April 1st, 2019

Daily Market Commentary


  • Canadian Headlines
    • Pot stocks led Canada’s equity benchmark to its best first quarter since 2000, but strategists are questioning whether the rally has legs after gains slowed in March. The S&P/TSX Composite Index ended the quarter at 16,102.09, up 12 percent since the beginning of the year and just 3 percent off its record high of 16,586.46 reached last July. That followed an 11 percent slump in the fourth quarter. The index isn’t far from the 16,644-level that analysts predicted for the end of 2019, based on estimates gathered in December.
    • Bank of Canada Governor Stephen Poloz has an opportunity Monday to address market expectations that his next move will probably be an interest-rate cut. Poloz speaks in Iqaluit, the capital of the northern territory of Nunavut, in his first appearance since the Federal Reserve’s surprise dovish policy shift two weeks ago triggered concern about the state of the global economy. A segment of Canada’s yield curve considered a potential recession signal inverted March 22 for the first time since 2007. Investors now see a strong chance of a cut by the Bank of Canada over the next 12 months.
    • A fuel tax is now being charged in four Canadian provinces, as Prime Minister Justin Trudeau advances a carbon levy over the objections of conservative premiers. The federal “backstop” program applies to Ontario, Manitoba, New Brunswick and Saskatchewan, which make up nearly half of Canada’s population. It will add 4.4 Canadian cents per liter of gas, or 12 U.S. cents per gallon, effective Monday, an amount that will rise in coming years. The government is pairing the new tax with “Climate Action Incentive” payments sent overwhelmingly to households, meaning the burden will fall disproportionately on small businesses.

    World Headlines

    • European equities opened higher as evidence of a pick-up in China’s manufacturing boosted mining and automotive stocks. The Stoxx Europe 600 Index advanced 0.7 percent. LVMH rose 1.4 percent, Rio Tinto Plc climbed 2.1 percent and Daimler AG jumped 2 percent. The FTSE 100 Index increased 0.6 percent as U.K. lawmakers seize control of Parliamentary proceedings on Monday for a second session to try and reach an orderly end to Britain’s exit from the European Union.
    • U.S. stock-index futures climbed after strong production figures from China bolstered investor sentiment ahead of key political and economic developments that could move equity markets this week. E-mini contracts on the S&P 500 Index expiring in June gained 0.7 percent as of 5:25 a.m. in New York after China’s official PMI, released Sunday, showed the biggest increase since 2012. A separate private PMI gauge published by Caixin Media and IHS Markit on Monday rose to 50.8 from 49.9 in February.
    • In Asia, Chinese shares surged to the highest since May, while Hong Kong stocks entered a bull market. The yen declined, while the Turkish lira slipped as preliminary results from the weekend’s municipal elections showed the popularity of President Recep Tayyip Erdogan is being tested. Global equities are building on their strongest quarter since 2010 amid bets that dovish tilts by major central banks will help prop up earnings. The Chinese data went some way toward easing worries about a slowdown prior to the release of American monthly jobs numbers at the end of the week, while Treasury 10-year yields have also increased. U.S.-China trade talks will resume when Vice Premier Liu He leads a delegation to Washington later this week, potentially offering more positive developments for investors.
    • Oil extended gains toward $61 a barrel in New York on signs China’s economy is stabilizing, and as investors hope for a breakthrough in the country’s trade talks with the U.S. that will resume this week. Crude futures rose as much as 1.2 percent, following their strongest quartersince 2009. China’s manufacturing PMI eased worries over the global economic outlook and boosted sentiment across financial markets. Chinese Vice Premier Liu He is set to travel to Washington to meet U.S. negotiators from Wednesday, and sit down with President Donald Trump. The dollar dropped after four days of gains, also helping crude higher.
    • Gold declines as bond yields recovered amid signs that concerns over global growth are easing with China’s first official economic gauge for March pointing to stabilization. China’s official PMI, released Sunday, rebounded to 50.5 from 49.2 in the prior month — the biggest increase since 2012. Meanwhile, Goldman Sachs Group Inc. remains bullish on gold as it expects a rebound in exchange-traded fund holdings to continue, driven by U.S. late-cycle worries and negative German 10-year real rates.
    • British members of Parliament will once again take control of the Brexit process on Monday, voting on a platter of alternatives to Prime Minister Theresa May’s thrice-defeated deal. After an initial round of voting last week failed to reveal a majority for any Brexit outcome, MPs will have another opportunity to try to break the impasse. The result isn’t binding on the government, but the House of Commons could try to make it so.
    • Federal Reserve Chairman Jerome Powell has a mounting distraction as he tries to engineer a rare soft landing of the economy and extend a nearly record-long U.S. expansion: The man who installed him in the job wants no landing at all. President Donald Trump blasted the central bank on Friday for “mistakenly’’ raising interest rates and for a “ridiculously timed’’ reduction in its balance sheet. To hear the president tweet it, the economy would have expanded faster last year and the stock market would be higher if not for the Fed. Apparently he wasn’t happy enough with the strongest growth since 2005 and the S&P 500 Index’s best quarter in a decade.
    • The U.S. dollar once again lost some of its luster as a reserve currency in the fourth quarter, even as foreign-exchange traders bid it up against major peers. Central banks around the globe held 61.7 percent of their allocated currency reserves in the greenback at the end of December, paring back for a third straight quarter and shifting to the lowest level since 2013, the International Monetary Fund said in a report Friday. The dollar’s share dropped from 61.9 percent at the end of September as the euro, Japanese yen and the Chinese yuan all gained ground — even though the Bloomberg dollar index rallied by more than 1 percent during the period.
    • DSV A/S agreed to acquire Swiss rival Panalpina Welttransport Holding AG in a deal worth $4.6 billion that will create one of the world’s largest companies in logistics and freight forwarding. The board of directors of Panalpina recommended shareholders accept the mostly stock offer worth 196 Swiss francs a share, the companies said in a statement on Monday, confirming a Bloomberg report. Panalpina shares jumped as much 16 percent to 192.40 francs, while DSV shares reversed an early 2.7 percent gain to drop 4.9 percent, the most since February 4.
    • Investors added money to exchange-traded funds that buy emerging market stocks and bonds for the second straight week. So far this year, inflows have totaled $19 billion, compared with about $28 billion for all of 2017. Inflows to U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $339.9 million in the week ended March 29, compared with gains of $347.6 million in the previous week, according to data compiled by Bloomberg.
    • Saudi Aramco may be the world’s most profitable company, but that likely still won’t be enough to persuade investors the energy behemoth is worth $2 trillion. New financial details, disclosed today by Moody’s Investors Service, show a company that paid $58.2 billion in dividends to the Saudi government last year. Working back from that, the valuation would be closer to $1.2 trillion if investors judge Aramco by the same metrics as other giant oil companies.
    • Novartis AG, the Swiss drugmaker, will pay as much as $1.58 billion for a unit of U.S. biotech firm IFM Therapeutics to gain experimental new drugs for heart and liver disease. IFM will receive $310 million initially and will be eligible for as much as $1.27 billion in milestone payments, the Boston-based company said in a statement on its website Monday. The deal for the IFM Tre unit gives Novartis programs focused on disorders such as atherosclerosis, nonalcoholic steatohepatitis — a chronic liver disease known as NASH — and inflammatory bowel disease.
    • Goldman Sachs Group Inc. and Morgan Stanley cut forecasts for Treasury yields as they shelved calls for the Federal Reserve to hike interest rates this year. Morgan Stanley now sees 10-year Treasury yields ending 2019 at 2.25 percent, down from 2.35 percent previously, while Goldman lowered its projection to 2.8 percent from 3 percent. Neither bank now expects a Fed hike this year as a growth slowdown takes hold and an inversion of the yield curve stokes fears of an oncoming recession.
    • The Chinese government said it will extend a suspension of retaliatory tariffs on U.S. autos and include the opioid fentanyl in a list of controlled substances, two steps that could generate a positive atmosphere for trade negotiations due to resume this week. Beijing temporarily scrapped the 25 percent tariff imposed on vehicles as a tit-for-tat measure on Jan. 1, after the White House delayed a rise in tariffs on $200 billion of products that had been due that day. The Ministry of Finance announced an extension of the suspension on Sunday, without giving a specific end date.
    • Turkish President Recep Tayyip Erdogan prides himself as a builder and manager of cities. For the first time since 1994, many of them turned against him on Sunday. The capital, Ankara, and cities along the Mediterranean coast slipped from the grasp of Erdogan’s nationalist alliance in a municipal election upended by a raging recession and a recent run on the currency. And after hours of competing victory declarations in Turkey’s largest city and commercial hub Istanbul, the election board said the opposition candidate had inched ahead in official counting. Erdogan’s ruling bloc largely stood its ground across much of the country’s rural interior.
    • The first official glimpse of Saudi Aramco’s financial performance confirms the state-run oil giant can generate profit like no other company on Earth: net income last year was $111.1 billion, easily outstripping U.S. behemoths including Apple Inc. and Exxon Mobil Corp. But accounts published before the firm’s debut in the international bond market also show Aramco — an organization that produces about 10 percent of the world’s crude — doesn’t generate as much cash per barrel as other leading oil companies like Royal Dutch Shell Plc because of a heavy tax burden.
    • Publicis Groupe SA is studying an acquisition of Alliance Data Systems Corp.’s Epsilon unit to push further into digital marketing in what would be the French advertising group’s biggest takeover. Epsilon has also attracted a joint offer from Advent International and Goldman Sachs Group Inc., people familiar with the matter said last week. Alliance could select a winner as early as this week in an auction that could fetch about $5 billion, the people said.
    • Italian oil field services firm Saipem SpA is in discussions to sell both its offshore and onshore drilling units in separate transactions that would slice off about a 10th of the company’s annual sales, according to people familiar with the matter. The ailing offshore division, which suffered a 24 percent decline in revenue last year, could go to a competitor, the people said, who asked not to be identified because they weren’t authorized to speak about the talks. No final decisions have been made and Saipem may still decide to keep the assets, they said.

*All sources from Bloomberg unless otherwise specified