April 26th, 2019
Daily Market Commentary
- Canadian Headlines
- Canadian stocks slid for a second day as falling energy and copper prices weighed on resource shares and Bombardier Inc. tumbled 15 percent. The S&P/TSX Composite Index lost 0.1 percent to 16,576.10. Materials slid 0.6 percent as copper prices fell to a four-week low amid signs of slowing global growth, while energy stocks lost 0.4 percent as crude prices dropped for a second day. Industrials added 0.2 percent despite Bombardier’s decline, the most since November. The company cut its 2019 sales and profit forecast amid a slower production ramp-up on some rail projects.
- Bank of Canada Governor Stephen Poloz said speculation is coming out of the Toronto and Vancouver housing markets, but more time may be needed for it to settle out completely.
- Toronto, Montreal and Vancouver have seen the biggest net inflow of millennials in 12 years, a key reason demand for housing is expected to remain strong, despite spiraling costs, according to Royal Bank of Canada. The population of 20- to 34-year-olds swelled by 96,000 in the three cities last year, the bulk of them from abroad, Robert Hogue, an economist at the Toronto-based bank said in a report Thursday. Indeed, for every millennial that left the country’s biggest cities for cheaper digs elsewhere, they collectively gained seven to 12 millennials from abroad or other parts of the country.
- World Headlines
- European equities were little changed on the final trading day of a week that’s lacked real direction as corporate earnings proved tricky to digest. The Stoxx Europe 600 Index was up less than 0.1 percent. Sanofi surged 2.4 percent after profit rose more than expected last quarter, powered by sales of vaccines and newcomer Dupixent. AstraZeneca advanced 2.3 percent after it reported a surge in sales of cancer drugs. Glencore tumbled 3.5 percent after saying it’s under investigation by the U.S. Commodity Futures Trading Commission for possible corrupt practices. Technology underperformed in early trading Friday after the world’s largest chipmaker, Intel Corp. fell in New York having forecast its first annual revenue decline in a decade. Financials also trailed after Deutsche Bank cut its full-year sales goal and as Royal Bank of Scotland Group’s update left some analysts wanting.
- The worst rout in months for Chinese stocks showed the influence that Beijing’s economic policies still hold over the bull market. Investors this week got a taste of how much equities are worth without the prospect of additional measures that had helped restore $2.3 trillion to share values since January. Shanghai stocks lost 5.6 percent, the most since October, after the government signaled it will pare back support for the economy amid evidence of a recovery. Sovereign bonds, which are rapidly turning into Asia’s worst performers, also slumped. It’s a pivotal moment for a world-beating rally in China that’s been underpinned by expectations of more stimulus and ample liquidity. A barrage of earnings from the nation’s largest firms could swing sentiment either way, though the picture isn’t encouraging so far. Traders are also eyeing next week’s trade talks with the U.S., though the closure of China’s markets for a three-day holiday from Wednesday will likely dampen trading.
- U.S. equity futures and European stocks drifted alongside their Asian counterparts on Friday as investors counted down to the release of first-quarter American growth data and earnings season continued apace. The dollar was steady. Contracts on the Nasdaq, S&P 500 and Dow Jones Industrial Average were mixed and range bound, while the Stoxx Europe 600 treaded water as losses for raw material producers were offset by gains in media companies. In corporate news in the region, Deutsche Bank cut its revenue target and AstraZeneca posted an increase in cancer-drug sales. Treasuries edged into the green alongside most European sovereign debt. In Asia, shares were marginally lower as an unexpected tumble in Japanese industrial production underscored worries over the global expansion. The yuan edged up after President Xi Jinping said China won’t engage in currency depreciation.
- Oil fell, paring an eighth weekly advance, even as supplies stopped flowing through a major Russian pipeline to Europe. Futures in New York lost as much as 1.4 percent, while Brent also fell. Futures in London had spiked briefly above $75 a barrel on Thursday as Russian flows were halted after customers complained of impurities. Prices have since failed to extend gains as investors wait to see how long the outage will last.
- Gold headed for the first weekly advance in five as investors await data on U.S. gross domestic product for guidance on the strength of the economy. The precious metal is also supported by haven demand as some countries show signs of economic weakness, and investors weigh mixed messages from U.S. stock benchmarks. Goldman Sachs Group Inc. cut its forecasts for gold but remains bullish amid signs current low prices will be viewed as a buying opportunity by Chinese investors as well as continued purchases from central banks. The bank recommends going long gold, short silver as well as long palladium, short platinum with palladium continue to outperform its peer metal due to lack of substitution by auto companies and tighter environmental restrictions in China.
- For Greek stocks, this year’s world-beating rally may not run out of steam just yet. The country’s ASE Index has soared 26 percent, beating 93 other equity benchmarks tracked by Bloomberg, as traders embrace the strongest economic expansion since 2007 and bet on political reform. Market players including Jefferies LLC, Bienville Capital Management and Piraeus Securities SA are optimistic about the prospects for the Mediterranean nation’s equities, saying there are more returns to be reaped. Investors are pouring money into the top exchange-traded fund focused on Greek equities at the fastest pace in 15 months. This is a sharp contrast to the rest of Europe — the region’s equity funds have been bleeding cash almost non-stop for the past year as shorting European stocks has become the world’s most popular trade.
- Uber Technologies Inc. is seeking to raise as much as $9 billion in an initial public offering that could give the ride-hailing giant a market valuation of as much as $84 billion. The No. 1 ride-hailing company plans to offer 180 million shares at $44 to $50 each, according to a regulatory filing Friday. The filing puts Uber on track to make its trading debut in May on the New York Stock Exchange in what is expected to be the year’s biggest U.S. IPO. At the top of the range the listing would value Uber at almost $84 billion, based on the number of shares outstanding after the offering, as detailed in the filing. On a fully diluted basis, including the addition of stock options, restricted shares or other stakes not included in the outstanding total, the valuation could top $91.5 billion. Payments company PayPal Holdings Inc. has agreed to buy $500 million of Uber’s stock at the IPO price in a private placement.
- Chinese President Xi Jinping addressed some 40 world leaders at the Belt and Road forum in Beijing, but his speech may have been aimed at a head of state not in the audience: U.S. President Donald Trump. Xi spent a large portion of his speech Friday addressing Chinese domestic reforms, pledging to address state subsidies, protect intellectual property rights, allow foreign investment in more sectors and avoid competitive devaluation of the yuan. All four are issues the U.S. is addressing in trade talks with Beijing. Xi Jinping speaks during the opening ceremony of the Belt and Road Forum in Beijing on April 26. “We will establish a binding enforcement system for international agreements,” Xi said, adding that China will standardize all levels of government in terms of issuing administrative licenses and market regulation, and also “eliminate improper rules, subsidies and practices that impede fair competition and distort the market.” Xi’s promises have been echoed by officials over the past few months and China has taken several steps to address U.S. concerns, including passing a new foreign investment law that bans forced technology transfers. Trade negotiators led by U.S. Trade Representative Robert Lighthizer return to Beijing next week as both sides work toward a face-to-face meeting between Trump and Xi to ink a deal.
- Deutsche Bank AG cut its outlook for full-year revenue after suffering its ninth straight quarter of contraction, underscoring the need to put Europe’s largest investment bank on a stronger footing following the collapse of merger talks with Commerzbank AG. The bank said it expects business to be flat this year, after previously predicting a slight increase. Income from buying and selling securities fell 19 percent in the first quarter, worse than the average drop of 14 percent at its U.S. competitors, handing the investment banking division its weakest first quarter since the financial crisis.
- Elon Musk and the U.S. Securities and Exchange Commission told a judge they still need more time to resolve a legal fight over his tweeting habits. In a joint letter to U.S. District Judge Alison Nathan, Tesla Inc.’s chief executive officer and the securities regulator said Thursday that talks over the past three weeks had yet to produce a settlement in the legal dispute over how Musk posts news about his electric-car company. Last week, Nathan extended the deadline to April 25. Meanwhile, Musk has continued to tweet. The agency and Musk asked Thursday for another five days to continue discussions, promising to update her by April 30. The SEC had argued that a Feb. 19 comment by Musk on Twitter violated an October settlement of an earlier brouhaha sparked by his proclamations on social media. Musk said he hadn’t violated the agreement. The regulator asked the judge to find Musk in contempt of court, which could mean hefty fines and new controls on how he communicates with the public.
- Semiconductor stocks dropped in early trading Friday after Intel Corp. cut its 2019 revenue forecast, saying it was taking a “more cautious view,” adding to doubts about a hoped-for rebound in demand for chips in the second half of the year. An exchange-traded fund that tracks the Philadelphia semiconductor index fell indicated lower by 1.8 percent on light volume in pre-market trading while Intel tumbled 7.6 percent. Western Digital Corp., which was downgraded two notches to underperform at Baird, fell 4.1 percent in early trading; Nvidia Corp., Advanced Micro Devices Inc. and Micron Technology Inc. also fell.
- The S&P 500’s latest high has pushed skeptics of the bull run to increase bets that the benchmark index will decline. Use Bloomberg’s ETF function to find exchange traded funds or notes that act as a bet against asset classes. Monitor fund flows to gauge sentiment. Inverse ETFs or ETNs use derivatives to create exchange traded instruments that move in the opposite direction of specific investments, including equity indexes, treasury bonds or commodities. Some add leverage to compound the inverse move: The ProShares UltraPro Short S&P 500 ETF, for example, seeks daily results set by the inverse one-day performance of the index, before fees and expenses.
- India’s benchmark equity index rose, paring its decline this week, as quarterly earnings met market expectations and the oil price declined. The S&P BSE Sensex climbed 0.9 percent to 39,067.33 at the close in Mumbai, paring its weekly decline to 0.2 percent. The NSE Nifty 50 Index advanced 1 percent. Of the 11 Nifty companies that have announced fourth-quarter results so far, nine have either met or exceeded analyst estimates. Hero MotoCorp Ltd. and Yes Bank Ltd. announce results later on Friday. Brent crude prices dropped for a second consecutive session after surging above $75 a barrel. India imports more than three-quarters of its oil requirement and higher prices could widen its fiscal deficit and eventual hurt company earnings.
- Thailand’s stock exchange expects at least three new “large” initial public offerings this year after equity trading dropped and new share sales slowed amid the nation’s ongoing political deadlock. The family-owned businesses will each have a market valuation of between $1 billion and $3 billion, said Pakorn Peetathawatchai, president of the Stock Exchange of Thailand, without elaborating. Speaking in an interview in New York, he said political uncertainty in Southeast Asia’s second-largest economy may prompt investors to sit back and wait for a clearer outlook before buying back into Thailand equities.
- Blackstone Group LP is betting that it can use its considerable financial muscle to succeed where even the biggest drugmakers need help: getting promising medications over the finish line. Last year, the private equity giant snapped up Clarus, an investment firm that specializes in funding research for experimental medicines that were otherwise stranded when their original developers braked their studies in the face of daunting economics. The business now operates as Blackstone Life Sciences. “The opportunity here is potentially really large,” said Joe Baratta, global head of private equity at Blackstone, in an interview at the firm’s headquarters. He said the firm wants to become a go-to source of capital for large pharmaceutical companies bringing new treatments to patients.
*All sources from Bloomberg unless otherwise specified