The two big market stories this morning in the U.S. are Scotland’s vote against seceding from the rest of the U.K. and the Alibaba IPO, which begins trading this morning on the New York Stock Exchange. With a major threat for global market sentiment now in the rear-view mirror, the U.S. dollar and equity markets come back into focus for macro narratives. Even as steady improvement in the U.S. economy pushes the Federal Reserve ever so slowly towards tightening — in contrast with aggressive accommodative policies in Europe and Japan — the FOMC’s dovish language is still able to support the bullish case for U.S. large-cap equities. As the trading week wraps up, a Goldilocks scenario seems to be in place: as the pace of both growth and anticipated policy changes remain balanced “just right.”
Alibaba IPO sets record. Chinese internet behemoth Alibaba is pricing its initial public offering at $68 to raise a total of almost $22 billion, constituting the largest U.S. IPO ever. The public market cap of the firm will be $168 billion and the stock will begin trading today on the NYSE.
In Scotland, the ‘nays’ have it. With a margin of 55.3 percent declining independence, the Scottish referendum vote is now history. The U.K. market focus is back on the country’s economic performance compared to the rest of Europe as reflected by a sharp but temporary intraday rise in the pound sterling against the euro as well as other major currencies. Prime Minister David Cameron assured Scottish voters that all campaign promises would be kept in a speech after the vote concluded, but the full extent of mutually agreed upon devolution of powers to Scotland has yet to be defined.
France’s credit rating is at risk of downgrade, sources report. Multiple media sources in France are warning that Moody’s may lower the country’s credit rating after the close of markets in Europe on the back of the French government’s announcement last week that it would need more time to reduce the country’s deficit. Standard and Poor’s is not scheduled to update its rating for French national debt until October after the publication of a new budget.
Numbers today suggest Japan’s recovery in jeopardy. For the first time in five months, Japan’s monthly Cabinet Ministry report, released Friday morning Japan time, cut its economic assessment of the country, with private consumption a particular worry in the wake of tax increases. Separately the Bank of Japan issued a report with slightly more upbeat language. Both documents maintained that moderate recovery remains underway and included no hints of policy shifts.
German producer prices drop. Germany Federal Statistics office August producer price index (PPI) data released today registered a 0.8 percent year-over-year contraction, in line with consensus forecasts. Prices at the factory gate decline by 0.1 percent versus July, with large pressure from energy costs.
Copper prices decline. The London Metal Exchange spot copper market registered a fourth consecutive weekly decline today. The metal, often seen as a strong indicator of global industrial demand, has come under pressure in sessions since lackluster data from China for August raised concerns that world’s largest consumer of the metal would see growth levels moderate further.
Portfolio Perspective: Places To Hide Amid Uncertainty — Maxim Sytchev, Dundee Capital Markets
There is not much respite in the markets this month from macro uncertainty, with tandem moves across most asset classes. One common — and statistical — yardstick to measure downside protection is to identify low-beta stocks that exhibit the least correlation with the market (normal distribution, heteroscedasticity and other issues questioning the relevance of betas notwithstanding). The idea, as a result, is to be long stocks that exhibit the lowest beta or relation to the market (for European stocks we use the Stoxx 50 index; for Australian stocks we use the S&P/ASX 200 index). We have ranked the names under our immediate coverage in addition to the corresponding comps. SNC-Lavalin, Bird Construction, ENTREC and Stantec stand out with betas hovering between 0.49 and 0.67. Outside of our range of coverage — and in keeping with the industrial theme — Toromont, Technip, Arcadis, AMEC and Waste Management are highlights, with betas ranging from a low of 0.52 to a high of 0.75, respectively.
Maxim Sytchev is managing director and head of research at Dundee Capital Markets in Toronto.
