August 10th, 2018

Daily Market Commentary

Canadian Headlines

• Canadian stocks rose, with all but two sectors climbing, even as diplomatic and trade tensions mounted between Canada and Saudi Arabia. The loonie still fell, erasing most of Wednesday’s gains. The S&P/TSX Composite Index rose 0.6 percent to 16,416.98 on Thursday, the highest this week. The Information Technology sector gained most, up 1.6 percent, as shares of all but one company closed higher. Materials also climbed, with Pan American Silver Corp. advancing 9.3 percent after profit and sales beat analyst estimates.
• One of the world’s biggest non-sovereign borrowers has gone quiet in the debt market. The province of Ontario hasn’t sold bonds since June 1, a few days ahead of an election that ended 15 years of Liberal Party rule. This 70-day drought is almost a month longer than the pause that followed Ontario’s prior change in 2003.
• Venezuela was ordered to turn over the state oil company’s shares in Citgo Petroleum Corp., its U.S. refining unit, to a small Canadian miner to satisfy a $1.2 billion arbitration award. The ruling in favor of Crystallex International Corp., tied to a dispute over a seized gold mine, may prompt other Venezuelan creditors to scurry to file claims on Citgo. The company is one of the most attractive assets investors could try to seize as the South American nation falls further behind on debt payments and sinks deeper into an economic depression.
• Visa Inc. and Mastercard Inc. agreed to cut Canadian credit-card transaction fees in a move that could save smaller businesses C$250 million ($192 million) a year and crimp revenue for Canadian lenders. The U.S. companies agreed to reduce the average annual interchange rate in Canada by 10 basis points to 1.4 percent on cards, Canada’s finance department said Thursday in a statement. The new rate takes effect in 2020 and runs for five years. The government estimated that small and medium-sized businesses could save C$25,000 over the period.

World Headlines

• European equities slid at the open as the continuing selloff in the Turkish lira spurred concerns about an economic crisis that could impact European banks. The Stoxx Europe 600 Index retreated 0.6 percent, with miners and banks taking the biggest hit. Banco Bilbao Vizcaya Argentaria, Deutsche Bank and UniCredit were among the heaviest decliners, each falling more than 3 percent.
• U.S. equity futures declined alongside shares from Hong Kong to Sydney. Geopolitical tensions between the U.S. and other countries set the tone for markets this week, with the latest leg of the lira’s downward spiral triggered by a diplomatic row with America. Earlier in the week, China responded to the Trump administration’s latest trade war volley with additional tariffs of its own. The ruble hit a two-year low after the U.S. announced new sanctions on Russia over the March 4 nerve-agent attack on a former double agent in the U.K.
• It looked like it was going to be an up week for Asian shares — until about 1 p.m. Hong Kong time. What followed was a plunge in the MSCI Asia Pacific Index of as much as 1.2 percent, as headlines about a sinking Turkish lira hit. Most equity markets in the region ended Friday in the red, with Japan’s and Singapore’s falling the most. The MSCI gauge was little changed on the week.
• Oil was poised for a sixth weekly loss in New York, the longest run of declines in three years, as a trade war between the world’s two biggest economies stokes fears of weaker growth in energy demand. Futures were headed for a 2.5 percent loss this week. The U.S. and China are threatening to slap additional tariffs on imports from each other in a matter of weeks, with the tit-for-tat protectionist measures set to expand. At the same time, fears about global oil supplies have receded after producers pumped more, according to the International Energy Agency.
• Gold is showing resistance near $1,200 an ounce, suggesting prices are for now finding a floor near a one-year low. Since last week, the metal’s declines have stalled as it gets closer to the price often touted as a key psychological level, trading no lower than $1,204.58. While a stronger dollar and U.S. economic growth are hurting bullion’s appeal, concerns that Turkey’s financial crisis could spread may be preventing a further selloff.
• The U.K. economy bounced back from its turgid start to the year in the second quarter but the dominant services sector lost momentum toward the end of the period. Gross domestic product increased 0.4 percent between April and June, in line with the median forecast in a Bloomberg survey, figures from the Office for National Statistics Friday showed.
• China Evergrande Group is about to hand its billionaire chairman a big lump of cash. The developer, which has regularly bought back its own shares, will hold a board meeting on Aug. 20 to consider paying a special dividend for the past two financial years. Assuming a payout of 50 percent of 2016-2017 profit, as announced in March, that could amount to 11.5 billion yuan ($1.7 billion) for Hui Ka Yan, who owns about 78 percent of the company.
• A federal judge ordered U.S. Attorney General Jeff Sessions and Secretary of Homeland Security Kirstjen Nielsen to personally appear before him if the government fails to return a mother and her daughter who were deported to El Salvador even as the judge was considering their fate. That apparently got some wheels in motion and by late Thursday, the government confirmed that the plane carrying the pair — who applied for asylum to escape what the mother described as horrific domestic abuse and death threats from a violent gang — returned them to the U.S.
• President Vladimir Putin’s efforts to protect Russia after past rounds of U.S. sanctions are leaving the economy more insulated even as the threat of further penalties rattles markets this week. Four years after the first major curbs were imposed over the Ukraine crisis, Russia’s economy is growing about as fast as the central bank thinks it can, thanks to policies that have allowed the currency to trade freely and reduced reliance on foreign capital. But that very self-restraint means growth is hardly enough to achieve Putin’s goals of dramatically raising living standards.
• Sweden’s Ericsson AB will start U.S. manufacturing this year, a production shift that gets the wireless network supplier closer to customers and also may mitigate the impacts of President Donald Trump’s global trade disputes. Chief Executive Officer Borje Ekholm said Jabil Inc. will produce Ericsson’s mobile network gear in the final quarter of 2018, when the Swedish company will also decide whether to build its own U.S. production capacity or continue relying on the St. Petersburg, Florida-based manufacturing services company.
• Ryanair Holdings Plc has been grappling with major strikes for the first time in its three-decade history. The disruption is headed for a new peak Friday with at least 400 flights lost across five nations as pilots ramp up a bid to wrest better contracts from a company defined by its penny-pinching culture.
• OTP Bank Nyrt. posted second-quarter profit that beat estimates as risk costs plunged amid robust lending and economic growth across eastern Europe. Adjusted net income rose 16 percent to 90.9 billion forint ($324 million) in the April-June period, the highest on record and topping the average analyst estimate of 78.7 billion forint, the Budapest-based bank said on Friday. Net interest income advanced 7 percent while provisions for loan losses dropped 98 percent.
• The top economic adviser to Russian President Vladimir Putin proposed raising taxes on mining companies, including MMC Norilsk Nickel PJSC and Alrosa PJSC, among the largest producers of nickel and diamonds. The tax proposal could raise as much as 500 billion rubles ($7.5 billion) a year, according to the letter, which calculated rates based on profits from 2017. It would also affect chemical and fertilizer producers, the letter said.
• State Bank of India, the country’s largest lender by assets, posted a third straight quarterly loss as it set aside provisions against bad loans and losses on its holdings of government bonds. SBI had a loss of 48.8 billion rupees ($709 million) in the three months ended June 30 compared with a 20 billion rupee profit a year earlier, the Mumbai-based lender said in an exchange filing on Friday. Its shares fell 4.1 percent, most in six months, at the close of trading in Mumbai.
• Three years after China’s shock currency devaluation forced the nation into a months-long campaign to prevent a disorderly collapse, the yuan is set to extend its record weekly losing streak. The yuan rose this week before erasing those gains on Friday afternoon amid concern Turkey’s problems may spill over. China’s currency fell 0.56 percent to 6.8563 per dollar as of 5:05 p.m. in Shanghai, extending its longest string of weekly losses against the dollar since the modern exchange rate regime was adopted in 1994. The offshore yuan was also set to drop this week.
• Noble Group Ltd. is finally putting its make-or-break survival plan to a shareholder vote. The embattled commodity trader on Friday set a shareholder meeting for the end of this month to approve its controversial $3.5 billion debt-restructuring deal. The company had originally wanted to complete the plan by July, but it has now set the deadline for the end of the year.
• Samsung Electronics Co. unveiled the Galaxy Note 9 in New York, banking on the larger-screen device to rejuvenate sales of a struggling flagship line and fend off Apple Inc.’s upcoming iPhones over the holidays. The 6.4-inch screen Note 9 will start at $999.99 and max out at $1,249.99 — becoming, at about $100 above the iPhone X’s upper limit, one of the world’s most expensive consumer phones. It looks similar to last year’s 6.3-inch Note 8 but sports a revamped Bluetooth stylus — a longtime selling point of the Note series — as well as an upgraded camera that takes sharper photos than the S9 released earlier this year, Samsung said Thursday.
• Tesla Inc.’s board is forging ahead with its review of Elon Musk’s bold and ambiguous gambit to take the electric-vehicle maker private. Directors plan to meet financial advisers next week and are likely to tell Chairman Elon Musk to recuse himself while they mull his proposal, CNBC reported Thursday, citing unidentified people familiar with the matter. A special committee of independent directors will likely review the details, and the board has told Musk — who owns 20 percent of the company — that he needs his own separate advisers, the news outlet said.
• Up until last year, China’s HNA Group Co. was one of the hottest names in the global hospitality industry. What began in 2013 with an investment into Spain’s NH Hotel Group SA soon spread to top shareholdings in the companies behind Hilton, Rezidor and Carlson hotels. But the conglomerate’s ambitious plans have unraveled faster than the acquisitions. This year alone, HNA sold out of Hilton Worldwide Holdings Inc. and its spinoffs for a combined $8.5 billion, and began unloading its NH shares to a Thai group. The disposal of its last global chain — Radisson, the hotels that formerly operated under the Rezidor and Carlson brands — was announced hours ago to a fellow Chinese company.
• A public outcry couldn’t do it. Nor could lobbying by businesses, economists or rival politicians. Now currency traders are ratcheting up pressure on Britain and the European Union to avoid a no-deal Brexit. Since the U.K. voted to quit the EU in mid-2016, the pound has been the main vehicle for investors to express their view on the path of negotiations. This week a trade-weighted measure of the currency slid to the lowest level in almost a year, reflecting concern that the chances of a smooth divorce were fading.

*All sources from Bloomberg unless otherwise specified