March 28, 2019

Daily Market Commentary


  • Canadian Headlines
    • Canadian stocks dropped Wednesday as pot-sector weakness stole the spotlight. The S&P/TSX Composite Index fell 0.1 percent to 16,132.53. The Horizons Marijuana Life Sciences ETF fell 3.7 percent, most since February 6. Energy stocks also underperformed. Separately, Newmont Mining Corp. announced that Glass, Lewis & Co. has joined Institutional Shareholder Services Inc. as the second independent proxy advisory firm to recommend that Newmont and Goldcorp shareholders vote for the proposed combination.
    • China is ramping up pressure on Justin Trudeau in a feud that already had the Canadian prime minister facing few good options. The Asian nation halted certain canola shipments from Canada this month in the aftermath of last year’s arrest of a top Huawei Technologies Co. executive in Vancouver on an American extradition request. Officials in Beijing are now, in the same breath, defending the canola move and invoking Canadian “previous mistakes,” in an apparent nod to the arrest of Meng Wanzhou, the tech giant’s chief financial officer and daughter of its founder. Trudeau doesn’t have a clear solution. His government can’t legally intervene in Meng’s case at this point, even after President Donald Trump hinted she could be a bargaining chip in U.S.-China trade talks. The prime minister was already grappling with China’s continued detention of two Canadians on national security grounds and a looming decision on banning Huawei from his country’s next-generation wireless networks. Now he’s getting an earful from farmers whose crops are being turned away.
    • A group spearheaded by First Nations plans to bid for 51% stake in Trans Mountain pipeline, Globe & Mail reports, citing an interview with Delbert Wapass, former chief of the Thunderchild First Nation.

    World Headlines

    • European equities opened little changed as investors rotated out of more defensive sectors, like utilities, and into miners. The Stoxx Europe 600 Index was up less than 0.1 percent. Swedbank AB tumbled 3.8 percent ahead of its annual general meeting today. The FTSE 100 Index added 0.2 percent and the pound was weaker after the U.K. Parliament rejected eight possible options for a new Brexit strategy, leaving the outlook for the separation all the muddier.
    • The global bond rally showed signs of easing Thursday, with Treasuries turning lower alongside most sovereign debt in Europe. Stocks rose in the region while U.S. equity futures drifted. Contracts on the S&P 500 pointed to a flat open, while the Stoxx Europe 600 climbed for a third day. Shares slumped in Japan and fell in China and South Korea. Recent data showing weakness in U.S. housing and consumer sentiment fed into the growth concerns that have helped stoke the global bond rally over the past week. After the Fed last week confirmed its intention to stop raising rates, futures are suggesting at least one quarter-point cut.
    • Japanese stocks fell after European Central Bank President Mario Draghi said an accommodative stance is still needed, escalating concerns surrounding global economic growth. The day’s losses made Japan the world’s worst performer among developed markets, highlighting how sensitive the nation’s stocks are to economic indicators in the U.S. and Europe. Earlier in the week, the benchmark rebounded 2.6 percent as slowdown fears abated. The benchmark’s volatility measure rose to its highest since January, with the average absolute move in the Topix this week at about 1.8 percent. The benchmark is headed for its first monthly decline this year.
    • Oil fell for a second day after an unexpected jump in U.S. crude stockpiles unnerved a market already anxious about faltering global demand. Futures in New York dropped as much as 0.6 percent after losing 0.9 percent on Wednesday. American oil inventories grew by 2.8 million barrels last week, government data released Wednesday showed, compared with analyst estimates for a 2.5 million barrel decline. In wider markets, Asian stocks fell as gains in developed-market bonds added to pessimism over the economic outlook.
    • Gold steadied and the dollar extended gains, while bonds continued to rally and equities faltered amid global growth concerns. Palladiumfell further after posting the biggest decline since August on Wednesday. The yield on 10-year Treasuries dropped to the lowest since December 2017, with recent data showing weakness in U.S. housing and consumer sentiment stoking concerns over the health of the economy. Fed funds futures are now pricing in more than 30 basis points of easing by the end of 2019, suggesting at least one quarter-point cut.
    • President Donald Trump for the first time weighed in on reforming Fannie Mae and Freddie Mac. But his outline fell far short of an actual proposal to free the mortgage giants from U.S. control, leaving unresolved the political challenges that have scuttled prior efforts. The widely anticipated presidential memorandum, released by the White House Wednesday, is best described as a plan for a plan. It calls on the Treasury Department to write a proposal for ending federal conservatorship of Fannie and Freddie and increasing competition for the companies.
    • Saudi Aramco, the world’s biggest oil producer, will buy a majority stake in local chemical giant Sabic from the kingdom’s sovereign wealth fund for $69.1 billion, transferring a big slug of cash from one arm of the state to another to help finance Crown Prince Mohammed bin Salman’s economic agenda. The Middle East’s biggest ever deal had been first mooted last year after the initial public offering of Aramco was postponed because investors balked at the crown prince’s $2 trillion valuation. Aramco’s purchase of the Sabic stake gets funds to the PIF by a different route.
    • Some of the biggest players in distressed debt are proposing a $35 billion plan that would allow California utility giant PG&E Corp. to emerge from bankruptcy within a year, according to people familiar with the matter. Pacific Investment Management Co., Elliott Management Corp. and Davidson Kempner Capital Management have been meeting with California lawmakers and other stakeholders to discuss the proposal, the people said, asking not to be identified because the discussions are private. The plan would establish a $14 billion cash trust to pay for claims tied to the deadly 2017 and 2018 wildfires that forced the utility to declare bankruptcy, according to the proposal seen by Bloomberg News.
    • Even after promising to resign, Theresa May is still short of numbers to get her Brexit deal through Parliament. Winning over her Northern Irish allies in the DUP is key, so expect a flurry of London-Belfast diplomacy today. If that doesn’t work, there are few options left and none of them are palatable for the prime minister: a long extension that probably leads to a softer Brexit, a general election, or even a second referendum.
    • Airbus SE is leading stock gains in Paris this year following a $35 billion plane order from China and chief rival Boeing Co.’s struggles with trade disputes and the grounding of its most important airliner, the 737 Max. Airbus’s 38 percent share surge in the first quarter is the best performance on France’s benchmark CAC 40 Index and third-best on the 101-member Stoxx 600 Industrial Goods & Services index. The gain is more than double Boeing’s 16 percent increase in the period.
    • Sprint Corp.’s argument that it will be left a corporate weakling if it’s not allowed to merge with T-Mobile US Inc. is meeting resistance from some U.S. officials vetting the $26.5 billion wireless deal. Sprint is telling regulators behind closed doors that it won’t be an effective competitor if they block the merger, according to five people familiar with the matter. Some officials are skeptical of that argument, four of the people said. One of the people said Sprint asserted it may eventually run out of cash if the merger fails.
    • The fourth-quarter sell-off in U.S. stocks and credit seems to have accurately presaged a weakening in economic data, along with a dovish Federal Reserve pivot. That may help explain why some market observers are discussing the potential for an interest-rate cut. Matthew Hornbach, head of interest-rate strategy at Morgan Stanley, said in a report Monday that his bank’s economists still forecast a hike in December. Yet he argued a reduction would fit with the “framework for this Fed — one that wants to ‘keep the party going,”’ should economic data continue to disappoint and the recent Treasury yield-curve inversion stretch beyond the central bank’s meeting in June.
    • Wow Air Hf ended operations after failing to reach an agreement with investors that would have pumped fresh cash into the Icelandic discount carrier. All 29 flights scheduled for Thursday were canceled and some 2,700 stranded passengers were asked to check with other airlines to get to their destinations, Wow said in a statement on its website.
    • Chinese telecommunication equipment giant Huawei Technologies Co. is putting U.K. national security at risk by failing to improve its devices and software, according to a report by its oversight body. The annual report by the watchdog, which examines how the company conducts its U.K. operations and is funded by Huawei, concluded it has not seen anything to give it confidence in Huawei’s ability to improve defects in cyber security and software engineering.
    • Don’t expect a major pact on China’s yuan. That’s what analysts are saying as U.S. officials arrive in Beijing for another round of negotiations for a comprehensive trade deal. Questions remain over why China would acquiesce beyond existing multilateral commitments to avoid competitive devaluation of the yuan. There’s also skepticism about how any exchange-rate pledge can be enforced in an economy noted for its opacity. While U.S. Treasury Secretary Steven Mnuchin stoked expectations for the “strongest ever” currency agreement, Chinese officials including central bank governor Yi Gang have talked about the need to respect “autonomy” and hosed down suggestions for a one-sided deal.
    • Recent trade troubles suspected of slowing Chinese imports of Australian coal won’t be a boon for Indonesia as supply from the world’s top exporter isn’t of high-enough quality to be a replacement, according to its main industry group. China’s rising demand for Indonesian coal since mid-February, and resulting higher prices, was due instead to Beijing easing curbs on all imports at the start of the year, which coincided with supply cuts in Indonesia, said Hendra Sinadia, executive director of the Indonesian Coal Mining Association.
    • JPMorgan Chase & Co. is dismissing hundreds of workers in its asset and wealth-management division after a periodic review of staffing, according to a person briefed on the matter. The bank is reducing the number of employees in support roles across the unit and laying off some wealth-management workers, said the person, who asked not to be identified discussing internal strategy. The reductions are being made globally.
    • By some measures, Turkish stocks are the cheapest in decade after a lira shortage engineered by the government spurred the worst slump since a failed coup in 2016. A four-day, 11 percent rout in the Borsa Istanbul 100 Index sent its valuation to the lowest level since 2009, as investors dumped equities after the government made it virtually impossible for them to sell the local currency. The gauge now trades below 5.7 times projected earnings, only a shade better than 5.6 for Russia, the cheapest emerging market.
    • Shaken by last year’s drop in oil prices, U.S. explorers are finding themselves squeezed between a recently frail energy junk-bond market and banks taking a cautious look at their credit lines. Over the last year, drillers notorious for depending on borrowed money have faced pressure from shareholders to cut spending, a development with global implications if it slows the U.S. shale boom. Now, they’re in a period when banks assess the value of oil and natural gas reserves, and then decide whether to boost or cut credit lines. The appraisal comes as new bond issues are set to hit multi-year lows, and it follows a year when energy was the worst performing sector within the high-yield bond market. That could make companies more dependent on bank loans, a potential problem for those with credit lines that are nearly maxed out.
    • Nomura Holdings Inc. is planning to cut dozens of jobs across its trading and investment-banking businesses in Europe and the U.S. as the brokerage struggles to make a profit overseas, people familiar with the matter said. Executives at the Tokyo-based firm may shed more than 100 traders and bankers across its overseas units, according to the people, who requested anonymity as the information isn’t public. The bulk of the reductions are likely to come at Nomura’s troubled European business, which has lost billions of dollars in the past decade, the people said.

*All sources from Bloomberg unless otherwise specified