January 17th, 2019

Daily Market Commentary


Canadian Headlines

  • Canada’s ambassador to China warned that the spiraling diplomatic feud between the nations was damaging Beijing’s reputation, as the U.S. joined countries criticizing a Canadian citizen’s death sentence as “politically motivated.” Ambassador John McCallum told reporters Wednesday that China’s prosecutions of Canadian nationals risked undermining their own interests among the world’s business community. McCallum, a former lawmaker, said he believed that argument would prove more compelling to Chinese officials than seeking support from business and foreign governments to pressure Beijing.
  • ScotiaMocatta is no more, at least in name. Bank of Nova Scotia is dropping the “Mocatta” moniker from its metals-trading business, shedding the last vestiges of a firm dating back nearly 350 years as the Canadian owner absorbs the platform into its capital-markets division.
  • The Trans Mountain crude pipeline that Prime Minister Justin Trudeau’s government bought from Kinder Morgan Inc. last year is getting interest from some indigenous groups hurt by Canada’s oil price crunch. Five or six First Nation communities have approached the federal government with a view to potentially acquiring the line, Stephen Buffalo, chief executive officer of Canada’s Indian Resource Council, said in an interview at the Indigenous Energy Summit in Calgary.



World Headlines

  • Banks and auto shares led the retreat in the Stoxx Europe 600 index after Societe Generale SA said it expected a 20 percent drop in quarterly trading revenue as market volatility reduced client activity.
  • U.S. equity futures and European shares fell on Thursday after a mixed session in Asia as concerns about rising tension between America and China offset signs of a better-than-expected start to the earnings season. The dollar was steady and Treasuries edged higher. Contracts on the Dow, Nasdaq and S&P 500 all fell, though they came off the lows of the day.
  • Japanese shares rose, overcoming a midday wobble to track gains in U.S. peers that rallied on better-than-expected quarterly earnings reports from major financial companies. Banks and insurers were among groups contributing most to the benchmark Topix’s gains. Financials buoyed major U.S. indexes as Goldman Sachs and Bank of America surged following their latest quarterly results. The U.S. economy showed signs of slowing in recent weeks though most regions continued to show modest to moderate growth, according to the Federal Reserve’s Beige Book report.
  • Oil retreated below $52 a barrel as data showing record U.S. crude production suggested markets may remain oversupplied despite output cuts by OPEC and its allies. Futures lost 1.1 percent in New York, trimming gains of 3.6 percent over the past two sessions. Booming American output is weighing on prices even as the OPEC+ coalition implements supply cuts announced late last year. Saudi Arabia reduced shipments to U.S. refiners by a third last week, while Russia said it will meet its target for curbing production by April.
  • Gold retreated from the highest close in almost two weeks as the dollar strengthened and investors weighed renewed Brexit turmoil with the latest developments in the partial shutdown of the U.S. government. Palladium notched up a fresh record. British Prime Minister Theresa May’s government won a no-confidence vote on Wednesday, and she’s now looking for a compromise with her political enemies to deliver a Brexit deal, with just 10 weeks left before the exit deadline.
  • President Donald Trump is right to say that his tariffs are generating billions of dollars for the U.S. But China and other countries aren’t paying them as he’s suggested. According to data from U.S. Customs and Border Protection, more than $13 billion in duties imposed by the Trump administration were assessed on imported goods as of Dec. 18. Actual collections could lag and be lower because of refunds and other factors, but Treasury Department reports show receipts from all customs duties have risen sharply since the tariffs took effect.
  • A federal investigation into Huawei Technologies Co. for allegedly stealing trade secrets from U.S. companies follows a long history of wariness and suspicion toward the Chinese telecommunications giant. It also adds to a case the U.S. has been trying to make for years now: Huawei is a threat to national security. The investigation — tied to civil suits filed in Washington state, including a 2014 case involving the theft of T-Mobile US Inc. technology — ratchets up pressure on a company already reeling. Last month, at the behest of the U.S., Canadian authorities arrested Huawei’s Chief Financial Officer Meng Wanzhou on fraud charges linked to Iran trade-sanction violations.
  • Aluminum is set to get a little bit cheaper. The global benchmark price and the total cost paid by U.S. consumers are expected to extend their declines, Harbor Intelligence said. The Treasury Department will likely be able to lift the sanctions against metal producer United Co. Rusal, freeing up more supply, after Senate Democrats, joined by nearly a dozen Republicans, failed to block the move.
  • The muted supercore inflation reading reinforces that the European Central Bank doesn’t need to be in any rush to raise interest rates, especially as economic growth slows. The Governing Council will probably be more focused on the sharp decline of the headline CPI figure, which has the potential to negatively affect wage setting. Monetary tightening seems unlikely to occur before December.
  • Societe Generale SA is considering closing its proprietary-trading unit, people familiar with the matter said, a week after French rival BNP Paribas SA decided to close its operation. SocGen executives are reviewing the future of the Descartes Trading division, which makes risky bets with shareholders’ funds, said the people, who requested anonymity as the details are private. The bank may decide to close the unit as the business has struggled to make profits, the people said.
  • Indonesian President Joko Widodo and his challenger Prabowo Subianto are set to face off in the first of a series of debates ahead of an April election. Seeking to win over swing voters, Widodo, known as Jokowi, will defend his track record on corruption, terrorism, law reform and human rights in Thursday’s presidential debate, while Prabowo will lay out his vision to lure those still undecided. Although the economy has taken the center-stage in the election campaign, sporadic terrorist attacks and allegations of human rights violations from Papua to Aceh have marked Jokowi’s tenure, allowing his challenger to project himself as a strongman capable of tackling these issues more effectively.
  • Singapore’s exports dropped the most in more than two years in December as a fading technology boom and U.S.-China tensions hit the trade-reliant economy. Non-oil domestic exports fell 8.5 percent from a year ago, the biggest decline since October 2016, according to data released Thursday by Enterprise Singapore. The shipments fell 5.7 percent on a monthly basis, the worst since June.
  • China will increase scrutiny of coal mining safety after a deadly accident in one of its top-producing provinces, saying that an economic downturn has created more pressure to maintain stable production. Local authorities must step up oversight of coal mines in the lead-up to the Lunar New Year break by carrying out unannounced visits to key regions and conducting video supervision, the National Coal Mine Safety Administration said in a Jan. 15 statement. Relevant departments should propose steps to improve safety, the administration said.
  • Theresa May is holding talks with rival parties and is ready to blur some of her red lines to find a consensus Brexit plan that can win support in Parliament. Labour leader Jeremy Corbyn, who is boycotting the talks, said a second referendum should remain an option but he still prefers to try to force a general election.
  • Netflix Inc. kicks off earnings season for media and tech companies with its shares up 50 percent from their December low, a clear sign investors expect another blockbuster quarter from streaming-video leader. As usual, subscriber additions will be under the magnifying glass, with Wall Street forecasting gains of 1.83 million domestically and 7.38 million internationally for the fourth quarter, according to data compiled by Bloomberg. Those are a little shy of the company’s own projections from October. Results are due after markets close Thursday.
  • Alstom SA and Siemens AG’s planned rail merger appeared to be increasingly in danger of collapse, with the French company warning of a possible block by European antitrust regulators and its former German rival said to be considering alternatives for its business. Siemens and Alstom submitted on Dec. 12 so-called remedies to alleviate European concerns about future competition in the region and then improved on them amid talks with the commission, Alstom said. The assets proposed for disposal, mainly rolling stock and signaling activities making up about 4 percent of sales of the planned new company, are “appropriate and adequate.”
  • Edelweiss Financial Services Ltd. raised as much as 92 billion rupees ($1.3 billion) from investors including insurance companies and pension funds as it seeks to profit from an unprecedented bad-loan clean up in the nation’s financial system. The company will use the funds, which makes it the largest India dedicated alternative-investment unit, to buy and turn around stressed assets with “viable business models and potential of generating cash flows,” an emailed statement from Edelweiss showed on Thursday. The Mumbai-based company already manages stressed loans of more than 540 billion rupees, according to the statement.
  • More than 100 years ago, retailer Sears, Roebuck & Co. leveraged what was then the latest technology—the U.S. postal system—to become the Amazon.com of the 20th century. Its catalog and mail-order business revolutionized American shopping, and as recently as 30 years ago, the sales of Sears topped those of Walmart Inc. Since then the advance of discounters, specialty retailers, and online sellers, along with plenty of self-inflicted wounds, has sent Sears Holdings Corp. plodding toward extinction, going from about 3,900 stores at the end of 2009 to 766 at the time of its bankruptcy last year. Today, Walmart is America’s No. 1 retailer, and in recent years key pieces of once-dominant Sears have slowly been sold off.
  • Two months after the arrest of its chairman stunned Nissan Motor Co. and the entire global automotive industry, the carmaker is weighing abolishing the role altogether as it steps up reforms to rebuild its governance. Carlos Ghosn’s downfall, with the auto titan accused of financial crimes that could put him behind bars for decades, saw Nissan swiftly dismiss him as chairman, leaving the carmaker he once saved from the brink of collapse with a leadership vacuum at the board level. While dispensing with a chairman would raise eyebrows in the U.S. and Europe, Japanese law allows companies to operate without one, with some choosing that route as a way of distributing power across top management.

*All sources from Bloomberg unless otherwise specified