September 25th, 2019
Daily Market Commentary
- Canadian stocks fell as BlackBerry tumbled on an earnings miss and reports said U.S. Democrats would launch a formal impeachment inquiry amid the Ukraine controversy. The S&P/TSX Composite fell for the second day, dropping 0.4%, or 68.87 to 16,798.33 in Toronto. The move was the biggest drop since falling 1.3% on Aug. 23. Shopify Inc. contributed the most to the index decline, decreasing 6.%. BlackBerry Ltd. had the largest drop, falling 23%.
- European stocks fell on Wednesday, weighed down by losses among cyclical sectors such as oil and gas and technology, as political turmoil in the U.S. and U.K. hit risk appetite globally. The Stoxx Europe 600 Index was down 0.5% by 8:04 a.m. London time, while the U.K.’s FTSE 100 Index retreated 0.6%. There were bright spots for some U.K. stocks with Babcock gaining 3.2% after the company confirmed its outlook, while Sainsbury was a top gainer, up 1.1%, after the supermarket operator maintained its guidance.
- U.S. index futures dipped while stocks slumped in Europe and Asia as investors weighed the deepening political gridlock in Washington against prospects for reduced trade tension between America and China. The dollar advanced. Contracts for all three main equity gauges signaled more declines at the New York open as traders grappled with the impeachment investigation into President Donald Trump, seemingly getting little comfort from a Bloomberg report that China is preparing to buy more U.S. pork.
- Japanese shares fell on concern over brewing political uncertainty in the U.S. after Speaker Nancy Pelosi said the House is opening a formal impeachment inquiry of President Donald Trump. The Topix fell for the first time in four sessions, with auto and machinery stocks weighing most heavily. Pelosi’s move followed revelations that Trump pushed Ukraine’s government to investigate Joe Biden, now the front-runner for the Democratic presidential nomination in 2020. The president dismissed the move as “witch hunt garbage.”
- Oil extended declines as Saudi Arabia was said to be ahead of schedule in restoring its output capacity. Futures lost as much as 1.5% in New York after dropping 2.3% on Tuesday. Saudi Aramco’s production capacity now exceeds 11 million barrels a day, beating a self-imposed deadline by about a week, according to people with knowledge of the situation. The Abqaiq processing plant has 4.92 million barrels a day of capacity available and Khurais 1.3 million, they said, which are at or above the levels before the Sept. 14 attack.
- Gold steadied after posting its longest rally in three months as investors weighed growing political tensions in the U.S., which reinforced demand for havens. Palladium notched a fresh record. Bullion, which has already benefited from central bank easing, slowing growth and the trade war, gained an additional support after an announcement that the U.S. House of Representatives is opening a formal impeachment inquiry of President Donald Trump.
- Boris Johnson flew back into a momentous political crisis on Wednesday, after Britain’s Supreme Court ruled he broke the law by suspending Parliament. He’s facing calls to sack his political and legal advisers and will address the House of Commons later. Members of Parliament returned to work this morning and are considering their options, ranging from new laws to stop a no-deal Brexit, to appointing a cross-party government of national unity. A general election is also on the horizon — though opposition Labour leader Jeremy Corbyn said he won’t seek a vote of no confidence in the government until the risk of crashing out of the European Union without an agreement has been removed.
- Chinese companies are preparing to purchase more U.S. pork, according to people familiar with the situation, as the government battles against domestic shortages and top trade negotiators from both nations plan to meet in Washington next month. The firms are inquiring about prices from pork exporters including Smithfield Foods Inc., owned by China’s WH Group Ltd., and Tyson Foods Inc., said the people, asking not to be identified discussing a private matter. The volume of the purchases hasn’t been finalized but may be around 100,000 tons, some of which will be for state reserves, the people said.
- House Speaker Nancy Pelosi’s decision to launch a formal impeachment inquiry of Donald Trump will consume the nation’s attention, grind the work of government to a halt and ultimately determine whether the president heads into re-election damaged or emboldened. Pelosi on Tuesday threw the weight of her office behind an impeachment she’s been reluctant to embrace — until allegations surfaced last week that Trump improperly pressured the government of Ukraine. That has set her on course for a constitutional clash with Trump, who quickly assailed the proceedings as “Witch Hunt garbage” and vowed a vigorous defense. That defense will intensify on Wednesday, when Trump will release an unredacted transcript of his call with Ukrainian President Volodymyr Zelenskiy, which the president says will rebut claims he leaned on Ukraine to investigate former Vice President Joe Biden. Adding to the moment, Trump will meet with Zelenskiy in person on the sidelines of the United Nations General Assembly before holding a news conference.
- Saudi Arabia is recovering faster than expected from the biggest attacks ever on its oil industry, beating its own target for restoring capacity by about a week. State oil producer Saudi Aramco has boosted total production capacity to more than 11 million barrels a day, according to people with knowledge of the situation. The news helped to push crude down by as much as 1.8% in London as the kingdom’s efforts to resolve the worst disruption of output in history help avert a global supply crisis. The attacks this month by more than two dozen missiles and drones threw into doubt Saudi Arabia’s role as an anchor of stability in global energy markets and its ability to convince investors to buy shares in Aramco’s planned initial public offering. The U.S. blamed Iran for the strikes, the latest in a string of tanker bombings and pipeline assaults since May. Iran denied responsibility for the latest attacks which were claimed by Houthi rebels that the Saudis are battling in Yemen.
- Banco Santander SA will take a 1.5 billion-euro ($1.7 billion) charge over its U.K. business, which has struggled to boost profit amid stricter regulations and a competitive mortgage market. The impairment will be included in third-quarter results, the Spanish lender said on Tuesday. It won’t affect the bank’s cash flow or tier 1 capital ratio, a key measure of financial strength. Santander also announced a dividend payment of 10 euro cents a share in cash, unchanged from its second-half payout last year. Santander UK, the lender’s fourth-largest unit, is facing increased competition in its key mortgage market and “ring-fencing” rules that force banks to separate their retail and investment banking operations. Weakness across the bank’s European businesses is increasing the Spanish lender’s dependence on the strong but potentially volatile Latin American market, where it has large businesses in Mexico and Brazil.
- The Bank of Thailand left its benchmark interest rate unchanged and said it may consider steps to rein in the currency’s strength as economic growth weakens. The Monetary Policy Committee voted unanimously Wednesday to hold its key rate at 1.50%, pausing after last month’s surprise cut. The decision was in line with the forecasts of 21 of 29 economists surveyed by Bloomberg, with the rest expecting a cut to 1.25%. Thai authorities are providing monetary and fiscal support to spur growth, which the central bank now expects will be lower this year than previously forecast. Aside from global concerns, growth is also being undermined by the baht, which has gained more than 6% against the dollar so far this year, the best performer in Asia.
- Allcargo Logistics Ltd. is in talks to buy a stake in smaller rival Gati Ltd., people with knowledge of the matter said, as India’s biggest cargo company attempts to boost its presence across Asia’s third-largest economy. Allcargo is in discussions to acquire Gati, that’s 6% owned by Goldman Sachs Group Inc., at an equity valuation of about 13 billion rupees ($183 million), one of the people said, asking not to be identified as the talks are private. The purchase will trigger a mandatory offer to buy Gati’s outstanding shares, the people said.
- Ford Motor Co. is set to transfer most of its assets in India to a joint venture with Mahindra & Mahindra Ltd. after failing to make meaningful inroads for more than two decades in the world’s fourth-largest automobile market, people with knowledge of the matter said. Mahindra, one of India’s largest automakers, will own 51% of the new entity, said the people, who asked not to be identified discussing the confidential plan. Ford will get equal voting rights and board representation, one of the people said. The venture, to be announced as soon as next week, doesn’t include Ford’s global business services division or an export-focused engine plant in Sanand.
- Japan’s corporate bond bankers have been racking up underwriting fees from a record frenzy of note sales. They now face leaner months ahead. Lured by ultra-low borrowing costs, companies sold 9.2 trillion yen ($85 billion) of notes in the first six months of the fiscal year started April 1, the most for any half on record. But issuance may slide to about 4 trillion yen in the second half, according to Daiwa Securities Co. That would be the lowest in four years. Fund managers have already nearly reached their allocations for the year, leaving issuers without ready buyers for their debt, bankers say. Investors binged on blockbuster bonds from companies such as Takeda Pharmaceutical Co., SoftBank Group Corp. and Nippon Steel Corp. in the past few months. Sentiment is also looking shakier as the U.S.-China trade war drags on and a planned tax hike looms over Japan’s economy.
- ConocoPhillips put some Austin Chalk assets in Louisiana up for sale after exploration drilling revealed that the oil wells in the region had a high water content. The Houston-based company is seeking buyers for 234,000 net acres, an area bigger than New York City, with sealed bids due Oct. 17, according to Cody Felton, vice president for business development at EnergyNet, the online broker that’s managing the sale. Conoco’s exploration program in the area was “disappointing,” Chief Operating Officer Matt Fox said on a conference call with analysts in July. “Although we flowed oil from the first three wells, they produced higher water cuts than we were hoping to see,” he said.
- Recent turbulence in U.S. money markets has cast light on a big problem hidden at the root of the Federal Reserve’s conduct of monetary policy: It is targeting an increasingly irrelevant interest rate. Less than $100 billion changes hands each day in the federal funds market, the overnight interbank rate that the central bank targets. In contrast, considerably more than a trillion dollars are traded daily in the market for repurchase agreements, where financial institutions swap Treasury securities for cash.
- Saudi Aramco is set to kick off its mammoth initial public offering next month as the oil giant recovers faster than expected from the biggest terror attacks in its history, according to people with knowledge of the matter. The company aims to announce its intention to float around Oct. 20, the people said, asking not to be identified because the information is private. The firm, which is holding analyst meetings from Wednesday, is targeting a $2 trillion valuation — more than double that of Apple Inc.
- Credit Suisse Group AG plans to finish its probe into a corporate spying case this week, and the findings have the potential to bring down Chief Executive Officer Tidjane Thiam or other senior executives. Investigators are reporting directly into Chairman Urs Rohner, who will move swiftly to either exonerate or take punitive action against top executives, according to a person familiar with the situation, who asked not to be identified because of the sensitivity of the matter. The bank announced on Monday that its board of directors was starting a detailed investigation into the surveillance of former wealth management head Iqbal Khan.
- BHP Group has talked to Anglo American Plc Chief Executive Officer Mark Cutifani about running for the top job at the company, according to people familiar with the matter. BHP made the approaches earlier this year and again more recently, said the people, who asked not to be identified as the process is confidential. Cutifani rebuffed the company’s advances so far, they said. BHP favors an internal hire, but also wants to speak with external candidates, the people said.
- Days after millions of climate protesters called for international action and global leaders convened at the United Nations Climate Action Summit, the world’s top climate-science body now warns that intergovernmental collaboration on a global scale is required to cope with an onslaught of change that has already begun. That’s the conclusion from a 42-page summary of a new report on human-induced changes in the world’s oceans and icy regions, which was published on Wednesday by the UN-backed Intergovernmental Panel on Climate Change. Drawing from disciplines as diverse as ice-sheet dynamics to fisheries management, the report is snapshot of a world at 1 degree Celsius of warming.
*All sources from Bloomberg unless otherwise specified