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Msg  66294 of 68234  at  11/25/2019 9:27:43 AM  by

carswell


The Launch Pad

 

Daily market commentary
The Launch Pad
November 25, 2019
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Today

Markets appear to like the news over the weekend that China is trying to tackle the IP issues. It will raise penalties on offenders and is hoping that this is enough of a goodwill gesture to smooth over a sticking point in trade talks. Though we’ve been thinking that markets have already priced in a deal, every new piece of news continues to push them higher.

The U.S. dollar index is slightly higher, and the loonie continues to fade as trade talks progress. The rail strike is also driving a general uneasiness with potential disruptions across a number of industries a main concern. 2YR differentials have also come back in slightly.

Big Six continue to run
After coming off a decent amount in the summer Canadian banks are back. The Bix Six have outperformed the TSX by about 6% off of the low in August. A tail wind from macro sentiment has helped, as has the continued effort to find efficiencies to keep costs under control. The retail sales beat from last Friday should also pare down concerns on the Canadian Consumer.

Not all surprises are good
Poloz noted in an interview that the Canadian economy is doing well, and the BoC remains stimulative. While they may view current rates as being below ‘neutral’, the fact that the central bank has not joined the major developed banks in cutting interest rates leaves Canada at risk of falling behind. Taking a look at the Citi Economic Surprise Index, Canada has had more misses than beats in recent weeks. With key jobs and manufacturing data out over the next week, we’ll get to see rather soon if the Canadian economy can maintain its standing relative to other majors. See our Chart of the Day.

Find me something nice to buy
With markets around all-time highs, it is a lot harder to find compelling investments when you’re looking for something on sale. Typically, you start hearing a lot about relative value, or growth at a reasonable price to justify higher multiples. If you look hard enough you can always find something interesting as Fortune points out, there’s always a bear market somewhere. Energy and mining stocks are still cheap, and value itself as a factor is continuing to gain interest.

Ok Boomer
Why boomers and not millennials are fueling the urban apartment surge. (Curbed) According to the Urban Land Institute’s latest Emerging Trends Report, urban growth has come from two distinct age groups. Over the last decade, the urban population of 20- to 29-year-olds grew by 4.7 million. But during the same time, the number of 55- to 64-year-olds living downtown grew by 10.3 million.

Diversion: Bloomberg shares 33 travel hacks. Anyone else feeling the travel bug recently?
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Company news

Charles Schwab is looking to buy TD Ameritrade in a $26bb deal that will reshape the discount brokerage space. LVMH, which is run by France’s richest man Bernard Arnault, is buying Tiffany & Co. for $16.2 billion. The agreed price of $135 a share is 37% above where the stock was trading when the story was first rumored. Kirkland Lake Gold is buying Detour Gold for $4.9bb and expects to see savings of $75 - $100 million a year. Elon Musk says that orders for the new Cybertruck have exceed 200,000. Their website allows customers to put down a fully refundable $100 deposit as production is expected in late 2021. Novartis is buying Medicines for $9.7bb giving them access to a promising cholesterol drug. The $85 a share offer is a 45% premium to the closing price in November 18th when the deal was first rumored.

Commodities

Oil prices were down slightly in the overnight session as the market await trade talk progress; at the time of writing, WTI Crude futures were down -0.23 bps to US$57.64/bbl. If it seems like the oil rally’s been on pause, that’s likely because it is; hedge funds and other money managers sold ~29mm bbls across various futures and options contracts last week. For comparison, over the past week these same fund managers bought 176mm bbls. Likely, traders appear content to await stronger signals about talks before placing their bets on oil. Overseas, Chinese customs data showed the country’s crude imports from Saudi Arabia rose +76.3% last month, driven largely by refinery demand. October’s shipments of 1.98mm bpd compared to 1.74bpd in September and 1.12mm bpd in the same period last year.

Speaking of imports, Chinese importers bought at least 20 cargoes of Brazilian soybeans last week due to widening trade war uncertainty, thereby locking in supplies and hedging against a no-deal scenario. Purchases were for delivery when the next harvest arrives early next year. Across the country, supply of soybean crush (feedstock) is tight, as feed producers are reluctant to build up high inventories amidst the softened demand. Brazilian farmers were likely happy with the uptick in business, as they are now at risk of losing part of their share in the European market for soy products. Local farmers will likely scrap a soy moratorium in a move that, if executed, would disallow grain traders from buying oilseed from deforested areas in the Amazon. A group representing the EU vegetable oil and meal industry said that the movement could “be perceived as a challenge”. Brazil’s share in the market is estimated to total around US$5 billion per year.

In other commodities news, gold prices fell as risk-on sentiment reigned over most market uncertainty; at the time of writing, the spot price for gold was down -44 bps to US$1,457.20.


Fixed income and economics

A pair of regional sentiment indicators highlight the only major economic headlines on tap today. The Chicago Fed National Activity Index dipped to -0.71 points during October to miss the -0.20 consensus and worsen from the -0.45 reading prior (the print is actually the poorest since April when its -0.84 level marked the lowest since 2014). The index, which tracks 85 indicators of various categories, saw just 27 of the components make positive contributions and 58 draw negative results during the reporting period. Attention now shifts to the Dallas Fed Manufacturing Outlook survey that is out after the equity open and expected to post a -3.7 reading for November. The measure, which tracks sentiment among manufacturers in Texas, slipped to -5.1 in October and has posted contractionary readings in four of the past six months. Given the bearish environment within the global industrial space in the past half-year, it’s likely the measures continue to deteriorate.

It’s a quiet start in bond land with an abbreviated week punctuated by American market closures on Thursday and just a half-session on Friday due to Thanksgiving. Treasury yields are flat ahead of the equity open and continue to remain mired within a narrow 30 bps trading range carved out since the beginning of October and this is likely to be unabated until the U.S./China trade deadline in mid-December. We’ll turn our attention to the U.S. dollar instead which has enjoyed a sharp rally over the past couple sessions with consumer sentiment rising to a four-month high (96.8) coupled with better than expected preliminary manufacturing and service output for November. Volatility on the broader DXY index reached the lowest level since July on Friday with trade headlines that a deal is “very close” buoyed the greenback. October home sales, third quarter economic growth, and durable goods orders headline the potential catalysts for a pick-up in vol for the dollar on this shortened week.

Chart of the day


Markets

Quote of the day

In three words I can sum up everything I've learned about life: it goes on.

- Robert Frost



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