September 3rd, 2019
Daily Market Commentary
- After enduring a bumpy ride in August, investors in Canadian stocks need to brace for more volatility in September, typically the worst month of the year for equities. In the past 10 years, the S&P/TSX Composite Index has dropped an average 1.5% in September, as the end of summer, return to school and the start of a heavy conference agenda seem to be a bad combination for equities. The only other months with negative returns over the same period were October, June and January, according to data compiled by Bloomberg.
- Japanese stocks advanced in thin trading as investors sought fresh leads after taking in the latest developments on the trade conflict between the U.S. and China. Automakers and chemicals were the biggest boosts to the Topix index. Shares in Tokyo rebounded after opening lower following reports that Chinese and American officials were struggling to schedule a planned meeting this month on trade talks. Equity markets were weak Monday after President Donald Trump’s tariffs on $110 billion in Chinese imports took effect on Sunday.
- U.S. stock index futures indicate a negative open for markets as investors assessed whether Chinese and American officials can schedule a meeting this month to continue trade talks. S&P 500 Index futures expiring in September fell 0.6% as of 9:28 a.m. in London. Contracts on the Nasdaq 100 and on the Dow Jones Industrial Average declined 0.7%. The U.S. stock market was closed Monday for Labor Day. “Ever since China dismissed the possibility of retaliation against U.S. companies operating in China market, fears have dissipated,” said Nader Naeimi, AMP Capital Investors Ltd.’s head of dynamic markets in Sydney. “And the fact that tariffs are now a certainty, it’s not an uncertainty anymore.”
- Gold futures advanced as investors return from a long weekend in the U.S. following the latest round of tit-for-tat tariffs between the world’s two biggest economies. Silver and platinum, which have been playing catch-up with gold, also gained even as the dollar traded at the highest in more than two years, making precious metals more expensive in other currencies. Spot gold traded slightly higher. Chinese and U.S. officials are struggling to agree on the schedule for a planned meeting this month, according to people familiar with the discussions. Mounting political uncertainty in the U.K. over Brexit and violent confrontations in Hong Kong are also supporting demand for safe havens.
- Oil held losses as the U.S. and China’s inability to agree on a schedule for talks deepened concern that their ongoing trade clash will further erode fuel demand. Brent futures for November slipped 0.7% in London after dropping 1% on Monday. Chinese and U.S. officials have yet to agree on the basic terms of re-engagement after the latest round of tariff increases, with mistrust on both sides, according to people familiar with the discussions. Crude output from OPEC rose last month for the first time since the group and its allies began a new round of cutbacks at the start of the year, a Bloomberg survey showed.
- It will be another day of political drama, as members of Parliament try to grab control of the agenda to force Prime Minister Boris Johnson to ask for a Brexit extension if he can’t get a better deal with the European Union. Johnson has threatened a snap election, saying he needs to be able to keep no-deal Brexit on the table to negotiate.
- Italy on Tuesday faces one more hurdle in its bid to set up a government and avoid new elections: a vote by as few as 50,000 online activists. Members of the Five Star Movement, one of the parties set to support Giuseppe Conte’s second bid to be prime minister, vote Tuesday on an alliance with the Democrats — their sworn enemies until a few weeks ago. “Do you agree with the Five Star Movement setting up a government, led by Giuseppe Conte, with the Democratic Party?,” registered users will be asked from 9 a.m. to 6 p.m. Measures put before party members generally pass.
- China softened its tone toward Hong Kong’s protesters, saying peaceful demonstrations were allowed under the law, even as it ruled out a fundamental demand for direct democracy that has fueled the unrest. In a wide-ranging briefing in Beijing on Tuesday, Chinese officials overseeing Hong Kong sought to make a clear distinction between violent protesters who have thrown petrol bombs in running battles with police and others who have marched peacefully through the former British colony. They also strongly backed Chief Executive Carrie Lam, saying an emergency law could be implemented if necessary and pledging support for the economy.
- Economists are downgrading their forecasts for economic growth in China again, to below a level seen as necessary for the Communist Party to meet its own goals in time for its centenary in 2021. Oxford Economics, Bank of America Merrill Lynch, and Bloomberg Economics on Tuesday all cut their forecasts for gross domestic product growth in 2020 to below 6% as a result of increasing risks from the tariff war with the U.S. In addition, Bank of America’s Helen Qiao and others are warning that the government’s current approach to stimulus is proving insufficient.
- South Korean imports of beer from Japan plunged 97% in August from a year earlier, a local newspaper reported, amid a popular backlash against Japanese products that has spread as relations between the two countries sour. South Korea imported just $223,000 worth of Japanese beer in the month, down from $7.57 million a year earlier, the Maeil Business Newspaper said, citing preliminary data from Korea Customs Service. Japan has held the largest share of South Korean beer imports every year since 2010, with sales surging more than sixfold by 2018 to $78.3 million.
- Temasek Holdings Pte’s sale of a $3 billion stake in retailer A.S. Watson Group has been derailed under the twin pressures of Brexit and the anti-government protests rocking Hong Kong, people with knowledge of the matter said. The Singapore state investment company put the process on hold after failing to reach agreement on valuation with potential buyers, said the people, who asked not to be identified as the discussions are private. In addition to the turmoil in A.S. Watson’s home market of Hong Kong, uncertainties around Brexit have affected the retailer’s business in the U.K., where it runs the Superdrug chain, one of the people said.
- Lloyds Banking Group Plc is snapping up Tesco Plc’s mortgage portfolio for about 3.8 billion pounds ($4.6 billion) as the British bank bets the U.K. economy will hold up despite the prospects of a disorderly Brexit. The country’s biggest mortgage lender is tightening its grip, acquiring over 23,000 mortgage customers as part of the deal, according to statements from both companies. Tesco, which has been cutting costs and slimming staff, said in May that it’s ending mortgage lending and exiting its home loan book, citing challenging conditions that have pushed some smaller lenders out of the market.
- Saudi Arabia removed Energy Minister Khalid Al-Falih from his position as Chairman of Saudi Aramco, the second time his role has been scaled back in less than a week, as the government prepares to sell shares in the state-owned oil company. Al-Falih said on Twitter that he will be replaced by Yasir Al-Rumayyan, head of the sovereign wealth fund. The appointment of Al-Rumayyan, already an Aramco board member and a key adviser to powerful Crown Prince Mohammed Bin Salman, will separate the Ministry of Energy from Aramco and avoid conflicts of interest as the company prepares for the upcoming initial public offering, according to a source familiar with the thinking behind the decision.
- The U.S. East Coast from Florida to the Carolinas was bracing for devastating winds and a life-threatening storm surge from Hurricane Dorianas the Category 3 storm wreaks havoc on the Bahamas. Dorian still nearly stationary about 105 miles (170 kilometers) east of Florida’s West Palm Beach and will begin moving toward the northwest later this morning, the National Hurricane Center said in a 5 a.m. Eastern Time advisory. While its winds have weakened somewhat, the storm has inflicted huge damage, killing five on one island, according to Prime Minister Hubert Minnis, who called the destruction a “historic tragedy.”
- It’s an arcane, technical part of stock-trading, part of the hidden plumbing behind every click to buy or sell. But for those who run, regulate and trade in U.S. equity markets, it’s become a battlefield. At issue are rebates — the payments that exchanges make to top traders and brokers for sending them their business. The point of contention is a two-year government pilot program — a Securities and Exchange Commission experiment — designed to determine whether rebates influence the locations where trades are made. The dispute pits the New York Stock Exchange, Nasdaq Inc. and Cboe Global Markets Inc. — which run the top U.S. marketplaces — against the SEC, asset managers and pension funds such as the California Public Employees’ Retirement System. Money managers say rebates can create conflicts of interest. The agency wants to determine whether this is true, but exchanges say the study would needlessly disrupt markets. Personal attacks have been lobbed. Industry panels have devolved into mudslinging. Lawyers have been unleashed.
- Huawei Technologies Co. lashed out at the U.S. government Tuesday, accusing Washington of orchestrating a campaign to intimidate its employees and launching cyber-attacks to infiltrate its internal network. China’s largest technology company claimed the American government had instructed law enforcement agencies to threaten and attempt to manipulate its employees. Huawei also accused the U.S. of launching attacks against its networks, the company said in a statement without saying how it obtained that information. The accusations ratchet up tensions between Huawei and the Trumpadministration, which has accused the networking giant of aiding Beijing in espionage and labeled it a national security risk. Washington has blacklisted the Chinese company, curbing the sales of the technology Huawei needs to make phones and telecommunications equipment.
*All sources from Bloomberg unless otherwise specified