December 13th, 2018

Daily Market Commentary

 

Canadian Headlines

• Canadian stocks closed the session higher, with the broader U.S. market, after the S&P/Toronto Stock Exchange Composite Index reached a two-year low yesterday. The best performing sector was technology, led by Shopify Inc.’s three-day advance. he S&P/Toronto Stock Exchange Composite Index rose 0.8 percent. Real estate was the worst performing sector on the TSX, led by Canadian Apartment Properties REIT, which fell 4.3 percent after announcing an offering of C$250 million in a bought deal. Meanwhile, Canadian exporters are worrying they could be caught in the cross hairs amid tensions between Canada and China after Canada’s arrest of Huawei Technologies Co. CFO and as China’s spy agency detained former Canadian diplomat Michael Kovrig. China is one of Canada’s biggest buyers of agricultural products, from oilseeds to softwood lumber, and is a growing market for the nation’s banks, insurers and luxury-good makers.
• BHP Group may be heading for another clash with investors as the world’s biggest miner gets closer to a decision on whether to build, sell or mothball its $20 billion potash project. The Jansen mine in Canada is aimed at giving the company exposure to rising global food demand and represents one of its few big growth prospects. BHP has already spent about $2.7 billion on the project, according to an October filing, and Chief Executive Officer Andrew Mackenzie last month spoke enthusiastically about the outlook for potash, a crop nutrient.
• A second Canadian national is being questioned by Chinese authorities, further heightening tensions between the two countries after the detention of a former diplomat in Beijing and the arrest of a Huawei Technologies Co. executive in Vancouver. Michael Spavor was placed under investigation Monday for “suspected activities harming state security,” Northeast News, a website run by the propaganda department in the northeastern Chinese province of Liaoning, said Thursday. Spavor, who has for years escorted foreigners on trips to North Korea, including ex-basketball star Dennis Rodman, was being probed by the state security bureau in the border city of Dandong, the site said, citing authorities.

 

 

World Headlines

• European equities climbed after U.K. Prime Minister Theresa May survived a no-confidence vote and Italian Prime Minister Giuseppe Conte proposed to cut the deficit target, which could ease the tensions with the European Union. The Stoxx Europe 600 Index rose 0.3 percent and the FTSE 100 Index climbed by the same amount. Italian banks rallied, with a gauge for the country’s lenders surging 3 percent. May won a confidence vote on Wednesday evening, though more than a third of Conservative lawmakers voted to ditch her, leaving her authority badly damaged.
• S&P 500 futures gain as much as 0.7%, tracking early gains in European equities after U.K. Prime Minister Theresa May survived a no-confidence vote and Italian Prime Minister Giuseppe Conte proposed to cut the deficit target. Investors are studying the latest moves in the global trade tug of war, as China resumed purchases of American soybeans and reiterated its officials were in close contact with U.S. counterparts on negotiating details of a broader deal. Worries for global relations remain. The Asian nation detained a second citizen of Canada for questioning, further heightening tensions between those two countries. Trump administration officials on Wednesday signaled that Beijing will have to do more to end the tariff war.
• Today’s rally across Asian stock markets has put the regional benchmark index in the green for the week. The MSCI Asia Pacific Index climbed 0.6 percent as of 4:52 p.m in Hong Kong on Wednesday. Its two-day rally has helped erase losses in the first two days of the week, with it now up 0.2 percent since Monday. Whether or not it will stay that way depends on no surprises till the close… and what happens in the next 24 hours or so.
• Oil fell for a second day as the International Energy Agency said its too early to tell whether output cuts by OPEC and its allies will prevent a surplus, echoing a similar outlook by the producer group itself. Futures in New York slipped 0.5 percent after sliding 1 percent in the previous session. While the production cutbacks announced last week “may go some way towards restoring balance to the world market,” there’s still potential for “significant oversupply,” the IEA said in a report. Analysis from OPEC published Wednesday indicated the curbs may need to be deepened in the second half.
• Gold was steady as investors weighed a pickup in underlying U.S. inflation and the latest developments in U.S.-China trade talks. The so-called core consumer price index, which excludes volatile food and energy costs, rose as expected in November, reinforcing expectations that the Federal Reserve will raise interest rates next week. While trade tensions have appeared to ease, Trump administration officials on Wednesday signaled that Beijing will have to do more to end the tariff war.
• The European Central Bank is set to lower its inflation forecast for 2019 when it publishes an updated outlook on Thursday, according to people familiar with the matter. Staff projections foresee consumer-price growth slightly weaker than the 1.7 percent previously expected for next year, and the outlook for economic growth has also been revised down, the people said. They asked not to be named as the forecasts aren’t final until they’re unveiled by President Mario Draghi. An ECB spokesman declined to comment.
• With Donald Trump rattling the international order Washington built after World War II, engagement is out and isolationism is in. Yet Wall Street, an expression of American influence every bit as defining as Hollywood or Silicon Valley, apparently didn’t get the memo. European finance—whipsawed by debt crises and political upheaval since the financial crash of 2008 and now on the verge of the Brexit trauma—is seeing just how internationalist American banks are. U.S. financial powerhouses such as JPMorgan Chase & Co. and Goldman Sachs Group Inc. have been running up the score on their European rivals, dominating investment banking overseas as never before.
• Apple Inc. said it would invest $1 billion to expand its operations in Austin by constructing a new employee campus in the area, large enough to house 15,000 additional employees. Further facilities will also be established in Culver City, Seattle and San Diego, and existing sites in Pittsburgh and Boulder will be expanded over the next three years. In a statement on its website Thursday, the company said it was also considering other U.S. regions for growth.
• Japan Post Holdings Co., the mail, insurance and banking giant, is in discussions to take a minority stake in Aflac Inc., the U.S. insurer whose biggest market is Japan. The investment, if an agreement is reached, would be made through open-market purchases, Columbus, Georgia-based Aflac said Thursday in a statement. The Nikkei newspaper reported the stake would be as much as 8 percent and total 300 billion yen ($2.6 billion). Aflac has a market capitalization of $32.7 billion, according to data compiled by Bloomberg.
• President Trump’s trade war with China contributed to a surge in cargo arriving at West Coast container ports as importers rushed to get ahead of tariffs expected to go into effect in 2019. Cargo volume arriving in Los Angeles’s port increased 27 percent in October compared to a year earlier. And the Port of Oakland had its busiest-ever September and October, spokesman Mike Zampa told Bloomberg Law. Importers “have definitely been moving cargo ahead of the January 1 tariffs,” said Phillip Sanfield, a spokesman for the Port of Los Angeles, which is the nation’s largest port. And in the summer, “they were moving cargo ahead of the first round of tariffs” that were imposed in September.
• GAM Holding AG’s shares fell a record 31 percent after the firm signaled it’s struggling to contain outflows prompted by a scandal over a star money manager and forecast a record loss. The Swiss investment company said it will post a shortfall of 925 million francs ($931 million) for the year after massive outflows forced it to write down the value of its business. The loss erases eight years of earnings since GAM went public. With assets and fees lower for the foreseeable future, the group is cutting 10 percent of jobs.
• Vodafone Group Plc’s A$11 billion ($8 billion) fix for its struggling mobile-phone venture in Australia is in jeopardy. The country’s antitrust watchdog on Thursday signaled it may block a plan to merge the unprofitable business with a local phone company on concern it will undermine competition. A final verdict is due on March 28. The deal offered a rare bright spot for Vodafone, whose shares had recently tumbled to their lowest level since 2009 amid slumping growth across various markets. After the Australian business garnered the nickname “Vodafail” for its patchy services, there had been speculation the global phone giant might exit the country entirely.
• Deutsche Lufthansa AG has started an auction process for the sale of its catering arm LSG Sky Chefs, according to people with knowledge of the matter. Lufthansa has sent out preliminary marketing materials to potential buyers including rival caterers and buyout firms, said the people, asking not to be identified because the details are private. Deliberations are at an early stage, and Lufthansa could still decide not to sell the unit, which serves planes, trains and the International Space Station, according to the people. Lufthansa said at the end of October that it’s reviewing the situation, but hasn’t reached a decision. A spokesman for Lufthansa declined to comment further on Thursday.
• Starboard Value, the activist fund run by Jeff Smith, has taken a stake in Magellan Health Inc. and plans to push the health care provider to improve its performance or explore a potential sale, according to people familiar with the matter. The New York hedge fund said in a regulatory filing Thursday it had about a 9.8 percent stake in Magellan. Starboard believes Magellan could improve margins through better management of its health care segment, where the activist thinks several money-losing contracts have hurt profits, said the people, who asked not to be identified because the matter isn’t public.
• Cosco Shipping Holdings Co.’s sale of a container terminal in Long Beach, California has drawn interest from potential buyers including Blackstone Group LP and KKR & Co., people familiar with the matter said. EQT Partners and an arm of Macquarie Group Ltd. have also been studying a deal for the asset, the people said, asking not to be identified because the information is private. The facility could be valued at $1 billion or more, depending on the structure of a deal, the people said.
• GE continues to shed assets and remake itself, selling a majority stake in field-service software company ServiceMax to Silver Lake and the formation of a new Industrial Internet of Things firm.
• President Donald Trump has rebuffed numerous opportunities to secure billions for a border wall, and with Democrats set to take control of the House that goal could be out of reach for good. Trump’s best chance for border wall funding at the level he wants came in February 2018, when Republican Senator Mike Rounds teamed up with independent Senator Angus King on compromise immigration legislation. It included $25 billion over a decade to build a wall along the southern border and a path to citizenship for so-called Dreamers who were brought to the U.S. illegally as children. It also barred green card holders from sponsoring adult children for permanent residency and reoriented enforcement priorities to focus on criminals in the country illegally.

 

*All sources from Bloomberg unless otherwise specified