September 20th, 2019

Daily Market Commentary

Canadian Headlines

• Canada’s equity benchmark rose for the fourth time this week but gave up some of its gains into the close as pot stocks retreated. The S&P/TSX Composite closed up 0.4% at 16,859.77 after earlier adding as much as 0.7%. The health-care sector led the decline, falling 3.3% as a growing number of vaping-related illnesses weighed on cannabis stocks. Barrick Gold Corp. contributed the most to the index gain, increasing 3.8%. First Quantum Minerals Ltd. had the largest increase, rising 10.3%.
• The Bank of Canada has selected a new deputy governor, filling the final spot in the policy-making body responsible for setting the key interest rate in the country. Toni Gravelle will join the governing council Oct. 1, according to a release issued Thursday by the Ottawa-based central bank. The appointment fills a vacancy left by the departure of former Deputy Governor Lynn Patterson, and completes the six-person committee that directs monetary policy in Canada. Gravelle, who holds a PhD in economics from Western University in London, Ontario, joined the Bank of Canada in 1996 and has been working as managing director of the financial markets department. He also worked for Canada’s finance department and the International Monetary Fund as an economist.
• First Quantum Minerals Ltd., the owner of Africa’s biggest copper mine, is drawing preliminary takeover interest from global miners after losing half its value over the past five years, people with knowledge of the matter said. Vancouver-based First Quantum, which has a market capitalization of C$7.7 billion ($5.8 billion), is working with defense advisers to examine its options, according to the people. It hasn’t yet received any formal takeover offers, the people said, asking not to be identified because the information is private.

World Headlines

• U.S. equity futures and European stocks climbed on Friday as a busy week of central bank meetings drew to a close, with focus now likely to shift back to the trade war. Treasuries edged higher for a fifth day. Contracts on the three main American indexes all pointed to a positive start on Wall Street after the S&P 500 Index closed less than 1% from a record high on Thursday. The Stoxx Europe 600 Index drifted before rising led by retail shares. The pound reversed an earlier gain as the Irish government moved to dampen hopes of an imminent breakthrough in Brexit negotiations. The yuan climbed after the People’s Bank of China announced that it will drain funds via a bill sale in Hong Kong. Oil prices climbed amid still-elevated tensions in the Middle East.
• Indian stocks surged with the rupee while bonds slumped after the government unexpectedly slashed the corporate tax rate to boost economic growth. The Sensex jumped 5.3%, its biggest gain since May 2009, led by banks and automakers. The rupee climbed 0.3% against the dollar. The yield on 10-year bonds surged 16 basis points, the most for the benchmark notes since February 2017.
• Gold headed for the first weekly advance in four as mounting economic headwinds and monetary easing stayed in focus after this week’s mixed policy messages from the Federal Reserve. Palladium rallied to a record. While bullion wobbled earlier in the week after Fed policy makers diverged on interest-rate expectations, investors are refocusing on gold’s long-term prospects amid multiple threats to the world economy. A stark OECD report that forecast the weakest global growth in a decade refreshed some of the concerns that spurred gold to six-year highs earlier this month.
• Oil was on track for its biggest weekly increase since January as traders waited to see whether Saudi Arabia can fulfill promises to swiftly repair a critical processing facility attacked last weekend. The world’s biggest crude exporter has vowed to restore its Abqaiq plant this month after an aerial strike composed of drones and missiles disabled 5% of global supply and triggered Brent’s biggest-ever one-day jump. Yet consultants such as Rystad Energy and FGE caution that recovery could take longer than expected, and the kingdom’s resort to sourcing refined fuels and condensatesfrom the market is fanning concerns about the length of the disruption.
• Mitsubishi Corp. said a rogue oil trader at its Singapore unit lost $320 million in unauthorized transactions disguised as legitimate hedges for customers. The employee, a Chinese national working at Petro-Diamond Singapore Pte, has been fired and reported to police, Mitsubishi said in a statement, declining to name him. The trader, hired in November 2018 to handle oil business with China, “repeatedly” engaged in the unauthorized deals since January, disguising them to “look like hedge transactions,” the parent company said.
• Signs that stress in U.S. funding markets is rebuilding ramped up pressure on the Federal Reserve to permanently increase reserves by boosting Treasury holdings, even as it was preparing a temporary liquidity injection for a fourth straight day. The New York Fed plans to do another $75 billion overnight repo operation on Friday. It follows liquidity doses of the same size Thursday and Wednesday, and $53.2 billion on Tuesday. The central bank is deploying this remedy for the first time in a decade.
• U.S. economic data are beating economists’ expectations by the most this year, offering a fresh rebuttal to last month’s resurgent recession fears fueled by the trade war and a manufacturing slump. The Bloomberg Economic Surprise Index has reached an 11-month high after four indicators released Thursday, including existing home sales and jobless claims, each surpassed expectations. The gauge continued to advance after swinging to positive from negative on Tuesday for the first time this year. The data also pushed a similar measure produced by Citigroup Inc. to the highest level since April 2018.
• Treasuries are narrowly mixed as U.S. trading gets underway, with front-end cheaper and rest of the curve richer and futures price action inside Thursday’s ranges. Yields across the curve have rebounded from session lows concurrently with S&P 500 E-Mini futures. Yields lower by from belly to long-end of the curve by as much as 1.3bp while 2-year yields are cheaper by less than 1bp, flattening 2s10s, 5s30s by about 1bp-1.5bp; 10-year yields around 1.775%, nearer the bottom of 1.74%-1.88% weekly range

*All sources from Bloomberg unless otherwise specified