August 16th, 2019

Daily Market Commentary

  • Canadian Headlines
    • Shopify Inc.’s scorching rally and Lightspeed POS Inc.’s successful trading debut this year are throwing the spotlight on who might be the next Canadian tech star to go public. A total of C$1 billion ($751 million) was invested in 142 venture capital deals in the first quarter, up 48% from a year earlier, according to the Canadian Venture & Private Equity Association. More than half of that was in tech and increasingly from U.S. investors.

     

  • World Headlines
    • European equities gained at the open after a tumultuous week with technology shares leading the advance after Nvidia Corp.’s earnings topped analysts’ estimates. The Stoxx Europe 600 Index added 0.3%, though the London Stock Exchange said the open of FTSE 100 and FTSE 250 securities has been delayed because of a technical glitch. AMS AG and Infineon Technologies AG both gained at least 1.9% on the optimism, following Nvidia results, that a slump in orders may be easing.
    • U.S. stock index futures continued their advance amid speculation Presidents Donald Trump and Xi Jinping will talk to each other soon about recent trade tensions, boosting appetite for risk assets. S&P 500 Index futures expiring in September advanced 1% by 10:12 a.m. in London. Contracts added 1.4% on the Nasdaq 100 and climbed 1% on the Dow Jones Industrial Average. European equities advanced 0.9% and all sectors were in the green, with defensive industries like utilities leading the gains.
    • The global selloff in Hong Kong stocks, as protests cut earnings forecasts, has given buyers from mainland China a chance to hunt for bargains. Hong Kong-focused ETFs have had $1.44 billion of net outflows in the past three months, narrowly worse than China in Asia, data compiled by Bloomberg show. Yet, in the same period, mainland investors bought a net HK$97 billion ($12.4 billion) of Hong Kong stocks under the Stock Connect system linking the city’s market to Shanghai and Shenzhen.
    • Oil headed for a weekly increase as hopes that the U.S. and China could resume negotiations to resolve their trade dispute capped a week of volatile trading. Futures added as much as 1.7% on Friday in New York, bringing their gain for the week to 1.4%. President Donald Trump said he had a call coming soon with his Chinese counterpart Xi Jinping after a pledge from Beijing to retaliate against planned U.S. tariffs. Earlier in the week, oil surged the most in more than a month after the Trump administration said it would delay levies on some products.
    • Gold futures are poised for a sixth weekly advance, the best streak in more than three years, on heightened trade uncertainty and concerns about slowing global growth. The metal edged lower Friday as the dollar and equities rose, but remains near a six-year high reached earlier this week. China called looming U.S. tariffs a violation of accords reached by Presidents Donald Trump and Xi Jinping, vowing retaliation, while Trump said Thursday that any deal must be “on our terms.” Bond investors are locking horns over whether the inversion of yield curves really means the global economy is headed for recession. The last five times the yield on 10-year Treasuries dropped below those on two-year securities, a contraction followed.
    • Iron ore’s terrible beating may be coming to an end, at least for now. While the commodity is poised to cap another weekly drop, the pace of the slump has eased off after prices fell back into the $80s a ton and Goldman Sachs Group Inc. made waves with a bullish near-term forecast. Futures in Singapore are about 3% lower since Monday following the double-digit percentage losses in the prior two weeks that dragged prices into a bear market. In recent days, the most-active September contract has see-sawed, gaining ground on Friday and Wednesday with a loss in between.
    • Cathay Pacific Airways Ltd.’s Chief Executive Officer Rupert Hogg resigned, a week after the carrier was rebuked by China for staff involvement in the anti-Beijing protests rocking Hong Kong. Hogg, 57, resigned to “take responsibility” as a company leader following recent events, said the airline, Hong Kong’s flag carrier. The board appointed Augustus Tang, 60, as Cathay’s new CEO, according to a statement released Friday.
    • Deere & Co. lowered its earnings guidance for a second straight quarter and announced a review of costs as U.S. farmers battered by trade and weather disruptions resist purchases of expensive new tractors. Too much rain earlier in the U.S. planting season caused a boost in crop prices, a hopeful sign for purchases of Deere’s iconic yellow and green tractors. But recent escalations in U.S.-China tensions came as a “body blow” to its farm customers, according to JPMorgan Chase & Co. Growers are holding off on upgrading their aging fleet, adding to 2020 downside risk for Deere, according to Bloomberg Intelligence.
    • Global oil markets face a “somewhat bearish” outlook for the rest of the year amid slowing economic growth and the long-running trade war, even though supplies will be tighter than previously thought, OPEC said. The Organization of Petroleum Exporting Countries, which pumps about a third of the world’s oil, increased estimates for world demand this year and next, and lowered forecasts for production from its rivals. Nonetheless, its monthly report — which doesn’t typically give a view on prices — warned that the market may weaken. That increases pressure on Saudi Arabia, the cartel’s de facto leader, which has shouldered most of the burden in production cuts aimed at bolstering oil prices amid faltering demand and a relentless flood of new shale supplies from the U.S.
    • Apple Inc.’s 13 billion-euro ($14.4 billion) battle with the European Union reaches the bloc’s courts next month in a hearing set to throw the spotlight on antitrust commissioner Margrethe Vestager’s crackdown on tax deals doled out to big companies. The EU’s General Court, its second-highest tribunal, will hear arguments in the challenges by the iPhone maker and Ireland over two days set for Sept. 17-18. The U.S. last year lost a bid to intervene in the case in support of Apple.
    • The promise of artificial intelligence has yet to translate into big business. Now Kai-Fu Lee, a prominent venture capitalist in China and founder of Sinovation Ventures, says his firm’s new startup should be able to reach $100 million in revenue next year and go public the year after. AInnovation, established in March 2018, develops artificial intelligence products for companies in industries such as retail, manufacturing, and finance. Its customers include Mars Inc., Carlsberg A/S, Nestle SA, Foxconn Technology Group, China Everbright Bank Co. and Postal Savings Bank of China Co.
    • The London Stock Exchange Group Plc resumed trading after its longest glitch in 8 years, just weeks after the three-century old exchange unveiled plans to become a data and trading powerhouse. Shares in the key FTSE 100 and the FTSE 250 indexes began trading at about 9:40 a.m. London time, while other parts of the market opened as normal at 8 a.m., according to a statement. Companies in those benchmarks include HSBC Holdings Plc, BP Plc, and AstraZeneca Plc. The LSE also suffered a one-hour trading delay in June 2018 caused by a software issue.
    • General Electric Co.’s biggest plunge in 11 years came at an awkward time for some of Wall Street’s savviest investors. Hedge funds added more shares of GE than any other company to their industrial investments in the second quarter, according to an initial analysis of U.S. regulatory filings compiled by Bloomberg Global Data. Their holdings of the Boston-based company increased by 25% to a total of 199.3 million shares, valued at $2.09 billion at the quarter’s end. While some recent buyers may have sold since then, many of them were almost certainly left holding the bag when Harry Markopolos, who rose to prominence by blowing the whistle on Bernie Madoff, accused GE of “accounting fraud” Thursday. Markopolos’s report wiped out much of the company’s share gains this year, even as Chief Executive Officer Larry Culp labeled the analysis “market manipulation — pure and simple.”
    • Israel said on Friday it will allow U.S. Democratic congresswoman Rashida Tlaib to visit her family for humanitarian reasons, a day after barring her and a fellow Muslim lawmaker from entering the country under heavy pressure from President Donald Trump. The permission allows Tlaib to meet her 90-year-old grandmother in the West Bank, the country’s interior minister said in a statement, adding that the lawmaker agreed in a letter not to restate her support for a boycott of Israel during the visit. That was a condition laid out by Prime Minister Benjamin Netanyahu, a firm Trump ally.
    • The U.S. is gravely disappointed with the U.K. after a Gibraltar court allowed the release of an Iranian tanker suspected of hauling oil to Syria, and threatened sanctions against ports, banks and anyone else who does business with the ship or its crew, two administration officials said. The court’s decision Thursday to release the Grace 1 was a missed opportunity and the Trump administration hopes that the U.K. government and authorities in Gibraltar will reconsider, according to the officials, who asked not to be identified discussing private deliberations. They said the court order rewards Iranian terrorism and Tehran will interpret the action as appeasement.
    • Thailand plans a 316-billion-baht ($10.2 billion) package of government spending and loans to counter an economic slowdown caused by the U.S.-China trade war and currency strength. The package includes help for farmers and people on low incomes, as well as initiatives to bolster consumer spending and investment, Finance Minister Uttama Savanayana said in a briefing Friday in Bangkok. The proposal needs approval from the Cabinet.
    • Options traders are starting to bet on the euro dropping below psychological support at $1.10 as the European Central Bank prepares a stimulus package amid a deepening global downturn and trade uncertainty. The odds that the euro breaks the $1.10 level by the end of August have risen to 49%, more than triple a week ago, according to Bloomberg’s options pricing model. Risk reversals, a gauge of market positioning and sentiment, show that traders are now bearish on the euro over the next week and in the long term.
    • Alibaba Group Holding Ltd. Executive Vice Chairman Joe Tsai is paying about $3.5 billion for the Brooklyn Nets and their arena, the Barclays Center, according to a person familiar with the deal. The agreement to buy the basketball team and stadium from Russian billionaire Mikhail Prokhorov may be announced as soon as Friday, said the person, who asked not to be identified because the deal isn’t yet public.
    • U.S. President Donald Trump’s sanctions against Iran and Venezuela have inadvertently increased demand for a Russian brand of crude oil, boosting revenues for the nation’s exporters. Russian oil companies received at least $905 million in additional revenues between November and July, data compiled by Bloomberg show. The calculation is based on difference between the Urals spread to the Brent benchmark over the period compared to the five-year average. The sanctions added to a jump in demand for Russian crude in the wake of output cuts from the Organization of Petroleum Exporting Countries and their partners. As a result, Russia’s Urals blend of crude has started to regularly trade at a premium to Brent.
    • President Donald Trump reportedly wants to buy Greenland, the world’s biggest island. Denmark, unsure whether the former real estate developer is joking, isn’t selling. A Wall Street Journal report outlining the U.S. president’s apparent interest in a deal left Danes bewildered, with a former prime minister asking if it was a joke. A member of the ruling political bloc in Denmark, which helps run Greenland as an autonomous territory, called it a “terrible idea.” The Journal, citing people familiar with the deliberations, said Trump has repeatedly expressed interest in a purchase and even asked his White House counsel to explore the idea. While the island’s 83,000 square miles (2.2 million square kilometers) are mostly icy wilderness, Greenland is also home to Thule Air Base, the U.S. armed forces’ northernmost installation.
    • Indian equities marked their fifth weekly loss in six after a volatile session on Friday, as investors mulled the outlook for company earnings and economic growth. The benchmark S&P BSE Sensex rose 0.1% to 37,350.33 at the 3:30 p.m. close in Mumbai on Friday after paring earlier loss of as much as 0.9%. The NSE Nifty 50 Index rose 0.2%. Both gauges still capped a weekly decline of 0.6% each, though markets were closed Monday and Thursday for holidays. Tata Consultancy Services Ltd. was today’s biggest drag and ITC Ltd. the biggest support on both measures.
  • *All sources from Bloomberg unless otherwise specified