November 18th, 2019

Daily Market Commentary

Canadian Headlines

  • Investors are finally warming up to Canadian energy stocks. There’s no shortage of superlatives to describe market optimism as the price of oil climbed and corporate profitability concerns eased. The S&P/TSX Energy Index is on pace for its biggest monthly gain since January. It also has the No. 1 spot among sectors on the S&P/TSX Composite Index Friday. And the iShares S&P/TSX Capped Energy ETF saw its largest inflows since June last month. Energy stocks have been mired in negative headlines for years with a strained pipeline network pushing Canadian crude prices lower and the exodus of multinational energy companies. Now, investors are flooding back in as third-quarter results came in better than expected, and companies bought back shares, raised dividends and divested assets to shore up cash. “They’re being very good to the shareholder,” John Kinsey, portfolio manager at Caldwell Securities Ltd., said by phone.
  • Barrick Gold said it agreed to sell its 50% stake in Kalgoorlie Consolidated Gold Mines in Western Australia to Saracen Mineral Holdings for $750m in cash.
  • Aimia enters settlement agreement with shareholders Mittleman Brothers and Charles Frischer on a governance process with a view to reconstituting the board no later than February 28, 2020.
  • De Havilland Aircraft of Canada Ltd. won its biggest plane orders since the brand was sold off by Bombardier Inc. with the sale of as many as 23 Dash 8-400 turboprops. The manufacturer, an aviation pioneer long overtaken by the jet age, said Monday at the Dubai Airshow that it a signed a letter of intent with lessor Palma Holding Ltd. for up to 20 of the planes, which list at $32 million each. That followed a firm order from Nigeria’s Elin Group for three planes to use in its oil and gas operations, bringing the total at the event to almost $740 million before customary discounts.
  • The Winnipeg Blue Bombers’ defence held off the Saskatchewan Roughriders’ offence late in the fourth quarter as the Bombers won the Western Final 20-13 to advance to the 107th Grey Cup. The Blue Bombers will face the Hamilton Tiger-Cats in the Grey Cup next Sunday in Calgary.

World Headlines

  • Asian stocks gain as investors await fresh developments on U.S.-China trade talks and Hong Kong shares rebound from the biggest weekly drop in over three months. Markets in the region are mixed, with Australia’s S&P/ASX 200 and South Korea’s Kospi Index falling while Hong Kong’s Hang Seng Index rallies. Hong Kong’s benchmark outperforms regional peers, with local developers underpinning the gauge’s rise of as much as 1.4%. The city’s stocks were roiled last week when the months-long protest turned increasingly violent.
  • U.S. equity futures began the week with modest gains while share gauges across Europe and Asia were mixed as investors awaited fresh developments on global trade. The pound strengthened as the Conservative Party maintained its poll lead less than a month before elections. Contracts on the S&P 500, Nasdaq 100 and Dow Jones Industrial Average advanced, signaling the underlying indexes will push toward yet more recordsafter the three closed at all-time highs on Friday. The Stoxx Europe 600 Index fluctuated as gains in Switzerland and the U.K. offset weakness in France and Germany. In Asia, Japanese and Chinese equities closed higher, while stocks slipped in India and Australia. Hong Kong’s market outperformed, even as unrest in the city continued. Sterling advanced as campaigning for Britain’s Dec. 12 vote rumbles on, with the ruling Conservatives consistently ahead in the polls. Treasuries slipped and European bonds were mixed.
  • Gold declined as investors digested the latest signals from the U.S.-China trade talks and weighed data that showed a drop in holdings in bullion-backed exchange-traded funds. U.S. and Chinese negotiators held “constructive discussions” in a call on Saturday to address each side’s core concerns in phase one of a deal. That came after President Donald Trump’s administration signaled talks with China over the first phase of a broad agreement are entering the final stages. Gold-backed ETF holdings fell the most in almost three years last week as global risk appetite rises.
  • Oil held near the highest close in eight weeks on signs of progress in the prolonged U.S.-China trade war, which has weighed on the outlook for fuel demand. Futures fell 0.1% near $58 a barrel in New York after closing at the highest level since Sept. 23 on Friday. American and Chinese trade negotiators held “constructive discussions” in a phone call on Saturday to address each side’s core concerns surrounding a phase one deal. Oil short-sellers slashed their bearish positions on West Texas Intermediate by 41% in the week ended Nov. 12 on prospects for a truce in the trade war.
  • A two-day university siege has transfixed Hong Kong, raising fears of a bloody crackdown on hundreds of protesters who remain trapped in a campus surrounded by police. Running battles between police and protesters on Monday featured raging fires, tear gas and flaming vehicles. Some demonstrators managed to escape Hong Kong Polytechnic University in Kowloon by climbing over walls, while police arrested dozens of others — sometimes tackling them to the ground or pounding them with batons. On Monday evening, the government warned those inside to surrender peacefully and urged others to stay away from the site as protesters pleaded for reinforcements to battle police. Medical personnel were allowed in to tend to the wounded, while university officials called for a negotiation and parents held signs saying “Save the Kids.”
  • Two years ago, when the initial public offering of Saudi oil giant Aramco held the imagination of foreign investors, President Donald Trump felt compelled to publicly lobby for the share sale to happen in America. “Would very much appreciate Saudi Arabia doing their IPO of Aramco with the New York Stock Exchange,” Trump tweeted in November 2017. Today Saudi Aramco isn’t just shunning New York — and other international exchanges — as a listing venue, but has decided it won’t even market the IPO to American, Canadian, European or Japanese investors. Instead, Aramco plans to rely heavily on ultra-wealthy Saudis, many of whom have been pressed to invest, to get the deal done. Saudi banks are loosening lending regulations to allow locals to buy more shares.
  • Treasury investors just got one week closer to locking in their best annual performance since 2011. The reflation wager that had 10-year yields on the brink of eclipsing 2% for the first time in months faltered last week. Investors’ frustration with the pace of progress in trade negotiations was a key reason bond buyers emerged. But signs of economic weakness in China, Japan and Europe were also at work, and evidence of still-muted U.S. inflation added to the mix. For the world’s biggest debt market, a lot may hinge on the next few weeks, and whether the U.S. and China can reach a trade agreement. The Trump administration is signaling that talks over a first phase of a broad deal are in the final stages. But the Dec. 15 deadline for the next round of tariffs is fast approaching. With an accord, Treasuries’ roughly 7% return in 2019 could shrivel and prove the bond bears right. But a breakdown could pave the way for yields to tumble anew.
  • Saudi Aramco set a valuation target for its initial public offering well below Crown Prince Mohammed bin Salman’s goal of $2 trillion and pared back the size of the sale after the government decided to make the deal an almost exclusively Saudi affair. The initial public offering will now rely on local investors after most international money managers balked at even the reduced price target. The deal won’t be marketed in the U.S., Canada or Japan and on Monday bankers told investors roadshow events in London and other European cities, planned for this week, were canceled. Aramco will sell just 1.5% of its shares on the local stock exchange, about half the amount that had been considered, and seek a valuation of between $1.6 trillion and $1.71 trillion. As well as slimming down the deal, the Saudi authorities relaxed lending limits to ensure sufficient local demand to get the share sale done.
  • Masayoshi Son, after backing startups around the world, is engineering a complex deal on his home turf to create a national champion that can more effectively compete with global rivals like Google and Inc. Son’s SoftBank Group Corp. plans to combine its Yahoo Japan internet business with Line Corp. in a deal that values the country’s leading messaging service at $11.5 billion. SoftBank and South Korea’s Naver Corp. will take Line private and then fold Line and Yahoo Japan into a new joint venture. The deal requires shareholder approvals and is scheduled to close by October 2020.

*All sources from Bloomberg unless otherwise specified