April 30th, 2018
Daily Market Commentary
- The indefatigable ability of Canadians to shoulder an ever increasing mountain of debt is being tested. The country’s biggest banks began raising key borrowing rates last week, just as the busy season for residential real estate gets underway. In addition, the mortgage market looks set for a particularly heavy year of renewals in an environment where debt-servicing costs are already rising at the fastest pace in a decade. How well Canadian households can weather the squeeze has become one of the biggest questions for policy makers and will determine whether the economy is headed for a mild, or sharp, slowdown. Bank of Canada Governor Stephen Polozwill address the topic in a speech on Tuesday.
- The Toronto Stock Exchange will resume operations this morning after a hardware failure shut down trading for more than two hours Friday afternoon on Canada’s main stock and derivatives bourses. The outage, which began Friday at 1:37 p.m. on the Montreal Exchange derivatives market and spread two minutes later to TMX Group Ltd.’s equity exchanges, was due to a failure in a central storage appliance of the trading system. The failure wasn’t the result of a cyber-security attack, the Toronto-based company said Saturday in a statement.
- Stocks in Europe drifted higher, U.S. futures advanced, and equities across Asia gained as dealmaking activity brought some excitement to the start of a busy week. Media and real estate companies led advances in Europe as most national gauges rose, while raw material providers were among the biggest losers as commodities fell. Shares in the FTSE 100 Index climbed to the highest in almost three months, with retailer J Sainsbury Plc jumping the most on record as it plans to buy Walmart Inc.’s U.K. arm, Asda.
- Futures for the S&P 500, Dow Jones and Nasdaq all pointed to a higher opening amid plans for mobile telecommunication company T-Mobile US Inc. to acquire Sprint Corp. for $26.5 billion in stock. The Wall Street Journal also reported that Marathon Petroleum Corp. plans to buy rival oil refiner Andeavor for more than $20 billion to create the biggest U.S. fuel maker.
- Oil fell as the U.S. oil rig count rose for a fourth week, but was still poised for a second monthly advance. Futures in New York are up 3.7 percent this month, even after a 1 percent drop on Monday, following data that showed an increase in U.S. drilling activity. A potential withdrawal in May by U.S. President Donald Trump from a 2015 nuclear deal between world powers and Iran would reimpose sanctions on the Middle Eastern producer and curb its exports. Meanwhile, OPEC is trimming output even after concluding it has cleared 97 percent of the surplus that has weighed on prices.
- Gold falls as equities climb and stronger dollar weighs on precious metals.
- China’s economy is giving little sign that a slowdown is approaching, with services strengthening and manufacturing remaining robust. The official manufacturing purchasing managers index stood at 51.4 in April versus the 51.3 estimate in a Bloomberg survey and 51.5 last month. The non-manufacturing PMI, covering services and construction, rose to 54.8, the statistics bureau said Monday, beating estimates. Levels above 50 indicate improvement.
- The Federal Reserve is closing in on its elusive 2 percent inflation target but that doesn’t mean policy makers are ready to pronounce mission accomplished. The central bank’s preferred measure of inflation probably clocked in at that level last month after spending much of the past six years below target, government data due out on Monday are expected to show.
- J Sainsbury Plc plans to buy Walmart Inc.’s Asda unit in a 7.3 billion-pound ($10 billion) deal that boosts the U.K. grocer’s clout in a highly competitive market and pushed its stock up the most in at least 30 years. Sainsbury will pay Walmart 2.98 billion pounds in cash and 4.3 billion pounds in stock, the U.K. company said in a statement Monday detailing the terms after confirming a Bloomberg News report on the plan. Walmart would be the largest shareholder in the merged entity, with a 42 percent stake, Sainsbury said.
- Twitter falls 1.6% in pre-market trading after confirming Sunday that it sold data access to the Cambridge University academic who obtained Facebook user data.
- T-Mobile US Inc. agreed to acquire Sprint Corp. for $26.5 billion in stock, a wager that the carriers can team up to build a next-generation wireless network and get a jump on industry leaders Verizon Communications Inc. and AT&T Inc. The deal follows years of will-they-won’t-they deliberations between Deutsche Telekom AG, the German company that controls T-Mobile, and SoftBank Group Corp., the Japanese owner of Sprint, and comes about five months after an earlier merger attempt collapsed. The combination reduces the U.S. wireless industry to three major competitors from four, ensuring heavy scrutiny from regulators.
- Marathon Petroleum Corp. agreed to buy rival oil refiner Andeavor for $23.3 billion, in a deal that could create the largest independent fuel maker in the U.S. The offer, payable in either cash or shares, values Andeavor at about $152.27 a share, the companies said in a statement on Monday. That’s about a 24 percent premium over Friday’s closing price. The Wall Street Journal first reported the acquisition on Sunday.
- SJP Properties Co. and Aetna Realty are planning to spend as much as $1 billion on a project beside a Newark, New Jersey, commuter-rail hub, the latest in a spree of upscale developments that have brought new optimism to the long-suffering city. SJP, of Parsippany, and Aetna, of New York, envision offices, stores, a hotel, homes and a large public plaza next to the Broad Street hub. The station is one of two in New Jersey’s largest city, the other being Newark Penn Station, about a mile to the southeast.
- WPP Plc rose the most in almost a decade as investors looked beyond its lack of growth and focused instead on possible asset sales following the departure of founder Martin Sorrell. The world’s largest advertising company pledged that interim co-chief operating officers Mark Read and Andrew Scott would undertake a strategy review while delivering first-quarter financial results that beat analysts’ estimates. Executives spent a subsequent meeting with analysts playing down expectations for a breakup after media reports over the weekend that it’s considering the sale of its market research unit Kantar.
- Banco De Sabadell SA’s U.K. subsidiary, TSB Banking Group, entered a second week of struggles to fix technical problems that left half of its online clients cut off from their accounts after an attempt to shift 5 million customers to a new platform went awry. Internet banking was operating at around 50 percent of capacity as of late Sunday, meaning that only five out of every 10 customers trying to use TSB’s online service would succeed, a spokeswoman for the bank said.
- Marriott Vacations Worldwide will buy ILG Inc, as the timeshare operator is under pressure from activist investor FrontFour, in a cash and stock transaction with an implied equity value of about $4.7 billion.
- Efforts to start government talks between Italy’s anti-establishment Five Star and the center-left Democratic Party were thrown into disarray as leaders of the two parties said dialogue was impossible, increasing the prospect of new elections in a few months. Five Star head Luigi Di Maio signaled that discussions were no longer viable after Matteo Renzi, the Democrats’ former leader and ex-prime minister, said his party’s executive should reject talks at a meeting scheduled May 3.
- U.K. Prime Minister Theresa May has named Sajid Javid, a 48-year-old euroskeptic, as home secretary in an appointment that could tip the balance of power in the Cabinet toward a harder Brexit. His predecessor Amber Rudd was a key pro-European Union voice who provided a counterpoint to pro-Brexit heavyweights, including Foreign Secretary Boris Johnson and Environment Secretary Michael Gove. Javid, a former banker, will attend a key meeting of the Brexit “war cabinet” on Wednesday that will weigh up what kind of future relationship the U.K. will seek with the EU after the split.
- Apple Inc. earnings this week will confirm what most investors have finally accepted: The iPhone X didn’t live up to the hype. The results should also provide clues on the company’s next strategy for its most-important product. Chief Executive Officer Tim Cook and other Apple executives have a “major prove-me” period ahead, beginning with a new sales forecast and a conference call with analysts on Tuesday, GBH Insights analyst Daniel Ives said. He and other analysts cut their iPhone sales estimates, and Apple stock is down almost 8 percent in the past two weeks.
- For Prologis Inc., the world’s largest warehouse owner, the biggest challenge to growth has been acquiring land in the markets most important to its e-commerce tenants. The solution: buy a rival. The real estate investment trust agreed to acquire DCT Industrial Trust Inc. for $8.4 billion in stock and assumed debt. Stockholders in DCT will receive 1.02 Prologis shares for each of theirs, the companies said in a statement Sunday. That represents a premium of about 16 percent over DCT’s closing price of $58.75 on Friday.
- Uber Technologies Inc.’s settlement of Waymo’s trade-secrets lawsuit in February left a key piece unresolved: the role played by Anthony Levandowski, the engineer at the center of the alleged theft of critical self-driving technology. Starting Monday, Levandowski goes to trial to defend himself — and at least $120 million in incentive payments he collected from the search giant before he defected to Uber. He’s fighting Google’s claims that he breached his contract as one of the leaders of its autonomous vehicle unit, now called Waymo, by recruiting from its ranks for his rival company, Otto.
- Indonesian is lifting its ban on JPMorgan Chase & Co. after more than a year from doing business with government entities, the Finance Ministry said. The U.S. investment bank is back among a list of 20 banks and securities firms enlisted by the government as primary dealers of government bonds. JPMorgan’s reinstatement is effective from May 2, the ministry said.
*All sources from Bloomberg unless otherwise specified