February 12th, 2019
Daily Market Commentary
- Canadian stocks fell for a third day as investors took a risk-off approach to a week that could provide clarity on global trade. Energy stocks gained, offset by declines in most other sectors. The S&P/TSX Composite Index lost 0.4 percent to 15,568.85, the lowest since Feb. 1. Health-care stocks led the decline, falling 2.6 percent as cannabis companies retreated ahead of earnings from two of the sector’s biggest players. Aphria Inc. slid 9.8 percent, the most since early December. Industrials fell 1 percent, led by a 7.4 percent drop at SNC-Lavalin Group Inc. to the lowest since 2009. The company issued its second profit warning in as many weeks after failing to reach an agreement over a disputed mining project in Latin America.
- Cathay Pacific Airways Ltd. is closing its cabin crew base in Toronto as part of a business review, potentially affecting 120 workers in the Canadian city. The Hong Kong-based airline is talking with the union to explore options for the employees, including opportunities in other locations, it said Tuesday in an emailed response to a report in the South China Morning Post. The company currently doesn’t have plans to close other bases outside Hong Kong, it said. Cathay Pacific is in the final year of a transformation program that started in 2017 after fierce competition from Chinese airlines and low-cost carriers led to losses in two consecutive years. The Hong Kong-based company is seeking to reduce HK$4 billion ($510 million) in expenses after cutting 600 jobs at its main office and added more seats on some of its aircraft.
- Aurora Cannabis Inc. said its cost to produce cannabis jumped in the second quarter while prices fell, leading to a reduction in gross margins of 16 percentage points. The Edmonton, Alberta-based company’s stock lost as much as 2.6 percent after hours in New York, before recovering to trade little changed. Aurora reported rising costs and a lower selling price per gram for its fiscal second quarter but reiterated that it expects to achieve sustained positive earnings before interest, taxes, depreciation and amortization beginning in the second quarter of calendar 2019.
- European stocks rose after an upbeat Monday amid optimism over U.S.-China trade talks and the aversion of another partial government shutdown in America. The Stoxx Europe 600 added 0.6 percent as of 8:07 a.m. in London, led by auto and chemicals sectors. Thyssenkrupp AG fell 1.9 percent after reporting a plunge in profits. Plus 500 slid 38 percent after it said 2019 earnings will be much lower than estimates.
- U.S. stock futures advanced after Congressional negotiators said Monday night they reached a deal in principle on border security to avoid another federal government shutdown. The dollar held on to most of its recent gains and Treasury yields climbed. S&P 500 futures contracts expiring March added 0.7 percent as of 10:30 a.m. in London after the underlying gauge finished the day 0.1 percent higher. Futures contracts on the Dow Jones Industrial Average and Nasdaq 100 Index climbed 0.7 and 0.8 percent respectively.
- Asia stocks rose, with Japan leading gains as the market reopened after a holiday. Optimism that a tentative deal on border security will avoid another U.S. federal government shutdown and hopes surrounding U.S.-China trade talks helped boost markets. South Korea, Taiwan and China advanced, while Indonesia tumbled the most in almost two months.
- Oil rose from a two-week low as a tentative accord to prevent another U.S. government shutdown reassured investors and boosted financial markets. Crude futures rose 1.6 percent in New York, after sliding on Monday to the lowest settlement since Jan. 28. Congressional negotiators said Monday in Washington they had reached a deal in principle on border security to avoid closure of the federal government. Saudi Arabia will continue to cut its output deeper than required by the OPEC+ deal, going down to 9.8 million barrels a day next month, Energy Minister Khalid Al-Falih said in an interview with the Financial Times.
- Gold rose as a rally in the dollar petered out, while investors await the outcome of high-level U.S.-China trade talks in Beijing this week. Separately, U.S. congressional negotiators reached a tentative deal on border security to avert another government shutdown.
- Democrats and Republicans in Congress salvaged an agreement on border security spending that depends on President Donald Trump accepting less than he’s been demanding for money to build a wall to avert to another government shutdown. The tentative deal reached Monday night provides $1.375 billion for 55 new miles of border fencing in Texas’s Rio Grande Valley area, according to congressional aides who spoke on condition of anonymity. That’s far short of the $5.7 billion Trump wants for a wall. But the agreement also rejects limits Democrats sought on detentions of immigrants apprehended in the U.S.
- KDDI Corp., one of Japan’s big three mobile phone carriers, agreed to pay 87.7 billion yen ($793 million) for a 49 percent stake in online brokerage Kabu.com Securities Co., adding to its holdings of companies in the financial services industry. The wireless provider offered 559 yen per share, about 5.7 percent more than Kabu.com’s closing price Tuesday, in a tender offer, it said in a statement after the market closed in Tokyo.
- The Trump administration said the U.S. president still wants to meet China’s Xi Jinping in an effort to end the trade war, a sign of optimism as negotiators from the world’s two-biggest economies start their latest round of talks this week. Uncertainty whether the leaders will meet to finalize an agreement has stoked concerns that negotiations are faltering as the March 1 deadline approaches. If there’s no deal by then, President Donald Trump has threatened to more than double the rate of tariffs on $200 billion in Chinese imports.
- Car dealer Jim Smail in Greensburg, Pennsylvania, voted for Donald Trump in 2016 because he wanted a businessman in the White House. The U.S. president’s trade wars have changed his mind. The next chapter in Trump’s effort to rewrite American trade policy may be delivered later this week, and it could be the most disruptive. Commerce Secretary Wilbur Ross is set to conclude by Feb. 17 an investigation examining the national-security risk of auto imports. He’ll formally submit the report to the president and offer recommendations on what actions to take.
- Secretary of State Michael Pompeo came close to issuing an us-or-them ultimatum to nations buying from Huawei Technology Co., saying in Hungary that contracts with the Chinese networking giant could limit the availability of U.S. equipment. “If that equipment is co-located where we have important American systems, it makes it more difficult for us to partner alongside them,” Pompeo told reporters in Budapest on Monday, when asked what message he would send about Huawei. “We want to make sure we identify the opportunities and the risks with using that equipment. And then they will get to make their decisions.”
- Banco Santander SA reached deadline day to call some of its riskiest euro notes, potentially lifting a shadow from a $340 billion corner of the bond market. The Spanish bank’s 1.5 billion euro ($1.7 billion) issue of contingent convertible is trading around 98.5 cents, suggesting investors are still unsure whether Santander will use an option to redeem the notes at par on March 12. The Additional Tier 1 notes fell as low as 95 cents last month amid general market weakness. Santander must issue a notice on Tuesday if it plans to exercise the call option.
- China Minsheng Investment Group Corp.’s stakes in two property-related firms have been frozen by a court, exacerbating funding woes at the private investment giant that recently missed a bond payment. Shanghai’s Financial Court seized the company’s stakes in China Minsheng Jiaye Investment Co. and China Minsheng Bund Real Estate Development Co., valued at a combined 13.2 billion yuan ($1.9 billion), according to filings dated Feb. 1. The latter holds a prime-locale land plot in Shanghai, which was purchased in 2014 at what local media reported was a record price. Calls to China Minsheng Investment Group’s financing manager went unanswered.
- The Catalonia drama unfolded on a new stage Tuesday with the start of a historic trial of separatist leaders in Madrid — and it threatens to claim the scalp of a second Spanish prime minister in less than a year. Twelve separatists leaders — led by former Catalan vice-president Oriol Junqueras who is facing up to 25 years in jail — took their seats before a panel of Supreme Court judges in Madrid as the reckoning begins for the events of late 2017 when the regional government embarked on an illegal bid to split from Spain.
- European Union member states are considering a possible joint response to cyber attacks allegedly conducted by a Chinese state-linked hacker group after the U.K. presented evidence last month about network infiltration, according to people familiar with the matter. U.K. experts briefed EU colleagues at a technical meeting on Jan. 28, providing evidence of both software and hardware attacks by the group known as Advanced Persistent Threat 10, or APT 10, said some of the people, who asked not to be identified as the talks were private. They wouldn’t give details about the alleged hardware attack, saying the information was classified.
- China is adding to its gold reserves again, boosting holdings for a second month and reinforcing an outlook from bulls including Goldman Sachs Group Inc. that central-bank buying will likely remain strong this year. The People’s Bank of China raised holdings to 59.94 million ounces, or about 1,864 metric tons, by the end of January from 59.56 million ounces a month earlier, according to data on the bank’s website. In tonnage terms, it added about 11.8 tons last month after taking in just under 10 tons in December, which was the first time the PBOC had boosted its hoard since October 2016.
- Molson Coors says financial statements for 2017 and 2016 should be restated and no longer be relied upon, after identifying errors in the accounting for income taxes related to the deferred tax liabilities for its partnership in MillerCoors. Shares fall 3.6% in early New York trading.
- T-Mobile US Inc. Chief Executive Officer John Legere heads to Capitol Hill this week to defend his proposed takeover of Sprint Corp., as doubts about the deal grow on Wall Street and opponents say it will raise monthly bills. Legere is set to appear Wednesday and Thursday before two House panels about the $26.5 billion tie-up, which would unite the No. 3 and 4 U.S. mobile carriers, sparking fears of higher prices as competition is lost. Sprint and T-Mobile say the merger will make a stronger rival of leading providers AT&T Inc. and Verizon Communications Inc.
- Uber Technologies Inc. and Lyft Inc. have received initial feedback from the Securities and Exchange Commission about their confidential IPO filings, according to people familiar with the matter. The move by the regulator — which was shuttered for 35 days during the partial U.S. government shutdown — puts the ball back in the companies’ court to submit new drafts for review, said the people, who asked not to be identified because the back-and-forth is private. Both Uber and Lyft are closely watching whether another shutdown will go ahead at the end of this week as they prepare for initial public offerings later this year, the people said.
- Japan’s largest mobile phone carrier by revenue made a tender offer for almost half the shares of online broker Kabu.com Securities Co., with plans to use the wireless provider’s subscriber list and digital know-how to sell more financial services. KDDI Corp. agreed to pay as much as 87.7 billion yen ($793 million) for a 49 percent stake in Kabu.com, controlled by Japan’s largest bank Mitsubishi UFJ Financial Group Inc. The carrier offered 559 yen per share, it said in a statement after the market closed in Tokyo on Tuesday, about 46 percent more than Kabu.com’s closing price Jan. 23, the day before KDDI said it was considering buying a stake.
- State Bank of India is considering scrapping a sale of 154 billion rupees ($2.2 billion) of Essar Steel Ltd. bad loans, due to lack of demand for the debt, people familiar with the matter said. Bank of America Corp. was the sole bidder in an auction on Feb. 11 and had sought to buy only about one-tenth of the Essar loans that SBI had put on the block, the people said asking not to be identified as the information isn’t public. The state-run bank had reserved the right to pull the sale at any stage, according to the bid document.
- Nissan Motor Co. took an $83 million charge related to the compensation of jailed former Chairman Carlos Ghosn as the Japanese automaker reeling from the shock arrest of the iconic executive warned of its lowest profit in six years. Japan’s third-largest automaker by market value slashed its operating profit forecast to 450 billion yen ($4.1 billion), below the lowest of analysts’ estimates as sales in China and the U.S. continue to wane. The charge taken against the 64-year-old’s remuneration is preliminary and may change depending on how the investigation into the alleged financial misconduct by Ghosn proceeds. The industry titan was arrested on Nov. 19 and has been in jail since.
*All sources from Bloomberg unless otherwise specified