December 3rd, 2019

Daily Market Commentary

Canadian Headlines

• Bank of Montreal’s push to double wealth-management earnings in five years got a boost in the fiscal fourth quarter, even as the company took a C$357 million ($268 million) charge tied mostly to job cuts. The company last year set a target of increasing profit from the business to C$2 billion by 2023 with a strategy that includes accelerating growth in the U.S., building out services for wealthy clients and expanding its global asset manager. The wealth-management unit was the bank’s best-performing business, with income rising 22% in the fiscal fourth quarter to C$267 million as overall earnings beat analysts’ expectations.
• A special committee at Hudson’s Bay Co. rejected an offer by private-equity firm Catalyst Capital Group Inc. that values the Canadian retailer at more than C$2 billion ($1.5 billion), giving the upper hand to a lower bid by the company’s chairman. The offer presented last week by Catalyst is “not reasonably capable of being consummated,” the committee said in a statement late Monday. Catalyst’s proposal of C$11 a share represented a 6.8% premium to the C$10.30 a share that Hudson’s Bay Chairman Richard Baker and his partners agreed to pay in October, and which the committee and the board backed.
• Capital spending in Canada’s oil-sands reserves look set to continue to dwindle as pipeline bottlenecks persist and the Alberta government’s production limits remain in place. Husky Energy Inc. said early Monday that it’s cutting capital spending for 2020 and 2021 by a total of C$500 million ($375 million), and Suncor Energy Inc. said later in the day that it’s keeping spending on oil-related projects flat. While other major producers have yet to release spending plans for next year, the projections from Husky and Suncor show energy companies may continue to focus on wringing more profit from their existing output, rather than plowing money into churning out more barrels. After a year in which Canadian oil companies’ output was cut by mandatory production limits, Suncor is projecting a 5% production increase for next year, while Husky sees a 4% boost.

World Headlines

• European equities erased earlier gains with cyclical sectors pacing declines after President Donald Trump’s comments about the potential trade deal with China fueled fresh concerns. The Stoxx Europe 600 Index retreated as much as 0.2% after adding as much as 0.5% earlier in the day, led lower by mining and oil shares. Trump told reporters that there’s no deadline for a trade deal with China and in some ways it’s better to wait until after the 2020 election for a pact, while adding that China wants to do a deal now.
• U.S. equity futures fell and stocks in Europe trimmed gains after President Donald Trump said he might wait up to a year to complete a trade accord with China, throwing into doubt prospects for an imminent deal. The Chinese yuan weakened, while Treasuries rebounded. Contracts on the main U.S. equity gauges swung to a loss as Trump told reporters in London he might delay a trade agreement between the world’s biggest economies until after the 2020 elections.
• Earlier, benchmarks slipped across most of Asia on tariff developments, including comments from the French government that the European Union would retaliate if the U.S. follows through on proposed levies against France. Investors are sifting through conflicting signals on whether America and China are moving closer to the first part of a deal. Trump’s comments cast further doubt on the prospects for an imminent agreement, following a Chinese report that its government is preparing a blacklist of U.S. companies for possible retaliation. Meanwhile, global economic data is coming in mixed, reflecting the toll the trade war is having on growth.
• Oil extended gains as OPEC’s crude output dropped before the group and its allies meet this week to set the path for future production cuts. Futures added 0.7% in New York even as Asian stocks declined following the announcement of fresh tariffs by President Donald Trump. Output from the Organization of Petroleum Exporting Countries slipped by 110,000 barrels a day last month, according to data compiled by Bloomberg, while an analyst survey predicted a weekly drop in U.S. crude stockpiles.
• Gold was little changed as investors weighed renewed concerns over global trade tensions with better-than-expected economic data. President Donald Trump proposed tariffs on roughly $2.4 billion of French products, and is reinstating tariffs on steel and aluminum from Argentina and Brazil. Also adding to the uncertainty: the looming Dec. 15 deadline on the next round of levies on China. Commerce Secretary Wilbur Ross warned that President Donald Trump will go ahead with those if there’s no deal with Beijing.
• President Donald Trump signaled he would be willing to wait for another year before striking a trade agreement with China, casting doubt on the likelihood of a phase-one accord within weeks between Washington and Beijing. “I have no deadline,” he told reporters Tuesday on London when asked if he wanted an agreement by year end.
• Japan’s government called Tuesday for decisive fiscal action combined with powerful central bank easing to ensure the economy can overcome risks threatening growth and to recover from natural disasters. A draft of a government stimulus package obtained by Bloomberg sets out the need for spending on upgrading disaster-prevention infrastructure, an extension of a cashless rebate program and information technology help for small and mid-sized companies that are raising wages.
• France’s government said the European Union would retaliate if the U.S. follows through on a threat to hit about $2.4 billion of French products with tariffs over a dispute concerning how large tech companies are taxed. The decision by the office of the U.S. Trade Representative marks a setback for efforts to stop a conflict over a digital services tax. The levy, which the USTR says “discriminates against U.S. companies,” would hit the revenues of large tech companies including Google, Apple Inc., Facebook Inc. and Amazon.com Inc.
• UniCredit SpA Chief Executive Officer Jean Pierre Mustierwill reward investors with 2 billion euros ($2.2 billion) of share buybacks in a new four-year strategic plan that will see about 8,000 job cuts as the bank grapples with slow economic growth and sluggish revenue. The Milan-based lender, announcing new targets through 2023, will boost shareholder payouts through a combination of dividends and its first stock repurchases since at least 2005. The employee reductions, equal to more than 9% of the workforce, will come in part through the closure of about 500 branches. UniCredit also announced a separate buyback equal to 10% of this year’s earnings.
• China Bohai Bank Co., a mid-sized lender part-owned by Standard Chartered Plc, has picked lead banks for a planned Hong Kong initial public offering that could raise more than $2 billion, according to people familiar with the matter. The Tianjin-based lender is working with ABC International Holdings Ltd., CCB International (Holdings) Ltd., CLSA Ltd. and Haitong International Securities Group on the share sale, said the people, asking not to be identified because the matter is private. The bank will probably list in the second half of next year, two of the people said.
• Uganda offered a “package” to oil companies including Total SA that will end “pending hindrances” to their investment decisions, and potentially clear the way for Tullow Oil Plc to revive plans to reduce its stake in fields in the country. Proposals were made Nov. 30 at a meeting between Ugandan President Yoweri Museveni and Total’s Chief Executive Officer Patrick Pouyanne, Energy Minister Irene Muloni said in an interview Tuesday in the capital, Kampala, without providing details of the plan. Tullow originally planned to sell some of its stake to Total and Cnooc Ltd. before the deal collapsed in August following a tax dispute.
• Hangzhou Tigermed Consulting Co., a Chinese clinical research service provider, has picked banks to arrange a Hong Kong share sale that could raise at least $500 million, people familiar with the matter said. The Shenzhen-listed company has selected Bank of America Corp. and CLSA Ltd. to work on the stock offering, the people said, asking not to be identified because the matter is private. The Hong Kong listing could take place as soon as the second half of next year, according to the people. Tigermed shares have more than doubled in Shenzhen trading this year, giving the company a market value of about 45.8 billion yuan ($6.5 billion). The benchmark ChiNext Index has risen 34% over the same period.
• Kuwait’s government will invest as much as $1 billion in the initial public offering of Saudi Aramco as the kingdom asks regional allies to bolster the record share sale, according to people familiar with the matter. The Kuwait Investment Authority had been reluctant to commit significant funds to the IPO, but was told by the government that a stake was in the country’s strategic interest, the people said, asking not to be identified discussing a confidential matter. Kuwait communicated its decision to Aramco on Monday. Kuwait’s move follows Abu Dhabi, the oil-rich member of the United Arab Emirates, which has decided to invest $1.5 billion in Aramco, people familiar with the matter said last week.
• The U.S. has been warning other countries not to buy telecommunications gear from China’s Huawei Technologies Co. and ZTE Corp.The government will soon put real money behind the effort. A new agency, called the U.S. International Development Finance Corporation, plans to tap some of its $60 billion budget to help developing countries and businesses purchase equipment from other companies. “The U.S. is very focused on ensuring there’s a viable alternative to Huawei and ZTE. We don’t want to be out there saying no. We want to be out there saying yes,” Adam Boehler, the first chief executive officer of the DFC, said in a recent interview.
• Bankrupt utility giant PG&E Corp. for years failed to properly inspect and maintain its transmission system — an oversight that led a live wire to fall and ignite the deadliest blaze in California history last year, state investigators said. A PG&E crew hadn’t climbed and inspected the tower and hook that failed, sparking the catastrophic Camp Fire, in 17 years, a California Public Utilities Commission investigation made public Monday shows. The company would’ve discovered that the hook had worn down if it had checked the tower, and its “timely replacement could have prevented” the blaze from happening, the commission’s safety division said in the nearly 700-page report.
• China is hurtling toward another record year of onshore bond defaults, testing the government’s ability to keep financial markets stable as the economy slows and companies struggle to repay unprecedented levels of debt. At least 15 defaults since the start of November have pushed this year’s total to 120.4 billion yuan ($17.1 billion), within a hair’s breadth of the 121.9 billion yuan annual record in 2018, according to data compiled by Bloomberg.
• Chinese state media said the government would soon publish a list of “unreliable entities” that could lead to sanctions against U.S. companies, signaling trade talks between the two nations are increasingly under threat from disputes over human rights in Hong Kong and Xinjiang. The Communist Party-backed Global Times said in a tweet early Tuesday that the list was being sped up in response to a bill sponsored by Republican Senator Marco Rubio requiring sanctions against Chinese officials involved in alleged abuses of Uighur Muslims in the far west region of Xinjiang. Beijing has threatened to publish such a list of companies since May, after the U.S. placed restrictions on Huawei Technologies Co.
• Cleveland-Cliffs Inc. agreed to buy AK Steel Holding Corp. for about $1.1 billion in shares, allowing the largest U.S. iron ore producer to expand into steelmaking. The Cleveland-based miner agreed to pay 0.4 of its own shares for each AK Steel share, the company said in a statement Tuesday. The ratio represents a 16% premium based on closing prices Monday and Cliffs shareholders will own about 68% of the combined company, it said. The transaction implies a consideration to AK Steel shareholders of approximately $1.1 billion on a fully diluted basis and a total enterprise value of approximately $3 billion for AK Steel, Cliffs said.
• Iran for the first time acknowledged that its security forces shot and killed protesters last month during one of the most violent crackdowns on dissent since the 1979 Islamic revolution. State television on Tuesday reported that “rioters” had been shot dead in several areas as they joined anti-government protests, including in Tehran, the capital, and Mahshahr in the country’s southwest. The latter has a sizable Arab population, and the report claimed security forces clashed with a separatist group there.

*All sources from Bloomberg unless otherwise specified