December 11th, 2019
Daily Market Commentary
- Hudson’s Bay Co. Chairman Richard Baker’s C$1.9 billion ($1.4 billion) plan to take the Canadian retailer private got a boost from a prominent shareholder advisory firm. Glass Lewis & Co. urged investors in the owner of Saks Fifth Avenue to support the transaction at a shareholder meeting Dec. 17. It argued that there’s no viable alternative deal on the table given that Baker’s group, which owns roughly 57% of the company, said it won’t sell its shares to anyone else.
- Canadian farmers — grappling with with lower crop income, adverse weather and a trade dispute with China — are using precision-agriculture technology aimed at reducing lending and insurance costs. Collecting intricate crop data allows individual farmers to outline potentially limited risk to banks and insurers, Tristan Skolrud, an assistant professor in the agricultural and resource economics department at the University of Saskatchewan, said in a telephone interview. In an industry facing tight margins, the savings can mean the difference between making a profit and wrestling with lower income or losses for grain and canola. Companies including Bayer AG, Deere & Co. and Cargill Inc. have expanded in precision agriculture.
- European shares were little changed Wednesday ahead of a Federal Reserve meeting today, U.K. elections on Thursday and as China anticipates the U.S. will delay new tariffs. The Stoxx 600 Index moved between little gains and losses, with telecom and media shares retreating, while the basic resources sector advanced the most. Credit Suisse Group AG was among the worst-performing banks after cutting profit goals, while Inditex SA led gains among retailers as sales accelerated.
- U.S. equity futures drifted with stocks before the Federal Reserve’s final policy decision of the year and amid lingering uncertainty over the progress of trade negotiations between America and China. Treasuries advanced. Contracts on three main U.S. equity gauges struggled for traction as traders awaited the Fed meeting, where policy makers are widely expected to keep rates unchanged.
- Stocks in Asia were mostly higher after White House adviser Peter Navarro said he had no indication that President Donald Trump will do “anything other than have a great deal or put the tariffs on.” With the world’s top two economies still wrangling over an interim deal, Thursday may bring news as Trump is expected to meet with his trade team, according to people familiar with the talks. As for interest rates, the Fed’s Open Market Committee is expected to avoid signaling a further reduction is on the immediate horizon when it delivers a verdict later Wednesday.
- Oil retreated from its highest close in almost three months after an industry report showed American crude inventories expanded last week, adding to signs that supplies will remain abundant next year. Futures in New York dropped as much as 0.7% after settling above $59 a barrel on Tuesday. The American Petroleum Institute reported that U.S. stockpiles increased by 1.41 million barrels, according to people familiar with the data. Chinese officials expect the U.S. to delay a tariff increase scheduled for Sunday, giving more time to negotiate an interim trade deal, people with knowledge of the discussions said.
- Precious metals drifted as traders await Wednesday’s Federal Reserve meeting. Palladium held near $1,900 an ounce after smashing fresh records Tuesday. While the Fed is widely expected to keep rates unchanged at its final gathering of the year, commentary from the policy makers will be closely watched for clues on further moves. Also in focus are Thursday’s election in the U.K. and the U.S.-China tariff deadline. Exchanged traded funds backed by precious metals all saw outflows in the last trading session, according to the most recent data compiled by Bloomberg. ETF holdings of silver have dropped to the lowest since August.
- Saudi Aramco shares surged after the oil producer’s initial public offering, valuing the company at a record $1.88 trillion in the culmination of a four-year effort by the kingdom to list its crown jewel. The stock jumped the daily 10% limit to 35.20 riyals when trading began at 10:30 a.m. in Riyadh as Aramco board members, Saudi officials and invited guests cheered at a ceremony at the Fairmont Hotel in the kingdom’s capital. Aramco raised $25.6 billion in the biggest-ever IPO, selling shares at 32 riyals each and valuing the company at $1.7 trillion, overtaking Microsoft Corp. and Apple Inc. as the most valuable listed company.
- Airline industry profits will come in lower than forecast this year as passenger numbers and cargo volumes are held back by slowing economic growth and global trade wars, the International Air Transport Association said. With less than a month left in 2019, the trade body lowered its annual profit estimate to $25.9 billion — $2.1 billion less than it predicted in June, and almost $10 billion down from forecasts published a year ago. Geopolitical tensions, social unrest and uncertainty around Brexit are contributing to tougher business conditions, IATA said.
- Chinese officials expect President Donald Trump to delay a threatened tariff increase set for Sunday, giving more time to negotiate an interim trade deal that both sides continue to insist is close to fruition despite a series of missed deadlines, according to people familiar with the discussions. The two sides, staying in almost daily contact, have also come closer to an agreement on scaling back the tariffs already in place. But rather than removing or rolling back existing levies, the focus has been on reducing the rate of the tariffs already in effect, according to officials and other people familiar with the talks.
- Washington state’s biggest utility is selling a stake in one of America’s largest coal-fired power plants for $1, seeking to comply with a new state law requiring energy companies to stop using the fuel by 2025. Puget Sound Energy Inc. agreed to sell its 25% stake in the 740-megawatt Colstrip Unit 4 facility to NorthWestern Energy Corp., according to a statement Tuesday. As part of the deal, Puget Sound will sign a five-year power purchase deal for 90 megawatts of capacity from the plant, just under half of what it’s selling.
- Chevron Corp. expects to write down as much as $11 billion in the fourth quarter, more than half of it from its Appalachia natural gas assets after a slump in prices. The U.S. oil major is considering the sale of its shale-gas holdings, along with its Kitimat liquefied natural gas project in Canada, according to a statement Tuesday. Chevron said it will keep its 2020 capital budget at $20 billion, the third consecutive year it hasn’t boosted spending. The company’s actions come from a chief executive officer, Mike Wirth, whose mantra has been capital discipline. Wirth earlier this year earned $1 billion for the company by walking away from a bidding war for Anadarko Petroleum Corp. San Ramon, California-based Chevron is the best performer among the five Western oil majors this year, but it has faced mounting costs at its Tengiz project in Kazakhstan.
- Boris Johnson and Jeremy Corbyn began a whistle-stop tour of key districts, after a major opinion poll showed the Conservative Party’s lead has narrowed ahead of Thursday’s U.K. election. The YouGov survey of more than 100,000 voters put Johnson on course to win a majority of 28 seats, but that’s down from 68 in a similar projection two weeks earlier — and the pollster did not rule out a hung parliament. The pound fell.
- China’s Huawei Technologies Co. just got a seal of approval from one of Germany’s biggest telecom companies. Telefonica SA’s German unit, which operates the country’s second-largest wireless network, picked Huawei and Finland’s Nokia Oyj to take an equal role supplying its fifth-generation mobile phone network upgrade, the company said in a statement Wednesday. The deal is subject to the firms getting certified by German authorities, it said. The announcement is a boon to Huawei after Deutsche Telekom AG said last week it has stopped ordering new 5G equipment because of political uncertainty over Chinese suppliers. Huawei has repeatedly denied allegations its equipment could be used for espionage.
- Emerging markets are about to embark on another year of wealth creation after adding $11 trillion to investor portfolios in the past decade. Developing-nation assets will outperform their developed peers, with Asia having the best prospects, according to Bloomberg’s survey of 57 global investors, strategists and traders on their outlook for next year. Total wealth in emerging-market stocks and bonds now exceeds $25 trillion, bigger than the economies of the U.S. and Germany combined.
- Indonesia’s cabinet is discussing amending a legally imposed cap on the budget deficit, which would allow the government to spend and borrow more to stimulate growth in Southeast Asia’s biggest economy. President Joko Widodo is holding talks on the matter, although for now, the current annual ceiling of 3% of gross domestic product remains, Finance Minister Sri Mulyani Indrawati told Bloomberg News on Wednesday in Jakarta.
- Bank of Japan officials see a sizable impact from government stimulus announced last week, raising the likelihood that the bank will upgrade its economic forecasts for the first time in a year next month, according to people familiar with the matter. The possibility of higher growth projections would likely strengthen a building view among economists that the BOJ will stand pat on key policy measures at its meeting next week and for some time to come, barring unexpected developments in U.S.-China trade talks, markets or economic data.
- A deadly spell of forest fires in Indonesia’s main palm oil producing regions earlier this year may have cost the country $5.2 billion in economic losses, according to the World Bank. The fires, the worst since 2015, torched about 620,201 hectares of land in the first nine months of the year and affected sectors including agriculture, environmental, transportation, trade and industry, the World Bank said in a report Wednesday. The economic losses are equal to 0.5% of the country’s annual gross domestic product, the bank estimated. Still, it pales in comparison to the $16 billion of losses from fires suffered by Southeast Asia’s largest economy four years ago.
- A group of creditors have lobbied California Gavin Newsom to reject PG&E Corp.’s restructuring plans in a last-ditch effort to gain control of the bankrupt utility, people familiar with the situation said. The bondholders led by Pacific Investment Management Co. and activist investor Elliott Management Corp. want Governor Gavin Newsom to use his veto power over a $13.5 billion settlement that PG&E reached with wildfire victims last week. Newsom has until Friday to approve the deal or reject it because it fails to meet state standards.
- WeWork is in talks to sell Managed by Q Inc., a business it owned for about eight months, according to people familiar with the matter. The deal may help the troubled office-sharing company raise cash and refocus on its main business. A group of investors and executives, including Managed by Q co-founder and former Chairman Dan Teran, is trying to buy the business back from WeWork, the people said. Discussions are progressing and WeWork is actively pursuing a resolution, said the people, who asked not to be identified talking about private negotiations.
- Amazon.com Inc.’s purchase of a minority stake in Deliveroo may get an extended review by U.K. antitrust regulators, who said the purchase could hurt competition by discouraging the American company from re-entering the British food-delivery market. The Competition and Markets Authority will continue to review Amazon’s investment in the fast-growing startup unless they offered remedies to address competition concerns within five days. The investigations, which began in October, may go into their second phase and could eventually result in the blocking of the move.
*All sources from Bloomberg unless otherwise specified