January 14th, 2019

Daily Market Commentary


Canadian Headlines

  • Canadian stocks were little changed, with the S&P/TSX Composite Index up 0.2 percent, while the S&P 500 fell on Friday. Health care and real estate outperformed, while utilities and industrials lagged. The marijuana sector once again took the spotlight on news from Aphria and Tilray, pushing the Horizons Marijuana Life Sciences ETF (HMMJ CN) up 4.8 percent. Separately, Canadian crude’s discount to WTI shrunk the smallest since April 2009.
  • Newmont Mining Corp. will buy rival Goldcorp Inc. in a deal valued at $10 billion, creating the world’s largest gold miner and cementing a return of M&A to the industry. The transaction comes just three months after Barrick Gold Corp.’s move to buy Randgold Resources Ltd. in a $5.4 billion transaction, which instantly spurred speculation that rivals would have to respond. Goldcorp shares surged in U.S. pre-market trading, climbing 13 percent to $10.96 as of 6:25 a.m. in New York. Newmont shares slipped 3 percent.



World Headlines

  • European equities retreated, with automakers, miners and tech stocks falling, amid concerns about China’s trade data which show a worse-than-expected slump and as investors prepared for the start of the earnings season. The Stoxx Europe 600 Index was down 0.5 percent at the open. Glencore fell 1.4 percent and Daimler declined 0.9 percent. The FTSE 100 Index dropped 0.4 percent before the Parliament votes on Theresa May’s Brexit deal tomorrow.
  • Stocks dropped in Europe and Asia, with U.S. equity futures pointing to a weaker open as China trade data showed a worse-than-expected slump, reigniting concerns about global growth. Treasury yields fell and the dollar held steady. Technology companies were among the biggest losers in the Stoxx Europe 600 Index, with futures on the Dow, Nasdaq and S&P 500 all pointing to a weaker open.
  • While Japan is closed for a holiday, key equity markets retreated across the rest of the region, led by declines in Hong Kong and Shenzhen after China released disappointing December trade data and warned of weaker trade growth this year due largely to external uncertainty. It didn’t help that the U.S. government shutdown is showing no sign of ending and S&P 500 Index futures fell as much as 0.9 percent. The MSCI Asia Pacific ex-Japan Index fell 0.9 percent as of 5:05 p.m. in Singapore, the most since the first day of trading this year, as Taiwan, South Korea and other markets also declined. Hong Kong’s Hang Seng Index dropped as much as 1.8 percent to halt a six-day rally, while the Shanghai Shenzhen CSI 300 Index fell 0.9 percent and Shanghai Composite lost 0.7 percent.
  • Oil extended its retreat as investor appetite for risk assets shrank and uncertainty persisted over how much OPEC will need to cut output to counter booming U.S. shale supplies. Futures in New York lost as much as 2.3 percent, after falling for the first time in 10 sessions on Friday. Equities slipped on Monday after the S&P 500 Index closed flat Friday, before a slew of bank profit reports and company earnings. Worries that global growth may be slowing amid a U.S.-China trade war and a partial American government shutdown also weighed on investor sentiment.
  • Gold rises after data suggests U.S. inflation is contained around the Federal Reserve’s target, giving the central bank little urgency to raise interest rates soon as it signals a more cautious approach in 2019. Adding to the bullish outlook is the steady increase of holdings in bullion-backed exchange-traded funds, signaling investor interest. The metal’s also on the verge of a golden cross — where the 50-day moving average climbs above the 200-day moving average — a pattern considered bullish by some traders.
  • Industrial output in the euro area fell the most in almost three years in November, raising questions over the economy’s ability to regain momentum after a broad-based slowdown. Production dropped 1.7 percent in November, more than economists predicted, underlining the impact from a range of temporary and structural factors — from dry weather to softer global demand.
  • Momentum is easing across the world’s major economies, according to a gauge the OECD uses to predict turning points. The Composite Leading Indicator is the latest sign of a synchronized slowdown in global growth, adding to recession warnings sparked by industrial figures in Germany last week and slumping trade figures for China earlier on Monday. The indicator, which is designed to anticipate turning points six-to-nine months ahead, has been ticking down since the start of 2018 and fell again in November. The OECD singled out the U.S. and Germany, where it said “tentative signs” of easing momentum are now confirmed.
  • Saudi Arabia could be in for a busy year of asset s ales if the kingdom sticks to its plans. The government hopes to generate about $11 billion by 2020 through its privatization program that includes the sale of stakes in utilities, soccer clubs, flour mills and medical facilities. The sales are key to the country’s efforts to wean the economy off oil, but so far have been dogged by delays – most notably the IPO of oil giant Aramco.
  • PG&E Corp. said it will file for bankruptcy in California after the cost of wildfires left it with potential liabilities of $30 billion or more, gutting its share price and prompting the departure of its chief executive officer. The San Francisco-based company said it will file under Chapter 11 of the U.S. bankruptcy code by Jan. 29 after giving the required 15-day notice to its employees, according to a filing at the Securities and Exchange Commission on Monday. On Sunday, the company started searching for a new leader after Geisha Williams, 57, quit as CEO. General counsel John Simon will take the helm in the meantime. The departure of Williams, who took over as CEO in March 2017, follows a catastrophic three months for PG&E.
  • Banca Monte dei Paschi di Siena SpA dropped in Milan trading after the European Central Bank highlighted weaknesses in the Italian lender’s capital and profitability. The ECB told the bank that its inability to issue the second tranche of a junior bond last year hurt its capital position, Monte Paschi said in a statement late Friday. The Italian bank plans to contact investors for a covered bond sale as soon as this week, a person with knowledge of the matter said.
  • Telecom Italia SpA made a takeover offer for BT Group Plc’s Italian business, giving momentum to an asset sale that would help the U.K. telecommunication giant move on from an accounting scandal on the continent, according to people familiar with the matter. The bid from Italy’s largest phone company is non-binding, said the people, who asked not to be identified because the process isn’t public. Hong Kong conglomerate CK Hutchison Holdings Ltd.’s Wind Tre SpA and fiber carrier Retelit SpA also expressed interested in the unit, they said. BT Italia is seen as potentially valuable to a buyer because it serves major corporate customers including Eni SpA, Fiat Chrysler Automobiles NV and Mediaset SpA.
  • Indonesia plans to allow duty-free imports of electric vehicles and offer fiscal incentives to companies planning local production as President Joko Widodo sees potential savings of billions from switching to battery-powered transport. The government will soon issue a regulation that will enable Southeast Asia’s largest economy to compete with other countries in developing electric vehicles, Widodo, known as Jokowi, told reporters in Jakarta. The potential savings from lower fossil fuel dependence and imports are seen at about 798 trillion rupiah ($56 billion) he told a cabinet meeting, without elaborating.
  • U.S. newspaper publisher MNG Enterprises Inc. offered to buy rival Gannett Co. for $1.36 billion, striking while the owner of USA Today is looking for a new chief executive. The cash offer of $12 a share by MNG represents a 23 percent premium to Gannett’s closing price on Jan. 11. MNG, better known as Digital First Media, sent a letter to Gannett’s board proposing the takeover, it said in a statement.
  • Donald Trump’s refusal to reopen the U.S. government reflects the growing influence of his acting Chief of Staff Mick Mulvaney and senior adviser Stephen Miller, hard-right conservatives who are closer to the president thanks to turnover within the White House. Mulvaney is an avowed skeptic of the government’s size who’s preached what he regards as the benefits of shutdowns both as the president’s budget chief and as a Tea Party Republican congressman. And the anti-immigrant Miller is known for helping scuttle a previous immigration deal between the president and congressional Democrats as well as a bipartisan effort during the Obama administration.
  • JPMorgan Chase & Co. usually kicks off bank earnings season, with the company’s performance and Jamie Dimon’s commentary a widely watched signal for how peers are likely to trade. This quarter, Citigroup Inc. is taking the spotlight with its fourth-quarter results due on Monday morning, followed by JPMorgan and Wells Fargo & Co. on Tuesday. Bank stocks have rallied so far this year after a terrible 2018, with the KBW Bank Index adding more than 5 percent — outpacing the S&P 500’s 3.4 percent gain. That bounce comes after the bank gauge fell almost 20 percent last year. Sensing whether there’s more relief in store will be top of mind for investors.
  • China’s exports slumped in December as a rush of orders to beat expected tariffs showed signs of fading and as domestic buyers succumbed to a worsening economic outlook. The worse than expected figures, with exports falling 4.4 percent in December from a year earlier, set a grim domestic backdrop for China’s negotiators as they seek a deal to end the stand-off with the Trump administration. The fall in exports was the worst result since 2016 in dollar terms while imports slumped 7.6 percent, also the worst reading since 2016 and hinting at softening demand at home. At the same time, China’s overall trade surplus with the U.S. hit a record in 2018, underscoring the political imperative to cut a deal ahead of a March 1 deadline after which U.S. President Donald Trump has threatened to impose additional tariffs on Chinese goods.
  • CapitaLand Ltd.’s new chief Lee Chee Koon has wasted no time putting his mark on the Singapore developer, striking a S$6 billion ($4.4 billion) deal with Temasek Holdings Pte to create what he says will be Asia’s largest diversified real estate company. CapitaLand will pay a mix of cash and new stock for Temasek units Ascendas Pte and Singbridge Pte, bolstering its assets to more than S$116 billion spread across 180 cities in 32 countries, it said in a statement Monday.
  • Etihad Airways PJSC has agreed to lead a rescue of cash-strapped Jet Airways India Ltd. in a move that will see the Abu Dhabi-based carrier double its stake to 49 percent, according to television reports. Etihad is in talks to lift its holding from the current 24 percent, India’s BTVI channel reported Monday, citing unidentified people familiar with the matter. CNBC-TV18 said that Jet founder Naresh Goyal’s stake could drop to 20 percent from 51 percent, and that he’ll stand down as chairman.

*All sources from Bloomberg unless otherwise specified