August 20th, 2019
Daily Market Commentary
- Enbridge Inc. is forging ahead on plans to shift to long-term contracts on its Mainline crude pipeline network, even as criticism of the revamp mounts. The company won’t delay the Oct. 2 deadline for producers to seek pipeline space because it needs the commitments to get regulatory approval for the proposed change, said Guy Jarvis, Enbridge’s executive vice president for liquids pipelines, in an interview. The review may take as long as 15 months, and needs to be completed before the current system — which offers capacity on a spot basis — expires in July 2021.
- Hong Kong billionaire Li Ka-shing’s oil sands investment is hurting — and some analysts are calling on him to stop the bleeding. Shares of Calgary-based Husky Energy Inc. have plummeted over 80% since its 2008 peak on a myriad of reasons: a slump in oil prices, a dividend suspension, a production cut due to a close call with an iceberg and a failed C$2.75 billion hostile takeover bid for MEG Energy Corp. Li and Hutchison Whampoa, now owned by CK Hutchison Holdings Ltd., became Husky’s majority shareholders in 1991, according to Husky Energy’s website. The slump in the company’s share price has drawn RBC Capital Markets analysts led by Greg Pardy to contemplate whether the company should consider going private to capture the gap between its market value and its underlying value, and so it can make the right moves without market scrutiny.
- The Stoxx Europe 600 Index advanced after fluctuating earlier. Contracts on three main American equity indexes all struggled for traction after the underlying benchmarks rose on Monday, when the U.S. commerce secretary said the nation will delay restrictions on some operations of China’s Huawei Technologies. Government bonds climbed in Europe except for Italy’s, where leaders may force an early election. The pound slipped after the prime minister announced a proposal to break the deadlock in the Brexit deal with the European Union.
- U.S. index futures edged higher with stocks in Europe as investors digested developments in trade talks and comments from a Federal Reserve official about the strength of the biggest economy. Treasuries climbed and a gauge of the dollar held close to the year’s high. The latest headlines on global trade and interest rates may provide some reprieve for investors spooked by tumbling bond yields. The U.S. decision on Huawei was seen as encouraging for the long-awaited trade pact between the world’s two largest economies. Still, the Chinese company said the temporary relief doesn’t change the fact that it’s been treated “unjustly.”
- Japanese stocks rose for a third day after the U.S. administration said it would delay restrictions on doing business with Huawei Technologies Co. Electronics makers were the biggest boost to the benchmark Topix index, as all but two industry groups traded higher. Chipmakers led gains in U.S. stocks after Commerce Secretary Wilbur Ross said the nation would extend for 90 days a limited set of exemptions for companies working with China’s Huawei. Meanwhile, the German government is preparing fiscal stimulus measures to shore up Europe’s largest economy, according to two people with direct knowledge of the matter. China made borrowing costs cheaper for companies with the introduction of a revamped market benchmark rate.
- Oil steadied near $56 a barrel as hints of a trade detente between the U.S. and China, along with the prospect of monetary stimulus, buoyed financial markets. Futures gained as much as 0.6% in New York after settling 2.4% higher on Monday. U.S. Commerce Secretary Wilbur Ross said that America will delay restrictions on some of China’s Huawei Technologies Co. Ltd.’s business operations. Investors viewed the move as another sign, after President Donald Trump’s postponement of new tariffs, that the clash between Washington and Beijing may ease and the outlook for global growth recover.
- Gold gained for the first time in three days as veteran investor Mark Mobius gave a blanket endorsement to buying the metal and IMF data showed countries from Russia to Argentina added to gold reserves last month. Mobius said accumulating bullion will reap long-term rewards as leading central banks loosen monetary policy and the rise of cryptocurrencies serves only to reinforce demand for genuinely hard assets. July figures from the IMF showed Kazakhstan and Mongolia were among countries that raised gold holdings. Kyrgyz Republic reserves rose to the highest on record.
- The U.K. said it was “extremely concerned” by reports that a Hong Kong consulate worker was detained during a recent trip to mainland China, a case that threatens to add to strains between Beijing and London. The statement came after news site HK01 reported that the U.K. consular employee, Simon Cheng, 28, was reported missing after failing to return from an Aug. 8 meeting in the adjacent city of Shenzhen. The U.K. Foreign & Commonwealth Office said it was providing the man’s family with support and seeking information from authorities in Hong Kong and Guangdong province.
- Home Depot Inc. cut its revenue forecast on lumber price deflation and concern that President Donald Trump’s recently announced tariffs will hurt U.S. consumption. Same-store sales — a key gauge of a retailer’s performance — rose 3% in the second quarter, trailing the average 3.2% projection, according to Consensus Metrix. The company now sees 4% growth for the full year, down from a previous forecast for 5%.
- U.K. Prime Minister Boris Johnson made his first public attempt to renegotiate the Brexit deal by telling the European Union he wants to explore different ways to prevent a hard border on the island of Ireland. In a letter to European Council President Donald Tusk, Johnson said he wants to replace the so-called backstop provision in the divorce agreement with a “legally binding commitment” not to build infrastructure or carry out checks between Northern Ireland and the Republic of Ireland — the U.K.’s new frontier with the EU — as long as the bloc promises the same.
- Saudi Aramco has picked Lazard Ltd. and Moelis & Co. to advise on the oil giant’s second attempt at the world’s largest initial public offering, people with knowledge of the matter said. The boutique investment banks have started preparatory work on the offering, according to the people, who asked not to be identified because the information is private. They are expected to play a key role in the listing, including in the selection of underwriters and listing venues as well as working to ensure Aramco can secure its valuation expectations, the people said.
- The rivalry between U.S. and Middle Eastern oil producers has jumped up a notch as American crude makes its way right to the heart of Asia, the world’s most-prized energy market. Royal Dutch Shell Plc has offered a cargo of U.S. West Texas Intermediate Midland crude that’s priced off the Dubai benchmark in its debut during Asian hours on S&P Global Platts’ widely-referenced trading platform, according to two traders and data compiled by Bloomberg.
- Wall Street regulators are set to roll out a Volcker Rule overhaul that’s meant to respond to banker complaints about the trading ban’s complexity and compliance demands. The Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency are poised to approve the rewrite of the post-crisis measure Tuesday, with three other agencies set to follow. The revamp, known as Volcker 2.0, is an attempt to simplify the “proprietary trading” ban that forbids banks from making short-term investments with their own capital. It also aims to clarify some limits on banks’ investing in private equity and hedge funds.
- Veteran investor Mark Mobius gave a blanket endorsement to buying gold, saying accumulating bullion will reap long-term rewards as leading central banks loosen monetary policy and the rise of cryptocurrencies serves only to reinforce demand for genuinely hard assets. Prices climbed. “Gold’s long-term prospect is up, up and up, and the reason why I say that is money supply is up, up and up,” Mobius, who set up Mobius Capital Partners LLP last year after three decades at Franklin Templeton Investments, told Bloomberg TV. He added: “I think you have to be buying at any level, frankly.”
- Bain Capital and Carlyle Group are considering increasing their 3.4 billion-euro ($3.8 billion) offer for Osram Licht AG if rival AMS AG goes ahead with a formal bid, people familiar with the matter said. The buyout firms are discussing a potential increase of their 35 euro-per-share offer with advisers and financing banks, though no final decision has been made, the people said. Any bump is unlikely until after AMS moves ahead with its 38.50 euros-a-share bid, which still requires permission from Osram’s management to be formalized, the people said.
- A year after taking the helm of Hong Kong’s biggest conglomerate from his father Li Ka-shing, Victor Li is making a $3.3 billion bet that Brexit won’t dent the value of U.K. pubs or the land under them. The family’s CK Asset Holdings Ltd. unit agreed to pay 2.7 billion pounds ($3.3 billion) for Greene King Plc, which operates more than 2,700 British bars, restaurants and hotels. After jumping 51% on Monday to match the 850 pence-a-share bid, Greene King shares traded 0.6 percent lower early Tuesday in London. CK Asset climbed less than 1 percent in Hong Kong.
- National Grid Plc will investigate how to better incorporate the U.K.’s increasing share of renewable energy in the power mix after a blackout earlier this month saw more than one million homes lose power. The probe was sparked by the Aug. 9 blackout, that also caused havoc on the transport networks, after a lightening strike north of London led to Orsted A/S’s giant Hornsea One offshore wind farm failing roughly at the same time as RWE AG’s Little Barford gas plant. Renewable energy, which is mainly intermittent, accounted for a third of the nation’s power last year.
- The new chief executive officer at Fortis Healthcare Ltd.plans to cut a fifth of costs to resuscitate India’s second-largest hospital chain after a regulator found it was defrauded of tens of millions of dollars by its former owners. Fortis is now looking to squeeze spending in everything from energy-efficient light fixtures to automating its business analysis unit and even renegotiating doctors’ salaries. The goal is to reduce expenses by $31 million over the next two years, Ashutosh Raghuvanshi, the CEO who took over in March, said in an interview at the company’s headquarters outside New Delhi. Fresh capital expenditure of $84 million is also in the offing.
- Hong Kong protesters rejected leader Carrie Lam’s attempt to meet one of their key demands, raising questions about whether a compromise can be reached even as both sides seek to lower tensions. Lam pledged to immediately establish a platform for dialogue, investigate complaints against police and institute a wide-ranging fact-finding study into the demonstrations. While details remained scarce, she said the platform would involve people from different walks of life, political views and stances. She said authorities would enlist international experts to conduct the fact-finding study, which would be released to the public in six months.
- Elanco Animal Health Inc. clinched the purchase of Bayer AG’s animal-health unit in a deal valued at $7.6 billion, creating one of the biggest stand-alone veterinary-medicine companies in the world. Elanco, which was spun out from drugmaker Eli Lilly & Co. last year, will finance the acquisition with a mix of cash and stock. German drug giant Bayer AG will receive $5.32 billion in cash and $2.3 billion in Elanco Animal Health common shares. The transaction is expected to close in mid-2020.
- French supermarket operator Casino Guichard-Perrachon SAsaid it plans a second round of asset disposals that would raise an additional 2 billion euros ($2.2 billion) as it tries to reduce its debt. The transactions, which would follow a first phase of 2.5 billion euros worth of divestitures, will be completed by the end of the first quarter of 2021, Casino said Tuesday. The stock rose as much as 2.6% to a three-month high. As its market share shrinks in France, Casino is wrestling with concerns over its net debt, which the company said stood at 4.7 billion euros at the end of June. Short sellers have targeted the retailer, saying distressed parent Rallye SA is relying on unreasonably high dividends to survive. Last month, Casino canceled next year’s dividend payment to shore up cash.
- The People’s Bank of China unveiled a major reform to its system of benchmark interest rates on Tuesday, a move that’s immediately focused attention on if and when the real monetary easing will begin. The central bank will now release a so-called Loan Prime Rate each month, a yardstick meant to peg the cost of borrowing by firms and households more closely to the rates that banks pay for cash in money markets. While that step itself should already nudge borrowing costs a few basis points lower, analysts say that outright cuts to monetary policy tools are still needed.
- Huawei Technologies Co.’s founder Ren Zhengfei warned in an internal memo the company is at a “live or die moment” and advised underutilized employees to form “commando squads” to explore new projects. Workers who fail will have their salaries cut every few months and may lose their jobs, the billionaire said yesterday. Since May, Huawei has occupied the uncomfortable position of being both an established global technology brand and a member of the United States Entity List, which bars it from trading with American suppliers. Despite a series of 90-day reprieves, the latest of which came yesterday, the uncertainty caused by American sanctions has already cost the company a great deal. Even if Huawei is eventually brought in from the cold, the impact of this summer’s upheaval will be widespread and painful.
*All sources from Bloomberg unless otherwise specified