August 21st, 2018

Daily Market Commentary

Canadian Headlines

• Canadian banks will likely report profit gains of as much as 10 percent in the third quarter as four rate increases by the Bank of Canada make consumer and commercial loans more profitable. Canada’s six largest lenders are expected to post average adjusted earnings growth ranging from 7 percent to 10 percent for the fiscal period ended July 31, according to estimates from bank analysts. Royal Bank of Canada, the country’s second-largest lender by assets, kicks off bank earnings on Aug. 22.
• The drought that’s singed Canada’s crops is also taking a bite out of its cattle sector. For the world’s sixth-largest beef exporter, dry conditions are worsening in the heart of cattle country, scorching pastures and sending feed costs soaring. The price of hay in some areas has already doubled, and some ranchers could be forced to sell animals to feedlots early in the coming weeks if the drought persists.

 

 

World Headlines

• European shares held steady as traders assessed the effects of a falling dollar, which lifted commodities but tempered expectations for earnings in the region. The euro and pound both jumped as the greenback declined on reports U.S. President Donald Trump lamented the Federal Reserve’s monetary tightening stance. Banks led gains on the Stoxx Europe 600, while the energy sector also advanced as oil continued its gains.
• The dollar dropped with Treasuries on Tuesday after President Donald Trump criticized Federal Reserve interest-rate hikes. U.S. equity futures tracked gains in Europe and Asia, setting the scene for a potential S&P 500 record. Metals broadly advanced. Contracts for the Dow and Nasdaq also rose, but all eyes will be on the S&P 500 Index as it tests the Aug. 7 all-time closing high and equals the longest bull market on record.
• Asian shares extended their advance for a third day on easing concerns over tariff escalation as the U.S. and China get set to resume trade talks. The greenback weakened after President Donald Trump was said to have complained about the Fed rate policy. The MSCI Asia Pacific Index rose 0.4 percent to 163.53 as of 4:30 p.m. in Hong Kong, led by healthcare and technology shares.
• Oil traded near $67 a barrel before weekly oil inventory data in the U.S., where the government is proceeding with further sales of crude from its strategic reserves. Futures in New York were little changed. The U.S. government will offer 11 million barrels of crude from its Strategic Petroleum Reserve as part of a regular draw-down schedule. While the move also comes amid renewed American sanctions against Iran’s oil sales, it’s too small to be intended to compensate, according to BNP Paribas SA. America’s commercial crude inventories are estimated to have fallen last week.
• Gold climbs after President Donald Trump complains about Federal Reserve raising interest rates, hurting dollar.
• The U.K. budget surplus in July surged to the biggest since 2000 for the month as tax receipts picked up. The surplus on the month was 2 billion pounds, more than the 1.1 billion pounds predicted by economists, the Office for National Statistics said on Tuesday. The April-July deficit for the financial year so far was 12.8 billion pounds, down more than 8 billion pounds from last year.
• Northwest European liquefied natural gas terminals are for the first time exporting more of the fuel than they are feeding into the region’s pipeline networks. Even with the European benchmark at a record for this time of year, surging demand in Asia to South America means traders are sending ships with the super-chilled gas there instead of supplying utilities at home.
• The U.S. economy looks set to forge ahead as fresh reservoirs of domestic demand carry it past turbulence overseas, keeping the Federal Reserve on course for further interest-rate hikes. Households have more cash to spend than thought, thanks to newly discovered pools of savings and President Donald Trump’s big tax cuts. Firms are ramping up production and rebuilding inventories after running them down by the most since 2009. And government spending finally looks set to swell, after Congress opened the floodgates in March with a $1.3 trillion package.
• Microsoft Corp. warned that cyber-attackers linked to the Russian military are once again targeting American political groups, in a potential attempt to manipulate and disrupt the U.S. midterm elections in November. The shadowy group, known as Strontium, created web domains that mimicked organizations such as the International Republican Institute and Hudson Institute so intended victims would believe they were receiving emails or visiting sites of legitimate organizations, President Brad Smith said in a blog post. Microsoft said it’s sifting through evidence of the group’s intentions after getting a court order to take over those domains, effectively disrupting the hacking campaign.
• Japan’s wireless carriers tumbled in Tokyo after the government’s spokesman said they have room to cut phone bills by about 40 percent, sparking concern that lawmakers will renew a push for greater competition in a sector dominated by three big players. The declines wiped about 1 trillion yen ($9 billion) in market value off the three largest carriers combined after Chief Cabinet Secretary Yoshihide Suga made the comment during a speech in Hokkaido, Japan. He said competition isn’t working at the companies. Kyodo News earlier reported the remarks, which were confirmed by Suga’s office.
• Discount brokers like TD Ameritrade, E*Trade and Charles Schwab may decline after CNBC reported JPMorgan will introduce a digital investing service next week that includes free or discounted trades, a portfolio-building tool and no-fee access to JPMorgan stock research.
• Six HNA Group Co. units have lost about $10 billion in market value since their shares resumed trading in the past few weeks, underscoring persisting concerns about the conglomerate, which is saddled with one of the biggest piles of debt in corporate China. Total losses topped the milestone during early trading in Shanghai and Shenzhen on Tuesday, though they pared back declines to about $9.8 billion as of the midday break. All the units have underperformed their benchmark indexes since the share suspensions, with Hainan HNA Infrastructure Investment Group Co. dropping the most by plunging more than 45 percent in the past seven trading days.
• The U.S. plans to release 11 million barrels of oil from its 660-million-barrel emergency stockpile, just as American sanctions on Iranian oil exports kick in. The sour, high-sulfur crude will hit the market in October and November, according to a notice of sale from the Energy Department. That timing may reflect the White House’s concern over a tight oil market amid the renewal of U.S. sanctions on Iran, according to analysts at ClearView Energy Partners LLC.
• Industry M&A may be no savior as the pace of hospital closures, particularly in hard-to-reach rural areas, seems poised to accelerate. Hospitals have been closing at a rate of about 30 a year, according to the American Hospital Association, and patients living far from major cities may be left with even fewer hospital choices as insurers push them toward online providers like Teladoc Inc. and clinics such as CVS Health Corp’s MinuteClinic. Morgan Stanley analysts led by Vikram Malhotra looked at data from roughly 6,000 U.S. private and public hospitals and concluded eight percent are at risk of closing; another 10 percent are considered “weak.”
• ConocoPhillips said it’ll receive $2 billion in a settlement with Petroleos de Venezuela SA, ending a dispute that’s severely crippled Venezuela’s ability to export the crude oil central to its faltering economy. An international tribunal awarded the amount in April for asset seizures carried out in 2007 by late Venezuelan President Hugo Chavez. Under the agreement announced Monday, state-owned PDVSA will make initial payments of about $500 million within 90 days, with the balance paid quarterly over four and a half years, Conoco said in a statement.
• Italy’s sovereign debt may swell by as much as 9.4 billion euros ($10.8 billion) if the government goes ahead with plans to nationalize the toll roads run by Atlantia SpA’s unit Autostrade per l’Italia SpA. That’s the amount of net debt that Autostrade reported at the end of last year. An early termination of the company’s contract to operate about 3,000 kilometers (1,864 miles) of Italian toll roads would force the state to take over the company’s existing liabilities, according to a clause in the bond documentation.
• Billionaire Pallonji Mistry has about 85 percent of his estimated $19.9 billion fortune locked up in a legal battle with India’s largest conglomerate. The conflict between Mistry and the Tata Group began with a boardroom coup in 2016, when the former’s son was ousted as chairman of the latter. The 89-year-old Mistry is one of the largest shareholders in Tata Sons Ltd., which controls the $100 billion conglomerate, and his family has since filed numerous lawsuits against the holding company’s board, alleging suppression of minority interests and governance lapses.
• Microsoft Corp. has detected and seized web domains created by cyber-attackers linked to the Russian military, in a potential attempt to manipulate and disrupt the U.S. midterm elections. The shadowy group, known as Strontium, created domains that mimicked organizations such as the International Republican Institute and Hudson Institute so intended victims would believe they were receiving emails or visiting real sites, Microsoft President Brad Smith said in a blog post. Microsoft said it’s sifting through evidence of the group’s intentions after getting a court order to take over those domains, effectively disrupting the hacking campaign.
• President Donald Trump is one reason for this year’s supply drought in Europe’s bond market. U.S. companies have cut sales of investment-grade euro notes about 80 percent this year to 9.5 billion euros ($11 billion) after the president’s tax reforms removed an incentive to issue debt. The slump is set to end three years of record reverse Yankee sales and halt U.S. companies’ reign as the biggest issuers of high-grade single-currency bonds.
• Sri Lanka has revived the process of privatizing the state-run carrier that is saddled with at least $1 billion of debt, a year after talks with sole bidder TPG Capital collapsed following due diligence of the struggling airline. The island nation’s finance ministry will seek preliminary bids for SriLankan Airlines Ltd. by September or October, Mano Tittawella, an adviser to the ministry, said in an interview late Monday. There has been “fairly serious” interest in the sale, and the government expects to be in talks with at least two parties by the first quarter of next year, he said.
• Linde AG and Praxair Inc. won conditional European Union approval for their $45 billion merger, as they scramble to win over U.S. antitrust authorities for a deal that combines two of the biggest suppliers of industrial gas. The European Commission said its competition concerns were addressed after the companies agreed to sell Praxair’s entire gas business in Europe as well as the Danbury, Connecticut-based company’s stake in an Italian joint venture and several helium sourcing contracts.
• Deutsche Bank AG is doubling down on a bet that troubled commodity trader Noble Group Ltd. will be able to rise from the ashes and deliver profits to creditors who back a $3.5 billion restructuring. With less than a week before Noble shareholders vote on the debt-restructuring plan, the German lender’s London office is offering to buy the company’s senior unsecured bonds for 45 percent of face value, according to a memorandum seen by Bloomberg.
• California is ready to remake the U.S. West — or at least its power grid. The legislature is considering a plan to expand a grid serving 30 million Californians to encompass as many as 13 other Western states — if they choose to join the effort. The California Independent System Operator, which currently manages a $9.3 billion wholesale market, would cede authority to a regional body under the proposal, which requires federal approval.
• Singapore Telecommunications Ltd., Southeast Asia’s largest telecom services provider, is moving ahead with examining a possible bid for wireless operator Amaysim Australia Ltd., people with knowledge of the matter said. The company is working with Bank of America Corp. to assess options for investing in Sydney-based Amaysim, the people said, asking not to be identified because the process is private. The appointment was made in the last two weeks, according to one of the people.

*All sources from Bloomberg unless otherwise specified