November 13th, 2019

Daily Market Commentary

Canadian Headlines

  • Canadian stocks advanced Tuesday while U.S. shares eked out small gains as investors studied the likelihood of a partial trade deal between the U.S. and China. The S&P/TSX Composite rose for an eighth day, climbing 26.62, or 0.2%, to 16,909.38 in Toronto. 117 of 233 shares rose Tuesday, while 107 fell; 6 of 11 sectors were higher, led by materials producers.
  • Canada Goose Holdings Inc. posted a solid performance for last quarter, bolstered by sales in the key Asia market, where the company opened flagships in Beijing and Hong Kong last year. U.S. shares of the retailer rose in early New York trading.
  • It took two years, but Home Capital Group Inc. shares have regained all their lost ground since the Canadian alternative mortgage lender almost collapsed in 2017. Home Capital has doubled this year to become the sixth-best performing stock on Canada’s benchmark S&P/TSX Composite Index. The Toronto-based lender reported third-quarter profit on Wednesday that beat the highest analyst estimate and said it plans to buy back C$150 million ($113 million) of shares. The run-up in the stock has taken the stock to levels last seen in February 2017, when it plunged after Ontario’s securities regulator accused the company of misleading shareholders over falsified mortgage applications.
  • Rockies LNG Partners, a group of Canadian natural gas drillers seeking new markets for their production, is considering building an export project on barges floating off the coast of British Columbia. While no decisions have been made, the group sees a floating liquefied natural gas facility as a less-expensive option that also would have a “significantly” smaller environmental footprint, Rockies LNG Chief Executive Officer Greg Kistsaid in an interview. The group is considering projects that could produce roughly 12 million tons per year, which would require three barges, he said.
  • Canadian intelligence agencies are at odds over whether the country should join the U.S. and Australia in banning Huawei Technologies Co.from its next-generation 5G wireless networks, the Globe and Mail reportedciting an unnamed official. The spy agency, known as the Canadian Security Intelligence Service, wants to bar the Chinese company from 5G networks, but the Communications Security Establishment responsible for electronic surveillance thinks potential security risks could be mitigated, the newspaper said.

World Headlines

  • European stocks follow Asia into the red following a subdued start, with Hong Kong tensions and tariff threats denting sentiment. Eurostoxx 50 drops 0.7% with banks and auto sectors weighing. Spanish IBEX lags peers, dropping as much as 1.4%. Bunds and USTs rally amidst decent volumes to print fresh highs for the week; yield curves bull flatten with most long end yields in Europe ~3-4bps; Italy bucks the trend, bear flattening with long-dated BTPs little changed ahead of debt sales. Gilts extend gains after a dip in headline domestic inflation. FX sees choppy trade across major pairs, Bloomberg dollar index retraces an early break of Tuesday’s high, JPY and CHF outperform as haven assets rally. NZD remains the best performer after the RBNZ held rates steady overnight. Crude futures slip lower, WTI crude returns to Monday’s lows, down 0.9%; base metals lag with LME Zinc underperforming.
  • The slump in Hong Kong equities risks turning into a rout as the protests gripping the city show only signs of escalating. The Hang Seng Index lost 1.8% for its lowest close in three weeks. Local developers and landlords suffered the brunt of the selling as nearly all stocks dropped. Recent ebullience fueled by trade war optimism has faded after clashes turned increasingly violent.
  • European equities fell from a four-year high, with cyclical sectors including carmakers and miners sliding the most as traders took profit following recent gains. The Stoxx Europe 600 Index dropped 0.2% at 8:09 a.m. in London. HSBC fell 1.8% amid rising tensions in Hong Kong. BP and Total retreated as Brent oil dropped. European equities are heading for their biggest annual gain in a decade after U.S.-China trade optimism fueled appetite for risk assets across the world. However, fund managers may struggle to find fresh reasons to keep the rally going, especially after U.S. President Donald Trump yesterday warned of tariff hikes if a deal with China falls through.
  • Oil fell for a third day amid fading momentum in trade talks between the U.S. and China, and signs of another increase in American crude stockpiles. Futures dropped as much as 1% in New York. President Donald Trump’s speechin New York on Tuesday disappointed investors, giving little insight on how the impasse with Beijing will be resolved, and warning of higher tariffs if a deal can’t be reached. Concerns over long-term oil demand also grew as the International Energy Agency predicted that consumption will plateau around 2030.
  • Gold rebounded from near a three-month low as optimism over a trade deal ebbed and traders looked for signs of a reversal in the recent downtrend in precious metals. President Donald Trump said the U.S. will increase tariffs on China in case the first step of a broader agreement isn’t reached, but also added that a “significant” phase one deal could happen soon.
  • Hong Kong has seen many violent days since the unrest began in June, but the disruption this week has taken things to a new level — and fears are growing as to what may come next. Protesters paralyzed the city on Wednesday for a third straight day, disrupting subway lines and blocking roads. Tear gas emanated through the Central financial district, while police also battled university students far from the city center. The government ordered schools from kindergarten to college to shut on Thursday, the first time it’s done so during the unrest.
  • President Donald Trump said the U.S. will increase tariffs on China in case the first step of a broader agreement isn’t reached. “If we don’t make a deal, we’re going to substantially raise those tariffs,” he said Tuesday in a speech to the Economic Club of New York. “They’re going to be raised very substantially. And that’s going to be true for other countries that mistreat us too.” China is “dying” to make a trade deal with the U.S., Trump said, adding that he’d only sign it if it’s good for American companies and workers. Still, “we’re close — a significant phase one deal could happen, could happen soon.” Trump and Chinese President Xi Jinping had planned to sign “phase one” of the deal at an international conference this month in Chile that was canceled because of social unrest in that country.
  • CME Group Inc. shed light on what could happen to the exchange giant’s most-traded contracts — eurodollars, which permit bets on interest rates — if the scandal-plagued Libor benchmark they’re tied to goes away in two years. Officials at CME on Tuesday proposed a methodology for converting eurodollar futures and options to other derivatives at the exchange, ones linked to an alternative benchmark called the Secured Overnight Financing Rate, or SOFR. The plan could be tweaked based on customer feedback. The U.K. regulator that oversees Libor, the Financial Conduct Authority, will stop compelling banks to submit data used to calculate Libor in 2021. CME Chief Executive Officer Terry Duffysaid in an October interview that the benchmark isn’t guaranteed to go away then. But Libor is so deeply embedded in the global financial system that even a slim chance it disappears means contingency planning is necessary.
  • Nike Inc. is breaking up with Inc. The athletic brand will stop selling its sneakers and apparel directly on Amazon’s website, ending a pilot program that began in 2017. The split comes amid a massive overhaul of Nike’s retail strategy. It also follows the hiring of ex-EBay Inc. Chief Executive Officer John Donahoe as its next CEO — a move that signaled the company is going even more aggressively after e-commerce sales, apparently without Amazon’s help.
  • Elon Musk picked a glitzy event in Germany, a few hours’ drive from the birthplace of the internal combustion engine, to drop the news before some of the world’s biggest car bosses: Tesla Inc. plans to set up shop in their backyard. The billionaire chief executive officer announced Tuesday that Tesla will expand its global manufacturing network with a factory near Berlin. At a red-carpet awards ceremony attended by the heads of BMW AG, Volkswagen AG and Audi AG, he said the company will also establish an engineering-and-design center.

*All sources from Bloomberg unless otherwise specified