August 3rd, 2018
Daily Market Commentary
- Toronto’s housing market showed signs of continued stabilization as sales surged amid a decline in benchmark prices. Sales rose 19 percent in July to 6,961, from 5,869 in the same period a year earlier, the Toronto Real Estate Board reported Friday. Seasonally adjusted sales climbed 6.6 percent from June, making July the strongest month this year for resales, though it was still below the historical average.
- Canadian heavy oil is the weakest in almost five years, leading Canada’s largest producer to focus on drilling for lighter crude. Western Canadian Select’s discount to benchmark West Texas Intermediate widened $1.30 to $30.80 a barrel Thursday, the biggest gap since December 2013, data compiled by Bloomberg show. Prices have tumbled amid constraints on pipeline and rail capacity out of Western Canada and as the U.S. Midwest’s biggest refinery prepares for maintenance later this month on its largest crude distillation unit.
- European equities inched higher following sharp losses this week, helped by a rally in banking shares after Royal Bank of Scotland Group announced plans to resume payouts. The Stoxx Europe 600 Index added 0.3 percent. The benchmark is still poised for a loss of 1.2 percent on the week, the worst since the end of June.
- Stocks were mixed on Friday, with U.S. futures drifting, European shares higher and most Asian equities slipping as markets remained on edge after a week dominated by worries over protectionism. S&P 500 index futures struggled for traction ahead of the U.S. jobs report, which is expected to show unemployment ticking down.
- While the rout abated on Friday, Asian shares headed for their worst weekly decline since March on concern over the U.S.-China trade war. Property stocks pushed the MSCI Asia Pacific Index down 0.3 percent to 164.83 as of 4:55 p.m. in Hong Kong, sending its weekly slide to 2.3 percent.
- Oil was steady in New York as concerns over the fallout from the U.S.-China trade dispute and higher supply from OPEC balanced some signs of tightness in the market. West Texas Intermediate futures increased 0.7 percent, and are little changed this week. Escalating threats between President Donald Trump’s administration and Chinese officials are fanning worries that both economic activity and fuel demand could be impaired. Prices climbed on Thursday after Genscape Inc., a data provider, this week signaled that crude stockpiles at Cushing, Oklahoma — the biggest U.S. storage hub — may fall further from the lowest level in almost four years.
- Gold falls to lowest level in more than a year as the dollar firms before monthly U.S. payrolls report, overshadowing rising global trade tensions. Silver heads for longest run of weekly losses in two decades.
- Secretary of State Michael Pompeo arrived in Singapore for a regional summit that will spotlight the challenges facing U.S. efforts to keep up international pressure against both North Korea and Iran. Pyongyang has been sending representatives to meetings hosted by the Association of Southeast Asia Nations since 2000, but this year they’ll enjoy enhanced diplomatic prominence after President Donald Trump’s summit with Kim Jong Un in the city-state two months ago. The Iranians, meanwhile, signed a friendship pact Thursday with a 10-member regional bloc.
- Heineken NV is buying a $3.1 billion stake in China’s top brewer in a bid to challenge Anheuser-Busch InBev’s position as the largest foreign beer maker in the world’s biggest market. The Dutch brewer will gain a 40 percent stake in the parent of China Resources Beer Holdings Co., maker of the country’s best-selling Snow brand. The move gives Heineken a strong local partner in a market that’s embracing imported beers but has proved challenging for overseas players from Asahi Group Holdings Ltd. to Carlsberg A/S.
- Toyota Motor Corp. is sharpening its focus on keeping costs in check and fueling demand in China to prepare for challenges in a U.S. market potentially hit by a trade war. The Japanese car giant reported first-quarter profit that topped analysts’ estimates, helped by expense reductions and rising sales in Asia. While keeping its full-year revenue and earnings forecast unchanged, the company slashed its prediction for North American sales by 50,000 vehicles.
- The Trump administration’s proposal to ease U.S. fuel economy standards after 2020 may slow an expected decline in gasoline demand, resulting in higher prices at the pump. The Environmental Protection Agency and National Highway Traffic Safety Administration jointly proposed on Thursday to cap fuel economy requirements at a fleet average of 37 miles per gallon starting in 2020. Under the Obama plan, the fleet-wide fuel economy would have risen gradually to roughly 47 mpg by 2025. The change would mean a 2 percent to 3 percent increase in daily fuel consumption.
- Huawei Technologies Co., which just edged past Apple Inc. to become the world’s second-largest smartphone maker, wants to be top of the heap before the end of 2019. The Chinese giant shipped more than 95 million phones in the first six months, up about 30 percent from a year earlier. Consumer division chief Richard Yu on Friday said he wants Huawei to be No. 1 in smartphones by the fourth quarter of next year, with a market share of more than 20 percent — despite acknowledging its virtual absence in a pivotal U.S. market.
- BNP Paribas Asset Management’s Bryan Carter says rising debt in a half-dozen frontier-market nations has reached unsustainable levels — and that’s making the $662 billion investor mighty uneasy. “The debt ratios have rapidly risen in recent years and now we are right back where we started,” when debt writeoffs began in the mid-1990s, said Carter, who runs emerging-market bonds at the unit of the French bank. “It’s unsustainable debt again.”
- Royal Bank of Scotland Group Plc finally detailed long-awaited plans to resume dividends, a decade after Britain’s largest taxpayer-funded bailout. The Edinburgh-based lender will pay a 2 pence a share interim distribution, subject to a final agreement with U.S. authorities, RBS said in its quarterly earnings on Friday. That’s double the estimate of some analysts, including those at Deutsche Bank AG. The British bank’s shares rose 3 percent in early morning trade.
- Italian bonds slumped for the third day ahead of a budget meeting between the country’s populist leaders and the finance minister. Ten-year yields broke above 3 percent for the first time in nearly two months following a report by La Stampa newspaper that the gathering would take place at 11 a.m. Central European Time. Frictions between Finance Minister Giovanni Tria and Deputy Prime Ministers Matteo Salvini and Luigi Di Maio have rattled Italy’s debt market since the formation of the country’s government.
- Tata Group may have to pay around 90 billion rupees ($1.3 billion) in dues to the Indian government to rescue the proposed sale of its mobile-phone business to Bharti Airtel Ltd., people familiar with the matter said. The department of telecommunications is demanding that Tata Teleservices Ltd. clear any obligations to the government before it approves the deal that was struck in October, the people said, asking not to be identified as the information isn’t public. Bharti Airtel, helmed by billionaire Sunil Mittal, is unlikely to agree to pay the sum, two of the people said.
- Mark Carney threw himself back into the thick of the Brexit debate on Friday, saying the chance of the U.K. dropping out of the European Union without a deal is “uncomfortably high.” The intervention suggests the Bank of England governor is growing increasingly worried that Prime Minister Theresa May’s government is running out of time to hammer out an agreement that will prevent disruption to business, trade and consumers. The central bank has previously drawn criticism for being too forthright in its comments and predictions surrounding Brexit, which anti-EU lawmakers see as being overly gloomy.
- The world’s biggest pension fund saw returns rebound last quarter with foreign stocks generating the biggest gain among its assets. Japan’s Government Pension Investment Fund returned 1.7 percent, or 2.6 trillion yen ($23 billion), in the three months ended June 30, with assets totaling 158.6 trillion yen, it said in Tokyo on Friday. Foreign stocks were the fund’s best performing investment, adding 2 trillion yen, followed by a 420 billion yen increase in domestic shares. The percent of total assets allocated to overseas stocks reached a record high.
- Sembcorp Industries Ltd. and Keppel Corp. are among parties planning to study bids for Hyflux Ltd.’s biggest asset, according to people with knowledge of the matter, in a sale that’s key to helping the cash-strapped company get back on its feet. Hyflux’s Tuaspring project, which includes Southeast Asia’s biggest desalination plant, has also drawn interest from Malaysian generator YTL Power International Bhd., the people said, asking not to be named as the process is private. The asset had a book value of S$1.47 billion ($1.1 billion) at the end of March, according to Hyflux exchange filings.
- Credit Agricole SA’s investment bank and retail business are both benefiting from the thirst for credit. Financing revenue jumped 17 percent in the second quarter after the bank provided advice and arranged debt financing on large deals including Altran Technologies SA’s takeover of Aricent Inc., helping the investment bank beat estimates. The bank’s French LCL retail business also did better than expected after seeing loan growth jump. The stock rose 2.4 percent to 12.24 euros at 12:44 p.m. in Paris.
- Shanghai Electric Group Co. terminated its plans to buy a majority stake in a polysilicon unit of GCL-Poly Energy Holdings Ltd., a deal that was estimated to be worth almost $2 billion. Shanghai Electric decided to terminate the deal because of a lack of consensus on terms, it said in a filing to the Hong Kong stock exchange on Friday. It also cited the complexity of the transaction and noted the timing and conditions were not favorable.
- Malaysian wireless carrier Axiata Group Bhd. is considering acquiring a stake in PT Link Net, the Indonesian internet provider backed by CVC Capital Partners, according to people with knowledge of the matter. Axiata’s listed Indonesian unit PT XL Axiata has started talks with major shareholders of Link Net about a potential deal, the people said, asking not to be identified because the process is private. XL Axiata is working with an adviser as it explores the purchase of about a 40 percent stake, said one of the people.
- Nissan Motor Co. agreed to sell its electric-car battery business to China’s Envision Group, a month after a $1 billion sale to a private-equity firm from the same country collapsed. Envision Group, a Shanghai-based sustainable-energy company, will acquire the business, including its manufacturing, development and engineering operations, Nissan said Friday, without disclosing the price. Nissan agreed to keep a 25 percent stake in the business.
- Fiat Chrysler Automobiles NV is for now sticking with plans to spin off its Magneti Marelli unit after fielding interest from potential buyers for the car-part business, which may be valued at as much as 6 billion euros ($7 billion). The company stands by its announced intention to distribute new shares in Marelli to shareholders, a spokesman said Thursday in an emailed response to queries from Bloomberg News about renewed interest in the asset. The Italian-American automaker rejected an approach from an unnamed Asian parts supplier, a person familiar with the matter said.
*All sources from Bloomberg unless otherwise specified