April 25th, 2018
Daily Market Commentary
- As President Donald Trump says Nafta talks are “doing very nicely,” negotiations between ministers from the U.S., Mexico and Canada are ramping up in Washington in a redoubled push for a deal. Mexican Economy Minister Ildefonso Guajardo and Canadian Foreign Affairs Minister Chrystia Freeland both attended meetings Tuesday at the U.S. Trade Representative’s Office in Washington. High-level meetings are expected to continue Wednesday and probably Thursday, according to an official familiar with talks, speaking on condition of anonymity. The push comes ahead of a U.S. trade mission to China, as Mexican and U.S. elections bear down.
- Sun Life Investment Management is expanding its private credit business, adding to the raft of money managers boosting exposure to the assets in pursuit of higher returns. The unit of Canadian insurer Sun Life Financial expects to make a number of acquisitions this year and beyond, including in private credit, according to the asset manager’s president, Steve Peacher. The company hired Sam Tillinghastto help expand its U.S. private credit group, which allows investors to lend directly to companies, bypassing public markets.
- European stocks opened lower, following a drop in U.S. stocks hurt by rising bond yields and fresh worries over corporate earnings, with commodities-linked shares leading the retreat after their recent sharp gains. The Stoxx 600 fell 0.7%, with miners, oil companies and industrial stocks among the most hit. Aluminum in London dropped for a fifth day, its worst run in almost a year, as concerns eased over supply disruptions after the U.S. softened sanctions against United Co. Rusal.
- The dollar resumed its rally on Wednesday, heading for the highest in three months as the yield on benchmark U.S. Treasuries extended an advance above 3 percent. Pressure grew on stocks as investors digested a slew of earnings. Upward momentum in the dollar looks set to force a rethink on many of the most popular trades just now. It may spell more turmoil for equity markets, which have been roiled by rising yields and threats to global trade in recent weeks and had been looking to earnings for some cheer. Instead, a mixed bag of results across market-driving tech shares and industrial bellwethers is doing little to calm Wall Street nerves over the fate of global growth.
- Asian equities retreated as the 10-year Treasury yield pierced the 3 percent level for the first time in four years, sparking concern that the global economic growth outlook may be deteriorating. The MSCI Asia Pacific Index followed U.S. markets lower, losing 0.5 percent to 172.08 as of 4:48 p.m. in Hong Kong. Indonesia’s benchmark gauge fell as much as 2.5 percent amid investor concerns on a potential interest rate hike and a weaker currency.
- Oil steadied amid signs that French President Emmanuel Macron was struggling in his push for a new deal that might prevent further U.S. sanctions on Iran. Futures in New York were little changed after dropping 1.4 percent Tuesday. Macron proposed negotiating a new agreement that would curb Iran’s ballistic missile development and nuclear program ahead of next month’s decision by President Donald Trump on whether the U.S. will withdraw from the deal and reimpose sanctions on oil exports. Fears of an increase in U.S. crude inventories also weighed on prices.
- Gold declines as dollar strengthens and Treasury yields reach highest since 2014, curbing demand for the metal. Palladium extends drop as threat of Russian sanctions eases.
- European Central Bank policy makers brushed off concerns over recent weakness in economic data, including inflation, saying they’re increasingly optimistic about reaching their goal. Comments by Executive Board member Yves Mersch and Governing Council member Vitas Vasiliauskas were published Wednesday by Eurofi, which is convening a meeting of financial regulators. An ECB spokesman said Mersch’s article was submitted on March 21. Vasiliauskas’s contribution was sent on March 15, according to his adviser Rima Kaziliuniene. Data has since continued to show economic growth slowing compared with 2017.
- Takeda Pharmaceutical Co. reached a preliminary agreement to buy Shire Plc with a sweetened takeover offer of about 46 billion pounds ($64 billion), closing in on a bold transaction to gain a foothold in one of the pharma industry’s most coveted niches. The U.K.-listed company’s board said it was willing to recommend the latest offer to shareholders on Wednesday, capping a month-long tug of war in which its Japanese suitor made five successively higher proposals, two of them in the last few days.
- Comcast Corp. formalized its 22 billion pound ($30.7 billion) bid for Sky Plc, throwing down the gauntlet to Rupert Murdoch’s 21st Century Fox Inc. and Walt Disney Co. as they vie for Britain’s largest pay-TV broadcaster. Comcast is offering 12.50 pounds per Sky share in an all-cash deal, the Philadelphia-based company said in a statement Wednesday, confirming a proposed offer it made on Feb. 27. The offer is at a 16 percent premium to Fox’s 10.75 pound-per-share bid for Sky. Media billionaire Murdoch must now decide whether to increase Fox’s bid to stave off Comcast’s challenge, raising the prospect of a bidding war. Fox, which already has a 39 percent stake in Sky, plans to sell the broadcaster to Disney as part of their $52.4 billion merger announced in December.
- French President Emmanuel Macron is pushing the limits of international diplomacy, as his last-ditch appeal to salvage the Iran nuclear deal wrong-footed European allies and was met with intransigence by U.S. President Donald Trump. Macron, who has sought to cultivate a personal bond with Trump, made his Iran pitch the centerpiece of his visit to the White House. If the U.S. preserved the existing nuclear accord, that could serve as the cornerstone of a new, expanded deal that would address the Islamic Republic’s ballistic missile program and destabilizing behavior across the Middle East.
- Bharti Airtel Ltd. agreed to merge a unit with closely held Indus Towers Ltd. in a deal that creates a $14.6 billion telecom tower operator that would be the largest outside China. The combination with Bharti Infratel Ltd. creates an entity controlling more than 163,000 towers across India, Airtel said in a statement Wednesday. Infratel said it agreed to pay 1,565 of its own shares for each Indus Tower share. In a separate filing, Airtel said it will “engage with potential investors for evaluating a strategic stake sale” in the new entity.
- Tata Consultancy Services Ltd. maybe basking in the afterglow of joining the $100-billion club, but it is the company’s rival Infosys Ltd. that is a preferred buy for analysts. Of the 44 analysts covering both companies, 38 have a buy or equivalent rating on Infosys, India’s original poster child for software development. This compares with 19 buys for TCS, Asia’s largest software exporter, according to data compiled by Bloomberg.
- Europe’s top markets regulator is investigating the auctions that have sprung up as a workaround to a cap on dark trading in stocks. Since curbs on dark trading were introduced in March, the practice has slumped dramatically while auctions have increased, said Steven Maijoor, chairman of the European Securities and Markets Authority. This week, for the first time ever, exchange operator Cboe Europe’s periodic auctions book exceeded 1 billion euros ($1.2 billion) for a single day.
- CEFC China Energy Co. may cut half of its 30,000-strong workforce as the sprawling conglomerate faces increased financial pressures and scrutiny from Beijing, said an official at one of its units. A deal to buy 14 percent of Rosneft PJSC, however, remains viable despite being impacted by the company’s recent troubles, Zhuang Jianzhong, vice director of CEFC’s international research unit, said Wednesday on the sidelines of an energy conference in Shanghai.
- China granted additional quota for funds to invest in securities overseas for the first time in three years, easing capital curbs and further opening its $40 trillion financial sector. The Qualified Domestic Institutional Investor quota was bumped to $98.33 billion as of April 24 from $89.99 billion, the first increase since March 2015, data from the State Administration of Foreign Exchange showed on Wednesday. The change followed similar approvals, which more than doubled the quota for two outbound portfolio investments, announced earlier.
- Subway Restaurants, the world’s most ubiquitous dining chain, will continue closing U.S. stores as it expands internationally. After peppering the nation with thousands of locations, closely held Subway is retrenching. This year, the sandwich purveyor is planning to shut about 500 more of its U.S. shops. Last year, more than 800 stores went dark, with the total U.S. count dropping to 25,908. It also closed restaurants in 2016.
- A consortium of Chinese investors have raised about $4.1 billion through a privately placed bond to fund the purchase of Li Ka-shing’s CK Asset Holdings Ltd.’s stake in Hong Kong office tower The Center, according to people familiar with the matter. The group of investors, which includes Hui Wing Mau, chairman of developer Shimao Property Holdings Ltd. and Pollyanna Chu Yuet Wah, billionaire co-founder of Kingston Financial Group, raised the funds through a $3.3 billion senior bond and $811.5 million junior bond, the people said.
- Robert Bosch GmbH said its engineers have developed a new diesel-exhaust system that cuts emissions far below legal limits taking effect in 2020 and can help automakers avoid potential driving bans in Europe that threaten to doom the engine technology. “This breakthrough offers the opportunity to shift the heated debate over diesel into new territory and, hopefully, bring it to a close,” Bosch Chief Executive Officer Volkmar Denner said Wednesday at a press conference outside Stuttgart.
- Months after calling off a planned partnership with Tata Motors Ltd., Volkswagen AG signaled it isn’t shutting the door on a tie-up with the Indian automaker as it works on a strategy to bring budget cars to millions of cost-conscious buyers in the South Asian country. Cooperation with the owner of Jaguar Land Rover Plc is possible “in principle” in the future, said Bernhard Maier, chief executive officer ofSkoda Auto AS, part of the VW group. Volkswagen, which has been long considering making affordable models for India, will decide on its game plan in the first half of this year, he said in an interview at the Beijing auto show on Wednesday.
- Facebook Inc. is on tap to report first-quarter results after the close of trading on Wednesday, and Wall Street will scour the numbers for any signs of user losses or a drop-off in advertiser spending. The company’s shares have tumbled 10 percent this year, with much of the decline related to revelations in March that Facebook failed to safeguard the data of millions of users. Political-consulting firm Cambridge Analytica obtained information on as many as 87 million Facebook users in 2014 and then lied about deleting the data, Facebook has said. Chief Executive Officer Mark Zuckerberg has spoken about the social network’s efforts to improve privacy protection to users, journalists and U.S. Congress. Now he’ll need to address Wall Street.
- Apple Inc. Chief Executive Officer Tim Cook will meet with President Donald Trump at the White House on Wednesday as the company looks to head off a brewing trade war between the U.S. and China. The sit-down between Cook and Trump will take place in the Oval Office on Wednesday afternoon and be closed to the press, according to the president’s official schedule released by the White House. The Trump administration’s decision to pursue tariffs on as much as $150 billion in Chinese goods has stoked trade tensions with Beijing that could affect Apple’s business in Asia. The company’s sprawling production chain is also centered in China.
- Credit Suisse Group AG is seeking to reclaim hundreds of millions in taxes from a controversial U.K. bonus levy that hit banker compensation in 2010. The Swiss lender is preparing for a London trial against the British tax authority over the one-off 50 percent tax on banker bonuses of more than 25,000 pounds, lawyers for the bank said at a court hearing Monday. Credit Suisse paid 440 million Swiss francs ($450 million) for the tax. The tax implemented by the Labour government in the wake of popular anger over lavish banker bonuses following the global financial crisis generated 3.4 billion pounds ($4.8 billion), almost five times higher than initial estimates. Credit Suisse, which didn’t take a government bailout, is asking whether the tax should be considered a state-aid measure.
- Anthem Inc. is benefiting from a decision last year to retreat from the Affordable Care Act’s health insurance markets and raise prices significantly. The insurer’s members spent about 2.2 percentage points less on its members’ health care, as a percentage of the premiums they paid, than it did a year prior, a big change in the tight-margin health insurance business. The lower costs in the first quarter helped Anthem post adjusted profit of $5.41, far exceeding the highest Wall Street estimate.
- Whitbread Plc is betting that its faster-growing Costa Coffee chain will compete more effectively against the likes of Starbucks Corp. once separated from the company’s hotel business. Costa will be spun off from Premier Inn within 24 months, the Dunstable, England-based company said Wednesday. The planned split follows mounting pressure from activist investors who said the two businesses sit uneasily together under one corporate roof.
*All sources from Bloomberg unless otherwise specified