April 5th, 2019
Daily Market Commentary
- Canadian Headlines
- Canada is ratcheting up pressure on the U.S. to lift tariffs on steel and aluminum — threatening to hold up the new continental trade deal and change up its own retaliatory tariffs to have a bigger impact. The U.S., Canada and Mexico signed their new trade deal Nov. 30, but it still needs to be ratified by lawmakers in all three countries and time is running out in Canada before the next election. There are increasing calls from U.S. lawmakers to lift the tariffs in a bid to smooth passage of the trade deal. Canada’s foreign minister, Chrystia Freeland, this week issued a warning that Canada would only move forward on ratification when other countries do, and that it may change its tariffs on the U.S. Meanwhile, another envoy said flatly that Canada won’t move ahead on ratification so long as the U.S. tariffs remain in place, and that they fear U.S. President Donald Trump wants to keep the tariffs until the trade deal is ratified.
- ‘Brand Canada’ is taking a beating, according to the heads of the nation’s two biggest banks. Toronto-Dominion Bank Chief Executive Officer Bharat Masrani and Royal Bank of Canada CEO David McKay flagged Canadian weaknesses during their respective annual investors meetings — including competitiveness, stalled infrastructure, lack of housing supply, trade barriers and red tape. While Canada also has strengths — Masrani cited innovation and technology — the bank heads said there are clearly problems to fix.
- The Stoxx Europe 600 Index fluctuated while trading volumes throughout Asia were muted, with cash markets in China and Hong Kong shut for a holiday. Treasuries fell, with the yield on 10-year notes reaching a two-week high, and most euro-zone bonds also slipped. The pound pared an advance after news emerged that U.K. Prime Minister Theresa May asked the EU to delay Brexit to June 30.
- Global stocks edged higher while Treasuries slipped following remarks from both China and the U.S. that progress was being made in trade talks. The dollar held steady hours before Friday’s report on the American job market. U.S. equity-index contracts advanced alongside Chinese stock futures after a report that President Xi Jinping said substantial progress had been made on the text for a trade deal.
- Xi is pushing for a rapid conclusion to the negotiations with the U.S., while President Donald Trump on Thursday talked up prospects for a “monumental” agreement that may still be some weeks away. The improved tone in the talks has helped drive the recent rally in equities, with the MSCI All Country World Index touching a six-month high this week. For some, that’s left them vulnerable to disappointment.
- Oil in New York headed for the longest weekly winning streak since November 2017 as crises from Venezuela to Libya threatened supplies, while optimism over U.S.-China trade talks buoyed the outlook for demand. West Texas Intermediate futures were little changed, poised for a fifth weekly increase. OPEC cut production for a fourth month in March, while supply risks are mounting in member nations exempt from the strategy. Power failures that plagued Venezuela last month were said to have briefly slashed crude output by half. And in Libya, tensions are rising as military leader Khalifa Haftarordered his forces to advance on the capital.
- Platinum headed for the biggest weekly gain in more than two years as its wide discount to palladium stokes investor interest, while traders weigh the potential for labor disruptions in South Africa, the largest producer. Used in autocatalysts of diesel engines and jewelry, the metal is seeing a rebound after trading near its cheapest ever relative to palladium as it tumbled 14 percent in 2018. Holdings of exchange-traded funds backed by platinum have surged this year to reach a record.
- Prime Minister Theresa May has asked the European Union to delay Brexit until June 30, setting up a battle with the bloc ahead of a key summit next week. May wants an extension to June 30 and aims to avoid holding European elections next month, which would be politically toxic at home. But the EU’s view is that if there is an extension, it should be longer, given the deadlock in the U.K. France was quick to say it was “premature” to talk of an extension. May cited talks with opposition Labour Party Leader Jeremy Corbyn aimed at breaking the Brexit impasse as a reason for further delay in her letter to EU Council President Donald Tusk. It’s the same length delay she asked for last month, which the bloc rejected.
- President Donald Trump will visit a stretch of border wall in California on Friday, capping a week of heated threats against Mexico over undocumented migration and the flow of illegal drugs. In his third trip to the border this year, Trump will view a portion of border wall in the city of Calexico and meet with local law enforcement, a setting he typically uses to reiterate his promises to crack down on undocumented immigration.
- Minority investors in Russian supermarket chain Lenta Ltd. challenged a $1.75 billion deal agreed this week with billionaire Alexey Mordashov’s Severgroup after a higher bid from a rival retailer. A group holding 17 percent of Lenta and including activist investor Prosperity Capital Management have asked the chain’s independent directors to “clarify the valuation and alternative routes considered” after Russia’s second-largest retailer Magnit PJSC proposed buying the whole company for $3.65 a share on Monday. That’s higher than the $3.60 that Severgroup will pay for a 42 percent stake held by U.S. private equity firm TPG Capital and the European Bank for Reconstruction and Development.
- Norway’s $1 trillion sovereign wealth fund got the go-ahead to cut emerging market government and corporate bonds as part of an overhaul of its $310 billion fixed-income holdings. The decision, announced on Friday by the Finance Ministry, comes after more than a year of deliberation. Bonds from Mexico, South Korea, Chile, the Czech Republic, Hungary, Israel, Malaysia, Poland, Russia and Thailand will be removed from the index, but the fund will still have leeway to invest up to 5 percent of its bond portfolio in emerging markets.
- Power failures that plunged Venezuela into darkness for much of March also briefly slashed the country’s crude production by half, according to people familiar with the situation. Rolling blackouts across much of the country that started on March 7paralyzed most of the country’s oil wells and rigs, which have slowly come back online. Oil output averaged less than 600,000 barrels a day during the blackouts, the people said, who asked not to be identified because the information isn’t public. For the full month, daily production was 890,000 barrels, according to a Bloomberg survey of officials, analysts and ship-tracking data.
- Volkswagen AG is preparing to build its own fast 5G networks in German factories to connect machines and boost productivity, taking on an area traditionally dominated by telecommunication providers like Deutsche Telekom AG. Talks with equipment providers are ongoing and the first 5G networks at VW sites could start at the end of next year, if Germany’s federal grid agency grants the carmaker a license, VW said.
- Thai energy tycoon Sarath Ratanavadi’s fortune has surged $1 billion since late December as investors warm to his bet on Vietnam. Shares in his Bangkok-listed firm, Gulf Energy Development Pcl, have jumped 50 percent following its mid-August announcement of wind and solar power ventures in Vietnam. Officials there say they have also met with Gulf Energy over a multi-billion dollar plan to build gas-fired power plants.
- State-run lender Power Finance Corp. Ltd. and its unit REC Ltd. have approved a 102.5 billion rupee ($1.5 billion) loan for Adani Power Ltd.’s coal-fired power project in India’s eastern state of Jharkhand, according to people familiar with the matter. The loan for the 1,600-megawatt project will be divided equally between the two lenders, the people said, asking not to be named as the decision isn’t yet public. Seventy percent of the project’s cost will be funded through loans and the rest by equity, with REC and Power Finance providing the entire debt, they said. That works out to a total project cost of 146.4 billion rupees, according to Bloomberg calculations.
- Commerzbank AG Chief Executive Officer Martin Zielke, almost three weeks into formal discussions about a combination with Deutsche Bank AG, is lobbying hard to overcome internal opposition to the idea. The lender doesn’t have the market share needed for costly investments to pay off, Zielke told employees in a memo. Low interest rates are squeezing profits, regulatory expenses have increased and clients are demanding quick and digital banking solutions, he said. While Commerzbank’s strategy of aggressive client acquisitions was working, a deal could be a faster way to add scale.
- Morgan Stanley will take on the profitable job of overseeing Uber Technologies Inc.’s stock in the early hours of trading after the global ride-hailing giant goes public, people familiar with the matter said. Morgan Stanley, Goldman Sachs Group Inc. and Bank of America Corp. are the lead underwriters listed in Uber’s confidential filing with the U.S. Securities and Exchange Commission for an initial public offering, said the people, who asked not to be identified because the details aren’t public. Barclays Plc., Citigroup Inc. and Allen & Co. are also working on preparations for the listing by the world’s largest ride-sharing company, the people said.
- Grocers, alarmed at Amazon.com Inc.’s rapid growth in Europe, are considering fighting back with the help of a tiny Portuguese startup. Sensei, a 16-month-old technology company based in Lisbon that’s backed by Germany’s Metro AG and Portugal’s Sonae SGPS SA, is pitching its technology to European supermarkets as they race the e-commerce giant to open the region’s first checkoutless stores.
- Samsung Electronics Co. reported its worst operating-profit drop in more than four years, buffeted by falling memory-chip prices and slowing smartphone sales. Operating income fell 60 percent to about 6.2 trillion won ($5.5 billion) in the three months ended March, according to preliminary results released Friday from the Suwon, South Korea-based company. That was the biggest decline since a similar drop in the third quarter of 2014. Analysts surveyedby Bloomberg had expected a 56 percent slump to an average of 6.93 trillion won.
- Norway is clearing its $1 trillion sovereign wealth fund to invest in renewable-energy infrastructure, adding a new asset class for the first time in a decade. The move follows years of lobbying by the fund itself and pressure by several political parties and environmental activists keen to see the investor take on a greener profile. The Conservative-led government had rejected both private equity and unlisted infrastructure in the past, but said on Friday that expectations of significant investments in future mean that the market is of interest to institutional investors such as the wealth fund.
*All sources from Bloomberg unless otherwise specified