January 14th, 2020

Daily Market Commentary

Canadian Headlines

  • Canada’s equity benchmark rose to a record high, lifted by a rally in pot stocks and gains in technology shares ahead of the beginning of earnings season. The S&P/TSX Composite Index added 0.3% to 17,293.42. Health-care stocks jumped 4.9%, boosted by cannabis as Aphria Inc. gained 9.7% ahead of its quarterly earnings report Tuesday. Canopy Growth Corp. rose 12% and Cronos Group Inc. added 10%. Technology stocks rose 1.5% and industrials added 1.3% as 7 of 11 sectors gained; 136 of 234 shares rose, while 93 fell.

World Headlines

  • European stocks declined for a third day in the run-up to the U.S. and China signing a phase one trade agreement and the earnings season. The Stoxx Europe 600 Index was down 0.4% as of 8:19 a.m. in London following a report that showed China’s trade with the U.S. dropped in 2019 amid the clash between the world’s biggest economies. European equities have rallied to fresh highs in anticipation of the trade deal due to be signed Wednesday and ahead of the earnings season gathering steam from next week. Miners and autos rallied strongly since China vowed to de-escalate the conflict in August, but have stalled after the announcement of the initial trade agreement. The U.S. on Monday lifted its designation of China as a currency manipulator.
  • American equity-index futures edged lower along with European stocks as investors awaited the start of U.S. earnings season and officials prepared to sign the China trade deal in Washington. Contracts on Wall Street’s main equity benchmarks traded modestly down, after Monday’s jump in technology shares sent the S&P 500 and Nasdaq Composite indexes to record highs.
  • Asia stocks were slightly higher, though they trimmed gains as data showed China’s trade with the U.S. slumped last year. The Chinese yuan held most of its surge from Monday, when Washington lifted its designation of the country as a currency cheat. Treasuries nudged up, and the dollar rose versus its biggest peers. The pound flirted with a possible sixth day of declines, which would be the longest losing streak since May.
  • U.S. oil prices for prompt delivery traded at a discount this week for the first time since November, as easing political tensions in the Middle East pushed the market’s focus onto the coming post-winter lull in demand. West Texas Intermediate futures held near $58 a barrel on Tuesday, briefly slipping to their lowest in six-weeks as concerns that the U.S. and Iran were headed for conflict over the killing of an Iranian general continued to recede.
  • Gold nudged lower, extending declines from last week’s peak, as the soon-to-be clinched U.S.-China trade pact undermines the case for havens. Palladium hit a fresh record. Gold has lost more than 1% this week and may decline further ahead of the signing on Wednesday, according to analysts from ABN Amro Bank NV to BMO Capital Markets. The shift has been reflected in an outflow of holdings from exchange-traded funds, which fell more than 20 tons over the four sessions to Monday.
  • JPMorgan Chase & Co. just posted the best year for any U.S. bank in history. Fueled by a rebound in trading, especially in fixed income, the company said profit jumped 21% in the fourth quarter, pushing annual earnings to a record $36.4 billion. The announcement led off this week’s round of industry profit reports on a high note, though analysts are predicting results for 2020 will come back down to earth. Fixed-income trading revenue came in $1 billion higher than analysts predicted as the bank benefited from an active final few weeks of the year and gains in securitized products and rates. It marked a stark comeback from last year’s fourth quarter, when wild market swings kept clients on the sidelines and JPMorgan’s bond-trading unit posting its lowest revenue since the financial crisis.
  • Boris Johnson suggested his government may be ready to allow Huawei Technologies Co. to supply at least some equipment for its 5G broadband networks even in the face of strong pressure for a ban from the U.S. “The British public deserve to have access to the best possible technology,” Johnson said when asked about Huawei in a BBC TV interview on Tuesday. “We want to put in gigabit broadband for everybody. If people oppose one brand or another, then they have to tell us what’s the alternative.” The U.K. for months has been debating how much, if any, access to grant Huawei to its broadband market in the future amid the suggestion the U.S. may be more wary of sharing intelligence if it uses Chinese equipment. Senior U.S. officials visited London on Monday with a last-ditch plea that the U.K. should bar Huawei from providing the kit, warning again that intelligence-sharing could be at risk.
  • Flexible display maker Royole Corp. has filed confidentially for a U.S. initial public offering to raise about $1 billion, people familiar with the matter said. The startup seeks funding to expand its sales, marketing and research facilities, the people said, requesting not to be named because the matter is private. It had originally planned to raise that amount via a private financing round at a valuation of about $8 billion, people familiar with that deal said in March. But the Chinese company is now tapping U.S. markets after liquidity tightened during a downturn in China’s venture capital sector, the people said.
  • Yum China Holdings Inc. is working with China International Capital Corp. and Goldman Sachs Group Inc. on the preparations of a second listing in Hong Kong, fueling the wave of U.S.-listed Chinese companies returning to a market that’s closer to home. The operator of Pizza Hut and KFC restaurants in China is working with the banks on the share sale, according to people familiar with the matter. The listing could take place as soon as this year, said the people, who asked not to be identified as the information is private.
  • The Trump administration on Monday lifted its designation of China as a currency cheat, saying the nation has made “enforceable commitments” not to devalue the yuan and has agreed to publish exchange-rate information. The change in the U.S. stance was outlined in the U.S. Treasury Department’s semiannual foreign-exchange report to Congress. The document was released two days before America and China are set to sign a phase-one trade agreement in the East Room of the White House at 11:30 a.m. in Washington, according to people familiar with the plans.
  • Huawei Technologies Co. broke into the top 10 recipients of U.S. patents last year, according to an analysis of filings with the U.S. Patent and Trademark Office, the latest sign that Chinese companies are aggressive in pursuing the U.S. lead in global technology. The telecom company’s 2,418 patents, along with 2,177 new patents issued to display-screen maker BOE Technology Group, help propel China into the rank of fourth-biggest recipient of U.S. patents, behind Japan and South Korea but ahead of Germany for the first time, according to the analysis by Fairview Research’s IFI Claims Patent Services.
  • Germany launched an 86 billion euro ($95 billion) plan to modernize and expand its creaky railway system, a move billed as an effort to make transportation greener. The 10-year plan is not only to upgrade rails, bridges and carriages but also build out capacity and electrify more routes so as to lure passengers from cars and planes. The federal government will finance 62 billion euros and state-owned Deutsche Bahn AG is to come up with 24 billion euros.
  • BlackRock Inc. will ditch investments with high sustainability-related risk as climate concerns drive a sweeping change in the way the world’s largest asset manager invests its $7 trillion in assets. “Climate change has become a defining factor in companies’ long-term prospects,” Chief Executive Officer Larry Fink wrote in his annual letter to corporate executives on Tuesday. “Awareness is rapidly changing, and I believe we are on the edge of a fundamental reshaping of finance.” Fink is tackling the subject as asset managers come under greater pressure on sustainability and climate change. BlackRock has been moving toward a more public stance on climate, as activists and non-profit groups increasingly scrutinize the firm’s behavior and voting record around environmental issues.
  • Iran said it’s arrested a number of people linked to the Jan. 8 downing of a Ukrainian passenger jet, and the country’s president called on the judiciary to form a special court and fully investigate the disaster. Hassan Rouhani said Tuesday that while U.S. policies toward the Islamic Republic were the root cause of the mistake, that didn’t excuse Iranian officials from confronting their own responsibility in the disaster. All 176 people on board were killed when Iranian defense units fired at the plane, bringing it down shortly after take-off from Tehran.
  • Blackstone Group Inc. named Gilles Dellaert global head of the firm’s insurance solutions business as it seeks to expand in the sector. Dellaert, 41, was most recently co-president and chief investment officer of the retirement and life insurance company Global Atlantic Financial Group. He will join Blackstone Insurance Solutions on April 1, the New York-based firm said in a statement Tuesday. Insurers are moving more money into private equity and debt in a bet to boost returns after a decade of low interest rates has weighed on returns. Blackstone manages more than $60 billion in assets for insurance companies and formed the business in 2018.
  • The European Union’s new trade chief will be in Washington for the next three days trying to head off a transatlantic commercial war on several fronts. The prospects for success look slim. Phil Hogan is due to meet U.S. Trade Representative Robert Lighthizer and other American officials during a Jan. 14-16 visit that follows a general fraying of ties in recent months between the world’s biggest economic partners. While U.S. President Donald Trump has held back on a threat to hit European cars and auto parts with tariffs that are much dreaded in the EU, both sides have revived old disputes and triggered new ones as a result of fundamental disagreements over trade policy.
  • The pound extended its decline to the longest run in eight months as speculation of an imminent Bank of England interest-rate cut intensified. Sterling declined against its peers, on course for its lowest close since Christmas day. NatWest Markets, a division of Royal Bank of Scotland Group Plc, brought forward its expectations for a 25 basis-point cut to Jan. 30, from May. Credit Agricole SA pointed out that more than half the members of the central bank’s Monetary Policy Committee are ready to support a reduction if U.K. data doesn’t improve.
  • Delta Air Lines Inc.’s fourth-quarter profit surpassed expectations on strong domestic demand, lower fuel prices and proceeds from the sale of a stake in a Brazilian carrier. Earnings of $1.70 a share exceeded the $1.40 average of expectations from analysts. Results included a gain of 9 cents a share from the December sale of a stake in Gol Linhas Aereas Inteligentes SA.
  • China’s export juggernaut last year showed it can be nimble too, quickly diversifying into new markets to cushion the impact of Donald Trump’s tariff onslaught. That’s the key trend seen in China’s 2019 trade data published Tuesday, which show exports to the U.S. plunged 12.5% even as overall shipments rose 0.5%. The trade balance tells a similar story, with China’s surplus with the U.S. dropping 8.5% to almost $296 billion even as its overall surplus rose more than 20% to about $422 billion.

*All sources from Bloomberg unless otherwise specified