July 19th, 2018

Daily Market Commentary

Canadian Headlines

• If there ever was a time for corporate Canada to be more adventurous in the bond market, it’s now. Yields on 30-year government debt have plunged to more than a decade-low relative to the short end in the wake of the Bank of Canada’s latest interest rate hike. That means there’s plenty of opportunity for issuers to lock in low borrowing costs for longer, especially since demand for long-term debt is “absolutely huge,” as central bank Governor Stephen Poloz said last week.
• A battle between Detour Gold Corp. and Paulson & Co. is becoming increasingly acrimonious, with the hedge fund accusing the gold miner of failing to share information about a possible buyer and Detour alleging that Paulson is misinforming investors. “The company does not have a sale process in place nor has it received any offers to purchase its shares,” Detour said Wednesday in a statement. “Paulson, in a desperate attempt to resuscitate its flailing reputation in the mining industry, has once again misinformed the investment community.”

 

 

World Headlines

• European equities opened steady as investors assessed mixed earnings results amid concerns about global growth from the ongoing trade spat. The Stoxx Europe 600 Index was little changed, with oil stocks leading the gains and media and technology stocks retreating. Unilever dropped 0.6 percent after reporting sales growth below analysts’ expectations, citing the effects of a labor dispute in Brazil.
• The dollar extended gains in the wake of Federal Reserve signals that the American economy is on solid footing. A downbeat mood gripped equities, where U.S. futures and European stocks slipped. While Chairman Powell’s comments that the U.S. economy may not yet have reached full employment helped cement investor expectations for the path of monetary tightening, the strengthening dollar did little to lift the mood elsewhere.
• China’s yuan slumped to a one-year low as the central bank showed little sign of intervening to slow the currency’s descent and bets for monetary policy easing mounted. The yuan dropped as much as 0.85 percent to 6.8032 per dollar in offshore trading, the lowest level since July 2017.
• Oil slipped toward $68 a barrel after mixed U.S. government data sowed uncertainty about the strength of demand in the biggest fuel-consuming nation. Futures in New York fell as much as 1.3 percent after the data showed a surprise gain in nationwide crude inventories and record-high production, while robust fuel demand depleted gasoline stockpiles by the most since May. Meanwhile, an OPEC committee meeting provided little insight on how output quotas will be split between the group.
• Gold trades near lowest in a year as Federal Reserve ChairmanJerome Powell’s comments on U.S. employment and inflation help to sustain expectations for another interest rate increase in September.
• A slowdown in new-home construction in the U.S. is compounding a reversal for lumber prices that were the highest ever just two months ago. Lumber futures tumbled by the exchange maximum of $15, or 2.9 percent, to $499.90 per 1,000 board feet on the Chicago Mercantile Exchange on Wednesday. That’s the lowest since March 28 and 23 percent below the all-time high of $648.50 on May 18. The U.S. government reported Wednesday that housing starts and building permits fell in June to the slowest rate in nine months.
• Shoppers spent $4.2 billion during Amazon.com Inc.’s Prime Day sale, up 33 percent from a year ago, according to estimates from Wedbush Securities Inc. analyst Michael Pachter. The online retailer doesn’t disclose revenue from the 36-hour event that began Monday. Pachter based his estimate on information the company did release, including that it shipped more than 100 million products and that small and mid-sized businesses sold over $1 billion worth of goods in the first 24 hours. Amazon’s web store features its own merchandise as well as products from more than 2 million independent merchants who pay Amazon commissions and fees for storage, delivery and selling on the platform.
• The contest for supremacy at the year’s biggest aviation expo extended into a fourth day as Airbus SE and Boeing Co. traded blows with early-morning deals worth $22 billion and more in the pipeline. Boeing resumed hostilities at the Farnborough air show southwest of London with the announcement of an order for 100 737 Max single-aisle jets from an unnamed buyer valued at $11.7 billion based on list prices. That was followed by confirmation of a $2.8 billion contract for 10 787-9s from Hawaiian Airlines that saw the carrier drop an earlier Airbus A330neo purchase.
• The European Union is preparing a new list of American goods to hit with protective measures if a mission to Washington next week fails to persuade U.S. President Donald Trump not to raise levies on car imports. “If the U.S. would impose these car tariffs that would be very unfortunate but we are preparing together with our member states a list of rebalancing measures as well,” EU trade chief Cecilia Malmstrom said on Thursday. The retaliation actions would be ready immediately, according to a person familiar with the EU’s preparations.
• The White House struggled for a second straight day on Wednesday to explain President Donald Trump’s posture on Russian election meddling, and some administration officials are concerned there may be no shaking public perception that Trump is too cozy with Vladimir Putin. Trump’s aides now view this as one of the worst moments of his presidency, one of the officials said, noting that Trump continues to resist acknowledging election interference because he believes that diminishes his election victory.
• China this month recorded one of its biggest corporate-debtdefaults yet, with the downfall of a coal miner that had ridden the country’s wave of credit until policy makers changed the game with their deleveraging campaign. For investors in Wintime Energy Co., it’s been far from a winning time now that the company from northern Shanxi province is proving incapable of rolling over debt that quadrupled in less than five years. How the borrower ran up a 72.2 billion yuan ($10.8 billion) tab that it now can’t make good on illustrates why this year will be China’s worst yet for corporate defaults.
• Indonesia’s central bank left its benchmark interest rate unchanged after three hikes in a row helped to stabilize the currency in Southeast Asia’s biggest economy. The seven-day reverse repurchase rate was held at 5.25 percent on Thursday, in line with the forecasts of 25 of the 28 economists surveyed by Bloomberg. Governor Perry Warjiyo said the policy stance remains “hawkish” with the central bank’s focus on economic stability.
• Fundrise LLC helped pioneer a model of raising small amounts of money online for real estate projects around the U.S. Now it’s starting a fund to buy properties in low-income areas of the country eligible for generous tax breaks. The company plans to open investment in the Fundrise Opportunity Fund next week, aiming to raise $500 million by the end of 2019, according to co-founder and Chief Executive Officer Ben Miller. Clients can contribute as little as $10,000, he said. The money will be used for projects in census tracts throughout the U.S. that were recently designated “opportunity zones” under the new federal tax law.
• Cerberus Capital Management became the latest U.S. fund to snap up a Spanish bank’s pre-crisis real-estate empire, acquiring Banco Sabadell SA property assets for an undisclosed amount. The real estate investments have a gross book value of about 9.1 billion euros ($10.6 billion) and net book value of about 3.9 billion euros, the Alicante, Spain-based bank said in a regulatory filing on Thursday. Sabadell is also in talks with Deutsche Bank AG to sell a further chunk of soured real estate assets with a net value of 600 million euros in a deal that could take place within 48 hours, a person with direct knowledge of the matter said.
• Unilever said it will make up some lost ground in the second half after a strike in Brazil held back sales growth in the early part of the year. The more upbeat outlook comes after the maker of Ben & Jerry’s ice cream and Dove soap on Thursday reported sales growth below analysts’ expectations after truckers walked off the job earlier this year in the Latin American country to protest rising fuel prices. The London- and Rotterdam-based company was unable to lift prices enough to make up for the setback. The shares were down 0.4 percent early Thursday in Amsterdam.
• Russia’s attempt to roll out a proposal to increase the pension age under the cover of the World Cup has triggered the worst tumult PresidentVladimir Putin has faced at home in years, fueling speculation the Kremlin might soften a reform that’s crucial to righting public finances. A decade in the making but unveiled hours before the Russian national team’s opening game at the soccer tournament last month, it came at a time when incomes stagnate and the economic outlook remains dim. The plan to push back the time people can retire starting next year quickly spilled into protests and a steep drop in Putin’s poll ratings.
• Saudi Aramco may buy shares in chemical producer Saudi Basic Industries Corp. from the country’s sovereign wealth fund as the world’s biggest crude oil exporter expands its business ahead of a planned initial public offering. The state oil producer “is engaged in very early-stage discussions with the Public Investment Fund regarding acquiring a strategic interest in Sabic by way of a private transaction,” Aramco said in a statement. The company has no plans to acquire any publicly held shares in Sabic, as Saudi Basic is known, it said. The state-run PIF, which owns 70 percent of Sabic, confirmed the talks in a separate statement.
• Novartis AG agreed to buy the rights to a skin-disease drug from developers Galapagos NV and MorphoSys AG in a deal that could reach $1 billion as Chief Executive Officer Vas Narasimhan centers the Swiss drugmaker on developing innovative prescription medicines. Novartis will pay 95 million euros ($111 million) upfront and later payments of up to 850 million euros based on the drug reaching certain regulatory, commercial and sales goals, MorphoSys said in a statementThursday. The payments will be split 50-50 between Mechelen, Belgium-based Galapagos and Planegg, Germany-based MorphoSys.
• SAP SE is betting big on its cloud business for future sales growth, raising its outlook even as concerns remain about whether new bookings can keep pace. The German software giant on Thursday raised its guidance both for this year and for 2020, citing accelerating cloud sales. New cloud bookings, a keenly watched metric because it indicates future revenue growth, increased 29 percent — slower than 40 percent sales growth in the segment.

*All sources from Bloomberg unless otherwise specified