May 29th, 2019
Daily Market Commentary
- Canadian Headlines
- Canadian stocks dropped Tuesday after two days of gains as the U.S. market resumed trading following the Memorial Day holiday. The S&P/TSX Composite Index fell 0.3% to 16,297.46 in Toronto. Real estate, health care, and industrial stocks paced the decline. Traders are bracing for the rate decision Wednesday, and analysts surveyed expect Bank of Canada Governor Stephen Poloz will probably keep interest rates unchanged in what looks to be a prolonged hiatus, at least until after elections in October.
- Bank of Montreal’s momentum in U.S. banking is just getting stronger, even as the company missed estimates after recording severance expenses in its capital-markets division. Second-quarter net income rose 20% to almost C$1.5 billion, or C$2.26 a share, from C$1.25 billion, or C$1.86 a share, a year earlier. Adjusted per-share earnings totaled C$2.30 a share, missing the C$2.33 average estimate of 14 analysts in a Bloomberg survey.
- Canadian Natural Resources Ltd. agreed to buy the Canadian business of Devon Energy Corp. for C$3.8 billion ($2.8 billion), gaining heavy-oil assets in the province of Alberta. Devon’s Canadian land and facilities are within Canadian Natural’s core production areas, allowing the Calgary-based company to curb costs while boosting output. For Oklahoma-based Devon, the deal allows an increased focus on U.S. growth.
- Bank of Canada Governor Stephen Poloz will probably keep interest rates unchanged Wednesday in what looks to be a prolonged hiatus, at least until after elections in October. All 25 analysts surveyed by Bloomberg see policy makers leaving the benchmark overnight rate at 1.75% in a decision at 10 a.m. in Ottawa. That would mark a fifth straight hold by the central bank since it last raised borrowing costs in October. Longer-term, most analysts predict rates won’t rise again until next year at the earliest.
- World Headlines
- European shares fell in early trade, led lower by basic resources stocks after ArcelorMittal said it will cut its European production levels, sending its stock down as much as 7.3%. The Stoxx Europe 600 Index was down 1.1% in early trade, falling for a second day. All sectors traded in red, with Stoxx basic resources losing 1.9%. Banks also dropped, under pressure as the 10-year yield of German bunds fell to -0.17%, the lowest level in almost three years.
- Stocks extended their global retreat on Wednesday as investors fled to bonds, driving yields down to multi-year lows in a fresh wave of risk aversion. U.S. equity-index futures slumped, indicating a weak opening in New York. Investors are gauging warning signals in fixed-income markets with little expectation of a quick improvement in the global growth outlook or the U.S.-China trade war, as the full impact of American tariff hikes is yet to kick in. Beijing is gearing up to use its dominance of rare earths as a counter to Washington. A raft of American data tomorrow and Friday will give traders more to chew on as they reassess the Federal Reserve’s policy path.
- Japanese and South Korean equities bore the brunt of losses in Asia. Chinese shares edged higher, though. The rally in 10-year Treasuries powered on, further inverting a part of the yield curve watched for its history of auguring recession. Benchmark yields slid to the lowest since 2016 in Japan, to a record in New Zealand and below the central bank’s policy rate in Australia. The dollar edged higher versus its major counterparts for a third day. The yuan steadied following news that the People’s Bank of China had injected the most in money-market operations since January.
- Oil slumped as escalating trade hostilities between the U.S. and China stoked fears of slowing global growth, overshadowing forecasts for a drop in American crude inventories. Futures in New York lost as much as 2.5% after rallying 2.1% since the close on Thursday following Chinese media suggestions on Wednesday that the nation could restrict rare earth exports to the U.S. American crude inventories are forecast to have fallen last week, following two weeks of gains, according to the median estimate in a Bloomberg survey. Meanwhile, U.S. National Security Adviser John Bolton blamed Iran for attacks on oil tankers near the Persian Gulf this month.
- The Trump administration again refrained from labeling China a currency manipulator on Tuesday, a decision that leaves one of the president’s campaign promises unfulfilled but avoids further escalation in the trade war between the world’s two largest economies. The Treasury Department issued its semi-annual foreign-exchange report to Congress, expanding the number of countries whose currency and economic policies are scrutinized to 21 from 12. Five countries — Ireland, Italy, Vietnam, Singapore and Malaysia — joined China, Japan, South Korea and Germany on the watch list, while India and Switzerland were removed.
- Treasuries are in the vanguard of a bull run in global bonds, bringing into sight the prospect of benchmark 10-year yields dropping to 2% for the first time since late 2016. Escalating U.S.-China trade tensions and faltering global growth have seen U.S. 10-year yields tumble almost 40 basis points since mid-April to as low as 2.22% on Wednesday. Similar-maturity yields in Australia and New Zealand both dropped to records, while 10-year yields in Japan matched a three-year low of minus 0.1%.
- U.K. Conservative Party leadership contender Boris Johnson must attend a court hearing to face allegations of misconduct in public office, a London judge ruled. An unprecedented private prosecution attempt can proceed against the politician, District Judge Margot Coleman said Wednesday. Johnson will be required to attend Westminster Magistrates Court for a preliminary hearing to answer allegations that he made false claims about British spending on the European Union, she said.
- Sprint Corp. and T-Mobile US Inc. may sell the Boost pre-paid mobile brand in a deal that values the business at as much as $3 billion, Reuters reported, citing potential bidders. The carriers have offered to sell the brand to help win regulatory approval for a planned merger. Prepaid mobile phone provider Q Link Wireless is preparing to bid for Boost with private equity support and could pay between $1.8 billion and $3 billion, Reuters said, citing Issa Asad, Q Link’s chief executive officer.
- From trade wars to sanctions to mounting tensions in the Persian Gulf, OPEC and its partners are facing one of the most complex decisions on oil-market policy in years. But first, they need to agree on a date. With about a month before their next policy summit, ministers are split on when they will actually meet, according to delegates. Russia raised objections two weeks ago to the original date of June 25-26 and ministers have yet to agree on an alternative, the delegates said, asking not to be identified.
- U.S. National Security Adviser John Bolton warned Iran’s proxies not to attack U.S. interests, saying any assault on their patron’s behalf would “risk a very strong response.” Bolton, in a briefing with reporters in Abu Dhabi on Wednesday, said the U.S. is “very concerned” that the Iranian Revolutionary Guard Corps would use allied Shiite militia groups in Iraq to attack U.S. targets such as the American Embassy in Baghdad. Iran also has surrogates in Lebanon, Syria, Yemen and the Gaza Strip.
- The worldwide grounding of Boeing Co.’s 737 Max is taking its toll on airlines and it will be months before the plane returns to service, the head of the International Air Transport Association said. Boeing’s fastest-selling aircraft, grounded by regulators after fatal crashes in Indonesia and Ethiopia, won’t resume flights until at least 10 to 12 weeks from now, Alexandre de Juniac, IATA’s chief executive officer, said on a call with reporters Wednesday.
- Beijing’s threat to use its dominance of rare earths in the trade war risks serious disruption to U.S. industry, by starving manufacturers of components commonplace in everything from cars to dishwashers and military equipment. And, it’s a stranglehold that might take years to break. China could wreak maximum havoc by squeezing supplies of the magnets and motors that use the elements, said Jack Lifton, co-founder of Technology Metals Research LLC, who’s been involved with rare earths since 1962. The impact on American industry could be “devastating,” he said from Michigan.
- German unemployment unexpectedly rose for the first time in almost two years as the economic slowdown finally started to take a toll on the labor market. The number of people out of work unexpectedly climbed by 60,000 in May, compared with economists’ forecasts for a decline of 8,000. The jobless rate also rose, to 5% from a record-low 4.9%.
- Fiat Chrysler Automobiles NV’s plan to merge with Renault SAdrew criticism from the French carmaker left on its own, Groupe PSA, that contrasts with backing for the deal from investors and governments. In a memo sent to top officials of the Peugeot owner on Monday, CEO Carlos Tavares highlighted risks to the proposal. Renault was chosen mainly because its value was depressed by the troubled alliance with Nissan Motor Co.following the Carlos Ghosn affair, according to the memo. Paris-based PSA held talks with Fiat earlier this year on potential collaboration.
- Royal Dutch Shell Plc is planning to acquire an oil-block stake in a second deal in South Africa’s relatively unexplored waters, months after a major discovery by Total SA boosted the country’s hydrocarbon prospects. Shell has applied to take a stake in a license owned by OK Energy, located in deep waters off South Africa’s west coast, according to Petroleum Agency South Africa. “We have indeed received an application which is awaiting ministerial approval,” the regulator said in a reply to questions about the block.
- SoftBank Group Corp.’s Japanese telecom unit selected Nokia Oyj and Ericsson AB as vendors for its next-generation wireless network, excluding long-time supplier Huawei Technologies Co. SoftBank Corp. named Nokia as a strategic partner for 5G rollout and Ericsson as a supplier of radio access network equipment, the companies said in separate releases. Huawei, which together with ZTE Corp. was a 4G vendor for the Japanese company, wasn’t selected despite participating in earlier 5G trials. SoftBank declined further comment.
- London homebuyers are getting the biggest discounts in at least six years. The average reduction on a home in 13 inner London boroughs jumped to 7.6% in the first quarter, up from 7% a year earlier, the property-search website said in a report Wednesday. The residential real estate market in the U.K. capital has been stung in recent years by the introduction of new taxes and the uncertainty surrounding Brexit.
- Malaysia is considering proposals from banks for a possible return to European bond markets after a hiatus of well over a decade. The country has received offers from quite a lot of lenders proposing to help it raise funds in euros or Swiss francs, according to Muhammed Abdul Khalid, the economic adviser to Prime Minister Mahathir Mohamad. The last time Malaysia sold euro-denominated debt was in 2005, while its most recent Swiss franc offer was in 1998, according to data compiled by Bloomberg.
- Beijing is gearing up to use its dominance of rare earths to hit back in its deepening trade war with Washington. A flurry of Chinese media reports on Wednesday, including an editorial in the flagship newspaper of the Communist Party, raised the prospect of Beijing cutting exports of the commodities that are critical in defense, energy, electronics and automobile sectors. The world’s biggest producer, China supplies about 80% of U.S. imports of rare earths, which are used in a host of applications from smartphones to electric vehicles and wind turbines.
*All sources from Bloomberg unless otherwise specified