October 24th, 2018
Daily Market Commentary
- Canadian stocks swung through another volatile session amid a morning rout in U.S. stocks spurred by disappointing results from Caterpillar and 3M. Those results added to worries that rising costs will erode profit margins. The Canadian 10-year yield fell to the lowest in nearly a month as bonds rallied. The S&P/TSX Composite Index fell 0.8% to the lowest since April 16, with health care and industrials leading losses. Consumer staples rose while a rally in gold stocks wasn’t enough to boost materials shares higher.
- Bank of Canada Governor Stephen Poloz will resume hiking interest rates Wednesday as the country’s new trade deal with the U.S. and Mexico eliminates what was probably the biggest risk to the economy. All 23 economists surveyed by Bloomberg predict Poloz will lift the key rate a quarter percentage point to 1.75 percent at a decision in Ottawa. It would be the third increase this year and the fifth since the central bank began raising rates last year. The decision will be accompanied by new forecasts that are likely to show an improving outlook.
- Canadian National Railway Co. expects to set a record for crude-by-rail shipments next year as it vies with Canadian Pacific Railway Ltd. to dominate a booming market for the alternative to pipelines. Crude oil shipments next year will probably surpass the 130,000-carload mark set in 2014, Chief Executive Officer Jean-Jacques Ruest said Wednesday after the company reported third-quarter earnings. That would allow the carrier to vault ahead of CP Rail, whose CEO said last week he’s aiming to reach as many as 120,000 carloads.
- Barrick Gold Corp. favors taking back control of its separately listed Tanzanian assets after completing its takeover of Africa-focused rival Randgold Resources Ltd., according to people familiar with the situation. Barrick spun off those assets in 2010 into a company now called Acacia Mining Plc. That unit — listed in London but majority owned by Barrick — has been dogged by operational setbacks and is locked in a dispute with Tanzania’s government. The dispute would need to be resolved before any decision is made.
- European equities advanced after tumbling to a 22-month low as investors turned their attention to positive earnings’ surprises. The Stoxx Europe 600 Index added 0.4 percent after sinking to a December 2016 low on Tuesday. LVMH climbed 3.2 percent after Kering’s Gucci beat estimates in the third quarter and rose 12 percent. Nordea Bank AB dropped 2.7 percent after third-quarter net missed estimates. Oil’s decline weighed on European oil majors, including Royal Dutch Shell Plc and Total SA.
- U.S. equity futures extended losses and Asian shares declined on Wednesday as investors nervousness lingered after the latest bout of market volatility. European stocks bucked the retreat, and the dollar advanced with Treasuries. Contracts on the S&P 500 pointed to a sixth day of losses for the main U.S. gauge, with those on both the Dow and Nasdaq also in the red.
- Chinese shares continued their pattern of wild swings on Wednesday, while Hong Kong’s equity benchmark fell to its lowest since May 2017. The Shanghai Composite Index closed up 0.3 percent, having risen as much as 1.8 percent and fallen 0.7 percent during the day. Financial shares were among the best performers in China, with a measure of the sector advancing 1.7 percent. Pacific Securities Co. soared 10 percent. The Hang Seng Index gave up earlier gains to finish 0.4 percent lower, extending yesterday’s 3.1 percent slide. The yuan, meanwhile, was steady.
- Brent crude extended losses from the lowest close in almost two months as Saudi Arabia pledged to offset any supply shortfalls and U.S. stockpiles were said to have risen. Futures in London fell as much as 1.7 percent, after tumbling more than 4 percent on Tuesday. The declines followed assurance from Saudi Energy Minister Khalid Al-Falih that OPEC and its allies are in “produce as much as you can mode,” while an industry report indicated that U.S. crude inventories expanded by almost 10 million barrels last week.
- Gold held near a three-month high as investors shunned risk assets amid volatile equity markets and as tensions simmered between the U.S. and Saudi Arabia after the killing of journalist Jamal Khashoggi. Palladium held near a record. The metal, used in catalytic converters in gasoline automobiles, has been boosted by concern over shortages, with speculators piling in. The rally recently accelerated due to tensions between the U.S. and Russia, one of the top producers, and stimulus in China.
- India is devising a plan to boost shipments of around 200 products to China and narrow the deficit with its biggest trading partner, a person with knowledge of the matter said. The plan includes seeking duty waiver on a raft of products under the Asia Pacific Trade Agreement, the person said, asking not to be identified as the talks are still on. New Delhi wants China to scrap levies on items including uncombed single cotton apart from castor oil, menthol, granite, diamonds and glass envelopes for picture tubes when negotiations for expansion come up in April 2019.
- President Donald Trump stepped up his attacks on Federal Reserve Chairman Jerome Powell, saying he “maybe” regrets appointing him and demurring when asked under what circumstances he would fire the central bank chief. Almost a year since nominating Powell to the post, Trump told the Wall Street Journal in an interview Tuesday that he was intentionally sending a direct message that he wanted lower interest rates, even as he acknowledged that the central bank is an independent entity.
- Pakistan said Saudi Arabia agreed to a $6 billion support package to bolster Islamabad’s dwindling finances following a second visit by Prime Minister Imran Khan to Riyadh seeking aid. Saudi Arabia will deposit $3 billion directly with Pakistan “as balance of payment support,” while another one-year deferred payment facility of up to $3 billion for oil imports was agreed, according to a memorandum of understanding signed by both nations on Tuesday. “This arrangement will be in place for three years, which will be reviewed thereafter,” Pakistan’s Finance Ministry said in a statement. Pakistan’s key stock index jumped 3.8 percent on Wednesday and the rupee gained as much as 1 percent against the dollar.
- Rubis SCA offered to buy KenolKobil Ltd. in a deal that values Kenya’s biggest fuel retailer at $353 million as the French energy storage and distribution company expands its African operations. The Paris-based firm’s Rubis Energie unit, which bought 24.99 percent of KenolKobil from Wells Petroleum Ltd. at 15.30 shillings, is offering 23 shillings per share for the rest of the stock, according to a statement on Wednesday. KenolKobil’s shares will be delisted from the Kenyan stock market if the offer is successful, it said.
- The worst month for semiconductor stocks in six years looks poised to continue after more disappointing guidance, this time from Texas Instruments Inc. and MKS Instruments Inc. Texas Instruments, which has the largest number of customers and the broadest product range in the chip industry, warned that demand is slowing across many of its markets. That’s bad news for investors who have already seen anxieties about a sales slowdown erase about 10 percent from the Philadelphia Semiconductor Index in October, on track for the biggest monthly decline since May 2012.
- Apple Inc. Chief Executive Officer Tim Cook lashed into companies like Google and Facebook Inc. that collect user data, equating their services to “surveillance,” as he touted the importance of privacy and legislation to protect it. The comments, given at an EU privacy conference in Brussels on Wednesday, come months after the bloc implemented strict new data protection rules and as Apple begins to mend a difficult relationship with the EU following a clash over 13 billion euros in allegedly unpaid taxes.
- AT&T Inc. reported its first wireless subscriber loss in five quarters, disappointing investors a day after archrival Verizon Communications Inc. posted stronger results.
- Saudi Crown Prince Mohammed bin Salman has “blood on his hands” in the killing of government critic Jamal Khashoggi, a top aide to Turkey’s president said, in his country’s first direct accusation against the power behind the Saudi throne. The allegation by Ilnur Cevik came a day after President Recep Tayyip Erdogansaid the killing was pre-planned but stopped short of implicating the brash young leader, whose ambitions for a modernized Saudi Arabia have been undermined by his penchant for making enemies at home and abroad. On Wednesday, Erdogan escalated that rhetoric, saying those who ordered the murder should also face justice.
- The U.K. is planning legislation to prevent a repeat of the contagion that followed Carillion Plc’s collapse. When the construction giant failed in January, it left its 30,000 suppliers some 2 billion pounds ($2.6 billion) out of pocket after it took up to four months to pay its bills. The shockwaves reverberated through the U.K. economy, damaging confidence already battered by the Brexit process.
- China’s regulators have ended the issuance of game licenses through a stopgap approval process, people familiar with the matter said, closing the last known official path for making money from new titles in the world’s biggest gaming market. Licenses are no longer being granted through a process known as the “green channel,” used for testing both domestic and foreign games, said the people, who asked not to be identified because the matter is private. The approval mechanism had been in place since at least August, following the government’s decision earlier this year to restructure how it reviews video games for violence, gambling and sensitive topics.
- Earnings reporting season is underway, and analysts are eager to hear from executives about how an escalating trade war between the U.S. and China is impacting their businesses. A common theme is that they are ready to relocate supply chains if the cost of importing Chinese goods becomes prohibitive. U.S. President Donald Trump imposed a 10 percent tariff on $200 billion of Chinese imports in September — following an earlier round of tariffs on $50 billion of goods — and promised to raise the duty to 25 percent in January. He’s also threatened to expand the levy to all products imported from China — an amount that totaled $531 billion in the 12 months through August, according to the latest data from the U.S. Department of Commerce.
- Zydus Wellness Ltd., with parent Cadila Healthcare Ltd., agreed to pay 46 billion rupees ($628 million) to acquire some Kraft Heinz Co. businesses in India to strengthen their presence in the world’s fastest growing major economy. Zydus will gain control of nutrition drink Complan, instant-energy drink Glucon-D, talcum powder brand Nycil and ghee brand Sampriti from the acquisition of Heinz India Pvt., Zydus said in a statement on Wednesday. Zydus will use a mix of debt and equity to fund the transaction and “select leading private equity firms have committed to partnering the transaction by way of equity support,” it said in the exchange statement.
- Lenders to Essar Steel India Ltd., the biggest mill being sold under the nation’s insolvency process, are voting to finalize a bid from ArcelorMittal, people with knowledge of the matter said. Arcelor has offered to make an upfront payment of about 395 billion rupees ($5.4 billion) to the banks, the people said, asking not to be identified because the information is private. The Luxembourg-based suitor later plans to pay the lenders about 25 billion rupees from Essar Steel’s retained earnings, according to the people. It has also proposed a capital injection of 80 billion rupees into the mill, they said, taking the bill for Arcelor to about 500 billion rupees.
- Naspers Ltd. is planning to increase its stake in Indian online food-delivery business Swiggy as the startup plots its third fund-raising round of the year, according to people familiar with the matter. Africa’s largest company by market value has indicated that it intends to support a financing that could raise more than $600 million, Swiggy’s biggest to date, according to the people. There’s also an opportunity to buy stakes from investors such as Bessemer Venture Partners, they said, asking not to be identified as the information isn’t public.
*All sources from Bloomberg unless otherwise specified