November 2nd, 2018

Daily Market Commentary


Canadian Headlines

  • Dutch packaging firm Schoeller Allibert Group BV is in talks to merge with Irish rival IPL Plastics Inc., according to people familiar with the matter. Schoeller Allibert, majority owned by an affiliate of Brookfield Asset Management Inc., has been in merger talks with IPL for several months, said the people, who asked not to be identified because the matter is private. Discussions are ongoing and there’s no certainty they will lead to a deal, they said.
  • Call it the upgrade trade. Money managers including Loomis Sayles & Co., BMO Asset Management and RBC Global Asset Management are cutting down their junk holdings, boosting higher-quality bonds, or both, as speculative corporate debt posted its worst October returns in a decade. They’re not alone in seeking higher ranking securities: the gap between yields on high yield and investment-grade bonds widened last week to its widest level since May.
  • The sun will come out tomorrow, or at least some time next year. That’s the message from Canadian oil producers suffering from the worst domestic glut in at least a decade. Even as prices dipped to new lows on Thursday, some companies including Suncor Energy Inc. and Canadian Natural Resources Ltd. see reasons for optimism. Enbridge Inc.’s Line 3 pipeline is scheduled to be expanded and more oil is moving by rail. But for now, some producers are choosing to cut output rather than sell at current regional prices.
  • The federal government is reviving a push to beef up consumer rights when dealing with major banks. Finance Minister Bill Morneau’s budget implementation bill — known as C-86, a sprawling law unveiled this week — includes a series of changes to Canadian law governing lenders like Royal Bank of Canada and Toronto-Dominion Bank. Many of the changes were proposed two years ago but abandoned over jurisdictional disputes. The latest proposal beefs up the Financial Consumer Agency of Canada’s powers, including raising the maximum fine to C$10 million ($7.6 million) from C$500,000. It also introduces new whistle-blower protections, advertising rules and requirements to more clearly spell out information customers are agreeing to.



World Headlines

  • European equities climbed, poised for their biggest weekly advance since the end of 2016, as reports about the U.S. President Donald Trump’s interest in reaching a trade pact boosted appetites for mining and automaker shares. The Stoxx Europe 600 Index added 1 percent, set for a gain of 4.2 percent this week, as stocks recover from a brutal October. Glencore Plc jumped 3.3 percent and Daimler AG added 3.2 percent. IAG increased 4.1 percent after boosting its long-term profit goals.
  • U.S. equity-index futures advanced even as shares of Apple Inc. dropped in pre-market trading after underwhelming sales forecasts. Prospects for easing protectionist tensions are helping round out a week that’s seen appetite for risk assets return following the October rout in equities. Doubts remain, though, on the capacity of earnings to deliver. Apple’s disappointing forecast for the key holiday period suggested weaker-than-expected demand for the company’s pricier new iPhones. Next up is the U.S. jobs report for October later Friday, while investors are also looking ahead to mid-term elections next week.
  • Stocks from Hong Kong to Tokyo surged, taking gains on the MSCI Asia Pacific Index to 5 percent for the week. Emerging-market equities jumped the most since March 2016, while currencies from South Korea to Australia joined the rally. The euro gained even as a drop in Italian manufacturing dragged the region’s PMI to a two-year low. Italy’s bonds climbed.
  • Oil headed for the biggest weekly loss since February as the U.S. softened its crackdown on Iranian exports and American supplies surged, assuaging fears of an impending shortage. Futures have lost 6 percent in New York this week. The U.S. has agreed to let eight countries — including Japan, India and South Korea — keep buying Iranian oil after it reimposes sanctions this weekend to prevent a spike in prices, a senior administration official said. Prices capped this week’s loss on signs of a possible trade agreement between the U.S. and China.
  • Gold steady after posting the biggest advance in three weeks on Thursday as a gauge of the dollar retreated from a 17-month high. Investors are also weighing Bloomberg News report that U.S. President Donald Trump is interested in reaching an agreement on trade with Chinese President Xi Jinping at the Group of 20 nations summit in Argentina this month and has asked key U.S. officials to begin drafting potential terms.
  • Apple Inc.’s disappointing earnings report has put the iPhone maker’s $1 trillion market value at risk. A revenue forecast that fell short of the average analyst estimate at the midpoint and weaker-than-expected iPhone sales sent the stock tumbling in extended trading. Apple’s disclosure that it will stop reporting unit sales of iPhones, iPads and Macs extended the decline to as much as 7.7 percent. The slide continued in pre-market trading Friday, with the stock falling 5.8 percent as of 7:15 a.m. in New York.
  • Alibaba Group Holding Ltd. trimmed its annual revenue forecast after quarterly sales missed estimates, underscoring the extent to which escalating tensions with the U.S. are hurting the Chinese economy. For the fiscal year ending March, the company is now predicting revenue of 375 billion yuan ($54.5 billion) to 383 billion yuan, equating to growth of as much as 53 percent versus the 60 percent it guided towards previously. Second-quarter sales came in 1.6 percent below analysts’ estimates.
  • Midnight on Sunday will mark a dividing line in the world of oil. Beyond that point, anyone unloading a tanker from Iran risks the full wrath of the U.S. government. The Middle East’s third-biggest oil producer has already seen many buyers flee, with sales tumbling 37 percent since President Donald Trump announced that he’d reimpose sanctions. Once those restrictions formally kick in on Nov. 5, the overall supply disruption could become the biggest since Libya erupted in civil war at the start of the decade.
  • The hedge funds that now own the Toys “R” Us brand plan to relaunch the toy retailer as a standalone operation next year, according to people familiar with the matter. Solus Alternative Asset Management and Angelo Gordon will look to raise capital to help revive the retailer, which closed its last stores at the end of June, and are making plans that include brick-and-mortar locations for the chain, the people said.
  • The U.S. has agreed to let eight countries — including Japan, India and South Korea — keep buying Iranian oil after it reimposes sanctions on the OPEC producer on Nov. 5, a senior administration official said. While the Trump administration’s goal remains to choke off revenue to Iran’s economy, waivers are being granted in exchange for continued import cuts so as not to drive up oil prices, said the official, who asked not to be identified before Secretary of State Michael Pompeo announces the number of exemptions later on Friday.
  • Italian manufacturing shrank the most in almost four years in October, hinting at continued weakness after the economy failed to grow in the third quarter. IHS Markit’s factory index for the country dropped below the key 50 mark, meaning a contraction — the first since August 2016. Output shrank for a third month and new orders fell as optimism took a knock from slower global demand and “worries over political stability.” The euro-area manufacturing PMI slid to 52.0, below the initial estimate of 52.1 and the weakest reading in more than two years.
  • Russian oil production moved closer to an all-time high before the nation meets with OPEC partners to discuss future supply. The country’s crude and condensate output averaged 11.412 million barrels a day last month, according to data from the Energy Ministry’s CDU-TEK unit released Friday. That’s about 160,000 barrels a day more than two years ago, before Russia agreed to cut supply with OPEC. It’s a post-Soviet record, and not far off the highest-ever output.
  • Malaysia’s government will push its budget deficit to the highest in five years and will hike taxes and draw more income from the state oil company to help plug the shortfall. In the first budget since Prime Minister Mahathir Mohamad took office in May, the government is widening its deficit target for this year to 3.7 percent of gross domestic product from a 2.8 percent target under the previous government. The median estimate in a Bloomberg survey of nine economists was 3.2 percent.
  • Foreigners didn’t wait long to set a new record for China stock buying. Overseas investors heartened by optimism China and the U.S. can overcome their trade dispute bought 17.4 billion yuan ($2.5 billion) of China stocks via trading links with Hong Kong on Friday. That was more than double the record set a day earlier and erased all of October’s net selling, according to data compiled by Bloomberg.
  • Pfizer Inc. is reviewing options including a sale of its women’s health portfolio as the U.S. pharmaceutical giant seeks to focus on developing treatments with higher growth potential, according to people with knowledge of the matter. The drugmaker is working with financial advisers to gauge the interest of potential buyers, the people said, asking not to be identified because the deliberations are private. A sale of the division, which has annual sales of roughly $1.2 billion, could fetch about $2 billion and draw bids from both private equity firms and rival pharmaceutical companies, they said.
  • GTS agreed to buy Cantor Fitzgerald LP businesses that handle exchange-traded funds and orders from retail investors, becoming the latest high-frequency trading firm to start directly serving consumers. Two units will shift to GTS, along with about 35 employees, the company said Friday in a statement that didn’t disclose financial terms. One trades ETFs with customers and on exchanges. The other, a wholesale market-making business, executes stock and ETF trades for retail investors. Bloomberg first reported a month ago that the companies were discussing a deal.

*All sources from Bloomberg unless otherwise specified