January 18th, 2019
Daily Market Commentary
- Canadian stocks extended gains for a 10th straight session, up 0.7 percent to 15,211.22 led by materials, industrials and energy. Markets moved late in the day after Trump administration officials were said to be considering measures to roll back tariffs on Chinese products in order to calm financial markets, a Wall Street Journal report that the Treasury Department denied.
- Canada is still conducting its security review of 5G telecommunications technology, and a decision on whether to restrict Huawei Technologies Co. is still at least months away, people familiar with the plans say. Canada’s security agencies continue to study the issue, including what potential security vulnerabilities exist, the people said, speaking on condition of anonymity because they weren’t authorized to discuss the issue publicly. That review could lead to a particular company, such as Huawei, being restricted or banned. They’re divided on how soon a decision will come. One said the decision is expected before the Canadian election in October, while others said it wasn’t imminent.
- Stocks rose in Europe and Asia on Friday alongside American equity futures, extending the week’s risk-on tone amid further optimism for U.S.-China trade talks. Haven assets declined, with Treasuries, the yen and gold edging lower. Banks and auto shares pushed the Stoxx Europe 600 Index toward its largest gain in two weeks, and markets in Hong Kong and Shanghai led advances in Asia.
- U.S. futures rose following the S&P 500 Index’s first close above its 50-day average since early December on reports that Treasury Secretary Steven Mnuchin proposed easing China tariffs to calm financial markets. While the Treasury denied it, the story reinforced speculation the administration is more eager for a deal.
- Japanese stocks rose as investors were optimistic on trade after a report said U.S. Treasury Secretary Steven Mnuchin is a proponent of easing tariffs on China. Electronics and drug makers were among the biggest boosts to the Topix index, which rose for the second consecutive week. Trump administration officials are considering measures to roll back tariffs on Chinese products in order to calm financial markets, the Wall Street Journal reported, adding that U.S. Trade Representative Robert Lighthizer has reservations about the idea. The Treasury Department quickly denied this report.
- Oil headed for its longest weekly rally in three months on expectations that production cuts by OPEC and resilient fuel demand will keep global markets in balance. Futures gained as much as 1.7 percent in New York, with gains over the past three weeks totaling about 16 percent. OPEC’s production fell by the most in almost two years in December before a fresh round of cuts started this month, and Russia is aiming to speed up the pace of its curbs. The International Energy Agency maintained its outlook for an acceleration in global demand growth this year as lower prices offset the economic slowdown.
- Gold held a decline amid optimism for progress in U.S.-China trade talks that boosted equities in Asia Friday and Treasury yields overnight. Palladium traded above $1,400 an ounce. Still, overall sentiment is positive for the precious metal. Gold traders and analysts in a weekly Bloomberg survey remained bullish for a 10th week. Peter Grosskopf, chief executive officer of Sprott Inc., said a shift in Federal Reserve policy will stoke investor interest, with the U.S. government shutdown, trade tensions, stock volatility and Brexit all adding to uncertainty, underpinning the appeal of bullion as a haven.
- Elon Musk is cutting Tesla Inc.’s full-time workforce by 7 percent, or more than 3,000 jobs, warning in a blog post that the “road ahead is very difficult” as he tries to make electric cars more affordable for the mass market. The shares fell 7.6 percent in pre-market trading after the Palo Alto, California-based company said it managed to eke out a profit in the fourth quarter — though a narrower one than the hard-won third-quarter profit it reported in October, the chief executive officer said Friday.
- President Donald Trump and House Speaker Nancy Pelosi are engaged in the bitter opposite of negotiations over the partial government shutdown, now in its 28th day, as they seek to cow one another into an embarrassing capitulation. Following Pelosi’s suggestion that Trump reschedule his State of the Union address, the president on Thursday denied her a military plane for an unannounced trip to visit U.S. troops in Afghanistan. The tit-for-tat plunged their relationship — never warm — into a freeze from which any compromise on a budget stand-off that’s left 800,000 federal workers without paychecks seems distant.
- Netflix Inc. pared losses in pre-market trading on Friday, one day after it reported quarterly sales that came in below expectations. Despite that disappointment, analysts largely cheered the results, raising their price targets as they pointed to strength in global subscriber additions, which they said would help contribute to long-term outperformance. The stock slipped 2 percent before the bell after falling more than 5 percent post-market. The shares had been up more than 50 percent from a recent bottom in December, based on their Thursday closing price.
- Ryanair Holdings Plc cut its full-year profit guidance for the second time in 3 1/2 months as fares tumble, with Chief Executive Officer Michael O’Leary warning of more turbulence ahead for European airlines. Ryanair stock fell to a four-year low after the region’s biggest discount airline lowered its outlook by another 9 percent amid heightened competition. O’Leary said he can’t rule out more ticket-price declines and guidance cuts should Britain’s exit from the European Union further impact yields.
- Walmart Inc. resolved a dispute that will allow its stores to continue participating in CVS Health Corp.’s pharmacy networks to provide drugs to patients through commercial and Managed Medicaid programs. The agreement comes only days after Walmart said it would withdraw from CVS prescription networks in a dispute over pricing. The retailer indicated it was resisting efforts by CVS to steer consumers to certain pharmacies to have their prescriptions filled.
- After the longest political standoff in its history, Sweden has a government. The parliament in Stockholm voted to let Social Democrat Stefan Lofven become prime minister. He will lead a coalition that straddles the political divide while keeping the nationalist Sweden Democrats away from the levers of power. “In times when right-wing extremist forces are growing in many countries, Sweden has chosen another way forward,” said Anders Ygeman, who is group leader for the Social Democratic Party.
- A strengthening link between the dollar-yen exchange rate and the U.S.-Japan yield differential augurs well for the Asian currency, with a number of strategists predicting it will extend its recent rally. The correlation between the two variables climbed to 0.63 this month, the highest in a year, data compiled by Bloomberg show, as the benchmark 10-year U.S. yield hit a one-year low amid Federal Reserve Chair Jerome Powell’s signal to pause policy tightening. Standard Chartered Plc, Citigroup Inc., Bank of America Merrill Lynch and HSBC Holdings Plc are all expecting a stronger yen in the months ahead.
- Michelin Chief Executive Officer Jean-Dominique Senard, a frontrunner to replace Carlos Ghosn atop Renault SA, has passed one of the tests required for the job: Support of the French state. Senard, 65, has boosted profitability during his seven years at the helm of the French tiremaker, winning the favor of the government — Renault’s biggest shareholder. The carmaker said Thursday it will seek new governance, almost two months after Chairman and CEO Ghosn was detained in Japan for alleged financial misdeeds.
- Theresa May has begun a round of calls with European leaders as she tries to find a compromise on Brexit that she can sell to the British Parliament, where cross-party talks have faltered. May has started the process of trying to persuade European Union leaders to give her a better deal that will win the support of Parliament. May spoke to German Chancellor Angela Merkel and Dutch Prime Minister Mark Rutte on Thursday, the premier’s spokesman Alison Donnelly told reporters. The conversation with Merkel was “constructive,” as always, Donnelly added, and further phone calls with EU leaders can be expected over the weekend.
- Salesforce.com Inc. is planning to add as many as 1,500 jobs in Ireland over five years, in one of the largest such expansions in the history of the state. The San Francisco-based software maker, which now employs more than 1,000 people in Ireland, laid out its Irish expansion plans Friday in Dublin. Bloomberg News first reported the figure on Thursday. The company, in a joint announcement with Irish Prime Minister Leo Varadkar, unveiled a plan to build a “Salesforce Tower” in the city.
- Russia’s central bank dumped $101 billion last year in its biggest-ever shift away from the U.S. currency amid fears of new sanctions. But the Kremlin’s drive to wean the rest of the economy off the greenback has been slower going. Despite President Vladimir Putin’s regular public exhortations to accelerate “de-dollarization,” even the country’s state-owned companies are sticking to the currency. Shifting to the ruble, yuan or euro means higher costs and difficulties finding banks to handle business, according to executives. The government’s program to speed the shift has barely gotten off the ground, officials say, speaking on condition of anonymity because the facts contradict the public line.
- U.K. retailers experienced their customary post-Black Friday slump in December, Office for National Statistics figures showed Friday. The volume of goods sold in stores and online fell a larger-than-forecast 0.9 percent from November, when they surged 1.3 percent. Sales excluding auto fuel dropped 1.3 percent, the most since May 2017.
- Papua New Guinea’s state-owned energy company said proposed liquefied natural gas plants in the impoverished Pacific nation risk being delayed unless Exxon Mobil Corp. and Total SA loan it $1.4 billion for its share of construction costs. Kumul Petroleum Holdings Ltd. wants the two energy giants to offer it loans at terms that would be cheaper than if it tapped capital markets, the company said in a statement. Exxon and Total are among a group of explorers that have been negotiating with the government over the past six months over building three new LNG production units that may cost as much as $13 billion.
- Baring Private Equity Asia and CVC Capital Partners are among suitors that were picked to make final offers for Asia-Pacific assets being sold by premium chocolatier Godiva, people with knowledge of the matter said. North Asian buyout firm MBK Partners and Marunouchi Capital, an investment arm of Japan’s Mitsubishi Corp., were also shortlisted to proceed to the next round of bidding, according to the people. The assets could fetch as much as $1.5 billion, the people said, asking not to be identified as the information is private.
- France’s Orange SA is considering a bid for Basque carrier Euskaltel SA, according to people familiar with the situation, in a fresh challenge to dominant Spanish phone company Telefonica SA. Euskaltel also operates in Spain’s Galicia and Asturias regions and offers broadband mainly through cable as well as mobile services. It held an initial public offering in July 2015, but its stock has fallen by about 15 percent since then. The shares rose as much as 11 percent on Friday and were trading 9.1 percent higher at 11:53 a.m. in Madrid, taking its market value to 1.45 billion euros ($1.65 billion).
- New York’s plan to put the state’s last coal-fired power plants out of business hasn’t even been approved yet and electricity is already trading like they’re shut. The price of power in 2021 in New York City and other regions surged more than 30 percent beginning in May. The only major difference between then and now: a pending state rule to limit power-plant emissions that was designed to eliminate coal-burning power plants by the end of 2020.
- An apology from Goldman Sachs Group Inc. doesn’t cut it for Malaysia, which said it may consider a discussion to absolve the bank of blame for its role in the 1MDB scandal for $7.5 billion. The country filed criminal charges against the lender in December, the first for Goldman, and may discuss dropping those allegations if the bank pays the sum, Finance Minister Lim Guan Eng told reporters on Friday. Units of the bank were accused of making false statements in documents submitted to a local regulator in arranging $6.5 billion bond offers for troubled state fund 1MDB.
- PG&E Corp. is so cash-starved that it won’t commit to paying settlements reached with people who lost their homes in a 2015 wildfire caused by a tree falling on a power line. The disclosure by a lawyer for the utility giant was greeted warily by a state judge at a hearing Thursday in Sacramento. He declined to grant PG&E’s request, in light of its plan to file for bankruptcy this month, to put off an April trial over damages from the Butte Fire that torched 70,000 acres and destroyed almost 500 homes.
*All sources from Bloomberg unless otherwise specified