October 1st, 2019

Daily Market Commentary

Canadian Headlines

  • WeWork may be facing challenges on multiple fronts but a new report shows the co-working model the company popularized is taking off in Canada. Flexible offices spaces are projected to reach more than 6.1 million square feet by the end of the year, up about 300% from 2014, according to a report by CBRE Canada. An additional 1.3 million square feet is on the way with the bulk in Toronto, Vancouver and Montreal. Large companies like WeWork, officially known as We Co., and IWG Plc are leading the charge, catering to demand from entrepreneurs, small businesses and companies looking for flexible leases and millennial-friendly office designs. Office vacancy rates in downtown Toronto fell to a record low 2.3% in the third quarter, the tightest office market in North America.
  • Before the fight with Ariana Grande, before spreading to seemingly every mall in America, before today’s crop of Instagram influencers were even born, Forever 21 Inc. thrived by helping teen girls dress like pop stars on the cheap. As it faces an uncertain financial future, it’s going to need help from a very different type of shopper: one with disposable income. The retailer filed for bankruptcy protection on Sunday, and its turnaround plan relies on luring in shoppers who are actually willing to buy clothes at full price — one of the most elusive clientele in the industry.

World Headlines

  • European stocks kicked off October by extending gains that pushed them to the highest point in more than a year on Monday. The Stoxx Europe 600 Index added 0.4% at 8:11 a.m. in London, with almost all industry groups in the green. Technology shares were the best performers, while miners underperformed. Airlines shares including Air France-KLM and Ryanair Holdings Plc landed gains after they earned buy ratings at Bank of America Merrill Lynch. European stocks rebounded last month from a rout in August as trade tensions eased and the region’s central bank boosted stimulus. The Stoxx 600 on Monday capped a third straight quarter of gains, its longest winning streak since March 2017.
  • The yield on 10-year U.S. bonds headed for the first increase in four days in the wake of the Japanese sale, which was the worst in three years and follows a central bank decision to potentially slash bond purchases and the government pension fund’s plan to buy more foreign debt. Contracts for all three main U.S. equity indexes pointed to a second day of gains, but the Stoxx Europe 600 Index erased an early advance to head lower after data showed the region’s manufacturing sector slumped in September and inflation unexpectedly slowed.
  • Treasuries led a retreat across sovereign bonds on Tuesday after a weak debt auction in Japan triggered a sell-off that gradually spread across the world. U.S. equity futures advanced with shares in Asia, while European stocks slipped amid disappointing factory and inflation data.
  • Oil rose after its biggest quarterly slump of the year, yet ongoing concerns that a faltering global economy will erode demand continued to weigh on the market. Futures increased 1.1% in New York, having tumbled 7.5% in the past three months as Saudi Arabia fully restored its output following devastating attacks that had temporarily halved its production. Attention is now returning to U.S.-China trade negotiations, with investors looking for clues on the prospect for oil demand as high-level talks are expected on Oct. 10-11.
  • Gold sank to an eight-week low amid a stronger dollar, triggering some bearish warnings that the sell-off may accelerate. The losses are causing nervousness among investors that recently bought gold, according to ABN Amro strategist Georgette Boele. She said the new support level is $1,450 an ounce and drop below that point could mean that prices quickly tumble toward $1,400. On Friday, spot gold fell below its 50-day moving average for the first time in about four months.
  • British Prime Minister Boris Johnson will present a new plan for a Brexit deal to the European Union within days, but there are already signs it may fail. While some purist euroskeptics in Johnson’s ruling Conservative party are willing to compromise, the Irish government has said his proposals so far for resolving the Brexit impasse are a non-starter. The key sticking point remains how to ensure there are no checks on goods crossing the land border between the U.K. and Ireland. For Johnson, it is vital to ensure Britain is not trapped indefinitely in the so-called backstop arrangement, which he says would tie the U.K. into the EU’s customs rules, defeating the point of Brexit.
  • Euro-area inflation unexpectedly slowed last month, handing another argument to those in favor of the European Central Bank’s recent monetary stimulus package. Consumer prices rose an annual 0.9% in September, less than half the ECB’s goal of just under 2% and below economists’ estimates. The core measure, which excludes more volatile elements such as energy, food and tobacco, rose to 1%, exceeding the headline rate for the first time since late 2016.
  • President Donald Trump and his Republican allies are dialing up pressure to unmask the Ukraine whistle-blower in a breathtaking departure from how allegations of corruption and waste have been handled by both parties for years. The push to identify the anonymous intelligence official risks deterring future whistle-blowers from coming forward — particularly in the House Democrats’ current impeachment inquiry — even as lawyers for the official are negotiating with House and Senate committees over an appearance for closed-door interviews. The whistle-blower’s complaint is central to the House Democrats’ current impeachment inquiry, with the potential to lead to other witnesses with first-hand knowledge of Trump’s July 25 phone call with Ukrainian President Volodymyr Zelensky.
  • The global economy flashed clearer warning signs on Tuesday as a wave of data showed manufacturing stuck in a slump, exports falling and sentiment sliding. With a trade war between the U.S. and China still raging, industry executives from Japan and Russia to Germany and Italy complained of contracting business, while the World Trade Organization cut its forecast for commerce to the lowest in a decade. The specter of deflation resurfaced as South Korea, a bellwether for international trade, reported a drop in consumer prices, and the Reserve Bank of Australia cut its interest rate to a record low and said it may ease further.
  • The World Trade Organization cut its global trade growth forecast for this year to the weakest level in a decade, warning that further rounds of tariffs in an environment of heightened uncertainty could spark a “destructive cycle of recrimination.” The volume of merchandise trade will increase by 1.2% this year and 2.7% next year, after a 3% advance in 2018, the WTO said in a report published Tuesday. The outlook marks a sharp downgrade from the WTO’s previous projections in April, when the Geneva-based organization predicted a 2.6% gain in global trade in 2019 and 3% the following year. It also underscores the risks facing international commerce as the U.S. threatens more tariffs on Chinese imports and prepares new, WTO-sanctioned levies on goods from the European Union.
  • Norway unexpectedly took almost $400 million from its sovereign wealth fund in August, marking the first such withdrawal in over a year as western Europe’s biggest petroleum producer takes advantage of its enormous piggy bank amid a decline in oil prices. Tapping the world’s biggest wealth fund remains an extremely rare occurrence in Norway. The government made its first ever withdrawal in 2016, following a collapse in crude prices. The huge fiscal buffer that the fund represents has helped Norway’s central bank avoid some of the extremes of monetary stimulus to which its peers have had to resort.
  • President Xi Jinping presided over a grand display of China’s strength in Beijing — declaring that no force could stop the country’s rise — even as concerns grew over the condition of the first protester shot in Hong Kong after almost four months of unrest. Speaking at the start of a grand parade marking 70 years since the founding of the People’s Republic, Xi called for stability in Hong Kong, unity among Chinese ethnic groups, and the “complete unification” of the country. Xi delivered the remarks at the site where late Communist Party patriarch Mao Zedong proclaimed the nation’s founding on Oct. 1, 1949.
  • Saudi Aramco has approached Asian state oil producers including Malaysia’s Petroliam Nasional Bhd. and China’s Sinopec Group about potential cornerstone investments in its initial public offering, people with knowledge of the matter said. The Gulf energy giant and its advisers have recently been holding talks with potential investors including China’s sovereign wealth fund and China National Petroleum Corp., according to the people, who asked not to be identified because the information is private. They have also reached out to state-owned entities from the United Arab Emirates and Kuwait, including Abu Dhabi sovereign fund Mubadala Investment Co., as well as Canadian pension funds, the people said.
  • Airbnb Inc.’s long-awaited Wall Street debut is officially earmarked for 2020, but the home-share startup is charting an unconventional path to the public markets. San Francisco-based Airbnb is laying the groundwork for a direct listing rather than an initial public offering, according to people familiar with the matter who asked not to be named discussing private information. Airbnb declined to comment. Technology startups usually choose a traditional IPO to tap into the public markets. Some of the new generation of tech firms have spent years raising private funds and don’t necessarily need money from an IPO to expand their business, but are looking for a way to let employees and investors cash out. A direct listing allows companies to lower the millions of dollars they typically pay to investment banks in underwriting fees, because they don’t issue any new shares and don’t raise any new capital. Instead, they let the market choose the price. Slack Technologies, Inc. and Spotify Technology have taken the direct listing route.
  • Companies globally sold a record amount of bonds in September as investors hungry for yield poured into debt, betting that major central banks can keep the global economy out of a recession and the worst can be avoided in the U.S.-China trade war. Firms from Apple Inc. to France’s Orange and Japan’s SoftBank Group Corp.sold more than $308 billion of notes, the first time ever that corporate issuance has topped the $300 billion mark in a month, according to data compiled by Bloomberg. Sales globally this year are on track to exceed the equivalent of $2 trillion at the fastest pace ever.
  • Protesters and police battled across Hong Kong in the some of the most serious clashes since widespread unrest began in June, with videos showing a demonstrator shot by police for the first time after the officer appeared to be struck in the arm. Simultaneous rallies against Beijing’s increasing grip raged across the financial hub hours after President Xi Jinping oversaw celebrations marking 70 years of Communist rule in China. Xi presided over a military parade through the center of the capital and called for the country’s “complete unification.”
  • A violent stock rotation. An oil shock. Eruptions in money markets and an impeachment inquiry into President Donald Trump. Such was the tumultuous September for U.S. stocks. A month they are limping away from with miraculously little damage. The same resilience has been on display all year. With the S&P 500 now up almost 19% in the first nine months of 2019, the best over a comparable period in more than two decades, Wall Street strategists are skeptical that stocks can keep rising. But bulls can find comfort in history.
  • Credit Suisse Group AG exonerated Chief Executive Officer Tidjane Thiam as one of his key allies took the fall for a corporate spying scandal that shook Zurich’s financial elite and tainted the bank’s reputation. Chief Operating Officer Pierre-Olivier Bouee, the CEO’s chief lieutenant at three companies for more than 10 years, stepped down after ordering detectives to shadow former wealth-management head Iqbal Khan to ensure he didn’t poach clients and brokers for his new post at UBS Group AG. The bank said that he acted alone, informing neither Thiam nor the board of his intentions.

*All sources from Bloomberg unless otherwise specified