September 24th, 2019

Daily Market Commentary

Canadian Headlines

• Canadian shares were lower early Monday after extending their gains to a record high on Friday. The S&P/TSX Composite fell 0.2% to 16,862 in Toronto. Financials led the decliners as six of eleven sectors fell. Health care stocks advanced. Meanwhile, First Quantum Minerals Ltd. is down about 10% after saying it hasn’t engaged in any discussions regarding a takeover bid or other change of control transaction.
• Home Capital Group Inc. plans to issue residential mortgage-backed securities regularly, a sign that Bank of Canada efforts to jump start the market are catching on. The Toronto-based mortgage lender is considering two RMBS deals a year, Chief Financial Officer Brad Kotush said after its unit Home Trust raised C$425 million ($320 million) in the first deal pooling non-prime Canadian home loans in 12 years, according to DBRS data. The terms were “competitive” compared with the rates the trust is paying its depositors, Kotush said in an interview Monday. “We’d like to come to the market probably twice a year.”
• Huawei Technologies Co.’s chief financial officer returned to a Vancouver courtroom Monday, beginning in earnest her efforts to convince a Canadian court that her rights got trampled when she was arrested on a U.S. extradition request last December. Defense lawyers for Meng Wanzhou presented videos and thousands of pages of documents to back claims that Canadian authorities collaborated with the U.S. Federal Bureau of Investigation to engage in a “covert criminal investigation” to unlawfully detain, search and interrogate the Chinese executive.
• Chubb Ltd., Canadian insurer Sun Life Financial Inc. and Japan’s MS&AD Insurance Group Holdings Inc. are among bidders competing to acquire some of Aviva Plc’s Asian assets, people familiar with the matter said. The sale has also attracted interest from Allianz SE and HSBC Holdings Plc, the people said, asking not to be identified because the matter is private. After reviewing its operations across the region, Aviva decided to explore a sale of its Singapore and Vietnam businesses, which could fetch more than $2 billion combined, the people said. Aviva has received non-binding bids and aims to pick a buyer as early as November, the people said. No final decisions have been made, and other bidders could still emerge, the people said.

World Headlines

• European stocks rose on Tuesday in a broad advance, with banks and health-care shares as the top performers. The Stoxx Europe 600 Index climbed 0.2% as of 8:16 a.m. in London, with all 19 industry groups rising. Total SA was the biggest contributor to index gains, rising 1% after the oil major said it will accelerate dividend growth as it forecast higher cash flow, while Evotec SE led health-care stocks. European shares are rebounding after disappointing manufacturing and services data on Monday prompted the Stoxx 600’s worst decline in more a month. Investors are awaiting a report on German sentiment and the U.K. Supreme Court’s landmark ruling Tuesday on whether Prime Minister Boris Johnson broke the law by suspending Parliament. The FTSE 100 Index rose 0.2%.
• Contracts on the three main U.S. equity benchmarks all pointed to a firm open after Treasury Secretary Steven Mnuchin confirmed Chinese Vice Premier Liu He is headed to Washington in coming weeks and China was said to have given waivers for tariff-free American soy purchases.
• Despite tensions easing between the U.S. and China, markets remain on edge ahead of planned high-level talks between the world’s two biggest economies in October. Underwhelming economic indicators are muddying the picture — downbeat numbers from Japan and mixed data from Germany were stark reminders of the fragility of global growth. And political risks loom large for investors, including a Congressional investigation into President Donald Trump’s dealings with Ukraine and Brexit.
• Oil edged lower on signs Saudi Arabia is making progress in restoring lost output even as uncertainty remains about the kingdom’s ability to meet its timeline of a full return by the end of the month. Futures dropped 1% in New York after rising 1% on Monday. Saudi Aramco is returning most of its domestic oil refineries to full capacity after cutting back on processing to meet the crude demands of customers, according to people familiar with the matter. U.S. stockpiles probably declined by 600,000 barrels last week, a Bloomberg survey showed.
• Gold held an advance as investors weighed sustained inflows into bullion-backed funds, mixed global economic data and next steps in U.S.-China talks. Gold holdings in ETFs have been rising every day since last week, moving closer to an all-time high seen in 2012, which helped the prices to recover above $1,520 an ounce. Total value of holdings has increased by more than a third so far this year to $122 billion. The metal was little changed on Tuesday after three days of advances as further gains were partially capped by investors’ optimism over high-level trade negotiations between Washington and Beijing early next month. Silver traded near a three-week high, while palladium held close to record after rallying on Monday.
• Germany’s manufacturing slump is dragging the economy closer to recession, with warnings continuing to pile up about the dire state of industry. Business expectations in Europe’s largest economy fell to the lowest in a decade this month, with the mood among factory executives the main reason. According to the Ifo institute, which compiles the sentiment report, there is “only one direction: downward.” The news is another blow to Germany after a depressing report Monday showed factory activity is shrinking at the fastest pace since the depths of the financial crisis 10 years ago. The export-reliant economy is taking hits on multiple fronts, from a global slowdown to trade tensions to upheaval in its key auto industry.
• The Chinese government has given new waivers to several domestic state and private companies to buy U.S. soybeans without being subject to retaliatory tariffs, according to people familiar with the situation. The companies received waivers for between 2 million to 3 million tons, said the people, who asked not to be identified as the information is private. Some firms already bought at least 20 cargoes, or about 1.2 million tons, from the U.S. Pacific Northwest on Monday, the people said.
• Anheuser-Busch InBev NV has pulled off one of the year’s biggest initial public offerings the second time around, raising about $5 billion by listing its Asian unit in Hong Kong two months after scrapping the original share sale. The Belgian brewer priced shares of Budweiser Brewing Company APAC Ltd.at HK$27 each, the bottom of a marketed range. Still, the sale gives the Asian unit an enterprise value of $45 billion, helping the parent company reduce its massive debt and laying the groundwork for possible future acquisitions. The world’s biggest beer company succeeded on its second try after selling Budweiser Brewing’s Australian unit to Japan’s Asahi Group Holdings Ltd.That roughly halved the size of the Asia-Pacific offering but gives investors in the IPO a more focused stake in faster-growing parts of the regional business, with brands like Cass in South Korea and Harbin in China.
• Starbucks Corp. won and a Fiat Chrysler Automobiles NVunit lost court fights over European Union tax orders in conflicting decisions ahead of Apple Inc.’s bid to topple its record 13 billion-euro ($14.3 billion) bill. The EU General Court in Luxembourg said on Tuesday that the EU failed to show that coffee giant Starbucks was granted an unfair tax deal by the Netherlands. However judges threw out a similar challenge by Fiat over its fiscal arrangements in Luxembourg. The judgments can be appealed to the EU Court of Justice, the bloc’s highest tribunal.
• Spain’s central bank cut its economic growth forecasts, an acknowledgment that even one of the euro region’s fastest growing economies isn’t immune to the uncertainty that’s gripped the global economy. The Bank of Spain now expects expansion of 2% this year, with a further slowdown to 1.7% in 2020. That compares with June projections for 2.4% and 1.9%.
• The U.K. Supreme Court dealt an unprecedented legal rebuke to Prime Minister Boris Johnson, branding his controversial decision to suspend Parliament unlawful and giving lawmakers another chance to frustrate his plans for Brexit. Parliament must decide what happens next and should meet as soon as possible, the court said.
• Volkswagen AG’s two top leaders, Chief Executive Officer Herbert Diess and Chairman Hans Dieter Poetsch, were charged with market manipulation in Germany over allegations they failed to inform investors early enough about the diesel-emission scandal. Former CEO Martin Winterkorn was also charged in the case, according to the indictment filed by Braunschweig prosecutors on Tuesday. The shares fell as much as 2.7% in Frankfurt, the most in almost six weeks.
• Global drug makers like AstraZeneca Plc are facing the prospect of having to drop prices by half to maintain their sales to China’s biggest public hospitals, as the country’s aggressive health-care cost control campaign gains speed. As China expanded nationwide its program to reduce the cost of generic drugs on Tuesday, foreign pharmaceutical companies found themselves undercut by domestic drugmakers in the race to supply 25 medications ranging from cholesterol treatments to chemotherapy, according to results circulated by brokerages like Bocom International Securities.
• Bank of Japan Governor Haruhiko Kuroda expounded the virtues of negative interest rates Tuesday in comments that will keep market players on high alert that the central bank will take action in October. Speaking days after a BOJ meeting that raised expectations for additional stimulus to come next month, Kuroda said he was still closer to taking action than he was in July. While the governor was careful to avoid committing himself to action in October, he reiterated the findings of a 2016 policy review that short-term rates had a more powerful impact on the economy than long-term rates.
• India’s government will maintain its borrowing plan for the remainder of this fiscal year, an official told reporters in New Delhi. Prime Minister Narendra Modi’s administration will likely sell about 2.68 trillion rupees ($37.8 billion) of bonds in the six months beginning Oct. 1, as part of its record 7.1 trillion rupee full-year plan. India had a target to borrow 4.42 trillion rupees in the fiscal first-half started April. A decision on the nation’s maiden foreign-currency sovereign bond sale, announced first in July, has not been made, the official said, asking not to be identified citing rules.
• Former investment bankers from JPMorgan Chase & Co. and Deutsche Bank AG are launching a new cannabis-focused asset manager, betting that the recent plunge in pot stocks is a good entry point to make loans and do private equity deals in the sector. Silver Spike Capital plans to raise between $500 million and $1 billion for a direct lending fund in the fourth quarter, followed by a private equity fund of the same size. The New York-based firm is also looking to raise about $200 million for a hedge fund, said Scott Gordon, founder and chief executive officer.
• President Donald Trump ordered his acting chief of staff to delay sending $400 million in military aid to Ukraine at least a week before he spoke to that country’s president, a person familiar with the matter said Monday night. Trump’s July 25 telephone call with the new Ukrainian president, Volodymyr Zelenskiy, is the subject of a congressional investigation and is part of a mysterious whistle-blower complaint from an unidentified intelligence official. The official raised concerns about the call between Trump and Zelenskiy as well as other actions, according to another person familiar with the matter.
• Topsports International Holdings Ltd., backed by private equity firms Hillhouse Capital Management Ltd. and CDH Investments Fund Management Co, starts taking investor orders for its Hong Kong initial public offering, which could raise as much as HK$9.4 billion ($1.2 billion). The Chinese retailer sportswear is offering about 930 million shares at HK$8.3 to HK$10.1 apiece, according to the terms of the deal obtained by Bloomberg. The price range implies a market capitalization of $6.6 billion to $8 billion, the terms show.
• Google won a European Union court battle against plans to impose a global “right to be forgotten” in the latest landmark ruling over where to draw the line between privacy and freedom of speech. The EU Court of Justice on Tuesday said search engines should remove results on European versions of its websites and weren’t required to scrub links globally. Five years earlier the same tribunal forced the U.S. tech giant to remove European links to websites that contain out of date or false information that could unfairly harm a person’s reputation. The ruling is binding and can’t be appealed. The Alphabet Inc. unit challenged the French privacy authority’s order to extend the scope to all of its platforms across the world. In a related ruling on how far Google could cite the public interest to refuse to pull links, judges said the search engine must weigh privacy concerns against users’ right to know in each individual case.
• Best Buy Co. is well-known for bringing computers and other gadgets back to life. Now, it wants to take care of its shoppers’ health as well. The retailer’s strategy to beef up its fledgling health-care business will be a key focus of its investor meeting Wednesday in New York. The plan includes selling everything from fancy fitness machines to health-monitoring services for seniors. It could help Best Buy grab some of the $3.5 trillion market for health spending in the U.S. — while offsetting sluggishness in its main business of selling laptops, TVs and phones. “Health care is overly complex, has not evolved all that much over time, and remains a frequent pain point for customers. All of these factors make health care ripe for disruption,” said Simeon Gutman, an analyst at Morgan Stanley, who sees health-related products and services adding $11 billion to $46 billion to Best Buy’s long-term revenue. “It should be no surprise, then, that many nontraditional players including Best Buy are entering the industry.”

*All sources from Bloomberg unless otherwise specified