April 24th, 2019
Daily Market Commentary
- Canadian Headlines
- Crude’s rally is a boon for Canada’s integrated oil companies, and BMO Capital Markets is urging investors to increase their exposure to cash in on the dividends and buybacks the windfall may bring.“The surge in crude oil prices is creating a cash flow windfall for many companies. At a WTI price of $55/bbl and WTI-WCS differential of $20/bbl, we expect the Canadian large cap companies to collectively generate C$11 billion of surplus cash flow in 2019,” BMO said.
- Bank of Canada Governor Stephen Poloz is widely expected to cement expectations for a prolonged pause on interest rates on Wednesday, as the nation’s economy grapples with a slowdown. All 24 analysts surveyed by Bloomberg see policy makers leaving the benchmark overnight rate at 1.75 percent in a decision at 10 a.m. in Ottawa. It would mark a fourth straight hold by the Ottawa-based central bank.
- Teck Resources Ltd., focusing on its massive expansion of the Quebrada Blanca mine in Chile, expects to sell some or all of its stakes in two smaller Latin American copper projects by next year, Chief Executive Officer Don Lindsay says. The Zafranal and San Nicolas projects could be sold by early 2020, Lindsay said Tuesday on the Vancouver-based company’s first-quarter earnings call. The deliberations are part of a larger internal process to decide which of eight copper projects are worth building, selling or developing with a partner.
- Rogers Communications Inc. is raising about $2 billion in two bond sales after winning half the licenses in the Canadian government’s most recent auction of wireless spectrum. Toronto-based Rogers is selling $1.25 billion of 30-year senior unsecured notes and C$1 billion ($745 million) of 10-year bonds, according to people familiar with the sale. The dollar transaction is set to price at 1.40 percentage points more than Treasuries, while the spread on the loonie deal is at 1.52 percentage points over the Government of Canada curve.
- The Ontario Teachers’ Pension Plan said it’s setting up a new venture capital and technology investment department to back late-stage growth companies around the world. Ontario Teachers’ Innovation Platform will focus on companies that use technology to disrupt industries and have the potential to generate above-market returns, the Canadian pension fund said in a statement Tuesday. The new department will be led by senior managing director Olivia Steedman.
- World Headlines
- European equities opened little changed as investors focused on earnings from companies including SAP SE and Akzo Nobel NV. The Stoxx Europe 600 Index was down 0.1 percent. Akzo Nobel slid 3 percent after reporting quarterly earnings that missed estimates, while SAP surged 7 percent after raising its operating-profit outlook. Wirecard AG jumped 7.5 percent after SoftBank Group Corp. agreed to invest about 900 million euros ($1 billion) in convertible bonds of the company. Renault retreated after alliance partner Nissan cut its preliminary operating profit for the year ended March, citing multiple challenges across its business.
- Chinese tech and agricultural companies advanced in late trading on Wednesday, driving the best gains in small caps in more than three weeks. The small-cap ChiNext gauge rose 2.1 percent, the most since April 1, while the Shenzhen Composite gained 1.1 percent, reversing an earlier decline of 0.9 percent. Hefei Fengle Seed Co. jumped 6.4 percent and Guomai Technologies Inc surged 10 percent among the best performers. The Shanghai Composite Indexedged up 0.1 percent at the close, erasing a loss of as much as 1.3 percent.
- Oil pulled back from a six-month high as an industry report signaling a gain in U.S. crude inventories partly offset concerns over America’s campaign to halt Iranian exports. Futures in New York fell as much as 0.8 percent. Crude stockpiles rose by 6.86 million barrels last week, the American Petroleum Institute was said to report on Tuesday. Saudi Arabian Energy Minister Khalid Al-Falih said he sees no need for immediate action in response to tighter U.S. sanctions on Iran, while the International Energy Agency said there remain “comfortable” levels of spare capacity.
- Gold’s loss is the equity market’s gain. The precious metal fell to a 2019 low Tuesday, extending last week’s sell-off as the S&P 500 Index and the Nasdaq Composite Index climbed to records. Demand for bullion as a haven asset has been wavering as better-than-expected earnings bolster equities and the dollarstrengthens.
- Occidental Petroleum Corp. triggered a bidding war for Anadarko Petroleum Corp. after making a $57 billion counter-offer in attempt to break up a proposed takeover by Chevron Corp. Occidental said Wednesday it’s offering $76 per share in cash and stock. That compares with Chevron’s April 12 agreement to buy The Woodlands, Texas-based Anadarko for $65 a share in stock and cash.
- Deutsche Bank AG’s fund business sees a combination with UBS Group AG’s asset manager as the preferred strategic way forward though it continues to pursue other options, according to people familiar with the matter. Talks about a potential tie-up between DWS Group and UBS asset management have been going on for some time but finding an agreement is complicated because Deutsche Bank isn’t willing to give up control of DWS, the people said. No decision has been reached and other options are still possible, they said, asking not to be identified discussing the private deliberations.
- SoftBank Group Corp.’s $1 billion bet on Wirecard AG is a boon for the battered German digital-finance firm and secures a major European partner for the Japanese tech conglomerate that’s bulking up in mobile payments. For SoftBank, the agreement furthers its transformation from a telecommunications operator into a technology investor under founder Masayoshi Son. For Wirecard, the investment means easier access to markets in Asia and a vote of confidence after months of whipsawing shares following allegations of accounting misdeeds at its Singapore unit.
- Trade negotiators led by U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin will travel to Beijing next week, the White House said, as both sides work to reach a draft agreement by next month. Talks starting next Tuesday “will cover trade issues including intellectual property, forced technology transfer, non-tariff barriers, agriculture, services, purchases and enforcement,” the White House said in a statement. Chinese officials led by Vice Premier Liu He planned to then head to Washington for discussions starting on May 8, the White House said. The two sides are seeking to have a draft agreement by the end of May, a person familiar with the matter said, asking not be named discussing the private talks. Officials want to announce during Liu’s visit that they’ve agreed to a deal and details of a signing summit, people familiar told Bloomberg News earlier.
- Key gauges of confidence in the euro area’s two largest economies unexpectedly deteriorated, signaling that a long-expected rebound may still be some way off. Manufacturing has been at the heart of economic weakness in Germany, fed by fears of protectionist trade policies and weakening global demand. In France, disruption caused by Yellow Vest protests has damped growth momentum. Consumers too are getting nervous, with a euro-area measure down at a four-month low.
- Chia Ek Chor fled his typhoon-ravaged village in southern China and started a new life in Thailand selling vegetable seeds with his brother in 1921. Almost a century later, with the largest family fortune in the country, his descendants are becoming Chinese President Xi Jinping’s key economic allies. Chia’s son Dhanin Chearavanont is senior chairman of Charoen Pokphand Group Co., a vast conglomerate that is the world’s biggest producer of animal feed, shrimp as well as a top telecom firm in Thailand. It is at the center of an ambitious plan to turn Thailand’s eastern seaboard into a tech hub with bullet trains, 5G networks and smart car factories. The so-called Eastern Economic Corridor is the flagship program of Thailand’s military regime, a bid to leverage Japanese investment and Chinese tech giants like Alibaba Group Holding Ltd. and Huawei Technologies Co. to revive an economy that grew 4.1 percent last year, the slowest rate in emerging Southeast Asia. But a messy March 24 general election means that projects could come under greater scrutiny as critics accuse authorities of dispossessing local farmers to make way for Chinese investors.
- Kim Jong Un rumbled into Vladivostok on Wednesday aboard his armored train, looking for a friend to help him through a rough patch with President Donald Trump: Russian leader Vladimir Putin.
- Wearing a black overcoat, Kim stepped onto a red carpet a day before his planned meeting with Putin for his first summit with the Russian leader since coming to power in 2011. The trip — coming almost a year after Russia’s invitation — appeared timed to show that Kim has alternative sources of support after his failed meeting with Trump in Hanoi left North Korea with no clear path to escape a U.S.-led international economic embargo. Kim Jong Un walks past honour guards in Vladivostok on April 24. While Putin has little money to share and is unlikely to make any moves that could violate sanctions or create another dispute with the U.S., Kim may have to settle for Russian pledges of diplomatic and economic support. But the two leaders don’t plan to make any joint statements or sign agreements, according to Yuri Ushakov, Putin’s foreign-policy aide.
- Turkey hasn’t proposed stationing an advanced missile-defense system its buying from Russia in a third country as a way of defusing U.S. opposition to the purchase, Foreign Minister Mevlut Cavusoglu said late Tuesday. The government in Ankara has though suggested to the U.S. and NATO creating a joint committee of experts to examine steps Turkey could take to limit the use of the S-400 missiles, he said, according to state-run TRT television. But “the U.S. still hasn’t responded to the offer, whereas NATO wants it.” Turkey will make sure the system doesn’t identify NATO assets as an adversary, he said. Cavusoglu met Defense Minister Hulusi Akar in Ankara on Wednesday to discuss the purchase of the S-400s, NTV television reported.
*All sources from Bloomberg unless otherwise specified