February 11th, 2019
Daily Market Commentary
- Canada’s oil sector may soon get a more combative advocate in the Alberta premier’s office. Voters in Canada’s top oil-producing province head to the polls in the next few months and are poised to elect Jason Kenney, one of the country’s foremost conservative figures, as the new premier. Kenney would inherit a budget deficit, a struggling energy industry and a volatile electorate, with high hopes resting squarely on his shoulders. The 50-year-old longtime politician is pledging to use more stick than carrot in solving Alberta’s problems — saying he’d kill a carbon tax, cut off oil shipments to provinces that balk at pipelines, boycott banks that shun fossil fuels and pressure Justin Trudeau’s federal government to end billions in transfers to other regions if new pipelines don’t get built.
- European stocks gained at the open as Chinese markets returned from a one-week break on a firm note amid hopes of progress in U.S.-China trade talks. The Stoxx Europe 600 advanced 0.5 percent as of 8:10 a.m. in London, led by cyclical sectors such as technology and basic resources. The rise follows a wobbly few days as traders look ahead to U.S.-China trade negotiations this week. While there remain few concrete signs of a breakthrough, markets are seeing a reprieve amid reports U.S. President Donald Trump’s advisers discussed holding a summit with his Chinese counterpart and a rally in Shanghai shares after a week-long holiday.
- Stocks rose in Europe and U.S. equity futures turned higher at the start of a week that could be pivotal for the global trade outlook. The dollar strengthened for an eighth day. The Stoxx Europe 600 gained and contracts on the S&P 500, Dow Industrials and Nasdaq Composite all reversed earlier declines as earnings season is set to resume with the likes of Michelin reporting today.
- Equities rallied in China as exchanges reopened after a holiday and ahead of high-level trade talks this week between Chinese Vice Premier Liu He, Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer in Beijing. The rest of the region traded mixed. Japan’s securities markets are shut for a holiday.
- Oil slipped again, trading near $52 a barrel in New York after mounting concerns about the health of the global economy triggered the sharpest weekly price drop since December. Futures retreated 0.5 percent in New York, following a decline of 4.6 percent last week. U.S. negotiators will resume talks in Beijing before new tariffs kick in on Chinese goods next month, seeking to end a trade dispute that’s weighing on a global economy already showing signs of weakness. The spat is damping appetite for risk assets among hedge funds, who plowed back into bearish bets on Brent crude in the week through Feb. 5.
- Gold fell as the dollar rose for an eighth day, with investors tracking what may be a potentially key week for U.S.-China trade talks. Other precious metals also dropped, with platinum leading declines. While concerns are intensifying that there won’t be a deal before a March 1 deadline for higher tariffs, President Donald Trump has also suggested he could agree to extend negotiations if progress is being made.
- Brexit uncertainty dragged U.K. investment to its worst slump since the financial crisis, leaving the economy with barely any momentum. Gross domestic product increased a smaller-than-forecast 0.2 percent in the fourth quarter, while December alone saw the economy shrink by 0.4 percent, the most since before the 2016 vote to leave the European Union. The poundfell 0.4 percent to $1.2897 as of 10:36 a.m. in London.
- Investors added money to exchange-traded funds that buy emerging market stocks and bonds last week. This was the 17th straight week of inflows. Inflows to U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $3.68 billion in the week ended Feb. 8, compared with gains of $4.06 billion in the previous week, according to data compiled by Bloomberg. So far this year, inflows have totalled $15.9 billion.
- Time is running out to avoid a second partial government shutdown, as congressional talks about border-security funding broke down during the weekend in the latest dispute over detention beds for immigrants. Negotiations could still get back on track in the next 24 hours, and negotiators may decide that a stopgap funding extension past Friday is necessary. But the prospect of getting an agreement by Friday’s deadline seems to have derailed, just as negotiators had hoped to unveil a deal Monday to set up votes in the House and Senate this week.
- President Donald Trump is set to meet North Korea’s Kim Jong Un in less than three weeks, yet the biggest question hanging over the leaders’ second summit is why they’re even having it. Since their historic face-to-face meeting in Singapore eight months ago, North Korea has made little progress toward giving up its nuclear weapons and continues to do what it can to evade sanctions. The top U.S. negotiator with Kim’s regime acknowledges that the two sides still don’t agree on what denuclearization might look like or what the U.S. might offer to satisfy him.
- Venezuela’s oil minister made a surprise appearance at an energy event in India, as the embattled OPEC producer seeks closer ties with major crude customers in the face of crippling U.S. sanctions. Manuel Quevedo said on Monday his nation wants to sell more crude to India, and that U.S. measures have resulted in a $20 billion loss to the Latin American country’s economy. He’s also the head of state producer Petroleos de Venezuela SA — a post the career military man was appointed to in late 2017 as President Nicolas Maduro began to purge large swathes of the firm’s managerial ranks.
- Smith & Nephew Plc dropped on a report that the medical-device manufacturer is in talks with NuVasive Inc. about a deal worth more than $3 billion to gain spinal surgery products. The stock fell as much as 4.7 percent in London on Monday. NuVasive surged in late U.S. trading Friday after the Financial Times reported on the possible interest from the U.K. company. Smith & Nephew recently signaled its readiness to pursue a bigger deal, with Chief Executive Officer Namal Nawana saying last week the company wants to play in more areas of medical devices. The market questioned the rationale of buying NuVasive, however. The U.S. company’s revenue growth has been slowing, and a robot for spinal implants it’s racing to introduce this year faces competition from Medtronic Plc and Zimmer Biomet Holdings Inc.
- Euronext NV stepped up a struggle with Nasdaq Inc. for control of Oslo Bors, raising its bid for Norway’s main stock exchange to about $790 million. The Franco-Dutch exchange operator is now willing to pay 158 Norwegian kroner a share, which is about 4 percent more than Nasdaq bid last month. It’s also about 9 percent higher than Euronext’s own previous offer. The development drew assurances from Nasdaq, which said on Monday it remains committed to moving ahead with a deal after already winning the backing of the Oslo Bors board. But the U.S. exchange operator has so far stopped short of signaling it’s ready to raise its price.
- Thailand’s political divisions are erupting again with just over a month to go to the first general election since a coup almost five years ago. The spotlight is now on the fate of a party linked to exiled former leader Thaksin Shinawatra. The party, Thai Raksa Chart, saw a stunning bid to make Princess Ubolratana Rajakanya its prime ministerial candidate rapidly unravel Feb. 8 when her brother, King Maha Vajiralongkorn, opposed the move. The Election Commission said Monday she wasn’t in the final list of candidates.
- Two large Chinese borrowers missed payment deadlines this month, underscoring the risks piling up in a credit market that’s witnessing the most company failures on record. China Minsheng Investment Group Corp., a private investment group with interests in renewable energy and real estate, hasn’t returned money to bondholders that it had pledged to repay on Feb. 1, according to people familiar with the matter. And Wintime Energy Co., which defaulted last year, didn’t honor part of a restructured debt repayment plan last week, separate people said.
- Nobel laureate Paul Krugman said the U.S. economy may be heading into a recession at a time when the Federal Reserve doesn’t have the firepower to properly combat a slump. The headwinds facing the economy prompted the Federal Reserve to this month to halt its interest-rate hiking cycle, which Krugman said was never “grounded in the data” to begin with. “Continuing to raise rates was really looking like a bad idea,” he added.
- Apple Inc.’s Chinese smartphone shipments plummeted an estimated 20 percent in 2018’s final quarter, underscoring the scale of the iPhone maker’s retreat in the world’s largest mobile device arena against local rivals like Huawei Technologies Co. The domestic market contracted 9.7 percent in the quarter, but Apple declined at about twice that pace, research firm IDC said in a report on Monday. A slowing economy, lengthening replacement times and the iPhone’s hefty price tag contributed to the U.S. giant’s decline, it said. Xiaomi Corp. fared even worse in the final months of last year, when shipments plunged almost 35 percent, the consultancy estimates.
- Ingersoll-Rand Inc agreed to buy Precision Flow Systems for $1.45 billion as the U.S. industrial-equipment manufacturer seeks to boost its pumps and fluid-management division. The deal will add to the buyer’s earnings per share in the first year of ownership, Davidson, North Carolina -based Ingersoll-Rand said in a statement on Monday. PFS generated sales of about $400 million last year, while the sellers are funds advised by BC Partners Advisors L.P. and The Carlyle Group.
- Erik Prince, the former Navy Seal who founded Blackwater, hardly seems like the type who dwells on corporate niceties. He was, after all, America’s foremost mercenary executive. But there he was in Beijing, bearing an unlikely gift for a man who might open China to a freelancer known for his band of private contractors. It was a copy of his Blackwater memoir, “Civilian Warriors.’’
- Whether it’s Wisconsin’s much-trumpeted deal to get a Foxconn manufacturing hub, Tesla’s solar agreement with Buffalo, New York, or the imperiled bid for half an Amazon HQ2 in New York City, there’s one pattern: Advocates for the deals often claim they’re low-risk for taxpayers. As it turns out, that is rarely the case. Over the past few months, for a Bloomberg Businessweek cover story, I’ve been buried in reporting on Foxconn’s $4.5 billion subsidy from Wisconsin to create a massive production facility and 13,000 jobs in the Badger State. After publishing the story, which details how the project has so far failed to live up to expectations, Wisconsin Senator Ron Johnson said in an interview on Bloomberg TV that the Taiwanese manufacturer wouldn’t get any of the promised government subsidies until they actually hit their job and capital expenditure targets. Former Governor Scott Walker, the chief architect of the Foxconn deal, has made the same defense.
- Europe’s scooter startups Tier Mobility and Voi Technology ABhave held early-stage discussions to combine their operations, in response to the impact of larger U.S. rivals on the continent, according to people familiar with the discussions. The talks, which started in November, recently stalled after Voi concluded that it could continue its growth independently, one person said. All of the people asked not to be identified discussing private plans.
- China accused the U.S. of “tricks” as two American warships sailed through waters claimed by Beijing on the eve of high-level trade talks. China’s foreign ministry said the country’s navy “warned off” off the U.S. warships Monday as they attempted to assert free navigation rights in the disputed South China Sea. The ships sailed close by Mischief Reef, where China has built an airbase on reclaimed land, and the adjacent Second Thomas Shoal, which is occupied by the Philippines. Chinese Foreign Ministry spokeswoman Hua Chunying deflected a question about whether the move would impact trade talks expected to get underway Tuesday in Beijing. “You have observed very carefully, and observed a series of tricks by the U.S. side. I believe you all see through these small tricks by the U.S. side,” Hua told a regular news briefing in Beijing.
- Silverstein Properties Inc., the developer that rebuilt lower Manhattan after the destruction of the twin towers in the Sept. 11, 2001, terrorist attacks, may begin work on its final World Trade Center skyscraper before signing a lease for the building. The firm might build 2 World Trade Center “on spec,” or without a committed tenant, Chairman Larry Silverstein said in an interview. The building’s foundation was started, with no further work done because the developer hadn’t found a company to anchor the space. But a strong economy and leasing progress at neighboring towers may change those plans, he said.
*All sources from Bloomberg unless otherwise specified