February 19th, 2019

Daily Market Commentary


Canadian Headlines

  • Canadian Prime Minister Justin Trudeau has lost his top aide as the controversy over the government’s role in the SNC-Lavalin Group Inc. legal case deepens. In a bombshell departure ahead of an election this year, Gerald Butts resigned as Trudeau’s principal secretary on Monday, a holiday in much of the country. The move follows allegations the prime minister’s office pressured former attorney general Jody Wilson-Raybould last year to end a legal case facing the Montreal-based firm. Butts denies he did so.
  • Manitoba’s budget deficit will be more than C$100 million ($75 million) below forecast, leaving room for Premier Brian Pallister to fulfill his pledge to eventually cut the provincial sales tax by a percentage point. Manitoba will post a budget gap of less than C$400 million for the 2018-19 fiscal year, down from the latest official forecast of a C$518 million deficit, Pallister said in an interview. The government has lowered spending growth through “efficiencies,” by reducing staff travel budgets, government vehicle costs and streamlining the tender contract process, he said.

World Headlines

  • The Stoxx Europe 600 Index retreated after two days of gains, led lower by banks following disappointing earnings from HSBC Holdings and increasingly dovish signals from the region’s central bank. Automakers were also under pressure as the European Union vowed prompt retaliation if the U.S. imposes tariffs on imported vehicles. Italian bonds fell while most European notes climbed.
  • U.S. equity futures fell and European stocks dropped as investors awaited fresh clues on the outlook for global trade and growth. The dollar strengthened and Treasuries were steady. Contracts on the Nasdaq, Dow Jones and S&P 500 indexes all turned lower as traders returned from the long weekend and before the next round of talks between America and China to try to reach a trade deal.
  • Japanese stocks advanced after the yen pared gains against the dollar on Bank of Japan Governor Haruhiko Kuroda’s dovish comments. The Topix index rose to its highest close since Dec. 13, getting support from defensive shares including railways and utilities. Volumes were low after U.S. markets were closed Monday for a holiday. The yen weakened to 110.70 par dollar from about 110.45 earlier in the day after Kuroda said that if exchange rate movements impact Japan’s economy and prices the BOJ may consider additional easing.
  • Oil held near a three-month high in New York as OPEC’s production cuts allayed concerns of a renewed surplus, while prospects for a resolution to the U.S.-China trade war supported the outlook for demand. Futures rose 0.7 percent from their close on Friday, when they capped a 5.4 percent weekly advance. Trade talks between the world’s two top economies are “picking up” as a March 1 tariff deadline nears, according to Steve Censky, the U.S. Department of Agriculture’s deputy secretary. Saudi exports fell by over 1.3 million barrels a day in the first half of February compared with the same period last month, said tanker intelligence firm Kpler.
  • Gold eases from the highest level in almost 10 months after the dollar gains as Washington and Beijing push to reach a deal on trade before a threatened U.S. tariff increase on March 1. Palladium posts fresh record. There’s a “massive shortage” of palladium as the auto market moves away from diesel-powered vehicles, Evy Hambro, BlackRock Inc.’s natural resources team investment leader, said on Bloomberg TV on Monday. Still, some analysts are questioning the durability of the rally in the metal, used mainly in catalytic converters in gasoline engines. Weaker car sales in China don’t guarantee growing demand from the auto industry, according to Commerzbank AG.
  • Chinese and U.S. trade negotiators will start the next round of talks this week in Washington, after discussions in Beijing last week that President Donald Trump called “very productive.” The talks will begin on Tuesday, White House Spokeswoman Sarah Sanders said, with Vice Premier Liu He then meeting with U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin on Feb. 21-22, according to a statement from China’s Commerce Ministry.
  • Targa Resources Corp. agreed to sell a 45 percent stake in its oil and natural gas pipeline and storage operations in the North Dakota shale region for $1.6 billion in cash to investment firms backed by private-equity giant Blackstone Group LP. The deal will provide Targa with a “substantial portion of our estimated 2019 equity funding needs,” Chief Executive Officer Joe Bob Perkins said in a statement Tuesday. Targa will use the proceeds to pay down debt, fund its growth capital program and other general corporate purposes. The transaction is expected to close in the second quarter of 2019.
  • Investors added money to exchange-traded funds that buy emerging market stocks and bonds last week. This was the 18th straight week of inflows. Inflows to U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $313.1 million in the week ended Feb. 15, compared with gains of $3.97 billion in the previous week, according to data compiled by Bloomberg. So far this year, inflows have totalled $16.3 billion.
  • Bernie Sanders, the independent Vermont senator who finished runner up to Hillary Clinton for the 2016 Democratic presidential nomination, on Tuesday announced a second White House bid. He said one of his primary motivations is to defeat President Donald Trump, who beat Clinton in the that election. Sanders, 77, upended the party establishment by siphoning support from Democrats’ liberal wing and young people, touching off a leftist movement that ushered progressives like freshman Representative Alexandria Ocasio-Cortezinto office in the November midterm elections. His strong-than-expected challenges to Clinton arguably weakened her ultimately unsuccessful general election candidacy and against Donald Trump.
  • HSBC Holdings Plc is bracing for riskier times after missing fourth-quarter earnings estimates, warning that political tensions in its key markets have made the prognosis for 2019 far less predictable. Chief Executive Officer John Flint has vowed to keep a keener eye on costs while avoiding additional payouts to shareholders, after a disappointing quarter capped his first year in charge of Europe’s largest bank. Like its rivals, HSBC, which gets most of its business in Asia, was hit by the meltdown in financial markets, which pushed investment bank revenues lower. Its shares fell 4.3 percent in London trading, the most in about a year.
  • Honda Motor Co. said it plans to close its factory in the U.K. in the biggest blow yet to the British auto industry already buckling under thousands of job cuts and the loss of key models in the run-up to Brexit. The site in Swindon, about 80 miles west of London, is the nation’s fourth-largest auto plant and employs about 3,500 workers where the Honda Civic hatchbacks are made. The facility will be closed in 2021, the company saidTuesday. Honda also plans to cease producing Civic sedans at a facility in Turkey.
  • Two major players in real estate, Canyon Partners and infrastructure firm Aecom, have joined forces to finance the development of $4 billion in large-scale commercial property projects. The partnership will target investments in 25 major U.S. real estate markets to develop and build multi-family, mixed-use, hospitality and other commercial projects and condominiums. the companies said Tuesday. The joint venture, Aecom-Canyon Partners, plans to invest in projects with a value of $150 million to $500 million. It will provide about 10 percent to 30 percent of the equity. Financing will go to properties that have received approval from local planning and regulatory agencies.
  • There’s plenty of demand for Tesla Inc.’s Powerwall home-battery systems. The trick is finding installers that have them. Only 12 percent of U.S. companies that install solar panels and residential batteries carry the Powerwall, a study Tuesday from Boston-based EnergySage and the North American Board of Certified Energy Practitioners found. Meanwhile, about 55 percent of customers shopping for home-storage systems want them, according to the 871 installers surveyed in the report.
  • California sued to block President Donald Trump from diverting funds from the federal budget to pay for his promised border wall, joined by more than a dozen states who say the move exceeds the power of his office. On Friday, Trump declared a national emergency in a bid to unlock more money to build the barricade along the southern U.S. border after Congress opted to fund construction of only about 55 miles (89 kilometers) of physical barriers. The declaration allows him to reallocate about $8 billion.
  • Democratic presidential candidate Elizabeth Warren is proposing a universal child care plan that would limit American families’ expenses to 7 percent of income regardless of how many children they have in care -paid for by a tax on the ultra-wealthy. The Massachusetts senator’s plan, to be unveiled Tuesday, would make child care free for families with incomes below 200 percent of the poverty level, or less than $51,500 for a family of four, according to a person familiar with the plan. Other families would pay up to 7 percent of income, depending on how much they earn.
  • The financial supervisors in Estonia and Denmark have been placed under formal investigation by European authorities to find out whether they did enough to try to prevent one of the bloc’s worst ever money laundering scandals. At the same time, Estonia’s Financial Supervisory Authority took the extraordinary step of ordering Danske to close its operations in the country. The agency is giving the bank eight months to return deposits to customers and either sell or transfer loans to another lender.
  • Britons are enjoying record employment but the list of companies saying they’re shutting down production in the U.K. or warning about profits is getting longer. Japanese carmaker Honda Motor Co. said Tuesday it will close its plant in Swindon with the loss of thousands of jobs. With Britain’s departure from the European Union imminent and global trade tensions brewing, companies are slashing investment and economic growth is cooling. Honda’s plans are the latest symbol of the decline of British manufacturing, and it follows warnings of production cuts from Nissan Motor Co. and Ford Motor Co. this month.
  • Pakistan’s Prime Minister Imran Khan said his nation would retaliate if attacked by India, following New Delhi’s strongest accusations yet that its nuclear-armed neighbor was responsible for a major terrorist attack in Kashmir. “Pakistan will not think of retaliation, Pakistan will retaliate,” Khan said in a televised speech on Tuesday. “There will be no other option than retaliation.” Tensions between the historic arch-rivals have been high since a militant car bombing, claimed by a Pakistani-based group Jaish-e-Mohammed, on Feb. 14 in Kashmir killed 40 members of India’s security forces — the deadliest strike in the region in decades.
  • Walmart Inc. brushed off the retail sector’s disappointing December sales with its best holiday quarter in at least a decade, soothing concerns about the industry’s outlook for 2019. Comparable sales for Walmart stores in the U.S. rose 4.2 percent in the fourth quarter that included Christmas, beating analysts’ estimates by a full percentage point. Higher prices — more than increased foot traffic — drove the gains.
  • Alibaba Group Holding Ltd. has acquired another chunk of shares in China International Capital Corp. for about HK$1.8 billion ($230 million), enlarging its stake in a prestigious investment bank that can help propel deals and financial transactions around the world. The e-commerce giant bought 117.1 million Hong Kong-listed shares at HK$15.50 apiece on Feb. 14, CICC said in a filing. That expanded its stake to about 11.7 percent of stock listed in the city from roughly 5 percent, almost matching Tencent Holdings Ltd.’s 12 percent.
  • Delta Air Lines Inc. and U.K. discounter EasyJet Plc may invest as much as 400 million euros ($452 million) in the latest attempt to revamp struggling Italian airline Alitalia SpA, according to people familiar with an initial draft of the plan. Investors in a group led by rail operator Ferrovie dello Stato SpA are evaluating the financial needs of the “new Alitalia” that would emerge after the second bankruptcy process in a decade, said the people, who asked not to be named because the discussions are private.
  • BHP Group, the world’s biggest miner, doesn’t have capacity to raise shipments into the iron ore market as competitor Vale SA faces outages following the fatal mining disaster in Brazil last month. The global iron ore market has been thrown upside down by the tragedy, after Vale was forced to shutter operations and the Brazilian government said it’s banning certain types of dams used to hold mining waste. While rival producers such as BHP and Rio Tinto Group might be expected to fill the gap, they’ve got little room to respond after focusing in recent years on maximizing profits rather than increasing volumes.

*All sources from Bloomberg unless otherwise specified