January 10th, 2019

Daily Market Commentary


Canadian Headlines

  • Canadian stocks gained with the S&P/TSX Composite Index up 1.4 percent to highest since December 6. Health care and information technology sectors led the way. The Bank of Canada indicated less urgency in its push toward higher interest rates as the economy grapples with slumping oil prices. Separately, crude oil stormed back into bull market territory, as investors who’d abandoned crude just a month ago were lured back in by an OPEC-led campaign to bring runaway supplies back in check.
  • British Columbia Premier John Horgan gave little sign his government was ready to intervene in a contentious blockade obstructing Royal Dutch Shell Plc’s $31 billion gas export project, shying away from condemning the indigenous group that’s defied a court order to remove barricades. “There is no quick fix to resolving issues that go back to 1876 and beyond,” Horgan said, referring to the year of Canada’s Indian Act and the thorny legacy created in British Columbia, where most First Nations have never formally ceded jurisdiction of their ancestral lands. “We recognize the right of individuals to protest.”
  • Barrick Gold Corp.’s new chief executive is surprised by the “hysteria” over whether the world’s largest gold miner will remain a Canadian company. Barely a week after his Channel Islands-based Randgold Resources Ltd. merged with Barrick, Mark Bristow says he’s determined to keep the global miner headquartered in Toronto — or at least as committed as he is to any head office. Bristow’s comments come in the wake of critical commentary by industry veteran Pierre Lassonde, who said Barrick’s reduced presence in Canada amounts to the kind of hollowing out of the country’s mining sector that Barrick’s late founder, Peter Munk, vigorously opposed.
  • Alberta’s government maintained its mandated oil curtailment in February at the same level as January even as Canadian heavy oil prices surged. The province’s oil producers will collectively have to cut output by 325,000 barrels a day in February, according to an email from Mike McKinnon, an energy ministry spokesman. The cuts are versus a baseline defined as the highest single month of production during a one-year period starting Nov. 1, 2017 and unchanged from the January level.



World Headlines

  • The lack of any concrete details from trade discussions between China and the U.S. meant there was no fresh catalyst to sustain momentum, and futures for the S&P 500, Dow Jones and Nasdaq all declined after the underlying gauges rose four days straight. The Stoxx Europe 600 Index erased some of Wednesday’s advance. Japanese stocks paced declines across much of Asia, though the MSCI Asia Pacific Index was down only marginally.
  • U.S. stock index futures slipped in Asia after a statement on China trade talks disappointed some investors and lawmakers in Washington remained gridlocked over a resolution on a partial government shutdown. Contracts on S&P 500 e-minis expiring March slid as much as 0.7 percent. The underlying gauge pared gains on Wednesday as the spending impasse extended into its 19th day. Contracts on the Dow Jones Industrial Average and the Nasdaq 100 fell 0.6 percent and 0.8 percent, respectively.
  • The biggest five-day advance in the MSCI Asia Pacific Index since early November came to a halt Thursday, with equity markets across the region trading mixed. As investors assessed the latest developments, Japan’s Topix index fell 0.9 percent, while Hong Kong, China, Taiwan, Korea and others moved less than 0.4 percent.
  • Oil traded near a one-month high after entering a bull market, while the tension between an uncertain economic outlook and efforts by OPEC to restrict supplies continued to cause volatile trading. West Texas Intermediate slipped 0.5 percent after a rally on Wednesday brought crude’s rebound from an 18-month low in December to 23 percent. Prices had climbed as Saudi Energy Minister Khalid Al-Falih expressed confidence that production curbs by the OPEC+ coalition would balance the market. Yet investors remain wary as they await concrete details of U.S.-China trade negotiations, which are clouding the economic outlook.
  • Gold swung between gains and losses after earlier rising to within a stone’s throw of the $1,300 an ounce level. Spot gold has traded in a range of about $20 since the start of 2019, buffeted by volatility in equity and currency markets, after jumping 5.1 percent in December. The metal will continue to find favor among investors seeking haven assets this year amid increased market uncertainty and the expansion of protectionist economic policies, the World Gold Council said in a report. Holdings in gold-backed exchange-traded funds have risen for nine straight sessions and are near the highest since 2013.
  • China’s currency is at a five-month high, and technical indicators suggest more gains are coming. Buying momentum is the strongest in almost a year and bearish bets have fallen to 12-month lows in the options market. A rising currency makes China’s financial markets more attractive to overseas investors — foreign flows into the country’s debt surged in December — which may further buttress gains.
  • Ford Motor Co. will shed thousands of jobs at its European operations as part of a bid to return the business to profitability with a broad restructuring that could include shuttering factories. The carmaker has struggled with an aging model lineup and a contracting market in the U.K., Ford’s biggest in Europe, which is in store for further disruption from Brexit. The manufacturer — employing some 54,000 workers across the region mainly in Germany, the U.K. and Spain — plans to cull less profitable models from its lineup and review its joint venture in Russia. In the U.S., it’s already dropping several sedans.
  • Federal Reserve Chairman Jerome Powell gets a fresh chance Thursday to signal his tolerance for keeping interest rates on hold as he and colleagues monitor risks to the U.S. economy. Minutes of Fed officials’ Dec. 18-19 meeting released on Wednesday showed many policy makers felt the central bank “could afford to be patient about further policy firming.’’ That’s a more dovish tone than the gradual rate hikes the central bank telegraphed last year. Powell is scheduled to speak at 12 p.m. in Washington.
  • President Donald Trump’s promise to build a wall along the Mexican border is keeping him from honoring some of his other high-profile campaign pledges and policy priorities. A State Department review of the Keystone XL pipeline could stall. Payments to farmers who lost sales due to the trade war with China were being processed by an office that is now closed. And his promise to Detroit to ease auto emissions targets has effectively been put on hold by the shutdown of more than a dozen federal agencies in a fight over funding the border wall.
  • Pound options traders seem to be positioning for the possibility that the U.K. will delay its exit from the European Union. Investors are now more negative on the currency in nine months time rather than on three-month contracts that capture the March 29 exit date, risk reversals show. That comes as the market has priced in the likelihood that Parliament will reject Prime Minister Theresa May’s Brexit deal next week, increasing the chances the government will be pushed to extend Article 50.
  • BP Plc and its partners just spent $28 billion bringing a giant natural gas project in Azerbaijan online, and that may only be the start. The British oil major intends to drill six new exploration wells in the country by 2020, according to Gary Jones, BP’s regional president for Azerbaijan, Georgia and Turkey. If his expectations are met, the company could find a new gas play that’s about the same size as Shah Deniz, its project that produces the fuel from a field in the Caspian Sea that’s as large as Manhattan.
  • Europe’s primary-bond market is on track to post its first ever 70 billion-euro ($81 billion) sales week, defying expectations for a quiet start to the year. There are about 16 deals in the market on Thursday, adding to the 64 billion euros of notes sold over the past few days, according to data compiled by Bloomberg. Most market participants were expecting no more than 20 billion euros of deals in euros, sterling and dollars this week, based on a Bloomberg News survey. The rush of deals includes traditional January sovereign issues by the likes of Belgium and Portugal, as well as sales that may have slipped from December due to market volatility. Borrowers may also be taking advantage of a brief moment of market calm to get deals away before new upheavals tied to risks such as Brexit or global trade tensions.
  • The first-ever win by an opposition presidential candidate in the Democratic Republic of Congo is being marred by claims by a rival that Felix Tshisekedi’s victory was the result of rigging by the electoral authorities. Official results show Tshisekedi, 55, beat the protege of outgoing President Joseph Kabila, Emmanuel Ramazani Shadary, and another opposition leader, Martin Fayulu, to become leader of the world’s biggest cobalt producer. Fayulu immediately described the outcome as “an unacceptable electoral fraud.” The Constitutional Court has the final word on the validity of the vote.
  • China will start building pilot wind and solar power projects that won’t receive national government payments as it pushes to improve the competitiveness of renewable energy and rein in subsidy bills. Power prices from these pilot projects will be the same or lower than from coal-fired plants, the National Development & Reform Commission said in a statement laying out the policy on Wednesday. Subsidy-free plants may be exempt from participating in some power market transactions and will sign long-term power purchase agreements with grids at fixed tariffs, it said.
  • It’s the best U.S. job market in decades, and Donald Trump is clearly proud of it. What’s less certain is how much responsibility he can claim. Employers last year added the most jobs since 2015, including the strongest factory surge in two decades. Unemployment is near a five-decade low while wage gains are the best since 2009. The performance came as Trump launched the biggest tax overhaul since the Reagan era and lifted government spending, juicing an already-solid economy and labor market. Like any president, Trump gets both credit and criticism for things under his watch. The stimulus helped deliver a growth spurt and lifted business sentiment — which aided hiring. But analysts argue the Federal Reserve laid the foundation by keeping borrowing costs near zero for years after the recession and raising them only gradually to allow the economy to gain momentum.
  • Kohl’s shares fell 8% in premarket trading after the company reported Nov. and Dec. holiday-period comp sales rose 1.2% on a shifted basis, much lower than its prior year holiday sales growth of 6.9% and falling short of Cleveland Research’s est. of +1.5%, cut from +~2% on Jan. 4.
  • SenseTime Group Ltd., the world’s most valuable artificial-intelligence startup, is beginning preparations for a new financing round, people with knowledge of the matter said. The Chinese company aims to raise about $2 billion in fresh funding this year, the people said, asking not to be identified because the information is private. SenseTime, which counts Alibaba Group Holding Ltd. as an investor, is working with advisers on the fundraising, according to the people.
  • Jet Airways India Ltd., the airline which had its credit rating cut to default this month, is weighing a resumption of stake-sale talks with the Tata Group as the carrier is poised to run out of cash, people with knowledge of the matter said. While its founder and Chairman Naresh Goyal has been discussing a deal with Etihad Airways PJSC, talks with the foreign partner stalled over the latter’s demand that Goyal step aside from his management role, the people said, asking not to be identified as the discussions are private. With Jet Airways set to run out of cash in about a month, the carrier is now looking to restart talks with India’s biggest conglomerate, they said.
  • State Bank of India, the country’s largest lender, has selected underwriters for an institutional share sale that could raise at least 100 billion rupees ($1.4 billion), people with knowledge of the matter said. The government-run lender picked Bank of America Corp., CLSA Ltd. and HSBC Holdings Plc to arrange the offering, according to the people, who asked not to be identified because the information is private. Kotak Mahindra Bank Ltd. and SBI Capital Markets Ltd. were also chosen to work on the deal, the people said.

*All sources from Bloomberg unless otherwise specified