July 15th, 2019
Daily Market Commentary
- Canadian Headlines
- Investors made it clear last week that they no longer trust CannTrust Holdings Inc. The company’s regulatory breach may further erode consumers’ trust in the legal cannabis market as well. The company’s stock plunged 48% over the five trading days since regulators found it grew pot in unlicensed rooms and provided “false and misleading” information to inspectors, erasing C$228 million ($174 million) in market value. CannTrust halted all sales and shipments of its products, and the Canadian government may suspend or even cancel its license in response.
- Stella-Jones said Brian McManus has decided to step down as president and CEO, effective Oct. 11.
- World Headlines
- European stocks headed for their largest gain in more than a week as Chinese economic data pointed to steadier growth. The Stoxx Europe 600 advanced 0.4% as of 8:07 a.m. in London, led by cyclical sectors including resources and chemicals that rallied on the Chinese data. Galapagos NV surged 14% after Gilead Sciences Inc. raised its stake in the biotechnology company. Anheuser-Busch InBev NV dragged other food and beverage stocks lower, after the beer giant pulled a public listing of its Asian unit.
- U.S. equity futures climbed alongside stocks in Europe and Asia at the start of a busy week for Federal Reserve speakers, corporate earnings and economic data. Treasuries held steady with gold, while the dollar edged lower. S&P 500 contracts rose close to a fresh record, while the Stoxx Europe 600 advanced on gains in automaker and mining shares.
- Asian stocks rebounded from early losses after indicators showed that China’s economy was stabilizing. Japanese markets were shut for a holiday, subduing trading in the region. Ten-year Treasuries were little changed while most European sovereign bonds gained. WTI crude oil nudged higher.
- Oil traded near $60 a barrel after a storm shut almost three-quarters of U.S. Gulf of Mexico crude production, even as lingering demand concerns continue to dent the outlook. Futures rose 0.2% in New York. About 73% of crude output in the Gulf of Mexico was halted as of Sunday but some producers are preparing to return workers to offshore platforms as storm Barry weakens after making landfall. The shutdown countered the impact of China’s economy slowing to a three-decade low in the second quarter amid a prolonged trade dispute with the U.S.
- Gold steadied amid signs that China’s economy is stabilizing and after hedge fund managers reduced bullish bets on the metal. Gains in Chinese factory output and retail sales for June beat estimates — further evidence that stimulus measures may be feeding through. Still, bullion remains near the highest level in six years as investors anticipate looser monetary policy. They’ll be watching closely for more commentary this week, including from Federal Reserve Chairman Jerome Powell on Tuesday, as well as key data points such as U.S. retail-sales.
- Bitcoin slumped briefly below $10,000 on Monday, following another weekend sell-off that saw some digital tokens plunge by more than 20%. The largest cryptocurrency fell as much as 17% from Friday before paring its drop to $10,360, down 13%, according to Bloomberg composite pricing as of 11:01 a.m. in London. Other highly traded coins also retreated: Ethereum dropped 18% and Litecoin fell 15%. The tumble comes days after U.S. President Donald Trump criticized digital coins on the heels of this year’s stellar rally. Trump wrote on Twitter Thursday that he is “not a fan of Bitcoin and other Cryptocurrencies, which are not money, and whose value is highly volatile and based on thin air,” adding that “Unregulated Crypto Assets can facilitate unlawful behavior, including drug trade and other illegal activity.”
- Callon Petroleum Co. agreed to buy Carrizo Oil & Gas Inc. for about $1.2 billion in an all-stock deal to give it additional operations in the Permian Basin in West Texas as well as assets in the Eagle Ford shale patch in the south of the state.
- General Electric Co. shares edged lower before the U.S. market open on Monday after UBS’s Damian Karas downgraded shares to neutral from a buy rating, citing the stock’s more than 20% outperformance this year. Current share prices appear more balanced, Karas wrote. The stock’s 43% climb since the start of the year stands in contrast to a 20% rally for the S&P 500 Index amid a “notable decline in interest rates and ongoing power market weakness.” He trimmed his price target to $11.50 from $13. Shares are down 1.5% in trading before the bell.
- JPMorgan Chase & Co. and Morgan Stanley lost out on their cut of what would’ve been the year’s biggest initial public offering last week. The top two advisers on Anheuser-Busch InBev SA’s Asia Pacific unit IPO would’ve split up to $140 million to $170 million in fees, according to people with knowledge of the matter. The world’s biggest brewer intended to raise as much as $9.8 billion before it announced Friday that it wouldn’t proceed with the listing citing “prevailing market conditions.”
- Antofagasta Plc surged the most in six months after an international arbitration tribunal ordered Pakistan to pay its joint venture with Barrick Gold Corp. $5.84 billion over a disputed mining license. The damages almost match the $6 billion bailout Pakistan agreed with the International Monetary Fund two months ago to help the South Asian nation avert an economic crisis. Pakistan’s government said it will review the ruling and consider a potential petition to the tribunal.
- India and Russia have agreed on a new payment method through their national currencies for multi-billion-dollar defense deals, in a bid to avoid risks created by the U.S. threat of sanctions and banking restrictions. The arrangement would enable India to pay the first installment soon for two warships that Russia is building for its navy, two people familiar with the matter said in New Delhi, without elaborating. Defense contracts will be settled in rubles and rupees under a payment agreement reached by the central banks of Russia and India, said a person in Moscow with knowledge of the preparations.
- On one side of the bargaining table will be union brass angry about plant closures and embarrassed by scandal. On the other will be auto executives sweating shrinking sales and risky billion-dollar bets to survive an era of disruption. Thus is the difficult backdrop the United Auto Workers and Detroit Three have to overcome to clinch new four-year labor contracts. Negotiations kick off this week with handshake ceremonies that will belie the tension between one of the largest U.S. unions and car manufacturers employing almost 150,000 members. General Motors Co. riled the union months ago by putting four U.S. factories on the chopping block. Fiat Chrysler Automobiles NV and its UAW counterparts are still dealing with the legal fallout from ex-union and company officials draining millions from a union training fund to enrich themselves. And Ford Motor Co. is said to be prepared to ask hourly workers to pony up more for health care that will otherwise cost the carmaker dearly next year.
- Barry weakened to a tropical depression but was set to cause more life-threatening floods through Monday on its march northward. Dangerous flash floods were likely across parts of central Louisiana into far southwest Mississippi on Monday morning. The storm was 80 miles west-southwest of Little Rock, Arkansas, with sustained winds of 25 miles per hour, the National Hurricane Center said in a bulletin at 5 a.m. New York time. Although little change in the strength of the storm was forecast in the next 48 hours, flash flood warnings were in place for parts of southeast Texas through much of Louisiana, Mississippi and Arkansas, as well as parts of the mid-Mississippi Valley.
- The Chinese economy already has the weakest growth in almost three decades, and it’s set to slow further despite upside surprises in a range of activity indicators released Monday. That’s the conclusion from a close reading of the numbers announced in Beijing, which confirmed that domestic output in the second quarter slowed to a record-low pace of 6.2% from a year earlier. While June retail sales and industrial output beat expectations, as did first-half investment, there’s little evidence that the economy has bottomed out.
- A full-blown currency war where major central banks and governments, including the U.S., deliberately weaken their currencies can no longer be ruled out, Pacific Investment Management Co.’s global economic adviser Joachim Fels wrote in a report. The view is in line with a rising chorus of Wall Street analysts who warn that President Donald Trump’s repeated complaints about the foreign exchange practices of key trading partners heightens the risk of U.S. intervention to weaken the dollar.
- Brian O’Kelley built AppNexus Inc. to help companies advertise anywhere on the internet. Its software plugged into virtually every digital ad-trading hub, including those from Google, the biggest ad seller, and Google’s YouTube video service. By 2014, AppNexus was valued at $1.2 billion. Then, in 2015, Google stopped letting companies buy ads on YouTube using outside software. The move got more marketers to use Google ad services. It also created a glaring hole for AppNexus: The startup could no longer give customers access to the largest supply of online video. It never really recovered.
- Crane will cease its efforts to acquire Circor and will not extend its hostile tender offer for $48 per share, absent any substantive engagement this week.
- Ardagh Group is planning to combine part of its business with rival Exal Corp. to create a metal packaging supplier with $2.7 billion in sales, the latest deal in a rapidly consolidating sector. Luxembourg-based Ardagh will receive $2.5 billion in cash and a 43% stake in a new company called Trivium, according to a statement on Monday. Exal is controlled by the Ontario Teachers’ Pension Plan. The combination is part of a wave of tie ups in the packaging industry, with about $40 billion worth of transactions in the past year. The bigger deals include Berry Global Group’s plan to buy RPC Group Plc for $4.4 billion to create one of the world’s largest plastic-packaging companies. Ardagh, which makes containers for beverages, food and other consumer products, bought the glass bottle-and-jar unit of Cie. de Saint-Gobain in 2013 for $1.7 billion.
- Democratic presidential candidates are clashing over their different visions on immigration, an issue Donald Trump has made a cornerstone of his presidency and re-election campaign. Contenders like Joe Biden want to pursue a moderate platform with the uncertain goal of winning back swing voters who put Trump in the White House. Elizabeth Warren and others advocate aggressively pro-immigration ideas that could boost turnout among Latinos and progressives in key states but risk turning off middle-of-the road voters.
*All sources from Bloomberg unless otherwise specified