July 12th, 2019
Daily Market Commentary
- Canadian Headlines
- Toronto’s apartment crunch is finally easing as new supply hits the market and the removal of rent controls leads to record units on the drawing board, according to a new report. The vacancy rate rose to 1.5% in the second quarter, the highest since 2015, when research firm Urbanation began tracking the data. Rent increases eased to 7.6% from 10.3% last year, bringing the cost of an average-sized unit of 794 square feet to C$2,475 ($1,894).
- CannTrust Holdings Inc. said it implemented a voluntary hold on sale and shipment of all cannabis products as Health Canada is reviewing the company’s Vaughan, Ontario manufacturing facility.
- World Headlines
- Gains in auto and chemical shares on the Stoxx Europe 600 pushed the benchmark toward its first increase this week. Shares dipped in Australia and Japan and posted modest gains in Hong Kong, China and South Korea. Government bonds extended their declines in Europe, heading for the worst week since at least October, after industrial output data for the euro region beat expectations. The single currency was steady. Treasury 10-year yields held near a one-month high.
- U.S. equity futures climbed alongside stocks in Europe as investors clung to their cautious optimism on prospects for easier monetary policy. Bonds fell across the euro zone. Contracts on all three of the main U.S. stock gauges rose after the S&P 500 Index closed Thursday at a record high. The rally in risk assets is continuing to benefit from Federal Reserve Chairman Jerome Powell’s dovish comments this week, even after strong U.S. inflation data on Thursday offered a potential complication to policy makers when they set rates at the end of the month.
- Meanwhile, weak data from both Singapore and China sent another warning shot to the world economy on the impact of trade tensions. The reports came after President Donald Trump complained that China hasn’t increased its purchases of American farm products, a promise he said he had secured at his G-20 meeting with the country’s president Xi Jinping last month.
- Oil headed for a weekly increase as a storm in the Gulf of Mexico and simmering Middle East tensions supported the market, though the outlook remained clouded by concerns of a renewed surplus. Futures rose 0.5% in New York on Friday, pushing this week’s increase above 5%. Tropical Storm Barry, which could hit the Louisiana coast on Saturday, has already curbed about half of the energy output in the Gulf. Meanwhile Iran’s attempt to block the passage of a British tanker in the Strait of Hormuz ratcheted up tension in the oil-rich Persian Gulf, and U.S. data showed a drop in American crude stockpiles to the lowest level in almost three months.
- Gold headed for a weekly gain as investors weighed dovish comments by the Federal Reserve and fresh complaints from President Donald Trump about China’s trade policy. While strong U.S. inflation data Thursday offered a potential complication to the Fed ahead of its rate meeting later this month, Fed Chair Jerome Powell suggested there is room to ease monetary policy. Yields on 10-year Treasuries slipped from a one-month high and the dollar weakened.
- An unexpected contraction in Singapore’s economy and a slump in China’s exports sent a warning shot to the world economy as simmering trade tensions wilt business confidence and activity. Gross domestic product in export-reliant Singapore shrank an annualized 3.4% in the second quarter from the previous three months, the biggest decline since 2012. China trade figures showed exports fell 1.3% in June from a year ago and imports shrank a more-than-expected 7.3%. Like South Korea’s economy — which already contracted in the first quarter — Singapore is often held up as a bellwether for global demand given its heavy reliance on foreign trade. China’s quarterly GDP numbers on Monday are expected to show a clear weakening in the economy.
- Amazon.com Inc. briefly topped $1 trillion valuation again after posting its longest winning streak since a short-lived push above that level in September. The stock hovered right at the $1 trillion value mark as of 10:25 a.m. in New York. Seven consecutive days of gains had boosted the e-commerce giant’s market value to $993 billion as of Wednesday’s close. It took an eighth day of gains on Thursday to push the market capitalization above the 13-figure mark. Amazon has added about $128 billion in market value since the end of May. Nearly half of those gains have come in the past seven days. If the stock’s gains hold on Thursday, it would be the longest winning streak in a year.
- Thomas Cook Group Plc’s bonds rallied but its shares fell after China’s Fosun Group said it may help fund a 750 million-pound ($940 million) rescue of the ailing British travel firm that would heavily dilute its stock. The deal will give Cook’s biggest investor control of the U.K. company’s tour operations and a minority stake in its airline, while swapping debt for equity and issuing new shares, Fosun Tourism Group said in a statement Friday.
- Anheuser-Busch InBev NV is delaying pricing of the initial public offering of its Asian unit, Reuters said, citing two unidentified people close to the situation. The world’s largest brewer was set to raise as much as $9.8 billion in this year’s biggest initial public offering. The prospectus for the offer says pricing was expected Friday though could come as late as Monday. AB InBev won’t price the shares of Budweiser Brewing Company APAC Ltd.Friday as planned, the newswire said. A spokesman for the unit declined to comment to Reuters.
- For a leader with grand ambitions of tackling big issues from health care to taking on President Donald Trump, California Governor Gavin Newsom has spent much of his first six months in office bogged down in a crisis at home. Two days after his November election, the state’s deadliest wildfire decimated an entire town, with PG&E Corp.’s equipment blamed as the likely cause. The January bankruptcy of California’s largest utility set off a scramble for Newsom to unite lawmakers, power companies and interest groups in finding a way to cover the billions of dollars in liabilities from devastating blazes.
- Tropical Storm Barry is rumbling toward Louisiana and could hit the coastline as a hurricane by Saturday, causing close to $1 billion in damage and worsening flooding in New Orleans. The system, which was about 95 miles (153 kilometers) southwest of the Mississippi River’s mouth as of 5 a.m. New York time, has already curbed about half the energy output in the Gulf of Mexico and helped lift oil prices to a seven-week high. It’s also prompted Louisiana Governor John Bel Edwards to declare a state of emergency, while hurricane and tropical storm warnings and watches are in place along the state’s coastline.
- IAG SA Chief Executive Officer Willie Walsh said frustration with Airbus SE over late jetliner deliveries was a factor in his decision to place a $24 billion order for Boeing Co.’s grounded 737 Max model. Cost and a desire to have a mixed narrow-body fleet weren’t the only considerations in the purchase, with IAG experiencing a 70-day delay on average for handovers of the A320neo aircraft, which competes with the Max, the CEO said in an interview.
- A flood of new and returning investors in the $600 billion U.S. collateralized loan obligation market is setting the stage for a feeding frenzy among the world’s largest money managers. Fidelity Investments has entered the market, JPMorgan Chase & Co. is back from a brief absence and others including Pacific Investment Management Co. have boosted purchases in recent months, according to people familiar with the matter. Add in the fact that Japanese mega-buyer Norinchukin Bank is returning after a dramatic second quarter pullback, and industry veterans see a battle brewing for the top-rated CLO tranches.
- Infosys Ltd., Asia’s second-largest provider of IT services, raised its forecast for annual sales as investments in new technologies such as automation helped it win major contracts. Revenue will increase 8.5% to 10% in the year ending March 2020, versus a previous projection for 7.5% to 9.5%. Infosys’s forecast came after the company reported that net income for the June quarter rose to 38 billion rupees ($553 million). That compares with the 37.36 billion-rupee average of analysts’ estimates compiled by Bloomberg.
- The most accurate currency forecasters see the dollar weakening this year and the euro benefiting, as the U.S. looks set to outpace Europe in monetary policy easing. An eventual resolution to the U.S.-China trade spat will also support the euro’s ascent by 4% to $1.17 at the year-end, according to Kyriakos Pavlou, a senior trader at Eurobank Cyprus, which led Bloomberg’s rankings of predictions for 13 major currencies in the second quarter. His views were echoed by Rabobank International and Julius Baer, who placed second and third on the list, though they see a slower pace of decline for the greenback.
- Volkswagen AG will invest in Ford Motor Co.’s autonomous-car partner Argo AI at a valuation of $7 billion as two of the world’s largest automakers expand an alliance formed earlier this year, according to people familiar with the matter. VW will contribute $2.6 billion, including $1 billion in cash and its Audi Autonomous Intelligent Driving unit, which will be folded into the Ford affiliate, said the people, who asked not to be identified ahead of an official announcement. VW and Ford’s chief executive officers have scheduled a briefing for 8 a.m. Friday in New York.
- Bain Capital agreed to buy 60% of WPP Plc’s market research unit Kantar, bringing the ad group $3.1 billion to cut debt and return funds to investors hit by a share price slump. The private equity firm entered exclusive talks with WPP last week after beating out rival buyout companies in an auction. WPP will retain around 60% of the proceeds to reduce borrowing to the low end of a target range and return the rest to shareholders, it said in a statement.
- The owners of manufacturer Balcan Plastics are considering a sale that could value the business at as much as C$1.3 billion ($1 billion), according to people with knowledge of the matter. The closely held company is working with an adviser to look at strategic options, including a full or partial sale of the business, said the people, who asked not to be identified because they weren’t authorized to speak publicly. The business is attracting interest from private equity firms, the people said.
*All sources from Bloomberg unless otherwise specified