February 20th, 2019

Daily Market Commentary


Canadian Headlines

  • Alberta is preparing a giant crude-by-rail operation to help its oil-sands producers cope with a pipeline crunch, and it expects a big profit from the venture. The Canadian province, which holds the world’s third-largest crude reserves, plans to net C$2.2 billion ($1.7 billion) after investing C$3.7 billion to lease tank cars and buy service from rail providers, generating C$5.9 billion from sales and increased royalty and tax revenue, according to a statement on Tuesday.
  • The controversy that has engulfed Justin Trudeau’s office and claimed his top aide took another strange turn, with an ex-minister speaking privately to cabinet a week after her resignation. Jody Wilson-Raybould, who served as attorney general until being demoted to veterans affairs minister at the beginning of the year, quit cabinet last week amid questions about whether the Canadian prime minister’s office had pressured her to help end a legal case against SNC-Lavalin Group Inc. The Montreal-based engineering giant is facing corruption charges and has been pushing the Trudeau’s government to settle out of court.
  • British Columbia plans to boost borrowing to help fund programs including its biggest-ever climate-action plan, undeterred that a housing slump poses a significant risk to the economy. The province expects new borrowings to rise to C$7.5 billion ($5.7 billion) in the coming fiscal year, up from C$6.3 billion in the current year, according to budget documents presented Tuesday in Victoria by Finance Minister Carole James. The fiscal plan forecasts economic growth of 2.4 percent this year, putting British Columbia on track for the strongest expansion among Canada’s provinces this year, according to data compiled by Bloomberg.
  • Tilray Inc. is acquiring a Manitoba hemp-food manufacturer for up to C$419 million ($316 million), tapping into its extensive U.S. distribution network and an upcoming line of CBD products. Manitoba Harvest sells hemp-based granola, protein powder, milk and other food products at more than 13,000 points of sale across the U.S., including Walmart Inc., Costco Wholesale Corp., CVS Health Corp., Kroger Co., and online at Amazon.com Inc.

World Headlines

  • European shares gained in early trading after positive moves in the U.S. and in Asia. The Stoxx Europe 600 index rose 0.2 percent, with basic resources on top and retail at the bottom. J Sainsbury Plc and Walmart Inc.’s Asda face a hurdleafter a U.K. regulator said it would be difficult to address antitrust concerns created by the deal. In Sweden, Swedbank AB, the largest lender in the Baltic countries, became the latest Nordic bank to face allegations that it was used to launder money. The shares dropped more than 7 percent.
  • U.S. equity futures drifted lower and stocks in Europe and Asia climbed as investors awaited the release of minutes from the latest meetings of two of the world’s key central banks. The dollar was steady and the yuan rose after a report America is asking China to keep its currency stable. Contracts on the Dow Jones and S&P 500 indexes nudged lower on Wednesday, while those on the Nasdaq gauge were little changed.
  • In Asia, equities in South Korea and Hong Kong set the pace for gains across most of the region. The yen dropped, giving Japanese shares a boost, after Japan’s trade deficit came in wider than expected. With the U.S. and China continuing tough negotiations toward a trade deal, focus has shifted to a key campaign promise made by President Donald Trump, namely addressing Beijing’s periodic devaluation of the yuan. Investors will also be preoccupied by the release of minutes from the Federal Reserve later on Wednesday and from the European Central Bank a day later, and they’ll have a glut of German data to contend with toward the end of the week.
  • Oil held near a three-month high as investors weighed OPEC’s production cuts against estimates of rising crude inventories in the U.S. Futures fell by 0.4 percent in New York, after gaining around 7 percent since Feb. 11. U.S. crude stockpiles probably increased for a fifth week, rising by 3.1 million barrels, according to a Bloomberg survey before government data on Thursday. Citigroup Inc. boosted its Brent price forecast for this year as output cuts by Saudi Arabia and other OPEC nations shrink global supplies.
  • American and Canadian material stocks both outpaced gains in their local broader indices. Gold futures climbed to the highest in almost 10-months as trade uncertainty boosted haven assets. Palladium extended its record-breaking rally, approaching $1,500 an ounce.
  • Palladium surged above $1,500 an ounce to a record, extending a powerful rally that’s been driven by an acute shortage of supply as car manufacturers scramble to get hold of the material to meet stringent emissions controls. The advance will benefit top suppliers in Russia and South Africa. Spot palladium surged as much as 1.7 percent to $1,505.46 an ounce, and traded at $1,501.28 at 11:52 a.m. in London, with prices set for a seventh straight monthly gain. In other precious metals, gold rallied to a 10-month high, while silver and platinum both climbed.
  • It was a big reversal: Federal Reserve officials pivoted last month toward keeping interest rates on hold, and now minutes of their meeting may shed light on just how long. The Federal Open Market Committee pledged in its January statement to “be patient’’ on the timing of future rate “adjustments.” That backed away from the “some further gradual increases’’ it highlighted in December and left open whether the next move is up or down. Minutes of the Jan. 29-30 meeting are scheduled to be released at 2 p.m. in Washington.
  • The biggest bank operating in the Baltics, Swedbank AB of Sweden, has now been drawn into the region’s deepening money-laundering scandal, wiping off more than a tenth of its market value. Swedbank spokesman Gabriel Francke Rodau acknowledged that the lender has identified suspicious transactions, which he says have been reported to the police. The comments followed a report by Swedish broadcaster SVT, alleging that some 50 customers at Swedbank, who all displayed “clear warning signals regarding suspected money laundering,” transferred about 40 billion kronor ($4.3 billion) between Swedbank and Danske Bank A/S from 2007 to 2015. Rodau said Swedbank “doesn’t recognize” those numbers.
  • India will inject 482 billion rupees ($6.8 billion) into government-controlled lenders to help them meet tighter regulatory requirements and to boost credit growth. The fund infusion will ensure that capital ratios for all state-run lenders are above the regulatory requirement and will help Allahabad Bank and Corporation Bank exit a so-called Prompt Corrective Action plan, Rajeev Kumar, secretary at India’s department of financial services said in a tweet on Wednesday.
  • Southwest Airlines Co. shares slid early Wednesday after saying the U.S. government shutdown will hit revenue harder than it previously expected. The company now expects to lose $60 million in revenue because of the shutdown from Jan. 1 through Jan. 23. Previously, the discount airline had estimated a $10 million to $15 million first-quarter impact, it said in a regulatory filing on Wednesday. Southwest shares slipped 2.9 percent in pre-market New York trading. The stock closed Tuesday at $57.67, giving it a market value of $31.9 billion.
  • As Volkswagen AG and other German automakers await President Donald Trump’s decision on whether to impose tariffs on vehicles imported into the U.S., new figures on Germany’s trade in cars will do little to ease the tension. The home of Mercedes-Benz, BMW and Porsche generated a surplus of 22 billion euros ($25 billion) in automotive trade with U.S. last year, according to a breakdown of data from the Federal Statistics Office. That’s roughly in line with the previous two years, but down from the 27 billion-euro surplus in 2015.
  • The Trump administration said Tuesday that it will cancel more than $900 million in federal grants earmarked for an ambitious California high-speed rail project after the state’s Democratic governor said he now plans to focus on completing a single segment in an interior region. In addition, the U.S. Transportation Department said it was exploring legal options to recoup $2.5 billion in federal funds already granted to the project by the Federal Railroad Administration, according to a DOT statement.
  • President Vladimir Putin signaled Russia will aim new weapons at the U.S. if it stations missiles in Europe after quitting a landmark Cold-War-era treaty, amid growing fears of a new arms race. Still, the tone of Putin’s annual state-of-the-nation speech was less belligerent than a year ago, when he showed computer-graphics demonstrations of a series of new missiles and other high-tech weapons that appeared to target the U.S. With its only graphic displays focused on economics, this year’s address was devoted primarily to pledges to improve living standards and boost welfare benefits.
  • Egypt raised $4 billion from the dollar debt market in the strongest signal yet that investor interest has returned. The government sold debt in tranches maturing in five, 10 and 30 years, with its offering covered more than five times. While the debt was priced at a higher yield than a similar deal last year, the Finance Ministry described the interest in its latest issuance as “unprecedented” for Egypt. The Arab world’s most populous nation is joining a rush from governments in developing nations including Saudi Arabia and Turkey amid a pause in U.S. interest-rate hikes and a sudden influx of cash into emerging-market bond funds. Egypt is also taking advantage of improving sentiment after the International Monetary Fund this month approved the release of the fifth part of the nation’s $12 billion loan.
  • A London judge gave landlords a bit of good news in a difficult environment, ruling that the European Medicines Agency couldn’t use Brexit as an excuse to break its 500 million-pound ($651 million) lease in Canary Wharf. Judge Marcus Smith ruled in favor of the Canary Wharf Group, the EMA’s landlord, on Wednesday, saying that the European Union agency remains obligated to honor the lease even though it’s relocating to Amsterdam. The case is one of the first in the U.K. to grapple with the commercial ramifications of Britain’s departure from the bloc.
  • One of the world’s biggest sellers of coal is yielding to investor pressure on climate change, the clearest sign yet that movement is sweeping the natural resources industry. Glencore Plc has promised to limit coal production and align the business with Paris climate targets. It’s a surprising about-face from a company that’s spoken glowingly of coal in the past and snapped up major Australian coal mines from rivals that were exiting the industry. More broadly, the move shows that business forces are aligning on climate change in ways that will reshape energy and mining for years to come, even with U.S. President Donald Trump steadfast in his commitment to expanding the coal industry. The anti-coal movement has already led the biggest miners in the world to exit the business or pledge not to invest, and oil producers have vowed to cut greenhouse gas emissions.
  • Microsoft Corp. uncovered cyber attacks targeting European think tanks by hackers linked to the Russian government, underscoring concerns of potential interference in European Union elections this May. The U.S. company said it was “confident” that attacks targeting employees of organizations including the German Council on Foreign Relations, The Aspen Institute and The German Marshall Fund, originated from a group called Strontium, also known as Fancy Bear or APT 28. Microsoft, which is continuing to investigate the source of the attacks, has previously said the group is widely associated with the Russian government.
  • Top Deutsche Bank AG executives were so concerned after the 2016 U.S. election that the Trump Organization might default on about $340 million of loans while Donald Trump was in office that they discussed extending repayment dates until after the end of a potential second term in 2025, according to people with knowledge of the discussions. Members of the bank’s management board, including then Chief Executive Officer John Cryan, were leery of the public relations disaster they would face if they went after the assets of a sitting president, said the people, who asked for anonymity because the discussions were private.
  • Elon Musk corrected a prediction for how many cars Tesla Inc. would make in 2019, just hours after tweeting that production would reach about 500,000 vehicles this year. The electric-car pioneer, who has a track record of snafus on Twitter, said he intended to tweet that Tesla expects to be making cars at an annual rate of about 500,000 by the end of 2019. Musk said Tesla still forecasts deliveries of about 400,000 vehicles this year.
  • Apple Inc. wants to make it easier for software coders to create tools, games and other applications for its main devices in one fell swoop — an overhaul designed to encourage app development and, ultimately, boost revenue. The ultimate goal of the multistep initiative, code-named “Marzipan,” is by 2021 to help developers build an app once and have it work on the iPhone, iPad and Mac computers, said people familiar with the effort. That should spur the creation of new software, increasing the utility of the company’s gadgets.
  • President Donald Trump may finally get to deliver on his campaign promise to address China’s management of its currency for what he has insisted is its trade advantage. But it would mean an about-face on almost a decade of global economic policy. The U.S. is said to have asked China to keep its currency stable as part of a new trade deal, a move aimed at discouraging officials in Beijing from devaluing the yuan to offset the impact of American tariffs. That request is at odds with years of global pressure on China, from the Group of 20 economies in particular, to move toward a free-floating currency.
  • J Sainsbury Plc’s attempt to create the biggest U.K. supermarket chain with the 7.3 billion-pound ($9.5 billion) purchase of Wal-Mart Inc.’s Asda looks close to collapse after antitrust authorities attached harsher-than-expected conditions for approval. Sainsbury shares plunged the most in a decade. The deal would catapult the merged company past Tesco Plc and give it greater purchasing power to compete with the German discounters Aldi and Lidl, as well as online upstarts. In a provisional report, the Competition and Markets Authority said the merger, even with substantial store sales, would likely mean higher prices and worse choice for shoppers.
  • Lloyds Banking Group Plc, the lender most exposed to Brexit through its U.K. consumer loan book, is spending 1.75 billion pounds ($2.3 billion) on a share buyback, signaling it has enough capital to ride out any uncertainty. Britain’s biggest mortgage lender posted a pre-tax profit of 1.8 billion pounds for the fourth quarter, up about 10 percent on the same time last year and broadly in line with estimates. This excludes funds set aside for its long-running involvement in mis-selling insurance and U.K. regulatory reforms, Lloyds said in its earnings statement on Wednesday.

*All sources from Bloomberg unless otherwise specified