May 23rd, 2019

Daily Market Commentary

  • NEWS
  • Canadian Headlines
    • Canadian stocks bounced off their session lows but still closed at the lowest level in a week as a disappointing start to bank earnings season and trade tensions weighed on the benchmark. The S&P/TSX Composite Index lost 0.6% to 16,327.35, the biggest drop in six sessions. Materials slid 2% and energy stocks fell 1.6% following news that the White House is targeting more Chinese technology firms, which hit commodity prices. Financials lost 0.7% as Canadian Imperial Bank of Commerce fell about 4.3%, the most since 2011. The bank kicked off the sector’s second-quarter earnings season with a miss amid shrinking domestic mortgages and net interest income.
    • TD has long been the leader among Canadian banks in terms of domestic net interest margins, the difference between what a bank charges for loans and pays for deposits. The country’s second-largest lender posted a NIM of 2.87% in its domestic personal-and-commercial banking division in the fiscal second quarter, the highest in at least two years. Second-quarter net income rose 8.8% to C$3.17 billion, or C$1.70 a share, from C$2.92 billion, or C$1.54, a year earlier, the company said Thursday in a statement. Adjusted per-share earnings totaled C$1.75, beating the C$1.68 average estimate of 14 analysts in a Bloomberg survey.
    • Canada’s biggest mortgage lender is weathering the industrywide cool-down in home loans. Royal Bank of Canada has outperformed rivals for the past year by expanding mortgage balances by about 5% each quarter from a year earlier and surpassing the industry’s 3.2% growth rate, which is at a 17-year low. Domestic mortgage balances at the Toronto-based bank rose 5.2% to C$252.6 billion ($187.5 billion) in the fiscal second quarter, as the company beat analysts’ earnings estimates. Second-quarter net income rose 5.6% to C$3.23 billion, or C$2.20 a share, from C$3.06 billion, or C$2.01 a share, a year earlier. Royal Bank said adjusted per-share earnings totaled C$2.23, topping the C$2.21 average estimate of 14 analysts in a Bloomberg survey.
    • Alberta’s new United Conservative Party government introduced a bill to repeal the oil-rich province’s carbon tax, setting up a legal showdown with Prime Minister Justin Trudeau over a cornerstone of his environmental policy. The first bill introduced in the Alberta legislature under Premier Jason Kenney, who was sworn in last month, would repeal the province’s C$30-a-ton carbon tax effective May 30 and implement a variety of measures to wind down the program. Kenney says scrapping the measure amounts to a C$1.4 billion ($1 billion) tax cut that will create 6,000 jobs and save families as much as C$1,150 a year.

    World Headlines

    • The Stoxx Europe 600 Index headed for its worst day in two weeks as automakers tumbled after an EU official said the U.S. was unlikely to start trade talks with the bloc soon while it’s preoccupied with China. Casino Guichard-Perrachon was suspended from trading in Paris, fueling talk of a debt restructuring. The pound weakened against the euro for a record 14th day as the prospect of Prime Minister Theresa May being forced from power brought yet more uncertainty over the U.K.’s Brexit strategy. The common currency dipped against the dollar as measures of German business confidence and euro-area output missed expectations, and as voting got underway in European elections.
    • Stocks slumped globally on Thursday as the simmering trade dispute between the world’s two largest economies took a greater toll on markets. Safe assets were in demand, with gold and the yen gaining alongside the dollar and Treasuries. S&P 500 futures pointed to a big drop at the New York open after the Communist Party’s flagship newspaper published two commentaries assailing American moves to curb Chinese companies.
    • Japanese stocks fell, sending the Topix to a three-day decline, as a U.S.-China trade war showed few signs of moving toward an end. Electronics makers and telecommunications contributed the most to the benchmark’s slide, after China’s flagship People’s Daily published two commentaries assailing American moves to curb Chinese companies. The Nasdaq indexes and the Philadelphia Semiconductor Index dropped on Wednesday as the U.S. considered cutting off the flow of vital American technology to five Chinese companies.
    • Oil extended losses after a surprise jump in American crude inventories alleviated concerns over a supply crunch, while fears of a full-blown trade war between the U.S. and China weighed on the outlook for demand. Futures fell as much as 1% in New York after tumbling 2.7% on Wednesday, the biggest drop in almost three weeks. American stockpiles rose by 4.7 million barrels last week to the highest level since mid-2017, despite expectations for a decline, while fuel inventories also climbed. Global equities weakened after the White House was said to be considering cutting off the flow of vital U.S. technology to five Chinese surveillance companies.
    • Platinum sunk to its lowest in more than 3 months as falling auto sales and the deteriorating global economic outlook deterred investors. The metal has seen a sharp turnaround in sentiment in the last month with holdings of exchange-traded funds backed by platinum slipping and the net-long position falling, according to latest Commodity Futures Trading Commission data. In the first four months of the year, ETF holdings had surged to the highest on record and there had been a dramatic swing from net-short to net-long on CFTC.
    • Federal Reserve Chairman Jerome Powell is not alone among central bankers in feeling political heat. The independence that monetary policy makers have traditionally enjoyed from politicians is under threat worldwide as much as it is in the U.S., where Powell repeatedly runs into tweeted attacks from President Donald Trump. Central banks from Turkey to India are regularly under pressure and even the Bank of England and European Central Bank aren’t immune to attacks from elected critics. Unsurprisingly, the aim of the politicians in most cases is for their central banks to favor supporting economic growth over fighting inflation.
    • After months of predicting a trade deal between the world’s two largest economies, economists at some of the biggest financial institutions are growing increasingly pessimistic. Goldman Sachs Group Inc., Nomura Holdings Inc. and JPMorgan Chase and Co. are among those that have rewritten their forecasts as U.S. President Donald Trump threatens to impose a 25% tariffs on around $300 billion of additional Chinese imports. Analysts at Nomura have made that hike in duties — which would mean practically all of China’s exports to the U.S. are hit by tariff hikes — their baseline forecast. They see it as a 65% probability before year-end, and most likely to come in the third quarter.
    • China blamed Washington for wrecking trade talks and insisted the U.S. must alter its “wrong practices” before negotiations can resume, leaving the next move to President Donald Trump as financial markets slump amid prospects for a prolonged dispute. “China’s stance on the talks has been clear — if the U.S. wants to resume talks, they should show sincerity and correct their wrong practices,” ministry spokesman Gao Feng said in Beijing on Thursday. “Only on a basis of equality and mutual respect can the talks continue.” The comments are the latest sign that China has no intention of making concessions to the U.S. to restart talks, which collapsed earlier this month. The U.S. blames China for backing out on parts of the deal which were already agreed, while China blames the U.S. for escalating the trade war by announcing further tariffs.
    • Since its creation more than six decades ago, the U.S. Federal Aviation Administration has cemented a reputation as the arbiter of flight safety, with regulators around the world routinely adopting its approvals. In the wake of two deadly incidents with Boeing Co.’s latest 737 Max model, that order was turned on its head. Right after the second crash, which left 157 people dead in Ethiopia on March 10, China took the lead in suspending the Max. A worldwide cascade of bans followed. The FAA was the notable holdout for several days until it declared that the U.S. would also stop all flights, a humbling about-face for the American agency.
    • The global robo-taxi market might be worth more than $2 trillion a year by 2030 and mass adoption of driverless vehicles could provide a significant boost to a number of existing sectors, according to UBS Group AG analysts. The estimate is based on a UBS Evidence Lab simulation of a robo-taxi fleet in New York that optimized routes and riders’ connections with vehicles, along with metrics like running costs, utilization rates, margins and charging-station network size, analysts including David Lesne wrote in a report. The current number of taxis operating in New York alone could be cut by two-thirds once cars are fully autonomous, they said.
    • A little-known investor group is planning a major shakeup of the Eastern Mediterranean natural gas industry in a bid to unlock hundreds of billions of dollars of sales stymied by the political and industrial complexities of the region. Cynergy Group, an investment firm based in Cyprus, is looking to spend between $5 billion and $10 billion in the coming years buying under-utilized natural gas assets in the region, according to Chief Executive Officer Mike Germanos. The company is in talks with “some of the most respected global family offices, private equity firms and sovereign funds” about raising the cash, he said.
    • In one of Tesla Inc.’s biggest markets, it’s been stung by its own success. The company has struggled to build up operations to match sales in Norway, which leads the world in electric vehicles per inhabitant. As a result, customers have started to complain about bad service. Norway is closely watched for signs of how the transportation industry is adapting to the energy transition. After Tesla rolled out an unprecedented wave of its new Model 3 in the Nordic country earlier this year, customers and observers are keen to see how it’s scaling up already stretched local operations.
    • Nomura Holdings Inc. faces a penalty from Japan’s financial regulator for allowing information to be leaked about changes to the composition of the Tokyo Stock Exchange market segments, the Nikkei newspaper reported. The Financial Services Agency plans to issue a business improvement order against Nomura’s domestic securities unit as soon as this month after finding material deficiencies in its information controls, the newspaper reported, without attribution.
    • Samarco Mineracao SA, the Brazilian mining venture that hasn’t operated since a deadly dam collapse in 2015, is postponing restructuring talks for $3.8 billion of debt until at least November, according to three people with knowledge of the plan. Creditors of the company’s $2.2 billion in defaulted bonds and $1.6 billion in loans and other obligations are agreeing to the delay given the uncertainty around liabilities and fines the company may be subject to, said the people, who asked not to be named as talks are private. The venture, jointly owned by Vale SA and BHP Group Ltd, won’t have a clear idea on those figures until the end of October, two of the people said. The situation remains fluid and talks could resume earlier if circumstances change.
    • Vivendi SA is targeting strategic buyers for a stake in Universal Music Group as some private equity investors balk at the high price and slow pace of the deal, according to people familiar with the matter. The French company has floated a partial sale or an initial public offering of Universal for years and said in July it would try to sell as much as 50% of the world’s largest record group. Yet Vivendi still hasn’t formally hired advisers after multiple pitches, and several financial investors have lost interest, said the people, who asked not to be identified discussing private deliberations.
    • A month after making Europe’s biggest market debut of the year, Nexi SpA has analysts including those at Barclays, Goldman Sachs and HSBC recommending that investors buy its shares. The Italian payment-services specialist, whose shares slumped 6% on the day of its initial public offering, now has buy or equivalent ratings from seven analysts and a hold or neutral recommendation from three more. Nexi offers innovative products that should support growth, Barclays wrote in a note Thursday. While the stock has made up some lost ground since its debut, it remains below IPO price.
    • Starbucks Corp. agreed to license its Thailand operations to a partner, in the latest sign that the coffee behemoth is sharpening its focus on its key markets of China and the U.S. The company entered into an agreement with Coffee Concepts Thailand, a joint venture between Maxim’s Caterers Ltd. and Thai partner F&N Retail Connection Co., to fully license its retail business in Thailand. The deal is expected to close by the end of the month, the Seattle-based company said in a statement, without giving any financial details.

*All sources from Bloomberg unless otherwise specified