September 26th, 2018

Daily Market Commentary

Canadian Headlines

• Canadian stocks fell for a second day as trade tensions with the U.S. continued and global markets declined. U.S. Trade Representative Robert Lighthizer said the U.S. won’t wait for Canada on new Nafta pact. President Donald Trump and Prime Minister Justin Trudeau attended the same luncheon at the United Nations General Assembly, where the pair had a brief handshake suggesting lingering resentment.
• Canada’s luxury-home market has a split personality: East versus West. Sales for C$1 million ($770,000) or more in the Toronto region bounced back after a slowdown earlier this year, climbing 19 percent in July and August from the same period in 2017, Sotheby’s International Realty Canada said Wednesday. The increase was even greater — 34 percent — for a subset of transactions priced above C$4 million. Deals went the opposite way in Vancouver, a pricier market that’s still adjusting to new regulations, including a provincial foreign buyers tax and speculation tax, on top of the rising interest rates that affect the whole country.
• The U.S. is moving forward on its bilateral trade deal with Mexico even if Canada is left out because negotiators can’t resolve their sharp differences over dairy and a dispute resolution system, U.S. Trade Representative Robert Lighthizer said. The Trump administration soon plans to present to Congress a text of the U.S.-Mexico trade agreement that was announced last month to revise portions of the North American Free Trade Agreement, Lighthizer said at an event in New York on Tuesday. The timeline is important because current Mexican President Enrique Pena Nieto wants to sign the deal before he’s succeeded by Andres Manuel Lopez Obrador in December, Lighthizer said.

World Headlines

• European equities were little changed at the open, while automakers fell again amid U.S.-China trade spat and as investors eyed the U.S. Federal Reserve meeting, which is expected to bring another rate hike. The Stoxx Europe 600 Index was up less than 0.1 percent. Volkswagen retreated 1.9 percent, BMW dropped 2 percent. BMW cut its profit forecast on Tuesday, becoming the latest carmaker to succumb to pressures ranging from trade wars to scrutiny on emissions.
• While investors are treating another Fed rate hike as all but certain on Wednesday, the outlook for future policy as signaled by the dot plot and any comments from Jerome Powell will be key to whether bond markets extend their recent selloff. Ten-year Treasury yields of 3.09 percent are just below their year-to-date peak, while two-year yields are at a decade high.
• Asian shares fluctuated as China’s benchmark climbed and Japanese equities edged down ahead of a decision from the U.S. Federal Reserve meeting. The MSCI AC Asia Pacific Index rose 0.1 percent as of 4:35 p.m. in Hong Kong after reversing a 0.3 percent drop, with energy producers leading gains. Japan’s benchmark Topix index overcame losses to close nearly unchanged, as more than 1,000 stocks traded ex-dividend. The Hang Seng Index rose 1.2 percent following a Tuesday holiday, while the Shanghai Composite Index gained 0.9 percent as MSCI considers lifting China’s weighting and adding ChiNext shares.
• Oil traded near $82 a barrel as pressure on Iran escalated, with President Trump hardening rhetoric against the country and crude customer India cutting its imports to zero. Brent futures were little changed in London after settling in the previous session at the highest since November 2014. With U.S. sanctions on Iran taking effect in less than two months, Trump told the United Nations General Assembly on Tuesday that the leaders of the Islamic Republic “sow chaos, death and destruction.” Buyers are increasingly wary of Iranian crude, and India is not planning to import any in November, according to company officials.
• Gold futures post second straight increase as dollar slips and trade frictions fester ahead of the U.S. Federal Reserve’s decision on interest rates this week.
• Iron ore will retreat to $50 a metric ton by the year-end on a slowdown in China’s mammoth property market but prices will be prevented from slipping further as lower local mine supply helps to sustain import demand, according to independent economist Andy Xie.
• Facebook Inc. finds itself entangled in yet another political spat — this time with China, a market the social media giant is seeking to enter. Police in Hong Kong, a semi-autonomous part of China, have asked the company to remove the official page of the pro-independence National Party, which was slapped with an unprecedented government ban this week. The prohibition pledges fines and imprisonment for those aiding the group. Hong Kong officials made their request of Facebook after the measure was announced on Monday, according to the South China Morning Post.
• Tweeting will only get you so far. After failing to cajole OPEC to pump more and lower oil prices, U.S. President Donald Trump could pursue a more direct route: tapping his nation’s Strategic Petroleum Reserve. And just as with his tweets, that may not lead him to his goal. With global benchmark Brent crude at a 4-year high above $80 a barrel less than two months before key mid-term elections in the U.S., the growing consensus in the industry is that it’s more a question of when, not if, Trump authorizes a release from the emergency stockpiles built after the 1973-74 oil crisis.
• Royal Dutch Shell Plc is selling its only California crude oil pipeline system as it has been shedding assets to pay for its take over of BG Group Plc. The San Pablo Bay pipeline system carries oil from the Bakersfield area to Shell’s Martinez refinery near San Francisco. The move comes as the state has taken aggressive action in diversifying its energy supply.
• India isn’t planning to buy any Iranian oil in November, raising the prospect that Tehran will lose another major customer as U.S. sanctions hit and spurring speculation over whether China will follow suit. India is joining other Asian buyers such as South Korea and Japan that have already halted imports from the Persian Gulf state before American restrictions take effect in early November. It’s unclear if China, the world’s biggest oil importer as well as Iran’s top customer, will persist with purchases.
• Jeremy Corbyn, leader of the U.K.’s opposition Labour Party, will travel to Brussels on Thursday to meet with European Union officials including the bloc’s Chief Negotiator Michel Barnier, according to a person familiar with his plans. Corbyn will go the day after the end of a four-day party conference in Liverpool, England, at which Brexit has been a dominant theme. Delegates overwhelmingly voted in favor of a motion that keeps open the option of campaigning for a second referendum on leaving the EU.
• The restaurant industry has to contend with a new giant. The parent of Arby’s, Inspire Brands Inc., announced on Tuesday that it had agreed to acquire Sonic Corp. in a deal valued at about $2.3 billion, adding more than 3,600 locations of the burger chain to a portfolio that also includes Buffalo Wild Wings and Rusty Taco. The deal would give Inspire, controlled by private equity firm Roark Capital, a total of about 8,200 locations and make it one of the 10 largest restaurant companies in the U.S. by that measure.
• India’s top court has refused to scrap the world’s largest biometric database, upholding the validity of the sprawling digital-identity program but imposing restrictions on its use — including preventing the government from sharing citizens’ data with private companies. Four out of five Supreme Court judges said the program is constitutionally sound for the distribution of state-sponsored welfare subsidies in a country where nearly a quarter of the 1.3 billion-strong population is poor. However, it cannot be made mandatory for opening bank accounts or providing mobile-phone connections, Justice A.K. Sikri told the courtroom, though it is required for Indians paying income tax.
• The growing furor over Brett Kavanaugh’s Supreme Court nomination has Republicans trapped between their conservative base and the female voters who’ll be pivotal to deciding control of Congress in November. President Donald Trump and his conservative allies are rallying behind Kavanaugh, calling allegations of sexual misconduct brought by two women a Democratic smear campaign intent on blocking his confirmation to the high court. But they’re doing so amid a widening gender gap that has women increasingly breaking toward Democrats six weeks before the midterm elections.
• Tesla Inc. is offering incentives and tapping an army of brand-loving volunteers in a frantic push to boost sales and deliveries before the end of the quarter. If the final days of the second quarter were all about trying to prove to investors that Tesla can ramp up output of its mission-critical Model 3 electric sedan, then the third period is about getting the cars out the door fast enough to drive up revenue and move the money-losing company toward profitability.
• Michael Kors has an ambitious plan to turn Versace into a multibillion-dollar business. Can it make it work? Kors, which is changing its corporate name to Capri Holdings Ltd., announced Tuesday that it would buy Gianni Versace SpA for about $2.2 billion. It outlined a plan to more than double the high-end brand’s sales by opening about 100 new stores, investing in e-commerce and selling more accessories and footwear under the Versace label. It’s also looking to expand in Asia, eyeing markets including Japan and South Korea.
• Vodafone Group Plc is offering Europe’s largest corporate hybrid-bond sale this year to support the 18.4 billion-euro ($22 billion) acquisition of Liberty Global mobile and cable operations in Germany and eastern Europe. The U.K. mobile-phone provider is selling a minimum 3 billion euros of hybrids across two euro tranches, a dollar issue and a pound note, according to people familiar with the matter who asked not to be identified because the information is private. Bank of America Merrill Lynch is global coordinator for the deal.
• As part of an ongoing $1.2 billion supply-chain upgrade, Home Depot Inc. has started same-day delivery across the U.S. to help it stay relevant with consumers’ need-it-yesterday mentality. The home-improvement chain had already been using trucks to deliver large items such as building materials from stores in a day or so. Now, aided by startups Roadie Inc. and Deliv Inc. in its top 35 metro markets, online orders made before noon of about 20,000 products — everything from Halloween decorations to power tools — can arrive by van or car the same day, starting at a cost of $8.99.
• Wireless carriers have spent years pounding each other with discounts like family plans, taxes-included offers, unlimited data and free Netflix. Now they’re putting their targets on the cable industry. Verizon Communications Inc. plans to launch the nation’s first 5G — or fifth generation — wireless service in four cities next week. Using new frequencies that beam data straight to home receivers, the phone giant promises to match or beat the fastest cable offerings and deliver the ultra-HD videos consumers have come to expect on their living-room sets.

*All sources from Bloomberg unless otherwise specified