November 25th, 2018

Daily Market Commentary


Canadian Headlines

  • Bank of Nova Scotia’s Latin American push boosted Canada’s most globally focused lender, with a Chilean acquisition helping fuel record earnings from international banking. At the same time, the bank is retreating from parts of the Caribbean, where it has operated for more than a century. Scotiabank’s international-banking division had the biggest profit gain among the lender’s three main segments in the fiscal fourth quarter, the Toronto-based bank said Tuesday in a statement. The 22 percent increase is the largest in three years.
  • Canadian Prime Minister Justin Trudeau’s government passed legislation to end more than a month of rotating postal strikes in a bid to protect sales for online retailers through the peak holiday season. The Senate passed government legislation on Monday night in Ottawa after holding extended voting hours on Saturday to debate the bill, and it received a final sign-off from the country’s Governor General. That means the order takes effect at noon Tuesday.

World Headlines

  • European shares opened flat, after Monday’s gain, as U.S. and China trade-war talk continues and Italy appears to open the door to tweak its deficit. The Stoxx 600 Europe Index was little changed, led by gains in utilities shares, while basic resources stocks dropped the most. Thomas Cook Group Plc slumped 29 percent after it suspended its dividend. The Italian benchmark FTSE/MIB bounced between gains and losses after newspaper Messaggero reported the country’s deficit will probably be reduced to 2.2 percent from 2.4 percent.
  • U.S. stock futures fell in Asia as trade rhetoric between Washington and Beijing ramped up before a meeting between President Donald Trump and Chinese President Xi Jinping at the Group of 20 summit this week. December contracts on the S&P 500 Index slid 0.2 percent as of 7 a.m. in London after earlier dropping as much as 0.6 percent. Contracts on the Nasdaq 100 and Dow Jones Industrial Average dropped as much as 0.7 percent and 0.5 percent, respectively.
  • Japanese stocks rose after the S&P 500 Index had its best session in two weeks as investors found reprieve in strong consumer spending at the start of the holiday season. Technology, banks and automakers boosted the Topix index as three stocks rose for every one that fell. Cyber Monday online shopping is projected at $7.9 billion, according to Adobe, making it the largest online shopping day of all time in the U.S. The S&P 500 rose 1.6 percent on Monday.
  • Oil steadied after the biggest gain in almost two months as focus shifted to whether OPEC and its partners will cut supplies enough to check a looming surplus. Futures in New York gained 0.4 percent. Traders are monitoring this week’s G-20 gathering in Argentina, which will include Saudi Crown Prince Mohammed Bin Salman and Russian President Vladimir Putin, before OPEC meets next week in Vienna. Meanwhile, U.S. crude inventories are estimated to have fallen for the first time in 10 weeks in a Bloomberg survey before government data due Wednesday.
  • Gold edged higher as the metal continues to trade in a narrow range of about $1,220 to $1,230 an ounce. While prices are stagnant, bullish signals are piling up, with holdings of gold-backed exchange-traded funds rising for a sixth day to the highest in almost four months, while data released late Monday shows money managers reduced net bearish bets. A day after Goldman Sachs advised going long the yellow metal, Credit Suisse said it forecasts gold rising to $1,250 by the end of 2019 with demand for commodities more broadly remaining “robust” next year. Gold in particular is set to benefit from a slightly weaker U.S. dollar as the Federal Reserve slows its rate of interest rate hikes, the bank said.
  • China’s foreign ministry urged the U.S. to work toward a positive outcome of a planned meeting between presidents Donald Trump and Xi Jinping at the Group of 20 summit this week. Officials from both nations are working to follow through on a Nov. 1 phone call between the two leaders during which they agreed to reach a “mutually acceptable proposal,” Chinese foreign ministry spokesman Geng Shuang told reporters in Beijing on Tuesday. He didn’t provide any further details.
  • A Chinese researcher’s claim that he successfully modified the genes of human embryos may force the country to make a stark choice about the future of its burgeoning biotechnology industry — one with significant implications for an emerging technology arms race with the West. He Jiankui, an American-educated scientist based in Shenzhen, announced on Monday that he’d used Crispr, a powerful gene-editing tool, to make recently born twin girls resistant to HIV. He’s statement, which was not backed by peer-reviewed data and hasn’t been verified, prompted widespread condemnation from scientists in China and elsewhere, with many calling it an irresponsible use of a technology whose long-term effects are still poorly understood.
  • A commission set up by the U.S. Congress said Chinese authorities are not doing enough to halt the flow of the synthetic opioid fentanyl and related chemicals into the U.S., where the substance has been linked to an epidemic of overdose deaths. “U.S. officials have proposed strategies for Beijing to systematically control all fentanyl substances, but the changes have not been approved by the Chinese government,” Sean O’Connor, policy analyst for the U.S.-China Economic and Security Review Commission, wrote in a Nov. 26 report.
  • International Business Machines Corp. Chief Executive Officer Ginni Rometty joined a growing chorus of tech executives lambasting web platforms, like Google and Facebook Inc., over their collection of user data and urged governments to target regulation at those companies. Without naming company names, Rometty pointed to the “irresponsible handling of personal data by a few dominant consumer-facing platform companies” as the cause of a “trust crisis” between users and tech companies, according to an advanced copy of her remarks.
  • Apple Inc., which has lost a fifth of its value in a tech market rout since October, is poised for another setback after U.S. President Donald Trump suggested that 10 percent tariffs could be placed on mobile phones, like the iPhone, and laptops made in China. The company already is facing reports of suppliers cutting forecasts, signaling the new iPhone models introduced in September aren’t selling as well as anticipated. Trump’s comments to the Wall Street Journal that he may include Apple’s signature product in another round of tariffs on Chinese imports are another blow for Chief Executive Officer Tim Cook.
  • President Donald Trump dropped a rhetorical bomb on U.K. Prime Minister Theresa May’s efforts to get a Brexit agreement through parliament, warning the deal she reached with the EU could jeopardize Britain’s ability to strike a trade pact with the U.S. “Right now as the deal stands she may not — they may not — be able to trade with the U.S. and I don’t think they want that at all, that would be a very big negative for the deal,” Trump said Monday as he departed the White House for campaign rallies in Mississippi.
  • Italy’s populist government is considering reducing a disputed budget deficit to between 2.2 and 2.3 percent of GDP in a concession to the European Union, though it still plans to pass its costly welfare and pension reforms by Christmas, according to a senior economic adviser to Deputy Premier Matteo Salvini. The government will not delay implementation of a citizen’s income for the poor and of pension reform to lower the retirement age, Armando Siri, of Salvini’s anti-migration League and a participant in talks on the budget, told Bloomberg in an interview. Nor will it reduce the number of beneficiaries of the pension measure.
  • Uber Technologies Inc., which is already facing a range of legal and regulatory headaches in London, got another Tuesday after it was fined 385,000 pounds ($491,000) over a cyber attack that compromised the data of millions of customers and tens of thousands of drivers. The Information Commissioner’s Office said that Uber the personal details of about 2.7 million U.K. customers — including email addresses and phone numbers — may have been downloaded during a 2016 hack. Clients weren’t told for more than a year and the company paid the hackers $100,000 to destroy the data. In addition, information about 82,000 drivers was exposed.
  • Bain Capital is exploring a takeover bid for German lighting-products manufacturer Osram Licht AG, which has a market value of almost 3.9 billion euros ($4.4 billion), according to people with knowledge of the matter. The private equity firm is working with financial advisers in assessing the business, the people said, asking not to be identified because the deliberations are private. Other potential suitors including rival buyout firms are also eyeing the former Siemens AG unit, though the interest may not ultimately result in a deal, they said. Osram shares soared by the most in more than five years.
  • The Indian government will push its central bank to ease lending restrictions for some weak banks and review rules governing its functioning at a board meeting next month, people with knowledge of the matter said. The members, including government nominees, will press for some of the weak banks to be removed from the so-called prompt corrective action list, particularly those ones that have been consistent in recovering outstanding debt, the people said, asking not to be identified as the plan is not public. There are 11 state-run lenders on the list, which curbs their ability to lend.
  • Juiced by President Donald Trump’s tax cuts, business investment helped deliver a robust U.S. economy in the first half of 2018, but signs have multiplied that the growth driver is faltering. Companies face tariff-related uncertainty, cooling global demand and rising borrowing costs, while plunging oil prices are menacing the energy sector. Meanwhile, the U.S. and China are settling in for a protracted trade war, the boost from lower taxes is projected to fade next year and a politically divided Congress will probably shirk from additional stimulus.
  • Just a couple of months ago, major oil trading houses were predicting the return of $100 crude. Now, with oil prices at half that level, here’s a look at what the slump means for the world economy. Energy importers like India and South Africa will benefit; oil producers such as Russia and Saudi Arabia will hurt. Central banks under pressure to raise interest rates will get a reprieve; those looking to revive prices, such as the Bank of Japan, face another headwind.
  • Saudi Aramco will seek more acquisitions to speed its expansion in refining and petrochemicals as Saudi Arabia pushes ahead with plans to diversify its economy from reliance on sales of crude. The purchases will be in addition to Aramco’s planned purchase of government-controlled chemicals producer Saudi Basic Industries Corp., Aramco Chief Executive Officer Amin Nasser said Tuesday in a speech in Dubai. The deal to buy the chemicals producer, known as Sabic, from the Saudi sovereign wealth fund could be valued at about $70 billion.
  • Global oil majors investing more in deepwater drilling will accelerate a return of cost inflation, threatening to undo the dramatic cost cuts by the industry since crude’s collapse four years ago, according to Wood Mackenzie Ltd. Drilling expenditure will rise to almost $60 billion a year by 2022 from about $50 billion now, driven by big projects in Guyana, Brazil and Mozambique, said Angus Rodger, director of Asia-Pacific upstream research. The increase in spending as well as falling rig capacity may push up costs in deepwater fields, where about 60 percent of new oil discoveries were made in recent years, according to WoodMac.
  • Nasdaq Inc. is moving ahead with a plan to list Bitcoin futures, according to two people familiar with the matter, betting on sustained interest despite the cryptocurrency’s dramatic plunge over the past year. Nasdaq has been working to satisfy the concerns of the U.S.’s main swaps regulator, the Commodity Futures Trading Commission, before launching the contracts, the people said. The New York exchange operator, which was first reported to be eyeing Bitcoin futures last year, wants to allow trading in the first quarter of 2019, one of the people said.

*All sources from Bloomberg unless otherwise specified