November 7th, 2019

Daily Market Commentary

Canadian Headlines

• Canadian stocks rose for the fourth straight day with the reporting season halfway done. Consumer staples were the best performing sector Wednesday while pot stocks fell the most. The S&P/TSX Composite rose 0.4% to 16,745.64, the highest closing level in six weeks. Alimentation Couche-Tard Inc. climbed 2.9%, contributing the most to the index’s gain. SSR Mining Inc. performed the best, jumping 8% as third-quarter earnings beat the highest analyst estimate. Meanwhile, Badger Daylighting Ltd. tumbled 22% after cutting its guidance, even as GMP’s Stephen Harris, the most bullish analyst on the stock, defended the company.
• Getting in on the ground floor of Toronto’s housing boom has been seen as a sure-fire road to riches over the past decade. Buying stocks would have been a better bet. Canada’s S&P/TSX Composite Index has returned 157%, including dividends, since the end of 2008 as the economy chugged along, jobs creation surged and corporate profits rose. Despite hogging all the headlines, prices of residential property in Canada’s most populous city trailed that with a 127% increase, according to the Teranet-National Bank Home Price Index. It’s clear either of those investments have delivered a tidy return but there’s one group of investors who have done exponentially better: those who bet on the equity version of real estate.
• Canopy Growth and Aubrey Drake Graham plan to launch a fully licensed producer of cannabis, called “More Life Growth,” based in Drake’s hometown of Toronto, Canada. Drake holds a 60% ownership interest in the company, with Canopy Growth retaining 40%. Drake has granted More Life Growth the right to exclusively exploit certain intellectual property and brands in association, as consideration for the issuance of the shares of the More Life Growth. Canopy Growth has the right to nominate two directors to the board of the More Life Growth Company as well as a pre-emptive right to maintain its ownership interest in the More Life Growth Company
• Bullion giant Barrick Gold Corp. pleasantly surprised the market by raising its dividend 25%. Will the move portend a new era of largess from the normally tightfisted gold miners? There are certainly reasons for investors to be hopeful. Producers have been striving to cut costs and consolidate operations, while the price of gold has climbed over 20% in the past year to hover around $1,500 an ounce. Barrick’s move Wednesday was echoed a few hours later when Canadian rival Kirkland Lake Gold Ltd. raised its quarterly payout 50%. B2Gold Corp. preceded both by announcing its first-ever dividend a day earlier.
• Unidentified assailants attacked a convoy transporting workers of Canadian gold producer Semafo Inc. in Burkina Faso, killing at least 37 people, the government said. The deaths come as West African governments battle a widening insurgency by Islamist militants and at a time when gold producers and prospectors are pouring money into the region as prices rally.
• The shutdown of one of Canada’s largest crude pipelines has shippers turning to rail to move their oil. Demand to transport crude by rail has picked up over the past week as TC Energy Corp. works to return its Keystone crude pipeline to service following a leak, according to people familiar with the matter. The line shut last week after it ruptured in Walsh County, North Dakota, and spilled more than 9,000 barrels. Shipping crude by rail has become more economical as the shutdown traps barrels in Alberta, depressing prices there, while boosting values in the Midwest and along the U.S. Gulf Coast, where refiners have to seek alternatives. The system carries crude from Hardisty, Alberta, to Steele City, Nebraska, from where it extends toward the biggest U.S. supply hub of Cushing, Oklahoma, and to Patoka, Illinois.

World Headlines

• Asian stocks climbed, led by health care firms, as China and the U.S. agreed to roll back tariffs in phases, signaling progress toward a partial trade deal. Most markets in the region were up, with Australia leading gains and Taiwan retreating. The Topix added 0.2% in a third day of gains, supported by precision-instrument makers and electric-appliance companies. The Shanghai Composite Index closed little changed, as Kweichow Moutai advanced and China Life Insurance dropped. Chinese authorities are consideringa sweeping package of measures to shore up smaller lenders and contain bad-loan risks. India’s Sensex rose 0.3%, heading for a fresh record, with Housing Development Finance and Reliance Industries among the biggest boosts.
• European stocks rose, moving closer to an all-time high, after China said it agreed with the U.S. to roll back tariffs. The Stoxx Europe 600 Index added 0.4% as of 8:04 a.m. in London, coming within 1.8% of its 2015 record close, led by gains in trade-sensitive sectors. Miners and carmakers posted the biggest gains, up at least 1%. A Chinese Ministry of Commerce spokesman said the two countries had agreed to roll back tariffs on each other’s goods in phases. A trade war between the world’s two biggest economies has been one of the biggest causes of stock volatility this year and the last. Gains in European equities have picked up steam in recent weeks amid optimism over an agreement and receding risks of a no-deal Brexit. ArcelorMittal climbed 5% after its earnings beat estimates, while ProSiebenSat.1 slid 6% after reporting a slump in quarterly profit.
• U.S. stock index futures climbed after China said it agreed with the U.S. to lift tariffs in phases as trade talks between the two countries progress. Contracts for the Nasdaq 100 rose as much 0.7% with those on the Dow Jones and S&P 500 gaining as much as 0.6% after a Chinese Ministry of Commerce spokesman said the nations agreed to proportionally roll back tariffs on each other’s goods.
• Gold slipped and palladium climbed above $1,800 an ounce as China and the U.S. made progress on a trade deal. A spokesman for China’s Ministry of Commerce said the negotiators had agreed to roll back tariffs on each other’s goods in phases. Separately, the People’s Bank of China halted a 10-month gold buying spree and South Africa’s largest platinum mining labor union said it may conclude a wage deal with producers as early as next week.
• Oil jumped as China and the U.S. made progress in resolving the trade dispute that has weighed on global markets this year, offsetting signs that OPEC and its partners won’t make deeper cuts to supply. Brent crude rose as much as 1.5% in London, reversing much of Wednesday’s 1.9% decline. China and the U.S. have agreed to proportionally roll back tariffson each other’s goods in phases, a Chinese Ministry of Commerce spokesman said. OPEC and its allies are more likely to stick to their current output targetswhen the group meets next month, according to delegates across the coalition.
• China and the U.S. have agreed to roll back tariffs on each other’s goods in phases as they work toward a deal between the two sides, a Ministry of Commerce spokesman said. “In the past two weeks, top negotiators had serious, constructive discussions and agreed to remove the additional tariffs in phases as progress is made on the agreement,” spokesman Gao Feng said Thursday. “If China, U.S. reach a phase-one deal, both sides should roll back existing additional tariffs in the same proportion simultaneously based on the content of the agreement, which is an important condition for reaching the agreement,” Gao said. If confirmed by the U.S., such an understanding could help provide a road-map to a deal de-escalating the trade war that’s cast a shadow over the world economy. China’s key demand since the start of negotiations has been the removal of punitive tariffs imposed by President Donald Trump, which by now apply to the majority of its exports to the U.S.
• HP Inc. confirmed that Xerox Holdings Corp. has made a takeover offer, a potential deal between two iconic names in technology that would reshape the printing industry. “We have had conversations with Xerox Holdings Corporation from time to time about a potential business combination,” the Palo Alto, California-based company said Wednesday in a statement. “We received a proposal transmitted yesterday. We have a record of taking action if there is a better path forward and will continue to act with deliberation, discipline and an eye toward what is in the best interest of all our shareholders.” Citigroup Inc. has agreed to provide Xerox financing to swallow HP, a person familiar with the matter said. The company would likely need to take on at least $20 billion of debt to close the deal, which was reported earlier by the Wall Street Journal. HP’s market capitalization was about $27.3 billion at the close of trading on Tuesday, while Xerox’s was $8 billion, before news broke of the potential deal. Xerox had extended an offer at $22 a share, the Financial Times reported, a premium of about 20% to HP’s close Tuesday, before news of a potential takeover emerged.
• Another large block trade in Uber Technologies Inc. priced overnight in the wake of its IPO lockup period expiration, a person familiar with the matter said. Morgan Stanley sold two million shares on behalf of an unknown holder at $26.75 each, the person said, a 0.71% discount to Wednesday’s closing price. It’s the latest of several blocks in this year’s largest U.S. IPO since selling restrictions lifted on Wedesday for pre-IPO shareholders and other insiders. Shares erased earlier pre-market gains to traded little changed.
• Iran is nearing a new atomic crisis after failing to cooperate with international inspectors investigating radioactive samples discovered at a site identified by Israel. The International Atomic Energy Agency’s top inspector, Massimo Aparo, told diplomats in a closed-door meeting in Vienna on Wednesday that Iran is evading attempts to discover the source of man-made and natural uranium particles detected at a warehouse in Tehran earlier this year, according to two officials familiar with the briefing who asked not to be identified. IAEA acting Director General Cornel Feruta is convening an extraordinary meeting of the 35-member board of governors Thursday to discuss the new concerns. The Romanian diplomat said only last month that Iran had taken “a step in the right direction” in attempting to clarify matters troubling inspectors.

*All sources from Bloomberg unless otherwise specified