January 8th, 2019

Daily Market Commentary

 

Canadian Headlines

• Canadian stocks ended Monday in the green after a weak start, with the S&P/TSX Composite Index gaining 0.5 percent. Information technology and consumer discretionary led the way while materials underperformed. Heavy Canadian crude surged to the strongest level in more than a year as rail shipments keep rising even as production was curtailed, while AltaCorp Capital was bullish on the marijuana sector.
• Heavy Canadian crude surged to the strongest level in more than a year as rail shipments keep rising even as production was curtailed. The discount of Western Canadian Select at Hardisty, Alberta, to West Texas Intermediate futures shrank $2.10 to $10.50 a barrel Monday, the narrowest since August 2017, data compiled by Bloomberg show. That’s from about $29 a barrel at the end of November, just before Alberta announced that producers would have to reduce output by 325,000 barrels a day in January to alleviate a glut caused by surging oil sands supply running into limited pipeline space.
• First Quantum Minerals Ltd. is poised to fire up a giant copper project in Panama, thousands of miles from its beleaguered mines in Zambia. For bondholders, that’s a welcome distance. The Canadian copper company is ramping up production at the Cobre Panamaplant this year, even as a mining tax hike forces it to shed jobs and cut production at its Zambian facilities. With Panama slated to become a more prominent place of operations, bondholders should benefit as Panama’s stronger credit rating feeds into the debt’s prices, First Quantum President Clive Newall said in an interview.

 

 

World Headlines

• European shares edged higher at the open with investors awaiting the outcome of new trade talks between the U.S. and China. The Stoxx 600 Index rose 0.3 percent, led by insurance and bank shares. Tech stocks fell after Korean giant Samsung reported quarterly profit and sales that missed estimates, while autos were little changed after Chinese carmaker Geely Automobile said sales would be flat this year.
• U.S. stock futures and European equities advanced Tuesday as investors awaited developments on trade talks between the world’s largest economies. Futures on the Dow, Nasdaq and S&P 500 all pointed to solid gains at the open after the U.S. expressed optimism that it could reach a “reasonable” deal with China in on-going trade negotiations.
• Markets across Asia appeared to be caught in a bit of a holding pattern, bidding modestly lower following an overnight gain in New York as investors awaited the outcome of the latest round of trade talks between the U.S. and China. Case in point: The MSCI Asia Pacific Index slipped 0.1 percent as of 4:57 p.m. in Hong Kong, with no major benchmark posting big moves. Hong Kong, Japan and Australia were up, while Shanghai, Taiwan and South Korea edged lower. Chipmakers took a hit after Samsung Electronics Co.’s latest quarterly profit and sales missed estimates.
• Oil extended its longest run of daily gains in 17 months on renewed efforts between the U.S. and China to reach a trade deal, and expectations the market will be tightened by OPEC’s output cuts. Futures in New York increased as much as 1.6 percent following six days of gains, the longest streak of increases since July 2017. There’s a “very good chance” the U.S. gets a reasonable deal with China, Commerce Secretary Wilbur Ross told CNBC Monday, as trade negotiations began in Beijing. Meanwhile, expectations for a nationwide decline in U.S. crude inventories alleviated worries about a supply glut.
• Palladium is holding onto gains from Friday’s rally that drove prices to fresh records above $1,300 an ounce. Its premium over gold widened as the yellow metal declined. A shortage of supply has seen outflows from exchange-traded funds backed by palladium, bringing holdings to near the lowest since 2009. Spot prices are trading at a premium of more than $50 an ounce to the most active futures. Gold slipped as equities firmed and the dollar rose, with markets awaiting the outcome of trade talks between the U.S. and China.
• President Donald Trump is eager to invoke a national emergency to bypass an unwilling Congress and build a border wall, according to two people familiar with his thinking, a dramatic move that would test the limits of presidential power. Trump raised the sense of urgency with an announcement he will address the nation in prime time Tuesday on the “national security crisis” at the border. Whether he exercises emergency powers depends on whether his lawyers conclude it’s a legally defensible move. And that may hinge on the interpretation of an obscure legal provision allowing the Defense Department to shift military construction funds during a crisis.
• Bandhan Bank Ltd., India’s newest lender, will combine with mortgage financier Gruh Finance Ltd. in a $11.7 billion deal, bringing the bank closer to meeting shareholding rules and helping it accelerate expansion. Investors in Gruh Finance, controlled by Housing Development Finance Corp., India’s biggest mortgage lender, will get 568 shares of Bandhan Bank for every 1,000 they own, according to exchange filings from the companies. The deal is valued at about 818 billion rupees ($11.7 billion), calculations based on closing share prices on Monday showed.
• Fifth-generation wireless technology may one day handle sci-fi tasks like guiding driverless cars, but today’s consumers are more concerned with making their phones work faster — and that’s not lost on mobile carriers headed to CES in Las Vegas. In coming weeks, AT&T Inc. will introduce an interim “5G E” service that promises 50 percent faster internet speeds in many places. Verizon Communications Inc. was out first in September with a 5G home service, pitching ultra-high-definition TV and speeds up to 20 times faster.
• London’s Heathrow airport aims to boost capacity even before a new runway opens, employing measures including a rejigging of the way two existing landing strips are used to add 25,000 aircraft movements a year at Europe’s busiest hub. The project, revealed Tuesday as part of a consultation process on the 16 billion-pound ($20 billion) third runway, may stir controversy by introducing disruption for local residents years before that strip comes into use in 2026. The extra flights would represent about 5 percent more than a current cap.
• Sika AG unveiled its biggest-ever acquisition with the purchase of private equity-owned Parex Group for 2.5 billion Swiss francs ($2.6 billion), a move that will allow the Swiss building materials supplier to expand into construction markets from France to China. Sika’s planned purchase of Parex from private equity firm CVC Capital Partners will double the size of its mortars business and generate as much as 100 million francs in savings, as well as boosting earnings in the first full year of ownership, it said on Tuesday.
• The European Union sanctioned an Iranian intelligence service and two natives of Iran for an alleged bomb plot in France, highlighting the bloc’s stick-and-carrot approach to the geopolitical challenges posed by Tehran. The EU decided on Tuesday to freeze the assets of the Directorate for Internal Security of the Iranian Ministry for Intelligence and Security and of individuals identified as Assadollah Asadi and Saeid Hashemi Moghadam, according to a document seen by Bloomberg News. The move, which mirrors French sanctions, is due to be published in the EU Official Journal on Wednesday.
• Kim Jong Un is making his fourth visit to China, in a sign that the North Korean leader is seeking Chinese President Xi Jinping’s counsel ahead of a possible second summit with Donald Trump. Kim left Pyongyang Monday for a visit slated to end Thursday, North Korean and Chinese state media reported. Kim was invited by Xi and accompanied by his wife Ri Sol Ju and several top officials on his train journey across the border, the state-run Korean Central News Agency said.
• Samsung Electronics Co.’s quarterly profit and revenue missed estimates on sputtering demand for memory chips during the last three months of 2018, the same period when Apple Inc. saw anemic sales in China. The South Korean company’s operating income fell to 10.8 trillion won ($9.6 billion) in the quarter that ended in December, according to preliminary results released Tuesday, falling short of the 13.8 trillion-won average of analysts’ estimates compiled by Bloomberg. Deteriorating relations between the U.S. and China — Samsung’s two biggest export destinations — has hit demand for memory used in everything from personal computers to mobile devices, raising the pressure on a company struggling to revitalize its smartphone business. Compounding that challenge is weakness at Apple, a major customer of components; the iPhone maker stunned global markets last week when it cut its sales outlook for the first time in almost two decades.
• A dramatic plunge in German industrial activity late last year raised the risk that Europe’s largest economy will slip into recession. Production fell for a third month in November and posted its worst year-on-year drop since the end of the financial crisis, with weakness in everything from consumer goods to energy. A slump in Germany has repercussions for the euro area, where separate numbers on Tuesday showed economic confidencehas fallen to the lowest in almost two years.
• The partial U.S. government shutdown has docked fishing boats in Alaska, delayed public meetings on a proposed wind farm off the Massachusetts coast and blocked pharmaceutical companies from seeking approval for new drugs. But the Trump administration is working overtime to make sure the shutdown doesn’t halt oil drilling too — in ways critics say may flout federal law.
• Chinese authorities planned to give a statement following the latest round of U.S. trade talks on Tuesday in Beijing, after both sides signaled progress toward resolving a conflict that has roiled markets. “The talks are still underway and I believe we will release a detailed readout after they are concluded,” Chinese foreign ministry spokesman Lu Kang told reporters at a regular briefing Tuesday in Beijing. No timing was given and it wasn’t immediately clear if the U.S. would release a statement. U.S. Commerce Secretary Wilbur Ross expressed optimism on Monday, telling CNBC that “there’s a very good chance that we’ll get a reasonable settlement.” Vice Premier Liu He made an appearance at the talks on Monday in a sign the Chinese were also pushing for a positive outcome.
• Siemens AG and Alstom SA are pushing ahead with the sale of train-equipment assets in a bid to salvage their rail merger amid European Union antitrust scrutiny, people with knowledge of the matter said. Companies including Hitachi Ltd., Wabtec Corp., Switzerland’s Stadler Rail AG and Thales SA submitted offers by a deadline earlier this month, the people said, asking not to be identified because the auction is private. As part of the bundle, the companies are selling off signaling operations and some high-speed rail assets, the people said. The package may include Alstom’s Pendolino trains or the Velaro trains used by Eurostar as well as a five-year license for the new Velaro Novo models, the people said.
• Canaan Inc., China’s second-biggest maker of Bitcoin mining hardware, is considering listing in the U.S. after shelving plans for a Hong Kong initial public offering, people with knowledge of the matter said. The Chinese company, which was earlier targeting to raise about $1 billion, is discussing the possibility of selling shares in New York as soon as the first half, according to the people. Deliberations are at an early stage, and there’s no certainty they will lead to a transaction, the people said, asking not to be identified because the information is private.
• For the Federal Reserve, 2019 has started out looking a lot like 2016: the last time uncertainty over global growth roiled financial markets for months on end. Fed Chairman Jerome Powell pointed to the 2016 episode Friday to underscore the U.S. central bank’s ability to be flexible when necessary, recalling the Fed held interest rates steady almost all year. But while officials still have the option to press pause on their campaign of gradual rate hikes again, it may not have such a calming influence this time around.
• Oracle Corp. founder Larry Ellison has emerged as the second-biggest individual investor in Tesla Inc. with a holding worth $1 billion in the electric carmaker. His stake was confirmed in a filing Tuesday with the U.S. Securities and Exchange Commission. The disclosure came after Ellison, a close friend of Tesla Chief Executive Officer Elon Musk and a fellow larger-than-life technology titan, became a director in December. Ellison, 74, indirectly owns 3 million Tesla shares through the Lawrence J. Ellison Revocable Trust, according to the filing. The 1.75 percent stake makes him the second-largest disclosed individual shareholder after Musk, who owns about a fifth of the company, according to data compiled by Bloomberg. Tesla announced Ellison’s appointment to the board in December.
• The U.S. government shutdown has thrown some key economic measures into the dark, forcing analysts to focus on alternative data to gauge the effects of a trade war and the pace of growth in recent weeks. The Commerce Department, which houses the statistics-issuing Census Bureauand Bureau of Economic Analysis, is among the agencies — covering about 25 percent of government funding — that lack approved spending. That puts on hold the November international-trade data originally scheduled for Tuesday morning in Washington, following the postponement of reports on factory orders, construction spending and new home sales.

*All sources from Bloomberg unless otherwise specified