September 19th, 2019
Daily Market Commentary
- Canadian stocks fell Wednesday after gaining for the previous six sessions. The S&P/TSX Composite lost 0.2% to 16,800. Materials stocks were the worst performers as metal-commodities including copper, gold, and silver all dropped. Energy shares also weakened as investors continue to assess the return of Saudi Arabia’s crude production. Meanwhile, Tim Hortons is scaling back Beyond Meat offerings in all Canadian provinces except British Columbia and Ontario, BNN Bloomberg reported.
- Bank of Nova Scotia’s online lender ranked No. 1 for customer satisfaction for credit cards this year, beating out retailers and Canada’s biggest banks. Tangerine replaced Canada’s largest grocery chain, Loblaw Cos., in the top spot, with 816 points of a possible 1,000, according to J.D. Power’s annual survey of credit-card satisfaction in the country. American Express Co. kept its second-place ranking from last year, with 803 points, and retailer Canadian Tire Corp. stayed at No. 3, with 798 points. Loblaw’s President’s Choice Financial fell to fourth.
- Contracts on the three main U.S. equity indexes all dropped, while banks led the Europe Stoxx 600 higher as a new round of TLTRO loans kicks in. Treasuries were steady and European government bonds slipped.
- A split mood emerged across major markets on Thursday, with U.S. equity futures dropping and European stocks rising as investors processed a slew of fresh policy decisions following the Federal Reserve rate cut. The euro strengthened versus the dollar. Thursday’s slate of monetary policy decisions, hot on the heels of the Fed cut, comes just as the OECD cut its world growth forecast to just 2.9% from 3.2% as intensifying trade conflicts take a toll on confidence and investment. But not all policy makers followed the Fed — in Switzerland and Taiwan they opted to keep rates unchanged, while in Norway officials surprised traders with a rate hike.
- Shares fell in Hong Kong and edged up in Shanghai, while China’s yuan dropped as traders weighed the odds of the People’s Bank of China lowering borrowing costs. The yen jumped the most in three weeks after the BOJ left its policy settings unchanged while noting rising risks. Together with Japan’s currency, the Swiss franc led Group-of-10 currency gains following monetary-policy decisions by their respective central banks. The pound nudged lower before the Bank of England’s policy decision Thursday. A gauge of the dollar declined.
- Oil rose amid doubts about the speed of Saudi Arabia’s recovery from the weekend’s attack on its facilities that knocked out a large chunk of its production. Futures gained 2.1% in New York after paring around half of Monday’s 15% surge over the past two days. The Saudis asked Iraq’s national oil company for as much as 20 million barrels of crude to supply its domestic refineries, Dow Jones reported. The kingdom’s damaged Abqaiq oil facility is operating at around 40% of its pre-attack levels and output should be fully restored by the end of the month, according to Saudi Aramco Chief Executive Officer Amin Nasser.
- Spot gold drifted just below the $1,500 mark after Federal Reserve policy makers offered divergent views on more monetary easing, casting some doubt over a key driver of the metal’s rally. After Wednesday’s fall, gold for immediate delivery edged higher. While the Fed made its long-awaited cut yesterday, its officials split on the need for further actions. That disappointed gold investors and led to profit-taking by some short-term traders in the futures market, according to Julius Baer Group Ltd.
- Intensifying trade conflicts have sent global growth momentum tumbling toward lows last seen during the financial crisis, and governments are not doing enough to prevent long-term damage, the OECD said in its latest outlook. The Paris-based organization cut almost all economic forecasts it made just four months ago, as protectionist policies take an increasing toll on confidence and investment, and risks continue to mount on financial markets. It sees world growth at a mere 2.9% this year.
- The European Central Bank gave the region’s lenders 3.4 billion euros ($3.8 billion) in free long-term loans as it revived a policy intended to boost economic growth and inflation. The three-year loans — at a rate that starts at zero and could fall as low as the deposit rate, currently minus 0.5% — are part of a package of stimulus measures that includes taking negative interest rates further below zero and restarting bond purchases. This is the third series of so-called targeted longer-term refinancing operations, under which the cost of the loans falls if banks lend more to companies and households. The aim is to stimulate investment and spending to battle a slowdown caused largely by the U.S.-China trade war and the risk that U.K. is headed for a no-deal Brexit.
- The U.S. money-market interest rates continued to retreat from record levels reached earlier in the week. The rate on overnight general collateral repurchase agreements, or repos, first traded at 2.25% early Thursday before dropping to 2.10%, according to ICAP. On Tuesday, it jumped to 10%, about four times greater than last week’s levels, as cash reserves in the banking system remained out of balance with the volume of securities on dealer balance sheets. The New York Fed will offer up to $75 billion in a so-called overnight repurchase agreement operation, adding temporary liquidity to restore order in the banking system. It made the same offer Tuesday and Wednesday, deploying a tool it hadn’t used in a decade. This latest action follows the Fed’s reduction in the interest rate on excess reserves, or IOER, another attempt to quell money-market stresses.
- Federal Reserve policy makers lowered their main interest rate for a second time this year and Chairman Jerome Powell said that “moderate” policy moves should be sufficient to sustain the U.S. expansion. “We took this step to help keep the U.S. economy strong in the face of some notable developments and to provide insurance against ongoing risks,” Powell told reporters Wednesday after the Fed cut its benchmark rate by a quarter percentage point to a range of 1.75% to 2%. “Weakness in global growth and trade policy have weighed on the economy.”
- Ryanair Holdings Plc Chief Executive Officer Michael O’Leary gave a pessimistic outlook for the resumption by Boeing Co. of deliveries of its grounded 737 Max, saying the carrier has frozen payments to the manufacturer and started talks on recouping costs of the delay. Deliveries of the aircraft will likely slip “another couple of months” to March or April, he said at an annual shareholders’ meeting Thursday, calling it the biggest operational challenge currently facing the Irish discount airline. “The best outlook is the first aircraft will come in January, more realistic outlook is end of February or March,” O’Leary told reporters. “If it runs later than March, April or May we will have to take some more aircraft out of next summer’s schedule and slow down the growth further.”
- Boris Johnson promised to bring fiber broadband to every U.K. home by 2025 in his bid for the most important job in the land. Now comes the difficult part. To have any chance of success, the Prime Minister must first convince telecommunications executives there is a profit opportunity. The government will step up the pressure later on Thursday when the Digital Secretary Nicky Morgan gathers the heads of Britain’s broadband building companies at her Westminster office. The talks are expected to focus on how to reach Johnson’s accelerated infrastructure target, including a timeline for switching off older networks, according to people briefed on the closed-door meeting.
- The U.K. is set to open the first contest in a decade intended to draw as much as 20 billion pounds ($25 billion) of investment in offshore wind farms. The move in a competitive auction for leases where developers can plant large-scale turbines at sea will bring at least 7 gigawatts of new power generation capacity to the U.K. grid and speed up a shift toward cleaner energy supplies. Britain is pushing both to reduce fossil fuel emissions that cause climate change and to replace nuclear and coal plants that regulators say must close within the next few years. The government has estimated it may need 100 billion pounds of investment over a decade or more to upgrade its aging power networks.
- The Bank of Japan reluctantly tiptoed closer toward ramping up its stimulus Thursday, setting up a Halloween policy meeting as a possible moment for action, while stopping short of guaranteeing it would pull the trigger. Following rate cuts by the Federal Reserve and the European Central Bank to prop up growth amid a global slowdown, the BOJ once again stood pat on policy on Thursday, taking advantage of a favorable upturn in markets to put off further measures to support Japan’s economy and prices. But easing action now looks more likely in October after the BOJ also ordered a review next month to see if developments overseas have the potential to kill off momentum in Japanese prices.
- Indonesia’s central bank cut its key interest rate for a third straight month and took a series of other steps to bolster growth amid a deepening global economic slowdown. The seven-day reverse repurchase rate was lowered by 25 basis points to 5.25% Thursday, as predicted by 21 out of 28 economists surveyed by Bloomberg. The rest forecast no change. The bank also announced several macroprudential measures to spur growth. The latest round of easing, after the Federal Reserve lowered U.S. borrowing costs Wednesday, comes as trade tensions and now higher oil prices weigh on the global economy and threaten prospects for Indonesia, where growth is at a two-year low.
- Not that long ago, Wall Street fretted that tradition-bound United Parcel Service Inc. would lag nimble FedEx Corp., with its fully automated package-sorting hubs, in the race to cash in from surging shipments tied to e-commerce. A $20 billion investment detailed by UPS Chief Executive Officer David Abney last year, a plan that was poorly received by Wall Street, is bearing fruit. Profit margins are improving even as 112-year-old Big Brown copes with swelling volume from voracious online shoppers. While FedEx was slow to embrace the lower-profit e-commerce business, Abney pounced on it, even showing he was willing to live with frenemy Amazon.com Inc. as a major customer. Shares of UPS were outperforming its rival’s this year even before FedEx warned this week that a trade war and broad, global economic slowdown are tanking package demand — a view that UPS pointedly said it didn’t share.
- Chinese internet giant Alibaba Group Holding Ltd. has agreed to invest in augmented-reality startup Perfect Corp. in its biggest bet so far in Taiwan, people with knowledge of the matter said. Alibaba is leading a new round of funding for Perfect Corp., according to the people, who asked not to be identified because the information is private. Chinese venture capital firm CCV, led by former KPCB China Managing Partner Zhou Wei, and Taiwan’s Cyberlink Corp. are also participating in the round, the people said. Perfect Corp. announced Thursday it’s forming a strategic partnership with Alibaba to bring its augmented reality technology to the Chinese company’s online platforms. It didn’t mention any financial terms of the tie-up.
- The Bank of England said that inflation may be weaker than expected if the uncertainty surrounding Britain’s departure from the European Union persists. “Political events could lead to a further period of entrenched uncertainty,” the minutes of the interest-rate decision meeting said. “The longer those uncertainties persisted,” the more likely demand would remain below potential and “domestically generated inflationary pressures would be reduced.”
- McDermott International Inc. lost almost two-thirds of its market value in a single day as the 96-year-old builder of oil platforms and natural gas plants struggles with a $4 billion merger hangover. The unprecedented collapse in McDermott’s stock on Wednesday followed weeks of ill portents that included an earnings warning and the abrupt cancellation of a conference appearance. But the unraveling of a company that got its start in the 1920s making wooden drilling rigs for Texas wildcatters really began with its star-crossed 2018 takeover of another oil-industry legend, Chicago Bridge & Iron Co. The $3.5 billion deal loaded down McDermott with billions in debt and a slate of high-risk, large-scale gas and power projects that were subsequently derailed by labor shortages, postponements and ultimately writedowns.
- Iran’s foreign minister warned that any U.S. or Saudi strike on his country in response to the attacks on the kingdom’s critical oil facilities would lead to “all-out war.” In an interview with CNN, Javad Zarif reiterated that Iran wasn’t involved in the weekend attacks and hoped to avoid a conflict. He said Yemen’s Iran-backed Houthi rebels, who have been fighting a Saudi-led coalition for four years and claimed responsibility, had the capability to carry out such a sophisticated operation. Saudi and U.S. officials have said that the drones and missiles used were made by Iran, had never before been deployed by Iranian proxy groups, and came from a northerly direction, ruling out Yemen as a launch site. But they stopped short of saying the strikes were launched directly from or by the Islamic Republic, claims that could have propelled a drift toward war. The attacks caused an unprecedented surge in oil prices.
*All sources from Bloomberg unless otherwise specified