July 6th, 2018
Daily Market Commentary
- InnVest Hotels LP, which added the former Toronto Trump hotelto its Canadian portfolio last year, is planning its first foray into the U.S. Canada’s hotel market has had a strong run in recent years, boosted by a booming economy and a weak currency that’s attracted domestic and foreign travelers, particularly to cities such as Toronto, said Jeff Hyslop, senior vice president of asset management at Toronto-based InnVest. That’s made the market “frothy” so it’s prudent to diversify into the U.S., particularly with trade tensions also hanging over Canada, he said.
- European equities edged higher at the open amid investor relief that no surprise trade sanctions have been imposed by the U.S. or China. The Stoxx Europe 600 Index advanced 0.1 percent, heading for a 0.6 percent gain this week, led by cyclicals. European carmakers climbed the most in two years on Thursday after a U.S. official floated a proposal to eliminate vehicle-import tariffs on both sides of the Atlantic, and were up 0.8 percent Friday.
- U.S. equity futures swung between gains and losses as traders weigh the impact from the imposition of U.S.-China trade tariffs and await monthly jobs data. Biogen Inc. surged in pre-market trading after a closely watched Alzheimer’s drug BAN2401 showed positive results in a large clinical trial. The U.S. hit $34 billion of Chinese imports with duties starting today and China said retaliatory tariffs were now in effect.
- Even by recent standards, Friday was fairly wild for Chinese stocks. With all eyes watching how local investors would react to U.S. tariffs, the benchmark gauge dived to a two-year low before turning 1.3 percent higher. By the end of trading, much of the rally had evaporated. The Shanghai Composite Index closed up 0.5 percent to pare a seventh week of declines, its longest losing streak in six years. So far in July, trading in the gauge has been wilder than in any other month since February 2016, according to average intraday swings.
- Oil headed for its biggest weekly decline in more than a month amid concern that escalating trade tensions between the U.S. and China will curb demand. Brent dropped below $77 a barrel in London. Futures in New York are poised for a drop of 1.6 percent this week as the U.S. imposed tariffs on $34 billion of Chinese imports, with prices sustaining a decline sparked by a surprise gain in U.S. inventories on Thursday. The U.S. move on tariffs prompted retaliation from the Asian nation within hours. Saudi Arabia told OPEC that its output rose to about 10.5 million barrels a day in June in a bid to cap rallying prices, people familiar said.
- Gold falls for the first day in four as China said it’s retaliating to U.S. trade tariffs that took effect Friday, with U.S. jobs data also in focus.
- Copper’s flashing a powerful warning about expectations for global growth as the trade war between the world’s two biggest economies escalates. Prices have lost more than $1,000 a metric since closing at a four-year high on June 7 and are at the lowest in almost a year. Copper fell with most metals Friday as President Donald Trump slapped tariffs on $34 billion of Chinese imports, prompting the Asian country to retaliate in kind.
- U.S. Secretary of State Mike Pompeo arrived in North Korea on Friday with the daunting task of ensuring that Pyongyang’s nuclear commitments line up with President Donald Trump’s promises. Pompeo struck a cautious note while en route to the isolated nation — his third such trip since April — saying he was seeking to firm up pledges that North Korean leader Kim Jong Un made last month during his Singapore summit with Trump. The secretary of state left Washington with no public agenda and stated goals, other than lunch with Kim Yong Chol, a senior aide to Kim Jong Un.
- China is considering a further reduction in electric-vehicle subsidies next year as the government pushes automakers to innovate rather than rely on fiscal policy to spur demand for alternative-energy cars, people familiar with the plan said. The average purchase incentive per electric vehicle may be lowered by more than a third from the 2018 levels, said the people, who asked not to be identified disclosing information that isn’t public. Vehicles may be required to be able to go at least 200 kilometers (125 miles) on a single charge to be eligible for incentives, up from 150 kilometers currently, said the people. The plan is still under discussion and subject to changes, they said.
- Kremlin officials are in intense negotiations with their counterparts in Washington to strike at least one deal they hope will let President Donald Trump tout his summit with Vladimir Putin as a triumph that justifies steps to repair relations. At the top of the list for the July 16 meeting in Helsinki, Finland, is Iran’s role in Syria, an issue that Moscow is simultaneously negotiating with Tehran, a senior Russian official said on condition of anonymity because he’s not authorized to comment on the record.
- JPMorgan Chase & Co. denied a report in German magazine WirtschaftsWoche that it’s interested in acquiring a stake in Deutsche Bank AG, after the lender’s share price slumped. The New York-based bank and Industrial & Commercial Bank of China Ltd. were named as being interested in an investment because Frankfurt will increase in importance after Brexit, the magazine said, citing “speculation” by investment bankers in Frankfurt. JPMorgan spokesman Patrick Burton rejected the speculation, while Deutsche Bank and ICBC officials declined to comment.
- Billionaire Charlie Ergen’s EchoStar Corp. made its 3.2 billion pound ($4.2 billion) proposal to buy Inmarsat Plc public in an appeal to investors on Friday, with hours to go before a deadline for a formal bid. EchoStar said its second, improved cash and stock offer for Inmarsat was rebuffed by the British satellite company’s board on July 4. The proposal values Inmarsat at 532 pence per share and also includes a payment to convertible bond holders, according to a statement from EchoStar. Inmarsat shares fell as much as 11 percent in London and traded at 469.50 pence as of 9 a.m.
- LafargeHolcim Ltd. is planning the sale of its business in Indonesia, people familiar with the matter said, as the world’s biggest cement maker seeks to streamline operations. The company is working with Citigroup Inc. on a potential disposal of the unit, which could attract Asian building-material companies, local tycoons and private equity firms, the people said, asking not to be identified because the process isn’t public. While the auction is at an early stage and the value is still fluid, the Jona, Switzerland-based company may seek about $2 billion for the unit, they said.
- Italian lender UniCredit SpA is exploring the sale of its Austrian card issuer Card Complete Service Bank AG, people with knowledge of the matter said. The business, owned by UniCredit Bank Austria and Raiffeisen Bank International AG, have an enterprise value of 400 million euros ($468 million), the people said. UniCredit is working with a financial adviser and preparations are at early stages, the people said. Representatives for UniCredit and Raiffeisen declined to comment on the report.
- Central banks across Southeast Asia are draining stockpiles of foreign reserves to defend their currencies, with little success so far. As investors flee emerging markets amid a sell-off triggered by rising U.S. interest rates, authorities in Indonesia, the Philippines, Malaysia and Thailand have stepped up intervention in the foreign-exchange market.
- The Volkswagen AG emissions cheating scandal that cost the storied automaker more than 26 billion euros ($30.4 billion) is now helping fuel the rise of electric cars, buses and charging stations across the U.S. As part of a series of sweeping settlements, Volkswagen has agreed to pay almost $3 billion to fund efforts to cut pollution from diesel engines in every state. It’s up to local officials to decide what to do with the money, but there are a few strings attached: It must be used to reduce a central component of smog, nitrogen oxide. And only 15 percent can pay for electric-vehicle charging infrastructure.
- After Boeing Co. and Embraer SA spent months hammering out the framework for a $4.75 billion planemaking partnership, the companies are ready to take the next step: yet more talks. Crucial details about the financial underpinnings of the proposed venture announced Thursday still need to be figured out, a name needs to be chosen and a Brazil-based management team appointed. Officials are striving to finalize terms by late October or early November, and then they’ll seek the blessings of regulators in 10 countries.
- The headwinds facing German carmakers just got stiffer with Friday’s start of a much steeper import tariff on U.S. car exports to China. The tit-for-tat trade move will hurt BMW AG and Daimler AG the most. It’s yet another step away from the comfortable old world of carmaking revolving around production, price and market share. For decades, BMW, Daimler and Volkswagen AG came out on top in a global league churning out desirable cars for the masses and luxury buyers.
- KKR & Co.’s X-Elio Energy SL is selling seven of its Japanese solar assets to a consortium of institutional investors. A developer of solar power plants, X-Elio will sell the portfolio to the unidentified investor group in Japan for about $700 million, the firm said in an emailed statement. An announcement is expected to come as soon as Friday.
- Cosco Shipping Holding Co. plans to sell as much as HK$7.43 billion ($947 million) of shares in Orient Overseas International Ltd. as part of efforts by China’s biggest container-shipping line to maintain the listing status of the rival it is acquiring. Three investors agreed to buy each share at HK$78.67 — the same price as the takeover offer for Orient Overseas — and will hold a combined 15.1 percent of the Hong Kong-based company after the transaction, Cosco Shipping said in a statement Friday. The investors are CK Hutchison Holdings Ltd. unit Crest Apex Ltd., Chinese state-backed Rongshi International Holding Co., and PSD Investco Inc., a subsidiary of Silk Road Fund.
- The flow of money entering emerging-market corporate debt funds from bond redemptions, coupons and amortizations is accelerating and may help patch over losses from the first half, according to JPMorgan Chase & Co. The cash generated from developing-nation company debt will climb 16 percent this year to $267 billion, according to data provided by JPMorgan. That’s the fastest pace since 2015 and would be the largest amount in at least six years. Even if a chunk of that stays as cash, some is guaranteed to find its way to the secondary market, given feeble new issuance amid a global trade spat and climbing U.S. rates.
*All sources from Bloomberg unless otherwise specified