December 20th, 2018

Daily Market Commentary

 

Canadian Headlines

• Canadian stocks fell to their lowest level since July 2016, making a dramatic reversal following a U.S. Federal Reserve policy meetingthat downplayed the recent market sell-off. The S&P/TSX Composite Index lost 1.1 percent to 14,264.06 after rising as much as 0.9 percent earlier in the day. Energy was the only sector that gained as crude prices rose 2.1 percent. Health care and materials were the biggest decliners, sliding 4.1 percent and 3.7 percent respectively. Pot stocks weighed on the health sector, with Aphria Inc. down 8 percent, while gold stocks fell along with the price of the yellow metal. Yamana Gold Inc. slid 9.1 percent, the most since February 2017.
• Budweiser brewer Anheuser-Busch InBev NV has joined the growing ranks of alcohol giants dipping their toes into the cannabis industry through a research partnership with Canadian pot firm Tilray Inc. The two companies said Wednesday they will jointly conduct research into non-alcoholic, cannabis-infused beverages. Each company will invest up to $50 million in the partnership, which is limited to Canada. Decisions about commercialization will be made later, as marijuana edibles and beverages won’t be legal in Canada until next year. Tilray shares jumped 16 percent in post-market trading on Wednesday, while AB InBev was down as much as 1.8 percent early Thursday in Brussels, in a generally lower market.
• Global trade developments may dictate how lively Canadian corporate bond sales are next year. Trade tensions, which increased volatility and caused sales in the Canadian corporate securities market to collapse in the fourth quarter, are poised to continue. Issuers pulled back from the market in the fourth quarter and in 2019 volatility may put investors in the driver’s seat in terms of pricing leverage for the first time in about a decade.  Dealers will restart business in January in this new landscape after a rise in risk spreads this quarter caused Canadian companies’ bonds to trade at yields last seen in the second half of 2011, according to a Bloomberg Barclays total return index. The extra yield over the government bonds has increased by 33 basis points since Sept. 30 to 143 basis points, as trade concerns rose.
• Canada was in discussions with China over the return of a third Canadian national detained in recent days, the National Post reported, a move that could ease one source of tension in the diplomatic feud between the two nations. The third Canadian has been identified as Sarah McIver from Alberta and was believed to have been taken into custody over visa issues related to her teaching in China, the newspaper reported late Wednesday, citing multiple sources it didn’t identify. Arrangements were being made for her return, the paper said, noting that diplomatic officials say the case remains unresolved.

 

 

World Headlines

• European shares fell at the open, taking the cue from Asia, after the Federal Reserve increased rates again Wednesday and pledged to continue reversing quantitative easing. The Stoxx 600 Index dropped 1.5 percent, to lowest since November 2016, with all sub-sectors down, lead by drops in basic resources and technologies shares. Comments from Federal Reserve Chairman Jerome Powell failed to quell worries that tighter monetary policy will choke economic growth. Powell’s remarks downplaying the implications of market volatility, and his commitment to continue reversing quantitative easing, triggered a sell-off in U.S. and Asia stocks.
• U.S. stock-index futures retreated on Thursday amid investor disappointment over the Federal Reserve’s monetary tightening. March e-mini contracts on the S&P 500 slid as much as 1.1 percent, reversing a 0.5 percent gain. Futures on the Nasdaq 100 Index and Dow Jones Industrial Average dropped 0.5 percent. Losses deepened as early risers on European trading desks had their first chance to react to the Fed’s continued expectation for at least some tightening in 2019, with balance-sheet contraction continuing on what Chairman Jerome Powell called “automatic pilot.”
• Asia’s equity traders are once again hitting the sell button with conviction. The regional equity gauge opened lower after Federal Reserve Chairman Jerome Powell delivered another interest-rate increase and signaled the central bank sees little threat to the economy from the recent market turmoil. Losses only worsened as the Topix index entered a bear market after the Bank of Japan kept policy unchanged. The MSCI Asia Pacific Index headed for its lowest close in 20 months at one point, before paring its slide to 1.3 percent at 5:14 p.m. in Hong Kong.
• Oil briefly fell below $55 a barrel in London for the first time in a year as an U.S. Federal Reserve interest-rate hike stoked demand fears just as markets contend with excess supply. Brent futures slid as much as 4.5 percent to the lowest since September 2017. Traders are avoiding risk assets as Chairman Jerome Powell failed to quell concerns the Fed’s policy will choke global growth, which also drove down equities. Crude inventories at a key U.S. storage hub rose to the highest level since January, adding to speculation OPEC’s output cuts will be undermined by shale supplies.
• Gold is poised to close above its 200-day moving average as the dollar retreats after Federal Reserve Chairman Jerome Powell suggested he will be more cautious about raising interest rates next year. The precious metal rose as much as 1.1%, the biggest gain in two weeks. A sustained break above the 200-day moving average could drive a fresh rally, according to ABN Amro. U.S policy makers lowered their forecast for hikes next year to two from three, according to their median forecast. Stocks dropped in Europe and Asia as investors expressed concern about a lack of relief from the Federal Reserve’s monetary tightening. Powell’s commitment to continue reversing quantitative easing lent further support to bullion as investors spurned risk.
• Interest rates are so 2018. When it comes to Federal Reserve policy next year, markets are signaling that the focus will be on any potential tweaks to the pace of running down the central bank’s bond portfolio. Fed officials on Wednesday predicted just two rate hikes next year, down from three in September, and well under the four previously seen by Goldman Sachs Group Inc., JPMorgan Chase & Co. and Deutsche Bank AG. They also cut their long-run expectations for the policy rate. None of that pleased stock investors, with the S&P 500 Index sliding Wednesday, mostly after Chairman Jerome Powell said the Fed’s quantitative tightening will continue apace.
• The Bank of England said the uncertainty around Britain’s divorce from the European Union was intensifying as it kept interest rates unchanged. The Monetary Policy Committee, led by Governor Mark Carney, voted 9-0 to hold the benchmark at 0.75 percent. All but one of the 61 economists in a Bloomberg survey correctly predicted Thursday’s decision.
• Special Counsel Robert Mueller will be cautious about implicating President Donald Trump– or even a thinly disguised “Individual-1” — directly in criminal activity in legal filings he’s expected to issue in the next few months, according to people familiar with his investigation. Mueller is planning to continue building out his case brick-by-brick in a set of legal filings, as he offers his most detailed narrative yet of Russia’s election interference. That will include identifying any Americans who may have conspired with Russia to affect the 2016 election and what Russians hoped to get in return, the people said. Mueller is also looking into whether the president sought to obstruct justice.
• Juul Labs Inc. sold a 35 percent stake to tobacco giant Altria Group Inc. in a $12.8 billion deal that turns the e-cigarette maker into one of Silicon Valley’s most valuable privately held companies. The deal values the San Francisco-based company at $38 billion and will put its products next to Marlboro cigarettes on U.S. retail shelves. Altria, which is focused on the U.S. market after spinning off Philip Morris International Inc. in 2008, will get one-third of the seats on Juul’s board.
• Airbus SE shares slumped following a French report that the U.S. Department of Justice has officially started an investigation into the European planemaker in parallel with British and French bribery probes. The stock dropped as much 9.6 percent, the most intraday in 2 1/2 years, after Le Monde reported Thursday that Airbus was informed at the end of the summer about the move by U.S. authorities. The newspaper also said, without revealing where it got the information, that the company could face total fines of several billion dollars from the probes.
• Banca Monte dei Paschi di Siena SpA is close to finalizing the sale of 2.1 billion euros ($2.4 billion) of bad loans to investors including Banca Ifis SpA and Credito Fondiario SpA, people with knowledge of the matter said. The package, dubbed Project Merlino, includes four portfolios of mostly unsecured loans, the people said, asking not to be identified as the process is confidential. Ifis and Credito Fondiario are among firms that submitted binding offers for portions of the debt, according to the people. An announcement may come as earlier as next week, they said.
• India will infuse 830 billion rupees into state-run banks by March as Prime Minister Narendra Modi races to clean up a sector that’s saddled with a mountain of bad debt and boost economic growth ahead of next year’s federal polls. A parliamentary approval to spend an additional 410 billion rupee has been sought, Finance Minister Arun Jaitley said in New Delhi today. That takes the total infusion in state-run banks to 1.06 trillion rupees this fiscal year, he added.
• Indonesia’s central bank left its benchmark interest rate unchanged after six hikes since May and a more cautious Federal Reserve helped to stem a rout in the currency. The seven-day reverse repurchase rate was left at 6 percent on Thursday, in line with almost all of the 26 economists surveyed by Bloomberg. The central bank, which has followed the Fed in tightening policy this year, said it sees a slower pace of U.S. rate hikes next year and expects the current-account deficit to ease.
• Tencent Holdings Ltd. joined Naspers Ltd. in a $1 billion investment in Indian food delivery service Swiggy, which gains a potentially valuable ally in China’s largest social media and gaming company. Naspers led the financing, which snagged new backers Hillhouse Capital and Wellington Management in addition to existing investors DST Global, Meituan Dianping and Coatue. The funding round, which Bloomberg reported on in October, marks Swiggy’s third for 2018 and largest to date. Naspers, Africa’s most valuable company, said it put up $660 million.
• Blackstone Group LP bought a mixed-use office and retail project in China from Singapore’s Mapletree Investments Pte for $1.2 billion, according to people with knowledge of the matter. The acquisition of the VivoCity Shanghai mall and adjacent office towers, a combined 2.4 million square feet of space, was completed about three weeks ago, the people said, asking not to be identified because the information is private. The transaction price also includes debt.
• Walgreens Boots Alliance Inc. said it plans to aggressively cut costs, with a plan to save $1 billion a year within three years. The drugstore retailer said it expects the effort to lead to significant restructuring and other charges. The company’s results in the most recent quarter were a mixed bag, with adjusted earnings stronger than Wall Street expected but sales slightly trailing estimates. Walgreens and health insurer Humana Inc. have been reported to be in early talks about taking equity stakes in one another, as CVS Health Corp. closed its tie-up with Aetna Inc.
• London’s Gatwick airport is closed to aircraft following multiple sightings of illegal drones, disrupting flights for as many as 115,000 people on one of the busiest travel days of the year. Lines of passengers circled Gatwick’s two terminals Thursday and hundreds hunkered down on departure-hall floors, with the airport saying at 11:30 a.m. that it could give no indication of when it might reopen. Police said the incursions were clearly deliberate though most likely not terror related.
• Soros Fund Management has reduced most of its macro wagers, moving away from the strategy that made George Soros a billionaire — and inspired a generation of traders who looked to profit from big moves in currency, bond and commodity markets. Dawn Fitzpatrick, who joined New York-based Soros Fund Management as chief investment officer in early 2017, has been cutting the strategy over the past year, citing fewer opportunities. She withdrew money from external macro managers and cut allocations to the firm’s internal team, according to people familiar with the changes.
• BlackBerry Ltd. reported quarterly sales that beat analysts’ forecasts, extending a run of positive surprises on that metric to six quarters and signaling its reinvention as a software company is taking hold. The company swung to a profit of $59 million in the quarter ended Nov. 30 from a loss of $275 million a year earlier. On an adjusted basis, the company said it earned 5 cents a share, beating the average analyst estimate of 2 cents. Adjusted revenue in the third quarter was $228 million, compared with the average analyst projection of $215.7 million.
• Bitcoin rallied above $4,000 on Friday, leading the broad cryptocurrency market higher as the biggest digital asset headed for its best week in a year. The token has gained more than 28 percent since Monday, on course for the largest weekly advance since the peak of the crypto craze in December 2017. Other cryptocurrencies including Ethereum and Litecoin also jumped, and the Bloomberg Galaxy Crypto Index is up more than a third this week.

 

*All sources from Bloomberg unless otherwise specified