January 13th, 2020

Daily Market Commentary

Canadian Headlines

  • Canadian natural gas is trading at the highest price relative to U.S. benchmarks in about 10 months after producers cut back on drilling and a rule change on a key Alberta pipeline system last year helped better manage flows of the fuel. The discount on gas traded at Alberta’s AECO hub versus the Henry Hub in the U.S. shrank to 4 cents per million British thermal units on Friday, the smallest gap since March 1.
  • Cott to exchange $5.04 in cash and 0.6549 shares or, at the election of Primo Water shareholders, $14.00 in cash or 1.0229 shares. To pay $216m in cash, funded with proceeds of new term debt issuance from sale of S&D Coffee and Tea and issue about 26.8m shares

World Headlines

  • European equities pared earlier gains and turned negative on Monday as investors weighed the upcoming signing of the U.S.-China trade deal and looked forward to the beginning of the earnings season. The Stoxx Europe 600 Index is down 0.1% as of 1:26 p.m. CET, after rising as much as 0.2%, with autos and banks leading the declines while technology stocks rose the most. Germany’s DAX reversed earlier gains and fell as much as 0.4%. Last week was turbulent for risk assets globally after U.S.-Iran tensions flared up and geopolitics remained on the radar over the weekend, with Iran admitting it mistakenly downed a Ukrainian passenger jet. Investors will be watching the earnings season kick off in Europe this week and will also monitor the U.S.-China trade talks as the two nations are expected to sign the first phase of their trade deal.
  • U.S. equity futures advanced with Asian shares on Monday while Europe stocks turned lower at the beginning of a busy week likely to be dominated by the start of earnings season and the signing of a partial China trade deal. Bonds, the yen and gold retreated. Contracts on the S&P 500 signaled a rebound from Friday, when the underlying gauge pulled back from a record high.
  • The offshore yuan strengthened past 6.9 per dollar for the first time since July. The dollar rose and Treasuries fell across the curve as the completion of the first trade deal nears; President Donald Trump has said the U.S. and China will sign the accord on Wednesday.
  • Oil was steady after the biggest weekly drop since July as an easing of geopolitical tension in the Middle East turned attention back to a flood of new supply set to hit the market this year. The threat of an outright war has receded since Tehran fired missiles at U.S.-Iraqi bases last week in retaliation for Washington’s assassination of its top general. The situation in Iran remains volatile, however, amid protests against the government’s accidental downing of a commercial airliner. In Libya, warring factions have called a cease-fire in their nine-month conflict.
  • Gold declined Monday following a sell-off from exchange-traded funds as investors turn to riskier assets. More than $1 billion was withdrawn last week from SPDR Gold Shares, the most since 2016. Holdings in the world’s largest bullion-backed ETF fell to the lowest since September. Markets are back in risk-on mode as investors turn their focus from a military stand-off between Iran and the U.S. to the new earnings season and the planned signing of a trade deal between Washington and Beijing.
  • The U.K. economy unexpectedly shrank ahead of the general election, casting doubt over whether there was any growth at all in the fourth quarter. The figures will add to concerns at the Bank of England, where officials are debating whether further stimulus is needed if economic weakness persists. Three policy makers, including Governor Mark Carney, have flagged the possibility of an interest-rate cut in the past week, sending the pound lower and sparking an increase in market bets on a move as soon as this month. Gross domestic product fell 0.3% in November, missing forecasts for unchanged output on the month. It means growth of around 0.2% was needed in December to prevent the economy contracting in the fourth quarter.
  • Brookfield Renewable Partners LP is bidding to buy the shares of TerraForm Power Inc. it doesn’t already own in a deal that values the company at $3.9 billion, bolstering Brookfield’s status as one of the world’s largest clean-energy providers. The proposal values TerraForm Power at $17.31 a share, representing an 11% premium to the closing share price on January 10, according to a statement Monday. Brookfield Asset Management already controls 61.5% of the Class A shares outstanding. Yieldcos, which operate wind and solar farms and promise growing dividends, were darlings on Wall Street five years ago and fell out of favor as clean-energy giant SunEdison Inc. stumbled toward bankruptcy. Brookfield in 2017 bought its controlling stake in TerraForm from SunEdison Inc., the bankrupt clean-energy giant.
  • Investors added money to exchange-traded funds that buy emerging market stocks and bonds last week. This was the 14th 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 $1.02 billion in the week ended Jan. 10, compared with gains of $1.62 billion in the previous week, according to data compiled by Bloomberg. So far this year, inflows have totalled $2.44 billion.
  • Saudi Arabia’s Energy Minister said that OPEC and its allies remain focused on using production cuts to reduce oil inventories to normal levels, undeterred by the flare up of political tensions in the Middle East. Oil prices have erased all of this year’s rally, which saw Brent crude surge to a three-month high of almost $72 a barrel as Washington and Tehran faced off after the U.S. assassination of a top Iranian general. Crude retreated again as the countries backed away from full-blown conflict, while supplies remain comfortable.
  • Blackstone Group Inc. has agreed to buy a stake in the warehousing unit of India’s Allcargo Logistics Ltd. for 3.8 billion rupees ($54 million) as the U.S. firm seeks to capture the demand in the world’s fastest growing e-commerce market. Allcargo’s board approved the investment on Monday, it said in an exchange filing, confirming an earlier Bloomberg News report. The U.S. private equity firm could further raise its stake over the next 12 months based on the achievement of pre-agreed performance milestones, which could leave Allcargo with a minority interest, the statement said.
  • Oppenheimer & Co analyst Colin Rusch raised the target on Tesla Inc. to $612 from $385. Maintains outperform rating. Tesla shares gained 2.1% pre-market Monday, helped by news that the Chinese government signaled it wouldn’t continue to cut electric vehicle subsidiesat the same rate as last year.
  • Iran witnessed a second night of protests, some violent, after the government admitted it had mistakenly downed a Ukrainian passenger jet. Videos posted on social media, which couldn’t immediately be verified by Bloomberg News, showed clashes between protesters and riot police, trails of blood on a main street, chants in opposition to Supreme Leader Ayatollah Ali Khamenei, and calls to rid the country of the Islamic Revolutionary Guards Corps. Protesters in the videos said arrests had been made and tear gas fired at crowds.
  • Woodward Inc. will combine its operations with Hexcel Corp. in an all-stock transaction that gives it a controlling stake in the merged entity, creating one of the world’s biggest aerospace and defense suppliers. The transaction, which the suppliers to Boeing Co. and Airbus SE are billing as a merger of equals, will create a company named Woodward Hexcel with annual revenue of more than $5 billion. While suppliers are hurting because of Boeing’s travails following the crash of two 737 Max planes, executives said Sunday they’re driven by the pursuit for more-efficient engines over the next 20 years, not the 737 Max issues.
  • Democrats set the rules for their impeachment of Donald Trump, but once House Speaker Nancy Pelosi kicks the process over to the Senate for a trial the advantage and leverage will be with the president and Republicans. Three years of political and legal drama, investigations and stand-offs will reach a more intensive stage this week when Pelosi names the House managers, who’ll serve as the prosecutors in the Senate proceedings, and transmits the two articles of impeachment.
  • Hedge funds were more bullish on oil than at any time in the past nine months when U.S. President Donald Trump unexpectedly stepped back from the brink of war, sending crude prices plummeting. Money managers boosted net-wagers on rising West Texas Intermediate crude for a fifth straight week through Jan. 7, the day Iran attacked a U.S. military position in Iraq. But Trump’s conciliatory speech the next day sparked oil’s worst weekly slump since July.
  • Helm Investment Partners is betting there are further gains ahead in Greek stocks after its strategy of investing in markets in crisis paid off in a big way in the country last year. The New York-based fund gained more than 73% in 2019, according to performance documents seen by Bloomberg, and investments in Greek companies still comprise more than half of Helm’s portfolio at the start of 2020, though the firm says it’s in the process of trimming its exposure.
  • India’s headline inflation surged to a more than five-year high in December, breaching the central bank’s 6% tolerance limit and will likely keep monetary policy makers in pause mode for longer. Consumer prices rose 7.35% in December from a year earlier, the Statistics Ministry said in a statement on Monday. That’s faster than the 6.7% median estimate in a Bloomberg survey of 37 economists and the steepest gain since July 2014.
  • Tens of thousands of people in the Philippines are being evacuated from an erupting volcano 40 miles (65 kilometers) south of the capital as some 144 earthquakes could signal “further eruptive activity.” The Philippine Institute of Volcanology and Seismology kept the alert status at the second highest level at its 4 p.m. bulletin, reiterating a call for total evacuation from the Taal volcano island and areas within the 14-kilometer radius. The agency on Sunday warned that a “hazardous explosive eruption is possible within hours to days,” prompting the government to shut offices and schools and financial markets to suspend trading on Monday. The possibility of an imminent dangerous eruption is still there given the earthquakes, Renato Solidum who heads the volcanology agency, said at a briefing Monday.
  • India lost more than $1.33 billion to internet restrictions in 2019 as Prime Minister Narendra Modi’s government pushed ahead with his party’s Hindu nationalist agenda, raising tensions and sparking nationwide protests. The worst shutdown has been in Kashmir, where after intermittent closures in the first half of the year, the internet has been cut off since Aug. 5 following the government’s decision to revoke the special autonomous status of the country’s only Muslim majority state, a study said. The prolonged closure was criticized by India’s highest court, which ruled Friday that the “limitless” internet shutdown enforced by the government for the last five months was illegal and asked that it be reviewed.
  • Amazon.com Inc. founder Jeff Bezos is likely to be greeted by an unprecedented show of opposition during his short India visit this week, after thousands of small-time local retailers pledged to protest its pricing and exclusive-selling practices. The Amazon chief executive is slated to headline the inaugural session of Amazon India’s event for small and medium businesses — “smbhav” — which kicks off Wednesday in New Delhi. The billionaire is scheduled to take the stage alongside Amazon India chief Amit Agarwal in a fireside chat, anchoring an event that also features Infosys Ltd. co-founder Narayana Murthy and retail billionaire Kishore Biyani, who recently sold a stake in his retail group to Amazon.
  • The world’s biggest oil import market could see demand growth in 2020 of just half of last year’s levels as the trade war’s ripple effects continue to be felt, according to researchers at China National Petroleum Corp. With China’s economic growth likely stuck at around 6% and the domestic car market remaining weak, the expansion in demand will continue to slow, even after the signing of a phase-one trade deal with the U.S., CNPC’s Economics & Technology Research Institute said Monday in its annual report. The state-owned firm is China’s largest oil company.
  • The United Arab Emirates will invest $22.8 billion in Indonesia through a sovereign wealth fund being set up by President Joko Widodo as the Southeast Asian nation seeks to finance billions of dollars of infrastructure and energy projects. The U.A.E. plans to invest in building Indonesia’s new capital and also develop properties in Aceh province, the cabinet secretariat said in a statement, citing Coordinating Minister for Maritime Affairs and Investment Luhut Pandjaitan. The investment agreements also covering sectors from energy and telecommunications were signed during Widodo’s visit to Abu Dhabi where the Indonesian president also met Crown Prince Mohammed Bin Zayed Al Nahyan.
  • With a trade deal nearly signed and China’s economy on steadier footing, the path for China’s yuan to strengthen is now wide open. The currency rose to a five-month high Monday, punching past 6.9 per dollar for the first time since August. It also strengthened for a fourth session versus a basket of trading partners’ currencies. The move helped bolster sentiment in stocks, with the CSI 300 Index closing at its highest level in almost two years. Shares of Chinese companies also surged in Hong Kong. While analysts say the exchange rate is being driven by improving market sentiment as China’s economy steadies and trade tensions ease, the recent bout of strength comes at an pivotal time for U.S.-China negotiations. Chinese Vice Premier Liu He is expected to sign the long-awaited phase one agreement in Washington Wednesday.
  • Nissan Motor Co. executives have examined the possibility of breaking away from Renault SA amid concerns that relations with the longtime French partner have turned dysfunctional after the ouster of former chief Carlos Ghosn, according to a person familiar with the matter. Since last year, Nissan has been exploring the pros and cons of sustaining the alliance, particularly when it comes to engineering and technology sharing, according to the person, who asked not to be identified discussing confidential matters. Those studies predate Ghosn’s escape from Japan and were preliminary, so no decision has been made, the person said.

*All sources from Bloomberg unless otherwise specified