February 1st, 2019

Daily Market Commentary


Canadian Headlines

  • Canadian stocks advanced for a sixth-straight session, sending the S&P/Toronto Stock Exchange Index to its highest level since October. The benchmark gained 8.5 percent in January, marking its best monthly gain since April 2009, more than erasing December’s rout. Materials and marijuana stocks were the best performers among 11 industry groups Thursday, as the S&P/TSX advanced 0.4 percent. Energy and financials underperformed.
  • Royal Dutch Shell Plc is teaming up with a Canadian pension fund on a potential takeover of Endeavor Energy Resources LP, one of the largest oil companies in the prolific Permian Basin, according to people with knowledge of the matter. Bringing the Canada Pension Plan Investment Board in as a partner will give Shell additional financial muscle as it negotiates with Endeavor, the people said, asking not to be identified because the talks are private. The potential acquisition, valued at as much as $8 billion, has already been complicated over the issue of mineral rights.
  • Teck Resources Ltd., Canada’s largest diversified miner, warned that fourth-quarter earnings will be “significantly” below consensus estimates following “disappointing” results at its energy unit and trail operations, as well as on inventory valuations. Earnings will be reduced by 30 Canadian cents (23 cents) per share and earnings before interest, taxes, depreciation and amortization by C$195 million, it said in a statement. The company expects to report a loss of C$92 million before depreciation and amortization and inventory writedowns in its energy business unit, resulting in an after-tax loss of C$86 million.

World Headlines

  • European shares gained in early trading on Friday, with focus once again on China-U.S. trade talks, as well as the ongoing earnings season. The Stoxx Europe 600 Index rose 0.3 percent. The autos sector was among top gainers after Morgan Stanley upgraded the region’s industry to attractive. Financial services was full of news, with earnings from Deutsche Bank AG and Denmark’s Danske Bank A/S, amid new regulatory scrutiny. Miners, steelmakers, autos and other trade sensitive sectors were closely watched after China promised to “substantially” expand purchases of U.S. goods after the latest round of trade talks.
  • Stocks were lackluster on Friday following the best month for global equities in more than seven years, as earnings rolled in and investors watched for the resumption of U.S.-China trade talks. The dollar was steady. Traders now turn their attention to Friday’s monthly American labor reportamid an ongoing earnings season that’s given investors mixed signals. Technology shares gained in the U.S. on Thursday thanks to solid corporate reports, though a disappointing sales forecast from Amazon.com Inc. has now curbed optimism. On the trade front, Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lighthizer head to China in mid-February.
  • Japan’s Topix index erased earlier gains and ended the day lower as a decline in a gauge of China’s economy overshadowed optimism over a progress in its trade talks with the U.S. Banks were the biggest drag on the benchmark, while electronics makers gained. Nomura Holdings Inc. tumbled after reporting its biggest quarterly loss in almost a decade, and Mizuho Financial Group Inc. fell after its third-quarter profit slid. Murata Manufacturing Co. gained after reporting earnings that were higher than analysts expected.
  • Oil held below $54 a barrel in New York as weak Chinese manufacturing data and persistent uncertainty over U.S.-China trade talks stoked concerns that slowing growth could hurt demand. West Texas Intermediate futures were steady after rising 18 percent last month. A Chinese factory purchasing managers index for January fell to the lowest level in almost three years, showing the damage the trade war is doing to Asia’s largest economy. The White House said progress had been made in talks, though didn’t detail any new commitments from either side.
  • Gold held near a nine-month high after Federal Reserve policy makers indicated this week they’ll be “patient” on any future rate moves, with investors adjusting to the more neutral stance. Traders now turn their attention to Friday’s monthly U.S. labor report, with
    hiring probably hitting another milestone in January, notching a record 100th month of gains even as the government shutdown weighed on the economy.
  • Iron ore is ending a frenetic week with another bout of wild trading after Vale SA’s dam disaster and decision to cut supplies sent shockwaves through the industry, spurring concerns that the market will tighten and the tragic event may have far-reaching consequences for miners. Benchmark futures in Singapore initially rallied as much as 4.7 percent on Friday, to trade near the highest since March 2017, then quickly lost most those gains. Most-active prices are still up 12 percent this week. On the Dalian Commodity Exchange, the contract has risen every day this week.
  • Republican lawmakers negotiating a border security deal to avoid another partial government shutdown are running into an increasingly familiar obstacle: President Donald Trump. With two weeks left to pass funding bills that keep federal agencies open, Trump is making comments that appear to foreclose possible compromises by saying anything short of a wall is a waste of time — even as Democrats suggest they’re open to spending billions more on border security and new fencing.
  • China promised to “substantially” expand purchases of U.S. goods after the latest round of trade talks, and both sides planned further discussions to reach a breakthrough with only a month to go before the Trump administration is set to ratchet up tariffs. President Donald Trump said Thursday he will dispatch two of his top negotiators to China following two days of talks with Chinese officials in Washington. Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lighthizer will visit the Asian nation in mid-February to hold the next round of talks.
  • Senator Cory Booker of New Jersey announced that he’s running for the Democratic presidential nomination to challenge President Donald Trump in 2020, saying the nation needs to be able to see its leaders and “feel pride, not shame.” Booker, 49, a senator since 2013 and the former mayor of Newark, joins a growing Democratic primary field including fellow Senators Elizabeth Warren of Massachusetts and Kamala Harris of California.
  • Banks and traders prepping for a no-deal Brexit can rest easier after the U.K.’s top market regulator said it will be in no rush to file enforcement actions against firms trying their best to adjust. The Financial Conduct Authority said it “will not take a strict liability approach” to its supervision of the industry if the U.K. leaves the European Union without a transition period. The scale and complexity of the challenges facing the industry make it essential to act cautiously, the FCA said.
  • Luckin Coffee, the ambitious Chinese startup rolling out thousands of stores to take on Starbucks Corp., is beginning preparations for a U.S. initial public offering that could raise around $300 million, people with knowledge of the matter said. The company is working with Credit Suisse Group AG on the deal, which could take place as soon as the second quarter, according to the people. Luckin could add more banks at a later stage, the people said, asking not to be identified because the information is private.
  • Vonovia SE sold its 4.7 percent stake in fellow German residential landlord Deutsche Wohnen AG for 698.1 million euros ($800 million) in a bid to strengthen its balance sheet. The decision by Germany’s largest apartment owner to divest its shareholding came three years after a failed attempt by the company to acquire Deutsche Wohnen, its main competitor. That would have been Germany’s biggest ever real estate deal.
  • Go-Jek has raised just over $1 billion in its latest funding round from a clutch of internet giants including Google, JD.com Inc. and Tencent Holdings Ltd., a person with knowledge of the financing said. The fundraising doubled the Southeast Asian ride-hailing giant’s valuation to about $10 billion, the person said, asking not to be identified talking about a private deal. Other investors in the first close of its ongoing Series F round included Mitsubishi Corp. and Provident Capital, Go-Jek said in a statement without disclosing financial details. The company declined to comment on its valuation.
  • Amazon.com Inc. shares dropped after the e-commerce giant gave a tepid first-quarter sales forecast and raised concerns about rising costs, slowing retail growth and a murky outlook for its business in India. Sales will be $56 billion to $60 billion in the current period, the company said Thursday, compared with analysts’ average estimate of $61 billion. Though fourth-quarter sales and earnings topped analysts’ estimates, growth in the North American retail unit slowed dramatically in the key holiday period, and comments about uncertainty in India sent the stock lower. Shares declined as much as 5.8 percent in extended trading.
  • President Donald Trump will suspend U.S. obligations under the Intermediate-Range Nuclear Forces Treaty, a 1987 pact with the former Soviet Union that became a pillar of international arms control, as it prepares to pull out entirely, two people familiar with the matter said Thursday night. The Pentagon sent a notification to the Senate Armed Services Committee that the administration planned, under terms of the treaty, to withdraw in six months, according to one of the people. Both people requested anonymity to discuss the shift in policy.
  • Power generators that provide electricity to bankrupt utility giant PG&E Corp. have already seen their credit downgraded and their supply contracts thrown into jeopardy. Now they have another potential headache to deal with: their lenders. New York-based Consolidated Edison Inc., which supplies power to PG&E from renewable energy projects, said in a filing late Thursday that the California utility’s bankruptcy constituted a default on its contracts. That means the lenders financing ConEd’s projects can demand payment immediately for both the principal and interest on their loans.
  • Indian Prime Minister Narendra Modi made a populist push in his final budget before elections, cutting taxes for middle-class voters and giving cash handouts to farmers. The government will allocate 750 billion-rupee ($10.6 billion) a year for the cash plan for about 120 million farmers and give taxpayers 185 billion rupees of relief in the year to March 2020, Finance Minister Piyush Goyal said in his budget speech in New Delhi on Friday.
  • Walt Disney Co.’s effort to sell a collection of 22 regional sports networks hasn’t been a slam dunk. When the company set out to unload the assets — a side deal necessitated by its $71 billion takeover of 21st Century Fox Inc.’s entertainment empire — analysts estimated that they could fetch $20 billion to $22 billion. But the New York Yankees decided to buy back their network from the group, removing the crown jewel. And several deep-pocketed potential suitors, including Comcast Corp., Discovery Inc. and Fox itself, bowed out of contention.
  • Germany’s NordLB will be bailed out by public-sector savings banks and the state of Lower Saxony in a plan worth as much as 3.7 billion euros ($4.2 billion), thwarting a bid by Cerberus Capital Management and Centerbridge Partners for a stake in the struggling lender. The restructuring package, which Lower Saxony Premier Stephan Weil called “the best of all possible options,” involves as much as 1.2 billion euros from the savings banks group and up to 1.5 billion euros in capital from Lower Saxony. An additional contribution from the state — NordLB’s main shareholder — could increase the amount by 1 billion euros.
  • The future of the 5G technology that promises to revolutionize telecommunications runs through international bodies with esoteric names such as the 3rd Generation Partnership Project and the International Telecommunication Union. The organizations set standards for the emerging technology. But security officials are concerned China’s government and Huawei Technologies Co. are taking a bigger role in the technical groups, lending a competitive edge to a company under indictment in the U.S.

*All sources from Bloomberg unless otherwise specified