February 20th, 2018
Daily Market Commentary
- Canadian government bond are outperforming their U.S. counterparts by the most in seven months, an advantage that’s unlikely to disappear soon with the northern central bank in less of a rush to raise interest rates. Traders have boosted wagers that the U.S. Federal Reserve will increase interest rates steadily this year amid evidence U.S. inflation is creeping higher and concerns over the federal government’s fiscal deficits. In Canada, expectations for monetary tightening have held steady amid signals of slower growth, including January’s job slump, the biggest decline in payrolls since 2009.
- European stocks are little changed as investors assess earnings from heavyweights including HSBC and eye U.S. Treasury yields climbing back toward recent highs. The Stoxx Europe 600 Index advances 0.1%. HSBC drops, the biggest drag on the benchmark, after the bank’s profit misses estimates.
- Treasuries fell, with investors driving the benchmark yield up to the highest level in four years, as the dollar advanced with oil futures in New York. European shares erased earlier gains and U.S. futures slipped.
- Asian equities fell, halting a six-day rally, as futures on the S&P 500 Index traded lower and Japanese shares rounded their first loss in four sessions. South Korean stocks retreated from a two-week high while Hong Kong shares fell after the long holiday weekend. The MSCI Asia Pacific Index fell 0.8 percent to 176.65 as of 4:54 p.m. in Hong Kong with industrial and consumer staples companies pacing the decline.
- Brent crude fell from a two-week high as the market weighed forecasts for a surge in U.S. production against OPEC’s success in accelerating the pace of draining a global glut. Futures fell 0.7 percent in London. The outlook for U.S. oil production in both 2018 and 2019 is “phenomenal,” Deputy Energy Secretary Dan Brouillette said in an interview in London. The latest discussions between OPEC and its allies concluded that the oversupply is dissipating at a faster pace than previously anticipated, people familiar with the matter said.
- Gold drops to lowest level in almost a week as dollar extends rebound from three-year low, and Treasury yields climb.
- Walmart Inc. delivered a disappointing annual profit forecast as its once-torrid e-commerce sales growth begins to decelerate and the U.S. tax overhaul provides less of a windfall than expected. The world’s largest retailer expects earnings of $4.75 to $5 a share this fiscal year, excluding some items, compared with an average Wall Street estimate of $5.13. Though Walmart’s sales last quarter topped projections, the results reflected a slowdown in online orders — a key metric in its battle to fend off Amazon.com Inc.
- Grocer Albertsons Cos. plans to buy drugstore owner Rite Aid Corp. in a deal that would accelerate the remaking of the U.S. retail and health-care industries. Boise, Idaho-based Albertsons plans to acquire the parts of Rite Aid that are left over after a separate sale of nearly 2,000 stores, the Wall Street Journal reported, citing the companies’ chief executive officers. The cash-and-stock deal would create a company with annual revenue of $83 billion and is expected to close by summer, subject to regulatory approval.
- SoftBank Group Corp. is working with Nomura Holdings Inc. as it makes early preparations for an initial public offering of its domestic telecom business that could raise more than 2 trillion yen ($19 billion), said people with knowledge of the matter. SoftBank is considering marketing most of the offering to Japanese individuals, said the people, who asked not to be identified because the information is private. While no official mandates have been assigned, Nomura is advising the company on matters such as its strategy for distributing the shares, corporate governance and documentation needed to list on the Tokyo Stock Exchange, the people said.
- Prime Minister Theresa May’s team is eyeing up a contingency plan to hold back billions of pounds in Brexit payments, if the European Union refuses to give the U.K. the trade deal it wants. Senior British officials have privately discussed the idea as a fall-back option that could be triggered if negotiations go wrong, three people familiar with the matter said. The plan is not the U.K.’s preferred outcome, but some in May’s administration believe it could be necessary in case the EU tries to renege on a future commitment to a free-trade deal.
- India’s central bank is reviewing its process for allowing companies to raise money overseas due to concern that any increase in rupee volatility may hurt borrowers’ ability to repay debt, a person familiar with the matter said. The Reserve Bank of India is spending more time scrutinizing companies’ hedging practices, vetting borrowers more closely to prepare for any financial-market fallout from an increase in U.S. interest rates, the person said, asking not to be named as the matter is private.
- The latest discussions between OPEC and its oil-producer allies concluded that the supply glut is dissipating at a faster pace than previously anticipated, say people familiar with the matter. After about four years of surplus, the global market will finally rebalance in the second or third quarter, earlier than previously estimated, said people familiar with the group’s deliberations. This conclusion follows multiple signals of tighter supply, including Brent crude briefly surging above $70 a barrel and oil stockpiles in developed nations falling by the most in six years.
- Stuart Gulliver’s final set of results at HSBC Holdings Plc weren’t quite the swansong he’d hoped for as he hands the reins over to his long-term lieutenant, John Flint. Europe’s largest bank missed estimates for fourth-quarter revenue and profit as it became the latest firm to take losses from two high-profile corporate failures and post a sharp decline in trading income at its investment bank. HSBC also said share buybacks were on hold, possibly through the first half, while it sells capital-boosting securities.
- Johnson & Johnson is seeking buyers for its sterilization products division, people familiar with the matter said, as the health-care conglomerate continues to sell off non-core assets. J&J is working with an adviser to solicit bids for the unit, which could fetch as much as $2 billion, the people said, asking not to be identified as the details aren’t public. The asset is drawing interest from strategic buyers as well as private equity firms, the people said. Bids are due this week, they said.
- Home Depot Inc. is cashing in as Americans continue to pour money into their properties. Hurricane recovery spending in Puerto Rico and southern states is helping, too. Sales in the fourth quarter through January surpassed analysts’ expectations. Revenue rose 7.5 percent to $23.9 billion, the company said in a statement Tuesday, versus an average estimate of $23.7 billion. Sales at stores open for more than a year — a key benchmark for investors — rose 7.5 percent. That beat analysts’ 6.5 percent prediction, according to Consensus Metrix.
- U.S. Special Counsel Robert Mueller is the latest top official to sound the alarm that Russia meddled in the 2016 election, but there’s no sign that Donald Trump is listening yet. The president’s silence has some experts worried that Trump and his administration aren’t taking the threat from Russia to this year’s elections, with Republican control of Congress at stake, seriously enough.
- Dwindling volumes at the biggest U.S. oil storage hub and the potential for bigger cargoes to sail overseas is giving American crude a premium sheen once again. The price of U.S. benchmark oil has gone above the Middle East marker for the first time in more than a year, data compiled by Bloomberg show. The shale boom that drove American crude to a discount spurred an unprecedented surge of relatively cheap shipments to Asia. That was a pain for top OPEC producers such as Saudi Arabia, which had their market share threatened as they implemented output curbs to clear a global glut.
- Petrol and diesel cars will become a rare sight on European roads by 2040 as manufacturers adopt zero-emission technologies and the cost of buying electric vehicles gets ever cheaper. Traditional combustion engines made up virtually all European car sales in 2015, a proportion that will shrink to 20 percent by 2035, the European Climate Foundation said in a report. Conventional vehicles will completely disappear from garage forecourts five years later as automakers embrace a range of hybrid and electric technologies.
- U.S. Treasury bonds fell across the board on Tuesday as investors demanded higher yields ahead of record issuance of three- and six-month bills this week. Two-year Treasuries led the selloff, while the eurodollar curve — which is used to extrapolate Federal Reserve expectations — steepened too. The Treasury sells three-month bills worth $51 billion and six-month bills for $45 billion, both unprecedented in their size. Total issuance this week is expected at $258 billion.
- HSBC Holdings Plc said it could face penalties exceeding $1.5 billion stemming from multiple investigations into claims that its Swiss private bank unit helped clients evade paying taxes. Authorities in the U.S., Belgium, Argentina, India, Spain and elsewhere are probing allegations of tax evasion or tax fraud, money laundering and unlawful cross-border banking solicitation at the Swiss private bank, HSBC disclosed in its annual report Tuesday. The bank paid the French government 300 million euros ($370 million) in November to settle allegations that it helped clients hide assets from local tax authorities.
- BHP Billiton Ltd. is accelerating plans to exit its $10 billion U.S. shale unit, flagging that deals could be announced before the end of the year. The company, which has opened a data room for the Fayetteville field and will open others before the end of March, expects initial bids for the assets in the June quarter, according to a statement Tuesday. As recently as November it had set out a less optimistic timeline, saying then it hoped to offload the operations within two years.
- Bitcoin’s stunning rebound continued on Tuesday, with the world’s largest digital token extending February’s gains after South Korean regulators signaled they will actively support what they called “normal” cryptocurrency trading. In a further shift from earlier rhetoric — which hinted at an outright ban of cryptocurrency exchanges — Choe Heungsik, governor of South Korea’s Financial Supervisory Service, told reporters he wants to see normalized trading of digital assets, and said the FSS is making efforts to do that.
- Temenos Group AG is having another crack at a big U.K. deal. The Swiss fintech company, which six years ago abandoned a plan to take over U.K. financial software provider Misys, is in talks to acquire Fidessa Group Plc for about 1.4 billion pounds ($2 billion) in cash. While a deal isn’t certain, Fidessa’s board intends to back the offer if Temenos proceeds with it, both companies said.
- InterContinental Hotels Group Plc fell the most in 17 months after the hotel operator said it’s opting against a special dividend in order to fund its expansion. InterContinental fell as much as 5.4 percent, the most since September 2016, and was down 4.4 percent at 4,490 pence as of 10:12 a.m. in London. The Denham, England-based company said in a statement Tuesday it’s targeting annual cost savings of $125 million by 2020 that it will reinvest to drive growth, and that as a result it won’t make any additional capital return to investors this year.
- Mitsubishi Corp., the trading arm of Japan’s biggest conglomerate group, will raise its holdings in Mitsubishi Motors Corp. by taking over stakes from its affiliates nearly two years after Nissan Motor Co. rescued the carmaker. The company will launch a 120 billion yen ($1.1 billion) tender offer to more than double its holdings to 20 percent, it said Tuesday in a statement. The purchase, proposed at a discount of roughly 10 percent to Monday’s closing price, would still leave Nissan with the biggest stake in the automaker.
*All sources from Bloomberg unless otherwise specified