April 10th, 2019
Daily Market Commentary
- Canadian Headlines
- Canadian stocks snapped six days of gains on Tuesday, falling along with U.S. equities, as pot stocks underperformed for a second straight session. The S&P/TSX Composite Index fell 0.4 percent to 16,336.45. The pot sector contributed to the decline in health care, the worst performing sector, dropping again after Cowen cut revenue estimates for several marijuana stocks yesterday, citing expectations for “modest” growth in first quarter. Meanwhile, Canadian market potential for legal marijuana continues to be hindered by a patchwork of provincial regulations, according to a new report. Canadian sales are expected to grow to $5.2 billion in 2024, Arcview Market Research and BDS Analytics said. That’s down from a January forecast of $5.9 billion by 2022.
- Ontario’s finance minister is poised to lay out a long-awaited schedule for balancing the books of Canada’s provincial powerhouse as he attempts to wrestle down the deficit without too many disruptive cuts to public services. Victor Fedeli is promising a “Goldilocks approach” to eliminating a projectedC$13.5 billion ($10.1 billion) fiscal shortfall on Thursday when he unveils the Progressive Conservative party’s first budget since taking power in June. The C$864-billion economy, generated by about 14.7 million people, represents roughly 40 percent of the country’s output.
- Planet 13 Holdings Inc. generated more revenue from its one flagship store in Las Vegas last month than Cronos Group Inc. did across Canada in the fourth quarter, yet Cronos’s market value is about 21 times larger than Planet 13’s. The valuation gap is just one dramatic example of the persistent disconnect between Canadian and U.S. cannabis stocks, and a reminder of the potential size of the American pot market as legalization spreads. Cannabis companies with U.S. operations have been held back by the illegality of the drug at the federal level, which has depressed their share prices because it’s harder for them to access the top exchanges, banks and institutional investors. But the big Canadian cannabis companies are facing their own limitations and restrictions that are eroding their first-mover advantage.
- World Headlines
- European shares edged higher at the open following mixed trading in Asia markets as investors await the latest European Central Bank decision later in the day. The Stoxx 600 Europe Index is up 0.2 percent, led by gains in real estate and construction shares. Indivior Plc plummet 44 percent after prosecutors said it lied about an opioid treatment. The ECB will make its announcement at 1:45 p.m. in Frankfurt and President Mario Draghi will hold a press conference 45 minutes later with no policy shifts expected. In the Brexit saga, European leaders meet again today at a summit in Brussels and are set to reject U.K. Prime Minister Theresa May’s request for a short extension to exit the European Union and instead give her a longer delay.
- Futures on the S&P 500 edged higher as investors seemed to look past the Trump administration’s threat of new tariffs on European goods and the IMF’s gloomy growth forecasts. Sentiment remains fragile, with the IMF’s somber report on global growth highlighting fears about the outlook for the world economy that have simmered for months. The U.S. appeared to open another front in its trade dispute with the European Union, while negotiations with China remain unsettled. Federal Reserve minutes, American inflation data and the ECB rates decision Wednesday could add to anxieties or help provide calm, with investors also focusing on the first-quarter earnings season getting under way this week.
- Japanese stocks fell as renewed concerns over a slowdown in global growth and an escalation in trade conflicts hurt investor sentiment. Electronics makers and pharmaceutical companies were the biggest drags on the Topix index, as all industry subgauges dropped. The S&P 500 fell for the first time in nine sessions Tuesday after the Trump administration threatened tariffs on the European Union and the International Monetary Fund cut its global growth outlook to the lowest since the financial crisis. Britain’s exit from the European Union looks set to be delayed by as long as a year.
- Oil rose in New York, trading near a five-month high, after industry data indicated a sharp decline in American gasoline inventories last week. West Texas Intermediate crude futures increased 0.6 percent, while gasoline climbed as much as 1.5 percent to the highest since October. The American Petroleum Institute was said to report on Tuesday that gasoline stockpiles fell by 7.08 million barrels. That may change expectations for more comprehensive government data due later today, which had been forecast to show a smaller drop.
- Gold held near the highest since late March after the International Monetary Fund cut its outlook for global growth to the lowest since the financial crisis, boosting demand for haven assets. Also weighing on sentiment is President Donald Trump’s latest threat to impose tariffs on $11 billion in imports from the European Union, while trade negotiations with China remain unsettled. Investors will be looking to the Federal Reserve minutes, American inflation data and a European Central Bank decision later Wednesday for further signals on the outlook for growth.
- The U.K. economy is on course for a stronger-than-forecast first quarter despite an escalating Brexit crisis that’s divided Parliament and the government. Gross domestic product rose 0.2 percent in February after a 0.5 percent jump in January. That means the economy will expand 0.5 percent in the first quarter if GDP is unchanged in March. That’s more than double the pace of the previous three months and faster than the Bank of England expects.
- U.S. and Chinese negotiators are discussing adding a concession on cloud computing to their trade agreement that would give foreign companies greater access to the $12 billion Chinese market, people familiar with the talks said. Chinese officials called a meeting this week with representatives of companies including Microsoft Corp, Apple Inc and Amazon.com Inc to talk about the proposal in detail, said one of the people. The discussions include possibly scrapping the requirement that providers of remote computing services form joint ventures with local companies, another person said. Both asked not to be named discussing the private negotiations.
- President Donald Trump’s intensifying border crackdown promises to make immigration a central issue of the 2020 campaign, but the Democrats running to replace him haven’t yet offered voters a detailed vision beyond fierce opposition to his policies. A new surge of migrants at the southern border is exposing divisions among Democratic presidential hopefuls about whether to stick with a six-year-old bipartisan vision for the immigration system or to make sharper changes such as decriminalizing undocumented migration.
- Stocks have risen more in the U.S. than in other developed markets primarily because of a performance gap between two industry groups, according to Keith Lerner, chief market strategist at SunTrust Private Wealth Management. Lerner compared the ratio between the S&P 500 and MSCI EAFE indexes with the ratio for the EAFE information-technology and financial indexes in a report Monday. Technology accounted for 21.4 percent of the S&P 500’s value as of Tuesday and just 6.3 percent of EAFE’s, according to data compiled by Bloomberg. Finance was weighted at 12.8 percent and 18.9 percent, respectively.
- Investors could get their first look at hundreds of pages of detailed information about Uber Technologies Inc. as soon as Thursday, as the ride-hailing giant gears up to publicly file for an initial public offering. The global ride-hailing company will kick off a road show to market shares to potential investors this month and would begin trading publicly in May, said people familiar with the matter, who asked not to be identified because the information is private. Uber is seeking to raise about $10 billion, one of the people said.
- Network International shares surged in London trading after the payments processor raised 1.1 billion pounds ($1.4 billion) in an initial public offering that’s the biggest listing in Europe so far this year. Network International jumped 22 percent to 532.20 pence at 10 a.m. in London. The Dubai-based company sold 200 million shares for 435 pence each, according to a statement on Wednesday. Mastercard Inc. bought an additional 49.95 million shares as cornerstone investor. The IPO price gave the company a market value of 2.18 billion pounds.
- Saudi Arabia took its first major step onto the global financial stage to fund the heady ambitions of its crown prince, issuing $12 billion of bonds for its state-run oil company in one of the most oversubscribed debt offerings in history. The demand for Saudi Aramco’s debut offering was so robust it allowed the energy giant to borrow at a lower yield than its sovereign parent. That’s a rarity in the debt world and underscores the global chase for yield that has investors brushing off long-held conventions. The rush to buy Aramco’s debt even helped to lower the borrowing costs for the kingdom.
- Vista Global Holding, which competes with Warren Buffett’s NetJets in the pay-by-the-hour private plane market, agreed to buy U.S.-based JetSmarter, adding a service that sells empty seats on chartered aircraft. While the Uber-style model will extend the group’s product offering in the $11 billion on-demand corporate flights sector, JetSmarter is mainly attractive for industry-leading digital technology and an app that’s been downloaded more than 2 million times, Dubai-based Vista said Wednesday.
- Indivior Plc plummeted to an all-time low after U.S. prosecutors said the U.K. drugmaker deceived doctors about its addiction treatment’s dangers, fueling a deadly epidemic of opioid abuse. Indivior misled doctors and government health programs into believing that the drug, Suboxone Film, was safer and less likely to be abused than rivals, the Justice Department said in a statement Tuesday. The company’s stock fell as much as 75 percent in London, shriveling its market value to 204 million pounds ($267 million).
- Hedge fund giant Renaissance Technologies is in talks to resolve a dispute with the Internal Revenue Service over a tax maneuver that saved its owners billions of dollars. James Simons, the firm’s billionaire founder, and Robert Mercer, an influential backer of President Donald Trump, are among Renaissance insiders who profited from the maneuver and would bear the cost of a settlement. A resolution may entail “substantial” additional payments from investors in the flagship Medallion fund, the firm said in a December letter seen by Bloomberg. The case is among the largest ever handled by the IRS, pitting it against some of the nation’s biggest political donors. A bipartisan Senate panel estimated in 2014 that Medallion investors underpaid their taxes by some $6.8 billion over more than a decade by masking short-term gains as long-term returns.
- Britain’s exit from the European Union looks set to be delayed by as long as a year in a blow for Theresa May that risks a destabilizing backlash at home. European Council President Donald Tusk rejected May’s request for a brief postponement to the U.K.’s membership, saying it would create a “rolling series of short extensions and emergency summits, creating new cliff-edge dates.” Leaders will finalize the length of the delay to Brexit at a summit on Wednesday. Tusk wants them to agree to an extension of up to a year, and diplomats from member states say the debate now is between December and next March for the new departure date. Draft conclusions show EU leaders are planning to offer Britain an early exit option from the extension in case a solution to the domestic deadlock turns up.
- Carbon pollution allowances soared to their highest level since 2008 after the European Union’s move to ration supply stoked concern that a shortage will unfold in the months ahead. Futures prices are poised to more than double along with a tightening of supply in the traded market, Berenberg Bank said Tuesday. The cost of those allowances has already more than doubled in the past year as the EU cut the amount sold in auctions by 40 percent from the start of 2019, addressing a glut that had weighed on prices through 2017.
- Bytedance Ltd., China’s most valuable startup, has secured a $1.335 billion syndicated loan from a group dominated by Wall Street banks, according to people familiar with the matter. Morgan Stanley and Goldman Sachs Group Inc. led the deal alongside Bank of China Ltd. and CMB Wing Lung Bank Ltd., said the people who are not authorized to speak publicly and asked not to be identified. Bytedance, which operates the hugely popular apps TikTok and its Chinese counterpart Douyin, declined to comment on the loan.
- Japan’s machinery orders rose only modestly after several months of declines, underscoring concerns about capital spending in an economy showing weakening momentum. Core machine orders rose 1.8 percent in February from January, the Cabinet Office said Wednesday, weaker than economists’ median forecast of a 2.8 percent gain. Orders dropped 5.5 percent on year, it said.
- Delta Air Lines Inc. said strong travel demand, especially for premium tickets, buoyed first-quarter profit and should continue to boost a key revenue gauge in all regions. Revenue from each seat flown a mile, an industry measurement of pricing power, will increase 1.5 percent to 3.5 percent this quarter from a year earlier, the Atlanta-based carrier said as it reported earnings Wednesday. The figure, also known as unit revenue, climbed 2.4 percent in the first three months of this year.
- Forced to anchor in licensed clusters in Las Vegas and Macau, the world’s biggest casino operators rarely get a free shot at expansion. That’s why a once-in-a-generation opportunity to buy established resorts in Australia could escalate into a bidding war. Crown Resorts Ltd., controlled by billionaire James Packer — the one-time fiancé of singer Mariah Carey — this week disclosed a A$9.99 billion ($7.12 billion) takeover offer from U.S. gaming giant Wynn Resorts Ltd. and said the two companies were discussing a deal. The talks were short-lived. Wynn said they were revealed too soon and ended negotiations.
- AT&T Inc. has discussed selling the European unit of its HBO cable network as it works to pay off $170 billion in debt after acquiring the premium service in its $85 billion deal for Time Warner last year, the Financial Times reported, citing several current and former executives it didn’t identify. No formal discussions with potential buyers have taken place, FT reported, and AT&T declined to comment to the newspaper. HBO Europe has about 200 employees and has its own streaming service with about 10 million subscribers in countries including Spain, Sweden, Denmark and Poland, the FT reported.
- As Nicolas Maduro steps up his search for cash overseas, another door is slamming shut. The International Monetary Fund suspended the Venezuelan leader’s access to almost $400 million of special drawing rights, citing political chaos since National Assembly President Juan Guaido claimed in January that he was the nation’s rightful leader, said two people familiar with the matter. Venezuela already whittled its SDR holdings down from almost $1 billion in March 2018.
- Apple Inc. received a rare negative recommendation as HSBC became only the second brokerage with a sell or equivalent rating on the stock. HSBC analyst Erwan Rambourg downgraded the company to reduce from hold, writing in a note that it could take some time for the digital servicesApple announced recently to generate returns. Among analysts tracked by Bloomberg, 22 recommend buying shares of Apple, while 20 rate the technology giant a hold.
*All sources from Bloomberg unless otherwise specified