August 30th, 2019

Daily Market Commentary

Canadian Headlines

• Canadian stocks rose for a fourth day, the longest advance in almost two months, as markets rallied on optimism that the U.S. and China may avoid the worst threats to their hundreds of billions in annual trade. The S&P/TSX Composite Index climbed 0.7% on Thursday in Toronto to 16,384.49. Nine of the 11 sectors gained, as energy, industrials and financials rallied the most. Materials and real estate were the worst performing sectors. Meanwhile, Canada in the second quarter recorded its largest inflow of foreign direct investment in four years, another sign global trade tensions haven’t reduced the appetite for investing in the Canadian economy. Direct investment from abroad rose to C$18.7 billion ($14 billion), Statistics Canada reported Thursday.

World Headlines

• The Stoxx Europe 600 Index gained for a second day as every industry sector advanced. The pound struggled for direction as lawmakers lost a bid to block Prime Minister Boris Johnson’s plan to suspend parliament. The euro weakened as data showed inflation remained stubbornly low. Bunds reversed early losses to trade little changed and Italian government bonds climbed. The dollar was steady.
• U.S. equity futures climbed alongside European stocks and Asian shares rallied on the final trading day of a tumultuous month dominated by the trade war. Treasuries retreated. Contracts on all three major U.S. equity gauges pointed to a positive start on Wall Street. Stocks are closing out a highly volatile month, with markets gyrating on every apparent bust-up and breakthrough in the trade showdown between the world’s two largest economies. While new American tariffs on Chinese imports start kicking in on Sunday, Beijing has indicated it won’t immediately retaliate, helping steady investor nerves.
• Benchmarks in Tokyo and Seoul led gains across most of Asia, though shares in Hong Kong lagged the rally after news broke that prominent protest figures were arrested, and Shanghai’s index closed lower for the fourth time this week. Japanese bonds slipped after the Bank of Japan cut purchases in its regular operations.
• Oil headed for its biggest weekly increase since mid-July after a sizable drop in American crude inventories and an apparent pause in U.S.-China trade hostilities eased demand fears. Futures in New York fell 0.9% on Friday but are up 3.7% for the week. China said Thursday that it wouldn’t immediately retaliate against the latest White House tariff increase, spurring optimism that Beijing wants to reach a deal. Traders were watching for any disruptions from Hurricane Dorian, which was forecast to become a major storm later on Friday as it heads toward Florida.
• Platinum rose a fourth day to head for the biggest weekly gain since 2015 as haven demand that’s boosted gold this year expands to other metals. Silver and palladium also jumped this week, while gold is little changed. Platinum’s 14-day relative-strength index shows a reading of 77, above the 70 level that signals to some traders an asset is poised to decline. Still, ABN Amro lifted its price outlook for the metal, saying a massive sell-off is unlikely because platinum remains undervalued.
• The Bank of Japan intensified its efforts to stop benchmark yields from falling to record lows by cutting bond purchases on Friday and then paving the way to reduce them further in the coming month. The central bank followed up on a 50-billion yen ($470 million) reduction in purchases of five-to-10 year debt this morning with a move to lower the buying range for this key maturity zone at its operations in September. Speculation the BOJ would step in to halt the slide in yields was running high as the global debt rally caused the 10-year yield to drop further out of the central bank’s target range. Having come within one basis point of an all-time low of minus 0.3% on Thursday, the yield rose following BOJ’s actions on Friday, with that on similar-maturity U.S. Treasuries also moving higher.
• Energy companies have struggled this year to get interest from investors, but one area of the world at least may be paying attention. S&P 500 Energy companies are down 0.6% year-to-date, while WTI crude is up about 25%. Energy is also the only one of 11 U.S. industry groups that’s currently in the red for 2019, with the broader gauge up 17%. Those divergences have made the sector a favorite of analysts. That’s also grabbed the attention of TD Ameritrade Singapore Pte.’s investors.
• President Donald Trump said Thursday that the U.S. and China are scheduled to have a conversation about trade today without giving details. Trump’s comments followed signs from China that it wouldn’t immediately retaliate against the latest U.S. tariff increase and wanted to focus on removing new tariffs, to prevent a further escalation of the trade war. “There is a talk scheduled for today at a different level,” Trump said when asked in a Fox News radio interview if planned September talks with China are still on. Hours later, neither side had confirmed whether a conversation had taken place.
• The European Central Bank is becoming increasingly worried about prospects for inflation in the euro area. A weakening economic outlook and declining inflation expectations threaten to push price gains further away from target. A stable August inflation reading won’t alleviate the Governing Council’s concerns.
• A Scottish judge refused to block Boris Johnson’s plan to suspend Parliament, dealing a blow to lawmakers who argued that there isn’t enough time to thwart a no-deal Brexit. Judge Raymond Doherty in Edinburgh held off granting an emergency injunction against the prime minister’s plan, saying that there is time to hold more hearings on the issue next week. A Belfast court on Friday also put off a decision on whether to issue an injunction, giving more time for the situation in Westminster to develop before addressing the question.
• Hong Kong police arrested prominent opposition figures including Joshua Wong — and warned other protesters could share their fate at illegal demonstrations this weekend — raising tensions as authorities seek to quell pro-democracy demonstrations that have raged for almost three months. The 22-year-old Wong, who was scheduled to speak about the protests in the U.S. next month, was among well-known pro-democracy activists arrested by police on Thursday and Friday. Those arrested included Wong’s fellow leader of 2014 Occupy protests, Agnes Chow; independence advocate Andy Chan; and District Councilor Rick Hui.
• Tesla is exempt from China’s auto purchase tax, the nation’s industry ministry says in statement on its website. Shares rose 2.4% in pre-market trading in New York.
• Italy’s Agnelli billionaire clan is seeking to replicate at CNH Industrial NV what worked so well during the reign of former Fiat Chrysler Chief Executive Officer Sergio Marchionne: unlocking value by separating businesses that get different valuations from investors. CNH, controlled by the family and once chaired by the late Marchionne, is weighing possibilities including spinning off the Iveco division or combining it with a competitor, according to people familiar with the matter, who asked not to be identified because the information is private. The company could announce a strategic review of the business as soon as next week, when it’s is holding an investor meeting, the people said.
• As the likelihood of Britain crashing out of the European Union without a trading agreement rises, Citigroup Inc. estimates that such an event could cut domestic banks’ earnings by as much as 25%. A “no-deal exit” would curtail the revenue of high street lenders as economic growth slows and interest rates remain depressed, analysts including Andrew Coombs wrote in a note to clients Friday.
• European Union politicians expressed concern about the democratic legitimacy of Boris Johnson’s decision to suspend Parliament for five weeks, signaling the move could harm the U.K.’s bid for changes to the Brexit deal. With the British House of Commons set to reconvene on Tuesday after its summer break, Luxembourg’s Foreign Minister Jean Asselborn said the plan to suspend proceedings the following week until Oct. 14 was “strange.” “Westminster is the mother of all parliaments, and now you have a situation where that parliament is in danger of being sidelined,” Asselborn told reporters before a meeting with his 27 EU counterparts in Helsinki. “It’s a way of proceeding in democracy that doesn’t quite conform to the rules. I’m worried.”
• Gas stations in parts of Florida are running out of fuel as drivers race to fill up ahead of Hurricane Dorian. Independent operator Steil Oil, just 3 miles from the Atlantic Ocean in Vero Beach, Florida, closed but there was no sense of panic, said clerk-attendant Doug Mull. Several dozen drivers stopped in while pumps were closed. Another 8,000-gallon gasoline carrier was on the way, he said. Dorian is now expected to become a Category 4 storm with winds reaching 130 miles per hour before it makes landfall on Florida’s east coast, in what would be the first major hurricane to hit the area in 15 years. Florida relies on ships to bring in most of its fuel, leaving the state vulnerable to shortages if ports are closed.
• European Central Bank policy makers wary of ever-more monetary stimulus have fired the first warning shots two weeks before they meet to discuss bolstering the euro-zone economy. Dutch Governor Klaas Knot said in an interview on Thursday that the outlook isn’t yet weak enough to warrant the resumption of bond purchases. Executive Board member Sabine Lautenschlaeger said she opposes restarting quantitative easing, saying it should only be a last resort. Their comments echoed Germany’s Jens Weidmann, who a few days earlier said speculation over a large stimulus package “doesn’t do justice” to the latest data.

*All sources from Bloomberg unless otherwise specified