January 9th, 2019

Daily Market Commentary


Canadian Headlines

  • Canadian heavy crude extended its surge as one of Alberta’s largest oil-sands producers said its mandatory February oil production curtailment will be similar to January’s. Western Canadian Select’s discount to West Texas Intermediate futures narrowed $1.50 to $9 a barrel Tuesday, the tightest since April 2017, data compiled by Bloomberg show. The February production limit set for Cenovus Energy Inc. by Alberta’s government is “roughly in line” with the company’s January quota, spokesman Brett Harris said in an email.
  • TransCanada intends to change its name to TC Energy, which “better reflects” the scope of the company’s business, according to CEO Russ Girling.



World Headlines

  • Stocks gained from Europe to Asia and U.S. futures rose as America and China concluded three days of trade talks on an optimistic note. West Texas oil climbed above $50 and most industrial metals advanced after the Asian nation stepped up measures to spur consumption. The Stoxx Europe 600 Index increased a second day led by carmakers and technology companies after Hong Kong stocks set the pace for Asian benchmarks.
  • Futures on the S&P 500, Dow Jones and Nasdaq all extended gains, with U.S. President Donald Trump’s address to the nation on border security doing little to disrupt the risk-on mood. The dollar dipped and Treasury yields edged higher before the release of minutes from the Federal Reserve’s December meeting that may offer insight into the decision to raise interest rates in the face of plunging equities and pressure from Trump.
  • Hong Kong’s benchmark Hang Seng Index and the Philippine Stock Exchange Index both climbed more than 2 percent each to lead the charge, as Japan, South Korea, Taiwan and others also rose. The MSCI Asia Pacific Index was up 1.3 percent as of 5:14 p.m. in Hong Kong, making its five-day winning streak its biggest gain since early November.
  • Brent oil extended its longest rally in a year and a half, rebounding above $60 a barrel, on hopes of a resolution in the U.S.-China trade dispute. Futures in London — which last traded over $60 in December — are up for an eighth session, recovering from a 35 percent collapse in the last quarter of 2018. U.S. President Donald Trump is said to be eager to strike a deal with China soon to perk up financial markets that have slumped on concerns over a trade war between the nations. Meanwhile, an industry report Tuesday was said to show American crude inventories declined.
  • Gold declined for a second day as optimism over the outcome from trade talks between the U.S. and China spurred appetite for risk, with global equities rising. Palladium motored to another record. China and the U.S. concluded trade talks that were extended by one day, and China will release a statement soon on the result, a government spokesman said in Beijing. President Donald Trump is increasingly eager to strike a deal in an effort to perk up financial markets that have slumped on concerns over the trade war, according to people familiar with White House deliberations.
  • Natural gas extended gains as U.S. pipeline exports to Mexico rose to the highest in two months. February futures climbed as much as 1.8 percent in New York after advancing 0.8 percent on Tuesday. The fuel spiked in November near $5 per million British thermal units on concern an early cold spell would drain low stockpiles, but prices have since eased to about $3 amid warmer weather and below-average inventory draws.
  • The growth engine for the world’s car industry has been thrown into reverse, with China recording the first annual slump in auto sales in more than two decades — though progress in trade talks with the U.S. and planned government incentives offer a ray of optimism. Sales in the world’s biggest market fell 6 percent to 22.7 million units last year, the China Passenger Car Association said Wednesday. The trade war and a slump in Chinese stocks have put off buyers in an industry where warning lights are already flashing worldwide.
  • A rare flurry of schedule changes by regional legislatures across China suggests that President Xi Jinping may be clearing the calendar for a long-awaited Communist Party gathering later this month. Nearly half of China’s 31 regions that normally hold annual legislative and advisory meetings have suddenly rescheduled them this month, to create a window from January 19 to 22. That’s the usual length of time required for a full meeting of the party’s Central Committee, which involves more than 200 officials from the government, military and state-owned enterprises. In some cases, the schedule changes came shortly after provinces had announced their dates. Anhui, part of China’s breadbasket west of Shanghai, had initially set the date of its gathering on December 21.
  • Donald Trump summoned the nation’s attention to the Oval Office on Tuesday for a prime time pronouncement on the border wall standoff at the center of the government shutdown. Then, he offered nothing new. Instead, Trump used the president’s most symbolic and powerful perch — traditionally reserved for times of war or calls for national unity — to rattle off familiar statistics, renew complaints about Democratic criticism of his plan to build a wall on the Mexican border and reprise ominous anecdotes of brutal crimes committed by people he said were in the country illegally.
  • As the U.S. government kicks off its debt sales this year, here’s one potentially worrisome sign for traders to keep in mind: the steep decline in demand at its bond auctions. Of the $2.4 trillion of notes and bonds the Treasury Department offered last year, investors submitted bids for just 2.6 times that amount, data compiled by Bloomberg show. That’s less than any year since 2008. The bid-to-cover ratio, as it’s known, fell even as benchmark Treasury yields soared to multi-year highs in October, before falling back to their lows last month.
  • China and the U.S. wrapped up three days of trade talks, with people familiar with the discussions saying their positions were closer on areas including energy and agriculture but further apart on harder issues. Beijing will be releasing a statement soon on the negotiations, Chinese foreign ministry spokesman Lu Kang said, adding that a one-day extension shows both sides are serious about the talks. Some disagreements remain on structural issues and they need to be addressed when more senior negotiators meet later on, according to Chinese officials involved in the discussions who asked not to be identified.
  • A $4.7 billion jury verdict against Johnson & Johnson in July helped spark the company’s biggest annual share loss in a decade, spotlighting the potential cost of alleged health risks from its popular baby powder. But investors may have overreacted when a St. Louis jury sided with 22 women who claimed asbestos in the powder caused their ovarian cancer. While the award was eye-popping — the sixth-largest ever in a product-defect case — J&J may pay far less, or nothing. No verdict of that size has survived appeal. Indeed, of the 25 largest U.S. jury awards, 23 were reversed, drastically cut or against defendants with few or no assets who couldn’t pay, according to data compiled by Bloomberg. The remaining two, including the one against J&J, are being appealed. Most such revisions are by judges overruling angry jurors or enforcing court-imposed limits on punitive damages.
  • HNA Group Co. sold a building in Manhattan to help ease the embattled conglomerate’s debts and stave off U.S. concerns about a Chinese company owning property near Trump Tower. HNA completed the sale, the group said in a statement, without providing details. Bisnow reported earlier that investor and real estate developer Jacob Chetrit and his sons bought the tower in a $422 million transaction that resulted in a loss for HNA. The Chinese group, which bought the tower for $463 million with its partners before Donald Trump became president, had been trying to sell the property since at least early 2018.
  • Frankfurt prosecutors obtained a list of more than 900 clients from Deutsche Bank in a tax evasion case commonly known as the Panama Papers, a key piece of evidence in an investigation that spurred a raid at the German lender’s headquarters in November. The list contains the names of individuals and entities mostly located outside Germany, the people said, asking not to be identified discussing confidential information. The raid by law enforcement officials focused on the role of a former Deutsche Bank wealth management entity in the British Virgin Islands.
  • Electricite de France SA’s Italian unit has attracted potential bidders including Neptune Energy and Warburg Pincus’s Apex International Energy for its oil and gas business, people familiar with the matter said. Bidders for Edison SpA’s exploration and production assets, primarily located in Egypt and Italy, may offer as much as $2 billion, the people said, asking not to be identified because the auction is private. Other competitors including L1 Energy’s DEA Deutsche Erdoel AG could also look at the business, though the firms may still choose not to make offers ahead of a deadline this month, they said.
  • When CBS Corp. board members go to Los Angeles for their Jan. 31 meeting, they’ll have more on the agenda than just a tour of the local TV studios. The 11-member panel is expected to discuss both the hunt for a permanent chief executive officer and the possibility of a merger with Viacom Inc., according to people familiar with the situation. The directors are likely to ask CBS’s financial advisers to look at strategic options — including, but not limited to, a possible Viacom deal — said the people, who asked not to be identified because the deliberations are private. A decision on whether to pursue a tie-up could come within weeks.

*All sources from Bloomberg unless otherwise specified