December 9th, 2019

Daily Market Commentary

Canadian Headlines

  • With less than a month left, Canada’s ETF industry is heading for a blowout year with inflows poised for a record and assets crossing the C$200 billion ($151 billion) mark. Exchange traded funds attracted C$4.5 billion of investments in November — the biggest monthly increase for the year — pushing inflows to C$23 billion in 2019 and inching closer to the record set two years ago at C$26 billion, , according to National Bank of Canada. The iShares S&P/TSX 60 Index ETF, which tracks top stocks, brought in almost C$700 million in November, according to data compiled by Bloomberg.

World Headlines

  • European equities were steady in early trade on Monday as investors eyed trade headlines and prepared for the U.K. elections, while Tullow Oil tumbled after its chief executive officer resigned and the company suspended its dividend. The Stoxx Europe 600 was little changed, while the FTSE 100 was down 0.2%. Tesco Plc surged 4.5% as it considers the sale of its operations in Thailand and Malaysia. Mining stocks also gained with iron ore.
  • U.S. equity futures edged down alongside European stocks as investors prepared for a week brimming with potential catalysts, from central bank meetings to the looming America-China tariff deadline. Treasuries and most government bonds advanced. Contracts on the main U.S. equity gauges all struggled for traction as traders awaited news on whether Washington will go ahead with a planned Dec. 15 tariff hike on Chinese imports.
  • Stock indexes posted modest increases in Tokyo and Seoul, while gains mostly fizzled in Hong Kong and Shanghai. The pound strengthened as polls showed the U.K. Conservative Party on course to win a majority in Thursday’s election, which would likely mean Britain leaving the European Union by Jan. 31. Gold and the yen also edged higher. With the U.S. and China heading into the final stretch of negotiations to ward off an escalation in tariffs, markets will be watching closely for any signs of progress. White House economic adviser Larry Kudlow said Friday the two sides are haggling over the amount of U.S. farm products Beijing is willing to purchase. Data showed China’s exports fell 1.1% in November, with those to the U.S. tumbling 23%, underscoring why the nation may want to resolve the dispute.
  • Oil fell from the highest close in almost 12 weeks as the effects of the U.S. and China trade war countered a surprise Saudi Arabian move to take additional crude barrels out of the market. Futures in New York slipped 1.1% after climbing 1.3% Friday. The kingdom voluntarily pledged to pump 400,000 barrels a day less than mandated by OPEC and its allies, translating to total overall curbs for the group of 2.1 million barrels a day. However, there was some gloom on the demand side with data showing Chinese exports fell unexpectedly in November. Hedge funds had earlier slashed bullish wagers on West Texas Intermediate.
  • Gold steadied after a drop on Friday as traders turned their focus to upcoming central bank policy meetings. In focus this week are the Federal Reserve and European Central Bank’s gatherings, which may offer clues on whether more easing is in store in 2020. Investors are also waiting for news on whether Washington will go ahead with a planned Dec. 15 tariff hike on Chinese imports. Gold- and silver-backed exchange-traded funds both saw outflows last week, according to the most recent data compiled by Bloomberg. Holdings in silver funds dropped for a fourth straight week, the longest losing streak in a year.
  • General Motors Co. executives had laid the groundwork for a new labor agreement with the United Auto Workers union in September 2015. The company had met most of the union’s demands with a proposal that would have boosted pay and benefits by almost $1 billion over four years. If the UAW’s then-President Dennis Williams had agreed and the deal been ratified, it would have set a precedent for similar accords between the UAW and Ford Motor Co. and Fiat Chrysler Automobiles NV. But instead, Williams balked and went to Fiat Chrysler to cut a pattern-setting deal that pushed GM’s four-year labor costs up by $1.9 billion.
  • PG&E Corp. surged in early trading on the strength of a Friday announcement it had secured a $13.5 billion settlement with victims of wildfires ignited by its power lines, a step toward resolving the biggest utility bankruptcy in U.S. history. The agreement will cover claims stemming from some of the worst fires to hit Northern California, including the 2017 wine country fires and the 2018 Camp Fire, the company said in a emailed statement. The 2015 Ghost Ship fire and the 2017 Tubbs fire are also covered, although the utility doesn’t admit fault for either blaze, PG&E said. The shares rose as much as 31% before the start of formal trading in New York.
  • Investors added money to exchange-traded funds that buy emerging market stocks and bonds last week. This was the ninth straight week of inflows. Inflows to U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $142.5 million in the week ended Dec. 6, compared with gains of $79.6 million in the previous week, according to data compiled by Bloomberg. So far this year, inflows have totalled $5.66 billion.
  • Petroliam Nasional Bhd. has raised about 6 billion ringgit ($1.4 billion) by cutting its stakes in three listed units, people with knowledge of the matter said. Malaysia’s state oil company reduced its holdings in retail subsidiary Petronas Dagangan Bhd., natural gas transporter Petronas Gas Bhd. and shipping company MISC Bhd., according to the people. The share placements were executed Monday, the people said, asking not to be identified because the information is private. Petronas said in a statement it completed block trades in these companies, without saying how much it raised. The selldowns will rank among the biggest-ever block trades in Malaysia, according to data compiled by Bloomberg. Petronas is raising capital to fund overseas expansion after finishing up a $27 billion refinery and petrochemicals project at home.
  • French pharma giant Sanofi agreed to buy U.S. biotech company Synthorx Inc. for $2.5 billion, almost triple its market value, accelerating a push into cancer under new Chief Executive Officer Paul Hudson. Sanofi will pay $68 a share in cash for Synthorx, the companies said Monday. Shares of the unprofitable San Diego-based company closed at $25.03 Friday, having surged 40% last week. The deal underscores the Paris-based drugmaker’s efforts to build its portfolio of innovative therapies in the fast-growing and lucrative cancer field. It was unveiled a day before Hudson outlines his pipeline and acquisition priorities, along with his initial plans for the consumer-health, diabetes and other units. The purchase marks Sanofi’s first multibillion acquisition since early 2018.
  • Merck & Co. said it had agreed to buy ArQule Inc. for $2.7 billion, adding to a recent spate of deals in which big drugmakers have paid significant premiums to increase their focus on cancer treatments. Under the terms of the deal, a Merck subsidiary will make a tender offer to pay $20 a share in cash for all outstanding shares of Arqule, the companies said in a statement. The proposed per-share price is more than double the biopharmaceutical company’s closing price on Friday of $9.67.
  • International Flavors & Fragrances Inc. has emerged as a strong contender to purchase DuPont Inc.’s nutrition division, challenging Ireland’s Kerry Group for the $25 billion asset, according to people with knowledge of the matter. IFF and Kerry are both negotiating with DuPont and the winner could reach a deal by year-end, the people said, asking not to be identified as the discussions are private. The transaction will create a new company comprised of the bidder’s assets and DuPont’s nutrition business that will be spun off to existing investors, the people said.
  • Russia was banished from the Olympics and other international competitions for four years on Monday over a persistent doping scandal, a decision that also threatens to turn President Vladimir Putin and top Kremlin officials into global sporting pariahs. The World Anti-Doping Agency banned Russia’s national team after officials in Moscow were accused of fabricating evidence to cover up the use of banned substances by the country’s athletes. Individual athletes who comply with strict conditions will be allowed to compete only under a neutral flag, while WADA ordered a ban on any Russian government officials or representatives attending events.
  • Britain’s biggest supermarket chain, Tesco Plc, is considering the sale of its operations in Thailand and Malaysia as it refocuses on the domestic business amid mounting challenges in the U.K. The company is carrying out a strategic review of the businesses after receiving what it called inbound interest, according to a statement. The shares rose as much as 5.9% on Monday in London and have climbed almost 30% this year. A sale could value the operations at 6.5 billion to 7.2 billion pounds ($8.6 billion to $9.5 billion), Sanford C. Bernstein analyst Bruno Monteyne said in a note. The Thai operation is a “great quality business,” and is undervalued as part of a larger group, Monteyne said.
  • House investigators give their closing summations Monday in the Democrats’ case against President Donald Trump as they continue debating how far they want to go in drafting articles of impeachment later this week. Judiciary Chairman Jerrold Nadler said Sunday his panel is on track to decide on what charges will be brought against the president, setting up an historic vote on impeachment in the full House before Congress leaves for a scheduled holiday break on Dec. 20. Likely articles of impeachment are abuse of power and obstruction of Congress, he said.
  • Yes Bank Ltd. is likely to reject an offer that made up more than half of its planned $2 billion capital raising, and is talking to institutional investors about making up the shortfall, according to a person familiar with the matter. At a meeting on Tuesday, the board is expected to reject an offer from Canada’s Erwin Singh Braich and Hong Kong-based SPGP Holdings to contribute $1.2 billion toward the fund raising, according to the person, who asked not to be identified because the discussions are private.
  • Inflows into Indian equity funds shrunk to the lowest in more than three years last month after the record-hitting rally in stocks despite a faltering economy gave investors pause. Stock plans received 13.1 billion rupees ($184 million) in November, according to the Association of Mutual Funds in India. That compares with 60.2 billion received in October, and is the smallest since June 2016 when equity inflows fell to 3.2 billion rupees. A gush of cash from global funds drove a record-breaking rally in the nation’s main equity indexes last month as investors bet the worst of the economic slowdown may have passed. The gains, driven by a handful of large companies, continue to elude the broader market where retail investors typically focus.
  • The September mayhem in the U.S. repo market suggests there’s a structural problem in this vital corner of finance and the incident wasn’t just a temporary hiccup, according to a new analysis from the Bank for International Settlements. This market, which relies heavily on just four big U.S. banks for funding, was upended in part because those firms now hold more of their liquid assets in Treasuries relative to what they park at the Federal Reserve, officials at the Basel-based institution concluded in a report released Sunday. That meant “their ability to supply funding at short notice in repo markets was diminished.”
  • HSBC Holdings Plc’s interim chief overhauled the sprawling bank’s senior management team as he positions himself to take the job on a permanent basis. The London-based bank, which derives most of its earnings from Asia, is replacing its top investment banker, chief operating officer and chief risk officer, according to a statement Monday. The moves come before interim CEO Noel Quinn unveils a wide-scale restructuring next year that’s expected to close parts of the business and divest operations including the French retail unit.
  • The biggest battery in New York City has been quietly running for months at the edge of Brooklyn. The 4.8-megawatt lithium-ion system sits beside a shopping center in East New York, helping power the local grid, according to a statement Monday from the property owner, Related Cos., and Enel SpA, the Italian power giant that installed it. The battery is an early leader in the race to build bigger and better storage systems nationwide. It comes as lithium-ion prices plummet and officials harness the technology to smooth power flows on grids, displace coal and gas plants and incorporate more wind and solar energy.

*All sources from Bloomberg unless otherwise specified