August 23rd, 2019

Daily Market Commentary

Canadian Headlines

• Canada’s equity benchmark retreated as pot stocks continued a several monthlong slide and lower crude prices weighed on energy shares. The S&P/TSX Composite Index lost 0.3% to 16,253.46. Eight of 11 sectors fell, with the health-care index leading the decline as pot stocks fell for a third day in four. Canopy Growth Corp. lost 5.2% and Hexo Corp. slid 3.5%. Financials edged higher after Canadian Imperial Bank of Commerce beat profit estimates amid strength in its U.S. operations. The bank’s stock rose 2.1%, the most since December 2017.
• Hasbro Inc. agreed to spend $4 billion for Entertainment One Ltd., the studio that makes the Peppa Pig and PJ Masks children’s shows, to expand its media business beyond just licensing content. The world’s largest publicly traded toymaker will pay 5.60 pounds a share in cash, 26% more than Thursday’s closing price. Entertainment One rose as high as 5.79 pounds, indicating some investors anticipate a higher bid for the company, which also makes movies and music. The bonds had a record gain.
• Cargojet entered into a new strategic agreement with Amazon.com under which it will issue warrants to Amazon to purchase variable voting shares that will vest based on the achievement of commercial milestones.

World Headlines

• European equities were poised for the biggest weekly rise since early June as all sectors climbed, with technology shares leading the gains. The Stoxx Europe 600 Index added 0.5%, set for a weekly gain of 1.7%, the biggest since June 7. Tech stocks, including SAP SE, paced the advance after Salesforce.com Inc. gave a revenue forecast that topped Wall Street’s estimates. Entertainment One Ltd. surged 29% after Hasbro Inc. agreed to spend $4 billion to buy the studio. European equities are poised for the first weekly advance in four as optimism that the U.S.-China trade talks will continue and bets on monetary stimulus fueled gains. In addition, activity in the euro area’s private sectorunexpectedly picked up in August. All eyes are on the Federal Reserve Chair Jerome Powell’s address at the Jackson Hole summit scheduled for later today.
• U.S. equity futures climbed along with stocks and Treasury yields as investors looked ahead to Federal Reserve Chair Jerome Powell’s address at the Jackson Hole summit. Contracts on the three main U.S. equity gauges rose, though they pared some gains from earlier in the session on a report that China will soon unveil a retaliatory tariffs plan. Most of the attention remains on the Fed chief for guidance after three policy makers at the central bank voiced resistance to lower interest rates.
• Gains were modest across Asia, with stocks in Hong Kong and China climbing while Korean shares edged down. The greenback nudged higher, and euro-area government bonds fell. After a tumultuous August for markets amid concern over a slowing global economy and the escalating trade war, investors will be looking for confirmation of the quarter percentage-point U.S. rate cut markets have priced in for next month. Dissenting Fed voices may limit the prospects for the larger move that some, including President Donald Trump, have advocated.
• Oil headed for a second weekly gain as traders awaited guidance from the Federal Reserve on whether the U.S. will ease monetary policy to shore up economic growth. Futures were little changed in New York on Friday and are up 0.8% this week. Fed Chairman Jerome Powell will speak on Friday in Jackson Hole, Wyoming amid expectations the U.S. will cut rates again next month. Oil prices faltered in the previous two days after data showed an increase in American fuel stockpiles amid fading global demand.
• Gold is poised for the first weekly drop in a month as investors await a key address by Federal Reserve Chairman Jerome Powell at the Jackson Hole gathering. Three Fed policy makers voiced resistance to the notion the U.S. economy needs lower rates, and a fourth said he wanted to avoid further action “unless we have to,” foreshadowing a sharp debate with officials who want more cuts.
• China will soon announce tariffs to retaliate against the U.S. in an effort to hurt the American economy, according to a tweet from Global Times editor-in-chief Hu Xijin. China promised earlier this week that any new tariffs from the U.S. would lead to escalation and retaliation. The U.S. has said it will increase tariffs on some Chinese goods starting Sept. 1, although President Donald Trump has already delayed some of that increase amid economic turbulence. After Trump gave the go-ahead earlier this month for 10% tariffs on the nearly $300 billion in Chinese imports that haven’t been hit by higher duties, China halted purchases of agricultural goods and allowed the yuan to weaken.
• Salesforce.com Inc. shares rallied in early trading after the company reported second-quarter results that beat expectations. The maker of cloud-based applications also gave a revenue forecast that was ahead of forecasts, reassuring investors that it would continue to see rapid growth. Expectations had been low going into the print, given issues related to foreign-exchange rates and recent acquisitions, and the results were greeted warmly. Multiple firms raised their price targets on the stock, with Morgan Stanley writing that the quarter should restore investor confidence, which would in turn put the stock “back on its upward trajectory.”
• Burger King’s China franchisee is weighing a Hong Kong initial public offering after earlier scrapping plans for a U.S. share sale, people with knowledge of the matter said. TAB Food Investments is considering a listing of the Chinese business, which runs more than 1,000 Burger King outlets in the country, as soon as early next year, according to the people. It could seek a valuation of about $1 billion for the operations, one of the people said, asking not to be identified because the information is private.
• Huawei Technologies Co. expects U.S. export restrictions to reduce annual revenue at its consumer devices business by about $10 billion, as the company is banned from buying American components like semiconductors and software. China’s largest technology company is seeking ways to replace key U.S. suppliers such as Cadence Design Systems Inc. and Synopsys Inc., Deputy Chairman Eric Xu said Friday. The overall damage to the company will be a “little less” than billionaire founder Ren Zhengfei’s initial estimate, Xu added.
• Emmanuel Macron said Group of Seven leaders gathering in Biarritz, France, Saturday must tackle head on the fires in the Amazon jungle, establishing the summit’s first flash point. “Our house is burning. Literally,” the French president wrote in a tweet late Thursday. “It is an international crisis.” He plans to introduce the topic in his opening remarks at the informal dinner on Saturday, and it will be the first topic of discussion on Monday.
• Neil Woodford has raised at least 650 million pounds ($796 million) by selling listed assets held in his frozen flagship fund, as he prepares for a potential line of clients yanking their money when the fund reopens. The embattled stock picker shocked the financial world in early June by halting withdrawals from his LF Woodford Equity Income Fund after a run of poor results led to mounting redemption requests. He made the decision to buy time to sell down the fund’s holdings of lightly traded micro-, small- and mid-cap stocks that accounted for 97% its assets at the end of May, according to Morningstar data.
• Russia’s Rosatom shipped its first floating nuclear-power reactor on Friday, setting the unit off on a barge journey among Arctic ice caps, raising concerns in the wake of a recent military accident that caused a brief spike in radiation. The vessel Akademik Lomonosov, named after an 18th century Russian scientist and poet, departed from Russia’s northwest port of Murmansk, according to the state-owned company. Three tugs are towing the unit on its 4,700-kilometer (2,900-mile) trip east to Chukotka, where it will dock at Pevek and generate power for the remote region that’s closer to Alaska than Europe.
• Hong Kong’s rolling political turmoil could prove a tipping point for the world economy, Harvard University economist Carmen Reinhart said. Noting an incidence of shocks that have rattled global growth, including the intensifying U.S.-China trade war, Reinhart cited Hong Kong as among her main concerns. Having previously warned that Hong Kong faces a housing bubble, she said the world economy could be hit by “shocks with a bang or with a whisper.”
• Volkswagen AG is exploring potential investments in Chinese automotive suppliers as it seeks to secure access to key technology in the world’s largest car market, people familiar with the matter said. Options under discussion include buying equity stakes or forging joint ventures with Chinese suppliers, particularly firms with technology used in electric vehicles, according to the people. VW has been examining several possible targets including Guoxuan High-Tech Co., a battery maker based in China’s Anhui province, the people said, asking not to be identified because the information is private.
• Thyssenkrupp AG has held recent talks with Kloeckner & Co. about a potential tie-up as the company seeks to whittle down its sprawling operations and focus on steel, according to people familiar with the matter. The company also explored a combination with Salzgitter AG in the past, the people said, asking to not be identified because the information is private. The discussions are at an early stage and it’s uncertain that they’ll lead to a deal, the people said. Kloeckner shares jumped as much as 18% in Frankfurt, the most in a decade. Salzgitter added 1% as of 10:24 a.m. local time. Thyssenkrupp gained 2.2%. The stock has lost almost a third of its value this year.
• VMware Inc. agreed to purchase two software companies on Thursday for almost $5 billion, expanding its reach in development tools and cybersecurity. The Palo Alto, California-based company said it was purchasing Pivotal Software Inc., which sells cloud software and services, for $2.7 billion, and Carbon Black Inc., a cybersecurity firm, for $2.1 billion. VMware, which makes virtualization and networking tools and is majority-owned by Dell Technologies Inc., said the combined company will provide software to build, run, manage, connect and protect any app on the cloud or any device. Purchasing the two companies will accelerate VMware’s plan to deliver secure, multicloud application development.
• Barclays Plc has gotten rid of roughly half of the $450 million in buyout loans it made to private-equity backed OSG Billing Services that have been stuck on its books for months. The bank has reduced its exposure to about $235 million and found buyers for some of the debt it’s still left with, according to people with knowledge of the matter who asked not to be named because the details are confidential. A freeze in credit markets late last year derailed Barclays’s initial plan to sell the debt to investors. The lender had to come up with the cash itself so that OSG could close two acquisitions.

*All sources from Bloomberg unless otherwise specified