January 3rd, 2019

Daily Market Commentary


Canadian Headlines

·         Barrick Gold Corp.’s new chief executive officer has a message for the gold industry: This is just the start of a big shake-up. Barrick agreed to buy smaller rival Randgold Resources Ltd. in a $5.4 billion deal announced in September. As part of the agreement, Randgold’s CEO, Mark Bristow, became the chief executive of Barrick, the world’s biggest gold miner. “Without a doubt, this industry needs transformation,” Bristow said in an interview from New York, where the combined company started trading Wednesday. “We believe we have started that. We’re going to end up with a blue-chip business and on the way we’re not going to be sitting on our hands should there be other opportunities.”

·         China’s top prosecutor said he was certain two Canadian citizens detained in the country violated local laws and regulations and that both men remain under investigation. “There is no doubt that the two Canadian citizens have violated China’s laws and regulations,” Zhang Jun, head of the Supreme People’s Procuratorate, said Thursday during a briefing in Beijing. “The investigation is in line with the due process of law, and we believe it will proceed accordingly.”

World Headlines

·         Traders braced for another dose of the turbulence that ruled equities all December after reduced guidance at Apple Inc. sent U.S. futures tumbling. News that the iPhone maker cut its first-quarter revenue forecast had something for everyone who has panicked over U.S. stocks in the last few months. Concern about the pace of growth in China, the impact of the U.S. tariff war and the general state of technology valuations all got an airing in the reaction to Apple’s warning. Contracts on the S&P 500 Index fell 1.6 percent at 10:35 a.m. in London. Nasdaq 100 futures extended losses and sank 2.8 percent. Apple comprises 9.7 percent of the Nasdaq 100 and 3.4 percent of the S&P 500.

·         European shares fell as Apple Inc.’s cut to its sales forecast reinforced concerns over global growth and pummeled technology shares. The Stoxx Europe 600 dropped 0.8 percent as of 8:05 a.m. in London, led by the technology sector. Apple supplier ams AG lost 12 percent, while Dialog Semiconductor Plc slid nearly 7 percent.

·         The won led a decline in most Asian currencies after a revenue warning by Apple Inc. added to concerns over slowing global growth. North Asian stocks fell, while emerging-market sovereign bonds were mainly lower.

·         Oil retreated from a two-week high amid increasing concerns over economic growth in China, the world’s second-biggest consumer of crude. Futures in New York decreased 0.7 percent, recouping some of its earlier losses of as much as 2.6 percent. European stocks and U.S. equity-index futures slumped as Apple Inc. cited an unforeseen slowdown in China and cut its sales outlook, just days after data showed weakening factory conditions across Asia. Crude gained on Wednesday on signs that OPEC made an early start on its pledged output curbs.

·         Spot gold extends its rally to a fresh six-month high, closing in $1,300/oz for the first time since June. Haven demand has risen amid equity market losses and concern about global growth. Producers of the metal are also benefiting from the metal’s rise, with South Africa’s AngloGold Ashanti up 55% since the end of September, while rival Gold Fields has gained 50%. However, there are signs that the rally may be set for a correction, with gold’s 14-day relative strength index above 70, the level which some chart-watchers interpret to mean a market has been overbought.

·         China will cut the reserve requirement ratio and improve funding conditions this month, as liquidity tightens toward the Spring Festival holidays, the country’s largest securities firm says. Fresh demand for funds will amount to nearly 4.3 trillion yuan ($625 billion) in January, according to Citic Securities Co. and Bloomberg calculations. Mainland residents will withdraw 1 trillion yuan of cash in preparation for the holiday, when money is gifted in red envelopes. Corporate tax payments and maturities of lenders’ interbank debt will also mop up liquidity, prompting authorities to step up cash injections.

·         An idle offshore U.S. natural gas terminal will receive a Russian cargo, its first import in almost three years, even as American exports of the fuel climb to a record amid the shale boom. The liquefied natural gas tanker Exemplar will unload at the Northeast Gateway deepwater buoy system in Massachusetts Bay, said Denise Madera, a spokeswoman for Excelerate Energy LP, which owns both the tanker and the import facility. The super-chilled gas is 100 percent sourced from the Yamal export terminal in Siberia, the second cargo from that facility into the region in the past year, according to Kpler SAS and vessel-tracking data compiled by Bloomberg.

·         President Donald Trump has gained little leverage with Democrats two weeks into the partial government shutdown of his own making, with fewer possible escape routes and a more treacherous path ahead as the GOP relinquishes control of the House. Trump turned to the bully pulpit on the first work day of the new year with a stream of tweets and an extended televised cabinet meeting to press his case for funding the construction of a wall along the U.S.-Mexico border. Later, he and top congressional leaders met for what was billed as a briefing on border security issues in the Situation Room at the White House.

·         Bristol-Myers Squibb agreed to acquire Celgene Corp. in a $74 billion cash-and-stock deal, to create a pharmaceutical giant that will rival the world’s biggest drugmakers. Celgene shareholders will get one Bristol-Myers Squibb share and $50 in cash for each Celgene share held, according to a statement Thursday. That would value Celgene shares at $102.43 each, a 54 percent premium to the Jan. 2 closing price.

·         Apple Inc. cut its revenue outlook for the first time in almost two decades citing weaker demand in China, triggering a slump for Asian suppliers and a wave of lower price targets on Wall Street. Chief Executive Officer Tim Cook said sales will be about $84 billion in the quarter ended Dec. 29, down from earlier estimates of $89 billion to $93 billion. Apple posted sales of $88.3 billion in the fiscal first quarter a year earlier, so the new forecast would mean Apple is reporting a holiday quarter slowdown for the first time since Cook became CEO in 2011.

·         China is back in the market for U.S. soybeans after taking a holiday break as Washington and Beijing plan more trade discussions. Cofco Corp., China’s biggest food company, is asking for prices, according to four traders familiar with the process, who asked not to be identified because talks are private. The inquiries would be for February and March delivery, three of the traders said. While there’s market talk that some purchases have been concluded, both Cofco and state stockpiler Sinograin declined to comment. The renewed interest comes as trade officials from the two countries are scheduled to sit down in Beijing next week for the first face-to-face negotiation since President Donald Trump and his counterpart Xi Jinping agreed to a 90-day truce to their trade war last month. The prospect of more buying sent futures in Chicago up 1.3 percent on Wednesday.

·         Indonesia is set to test investor appetite for emerging-market assets with its first bond auction of 2019. The Finance Ministry’s sale on Thursday will be closely watched for an early gauge of sentiment toward developing Asian bonds, which fell prey to higher U.S. yields and global growth concerns last year. Rupiah sovereign debt lost 1.8 percent in 2018, the second-worst performance among 34 sovereign markets tracked by Bloomberg. With rates traders now betting that the Federal Reserve will hold fire this year, Indonesia’s sale may catch a bid from yield-hungry investors. Domestic factors also augur well: the rupiah has recovered from a two-decade low and the authorities remain ready to defend onshore markets after unveiling a slew of measures to provide support.

·         Manhattan home prices fell in the fourth quarter, with the median slipping to less than $1 million for the first time in three years, as ample inventory continued to allow buyers to demand sweeter deals. Condo and co-op prices declined to $999,000 in the three months through December, a drop of 5.8 percent from a year earlier, appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate said in a report Thursday. Many apartments were sold for less than sellers originally sought, with an average discount of 6.2 percent from the last list price. That’s up from price cuts of 5.4 percent a year earlier.

·         Analysts on Wall Street lowered their share price targets for Apple Inc. after the technology titan cut its revenue outlook for the first time in almost two decades. At least six firms reduced their share price forecasts for the iPhone maker by more than 15 percent after Chief Executive Officer Tim Cook said Wednesday that the company expects sales of about $84 billion in the quarter ended Dec. 29, down from earlier estimates of $89 billion to $93 billion. The new estimate would mean Apple is reporting a holiday quarter slowdown for the first time since Cook became CEO in 2011.

·         As the U.S. wraps up a year of surprisingly strong job growth, such gains are unlikely to repeat in the next 12 months with economic headwinds intensifying for the country and rest of the world. The final report for 2018 is forecast to show employers added 180,000 jobs in December to cap a 2.45 million annual increase, the most since 2015 — but the monthly estimate is the lowest median projection since last January. Economists surveyed by Bloomberg expect that to slow in 2019 to an average monthly pace of 156,000, for a 1.87 million total followed by 1.44 million in 2020, when President Donald Trump is up for re-election.

·         The currency market’s so-called witching hour struck again on Thursday, to the detriment of traders who were long the Australian dollar and Turkish lira. The window of trading in the global day between the close in New York and the open in Tokyo has become notorious in recent years as thin liquidity exposes financial markets to rapid swings. Foreign-exchange volumes dwindle to just 2 percent of peak turnover during this period, according to data from consultancy Aite Group issued in 2016. In January 2016, South Africa’s rand tumbled as much as 9 percent in minutes, while the pound plummeted more than 6 percent in a few frenzied minutes in October that year. Add the yen to the list now.

·         It took seven minutes for the yen to surge through levels that have held through almost a decade. In those wild minutes from about 9:30 a.m. Sydney, the yen jumped almost 8 percent against the Australian dollar to its strongest since 2009, and surged 10 percent versus the Turkish lira. The Japanese currency rose at least 1 percent versus all its Group-of-10 peers, bursting through the 72 per Aussie level that has held through a trade war, a stock rout, Italy’s budget dispute and Federal Reserve rate hikes.


*All sources from Bloomberg unless otherwise specified