September 4th, 2019

Daily Market Commentary

Canadian Headlines

  • Canadian stocks declined, in tandem with global markets, on concerns over economic growth and geopolitical tensions. Consumer discretionary and industrials were the worst performing stocks, while the healthcare sector — led by pot stocks — outperformed. The S&P/TSX Composite Index fell 0.3%, or 42.84 to 16,399.23. The move is the biggest since falling 1.3% on Aug. 23. The MSCI AC Americas Index declined 0.7%. Toronto-Dominion Bank contributed the most to the index decline, sliding 0.8%. Finning International Inc. had the largest drop, falling 6.6%. Meanwhile, The Bank of Canada is expected to open the door further to interest rate cuts at a decision Wednesday, amid worries U.S.-China tensions will curb a relatively robust expansion at home. In a policy statement due at 10 a.m. that’s likely to keep benchmark rates unchanged at 1.75% for now, economists expect Governor Stephen Poloz will underline his unease with the global trade outlook and signal a greater willingness to join the Federal Reserve and other central banks in cutting borrowing costs, as early as next month.
  • Aurora Cannabis sold its remaining 28.83 million shares in Green Organic Dutchman, representing a 10.5% stake, for C$3 per share, raising gross proceeds of C$86.5 million. Completion of sale represents approximate 50% internal rate of return. Aurora no longer holds any shares of TGOD, continues to hold warrants to buy 16.67 million TGOD shares.
  • Canaccord Genuity Group Inc. hired Tom Jakubowski from Bank of Montreal to lead its investment banking coverage of the mining industry. Jakubowski joins the firm in Toronto and will work with the firm’s dedicated mining sales and trading, research, and underwriting teams, according to an internal memo. He was previously a managing director in BMO Capital Markets’ global metals and mining business.

World Headlines

  • A wave of green swept over European stocks on Wednesday, with all sectors and regional markets rising amid an easing of myriad political tensions. The Stoxx Europe 600 Index climbed 0.9%, with banks and retailers leading gains. Luxury stocks exposed to Hong Kong, such as Swatch, Richemont, Moncler and Hugo Boss, were among the biggest advancers on the benchmark after reports the city’s chief executive will formally withdraw the extradition bill that had sparked widespread protests. Italy’s FTSE MIB Index was the best performer among European markets, up 1.5% as Giuseppe Conte cleared the last hurdle to become prime minister, after getting backing from supporters of the Five Star Movement in an online vote. In Britain, lawmakers supported moves to block Prime Minister Boris Johnson from taking the nation out of the European Union without a deal. The FTSE 100 Index added 0.7% and the FTSE 250 Index gained 0.5%.
  • Hong Kong stocks soared on reports Chief Executive Carrie Lamwill formally withdraw the extradition bill that’s sparked months of protests. The MSCI Hong Kong Index surged 5.4%, its biggest gain since October 2011. Real estate firms led the gains, with Wharf Real Estate Investment Co., New World Development Co. and Sun Hung Kai Properties Ltd. all up more than 9%. The Hong Kong dollar strengthened as much as 0.08%. The Hang Seng Index closed 3.9% higher. After the market closed, Lam announced the formal withdrawal of the legislation, which had earlier been reported by media including the South China Morning Post. Hang Seng Index futures fell as much as 1% after her televised address, which didn’t include the setting up of an independent commission of inquiry into police violence — one of the requests of protesters.
  • JPMorgan Chase & Co. will start a phased inclusion of Chinese government bonds into some of its benchmark indexes, potentially ushering in a fresh wave of inflows into the world’s second-largest bond market. China’s weight will be capped at 10% of the GBI-EM global diversified and narrow diversified indexes. The inclusion will begin Feb. 28, 2020, the bank said in a statement Wednesday. Goldman Sachs Group Inc. analysts earlier estimated that such a move could lead to about $3 billion of inflows into China’s bond market a month.
  • Gold will surge above $1,600 an ounce as the Federal Reserve embarks on a quartet of interest rate cuts to combat slowing U.S. growth and the fallout from the trade war with China, according to BNP Paribas SA, which flagged prospects for a significant rise in prices in the coming months. Bullion will benefit as the Fed opts for four, 25 basis point cuts between this month and June 2020, Harry Tchilinguirian, head of commodity research, said in a note. As nominal yields fall with each reduction, “real rates will move and stay in negative territory, raising the appeal of holding gold,” he said.
  • Oil rose as a forecast decline in U.S. crude inventories countered pessimism driven by a surprise contraction in American manufacturing and a warning to China from President Donald Trump. Futures in New York climbed as much as 1% after closing 2.1% lower Tuesday. American stockpiles fell for a third week by 3.45 million barrels last week, a Bloomberg survey showed before official data due Thursday. That came after a U.S. factory gauge fell to its weakest level since 2016 and Trump tweeted that it will be tougher for China to secure a trade deal if it waits until he wins the 2020 U.S. presidential election. Elsewhere, financial assets rose on a report that Hong Kong Chief Executive Carrie Lam will formally withdraw a controversial bill that would have allowed extraditions to China.
  • U.K. Prime Minister Boris Johnson’s Brexit strategy is in tatters, his ruling Conservative party is disintegrating and he’s clinging on to power by a thread. On Wednesday, members of Parliament are set to push their showdown with the premier over Britain’s divorce from the European Union to its climax. After seizing control over the parliamentary agenda, Johnson’s critics will aim to pass a law banning him from taking Britain out of the block without a deal on Oct. 31. He has said he’ll retaliate by pushing for a snap general election. First, Johnson faces another grilling from MPs in the House of Commons.
  • La Perla, the high-end Italian lingerie brand with stores in London’s Sloane Street and St. Tropez, will list its shares on the Paris stock exchange. La Perla won’t raise any funds through the move, which aims for a market capitalization of 473 million euros ($520 million) when shares are set to begin trading Friday. The listing “will increase La Perla’s visibility and enhance access to capital,” Chief Executive Officer Pascal Perrier said in a statement Wednesday. Perrier joined the Bologna, Italy-based company last year after more than a decade at Burberry Group Plc.
  • A $15 billion pile of provincial bonds is lurking below the surface of Argentina’s already imposing sovereign debt load, setting the latest fiscal fiasco apart from any in the country’s history and threatening to saddle foreign investors with even more losses. The nation’s provinces were among the most prolific issuers when international capital markets reopened to Argentina following business-friendly President Mauricio Macri’s election in 2015. By offering interest rates in excess of 9%, they were able to lure yield-hungry investors to little known and sparsely populated corners of the country — places like frigid Tierra del Fuego in the extreme south and desert-like Jujuy in the north.

*All sources from Bloomberg unless otherwise specified