July 16th, 2019

Daily Market Commentary

  • Canadian Headlines
    • The pea-protein craze has led to Manitoba landing its second pea processing facility, a C$65 million ($49.84 million) plant near Winnipeg. The Burcon NutraScience Corp. is planning to open a 20,000-ton processing facility in mid-2020, which will create 80 to 85 jobs, according to Chief Executive Officer Johann Tergesen. The plant will be able to swing between producing pea and canola protein, Tergesen said an interview Monday at Burcon’s technical center in Winnipeg.
    • Chevron Corp. is seeking approval to modify its plans for a liquefied natural gas export facility on Canada’s Pacific Coast to an all-electric design that it says will result in the lowest greenhouse-gas emissions per ton of LNG of any large project in the world. Chevron and its partner Woodside Petroleum Ltd. earlier this year had announced they’d applied to expand the capacity of their LNG project in Kitimat, British Columbia, by as much as 80% to 18 million metric tons a year.

     

  • World Headlines
    • European shares held steady in a quiet session as investors looked ahead to corporate earnings and economic data for further impetus to this year’s rally. The Stoxx Europe 600 was little changed as of 8:05 a.m. in London, with chemical stocks outperforming and real estate losing ground. AMS AG slid 2.2% after announcing it’s ending talks to buy German lighting firm Osram Licht AG. Burberry Group Plc jumped 6% on better-than-expected quarterly sales. Despite strong U.K. wage numbers, the pound weakened for a second day on fresh Brexit worries. The euro slipped as investor confidence in Germany’s economic outlook fell. Oil held below $60 a barrel as U.S. output returned after storm Barry was downgraded.
    • U.S. futures drifted with European stocks following a mixed session in Asia as investors looked to earnings and policy makers for the rally’s next catalyst. European bonds climbed and the dollar strengthened. Futures on the S&P 500 Index were little changed after the U.S. benchmark ended Monday at a record. Investors will be watching U.S. retail sales data later on Tuesday for clues on the health of the American economy, a day after Chinese figures showed signs of stabilization. Earnings season ramps up with JPMorgan Chase & Co., Goldman Sachs Group Inc. and Wells Fargo & Co. results due, and a slew of Federal Reserve speakers are scheduled to speak this week.
    • Japanese shares dipped as traders returned from a holiday while South Korean stocks advanced. Treasuries were steady. Japanese shares fell as a stronger yen and weak Chinese data spurred concern over earnings outlooks, with most companies reporting results over the coming weeks. Electronics makers weighed most heavily on the benchmark Topix after resuming trade following a national holiday Monday. The Japanese currency held most of its gains after gaining 0.5% over the past two sessions. China saiddomestic output in the second quarter slowed to a record-low pace of 6.2% from a year earlier against the backdrop of an ongoing trade dispute with the U.S.
    • Oil traded near $60 a barrel amid forecast U.S. crude inventories fell for a fifth week, while some production in the Gulf of Mexico is returning as a tropical storm eased. Futures were up 0.2% in New York after sliding 1.1% on Monday. Oil producers and refiners along the coast are restoring operations after storm Barry was downgraded, with about 69% of crude output in the Gulf still shuttered, down from a peak of 73% on Sunday. American crude inventories probably declined by 2.75 million barrels, according to a Bloomberg survey.
    • Gold swings between small gains and losses as investors await U.S. economic data and potential commentary on monetary policy from a slew of Federal Reserve officials. While markets are expecting the Fed to lower interest rates at its July 30-31 meeting, the debate now is how deep they will cut and what will come next. Traders will be looking to U.S. retail sales due Tuesday for clues on the health of the economy, one day after China showed signs that a stabilization is emerging following the weakest growth since quarterly data began in 1992.
    • JPMorgan Chase & Co.’s shares are slipping about 1.7% in pre-market trading after the bank cut its net interest income, or NII, view. JPMorgan now sees year NII of about $57.5 billion; previously, it saw at least $58 billion. After Citigroup Inc.’s net interest margin missed estimates on Monday, analysts had worried about other banks’ results. Evercore ISI’s Glenn Schorr told investors not to have a “false sense of security for the lower NII adjustments coming for the rest of the group.” Goldman Sachs Group Inc. and Wells Fargo & Co. are due to report Tuesday morning as well.
    • Treasury Secretary Steven Mnuchin said he and U.S. Trade Representative Robert Lighthizer may travel to Beijing for trade negotiations if talks by phone this week are productive. “We expect to have another principal-level call this week, and to the extent we make significant progress, I think there’s a good chance we’ll go there later,” Mnuchin said Monday at a briefing for reporters at the White House.
    • The pound fell the most among major currencies, approaching its 2019 low, as the contenders for U.K. prime minister doubled down on demands to renegotiate the Brexit deal. Sterling fell to a six-month low against the euro and is at the weakest ever for the time of year against the dollar, as Brexit negotiations appeared to turn more hostile. Both leadership contenders Boris Johnson and Jeremy Hunt have said the so-called backstop plan to avoid a hard border in Ireland, considered essential by Brussels, would need to be scrapped.
    • A meeting of chief Brexit negotiators last week was one of the most difficult encounters of the last three years, according to European officials, who are bracing for talks to become more hostile under the next British government. The EU side is weighing up possible concessions it could offer the U.K. to avoid a chaotic no-deal Brexit, according to European officials speaking on condition of anonymity.
    • Investor confidence in Germany’s economic outlook fell for a third month as persistent global trade tensions weigh on growth momentum. The ZEW index measuring prospects for the next six months declined more than expected and is now close to the weakest level in seven years. A gauge for current conditions fell below zero for the first time since 2010, meaning more respondents predict the situation will get worse than better.
    • The biggest news from Jerome Powell’s congressional testimony last week may not have been the one that moved markets and grabbed the headlines. While Powell’s comments on Capitol Hill about the current outlook cemented expectations for an interest-rate cut this month, he also acknowledged for the first time publicly that officials have potentially tightened monetary policy too much because they underestimated shifts in the U.S. economy.
    • Bayer AG won a reprieve as a federal judge cut a verdict linking its Roundup weedkiller to cancer by $55 million, while the German company continues to fight thousands of lawsuits in the U.S. The stock rose as much as 2.4% in Frankfurt trading after U.S. District Judge Vince Chhabria ruled Monday that the March verdict intended to punish the company was too high. Bayer’s future growth is clouded by thousands of legal cases filed by people who argue Roundup is to blame for their cancer, leading shareholders to question its decision to buy U.S. seed and pesticide giant Monsanto for $63 billion last year. The company hired a high-profile mediator to lead settlement talks last month, though it continues to defend the herbicide as safe.
    • Amazon.com Inc. is to be investigated by the European Union as the bloc’s antitrust chief Margrethe Vestager prepares for a summer finale to her five-year crackdown on U.S. technology giants. The Dane, who heads the EU’s competition division, is poised to open a formal investigation into Amazon within days, according to two people familiar with the case, who asked not to be named because the process isn’t public. Vestager has hinted for months that she wanted to escalate a preliminary inquiry into how Amazon may be unfairly using sales data to undercut smaller shops on its Marketplace platform.
    • CRH Plc, which counts activist investor Cevian Capital as an investor, agreed to sell its European plumbing and heating distribution business to Blackstone Group Inc. for 1.64 billion euros ($1.9 billion) in cash to create a more focused building-materials group. The business supplying professional builders and home renovators generated sales of 3.7 billion euros and earnings of 155 million euros last year, Dublin-based CRH said in a statement on Tuesday. Bloomberg reported late Monday a deal with the U.S. private equity firm was imminent.
    • China Merchants Shekou Industrial Zone Holdings Co. is planning an initial public offering of a real estate investment trust in Hong Kong, the city’s first REIT listing in five years, according to people with knowledge of the matter. The company has engaged potential advisers for the share sale and aims for a listing as soon as this year, the people said, asking not to be identified because the information is private. The share sale could raise about $800 million, the people said.
    • The extended grounding of Boeing Co.’s Max plane forced Ryanair Holdings Plc to scale back growth plans for next summer, putting the airline industry on notice the crisis is starting to affect longer-term plans. With a return date for the Max still uncertain after two fatal crashes, Ryanair is likely to receive barely half of the 58 planes it was expecting for the 2020 peak schedule, the Irish company said Tuesday, estimating that the reduction will wipe 5 million passengers from its full-year tally. Ryanair’s announcement shows how a further extension to the Max grounding would have significant fallout for airlines, which draw up future schedules about six months in advance. Air travel is particularly weighted toward the summer season in Europe, with passenger numbers typically surging from the Easter holiday, which starts on April 10 next year.
    • A tie-up between French retailers Carrefour and Casino could “again be a possibility” because of the difficulties encountered by Casino’s majority shareholder, according to Barclays. Such a combination looks “potentially interesting” as the new entity would become a leader in France and Brazil and would be able to benefit from significant synergies
    • Prologis Inc. agreed to buy warehouse owner Industrial Property Trust for about $4 billion to bulk up its business catering to companies such as Amazon.com Inc. and FedEx Corp. The cash deal, which includes the assumption and repayment of debt, will probably close late this year or early next, Prologis said Monday, confirming an earlier report by Bloomberg. The portfolio includes 236 properties in areas such as Southern California, the San Francisco Bay Area, Chicago, Atlanta, Dallas, Seattle and New Jersey — with about 96% in markets Prologis is present. Combining businesses will lower costs relative to assets, it said.
    • Asian food giant Wilmar International Ltd. plans to raise as much as $2 billion by selling shares in its Chinese unit in what could be the biggest mainland public offering this year. Yihai Kerry Arawana Holdings Co. is aiming to raise as much as 13.87 billion yuan by selling a stake of at least 10% on the tech-heavy ChiNext board of the Shenzhen stock exchange, according to a preliminary prospectus for the IPO. That would be more than the estimated 10.5 billion yuan targeted by China Railway Signal & Communication Corp.
    • Imax Corp. is getting even bigger in China. The operator of big-screen movie theaters will add 40 more locations in the country under an agreement with longtime partner CGV Holdings Ltd., its latest expansion in the world’s No. 2 movie market. Most will feature Imax’s new laser-projection technology, and most will be located in major and midsize cities, the companies said. They didn’t disclose financial details, but Imax won’t have to make a capital commitment for screens planned in smaller markets.
    • U.S. technology giants are headed for their biggest antitrust showdown with Congress in 20 years as lawmakers and regulators demand to know whether companies like Alphabet Inc.’s Google and Facebook Inc. use their dominance to squelch innovation. Executives from Google, Facebook, Apple Inc. and Amazon.com Inc. are set to appear Tuesday before the House antitrust panel, whose Democratic chairman is leading an investigation into the market power of the biggest tech companies and their effect on competition.

*All sources from Bloomberg unless otherwise specified