October 25th, 2018

Daily Market Commentary

Canadian Headlines

  • The U.S. has its fiscal stimulus. The Canadian economy? Well, it has its human stimulus. The biggest population increase in six decades, driven by international migration, is one reason the Bank of Canada has been able to match the Federal Reserve hike-for-hike since June 2017 — making the two easily the most hawkish central banks in the Group of Seven. In its latest increase Wednesday, the Ottawa-based central bank highlighted how the surge has bolstered consumption and housing activity.
  • Small businesses are struggling to expand in Canada because they can’t find workers. A record 47 percent of respondents to a monthly survey by the Canadian Federation of Independent Business said shortages of skilled employees is limiting their growth. The rate was 38 percent at the end of last of the year. The shortages likely reflect a labor market that has tipped in favor of job seekers this year, with unemployment touching the lowest in decades. Companies are responding by curbing their hiring plans, the survey found, with the share of businesses planning to increase full-time employment falling to 16 percent, the lowest in a year.


World Headlines

  • An equities rout that wiped out the year’s gains in U.S. stocks took a breather Thursday, as futures advanced with European shares, even as Asia gauges extended declines. The euro climbed ahead of a European Central Bank policy meeting. The Stoxx Europe 600 Index erased an earlier loss as carmakers rose, and futures on the S&P 500 Index also gained, with positive results from Tesla Inc. brightening the mood.
  • The rout in U.S. stocks look set to take a breather after Wednesday’s slump, while European equity markets bounced back, led by auto shares. December contracts on the S&P 500 Index were up 1 percent at 11:10 a.m. in London, while futures on the Nasdaq 100 were up 1.7 percent and Dow futures up 0.8 percent.
  • After a slump in U.S. stocks, Asia’s main equity gauge has finally succumbed, entering a bear market overnight. The region’s equities have already lost more than $4.9 trillion in value this year, and Thursday isn’t looking pretty. The MSCI Asia Pacific Index fell 2 percent as of 4:30p.m. in Hong Kong, taking its slide from a January peak to 22 percent. Japan’s Topix index plunged 3.1 percent to its lowest level since September 2017, while the Nikkei 225 Stock Average lost 3.7 percent.
  • Oil steadied near the lowest level in two months as a rout in global equity markets abated. Futures in New York fell 0.2 percent, paring earlier decline of as much as 1.2 percent. The Stoxx Europe 600 index increased, while futures on the S&P 500 Index advanced after an earlier rout wiped out all of the U.S. index’s gains for this year. Meanwhile, a government report on Wednesday showed American crude stockpiles climbed more than expected, rising for a fifth week.
  • Gold traded near a three-month high as investors sought havens amid a sell-off in equities that wiped out this year’s gains for U.S. stocks and is spreading to Asia. The S&P 500 Index extended its October rout to almost 9 percent, making it the worst month since February 2009, while the Nasdaq Composite Index fell into a correction.
  • U.S. is refusing to restart trade negotiations with China until Beijing makes a concrete proposal to address the U.S.’s complaints about forced technology transfers and other economic issues, WSJ reports, citing unidentified both U.S. and Chinese officials.
  • Twitter Inc. topped estimates for earnings and revenue in the third quarter amid higher spending from advertisers, marking a much-needed boost for the social-networking site after months of scrutiny from lawmakers and criticism about fake or offensive accounts. The shares rose in early trading. Monthly active users averaged 326 million, San Francisco-based Twitter said Thursday in a statement. That’s a decrease of 9 million from the second quarter. Twitter warned in its July earnings report of a continued drop in the metric as a result of efforts to clean up its service and stricter privacy rules in Europe. The company said those trends will continue and lead to another decline in monthly users for the fourth quarter.
  • Tesla Inc. blew away expectations with just the third quarter of positive earnings in its history, bolstering Elon Musk’s bid to make selling electric cars a financially sustainable business. The profit and cash that Tesla generated sent its shares surging to levels last seen in mid-August, when the chief executive officer was still in the midst of a short-lived gambit to take the company private. The stock sold off in the intervening months, after Musk’s claim that he had “funding secured” for such a deal proved faulty and landed him in legal jeopardy.
  • Turkey’s central bank kept its key interest rate unchanged at 24 percent a month after delivering its biggest hike since at least 2002. The decision by the Monetary Policy Committee is in line with the forecasts of all but four of the 29 economists surveyed by Bloomberg. The rest predicted an increase. In September, the MPC raised the benchmark by 625 basis points, almost double what analysts had expected.
  • As Boeing Co. swept rival Lockheed Martin Corp. in a trio of military aircraft contests recently, victory came at a price — at least in the short term. The expense came into sharper view this week when Boeing revealed a $691 million accounting charge for costs to develop a U.S. Air Force trainer jet and a Navy refueling drone. But, it turns out, executives planned it that way. They deliberately bid near or below initial costs, calculating the Pentagon contracts will yield franchises lasting decades and creating about $60 billion in potential global sales.
  • U.K. Prime Minister Theresa May invited 120 business leaders to a Brexit question and answer session next week to update them on her strategy for unblocking the stalled negotiations with the European Union. With time running out to secure a deal, business groups are desperate for certainty over the kind of trade terms the divorce will deliver. In particular, chief executive officers want reassurances that a 21-month transition period following Britain’s departure from the bloc in March will be secured.
  • Turkey wants Germany to help deliver a $20 billion boost in exports, with an envoy of Chancellor Angela Merkel serving as the conduit. A request to expand Turkey’s customs union with the European Union is on the table for talks with German Economy Minister Peter Altmaier, whose visit to Ankara on Thursday is the latest signal of detente between the two NATO allies. That’s after Merkel ended a diplomatic freeze with Turkish President Recep Tayyip Erdogan in September.
  • Anheuser-Busch InBev NV has cut its dividend. That will naturally have investors looking to drown their sorrows, but it was the right thing to do nonetheless. The world’s biggest brewer said on Thursday that it would re-base its payout to 1.80 euros per share, this year, a mighty cut from the 3.60 euros in 2017. It had little choice. Before the reduction, analysts at Bernstein had forecast that net debt at the end of this year would be 4.6 times Ebitda. That’s way above the three times at which investors start to get jittery. AB InBev’s own goal is to bring net debt down to about twice annual earnings.
  • Malaysia charged ex-premier Najib Razak and one of his former finance chiefs with six counts of criminal breach of trust, accusing them of misusing 6.6 billion ringgit ($1.6 billion) of public funds. The former leader and Mohd Irwan Serigar Abdullah, the Finance Ministry’s top bureaucrat until Najib’s government lost power in May, were jointly charged in a Kuala Lumpur court on Thursday. Both Najib and Irwan pleaded not guilty on all charges.
  • Merck & Co. is buying back $10 billion of its stock and raising its dividend after beating Wall Street’s third-quarter earnings forecast and raising its full-year guidance, a result that’s likely to add to investors’ bullish sentiments about the company.
  • Comcast Corp.’s focus on improving its internet service paid dividends in the third quarter, with the largest U.S. cable provider posting a big increase in broadband subscribers. The company added 363,000 internet subscribers in the period, a 70 percent increase from a year earlier. Comcast has had only one previous quarter in the past six with larger broadband customer gains.
  • Billionaire investor Bill Ackman acquired a $696 million stake in Hilton Worldwide Holdings Inc., renewing his bet on the hotel operator following an exit last year after the stock soared to unprecedented levels. His Pershing Square Capital Management LP bought 10.9 million shares, or 3.7 percent of Hilton, according to a statement Thursday. The investment represents 13.9 percent of the net asset value of Pershing Square Holdings Ltd.
  • French shipping company CMA CGM offered to buy out shareholders of Ceva Logistics AG in a friendly deal, matching an offer from Denmark’s DSV A/S that was rejected by the Swiss firm. Ceva shares soared. CMA’s 30-franc-a-share proposal, made public Thursday, is 33 percent above Ceva’s closing price Wednesday and values the company at 1.65 billion Swiss francs ($1.65 billion). Ceva in turn said it would buy CMA’s freight-management business for a still-to-be-decided-upon price, in either cash or stock.


*All sources from Bloomberg unless otherwise specified