December 5th, 2019

Daily Market Commentary

Canadian Headlines

  • Toronto-Dominion Bank’s U.S. retail division extended its winning streak over its Canadian counterpart in a quarter that was hurt by restructuring charges. The U.S. unit, which includes Toronto-Dominion’s stake in online brokerage TD Ameritrade, has been a bright spot for the Canadian lender, with earnings growth outpacing those of its domestic retail operations since the second quarter of 2018. That trend continued in the fiscal fourth quarter, with a 6.9% increase in the U.S., compared with profit that was little changed in Canada. Overall earnings at the Toronto-based company missed analysts’ estimates.
  • Canadian Imperial Bank of Commerce’s strategy of being a little less Canadian is catching on, though that did little to help earnings last quarter. CIBC’s $5 billion takeover of Chicago-based PrivateBancorp two years ago was the cornerstone of Chief Executive Officer Victor Dodig’s push to diversify beyond Canada. That plan is working, with profit from U.S. commercial banking and wealth management at a record C$180 million ($137 million) as growth continues to outpace CIBC’s banking businesses in Canada. Earnings missed analysts’ estimates.

World Headlines

  • European shares advanced Thursday, extending Wednesday’s progress on renewed hopes that the U.S. and China may be closer to a trade deal. The Stoxx 600 Index rose 0.3%, led by retail and real estate shares. It climbed most in eight weeks Wednesday after a report that a trade deal could be near, avoiding the next round of tariffs. Moncler SpA was indicated to open higher after Bloomberg reported Kering SA has held exploratory talks with the Italian company about a potential deal.
  • U.S. equity-index futures rose with European and Asian stocks on Thursday as investors weighed the prospects of America removing a scheduled tariff hike on Chinese imports in 10 days. Bonds and the dollar edged lower. Contracts on the S&P 500, Nasdaq 100 and Dow Jones Industrial Average all pointed to a positive opening on Wall Street.
  • Earlier in Asia, most major benchmarks posted sold gains although stocks in South Korea and India fell. An index of emerging-market shares climbed. Treasuries added to their losses from Wednesday, when a report indicated the U.S. and China were closer to a deal that would avoid the next round of tariffs. Indian government bonds tumbled after its central bank unexpectedly left interest rates unchanged. The pound rose for a fifth day against the greenback as expectations grow for a Conservative victory in next week’s election.
  • Oil held its biggest surge in more than two months as OPEC ministers gather in Vienna to discuss output cuts. Futures were little changed in New York after jumping 4.2% on Wednesday, the biggest gain since the attacks on Saudi Arabia’s energy facilities. Nigeria said OPEC is discussing the possibility of making further output cuts, while Saudi Arabia is seeking better compliance with the curbs from other producers in the group.
  • Gold steadied after choppy trading earlier this week as investors weighed progress in U.S.-China trade talks. Palladium took a breather after a nine-day winning streak. China said it’s in “close contact” with U.S. negotiators after a report Wednesday that the two countries are moving closer to a phase-one pact. That boosted riskier assets and capped demand for havens like gold even though U.S. President Donald Trump signaled earlier a deal with China may have to wait until next year. Still, there is concern over the U.S. economy after ADP Research Institute data showed companies added the fewest workers in six months. German factory orders unexpectedly fell in October.
  • The House Judiciary Committee will soon announce its next steps in the impeachment inquiry into President Donald Trump. Chairman Jerrold Nadler and top Republican Doug Collins have both mentioned a hearing next week focusing on the impeachment report’s evidence and conclusions, but no details have been provided.
  • U.K. Prime Minister Boris Johnson pledged to deliver Brexit and a tax-cutting budget within 100 days of his Conservative Party winning the Dec. 12 election — a widely predicted outcome that’s driving a rally in the pound. Other early goals include a defense review, more funding for schools, and the introduction to Parliament of legislation on immigration. The Tories sought to contrast their agenda for government with the “gridlock and uncertainty” that would result from a hung Parliament — which the party described in a statement as “a very real possibility.”
  • The Federal Reserve and President Donald Trump may be at loggerheads over interest rates, but they have one thing in common right now: the resilient U.S. labor market is helping both be more patient. For the Fed, the November employment data due Friday should signal that jobs and consumers remain buoyant enough to sustain the expansion, validating Chairman Jerome Powell’s view that rates can stay on hold following three cuts. For Trump, it likely reduces the urgency for a trade deal with China even with investors fretting about a possible tariff increase on Dec. 15, given that escalating levies have so far failed to significantly dent the U.S. labor market.
  • LG Chem Ltd.’s U.S. business will set up a venture with General Motors Co. to make batteries, seeking to benefit from burgeoning demand for electrified vehicles. The South Korean company said Thursday it will invest about $900 million in its U.S. unit for the joint effort. A spokesman declined to provide further details. Reuters earlier reported the companies will each invest more than $1 billion in the 50-50 joint venture and its planned facility in Lordstown, Ohio, citing people familiar with the matter.
  • One of the world’s biggest operators of nuclear power plants acknowledged the technology needs to cut costs very quickly to compete with a plunge in the cost of renewables. Atomic energy is the one of the only low-carbon alternative that can provide stable electricity around the clock. But with costs mounting at projects from the U.K. to France and Finland, the industry is facing a battle to assert itself after the price of wind and solar dropped so much that they are now largely on par with existing coal and gas plants.
  • Emmanuel Macron’s push to transform France’s sclerotic economy is facing the ultimate test of presidents past: “la greve.” In what has been the undoing of previous French governments, unions representing everyone from transport workers to lawyers, doctors, teachers and students are going on an indefinite “greve,” or strike, starting Thursday to oppose Macron’s plan to reform the country’s pension system. Thousands are marching in cities from Lyon to Nantes and Marseille as metros and trains services were largely halted, hospitals and schools struggled to remain open and air traffic was disrupted. Unions opposing Macron’s plan for a top-to-bottom rebuilding of the pension system have threatened to bring France to a standstill until the government backs down.
  • Turkey’s banking regulator eased measures on how banks classify credit to once-troubled companies, helping lenders to potentially avoid adding more non-performing loans to their books, according to people familiar with the matter. The Banking Regulation and Supervision Agency, or BDDK, will now leave it to lenders to decide which company loans need to be reclassified as non-performing, said the people, who asked not to be identified because the changes haven’t been publicly announced. Banks won’t have to book the loans of businesses that have restructured borrowings or bolstered cash flows as non-performing, they said.
  • Ericsson AB is nearing a resolution of a long-running U.S. corruption investigation, according to two people familiar with the matter, a deal that could cost the telecommunications equipment maker more than $1 billion. Such an agreement, which the people said could be announced this week or next, would end probes by the Justice Department and the Securities and Exchange Commission into potential bribery in six countries where the company did business. In September, Stockholm-based Ericsson said it had set aside 12 billion kronor ($1.2 billion) to cover U.S. penalties.
  • Takata, the parts supplier behind the largest auto recall ever, told U.S. safety regulators another 1.4 million vehicles need to be repaired over a defect linked to the death of a BMW driver and two other injuries in overseas markets. Components Takata supplied to five of the world’s biggest car manufacturers may absorb moisture that could either cause air bags to rupture or under-inflate, according to a notice on the National Highway Traffic Safety Administration’s website. The recall involves parts produced from 1995 through 1999 and sold to BMW, Volkswagen AG’s Audi, Toyota Motor Corp., Honda Motor Co. and Mitsubishi Motors Corp.
  • Saudi Arabia is offering fellow OPEC+ members a quid pro quo: If you stop cheating, we’ll curb production. With just hours to go before the Organization of Petroleum Exporting Countries’ meeting in Vienna, it was unclear if the kingdom was simply offering to return to its average output for 2019 — ending a brief surge to compensate for the September attacks on its oil facilities — or whether it was willing to take even more oil off a market that’s looking oversupplied in early 2020. What was becoming clear, according to OPEC delegates, was new Saudi Oil Minister Prince Abdulaziz bin Salman’s reluctance to endorse the status quo, in which countries including Iraq, Nigeria and Russia have consistently failed to implement their pledged output cuts, leaving the kingdom carrying most of the burden of supporting crude prices.
  • U.S. Senator Elizabeth Warren is drafting a bill that would call on regulators to retroactively review about two decades of “mega mergers” and ban such deals going forward. Warren’s staff recently circulated a proposal for sweeping anti-monopoly legislation, which would deliver on a presidential campaign promise to check the power of Big Tech and other industries. Although the Trump administration is currently exploring their own antitrust probes, the proposal is likely to face resistance from lawmakers.
  • Blackstone Group Inc. is considering a 4 billion-pound ($5.3 billion) bid for U.K. student housing provider iQ Student Accommodation Ltd., Sky News reported Thursday. The investor is among a number of private equity firms and sovereign wealth funds in the early stages of preparing offers for the Goldman Sachs Group Inc.-backed company, Sky reported on its website, citing sources that it didn’t identify. As well as seeking buyers, the student housing group is mulling a public listing in London next year, according to Sky. iQ’s owners have hired HSBC Holdings Plc and Citigroup Inc. to manage the IPO, with Panmure Gordon & Co. Ltd. and Peel Hunt as co-managers, according to the report.
  • Google is facing a U.K. investigation into its $2.6 billion takeover of data company Looker Data Sciences Inc., opening up another front in the Alphabet Inc. unit’s ongoing battle with lawmakers. The Competition and Markets Authority on Thursday said that it issued an initial enforcement order, which prevents companies from integrating their services while the regulator carries out a early-stage review of the acquisition. The CMA has asked for comments on the deal by Dec. 20 before it decides whether to begin a formal probe.
  • Kering SA has held exploratory talks with Moncler SpAabout a potential deal for the Italian skiwear maker, people with knowledge of the matter said. Senior executives at Kering, the owner of Gucci and Saint Laurent, and Moncler have held preliminary discussions about a combination, according to the people, who asked not to be identified because the information is private. There’s no certainty the talks will lead to a transaction.
  • Canadian fashion billionaire Lawrence Stroll is planning a bid for luxury automaker Aston Martin Lagonda Global Holdings Plc, industry magazine Autocar reported. Shares of Aston Martin jumped as much as 13% after Autocar said Stroll aimed to purchase a major stake that would give him control of the struggling U.K. company, without saying where it got the information. The bonds also gained.
  • U.S. antitrust enforcers have broadened their scrutiny of Inc. beyond its retail operations to include its massive cloud-computing business, according to people familiar with the matter. Investigators at the U.S. Federal Trade Commission have been asking software companies recently about practices around Amazon’s cloud unit, known as Amazon Web Services, said the people, who declined to be named because they weren’t authorized to speak publicly. The outreach by the FTC signals that the agency, which is already looking at Amazon’s conduct in its vast online retail business, is taking a broader look at the company to determine whether it could be violating antitrust laws and harming competition.

*All sources from Bloomberg unless otherwise specified