August 24th, 2018

Daily Market Commentary

Canadian Headlines

• On the heels of its debut deal, the head of the Canada Infrastructure Bank says it’s open for business. The bank announced Wednesday funding of C$1.28 billion ($980 million) for a Montreal rail line, in the form of a low-interest loan, essentially replacing direct federal funding that had been allotted earlier. Creating the lender was a flagship commitment for Prime Minister Justin Trudeau’s government during the 2015 election.
• Nafta talks are poised to spill into next week, pushing up against the goal for a deal by the end of the month, as the U.S. and Mexico work out their issues in order to reincorporate Canada. After two days of talks focused on rules for car production, Mexican Economy Minister Ildefonso Guajardo said that the U.S. and Mexico still haven’t resolved all their pending issues. Mexico won’t consider negotiations complete until Canada also agrees to a deal, Guajardo said, and that nation’s minister hasn’t attended talks in the past five weeks.
• Enbridge agrees to buy all of the outstanding public common units of SEP on the basis of 1.111 common shares of Enbridge for each common unit of SEP.

World Headlines

• Energy majors led the advance in the Stoxx Europe 600 Index as crude gained along with industrial metals. The euro pushed higher after data confirmed solid growth in Germany, the region’s biggest economy. Italian bonds fell on concern the government will flaunt European Union spending rules as it pursues a populist agenda.
• U.S. equity-index futures rose alongside stocks in Europe following a mixed session in Asia after trade negotiations with China drew a blank. Oil and most commodities rallied as the dollar slipped with Treasuries before an address from Federal Reserve Chairman Jerome Powell. Futures on the Dow, S&P 500 and Nasdaq indexes climbed while China and Hong Kong equities underperformed as trade talks wound up with no major progress.
• Most Asian shares declined as little progress in U.S.-China talks renewed concerns that trade disputes will escalate further. The MSCI Asia Pacific Index added less than 0.1 percent to 163.25 as of 4:23 p.m. in Hong Kong, holding this week’s advance at 0.7 percent. Singapore stocks were the biggest decliners in the region, with the Straits Times Index falling 1 percent. A post-results slump in AIA Group Ltd dragged Hong Kong’s benchmark down 0.4 percent. Australia’s S&P/ASX 200 erased earlier losses after Treasurer Scott Morrison became the country’s prime minister.
• Oil rose in New York and headed for its first weekly gain in two months amid signs of tighter supply from the North Sea to the Middle East. Futures in New York are headed for a gain of almost 4 percent this week, ending their longest run of weekly losses since 2015. U.S. crude stockpiles dropped by more than twice what analysts expected last week, while strikes at Total SA’s fields in the North Sea could curb supply. Iran’s exports are set to decline sharply as renewed U.S. sanctions take effect, analysts at FGE and Cowen & Co. said.
• Gold heads for first weekly gain in seven as dollar eases ahead of speech from Federal Reserve Chairman Jerome Powell, and investors weigh U.S.-China trade standoff. Silver set for the longest run of weekly losses since at least 1950.
• U.K. consumers’ savings rate fell to the lowest on record as they eat into more of their pay to cover shopping, rent and mortgages. The measure — the difference between income and expenditure — slipped to 1.2 percent in July, UK Finance said on Friday. That’s the lowest since the banking group’s data started more than a decade ago and is also a huge shift from just two years ago, when the rate was at 5 percent.
• Japan is making a push to develop flying cars, enlisting companies including Uber Technologies Inc. and Boeing Co. in a government-led group to bring airborne vehicles to the country in the next decade. The group will initially comprise 21 businesses and organizations, including Airbus SE, NEC Corp., a Toyota Motor Corp.-backed startup called Cartivator, ANA Holdings Inc., Japan Airlines Co., and Yamato Holdings Co., according to a statement Friday from the trade ministry in Tokyo. Delegates will gather Aug. 29 to help chart a road map this year, it said.
• The trade war between the U.S. and China is primed to escalate after their governments failed to make progress in two days of talks. The two sides had met with low expectations for this week’s meetings and no further talks had been scheduled, a person familiar with the discussions said. The person, who requested anonymity to discuss the private deliberations, also said Chinese officials had raised the possibility that no further negotiations could happen until after November’s mid-term elections in the U.S.
• Norway’s $1 trillion sovereign wealth fund is meeting resistance on its plan to dump more than $40 billion in oil and gas stocks. A government-appointed commission on Friday recommended against divesting petroleum stocks. Such a move will have little effect on protecting Norway against falling crude prices and alter what has so far been a successful investment philosophy, it said.
• Ryanair Holdings Plc is locking the cabin door on traditional carry-on suitcases for its non-priority customers and forcing them to check the luggage for a fee — or go with a smaller bag — to save time loading passengers on and off flights. Starting Nov. 1, Europe’s biggest discount airline will only allow travelers who pay for priority boarding to bring the so-called wheelies — the wheeled suitcases created to fit in overhead bins — on board along with a smaller item, it said Thursday. Non-priority customers can only bring the smaller bag, typically a handbag, backpack or laptop bag, onto the flight.
• The U.K. will stop classifying debt issued by countries in the European Union as “zero risk” if it leaves the bloc without a deal, raising the prospect that banks may have to raise additional capital. The change would automatically require U.K. banks, and subsidiaries holding parts of their liquidity in European government bonds, to commit additional capital against the securities, according to the Treasury, which outlined how it plans to address the future of financial services supervision after Brexit. Supervisors would look at the creditworthiness of the various governments when deciding on weightings, potentially hurting lenders who have significant bond holdings from weaker nations.
• UniCredit SpA, Italy’s biggest bank, climbed in Milan trading after a report that it had hired an adviser for a possible merger with France’s Societe Generale SA, a deal rumored already two years ago. Contacts between the two lenders to study integration and acquisition possibilities have been continuing, Italian financial newspaper MF reported, without citing anyone. Given the “delicate” nature of discussions, UniCredit has hired top advisers including Daniel Bouton, the former SocGen CEO who is now working for Rothschild & Co. SocGen is being advised by JPMorgan Chase & Co., according to MF.
• Japanese inflation failed to deliver an expected uptick in July, underscoring the persistent weakness in consumer prices that has forced the Bank of Japan to take an increasingly longer-term view of its mission to achieve 2 percent inflation. Gains in consumer prices remain less than halfway to the central bank’s inflation target more than five years into its large-scale easing program aimed at sparking stable price growth.
• Nestle SA’s unit in Japan expects a fledgling business selling nutritional drinks and supplements to aging consumers to grow into a nearly $1 billion business within a decade as the food giant becomes the latest to employ genetics to market food. The world’s biggest food company has seen increasing demand for a Japanese subscription program for nutrition that can cost about $600 a year for capsules and other products. Consumers send in photos of their plates of food via a smartphone chat application and the program’s AI pushes them to round out their meals with Nestle’s nutrient-boosted green teas and milk products. They can also complement the advice using DNA tests and blood samples.
• New York State prosecutors have taken preliminary steps to open criminal investigations into President Donald Trump’s former lawyer, Michael Cohen, and possibly the president’s business, according to people familiar with the matter. New York Attorney General Barbara Underwood sought a referral in recent days from the New York Department of Taxation and Finance to launch a criminal tax probe into Cohen’s activities, according to one of the people, who declined to comment publicly on the request. Permission from the agency is needed for the attorney general to open a criminal investigation.
• China removed limits on foreign ownership of its banks and bad-debt managers, pushing ahead with a previously announced plan to open its financial system despite rising trade tensions with the U.S. Overseas financial institutions will now be treated the same as local companies, the China Banking and Insurance Regulatory Commission said in a statement late Thursday, following through on a pledge announced last year. Stakes were previously capped at 20 percent for a single foreign institution and 25 percent for a group.
• Elon Musk has hired Morgan Stanley to assist him in his potential bid to take Tesla Inc. private, according to a person familiar with the matter. Morgan Stanley is advising Musk, not the company, its board or a special board committee formed to to evaluate a potential take-private proposal, said the person, who asked not to be identified because the matter is private. The bank suspended coverage of the stock on Tuesday without explanation.
• German electronics retailer Ceconomy AG plans to bid for the remaining stock in French chain Fnac Darty SA in a deal that would cost more than 1.5 billion euros ($1.7 billion), but a dispute with a partner is stalling the move, people familiar with the matter said. Ceconomy offered to buy out the Kellerhals family, the minority shareholder in Ceconomy’s Media-Saturn Holding GmbH chain of stores, but the family spurned the offer, said the people, declining to be identified because the talks are private. While the discussions are ongoing, failure to reach an agreement would derail Ceconomy’s short-term plans to tap Media-Saturn’s profits and acquire the rest of Fnac Darty, the people said.
• ABB Ltd. is considering the sale of its power grid unit amid a surge in the value of the asset, according to people with knowledge of the matter, signaling a potential reversal in Chief Executive Officer Ulrich Spiesshofer’s plans for the business. The Swiss engineering company is discussing options with advisers, the people said, declining to be identified as the deliberations are confidential. While ABB’s board, including top shareholder Investor AB, is now open to offers, the firm isn’t running a formal sale process, they said.
• T-Mobile US Inc. alerted its customers about a hack that may have compromised personal information such as names, phone numbers and email addresses. The cybersecurity team of the third-largest U.S. wireless carrier discovered and shut down the breach on Aug. 20, the company said in a website statement. The hack may have exposed information including billing zip codes, account numbers and account types such as prepaid or postpaid, the carrier said.
• UniCredit SpA, Italy’s biggest bank, climbed in Milan trading after a report that it had hired an adviser for a possible merger with France’s Societe Generale SA, a deal rumored already two years ago. Talks between the lenders to study integration and acquisition possibilities have been continuing, Italian financial newspaper MF reported, without citing anyone. UniCredit appointed Daniel Bouton, the ex-SocGen chief executive officer who is now working for Rothschild & Co., due to the “delicate” nature of discussions, MF said, adding that SocGen hired JPMorgan Chase & Co.

*All sources from Bloomberg unless otherwise specified