February 4th, 2019
Daily Market Commentary
- After years on the sidelines, gold producers are suddenly the mining world’s hottest topic as the industry gathers in Cape Town this week. For more than half a decade, gold miners have been stuck in the doldrums, shunned by investors following a string of missteps and bogged down by a stagnant bullion price. Then, in September, a surprise mega deal turned the industry on its head. Barrick Gold Corp.’s $5.4 billion purchase of Randgold Resources Ltd. set off a chain reaction that led to Newmont Mining Corp.’s $10 billion deal for Canada’s Goldcorp Inc. last month. The flurry of activity – which coincided with a late-2018 surge in bullion prices – has re-ignited interest in gold, throwing the whole industry into a thrall of speculation over who might be next.
- European equities opened little changed as earnings releases continued and traders mulled positive signals on the U.S.-China trade talks. The Stoxx Europe 600 Index was steady at the open. Shell climbed 0.7 percent and BP added 0.6 percent as Brent advanced for the fifth day. Rio Tinto declined 1.3 percent and BHP fell 1.6 percent after being cut at JPMorgan.
- U.S. equity futures held steady and the dollar rose as investors awaited fresh catalysts after digesting solid American economic data on Friday and inconclusive trade talks in Washington. Treasury yields pushed higher. Oil and healthcare companies were the biggest gainers in the Stoxx Europe 600 Index, offsetting declines in carmakers. The Dow, S&P 500 and Nasdaq edged higher after better-than-expected U.S. jobs report overshadowed a disappointing sales forecast from Amazon. U.S. President Donald Trump told CBS that trade talks with Beijing are “doing very well” and sounded confident an agreement with North Korea was on the horizon.
- Asian stocks climbed for the third time in four days, following a strong U.S. jobs report on Friday. Australia led gains, boosted by banks, ahead of the government’s final report from a probe into misconduct in the nation’s financial industry, which was released after markets closed. Japanese stocks also advanced, with the Topix index surging as much as 1.2 percent on Monday. China, Taiwan and Vietnam are closed this week for the Lunar New Year, while Hong Kong and Singapore traded for half a day on Monday.
- Oil held gains near a two-month high after data showed U.S. production growth slowing at a time when OPEC cuts and American sanctions on Venezuela have already eased concerns over a supply glut. Futures in New York rose as much 0.9 percent to reach the highest intraday level since Nov. 21, after adding 2.7 percent Friday. OPEC’s crude output fellthe most in two years in January, according to a Bloomberg survey of officials, analysts and ship-tracking data. The number of active oil rigs in the U.S. dropped to the lowest level in almost nine months, data released Friday by oilfield-services provider Baker Hughes show.
- Gold dropped for a second day as the dollar strengthened following solid U.S. economic data Friday, curbing the appeal of havens. Bullion fell as much as 0.6 percent Monday, the most in a week, as better-than-expected U.S. nonfarm payrolls pointed to healthy economic expansion, while President Donald Trump told CBS that trade talks with China are “doing very well.”
- Ultimate Software entered an agreement to be bought by a group led by Hellman & Friedman in which it will continue under private ownership. Shares rose ~16% in premarket trading.
- China’s yuan headed for its biggest two-day drop since August after stronger-than-expected U.S. economic data sent the greenback higher. The offshore yuan fell 0.33 percent to 6.7791 as of 2:56 p.m. in Hong Kong, in line for a loss of 1 percent in the past two days. The currency was among the worst performers in Asia against the dollar, which climbed after U.S. hiring in January topped all forecasts. Trading in the onshore yuan is closed due to Lunar New Year holiday in China this week. The offshore yuan’s one-month interbank borrowing cost — known as Hibor — slid for a fourth day, extending its September 2016 low. This makes it more profitable for investors to acquire the offshore yuan cheaply and sell it against the higher-yielding U.S. dollar.
- Congress has only a few days left to come up with an agreement on border security spending to prevent a government shutdown and may yet see the process upended once President Donald Trump delivers his State of the Union address on Tuesday. Trump in recent days has repeatedly declared the negotiations a waste of time and said Feb. 1 that his speech to a joint session of Congress would reveal more of his own plans. He suggested that might include a politically and legally fraught emergency declaration to circumvent Congress to begin building a border wall.
- Investors added $3.9 billion to exchange-traded funds that buy emerging market stocks and bonds last week, the most in more than a year. This was the 16th 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 in the week ended Feb. 1 topped gains of $1.99 billion in the previous week, according to data compiled by Bloomberg. This was the biggest weekly inflow in over a year. So far this year, inflows have totalled $11.8 billion.
- Theresa May is launching a new working group to look for a Plan B on Brexit, but the prime minister’s latest initiative comes too late to stop businesses such as Nissan Motor Co. from ditching commitments to Britain. The Japanese automaker cited ongoing doubts about the U.K.’s split from the European Union in its decision to scrap plans to build a new vehicle model in the country.
- Wirecard AG said neither the company nor a law firm it hired found conclusive evidence of criminal misconduct, helping it recover some of the 7 billion euros ($8 billion) in market value lost last week amid allegations of fraud. The digital payments company stepped up its defense after being rockedby two Financial Times stories that a senior company executive in Singapore was suspected of using forged contracts for several suspicious transactions. Police in the southeast Asian country said they are looking into the matter.
- Ryanair Holdings Plc Chief Executive Officer Michael O’Leary will step back from day-to-day management as the discount carrier moves to a group structure that puts union negotiations into the hands of subordinates after a year of labor strife. Chairman David Bonderman, in the post since 1996, will also leave next year, according to a statement Monday, following investor calls for a governance shakeup as Ryanair struggles to maintain earnings amid sliding fares.
- German Chancellor Angela Merkel and Japanese Prime Minister Shinzo Abe said they want to head off a no-deal Brexit that could rattle their economies, as both braced against the U.K.’s increasingly chaotic course toward an exit from the EU. Abe and Merkel, both 64, are two of the most outspoken defenders of the international order being shaken by Brexit and the U.S.-China trade war, as well as President Donald Trump’s questioning of decades-old alliances. Their summit in Tokyo Monday came days after a Japan-European Union trade agreement came into effect, removing almost all tariffs.
- French oil giant Total SA is working with advisers as it weighs an offer for Eneco Groep NV, joining a number of financial and industry bidders for the Dutch utility, including rival Royal Dutch Shell Plc, people familiar with the matter said. The firm, which is owned by dozens of Dutch municipalities and is due to be auctioned this year, could fetch as much as 4 billion euros ($4.6 billion), said one of the people, who asked not to be identified because the deliberations are private. It joins companies including Engie SA, Enel SpA, Macquarie Group Ltd. and Mitsubishi Corp., which may also be interested in the asset, they said.
- Starboard Value LP will make its chief executive officer the chairman of Papa John’s International Inc. via a $200 million investment in the troubled pizza chain. The activist fund’s CEO, Jeffrey Smith, will take over the board role after Papa John’s founder John Schnatter stepped down as chairman last year following reports that emerged that he used a racial slur. Shares of Papa John’s gained 11 percent in premarket trading.
- Panalpina Welttransport Holding AG’s largest shareholder rejected a $4.2 billion offer from Denmark’s DSV A/S, saying the Swiss air-cargo company would do better with its own expansion plan. The Panalpina committee of the Ernst Goehner Foundation, which holds 45.9 percent of the stock, said Monday in a statement it “supports Panalpina’s board of directors in pursuing an independent growth strategy that includes M&A.” The Danish-Swiss combination would create the world’s second-biggest air cargo firm and would rank fourth in the global logistics market.
- Anheuser-Busch InBev NV has selected JPMorgan Chase & Co.and Morgan Stanley for a possible initial public offering of its Asian operations in what could be one of the region’s biggest listings this year, people with knowledge of the matter said. The world’s largest brewer is weighing Hong Kong as a listing venue, though it hasn’t made a final decision, said the people. The Belgium-based company is considering adding more arrangers to the deal later, one of the people said, asking not to be identified because the information is private.
- The fight for Oslo Bors intensified on Monday as Nasdaq Inc. made a formal takeover bid while Euronext NV signaled it may raise its offer to buy Norway’s main exchange. Nasdaq is ready to pay 152 kroner a share for Oslo Bors VPS Holding ASA, valuing it at 6.54 billion kroner ($770 million), which is 5 percent more than its Franco-Dutch rival has put on the table. Nasdaq already has the backing of the board and the two biggest shareholders. Euronext has won commitments from owners who control just over half of the company.
- NordLB agreed to sell loans to Cerberus Capital Management, according to a person familiar with the transaction, while the German lender expects a loss of about 2.7 billion euros ($3.1 billion) for 2018. NordLB said Saturday it sold a shipping loan portfolio, also worth 2.7 billion euros and containing about 90 percent non-performing loans, to an outside investor. The buyer is Cerberus, according to the person, who asked not be identified because the transaction is private. A Cerberus spokeswoman declined to comment when contacted by Bloomberg.
- When Alphabet Inc. reports results after markets close on Monday, the company’s key advertising business is expected to show few signs of wear from privacy concerns that have weighed on internet companies recently. The search giant’s fourth-quarter revenue is expected to jump 21 percent to $31.3 billion as marketers spent more on Google ads to reach consumers online. Last week, Alphabet shares rose to the highest levels since October after scandal-plagued rival Facebook Inc. beat Wall Street forecasts and soothed investor anxiety about a privacy backlash by consumers and regulators.
- Exxon Mobil Corp. and Chevron Corp. bided their time, watching smaller independent drillers make the first moves in shale before placing their bets. Now they’re all in. The two U.S. supermajors are investing heavily in Texas pipelines and processing facilities as they build out their rig-to-refinery approach to the Permian Basin, demonstrating how shale is becoming a core driver of the world’s biggest oil companies’ future growth. Both Exxon and Chevron nearly doubled production from the Permian over the last 12 months and expect strong expansion to continue. For Chevron, the region will produce a fifth of all its oil by the mid-2020s. But rapid growth brings transportation and refining challenges. This is where the supermajors think they can steal a march on rivals, who have until now stolen the show in the world’s premier shale field.
- President Emmanuel Macron’s ministers are trying to persuade him not to hold a referendum in France this year. Macron last week floated the idea of using the European elections on May 26 to also ask French voters to endorse the reforms he wants to draw a line under the Yellow Vest revolt. Foreign Minister Jean-Yves Le Drian on Monday urged Macron not to mix up domestic issues with the EU vote. “What’s at stake in Europe is enough,” he said in a radio interview with France Inter.
*All sources from Bloomberg unless otherwise specified