December 6th, 2018

Daily Market Commentary

 

Canadian Headlines

• Canadian dollar bears, gratified by the currency’s slide after a dovish Bank of Canada statement, face hurdles to further weakness in the form of rising domestic oil prices and a robust technical barrier, foreign-exchange strategists say. The loonie ended Wednesday close to the weakest since June 2017 as traders marked down the odds of BOC rate hikes throughout 2019. The OIS-implied probability of a January rate increase slid below 30 percent from 70 percent two weeks ago. Meanwhile, the price of Canadian oil, whose sharp drop since early October informed the BOC’s stance, has been edging higher.
• Washington state regulators rejected Canada-based Hydro One Ltd.’s $3.4 billion acquisition of U.S. utility Avista Corp., dealing a potentially fatal blow to the deal. The agreement doesn’t adequately protect Spokane, Washington-based Avista or its customers from political and financial risks and doesn’t provide a net benefit to customers, according to a statement Wednesday from the Washington Utilities and Transportation Commission. The sale needs the approval of Washington regulators to be completed. Avista fell 13 percent to $44.75 a share in pre-market trading at 6:43 a.m. in New York.

 

 

World Headlines

• The Stoxx 600 Europe Index dropped more than 2 percent for just the fourth time this year as the arrest of Huawei Technologies Co.’s chief financial officer in Canada stoked concerns over global trade. The slide of as much as 2.5 percent is more than any full-day drop since June 2016, in the wake of the U.K.’s vote to leave the European Union. Last year, the most the index fell on a single day was 1.3 percent.
• U.S. stock index futures lurched lower, signaling no respite to the rout that’s lopped more than $3 trillion from the market since late September. S&P 500 Index contracts slumped as much as 1.9 percent from Tuesday’s close, before trading at 2,673, down 1.1 percent, as of 8:30 a.m. in London. Selling pressure early in the session was so intense that it forced CME Group to intermittently pause trading, according to a spokesperson for the exchange. European equities declined at the open, adding to the negative sentiment.
• The sea of red that’s engulfing Asian stocks is enough to sap hopes even from the most optimistic traders. The regional gauge fell 1.8 percent, heading for its biggest daily plunge in six weeks as markets from Tokyo to Hong Kong and Mumbai sank. In just three days, the rally seen last week in anticipation of Presidents Donald Trump and Xi Jinping’s trade discussions has more than vanished, with Asian equity values taking their losses from a January high to $6.2 trillion.
• Oil in London fell to near $59 a barrel as the market appeared to disagree with Saudi Arabia’s energy minister, who said output cuts of a million barrels a day from OPEC and its allies were adequate for the market. Brent futures in London earlier fell as much as 5.2 percent. There is currently no agreement among producers to cut output, Saudi Minister Khalid Al-Falihtold reporters in Vienna, where the Organization of Petroleum Exporting Countries is meeting. The selloff gathered pace amid a decline in stock markets and continued trade tensions between the U.S. and China.
• Gold regained its crown as most expensive precious metal as palladium retreated from Wednesday’s record amid concerns that it’s recent rally has been overdone. Palladium surged by nearly 50% in less than four months to briefly exceed gold in value this week, but tumbled as much as 3.1% Thursday, leading declines among precious metals. Gold nudged lower as a stronger dollar offset potential gains for the metal from tumbling stock markets.
• U.K. stock investors can wave goodbye to gains built over 18 years. The FTSE 100 Index on Wednesday closed below the level seen at the end of 1999, and extended its declines on Thursday. Shares today fell as much as 2.7 percent, the worst drop on a closing basis since June 24, 2016, the day after the Brexit referendum. The renewed sell-off in global equities is piling additional pressure on U.K. stocks, already rocked by concerns about U.K Prime Minister Theresa May’s ability to get her Brexit deal through Parliament. The latest bout of market carnage is being blamed on renewed U.S.-China trade concerns, but its magnitude has surprised investors.
• The European Union’s highest court will on Dec. 10 tell the U.K. whether it should be allowed to unilaterally reverse Brexit, in a landmark ruling that could offer hope to those who want their country to call off the divorce. The judgment comes the day before a crucial Parliament vote on the much-maligned withdrawal deal that Prime Minister Theresa May brought back from Brussels. In its ruling, the EU Court of Justice will say whether the U.K. could stop the Brexit process just by retracting the “Article 50” letter that signaled its intention to leave.
• BYD Co., the electric-car maker backed by Warren Buffett, plans to list its battery business by 2022 to raise funds to expand as the global auto industry transitions away from the traditional combustion engine. The listing will occur sometime by the end of 2022 and the company hasn’t decided yet where the shares will be trading, Chairman Wang Chuanfu said in an interview with Bloomberg News Wednesday at its headquarters in Shenzhen. BYD, which makes batteries for automobiles and mobile phones, is in the process of spinning off its vehicle-battery operations into a separate company before listing. It isn’t clear yet whether the IPO will be for the car-battery business alone, or will also include other units.
• SoftBank Group Corp.’s 2.65 trillion yen ($23.5 billion) initial public offering for its telecom unit was fully subscribed, including an extra allotment of shares, people familiar with the matter said. The underwriters were able to cover their entire book by Wednesday, thanks to strong demand from retail investors in Japan and overseas buyers, said the people, who asked not to be identified because the information isn’t public. Brokers are collecting more orders from individual investors, which will probably push the stock above the preliminary price of 1,500 yen apiece when trading begins on Dec. 19, they said.
• Huawei Technologies Co.’s chief financial officer was arrested in Canada over potential violations of U.S. sanctions on Iran, provoking outrage from China and complicating thorny trade negotiations just as they enter a critical juncture. Wanzhou Meng — also deputy chairwoman and the daughter of Huawei’s founder — faces extradition to the U.S., said Ian McLeod, a Canada Justice Department spokesman, declining to elaborate. She was arrested Dec. 1 after the U.S. Department of Justice in April opened an investigation into whether the leading telecommunications-equipment maker sold gear to Iran despite sanctions on exports to the region.
• China and the U.S. have reached agreement in the sectors of agriculture, autos, and energy, and China will immediately start implementing that consensus, a government spokesman said. “China will start from agricultural products, autos and energy to immediately implement specific items that China and the U.S. have agreed upon,” Ministry of Commerce Spokesman Gao Feng told reporters in Beijing. “In the next 90 days we will work in accordance with the clear timetable and road map to negotiate in areas where both sides have an interest and there are mutual benefits, such as intellectual property rights protection, technology cooperation, market access, and the trade balance.”
• Yemen’s warring parties gathered for peace talks in Sweden on Thursday, an achievement in itself that reflects the formidable challenges negotiators face trying to end a conflict that’s fueled the worst humanitarian crisis in the world. Last time the United Nations tried to hold peace talks, in Geneva in September, Iran-backed Houthi rebels didn’t show up and the effort collapsed. This time, UN special envoy Martin Griffiths personally escorted negotiators from the group, which controls the capital, Sana’a, on a plane provided by Kuwait.
• Telecom Italia SpA’s board may schedule a special shareholder meeting in January to appoint auditors for the phone company, a move that would allow Vivendi SA to make an attempt to win back board control, according to people familiar with the matter. French media group Vivendi lost sway over the Italian carrier’s board last May in a battle with U.S. activist investor Elliott Management Corp. It could use a January shareholder assembly to propose the removal of current directors and put forward a new slate of candidates, said the people, who asked not to be identified because the plan isn’t public.
• Poland’s decision to sell an extra 1 billion euros ($1.1 billion) of European Union carbon permits next year sent the price of the commodity plunging at the fastest pace since October. From 2013 to 2017, Poland decided not to give away about 113 million tons of allowances. They were meant to make utilities using coal, most of which are government controlled, less polluting. The nation will instead auction 55.8 million tons of those allowances in 2019 in addition to its usual volumes, the European Commission said on its website.
• Indonesian flag carrier Garuda will keep taking deliveries of Boeing’s 737 Max jet, giving the new aircraft a vote of confidence while local rival Lion Air threatens to cancel its $22 billion order after suffering a plane crash in October. “Our Max jet has been performing well, we have no significant issue with it,” PT Garuda Indonesia President Director I Gusti Ngurah Askhara Danadiputra said in an interview in Jakarta Thursday. The state-owned airline has one Max aircraft in its fleet and is due to take 49 more through 2030.
• Lyft Inc., the ride-hailing business that competes with Uber Technologies Inc., has confidentially filed to go public in the U.S. San Francisco-based Lyft has submitted early stage documentation for its initial public offering, the company said in a statement Thursday. It has not yet determined how many shares it will sell in the listing or the potential price range for the stock, according to the statement. Lyft is working with JPMorgan Chase & Co., Credit Suisse Group AG and Jefferies Financial Group Inc., to lead an IPO in the first half of next year, people familiar with the matter said in October. Those banks have pitched valuations for the company ranging from about $18 billion to $30 billion, the people said.
• A consortium led by China’s Anta Sports Products Ltd. is nearing an agreement to buy Finland’s Amer Sports Oyj, owner of brands including Wilson tennis rackets, people familiar with the matter said. Companies are negotiating final details of a transaction, and a deal could be announced as early as Thursday, the people said, asking not to be identified because the matter is private. The investor group has been discussing a price of around 40 euros per share for Amer, the people said.
• Facebook Inc. emails showing the company threatened to cut off data to potential rivals added a new target for the regulatory armory that is being amassed by European regulators. The publication of the emails by U.K lawmakers preceded a vote by EU legislators Thursday that backed draft rules requiring online platforms to treat businesses — including rivals — fairly. In the new year Germany will conclude an antitrust probe that may call on Facebook to change privacy terms. EU privacy regulators are also armed with the power to fine for data breaches, following the roll-out of GDPR in May.
• The biggest-ever bet on Bitcoin options is about to expire worthless. Purchased for almost $1 million on LedgerX’s trading platform just days after Bitcoin peaked a year ago, the call options have a strike price of $50,000 and an expiry date of Dec. 28, 2018. For the contracts to retain any value at expiry, Bitcoin would need to rally more than 1,200 percent.

 

*All sources from Bloomberg unless otherwise specified