July 10th, 2019
Daily Market Commentary
- Canadian Headlines
- A strong run of economic data is affording the Bank of Canadaan opportunity Wednesday to resist any dovish turn in global monetary policy. Policy makers will keep the benchmark overnight rate at 1.75% in a decision at 10 a.m. in Ottawa, according to all 25 forecasts in a Bloomberg survey. That would mark a sixth straight pause by the central bank since it last raised borrowing costs in October, and most analysts predict rates will be on hold indefinitely.
- Brookfield Asset Management Inc. is planning an offer for a majority stake in India’s debt-laden Suzlon Energy Ltd., according to people familiar with the matter. The Toronto-based investment firm is working with a financial adviser for due diligence on Suzlon, the people said, asking not to be identified as the details are private. Brookfield proposes to start with buying new shares issued by the company, followed by purchasing stocks from the existing holders under an open offer, the people said.
- Futures positions in Canada’s dollar tend to shift with the mood of its consumers — and the last time they were this upbeat was early 2018, which could help explain why the currency has outperformed all major peers this year. Compared with prior peaks in the Nanos Economic Mood Index, outlooks still have room to improve before reversing, which could bolster short-term bets on the loonie. Bank of Canada Governor Stephen Poloz may have to deliberate about the implications of a stronger currency as the central bank weighs the surprisingly strong economy at its policy-setting meeting Wednesday.
- World Headlines
- Europe 600 gauge headed for a fourth day of declines. The trading session in Asia was mixed, with modest gains in Hong Kong and South Korea and declines in Japan and China. The dollar was steady, and the pound strengthened for the first time in four days as data showed the U.K. economy rebounded in May.
- U.S. Treasuries fell along with European government bonds and stocks as investors scaled back bets on the extent of Federal Reserve easing before testimony by Chairman Jerome Powell. Crude oil gained. The yield on 10-year Treasuries moved above 2.1% for the first time in a month. Strong manufacturing data from France also weighed on core European bonds, with yields on German bunds rising due in part to low demand at an auction.
- Following a subdued trading session in U.S., Asian markets were quiet Wednesday, with the MSCI Asia Pacific Index little changed as of 11:45 a.m. in Hong Kong. While most of the market moved in narrow ranges, trading volume in Japan, China and Hong Kong was all below the 30-day average.
- Oil jumped to the highest in a week as an industry report showing a continued draw-down in U.S. crude inventories tightened a supply outlook that’s being threatened by rising tension in the Middle East. Futures in New York rose as much as 2.3% on Wednesday, as a slide in the dollar bolstered the appeal of commodities priced in the U.S. currency. The American Petroleum Institute reported nationwide stockpiles fell by 8.13 million barrels last week, according to people familiar with the data. Government inventory figures are due to be published later Wednesday.
- Gold traded below $1,400 an ounce as investors awaited testimony by Federal Reserve Chairman Jerome Powell later Wednesday for clues on monetary policy and minutes from the central bank’s last gathering. Powell’s two days of semiannual testimony in Congress on the economic and policy outlook will be closely parsed, with traders pricing in a rate cut this month, although what the central bank does afterward is uncertain. Also on investors’ radars is the latest on the U.S.-China trade war as top officials from both countries hold first talks by phone after the truce.
- President Donald Trump has grown concerned that the strengthening U.S. dollar is a threat to his economic agenda and has asked aides to cast about for ways to weaken the greenback, according to people familiar with the matter. Trump asked about the dollar in job interviews with both Judy Shelton and Christopher Waller last week, whom he’s selected for seats on the Federal Reserve’s board, the people said. He lamented that the currency’s strength could blunt an economic boom that he expects to carry him to a second term.
- The case for Chinese policy makers to ramp up stimulus grew stronger, as tepid domestic demand and falling commodity prices increase the risk of a return to factory deflation. Growth in China’s producer price index slowed to zero in June from a year earlier, the weakest reading in almost three years. Prices fell 0.3% from May. The downward trend accentuates fears of a return of deflation for manufacturing, which would erode company profits and increase debt repayment pressures.
- The U.K. has fallen behind on its promises to slash emissions and fight climate change despite claims it’s leading major industrialized nations in its fight to slow global warming. That’s the conclusion of the Committee on Climate Change, the government’s official adviser on environmental policies, which suggests ministers need to take much more dramatic action to meet their own promises. The findings in an annual report to Parliament show that efforts to rein in fossil fuel emissions have largely been confined to the power generation industry, with policies for other segments of the economy too narrow to be effective. The report suggests ministers so far are only paying lip service to a goal shared by the main political parties to reach net zero greenhouse gas emissions by 2050.
- When Walmart Inc. paid $16 billion for control of India’s e-commerce pioneer Flipkart Online Services Pvt. last year, the American retail giant got a little-noticed digital payments subsidiary as part of the deal. Now the business is emerging as one of the country’s top startups, a surprise benefit for Walmart from its largest-ever acquisition. Flipkart’s board recently authorized the PhonePe Pvt Ltd. unit to become a new entity and explore raising $1 billion from outside investors at a valuation of as much as $10 billion, according to people familiar with the matter, asking not to be named because the discussions are private. The funding may close in the next couple of months, although the talks are not finalized and terms could still change, they said. The unit would then become independent with a distinct investor base, although Walmart-owned Flipkart would remain a shareholder.
- CVC Capital Partners agreed to buy a 30% stake in GEMS Education, a private school operator backed by Blackstone Group LP. The London-based private-equity firm will acquire shares in the Dubai-based education provider from Blackstone, Fajr Capital Ltd. and Bahrain’s sovereign wealth fund, GEMS said in a statement on Wednesday. The transaction is expected to be completed by the end of the month.
- Tesla Inc. is getting ready to increase electric-vehicle production, according to an internal email, after achieving record deliveries in the second quarter. The company is “making preparations” to raise output at its auto plant in Fremont, California, Tesla’s automotive president, Jerome Guillen, said in an email to employees on Tuesday. “While we can’t be too specific in this email, I know you will be delighted with the upcoming developments.” Tesla’s shares rose 1.1% to $232.64 in premarket trading. A copy of the email was seen by Bloomberg, and a Tesla spokeswoman didn’t immediately reply to a voicemail or an email seeking comment.
- GAM Holding AG shares jumped after the company said assets rose and it’s on track to liquidate funds tied to ousted bond manager Tim Haywood, clearing the way for a possible sale of the company. Group assets under management rose by about 4 billion francs ($4 billion) from the end of last year to 136 billion francs at the end of June. The liquidation of around 1 billion francs of assets from Haywood’s bond funds is expected by mid-July, removing a lingering concern that has made firms reluctant to bid for GAM. The shares rose as much as 7.2%. The firm suspended Haywood in July 2018 and began liquidating its second-biggest strategy, sending GAM into a tailspin and causing large losses for embattled shareholders. Other firms have been hit by sudden investor flight, underscoring the unease in the market. Neil Woodford, one of Britain’s most famous stock pickers, froze withdrawals from his flagship equity fund.
- Huawei approached several Russian software and hardware producers and IT companies in the past few months on buying business, creating joint ventures and using technology, RBC reports, citing unidentified people familiar with talks.
- The world’s largest supplier of consumer goods says China’s factories are getting “urgent and desperate” as worried U.S. retailers accelerate a move out of the country amid heightened trade tensions. China will see more factory shutdowns as the trade war that’s roiled the global supply chain exacerbates an exodus, said Spencer Fung, chief executive officer of Li & Fung Ltd. The company, which designs, sources and transports consumer goods from Asia for some of the world’s biggest retailers including Walmart and Nike, is being pushed by American clients to shift production out of China.
- The U.S. stance on Hong Kong’s protests, arms sales to Taiwan, and Huawei Technologies Co.’s fate are among issues in play alongside trade as the U.S. and China resume talks. The U.S. agreed to tone down criticism of Chinese rule in Hong Kong recently in order to restart trade talks, according to a Financial Times report on Wednesday. That concession to President Xi Jinping contrasts with the continued restrictions on Huawei, which Commerce Secretary Wilbur Ross said on Tuesday is still on the ‘entity list’ limiting its access to U.S. goods and services.
- Britain’s ambassador to the U.S. dramatically resigned after leaked comments in which he criticized the Trump White House sparked a major diplomatic row between the transatlantic allies. President Donald Trump decided to freeze out Kim Darroch, saying he would no longer deal with the man who had called his administration “inept” and “uniquely dysfunctional.” The U.K. government said Darroch would quit. “The current situation is making it impossible for me to carry out my role as I would like,” Darroch said in a letter announcing his decision.
- T-Mobile US Inc. fired back at a group of states that are trying to block its acquisition of Sprint Corp., saying their antitrust lawsuit against the deal would deprive consumers of the benefits of combining the two wireless carriers. T-Mobile said Tuesday that the $26.5 billion takeover of Sprint would speed deployment of the next generation of wireless technology known as 5G and lower prices for consumers.
- Deutsche Bank AG’s 7.4 billion-euro ($8.3 billion) overhaul plan benefited from a two-week-old change in European bank-capital rules that allows the lender to shoulder big losses without halting payments on CoCo bonds. The new regulations — known as CRR2 — may have let Deutsche Bank add at least 42 billion euros to its Additional Tier 1 payment capacity, based on comments made by Group Treasurer Dixit Joshi on a February analyst call. That compares with AT1 capacity of less than 1 billion euros at the end of 2018.
- The historic slump in China’s car demand is set to persist, with dealers showing no signs of boosting orders from manufacturers as economic woes and stricter emissions rules keep consumers away. Wholesale deliveries of passenger vehicles fell 7.8% to 1.73 million units in June and have now slid for 12 consecutive months, the China Association of Automobile Manufacturers said Wednesday. While retail sales of cars rose in June — the first increase in a year — the gains were helped by heavy discounting by dealers clearing inventory that had built up during the year, another industry group said earlier in the week.
*All sources from Bloomberg unless otherwise specified