to rush into taking action given recent stability in financial markets and continuing robust demand in Japan, the people said. Governor Haruhiko Kuroda has repeatedly said cutting the negative rate is an option should the BOJ need to give more support to the economy and prices, and this has heightened awareness among investors, the people said.
- President Donald Trump said his administration will enter into an initial trade accord over tariffs with Japan in the coming weeks while Tokyo warned any final deal must include assurances that Washington won’t slap new duties on $50 billion of Japanese automobiles. In a notice to Congress on Monday, Trump also said the U.S. will be entering an “executive agreement” with Japan over digital trade. There was no mention by Trump if he’ll end the threat to impose tariffs on Japanese auto imports as part of the trade deal. “My administration looks forward to continued collaboration with the Congress on further negotiations with Japan to achieve a comprehensive trade agreement that results in more fair and reciprocal trade between the United States and Japan,” Trump said in the statement released by the White House via email.
- Anheuser-Busch InBev NV is reviving the Hong Kong initial public offering of its Asian unit and is set to raise as much as $4.8 billion, roughly half of an earlier target. About 1.26 billion of Budweiser Brewing Company APAC Ltd. shares will be marketed at HK$27 to HK$30 each, the company said at a press conference in Hong Kong. The brewer shelved a share sale in July in which it sought to raise as much as $9.8 billion, and agreed to sell its Australian business to Asahi Group Holdings Ltd. for $11.3 billion a week later. The offering has attracted GIC Pte. as a cornerstone investor with a commitment of $1 billion, the company said. The previous attempt didn’t have a cornerstone investor.
- Sony Corp. plans to hold on to its semiconductor and financial services operations, rebuffing a series of proposals from American activist investor Dan Loeb. In June, the Third Point LLC chief disclosed a $1.5 billion stake in Sony and encouraged the company to spin off its semiconductor division — which consists mostly of image sensors — sell its insurance operations and focus on its main entertainment business. Chips are key to growth, Chief Executive Officer Kenichiro Yoshida countered in a letter filed to the Tokyo stock exchange Tuesday, adding that retaining a majority stake in Sony Financial Holdings Inc. will also enhance the company’s value.
- U.S. rice growers won’t get increased sales under the current terms of a trade deal agreed by President Donald Trump and Japanese Prime Minister Shinzo Abe, people familiar with the accord said. While there are still details to be finalized, the people said there won’t be any expansion of Japan’s quotas for U.S.-grown rice. U.S. producers hope the issue will be dealt with in the second phase of negotiations between the two countries, according to one of the people. Still, it’s unclear whether or when Trump and Abe will continue talks given that any trade deal in Japan has to be approved by the parliament and the Trump administration is running out of time before the 2020 presidential election.
- Apple Inc. told a European Union court it was unfairly painted as a tax dodger as it sought to topple a massive EU back-tax bill that’s the hallmark of antitrust chief Margrethe Vestager’s five-year crackdown on U.S. tech giants. The EU alleged that “Apple paid essentially no tax on earnings in Europe” and “sought headlines by quoting tiny numbers, but this public campaign ignores the taxes Apple pays all across the world,” Apple attorney Daniel Beard said at a hearing at the EU General Court in Luxembourg on Tuesday. The iPhone maker said it’s the world’s biggest taxpayer, urging EU judges to overturn a 2016 order by the European Commission to hand over a record 13 billion-euro ($14.3 billion) in unpaid taxes to Ireland. Apple, which made a reputation on smashing industry conventions, “follows the rules” and the EU was wrong to claim that profits should have been taxed in Ireland instead of the U.S. where Apple products are developed, according to Beard.
- Singapore saw its lead over Hong Kong shrink to just a whisker in the battle to be Asia’s biggest foreign-exchange currency hub. To keep its advantage, the island state wants to attract more companies to set up electronic trading platforms. Average daily trading in Singapore jumped 22% to a record $633 billion in April from the same period in 2016, according to the latest survey by the Bank for International Settlements. That’s just ahead of Hong Kong’s $632 billion, as the Chinese city saw a 45% surge in daily transactions. Singapore has enticed UBS Group AG, Citigroup Inc, Standard Chartered Plc and JPMorgan Chase & Co. in the past year to set up FX pricing and trading engines so that investors can reduce the time lag from routing trades elsewhere. That’s helped it take market share from Japan, while competing against Hong Kong that’s at the forefront of the yuan market.
- The oil market is facing a prolonged disruption to Saudi Arabia’s oil production with few options for replacing such huge output losses. The weekend attacks on the kingdom eliminated about 5% of global oil supply, propelling Brent crude to a record surge on Monday. Officials at state oil company Saudi Aramco have become less optimistic on the pace of output recovery, telling a senior foreign diplomat they face a “severe” disruption measured in weeks and months and informing some customers that October shipments will be delayed.
- WeWork pushed back its much-awaited initial public offering, and said it now expects to complete the listing by the end of this year as concerns mount over the company’s governance, valuation and business prospects. Bloomberg News reported earlier that the offering is likely to be postponed until at least October. WeWork had planned to begin making its pitch to investors in a roadshow as soon as this week. “The We Co. is looking forward to our upcoming IPO, which we expect to be completed by the end of the year,” the company said in a statement on Monday evening in New York. “We want to thank all of our employees, members and partners for their ongoing commitment.”
- Axiata Group Bhd. is pursuing mergers as a key strategy despite an abrupt end to its plan to form an Asian mobile giant with Telenor ASA, its top executive said. Malaysia’s largest wireless carrier, which provides telecommunication services to more than 300 million people from India to Cambodia, could see mergers happening for its Indonesian and Malaysian operations within three to five years, Chief Executive Officer Jamaludin Ibrahim said in an interview.
- AT&T Inc. pressured employees to create fake accounts for its DirecTV Now streaming television service to boost subscriber numbers ahead of its 2018 merger with Time Warner Inc., according to a lawsuit accusing the telecommunications giant of misleading investors. The company taught and encouraged employees across the country to secretly add the product to the accounts of existing customers without their knowledge, according to an amended complaint filed Friday. One way employees did that was by pretending to waive a $35 fee that customers paid to upgrade their mobile phones while actually charging the fee and creating as many as three fake DirecTV Now accounts, investors, including the Steamfitters Local 449 Pension Plan, said in the lawsuit, initially filed in Manhattan federal court in April.
- If anything could distract Asia’s top powers from sparring over disputed territory and crimes committed during World War II, it’s the need for cheap oil. Asia accounts for more than 70 percent of Saudi Arabia’s crude exports, with the four biggest economies — China, Japan, India and South Korea — leading the pack, according to consultancy Wood Mackenzie. That leaves them particularly vulnerable to rising geopolitical tensions in the Middle East that are now causing global crude prices to soar. With the U.S. already blaming Iran for a devastating drone strike on a key oil facility in Saudi Arabia, American allies in the region like Japan and South Korea — as well as emerging partners such as India — may find themselves under pressure to go along with whatever President Donald Trump decides to do next. But their main goal will be to ensure any response is measured.
*All sources from Bloomberg unless otherwise specified