February 5th, 2019

Daily Market Commentary


Canadian Headlines

  • Canadian stocks climbed as marijuana stocks pushed the index higher, marking the fourth straight day of gains for the sector. The Canadian benchmark rose 0.6 percent led by health care and information technology while industrials underperformed. The Horizons Marijuana Life Sciences Index ETF gained 4.9 percent for a fourth session, reaching its highest intraday since early November, as the World Health Organization recommended last week that cannabis international regulations be loosened.
  • First Quantum Minerals Ltd. has offered to buy the Zambian government’s 20 percent stake in Africa’s biggest copper mine for as much as $700 million, according to two people familiar with the transaction. Vancouver-based First Quantum already owns 80 percent of the Kansanshi mine in Zambia’s North-Western Province, while state-owned ZCCM Investments Holdings Plc holds the rest. The proposal, which was submitted last year, includes $300 million to $400 million in cash, and an equal amount in special royalties, over more than 10 years, said the people, who asked not to be identified because they’re not authorized to comment.
  • Mortgage growth has shrunk to a 17-year low in Canada, increasing pressure on the country’s big banks to find business elsewhere. Residential mortgage growth rose 3.1 percent to C$1.55 trillion ($1.18 trillion) in December from a year earlier, the slowest pace since May 2001, and half the growth rate from two years ago, according to data from the Bank of Canada.
  • Justin Trudeau brought together Venezuela’s neighbors to voice support for a peaceful handover of power, making a modest pledge of humanitarian aid for the country and those who’ve fled economic crisis under the regime of Nicolas Maduro. The Canadian prime minister hosted the Lima Group, which includes Brazil, Colombia and other Latin American nations, Monday in Ottawa. The group recognized Juan Guaido as interim president and welcomed his Venezuelan government-in-waiting into its ranks as Maduro digs in against international pressure spearheaded by U.S. President Donald Trump.
  • Vancouver began the year with benchmark home prices falling the most in almost six years, according to the local real estate board. That may be just the tip of the iceberg. Metro Vancouver’s composite home price, including houses, condominiums and townhouses, fell 4.5 percent in January from a year earlier to C$1.02 million ($780,000), the biggest decline since May 2013 and down about 8 percent from the June 2018 peak, according to the Real Estate Board of Greater Vancouver.



World Headlines

  • European shares rose at the open, following a mixed trading day in Asia where many markets were closed for a holiday. Investors will watching U.S. President Donald Trump’s speech later in the day for any signals on trade or a budget compromise. The Stoxx 600 Index was 0.1 percent higher, supported by gains in oil companies as BP jumped 3.6 percent after reporting profit that beat estimates. AMS plummeted 11 percent after it suspended its cash-dividend policy and scrapped guidance.
  • U.S. equity futures gradually turned higher on Tuesday, taking their cue from shares in Europe which rallied after strong earnings from oil giant BP. Contracts on the S&P 500, Nasdaq and Dow Jones indexes all gained ground through the European morning after a lackluster start.  The relative calm in markets belies an undercurrent of uncertainty as trade talks between the U.S. and China remain unresolved and America lurches toward another government shutdown. Investors will be watching President Donald Trump’s second State of the Union address later for any more signs of political rancor or on the outlook for foreign trade.
  • Japan’s Topix index eked out a gain Tuesday as investors weighed a mixed bag of results and forecasts from local companies. Chemical companies contributed most to the benchmark measure’s advance, while pharmaceutical firms and retail giants weighed. Kao Corp. climbed after forecasting faster growth in sales and profits in 2019. Panasonic Corp. fell after it missed earnings expectations and was downgraded by Nomura. The Nikkei 225 Stock Average closed lower as Fast Retailing Co. fell to a five-month low after it reported a 1 percent year-on-year dip in sales at Uniqlo stores in Japan.
  • Oil halted a decline as traders weighed output cuts from OPEC and its allies and its partners against expectations for rising U.S. crude inventories. Futures in New York rose as much as 1.2 percent, reversing a 1.3 percent drop on Monday. Russia curbed output by 47,000 barrels a day in January from its October baseline level, the country’s Energy Minister Alexander Novak said. This is slightly slower than its earlier pledge to OPEC. Meanwhile, U.S. government data due Wednesday is expected to show American crude inventories rose for a third week.
  • Gold was steady in thin holiday trading in Asia, paring some losses after two days of decline. With Chinese investors out for the rest of the week to mark the start of the Lunar New Year, analysts expect more activity and potentially higher prices after they return, with the current support level for bullion at around $1,300 per ounce.
  • Donald Trump’s second State of the Union promises to be one of the most dramatic moments in recent memory for the annual address to Congress. The president will speak Tuesday evening to a House chamber full of Democrats jostling to challenge his re-election, with many female lawmakers planning to dress in suffragette white and his chief antagonist Nancy Pelosiseated at the dais behind him. The appearance will be shadowed by the threat of another government shutdown. He has hinted that he may make news — a national emergency declaration on the U.S. southern border, a proposal on drug prices or on AIDS, or dates and locations for summits with the leaders of China and North Korea.
  • The U.K. economy is at risk of stalling after growth in the services sector came close to a standstill, with firms growing increasingly anxious about Brexit. The purchasing managers index for services dropped to a 2 1/2-year low in January, IHS Markit said in a survey, falling more sharply than economists had forecast. Companies said they were less likely to start new projects and that clients were spending more cautiously because of a lack of clarity around Britain’s departure from the European Union.
  • Kirin Holdings Co. agreed to acquire most of the biochemicals business from its Kyowa Hakko Kirin Co. unit in a transaction valued at 128 billion yen ($1.2 billion) as it seeks to strengthen its budding consumer health-care segment.
  • Federal Reserve Chairman Jerome Powell met President Donald Trump at the White House for dinner Monday to discuss the economy’s performance and outlook, but the central bank said its chief did not share his expectations for monetary policy. Powell’s comments were “consistent with his remarks at his press conference of last week,” the Fed said in a statement. “He did not discuss his expectations for monetary policy, except to stress that the path of policy will depend entirely on incoming economic information and what that means for the outlook.”
  • President Donald Trump will nominate senior Treasury official David Malpass to lead the World Bank, according to two administration officials, moving to place at its helm a critic of the development lender and its internationalist principles. The announcement will be made this week, after Trump delivers his State of the Union address on Tuesday night, according to the officials, who asked not be identified before the the nomination was made public. The administration on Monday started reaching out to World Bank member countries to rally support for Malpass’s nomination, one of the officials said.
  • Nissan Motor Co.’s board agreed to nominate Jean-Dominique Senard, named by Renault SA last month as chairman, a director, as the strained two-decade marriage is about to get a fresh start in the post-Carlos Ghosn era. The 65-year-old Michelin chief executive officer will join the Nissan board after a vote by shareholders on April 8, the Japanese carmaker said in a statement Tuesday. He has been tasked by Renault to manage the French carmaker’s relationship with Nissan and with the alliance after Ghosn resigned last month.
  • Russian billionaire Mikhail Fridman dived deeper into the troubled European grocery business, offering as much as 800 million euros ($913 million) to rescue ailing Spanish chain DIA. The discounter’s shares surged the most ever after Fridman’s London-based LetterOne investment vehicle offered to buy the 71 percent it doesn’t already own. The firm also pledged to back a 500 million-euro share sale by the supermarket chain, formally called Distribuidora Internacional de Alimentacion SA.
  • Prime Minister Theresa May will start a two-day visit to Northern Ireland on Tuesday to try to bolster support for her divorce deal with the European Union, as she faces fresh pressure to scrap the so-called backstop plan for the Irish border. The embattled premier has until next week to secure changes to the backstop — the insurance policy meant to keep the Irish border open in the absence of a broader trade deal — that will satisfy anti-EU members of her Conservative Party and win her a majority in Parliament. To do so, she is trying to reopen talks with Brussels on the deal she spent 18 months negotiating before Parliament rejected it by a record margin last month.
  • Google parent Alphabet Inc. reported thinner profit margins as the internet giant spent heavily to expand its cloud and YouTube businesses. Google’s fourth-quarter capital expenditures jumped 80 percent to $6.85 billion. The company’s operating margin, a closely watched measure of profitability, was 21 percent, down from 24 percent. Shares of Alphabet were down 2.5 percent in pre-market trading at 6:33 a.m. in New York Tuesday.
  • A U.K. tap of an inflation-linked gilt pulled in more than 18 billion pounds ($23 billion) of bids, as investors seek safe places to put their money amid Brexit uncertainty. The nation will price the 2041 notes at 1.75 basis points above benchmark rates, the tight end of an initial target range, according to person familiar with the offering, who asked not to be identified because they aren’t authorized to discuss the matter publicly. The deal may be as large as 3.4 billion pounds, based on funding targets and the option of using a supplementary issuance pool, Royal Bank of Canada analysts estimated.
  • Norinchukin Bank unveiled a 1.1 trillion yen ($10 billion) buying spree in collateralized debt obligations in the last three months of 2018, highlighting the stakes for global investors as Japan’s regulator weighs changes that may sap demand for the asset class. Japan’s largest lender to farmers and fishermen increased its total holdings of CDOs by 19 percent from September to 6.8 trillion yen at the end of December, according to an earnings statement on Tuesday.
  • Prime Minister Narendra Modi’s record $100 billion borrowing plan isn’t the only piece of bad news for India’s bond market, some money managers say. Debt sales could still fail to bridge a forecast deficit as the government’s budget relies on ambitious revenue collections and one-off items that may not materialize, according to OppenheimerFunds Inc. And Europe’s largest asset manager, Amundi SA, says bonds of other Asian nations offer better value.
  • Cloud-computing companies have a message for skittish investors: demand is still booming. Earnings reports from the biggest providers of internet-based computing services – Amazon.com Inc., Microsoft Corp., and Alphabet Inc.’s Google – showed that these companies are grabbing a larger share of business technology spending, defying warnings from some of their suppliers that a hot corner of the industry might be cooling off.
  • Janus Henderson, the money manager that parted ways with Bill Gross after a bout of underperformance from the bond legend, has seen investor withdrawals accelerate across most strategies. The firm saw outflows almost double in the fourth quarter to $8.4 billion, with many of the withdrawals coming from its equity funds. Investors pulled $4.1 billion from Janus Henderson’s equity funds compared with redemptions of $1.3 billion from its bond funds.
  • Hellman & Friedman’s $11 billion deal for United Software Group is the latest mega buyout that shows private equity firms are getting bolder and their deals are getting bigger. The buyout firm had bounced back from a rebuffed 4.68 billion euro ($5.35 billion) bid for a majority stake in German tech firm Scout24 AG to land a deal for the U.S.-based human resources software firm, agreeing to pay $331.50 per share in cash on Monday.
  • The vehicles that will secure the next decade for General Motors Co. aren’t covered in self-driving sensors or loaded with batteries. No, the future depends on hulking pickup trucks that often run on diesel and cost more than the average BMW. That’s the irony at the heart of GM’s event this week at its sprawling factory in Flint, Michigan, where the next iterations of the Chevrolet Silverado and GMC Sierra will be introduced. These revamped heavy-duty pickups, which go on sale in June, feature advanced, lightweight materials and fuel-efficient engines but none of the technology that will supposedly shape the next era of the auto industry. Yet in Detroit that future can’t exist without the profit margins generated by classic pickup trucks.
  • BP Plc joined its Big Oil peers by giving investors a positive surprise, exceeding profit estimates and earning better returns than its closest European rival. New projects delivered an increase in oil and gas output, while the company also worked its existing fields and refineries more efficiently than ever. That helped offset the impact of a slump in crude prices in the fourth quarter. The better-than-expected earnings should give shareholders some comfort after BP took on more debt to pay for a swath of U.S. shale assets, its biggest deal in 20 years. The company’s facilities were still able to churn out cash even as the oil market turned south late last year.
  • Russia’s oil producers may take longer than expected to achieve the production cuts the country agreed to under the OPEC+ deal. The nation “is fully complying with obligations in line with earlier announced plans to gradually cut output by May,” the Energy Ministry said Monday in a statement, citing its head Alexander Novak. Earlier, ministry officials including Novak said on several occasions that Russia aims to curb its oil production by 228,000 barrels a day from the October baseline within the first quarter and to keep volumes capped in the second.

*All sources from Bloomberg unless otherwise specified