December 10th, 2018
Daily Market Commentary
- Canadian stocks ended lower Friday with the S&P/Toronto Stock Exchange Composite Index down just under 1 percent. The index lost 2.65 percent this week. Consumer discretionary and information technology led Friday’s decline. In the U.S., the S&P 500 fell 2.3% to cap worst week since March. The Cannabis sector climbed Friday morning after Altria Group Inc. agreed to buy a minority stake in Cronos Group Inc., the fourth-largest Canadian cannabis producer by market value. Pot stocks had been poised for their worst weekly loss in six weeks as of Thursday’s close. Energy stocks lost a bit of their early rally, despite OPEC agreeing to a larger than expected production cut. The S&P/TSX energy index ended the day up 0.1 percent.
- China accused Canada of violating a bilateral agreement by failing to speedily inform its consulate of the arrest of Huawei Technologies Co.Chief Financial Officer Meng Wanzhou, as tensions between the nations continue to escalate. “According to the China-Canada consular agreement, if a Chinese citizen is arrested by the Canadian government, the Canadian government should immediately notify the Chinese embassy,” Chinese Foreign Ministry spokesman Lu Kang told reporters in Beijing on Monday. “But the Canadian government didn’t do that.” Over the weekend, Chinese authorities separately summoned the ambassadors of Canada and the U.S. to protest Meng’s arrest on allegations she committed fraud to sidestep sanctions against Iran. The case has become a flash-point in ties between the U.S. and China that’s rattled investors and sent stock markets tumbling.
- European shares tracked Asian markets lower, after data for China during the weekend signaled a weakening of demand in November. The Stoxx Europe 600 fell 0.7 percent in early trading. Basic resources was the worst performer, dropping 1.6 percent amid fears of escalating trade tensions amid signs that China’s economy remains under pressure. The next chapter in the trade anxiety came with Beijing summoning the U.S. ambassador to protest the arrest of Huawei Technologies Co.’s Chief Financial Officer Meng Wanzhou.
- U.S. stock index futures fell as trade tensions between Washington and Beijing weighed on investor sentiment damped by signs that China’s economy remains under pressure. December futures slid as much as 1 percent on the S&P 500 Index and were trading 0.3 percent lower by 8:20 a.m. in London on Monday after China summoned the U.S. ambassador following the arrest of Huawei Technologies Co.’s chief financial officer. Futures on the Nasdaq 100 Index and Dow Jones Industrial Average both declined as much as 1.1 percent. Data on Sunday showed China’s producer prices climbed at the slowest pace in more than two years.
- Japanese stocks declined, following a selloff in U.S. equities amid concerns over the American economy and worsening tensions with China. Electronics and chemicals were the biggest contributors to a broad decline in the Topix index after the S&P 500 Index suffered its worst week since March. China’s Vice Foreign Minister Le Yucheng summoned the U.S. ambassador after the arrest of Huawei Technologies Co.’s chief financial officer. President Donald Trump’s trade team sought to insulate its trade talks with China from the growing dispute over the Huawei executive. A government report Friday showed that U.S. jobs and wages rose by less than forecast in November.
- Oil slipped on concern that the chronic U.S.-China trade dispute will weaken demand, while traders awaited concrete signs that OPEC and its partners will reduce supply. Futures fell as much as 1.9 percent in New York, even after an agreement between Saudi Arabia, Russia and other producers to cut output sent prices higher last week. Those gains are vulnerable because it remains uncertain exactly how the so-called OPEC+ alliance will implement the pledged cutbacks, according to Goldman Sachs Group Inc. and Morgan Stanley. Other financial markets weakened amid renewed tensions between Washington and Beijing.
- Gold held near the highest level in five months amid a retreatin Asian equities and U.S. stock futures on the potential escalation of tensions between Washington and Beijing. Holdings in gold-backed exchange-traded funds rose the most in a month on Friday and are on pace to eke out a third annual increase. In gold equities, producers in both London and Johannesburg outperformed the metal on Monday, with AngloGold Ashanti rising more than 4% and both Randgold Resources and Acacia gaining more than 2%.
- U.K. Prime Minister Theresa May is calling off a crucial vote in Parliament on whether to approve her Brexit deal, according to a person familiar with the situation. The vote in the House of Commons to endorse the terms of the U.K.’s split from the European Union was due to be held on Tuesday evening but is now set to be rescheduled, according to the person who declined to be named. It’s still possible that May’s Cabinet will take a different view and push the prime minister to carry on and call the vote as planned for Tuesday evening. She is now holding talks with her top ministers to finalize the government’s position.
- Investors added money to exchange-traded funds that buy emerging market stocks and bonds last week. This was the eighth straight week of inflows. Inflows to U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $1.34 billion in the week ended Dec. 7, compared with gains of $1.41 billion in the previous week, according to data compiled by Bloomberg. So far this year, inflows have totalled $9.49 billion.
- Tivity Health Inc., the provider of fitness and health improvement programs, agreed to acquire diet plan company Nutrisystem Inc. in a $1.3 billion cash and stock deal. The transaction values Nutrisystem at about $47 a share including debt, representing a 30 percent premium based on the volume-weighted average price over the last five trading days, according to a statement on Monday. Nutrisystem’s Chief Executive Officer Dawn Zier will become president and chief operating officer of Tivity.
- Italy’s populist government is warning its European partners that the country’s social stability could be at risk if Brussels pushes back too hard against its 2019 budget proposal, invoking the Yellow Vest protests in France. As the coalition begins discussions on a cost analysis of its 2019 budget plan, Prime Minister Giuseppe Conte is seeking leverage for talks this week with European Commission President Jean-Claude Juncker, and concerns across the continent over the growing grass-roots movement in neighboring France may just give him the ammunition he needs.
- President Donald Trump’s trade team sought to insulate talks with China from a growing dispute over the U.S. pursuit of a Huawei executive on Sunday, but struggled to address financial markets’ fears that a fragile truce with Beijing was at risk. The rush of televised interviews with Trump aides ahead of the opening of markets in Asia came amid signs that the dispute over the Dec. 1 arrest in Canada of Huawei Technologies Co. Chief Financial Officer Meng Wanzhou was continuing to escalate.
- Travelport Worldwide agrees to be acquired by affiliates of Siris Capital and Evergreen Coast Capital, the private equity affiliate of Elliott Management, in an all-cash deal valued at about $4.4 billion.
- Ingevity Corp. agreed to buy a U.K. chemical additives business from private equity-owned Perstorp Holding AB for $675 million in its biggest deal yet aimed at expanding into the market for coatings and plastics. The acquisition of Capa will be financed using cash and an existing credit line, North Charleston, South Carolina-based Ingevity said Monday in a statement. It expects the deal to add to earnings in the first year of ownership.
- SoftBank Group Corp. set the final price for the 2.65 trillion yen ($23.6 billion) initial public offering of its Japanese telecom business at its original target, underscoring its confidence in judging demand for as it deals with fallout from a major network outage and a global stocks rout. The Japanese technology conglomerate fixed the final price for the offering at 1,500 yen apiece, according to a statement on Monday. Including an overallotment of about 160 million shares, SoftBank is selling a total of roughly 1.76 billion shares. The shares of the new entity, SoftBank Corp., will begin trading on the Tokyo Stock Exchange on Dec. 19
- Italy’s government will discuss the results of a highly-awaited cost analysis of its 2019 budget proposals this week, just as the country’s populist leadership’s standoff with the European Union comes to a head with the threat of sanctions. “By Monday, we will make our conclusions, by then the calculations will be in,” Cabinet Undersecretary Giancarlo Giorgetti was reported as saying by the Ansa news service. A compromise will be found if both the government and the EU act reasonably, Giorgetti said.
- A Credit Suisse Group AG unit is suspected by Geneva prosecutors of systematically neglecting basic compliance rules and failing to prevent alleged money-laundering by a Turkish asset manager it worked with. The bank was named as an “accused,” suspected of wrongdoing under articles of the Swiss criminal code that cover money-laundering offenses and corporate liability as the investigation into the affair widened in November, according to a spokesman for the Geneva prosecutor’s office. While four current and former employees of the bank have already been accused of complicity in fraud and money laundering by Geneva Prosecutor Johan Droz, it’s the widespread nature of the suspected failings that prompted Droz to investigate the bank as well, according to people familiar with his strategy.
- For some tobacco farmers, the future may be in cannabis. Altria Group Inc., the U.S. maker of Marlboro cigarettes, made a $1.8 billion investment in Cronos Group Inc. on Friday amid pressure to find new growth avenues as U.S. smoking rates decline. The partnership, which includes the option for Altria to take majority control in the future, may see the firm’s U.S. tobacco suppliers switch to cannabis if the drug is legalized, said Mike Gorenstein, chief executive officer of Toronto-based Cronos. While several states have legalized marijuana, it remains banned at the federal level.
*All sources from Bloomberg unless otherwise specified