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Msg  66666 of 66825  at  1/21/2020 10:40:17 AM  by

carswell


The Launch Pad


Daily market commentary
The Launch Pad
January 21, 2020
Click here to sign up for the Launch Pad
Today

As the Senate launches only the third impeachment trial of a president in history, Donald Trump is a world away as he was speaking at Davos, delivering its opening remarks and pumping his own tires along the way. He noted that “the United States is in the midst of an economic boom the likes of which the world has never seen before”. We’ll not argue that the market has had quite a run, or that unemployment is at a very low level, but it's hardly booming. GDP growth remains anemically low.

While climate change and ‘stakeholder capitalism’ are taking center stage at Davos, it is ironic that the world’s most powerful leaders including state and company heads preferred mode of travel is private jet polluting 18,090 metric tonnes of CO2 for the ‘sustainable world’. Funny enough Davos is pushing for “greener’ fuel for private jets leaving the world economic forum. Yea, that’s sure to address the issue. How about carpooling? Or better yet, jetpooling. Did you know that Davos secretly ranks all attendees on a 7 level scale. Quarts details the breakdown of exactly who is attending, the majority of attendees are top executives.

With the U.S. markets open today, the void of market moving news should abate, especially with the Senate impeachment now underway. The fun will start at 1pm EST. But this isn’t necessarily a good thing, futures are lower ahead of the open. Asian shares are leading to the downside, thanks to rising fears of the mysterious new virus emanating from China. This relative of SARS has already infected 224 people and killed six. The Hang Seng is lower by -2.8% and the CSI 300 is off by -1.7% as the ailment is seen more infectious than previously thought.

The Canadian dollar is off in trading this morning. Weaker than expected manufacturing sales numbers aren’t helping, but most of the weakness occurred overnight. After quickly rising at the end of the year, the loonie sold off some but has now been consolidating over the past couple of weeks in an extremely tight range, detailed in the chart below. While we expect further weakness, this chart pattern should be carefully observed, as the eventual breakout will signal the direction of the next trend. Chartists be on alert!

Canadian parliament is resuming next week, and ratifying the new NAFTA is slotted as a top priority. Both Mexico and the US have already ratified the agreement, and it’s looking like the Conservatives will partner with the Liberals to push this legislation through. Any issues with ratification would be met with unhappy markets, as a ratified USMCA deal would allow corporations a more clear picture when planning capital expenditures. On top of trade, gun regulations will be on the table as the federal government looks to ban assault style weapons via a buy back program, and give municipalities the power to ban handguns at a local level.


Diversion: Amazing drone shot of a huge dust storm over Australia. Giant spiders, fires, Foster’s and now this. No thanks.

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Company news

Reynolds Consumer products, the maker of aluminum foil and Hefty trash bags is proposing an IPO that could raise as much as $1.3bb. This isn’t a loss losing unicorn though the company had net income of $135mm last year. Satya Nadella, CEO of Microsoft, warned yesterday that the company is failing to attract immigrants and will lose out as the global industry continues to grow. Uber is testing a new feature that allows drivers to set their own rates. This is response to the State of California’s new gig-economy law.

McDermott International fell as much as 29% following a report that the company is preparing to file for bankruptcy to deal with their $4billion debt load. CPPIB Is on the short list to by the elevator unit of Thyssenkrupp for more than 15 billion euros. Brookfield Asset Management is still in the running. Netflix reports fourth quarter earnings after the close today, and analysts are expecting a significant slowdown in subscriptions thanks in large part to increased competition. The offerings on Amazon Prime are only improving and Disney+ is off to a hot start. Over the past year Netflix is completely flat, while the S&P 500 is up nearly 27%.

Commodities

After a spike yesterday, crude prices tumbled as global supply concerns subsided despite the suspension of exports from Libya; at the time of writing, WTI Crude futures were down -1% to US$57.95, while Brent Crude futures were down -1.4% to US$64.29. In Libya, oil exports will likely remain disrupted so long as eastern commander Khalifa Haftar continues to block the ports under his control. The EU is debating military action to enforce an arms embargo in the region. Goldman Sachs analysts mull that the disruption shouldn’t pose a great threat to global supply, given that the world is “awash with oil”, mainly from the U.S. Iraq, however, is more of a cause for concern.

Gold prices ticked to their two-week high in the early hours of the overnight session before edging lower later on; at the time of writing, the spot price for gold was down -28 bps to US$1,555.90. Meanwhile, the All India Gem & Jewelry Domestic Council expects gold imports in India to rebound in 2020 from a three-year low as consumer spending ramps up. Inbound shipments could climb up to 750 tons from an estimated 690 tons last year. In other commodities news, demand for American soybeans will likely improve as China’s bolstered pork purchases will broaden the its usage for pig breeding. At the time of writing, the price of soybeans were down -40 bps to US$9.2575.


Fixed income and economics

The North American economic data calendar is light today with just Canadian manufacturing sales highlighting the action on screen. November factory sales were down -0.6% during the month --- more than the -0.5% consensus, slower than the -0.2% prior print and the worst tally since August. To be blunt, the entire world suffered (and in many locales still is) from a slump in manufacturing activity last year. Every major official or 3rd party sentiment gauge fell during the back half of 2019 with many regions dipping into contractionary territory. Canada alone posted five months of declining manufacturing activity last year with December still to come. Note that non-durables saw a -1.3% dip in sales and a -0.6% yearly drop. Reaction to the print is muted (loonies completely unchanged) given the lagged indicator but clearly our nation is not exempt from the worldwide decline in the industry. Moving past this, Treasury markets are back at work after a one-day holiday, outperforming most majors at time of writing and curve flattening throughout the spectrum. Ten year yields are back below the 1.80% level for the first time since January 3 and despite the narrow five bps trading range seen to start 2019, technical point to further gains in the belly of the curve with the 1.75% support level easily within striking distance. The IMF trimmed global growth prospects a smidge yesterday, calling for total output this year to clock in at just +3.3% both China and U.S. were both marked down to a slower pace of expansion.

Chart of the day

Markets

Quote of the day

I have a competition in me.

- Daniel Plainview, There Will Be Blood





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