September 6th, 2017

 

Daily Market Commentary

 

Canadian Headlines

• The loonie has surged to the highest in more than two years as evidence of economic strength fueled bets on a Bank of Canada interest-rate hike. But the options market is signaling the gains may only go so far. The Canadian dollar reached C$1.2336 Tuesday, and is up about 8.6 percent this year. It advanced the past three weeks, gaining energy from an Aug. 31 report showing Canada’s gross domestic product grew last quarter at the fastest pace among Group-of-Seven countries.
• Housing prices in Toronto continued their summer slump in August as government regulations and fears about a market softening curbed demand in Canada’s biggest city. The average price for all housing types declined 1.9 percent last month from July to C$732,292 ($591,225), according to the Toronto Real Estate Board. That’s down 20 percent from the March peak, when the average cost of buying a home in the Toronto region climbed close to C$1 million.
• Industrial metals have posted their longest run of weekly gains since 2006 and gold’s had its best month since January, but the commodity-heavy equity benchmark in the world’s mining capital just can’t seem to gain any traction. It’s the latest frustration for Canada’s S&P/TSX Composite Index, which has lagged all but one of its developed-market peers this year even as base metals have rallied on stronger Chinese demand and gold has gained amid geopolitical uncertainties.
• The yield on Canada’s two-year government bond closed above its U.S. counterpart for the first time in two years amid speculation the Bank of Canada may tighten monetary policy on Wednesday. Expectations for this year’s second rate increase from Governor Stephen Poloz increased after the country postedfaster-than-anticipated second-quarter growth last week.

 

 

World Headlines

• European stocks fall as investors avoid riskier assets as they assess escalating geopolitical tensions, and ahead of the European Central Bank meeting tomorrow. The Stoxx Europe 600 Index falls 0.4%, heading for its third decline in a row, as gauges of miners and construction stocks drop the most. Automakers are the only industry group advancing, up 0.6%. The Stoxx 600 retreated 0.1 percent Tuesday.
• There was little optimism on display in Wednesday trading, with North Korean tensions simmering, another hurricane bearing down on the U.S. and the American debt ceiling looming. U.S. stock futures fluctuated, and the dollar edged lower with Treasuries a day after dovish comments from Federal Reserve officials sparked a bond surge.
• Asian shares dropped as banks led declines from Seoul to Hong Kong, while North Korea again dominated headlines. The MSCI Asia Pacific Index fell 0.2 percent to 160.21 as of 4:33 p.m. in Hong Kong, erasing Tuesday’s gains. Japan’s Topix closed 0.1 percent higher after reversing an early decline. Hong Kong’s Hang Seng Index dropped 0.5 percent, with financial and property companies among the biggest losers.
• Oil traded near a three-week high as key refineries and pipelines restarted from shutdowns forced by Hurricane Harvey, reviving crude demand in the heart of the U.S. energy sector. Futures were little changed in New York after closing 2.9 percent higher Tuesday. While U.S. Gulf Coast refiners are working to restore operations to normal, traders are also watching the approach of another Atlantic hurricane, Irma.
• Gold steady near highest in a year as South Korean PresidentMoon Jae-in warned of an “uncontrollable situation” in the peninsula, and U.S. central bank officials signal they aren’t in a hurry to raise interest rates.
• President Donald Trump’s decision to end an Obama-era program preventing the deportation of immigrants illegally brought to the U.S. as children risks a deep wedge between the Republican Party’s leaders and its conservative base ahead of next year’s congressional elections. In announcing an end to the program in the next six months, Trump called on Congress to pass legislation to codify the protections President Barack Obama created for about 800,000 people, called Deferred Action for Childhood Arrivals, or DACA.
• Two years after Chinese policy makers devalued the yuan, an act that torpedoed global markets, traders are starting to view the currency as a sure bet. The yuan has surged 3.9 percent to be the best performer in Asia this quarter, while momentum indicators are near the highest since 2005. Typical risk-off events seem only to heighten demand for the exchange rate, making it act like a haven.
• The world’s second-biggest liquefied natural gas exporting nation will probably curb shipments next year to avoid a domestic shortfall of the fuel, according to the Australian head of Royal Dutch Shell Plc. The Australian Energy Market Operator will probably declare a shortage for eastern states in the next two to four weeks, Shell Australia Chairwoman Zoe Yujnovich said at a Bloomberg event Wednesday in Sydney.
• Airbus SE is on the verge of securing an order for 45 of its A350-900 wide-body jetliners, a critical win after a run of deferrals by U.S. carriers, according to people familiar with the matter. The deal could be announced as soon as Wednesday and would be valued at $14 billion before discounts, according to the people, who asked not to be identified as the talks are private. The order will likely be placed by United Continental Holdings Inc. to convert an earlier $12.6 billion deal for 35 of the bigger -1000 variant, based on current list prices, the people said.
• U.K. Prime Minister Theresa May’s Brexit planning suffered a double blow as a top European Union official doubted that trade talks will start next month and the opposition Labour Party prepared to challenge key legislation. The EU’s deputy Brexit negotiator, Sabine Weyand, told German lawmakers that she’s skeptical officials will be able to begin discussing a trade deal in October, as they had hoped, according to two people present at the briefing.
• Dalian Wanda Group Co. delayed a 10-billion-yuan ($1.5 billion) share-sale plan for its internet unit amid mounting scrutiny from the Chinese government, a person familiar with the matter said. The series A fundraising, an early round of investment, for closely held Wanda Internet Technology Group will be pushed back until at least early next year.
• Intel Corp. won a round in its eight-year fight with the European Union over a 1.06 billion-euro ($1.26 billion) fine in a case that could have ramifications for a list of disputes involving U.S. tech giants including Google and Apple Inc. The EU’s top court ruled that Intel’s appeal had to be reexamined by a lower tribunal, criticizing judges for failing to properly analyze the economic aspects of the case in its 2014 decision to reject the chipmaker’s initial challenge.
• Nasdaq Inc.’s takeover of data provider EVestment Inc. spotlights the exchange industry’s seemingly bottomless appetite for data and its emerging focus on cultivating a closer relationship with money managers. The exchange operator agreed to pay $705 million for EVestment, a company that sells data and analytics to customers like hedge fund managers and institutional investors. EVestment has more than 2,000 clients that use its database to analyze 74,000 investment vehicles. The deal will be financed with a mix of cash and debt, Nasdaq said in a release Tuesday.
• The surprise review of the plea agreement signed by the billionaire Batista brothers with Brazilian prosecutors opens up the path for buyers to renegotiate $8 billion in asset sales. J&F Investimentos SA, the holding company that controls the family’s assets including meat giant JBS SA, has rushed to sell businesses to survive the turmoil caused by the plea deal of seven of the firm’s executives, including brothers Joesley and Wesley Batista, who confessed to graft and other crimes. In May, J&F agreed to pay 10.3 billion reais ($3.3 billion) in fines as part of an agreement which prosecutors called the world’s biggest leniency deal.
• The Chinese central bank’s tight leash on liquidity is straining the bond market, with the benchmark sovereign yield moving near the highest level since April 2015. The nation’s 10-year government bonds have slumped in the past three weeks, pushing the yield seven basis points higher to 3.69 percent. The People’s Bank of China has drained 870 billion yuan ($133 billion) in open-market operations in that period, while a 4.3 percent jump in the Shanghai Composite Index has boosted the lure of investing in equities.
• The revenue hit to Russian exporters from a stronger ruble in 2017 is set to claim another casualty next year as the Finance Ministry concedes it can’t deliver on its plan to collect 400 billion rubles ($7 billion) in dividends for the budget.
• Boeing Co. raised its 20-year forecast for aircraft demand in China as economic growth and an expanding middle class spur travel in the world’s most-populous nation. China will need 7,240 new planes valued at almost $1.1 trillion in the two decades through 2036, Boeing said Wednesday. That compares with its projections last September for 6,810 aircraft through 2035.
• Sasol Ltd. said workers began returning to its $11 billion Lake Charles Chemicals Project in Louisiana after the site was shut for more than a week because of Hurricane Harvey. Construction workers came back “albeit at lower-than-usual turnout levels” following the Aug. 26 closure, Russell Johnson, a spokesman for Sasol’s North American operations, said in an email late Tuesday. “The site could not be accessed for safe work for seven work days,” he said.
• Amec wins engineering, procurement and construction contract for part of $1.85b methanol plant being developed by Yuhuang Chemical Inc.
• Poland aims to lure 117 billion zloty ($33 billion) in investments over the next 10 years with a new incentive plan designed by Deputy Prime Minister Mateusz Morawiecki. Corporate income tax breaks and incentives for small business are aimed to add 158,000 jobs and generate revenue of 3.7 billion zloty for state and municipal budgets over the next decade, according to a Wednesday presentation by Morawiecki at an economic forum in Krynica, Poland.
• The pipeline that transports crude from Libya’s largest oil field reopened after a halt of more than two weeks, putting pressure on OPEC and other producers seeking to rein in a global supply glut and firm up prices. Libyan authorities reopened a valve on the pipeline from the southwestern Sharara field to the Zawiya refinery after they reached a final agreement with a militia group that had closed the link.

 

 

*All sources from Bloomberg unless otherwise specified