November 22nd, 2019

Daily Market Commentary

Canadian Headlines

  • Quebec is facing an emergency shortage of propane and shipments of oil, grain and metal are grinding to a halt as the impact of a rail strike in Canada threatened to take a multibillion-dollar chunk out of the nation’s economy. About 3,200 conductors and yard operators at Canadian National Railway Co.walked off the job Tuesday, snarling shipments from one of the world’s largest exporters of raw materials. The Quebec premier said its supply of propane is set to run out in four days, and the movement of freight destined for the U.S. and global markets stalled on Canada’s largest railway.
  • Deutsche Bank AG is considered less of a potential threat to the global financial system, leading authorities to recommend that it faces lower capital surcharges. Germany’s biggest lender moved down into the fourth-highest category of risk in a Financial Stability Board ranking, meaning its extra capital requirement under international standards should fall to 1.5% of risk-weighted assets from 2%, a list published on Friday indicated. JPMorgan Chase & Co. remained on the list as the world’s most systemically important bank while Toronto-Dominion Bank was added to the list at the lowest level. Deutsche Bank has been paring risk after the troubled lender in July unveiled its most sweeping restructuring plan in decades, including cutting a fifth of the workforce over the next few years and exiting equities trading. The bank is also considering cuts to its fixed-income business, long one of its major areas of strength.

World Headlines

  • Miners and energy companies helped lead the Stoxx Europe 600 Index higher after oil’s strongest close since September. The pound fell — boosting British equities — following a gloomy reading of U.K. company sentiment. Japanese shares steadied after three days of declines, while stocks climbed in Australia and Hong Kong, and slipped in China.
  • U.S. equities slid following losses in Europe and Asia as traders weighed conflicting signals about the outlook for a trade deal between Beijing and Washington. The S&P 500 Index fell for a third day, the longest losing streak in almost two months, but remained within 1% of a record high. The dollar held steady and Treasuries dipped as China’s chief trade negotiator reportedly said he was “cautiously optimistic” about reaching a phase-one accord. Pessimists focused on speculation Donald Trump may sign legislation backing Hong Kong protesters, setting up further conflict between the nations. TD Ameritrade soared on reports that Charles Schwab Corp. is in talks to buy the brokerage.
  • Hong Kong’s deteriorating situation may prove crucial to the trade talks, and on Thursday a commentary from China’s state-run news agency accused the U.S. of applying a double standard. China has threatened to retaliate for the passage of the American bill and said supporting the protesters was a “gross” interference in Hong Kong affairs. Traders will be watching for signs of progress ahead of a Dec. 15 deadline for further tariffs.
  • Oil pared its third weekly advance amid mixed signals on a trade agreement between the U.S. and China, which would end an impasse that has weighed on the global economy and fuel demand. Futures slipped 0.4% in New York, yet remained on track for a weekly increase. China’s vice premier invited U.S. trade negotiators to Beijing for further talks. However, expectations that President Donald Trump will sign a bill supporting Hong Kong protesters could disrupt those talks. Oil has rebounded by about $6 since early October as fears of a potential global recession have receded, and on hopes for a breakthrough in the trade standoff. Yet, negotiations between Washington and Beijing have taken longer than expected, and concerns that surging U.S. supplies and constrained demand growth will unleash a new surplus have kept crude prices about 12% below this year’s peak.
  • The U.K. economy’s performance was the worst since July 2016 this month as uncertainty from Brexit and the snap election weighed on sentiment. IHS Markit’s composite Purchasing Managers Index slipped to 48.5, with readings for both manufacturing and services falling further below the 50 mark that separates expansion from contraction. The figures are a new flash estimate, produced a week earlier than normal, based on 85% of responses.
  • Russia’s gas giant Gazprom PJSC has offered a multimillion-dollar discount to buyers of a 3.59% stake in the company worth around $2.95 billion. The company’s distribution unit has set the price for its 850.6 million common shares in Gazprom at 220.72 rubles apiece in an all-or-nothing deal announced on Thursday. This represents an 11% discount to the Wednesday closing price, and a 13.2% discount to the price on Thursday’s close, when bids were collected. That’s equivalent to a discount of about $360 million and $450 million. Offering discounts to buyers of large stakes is common practice, Andrey Polischuk, a Moscow-based analyst for Raiffeisenbank, said by phone. “Otherwise it’s difficult to attract new big investors” that may as well buy the stake in the market, he said.
  • Chinese President Xi Jinping said his nation wants to work toward a phase one trade agreement with the U.S. on the “basis of mutual respect and equality,” his first comments on a partial deal that he could potentially sign with U.S. President Donald Trump. “We didn’t initiate this trade war and this isn’t something we want,“ Xi reiterated in a meeting Friday with prominent international visitors to Beijing including former U.S. Secretary of State Henry Kissinger. “When necessary, we will fight back, but we have been working actively to try not to have a trade war.” Just a few days ago, Trump said China wasn’t “stepping up to the level that I want” in the negotiations amid doubts about whether the two sides can hammer out a written agreement. On Wednesday, China’s chief trade negotiator, Liu He, indicated he was “cautiously optimistic” about reaching the first phase of a deal.
  • Tesla Inc. Chief Executive Officer Elon Musk took to the stage late Thursday to reprise a familiar role: pitching a future vehicle to a throng of adoring fans. This time, it was the “Cybertruck” — his name for Tesla’s new electric pickup. The angular vehicle, which has a stainless-steel skin, starts at $39,900 and will come in three variants, Musk told a packed audience in Hawthorne, California. Customers can order the truck with a deposit of just $100, though production “nears in late 2021,” Tesla said on its website.
  • AT&T Inc. will begin 5G wireless service for consumers in more than 15 cities in the coming weeks, targeting the early adopters who crave being first with the latest phone and fastest data speeds. The launch coincides with the arrival of AT&T’s first 5G phone, the Samsung Galaxy Note10, which is expected to be in stores by the first half of December, according to Kevin Peterson, an AT&T senior vice president. The phone giant starts taking orders for the device on Nov. 25. The pioneers who step up won’t get much more than bragging rights at first. The initial 5G service uses so-called low-band spectrum, delivering performance that’s comparable to the current AT&T network.
  • Japan and South Korea struck a last-minute deal to rescue their expiring intelligence-sharing pact, after a high-powered push from the Trump administration averted a blow to U.S. efforts to strengthen its Asian alliance network. South Korea will suspend its plans to pull out of the General Security of Military Information Agreement and temporarily withdraw a complaint it made against Japan at the World Trade Organization, Kim You-geun, South Korea’s national security first vice adviser, said in a news briefing Friday, about six hours before the pact was due to expire. The pact was set to formally cease to exist at 12 a.m. Saturday, three months after South Korea moved to end the deal amid a history-laden dispute with Japan. The three-year-old pact was seen as important because it demonstrated the neighbors’ ability to cooperate independently from Washington to counter shared threats including China and North Korea.
  • Traders in London say the Labour Party’s proposal to introduce a broad financial transaction tax risks paralyzing trading activity in the city. The opposition party led by Jeremy Corbyn announced a plan Thursday to raise as much as 8.8 billion pounds ($11.4 billion) a year from levies on trades such as derivatives or large volumes of currency, where London currently dominates the market. “Doing this will drive up costs and won’t raise taxes, as people will find other ways to trade,” said Alasdair Haynes, chief executive officer of Aquis Exchange Plc, a European stock trading venue. “It shows they don’t understand the repercussions and the disaster it will create. It’s extremely dangerous.”
  • The world’s second largest tobacco market, Indonesia, is weighing a total ban on electronic cigarettes, joining a growing number of nations cracking down on vaping due to health concerns. The Indonesian government is working on revising existing e-cigarette regulations, said Anung Sugihantono, the Health Ministry’s director general of disease control and prevention. “The ministry’s stance is consistent: we want to ban, not limit, vaping and e-cigarettes,” he said in a text message this week. The move comes after a teenager in central Philippines who’s been vaping for six months and also smoking cigarettes was diagnosed with a lung injury — likely the first known case in Asia of the mystery illness that’s killed 47 people in the U.S. and afflicted over 2,000. If Indonesia follows its Southeast Asian neighbors like the Philippines and Singapore in banning vaping, the region will be all but sealed off to e-cigarette companies.
  • The financial distress at Vodafone Group Plc’s Indian venture has dragged down the wealth of Kumar Mangalam Birla, whose group is the second-largest investor in the teetering wireless carrier. The tycoon, who joined forces with the British operator last year, has lost about a third of his fortune since the end of 2017 as mounting losses and debt decimated the equity of the troubled Vodafone Idea Ltd. In addition, shares of his flagship firms that produce chemicals, metals and cement have also tumbled amid a demand slump, eroding his wealth.
  • Exchange-traded funds added 34,341 troy ounces of gold to their holdings in the last trading session, bringing this year’s net purchases to 9.9 million ounces, according to data compiled by Bloomberg. This was the third straight day of growth. The purchases were equivalent to $50.3 million at yesterday’s spot price. Total gold held by ETFs rose 14 percent this year to 81 million ounces. Gold advanced 14 percent this year to $1,464.41 an ounce and fell by 0.5 percent in the latest session.
  • Donald Trump’s impeachment defense hangs by a thread after two weeks of hearings, as a parade of witnesses described how his efforts to pressure Ukraine to investigate Democratic rival Joe Biden extended well beyond the two leaders’ July 25 telephone call. Lieutenant Colonel Alexander Vindman, a decorated Army officer and Ukraine expert, recalled raising concerns to the top lawyer at the National Security Council over what he viewed as Trump’s inappropriate political demand on that call for a Biden probe.
  • When Microsoft Corp. co-founder Bill Gates tried to build an experimental nuclear reactor in China, his plan was thwarted by U.S. foreign investment restrictions. At Bloomberg’s New Economy Forum this week, Gates described the scuttled reactor project as “a five-year setback for technology.” A chorus of industry leaders, economists and researchers echoed Gates’ cautionary tale during the event in Beijing. Trade tensions between China and the U.S. have spilled into business and economics in tangible ways, they warned, including a slower pace of technological progress and scientific research.
  • Bitcoin’s sell-off deepened on Friday, putting the digital token on track for the third weekly loss in a row after it dropped below yet another key support level. The world’s most-traded cryptocurrency declined as much as 8.5% on the day, dragging with it a host of peers from Ether and Litecoin to XRP. For the first time since April, Bitcoin fell below its 200-day moving average without bouncing back, a signal that traders see the breach as a sign of weakness rather than an opportunity to buy. “There’s been a general apathy in the market, and low sentiment,” said Mati Greenspan, the ex-senior market analyst at eToro in Tel Aviv. “There was excitement when Xi Jinping said China needed to embrace blockchain, but it has faded and the market is returning to levels before” the Chinese president’s comments in late October, he said.
  • Inc. will likely argue that meddling by President Donald Trump cost the company a cloud-computing contract worth as much as $10 billion as it seeks to overturn a Pentagon decision to award the work to arch-rival Microsoft Corp. Yet Amazon faces an uphill climb in basing its challenge on those grounds, as legal requirements to successfully appeal a contract award on claims of political interference are high. To prevail, losing bidders must show the agency made its decision as a result of bias — rather than on the merits of the companies’ proposals, according to procurement experts.
  • Sneaker retailer Foot Locker Inc. rose Friday after the company reported earnings that beat expectations. Adjusted third-quarter earnings of $1.13 a share beat analysts’ estimate of $1.07, as compiled by Bloomberg. The company also showed same-store sales growth of 5.7%, a relief to investors after a slump in recent quarters.
  • PT Tokopedia, the online marketplace backed by the SoftBank Vision Fund and Alibaba Group Holding Ltd., is in talks to raise as much as $1.5 billion for a final private funding round before an initial public offering, according to people familiar with the matter. U.S. internet companies as well as existing investors are considering contributing to the round, which could bring in $1 billion to $1.5 billion in the first quarter of 2020, according to the people, who asked not to be identified because the discussions are private. No final decisions have been made and the value of the round could change, they said.

*All sources from Bloomberg unless otherwise specified