July 29th, 2019

Daily Market Commentary

• Canadian Headlines
  • Data due this week will probably show Canada’s merchandise trade balance swung back into deficit, as export strength is tested by the auto sector and energy bottlenecks. Economists in a Bloomberg survey expect a C$300 million ($228 million) deficit for June on Friday, after a surprise surplus a month earlier. Gross domestic product figures for May, due in a separate release Wednesday from Statistics Canada, are expected to show a monthly expansion of just 0.1%. The trade numbers will highlight how Canada’s exporters are faring amid global uncertainty, as tariffs imposed by U.S. President Donald Trump continue to hamper business investment globally. Canada posted an unexpected trade surplus in May as non-energy export volumes jumped over 4.4%, the most since 2015, driven primarily by motor vehicles, a notoriously volatile sector.
  • Alberta has relaxed the production limits it imposed on oil producers as it exports more barrels via rail and pipeline. Easing the production limit by 25,000 barrels a day means that operators can now produce about 175,000 barrels a day below what they were producing late last year, just before the province imposed the cut to alleviate a glut caused by too much oil and too few pipelines. The bottlenecks caused local heavy oil prices to collapse to as much as $50 a barrel below the price of West Texas Intermediate futures in October.
  • Peter Aceto didn’t just lose his job as head of CannTrust Holdings Inc.: he likely lost out on about C$8.2 million ($6.2 million) in stock options, among the highest pay packages in the pot sector. CannTrust fired Aceto, and chairman Eric Paul was asked to resign Thursday after a Globe and Mail report cited internal emails showing the executives were aware that pot was being grown in unlicensed rooms about seven months before Health Canada unearthed the breach. Aceto’s stock options will likely be canceled, as typically happens when an executive is fired with cause. Even if they’re not canceled, the options remain well under water following the recent stock plunge related to the licensing scandal.

   

• World Headlines
  • European benchmarks were mixed but gained overall thanks to a surge for the U.K index after the London Stock Exchange Group’s investors backed its proposed $27 billion deal to acquire Refinitiv. Deutsche Telekom AG rose the most in almost 10 months after the U.S. Justice Department gave the green light for its T-Mobile US unit to acquire Sprint Corp. Automakers in
  • U.S. equity futures drifted, European stocks rose and Asian shares fell at the start of a packed week featuring everything from the resumption of trade talks between the world’s two biggest economies to an expected Federal Reserve rate cut and the monthly American payrolls report. Contracts for all three main U.S. gauges were little changed after the S&P 500 closed at a record high Friday. Generic drugmaker Mylan NV jumped and Pfizer was slightly higher in premarket trading after plans for a merger were announced.
  • Asian benchmarks declined, with poor Korean earnings and increasing angst about protests in Hong Kong pulling stocks down. The pound fell for a third day as Prime Minister Boris Johnson’s cabinet begins daily meetings to plan the U.K.’s exit from the European Union on Oct. 31. Most bonds in the region climbed with Treasuries.
  • Oil steadied near $56 a barrel in New York before the resumption of talks aimed to resolve a trade dispute between the U.S. and China, while political tensions in the Persian Gulf continue to simmer. Futures were little changed in New York after rising 1% last week. Chinese and American negotiators meet in Shanghai this week amid tempered expectations for a breakthrough in their year-long trade war that has dented demand. The U.K. has sent one of its Type 45 warships to the region after Iran seized a British oil tanker as the U.S. seeks to build a coalition to protect vessels traversing the strait.
  • Gold tread water as investors awaited developments from U.S.-China trade talks this week, while widely anticipating the first interest-rate cut in more than a decade from the Federal Reserve. Chinese and American negotiators are scheduled to restart negotiations Tuesday in Shanghai after a run of mixed signals in recent days, with neither side showing a determined urge to compromise. Meanwhile, traders will watch Fed Chairman Jerome Powell’s post-meeting press conference midweek for clues on the path of monetary policy over the rest of this half and into 2020.
  • The pound slid to its lowest level in more than two years and gilts rallied as U.K. Prime Minister Boris Johnson stepped up preparations for a no-deal Brexit with just about three months left until the nation exits the European Union. Sterling fell against all of its Group-of-10 peers as various members of Johnson’s top team took a tough stance, with Chancellor Sajid Javid saying he was stepping up Treasury preparations for a no-deal departure and top aide Michael Gove writing in the Sunday Times that the government was now “working on the assumption” the talks with the EU would fail.
  • Almost three months after their trade talks broke down in acrimony, Chinese and American negotiators meet again in Shanghai this week amid tempered expectations for breakthroughs in their year-long trade war. Two days of talks are scheduled to restart Tuesday after a truce reached by Presidents Donald Trump and Xi Jinping on the sidelines of the Group of 20 summit in Osaka, Japan, last month. Deep tensions remain, though, and recent days have brought mixed signals from both sides, with neither showing an urge to compromise.
  • London Stock Exchange Group Plc jumped 11% as investors backed its proposed $27 billion deal to acquire Refinitiv, the financial data and trading platform provider, speeding up a push into its most lucrative market. The discussions, confirmed on the weekend, is the most aggressive move yet by LSE Chief Executive Officer David Schwimmer, who joined the 218-year-old exchange from Goldman Sachs Group Inc. last year and has been enjoying a 40% surge in the stock price this year in the lead up to the news of the purchase.
  • Investors withdrew money from exchange-traded funds that buy emerging market stocks and bonds last week. This was the third straight week of outflows. Outflows from U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $885.7 million in the week ended July 26, compared with losses of $174.7 million in the previous week, according to data compiled by Bloomberg. So far this year, inflows have totalled $11.1 billion.
  • Exact Sciences Corp. to buy Genomic Health Inc. in a $2.8 billion cash and stock deal to expand its offering of cancer tests beyond its colon cancer test Cologuard. Genomic Health holders will get $27.50 in cash and $44.50 in shares of Exact Sciences for each share they own, subject to a 10% collar centered on Exact Sciences’ volume-weighted average price for the 45 trading days ended July 26. The deal is at about a 4.9% premium to Friday’s close before Bloomberg reported a deal was in the works and comes on top of the 23% surge last week after the company was added to the Standard & Poor’s SmallCap 600.
  • Ryanair Holdings Plc clung to its full-year earnings outlook as a fare war and the grounding of Boeing Co.’s 737 Max jetliner ate into first-quarter profit at Europe’s biggest discount airline. Margins on ticket sales are shrinking, with a glut of seats hurting prices in Germany and concerns around Brexit weighing on U.K. demand, Ryanair said Monday. At the same time, a jump in revenue from food, extra bags and faster boarding should keep the discounter on track to meet fiscal 2020 targets.
  • Takeaway.com NV made a 5 billion pound ($6.2 billion) bid for rival Just Eat Plc, continuing its consolidation push with a deal that would intensify competition with the likes of Uber Technologies Inc. in the food-delivery space. The Dutch company is offering an implied value of 731 pence for each Just Eat share, 15% more than the target company’s stock price on July 26, the day before talks first became public. The new company intends to remain based in Amsterdam, with a premium listing on the London Stock Exchange. Just Eat shares rose as much as 26% to 799.4 pence in London, suggesting investors are betting that possible rival suitors might drive up the price of the asset.
  • As the world sinks into an era of ever-lower interest rates and a chasm of negative-yielding bonds, Japan’s experience offers investors an invaluable precedent. It’s two decades since the nation pioneered zero rates and more than six years into central bank chief Haruhiko Kuroda’s record stimulus. The money managers who’ve witnessed it all provide unique insights into strategies to survive such a regime. One legacy of Japan’s ultra-low interest-rate regime is that it has spurred massive investment into overseas assets. But even more telling is the extremes that Japanese investors have gone to in the hunt for yield. They’ve pushed deeper into stocks and real estate, amassed bonds from Europe’s periphery to emerging markets, and loaded up on opaque securities that bundle together hundreds of loans.
  • Pfizer Inc. is combining its business line of older blockbuster medicines such as Lipitor and Viagra with generic drugmaker Mylan NV, in a deal that will reshape the brand-name and off-patent pharmaceutical industries. Under the all-stock deal, a “Reverse Morris Trust” transaction, Mylan investors would get 43% of the new entity and Pfizer investors the rest. The new publicly traded company will have sales of about $19 billion to $20 billion in 2020, the drugmakers said in a statement. The deal will spin out Pfizer’s Upjohn unit, then combine it with Mylan. The new company will have about $24.5 billion in debt and an investment-grade credit rating, the companies said. The transaction is expected to close in mid-2020.
  • There will be no chance of a summer break for investors or policy makers in coming days as they brace for what might be the busiest week for the world economy this year. The highlight is Wednesday’s decision by the Federal Reserve with markets and economists virtually united in predicting Chairman Jerome Powell and colleagues will cut interest rates for the first time in more than a decade.
  • Carlyle Group LP is winding down a $4 billion energy credit business after two co-heads recently left the firm. The departures of David Albert and Rahul Culas triggered a so-called key-man event on the Carlyle Energy Mezzanine Opportunities Fund II, according to people with knowledge of the matter. The remaining team at the energy credit business will discontinue investing from the $2.8 billion pool and manage out the rest of the portfolio.
  • Swissport International, the airport-cargo handler owned by Chinese troubled conglomerate HNA Group Co., said it plans to refinance some of its outstanding debt amid stable earnings growth. The announcement confirmed an earlier Bloomberg News report. According to Swissport’s statement on Monday, its 1.6 billion-euro ($1.8 billion) refinancing
  • General Electric Co. has transferred its stake in Argentine power generator YPF Luz SA to an investment vehicle it shares with a Chinese fund. GE shifted its 25% holding in the unit of state-run oil driller YPF SA, which it acquired for about $300 million in 2018, to a joint venture with Silk Road Fund, a representative for the Boston-based company said in an email without disclosing what its financial return is on splitting the ownership. The venture is called BNR Infrastructure Investment LP and it’s owned equally by GE’s energy financial services unit and Beijing-based Silk Road Fund, according to a person familiar with the structure.

*All sources from Bloomberg unless otherwise specified