January 22nd, 2019

Daily Market Commentary


Canadian Headlines

  • Canadian stocks extended their winning streak to 12 days, the longest such stretch in five years, after spending much of the day in negative territory. The S&P/TSX Composite Index added 0.3 percent to 15,354.16, the highest close since early November. Trading volume was nearly two-thirds below average as U.S. markets were closed for a holiday. Industrials led the gains, up 0.9 percent, followed by materials, which reversed an earlier decline to add 0.6 percent. Pot stocks also climbed, with Aphria Inc. up 12 percent, the biggest gainer on the benchmark.
  • The U.S. has indicated it will pursue the extradition of a top Huawei Technologies Co. executive, Canada’s ambassador to Washington said, suggesting the case might not be resolved in trade talks with China. Ambassador David MacNaughton confirmed in an email Monday that U.S. officials have continued to signal an intent to follow through on the case against Huawei Chief Financial Officer Meng Wanzhou. The Globe and Mail newspaper earlier cited an interview with MacNaughton saying that the U.S. has notified the Canadian government of plans to file a formal extradition request before a Jan. 30 deadline.
  • A diminishing plurality of Canadians see Justin Trudeau as the best fit for dealing with U.S. President Donald Trump, eroding an advantage the Canadian leader has over his rivals as he prepares to seek re-election. Asked which federal political leader is best suited to manage relations with the Trump administration, 36 percent of respondents in a recent poll named the incumbent Liberal prime minister. But that’s down from 39 percent and 41 percent support for Trudeau in the previous two quarterly surveys. Another 25 percent said none of the leaders can best manage Trump, according to the Nanos Research poll conducted for Bloomberg News. The share of those dissatisfied with their options has steadily risen since the surveys began last June.



World Headlines

  • The Stoxx Europe 600 Index dipped after Switzerland’s UBS Group AG delivered disappointing results. Earlier, shares retreated across Asia after Chinese President Xi Jinping stressedthe need to maintain political stability, comments which hinted at growing concern over the country’s slowing economy. News that the U.S. is seeking extradition of a top Huawei executive added to tensions. European bonds mostly followed Treasuries higher and the dollar edged up for a sixth day.
  • U.S. stocks are set to drop when investors return after a public holiday as tensions with China and global growth concerns resurface. Futures on the S&P 500 Index were down 0.5 percent at 9:40 a.m. in London while contracts on the Dow Jones Industrial Average and Nasdaq 100 fell 0.5 percent and 0.7 percent respectively. The slump extends Monday’s decline amid signs the trade dispute between Washington and Beijing will take longer to resolve than first thought. The MSCI Asia Pacific Index slid as much as 0.8 percent. The U.S. stock market was closed Monday for Martin Luther King Jr. Day.
  • Chinese stocks had their worst day in five weeks as concern about trade ties with the U.S. and the economic outlook damped recent investor enthusiasm. The Shanghai Composite Index fell 1.2 percent at the close, trimming its year-to-date advance to 3.4 percent. The CSI 300 Index dropped 1.3 percent after rising 0.6 percent Monday to its highest in more than a month. China’s benchmark equity gauge retreated after testing a key technical level that it has failed to hold multiple times in the past year.
  • Oil fell amid mounting concerns that slowing growth in China, and the global economy in general, will undermine demand for crude. Brent futures declined as much as 1.6 percent in London. Chinese President Xi Jinping, meeting the country’s top leaders on Monday, stressed the need to maintain political stability — a fresh sign he’s anxious about the implications of a decelerating economy, which last year expanded at the weakest pace since 1990. The International Monetary Fund also cut its global growth forecast.
  • Gold gained for the first time in four days as global equities decline and markets digest data from China showing the country’s economic growth is slowing. The International Monetary Fund cut its forecast for the world economy, predicting it will grow at the weakest pace in three years in 2019 and warning fresh trade tensions would spell further trouble. This follows GDP data from China on Monday that showed its slowest expansion since the 2009 financial crisis last quarter.
  • UBS Group AG warned that the worst may not be over after clients pulled $13 billion in assets during a market meltdown in the final months of 2018. Increased volatility, rising protectionism and geopolitical tensions are still weighing on investors, which will hit wealth and asset management revenue in the first quarter, the Zurich-based bank said Tuesday. Withdrawals at the key global wealth management unit totaled almost $8 billion in the fourth quarter, with clients removing another $5 billion from asset management.
  • Britons are enjoying the strongest wage growth since the financial crisis a decade ago as the labor market tightens. Average earnings excluding bonuses continued to increase an annual 3.3 percent in the three months through November and unemployment fell to 4 percent, matching the lowest rate since 1975, the Office for National Statistics said Tuesday. Separate figures showed the budget deficit unexpectedly widened in December.
  • The longest government shutdown in U.S. history entered its 32nd day on Tuesday with Senate Majority Leader Mitch McConnell expected to call up legislation to advance a proposal from President Donald Trump, which Democrats have already said they’ll reject. Lawmakers are returning to Washington after a holiday weekend that started off with signs of incremental progress, but concluded with little accomplished. If the stalemate continues all week, many of the 800,000 federal workers going without pay will miss a second paycheck since funding ran out for about a quarter of the government just before Christmas.
  • Investors added money to exchange-traded funds that buy emerging market stocks and bonds last week. This was the 14th straight week of inflows. Inflows to U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $1.72 billion in the week ended Jan. 18, compared with gains of $2.82 billion in the previous week, according to data compiled by Bloomberg. So far this year, inflows have totalled $5.88 billion.
  • The fortunes of Intel Corp., Microsoft Corp. and other big sellers of technology for business were buoyed by the cloud last quarter. Industry earnings begin Tuesday when IBM releases results after the bell and multiple analysts expect corporate spending on information technology to rise slower in 2019 than in the past several years. Software companies and those tied to the global cloud-computing push are poised to grab the biggest slice of that spending. Results from Intel, Microsoft and Texas Instruments Inc. will follow International Business Machines Corp. over the next two weeks, providing a window into corporate America’s sentiments amid slower economic expansion, U.S.-China trade tensions and a partial shutdown of the U.S. government that’s depriving investors of some of the usual economic indicators and damping business activity.
  • The U.S. faces a $34 billion bill for retraining workers displaced by new technologies over the next decade, and the government will probably have to pick up most of the tab. That cost of preparing about 1.4 million workers for new roles with similar skills and higher wages comes to an average $24,800 per worker, according to a report from the World Economic Forum’s Center for the New Economy and Society. The government will probably have to cover 86 percent of that.
  • The U.K.’s main opposition party is backing a plan that could open the door to a second European Union referendum, bringing the possibility of stopping Brexit a step closer. Labour leader Jeremy Corbyn proposed a series of non-binding votes in Parliament on options for how the U.K. can avoid a no-deal Brexit: One of those options is a new referendum. This particular amendment is unlikely to pass, but it’s still a significant step that could fuel the campaign to give voters a chance to think again.
  • TomTom NV will sell its Telematics fleet-management business to tire manufacturer Bridgestone Corp. for 910 million euros ($1 billion), freeing up resources to battle the likes of Alphabet Inc. for access to mapping technology in car dashboards. The sale is a big step in TomTom’s shift to location technology as customers ditch the personal navigation devices that made the company a household name in favor of smartphones. In September, the Dutch company said it was exploring a sale of Telematics, which delivers vehicle-related data and intelligence for fleet management and connected car services. Media reports also identified Verizon Communications Inc., Microsoft Corp., Daimler AG, and Michelin as possible bidders for the unit.
  • Daimler AG will spend more than 200 million euros ($227 million) to build a factory in Poland to produce car batteries, part of the German manufacturer’s roll-out of global capacity to make new electric models. The site in Jawor, about 120 km (75 miles) from the German border, will be the carmaker’s ninth worldwide for batteries and will be located at the same place it’s already developing a factory for combustion engines. The plants will employ more than 1,000 people and become the first of their size to be carbon neutral, according to Markus Schafer, a management board member responsible for production and purchasing at Daimler’s Mercedes-Benz.
  • Sun Pharmaceutical Industries Ltd. announced a set of changes early Tuesday as it rushed to contain a spiraling corporate governance crisis that has erased more than $3 billion of market value in under two months. Distribution of its local drug business will move to one of its wholly-owned subsidiaries from Aditya Medisales, a firm controlled by Sun’s billionaire founder-owner Dilip Shanghvi, India’s largest drugmaker said in a filing. The company will also unwind $345 million of loans that have drawn investor scrutiny and appoint a new auditor at some of its units.
  • State-run lender Central Bank of India is considering selling 38.6 billion rupees ($540 million) of soured loans that it had made to companies including Jaiprakash Associates Ltd., Bhushan Power & Steel Ltd. and Lanco Hills Technology Park Ltd., people familiar with the matter said.
  • Lawmakers in Europe are set to test how important Google thinks its news-aggregation service really is. The European Union is working towards finalizing a controversial new copyright law. The rules give publishers rights to demand money from the Alphabet Inc. unit, Facebook Inc. and other web platforms, when small fragments of their articles show up in news search results, or are shared by users. That prospect has led Google to consider pulling Google News from the continent as a response to the new law, according to Jennifer Bernal, Google public policy manager for Europe, the Middle East and Africa. The internet giant has various options on the table and will analyze the final text before making any decisions, she said, adding that Google would withdraw its service reluctantly.
  • Deutsche Bank AG was sued for 11 billion euros ($12.5 billion) by a Stuttgart businessman in an effort to revive a lost legal dispute related to a bankruptcy. The new suit, which ranks among the largest ever in Germany, was filed in Frankfurt by Hafez Sabet and also targets Hauck & Aufhaeuser Privatbankiers AG. The case claims the two banks manipulated a property transaction in 2013 and colluded against Sabet, allowing Deutsche Bank to win dismissal of a suit in his hometown, according to a statement by Sabet’s lawyer, Andreas Tilp.
  • MasterCard Inc. was fined 570.6 million euros ($648 million) by the European Union for imposing rules that regulators said may have artificially raised the costs of card payments in the region. The European Commission said MasterCard unfairly prevented retailers from seeking cheaper rates from banks outside the EU country where they are based. MasterCard’s curbs on cross-border acquiring ended when the EU introduced credit card legislation in 2015. The EU’s probe started in 2013 and escalated with a statement of objections two years later. MasterCard last month set aside $650 million to cover the fine, less than a potential 1 billion euros it flagged as a possibility in 2017. The company got a 10 percent fine reduction for cooperating with the EU, regulators said.
  • Renault SA said its board will meet on Thursday to discuss the governance of the group after Chairman and Chief Executive Officer Carlos Ghosn was again denied bail in Tokyo, where’s he’s been in jail for two months on charges of financial misconduct. The board is expected to appoint Michelin’s boss Jean-Dominique Senard as chairman and the carmaker’s interim head, Thierry Bollore, as CEO, said a person familiar with the matter who asked not to be identified. A Renault spokesman didn’t return a call requesting comment on the succession.
  • Takeda Pharmaceutical Co. is considering a sale of some emerging-market drugs, as the Japanese drugmaker expands a push to cut debt after its $62 billion takeover of Shire Plc, people familiar with the matter said. The company is working with Bank of America Corp. to gauge potential buyer interest in emerging-market assets it acquired through its 2011 purchase of Swiss rival Nycomed, according to the people, who asked not to be identified because the information is private. The medicines, which include over-the-counter and prescription drugs, could fetch about $3 billion, the people said.

*All sources from Bloomberg unless otherwise specified