October 16th, 2019

Daily Market Commentary

Canadian Headlines

  • Canadian equities opened the holiday-shortened week higher as marijuana grower Aphria Inc. became the first large pot producer to report a second consecutive profitable quarter. The S&P/TSX Composite Index rose less than 0.1% to 16,419. Eight of eleven sectors advanced, with materials being the weakest group. Meanwhile, crude fell for a second day amid a weakening global growth outlook and abundant crude supplies in the world’s largest economy. Also, Shares of Bausch Health Cos. climbed 3.4% after a short-seller changed his tune and said the stock could nearly double.

World Headlines

  • European equities fell from a 17-month high, with domestic U.K. stocks reversing Tuesday’s rally as prospects of a Brexit deal dimmed. The Stoxx Europe 600 Index was down 0.3%, led lower by miners. The FTSE 100 Index dropped 0.2%, while the domestic-focused FTSE 250 Index slid 0.8% after reaching a one-year high on Tuesday.
  • Contracts on all three major U.S. gauges fell a day after the S&P 500 index closed at the highest in almost four weeks. The U.S. House passed legislation to require an annual review of whether Hong Kong is sufficiently autonomous from Beijing to justify its special trading status under American law. In the city itself, Chief Executive Carrie Lam announced housing initiatives that boosted property and finance stocks.
  • Earlier, benchmarks rose from Tokyo and Seoul to Sydney, though most gauges pared the advance after China threatened to retaliate if the U.S. Congress passes a bill offering support to pro-democracy protesters in Hong Kong. Stocks dipped in Shanghai and the yuan weakened. A dollar gauge was steady as Treasuries and most core European bonds gained.
  • Oil steadied near $53 a barrel after two days of declines as the fragile economic environment and unresolved U.S.-China trade war continue to deteriorate the outlook for global fuel demand. Futures in New York rose 0.3%. The International Energy Agency sees a “serious challenge” for OPEC and other producers next year amid the possibility of a further reduction in the demand forecast while global supplies continue to grow.
  • Gold edged higher, after posting the biggest drop in two weeks, supported by tensions over Hong Kong and pessimism about a Brexit deal. Platinum-backed exchange traded funds expanded to new record. Bullion’s rally has stalled in the past month, and ETF holdings fell on Tuesday for the first time in 22 days, ending the longest run of inflows in a decade. While platinum ETFs have expanded for nine weeks, prices for the metal have seen “quite a retracement recently and risk reward looks more attractive now,” ABN Amro Bank NV strategist Georgette Boele said.
  • Iron ore is in retreat as investors weigh up a challenging final quarter, with the world’s largest miners confirming that global supplies are rebounding just as questions stack up about about the outlook for steelmakers in China, including weaker product prices. Futures in Singapore sank more than 5% to head for the lowest close since August, while the contract in Dalian also gave up ground. Steel contracts in the world’s top producer sagged, with hot-rolled coil contracts falling for a fifth straight day in Dalian.
  • China caught traders off-guard with a surprise injection into the financial system via loans to banks, ahead of data on Friday which is expected to show a further slowdown in the domestic economy. The People’s Bank of China added 200 billion yuan ($28 billion) of one-year cash through the medium-term lending facility on Wednesday. It kept the interest rate steady. The move took traders by surprise as the authorities usually inject liquidity when previously offered loans come due, and the next batch won’t mature until Nov. 5.
  • Labor talks between General Motors Co. and United Auto Workers leaders are pushing into Wednesday, inching toward a tentative agreement that could end a strike now in its fifth week. Negotiators are showing signs of progress: GM Chief Executive Officer Mary Barra made a personal appearance at the main bargaining table on Tuesday, and UAW bosses have summoned their local presidents and chairmen to Detroit for a meeting on Thursday. The union typically calls in local leaders to vote on whether to submit a tentative agreement to the general membership for ratification.
  • Advisers working on Saudi Aramco’s mammoth share sale may split a fee pool of as much as $450 million, according to people with knowledge of the matter, making it one of the biggest IPO pay outs globally. The oil giant is set to pay between $350 million and $450 million to a group of more than 20 banks working on its initial public offering, the people said, asking not to be identified because the information is private. The payment would represent a fee of about 1% on the $40 billion Aramco is seeking to raise — relatively low compared to other markets.
  • An explosion and fire at a San Francisco-area fuel terminal spewed black smoke high in the air, snarling rush hour traffic and prompting local officials to ask residents to take shelter on Tuesday, before the emergency situation eased early on Wednesday. The fire that affected two tanks at Nustar Energy LP’s Selby Terminal in Crockett, about 25 miles (40 kilometers) northeast of San Francisco, has now been contained, the Contra Costa Country fire department said on Twitter. The tanks held “very low volumes of ethanol” comprising less than 1% of their capacity, NuStar said earlier in a statement. All operations have been suspended and product shipments into and out of the facility have halted. All personnel are safe and accounted for.
  • Kone is in talks with CVC Capital about potentially teaming up in a bid for Thyssenkrupp’s elevator business, people with knowledge of the matter said. The partnership could be a way for Kone to address significant antitrust concerns, with CVC acquiring elevator assets in places such as Europe where Kone and Thyssenkrupp have significant overlap, according to the people
  • European car sales jumped in September, but the surge had more to do with the year-ago comparison than any respite from longer-term woes in the industry. Registrations increased by 14% to 1.29 million vehicles, the European Automobile Manufacturers Association said on Wednesday. Sales suffered in the year-ago period after new emissions-test rules took effect.
  • Dutch lighting specialist Signify NV agreed to buy Eaton Corp.’s rival business for $1.4 billion in cash to cement its lead as North America’s top supplier. The companies reached a definitive agreement expected to be completed in the first quarter of 2020, Eindhoven, Netherlands-based Signify said in a statement. The acquisition of Cooper Lighting Solutions will be financed with debt. Shares of Signify rose as much as 5.8% on Wednesday. The purchase by the Royal Philips NV spinoff builds on Signify’s strategy to bolster its presence in the $12 billion North American professional lighting market. After the deal, the region will account for 40% of total revenue, up from 28% previously, with the combined company generating most of its sales from professional lighting.
  • China threatened unspecified “strong countermeasures” if the U.S. Congress enacts legislation supporting Hong Kong protesters, in a sign of the deepening strain between the world’s two largest economies as they attempt to seal a trade deal. China’s foreign ministry issued the warning Wednesday after the U.S. House passed a package of measures backing a pro-democracy movement that has rocked the former British colony for more than four months. Among them was the Hong Kong Human Rights and Democracy Act, which subjects the city’s special U.S. trading status to annual reviews and provides for sanctions against officials deemed responsible for undermining its “fundamental freedoms and autonomy.”
  • The Indian conglomerate that owns Jaguar Land Rover said it is open to finding partners for the automaker but isn’t planning on selling the embattled unit. “We’re not going to sell,” said Natarajan Chandrasekaran, chairman of Tata Sons Ltd., the holding company in an expansive business empire that includes Tata Motors Ltd. “Auto is a core business for us. From revenue terms, auto is our largest company.” Tata Motors bought the maker of the Jaguar XE sedan and Land Rover Discovery sport utility vehicle from Ford Motor Co. in 2008. After turning it into a cash cow with booming sales in countries like Russia and China, JLR waned to such an extent that it’s had to launch a 2.5 billion-pound ($3.2 billion) savings program and slash thousands of jobs worldwide.
  • Blackstone Group Inc. intends to make a tender offer for Unizo Holdings Co., the Japanese real estate company that’s been criticized for its handling of offers in an ongoing bidding war. The U.S. investor said in a statement Tuesday that it’s willing to pay 5,000 yen for each share of Unizo, making public an offer it had already communicated to management. Elliott Management Corp., Unizo’s top shareholder, said in emailed statement Wednesday that Unizo should make the greatest possible effort to reach an agreement with Blackstone.
  • Ant Financial Services Group is seeking a syndicated loan of up to $3.5 billion at a lower rate, joining other Chinese technology giants in their bid to slash debt costs. The company is in talks with lenders for a $2.5 billion financing that comes with a $1 billion greenshoe option, according to people familiar with the matter. The price talk for the three-year loan margin is less than 100 basis points over Libor, said the people, who are not authorized to speak publicly and asked not to be identified. The company didn’t immediately respond to emailed requests for comment.
  • Huawei Technologies Co.’s revenue jumped 24% in 2019’s first nine months, defying Trump administration sanctions to sustain growth in its pivotal smartphone business. China’s largest technology company reported revenue of 610.8 billion yuan ($86.1 billion) in the January to September period. Global smartphone shipments jumped 26% in the first three quarters to over 185 million units, helping safeguard its position as the world’s second largest name in mobile devices.
  • MGM Resorts International, pressured by investors to unload its remaining company-owned casinos, agreed to sell the Bellagio resort in Las Vegas to Blackstone Group for $4.25 billion and will continue to operate the property under a lease arrangement. The Las Vegas-based casino company also agreed to sell the Circus Circus property on the Strip, along with 47 adjoining acres, to real estate mogul Phil Ruffin for $825 million, according to a statement Tuesday.
  • Foreign-exchange reserve managers at central banks around the globe expect the dollar to remain dominant for at least another quarter-century. Roughly 66% of managers believe the greenback will remain the reserve currency of choice over the next 25 years, according to a UBS Asset Management survey of 30 central banks. The U.S. currency accounts for about 62% of global central banks’ $11.7 trillion foreign-exchange reserves, the International Monetary Fund said last month.

*All sources from Bloomberg unless otherwise specified