December 3rd, 2018

Daily Market Commentary

 

Canadian Headlines

• Canada’s largest oil producing province ordered an unprecedented output cut, an effort to ease a crisis in the nation’s energy industry and adding to global actions to combat a recent price crash. The plan announced Sunday will reduce production of raw crude and bitumen from Alberta by 325,000 barrels a day, or 8.7 percent, from January until excess oil in storage is drawn down. The reduction would then drop to 95,000 barrels a day until the end of next year at the latest.
• The Canadian founder of yoga-apparel retailer Lululemon Athletica Inc. is close to joining the Chinese investor group pursuing a takeover of Amer Sports Oyj, people familiar with the matter said. Billionaire Chip Wilson is in talks to take around a 20 percent stake as part of the consortium led by Anta Sports Products Ltd., according to the people. The buyer group and Helsinki-based Amer could announce a takeover agreement as soon as the next few weeks, the people said, asking not to be identified because the information is private. Shares of Amer climbed by the most in almost three months.
• Fresh off signing their trade deal with the U.S., the governments of Canada and Mexico are diverging on the continent’s other trade fight over metals tariffs — with Mexico setting hopes for a deal sooner than Canada. The three countries signed their new deal Friday in Buenos Aires to replace the North American Free Trade Agreement despite U.S. tariffs on steel and aluminum imports remaining in place, along with counter-tariffs from Canada and Mexico. U.S. Trade Representative Robert Lighthizer said talks would continue this week and be split into two tracks: one with Canada, which sells much more of both metals to the U.S., and another with Mexico.

 

 

World Headlines

• European shares followed Asia stocks and jumped at the open after a truce in the U.S.-China trade war. Oil shares soared. The Stoxx 600 Europe Index rose 1.9 percent. Exporters gained with miners and autos leading the rise. The STOXX 600 Basic Resources Index climbed 6 percent, the most in two years as the oil price was lifted by Saudi Arabia and Russia extending their pact to manage the market. Italian shares rose on a report the country may reconsider its deficit target for next year.
• U.S. stock futures surged as a cessation of hostilities between the U.S. and China in their trade war helped bulls build on the biggest weekly advance in seven years. December contracts on the S&P 500 jumped 1.8 percent as of 10:11 a.m. in London, while futures on the Nasdaq 100 Index and Dow Jones Industrial Average rallied 2.6 percent and 2 percent, respectively. The cash S&P 500 climbed 4.9 percent in the five days through Friday, fueled by a dovish take on interest rates from Federal Reserve Chairman Jerome Powell.
• Just how much is this 90-day truce worth in Asian stock markets? Roughly $325 billion, on Monday at least. That’s how much market value got added to companies in the MSCI Asia Pacific Index as the gauge rallied 2 percent. Asia stock bulls couldn’t have asked for a better start to December. The Shanghai Composite Index and Hang Seng Index both soared about 2.6 percent each, and the Topix closed 1.3 percent higher. Early action in the yuan also pointed to an optimistic response from investors.
• Oil surged as Saudi Arabia and Russia extended their pact to manage the market and Canada’s largest producing province ordered unprecedented output curbs. After their worst month in a decade, prices in New York and London advanced more than 5 percent on Monday. Although Russia and Saudi Arabia have yet to confirm any fresh cuts, their leaders’ agreement over the weekend opens the door for a deal at OPEC’s meeting this week in Vienna. Canadian province Alberta’s decision to curtail production by 325,000 barrels a day drove oil’s rally, which largely ignored Qatar’s surprise announcement that it will leave the producer group to focus on natural gas.
• The scramble for palladium supply has taken the precious metal within striking distance to its costliest cousin — gold. Palladium, used as an autocatalyst in gasoline-fueled vehicles, climbed to a record for a fourth time this month as users of the precious metal compete for limited supply. Investors continue to pull the commodity from exchange-traded funds, taking holdings to the smallest in almost a decade. The cost to borrow the raw material for a month climbed to more than triple the yield on 10-year Treasuries.
• The largest clearer of iron ore derivatives kicked off a contract for high-grade material on Monday, describing the old-time staple as Asia’s first global commodity and seeking to benefit as China’s unprecedented battle against air pollution spurs demand for better-quality inputs. Singapore Exchange Ltd.’s contract for 65 percent ore adds to products for the benchmark 62 percent as well as lower grades. The new offering will be cash-settled against an index that tracks shipments into the port of Qingdao, where the mineral is a key ingredient for the nation’s vast steel industry.
• U.K. Prime Minister Theresa May faces yet another grueling battle this week as members of Parliament sink their teeth into her Brexit deal ahead of a crucial vote. On Monday, politicians on all sides will ratchet up the pressure on May to justify the terms she’s agreed to with the European Union by demanding she publish the government’s internal legal advice underpinning the accord.
• Unilever agreed to a merger with GlaxoSmithKline Plc’s Indian consumer-health unit for 3.3 billion euros ($3.8 billion) in cash and shares of its India-listed unit as it seeks to boost its presence in the world’s fastest-growing major economy. The purchase also includes an 82 percent stake in Glaxo’s Bangladesh unit and other commercial operations and assets outside India, according to the statement.
• President Donald Trump jolted global auto stocks on Monday with a claim that China agreed to “reduce and remove” tariffs on imported American-made cars, raising more questions about the outcome of his meeting with counterpart Xi Jinping. Trump gave no other details in his late-night tweet, which came shortly after he agreed with Xi to a truce in the trade war during a meeting at the Group of 20 summit in Argentina. In a briefing in Beijing a few hours later, China’s foreign ministry spokesman Geng Shuang declined to comment on any car tariff changes.
• Qualcomm Inc. ruled out any chance of a return to its abandoned bid for NXP Semiconductors NV after U.S. and Chinese political leaders appeared to open the way for possible approval of the transaction. “While we were grateful to learn of President Trump and President Xi’s comments about Qualcomm’s previously proposed acquisition of NXP, the deadline for that transaction has expired, which terminated the contemplated deal,” the company said in an emailed statement. “Qualcomm considers the matter closed and is fully focused on continuing to execute on its 5G roadmap.”
• Russia’s space program is seeking to repair its reputation for reliability after a failed launch as it confronts unprecedented foreign competition for getting into orbit. On Monday, the Roscosmos agency will attempt to send its first crew into space on a Soyuz rocket since a booster failure on a similar model forced Russian Alexey Ovchinin and American Nick Hague to abandon their mission minutes after liftoff in October. They made the first emergency landing in the craft since 1975.
• GlaxoSmithKline Plc agreed to buy Tesaro Inc. for 4 billion pounds ($5.1 billion), in a move by Chief Executive Officer Emma Walmsleyto revitalize the U.K. drugmaker’s cancer drug pipeline. The offer price of $75 a share is about 62 percent higher than the stock’s Friday close in the U.S. Tesaro is down 44 percent so far this year.
• Spain’s political establishment suffered another significant crack on Sunday as the far-right group Vox won its first ever representation in a regional election in Andalusia, carving off voters who were targeted by the center-right People’s Party. Vox won 12 seats in the 109-seat regional assembly, a stronghold for Prime Minister Pedro Sanchez’s Socialists for the past 36 years. The Socialists’ grip on Andalusia was hanging by a thread after slumping to 33 seats from 47 in 2015. The PP dropped to 26 seats from 33 last time around.
• While most of Asia cheered the truce between the U.S. and China, India’s rupee, bonds and stocks retreated amid the biggest surge in oil in two years, highlighting the nation’s vulnerability to spikes in energy costs. The rupee was the only emerging-market Asian currency that weakened Monday as Brent prices rallied 6.2 percent to $62.4 per barrel. Further gains might outweigh the rub-off effect of the trade war truce on oil-buying countries including India, Indonesia and the Philippines.
• Macquarie Group Ltd. is in advanced talks to create a majority-owned securities joint-venture firm in China, according to people familiar with the matter, the latest international bank seeking to establish itself in one of the world’s biggest markets. Sydney-based Macquarie is drafting a final agreement with two Chinese conglomerates, said the people, declining to name the companies. It plans to form a three-way venture in Shanghai, and will submit its application in the next couple of months, the people said, asking not to be identified because the plans aren’t public. Macquarie would take a 51 percent stake in the JV, the people said.
• Raids at Deutsche Bank AG have been suspended while investigators turn their attention to material seized from the lender during two days of searches, prosecutors said. Police officers left Deutsche Bank’s headquarters in Frankfurt with data and files, Nadja Niesen, the spokeswoman for the city’s prosecutors, said Monday by telephone. The information will be reviewed by investigators at the Germany’s Federal Police Office in Wiesbaden.
• Qatar said it will leave OPEC next month, a rare example of the toxic politics of the Middle East rupturing a group that had held together for decades through war and sanctions. Qatar, a member since 1961, is leaving to focus on its liquefied natural gas production, Energy Minister Saad Sherida Al-Kaabi told a news conference in Doha on Monday. He didn’t mention the political backdrop to the decision: dire relations with Saudi Arabia, which has led a blockade against his country since 2017; and a rhetorical onslaught from U.S. President Donald Trump against the cartel.
• Nexstar Media Group Inc. agreed to buy Tribune Media Co.for $6.4 billion including the assumption of debt, creating the largest owner of local-TV stations in the U.S. Irving, Texas-based Nexstar is acquiring Tribune with an all-cash offer that values the Chicago-based company at $46.50 a share, the two said in a statement Monday. Based on shares outstanding, that amounts to $4.1 billion.
• Apple Inc. plans to hold off until at least 2020 before offering an iPhone that can connect to the next generation of high-speed phone services coming next year, according to people familiar with its plans. The delay may make it easier for rivals like Samsung Electronics Co. to win over consumers to phones that connect to 5G networks, which will provide a leap forward in mobile data speeds when they are introduced in 2019.
• The U.S.-China trade cease-fire is likely to boost shipments of American goods, but that may be the biggest gain to the U.S. economy from the temporary deal as the threat of import levies lingers. U.S. President Donald Trump and Chinese President Xi Jinping agreed over the weekend to halt new tariffs as the countries intensify talks to resolve a trade war. The deal, with a deadline of 90 days to make progress on key issues, includes China promising to increase purchases of U.S. agricultural and industrial goods.

*All sources from Bloomberg unless otherwise specified