September 27th, 2019

Daily Market Commentary

Canadian Headlines

• Canadian stocks pared an early decline, parroting U.S. shares and closing Thursday slightly higher. Utilities were the best performing stocks, while materials were the worst, showing investors flocking to defensive names amid U.S. political turmoil. The S&P/TSX Composite Index was slightly higher, up 0.04% to 16,790. Brookfield Asset Management contributed the most to the index advance, increasing 1.9%. Kinaxis had the largest percentage gain, rising 3.4%. First Quantum Minerals was the biggest drag on the index and had the biggest percentage decline, falling 11%. Meanwhile, Goldman Sachs was positive on Canadian oil-sands stocks despite multiple headwinds, while software company Lightspeed POS Inc. is addressing “both sides of the coin,” profit and growth, given investor demands.
• ArcelorMittal is evaluating a potential sale of some of its iron ore operations, as the world’s biggest steelmaker seeks to cut debt by divesting non-core businesses, people familiar with the matter said. The company is reviewing its iron ore assets in Canada, Brazil and Liberia, the people said, asking not to be identified as the matter is private. ArcelorMittal is speaking with financial advisers about options including selling partial or full stakes in at least some of the assets, according to the people. The Canadian business is the largest and more profitable of the three and could be valued at about $2 billion in any transaction, the people said.

World Headlines

• European shares climbed Friday at the open after a mixed week and as they head to their best monthly return since June. The Stoxx 600 Index is up 0.5%, led by gains in basic resources and food and drink sectors. The tech gauge was at the bottom after U.S. chipmaker Micron Technology Inc.’s forecast missed expectations. Commerzbank AG dropped 2.7% as it revised its outlook for the year and said it no longer expects a rise in revenue.
• U.S. futures advanced with stocks in Europe while Treasuries edged lower before a key inflation report in the world’s largest economy. The pound weakened for a third day. Contracts on the three main stock gauges in the U.S. signaled a firm opening in New York. Risk sentiment remains unsettled after taking a hit on Thursday amid heightened political drama in Washington over the impeachment inquiry of President Donald Trump, and reports that the U.S. is unlikely to extend a waiver allowing American firms to supply China’s Huawei Technologies. Attention now turns to a slew of economic data in the U.S., including the Federal Reserve’s preferred measure of inflation and data on personal spending.
• Earlier in Asia, Japanese equities tumbled as a swathe of companies traded without the right to the next dividend payment. Stocks fell in Seoul and gained in Australia while a Shanghai benchmark was almost flat. The yen weakened.
• Oil fell after a report that Saudi Arabia has moved to impose a partial cease-fire in Yemen, bringing hope of easing tensions in the Middle East. Futures declined as much as 1.5% in New York. Saudi Arabia has agreed to a cease-fire in four areas in Yemen, including San’a, Dow Jones reported, citing unidentified people familiar with the plans. Crude had already been heading for a weekly decline as OPEC’s largest producer is about a week ahead of its repair schedule following attacks last week and is pumping more than 8 million barrels a day, according to people familiar with the matter.
• Gold headed for its biggest weekly loss since March, dipping back below $1,500, while investors continued to pile into exchange-traded funds backed by the metal. Prices have struggled to build on last week’s rally amid some recent global trade optimism and a stronger dollar. ETF investors on the other hand appear more bullish, with holdings expanding about 1.35 million ounces, or about 42 tons, so far this week, the most since June. Investors’ attention will be on a slew of economic data in the U.S. later Friday.
• Iron ore is set to drop in 2020 as a global deficit is closed and demand may ease, according to China’s largest manufacturer of special steel products, adding its voice to a growing chorus of forecasts for lower prices following a tumultuous year for the commodity. “Next year, iron ore prices should be on a downward trend,” Liu Wenxue, assistant to the president & general manager of the procurement center at CITIC Pacific Special Steel Holdings, said in an interview. There won’t be a deficit, and steel spending has peaked and will ease, Liu said in Qingdao, adding that the trade war may also act as a drag.
• The Bank of England may have to cut interest rates even if the U.K. avoids a no-deal Brexit, according to policy maker Michael Saunders. The pound fell. Saunders’s remarks are a sharp departure for someone who was previously considered the most hawkish member of the Monetary Policy Committee. His argument is that Brexit uncertainties are likely to continue to depress growth even if the departure from the European Union is smooth, delayed or eventually canceled, especially if that is accompanied by a weaker global outlook. Speaking in the northern town of Barnsley, England on Friday, Saunders stressed that the uncertainty shouldn’t be a “recipe for policy inertia,” and officials should be nimble in their response to Brexit, even if it requires a reversal once the outlook changes.
• The outlook for the euro-area economy has taken another hit, with confidence in industry dropping to its lowest in six years in a sign that the impact of uncertainty from trade tensions and Brexit is getting worse. A downturn centered on manufacturing is weighing heavily on the region, with Germany on the brink of recession and most major economies recording slower growth. The latest European Commission survey highlights the damage, with industry managers more worried about demand from customers and showing less enthusiasm for hiring. The decline dragged an overall measure of euro-area sentiment down more than economists had forecast in September, to its weakest reading since early 2015.
• Exxon Mobil Corp. agreed to sell stakes in Norwegian oil and natural gas fields for $4.5 billion to Var Energi AS, marking its exit from production in the country as it seeks to fund higher-growth projects from Texas to Brazil. The transaction is the biggest oil deal in Norway in 13 years. It will make Var — a partnership between Italy’s Eni SpA and private equity firm HitecVision AS — the third-largest petroleum producer in Norway, behind state-controlled Equinor ASA and the government’s own portfolio of oil and gas fields. Analysts had earlier valued the assets at $3 billion to $3.5 billion.
• Delta Air Lines Inc. is dramatically expanding its South American footprint, agreeing to a $2.25 billion deal with Latam Airlines Group SA after a similar arrangement between the Chilean company and American Airlines Group Inc. ran into legal trouble. The pact calls for Delta to pay $1.9 billion for a 20% stake in Latam, Latin America’s largest carrier, the companies said in a statement Thursday. Delta will also invest $350 million to help the Santiago-based airline unwind ties with American’s Oneworld alliance. Chile’s Supreme Court blocked the country from inclusion in Latam’s proposed venture with American in May.
• A real-estate company owned by the Berlin government agreed to buy about 6,000 apartments for 920 million euros ($1 billion) from ADO Properties SA, as the administration responds to public outrage over surging rents. The deal is the largest such purchase by the city in its history, according to housing Senator Katrin Lompscher. The transaction is aimed at securing affordable housing as the administration seeks to freeze rents and counter efforts to force the government to expropriate large landlords.
• Revelations about Donald Trump’s interactions with Ukraine’s president are shaping up to be the most serious threat to his presidency so far, surpassing even the special counsel investigation into Russian election interference that dogged the first two years of his administration. A whistle-blower complaint released Thursday alleging that Trump abused his power when he asked Ukraine’s Volodymyr Zelenskiy to investigate Joe Bidenin a July 25 call compounded the damage from a rough transcript of the conversation the White House released a day earlier.
• Australia has given clearance for Singapore Airlines Ltd.’s SilkAir to store its six Boeing Co. 737 Max aircraft in the country, as the global grounding of the jet continues following two deadly crashes within the past 12 months. SilkAir has provided flight plans and the first aircraft is expected to arrive in Alice Springs, central Australia, on Monday, according to Peter Gibson, a spokesman at the Australian government’s Civil Aviation Safety Authority.
• China failed to win inclusion into one of the world’s benchmark bond indexes, as FTSE Russell opted not to follow two competitors in adding the country’s domestic debt. China will remain on the FTSE watchlist, according to a statement Thursday that showed the firm demurred on including it in its flagship World Government Bond Index. The decision means China could be missing out on $6 billion to $7.5 billion of extra investment inflows a month, according to a previous estimate by Goldman Sachs Group Inc. While still marginal players in the world’s second-biggest bond market, foreign investors have steadily boosted their holdings to record levels as China expanded access and won inclusion in April to the Bloomberg Barclays Global Aggregate bond index.
• Executives from the biggest U.S. financial firms, including JPMorgan Chase & Co. and Goldman Sachs Group Inc., met with top regulators in Beijing in a sign that the trade war with the U.S. has done little to derail China’s opening of its $43 trillion financial system. Among those attending meetings at the Ritz-Carlton hotel on the city’s Financial Street were Yi Gang, governor of the People’s Bank of China and senior officials from the China Securities Regulatory Commission, according to an agenda that was seen by Bloomberg. Even as the trade war rages, China has continued to open its financial sector at an unprecedented pace, luring global banks seeking to compete for an estimated $9 billion in annual profits. While the policy has often been cast as addressing U.S. complaints that the Asian nation has been a one-sided beneficiary of trade, domestic motivations are also behind the push, said Michael Pettis, professor of finance at the Guanghua School of Management at Peking University.
• Wells Fargo & Co. named Charles Scharf chief executive officer, marking a new era in the bank’s efforts to turn itself around after a series of scandals claimed two previous CEOs in the past three years. Scharf, the CEO of Bank of New York Mellon Corp., will take over on Oct. 21, replacing interim CEO Allen Parker, the San Francisco bank said Friday in a statement.
• The pound’s woes multiplied on signs that even a smooth Brexit may not be enough to prevent the Bank of England from lowering interest rates. Sterling fell to its lowest in nearly three weeks and U.K. government bonds rallied as Bank of England policy maker Michael Saunders said Brexit uncertainties are likely to keep depressing growth, even if the departure from the European Union is smooth, delayed or cancelled. Money markets now price a quarter-point rate cut in August 2020, from December 2020 on Thursday.

*All sources from Bloomberg unless otherwise specified