August 8th, 2019

Daily Market Commentary

  • Canadian Headlines
    • With global stocks roiled by the U.S.-China trade brawl and a dimming outlook for global growth, strategists say one market should hold up better than most — Canada. The benchmark S&P/TSX Composite index has lost 0.9% since the end of July compared with a 3.2% slide in the S&P 500. While that’s wiped out about $47 billion in market value, Canadian stock watchers remain relatively upbeat.
    • Uncertainty around an escalation of global trade tensions is spurring Canadian companies to raise debt at the fastest pace in almost two months as long-term yields touched a record low. Sun Life Financial Inc. has led six borrowers that have raised about C$2.7 billion ($2 billion) of bonds so far this week. This makes for the largest number of corporate issuers tapping the debt markets in the same week since mid-June, with two more trading sessions left in the week.
    • Canadian Tire Corp. agreed to buy Party City’s Canadian business for C$174.4 million to bolster its position as a party supplies provider in the country. Canadian Tire reported revenue for the second quarter that was 4.4% below the average analyst estimate. 2Q revenue C$3.69 billion, +5.9% y/y, estimate C$3.86 billion (range C$3.62 billion to C$4.43 billion)

     

  • World Headlines
    • European equities rose on Thursday with trade-sensitive sectors getting a boost after China set its currency at a stronger-than-expected daily fixing, while attention turned to another wave of earnings. The Stoxx 600 index was up 0.9% at 8.12 a.m. London time, with basic resources, oil stocks and the tech sector all making gains. Even at the tail end of the results season there were plenty of updates to keep investors busy. ThyssenKrupp gained 3% after saying that it was considering selling divisions while also cutting its profit outlook. Adidas fell 1% after its quarterly update and SBM Offshore soared 10%.
    • U.S. stock index futures rose for a third day after China’s central bank set its daily fixing stronger than expected, tempering concerns that the nations’ trade war will worsen. S&P 500 Index futures contracts expiring in September gained 0.5% at 2:17 p.m. in Tokyo, rebounding from an earlier 0.4% loss, after the People’s Bank of China set its daily reference rate at 7.0039 per dollar. Analysts and traders had projected a rate of 7.0156, according to the average of 21 forecasts compiled by Bloomberg in a survey. Futures on the Nasdaq 100 and Dow Jones Industrial Average rebounded as much as 0.7% and 0.5%, respectively.
    • Japan’s Topix index ended the day slightly lower as the benchmark gauge failed to retain intraday gains sparked by China’s stronger than expected daily fixing of its currency. The blue-chip Nikkei 225 Stock Average advanced, halting a four-day losing streak. Of the 2,144 members on the Topix, 1,087 company shares rose while the rest either dropped or were unchanged. Banks and machinery makers slid after the yen extended gains against the dollar for a second day, while gauges tracking chemical and precision-instrument shares advanced.
    • Oil rebounded from the lowest level since January after Saudi Arabia contacted other producers to discuss options to stem a rout that’s been driven by the worsening U.S.-China trade war. Futures rose as much as 3.4% in New York, clawing back much of Wednesday’s 4.7% plunge. Saudi Arabia won’t tolerate continued price weakness and is considering all options, according to an official from the kingdom who asked not to be identified. That came after a surprise increase in U.S. stockpiles, the first gain in eight weeks, which helped push down prices on Wednesday.
    • Gold futures rallied above $1,500 an ounce on sustained demand for the traditional haven as the U.S.-China trade war festers, global growth slows and central banks around the world ease monetary policy. The metal advanced as much as 2.6% an ounce on the Comex to the highest since 2013. The move extends this year’s climb to 19%, with gains underpinned by inflows into exchange-traded funds and central bank purchases. China’s central bank expanded its gold reserves for an eighth straight month in July.
    • The yuan’s slide to a decade-low is adding a new dimension to China’s balancing act: How to support the economy while avoiding a currency policy that widens its rift with the U.S. on trade. The yuan steadied on Thursday when the People’s Bank of China set the daily reference rate higher than expected — even though it was fixed at a level that’s weaker than 7 per dollar for the first time since 2008. That signals that traders are convinced that the yuan won’t be allowed to fall precipitously, even amid pressures from the trade war with the U.S. and slowing growth.
    • Siemens Healthineers AG plans to buy U.S. surgical firm Corindus Vascular Robotics Inc. for $1.1. billion, an acquisition aimed at broadening its portfolio of medical equipment beyond scanners. Healthineers will pay $4.28 for each share in Waltham, Massachusetts-based Corindus, according to a statement Thursday. That’s 77% above Corindus’s last closing price. The deal is expected to close in the final quarter of 2019, and has the support of the Corindus board, the German company said.
    • Bayer AG agreed to buy the remainder of BlueRock Therapeutics in a deal that values the biotechnology company at as much as $1 billion. Bayer will pay $240 million in cash and another $360 million in potential milestone payments for the remaining 59% of BlueRock that it doesn’t already own, according to a joint statement Thursday. The Cambridge, Massachusetts-based company is focused on developing cell therapies for neurology, cardiology and immunology.
    • Carlsberg A/S surged the most in a decade after raising its annual earnings outlook as the Danish brewer benefited from demand for its higher-priced craft beers. Following an initial focus on cutting costs, Chief Executive Officer Cees ’t Hart is switching gears to drive more revenue from more exclusive beer brands such as Grimbergen. The shares rose as much as 10% Thursday in Copenhagen, their biggest intraday gain since 2009. Budweiser maker Anheuser-Busch InBev NV gained as much as 2.3%.
    • Justice Secretary Wanda Vazquez on Wednesday was sworn in as Puerto Rico’s third governor in five days. She lacks a secretary of state, a new justice secretary to replace herself, assorted other aides and officials — and the desire to do the job. Vazquez had said she’d take the oath only out of duty after the bankrupt U.S. commonwealth’s supreme court threw out former Governor Ricardo Rossello’schosen successor Wednesday. Pedro Pierluisi was Rossello’s pick as secretary of state, next in line after Rossello resigned amid a texting scandal. But the judges ruled unanimously that Pierluisi violated the island’s constitution when he claimed the governor’s office last week, because he was never confirmed by the local Senate.
    • FedEx Corp.’s retreat from handling packages for Amazon.com Inc. signals that the lines are being drawn in the battle over surging e-commerce shipments. The end of two delivery contracts with Amazon means FedEx will have to make up for the lost sales by extending a push to serve other customers such as Walmart Inc. Amazon will have to rely more on United Parcel Service Inc. and the U.S. Postal Service as it seeks to fulfill a pledge for next-day delivery to top customers — and build out its own shipping network.
    • An unusual split vote by Texas regulators over the flaring of natural gas shows that the days of giving a free pass to the controversial practice in the Lone Star state may be numbered. The Texas Railroad Commission, which regulates the oil and gas industry, on Tuesday voted 2-1 to grant a flaring permit to EXCO Resources Inc., dismissing an attempt by pipeline operator Williams Co. to block the request. Texas is widely regarded as the most oil-and-gas-friendly state, and the commission has never turned down a request to burn off excess gas. But the dissenting vote from Chairman Wayne Christian raised eyebrows. Such decisions are usually unanimous, according to Josh Price, an analyst at Height Capital Markets.
    • Uber Technologies Inc., responding to a European crackdown on offshore tax havens, created a $6.1 billion Dutch tax deduction that will help the company reduce a chunk of its global tax bill for years to come. San Francisco-based Uber generated the outsized deduction before its initial public offering in May because it moved some of its offshore subsidiaries to different countries as a result of new European Union rules governing multinational companies. The $6.1 billion deduction came through an increase in the value of intellectual property that Uber transferred between its offshore subsidiaries, according to the company’s first quarterly filing. When an intangible asset increases in value, so do the tax deductions that come with its use over time.
    • Chevron Corp. has started its long-delayed project to capture carbon dioxide from its giant Gorgon gas export venture and inject it deep underground, aiming to reduce emissions from the development by around 40%. The A$2.5 billion ($1.7 billion) carbon capture and storage project has been beset by technical issues that pushed it back from the original 2017 start date. Once fully operational, Chevron expects to store up to 4 million tons of CO2 annually under Barrow Island off the coast of Western Australia.
    • The Philippines cut its benchmark interest rate by a quarter-percentage point Thursday, in line with most forecasts, resuming policy easing after economic growth and inflation slowed. Bangko Sentral ng Pilipinas reduced the overnight borrowing rate to 4.25%, it said in a statement. Twenty-three of the 26 economists surveyed by Bloomberg predicted the decision.
    • WeWork Cos. took the real estate world by storm on its way to an initial public offering that’s set to be among the year’s biggest. It’s not the only co-working firm that’s primed for new heights. More and more companies are vying to meet global demand for hip, furnished offices without the commitment of a long-term lease. Some, such as IWG Plc’s Regus, preceded WeWork. Others followed in the footsteps of the powerhouse that’s raised more than $12 billion and opened locations in more than 100 cites. For many firms in the sector, the IPO, planned for next month with a target of $3.5 billion, proves co-working is here to stay.
    • When the Federal Reserve cuts interest rates, making it cheaper to borrow, it’s supposed to deliver a direct boost to the economy. But one key part of that machinery has broken down. Business investment used to rise when U.S. companies took on more debt—because most companies borrowed to add capacity. Nowadays, they’re likelier to funnel the money to shareholders. Investment is stuck at low levels by historical standards. President Donald Trump’s reduction in corporate taxes hasn’t changed the pattern. Neither has a decade of low interest rates, even before the Fed’s quarter-point cut on July 31.
    • Aviva Plc confirmed it’s examining options for its Asian business as new Chief Executive Officer Maurice Tulloch’s turnaround of the U.K.’s only insurance conglomerate takes shape. The firm confirmed earlier reports on the Asian unit, while giving no further detail as part of its half-year earnings. Bloomberg News reported earlier this month that the assets could be valued at about $3 billion to $4 billion.
    • The yuan steadied on Thursday after China’s central bank set the daily fixing stronger than analysts expected, providing some reassurance to traders rattled by a tumultuous week in markets. The currency rose as much as 0.3% after the People’s Bank of China set its daily reference rate at 7.0039 per dollar. While that was the first time since 2008 that the fixing was weaker than 7, it tracked earlier moves in the spot rate and was stronger than the 7.0156 average estimate of 21 analysts and traders surveyed by Bloomberg.
    • China is mulling the biggest changes to its futures market since 2015, an overhaul that would give global investors unprecedented access, make it easier to execute bearish trades, and lay the groundwork for wagers on stock-market volatility. The proposed changes, still under discussion by regulators, would remove a ban on unhedged bets against the market and allow foreigners to trade equity-index and commodity futures without a government-approved quota, according to people familiar with the matter. The China Financial Futures Exchange is also considering a new range of products, including futures on the MSCI China A Index, the people said. The bourse plans to introduce an equity volatility index that may eventually serve as the basis for derivatives contracts.
    • Lyft Inc.’s second-quarter beat-and-raise results won praise from Wall Street and boosted shares Thursday as analysts see a clearer path to profitability and a “more rational competitive environment.” Lyft shares are trading 6.2% higher in the pre-market, while rival Uber Technologies Inc. rose 4.7%. Lyft indicated that the price war with its competitor — which reports after the market close Thursday — is easing. Yet both stocks are still below the prices at which they went public this year, and investing in the San Francisco-based company may require some patience.
  • *All sources from Bloomberg unless otherwise specified