February 6th, 2019
Daily Market Commentary
- Canadian stocks climbed for a second day, reaching their highest intraday level since October 9. U.S. stocks turned higher in lackluster afternoon trading as gains in technology shares outweighed a slump in financials. The Canadian benchmark rose 0.64 percent. Consumer staples outperformed, while marijuana stocks cooled after a strong rally. Industrials also gained after WestJet Airlines Ltd. reported fourth-quarter earnings that topped analyst estimates.
- Canada will probably ban Huawei Technologies Co. from its 5G network, analysts and security experts say, though Prime Minister Justin Trudeau may delay the decision as long as possible to avoid jeopardizing three Canadians detained in China. As Trudeau awaits a security review ahead the 5G roll out, former envoys to China, ex-spy chiefs and telecom analysts are increasingly of the view that Canada will follow some of its allies in freezing out Huawei from the next-generation network.
- Canadian hedge funds which boosted short positions outperformed in what was the worst year for the sector since 2011. Focusing on small companies also helped. Shorting will be key again this year, according to Forge First Asset Management Inc., whose 8.5 percent return put it first among 67 Canadian hedge funds tracked by Venator Capital Management Ltd. Forge First was able to hold gains it had in the first nine months of the year through the carnage of the last quarter by shorting the stocks of a diverse portfolio of cash-burning companies, said Andrew McCreath, chief investment officer of the Toronto-based firm, which has C$125 million ($95 million) under management.
- Aphria Inc. rejected a hostile takeover bid from Green Growth Brands Inc., saying it undervalued the Canadian cannabis grower. Green Growth’s offer, made last month, represents a 23 percent discount to Aphria’s share price, based on the 20-day volume-weighted average price of Green Growth stock immediately before its bid was announced, Aphria said in a statement.
- European equities opened little changed, with banking shares falling, as investors continued watching the latest company results as a barometer of economic growth. The Stoxx Europe 600 Index was down 0.1 percent. Daimler AG dropped 1.1 percent as earnings declined in all divisions during 2018 except heavy trucks and said it expects a “slight” profit gain this year. ING Groep NV surged 3.2 percent on higher profit and improved efficiency while BNP Paribas SA fell after lowering its forecasts. Uniper SE added 2.8 percent after announcing that its Chief Executive Officer will step down from the German energy company.
- As the equity-market recovery continues, U.S. technology shares are on the verge of entering a bull market again. The Nasdaq Composite Index has risen 19.5 percent from its Christmas Eve low, just below the 20 percent threshold often used to define a bull market. The tech-heavy equity benchmark, which had slumped almost 25 percent from its August high, has bounced back as investor risk appetite returned — thanks in part to a dovish policy pivot from the Federal Reserve and optimism over U.S.-China trade talks.
- President Trump delivered a message of bipartisan unity on Tuesday night in his first address to Congress in the new era of divided government, but signaled that he will continue to wage war for the hard-line immigration policies that have polarized the capital and the nation. In a nationally televised speech that toggled between conciliation and confrontation, Mr. Trump presented himself as a leader who can work across party lines even as he pressed lawmakers to build a wall along the nation’s southwestern border that leaders of the newly empowered congressional Democrats have adamantly rejected.
- Oil dropped toward $53 a barrel on signs of weakening economic growth from Europe to the U.S., and a reported increase in American crude stockpiles. Futures in New York fell as much as 1.5 percent after a 1.7 percent decline on Tuesday. Growth concerns were fueled by a drop in German factory orders, while a gauge of demand for U.S. service industries sank to a one-year low. The American Petroleum Institute was said to report that the nation’s crude inventories rose by 2.51 million barrels last week.
- Gold hovered near one-week lows touched on Monday as the dollar extended gains alongside U.S. Treasuries and Chinese markets remained closed. Palladium, one of the best-performing commodities of 2018, dropped by the most so far this month, leading declines in precious metals. With China still shut for Lunar New Year holidays, investors are focused on the U.S., weighing the possibility of another partial government shutdown against optimism about U.S.-China trade talks.
- BNP Paribas SA cut revenue and profitability targets after the French bank was among the hardest hit by a stock market rout at the end of last year. France’s biggest lender is planning 600 million euros ($684 million) in additional cost cuts, focusing on the investment bank that Chief Executive Officer Jean-Laurent Bonnafe had targeted as a growth driver. Income from trading shrank 40 percent in the fourth quarter, led by the worst equities performance of the large investment banks reporting so far.
- Irish Prime Minister Leo Varadkar got reassurances on a trip to Brussels that the European Union will stand by Ireland as it tries to find a solution on the impasse over the border. European Council President Donald Tusk said he hoped Theresa May would come to him with workable ideas tomorrow, as he pondered the “special place in hell” for those who campaigned for the divorce without planning the finer details.
- Apple Inc. named its third retail chief in seven years, seeking to shake up store operations while casting about for the next big hit as the iPhone era wanes. On Tuesday, Apple said company veteran Deirdre O’Brien will replace Angela Ahrendts, who served in the role for about five years. O’Brien is the first insider tapped to run the Apple division since Ron Johnson opened the first Apple store in 2001 and left a decade later.
- As a growing chorus of analysts from the likes of Morgan Stanley and Nomura predict dark days for the dollar, the market is telling a different story. The U.S. currency has rallied almost 1 percent since the day of the surprisingly dovish Federal Reserve meeting in January, erasing all of its 2019 loss. And the outlook is actually getting stronger, based on the options market. Contracts that appreciate if the dollar rises versus its major peers over the next three months are near their most expensive level since mid-December relative to hedges guarding against a drop.
- Even before the U.S.-backed leader of Venezuela’s National Assembly called on the military to abandon President Nicolas Maduro, the government was trying to stop a surge of desertions and ordered border guards to stop soldiers trying to leave the country without permission. Two documents illustrate the erosion of the armed forces. One lists about 4,300 national-guard officers who deserted since 2014, giving their ranks and serial numbers. Signed by the guard’s commander, Major General Jesus Lopez Vargas, the Dec. 21 order removes them from rolls. All are non-commissioned officers or enlisted men and women and represented about 6 percent of the guard.
- After pledging full support for the embattled regime of Venezuelan President Nicolas Maduro, Russia is starting to show signs of doubt about his ability to survive an opposition challenge. While Moscow hasn’t given up its public backing of Maduro, it increasingly recognizes that the disastrous state of Venezuela’s economy is inexorably draining what remains of his public support, said two people close to the Kremlin. At the same time, the army’s reluctance to crack down on its own citizens limits his ability to use force to crush the challenge to his rule, said the people, who asked not to be identified because the issue is sensitive.
- Major U.S. banks shaved about $21 billion from their tax bills last year — almost double the IRS’s annual budget — as the industry benefited more than many others from the Republican tax overhaul. By year-end, most of the nation’s largest lenders met or exceeded their initial predictions for tax savings. On average, the banks saw their effective tax rates fall below 19 percent from the roughly 28 percent they paid in 2016. And while the breaks set off a gusher of payouts to shareholders, firms cut thousands of jobs and saw their lending growth slow.
- President Donald Trump said he’ll meet with North Korean leader Kim Jong Un on Feb. 27-28 in Vietnam, ending much of the months-long mystery over the details of their second summit on ending Pyongyang’s atomic ambitions. “Much work remains to be done, but my relationship with Kim Jong Un is a good one. Chairman Kim and I will meet again on February 27 and 28 in Vietnam,” Trump said Tuesday in his State of the Union speech.
- Oil and gas stocks are having a great start to the year, thanks to new appetite for commodities and risk assets. Europe’s energy sector is up 10 percent in 2019, tracking a rebound in oil prices with WTI surging 19 percent. Will that be enough to sustain the renewed love for the sector? Yes, according to Barclays strategists who upgraded the sector back to overweight this morning, less than three months after cutting it to market weight.
- The Philippine stock market flirted with a bull market run Wednesday, before ending the day lower. Still, the benchmark has recovered a remarkable 18 percent in just three months — and investors say positive earnings results will further spur gains. The Philippine Stock Exchange Index climbed as much as 1.8 percent in Manila, before it fizzled, dipping below the 8,212.59 level and closing the day 0.1 percent lower at 8,058.45. The surge since a two-year low in November has been on optimism that slowing inflation will boost earnings and support valuations. That’s encouraged foreign investors to return, as they poured more than $413 million into the nation’s equity funds this year.
- Siemens AG and Alstom SA suffered the final blow to their rail merger plans after European Union antitrust regulators refused to cave in to warnings about the looming threat of Chinese competition. EU Competition Commissioner Margrethe Vestager formally vetoed the tie-up, saying the companies “were not willing to address our serious competition concerns” about the combined firm’s control over rail signaling systems and very high-speed trains.
*All sources from Bloomberg unless otherwise specified