Launch Pad
Daily market commentary

 

Friday September 20, 2019
  
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Today

Well it’s Friday, and you know what that means? Perfect time to go line up at your nearest Apple store to get the latest iPhone. Pretty funny to see the massive lineups in NYC on CNBC this morning, it’s not like there are shortages and months wait like the early years, but for some Apple fans having the latest and greatest is all that is important. Ok, enough with this mini rant lets get back to the markets.
 
It’s a rather light data day, but we will get a preliminary look at Septembers PMI data after the open. Futures are slightly higher, and overseas markets are positive but just marginally. The bond market is flat and the currency market is quite mixed. Truth be told there is not a lot moving, but sometimes that can be a good thing. Especially as the short-term funding market continues to act in strange ways. The New York Fed will conduct another $75 billion repurchase operation to help maintain the federal funds rate within the target range of 1.75%-2.00%. Glad to see that the liquidity crunch in the repo market isn’t causing any spillover anxiety within broader markets.
 
We’re seeing a continued effort by the U.S. to step back from trenches in the trade war. The government is temporarily exempting more than 400 types of Chinese product like Christmas lights, straws and printed circuit boards from tariffs. Really this is appeasing U.S. company requests to lighten the burden of rising costs. It’s not going to make a huge difference in the grand scheme of things, but it will lighten the burden faced by the end consumers.
 
There is the potential for a bit of volatility today as it’s a quadruple witching day. It sounds like magic, and a reference to the dark arts (oh no!) but, it’s just a rather hectic day on derivatives desks. This refers to the fact that today that we have the simultaneous expiration of market index futures, stock futures, market index options and stock options. Volumes will be high as previous positions will likely be rolled over. If you’re interested here’s the Investopedia link for anyone who wants to read more.

Central bank easing really has been the story of this year, and it's a truly global thing. Following in the footprints of the US and the ECB, China cut its key interest rate today. For the most part these cuts were already priced in, so it's no surprise there's a muted equity market reaction. The Bank of Japan, Bank of England, and Swiss national bank all held rates steady this week - hopefully relieving some of the recent pressure on the USD. Lower interest rates reduce demand for a currency as investment becomes less attractive.
 
Recent US consumer data is pretty optimistic. The number of Americans claiming unemployment income rose less than expected in August, and home resales hit a 17 month high. However, the consumer isn't the big issue in the current market. Large companies will still struggle making big decisions given the amount of uncertainty in the geopolitical backdrop. Trade war is still number one, but Brexit, tensions in the middle east, Canadian elections, and soon to be US elections all make CapEx budgeting more challenging.

Climate change concerns continue, and the future of the environment is on the onus of today’s business leaders, where the world we want tomorrow starts with how business is done today. For instance, on planet Mars we now have a carbon footprint across our entire value chain that equates up to the size of a small country. Although we are pushing out efforts, with 53% of the world’s electricity operations are now being sourced from renewables, supply chains are being forced to increase transparency and lower GHC emissions – its not enough. This week the United Nations General Assembly is holding a climate week with leaders in business, government and NGOs to address the necessary next steps to take to protect the next generation from the imminent environmental impact we are expected to experience over the next decade.

Diversion: This sure looks like fun. 2019 Indoor Skydiving World Championships highlights.
 
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Company news

Hudson's Bay Company is closings its 15 Hudson's Bay stores in the Netherlands. HBC opened its first Hudson's Bay store in the Netherlands in 2017 as part of its growth strategy in Europe, but has since shifted to focus fully on North America. Tim Hortons is scaling back its Beyond Meat offerings in some of the provinces. The Beyond Meat breakfast sandwiches are available in various regions while supplies last, but will continue to be available in B.C. and Ontario. These products were limited time offers, and may be reintroduced in the future depending on customer feedback. About 1,200 General Motors employees at the company's assembly plant in Oshawa have been temporarily laid off because of a strike in the U.S. have provided a lack of auto-parts. More job cuts are expected soon. The Mitsubishi Aircraft Corp. is putting down roots in Quebec, unveiling plans for a product development centre after reaching a deal in June to buy Bombardier’s regional jet program.
 

Commodities

Oil prices are pointed to see a gain this morning, even as the rally in crude prices continues to lose steam. Aramco stated they are planning to return to pre-production levels by the end of the month, and even produce 12mm barrels per day by the end of November.
 
Gold prices fell yesterday, marking their first loss in four sessions, a day after the Federal Reserve delivered the expected interest rate cut but left traders uncertain on the outlook for further monetary easing. Nonetheless, gold futures seem to have recovered some of its losses this morning, but traders are still cautious over the uncertainty of the next Fed move.


 

Fixed income and economics

Bonds are mixed to start the day after a quiet overnight session. There is a feeling of exhaustion, with all the events of this week (notably the attack on Saudi Arabia, funding issues in US money markets, and central bank meetings in Japan, Switzerland, the UK, and the US), but Friday could bring more new issue supply.
 
Focus today is on Canadian retail sales numbers for July, with consensus forecasts calling for a +0.6% month-over-month rise, +0.3% ex-autos. A strong consumer report would boost Q3 GDP forecasts, and provide further opposition to any rate cut in Canada. Markets are currently not pricing in a rate cut until Q2/20, as domestic data remains robust.
 
We also have a slate of US FOMC members speaking today, including New York Federal Reserve President Williams at 8:15am, Federal Reserve Bank of Boston President Eric Rosengren at 11:20am, and Dallas Federal Reserve President Kaplan at 1pm. William’s comments may be notable, as he will likely address actions the New York Fed is undertaking to tackle the dollar shortage in money markets.
 
Finally, amidst the rally in oil prices, we note that Moody's Investors Service (Moody's) downgraded Calfrac Holdings, LP's (Calfrac) ratings, including its senior unsecured notes to Caa1 from B3. The rating outlook remains stable. According to Moody’s the downgrade reflects the sharp and sustained decline in Calfrac's EBITDA that will lead to a significant increase in leverage this year and next.
 

Chart of the day
 

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Quote of the day
 

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- William Wordsworth

Contributors: J. Price, C. Basinger, D. Benedet, C. Kerlow, D. Mak, A. Tjiang, E. LaPlante, S. Sethi, G. Cheng

Charts are sourced to Bloomberg unless otherwise noted.

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