January 31th, 2019

Daily Market Commentary


Canadian Headlines

  • Canadian investors are finding themselves in an unusual position — outperforming their U.S. counterparts across all three main asset classes as conciliatory central banks reignite risk in global markets. Canada’s benchmark S&P/TSX Composite index has surged 8.1 percent this year, fourth-best among developed markets and ahead of the S&P 500’s 7 percent rise. The Bloomberg Barclays Canada Aggregate bond index is up 0.75 percent compared with 0.53 percent for the U.S. And the loonie is the best-performing currency among its Group of 10 peers, vaulting 3.9 percent higher to C$1.3144 per U.S. dollar this year.
  • Brookfield Asset Management Inc. is considering making an offer for Dutch phone company Royal KPN NV, according to people familiar with the matter. KPN shares jumped the most since 2013. Canada’s largest alternative asset manager is holding exploratory talks with Dutch pension funds about partnering on a potential bid for KPN, which has a market value of about 10.5 billion euros ($12.1 billion), said the people who asked not to be identified because the matter isn’t public.
  • 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.
  • Alberta is easing mandatory oil curtailments after prices for heavy crude from the Canadian province surged while producers were getting exasperated. The new target for output next month will be 3.63 million barrels a day, up from 3.56 million in January, the provincial government said in a statement Wednesday. Inventories have dropped by 5 million barrels, reducing a glut that depressed prices. The discount on heavy Canadian crude to the U.S. benchmark widened after the announcement to $9.50 a barrel from $8.60 earlier, according to traders.
  • Bentall Kennedy LP, the real estate arm of insurer Sun Life Financial Inc., is boosting its exposure to rental apartments as immigration in Canada’s biggest city booms. The Toronto-based firm, which managed C$22 billion ($17 billion) of assets in Canada as of September, plans to increase multi-residential investments to about 15 percent of its portfolio from below 10 percent, according to Doug Poutasse, head of strategy and research at Bentall.
  • Canada’s largest eastern port will consider tapping bond markets as it races to keep up with five straight years of record demand. The Montreal Port Authority will need about C$500 million ($380 million) for a proposed expansion of container facilities by the middle of next decade, said Vice President Ryan Dermody. A potential debt issue would help pay for a first phase of infrastructure work.

World Headlines

  • The Stoxx Europe 600 Index also trimmed gains after a positive start, with banks and telecos among the biggest drags as energy companies rose following strong results from Shell. Italian shares retreated after the country fell into recession.
  • U.S. equity futures and European stocks fluctuated on Thursday following gains in Asia as investors took a pause in the wake of mixed corporate earnings and the Federal Reserve’s dovish turn. Treasury yields and the dollar extended Wednesday’s declines. Contracts for the S&P 500 pared a gain to trade little changed a day after signals from the Fed that it will be “patient” on interest-rate moves and flexible on the path for reducing its balance sheet powered the S&P 500 Index to an eight-week high. Nasdaq contracts stayed in the green, helped by better-than-expected results at Facebook Inc.
  • In Asia, Japanese and Hong Kong shares rallied, while Chinese stocks posted a modest advance. Emerging-market assets jumped on the dovish Fed. With Wednesday’s statement the Fed helped ease fears that it would continue with plans to tighten policy even in the face of cooling economic data. Investors now have a wary eye on meetings between Chinese negotiators and their counterparts in Washington as talks to resolve the trade dispute continue.
  • Oil is headed for its biggest January gain in at least 36 years as data showed the OPEC+ coalition’s output cuts starting to kick in, while a more dovish Federal Reserve boosted markets and improved the growth outlook. While futures in New York were little changed in early trading Thursday, they were set to rise almost 20 percent in January, the biggest gain of any January in records going back to 1983. The Fed signaled Wednesday it’s done raising rates for the time being, pushing down the dollar. U.S. oil imports from Saudi Arabia fell to the lowest since October 2017 last week, while Russian Energy Minister Alexander Novak said the country cut output gradually this month and will try to increase the pace of reductions in February.
  • Gold is poised to close out January with a fourth straight monthly gain after the Federal Reserve signaled it’s done raising interest rates for a while, hurting the dollar, and as investors sought a haven against slowing growth and U.S.-China trade disputes. Spot bullion traded at $1,321.89 an ounce at 10:33 a.m. in London after hitting $1,323.43 on Wednesday, the highest level since May, according to Bloomberg generic pricing. The precious metal is up about 3 percent this month, while the greenback’s decline in January is the most in a year.
  • U.S. President Donald Trump will meet China’s top trade negotiator in the Oval Office on Thursday for high-level talks, with little indication that Beijing will bend to American demands to deepen economic reforms. U.S. Trade Representative Robert Lighthizer will lead a second and final day of negotiations with Chinese Vice Premier Liu He, the highest-level talks since Trump met Chinese President Xi Jinping on Dec. 1 and declared a 90-day truce to reach a lasting deal to end the trade war. Trump is scheduled to meet Liu at 3:30 p.m., according to an email of his schedule from the White House.
  • China’s yuan-denominated government and policy bank bonds will be added to the Bloomberg Barclays Global Aggregate Index from April, Bloomberg LP said in a statement Thursday. After the inclusion, which will be a phased-in process over 20 months, yuan bonds will be the fourth-largest currency component on the index, behind the dollar, euro and yen. There had been some speculation the inclusion might be delayed, with China International Capital Corp. saying last week it could be postponed for three to six months due to operational issues.
  • Italy fell into recession at the end of 2018, capping a year of political turmoil, higher borrowing costs and fiscal tensions that took their toll on the economy. Output shrank 0.2 percent in the three months through December, following a 0.1 percent decline in the previous quarter, statistics agency Istat said Thursday. That was more than expected, and will put further pressure on the coalition government, which already appears to be fraying.
  • Chairman Jerome Powell signaled the Federal Reserve won’t raise interest rates again until inflation accelerates in a dovish pivot that left many investors betting against any further hikes in this economic expansion. Not only did central bankers drop a reference to “further gradual increases” in their statement on Wednesday, they implied the next move could just as likely be down as up. They also announced a more flexible approach to shrinking their bond portfolio, another acknowledgment of the recent financial market angst over tighter monetary policy.
  • An ETF tracking U.S. small cap equities notched the biggest inflow since October on Wednesday after the Federal Reserve signaled it’s done raising interest rates for a while. The $42.5 billion iShares Russell 2000 exchange-traded fundtook in more than $1 billion as the underlying gauge climbed for the first day in three. Companies on the Russell 2000 are more interest-rate sensitive than their larger counterparts — research shows a significant proportion of their debt is floating rate.
  • Blackstone will buy a controlling stake in Tallgrass Energy LP for $3.3 billion, the latest move by a private equity firm to acquire a U.S. oil and natural gas pipeline developer. Singapore’s sovereign wealth fund will be a minority investor in the deal, which is expected to close in the first quarter, according to a statement Thursday.
  • U.S. activist fund Elliott Management Corp. raised its stake in Telecom Italia SpA in a move to back Chief Executive Officer Luigi Gubitosi as he prepares a new strategy for the struggling phone carrier. Elliott on Thursday disclosed a 9.4 percent stake in Telecom Italia, up from 8.8 percent previously, according to a filing with the U.S. Securities and Exchange Commission. Elliott, locked in a battle with Telecom Italia’s biggest investor — French media-conglomerate Vivendi SA — may boost its holding further, said people familiar with the matter.
  • The British automotive industry saw investment plunge last year as carmakers delayed decisions on upgrading machinery and factories amid mounting concern about the impact of a hard Brexit. Spending plunged 46 percent to 589 million pounds ($769 million), the lowest since the global financial crisis, the Society of Motor Manufacturers said in a statement Thursday.
  • The number of Chinese companies warning on earnings is turning into a flood, with no industry spared from worsening demand. Some 440 firms disclosed on Wednesday — the day before a deadline to do so — that their 2018 financial results deteriorated, according to data compiled by Bloomberg. Of the more than 2,400 mainland-listed firms that have announced preliminary numbers or issued guidance this season, some 373 said they’ll post a loss, the data show. About 86 percent of those were profitable in 2017.
  • Hanergy Thin Film Power Group Ltd., the Chinese solar equipment company whose shares have been suspended since 2015, is partnering with a maker of the flowing white robes worn by Gulf Arabs in a billion dollar industrial project in Saudi Arabia. The company “plans to work with Ajlan & Bros to build a thin-film solar industrial park,” Hanergy said in an emailed response to questions. The investment in the project will exceed $1 billion and will have a capacity of 1 gigawatts, it said.
  • Elon Musk appeared to be putting the days of wildly optimistic goals and unpredictability in the rearview mirror. Then he spooked Tesla Inc.investors with another surprise executive exit. The chief executive officer vowed on an earnings call to cut costs and manage Tesla’s cash as it enters a slower-growth period. Instead of madcap Musk, investors heard from a more measured CEO who had just missed analysts’ estimates for quarterly profit. He even made multiple mentions of the possibility there could be a recession.
  • Deutsche Bank AG executives are worried that they’re down to the last 60 days to turn around their struggling franchise. On the eve of fourth-quarter results that are likely to reflect its troubles, the bank’s ability to avoid a government-brokered merger with Commerzbank AG could rest on its performance in the first quarter of 2019, according to people briefed on the thinking of its top executives.
  • Facebook Inc. reported revenue that beat Wall Street estimates as advertisers stuck with the social media company through a series of privacy scandals. The company said fourth-quarter sales were $16.91 billion, ahead of the $16.4 billion analysts expected, with earnings topping expectations. The results sparked a share surge of more than 11 percent in pre-market trading in New York, poised to hit their highest level since late September.
  • Berry Global Group is considering a counter offer for RPC Group Plc, threatening to undermine a standing 3.32 billion-pound ($4.4 billion) deal the U.K. plastics maker reached last week with Apollo Global Management. U.S.-based Berry on Thursday requested due diligence on the maker of bottles for Kraft Heinz Co. sauce and Nivea face cream, sending RPC stock 4.7 percent higher in London.

*All sources from Bloomberg unless otherwise specified