Market Talk – April 23, 2019

Asia:

Chinese coffee company Luckin filed papers for an IPO in the U.S. This is a big move for the Starbucks competitor, and follows other China-based companies who have listed in United States (Alibaba, Baidu, etc). The company is only 18 months old and has demonstrated fantastic growth with plans to open 2,500 additional shops by the end of the year. For perspective, there are approximately 14,000 Starbucks stores in the U.S. where there are 327 million citizens. Thus, Luckin views the U.S. tremendous growth opportunity.

A recent report from CNN suggests that China is continuing to purchase oil from Iran. Chinese foreign ministry spokesperson Geng Shanuang stated, “China opposes the unilateral sanctions and so-called ‘long-arm jurisdictions’ imposed by the U.S.” Later adding, “Our cooperation with Iran is open, transparent, lawful and legitimate, thus it should be respected.” China is currently the biggest importer of Iranian oil with India being the second.

The major Asian stock markets had a mixed day today: NIKKEI 225 increased 41.84 points (0.19%) to 22,259.74; KOSPI increased 3.86 points (0.17%) to 2,220.51; and the ASX200 increased 59.60 points (0.95%) to 6,319.40. However, SENSEX, Shanghai, and Hang Seng took the opposite route. SENSEX decreased 80.30 points (-0.21%) to 38,564.88; Shanghai and Hang Seng decreased 16.45 points (-0.51%) to 3,198.59 and 0.02 points (-0.02%) to 29,963.24 respectfully.

Most of the Asian currency markets had a negative day today. The AUDUSD decreased 0.0042 or 0.59% to 0.7094; the NZDUSD decreased 0.0034 or 0.51% to 0.6648; and the USDJPY decreased 0.1350 or 0.12% to 111.7950. The USDCNY increased 0.0156 or 0.23% to 6.7284

Gold decreased 1.97USD/t oz. or -0.15% to 1,273.21 and silver decreased 0.133 USD/t. oz or -0.89% to 14.8482.

Some economic news from Asia:

• New Zealand Credit Card Spending (YoY) decreased from 6.4% to 5.1%
• Japan BoJ Core CPI (YoY) increased from 0.4% to 0.5%
• Singapore CPI (YoY) (Mar) increased from 0.5% to 0.6%
• Hong Kong CPI (YoY) (Mar) remain the same at 2.10%

Europe:

The U.S. and Europe seem to have some difficulty with regards to implementing a successful trade deal. Trump stated he is looking to reciprocate the tariffs against the EU after Harley Davidson announced Q1 losses due to EU-imposed tariffs. Another major issue between the two is the U.S. is not happy with Huawei’s role in 5G development in the EU. The U.S. administrations said it would be less likely to share intel with the fear that the Chinese company is spying on the network and sending data back to China.

In the UK, the Conservative party has demonstrated that up to three quarters of the MPs want leader Theresa May to go. More cross-party talks between Conservatives and Labour are due to happen this week to resolve much of the issues with Brexit.

The most of the major European stock markets had a green day today: CAC 40 increased 11.31 points or 0.20% to 5,591.69; the FTSE 100 increased 63.19 points or 0.85% to 7,523.07; and the DAX increased 13.12 points or 0.11% to 12,235.51.

The major European currency markets had a mixed day today. The EURUSD decreased 0.0048 or -0.43% to 1.1212 and the GBPUSD decreased 0.00378 or -0.29% to 1.29432. The USDCHF took the opposite route and increased 0.0056 or 0.55% to 1.0210.

Some economic news from Eurozone:

• Eurozone: Consumer Confidence (Apr) decreased from -7.2 to -7.9

U.S./Americas:

A notable day today on Wall Street, as both the Nasdaq (8,120.82 close, up +1.32%) and S&P 500 (2,933.68 close, up 0.88%) reached record closing highs on the back of strong earnings and optimism. The Dow was also in the green, gaining 145.34 points to close at 26,656.39 (up +0.55%). The Russell 2000 had the strongest day on a percentage basis, closing at 1,585.09 (up +1.61%).

Coca-Cola (+1.75%) and United Technologies (+2.21%) surprised investors with strong earnings. Social media darling Twitter (+15.71%) was the big winner of the day on a percentage basis, while Hasbro (+14.23%) and Kohl’s (+11.91%) were other strong performers. Kohl’s in particular is an interesting case of retail with its plans to now roll out Amazon returns in their store nationwide (previously had been testing in subset of locations).

U.S. auto manufacturing has been an immense concern for the Trump administration. Despite the administration implementing several tax breaks, U.S. auto manufacturers may lessen domestic production due to high tariffs and penalties. Harley Davidson posted a first quarter decline of 26.8%, and as a result they plan to move their headquarters overseas. President Trump announced this morning that the U.S. will retaliate: “Harley Davidson has struggled with tariffs with the EU, currently paying 31%. They’ve had to move production overseas to try and offset some of that tariff that they’ve been hit with which will rise to 66% in June of 2021… So unfair to U.S. We will Reciprocate!”

In other news, a grim report released this week predicts that Social Security funds will be nearly depleted by 2035. Most Americans pay a portion of their income to Social Security with the belief that they will be able to access that money upon retirement. The aging baby boomer population is rapidly drying up the current funds as nearly 10,000 retirees become eligible for Social Security benefits daily. Congress has been reluctant to address this issue as there are no clear solutions.

In seven years, Medicare funds may run dry as well. “Americans pay into these essential programs throughout their working lives, and they expect to receive the benefits they’ve earned,” voiced Richard Neal, the Democratic chairman of the House Ways and Means Committee. At best, Congress can patch up these failing systems to buy time before they implode.

The USD Index increased by 0.30% this Tuesday (last reading 97.57). The USDCAD increased by 0.59% (last reading 1.3421).

The Canadian markets performed well this Tuesday. The TSX Composite closed at 16,669.40 (+0.56%), while the TSX 60 closed just short of the 1,000 mark at 999.97 (+0.69%).

Brazil’s Bovespa had a rather strong day, closing at 95,923.24, a gain of 1,335.18 points (+1.41%).

Energy:

The White House announced the U.S. will not be taking oil from its reserves in order to subside the market as WTI moves higher than 65 USD a barrel – its highest price in 5 months. The Kuwaiti minister of oil stated in a recent interview that the OPEC has yet to discuss the issue of Iranian sanctions and whether OPEC will begin to increase supply.

The oil markets had a mixed day today. Crude Oil increased 0.46 USD/BBL or 0.70% to 66.0279; Brent increased 0.34 USD/BBL or 0.46% to 74.5000; Heating oil increased 0.0091 USD/GAL or 0.43% to 2.1173. Natural gas and Gasoline took the opposite route and decreased 0.063 USD/MMBtu or -2.50% to 2.4611 and 0.0008 USD/GAL or -0.04% to 2.1327 respectfully.

Top commodity gainers were Sugar (1.20%), Coffee(1.04%), Rubber (0.91%), and Crude Oil (0.78%). The biggest losers were Orange Juice (-5.04%), Lumber (-3.24%), Cocoa (-2.90%), and Natural Gas (-2.46%).

The above data was collected around 13:28 EST time on Tuesday.

Bonds:

Sales of Indian junk bonds have reached a five-year high. Indian companies have sold 3.7 billion dollars of high yield/ junk bonds.

Japan -0.03%(+0bp), US 2’s 2.36% (+1bps), US 10’s 2.57%(-2bps), US 30’s 2.99%(+4bps), Bunds 0.04% (+1bp), France 0.39% (+2bp), Italy 2.67% (+8bp), Turkey 17.30% (+11bp), Greece 3.33% (-51bp), Portugal 1.20% (+3bp), Spain 1.12% (+5bp) and UK Gilts 1.22% (+3bp)

• French 3-Month BTF Auction increased from -0.519% to -0.516%
• French 6-Month BTF Auction increased from -0.521% to -0.515%
• French 12-Month BTF Auction decreased from -0.521% to -0.527%
• US 52-week Bill Auction remain the same at 2.360%
• US 2-year Note Auction increased from 2.261% to 2.355%