February 14h, 2019

Daily Market Commentary


Canadian Headlines

  • The world’s largest new copper mine rumbled to a start this week in the Panamanian jungle, poised to supply a global market that’s tipping into deficit and gives First Quantum Minerals Ltd. a chance to prove its $10 billion investment was worth all the trouble. Cobre Panama, a vast mining and processing complex near Panama’s Atlantic coast, processed its first ore on Monday, a half century after the deposit was discovered. At full production in 2021, it will turn Vancouver-based First Quantum into a top copper producer alongside giants like Freeport-McMoRan Inc. and BHP Group.
  • If a mine dispute were all that SNC-Lavalin Group Inc. had to worry about, Chief Executive Officer Neil Bruce might be looking forward to next week’s earnings report with some equanimity. As it stands, the Canadian engineering giant is being rocked by a political controversy that’s embroiled Prime Minister Justin Trudeau and dredged up corruption allegations that date back almost two decades in Libya. The company has also slashed its profit outlook by more than 40 percent, seen its shares plunge by a third and had its credit rating cut to near junk.
  • Bombardier Inc.’s cash flow for the fourth quarter exceeded analysts’ expectations and its 2019 financial forecast held steady, as Canada’s biggest aerospace company moves into the fourth year of a five-year turnaround plan. Free cash flow rose to $1.04 billion in the last three months of the year, Bombardier said in a statement Thursday. That compared with the $890 million average of analyst estimates compiled by Bloomberg.

World Headlines

  • European shares opened higher on Thursday, reaching the highest level so far this year, after a mixed Asia and positive U.S. markets. Trade tensions were once again a central theme after a report the White House may push back its tariff deadline. The Stoxx Europe 600 Index gained 0.6 percent, with the industrial sector at the top. France’s Airbus SE will stop making its double-decker flagship A380 — a decision that immediately also turned focus on the planemaker’s suppliers, including Rolls-Royce Holdings Plc and Safran SA. Among banks, Credit Suisse Group AG’s revenue beat estimates, while trading revenue dropped at Credit Agricole SA and Commerzbank AG resumed paying a dividend.
  • U.S. equity futures advanced and European stocks climbed for a fourth day after the White House was said to weigh postponing higher tariffs on China for 60 days. Treasuries steadied alongside the dollar, and oil advanced. President Donald Trump is considering pushing back the deadline for imposition of higher tariffs on Chinese imports by 60 days, as the world’s two-biggest economies try to negotiate a solution to their trade dispute, according to people familiar with the matter. Earlier, Trump told reporters that trade talks are making good progress, helping to steady investor sentiment.
  • The most robust rally Asian stocks have seen in more than a year is about to face its stiffest challenge yet. Optimism recent rounds of trade talks between the U.S. and China will come to a favorable conclusion has helped push the MSCI Asia Pacific Index up more than 10 percent from its low in December. That’s the fastest rebound since the end of January 2018, when the gauge capped an 11 percent rally in a similar time frame.
  • Oil climbed to the highest level in almost three months in London as the U.S. was said to consider delaying a deadline for new tariffs on Chinese goods, easing fears that the trade war will escalate. Brent futures rose as much as 1.9 percent in London. President Donald Trump may delay the March 1 deadline for more tariffs on Chinese imports by 60 days, people familiar with the matter said. Prices were also supported as Saudi Arabia again cut oil exports to the U.S. to a record low as part of a strategy to avert a global glut. That countered an increase in American crude stockpiles.
  • Gold rises as contained inflation data bolstered the Federal Reserve’s decision to go slow on raising rates, while investors track high-level trade talks between U.S., China in Beijing. A key measure of U.S. inflation was little changed in January, while the broader gauge slowed on energy costs. Investors are keeping tabs on the progress of trade negotiations, with President Donald Trump considering pushing back the deadline for imposition of higher tariffs on Chinese imports by 60 days.
  • President Donald Trump is considering pushing back the deadline for imposition of higher tariffs on Chinese imports by 60 days, as the world’s two biggest economies try to negotiate a solution to their trade dispute, according to people familiar with the matter. The president said Tuesday that he was open to letting the March 1 deadline for more than doubling tariffs on $200 billion of Chinese goods slide, if the two countries are close to a deal that addresses deep structural changes to China’s economic policies — though he added he was not “inclined” to do so. The people said that Trump is weighing whether to add 60 days to the current deadline to give negotiations more time to continue.
  • Saudi Aramco’s widely anticipated international bond debut may raise as much as $15 billion and attract new investors to the oil-rich Gulf region, which was just added to an emerging markets index. The world’s biggest oil producer may sell the bonds in the first half of the year, and picked five banks to raise the cash it needs for its planned acquisition of petrochemicals giant Saudi Basic Industries Corp.
  • Airbus SE Chief Executive Officer Tom Enders scrapped the company’s totemic but unprofitable A380 jet and booked more than 1.1 billion euros ($1.2 billion) in charges to leave a clean slate for his successor. In addition to scrapping the flagship superjumbo, Enders, who stands down in April, announced extra costs for restructuring the A400M military transport program and revealed the loss of a major order for its newest wide-body jet.
  • Catalan nationalism is the cause that keeps dividing Spain as the country faces its third election in less than four years. Prime Minister Pedro Sanchez is set to call a snap vote on Friday after parliament exposed the dwindling authority of his minority government by rejecting his budget plan in a vote yesterday. Talks with Catalan independence parties broke down last week, leaving him short of the support he needed to pass his spending plan for 2019. Tensions in Catalonia have been simmering ever since separatist groups attempted to engineer a split from Spain at the end of 2017 in defiance of the constitution. As Sanchez weighs his options for calling elections, he will be conscious how the regional conflict continues to influence the national political scene in ways he may find hard to predict.
  • The planned U.S. withdrawal from Syria is fueling tensions between Russia and Turkey over control of a key region of the Middle Eastern country once American forces have left. Russia is pressuring Turkey to agree to an offensive on Idlib, seized by militants linked to al-Qaeda last month, a senior Turkish official said, speaking on condition of anonymity. At the same time, the Kremlin is opposing a bid by Turkey to establish a buffer zone inside Syria to counter U.S.-backed Kurdish fighters.
  • Citigroup Inc., the biggest foreign bank in India by assets, has joined a growing list of lenders that have seen their local leadership roiled by the nation’s central bank. The Reserve Bank of India around the end of last year informed Citigroup that it wouldn’t approve a new term for Pramit Jhaveri, who had been India chief executive officer for almost a decade, people with knowledge of the matter said. That prompted the bank, which had planned to nominate Jhaveri for another three-year term, to change course and move him to another position, the people said, asking not to be named.
  • Credit Suisse Group AG’s three-year turnaround ended with more of a whimper than a bang after trading losses eroded gains in wealth management and investment banking. The Global Markets business posted a larger-than-expected loss of 193 million francs ($191 million) in the fourth quarter, offsetting wealth management and investment banking results that beat estimates. In a tough quarter for money managers, the Zurich-based bank bucked a trend of large outflows at rivals, adding about half a billion francs of net new money.
  • Royal Bank of Scotland Group Plc is among eight global banks being scrutinized in a probe into an alleged euro bond trading cartel, a person familiar with the matter said. The details of the Edinburgh-based lender’s involvement and any potential fine resulting from the European Union investigation is unknown, the person said, declining to be identified as the details are private.
  • Coca-Cola Co. sold fewer drinks in the Americas in the fourth quarter despite a boost from zero-calorie offerings as rival PepsiCo Inc. ramps up marketing spending. Shares slipped in early trading. Unit case volume fell 1 percent in North America and 2 percent in Latin America in the quarter ended Dec. 31. Still, Coke’s adjusted earnings per share matched what analysts had been expecting.
  • JPMorgan Chase & Co., CLSA and Credit Suisse Group AG are among foreign banks pitching for a role on Pakistan’s biggest privatization in over a decade, which could raise around $2 billion, people with knowledge of the matter said. The government’s sale of two LNG-fired power plants could draw interest from Chinese and Middle Eastern investors, one of the people said, asking not to be identified because the information is private. Pakistan received about 10 bids from groups seeking a financial advisory role and expects to pick banks by the end of March, another person said.
  • After trekking to Manhattan every February from his headquarters in Coconut Creek, Florida, for the largest show in the U.S. toy industry, Gary Atkinson decided to skip this year’s event. And for good reason: Toys “R” Us Inc., once his largest customer, wouldn’t be there. But the CEO of Singing Machine Co. reversed course after learning that the hole left by the U.S. liquidation of Toys “R” Us had chains like Kroger Co., a grocery-store chain that boosted toy offerings last year, sending bigger teams, while others retailers are attending Toy Fair New York for the first time. Rented exhibition space at the Javits Center has jumped by 10 percent to an all-time record 447,000 square feet.
  • Online platforms will be required to compensate publishers and creators for the content that appears on their websites, under new European Union copyright rules that could shrink access to online media in Europe. The new rules mean music producers and publishers could come gunning for more money from Alphabet Inc.’s Google and Facebook Inc. to compensate for the display of their songs, video and news articles. If artists and music producers refuse to grant platforms licenses, tech firms will be required to remove or block uploads. And if platforms don’t negotiate licenses with publishers, or if publishers don’t waive their rights, web firms won’t be able to display longer fragments of news articles under headlines.
  • Some of the world’s dirtiest and densest crudes traditionally spurned for being too difficult to process are having a moment in the sun, with a little help from Donald Trump. “Heavy-sour” oil from nations such as Venezuela and Iraq have a higher sulfur content and are more viscous than “light-sweet” grades pumped in U.S. shale fields and Europe’s North Sea. While the dirtier crudes could usually be bought for a steep discount versus the easier-to-refine types, they have strengthened dramatically over the past few weeks. At least two varieties have flipped to a premium. Their unusual strength has its source in U.S. policy: America’s effective ban on Venezuelan oil has forced Gulf Coast refiners to scramble for alternatives from elsewhere. Trump’s decision to reimpose sanctions on Iran has also shrunk Middle East supplies, most of which are of “medium-sour” quality that are still heavier than light crudes. Cargoes from the region are further being squeezed as Saudi Arabia bears the bulk of output cuts by OPEC.

*All sources from Bloomberg unless otherwise specified