November 26th, 2018

Daily Market Commentary

 

Canadian Headlines

• A car plant that General Motors Co. has operated for 65 years in Canada could be on the verge of shutting down, though the union that represents thousands of workers at the factory are still holding out hope. The company will announce Monday that it’s ending production at its plant in Oshawa, Ontario, two people familiar with the plans said, speaking on condition of anonymity. Unifor, the union representing autoworkers, said it’s been told there is no car production assigned to the factory beyond next year, raising the prospect of talks to preserve jobs.
• Canadian wind farm developer Boralex Inc. will seek to refinance a large part of loans that have bankrolled the construction of French projects, taking advantage of lower funding costs and investors’ growing appetite for clean power. Enticed by the track record of wind farms and longer-than-expected lifetimes of turbines, investors are ready to lend funds over longer periods, said the industry veteran. He’s been leading Boralex’s French operations since he started them from scratch in 2001 through 1.3 billion euros ($1.5 billion) of investment. Boralex had about 800 million euros of non-current debt tied to French project at the end of September, according to its interim report.
• Desperate times call for desperate measures in Canada’s supply-constrained pot industry. National Access Cannabis Corp., the country’s largest private marijuana retailer with 17 stores, has a team of five people watching 24/7 for new inventory from Alberta’s provincial regulator, which controls wholesale pot distribution. It’s evidence of the severity of the supply shortages that have plagued Canadian cannabis retailers since legalization on Oct. 17. Quebec’s government-controlled retailer has restricted its operating hours to four days a week, while Alberta has temporarily halted the issuance of new retail licenses due to lack of product.

 

 

World Headlines

• European equities climbed the most this month, led by banking and oil shares, as Italian and U.K. stocks advanced on positive political developments. The Stoxx Europe 600 Index added 1.3 percent. The FTSE 100 Index increased 1.2 percent and Italy’s FTSE MIB jumped 3.1 percent. HSBC Holdings Plc gained 2.7 percent, Intesa Sanpaolo SpA surged 6 percent and UniCredit rose 6.1 percent. BP Plc, Total SA and Royal Dutch Shell Plc rose as Brent oil recovered from last week’s declines.
• U.S. stock-index futures extend gains in concert with European shares after Italy was said to consider changes to its budget deficit target, prompting risk-on appetite to seep back into the market after a sell-off last week. December contracts on the S&P 500 Index gained as much as 1.2 percent, getting some respite after the underlying gauge entered correction territory on Friday. Futures contracts on the Nasdaq 100 and Dow Jones rose 1.6 percent and 1.1 percent respectively as of 8:36 a.m. in London.
• Stock markets in Asia have kicked off the week with a nice lift: Hong Kong’s benchmark index rallied almost 2 percent, South Korean equities jumped more than 1 percent, and Taiwan, the Philippines and Singapore also had good starts. It’s nothing like what happened in the U.S., where the S&P 500 Index had its third-worst Thanksgiving week since 1939. With Monday’s gains, the MSCI Asia Pacific Index is heading for a 1.2 percent increase in November, and if the rally holds this week it would be its first monthly advance since July. Even U.S. stock-index futures are climbing: contracts on the S&P 500 rose 1.3 percent as of 5:02 p.m. in Singapore.
• Oil rose from its lowest settlement in more than a year in New York, though signs of record output from Saudi Arabia amid pressure from President Donald Trump continued to weigh on the market. Futures added 1.5 percent, after slumping 7.7 percent on Friday. Saudi Arabia is pumping as much as 11.2 million barrels of crude a day, the most since the kingdom extracted its first oil eight decades ago, according to a person familiar with the matter. Trump has reiterated his view that falling oil prices are great after the U.S. benchmark plunged the most last week since January 2016.
• Gold rises, erasing most of Friday’s drop, as Goldman Sachs includes the yellow metal as one of its top 10 trading ideas for commodities next year. Bank sees diversification value in adding gold to portfolios and notes that higher central bank demand poses an upside to prices. Goldman also suggests going long palladium at $1,119/oz and short platinum at $840/oz.
• Iron ore’s getting mauled as mills’ profitability in China sinks, prompting steelmakers to cut their consumption and pitching the raw material into a steep sell-off following slumps in crude oil and copper. Futures tanked 6.6 percent to $62.72 a metric ton on the Singapore Exchange, the lowest close since April, after the most-active contract tumbled almost 7 percent last week. Futures on the Dalian Commodity Exchange sank by the daily limit.
• Greece’s Eurobank Ergasias SA isn’t waiting around for a state rescue, with a plan to sell about 7 billion euros ($8 billion) of troubled loans and merge with a real estate fund. The shares soared, leading the country’s banking index higher. As part of the plan, the bank will merge with real estate fund Grivalia Properties REIC to create a new business named Eurobank, the two companies said. It will then shift non-performing debt to a separate vehicle that will issue senior, mezzanine and junior notes that the bank will initially retain. Some of the lower level notes would then be sold off to investors.
• Saudi Aramco aims to become a global refiner and chemical maker, seeking to profit from parts of the oil industry where demand is growing the fastest while also underpinning the kingdom’s economic diversification. The world’s biggest oil exporter is earmarking $500 billion to invest over the next 10 years, including $160 billion for natural gas developments and $100 billion for chemicals projects, Aramco Chief Executive Officer Amin Nasser said in an interview in Dhahran, Saudi Arabia. The spending would come on top of the company’s planned purchase of a majority stake in Sabic, the Middle East’s largest chemical business, a deal that could be valued at about $70 billion.
• President Donald Trump said the U.S. will close its southern border with Mexico if needed, a day after U.S. agents shot several rounds of tear gas at migrants after some tried to breach a border fence. “Mexico should move the flag waving Migrants, many of whom are stone cold criminals, back to their countries,” Trump said Monday on Twitter. “Do it by plane, do it by bus, do it anyway you want, but they are NOT coming into the U.S.A. We will close the Border permanently if need be. Congress, fund the WALL!”
• U.K. businesses stand to lose access to a $1.7 trillion public procurement market if signatories to a World Trade Organization accord this week block Britain’s application for membership, which will lapse after it leaves the European Union in March. On Nov. 27, the U.K. will seek admission to the 46-nation Government Procurement Agreement in Geneva. Failure to rejoin the pact could prevent U.K. companies from bidding on government contracts in member nations, including the $837 billion U.S. market. Each member has the power to block admittance.
• As U.K. Prime Minister Theresa May strives to get her Brexit deal through Parliament, lawsuits are piling up with the potential to change the course of the nation’s biggest constitutional crisis since the 1930s. On Monday, the European Union’s General Court in Luxembourg rejected a Brexit challenge by 13 expats including Harry Shindler, a World War II British Army veteran. They argued that the EU’s decision to start Brexit negotiations was illegal because they were denied a voice in the U.K.’s 2016 referendum. Julien Fouchet, the French lawyer who brought the case, said he would appeal as soon as possible.
• The global economy headed into the final stretch of 2018 in weakened shape, handing investors renewed reason to question how much central banks will be able to tighten monetary policy next year. Fresh data from the world’s third and fourth-largest economies on Monday added to the concern. A manufacturing gauge in Japan dropped to the lowest since early 2016, and business confidence in Germany fell for a third month.
• India is set to infuse about 420 billion rupees ($6 billion) in state-run banks by mid-December to help them meet tighter regulatory requirements, a government official said. Preference would be given to banks struggling to meet the regulatory requirements for capital, an official familiar with the matter told reporters in New Delhi on Monday. Larger lenders like State Bank of India may not need more cash in the financial year ending March 31, the person said asking not be named as the decision is not yet public.
• China is taking its rivalry with the U.S. to the heavens, spending at least $9 billion to build a celestial navigation system and cut its dependence on the American-owned GPS amid heightening tensions between the two countries. Location data beamed from GPS satellites are used by smartphones, car navigation systems, the microchip in your dog’s neck and guided missiles — and all those satellites are controlled by the U.S. Air Force. That makes the Chinese government uncomfortable, so it’s developing an alternative that a U.S. security analyst calls one of the largest space programs the country has undertaken.
• Facebook Inc. crises this year have put immense pressure on Chief Operating Officer Sheryl Sandberg, undermining her authority and tainting an image that was burnished by the social-media company’s meteoric rise. Some of her staff, who saw the executive as larger than life, now blame her for Facebook’s woes. At times, she prioritized her own brand over Facebook’s; surrounded herself with trusted lieutenants who filtered bad news; and didn’t address problems quickly enough or treated them as perception issues not opportunities for real change, according to eight current and former Facebook employees from her side of the organization.
• The U.K. Parliament is on course to reject Theresa May’s Brexit agreement in a crucial vote next month, a senior minister admitted, as the prime minister seeks to persuade skeptical politicians and voters it’s the only deal available. Newly appointed Brexit Secretary Stephen Barclay said there did not seem to be enough support in the House of Commons to allow the plan finalized with the European Union over the weekend to pass.
• Campbell Soup Co. is nearing a deal with Dan Loeb that would put an end to their proxy fight and see two of the activist investor’s nominees appointed to the board, according to people familiar with the matter. The terms being negotiated would also see Loeb’s Third Point have input on the election of a third director, in addition to its nominees Sarah Hofstetter and Kurt Schmidt, and the hiring of a new chief executive officer, the people said, asking not to be identified because the matter is private. The discussions are ongoing and may still fall apart, they said.
• Bitcoin extended its tumble on Monday after breaking below the $4,000 level over the weekend, putting the 2018 crash within striking distance of the cryptocurrency’s worst bear markets. The virtual currency, conceived just over a decade ago, slid 7.8 percent from Friday to $3,931, Bitstamp prices showed as of 6:51 a.m. in New York. All nine of its largest peers tracked in real time by Bloomberg fell, with drops ranging as high as 14 percent for Monero.
• Italian assets rallied after the populist government said it was looking to change its deficit target that is in breach of the European Union’s spending rules. Local stocks surged the most since June, while the yield on two-year debt securities fell to the lowest level in almost two months as an unidentified official said the administration was looking at changes to the targeted 2.4 percent funding shortfall for 2019.
• Fiat Chrysler Automobiles NV is considering options for its robotics arm Comau, including a potential sale at a value of 1.5 billion euros to 2 billion euros ($1.7 billion to $2.3 billion), people familiar with the matter said. The strategic review of the unit is at an early stage and no final decisions have been made, the people said, asking not to be identified because the deliberations are private. A sale process could start early next year, the people said. The business, which makes automated manufacturing systems and industrial robots, could attract bidders from China, another person said.

*All sources from Bloomberg unless otherwise specified