December 21st, 2018
Daily Market Commentary
- Canadian stocks fell sharply on another volatile trading day, buffeted by headwinds from the United States. The S&P/TSX Composite Index lost 0.9 percent to 14,141.77 as investors continued to fret over whether the U.S. Federal Reserve is on the right track and as the U.S. government looked increasingly likely to shut down. Only the materials sector was positive, gaining 2.1 percent, as gold stocks rose after the metal’s spot price broke above its 200-day moving average. Guyana Goldfields Inc. jumped 18 percent, the most since 2009.
- European equities retreated at the open as automakers to telecoms fell after renewed concerns about U.S.-China tensions spooked investors. The Stoxx Europe 600 Index dropped 0.2 percent. Vodafone Group Plc slumped 1.4 percent. Investors are worried about renewed U.S.-China tensions impacting trade talks after China on Friday demanded the U.S. Justice Department withdraw charges that allege Chinese officials coordinated a decade-long espionage campaign to steal intellectual property and other data from dozens of companies.
- U.S. stock-index futures fell as the rising threat of a partial government shutdown and simmering tensions between Washington and Beijing added to a litany of concerns buffeting equities. March e-mini contracts on the S&P 500 Index dropped 0.5 percent as of 9:12 a.m. in London after the underlying gauge tumbled to its lowest level in more than 15 months. Futures contracts on the Nasdaq 100 and Dow Jones Industrial Average also declined.
- Shares in Tokyo fell, pushing the Topix index’s weekly decline to 6.5 percent, as a potential U.S. government shutdown added to the growing list of investor concerns. The Topix slid almost 2 percent Friday, capping its worst week since February, while the yen held onto most of a five-day gain. Automakers and banks weighed most on the benchmark gauge, as all industry groups declined. The S&P 500 Index slid 1.6 percent Thursday after President Donald Trump hardened his demands in a showdown with Congress over funding the government. Defense Secretary Jim Mattis announced his resignation, the latest departure from the Trump Cabinet.
- Oil was poised for a weekly loss on concerns that weakening economic growth and surging U.S. supply will lead to a surplus next year, overwhelming OPEC’s efforts to stabilize the market. Futures fell 0.6 percent in New York, headed for the biggest quarterly drop in four years. Crude joined a sell-off in wider financial markets after an interest rate increase by the Federal Reserve and the threat of a U.S. government shutdown added to economic uncertainty. Meanwhile, investors remain skeptical that cuts agreed by OPEC and its allies are sufficient to avert a looming oil glut.
- Gold heads for a weekly advance as the dollar looks set for its worst week since March after the U.S. Federal Reserve lowered its projection for rate hikes in 2019 and Chairman Jerome Powell pledged to keep shrinking the central bank’s balance sheet. The pain across equity markets continued on Friday, with European stocks following Asian shares lower and U.S. futures pointing to more declines at the open. Holdings of gold-backed exchange-traded funds rose for a 10th day.
- The U.S. dollar is set for its worst week in nine months as this year’s bull run shows signs of being stopped in its tracks. The Bloomberg Dollar Spot Index, which tracks the currency against 10 major peers, has slumped nearly 1 percent this week as the Federal Reserve’s rate-hiking cycle raises fears of an economic slowdown. The greenback recovered some ground Friday after the euro slid amid thinner-than-average volumes ahead of the year-end holidays.
- China’s top policy makers confirmed that more monetary and fiscal support will be rolled out in 2019, as the world’s second-largest economy grapples with a slowdown that’s yet to show signs of ending. “Significant” cuts to taxes and fees will be enacted in 2019 and while monetary policy will remain “prudent,” officials will strike an “appropriate” balance between tightening and loosening, according to a statement published after the annual Economic Work Conference that concluded in Beijing Friday.
- Freeport-McMoRan Inc. and Indonesia completed a deal that allows the Southeast Asian nation to gain majority ownership of the giant Grasberg copper and gold mine, bringing to an end almost two years of negotiations. PT Indonesia Asahan Aluminium, the state-owned company, will now own 51.2 percent of Freeport’s local unit that operates the Grasberg mine after all the formalities related to the stake transfer were completed, President Joko Widodo, known as Jokowi, told reporters in Jakarta on Friday.
- The United Arab Emirates will give Pakistan a $3 billion support package in coming days to boost its dwindling finances, matching Saudi Arabian assistance to the South Asian nation earlier this year. The announcement from the Abu Dhabi Fund for Development, via the state-run WAM news agency, comes after Prime Minister Imran Khan made a trip to the U.A.E. last month and made similar visits to Riyadh and Beijing seeking loans to boost its foreign-currency reserves that have dropped to a four-and-a-half-year low.
- In the euphoria over the deal Mexican President Andres Manuel Lopez Obrador struck this week with bondholders in an aborted airport project, one key fact garnered little attention: The move will only further swell the losses that the cancellation is heaping on the government. By one conservative estimate, the number — once you factor in the amount already spent on the project, plus contractors’ cancellation fees, plus the cost to raze what’s been built — comes to almost $5 billion. Even in a country as large as Mexico, where the annual budget is about $300 billion, it’s a big cost to absorb for a brand-new administration that’s trying desperately to free up funds to spend on its top priorities: pensions for seniors and youth-employment programs.
- London’s Gatwick airport reopened for flights Friday while cautioning that it’s still on the hunt for illegal drones that buzzed the hub for almost 24 hours, disrupting travel for more than 120,000 people. With many planes and staff still out of position, Gatwick cautioned that it will struggle to operate a normal timetable, let alone clear the backlog of passengers who found themselves grounded by the mystery incursions. It added that there’s no guarantee the devices are gone.
- Takeaway.com NV agreed to acquire the German businesses of Delivery Hero SE for approximately 930 million euros ($1 billion), ending an expensive rivalry in a country where both were competing for market share at the cost of profitability. Amsterdam-based Takeaway is paying approximately 508 million euros in cash and the rest in equity for Delivery Hero’s Pizza.de, Lieferheld and Foodora businesses in Europe’s biggest economy — the largest deal so far in food delivery in the region. Delivery Hero is also acquiring an 18 percent stake in its Dutch rival, it said in a statement Friday.
- China’s aluminum smelters will halt more than 800,000 tons of capacity after a slump in the price of the metal wiped out margins, the China Nonferrous Metals Industry Association said in a statement Friday. The nation has already idled over 3.2 million tons of annualized capacity this year, mostly during the second half as smelters adopted “flexible production,” the industry group said after a meeting of 20 producers in the southern city of Nanning to discuss difficult market conditions. The additional capacity curbs would bring the amount halted to about 9 percent of China’s total.
- Critics of President Donald Trump’s tax law centerpiece — slashing the corporate rate — argued the savings wouldn’t spur big companies to expand dramatically. One year later, some key metrics show they were right. For companies in the Standard & Poor’s 500 Index, the profits they’ve made from sales this year through September — after accounting for production costs but before paying taxes — have been flat. But, their net profit margins — which include the tax savings — have continued to climb. If they were spending more to hire workers and build U.S. factories, those net margins would be lower.
- Irish tax authorities slapped a unit of pharmaceuticals firm Perrigo Co Plc. with a 1.6 billion euro ($1.8 billion) tax assessment, one of the biggest demands in the history of the state. The so-called “notice of assessment” relates to the 2013 sale by a Perrigo subsidiary, Elan Pharma International Limited, of intellectual property tied to the drug Tysabri and related assets to Biogen Inc., Perrigo said in a filing. It said it’s planning to fight the case.
- Partners at Tiger Global Management are looking forward to a special holiday bonus this year. Next week, the U.S. fund will receive a $1.6 billion cash dividend after its portfolio company, electronic cigarette startup Juul Labs Inc., sold 35 percent of itself to tobacco giant Altria Group Inc., according to people familiar with the matter who asked not to be identified because the details are private. Both Juul and Tiger Global declined to comment.
*All sources from Bloomberg unless otherwise specified