The Wall Street Journal - 13.09.2019

THE WALL STREET JOURNAL. ***** Friday, September 13, 2019 |B11

MARKETS

Wednesday. Bond prices fall as

yields rise.

In Europe, the ECB cut its

important deposit rate and

said it would begin €20 billion

($22.04 billion) a month of as-

set purchases, an action com-

monly known as quantitative

easing, starting Nov. 1.

The level of asset purchases

was lower than some investors

had hoped. But Hugh Gimber,

global market strategist at J.P.

Morgan Asset Management,

said it might cheer markets if

outgoing ECB President Mario

Draghi is seen as leaving space

for further action by his suc-

cessor, Christine Lagarde.

Mr. Draghi said it was “high

time for fiscal policy to take

charge,” suggesting that looser

monetary policy was limited in

terms of boosting the eco-

nomic bloc.

Investors waiting for action

by the Fed parsed inflation

data that were broadly in line

with expectations. Core con-

sumer prices, which exclude

the volatile categories of food

and energy, increased 0.3% for

a third consecutive month.

At midday Friday in Tokyo,

Japan’s Nikkei was up 0.8%.

Also early in the day, Hong

Kong’s Hang Seng Index was

up 0.2% and the Shanghai

Composite was up 0.8%.

BYANNAISAAC
ANDKARENLANGLEY

Dow Closes Higher

After Gyrating on

Tariff Developments

money to riskier assets when

they are feeling better about

the economy. Higher inflation

weighs on bonds because in-

flation erodes the purchasing

power of fixed returns.

U.S. yields dropped earlier

Thursday as the ECB said it

would cut its key interest rate

by 0.1 percentage point, to mi-

nus 0.5%, and start buying

€20 billion ($22 billion) a

month of eurozone debt. The

asset-purchase program is ex-

S&P 500

Energy sector index

Index and sector performance

Source:FactSet

1.0

–2.0

–1.5

–1.0

–0.5

0

0.5

%

9:30 10 11 noon 1234

U.S. Sets Debt Sales

The Treasury Department

plans to auction $99 billion in

securities next week, comprising

$42 billion in new debt and $57

billion in previously sold debt.

Details (all with minimum

denominations of $100):

Monday:$45 billion in 13-

week bills, a reopening of an

issue first sold on June 20,

2019, maturing Dec. 19, 2019.

Cusip number: 912796SX8.

Also, $42 billion in 26-week

bills, dated Sept. 19, 2019,

maturing March 19, 2020. Cusip

number: 912796TL3.

Noncompetitive tenders for

both issues must be received by

11 a.m. EDT Monday and

competitive tenders, by 11:30 a.m.

Thursday:$12 billion in

nine-year, 10-month 0.25%

Treasury inflation-protected

securities, a reopening of an

issue first sold on July 31, 2019,

maturing July 15, 2029. Cusip

number: 9128287D6.

Noncompetitive tenders for

the TIPS must be received by

noon Thursday; competitive

tenders, by 1 p.m.

ters, putting thornier national-

security issues on a separate

track in a bid to break dead-

locked talks, The Wall Street

Journal reported.

Global trade worries have

helped boost gold, a popular

haven, to a six-year high in re-

cent months, while also buoy-

ing other precious metals.

Prices had gained earlier in

the day after the European

Central Bank’s decision to cut

its key interest rate and start a

large package of bond pur-

chases to stimulate growth

pulled bond yields lower. Gold

struggles to compete with

yield-bearing investments when

yields rise and becomes more

alluring to investors when they

decline.

Hopes of a breakthrough in

the trade impasse also boosted

prices for platinum and palla-

dium—precious metals that see

heavy use in the automotive in-

dustry, which could see a lift if

trade tensions ease.

Palladium for December de-

livery closed up 3.1% at

$1,604.80 a troy ounce, a re-

cord. October platinum was up

1.3% at $952.60 a troy ounce.

In base metals, September

copper rose 1% to $2.6235 a

pound. China is the world’s top

consumer of copper.

Meanwhile, oil prices fell af-

ter the Organization of the Pe-

troleum Exporting Countries

and its oil-producing allies put

off any talk of further output

reductions at a technical meet-

ing Thursday. U.S. oil fell 1.2%

at $55.09 a barrel. Brent crude,

the global benchmark, lost 0.7%

at $60.38 a barrel.

Gold prices pared gains

while other metals rose Thurs-

day, as investors reacted to re-

ports of progress in trade rela-

tions between the U.S. and

China.

Gold for September delivery

closed up 0.3% at $1,498.70 a

troy ounce on the Comex divi-

sion of the New York Mercan-

tile Exchange.

China is looking to narrow

the scope of its negotiations

with the U.S. to only trade mat-

BYIRAIOSEBASHVILI

Metals Used in Automotive Sector Advance

ally short of heavy, sour

crudes,” said RBC Capital Mar-

kets energy analyst Michael

Tran, referring to the grade of

dense crude oil produced in

Venezuela and Canada.

While output from U.S. oil

companies has been plentiful,

much of the crude produced

from shale drilling is “light,”

meaning it has a low density,

and “sweet,” or low in sulfur.

Many U.S. refineries are con-

figured to process some heavy,

sour crude to produce fuels

such as gasoline and diesel.

The U.S. imported an aver-

age 3.58 million barrels a day

from Canada for the four

weeks ended Aug. 30, accord-

ing to the U.S. Energy Informa-

tion Administration. That was

an 8% gain from the four-week

average recorded at the end of

last year and a 3% increase

from the end of August 2018.

San Antonio-basedValero

EnergyCorp. has boosted its

Canadian content to record

levels.

The company processed

more than 190,000 barrels of

Canadian oil a day during its

second quarter, according to

the refiner. The company ex-

pects rail shipments from Can-

Canadian exports of crude oil to the U.S. by rail climbed to 8.6 million barrels in June, representing a 41% increase from a year earlier.

BAYNE STANLEY/ZUMA PRESS

Yields on longer-term U.S.
Treasurys have risen in recent
sessions at the fastest pace in
nearly three years, a sharp re-
versal from the start of the
month when a rapid descent
toward all-time
lows stoked con-
cern on the eco-
nomic outlook.
The yield on the bench-
mark 10-year U.S. note settled
at 1.789%. That was up from
1.733% on Wednesday and a
recent low of 1.456% on Sept.
4, marking the largest six-ses-
sion increase since just after
the U.S. presidential election
in 2016.
Government-bond yields on
both sides of the Atlantic ini-
tially fell after the European
Central Bank cut its key inter-
est rate and committed to a
period of monetary stimulus.
Some investors and ana-
lysts said the recent upturn in
yields, which rise when bond
prices fall, can largely be at-

CREDIT
MARKETS

Stocks rose after the Euro-
pean Central Bank unveiled a
sweeping stimulus package
and trade tensions between
the U.S. and China showed
signs of easing.
The Dow
Jones Indus-
trial Average
rose 45.41
points, or 0.2%, to 27182.45,
its seventh consecutive ses-
sion of gains—the longest win-
ning streak since May 2018.
The index swung about 200
points over the course of the
session as investors parsed
various headlines about trade
negotiations.
The S&P 500 increased 8.64
points, or 0.3%, to 3009.57.
The gains were broad, with
nine of the 11 sectors rallying.
The energy segment fell 0.6%
as oil prices slipped, while
health-care shares posted a
more modest loss of 0.1%.
The Dow and S&P 500 are
within 0.7% of July’s all-time
highs.
Investors have been preoc-
cupied in recent weeks with
signs of slowing global growth
and uncertainty over the trade
war with China. The Federal
Reserve is expected to follow
the ECB next week in cutting
interest rates to cushion the
economy from a global slow-
down.
Recent stock-market gains
show investors are focusing on
the healthy fundamentals of
the U.S. economy, said Sandip
Bhagat, chief investment offi-
cer at Whittier Trust. He said
he has been overweight stocks
over the past two years, mean-
ing he holds a larger position
than the benchmark the firm
tracks.
“The consumer is healthy,
confidence is high, incomes
are rising and that’s the main
reason to be optimistic about
the U.S. economy and there-
fore the U.S. stock market,”
Mr. Bhagat said.
With trade talks due to be
held in Washington next
month between the U.S. and
China, President Trump post-
poned by two weeks new tar-
iffs on $250 billion in goods
that were due to take effect
Oct. 1, a conciliatory gesture
that could point to easing ten-
sions.
The yield on the benchmark
10-year U.S. Treasury note
rose to 1.789%, from 1.733%

THURSDAY’S
MARKETS

ada to continue rising, and its

refineries have enough capac-

ity for more than 300,000 bar-

rels a day, said Gary Simmons,

a senior vice president at

Valero, during an earnings call

in July.

The increase in U.S. demand

has allowed producers like Cal-

gary-based Cenovus Energy

Inc. to push more oil south by

rail. Most Canadian crude ex-

ports go to the U.S.

Cenovus more than doubled

the amount of oil it shipped by

rail to the U.S. Gulf Coast dur-

ing the second quarter to

nearly 36,000 barrels a day,

Chief Executive Alex Pourbaix

said in a July call with ana-

lysts. The company plans to

roughly triple that amount to

around 100,000 barrels by the

end of the year, he added.

Canadian National Railway

Co. reported that it had moved

an average of 200,000 barrels

of crude a day in June, a 33%

jump from April.

Overall, Canadian crude-oil

exports to the U.S. by rail hit

8.6 million barrels in June, a

41% jump from a year earlier,

according to the most recently

available data from Canada’s

National Energy Board.

But Canadian oil prices

would have to fall below cur-

rent levels to justify the rail

shipments. Moving a barrel

from terminals in Alberta to

the U.S. Gulf Coast costs be-

tween $9 and $12 a barrel by

pipeline and between $15 and

$20 by rail.

That cost exceeds the cur-

rent premium of U.S. crude to

Canadian, putting shippers’

profits at risk. As things stand,

a shipper could lose between

$2 and $7 for every barrel sent

to the Gulf by rail.

TORONTO—A glut of oil in

Canada is easing, thanks to

higher demand for dense

crude from U.S. Gulf Coast re-

fineries and government-im-

posed pro-

duction cuts

that have off-

set a shortage of pipeline ca-

pacity.

Canadian oil stockpiles have

fallen to their lowest level

since November 2017, with in-

ventories dropping below 26

million barrels as of Aug. 30,

according to data provider

Genscape.

The development is a shift

from roughly a year ago. Back

then, Canadian oil prices

traded at a discount of more

than $51 a barrel to the U.S.

benchmark, according to S&P

Global Platts. The reason: Con-

gested pipelines prevented the

country’s producers from get-

ting their oil out.

A resulting increase in in-

ventories, which added to the

pressure on prices, prompted

the Alberta provincial govern-

ment in December to order

producers to cut output. This

year, a U.S. embargo on Vene-

zuelan oil has narrowed the

gap between Western Cana-

dian Select and U.S. West

Texas Intermediate. On

Wednesday, the difference was

about $13 a barrel.

In January, the U.S. imposed

sanctions on the South Ameri-

can country’s state-owned oil

giant, putting at risk roughly

500,000 barrels of shipment a

day. Canadian exports to the

U.S. have jumped, as refiners

along the Gulf Coast scrambled

to fill the gap.

“The U.S. Gulf is structur-

BYVIPALMONGA

U.S. Demand Eases Canada’s Oil Glut

COMMODITIES

Canadianoilpriceshavereboundedfromtheir

lowsoflastyearwhilestockpileshavefallen.

Sources: S&P Global Platts (price discount); Genscape (inventories)

*Monthly average

Price discount of Western Canadian Select

to West Texas Intermediate (U.S.)

$0

–50

–40

–30

–20

–10

a barrel

2018 ’19

Inventories in western Canada*

40

0

10

20

30

million barrels

2018 ’19

AUCTION RESULTS

Here are the results of Thursday's Treasury auctions.

All bids are awarded at a single price at the market-

clearing yield. Rates are determined by the difference

between that price and the face value.

FOUR-WEEK BILLS

Applications $140,736,719,300

Accepted bids $50,028,266,800

" noncompetitively $1,600,507,900

" foreign noncompetitively $0

Auction price (rate) 99.849111

(1.940%)

Coupon equivalent 1.975%

Bids at clearing yield accepted 69.27%

Cusip number 912796VZ9

The bills, dated Sept. 17, 2019, mature on Oct. 15, 2019.

EIGHT-WEEK BILLS

Applications $114,635,834,000

Accepted bids $40,022,276,500

" noncompetitively $259,756,800

" foreign noncompetitively $0

Auction price (rate) 99.701333

(1.920%)

Coupon equivalent 1.958%

Bids at clearing yield accepted 47.89%

Cusip number 912796WD7

The bills, dated Sept. 17, 2019, mature on Nov. 12, 2019.

29-YEAR, 11-MONTH BONDS

Applications $35,542,451,200

Accepted bids $16,000,014,000

" noncompetitively $18,151,200

" foreign noncompetitively $0

Auction price (rate) 99.565627

(2.270%)

Interest rate 2.250%

Bids at clearing yield accepted 43.24%

Cusip number 912810SJ8

The bonds, dated Sept. 16, 2019, mature on Aug. 15,

2049.

tributed to profit-taking from

traders who rode a furious

bond rally throughout August.

Yet some positive economic

developments have contrib-

uted to the selling.

Though a global manufac-

turing downturn remains a

concern, investors have been

encouraged by evidence of

strength in other parts of the

economy as well as tentative

signs that inflation could be

accelerating.

On top of that, many inves-

tors have switched from being

extremely pessimistic on a

U.S.-China trade deal to cau-

tiously optimistic before talks

in October.

“Profit-taking has been the

story for at least a good por-

tion of the selloff,” said Mi-

chael Lorizio, a senior trader

at Manulife.

Decent economic data,

though, have helped, indicat-

ing the economy may be on a

more solid footing than inves-

tors had feared, he added.

Investors tend to shift

pected to “run for as long as

necessary.”

Despite the recent selling,

the yield on the 10-year note

remains close to its all-time

closing low of 1.366%, which

is favorable for borrowers.

This week has shaped up to

be busy for sales of new spec-

ulative-grade corporate

bonds. As of Wednesday, some

$11.8 billion of new specula-

tive-grade corporate bonds

was expected to be sold by

the end of the week, the sec-

ond-largest one-week total of

2019, according to LCD, a unit

of S&P Global Market Intelli-

gence.

That total was set to rise

asUber Technologies Inc.on

Thursday was poised to sell

$1.2 billion of new eight-year

notes, marking its first bond

sale since its May initial pub-

lic offering.

The company was set to

sell the bonds with a 7.5%

yield after increasing the size

of the offering from $750 mil-

lion, an investor said.

BYSAMGOLDFARB

Trade Hopes Fuel Jump in Long-Term Bond Yields

Record low*

Source: Tullett Prebon

Yield on the 10-year Treasury note

U.S.-Chinatrade

tensionescalates

3.00

1.25

1.50

1.75

2.00

2.25

2.50

2.75

%

Jan. Sept.

FederalReservecuts

interestratebyaquarter

percentagepoint

1.789%