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Canadian Blue-chip Industrial Forum

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Msg  66201 of 67677  at  11/12/2019 9:43:30 AM  by


The Launch Pad

Daily market commentary
The Launch Pad
November 12, 2019
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Yields are little changed to start the day as North American markets re-open after yesterday’s holidays. We’d like to thank our bond traders for making it in this morning, snow and all. Canadian yields are marginally higher while U.S. yields are off slightly. It’s pretty thin on the data-front today, with just the NFIB Small Business Survey out this morning. The Treasury is also auctioning off $87 billion in bills. Have to fund the deficit some way.

Giving European markets a little boost is news that Trump is expected to delay his European auto tariff decision. The German DAX is up over half a percent on the six month reprieve. U.S. futures are little changed.

Buy high, sell low. Not the traditional advice you might be accustomed to. But this might be good advice for those who own energy or pot shares. It’s tax-loss selling season and crystallizing capital losses is one way to reduce your overall tax bill. We’re not accountants and this is not ‘tax advice’ (mandatory disclaimer) but this strategy is worth discussing with your trusted advisor.

You could also discuss the age old water cooler debate – is it better to invest in real estate or the stock market? If you’d have bought a house in Toronto ten years ago, the value of your property would have increased by 127%, while the TSX Composite Index has returned ~157%. This comparison of course excludes potential rental income from the return profile of a house. Now imagine you could own real estate stocks instead of real estate properties (a real possibility). With housing doing so well, the S&P/TSX Capped REIT Index has risen 354% over the past 10 year period. The US Stock market is also up over 300% over that time period. So long story short, if you’re considering a rental property, you might want to consider investing instead. No tenants, no maintenance, and traditionally more money.

UBS reminds us to not let the headlines scare you into cash, but focus on the data. Well, that, and Trump’s speech at the Economic Club in NYC at noon. Of course, all ears will be perked to listen for any clues about Chinese/U.S. trade talks. The article has a very astute quote, to be “politically aware, but invested in the data”. We think this is pretty good advice.

New York State Attorney General, Tish James, seemingly accepts defeat in its case against ExxonMobil, withdrawing two counts of fraud in her closing arguments. Unfortunately, the two-decade fight against the energy giant did not lead to substantial evidence of fraud in their estimates of future greenhouse gas emissions.

Today is launch day for Disney Plus. The vault is wide open along with a new 4k Star Wars show The Mandalorian, not to mention Pixar, National Geographic, 16 of 23 Marvel moves are included, plus access to the massive Simpsons archive. Time for some morning due diligence, checking out the site looked promising, but we couldn’t’ find a sign-up link and the log in button just sort of froze. It shouldn’t be this tough to sign up, but we’ll chalk it up to launch day technical difficulties. Update on our due diligence: Signing up on the cell phone worked and the app was downloaded, we thought it was smooth sailing from there but ran into this issue.

Huawei has their workers covered, with $286 million cash rewards for helping it ride out tension with the U.S. and working through the trade blacklisting. As a mark of recognition, almost all of its 190,000 workers will receive double pay this month.

Diversion: Watch SpaceX deploy 60 Starlink internet satellites into orbit
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Company news

Beginning today’s coverage on the earnings side, Nissan reported a whopping -70% decline in operating profit for their 2Q20 as the company continues to struggle with falling sales amidst its recent scandal. A stronger yen also didn’t help. Safe to say, the automaker also missed forecasts this quarter, cut guidance, and slashed its dividend. D.R. Horton posted healthy sales, helped by lower interest rates. The U.S. homebuilder’s fourth quarter (ended September 30) profit rose by +8.4%. Tyson Foods failed to meet analyst sales expectations for the quarter, but still saw a +9% bump in revenue. The meat-maker felt the sting of weakness in its business due to a drop in cattle processing capacity.

News broke out yesterday that Anheuser-Busch Inbev NV intends to purchase the remaining stake that it does not own in Craft Brew Alliance for roughly US$321 million (effective offer price of $16.50 per share) in a deal expected to close in 2020. Shares of the latter company soared +122.6% to $16.32 after the close yesterday. Brewers around the globe are having a tough time as people consume less beer in Europe and the U.S. Speaking of struggling businesses, WeWork has begun its search for a new CEO following the tumultuous departure of Adam Neumann. Among the candidates is T-Mobile CEO John Legere, an outspoken figure known for calling out his rival competitors. According to sources, however, Legere is not a leading candidate. And finally, Google has signed its largest cloud computing customer in healthcare to date with Ascension. The deal would give Google access to datasets to help fine tune potentially lucrative AI tools. Ascension operates 150 hospitals and more than 50 senior living facilities across America. The caveat here is that Google would gain personal health-related information of millions of Americans across 21 states.


Oil prices continued its advance higher as hopes for signals of progress between the U.S. and China swelled; at the time of writing, WTI Crude futures were up +21 bps to US$56.98. Aiding in this morning’s gains was data from market intelligence firm Genscape showing that inventories at Cushing, the delivery point for WTI, fell by roughly 1.2mm bbl last week. For context, inventories have been building in Cushing for the last five weeks. However, Goldman Sachs cut its 2020 forecast for growth in U.S. oil production. The firm is expecting growth of only 600k bpd for next year, compared to the 700k bpd initially cited.

Gold prices continued to edge lower as risk-on sentiment continued to persist among traders; at the time of writing, the spot price for gold was down -25 bps to US$1,453.40. Investors are evidently holding onto the precious metal ahead of Trump’s speech at the Economic Club of NY. In China, pork prices fell sharply last week for the first time in 10 months. Reports of fresh disease outbreaks in the northeast led to more hogs being sent for slaughter just as consumers cut back on pricey meat, flooding the market with unexpected supply.

Fixed income and economics

Quiet start to the abbreviated North American bond market with the Treasury curve flatter, the long end richer, and Canada’s underperforming our American counterparts on the whole. Not a lot to hang the market hat on though as we see a trickling of headlines come across the desk including JGB’s cheaper by 3-4 bps across the curve (underperforming all major sovereigns), the DXY marginally stronger against most crosses (the Krone and GBP in particular) and WTI flat at time of writing. The main event today may be a speech by President Trump before the Economic Club of New York (12PM EST) where you’ll probably hear a lot of debatable quotes about what he’s done for the U.S. economy and markets.

In currency news, the AUD is lower for a fifth straight day as continued weakness from last week spills into the overnight session. Australia’s central bank left their cash lending rate unchanged at 0.75% last Tuesday, which was an expected decision following three 25.0 basis point cuts since June. Officials noted that GDP is projected to rise by +2.25% this year (a quarter-point less than forecast during the summer) with 2021 forecast to see a +3.0% acceleration to the economy. Although monetary easing, government tax rebates and record low rates have not been successful in reigniting consumer confidence (which has dropped in four out of five months since the RBA commenced recent easing), these initiatives have boosted housing prices in some areas by as much as 6% since the spring. Despite this, what was really weighing on the currency however was disappointing PPI data out of China as the continued fallout from U.S. trade negotiations waver. China is Australia's largest trading partner in terms of both imports and exports (29% of all manufactured Australian goods go there) and is China's sixth largest trading partner. Almost 25% of Australia's manufactured imports come from China as well, so seeing the AUD/USD cross down to 0.6833 this morning does not bode well for the former.

Chart of the day


Quote of the day

Trust yourself, you know more than you think you do.

- Benjamin Spock


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