March 11, 2019

Daily Market Commentary

 

• Bloomberg – Meet SNC, the Company That Trudeau’s Risking His Career to Save. SNC-Lavalin Group Inc. has had more than its share of woes lately. The company faces charges for bribery in Libya, posted two profit warnings for troubles in Chile and Saudi Arabia, and has lost almost half its value in nine months. Why, then, is Canadian Prime Minister Justin Trudeau risking his political career to rescue the construction firm? It comes down to three things: jobs, SNC’s political clout and the special status that many Quebec companies hold in the halls of power of Canada’s capital.
• Newcrest Mining Ltd., the third-biggest gold producer by market value, agreed a $806.5 million deal to control an Imperial Metals Corp. mine in Canada, extending the spree of deal-making in the sector. Melbourne-based Newcrest, with assets in Australia, Indonesia and Papua New Guinea, will acquire a 70 percent joint-venture interest in the Red Chris copper and gold mine in British Columbia and become the operator of the site, the producer said Monday in a statement.
• Japan Tobacco Inc.’s Canadian unit was granted creditor protection by the Ontario Superior Court after a legal defeat over the risks of smoking that threatens the existence of tobacco companies in the country. The court extended protection late Friday in favor of JTI-Macdonald Corp. after the company argued that the damage award of as much as C$1.77 billion ($1.32 billion) exceeds its capacity to pay, Japan Tobacco said in a statement. JTI-Macdonald must make an initial damages deposit of C$145 million.

 

World Headlines:

• European stocks gained in early trading, lifted by the oil and mining sectors. While U.S. markets closed in red on Friday, Asian stocks traded higher on Monday. The Stoxx Europe 600 index rose 0.4 percent, with basic resources, oil and telecom sectors among the top gainers. The financial sector is likely to be of continued interest given the merger saga of Deutsche Bank AG and Commerzbank AG, as well as Charter Court Financial Services Group Plc and OneSavings Bank Plc confirming talks on an all-share merger, Ekolo said. He also highlighted the “disappointing” German industrial production data point for January.
• Japanese stocks rose, halting a four-day slide, as investors weighed U.S. employment data and watched for signs of progress on trade negotiations between the U.S. and China. Chemicals and telecommunications stocks provided the biggest boosts to the Topix index. U.S. labor data was mixed on Friday, with hiring at the weakest in more than a year, while the unemployment rate declined more than forecast. U.S. new-home construction rebounded by more than expected in January. China’s top trade and monetary policy officials this weekend made a subtle push-back against trade demands made by Washington.
• Contracts on the S&P 500 and Nasdaq also pointed up, while futures on the Dow showed the index likely to slip at the open after the Sunday crash of Boeing Co.’s 737 Max, with the U.S. manufacturer the biggest component of the gauge. Boeing’s shares were down more than 9 percent in pre-market trading as China grounded flights involving the model. A slew of data releases this week will be closely watched for clues on growth and the impact of central bank policy in the U.S., European Union and China, with the Bank of Japan the next to meet. On the trade front, Beijing and Washington are in general agreement on many crucial issues and have held meaningful discussions on foreign exchange, People’s Bank of China Governor Yi Gang said.
• Iconic jeansmaker Levi Strauss & Co. has filed a plan for an initial public offering that would raise as much as $587.2 million. The company has set its IPO at 36.7 million shares, priced at $14 to $16 apiece, according to a regulatory document filed on Monday. Most of the stock will be sold by current shareholders and Levi Strauss expects to get about $106.6 million at the midpoint of the range for its own use. It plans to put the proceeds toward general corporate purposes, though some may be used for acquisitions or strategic investments, the company said in the filing.
• Investors added money to exchange-traded funds that buy emerging market stocks and bonds last week. This was the 21st 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 $616.6 million in the week ended March 8, compared with gains of $382.9 million in the previous week, according to data compiled by Bloomberg. So far this year, inflows have totaled $18.4 billion.
• Oil rose as Saudi Arabia was said to extend deep supply cuts into April. Futures in New York climbed as much as 1.3 percent after dropping 1 percent on Friday. Saudi Arabia plans to produce well below 10 million barrels a day in April, a similar pace to March, when it cut output by 500,000 barrels a day from February, a Saudi official said. The move is the latest sign that Riyadh is determined to regain control of the oil market as prices remain well below the level that many OPEC members need to cover their government spending.
• Investors continued to pull money out of gold-backed exchange-traded funds, as the precious metal holds below $1,300 an ounce and markets await fresh catalysts. Holdings in bullion-backed ETFs declined for a fifth week to the lowest level in two months. The metal has fallen out of favor lately following a stellar start to the year, but managed to eke out a weekly gain after Friday’s U.S. payroll data.
• Nvidia Corp. agreed to buy chipmaker Mellanox Technologies Ltd. for $6.9 billion, gaining expertise to help it push into the growing market for data center components. Santa Clara, California-based Nvidia is paying $125 a share in cash for the American-Israeli company, which makes chips used to speed the flow of information across computer servers. That’s a 14 percent premium to its Friday close of $109.38 with the target’s shares surging in pre-market trade on Monday.
• Turkey fell into its first recession in a decade, dealing a blow to President Recep Tayyip Erdogan as the country heads toward bellwether municipal elections this month. Gross domestic product shrank a seasonally adjusted 2.4 percent last quarter from the previous three months, when it declined a revised 1.6 percent, according to data released on Monday. That matched the median estimate of economists in a Bloomberg survey. From a year earlier, GDP dropped 3 percent. Driven by Erdogan’s push for growth at all costs and his pressure on the central bank to keep interest rates low, capital poured into Turkey during an era of record monetary stimulus around the world.
• Federal Reserve Chairman Jerome Powell said interest rates can remain on hold as the U.S. central bank waits to see how conditions abroad evolve, signaling that there’s no clear time limit to the Fed’s current pause. “Inflation is muted and our policy rate we think is in an appropriate place,” Powell said in a wide-ranging interview that aired Sunday on CBS News’ “60 Minutes.” He called the current rate setting “roughly neutral” — meaning its neither stoking nor slowing growth — and tried to define the Fed’s stance of patience while reviewing fresh data.
• Boeing Co. Chief Executive Officer Dennis Muilenburg faces his biggest crisis yet following the second deadly crash of a 737 Max airliner, prompting airlines to ground the best-selling narrow-body and threatening to end Boeing’s three-year stock rally. China ordered its carriers to ground all 96 of Boeing’s newest 737 model, while Indonesia said it would also halt flights after Ethiopian Airlines Flight 302 went down in a field shortly after takeoff Sunday, killing all 157 people on board. While the flight recorders still have to be analyzed, the disaster bore similarities to the doomed Lion Air 737 Max that also crashed in October.
• Carlos Ghosn sought and failed to join a board meeting at Nissan Motor Co. that could change the course of its three-way alliance with Renault SA and Mitsubishi Motors Corp. The automakers are planning to form a single board for the alliance that will oversee its governance and operations, Renault said in a statement Monday, confirming earlier media reports. As architect of the structure and former chairman of all three companies, Ghosn was seeking to join Nissan’s meeting Tuesday to explain himself personally to fellow directors.
• Citigroup Inc. is planning to join UBS AG with an electronic currency trading and pricing platform in Singapore, setting up systems to boost liquidity in Asia’s biggest foreign-exchange hub. Singapore will become the fourth FX trading engine location for Citi, which also has systems set up in Tokyo, New York and London, the bank said in a statement Monday. “The expansion of our FX trading engine will also lead to a vast improvement in latency for our clients in Singapore and across much of Asia Pacific, who prior to this would connect via Tokyo or one of our trading engines outside of the region,” Stuart Staley, Asia Pacific head of markets and securities services, said in the statement.
• IDBI Bank Ltd., the lender with India’s worst bad-loan ratio, is seeking to curtail its soured debt by selling 100 billion rupees ($1.4 billion) of stressed assets and stepping up efforts to recover dues from delinquent borrowers. “We have set up a war room to focus on recovering the non-performing loans while another team is keeping a check on loans showing early signs of stress,” Chief Executive Officer Rakesh Sharma said by phone. The lender wants to sell stressed loans “by June-end to quicken the pace of clean-up exercise.”
• President Donald Trump will propose a U.S. budget that wouldn’t balance for 15 years, even assuming stronger economic growth than private forecasters expect and with deep domestic spending cuts that have little chance of passing Congress. Trump’s budget blueprint, to be released Monday, asks lawmakers to slash funding for most federal government agencies while boosting defense spending and setting aside $8.6 billion for a wall along the U.S.-Mexico border, according to a White House preview. The plan faces certain rejection by Democrats now in control of the U.S. House and will kick off a new political battle over spending priorities.
• The global economy’s sharp loss of speed through 2018 has left the pace of expansion the weakest since the global financial crisis a decade ago, according to Bloomberg Economics. Its new GDP tracker puts world growth at 2.1 percent on a quarter-on-quarter annualized basis, down from about 4 percent in the middle of last year. While there’s a chance that the economy may find a foothold and arrest the slowdown, “the risk is that downward momentum will be self-sustaining,” say economists Dan Hanson and Tom Orlik.
• Blackstone’s benefit administrator business Alight filed for an initial public offering in the U.S. of 32 million Class A shares at an offering price of $22 to $25 per share. BofA Merrill Lynch, JPMorgan, Morgan Stanley, Barclays, BMO Capital Markets, Citigroup, Credit Suisse, Deutsche Bank Securities, Goldman Sachs, Blackstone Capital Markets, CIBC Capital Markets, PNC Capital Markets, Baird, KeyBanc Capital Markets, Macquarie, Stephens Inc., Stifel, Academy Securities, BTIG, Loop Capital Markets, Ramirez & Co. and Siebert Cisneros Shank & Co. are underwriters and have been granted a 30-day option to buy up to an added 4.8 million shares.
• China’s top trade and monetary policy officials this weekend delivered a subtle push-back against trade demands made by Washington, delivering Beijing’s own interpretation of progress made in talks over the enforcement of any deal and the role of currencies. People’s Bank of China Governor Yi Gang said the two sides have reached consensus on many crucial issues, and have discussed previous commitments made by Group of 20 nations on avoiding competitive devaluation of currencies. They also talked about respecting the “autonomy” of each other’s monetary policy, he said.

*All sources from Bloomberg unless otherwise specified