June 22nd, 2018

 

Daily Market Commentary

Canadian Headlines

• Bank of Montreal is revamping its U.S. digital operation and targeting small businesses in the Midwest to boost growth at its BMO Harris Bank lender. The new U.S. strategy, which also emphasizes mobile apps to woo more retail customers, is part of the changes being introduced by Erminia “Ernie” Johannson, who relocated to Chicago from Toronto after being appointed group head of U.S. personal and business banking in February.
• The chill that has crept over some segments of the Toronto housing market may soon extend to one of its persistent hot spots: condominiums. Evidence of a slowdown is emerging as new rules make it tougher to get a mortgage and borrowing costs rise for the first time in almost a decade. That’s reducing the appeal of Toronto condos, whose average price now exceeds C$560,000 ($420,000). Projects are taking longer to sell and, in some areas, developers are using incentives to move units.

 

 

World Headlines

• European stocks eked out a small gain, led by banks and miners, after closing at an eight-week low on Thursday amid fears of rising trade tensions. The Stoxx 600 was up 0.2 percent as of 8:16 a.m. in London time, even as concerns over an escalating trade conflict between the U.S. and China continue to linger. Italian bank BPER Banca led gains among lenders after insurer Unipol Gruppo SpA boosted its stake.
• Risk sentiment also benefited from reports that some U.S. officials were trying to restart trade talks with China before President Trump’s tariffs come into effect next month. Declines in Japanese and Hong Kong equities were offset by advances in their Chinese and Korean counterparts as investors awaited developments. U.S. Treasuries fell and the dollar edged lower.
• It’s been a brutal two weeks for global equities, but for those invested in Asia it’s been even worse. More than three-fourths of the $2.1 trillion lost in stock values worldwide came from the region. China bore the brunt, with the selloff erasing $746 billion as the Shanghai Composite Index came close to entering a bear market.
• Brent crude gained in London as OPEC ministers edged closer to maintaining some kind of collective supply pact. Futures gained as much as 2 percent, reversing a slump on Thursday when it appeared that Iran might walk away from a deal and encourage rival producers including Saudi Arabia to go it alone. While comments on Friday from ministers of producer countries appeared to show an accord may be close, the precise outcome won’t be known until later, when a meeting of Organization of Petroleum Exporting Countries in Vienna concludes.
• Gold gains, paring second weekly drop. Bullion’s still trading near lowest this year, while dollar is close to highest since July on fears trade tensions between U.S. and China will escalate, hurting growth. Platinum slumps to lowest in more than two years.
• Three years after a wave of forced selling by margin traders fueled a collapse in China’s stock market, a new breed of leveraged shareholders are threatening to trigger another downward spiral. More than 5 trillion yuan ($770 billion) of Chinese shares, or about 12 percent of the country’s market capitalization, have been pledged as collateral for loans, according to data compiled by China Securities Co. and Bloomberg. The pledges, popular among company founders and other major shareholders in need of cash, have become a growing source of concern for analysts and the Chinese government after the Shanghai Composite Index tumbled to within a few points of its first bear market since the aftermath of the 2015 crash.
• Fujifilm Holdings Corp. failed to persuade a Manhattan state judge to dissolve an order barring its planned merger with Xerox Corp., cutting off a possible option for keeping the deal alive. The company has claimed in a separate lawsuit it will suffer $1 billion in damages if it can’t cement the $6.1 billion takeover, which was thwarted by activist investors Carl Icahn and Darwin Deason. Deason sued Xerox in February in Manhattan state court to block the acquisition, accusing its former Chief Executive Officer Jeff Jacobson of acting without authorization to strike a deal that preserved his job at shareholders’ expense.
• Mark Carney’s Bank of England has new powers that allow it to raise a war chest of more than 750 billion pounds ($1 trillion) — without permission or protection from the government. Under a new financial framework, the bank could unilaterally lend more than that amount if it needs to step into action to keep the banking system — and the economy — on an even keel.
• Greece’s euro-area creditors struck a landmark deal to ease repayment terms on some of the nation’s mountain of debt, clearing the way for the country to exit the lifeline that’s kept it afloat since 2010. The debt compromise reached in Luxembourg by the bloc’s finance ministers comes after months of acrimonious talks and just as the Mediterranean nation is set to leave its bailout program in August. A deal to ease Greek debt has long been seen as a key ingredient in the country’s successful return to economic health and foray back into financial markets.
• Barclays Plc has become the most bearish forecaster on the Indian rupee, predicting the currency will weaken more than it did during the taper tantrum five years ago. The lender expects the rupee to decline to 72 per dollar by year-end as elevated oil prices dents government finances and foreigners dump Indian assets. Hitting the target would mean an annual drop of 11.3 percent for the currency, worse than that seen in 2013. The prediction is also more bearish than the 67.52 median forecast in a Bloomberg survey.
• OPEC inched closer to an agreement that would allow an oil-supply increase after positive talks between Saudi Arabia and Iran. Iranian Oil Minister Bijan Namdar Zanganeh said he had a good meeting with his Saudi counterpart in Vienna on Friday and he wasn’t feeling pessimistic about the possibility for a compromise — a reversal of his position on Thursday night. After a tumultuous few weeks that have whipsawed crude markets, his comments suggested oil consumers from the U.S. to India and China could soon find some relief from high prices.
• Pacific Investment Management Co., Oaktree Capital Group LLC and Bain Capital are among bidders for 1 billion euros ($1.2 billion) of soured loans being sold by Alpha Bank AE, people familiar with the matter said. The portfolio, dubbed “Project Jupiter,” comprises loans backed by real estate or extended to small and midsize companies, the people said, asking not to be named because the deal is private. The three bidders are among 10 suitors preparing to submit non-binding offers before a July 9 deadline while final offers are due in September, the people said.
• The U.S. Supreme Court’s decision about online sales tax is viewed as a win for states — but those with aggressive collection policies, such as New York and California, could face challenges from online retailers. By overturning a ruling that had made much of the internet a tax-free zone, the court delivered a victory to South Dakota and effectively blessed its model of collecting sales tax from online retailers like Wayfair Inc. and Etsy Inc.Justice Anthony Kennedy defended the state’s measures as preventing “discrimination against or undue burdens upon interstate commerce.”
• PetSmart Inc. lenders are looking to gain an edge in their dispute over the handling of Chewy.com assets by leading the choice of the next administrative agent now that Citigroup Inc. has quit the role, according to people with knowledge of the matter. Citigroup had been acting as PetSmart’s term loan agent, which plays a role in the way negotiations take place when borrowers and creditors disagree. If the original agent quits, PetSmart’s credit agreement gives term-loan lenders the right to name the successor, who could be friendlier to their claims, according to the people. The creditors can invoke that clause now that Citigroup hasresigned. They would still need PetSmart’s consent for their choice, said the people, who asked for anonymity to discuss private matters.
• The billionaire chief of Foxconn Technology Group, Apple Inc.’s main iPhone assembler, argues that China’s “unreasonable” restrictions on overtime hours hurts his workers and the company’s competitiveness. Taking aim at criticism Foxconn over-works its employees to meet soaring demand before the annual holiday shopping season, Terry Gou told shareholders his workers actually want to work more hours and that forcing them to put in less time reduces their income.
• Bitcoin dropped the most in more than a week and led digital coins lower after Japanese regulators hit six of the country’s biggest cryptocurrency trading venues with business-improvement orders. The crackdown surprised investors, ending what was about to be the first winning week since early June for the most-liquid tokens. The MVIS CryptoCompare Digital Assets 10 Index tumbled as much as 7.1 percent on Friday. The gauge fell in five of the past six weeks.
• Walt Disney Co. is prepared to sell off businesses generating as much as $1 billion in cash flow to win regulatory approval of its $71 billion bid to buy 21st Century Fox Inc.’s entertainment assets, it said in a filing Thursday. The promise, made as part of Disney’s improved offer for the assets, is double the $500 million of earnings before interest, taxes, depreciation and amortization it initially offered to divest as part of the deal in December. The $1 billion in divestitures could include Fox’s regional sports networks, if the U.S. Department of Justice orders their sale.
• NN Group NV agreed to sell a rental-home portfolio in the Netherlands for 1.5 billion euros ($1.7 billion) to real estate investor Vesteda Finance BV as a housing shortage causes residential prices to soar. The Hague-based NN will dispose of 6,777 units, of which 794 are still in development, the insurer and asset manager said in a statement Friday. Vesteda will pay for 75 percent of the transaction in equity and the balance in cash, it said in a separate statement. For NN, the deal will result in a capital gain of about 80 million euros, it said.
• Blackstone Group LP is on course to buy Hispania after raising its bid for the Spanish real estate company to value it at 2 billion euros ($2.33 billion). Blackstone increased its bid to 18.25 euros per share from 17.45 euros per share, Hispania Activos Inmobiliarios SOCIMI SA said in a regulatory filing Friday. Hispania’s board considers the offer to be attractive and will unanimously recommend it to shareholders, the company said. Hispania, which owns offices, hotels and residential real estate across Spain, has attracted interest from buyers as an economic recovery stretching into its fifth year fuels tourism and demand for property.
• Hong Kong’s billionaire Cheng family, best known for its Chow Tai Fook Jewellery Group, is expanding its aviation business with the purchase of an aircraft leasing firm in Ireland. Goshawk Aviation Ltd., owned by Chow Tai Fook Enterprises Ltd. and NWS Holdings Ltd., agreed to buy a unit of Sky Aviation Leasing International L.P. that has grown into a $3 billion business, according to a June 21statement from investment groups selling the asset. The deal, whose value wasn’t disclosed, is subject to regulatory approvals and set to close in the third quarter.

 

 

*All sources from Bloomberg unless otherwise specified