December 10th, 2019

Daily Market Commentary

Canadian Headlines

  • Canadian equities fell Monday despite the Trump administration and House Democrats reaching a tentative deal on the U.S.-Mexico-Canada trade agreement. The S&P/TSX Composite fell 0.3% at 16,950.85 in Toronto. The move follows the previous session’s increase of 0.8%. Seven of eleven sectors dropped, while Canopy Growth Corp.’s 14% surge lifted marijuana stocks higher after the company named a new CEO. Meanwhile, Hudson’s Bay Co. disparaged a shareholder advisory firm’s report that came out against Chairman Richard Baker’s plan to take the retailer private, calling the study “flawed” and reiterating a call to support the deal.
  • President Donald Trump’s administration plans to sign off on adjustments to a free-trade deal with Mexico and Canada on Tuesday, according to two officials, easing the path for a vote in the House of Representatives as soon as next week. U.S. Trade Representative Robert Lighthizer and presidential adviser Jared Kushner will travel to Mexico City on Tuesday to finalize the addendum with the changes, according to the two officials familiar with the plan. Canada’s Deputy Prime Minister Chrystia Freeland is also heading to the Mexican capital. The move comes after Trump secured approval from Richard Trumka, head of U.S. labor federation AFL-CIO, for the changes to the agreement, according to three administration officials. The compromise deal was hammered by Lighthizer, House Speaker Nancy Pelosi and the Mexican government, the officials said.
  • The Canadian dollar’s outperformance this year stunned many, but strategists are not expecting a repeat in 2020 — casting doubt on its run as one of the best major currencies. Just last week, the nation’s central bank cited a tightening labor market as a main reason why it can buck the global easing trend and keep its policy rate at the highest levels among advanced economies. That upbeat tone didn’t last long when November labor force survey showed a surprise job loss, weakening the loonie by its biggest decline since October.

World Headlines

  • European shares dropped Tuesday as investors await events this week ranging from the U.K. election and central bank meetings to trade developments between the U.S. and China. The Stoxx 600 Index was 0.9% lower as of 10:07 a.m. in London, with all industry groups in the red, led down by technology and autos shares. Deutsche Bank AG gave up earlier gains of as much as 1.7% and was down 0.6% as Chief Executive Officer Christian Sewing warned of headwinds.
  • U.S. equity-index futures retreated alongside stocks in Europe on Tuesday as investors turned cautious in the countdown to major central bank meetings and a deadline for fresh American tariffs on Chinese goods. Treasuries gained with gold. Contracts for the main U.S. gauges all dropped, with traders holding back as they await news on whether Washington will go ahead with a planned Dec. 15 tariff hike on imports from China.
  • The picture was mixed in Asia, where a regional benchmark declined overall in below average volumes but shares in South Korea and China bucked the broader retreat. Japan’s 10-year bond yield rose above zero for the first time since March before reversing. Investors appear to be trimming risk-on positions before a slew of significant events in the next few days, from Federal Reserve and European Central Bank policy meetings to a general election in Britain. The biggest focus arguably remains on whether the U.S. and China can avert a new round of protectionist duties slated for Dec. 15.
  • Oil was steady near a 12-week high in New York, supported by signs of falling American crude inventories yet capped by continuing salvos in the U.S.-China trade dispute. West Texas Intermediate futures were little changed, after briefly surging on signs of economic confidence in Germany. U.S. crude stockpiles fell by 2.5 million barrels last week, a Bloomberg survey showed before government data due Wednesday. The White House is scheduled to put tariffs on a further $160 billion of Chinese goods Sunday, although Agriculture Secretary Sonny Perdue said they’re unlikely to be implemented.
  • Gold was steady as investors awaited central bank meetings this week as well as a looming tariff deadline. The Federal Reserve decides on interest rates on Wednesday followed by a media briefing from Chairman Jerome Powell, while the European Central Bank’s policy decision is on Thursday. Both are expected to leave rates unchanged, but traders will be on the lookout for clues on what’s in store for 2020 in terms of monetary policy.
  • Iron ore’s surprise surge above $90 a ton amid optimism on the outlook for Chinese demand has sowed consternation among market watchers, with some questioning the move as prices fluctuated on Tuesday. Iron ore’s recent turnaround since sinking into the $70s in mid-November extends a tumultuous year for the steelmaking ingredient. Earlier in 2019, prices blasted to multi-year highs after a major supply outage in Brazil, before retreating on signs of higher shipments. The recent spike came amid pledges from China’s leadership to strengthen key infrastructure spending.
  • House Democrats plan to unveil two articles of impeachment against President Donald Trump on Tuesday — one on abuse of power and the other involving obstruction of Congress, according to four people familiar with the proceedings. The Democrats could add additional articles on obstruction, added the people, who were granted anonymity to discuss the matter. The leaders of the committees running the impeachment will announce their next steps during a news conference scheduled for 9 a.m. Tuesday in Washington, Speaker Nancy Pelosisaid late Monday in a statement.
  • The U.K. economy unexpectedly stagnated in October, marking three straight months without growth for the first time since 2009. Gross domestic product was unchanged following two consecutive months of decline, the Office for National Statistics said on Tuesday. Economists had forecast a 0.1% expansion. GDP rose just 0.7% from a year earlier, the smallest increase since June 2012.
  • The slump in SoftBank Group Corp.’s shares could prompt Masayoshi Son to play an ace card — cashing in part of his stake in Alibaba Group Holding Ltd. Son is likely to sell Alibaba stock to help pay for another buyback in an attempt to bolster SoftBank shares, according to Jefferies Group analyst Atul Goyal. It’s a surprise the Japanese technology giant’s shares are “languishing” despite its large stake in Alibaba, Goyal wrote in a note. The shares have become “decoupled,” and SoftBank is seeing little upside from its holding, he said. SoftBank’s stock is up 16% this year, while Alibaba’s has surged 45%. SoftBank’s market cap is about $82 billion, though its Alibaba shares alone are worth about $128 billion.
  • Germany’s machine makers painted a bleak picture for 2020, saying output won’t grow before the second half of the year at the earliest. Even then, production is set to fall 2% after a decline of a similar scale this year, according to the Mechanical Engineering Industry Association, or VDMA. It said any rebound will depend on improving business confidence and no further aggravation in the trade war between the U.S. and China.
  • Yes Bank Ltd.’s board said it favored a $500 million offer from Citax Holdings Ltd. as the embattled Indian lender deferred a decision on backing other investors in its hunt to raise $2 billion. The lender’s board didn’t come to a final decision on potential investors, after previously announcing offers worth $2 billion from parties including Canadian businessman Erwin Singh Braich, Citax Holdings and a U.S. fund house, an exchange filing showed. The company is still discussing Braich’s offer, the bank said in a filing to exchanges on Tuesday.
  • China’s consumer inflation accelerated to a seven-year high in November while producer prices extended their run of declines, complicating the central bank’s efforts to support the economy. The consumer price index rose 4.5% last month from a year earlier, following a 3.8% gain in October, the National Bureau of Statistics data showed Tuesday. The median forecast was for a 4.3% increase. Factory prices fell 1.4% on year, slower than the 1.6% drop in October while extending the run of negative readings to five.
  • The massive offer sent ripples through the junk-debt market: hedge fund H/2 Capital Partners was seeking to offload nearly $800 million of a J.C. Penney Co. loan. Traders are marketing the debt in the low 80s, potentially a steep discount for the first-lien loan, which had been changing hands for around 89 cents on the dollar. Credit insurance costs temporarily spiked and prices of other J.C. Penney debt dropped as investors caught wind of the offer Thursday. It was the latest example of a common occurrence this year in the market for junk-rated corporate debt. After years of gorging on loans and bonds of even the riskiest borrowers — all in a pursuit of yield that became increasingly sparse — buyers have been drawing a line and either bypassing or demanding deep discounts to lend to companies that may struggle in an economic downturn.
  • China is in preliminary talks to support the European Union’s backup plan for settling international trade disputes as President Donald Trump’s administration gets closer to scuttling the World Trade Organization’s role in refereeing cross-border commerce. On Tuesday, China’s Ambassador to the WTO Zhang Xiangchen told Bloomberg News that Beijing is actively working to support the EU’s vision of an appeal-arbitration model, which essentially replicates the work of the WTO’s soon-to-be defunct appellate body.
  • Saudi Aramco will surpass Apple Inc. as the world’s biggest listed company when it debuts this week after a record-breaking initial public offering. Unlike the tech titan it displaces, barely any of its shares will trade. The Gulf oil giant sold a 1.5% stake in the IPO, while the remainder stays in the hands of the Saudi state. That free float, or the proportion of stock owned by public investors that can change hands, is among the lowest globally. Many of the biggest companies, from Inc. to Microsoft Corp., have more than 80% of their equity owned by independent shareholders.
  • Just Eat Plc has rejected Prosus NV’s higher bid saying that the latest offer still significantly undervalues the company. Prosus raised its offer for the U.K. food delivery firm by 4.2% to 740 pence-per-share offer on Monday. Just Eat advised shareholders to stick with an all-share combination with NV in a statement on Tuesday. Just Eat’s stock has been trading above the offer price as shareholders hold out for a bigger premium. It closed at 781 pence in London trading on Monday valuing the company at about 5.3 billion pounds ($7 billion).
  • A consortium including Omers, one of the largest Canadian pension funds, is one of the final contenders to acquire a stake in Altice Europe NV’s Portuguese fiber assets, people with knowledge of the matter said. Talks on the sale have accelerated in recent weeks after stalling earlier, the people said, asking not to be identified because the information is private. While the Omers-backed investor group is in advanced talks to acquire about a 40% stake in the infrastructure, at least one competing bidder also remains in negotiations, according to the people.
  • California’s climate threats could soon be jumping from wildfires and blackouts to floods and mudslides as the wet season kicks into gear. About half the water that falls in the state in any given year does so in the 90 days between Dec. 1 and the end of February. Too much rain has at times meant catastrophic floods and dangerous mudslides. Too little threatens agriculture with drought, and potentially creates a tinderbox effect in the year ahead. Meanwhile, a late start to the wet season has firefighters remaining on watch. While last week saw rains across the state, the next 7 days are forecast to be dry, with a high pressure system sitting over the west.

*All sources from Bloomberg unless otherwise specified