January 30th, 2019

Daily Market Commentary


Canadian Headlines

  • Canadian stocks extended gains for a fourth consecutive session to the highest level for the S&P/Toronto Stock Exchange Index since mid-October of last year. U.S. stocks declined as investors studied the latest corporate earnings. The Canadian benchmark climbed 0.6 percent in Toronto, led by mostly by mining and materials stocks. Health care and information technology stocks underperformed.
  • Two of Canada’s biggest pension funds will jointly own Atlanta-based warehouse developer IDI Logistics after Ivanhoe Cambridge Inc. sold half of its stake in the company to Oxford Properties Group. Ivanhoe, which bought IDI in November from a unit of Canada’s Brookfield Asset Management Inc., for about $3.5 billion, sold 50 percent of it to Oxford for about $1.7 billion in December, according to people with knowledge of the transactions who asked not to be named.
  • China was once a grand prize for Justin Trudeau, who sought to follow in his father’s footsteps by cementing stronger ties with the Asian powerhouse. So much has changed since, culminating with U.S. charges Monday against Huawei Technologies Co. and its Chief Financial Officer Meng Wanzhou, whose arrest last month in Vancouver put Trudeau squarely in China’s crosshairs. Beijing has threatened retaliation, while detaining two Canadians and sentencing a third to death. Though Huawei is part of a larger U.S.-China trade battle, the prime minister is increasingly caught in the middle, paying the price for heeding the American request to arrest Meng on Canadian soil. Chinese investment in Canada was already falling before the latest row and now risks falling further.
  • Canadian National Railway Co. is planning its second straight year of record investment as pressure builds to haul more commodities and consumer goods. Capital spending this year will climb to about C$3.9 billion ($2.95 billion), including about C$1.6 billion for maintenance on railway infrastructure, the company said in a statement Tuesday as it reported earnings. Canadian National had been targeting spending of C$3.5 billion for 2018.



World Headlines

  • European shares slipped as investors awaited the Federal Reserve’s policy meeting. U.K. large-caps gained as sterling fell amid renewed anxiety over Brexit. The Stoxx Europe 600 dropped 0.1 percent as of 8:04 a.m. London, with telecom and health-care stocks leading declines. LVMH jumped to the highest since November after it reported fourth-quarter sales that beat expectations and gave a bullish outlook. The FTSE 100 Index climbed 0.6 percent.
  • Stocks across the world held firm on Wednesday as investors grappled with a wall of catalysts, from trade talks and the Fed meeting to a slew of corporate earnings. The pound halted a two-day decline and U.K. shares rallied after lawmakers voted to renegotiate Brexit. Futures across the S&P 500, Nasdaq and Dow Jones indexes all rose, with Apple shares extending gains in pre-market trading after first-quarter earnings offered some reassurance to investors.
  • Japanese stocks fell as investors remained wary that an ongoing trade war between the U.S. and China will weigh on corporate results. Pharmaceutical stocks fell as Sumitomo Dainippon Pharma Co. tumbled after the company and its partner SanBio Co. said a drug candidate didn’t meet a target of a study. SanBio was limit down, while the Mothers Index — where SanBio has the largest weighting — had its biggest drop since February 2018. Some suppliers for Apple Inc. gained after it gave a forecast that showed stability after a tough end to last year. More than 500 Japanese companies, including Fanuc Corp. and Honda Motor Co., will report earnings on Thursday and Friday.
  • Oil rises in New York after jumping the most in more than a week on concerns that U.S. sanctions on Venezuela will pose significant market disruption. West Texas Intermediate futures rose 0.8 percent after climbing 2.5 percent on Tuesday. Venezuela is considering declaring force majeure with the U.S., a signal it may halt shipments, after the White House effectively banned American companies from purchasing its crude. A ban would mean that the 500,000 barrels shipped to the U.S. every day by the OPEC member would need to be re-directed elsewhere, Societe Generale SA said.
  • Gold advanced to an eight-month high as investors await clues about the outlook for U.S. monetary policy, with Federal Reserve Chairman Jerome Powell scheduled to hold a news conference later Wednesday after the central bank’s inaugural rate-setting meeting of 2019. Spot bullion rose as much as 0.3 percent to $1,315.99 an ounce, the highest level since May, and was at $1,313.32 at 11:26 a.m. in London. Gold is up 2.4 percent this year and is heading for a fourth straight monthly gain, while a gauge of the dollar is down for a third month.
  • Iron ore jumped to the highest in almost two years on Wednesday as the world’s biggest miner said it would close some of its operations following last week’s fatal dam disaster in Brazil, which has killed at least 84 people and left hundreds missing. While Vale SA said it will make up for lost output by increasing production from other mines, the potential disruption to about 2.5 percent of world supply shook markets, from the share prices of rival miners to the Aussie dollar.
  • Apple Inc. convinced investors that life beyond the iPhone won’t be so bad, sparking a relief rally in the stock. The Cupertino, California-based company reported its first holiday-quarter sales decline since 2001 as revenue from the iconic handset tumbled 15 percent. But Chief Executive Officer Tim Cook and Chief Financial Officer Luca Maestri focused on a growing services business and rising sales of other devices.
  • The yen level that will determine whether Japanese investors return to U.S. Treasuries may already be in place. Japanese funds have boosted holdings of overseas debt at the fastest pace in four months as the yen advanced past the 110-per dollar mark. The trend may accelerate if the currency continues to rally to 100, as predicted by Deutsche Bank AG and Credit Agricole SA. Such an outflow is in sharp contrast to the chatter last year about how funds from Japan — which own around $2.4 trillion of overseas debt — may pivot home as a central bank policy tweak sent local yields climbing. That seems distant now with Japan’s yields sinking and the yen looking set to strengthen.
  • Foxconn Technology Group is considering scaling back or even abandoning plans to make cutting-edge displays from a $10 billion plant it’s building in the U.S., Reuters reported. Such a move could undermine promises to create 13,000 jobs at a project hailed by U.S. President Donald Trump for reviving American manufacturing. Apple Inc.’s main manufacturing partner is re-thinking its approach because of the high cost of making advanced TV screens from the U.S., Reuters cited spokesman Louis Woo as saying.
  • U.K. lawmakers gave Prime Minister Theresa May a mandate to head back to Brussels and renegotiate the most contentious part of her Brexit proposal in a series of votes on Tuesday. MPs rejected amendments to delay the current exit date of March 29 and she’ll head back into talks with a European Union that has warned it will not even consider her demands regarding the Irish backstop. Ultimately, the upshot appears to be more uncertainty and while MPs voted in favor of a non-binding amendment stating parliament is against leaving without a deal, the risk of a no-deal outcome appears to have risen. The pound is lower.
  • Bank Hapoalim Ltd. is leaning towards an initial public offering for Israel’s largest credit-card business, rather than a sale or distributing its stake to shareholders, that could value the unit at about $1 billion, according to people familiar with the matter. Israel’s second-biggest bank has been working with Citigroup Inc. on options for Isracard Ltd. and could list the unit’s shares on the local exchange shortly after reporting annual earnings in March, the people said, asking not to be identified because the plans are private. Hapoalim has almost finished working on a draft prospectus for the offering, but is cautious about when and if to proceed with the IPO because of recent market volatility, the people said.
  • Chevron Corp. agreed to sell its 52 percent stake in the Frade oil field off Brazil’s coast to independent explorer Petro Rio SA, a person with knowledge of the deal said. The producer will pay more than $500 million to raise its stake in the field to 70 percent, according to the person, who asked not to be named because the talks are private. In October, Petro Rio bought a 18 percent stake in Frade from Frade Japao Petroleo Ltda. State-run Petroleo Brasileiro SA has the remaining 30 percent of the field.
  • Malaysian wireless giant Axiata Group Bhd. is caught in a bind as it weighs whether to exit its decade-long investment in Singapore operator M1 Ltd. Axiata, M1’s biggest shareholder, has less than three weeks left to decide whether to tender its stock into a takeover offer valuing the target at S$1.9 billion ($1.4 billion). The Malaysian company held a board meeting last week to discuss the merits of the bid from Keppel Corp. and Singapore Press Holdings Ltd., according to people with knowledge of the matter.
  • Banco Santander SA is seeking to put the botched hiring of Andrea Orcel behind it, with a promise to lay out a new three-year plan this spring. The lender’s efforts to turn the page were aided by better-than-expected fourth-quarter earnings that helped the Spanish retail banking giant meet the targets of its previous three-year plan. While Santander had insisted that Orcel’s hiring wouldn’t mark any change of strategy, tapping an investment banker best-known for his ability to close merger and acquisition deals raised speculation about a return to the buying spree the bank undertook when Chairman Ana Botin’s father Emilio was at the helm of the Spanish lender.
  • Nissan Motor Co. and Renault SA hired the French auditor Mazars to investigate possible wrongdoing within their automotive alliance, people familiar with the matter said, a sign the partners are moving forward on a joint probe following Carlos Ghosn’s arrest for alleged financial crimes. Mazars will look into Renault-Nissan BV, the Amsterdam-based unit set up by the carmakers to coordinate their alliance, for any misconduct such as the misuse of company assets, the people said, asking not to be identified discussing private matters. Spokesmen for Renault, Nissan and the alliance declined to comment. Mazars didn’t return calls seeking comment.
  • Foreign investors are piling into Chinese stocks after a dismal 2018 for the country’s equity market. They’ve bought 52 billion yuan ($7.8 billion) of A shares via trading connects in Shanghai and Shenzhen this January, putting it on course to be the biggest month for inflows since the second exchange link with Hong Kong opened in late 2016, Bloomberg calculations based on trading turnover show.
  • Dewan Housing Finance Corp Ltd., an Indian mortgage lender hit by allegations of financial irregularities this week, is seeking to raise funds via asset sales and offshore loans. The Mumbai-based company plans to sell 100 billion rupees ($1.4 billion) worth of loans from its portfolio by March and will announce plans for offshore borrowing soon, Dewan’s Chairman Kapil Wadhawan said on a conference call Wednesday.
  • Chinese executives are sounding warning bells over the world’s second-largest economy. At least 20 companies, including China Life Insurance Co. and Chongqing Changan Automobile Co., told investors late Tuesday that full-year earnings would fall well short of expectations. Reasons they cited included the country’s economic slowdown, as well as recent changes to accounting rules and the equity market’s $2.3 trillion rout last year, the world’s biggest loss of value. China Life fell as much as 4.3 percent in onshore trading Wednesday.
  • Deutsche Bank AG has applied with Chinese regulators for a license to help foreign companies get access to the Asian nation’s capital market, part of an effort to expand its business in the region, according to people briefed on the matter. The application was made through what is known as the Chinese Depositary Receipts program. German Finance Minister Olaf Scholz and his deputy, Joerg Kukies, talked with Chinese leaders during a recent trip about improving access for Deutsche Bank to the country’s capital markets, said the people who asked not to be identified because the deliberations are private.
  • Facebook Inc. will shut down a program to pay iPhone users for sharing their personal data, following a report disclosing controversial details of the effort including that some participants were teenagers. The social networking company paid people aged 13 to 35 as much as $20 a month to install the Facebook Research App, track phone and web usage habits, according to a TechCrunch story. The program sidestepped Apple’s App Store and gave Facebook root access to network traffic in what may have been a violation of Apple policy, the story said. The app will be discontinued on Apple’s iOS, though it will continue to run on Android devices.
  • The U.S. and China are sitting down Wednesday for the first of two days of high-level talks aimed at finding a solution to a trade war that’s casting a growing shadow on both of the world’s two largest economies. But don’t hold your breath for a deal. Treasury Secretary Steven Mnuchin, who remains the most prominent advocate of a deal in the Trump administration, on Tuesday told the Fox Business Network he expected “significant progress” in this week’s talks. Administration officials and other people familiar with the state of play, however, say the two sides remain far apart on key issues, with the U.S. side still engaged in an internal debate over how to proceed and ill-prepared for this week’s meetings. The U.S.’s unveiling this week of criminal charges against Chinese corporate giant Huawei Technologies Co. isn’t helping the mood.
  • The Navy’s costliest warship, the $13 billion Gerald R. Ford, had 20 failures of its aircraft launch-and-landing systems during operations at sea, according to the Pentagon’s testing office. The previously undisclosed failures with the electromagnetic systems made by General Atomics occurred during more than 740 at-sea trials since the aircraft carrier’s delivery in May 2017 despite praise from Navy officials of its growing combat capabilities. The Navy must pay to fix such flaws under a “cost-plus” development contract. The new reliability issues add to doubts the carrier, designated as CVN-78, will meet its planned rate of combat sorties per 24 hours — the prime metric for any aircraft carrier — according to the annual report on major weapons from the Defense Department’s operational test office.

*All sources from Bloomberg unless otherwise specified