October 31st, 2018

Daily Market Commentary


Canadian Headlines

  • The highways of Saskatchewan show just how desperate Canadian oil producers are to get their crude to market. Tanker trucks laden with oil are journeying almost 500 miles to pipeline and rail terminals. It’s a phenomenon that Ken Boettcher, president of Three Star Trucking Ltd. in Alida, Saskatchewan, started to see three or four months ago when oil shippers around Kindersley, near the Alberta border, began requesting trucks to move their crude, in some cases, as far south as North Dakota.
  • Canada’s oilseed producers have failed to benefit much from winning export-market share during the U.S.-China trade war because the conflict drove soybean prices lower, an agricultural economist said. The lower prices and increased volatility in agricultural markets may erode short-term gains for Canada, Gervais said, even as China, the world’s top soybean consumer, shuns U.S. cargoes and purchases more oilseeds from provinces including Alberta, Saskatchewan and Manitoba.



World Headlines

  • European equities rallied, trimming their monthly drop as corporate profit-beats spurred optimism. The Stoxx Europe 600 Index jumped 1.1 percent, trimming a 6.1 percent monthly drop, the worst since January 2016. Airbus SE added 2.5 percent after more than doubling third-quarter profits. L’Oreal SA increased 6.2 percent after sales beat estimates yesterday, leading to several analyst rating upgrades. Pharmaceutical company Sanofi also rallied after boosting its outlook.
  • Corporate results may be key to sustaining the share gains: attention will next turn to earnings from Apple Inc. on Thursday. But trade risks are simmering in the background, the U.S. jobs report is due Friday and the American midterm elections are creeping closer — all of which have the potential to further roil markets.
  • In Asia, Japanese stocks were the stand-out performers as indexes rose across the board. China’s overnight repo rate surged the most in more than four years as authorities take steps to combat bets against the yuan, which held near the weakest level in a decade against the greenback. Equity bulls will be hoping this rebound can last following a series of bounces in the past few weeks that quickly gave way to declines as some $8 trillion was wiped off stock markets globally. The MSCI All-Country World Index has dropped more than 8 percent in October, poised to post the worst monthly performance in six years.
  • Oil’s set for its biggest monthly drop since 2016 as a looming slowdown in the global economy haunts the market while U.S. inventories grow and producers relay mixed signals. Futures in New York are poised for a drop of more than 9 percent in October, following two months of gains. A global equity rout and an escalating U.S.-China trade war are weighing on the outlook for growth and energy demand, dragging down prices that only weeks earlier surged to a four-year high. Concerns of a supply squeeze due to impending American sanctions on Iran eased after some other OPEC nations pledged to pump more.
  • Resurgent demand for gold is boosting precious-metals mining shares, pushing an index of companies including Barrick Gold Corp. and Newmont Mining Corp. toward its best month in more than a year. Bullion prices are set to end October with the first monthly gain in seven, and the BI Global Senior Gold Valuation Peer Group index is headed for its biggest monthly increase since August 2017.
  • Iron ore has been on fine form in October. While base metals took a hit from rising trade war concerns, the raw material used to make steel has rallied as mills in China churn out record volumes before anti-pollution curbs kick in over winter and the government beefs up stimulus. All grades have climbed, with the biggest gains posted by lower-quality material in a reversal of recent trends. Top-grade ore with 65 percent content added 2 percent to $98.15 a ton in October, trading at the highest in more than a year, while benchmark 62 percent commodity is at $77.10 after a 12 percent rise, according to Mysteel.com. Low-grade soared 17 percent to $67.30.
  • Euro-area inflation accelerated in October and underlying price pressures increased, complicating policy makers’ choices after the economy grew at its weakest pace since 2014. Consumer prices jumped 2.2 percent from a year earlier while a measure that strips out volatile components rose to 1.1 percent.
  • Facebook Inc. Chief Executive Officer Mark Zuckerberg is betting the company’s future on video and disappearing posts called “stories,” not the company’s famous news feed. Investors are buying into the vision for now. The newer products may make less money and steal user attention from the main stream of photos, comments and lucrative ads on the social network, Zuckerberg warned. Marketers aren’t totally comfortable with the new formats yet, and 2019 will be another year of significant investment, he added on a conference call with analysts Tuesday.
  • China’s leadership signaled that further stimulus measures are being planned, as economic data pointed to a broad slowdown taking hold. The nation’s economic situation is changing, downward pressure is increasing, and the government needs to take timely measures to counter this, according to a statement from a Politburo meeting Wednesday chaired by President Xi Jinping.
  • The U.S. said talks to end the war in Yemen must start in November, pressuring Saudi Arabia to dial back its aggressive foreign policy following the murder of a vocal critic of the kingdom. In separate remarks, Secretary of State Mike Pompeo and Defense Secretary James Mattis said the Saudi-led coalition which entered the conflict in 2015 and Iran-backed Houthi rebels must move toward a political resolution to a war that has created one of the world’s worst humanitarian disasters. Mattis said the warring parties should meet in Sweden in 30 days.
  • NTT Docomo Inc., Japan’s second-biggest mobile phone carrier by sales, plans to repurchase as much as 7.24 percent of its stock, spending as much as 600 billion yen ($5.3 billion) to help drive up shareholder returns. The carrier will consider canceling all the shares it buys back, it said Wednesday in a statement along with its earnings for the quarter ended September.
  • India will sell as much as 9 percent in monopoly miner Coal India Ltd. in a public offer starting Wednesday, according to a regulatory filing by the country’s coal ministry. The federal government, which owns 78.55 percent in the world’s largest coal producer, will sell a 3 percent stake, or 186.22 million shares, with an option to sell an additional 6 percent, according to the filing. The minimum price for the offer is 266 rupees a share, which will fetch the government at least 148.6 billion rupees ($2 billion).
  • Mexico spent about 23.5 billion pesos ($1.2 billion) through the third quarter from its budget stabilization fund, which historically has been used almost exclusively to hedge forward oil prices, according to a quarterly report. The hedges, often known as Wall Street’s largest oil trade, are kept private to prevent hedge funds and trading houses from front-running the Mexican government’s orders. The document doesn’t detail how much crude was hedged. The government may be close to finished with purchasing the hedges to cover next year’s exports, assuming costs remained about the same as last year, when it spent 24.1 billion pesos.
  • Investors may pile back into pharmaceutical and biotechnology stocks if midterm U.S. elections result in the expected stalemate between two major parties at odds on how to tackle escalating drug prices. Gridlock in Congress for at least the next two years would lessen the risk of disruptive, government-dictated pricing changes, according to analysts. On the flip side, a Democratic sweep would be likely to shift the focus to drug manufacturers and away from the rebates drug companies earn from selling their products to federal health plans.
  • HNA Group Co. has been trying for months to offload jetliners it ordered from Airbus SE, according to people familiar with the matter, as the indebted airline-turned-global acquirer wrestles with liquidity challenges. The Chinese group asked the leasing arms of Industrial & Commercial Bank of China Ltd. and China Minsheng Banking Corp., among others, to take over at least 10 plane orders, the people said, asking not to be identified discussing a private matter. Talks about the A330 twin-aisle jets, due to be delivered this year, date back to at least April, they said.
  • The Bank of Japan stayed the course on monetary stimulus while confirming in updated forecasts that it won’t meet its inflation target for years to come. The central bank left its policy interest rates and asset-purchase targets unchanged, while forecasting that inflation will remain below its 2 percent target until at least early 2021. This will leave it even further behind its peers in shifting away from crisis-era monetary policies, as the Federal Reserve raises interest rates and the European Central Bank halts bond purchases.
  • The billionaire founder of China’s most indebted property developer made an unusual move to buy $1 billion of its new $1.8 billion notes priced on Tuesday, as he seeks to lend support to the group. Hui Ka Yan, chairman and executive director of China Evergrande Group, purchased $250 million each of its 2022 and 2023 bonds, while his wholly-owned Xin Xin (BVI) Ltd. bought another $250 million each of those two notes, according to a statement to Hong Kong stock exchange on Wednesday.
  • Ping An Insurance Group Co., China’s biggest insurer by market value, is planning a Hong Kong initial public offering of its health-care technology unit that could raise about $2 billion, people with knowledge of the matter said. A listing of Ping An Healthcare Technology, which provides platforms used by hospitals, insurers and pharmacies, could take place as soon as next year, according to the people. The Chinese insurer is talking to potential advisers about the planned share sale, the people said, asking not to be identified because the information is private.
  • Italy’s populists are insisting their plans to ramp up government spending will shield the nation from recession, brushing off warnings that their confrontational approach may already be hurting the economy. Deputy Finance Minister Massimo Garavaglia made the case for more public investment after figures showed the economy stagnated for the first time in four years. Deputy Premier Matteo Salvini said the previous administration was to blame for bowing to European Union demands for fiscal frugality.
  • Steinhoff International Holdings NV is considering the sale of properties within French furniture chain Conforama, the latest move by the embattled retailer to shore up its balance sheet, according to people familiar with the matter. The value of the portfolio is about 800 million euros ($907 million), said the people, who asked not to be named as the information isn’t public. The properties are held outside European real-estate subsidiary Hemisphere, which is disposing of assets as part of a debt-restructuring deal, they said.
  • The upheaval in Australia’s scandal-tainted banking industry has handed Japan’s largest bank a long-awaited opportunity to get a bigger foothold in the global asset management industry. Mitsubishi UFJ Financial Group Inc. on Wednesday agreed to buy Commonwealth Bank of Australia’s global asset management unit for A$4.13 billion ($2.9 billion). The deal adds A$213 billion of assets under management across the U.S., Australia and Asia.
  • Thermo Fisher Scientific Inc., the maker of diagnostic and testing equipment, is considering a sale of its anatomical pathology unit in a deal that could fetch about $1 billion, people with knowledge of the matter said. The Massachusetts-based company is working with an adviser to run a sale process for the unit, which makes instruments including morgue and autopsy equipment, according to the people. Thermo Fisher is reaching out to private equity firms and other companies to gauge interest, the people said, asking not to be identified because the information is private.
  • NTT Docomo Inc., Japan’s second-biggest mobile phone carrier by sales, plans to invest 1 trillion yen ($8.8 billion) on infrastructure over five years for 5G services that allow faster data transmission. The carrier also increased planned investment this year by 10 billion yen for offering “pre-commercial” 5G services at limited locations including airports, stadiums and Docomo premises by September 2019, the company said in a presentation Wednesday, along with second-quarter earnings. The company also raised its estimate for capital spending this year to 590 billion yen, from a previous target for 570 billion yen.

*All sources from Bloomberg unless otherwise specified