August 14th, 2018

Daily Market Commentary

Canadian Headlines

• Canada’s diplomatic clash with Saudi Arabia is threatening a key pillar of SNC-Lavalin Group Inc.’s growth plan. The Montreal-based builder gained additional exposure to the kingdom with its two biggest acquisitions, the 2014 purchase of Ireland’s Kentz Corp. and last year’s deal for WS Atkins of the U.K. SNC Chief Executive Officer Neil Bruce is counting on business in the Middle East to bolster his drive to increase profit more than 50 percent by 2020.
• Justin Trudeau’s government is expected to start consultations on possible measures to prevent a potential flood of imports from global steelmakers seeking to avoid U.S. tariffs, according to two industry sources familiar with the plans. Finance Minister Bill Morneau has scheduled an announcement Tuesday during a visit to Hamilton-based ArcelorMittal Dofasco’s headquarters, though no further details were provided in the media advisory. If consultations are announced, the expectation is they will be held over a 15-day period, after which a decision will be made, the people said, asking not to be identified because the matter isn’t public.
• Canada’s largest province is delaying the launch of private marijuana sales in bricks-and-mortar stores until April 2019, nearly six months after the drug is legalized for recreational use. Ontario’s Progressive Conservative government said Monday it will start cannabis sales with an online-only retail model when cannabis is legalized on Oct. 17, to be followed by private retail sales on April 1. This is an abrupt policy change from the former Liberal government, which planned to sell cannabis in government-run pot shops, starting with 40 in 2018.

 

 

World Headlines

• European equities rose at the open as traders looked for buying opportunities after two negative sessions fueled by concerns over a currency crisis in Turkey. The Stoxx Europe 600 Index added 0.5 percent after losing 1.3 percent over the previous two trading days. Telecoms and banks featured among the biggest sector gains.
• The dollar slipped from its highest in 14 months and Treasuries fell. The economic troubles in Turkey have gripped global financial markets, with investors scrambling to determine whether and how far the pain may spread. President Donald Trump’s top national security aide warned Turkey’s ambassador on Monday that the U.S. has nothing further to negotiate until a detained American pastor is freed, according to people familiar with the matter.
• Shares in Tokyo rallied as investors reassessed Japan’s exposure to Turkey and after Turkish policy makers made their first move to bolster the financial system. The Topix index rose 1.6 percent Tuesday, rebounding from Monday’s 2.1 percent slump. Turkey’s currency steadied after its central bank lowered the amount commercial lenders must park at the regulator and eased rules that can affect their lira and foreign-currency liquidity. Electronics makers and telecommunications stocks boosted the Topix.
• Oil rebounded as financial markets stabilized after the initial panic over Turkey’s economic meltdown eased. Futures in New York added 1 percent, recouping Monday’s losses. Many developing-nation currencies, which tumbled following the collapse of Turkey’s lira, recovered on Tuesday. In the U.S., crude stockpiles probably extended declines last week, according to a Bloomberg survey.
• Gold trades below $1,200 an ounce as Turkey’s financial woes, concern about potential for further EM contagion fail to ignite haven demand.
• The euro-area economy grew faster in the second quarter than initially reported, suggesting some of the worries about the outlook at the start of the year may have been overdone. Expansion was revised up to 0.4 percent from 0.3 percent, Eurostat said Tuesday, and a jump in investor confidence hints at less gloomy prospects for the second half. Growth in Germany and the Netherlands gathered pace in the three months through June, keeping solid momentum in the overall currency region despite global trade tensions and disappointing performances in France and Italy.
• U.K. unemployment dropped to a new 43-year low in the three months through June but the pace of wage growth eased. The jobless rate stood at 4 percent, the least since February 1975, the Office for National Statistics said on Tuesday. Economists had expected it to stay at 4.2 percent.
• China Everbright International Ltd. plunged the most in almost a decade after announcing plans to raise about HK$9.96 billion ($1.3 billion) from a rights issue for its waste-to-energy projects, business expansion and the repayment of bank loans. The company plans to issue 1.66 billion rights shares on the basis of 10 shares for every 27 existing shares, it said in a statement to the Hong Kong stock exchange Tuesday. The subscription price is HK$6 per rights share, a discount of about 31 percent to its closing price Monday of HK$8.75, according to the statement.
• Home Depot Inc. offered more evidence that the U.S. housing market is still humming along, reporting second-quarter sales that impressed investors. The home-improvement chain said same-store sales increased 8 percent in the three months ended July 29, topping the projected 6.5 percent increase compiled by Consensus Metrix. That was welcome news for investors after results disappointed in the previous quarter, with a longer winter pushing off outdoor renovations. The shares rose 1.8 percent in early trading.
• Ucommune, a Chinese rival to WeWork Cos., is in talks with international investors to raise about $200 million in a series D financing round as it prepares for an initial public offering as early as next year. Hong Kong is the most likely place for the listing and the company has held informal initial talks with stock exchange officials there, founder Mao Daqing said in an interview in Singapore, where he opened Ucommune’s second co-working space in the country on Tuesday.
• NIO Inc., the electric-car maker backed by technology giant Tencent Holdings Ltd., filed for a $1.8 billion initial public offering as it gears up to compete against the likes of Tesla Inc. The company applied to list its American depositary shares on the New York Stock Exchange under the symbol NIO, and the $1.8 billion registration amount is a placeholder to calculate filing fees.
• About six months after UBS Group AG decided to merge its wealth management businesses into one super-unit, rival Credit Suisse Group AG is said to be taking a different approach. The bank plans to split its key international private banking unit into seven regions from four, with each having its own management and greater decision-making power, according to people briefed on the matter who asked not to be identified as the plan is private. An announcement on the reorganization, dubbed “Project Momentum,” could come as soon as this week, they said.
• Elon Musk continued to drip feed details of his controversial plan to take Tesla Inc. private, saying late Monday that he’s getting advice from Goldman Sachs Group Inc. and private-equity firm Silver Lake. In a tweet late Monday California time, the electric-car maker’s chief executive officer said he’s also lined up legal advisers for the possible transaction. A Tesla spokesman said Musk’s tweet refers to his own advisers and attorneys. Tesla board members didn’t immediately respond to requests for comment.
• Turkish President Recep Tayyip Erdogan vowed to boycott American electronics, including Apple Inc.’s iPhone, as he retaliates against Donald Trump’s attempts to isolate his economy. After the U.S. imposed sanctions on two Turkish ministers and amid growing domestic pressure from businesses and banks to contain a currency crisis, Erdogan said he wouldn’t back down in the face of the economic attack against his country.
• Bain Capital Private Equity LP agreed to buy Esure Group Plc for about 1.17 billion pounds ($1.5 billion) as private-equity firms increasingly target insurers for their assets. The offer of 280 pence a share is 37 percent more than the closing price on Friday. Esure shares jumped 31 percent Monday — the most ever — after the company founded by industry veteran Peter Wood announced that Bain had made an unsolicited bid. The board has now said it will support the offer and, as a result, isn’t recommending the payment of an interim dividend.
• Toshiba Corp. is offering to sell its right to liquefy gas at the Freeport LNG Development project in the U.S. at a discount, according to people familiar with the matter, as it seeks to limit its exposure to a deal that has threatened to lead to multi-billion dollar writedowns. Mizuho Securities Co. and Barclays Plc, which were hired by Toshiba for the sale of its tolling agreement, have met with companies and offered the deal at a discount to the original liquefaction price agreed to by Toshiba, said the people who attended the meeting.
• Tata Steel Ltd. shares advanced in Mumbai after the company said first-quarter profit doubled, with results bolstered by rising demand in India and growth in the global market supported by lower exports from China. Net income surged to 19.5 billion rupees ($279 million) in the three months to June, from 9.18 billion rupees a year earlier, according to a statement on Monday. Revenue climbed about 22 percent to 378 billion rupees. The stock rose as much as 3.2 percent to 587 rupees, the day’s second-best performer on the benchmark S&P BSE Sensex Index.
• Bitcoin touched below $6,000 and dozens of smaller digital tokens retreated as this month’s sell-off in cryptocurrencies showed few signs of letting up. The largest digital currency fell as much as 6.2 percent to $5,887, the lowest level since June, before paring some of the drop, according to Bloomberg composite pricing. Ether sank as much as 13 percent, while all but one of the 100 biggest cryptocurrencies tracked by Coinmarketcap.com recorded declines over the past 24 hours.
• A gauge of optimism among U.S. small-business owners increased to the second highest on record as companies benefited from tax cuts and robust consumer demand, a National Federation of Independent Business survey showed Tuesday.
• Coca-Cola Co. agreed to buy a minority stake in Bodyarmor, a sports-drink maker whose backers include former basketball star Kobe Bryant, in a further move to diversify beyond sugary, fizzy beverages. Coke will become the second-largest shareholder in closely held Bodyarmor after co-founder and Chairman Mike Repole, according to a statement Tuesday. Financial terms of the deal, which could allow the soft-drink giant to eventually take control of Whitestone, New York-based Bodyarmor, were not disclosed.
• China Investment Corp. is backing a potential takeover of Yum China Holdings Inc., which runs KFC and Pizza Hut outlets in the world’s most populous nation, people with knowledge of the matter said. The sovereign fund and DCP Capital, the investment firm run by former KKR & Co. senior executives, are part of a consortium with Hillhouse Capital that’s considering a buyout of Yum China, according to the people. Baring Private Equity Asia is also joining the investor group, which already includes KKR, the people said, asking not to be identified because the information is private.
• Denmark’s biggest commercial pension fund has agreed to spend more than 1 billion euros, or $1.1 billion, on a property deal in Germany, marking its biggest such acquisition on record. PFA, which is based in Copenhagen, is buying commercial and residential assets from Frankfurt-based Industria Wohnen, according to a statement on the website of Domicil Real Estate Group, which will manage the portfolio for PFA.

 

*All sources from Bloomberg unless otherwise specified