September 11th, 2019

Daily Market Commentary

Canadian Headlines

  • Canada’s stock benchmark rose as the discount for Canadian crude narrowed, boosting energy stocks, and beleaguered SNC-Lavalin Group Inc. gained the most since 2008. The S&P/TSX Composite rose 0.3% to 16,537.34 in Toronto. The move follows the previous session’s decrease of 0.2%. Royal Bank of Canada contributed the most to the index gain, increasing 1.1%. SNC-Lavalin Group Inc. had the largest increase, rising 12%. The company’s stock is trading close to the value of its concessions segment alone, according to CIBC, which resumed coverage of the stock Tuesday with an outperform rating.

World Headlines

  • European equities advanced, led by the industries closely linked to economic growth, such as miners and banks. The benchmark Stoxx Europe 600 Index added 0.4% at the open. HSBC Holdings Plc climbed 1.8%, while AstraZeneca Plc increased 2% after Citigroup Inc. raised its price target for the stock by 43%. European equities have been recovering in September on the back of the rising bond yield-fueled rotation from defensive sectors, such as utilities and healthcare, into cyclical industries, such as banks, automakers and miners. Investors are also awaiting tomorrow’s European Central Bank meeting for any announcements on stimulus. Speculation that China will ease the negative impact of the trade war is also helping global sentiment.
  • U.S. stock-index futures drifted, failing to pick up momentum from a broad advance in equities in Europe and Asia after more signs emerged that China will move to lessen the trade war’s repercussions. Oil futures rose with the dollar. Contracts on the three main U.S. equity indexes all fluctuated. Treasury 10-year notes and similar German bunds drifted, after their yields earlier on Wednesday touched one-month highs. The euro weakened, heading for its biggest drop in eight sessions.
  • Japanese shares advanced to a two-month high as a rally in financials continued thanks to a rebound in U.S. Treasury yields, while a weaker yen bolstered exporters. The Topix Banks Index climbed 3.6%, extending its two-day gain to 7.4%, its biggest back-to-back advance since November 2016. The yield on 10-year Treasuries rose for a fifth day to 1.73% Tuesday, ahead of upcoming rate-setting meetings at the European Central Bank and Federal Reserve.
  • Oil rose as industry data showed a decline in American stockpiles, countering speculation that the ouster of U.S. National Security Adviser John Bolton may lead to a less hawkish approach on Iran and Venezuela. Futures added as much as 1.6% in New York, after dipping 0.8% on Tuesday. The American Petroleum Institute reported a 7.23 million-barrel weekly drop in crude inventories, according to people familiar with the figures. That’s a steeper decline than forecast in a Bloomberg survey, ahead of government data due later Wednesday.
  • Gold rebounded Wednesday to snap the longest losing streak since May, while the latest data show outflows from exchange-traded funds backed by the metal. Gold ETF holdings slid Monday and Tuesday after rising for six straight weeks to the highest since February 2013. Holdings in silver-backed funds have also dropped, to the lowest since Aug. 22. All precious metals advanced, as investors await new catalysts from the European Central Bank’s policy decision on Thursday, and the Federal Reserve’s next week.
  • WeWork is considering major changes to governance to assuage investor concerns ahead of an initial public offering this month that’s even given pause to some of its own bankers, according to people with knowledge of the situation. Both of its lead financial advisers — JPMorgan Chase & Co. and Goldman Sachs Group Inc. — have concerns about proceeding with an IPO that could value the company as low as $15 billion, the people said, asking not to be identified because the talks are confidential. That’s set off a push to make the public sale more palatable to potential investors with governance reforms. Any decision ultimately rests with the venture’s co-founder and chief executive officer, Adam Neumann, who maintains voting control through a three-class share structure and has been an adamant proponent of the IPO, the people said.
  • Saudi Aramco has picked banks including Bank of America Corp., Goldman Sachs Group Inc. and JPMorgan Chase & Co. for top roles on its planned initial public offering following intense lobbying by some of the world’s top dealmakers, people with knowledge of the matter said. Aramco started telling some banks of their selection Tuesday, the people said, asking not to be identified because the information is private. It plans to add more joint global coordinators to the deal, according to the people.
  • Hong Kong Exchanges & Clearing Ltd. made an unexpected $36.6 billion bid for London Stock Exchange Group Plc, a bold move that would upend the U.K. bourse’s combination with Refinitiv. LSE’s board “remains committed to” the acquisition of data provider Refinitiv, highlighting the hurdles facing an offer that it called unsolicited, preliminary and highly conditional. The board said it would consider the proposal and make a further announcement later. LSE’s shares pared earlier gains, reflecting skepticism that a deal can be done in the face of escalating tensions with China over Hong Kong and the view that the $27 billion takeover of Refinitiv would allow LSE to push into financial data, offering a more secure future than a combination of stock exchanges. For HKEX, the deal promises a base away from the increasingly fraught political climate at home.
  • China announced a range of U.S. goods to be exempted from 25% extra tariffs put in place last year, as the government seeks to ease the impact from the trade war without lifting charges on major agricultural items like soybeans and pork. Pharmaceuticals and lubricant oil are among exclusions to levies on imports announced by the Ministry of Finance on its website on Wednesday. The exemptions, effective from Sept. 17 to Sept. 16 2020, will cover 16 categories of products worth about $1.65 billion, according to Bloomberg calculations based on China’s 2018 trade data. Other products on the list include alfalfa, fish meal and pesticides.
  • Asset World Corp., the Thai developer of hotels, shopping malls and office buildings, plans to raise as much as 48 billion baht ($1.6 billion) in what may be the nation’s biggest initial public offering in more than four years. The property arm of billionaire Charoen Sirivadhanabhakdi, the nation’s richest person, will offer as many as 8 billion shares at a price of 6 baht each, according to its regulatory filing. That would be the nation’s biggest IPO since Jasmine Broadband Internet Infrastructure Fund raised 55 billion baht from its IPO in 2015, according to data compiled by Bloomberg.
  • General Electric Co. will give up its majority stake in oil-services company Baker Hughes, bringing in more than $2.5 billion in fresh cash while triggering a significant charge as Chief Executive Officer Larry Culp pares the ailing manufacturer’s operations. GE and its affiliates began a secondary offering of 105 million Class A shares in Baker Hughes, which also agreed to repurchase $250 million of Class B stock from the maker of jet engines and power equipment, according to a statement Tuesday. GE will no longer hold more than 50% voting power after the deals, and its representatives on the Baker Hughes board will fall to one from five.
  • A team of Federal Trade Commission investigators has begun interviewing small businesses that sell products on Inc. to determine whether the e-commerce giant is using its market power to hurt competition. Several attorneys and at least one economist have been conducting interviews that typically last about 90 minutes and cover a range of topics, according to three merchants. All were asked what percentage of revenue their businesses derive from Amazon versus other online marketplaces like Walmart Inc. and EBay Inc., suggesting regulators are skeptical about Amazon’s claims that shoppers and suppliers have real alternatives to the Seattle-based company. One merchant, Jaivin Karnani, said he was surprised the FTC returned his call the very next day.
  • President Trump overcame formidable odds and discouraging poll numbers to win the White House in 2016. More than a year out from the 2020 election, it appears he might have to repeat that performance to win a second term, according to a Washington Post-ABC News survey. The new poll tested Trump against five potential general election challengers, and in four of those cases, the president trails, significantly or modestly. He does worst against former vice president Joe Biden, but also runs well behind Sen. Bernie Sanders (I-Vt.), and slightly behind Sen. Elizabeth Warren (D-Mass.) and Sen. Kamala D. Harris (D-Calif.). Against South Bend, Ind., Mayor Pete Buttigieg, Trump is numerically behind but the gap is within the range of sampling error.
  • Prime Minister Boris Johnson lost a Scottish court ruling on the suspension of Parliament, throwing the deadlocked British political system into even greater confusion ahead of the Oct. 31 Brexit date. The court, in a short ruling, said that the purpose of the Prime Minister’s move was to unlawfully “stymie” Parliament. The unanimous decision Wednesday by a panel of Edinburgh appeal judges will set up a showdown in the U.K. Supreme Court, which will take up the issue next week.
  • Chancellor Angela Merkel rejected growing calls at home and abroad to fend off a crisis with increased spending, saying that the problem wasn’t a shortage of money for investment. Merkel told parliament on the second day of its budget debate that there were sufficient investment projects in the pipeline that needed to be fast-tracked. Her speech comes after Finance Minister Olaf Scholz on Tuesday said Germany would stick to a balanced budget but was ready to act in moments of a crisis.
  • Japan’s central bank, long a pioneer in pushing the envelope of monetary policy in its campaign to stimulate the economy, may yet add to its record of innovation. The Bank of Japan’s current dilemma is that while its peers have eased policy — or are set to do so soon — it has refrained from additional action. That leaves Japan’s exchange rate vulnerable if other central banks’ moves drive down their currencies. A stronger yen would hurt Japanese exporter earnings and the stock market, and put downward pressure on prices.
  • Chinese electric-car sales fell for a second straight month after the government scaled back subsidies, the latest sign that one of the final pillars of strength in the world’s largest automobile market is crumbling. Sales of new energy vehicles — all-electric, fuel-celled autos and plugin hybrids — declined 16% from a year earlier to 85,000 units in August, the China Association of Automobile Manufacturers said Wednesday. That followed a 4.7% drop in July. The figures add pressure on Beijing to introduce relief measures to support a burgeoning industry that’s still heavily reliant on state support. China has gradually scaled back subsidies for NEVs since 2017 to help the industry stand on its own two feet and avoid a bubble. That’s undermined growth, prompting top Chinese electric-carmaker BYD Co. to warn that earnings will wane.
  • Peloton Interactive Inc. seeks to raise as much as $1.16 billion in an initial public offering as it prepares to pitch the subscription exercise business to investors. The home-fitness startup plans to offer 40 million Class A shares at $26 to $29 each, it said Tuesday in a filing with the U.S. Securities and Exchange Commission. A listing at the top of that range would value Peloton at about $8.1 billion based on the shares to be outstanding as listed in its filing. The company is planning to start its IPO roadshow Wednesday, with presentations this week in Frankfurt and London, according to a schedule obtained by Bloomberg. Meetings with investors will continue in cities including Toronto, San Francisco and New York through Sept. 25, when the shares are set to be priced, according to the schedule
  • Apple Inc.’s decision to skip support for the latest wireless standard on its new iPhones may cost the company a chance at capturing China’s biggest smartphone replacement wave in years. The iPhone maker, which is the only foreign brand to hold a top-five position in China, is struggling to fight off local competitors Huawei Technologies Co., Oppo and Xiaomi, whose slicker designs, more sophisticated cameras and cheaper price tags are wooing customers all over the country. The lack of fifth-generation (5G) cellular support in the newly announced iPhone 11 family won’t immediately be an issue, but it could hurt Apple in mid-2020, when analysts expect China’s smartphone market to rapidly ramp up 5G demand.

*All sources from Bloomberg unless otherwise specified