November 7th, 2018

Daily Market Commentary


Canadian Headlines

  • Canadian stocks followed U.S. peers higher for a second day, boosted by pot stocks and utilities. The increase comes as Americans go to the polls to vote in the midterm elections, with congressional races seen as a referendum on President Donald Trump’s policies. The S&P/TSX Composite Index rose 0.5%, also helped by energy. The telecom and industrial sectors were the only ones to post a decline.
  • Imperial Oil Ltd. is going ahead with its C$2.6 billion ($2 billion) Aspen oil-sands project even as Canadian heavy crude is selling at the lowest prices in at least a decade. The producer, which is majority-owned by Exxon Mobil Corp., said it made a final investment decision to build the so-called solvent-assisted, steam-assisted gravity drainage site in northern Alberta, and that it will produce 75,000 barrels a day of bitumen once it starts operation. Construction will start in the current quarter and is expected to be completed in 2022.
  • China is finally getting a taste of Canadian crude, if only for a couple of months. At least five tankers hauling as much as a combined 3.76 million barrels of crude have departed Vancouver for China since the start of September, Bloomberg ship-tracking data show. The cargoes could push China’s purchases beyond 4 million barrels for the year, the most since 2012, government data show. While this increase in shipments is largely due to lower demand from refiners along the U.S. West Coast that have shut temporarily for maintenance, it’s a sneak preview of the future Canadian oil producers envision after the long-awaited expansion of the Trans Mountain pipeline is completed, giving them greater access to markets other than the U.S.



World Headlines

  • European equities have marched higher this morning with basic resources, oil and gas and retail names posting >1.5% gains, shrugging off the late slump in Chinese stocks. Spain’s IBEX outperformed (+1.5%) with local banks gapping higher on the open after last night’s Supreme Court ruling. Yield curves are bull flatter with Bunds following USTs after choppy trade in Asia.
  • U.S. equity futures jumped, the dollar dropped and Treasuries climbed as investors digested potential political gridlock in the wake of the American midterm elections. With Democrats winning the House of Representatives majority and Republicans clinching control of the Senate, President Donald Trump’s party loses full control of Congress. The results dim chances for any major fiscal initiative from the administration that might have pushed yields higher and strengthened the greenback.
  • Chinese stocks turned lower in a volatile trading session as investors digested the implications of a split U.S. Congress. The yuan dropped. The Shanghai Composite Index closed down 0.7 percent, its biggest drop since Oct. 29, having earlier risen 0.6 percent. Chinese brokerages were among the worst performers as their parent companies reported lower profits. Hong Kong’s Hang Seng Index added 0.1 percent after rising as much as 1.6 percent and falling 0.8 percent, while a gauge of Chinese companies also edged up 0.1 percent.
  • Oil rose as OPEC and its allies were said to plan discussions about fresh production cuts next year, responding to recent increases in oil inventories amid surging U.S. supply. Futures in New York gained 1 percent. Ministers from the Organization of Petroleum Exporting Countries gathering in Abu Dhabi this weekend will discuss options for 2019 including the scenario of fresh supply cuts, said delegates. That would mark an abrupt end to six months of supply increases, reflecting the prospect that U.S. sanctions on Iran won’t be deep enough to prevent another surge of American shale oil creating a new surplus.
  • Gold advanced as the dollar weakened after President Donald Trump’s party lost full control of Congress in the U.S. midterm election. Fitch Solutions Macro Research said it’s neutral on prices in the next six months, citing monetary policy normalization by the Fed and a stronger dollar, which will limit the attractiveness of gold. It predicted a “modest rebound” in prices over 2019 and 2020 as the U.S. economy starts to slow.
  • Virtu Financial Inc. agreed to buy Investment Technology Group Inc. for about $1 billion, giving the high-speed trading firm a brokerage that has relationships with big institutional investors. The purchase continues Virtu’s transformation from a company that places bids and offers on exchanges to one that has relationships with customers. Virtu’s $1.3 billion acquisition of rival high-frequency trader KCG Holdings Inc. last year gave it a business that executes orders for retail brokerages. ITG would allow it to build on that growth.
  • OPEC is enduring one of the most head-spinning years in its history, swerving from cutting oil production to boosting it as quickly as possible. Now it’s talking about reversing course again. Ministers from the group gathering in Abu Dhabi this weekend will discuss the possibility of cutting production again next year, according to delegates, a move that would mark an abrupt end to six months of supply increases.
  • SoftBank Group Corp. is seeking to raise a record 2 trillion yen ($18 billion) from Japanese individuals in the initial public offering of its mobile phone unit, targeting investors who often get no interest on their savings, said people familiar with the matter. Nomura Holdings Inc., a joint global coordinator, will sell the biggest part of the shares to the retail investors, part of an IPO that could raise about 3 trillion yen in total, said the people, asking not to be named because the target is private. Tokyo-based SoftBank will announce the details for the debut sale as early as next week, they said.
  • Boeing Co. is advising airlines on procedures to deal with false readings from a plane sensor that authorities say malfunctioned on a 737 Max jet that crashed off the Indonesian coast over a week ago. The operations-manual bulletin was issued Tuesday, Boeing said in a statement posted to Twitter, and tells crew to use existing guidelines when dealing with erroneous inputs from the so-called angle of attack sensor. That sensor is intended to maintain air flow over a plane’s wings but if it malfunctions can lead to an aerodynamic stall — which can cause aircraft to abruptly dive.
  • A gauge of U.S. mortgage applications fell last week to the lowest level in almost four years as borrowing costs hit the highest since 2010, adding to challenges for the housing market. The Mortgage Bankers Association’s market composite index fell 4 percent in the week ending Nov. 2 to 316.2, the lowest reading since December 2014, according to a report Wednesday from the Washington-based group. The survey’s contract rate on a 30-year fixed loan rose to 5.15 percent from 5.11 percent, while a gauge of applications to purchase homes dropped 5 percent to the lowest in about two years.
  • China’s foreign currency holdings shrank again in October amid a rising dollar combined with signs of some capital outflows. Reserves fell $33.9 billion to $3.053 trillion last month, the People’s Bank of China said Wednesday. That was lower than the median estimate of $3.059 trillion in Bloomberg’s survey of economists.
  • The People’s Bank of China sold 20 billion yuan ($2.9 billion) of bills in its first issuance in Hong Kong on Wednesday, a move that could reduce the offshore yuan’s liquidity and support the Chinese currency.
  • Nancy Pelosi is poised to take back the House speaker’s gavel with the new Democratic majority, rebounding as the face of her party in a political “year of the woman” as a rebellion among younger Democrats lacks any real leaders. This time, Pelosi is signaling publicly she’s ready to serve a “transitional” speaker to lay the groundwork for future leaders, although she hasn’t said how long she will stick around.
  • CK Group’s A$13 billion ($9.4 billion) bid for gas pipeline operator APA Group was knocked back by Australia’s government on national security concerns, a decision that has the potential to further inflame diplomatic tensions with China. “I have advised the consortium led by CK Asset Holdings Ltd. of my preliminary view that its proposed acquisition of APA Group would be contrary to the national interest,” Treasurer Josh Frydenberg said in a statement Wednesday.
  • State-run China Datang Corp. and China Huadian Corp. are in talks to merge and awaiting final government approval for a deal that would create the world’s biggest power generator by capacity, according to people with knowledge of the situation. Shares of their listed units rose. The two electricity producers have reached agreement on most technical issues for a deal, said the people, who asked not to be identified because the information isn’t public. They are now waiting for approval by China’s State Council, which may or may not authorize the combination, said the people.
  • Meetings between U.S. Secretary of State Michael Pompeo and North Korean officials planned for later this week have been postponed, in a new sign of tension as the regime seeks sanctions relief before taking key disarmament steps. U.S. State Department Spokeswoman Heather Nauert said in a statement that meetings with North Korean official Kim Yong Chol scheduled for Thursday in New York City would take place at “a later date,” without citing a reason. She said the two sides would meet when “our respective schedules permit,” and that the administration remained focused on fulfilling Kim Jong Un’s pledge to “denuclearize” during his June meeting with President Donald Trump.
  • Dell Technologies Inc. has reached out to investors to determine what it would take to win their support for its plans to return to the public markets, a person familiar with the matter said. Shareholders, including activist investor Carl Icahn, have balked at the terms of Dell’s proposed deal to take the technology giant public through a $21.7 billion deal involving a tracking stock. For the first time, Dell is acknowledging to investors in the tracking stock, known as DVMT, that the terms may need to be improved to win the necessary support, said the person, who asked not to be identified because the matter is private.
  • Voters across the U.S. approved at least $12.3 billion of bond sales to support school construction, water infrastructure upgrades and road and bridge repair, led by multi-billion-dollar measures in California. Results are still pending on hundreds of state and local measures. The nationwide election brought about $76.3 billion of bond referendums from California to Maine, the most in an election since 2006, according to data from market research company Ipreo by IHS Markit. It signals an increasing willingness by states and local governments to borrow for needed public works while they reap the financial gains from the nearly decade-long economic expansion.

*All sources from Bloomberg unless otherwise specified