November 29th, 2018

Daily Market Commentary


Canadian Headlines

  • Canadian stocks rallied as U.S. stocks surged after a dovish tone from the Federal Reserve chairman fueled speculation that the central bank is closer than thought to pausing on rate hikes. The S&P/TSX Composite Index rose 1.5 percent, the most in a week, with health-care and information technology leading gains. Telecom was the only group in the red on Wednesday. The loonie broke a three-day streak of losses against the dollar, climbing 0.2 percent.
  • Toronto-Dominion Bank’s U.S. consumer-banking business is outshining its Canadian operations. Toronto-Dominion had a 44 percent jump in earnings from the U.S. retail segment in the fiscal fourth quarter, helped by improving net interest margins, record contributions from a stake in the TD Ameritrade discount brokerage and the U.S. tax overhaul. Profit from U.S. retail rose to C$1.11 billion, outperforming growth in Canada and its wholesale banking division, the Toronto-based lender said Thursday in a statement. Net income for the quarter ended Oct. 31 rose 9.1 percent to C$2.96 billion ($2.23 billion), or C$1.58 a share. Adjusted earnings were C$1.63 a share, beating the C$1.60-a-share average estimate of 14 analysts surveyed by Bloomberg.
  • Canadian Imperial Bank of Commerce missed analysts’ earnings estimates for the first time in almost four years even as the company’s U.S. foray helped lessen its reliance on domestic banking. CIBC posted a 22 percent increase in earnings from U.S. commercial banking and wealth management, outpacing growth in the lender’s domestic businesses and capital-markets operation in the fiscal fourth quarter. The U.S. unit contributed C$131 million ($98.6 million) to earnings, up from C$107 million a year ago, when it acquired Chicago-based PrivateBank in its largest takeover ever. Net income for the period ended Oct. 31 rose 8.9 percent to C$1.27 billion, or C$2.80 a share. Adjusted earnings were C$3 a share, missing the C$3.02-a-share average estimate of 14 analysts surveyed by Bloomberg.
  • Turmoil in Canada’s two largest export sectors threatens to undermine the country’s so-far-so-good economic expansion. General Motors Co.’s announcement Monday that it plans to pull production from its plant in Oshawa, east of Toronto, raises concern about the auto industry’s viability in Canada. It came on the heels of an emerging crisis in the oil sector, which is struggling with plunging prices and transportation bottlenecks. Combined, the energy and automotive industries generate almost one quarter of Canadian export receipts. So their troubles are a reminder there are no guarantees the economy will be able to pull off a smooth transition to a business-led expansion as consumers begin to tap out. Third-quarter gross domestic product data is due out Friday.



World Headlines

  • European equities advanced at the open with mining and technology shares leading the gains following a sharp rally on Wall Street sparked by dovish comments from Federal Reserve Chairman Jerome Powell. The Stoxx Europe 600 Index added 0.6 percent. Rio Tinto added 2.8 percent and Glencore rose 3.1 percent. Italy’s FTSE MIB Index jumped 1 percent after the Stampa newspaper reported that Italian Prime Minister Giuseppe Conte is “optimistic” that a 2.2 percent deficit target can avoid the start of an EU excessive debt procedure.
  • Benchmark Treasury yields briefly fell below 3 percent for the first time since September in the wake of the Fed’s dovish tilt, but a stock rally faded as U.S. equity futures dropped and gains in Europe were muted. The dollar fluctuated. After Powell’s comment that interest rates are “just below” a range of estimates of the so-called neutral level, investors are now betting the Fed is nearing a pause. With Powell now out of the way, the market is looking for any hopeful signals on trade from a meeting between the U.S. and Chinese presidents that will take place at the Group of 20 summit in Buenos Aires this weekend.
  • Shares in Tokyo gained for the fifth consecutive day after a dovish tone from Federal Reserve Chairman Jerome Powell fueled speculation the central bank may pause lifting interest rates next year. Services and pharmaceutical stocks boosted the Topix, which is seeing its longest rally in two months. Recruit Holdings Co. and Outsourcing Inc. surged on optimism Japan’s upper house will pass a bill admitting more foreign workers by the end of the current session next month. Cosmetics companies including Shiseido Co. declined after Tiffany & Co. said Chinese tourists spent less in the third quarter, even as Japan economy ministry data showed local retail sales rose more than expected in October.
  • Oil dropped below $50 a barrel in New York for the first time in more than a year as traders fretted that OPEC won’t act decisively to clear a resurgent surplus in the global crude market. All eyes are on this weekend’s G20 summit in Argentina, where Russia’s Vladimir Putin and Saudi Arabia’s Mohammed bin Salman are likely to discuss how to coordinate oil policy, but both leaders have reasons for caution. Shielded by a budget surplus and a weak ruble, Putin said yesterday current prices suit Russia fine. The crown prince, under pressure after the killing of Jamal Khashoggi, can’t afford to alienate President Donald Trump.
  • Gold climbed for a second day after Federal Reserve Chairman Jerome Powell opened the door for a potential pullback in projected interest-rate hikes in 2019, hurting the dollar. Powell said Wednesday rates are “just below” a range of estimates of the so-called neutral level. That fueled speculation the bank may pause its tightening cycle next year. Rising rates have hurt demand for bullion this year.
  • Ford Motor Co. and General Motors Co. both need to overhaul their U.S. manufacturing base to cope with consumers’ drastic switch to SUVs from sedans. Only one is poised to make that adjustment without ticking off the president. In a significant rework of its U.S. production plans, Ford will eliminate shifts at factories in Trump country. But it plans to retain all the 1,150 workers affected by shifting their jobs to Michigan and Kentucky plants making big SUVs or supplying transmissions to pickups. That’s fortunate not only for employees, but for Ford’s relations with a touchy White House.
  • President Donald Trump raised the prospect of slapping a 25 percent tariff on imported cars and ordered a review of China’s retaliatory auto tariffs against the U.S. as his administration continued to scramble to respond to General Motors Co.’s announcement of plant closures this week. In a pair of Twitter posts on Wednesday, Trump pointed to a longstanding U.S. tariff on imported pickup trucks that has helped U.S.-based automakers dominate that market. He argued that a similar import tax on cars would have prevented GM’s move to close plants in the U.S.
  • Global banks affected by Brexit will move as much as 800 billion euros ($900 billion) of balance-sheet assets to Frankfurt, according to a lobby group for the German financial capital. Brexit is forcing banks currently running their EU businesses from London to relocate to one of the remaining member states amid concerns U.K.-based banks will lose their pan-EU banking licenses. Frankfurt has emerged as a particularly popular choice, with Goldman Sachs Group Inc., UBS Group AG and Morgan Stanley all opting to place their EU hubs in the German city.
  • German authorities descended on Deutsche Bank AG, including its downtown Frankfurt headquarters, in a coordinated raid related to a money-laundering investigation. More than six police vehicles, their blue lights flashing, pulled up to Deutsche Bank’s main offices shortly before 9 a.m., in an operation involving about 170 officers. The main suspects were two bank employees who were not identified beyond their ages — 50 and 46. Authorities were also looking at whether others might have been involved. The bank said it was cooperating in what prosecutors described as a continuing investigation.
  • In a small Estonian town about 30 miles from the Russian border, NATO is playing out fictional scenarios where allied networks and civilian systems are under online assault. A three-day annual exercise, dubbed Cyber Coalition, is pulling together officials from the North Atlantic Treaty Organization and its partners in Estonia, which suffered what’s widely believed to be the first state-sponsored cyber assault on another country in 2007 amid a row with Russia over relocating a Soviet-era monument.
  • Carmakers including BMW AG, Volkswagen AG, Ford Motor Co.and General Motors Co. are buying up bonded warehouse space at U.K. ports as they prepare for the impact of a potential no-deal Brexit. Automakers that export to Britain are making the move as part of their contingency planning for the customs upheaval and border delays that would come if the U.K. quits the European Union without a negotiated accord, according to BCA Marketplace Plc, which provides the warehousing.
  • China is preparing to end its $176 billion experiment with peer-to-peer lending. Alarmed by a surge in defaults, fraud and investor anger, Chinese authorities are planning to wind down small- and medium-sized P2P lending platforms nationwide, people with knowledge of the matter said. Regulators may also order the largest platforms to cap outstanding loans at current levels and encourage them to reduce lending over time, one of the people said, asking not to be identified discussing private deliberations.
  • China’s financing units for local governments, already grappling with bloated debts, now face an even bigger predicament — a build-up of credit guarantees that leave them vulnerable to surging defaults. Around 2,000 of these platforms, known as local government financing vehicles, have offered a total of 7 trillion yuan ($1 trillion) of guarantees to loans, bonds and shadow financing for domestic companies, said Lv Pin, an analyst at CITIC Securities Co. That surpasses the tally of LGFVs’ own outstanding local bonds, Bloomberg-compiled data show. These guarantees help private companies get financing as banks prefer to lend to state-owned ones.
  • Hainan Airlines Holding Co. announced two of its top executives are leaving their posts and the company will apply for 7.5 billion yuan ($1.1 billion) of loans in the latest sign of stress at parent HNA Group Co., the indebted airline-turned-global acquirer.
  • Intu Properties Plc has been left at the altar for the second time this year as concerns about Brexit add to the challenges faced by U.K. shopping-mall owners. A Brookfield Property Group venture abandoned its pursuit of the company on Thursday, a day after the Bank of England said the prices of malls, offices and hotels could fall by almost 50 percent if Britain leaves the European Union without a deal. In response, Intu said it would slash its dividend and use the savings to invest in its portfolio and cut its debt.
  • Icelandair Group Hf abandoned its plan to buy low-cost rival Wow Air Hf, sending the krona tumbling amid concern that the country’s tourism industry could be hit if the discounter collapses. Conditions required for the deal to go through weren’t met, Icelandair Chief Executive Officer Bogi Nils Bogason said Thursday, adding that “this conclusion is certainly disappointing.” The krona fell about 0.9 percent against the euro as investors fretted that the failed merger is bad news for an economy increasingly dependent on tourism after the bank failures of a decade ago.
  • Fiat Chrysler Automobiles NV will spend 5 billion euros ($5.7 billion) through 2022 on the carmaker’s factories in Italy, stepping up the pace on making more in-demand sport utility vehicles and electric cars, people familiar with the plans said. The increased outlay will finance Fiat’s plan to build a compact Alfa Romeo SUV at the Pomigliano plant, hometown of Italy Deputy Premier Luigi Di Maio, and a battery-powered Fiat 500 in Turin’s Mirafiori factory, the people said, declining to be named because the information isn’t public. The manufacturer’s Italian sites for years have struggled to run at full capacity, raising costs.
  • One of Saudi Arabia’s major contractors defaulted on almost $2 billion after a falling out among its owners and delays in payments from the government, according to people with knowledge of the matter. The Saudi unit of Cyprus-based Joannou & Paraskevaides Group defaulted on about 7 billion riyals ($1.9 billion) in bank loans about two months ago, said the people, asking not to be identified as the information is private. The defaults are largely the result of problems getting paid by the Ministry of Interior, the people said.
  • Inc.’s “double role” as Germany’s largest retailer and biggest online host for smaller stores is the target of an antitrust probe into the terms the company sets for other sellers, the German Federal Cartel Office said. The investigation into Amazon’s biggest market outside the U.S. adds to European Union scrutiny of whether the company gathers information on rival sellers’ successes to help launch its own products. German regulators said they’d received “numerous” complaints from sellers. Europe is a tough regulatory landscape for big technology companies, with fines raining down on Google, a hefty tax back-tax bill for Apple, and the threat of new laws to straitjacket how online platforms handle their customers. Facebook is also being probed by the German antitrust authority over whether it squeezes unfair privacy terms from users.

*All sources from Bloomberg unless otherwise specified