October 18th, 2019

Daily Market Commentary

Canadian Headlines

  • Canadian equities ended Thursday’s session little changed, even as pot stocks rebounded from Wednesday’s slump and materials got a boost from First Quantum Minerals. Consumer discretionary and communication services were among the worst sectors. The S&P/TSX Composite declined slightly to 16,426 in Toronto. The move follows the previous session’s increase of 0.1%. Royal Bank of Canada contributed the most to the index’s decline, decreasing 0.5%. Gran Tierra Energy Inc. had the largest drop, falling 5.5%. First Quantum rose 11%, and briefly rose the most in more than three years, after Pangaea Investment Management Ltd. said it acquired 6 million shares of the miner and may evaluate strategic transactions.

World Headlines

  • Drops in automakers and food shares weighed on the Stoxx Europe 600 Index. Renault plunged as much as 15% after the carmaker cut its full-year forecast, and rival Volvo declined after saying it was preparing for more output cuts for next year.
  • U.S. equity-index futures fluctuated alongside European stocks on Friday as earnings season rolled on and investors reviewed a mixed bag of economic data from China. The dollar edged toward its weakest close since July. Contracts on all three major U.S. gauges pointed to a directionless start on Wall Street, after the S&P 500 ended Thursday about 1% from its highest-ever level. Coca-Cola rose in pre-market trading after reporting adjusted operating revenue that topped estimates. Investors are seeking a fresh stimulus for equities as the weekend approaches. American earnings so far have been relatively upbeat, after Morgan Stanleybecame the latest big bank to buck concerns about weak growth. Traders will be parsing the data from China, which showed GDP slow to 6% in the third quarter, with limited pick-up from domestic demand, but factory output improve and retail sales hold up.
  • Earlier in Asia, shares closed down in Shanghai after news that Chinese GDP rose by the least since the early 1990s last quarter. Benchmarks in Japan and South Korea gave up gains to finish lower.
  • Oil headed for a weekly loss amid swelling U.S. crude inventories, concerns over the demand outlook and the ongoing struggle between Washington and Beijing to finalize a trade deal. Futures in New York traded near $54 a barrel on Friday and are down 1% for the week. China’s economy expanded at the slowest pace since the early 1990s last quarter, data showed on Friday, more evidence that the trade war is taking a toll on global growth. American crude inventories climbed last week by the most in almost six months, though stockpiles of refined fuels shrank, according to the Energy Information Administration.
  • DTE Energy Co.’s midstream unit agreed to acquire a natural gas gathering system in the Haynesville shale formation of Louisiana from Momentum Midstream and Indigo Natural Resources for an upfront cash payment of $2.25 billion. The deal, which includes a $400 million milestone payment upon completion of a pipeline in the second half of 2020, will provide DTE Midstream with access to the Gulf Coast, where demand for natural gas is rapidly increasing in the power, industrial and liquefaction sectors, the company said in a statement on Friday. The transaction has been approved by DTE Energy’s board of directors and is expected to close in the fourth quarter of 2019.
  • Ten days after President Donald Trump created the biggest foreign policy crisis of his tenure, precipitously pulling U.S. troops out of Syria and exposing allies to attack, he secured a temporary deal that handed Turkey’s president a victory he’d been seeking for years. In a hastily arranged one-day trip to Ankara, Vice President Mike Pence announced an agreement with Turkish President Recep Tayyip Erdogan to halt an offensive in northern Syria that saw Kurdish fighters come under bombardment after years of working alongside the U.S. to defeat Islamic State.
  • A key hurdle to extending a landmark nuclear treaty between the U.S. and Russia isn’t Donald Trump or Vladimir Putin. It’s China. The New START treaty, the last major arms control accord between the world’s two nuclear superpowers, is set to expire in early 2021. Like another key treaty covering intermediate-range nuclear missiles, which collapsed this year after the U.S. quit that accord, Trump administration officials say the agreement may not be worth extending if China isn’t brought into the fold. A failure to renew or extend the accord would mark the effective end of decades of agreements aimed at limiting the proliferation of nuclear weapons. Experts say it would also send a worrisome signal to other nations — from Saudi Arabia to North Korea — already pursuing or seeking to pursue nuclear programs.
  • Boris Johnson is battling to sell his new Brexit deal to skeptical members of the U.K. Parliament ahead of a crucial vote on Saturday. The prime minister has no majority in the House of Commons but needs to convince his own Conservatives, as well as opposition politicians, to back the divorce accord he struck with the EU on Thursday. If he fails, he will face the choice of seeking to delay Brexit again or trying to take the country out of the bloc without a deal on Oct. 31.
  • Pro-independence protesters blocked Spain’s main highway across the French border as a general strike got underway throughout the Catalonia region, channeling outrage at jail sentences handed down to separatist leaders earlier this week. The AP-7 highway was closed in both directions close to La Jonquera near the French border with protesters leaving nails on the road surface to puncture car tires. The AP-2 highway also was blocked near the Catalan city of Lleida further south, with burning tires and mattresses, the Spanish government said.
  • Leveraged loan investors are getting increasingly angsty, and their fear may be a harbinger of more pain coming in credit markets. Money managers are plowing into the least risky junk debt they can find while avoiding the junkiest. Since the start of October, lower rated B loans have dropped about 1%, while less risky BB rated loans have lost just 0.26% through Wednesday. An index of riskier loans is hovering near its lowest level relative to higher-rated loans since mid-2017, according to Credit Suisse total return index data.
  • Thousands of protesters cut off roads and started fires around Lebanon as anger over plans to impose a levy on WhatsApp calls escalated into demands for the government to resign. Demonstrators carrying Lebanese flags thronged outside government headquarters in downtown Beirut again on Friday, as some of the country’s largest protests in years entered a second day. Those taking part are calling on politicians currently debating a proposed austerity budget to step down and hold early elections.
  • China continued its grind to more moderate growth in the third quarter as investment slowed, providing little upside for a global economy flirting with its first recession since 2009. Gross domestic product rose 6% in the July-September period from a year ago, the slowest pace since the early 1990s and weaker than the consensus forecast of 6.1%. On the upside, factory output improved and retail sales held up, but slowing investment growth remained a concern.
  • Marriott International Inc. agreed to take over Elegant Hotels Group Plc in a transaction that will deepen the lodging giant’s reach into the Caribbean. Marriott International will pay 110 pence a share in cash for Elegant Hotels, a 57% premium to its Thursday close, according to a statementFriday that confirmed an earlier Bloomberg News report. That values the company at about 101 million pounds ($130 million), or $199 million including debt, the company said in the statement. Elegant Hotels shares gained as much as 56% in London trading Friday morning, the most on record. The deal is subject to shareholder approval.
  • Saudi Aramco’s stop-start initial public offering was delayed again just days before a planned launch as doubts re-emerged about the $2 trillion valuation placed on the state oil giant by Crown Prince Mohammed bin Salman. The postponement, by at least a few weeks, will allow the array of Wall Street bankers advising Aramco to incorporate third-quarter results into their pre-IPO assessments of the company, according to people briefed on the situation. The banks are still struggling to meet the valuation the company is seeking, according to one of the people, who asked not to be named discussing private deliberations.
  • PAG, a Hong Kong-based alternative asset manager, is exploring a sale of its stake in restaurant operator Paradise Group Holdings Pte. known for its colorful dumplings with exotic flavors, people with knowledge of the matter said The buyout firm is working with an adviser on the potential sale that could value Singapore-based Paradise at as much as S$500 million ($367 million), said one of the people, who asked not to be named as the information is private.
  • Coca-Cola Co. international sales and low-sugar offerings like Coca-Cola Zero Sugar drove brisk revenue growth in the third quarter. Shares jumped in early trading before paring much of the gain. The beverage giant said unit case volume grew by 2%, while net revenue expanded 8% to $9.5 billion. The key metric of organic revenue, which strips out some items like currency effects, jumped 5% — higher than analysts’ average estimate for a 4.1% gain.
  • As the clamor grows for OPEC to slash even more oil production, and the group vows to consider any necessary action, its next meeting could result in an unusual step: a preemptive supply cut. The Organization of Petroleum Exporting Countries and its partners — known as OPEC+ — have reduced output this year to contain a glut created by faltering oil demand and surging U.S. shale supply. Amid forecasts of a new surplus next year, there’s a chorus of calls from Morgan Stanley to Commerzbank AG for the alliance to deepen the curbs when it meets in Vienna in December.

*All sources from Bloomberg unless otherwise specified