August 15th, 2019

Daily Market Commentary

  • Canadian Headlines
    • Prime Minister Justin Trudeau was plunged back into the biggest scandal of his term just two months before elections, after the nation’s ethics watchdog ruled he inappropriately interfered in a judicial matter. In a report released Wednesday, Ethics Commissioner Mario Dion said Trudeau sought to pressure his former attorney general last year to help SNC-Lavalin Group Inc. settle corruption charges out of court, partly for political reasons. Since the Montreal-based engineering firm would have benefited financially from Trudeau’s efforts, the prime minister’s actions contravened conflict of interest laws, the watchdog concluded.
    • Wealthsimple Inc., the robo adviser favored by millennials, is expanding in the opposite end of the Canadian wealth spectrum — services for high-net worth families. The investment firm’s Wealthsimple to Advisors unit will provide technology, dealer and advisory services to Grayhawk Investment Strategies Inc., a Calgary-based firm that manages about C$800 million ($600 million) for 30 of Canada’s richest families. Wealthsimple will then offer Grayhawk strategies to advisers with wealthy clients on its platform.

     

  • World Headlines
    • European stocks edged higher on Thursday, rebounding the previous session’s six-month low as positive earnings updates distracted investors from broader worries over the global economy. The Stoxx 600 Index was up 0.1% at 8.19 a.m. London time, after yesterday’s 1.7% loss with gains for construction stocks and tech. Among companies reporting results at the tail end of the season, Carlsberg A/S shares rose 2.7% after the brewer reported a jump in first-half profit thanks to sales of craft beers, while A.P. Moller-Maersk A/S climbed 7.2% after the shipping firm beat quarterly estimates.
    • U.S. equity futures fell and European stocks slumped on Thursday as China stepped up its trade-war rhetoric, roiling markets that had been starting to calm. Treasuries and European bonds rallied. Futures for the three main U.S. stock gauges had jumped during the Asian session in the wake of Wednesday’s rout, but they reversed after Beijing pledged countermeasures to the next round of tariffs threatened by the White House, saying they violate accords already reached by Presidents Donald Trump and Xi Jinping.
    • Earlier in Asia most benchmarks declined, though shares in Hong Kong and Shanghai finished higher. Treasuries had been drifting but resumed their recent rally on the China news, with European bonds following suit. The dollar slipped as the pound, yen, and euro all strengthened. Gold reversed a decline. The onshore yuan edged lower after China’s central bank added liquidity to the financial system.
    • Oil held losses as a surprise gain in U.S. crude stockpiles added to deepening concerns over the outlook for global demand. Futures fell again in New York after a 3.3% drop on Wednesday. China signaled on Thursday it may retaliate against President Donald Trump’s plans for tariffs on a further $300 billion of Chinese goods. Signs of a deeper trade war present another warning light for investors, on top of weak economic data from Germany and China and the inversion of a key part of the Treasury yield curve. Meanwhile, government data on Wednesday showed U.S. crude inventories unexpectedly swelled by 1.58 million barrels last week.
    • Gold extended yesterday’s rally above $1,500 as the metal gained fresh impetus from renewed trade tensions after China signaled it may retaliate against additional import tariffs planned by the U.S. The precious metal rose on Wednesday after the 10-year Treasury yield dipped below the two-year, raising speculation that a U.S. recession looms. The U.S.-China trade war and its impact on global growth have also helped drive haven demand for gold. Gold’s 14-day relative strength index has spent most of the past week above the 70 level that suggests to some chart watchers that an asset may be poised to decline.
    • Walmart Inc. set a high bar for other U.S. merchants by posting strong second-quarter sales and boosting its full-year outlook — temporarily sidestepping concerns about the impact of the Trump administration’s upcoming tariffs on the world’s largest retailer. Shares rose in pre-market trading. Comparable sales excluding fuel for Walmart stores in the U.S. rose 2.8% in the period, beating analysts’ estimates. Primarily driving the result was a higher average ticket, or how much each shopper spent.
    • The inverted yield curve looks set to be a global phenomenon, with major Asian debt markets primed to mirror the moves in Treasuries as fears grow that the world economy is teetering on the brink of a recession. Yields in some Asian markets are tracking the slide in their U.S. and U.K. peers as investors take stock of the damage wrought by the Sino-American trade war. A poor German GDP print and disappointing China factory output data on Wednesday underscored the weakness that’s gripping the global economy. As risks to the outlook increase, investors are scooping up longer-dated securities on expectations that interest rates will continue to fall. The following charts illustrate how some of Asia’s major bond markets are shadowing the moves in Treasuries amid a global flight to safety.
    • Saudi Aramco’s proposed purchase of part of India’s Reliance Industries Ltd. will allow it to regain its grip on the world’s fastest-growing oil market where suppliers including the U.S. and Russia are making inroads. Aramco’s plan to buy 20% of the oil-to-chemicals business of Reliance — which includes the world’s biggest refining complex at Jamnagar on India’s west coast — comes with an assurance to buy half a million barrels a day of the kingdom’s crude on a long-term basis. That’s around 25 million tons a year and will allow Saudi Arabia to easily reclaim the top supplier spot from Iraq.
    • U.S. aviation regulators are increasingly convinced they don’t need to mandate new simulator training for pilots of Boeing Co.’s 737 Max before returning the grounded jet to service, according to people familiar with the discussions. Pilots would be required instead to take a computer-based training course they could perform at home or in a classroom, according to the people, who weren’t authorized to speak about the matter and asked not to be identified. More extensive simulator-based training for all 737 Max pilots may be required in the months after flights resume, the people said.
    • China called planned U.S. tariffs on an additional $300 billion in Chinese goods a violation of accords reached by Presidents Donald Trump and Xi Jinping, signaling an American move earlier this week to delay some of those levies was not enough to stave off retaliation. The new 10% tariffs have taken the U.S. and China off the track of resolving their dispute through negotiation, the State Council Tariff Committee, which has overseen tit-for-tat retaliation, said in a short statement on Thursday. China “has no choice but to take necessary measures to retaliate,” it said, without specifying what the nation would do.
    • President Donald Trump linked Hong Kong’s unrest to talks with Chinese leader Xi Jinping, in a move that could reinforce Beijing’s efforts to blame the U.S. for increasingly violent protests in the Asian financial hub. In a flurry of tweets Wednesday, Trump defended his tariffs decisions, praised Xi and urged the Chinese president to “humanely” resolve the protests that have gripped Hong Kong for more than two months. He ended the posts with an apparent overture to Xi — writing “Personal meeting?” — without clarifying whether he was suggesting another summit.
    • Labour Party leader Jeremy Corbyn’s appeal to other U.K. parties that he should become a caretaker prime minister to stop a no-deal Brexit looks to have already fallen flat, as even some in his own party apparently accepted an alternative plan was needed. Corbyn on Wednesday evening wrote to rival party leaders, as well as selected Conservative members of Parliament, and suggested they should support him to oust Boris Johnson so he could seek a delay to Britain’s departure from the European Union and call a general election.
    • The U.S. is seeking to block authorities in Gibraltar from releasing the supertanker Grace 1, which was seized last month on suspicion of hauling Iranian crude oil to Syria in violation of European sanctions. “The U.S. Department of Justice has applied to seize the Grace 1 on a number of allegations which are now being considered,” the Gibraltar government said in a statement. “The matter will return to the Supreme Court of Gibraltar at 4:00 p.m. today.” The Justice Department made the last-minute request Wednesday night, Joseph Triay, a lawyer for the Gibraltar attorney general, said during a court hearing in the U.K. offshore territory on Thursday. The Gibraltar government had intended to release the ship, as its current detention order is due to expire in the coming days.
    • Hong Kong’s government announced a stimulus package worth more than $2 billion and said the economy will struggle to grow at all this year amid the ongoing political unrest. Gross domestic product will expand by 0% to 1% this year, Financial Secretary Paul Chan said Thursday, revising down the previous forecast of 2% to 3%. The latest outlook comes as anti-government protests in the city stretch to an 11th week, putting the squeeze on Hong Kong’s businesses and tourism. Gross domestic product contracted in the second quarter from the previous three months, leaving open the prospect of a technical recession.
    • As Japan’s benchmark bond yield drops further below the central bank’s targeted range, speculation is rife over when the monetary authority would step in and what course it will take. For some traders, Bank of Japan Deputy Governor Masayoshi Amamiya’scomments this month that it may widen the targeted yield range is evidence that it’s willing to tolerate lower yields amid a global debt rally. Others cite the BOJ’s increased buying of some short-tenor bonds at Friday’s operation to argue that it’s focus is on steepening the curve.
    • Cisco Systems Inc. sank in pre-market trading on Thursday, after the company gave a first-quarter outlook that was below expectations, pressured by macroeconomic headwinds, including the U.S.-China trade war. The Chinese market was seen as a major factor behind weakness in service-provider orders, and Morgan Stanley wrote that “outsized” macro headwinds “were too much to provide much opportunity for upside.” The firm was one of at least six to trim its price target on the stock.
    • Several Chinese companies are rethinking fundraising plans in Hong Kong as anti-government protests rock the city, an ominous sign for its future as a financial gateway between Asia’s largest economy and the rest of the world. One company scrapped preliminary preparations for a $500 million initial public offering in Hong Kong partly because of the unrest and will instead pursue a U.S. listing, according to a senior banker on the deal, who asked not to be named discussing private information. Another banker said at least two companies are considering the same move for IPOs worth a combined $1 billion, adding that final decisions will depend on market conditions and whether the turmoil in Hong Kong eases.
  • *All sources from Bloomberg unless otherwise specified