July 12th, 2018
Daily Market Commentary
- Under Governor Stephen Poloz’s leadership, the central bank has avoided a mechanical approach to policy changes. But right now, it’s getting easier to do just that since key indicators have evolved positively and the central bank’s models are running like a fine-tuned machine. The economy is “operating at capacity with inflation already at target, so those are your basic ingredients which suggest that interest rates cannot continue to be excessively stimulative,” Poloz said after Wednesday’s decision to lift rates to 1.5 percent.
- Hydro One Ltd. Chief Executive Officer Mayo Schmidt will retire and the company’s board will be replaced as new Ontario Premier Doug Ford moves to fulfill a promise to shake up the province’s troubled power system in a bid to reduce electricity prices. Getting rid of Schmidt, 60, was at the top of the agenda for Ford and his Progressive Conservatives who won a provincial election last month. The vote ended 15 years of rule by the Liberal Party which had partially privatized the electricity transmission and distribution company.
- European equities recovered after dropping the most in two weeks Wednesday as investors weighed the U.S.-China trade talks and looked forward to corporate earnings. The Stoxx Europe 600 Index added 0.3 percent after losing 1.3 percent in the previous session. Media, health care and travel shares led the gains among sectors.
- Stocks advanced globally on Thursday, rebounding in the wake of a bruising sell-off a day earlier. The prospect of more trade talks between the U.S. and China helped settle nerves, and the dollar steadied while Treasuries edged lower and commodities recovered ground. While the possibility of more talks to defuse the brewing trade war will be welcomed by investors, they’ll remain wary of the chances of a further escalation and the impact it could have on global growth. Washington and Beijing now have about seven weeks to strike a deal or dig in for a trade war that could upend corporate supply chains and raise prices for consumers.
- Equity benchmarks in Asia rebounded as investors reassessed the risks from an escalating trade war after China and the U.S. signaled talks may resume. U.S. equity futures gained. The MSCI Asia Pacific Index rose 0.2 percent to 164.30 as of 4:06 p.m. in Hong Kong.
- Oil rose in London, recovering some of the biggest losses in more than two years, as the International Energy Agency warned that output in OPEC’s Gulf members may be stretched to the limit by supply losses elsewhere in the group. Brent crude climbed as much as 2.3 percent after slumping 6.9 percent on Wednesday, the steepest loss in percentage terms since 2016. Saudi Arabia may see its spare capacity dwindle to “unprecedented” levels as it seeks to offset losses in Venezuela, Iran and beyond, the IEA said in a report. Prices sank yesterday even though U.S. crude inventories fell the most in almost two years, amid concern the escalating trade war between the U.S. and China will hurt economic growth.
- Gold steady after posting biggest decline in almost four weeks as investors flock to dollar amid U.S.-China trade war, with officials from both sides raising the prospect of resuming talks.
- The U.K. Financial Conduct Authority warned traders to speed up their move away from products based on the Libor rate, or risk falling foul of the regulator when the 50-year-old borrowing benchmark disappears. Financial institutions still hold about $170 trillion in swap contracts based on Libor, or the London interbank offered rate, and about a third of those mature after 2021, when the benchmark rate will disappear, FCA Chief Executive OfficerAndrew Bailey said Thursday in a speech at Bloomberg’s headquarters in London.
- It’s up to Rupert Murdoch’s 21st Century Fox Inc. to make the next move in a global standoff between media giants after Comcast Corp. increased its offer for Sky Plc to 26 billion pounds ($34 billion). Comcast, the largest U.S. cable company, offered 14.75 pounds a share late Wednesday. That’s 5.4 percent above the latest 14 pound-a-share proposal from Fox, which already owns a stake in the European broadcaster. Sky shares rose to as much as 15.41 pounds in London on Thursday as investors anticipate higher bids.
- Walmart Inc. plans to sell its Japan subsidiary Seiyu GK for as much as 500 billion yen ($4.5 billion), the Nikkei newspaper reported, as the retailing giant continues to reshape its international operations. Walmart will sell Seiyu to several logistics companies and investment funds, Nikkei said without citing any sources. If the sale proceeds, the deal could be valued at between 300 billion yen and 500 billion yen, it reported.
- Czech billionaire Andrej Babis won parliamentary approval for a minority government, strengthening the group of European Union members who are challenging the bloc’s unity. As populist forces from Italy to Sweden shake the EU’s foundations and Brexit talks languish far from resolution, Babis has emerged as one of the strongest voices in the post-communist wing clashing with Germany over refugees. Along with like-minded allies in Poland and Hungary, who are themselves embroiled in battles over democratic values, the Czech premier rejects integrating further with the union and refuses to move closer to adopting its common currency.
- Canyon Partners LLC has closed a real estate debt fund with more than $450 million in commitments, the Los Angeles-based hedge fund announced Thursday. The property fund will focus on originating senior and subordinate debt in markets across the U.S., Canyon said in a statement. “In today’s market, we are seeing opportunities to lend on high-quality real estate projects at particularly favorable risk/reward profiles,” Josh Friedman, co-founder of Canyon, said.
- Oil prices may still be at levels unseen since the 2014 crash, but the borrowing spree by Gulf Arab monarchies isn’t about to stop soon. Saudi Arabia, the world’s biggest oil exporter, has approached banks for a possible Islamic bond sale, while political rival Qatar is in talks to secure a $4.3 billion loan to pay for Eurofighter Typhoon combat jets, people with knowledge of the matter said this week.
- After more than a year of wrangling, Freeport-McMoRan Inc. agreed to cede majority control of its giant Grasberg copper and gold mine to Indonesia in a deal valued at $3.85 billion. State-owned PT Indonesia Asahan Aluminium, or Inalum, will pay that amount for a 51 percent stake, increasing the nation’s holding from just over 9 percent, in a three-way pact that also sees Rio Tinto Group cash out on its economic interest in the mine for $3.5 billion.
- BMW AG, among major companies most exposed to a trade war, is poised to take majority control of its venture in China, becoming the first beneficiary of the reforms the government has unleashed in the world’s largest car market. The Munich-based luxury-car maker plans to unveil the new ownership structure of its venture with Brilliance China Automotive Holdings Ltd. soon, according to a person familiar with the plan, who asked not to be identified because the accord remains confidential. BMW currently holds a 50 percent stake in the partnership.
- The U.K. seeks to strike new trade deals for services around the world as part of a Brexit plan that will tie its goods to European Union rules in a bid to preserve open customs borders with the bloc. Prime Minister Theresa May’s government on Thursday will publish the plan in a so-called White Paper spanning more than 100 pages, detailing a “comprehensive” vision for future U.K.-EU economic ties, according to details briefed overnight by the Brexit department. It expands on a three-page taster published by May last Friday after she unified her cabinet behind the plan.
- After almost a decade of deals that have been lauded by the market, Broadcom Inc. Chief Executive Officer Hock Tan has some explaining to do about his latest target. Broadcom’s planned $18.9 billion purchase of corporate software maker CA Technologies, unveiled late Wednesday, represents a leap into a completely different area of electronics with no significant overlap with the semiconductor industry Tan has so successfully reshaped.
- Ryanair Holdings Plc grounded dozens of flights Thursday as pilots in its Irish home market walked out after failing to agree to new contracts as part of a move toward unionization at the discount giant. As of 6 a.m. local time, Dublin Airport’s website listed as canceled departures to 16 cities including London, Birmingham and Manchester, England, with a similar number of arrivals also scrapped. Ryanair had said it would cancel up to 30 of its 290 flights at Irish airports during the 24-hour labor action.
- Reliance Industries Ltd. is back in the $100 billion club, a journey that has taken more than a decade. Shares for the billionaire Mukesh Ambani-helmed company jumped as much as 5.8 percent on Thursday, pushing up the market value to 6.9 trillion rupees. Reliance is the second Indian corporate after Tata Consultancy Services in April surpassed the $100 billion mark. Ambani has regained the second-richest Asian tag, overtaking Tencent Holdings’ CEO Ma Huateng, according to estimates compiled by Bloomberg Billionaires Index.
- Chase Coleman’s Tiger Global Management has invested more than $1 billion in SoftBank Group Corp., according to a client letter seen by Bloomberg. SoftBank’s shares rose 5.5 percent, the most in three months on an intraday basis, on Thursday after Tiger Global told investors that the Japanese conglomerate is trading at too steep a discount to its net asset value. Its share price fails to reflect the appreciation of assets, including Alibaba Group Holding Ltd., the asset manager said.
- Pakistan’s central bank has increased the amount of red tape needed to access dollars, according to people with knowledge of the matter, as the nation’s foreign-exchange reserves drop at the fastest pace in Asia. The State Bank of Pakistan has told banks after a currency devaluation last month that importers will need to inform the regulator of any requests for the U.S. currency a day in advance and fill out a form for import payments, according to people familiar with the matter, who asked not to be identified as they are not authorized to speak to the media. The measure applies to transactions that are not backed by a bank’s letter of credit, said one of the people. The Karachi-based central bank didn’t respond to a request for comment.
*All sources from Bloomberg unless otherwise specified