August 6th, 2019

Daily Market Commentary

• Canadian Headlines
  • Toronto home sales and prices continued to move higher in July amid tight supply. Sales in Canada’s biggest city jumped 24% to 8,595 from the same period last year, the Toronto Real Estate Board said in a report Tuesday. On a seasonally-adjusted basis, sales rose 5.1% from June, the most since the end of 2017, before harsher mortgage-lending rules were introduced. The benchmark price, which accounts for the type of home sold, rose 4.4% to C$800,900 ($606,926), largely driven by gains in the condo segment.
  • Those looking for evidence of an imminent debt crisis in Canada won’t find it in the latest credit card data. An Aug. 2 report on asset-backed securities from Fitch Ratings, which analyzes credit card payments, indicates consumers are coping with record debt levels and concluded the “stable performance” should continue. Though charge-offs, or receivables that have been written off as noncollectable, hit a two-year high in May, the year-to-date average is little changed from 2018. Meanwhile, delinquencies of more than 60 days actually declined in the second quarter, and the monthly payment rate increased.

  World Headlines

  • European stocks rebounded after their worst two-day decline in three years as China’s move to stabilize its currency helped ease investor concerns about a trade war. The Stoxx Europe 600 Index rose as much as 0.7%, reversing an earlier drop of 0.3% as all industry groups climbed. Personal and household goods shares led the recovery as they bounced off an almost five-month low reached Monday. Vivendi boosted media stocks as it surged after saying it’s in talks to sell a stake in Universal Music Group to Tencent Holdings.
  • U.S. stock index futures advanced, reversing earlier losses, as China’s currency policy took center stage in the ongoing trade war between the world’s two biggest economies. S&P 500 Index futures rose 0.8% as of 9:38 a.m. in London after sinking as much as 1.9% on Tuesday after the Trump administration formally labeled China a currency manipulator. The U.S. statement followed the Asian nation’s move to let its currency slide beyond 7 per dollar on Monday for the first time in more than a decade.
  • Japanese stocks declined for a third day, as the latest developments in the U.S.-China trade war caused large swings in markets Tuesday. The Topix index ended the day 0.4% lower after falling by as much as 2.9% in the morning session. The telecommunications and electronics groups were the biggest drags on the benchmark gauge, which trimmed its 2019 gain to 0.3%. China’s central bank set its daily reference rate stronger than the psychologically important 7 per dollar level, weakening the yen against the dollar and helping Japanese equities come off earlier lows. The move came after the U.S. labeled China a currency manipulator.
  • Oil steadied as China moved to stabilize the yuan’s slide, cooling some concerns about an escalation in the standoff with the U.S., which labeled the Asian nation a currency manipulator. Futures added as much as 1.3% in New York as the People’s Bank of China on Tuesday set the daily currency fixing stronger than analysts expected. Crude had slumped as much as 1.8% earlier after comments by the U.S. Treasury Department sowed fears that the clash between the two biggest economies was about to inflict an even deeper toll on economic growth and oil demand.
  • Gold is taking a break from its trade-war fueled rally, reversing earlier gains to trade little changed after the People’s Bank of China took steps to slow the yuan’s decline. Bullion hit a six-year high earlier in the day, after the Trump administration labeled China a currency manipulator, underscoring the deteriorating relationship between the two nations. The gain was rolled back after the PBOCset the daily fixing at 6.9683 per dollar, stronger than expected.
  • Iron ore just got hit by an abrupt reversal of fortunes. The commodity that soared in the first half after a supply squeeze is getting pummeled early in the second as the U.S.-China trade war morphs into a currency battle, supplies pick up and signals suggest softening demand. Futures in Singapore fell — dropping even after China set its currency fixing stronger than expected — to reinforce expectations they will join spot prices and the contract in China in a bear market. On Monday, spot ore collapsed to $99.50 a ton, more than 20% lower than the five-year peak last month.
  • China took steps to limit weakness in the yuan, providing some stability to global financial markets in the wake of Monday’s rout, and said it won’t depreciate the currency to be competitive. The People’s Bank of China on Tuesday set the daily currency fixing stronger than analysts expected and announced the planned sale of yuan-denominated bonds in Hong Kong. The moves, which came after the U.S. labeled the country a currency manipulator, helped drive the yuan up 0.2% a day after it sank the most since 2015. The central bank also rejected the accusation it manipulates the yuan.
  • News that Domino’s Pizza Group Plc Chief Executive Officer David Wild is stepping down ends the least rewarding chapter in the company’s 20-year history as a public company. The stock has returned about 9% a year since Wild took the helm in April 2014, the lowest total annualized returns when compared with Domino’s past three CEOs, according to data compiled by Bloomberg. Wild’s tenure has been marked by challenges in Domino’s international business as well as a dispute between the company and U.K. franchisees, which have reportedly said rising food and business costs aren’t being shared equitably. Domino’s is still in active talks with its franchisees and a resolution will take some time, the outgoing CEO said Tuesday.
  • Jeff Bezos sold an additional $1 billion worth of Amazon.com Inc. shares last week, shortly after cashing in $1.8 billion, stock exchange filings show. He disposed of 532,120 shares on Thursday and Friday after selling nearly a million shares earlier in the week. While last week’s disposals were his only sales of 2019, they were enough to make it his biggest-ever year of selling a stock. Bezos sold $33 million worth of stock in 2018 and $2 billion in 2017. He still owns a 12% stake in Amazon, valued at about $100 billion.
  • Australia kept interest rates unchanged following back-to-back cuts that, combined with a massive escalation in the U.S.-China economic battle, helped push the currency to its lowest level in a decade. Reserve Bank chief Philip Lowe and his board left the cash rate at 1% — as expected — with the Aussie dollar’s more than 3% fall since July’s cut aiding exporters and import-competing industries. The decision also saw the RBA trim this year’s economic growth forecast, and came against a tumultuous global backdrop as the U.S.-China trade war morphs into a currency showdown.
  • Sirius Minerals Plc plunged as its plans to build a $3.8 billion mine in the northeast of England were thrown into doubt after the company suspended a $500 million bond sale. The setback to a critical part of Sirius’s financing plan is the latest blow in almost a decade of efforts to build its giant potash mine. It’s so far had to overcome environmental opposition, concerns about demand prospects for its potash and a long battle to raise capital. The shares dropped as much as 39% and traded 24% lower at 12:16 p.m. in London.
  • HSBC Holdings Plc’s Swiss private banking unit agreed to pay about 294 million euros ($329 million) to settle a Belgian criminal probe into allegations it helped wealthy clients dodge hundreds of millions of euros in taxes. The preliminary agreement in Belgium’s largest criminal settlement still needs to be approved by a judge at a hearing that should take place in September, Willemien Baert, a spokeswoman at the Brussels prosecutors’ office, said by phone. HSBC declined to comment on the proposed settlement. Authorities in Belgium and France began scrutinizing HSBC’s Swiss private bank after Herve Falciani, a former information technology worker at the firm, stole client account details from the Geneva office in 2008 and shared them with investigators. The French case culminated with HSBC agreeing to settle for 300 million euros.
  • With a surge in forest fires in Indonesia threatening a repeat of the deadly haze that blanketed much of Southeast Asia in 2015, President Joko Widodo said officials failing to tackle the menace will be fired as he extended a ban on clearing new forest land for farming. Jokowi, as Widodo is commonly known, said he’s alarmed by the increase in the number of so-called hotspots this year though it’s significantly down from 2015 when a total of 2.6 million hectares of land was affected, costing the country 221 trillion rupiah ($15.5 billion) in economic losses. The military, police, disaster mitigation agency and others should focus on prevention and early detection of fires to curb them, he told a meeting in Jakarta on Tuesday.
  • The retreat in China’s yuan to levels unseen since 2008 threatens to revive concerns about the capital flight back then that helped spur the country to spend $1 trillion of its reserves. For all its perceived success in tightening regulations and strengthening scrutiny of funds moving abroad, the trauma of that period poses a big reason to avoid any continuous depreciation. An even more-important financial consideration could be the stockpile of Chinese dollar debt, which has more than doubled since the end of 2015 to $729.8 billion, according to data compiled by Bloomberg. Issuance so far this year is a record $138 billion.
  • Blackstone Group Inc. has taken a stake in BC Partners in a deal that will give the European private equity firm capital to expand. Blackstone acquired a passive, minority stake in the buyout firm through its Strategic Capital Group, which specializes in minority partnerships with alternative asset managers, BC Partners said in a statement on Tuesday. Blackstone is likely to invest about 500 million euros ($560 million) in the firm for a 10% to 15% stake, a person familiar with the deal had said, asking not to be identified because the terms of the deal are private.
  • Tencent Holdings Ltd. plans to buy 10% of Universal Music Group from Vivendi SA in a deal that would value the world’s biggest music company at $34 billion and help it tap fast-growing Asian markets. The discussions with China’s most valuable company will reinvigorate the French media giant’s efforts to find new partners for its most successful business. But they may also sound alarms in the U.S., the world’s biggest music market, amid a deepening trade war with China.
  • Indian tycoon Subhash Chandra’s Essel Group is in advanced talks to sell some toll road projects to an arm of the country’s sovereign wealth fund for about $350 million, according to people familiar with the matter. The assets that National Investment & Infrastructure Fund is planning to buy are four toll roads that are in operations and two in construction, said the people, who asked not to be identified because the discussions are private. The parties expect to reach an agreement as soon as September, the people said.
  • China is expected to start avoiding U.S. crude oil imports as trade tensions ratchet up, according to traders and analysts, entangling a key commodity that has largely escaped the tit-for-tat trade war. After escalating tensions over the past week, some Chinese buyers will likely begin reducing purchases of oil from the U.S. in anticipation that Beijing will impose tariffs, according to traders who supply American oil to China, asking not to be identified due to company policies. Retaliatory levies on U.S. natural gas and soybeans have already choked off China’s imports of those commodities. Adding crude oil to the mix disrupts further what should be a mutually beneficial energy relationship between the world’s biggest crude producer and importer. The U.S. surpassed Saudi Arabia and Russia to take the top spot last year, while China became the world’s largest oil buyer in 2017.
  • Six weeks after U.S. President Donald Trump took his historic first steps into North Korea, talks with Kim Jong Un appear to be back on the verge of collapse. North Korea’s foreign ministry renewed its threat to take “new road” in negotiations with the U.S., saying Washington and Seoul would “pay a heavy price” if they continued to disregard the regime’s warnings against holding joint military exercises. The statement Tuesday came less than an hour after North Korea fired a new volley of short-range ballistic missiles into the sea — its fourth such weapons test in two weeks.

*All sources from Bloomberg unless otherwise specified