August 21st, 2019
Daily Market Commentary
- Pembina Pipeline Corp. agreed to buy Kinder Morgan Inc.’s Canadian unit and the U.S. portion of the Cochin Pipeline system for about C$4.35 billion ($3.3 billion). The two deals with Kinder Morgan will give Pembina additional storage and shipping assets across Canada, connected to both conventional and oil-sands regions and major export pipelines. The company sees “substantial opportunities for growth,” according to a statement published on Wednesday. The transaction values Kinder Morgan Canada at about C$2.3 billion, or C$15.02 per share, based on an all-share exchange ratio of 0.3068 of a common share of Pembina per KML security, according to the statement. It values Cochin U.S. at about C$2.05 billion for cash consideration.
- Royal Bank of Canada had record expenses in a quarter that missed earnings estimates, though there are signs the company is getting a handle on costs. Royal Bank’s expenses have risen for the past year, with executives saying the “elevated level” is from investments in technology and spending on hires, marketing and new products and initiatives as it pushes to be a “digitally enabled relationship bank.” Non-interest costs reached C$5.99 billion, with the pace of growth cooling in the fiscal third quarter.
- Canada’s oil-rich province of Alberta is extending its output cuts by a year as delays to key pipelines threaten to prolong a glut of crude in the region. The curtailment program, which will now end in December 2020, had been slated to wrap up at the end of this year as Enbridge Inc.’s expansion of the Line 3 pipeline began moving oil. But that project was set back by a year because of permitting delays in Minnesota, leaving the province’s drillers churning out more oil than they could ship to refineries. TC Energy Corp.’s planned Keystone XL line and the Canadian government’s expansion of the Trans Mountain conduit also have been bogged down by legal challenges. Alberta’s delay in ending the curtailment program may help support oil prices, as U.S. Midwest and Gulf Coast refiners face the prospect of constrained shipments of Canadian heavy crude at the same time that they’re getting reduced supplies from Mexico and Venezuela. The policy is a mixed bag for Canadian drillers, who are benefiting from the higher prices but frustrated by their inability to expand output.
- Huawei Technologies Co.’s chief financial officer allegedly told a Canadian border official that the company has an office in Iran — an assertion potentially buttressing U.S. claims that the Chinese tech giant engaged in activities there that violated U.S. sanctions. When Meng Wanzhou was detained last December on a U.S. extradition request, she was interrogated by a Canadian border agent about Huawei’s business dealings in Iran and whether the company sold products in countries that it should not, according to court documents released Tuesday.
- The Stoxx Europe 600 index jumped, with automakers leading the advance as Renault and Fiat Chrysler surged after a report that they’re still talking about a potential merger. Japanese and Australian benchmarks fell, while shares rose in Hong Kong and Seoul and were little changed in Shanghai. Most European bonds declined, though Italian debt rose a second day after Prime Minister Giuseppe Conte resigned. Bunds stayed lower as Germany failed sell the full amount in an auction of 30-year, zero-coupon securities. The yen slipped with the pound and the dollar was steady.
- U.S. equity futures climbed with European stocks after a mixed session in Asia as investors assessed the latest news on trade and awaited more clues on monetary policy. Treasury yields ticked higher after retreating Tuesday. Contracts on the three main U.S. equity gauges advanced a day after the S&P 500 Index closed lower as U.S. President Donald Trump showed no urgency to resolve trade friction with China and renewed his call for a “big” Federal Reserve rate cut.
- The value of additional share sales in Japan is heading for a three-year low, even as a Shinsei Bank Ltd. block adds $519 million this week. Japanese companies and their shareholders have raised $9.3 billion through additional offerings this year, down 27% from a year ago and 40% below the same period of 2017, according to data compiled by Bloomberg.
- Oil held steady after a reported drop in U.S. crude inventories alleviated some of traders’ concern that slowing economic growth will diminish demand. Futures were little changed above $56 a barrel in New York on Wednesday. The American Petroleum Institute reported a 3.45 million-barrel decline last week, people familiar with the data said. Nonetheless, with President Donald Trump showing little urgency to resolve trade disputes and calling for a “big” interest-rate cut by the Federal Reserve, concerns about the global economy persist.
- Gold slipped as investors weighed the latest news on trade while awaiting more clues on monetary policy. President Donald Trump showed no urgency to resolve the trade conflict with China, saying he wasn’t ready to make a deal. Trump also renewed his call for a “big” Federal Reserve rate cut. While the minutes of the Fed’s July meeting are due for release Wednesday, traders are likely to focus on Chairman Jerome Powell’s address at the Kansas Fed’s annual Jackson Hole gathering on Friday for clarity on the economic outlook.
- Iron ore’s rout is so severe that after weeks of relentless selling the raw material is now at risk of losing all of the gains that followed the supply trauma triggered by Vale SA’s dam collapse in Brazil. In China, futures in Dalian sank to the lowest close since late January, the same month that the Brazilian disaster unleashed a scramble for supplies. Futures in Singapore lost more than 6%, taking losses in August to 30%.
- China confirmed that it was holding a U.K. consulate employee in Hong Kong on allegations of violating local law, threatening to further worsen ties between the countries as protesters planned to rally for his release outside the diplomatic mission. Chinese Foreign Ministry spokesman Geng Shuang said Wednesday that the consulate worker, Simon Cheng, was being held under a 15-day administrative detention process in the mainland city of Shenzhen. Geng said the issue was a domestic matter and not a diplomatic dispute, saying that Cheng, 28, is a Hong Kong citizen.
- A global glut in natural gas is threatening to undermine a $4 billion investment by Reliance Industries Ltd. aimed at boosting profits at the world’s largest oil refining complex. The project made all the sense in the world when energy magnate Mukesh Ambani’s conglomerate announced it in 2012: convert petroleum coke, or petcoke, one of the cheapest and dirtiest refinery by-products, into gas needed to power the massive Jamnagar complex on India’s west coast. Then it hit about three years of delays, and global gas markets crashed amid a growing supplies of liquefied cargoes from the U.S., Australia and Russia.
- President Donald Trump has consistently rejected a growing number of forecasts that his trade war with China and slowing global growth are pitching the U.S. economy toward recession. But he’s also spending a lot of time outlining policies to stave it off. Speaking to reporters Tuesday in the Oval Office, Trump said he’s open to a range of possible actions, including a payroll tax cut or bypassing Congress to reduce taxes by indexing capital gains. He repeated his demand that the Federal Reserve slash interest rates to bolster the economy. Yet he also suggested those actions aren’t necessary.
- British exporters are to be enrolled in a key customs system so they can trade with the European Union after Britain’s scheduled departure on Oct. 31. The U.K. tax authority will automatically issue more than 88,000 companies with an Economic Operator Registration and Identification number over the next two weeks, the Treasury said in a statement on Wednesday. Without it, the firms would no longer be able to trade with the EU after exit day. EORI numbers are required to move goods into or out of the EU. Her Majesty’s Revenue and Customs estimated earlier this year that 240,000 companies would need one after Brexit, and to date just 72,000 have sought one. That left tens of thousands of firms at risk of being cut off from their only export market.
- President Donald Trump canceled a state visit to Denmark after his offer to buy Greenland was met first with bemusement, then flat refusal. Anger followed, and even Queen Margrethe II was drawn into the fray. Trump had been due to make his first visit to Denmark, a founding member of NATO and a U.S. ally in the Iraq war, on Sept. 2-3. A series of reports last week indicated he wanted to purchase Greenland, the world’s biggest island and site of a strategic American base. The island is part of the Kingdom of Denmark, though it has extensive home rule.
- Hong Kong property-related equities face a prolonged sell off as protests “put a cloud” over the territory’s status as an international financial hub, prompting CenterSquare Investment Management Inc. to reduce its holdings in real estate investment trusts. “The events unfolding bring potentially into question the viability of Hong Kong as a global financial capital,” said Scott Crowe, chief investment strategist at CenterSquare, which has $11 billion in property and infrastructure-related investments globally. “We are already seeing the beginning of the real world impact for real estate companies, with many delaying the launch of new projects due to uncertainty.”
- Renault and Fiat Chrysler top gains on European automotive stock gauge after Italian daily Il Sole 24 Ore cites people familiar with the matter as saying the carmakers remain in contact on potential tie-up after publicly abandoning efforts.
- EuroChem Group AG said it has bought back a 10% stake from former Chief Executive Officer Dmitry Strezhnev for $785 million. The deal will help Strezhnev rise in ranks of Russia’s most wealthy businessmen. He was previously a member of EuroChem’s board of directors and served as CEO from 2015 to 2018. EuroChem is a fertilizer producer and controlled by Russian billionaire Andrey Melnichenko, who owns the remaining 90% of the company.
- The Iranian oil carrier Helm experienced technical issues in the Red Sea off the Saudi port of Yanbu and the crew is working to resolve the issues, according to the National Iranian Tanker Co. The vessel, one of the world’s largest crude tankers, signaled distress at 6:30 a.m. Iran time on Tuesday, about 75 miles (about 121 kilometers) off of Yanbu, owner NITC said in a statement. Both the ship and crew are safe and stable, NITC said without saying whether the Helm can continue the voyage. Iran’s tanker fleet is under global scrutiny amid U.S. sanctions seeking to choke off the country’s crude sales. The U.S. failed in efforts to seize a loaded supertanker allegedly bound for Syria that had been blocked in Gibraltar for more than a month.
- Italian President Sergio Mattarella begins intensive talks with political leaders Wednesday to determine whether a new ruling coalition is viable, as the head of one of the country’s main parties signaled willingness to explore a new parliamentary majority. An alternative government is one of two main options emerging for the head of state after Prime Minister Giuseppe Conte resigned Tuesday, little more than a year after taking over a populist alliance of the League Party and the Five Star Movement. The other is to set a date for a new election, which could lead to Matteo Salvini, leader of the anti-immigrant League, becoming prime minister.
- Ryanair Holdings Plc’s bid to block a strike by Irish pilots was upheld by a court in Dublin, while a separate hearing in London will determine whether U.K. cockpit crews are allowed to walk out ahead of the country’s busiest weekend for air travel. The injunction granted Wednesday comes the day before the planned start of parallel 48-hour strikes at the Irish carrier’s home base and in its biggest market. A court in London is due to decide later whether British pilots can go ahead with their action, which threatens holiday flights at airports including London Stansted, Ryanair’s largest hub.
- Radiation from the crippled Fukushima nuclear plant is becoming the latest source of tension between Japan and South Korea, potentially undercutting Tokyo’s effort to promote the 2020 Olympics. In recent days, South Korean officials have summoned a Japanese diplomat to express concern about a planned release of treated radioactive water into the ocean by Tepco, the plant’s owner. They’re also pushing for independent radiation checks at Olympic venues and proposing a separate cafeteria for their athletes, citing concerns about contaminated food.
- China is cracking down on banks and brokers that it suspects of inflating bond trading volumes in an effort to win more business, according to traders familiar with the matter. A subsidiary of the central bank is monitoring large transactions on the X-Bond system for signs of abnormal trading, the two traders said, asking not to be named as they’re not authorized to speak to media. The checks started after turnover on a China Development Bank note spiked to a record on July 16, according to the people. Daily volume on that contract has fallen by a third since.
- JPMorgan Chase & Co. is planning to shut down its Chase Pay app in the bank’s third reversal on digital offerings in as many months. The bank started informing customers Wednesday that they’ll no longer be able to pay with their smartphones when shopping in stores, according to an email seen by Bloomberg. They’ll still be able to use Chase Pay on the websites and apps of retailers that accept it. It’s an about-face on a product introduced four years ago to compete with rivals like Apple Inc. that are working to transform how consumers pay for products and services. Consumers have been slow to take to paying with their smartphones in stores.
- Target Corp. jumped after meeting rival Walmart Inc.’s results with its own strong quarter, illustrating the ongoing resilience of discounters amid the struggles of the broader retail industry. Comparable sales — a key barometer of retail performance — rose 3.4%, beating analysts’ estimates, according to Consensus Metrix. Target also raised its full-year profit forecast by 15 cents a share.
- Lowe’s Cos. gained in early trading as profit from the last quarter topped estimates, signaling management made progress in alleviating cost pressures that surprised investors in May and caused the stock to fall the most in 27 years. Excluding some items, second-quarter earnings amounted to $2.15 a share, the company said Wednesday. Analysts on average estimated $2.01.
- Sequoia Capital-backed PlusAI Inc. is close to raising about $200 million in new funds at a valuation of more than $1 billion to bankroll its development in autonomous trucks, according to people familiar with the matter. The self-driving truck startup is working with advisers on the funding round with plans to set up a joint venture with one of the country’s largest truck makers FAW Jiefang, a subsidiary of state-owned China FAW Group Co., the people said. Plus.AI is seeking external investors to lead this round of funding, in which existing backers Sequoia and Full Truck Alliance will participate, said one of the people, who asked not to be named because the discussions are private.
- India’s ITC Ltd. is considering a bid to buy a stake in Coffee Day Enterprises Ltd. as the nation’s biggest cigarette maker seeks to diversify its businesses, according to people familiar with the matter. The maker of Classic and Gold Flake cigarettes has been given access to Coffee Day’s assets and financial for due diligence, said the people, who asked not to be identified as the discussions are private. ITC could be vying with Coca-Cola Co., which has evaluated India’s biggest cafe chain but hasn’t made a formal offer, said one of the people.
*All sources from Bloomberg unless otherwise specified