August 15th, 2018
Daily Market Commentary
- Canadian stocks rose, rebounding along with their U.S. counterparts after two days of Turkey-induced weakness. The S&P/TSX Composite Index added 80 points, or 0.5 percent, to 16,330.67. Consumer staples and financials led the gains, rising 1.4 percent and 1 percent respectively.
- Constellation Brands Inc. is spending C$5 billion ($3.8 billion) to increase its stake in cannabis grower Canopy Growth Corp. in what the owner of Corona beer described as the biggest investment yet in the burgeoning marijuana industry. Constellation will raise its stake in Canopy to 38 percent, it said Wednesday in a statement. The agreement, which could eventually give the Victor, New York-based beverage company control, follows an initial purchase of a 10 percent stake in the Canadian grower last year.
- Canada’s largest lenders have boosted their capital enough in the past two years to withstand a 35 percent decline in housing prices in Ontario and British Columbia and 25 percent in the rest of the country, according to Moody’s Investors Service. Canada’s six biggest banks and Quebec’s Desjardins Group “incrementally improved” their capital buffers to absorb C$14.3 billion ($10.9 billion) in mortgage losses from such an economic shock, which would also include a 10 percent loss for foreclosure costs, the New York-based ratings company said Wednesday in a report. Losses in Moody’s worst-case scenario have risen from C$12.2 billion in 2016 due to a decline in insured home loans and higher mortgage debt from surging home prices in Vancouver and Toronto.
- European stocks were little changed at the open as miners slumped again along with metal prices while GlaxoSmithKline rallied. Stoxx Europe 600 Index was up 0.1 percent. Basic materials dropped 0.8 percent as copper sank below $6,000 amid investor fears that the Turkish turmoil will hurt demand.
- U.S. equity futures tracked declines across both Europe and Asia on Wednesday as disappointing earnings from Chinese tech giant Tencent Holdings added to a gloomy mood across global markets. Treasuries climbed, the dollar rose to the highest in 14 months and metals slumped. Contracts for the Dow, Nasdaq and S&P 500 were already edging lower before Tencent reported its first profit drop in at least a decade, spurring further declines.
- China’s equities and currency slid, with the yuan weakening past 6.9 a dollar for the first time since May 2017 and losses in tech stocks spiraling into a broad selloff. The Hang Seng China Enterprises Index fell 2 percent at the close for its fourth day of losses. Tencent Holdings Ltd. rattled equities after surprising investors with its first profit drop in at least a decade, sending MSCI’s emerging-market benchmark down 1.3 percent. Shanghai’s benchmark stock gauge and the small-cap ChiNext Index also retreated at least 2 percent.
- Oil slid for a third day as copper and other metals tumbled on concern the Turkish crisis will spill over into emerging markets, and as an industry report was said to show a gain in U.S. crude inventories. Futures in New York dropped as much as 1.5 percent. Copper slumped to the lowest in a year while nickel and zinc also retreated on fears that Turkey’s currency plunge will spread to other markets, unnerving investors already rattled by a trade dispute between the U.S. and China.
- Gold’s heading for its fifth monthly loss, the worst run since 2013, as the dollar climbs. Technically, the metal is near a support level at $1,190 an ounce, and will find a further prop at $1,145-$1,146, last seen at the start of 2017.
- From Turkey’s financial crisis to China’s trade war, the emerging-market contagion is infecting metal markets. Base metal markets tumbled on Wednesday, with most contracts falling more than 2 percent in London. Copper sank below $6,000 a metric ton and is now approaching a bear market. Not even gold, the usual safe haven, was spared from the selloff. Bullion prices sank 0.7 percent to $1,186 an ounce. Natural resource shares were also in the red.
- U.K. inflation accelerated for the first time in eight months in July, boosted by the cost of auto fuel, transport tickets, computer games and food. Annual consumer-price growth quickened to 2.5 percent from 2.4 percent in June, as economists forecast, figures from the Office for National Statistics Wednesday show.
- Special Counsel Robert Mueller doesn’t have to shut down his Russia investigation in the weeks before November’s congressional elections despite claims by President Donald Trump’s lawyers that he faces a Sept. 1 deadline, according to current and former U.S. officials. Mueller can continue his closed-door inquiries, and even issue new indictments up to and after the Nov. 6 voting, without violating a Justice Department policy against actions intended “for the purpose of affecting any election,” they said, asking not to be identified discussing investigative matters.
- Diamondback Energy Inc.’s agreement to buy Energen Corp. in an $8.4 billion all-stock deal makes it official: The long-awaited Permian Basin buying spree has arrived, promising to shake up the U.S. shale industry. Some $30 billion in transactions this year center on the Permian, where pipeline shortages and other hurdles have boosted costs, adding fresh momentum to the push for consolidation. In March, Concho Resources Inc. paid $9.5 billion including debt for RSP Permian Inc. In July, BP Plc said it would spend $10.5 billion across three U.S. shale plays, including the Permian.
- China’s regulators have frozen approval of game licenses amid a government shake-up, according to people familiar with the matter, throwing the world’s biggest gaming market into disarray. The halt follows a restructuring of power among departments, said the people, who asked not to be named because they don’t have approval to discuss the issue publicly. Regulators have also been concerned about violence and gambling in some games, according to one person. Online, mobile and console games have all been affected.
- Bitmain Technologies Ltd., the world’s biggest producer of cryptocurrency mining chips, is planning a Hong Kong initial public offering that could raise as much as $3 billion, people with knowledge of the matter said. The Beijing-based company, whose 32-year-old co-founder Jihan Wu is one of the most powerful players in crypto, plans to file a listing application with the Hong Kong stock exchange as early as September, according to the people. Bitmain closed a private funding round in the past few weeks valuing the company at about $15 billion, one of the people said, asking not to be identified because the information is private.
- Cerberus Capital Management is among parties holding talks to acquire a stake in Swissport Group as embattled Chinese conglomerate HNA Group Co. weighs options for the airport luggage handler, people with knowledge of the matter said. HNA is working with advisers to explore possibilities for Swissport including the sale of a majority stake in the business, according to the people. Swissport could be valued at about $3 billion in a deal, the people said, asking not to be identified because the information is private.
- Haidilao International Holding Ltd., China’s biggest hot pot restaurant chain, plans to seek approval next week for a Hong Kong initial public offering that could raise as much as $1 billion, people with knowledge of the matter said. The Beijing-based company is preparing to meet the Hong Kong stock exchange’s listing committee on Aug. 23, the people said, asking not to be identified because the information is private. CMB International Capital Ltd. and Goldman Sachs Group Inc. are joint sponsors of the offering, according to a May preliminary prospectus, which didn’t specify the fundraising target.
- The dollar-yen carry trade just got more appealing for investors, thanks to the Bank of Japan. The U.S.-Japan policy divergence has gained more prominence with Governor Haruhiko Kuroda’s adoption of forward guidance to convey that rates in the Asian nation will stay extremely low for an extended period. That burnishes the appeal of the arbitrage trade, say Mitsubishi UFJ Kokusai Asset Management Co. and Mizuho Securities Co., given the Federal Reserve’s projection of raising interest rates five times through end-2019.
- Russia’s central bank, one of a handful in Europe to cut interest rates this year, could increasingly consider a hike after the ruble slumped following the latest U.S. sanctions and the risk of more to come. The currency’s worst week since the 2015 oil crash and the price pressures it threatens to unleash are adding to the Bank of Russia’s long worry list after it already delayed plans to shift to a looser stance this year. With Governor Elvira Nabiullina previously indicating that all options will be on the table in case of “a sharp strengthening in pro-inflationary risks,” an increase in borrowing costs may be in play in the months ahead, according to economists including Credit Suisse Group AG’s Alexey Pogorelov.
- Tencent Holdings Ltd. surprised investors with its first profit drop in at least a decade as a Chinese regulatory freeze on game approvals hurt its ability to make money off marquee titles. Net income fell 2 percent to 17.9 billion yuan ($2.6 billion) in the three months ended June, the Shenzhen-based company said, well short of the 19.3 billion-yuan average of analysts’ estimates. The results reflected slowing growth in cash cow mobile game Honour of Kings, increased spending and fewer investment gains.
- Indonesia’s central bank raised its benchmark interest rate a fourth time since May in a surprise move aimed at underpinning the currency as volatility sweeps across emerging markets. The seven-day reverse repurchase rate was increased to 5.5 percent from 5.25 percent on Wednesday, as forecast by just seven of 28 economists in a Bloomberg survey, with the rest predicting no change. Governor Perry Warjiyo reiterated the central bank’s pledge to remain pro-active and said the move was aimed at bolstering financial markets and curbing the current-account gap.
- Uday Kotak will have to sell about 250 billion rupees ($3.6 billion) of shares to meet regulatory requirements if his Kotak Mahindra Bank Ltd. fails to sway India’s central bank, which rejected the technique used by the billionaire to pare his stake. The Mumbai-based lender sold 5 billion rupees ($72 million) worth of non-convertible perpetual non-cumulative preference shares to domestic institutional investors, reducing its founder Kotak’s interest in the bank’s paid-up capital to below 20 percent, the bank said on Aug. 2. His holding had been previously reported at just over 30 percent. The bank in a filing on Tuesday said that the Reserve Bank of India had rejected the method.
- Blackstone Group LP is in talks to buy a stake in the loyalty program of Jet Airways India Ltd., the troubled Indian carrier that’s exploring options to raise cash, people with knowledge of the matter said. The private equity firm has expressed interest in a deal that could value Jet Privilege Pvt at about 30 billion rupees ($429 million) to 40 billion rupees, according to the people, who asked not to be identified because the information is private. Jet Airways has been seeking a higher valuation for the business, which is part owned by the Indian airline’s partner Etihad Airways PJSC, one of the people said.
- China Investment Corp. is backing a potential takeover of Yum China Holdings Inc., people with knowledge of the matter said, in a deal that would be the biggest-ever Chinese acquisition of a consumer company. The sovereign fund and DCP Capital, the investment firm run by former KKR & Co. senior executives, are part of a consortium with Hillhouse Capital that’s considering a buyout of the operator of KFC and Pizza Hut outlets in China, according to the people. Yum China, spun off from Yum! Brands Inc. in 2016 and listed in New York, has a market value of $13.6 billion.
- Turkey took another step to shore up the battered lira, making it harder for banks to bet against the currency as the diplomatic feud with the U.S. intensified with a new round of tariffs. The lira rallied for a second day as the nation’s banking regulator limited the amount of currency swap transactions banks can participate in by half to 25 percent of shareholder equity. The move came as Turkey raised the stakes in its diplomatic feud with the U.S. by slapping taxes ranging from 50 to 140 percent on a series of U.S. goods.
*All sources from Bloomberg unless otherwise specified