October 8th, 2019

Daily Market Commentary

Canadian Headlines

• Justin Trudeau took fire from all sides in the only English-language leaders debate ahead of an Oct. 21 vote that polls suggest remains the Canadian prime minister’s to lose. Monday night’s two-hour session in Gatineau, Quebec — near Ottawa — pitted leaders from six Canadian parties against each other, but with Trudeau drawing attacks from both his political left and the right. Topics discussed included pipelines, climate change, indigenous affairs, income inequality, government spending, immigration and affordability.
• Bank of Montreal is gunning for the U.S. investment-bank business that’s being surrendered by European firms like Deutsche Bank AGand Societe Generale SA. The Canadian lender expects to reach its goal of being a “Top 10” North American investment bank “dramatically” ahead of its five-year deadline, Dan Barclay, chief executive officer and group head of BMO Capital Markets, said in an interview at the firm’s Toronto headquarters.
• Canadian heavy oil prices have weakened ahead of an anticipated announcement that Alberta will ease production limits in exchange for shipping more crude by rail. Western Canadian Select’s discount for November to futures widened $1.30 a barrel to $15.75 Monday, for the biggest differential since May, data compiled by Bloomberg show. The spread reached $15.50 a barrel earlier in the day, according to Net Energy Exchange.

World Headlines

• European equities fell, snapping two days of gains, as China signaled it would retaliate against a U.S. blacklist of some of its companies and Brexit talks faced yet another impasse. The Stoxx Europe 600 Index slipped 0.5% as of 10:45 a.m. in London, with all industry groups lower. China indicated it would strike back after the U.S. blacklisted eight of its tech giants. In the U.K., Prime Minister Boris Johnson told German Chancellor Angela Merkel a Brexit deal is essentially impossible if the EU demands Northern Ireland should stay in the bloc’s customs union.
• U.S. equity-index futures retreated alongside European stocks on Tuesday as investors weighed the chances of a breakthrough in high-level trade talks between America and China starting this week. Treasuries and gold advanced. Contracts for the three major U.S. gauges had gained earlier, but they reversed after China said it strongly opposed an American decision to blacklist some of its technology firms over involvement in alleged human-rights abuses.
• Asian equity benchmarks had jumped from Tokyo and Seoul to Shanghai and Hong Kong, where trading showed little concern about ongoing unrest. The tech-heavy South Korean index led the regional advance after Samsung Electronics Co. earnings beat analyst estimates. Official confirmation that Chinese Vice Premier Liu He and People’s Bank of China Governor Yi Gang will both head to Washington for this week’s negotiations generated some optimism during Asian trading, but the mood changed as China signaled it would hit back after America decided to blacklist eight of its tech firms. Foreign Ministry spokesman Geng Shuang said the U.S. is interfering in his country’s internal affairs.
• Oil steadied near a two-month low as renewed tensions between the U.S. and China clouded hopes for a resolution of the trade dispute that’s souring the outlook for fuel demand. West Texas Intermediate futures held near $53 a barrel in New York. China signaled it would retaliate after the Trump administration placed eight of the country’s technology giants on a blacklist over alleged human rights violations. That’s undermining the prospects that this week’s talks between Vice Premier Liu He, China’s chief trade negotiator, and U.S. officials will yield a breakthrough in their long-running stand-off over trade terms.
• Gold inched higher, trading near $1,500 an ounce ahead of upcoming U.S.-China trade talks, as investors continued to pile into bullion-backed exchange traded funds. Palladium dropped to a two-week low. Bullion got some haven support after China said it strongly opposes a U.S. decision to blacklist some of its technology, cooling optimism over a potential breakthrough in high-level talks this week. Palladium, this year’s best-performing main precious metal, has come under pressure as trade tensions weigh on the auto sector, the main user of the metal.
• Hong Kong Exchanges & Clearing Ltd. abruptly dropped its 29.6 billion-pound ($36.4 billion) unsolicited takeover bid for London Stock Exchange Group Plc after a sharp rebuke from the U.K. company and a consistent thumbs-down from shareholders. LSE shares, which traded below HKEX’s 8,361-pence offer since it was announced Sept. 11, dropped as much as 6.5% in London morning trading.
• Boris Johnson told German Chancellor Angela Merkel a Brexit deal is essentially impossible if the EU demands Northern Ireland should stay in the bloc’s customs union. The call between the leaders, at 8 a.m. Tuesday, came after a text message from one of the prime minister’s officials, reported by the Spectator magazine, said his government is preparing for talks to collapse. Ministers have published updated no-deal Brexit planning documents as negotiations between the U.K. and EU continue in Brussels.
• China signaled it would hit back after the Trump administration placed eight of the country’s technology giants on a blacklist over alleged human rights violations against Muslim minorities. Asked Tuesday whether China would retaliate over the blacklist, foreign ministry spokesman Geng Shuang told reporters “stay tuned.” He also denied that the government abused human rights in the far west region of Xinjiang. “We urge the U.S. side to immediately correct its mistake, withdraw the relevant decision and stop interfering in China’s internal affairs,” Geng said in Beijing. “China will continue to take firm and forceful measures to resolutely safeguard national sovereignty, security and development interests.”
• Fortum Oyj agreed to buy stakes in Uniper SE from two activist investors in a 2.3 billion-euro ($2.5 billion) deal that will give it majority ownership and end the longest takeover saga in the European utilities industry. The Finnish utility pursued the German power generator for more than two years in what Uniper’s management board saw as a hostile bid for the company spun off from EON SE in 2016. Fortum always maintained it was friendly and that it was seeking a strategic relationship, but talks between the companies ultimately came to nothing. Through the deals with Elliott Management Corp. and Knight Vinke Asset Management LLC., Fortum can now realize its plan.
• Spanish construction company ACS is pausing preparations for an initial public offering of its renewable-energy unit as it focuses on engaging with potential acquirers of a stake in the business, people with knowledge of the matter said. ACS’s Zero-E unit had initially planned to formally kick off the IPO process early this month by announcing a so-called intention to float, the people said, asking not to be identified because the information is private. The Spanish builder, which has been pursuing a dual-track process for the renewable unit, is still considering selling a stake in the business, the people said.
• Cellnex Telecom SA is buying Arqiva’s U.K. telecommunication towers for 2 billion pounds ($2.5 billion) and selling new shares to help the fast-growing Spanish infrastructure company pursue more deals. In one of its biggest acquisitions to date, Cellnex will acquire 7,400 mobile towers that privately-held Arqiva is carving out from its broadcasting mast business. The transaction makes Cellnex Britain’s biggest independent wireless tower operator and a central player in the country’s rollout of faster 5G mobile technology.
• SDIC Capital Co., the parent company of Essence Securities Co., plans to raise 8 billion yuan ($1.1 billion) in a convertible-bond offering, with the proceeds used to inject capital into the Chinese brokerage, according to people with knowledge of the matter. The planned offering is an expansion of a 4.5 billion-yuan convertible-bond sale announced in March, and is intended to provide additional business-development support to SDIC’s securities-firm subsidiary, said the people, who asked not to be identified because the plans aren’t public. SDIC may announce the fundraising plan in October, one of the people said. The plan is subject to regulatory approval, according to one of the people.
• The U.S. and Japan signed a limited trade deal that opens markets for American farmers and brings Tokyo a degree of assurance that President Donald Trump won’t impose new tariffs on auto imports for now. The accords on agriculture and digital trade cover about $55 billion worth of commerce between the world’s largest- and third-biggest economies, U.S. Trade Representative Robert Lighthizer said at a ceremony in the Oval Office alongside Trump. The accord is a “game changer for our farmers” and ranchers, Trump said at the event. The finalization of the agreement increases the chances Japan will pass it in the current session of parliament, which ends Dec. 9, and meet the goal of bringing it into effect Jan. 1. In Tokyo, Finance Minister Taro Aso said Tuesday that the deal was a “win-win” for both countries and that he expected quick ratification.
• Deutsche Bank AG intends to make about half its planned 18,000 job cuts in Germany as it relies on savings at the retail units to lower costs, according to people familiar with the matter. The lender employed about 41,700 people in its home market at the end of last year, out of a total of 91,700. Outside Germany, London will also be hit especially hard, partly because of Brexit, while the U.S. may see a lower share of front-office cuts once the bank has exited its equities trading business, the people said, asking not to be identified because talks are ongoing. Chief Executive Officer Christian Sewing in early July unveiled Deutsche Bank’s most radical restructuring in recent history, with job reductions a key piece of the plan. The scale of the planned reductions in Germany may surprise analysts after the CEO had previously indicated that the country would see its “fair” share of cuts. It also comes as an economic slowdown takes hold of Europe’s largest economy and the risk of a recession increases.
• Sunrise Communications Group AG Chief Executive Officer Olaf Swantee said three quarters of shareholders are positive about his $6.4 billion plan to buy Liberty Global Plc’s Swiss cable unit. Swantee said he’s “very confident” he will get the necessary backing to buy UPC Switzerland LLC even though Sunrise’s largest investor, Germany’s Freenet AG, still opposes the deal.
• Nissan Motor Co.’s board is tapping Makoto Uchida, president of Nissan’s China joint venture, to become its new chief executive officer, a person with knowledge of the matter said. Ashwani Gupta, chief operating officer of Mitsubishi Motors Corp., will become COO of the Japanese carmaker, while Jun Seki, the former chief of Nissan in China, will become vice COO, the person said, asking not be identified because the information hasn’t yet been announced by Nissan.
• Petroleo Brasileiro SA postponed the first round of the sale process for a group of oil refineries until next month, according to people close to the process. Petrobras, as the state-controlled producer is informally known, had initially set Oct. 11 as the deadline for non-binding bids for a group of four refineries — Rlam, Rnest, Repar and Refap. The new date will likely be close to or after a major auction of offshore drilling rights scheduled for Nov. 6 in which major international oil companies are expected to participate, said one of the people, who asked not to be identified as the information hasn’t been made public.
• China’s Tsingshan Holding Group Co. was one of the main forces behind a record drawdown in London Metal Exchange nickel inventories last week, according to people familiar with the matter. The company, the world’s biggest stainless steelmaker, bought the nickel to secure supplies ahead of a looming ban on raw nickel ore exports from Indonesia, said the people, who asked not to be identified because the deals are private. While the LME’s warehouse network is designed as a last-resort source for exactly this type of supply crisis, the scale of buying could raise concerns about a potential shortfall if the drawdowns continue. Some traders and consumers have been scrambling to pick up metal since early September, when Indonesia confirmed plans to bring forward its ban. But the move last week was surprisingly sharp — the nearly 25,000 tons that left the warehouses was the biggest decline in the four-decade history of the nickel contract.
• Exchange-traded funds added 125,760 troy ounces of gold to their holdings in the last trading session, bringing this year’s net purchases to 10.4 million ounces, according to data compiled by Bloomberg. This was the 16th straight day of growth. The purchases were equivalent to $187.8 million at yesterday’s spot price. Total gold held by ETFs rose 15 percent this year to 81.5 million ounces, the highest level in at least 12 months. Gold advanced 16 percent this year to $1,493.50 an ounce and fell by 0.7 percent in the latest session.
• Qatar has invited Exxon Mobil Corp., Royal Dutch Shell Plc, Total SA, ConocoPhillips and other “big players” to submit bids to help expand its part of the world’s largest natural gas field, Energy Minister Saad Sherida Al-Kaabi said. The Persian Gulf state will award final contracts for onshore work on the North Field by the end of the year, he said Tuesday in a Bloomberg TV interview in London. Qatar, the biggest exporter of liquefied natural gas, is expanding the North Field in its drive to boost gas output to 110 million tons per year by 2024 from about 77 million currently. Australia will likely overtake Qatar as an LNG exporter in 2020, according to an Australian government report.

*All sources from Bloomberg unless otherwise specified