August 17th, 2018
Daily Market Commentary
- Forget that multi-million-dollar condo on Vancouver’s waterfront. Invest in a warehouse instead. The Canadian city is the world’s hottest industrial real estate market with lease rates up 29 percent in the first quarter year-on-year versus a global average of 3 percent. IKEA and BMW AG are among companies that have snapped up the biggest industrial and logistics spaces, according to data provided by CBRE Group Inc.
- Canada’s most indebted province sold C$3.65 billion ($2.8 billion) of bonds in a return to debt markets after a longer-than-usual break following a change in government. Ontario priced C$1 billion of 10-year fixed-rate securities earlier today, and followed that up shortly afterwards with a sale of C$2.65 billion of five-year floating-rate notes, a record for a domestic deal.
- It’s two steps forward, one step back for TransCanada Corp’s contentious Keystone XL oil pipeline, as a federal court ruling threatens to delay an already decade-old proposal. U.S. District Court Judge Brian Morris sided with indigenous and environmental groups in a Wednesday ruling ordering the State Department to conduct a new environmental review for the pipeline’s revised route. The decision deals a blow to a 1,200-mile (1,900-kilometer) project supported by President Donald Trump in his first few days in office. While the Obama administration rejected the pipeline amid fierce environmental opposition, Trump granted the project a permit last year.
- European equities open little changed, set for the worst weekly decline in almost two months, as mining and auto shares retreated amid concerns about trade and global growth. The Stoxx Europe 600 Index added less than 0.1 percent, poised for a drop of 1.1 percent this week, the worst since the five days ending June 29. Bayer climbed 1.5 percent after yesterday vowing to step up its defense against a wave of U.S. lawsuits over the herbicide Round.
- U.S. stock index futures were little changed as investors await further developments in the renewed dialog between the U.S. and China. Attention will likely shift later to leading indicators and University of Michigan Confidence Index, while the only big company to report earnings is Deere & Co.
- Asian shares rose, paring a loss for the week, as China and the U.S. prepared for a new round of talks to ease trade tensions. The dollar extended its retreat to a one-week low. The MSCI Asia Pacific Index climbed 0.5 percent to 161.91 as of 4:07 p.m. in Hong Kong, reducing its weekly drop to 2.2 percent. Japan’s Topix gained 0.6 percent, while South Korea’s Kospi added 0.3 percent. Hong Kong’s Hang Seng China Enterprises Index rose 0.3 percent after the offshore yuan on Thursday jumped the most since January 2017.
- Oil headed for the longest run of weekly declines in three years as turbulence in emerging markets and the ongoing trade conflict between the U.S. and China stirred fears that fuel demand may suffer. Futures have lost almost 3 percent in New York this week, their seventh straight decline. Turmoil in Turkey this month reverberated across financial markets in developing economies, while the outlook for a Chinese-American trade standoff remains uncertain. Oil supplies have also appeared more plentiful as U.S. crude inventories expanded by the most since 2017, OPEC raised output in July and Libya recovered some halted output.
- Gold rises with other precious metals as easing global trade tensions hurt dollar and support minor revival in risk appetite. Silver’s still heading for a 10th weekly loss, the longest run on record.
- The biggest U.S. asset managers are going head-to-head to win a piece of a $1.5 trillion corporate cash comeback. That’s the sum companies are expected to bring onshore under the U.S. tax overhaul passed last year, according to Invesco estimates. About $400 billion has already been repatriated, according to the firm. Overseas, at least one major asset manager is losing out as a result of the changes. Cisco Systems Inc. yanked 5 billion euros ($5.7 billion) from Deutsche Bank AG’s asset management arm, DWS Group, in recent quarters as it repatriated profits, Bloomberg News reported on Thursday. The loss amounted to 40 percent of Deutsche Bank’s outflows in the first half of the year.
- Semiconductor stocks may be poised to extend their longest skid in months after disappointing guidance from Nvidia Corp. and Applied Materials Inc. sent shares of both companies sliding in extended trading. The Philadelphia Semiconductor Index is poised to fall for a fourth day on Friday with Nvidia sinking 3.8 percent in pre-market trading in New York, while Applied Materials fell 5.7 percent on little early volume. Peer Micron Technology Inc. also fell 1.2 percent after it was named in a class-action antitrust case Thursday alongside South Korean peers Samsung Electronics Co. and SK Hynix Inc.
- The Pentagon sounded a warning over China’s plans to introduce floating nuclear power plants on disputed islands and reefs in the South China Sea, part of an annual report assessing the nation’s military strength. “China’s plans to power these islands may add a nuclear element to the territorial dispute,” the Pentagon said in its 2018 report to Congress titled “Military and Security Developments Involving the People’s Republic of China.” “China indicated development plans may be underway to power islands and reefs in the typhoon-prone South China Sea with floating nuclear power stations; development reportedly is to begin prior to 2020.”
- The Bank of Japan’s recent policy revision is hampering yen corporate-bond sales as issuers wait for debt yields to become less volatile. Japanese company-note issuance so far this month has fallen 90 percent to 25 billion yen ($225 million), the lowest ever for similar periods in August, based on Bloomberg-compiled data stretching back to 1999. Only four issuers have priced deals in August, and Ricoh Leasing Co. delayed a planned sale, citing market volatility in the wake of the BOJ’s policy tweaks at the end of July.
- China appears to be propping up the yuan just as it prepares to restart trade negotiations with the U.S. After falling to a one-year low, the offshore yuan — one of the world’s weakest currencies in recent months — on Thursday surged the most since January 2017 as cash supply dwindled and the central bank set its daily fixings at stronger than expected levels. That came as the Ministry of Commerce said it would send a delegation to the U.S. later this month, stoking hopes of a revival of talks that stalled in June.
- LafargeHolcim Ltd.’s sale of its Indonesian unit has drawn interest from Asian billionaires and regional rivals including Japan’s Taiheiyo Cement Corp., people with knowledge of the matter said. Malaysian tycoon Francis Yeoh’s YTL Corp. and PT Semen Indonesia, the country’s top cement maker, are among suitors weighing bids for the business, according to the people. HeidelbergCement AG’s local unit PT Indocement Tunggal Prakarsa is separately considering a first-round offer by the deadline later this month, the people said, asking not to be identified because the information is private.
- Interest rates in China rarely fall below those in the U.S., but with Chinese authorities easing to support growth, that’s what’s happened in July and then again this month. The cost of overnight money in the world’s second biggest economy dipped below the upper bound of the Federal Funds Target Rate in July for the first time since at least 2015 and held there for much of August amid a flurry of stimulus measures.
- Energy companies think they’ve finally got their debt loads under control and can use more cash to buy back shares. That worries at least some bond investors. So far this year, companies in the S&P 500 Energy index have pledged to repurchase more than $20 billion of shares, the most since before oil plunged in 2015. Companies including oil drillers Noble Energy Inc., Anadarko Petroleum Corp. and Devon Energy Corp. have announced new buyback programs or dialed up existing ones since the beginning of the year.
- Huntington Ingalls Industries Inc., the sole U.S. builder of aircraft carriers, continues to fall short of the Navy’s demand to cut labor expenses to stay within an $11.39 billion cost cap mandated by Congress on the second in a new class of warships. With about 47 percent of construction complete on the USS John F. Kennedy, Navy figures show the contractor isn’t yet meeting the goal it negotiated with the service: reducing labor hours by 18 percent from the first carrier, the USS Gerald Ford, which at $13 billion has become the costliest warship ever. They’re the first two of a planned, four-vessel, $55 billion program.
- Elon Musk said no one saw or reviewed his tweet about the plan to take Tesla Inc. private before he posted it, the New York Times reported, citing an interview in which the billionaire frequently teared up and discussed the personal strain of leading the electric-car maker. In an hour-long sit-down with the newspaper, Musk also detailed his frequent use of the sleep-aid Ambien — a drug he’s discussed using before, and whose well-known side effects include sleepwalking. “It is often a choice of no sleep or Ambien,” he told the newspaper.
- Google Chief Executive Officer Sundar Pichai told employees at a meeting that plans to re-enter China with a search engine are “exploratory” and in “early stages,” addressing a topic that has exploded with controversy. Google co-founder Sergey Brin also spoke to the staff Thursday at the company’s all-hands meeting, saying that Google isn’t compromising its principles. The accounts came from two people familiar with the discussion at the meeting of the Alphabet Inc. unit. They asked not to be identified talking about private matters. Google didn’t respond to requests for comment. The discussion at the all-hands meeting was the first time Google executives addressed the company’s plans for a possible return to China.
- Deere & Co. is continuing to ride the global recovery in demand for agricultural machinery , but the world’s largest tractor manufacturer said Friday it’s also battling higher raw-material and freight costs. The Moline, Illinois-based company posted lower-than-expected fiscal third-quarter earnings and disappointed analysts by keeping its full-year earnings forecast unchanged. The shares dropped 2.4 percent in pre-market trading in New York.
- Novo Nordisk A/S, the world’s biggest maker of diabetes drugs, agreed to buy Ziylo Ltd. to develop new forms of insulin that would respond better to blood sugar levels, in a deal that may value the U.K. startup at more than $800 million. Ziylo has been developing molecules that tightly bind insulin and could be used to help patients avoid dangerous low blood sugar levels, making treatment safer and more effective, Bagsvaerd, Denmark-based Novo Nordisk said Friday.
- Deutsche Telekom AG is on the hunt for investment opportunities among smaller cloud companies as it seeks to expand the most promising part of its struggling corporate services business and adapt to the growing dominance of Amazon.com Inc. Germany’s biggest telecom operator is targeting the specific cloud requirements of several industries, from banks to insurers and carmakers and state institutions. Niche managed service providers could give it more expertise to meet those needs, Frank Strecker, who’s in charge of Deutsche Telekom’s cloud business, said in an interview at the carrier’s Bonn headquarters.
- Debt-ridden Chinese conglomerate HNA Group Co. is in talks to sell Manhattan’s 850 Third Ave. — a building under scrutiny by the U.S. government because of its proximity to Trump Tower — to a New York-based real estate company, according to people with knowledge of the matter. The transaction with B&L Management Co. values the 21-story building at $452 million and would cause HNA to realize a loss, according to the people, who asked not to be identified because the talks aren’t public. A contract has yet to be signed, and no deposit has been made, the people said.
- A.P. Moller-Maersk A/S has decided to list its drilling unit separately, marking its latest step toward a complete exit from the energy industry. Copenhagen-based Maersk, which owns the world’s biggest shipping operations and is working on turning itself into a pure transport company, said on Friday that the decision will take effect some time next year.
*All sources from Bloomberg unless otherwise specified