January 16th, 2019

Daily Market Commentary


Canadian Headlines

  • A wide margin of Canadians support an oil pipeline that Prime Minister Justin Trudeau’s government is pushing to build — though it remains unpopular among some voting blocs key to his reelection, a poll has found. In a poll published Wednesday by the Angus Reid Institute, 53 percent of Canadians said they support both the Trans Mountain pipeline, bought last yearby the government, and the Energy East pipeline proposal that was abandoned by its proponent. Another 19 percent oppose both, while 11 percent support just one of the two. Canada’s pipelines are essentially full and efforts to build new ones have met a long series of delays over the last decade — leading the province of Alberta to force a production cut to address a glut. The poll results signal generally broad support for a project the government is trying to move forward on, after a court ruling struck down its initial permit. Trudeau has struggled, though, to balance the views of environmentalists and supporters of the country’s energy sector.
  • Deloitte Canada says it will move as many as 700 workers to a new location in Vancouver operated by Spaces, a co-working unit of Switzerland’s IWG Plc. The professional-services firm will be the sole tenant, occupying 78,000 square feet (7,200 square meters) at the historic Tom Lee Music Building on Granville Street in the city’s entertainment district, according to a statement by Spaces. Deloitte will move into the location this fall and remain there on a temporary lease until its new headquarters at Westbank Corp.’s 400 West Georgia tower is completed, Etienne Bruson, managing partner for Deloitte in British Columbia, said by phone.

World Headlines

  • European investors shook off the rejection of U.K. Prime Minister Theresa May’s Brexit deal in parliament ahead of a confidence vote, opening higher after mixed markets in Asia, and gains in the U.S. The Stoxx Europe 600 index climbed 0.5 percent, while Britain’s FTSE 100 index declined 0.2 percent. Investors will look for any reactions in homes, commercial property, banks, retail and leisure, which are all sectors sensitive to Brexit. The Greek market and its banking sector is also in focus with a confidence vote in the government due to take place. In company news, Swiss freight shipper Panalpina Welttransport Holding AG got an unsolicited $4 billion offer from Denmark’s DSV A/S.
  • Stocks struggled to hold gains and Treasuries dropped as investors weighed the political turmoil in Britain and the prospects for policy makers to arrest a slowdown in global growth. The pound fluctuated and U.K. stocks fell before a no-confidence vote in Prime Minister Theresa May’s government. Futures on the S&P 500 and Dow Jones edged higher, while those on the Nasdaq were flat.
  • Japanese shares slid, weighed down by technology-related companies, after weak U.S. economic data added to concern over global growth amid trade frictions. Banks and chemical makers also weighed on the benchmark Topix index, which closed near a four-week high Tuesday. The Topix is up 2.9 percent so far this year after slumping 18 percent in 2018 for its worst performance in seven years.
  • Oil steadied near $52 a barrel in New York amid signs that crude inventories fell again in the U.S., the world’s biggest consumer. Futures slipped 0.3 percent after settling 3.2 percent higher on Tuesday. U.S. crude stockpiles fell by 560,000 barrels last week, an industry report was said to show, a smaller decline than that forecast in a Bloomberg survey before government data due Wednesday. Saudi Arabia’s energy minister said he was sure inventories will start to “return to normal averages and this will increase confidence” in the market.
  • Gold lacked a clear direction, holding the tight range that it’s been stuck in so far this year, as investors weighed the U.K.’s fallout over Brexit against global stock market gains. Bullion rallied in the final month of 2018 on stock market turmoil and speculation the Federal Reserve would pause in raising rates, but has struggled to sustain momentum in January. The metal hasn’t breached $1,300 since futures briefly traded above that key psychological level earlier this month.
  • China’s central bank boosted injections via open-market operations to the most on record to meet seasonal demand for cash due to tax payments and major holidays. The People’s Bank of China pumped in a net 560 billion yuan ($83 billion) into the financial system on Wednesday, the biggest one-day addition on record. The PBOC is offering reverse repos to maintain sufficient liquidity in the banking system during the peak season for tax payments, according to a central bank statement.
  • Home sales in the U.S. slumped in December, while prices inched up slightly, marking the smallest annual increase since the end of the last housing crash in 2012, according to data from brokerage Redfin. The median home price rose to $289,800 in December, a gain of 1.2 percent, the slowest monthly pace since March 2012. Sales dropped by almost 11 percent, the biggest decline for any month since 2016, Redfin said. Previously hot metropolitan areas are cooling fast. Prices dropped 7.3 percent in San Jose, California.
  • The U.S. is following the blueprint of Middle Eastern oil producers such as Iraq and Oman as it continues to expand its prominence in the global crude market. Enterprise Products Partners LP, one of the biggest operators of U.S. petroleum export terminals, is teaming up with the CME Group Inc. to auction off a shipment of Permian Basin shale crude in early March. Such sales of export cargoes via an electronic platform were pioneered by Oman and Iraq, which use the CME-owned Dubai Mercantile Exchange to put their supplies on the block.
  • The U.K. stands at its most dangerous crossroads in decades after Parliament emphatically rejected Theresa May’s Brexit deal, and will vote later on whether to oust her government. Labour MPs behind a letter this morning calling for a second referendum on Brexit insist that the 71 who signed represent more than 100 who back a change in party policy to campaign for a “People’s Vote”. There are 24, including frontbenchers Clive Lewis and Marsha De Cordova, who are already on record backing a second plebiscite but do not feature on the list of signatories, according to Gez Sagar, the veteran Labour press officer handling communications for the group. Others are not yet ready to go public.
  • Danish freight specialist DSV A/S bid $4 billion for Swiss rival Panalpina Welttransport Holding AG, seeking to become the second-biggest shipper of air cargo and No. 4 in the global logistics market overall. Panalpina is studying the unsolicited cash-and-stock offer, which values the Basel-based company at 170 Swiss francs a share, it said in a statement on Wednesday. That’s 24 percent more than the stock’s last closing price.
  • Carlos Ghosn is on the verge of losing his final tether to power, with Renault SA said to be laying plans to remove him as its leader almost two months after the car titan’s shock arrest rocked its alliance with Nissan Motor Co. and Mitsubishi Motors Corp. The French carmaker’s board will probably meet in the coming days to replace him as chairman and chief executive officer, according to people familiar with the matter. Renault directors were spurred into action by Ghosn’s failure this week to win bail, pointing to a lengthy incarceration, said the people, who asked not be named because the information isn’t public.
  • The trade war between the U.S. and China is raising the price of key raw materials needed to generate wind power, according to the chief executive officer of a leading turbine manufacturer. Material costs are as much as 4 percent higher since the trade dispute broke out, Siemens Gamesa Renewable Energy SA CEO Markus Tacke said. His German-Spanish company is closely monitoring the cost of steel, copper, and resin as Chinese and American trade envoys continue to try negotiating a truce.
  • Annual car sales in Europe dropped for the first time since 2013, led by a sagging U.K. market where concerns over Brexit turned off consumers — and have only intensified as politicians argue over the path to a divorce. Passenger-car registrations dropped 0.04 percent to 15.6 million vehicles in the European Union and European Free Trade Association, according to the European Automobile Manufacturers Association. This follows four months of straight declines after new EU emissions test rules came into force, leading to production bottlenecks.
  • The Bank of Japan is almost certain to cut its inflation forecast for the fiscal year starting in April given the sharp fall in oil prices, according to people familiar with the matter. The government’s decision to make pre-school education free adds to the case for the downgrade, which will be delivered at the end of the next board meeting on Jan. 23, the people said. Looming cuts to mobile phone charges darken the picture but are hard to quantify, they said. There are no indications that monetary policy will be changed at the gathering because these pressures are seen as temporary and don’t change the picture of underlying inflation, according to the people.
  • Snap Inc. shares tumbled more than 11 percent in pre-market trading on Wednesday, one day after the social media company’s chief financial officer said he was resigning after just eight months in the job. Snap also gave a fourth-quarter outlook for both sales and Ebitda. The stock was down almost 11 percent before the market opened. Based on its Tuesday close, shares are down nearly 70 percent from last year’s peak in February.
  • Siemens AG and Alstom SA are considering adding sweeteners to a package of assets for sale in a last-ditch effort to gain antitrust approval from the European Commission and salvage their rail deal, according to people familiar with the matter. The German and French train equipment suppliers’ new offerings include possible contract extensions and patents and are being discussed with antitrust officials and potential bidders, said the people, who asked not to be named because the discussions aren’t public. The former rivals are working to save the tie up from getting vetoed by the commission on concerns it’ll crimp competition, they said.
  • PG&E Corp.’s looming bankruptcy could lead to an unprecedented spectacle — a major American power company being taken over by the state or broken up for city governments to run. More often, it works the other way. Local governments have a long history of selling off municipal utilities, switching them from the public sector to the private. Witness the ongoing efforts to privatize Puerto Rico’s troubled power authority. But with PG&E planning to file for bankruptcy this month — the result of mounting wildfire liabilities that could reach $30 billion — a government takeover has become a real possibility. In fact, the future of the power giant that has long reigned over a broad swath of California could very well involve a complete dismantling of its system and a takeover by multiple municipalities.
  • Ford Motor Co. reported profit for 2018 that trailed estimates, though it sees a chance revenue and earnings will improve this year as it shifts away from sedans to more profitable trucks and sport utility vehicles. Adjusted profit last year was $1.30 a share last year on a preliminary basis, below analysts’ average projection for $1.32. There’s potential for improvement on revenue, earnings before interest and taxes and adjusted operating cash flow in 2019, Chief Financial Officer Bob Shanks said in a statement. Ford is abandoning the traditional sedan market in the U.S. and rolling out a range of SUVs, including the redesigned Explorer, and expanding its line of trucks by reviving the midsize Ranger. Chief Executive Officer Jim Hackett is in the midst of an $11 billion restructuring of the company and also plans to spend a combined $15 billion in the coming years developing electric and self-driving vehicles. The company announced an alliance Tuesday with Volkswagen AG to develop commercial vehicles such as delivery vans and pickups.
  • Eddie Lampert won a bankruptcy auction for Sears with a plan that will keep the bankrupt retailer in business and seek to save tens of thousands of jobs, according to a person with knowledge of the discussions. Lampert’s bid prevailed over competing proposals from liquidators that would have forced the 126-year-old department store chain to shut down and sell its assets. The bid is valued at over $5 billion and represents an improvement of more than $150 million over the hedge fund manager’s previous offer, the person said, asking not to be identified because the talks are confidential.

*All sources from Bloomberg unless otherwise specified