September 23rd, 2019

Daily Market Commentary

Canadian Headlines

  • After a week of fresh highs, Canadian stocks are still cheap. The S&P/TSX Composite Index is trading below the five-year average of its forward price-to-earnings ratio, despite hitting seven records since Sept. 13. Relative to U.S. equities, the main Canadian stock gauge is valued about 13% lower. The nation’s stock market has rebounded from a bout of late-summer volatility as global markets plunged, roiled by trade tensions and geopolitical risks. The reversal of momentum stocks, a surge in oil prices and the easing of trade tensions propelled almost 50% of the benchmark index this month. Energy and financial stocks, which were lagging the broader gauge, bounced back.
  • Canadian Prime Minister Justin Trudeau’s Liberal Party is pledging to raise the basic personal income tax deduction and lower cell phone bills if re-elected next month. The Liberals would raise the basic personal income tax deduction — the threshold under which no taxes are paid — to C$15,000 ($11,300) for people earning under C$147,000. Currently, the basic personal deduction is $12,069. The increase would be phased in, reaching C$15,000 by 2023, the party said in a statement Sunday.

World Headlines

  • European stocks began the week lower as focus shifts from last week’s packed central bank schedule to ongoing talks on trade between the U.S. and China. The Stoxx Europe 600 Index was down 0.3% at the open, with technology and mining shares leading declines. Travel and leisure stocks edged higher following the collapse of Britain’s 178-year-old tour operator, Thomas Cook Group Plc. Manufacturing and services numbers for the eurozone came in far short of estimates on Monday, with disappointing readings from countries including Germany and France.
  • Contracts for all three main U.S. benchmarks pared gains. They were earlier solidly up after people familiar with the matter said a planned visit to American farms by a Chinese delegation was cancelled at the request of the U.S. — news which eased immediate fears over the outlook for trade negotiations.
  • With Tokyo shut for holiday stocks in Asia were mixed, eventually drifting lower overall as Shanghai shares dropped. Equities in India continued a surge. The onshore yuan fell amid caution in the run-up to next week’s national holidays. The Korean won sank as exports continued to deteriorate.
  • Oil fell as traders weighed conflicting reports on whether Saudi Arabia will succeed in restoring its lost production by the end of this month, while concerns over demand returned following gloomy European data. Brent crude fell 0.5%, reversing earlier gains. Saudi Arabia, which has reiterated it will bring back all lost production following this month’s attack on its oil facilities by the end of September, is on course to fulfill the promise, Reuters reported. Earlier, the Wall Street Journal said repairs at damaged plants may take many months, and consultants Rystad Energy and FGE are skeptical about the kingdom achieving its target.
  • Precious metals clung to gains, with gold, silver and platinum trading close to the highest in more than two weeks. Palladium hit a fresh record. Latest signs “strongly suggest” that uptrends in precious metals are resuming, according to Citigroup Inc. The gauge has got a boost after recent rate cuts from key central banks amid worsening global conditions. Data out of Germany on Monday showed its economy is suffering the worst downturn in almost seven years as a manufacturing slump deepens. While industry watchers expect more gains in gold and silver amid stronger safe-haven demand, the outlook for palladium, used mainly in autocatalysts, is mixed. Money managers increased their bullish bets to a seven-week high, CFTC data on futures and options show. Still, the threat to the rally is increasing as new car registrations in Europe continue to drop, while attempts to stimulate car sales in China are limited in scale, refiner Heraeus Holding GmbH said in a weekly market report.
  • Germany’s economy is suffering its worst downturn in almost seven years as a manufacturing slump deepens, raising pressure on the government to add fiscal stimulus. Factory activity shrank at the fastest pace in a decade in September and growth in services softened, according to a monthly report by IHS Markit. There were also further signs that the labor market is taking a hit. That could have an adverse impact on demand and set off a negative spiral for Europe’s biggest economy.
  • Apollo Global Management LLC plans to raise about 1 billion euros ($1.1 billion) through the sale of shares of French bottle maker Verallia, in what would be one of the largest initial public offerings on the Paris stock exchange for years. At least 34.4 million shares will be offered at a price range of 26.50 euros to 29.50 euros, and an extra 3.37 million shares are available if demand is strong, according to a statement on Monday. Pricing is expected to occur on Oct. 3, and trading on Oct. 8. Apollo is looking to cash in on an 2.95 billion-euro investment made in 2015, when it bought 90% of the business from Cie. de Saint-Gobain SA, with French state-owned bank Bpifrance taking 10%. Verallia’s enterprise value could reach as much as 5.3 billion euros post the IPO, Verallia Chief Executive Officer Michel Giannuzzi said on a call. As well as tapping growing demand for wine bottles and jars, Verallia will use its size to pursue acquisitions, he added.
  • Peloton Interactive Inc. showed off its signature $2,000 bike and $4,000 treadmill at a Manhattan hotel to convince investors that the soon-to-be-public exercise startup can hit the road with its customers. As Peloton gears up for its initial public offering, it’s making the case that hotel gyms will help it power growth. The strategy: subscribers won’t have to fall off their riding regimens while travelling, and first-time users will get hooked after taking a spin in a hotel fitness room.
  • Bain Capital is reviving plans for a potential initial public offering of French vehicle-parts maker Autodis Group, people with knowledge of the matter said. The Boston-based private equity firm is working with Rothschild to consider exit options for Autodis, which could also include a sale of the business, according to the people. Any deal could value Autodis at about 2 billion euros ($2.2 billion), the people said, asking not to be identified as the discussions are private. Autodis decided last year to shelve listing plans as it was unsatisfied with investor feedback about its potential valuation in early meetings, people familiar with the matter said at the time. Representatives for Bain and Rothschild declined to comment.
  • After years of review over a hotly debated issue, the U.S. government finally has a plan to make the $16 trillion Treasury market less opaque. Treasury Secretary Steven Mnuchin’s debt managers will on Monday reveal to an audience of Wall Street’s elite, central bankers and regulators the results of their years-long examination of transparency in the world’s biggest bond market. During an event at the Federal Reserve Bank of New York, Deputy Treasury Secretary Justin Muzinich will announce a plan for the dissemination of Treasury trading data to the public, according to another Treasury official who asked not to be named. The very basics of trading are at issue here. In the U.S. stock market, the price, size and time of transactions are usually reported within a second. For corporate bonds, it’s 15 minutes or less. Reflecting the private-club feel that’s long dominated the business, there’s no comparable disclosure in Treasuries, which set rates for trillions of dollars worth of assets like mortgages.
  • Deutsche Bank AG finalized a deal transferring its business with hedge fund clients to BNP Paribas SA as part of the German lender’s historic retreat from investment banking. About 1,000 Deutsche Bank employees will move to the French rival through 2021, according to people with knowledge of the matter. Ashley Wilson, one of two executives at the German bank overseeing the disposal of unwanted assets, will head the business during this period and may eventually leave to run the combined unit at BNP, the people said, asking not to be identified as the matter is private.
  • The U.K.’s opposition Labour Party will vote on its Brexit policy on Monday as divisions between leader Jeremy Corbyn and senior politicians overshadow its annual conference. At the same time, Prime Minister Boris Johnson is in New York, where he’ll hold intensive discussions with European leaders on the sidelines of the United Nations General Assembly; Saudi Arabia and Iran will also feature prominently on his agenda.
  • China’s cancellation of a planned visit to farms in the American heartland was done at the request of the U.S., people familiar with the matter said, indicating it wasn’t caused by a negative turn in the lower-level discussions held in Washington last week. U.S. Trade Representative Robert Lighthizer’s office didn’t find out about the visit until it was set up and subsequently asked the Chinese delegation not to go, one of the people said. The Chinese were told this was because of domestic reasons, another person said. Chinese Vice Premier Liu He plans to visit Washington in the second week of October to meet Lighthizer and Treasury Secretary Steven Mnuchin for high-level negotiations, according to separate people familiar with that planning, and the two sides are aiming for a high-level meeting around Oct. 10.
  • Adam Neumann has said his mission as WeWork’s chief executive is to elevate the world’s consciousness. Members of his board are now discussing a plan to elevate someone else to run the company and salvage its troubled initial public offering. The board plans to meet on Monday, people familiar with the situation said. There, some directors are expected to raise the prospect of Neumann stepping down as CEO and becoming non-executive chairman, said the people, who asked not to be identified because the discussions are private. With the drama of a palace coup, Neumann has found himself at odds with WeWork’s largest investor, SoftBank Group Corp. Masayoshi Son, founder of the Japanese conglomerate, is among those pushing for Neumann to resign, a person familiar with the situation said, after widespread criticisms of the company’s governance and spending. The choice is ultimately Neumann’s, though, as the 40-year-old CEO maintains effective control of management decisions.
  • The U.K. government deployed the “largest repatriation in peacetime history” to bring home more than 150,000 tourists stranded on overseas beaches and in vacation hotspots by the collapse of tour operator Thomas Cook Group Plc. The massive airlift, using chartered jetliners, follows the collapse of the 178-year-old company early Monday after eleventh-hour fundraising talks with investors failed. The move saw all bookings, flights and package tours cancelled, sparking online panic for travellers and prompting a plunge in Thomas Cook bonds.
  • Bernie Sanders hopes to convince working-class voters who were drawn to Donald Trump in 2016 that they will find a lot to like with his own brand of economic populism. Sanders plans to take this strategy for a trial run on Monday with a “Bernie Beats Trump Tour” of four Iowa counties that went for President Barack Obamain 2008 and 2012 and to Trump in 2016. The goal is to prove that he is the candidate best able to woo back working-class voters in Rust-Belt states like Michigan, Wisconsin and Pennsylvania, longtime Democratic strongholds that were captured by Trump and that are key to winning the presidency.
  • Lion Air and Indonesia’s civil aviation authority are pushing back on conclusions reached by investigators probing last year’s deadly crash of a Boeing Co. 737 Max amid concerns that too much blame is being placed on the Indonesian side, according to people familiar with the matter. Lion Air expressed its objections to Indonesia’s National Transportation Safety Committee after 25 of 41 lapses found in the NTSC’s latest draft of the report were directed toward the carrier, one of the people said, asking not to be named discussing a private matter. The country’s Directorate General of Civil Aviation also relayed its objections, another person familiar with the matter said.
  • Bitcoin is growing up. Monday marks the debut of futures contracts offered by Intercontinental Exchange Inc. that can result in delivery of the digital currency, a new chapter in Bitcoin’s tumultuous 10-year history. The first federally regulated market to buy and sell Bitcoin could entice conservative investors who have so far stayed on the sidelines to begin adding the digital asset to their portfolios, according to industry analysts. It also furthers efforts to create a market structure for financial professionals to take the digital asset seriously. “The move to centralize and create a scalable infrastructure for crypto asset investment” is “a positive step,” said James Putra, head of product strategy at TradeStation Crypto. Because the ICE contracts will deliver actual Bitcoin, an investor can potentially profit first from the rise in the futures price and then take possession of the coins, he said. “I can capture both pieces and continue to ride that upward.”

*All sources from Bloomberg unless otherwise specified