July 18th, 2018

Daily Market Commentary

Canadian Headlines

• Canadian stocks closed higher after spending much of the morning in the red, with consumer-discretionary shares leading the gains amid flickers of trade optimism. The S&P/TSX Composite Index added 25 points or 0.2 percent to 16,519.24. The consumer discretionary sector rose 1.3 percent, the most in six weeks, with Linamar Corp. up 3 percent and Magna International Inc. gaining 1.7 percent. Europe is said to be exploring talks with U.S. President Donald Trump on reducing car tariffs.
• With U.S. President Donald Trump’s trade war against Canada showing no sign of abating, the work on the Trans Mountain pipeline expansion that’s starting next month may seem like a godsend for a nation striving to reduce dependence on its southern neighbor. After all, the Canadian federal government’s main rationale for saving the project from abandonment with a $3.5 billion purchase from Kinder Morgan Inc. was the promise that the bigger line will help the nation’s producers ship more crude to fast-growing importers like China and India. But lost in the debate is the fact that very few of the 300,000 barrels of oil and refined fuels a day the existing Trans Mountain line ships from Alberta to Canada’s Pacific coast are making their way to Asia.
• There’s at least one commodity that may benefit from Donald Trump’s trade war with China: nitrogen fertilizer. Soybean prices have plummeted since May as the oilseed got caught in the crossfire of the spat that prompted China to slap duties on American farm goods. The collapse will probably prompt U.S. farmers to swap soybean acres in 2019 for corn, a crop that’s a heavy user of nitrogen fertilizer.

 

 

World Headlines

• European equities rose at the open after earnings season started on a general high note and the Federal Reserve Chairman Jerome Powell told a Senate committee that the Fed will continue to gradually raise interest rates “for now.” The Stoxx Europe 600 Index added 0.4 percent, led by the technology sector, which soared after results from Ericsson AB and ASML Holding NV.
• U.S. stock index futures are little changed after a mixed session in Asia and as European equities advance amid positive sentiment stemming from an upbeat assessment of the U.S. economy from Federal Reserve Chairman Jerome Powell. The dollar rose after Powell said the Fed will continue gradually raising interest rates “for now.”
• Asian equities were mixed after Federal Reserve Chairman Jerome Powell’s remarks on the U.S. economy allayed concerns on global growth outlook amid escalating trade tensions. The MSCI Asia Pacific Index was little changed at 165.06 as of 5 p.m. in Hong Kong, erasing earlier gains of as much as 0.6 percent.
• Oil slipped in New York, approaching its lowest level in almost a month, after a surprise increase in U.S. crude inventories further allayed concerns of a looming supply crunch. Futures in New York dropped as much as 1 percent. The American Petroleum Institute was said to report stockpiles rose 629,000 barrels last week, whereas government data due later Wednesday is forecast to show a drop of 4.1 million barrels. Increased output from Saudi Arabia, Iraq and Russia has also given the market relief from fears of losses in Venezuela, Iran and elsewhere.
• Gold fell to the lowest level in a year after Federal Reserve Chairman Jerome Powell said the central bank will continue raising borrowing costs gradually, boosting the dollar and hurting the metal’s appeal.
• Iron ore’s become the odd man out as a spike in global trade tensions hurts commodities, with importers in top user China scooping up cargoes to feed booming mills and the government intensifying an anti-pollution drive. That’s helped benchmark prices to stay the course. While copper in London is headed for a sixth weekly drop and the Bloomberg Commodity Index has swooned from a May peak, spot 62 percent iron ore has maintained its run in the $60s a metric ton. High-grade iron ore has done even better, ascending into the $90s and hitting the highest level since March.
• European Commission President Jean-Claude Juncker will meet President Donald Trump in Washington next week to explore the possibility of starting negotiations on reducing car tariffs for several key trade partners, according to two people with knowledge of the plans. Juncker will likely signal the EU’s willingness to consider a deal that cuts levies on cars and car parts among all the major automobile-exporting countries, said one of the officials, who asked not to be identified because preparations for the meeting are ongoing. Such a deal, which would have the potential to upend the auto industry, would take time to complete and officials said they aren’t optimistic Trump would accept it.
• Google was fined 4.3 billion euros ($5 billion) by the European Union and ordered to change the way it puts search and web browser apps on Android mobile devices, setting a global record for antitrust penalties. The penalty — the same amount the Netherlands contributes to the EU budget every year — is far higher than any other dished out by the U.S., Chinese or other antitrust authorities. More significantly, Google was given 90 days to stop what the EU said were “illegal practices” on contracts with handset manufacturers that push Google services in front of users.
• The Trump administration plans to open an investigation into whether uranium imports are harming national security, a move that could lead to tariffs on foreign shipments of the metal, said three people familiar with the matter. U.S. uranium producers Energy Fuels Inc. and Ur-Energy Inc. filed a petition in January asking the Commerce Department to investigate the matter under Section 232 of the 1962 Trade Expansion Act, the same provision the president used to slap tariffs on steel and aluminum imports. U.S. industry wants the government to shield it from competition from state-owned companies in countries including Russia and Kazakhstan.
• The yuan fell to the lowest since August as the dollar rallied, raising speculation that Chinese officials are comfortable with the currency’s weakness. The yuan fell as much as 0.29 percent to 6.7229 per dollar, while the overseas-traded currency also weakened. Chinese stocks reversed earlier gains, with the Shanghai Composite Index and the Hang Seng China Enterprises Index closing at least 0.1 percent down.
• Danske Bank A/S slumped the most in more than two years after investors were disappointed by its second-quarter results and as management set aside money linked to laundering crimes amid Danish government warnings that such funds will be confiscated. Shares in the Copenhagen-based lender sank more than 11 percent at one point on Wednesday, the most since June 2016. The selloff pushed Danske to the bottom of the Bloomberg index of European financial stocks, which was down about 1 percent.
• Serbia launched its fourth attempt in almost two decades to sell RTB Bor, the Balkan country’s sole producer of copper, gold and silver, as it looks for an industrial investor to boost the capital by $350 million, take an unspecified stake and promise to modernize and expand the company’s operations. Potential buyers must prove they had $500 million revenue in 2017 to submit offers, according to an emailed statement from the company. The Belgrade-based government has been unable to fully or partially privatize the company, whose recurring losses have dragged down Serbia’s budget. Its divestment or shutdown were among priorities in Serbia’s arrangements with the International Monetary Fund. The deadline for offers to be submitted is Aug. 20.
• Cryptocurrencies extended their rally on Wednesday, with Bitcoin breaking above $7,500 for the first time since June as the market seeks to shrug off some of the security and regulatory concerns that have plagued it for much of the year. The largest digital token rose as much as 3.1 percent to $7,543 before paring its increase to 0.8 percent at 9:55 a.m. in London, according to Bloomberg composite pricing. Rival coins including Ripple, Ether and Litecoin were mixed but held most of their gains from Tuesday. Despite the advance, Bitcoin remains more than 60 percent below the all-time high posted in December.
• More Chinese companies are pledging to buy back their shares as authorities seek to stem a $2 trillion rout in the equity market. At least 109 firms have announced repurchase plans or bought back shares this year, according to data compiled by Bloomberg. Home appliances maker Midea Group Co. is one of the latest, with plans to spend up to 4 billion yuan ($600 million) buying its shares after they slid 19 percent from January to early July.
• Ericsson AB soared on signs that Chief Executive OfficerBorje Ekholm’s turnaround of the Swedish maker of wireless networks is taking hold. Profitability improved at a quicker pace than analysts had estimated for the second consecutive quarter, as cost cuts boosted earnings and customers embraced new products. After years of falling sales, the company’s networks unit saw an increase in revenue, driven by North America, where all major carriers are preparing for fifth-generation networks.
• Wall Street banks will soon have to cough up more details on the private stock markets they run, which are estimated to account for about one-seventh of all U.S. equities trading. The Securities and Exchange Commission plans to vote Wednesday on rules that would force trading venues known as dark pools to disclose more data and reveal potential conflicts of interest. The SEC proposed the regulations — some of which resemble requirements for public stock exchanges — in 2015 after firms including UBS Group AG paid tens of millions of dollars to settle allegations that they allowed practices that benefited high-frequency traders without properly informing other clients.
• After the drama of President Donald Trump’s widely criticized news conference with President Vladimir Putin, one agreement the two leaders reached on the business front may go forward, according to the head of the Kremlin-backed Russian Direct Investment Fund. Kirill Dmitriev, an ally of Putin who heads the sovereign wealth fund sanctioned by the U.S., says American businesses are eager to do more in a country whose relationship with Washington has been characterized recently by diplomatic expulsions and ever-toughening sanctions.
• Japanese electricity spot prices surged to the highest seasonally in four years as a heat wave struck the nation’s capital. The 24-hour spot price rose 13 percent to 17.67 yen per kilowatt hour for delivery on Thursday, the highest for this time of the year since 2014, according to data from Japan Electric Power Exchange compiled by Bloomberg. Volume was steady at 470,949,500 kilowatt hours. Prices are at the highest since February and rose 20 percent to 15.71 yen per kilowatt hour in the previous session.
• Reliance Industries Ltd., India’s second-largest company by market value, plans to raise about 400 billion rupees ($5.8 billion) in fresh debt this financial year as it expands its consumer businesses, according to people familiar with the matter. The billionaire Mukesh Ambani-led company will raise funds through loans and bonds, mostly in the Indian currency, the people said asking not to be named as they are not authorized to speak to the media. Of this, the refining-to-retail conglomerate already has shareholder approval to raise as much as 200 billion rupees through non-convertible debentures.
• Swiss drugmaker Novartis AG is holding the line on U.S. prices this year as an attack from President Donald Trump led rival Pfizer Inc. to delay planned increases for some medicines. Pfizer last week agreed to defer planned price increases for certain drugs a day after Trump criticized the company over reported plans to raise them. In recent weeks, Novartis, Gilead Sciences Inc., Roche Holding AG and Novo Nordisk A/S sent notices to California health plans rescinding or reducing previously announced increases on at least 10 drugs.

*All sources from Bloomberg unless otherwise specified