January 17th, 2020

Daily Market Commentary

Canadian Headlines

• Canadian stocks rose for a fourth day, even as Bombardier Inc.’s shares posted their biggest loss ever, after the company said it was reassessing the A220 jet program with Airbus. The S&P/TSX Composite Index rose 0.4% on Thursday to 17,484.77. Consumer discretionary stocks led the market higher, as 10 of 11 sectors rose. Canadian National contributed the most to the index advance, measured in index points, increasing 1.4%. Ballard Power Systems had the largest gain in percentage terms, rising 4.1%. Bombardier was the biggest drag on the index and had the biggest drop, declining 32%.
• Algonquin Capital Corp. is wading into the nascent market for liquid alternatives in Canada, launching a hedge fund-like mutual fund that’s available to retail investors. The firm is planning to raise as much as C$3 billion ($2.3 billion) over the next three to five years for the credit fund, adding to its C$450 million in assets under management, partner Brian D’Costa said. So-called liquid alts — which encompass everything from hedge funds to real estate, private debt and equity and infrastructure — are taking off as investors chase higher yields outside those offered by traditional bonds. Investments have reached about $882 billion, including about $47 billion in exchange traded funds, according to Greenwich Associates.

World Headlines

• U.S. equity futures ground higher on Friday alongside stocks globally as a solid start to the American earnings season, easing trade tensions and mostly promising economic data all combined to prop up sentiment. The dollar edged higher. Contracts on the S&P 500, Dow Jones Industrial Average and Nasdaq 100 indexes all rose, signaling the benchmarks may test records yet again.
• Stoxx Europe 600 Index headed for its biggest gain in two weeks, with International Consolidated Airlines Group SA surging after removing a shareholdings limit. The longest-dated Treasuries dipped after the U.S. announced plans for a new 20-year bond. The dollar strengthened slightly against its major peers including the euro and pound, with the latter reversing gains and gilts turning higher after U.K. retail sales data disappointed.
• Asia’s main markets notched modest gains; they extended briefly after data showed Chinese industrial output beat estimates. Investors are heading into the weekend buoyed by the completion of an initial Sino-American trade deal and solid results from the biggest banks on Wall Street. The earnings season will continue to ramp up next week with the likes of Procter & Gamble Co. and Intel Corp. reporting, but for now most economic data is also supporting sentiment: China GDP was in line with estimates a day after strong U.S. retail sales numbers.
• Oil was near $59 a barrel in New York after rising the most in almost two weeks as the U.S. and China signed a trade agreement, though remains capped by signs that supplies remain plentiful. Futures gained 0.5%, having increased 1.2% on Thursday as Washington and Beijing’s phase-one deal commits China to $52.4 billion in additional purchases of American energy over 2020 and 2021. Still, there was some skepticism about whether such as target is feasible, particularly if it leaves retaliatory tariffs on American oil and liquefied gas in place.
• SoftBank Group Corp. offered to invest $30 billion to $40 billion toward the development of a new Indonesian capital, a senior member of President Joko Widodo’s cabinet said on Friday. SoftBank Chief Executive Officer and founder Masayoshi Son met Jokowi, as the head of state is popularly known, in Jakarta last week and expressedhis interest in joining the project. The billionaire has already been appointed to the steering committee overseeing the city’s construction.
• The U.S. Treasury will start issuing 20-year bonds in the first half of 2020, expanding its roster of securities as the government seeks ways to fund a ballooning deficit. Institutional investors have been clamoring for more longer-dated, risk-free securities that offer some nominal yield, amid a global total of $11 trillion of debt with negative rates. Japanese officials have discussed adding a 50-year security, something the U.S. opted against in its announcement.
• President Donald Trump plans to nominate Judy Shelton and Christopher Waller to join the Federal Reserve, the White House said. The president, who has publicly criticized Fed Chairman Jerome Powell and his colleagues for not cutting interest rates as aggressively as he would like, tapped the pair in July for the two remaining vacancies on the central bank’s seven-seat board in Washington. But the formal announcement of his intention to nominate them didn’t come until Thursday and will now move to the Senate for consideration. If confirmed by the Senate, they will join an institution that’s been under constant attack from the president who has sought to make Powell a potential scapegoat if the economy falters as he seeks re-election this year. Trump returned to this theme at the White House on Wednesday, appearing to lament that he had passed over Kevin Warsh in picking Powell as Fed chief.
• HSBC is cutting about 100 roles in its equities business, with majority of lay-offs falling on its continental European trading floors, Reuters reported.
• The long-awaited trade agreement between the U.S. and China may pave the way for Boeing Co. to resume sales to the world’s second-largest aviation market, but the American giant has much catching up to do against European archrival Airbus SA. China Aviation Supplies Holding Co., which buys planes on behalf of the nation’s airlines, has been in talks with Airbus since 2019 about purchasing jets for the country’s next five-year economic plan that begins in 2021, people familiar with the matter said, asking not to be named discussing a private matter. Those talks began early last year, one of the people said. China’s top economic planner, which needs to clear negotiations of this magnitude, hasn’t even authorized the state procurement firm to begin talks with Boeing yet as trade tensions held back discussions, the person said.
• Electricite de France SA rose in Paris trading as the French government pushed for new nuclear regulations to financially assist the utility, although the measures may not be in place until 2022. France wants the new rules implemented as soon as possible but must seek approval from European competition regulators, French government officials, who asked not to be named in line with policy, said at a press briefing on Thursday. The proposed changes are key for the state-controlled utility, which says the current mechanism under which it sells about a quarter of its atomic power to rivals is making it more difficult to fund investments with cash flow. They’re also a prerequisite for a possible reorganization of EDF’s assets aimed at boosting the group’s capital expenditure on renewable energy and electric mobility. This new regulation is aimed at replacing the existing rules, which expire at the end of 2025.
• Nissan Motor Co. has revealed more details of an exhaustive probe into Carlos Ghosn, a week after its fugitive former leader accused the Japanese carmaker of being behind the plot to have him arrested. The report on the investigation, submitted to the Tokyo Stock Exchange on Thursday, found that many others were involved in improprieties besides its former chairman, with those involved located both in Japan and overseas. Three people in senior roles were punished for their involvement, though their names, titles and specific steps to discipline them were not revealed. Nissan was required to submit the report after adjusting its past earnings following the arrest of its former chief executive officer and chairman for financial crimes in November 2018. That triggered turmoil within the automaker’s management ranks and destabilized its relationship with alliance partner Renault SA. Ghosn fled trial in Japan at the end of December, hiding in a black box for musical equipment and making his way to Lebanon via private jets.
• India’s government has scoffed at Amazon.com Inc.founder Jeff Bezos’ offer to invest $1 billion in the country, firing the latest salvo at an e-commerce giant that’s been accused of predatory business practices. Trade minister Piyush Goyal delivered a stinging rebuke two days after Bezos arrived in New Delhi and touted his efforts to help digitize small and medium enterprises. The investment would bring Amazon’s bet on the Indian market to about $6.5 billion. Goyal told a gathering of foreign ministers from around the world he welcomed an investigation into the company’s alleged “predatory pricing and unfair trade practices.”
• India is open to hearing wireless carriers’ suggestions to help ease payment of $13 billion in overdue fees, according to a government official with knowledge of the matter. Stripping out interest from the dues or paying the amount in tranches are some ideas that the government can discuss, the official said, asking not to be identified citing rules. An independent panel can examine such requests provided the companies commit to pay some amount immediately, the official said. The official spoke before the top court on Thursday rejected telecommunication operators’ plea to review an October verdict.
• China’s economy stabilized last quarter after slowing to the weakest pace in almost three decades, with the first acceleration in investment since June signaling that a firmer recovery could be underway. Gross domestic product rose 6% in the final quarter of 2019 from a year earlier, the same as in the previous three-month period and the median estimate
• China’s economy displayed greater-than-expected strength in December, handing President Xi Jinping’s government vindication of its new-found moderation in stimulus and suggesting the approach will continue through 2020. The world’s second-largest economy grew 6% in the final quarter of the year, holding pace despite fears that the domestic struggle with bad debt and the trade war with the U.S. would result in further deceleration. Instead, investment picked up for the first time since June.
• In the court of investor opinion, the verdict is in. The Federal Reserve is guilty of quantitative easing. Never mind that Chairman Jerome Powell tells everyone his efforts to shore up funding markets are “in no sense” QE. Try as policy makers may, they’ve lost the ability to convince people that Treasury purchases aren’t at least partially why the Dow Jones Industrial Average is up almost 4,000 points since late August. Sure, it’s all labels. If you want to call it QE, you can. Or not. If you want to ascribe the rally to Powell, that’s up to you. Certainly the Fed thinks it’s on solid ground. Rather than trying to drive down long-term interest rates to stimulate the economy, a la QE, it’s simply buying T-bills to keep the financial system’s plumbing in order.
• Donald Trump is boasting that he’s made farmers “really happy.” He’s not wrong, but it’s not just the trade deal that’s left farmers optimistic for 2020. Analysts are saying the accord signed this week mostly just takes trade back to normal for American agriculture. China has committed to $32 billion in additional purchases over two years, but that buying will be market dependent and retaliatory tariffs are still in place. Even the status quo is still a welcome relief after more than a year of escalating tensions.
• Toshiba Corp. said it completed a takeover of NuFlare Technology Inc. despite a higher competing offer, in a snub to minority shareholders. The Japanese conglomerate acquired 5,450,695 shares of NuFlare, clearing the 14.27% minimum needed for its bid to succeed, Toshiba said in a statement on Friday. While the 11,900 yen per share price it paid is a 45% premium to where the stock traded before news of the deal broke in November, it’s less than the 12,900 yen Hoya Corp. was prepared to pay.
• Embattled Chinese conglomerate HNA Group Co. has agreed to sell control of its tech outsourcing unit to China Electronics Corp. in a deal valued at about $750 million, people with knowledge of the matter said. State-owned China Electronics signed an agreement with HNA this week on the purchase of Pactera Technology International Ltd., according to the people, who asked not to be identified as the information is private. The sale of Pactera had attracted interest from other suitors, including Digital China Group Co. and Tech Mahindra Ltd.
• President Donald Trump’s impeachment trial will once again put an uncomfortable spotlight on Joe Biden and his son Hunter, but also offers the former vice president an exceptional opportunity to campaign in a less-crowded field while his biggest rivals are holed up in the Senate chamber. The trial, which begins in earnest on Tuesday, will keep fellow presidential hopefuls Elizabeth Warren and Bernie Sanders in Washington less than three weeks before the crucial Iowa caucuses. The two progressives, along with fellow Senator Amy Klobuchar, returned to Washington on Thursday and were sworn in as jurors.

*All sources from Bloomberg unless otherwise specified