July 31st, 2018
Daily Market Commentary
Crude oil demand may be on the rise again, but Canadian National Railway Co.’s new leader insists energy shipments won’t displace longtime railroad staples such as grain and lumber. Grain farmers in the western Prairie provinces saw exports slow to a crawl when Canadian National proved unable to cope with a surge in demand starting in the second half of last year. In March, with bottlenecks and customer complaints mounting, Canada’s biggest railroad ousted then-Chief Executive Officer Luc Jobin – prompting his successor, Jean-Jacques Ruest, to boost capital spending to a record C$3.5 billion ($2.7 billion) to start fixing the logjams.
Canada’s bid to take part in senior-level NAFTA talks between the U.S. and Mexico later this week has been rejected, the National Post reports.
Allied Properties Real Estate Investment Trust and RioCan Real Estate Investment Trust’s new office development in the heart of Toronto’s technology district has a core tenant: Index Exchange Inc., the closely held global advertising marketplace. The Toronto-based firm will lease as much as 200,000 square feet (18,600 square meters) at Allied and RioCan’s The Well, the companies said Tuesday in a statement. Index Exchange agreed to a 12-year lease starting in 2022. The development includes more than 1 million square feet of downtown office space.
Treasuries advanced and most European government debt nudged upward, following gains in Japanese bonds after the BOJ tweaked some policies but signaled interest rates will stay low for an “extended period of time.” The Stoxx Europe 600 Index drifted even as the likes of BP and Credit Suisse reported positive earnings.
Futures on the S&P 500 and Nasdaq pointed to a slightly higher open before Apple’s results, while contracts for the Dow were flat. The BOJ left its key interest rates unchanged while announcing policy tweaks, including reducing the amount of bank reserves subject to its negative interest rate and forward guidance for policy rates, while reiterating that it will keep the 10-year yield at about zero percent.
Asian stocks fell, dragged by technology names after lower-than-expected profits from Samsung Electronics Co. and a decline in U.S. technology bellwethers. Japanese stocks and the yen fluctuated after the Bank of Japan left its key policy rate unchanged. The MSCI Asia Pacific Index slipped 0.6 percent to 167.14 as of 4:47 p.m. in Hong Kong.
Oil retreated in New York after its biggest jump in more than a month as some of the supply risks facing the market abated. West Texas Intermediate futures slipped 0.5 percent, after climbing 2.1 percent to surpass $70 a barrel on Monday. Russia’s oil production reached 11.22 million barrels a day this month as the caps imposed in a pact with OPEC eased, Interfax reported, while data from Kazakhstan’s government showed that its output recovered. Meanwhile, President Trump said he’s open to talks with Iran just as U.S. sanctions on the country’s oil trade take hold.
Gold set for a fourth straight month of losses in longest stretch since 2013, with bears in the driving seat ahead of key policy meetings this week at world’s biggest central banks.
Even with China’s peak demand season in full swing as hot weather boosts air-conditioning use, benchmark spot prices have retreated in five of the previous six weeks, while futures posted the biggest monthly loss in more than a year after sliding below 600 yuan ($87.94) a metric ton. Coal has retreated after a heat wave in May and June sent prices to nearly 700 yuan and spurred the world’s largest user and producer to warn it may run short of power this summer. But now, as mine inspections end, port inventories jump and higher hydropower supply restricts coal demand, analysts from Morgan Stanley to Daiwa Securities Group Inc. are predicting further weakness.
A bumper day of euro-area economic releases showed the region’s vital signs remain good, if not great. The region’s economic expansion entered a sixth year but growth slowed to just 0.3 percent, the weakest in two years. Inflation accelerated further above the European Central Bank’s goal, though that was largely driven by stronger energy prices. Unemployment remained at the lowest since 2008.
If you thought the slump in U.S. technology stocks was bad, take a look at Tencent Holdings Ltd. The Chinese Internet giant has tumbled 25 percent from its January peak, erasing about $143 billion of market value. That’s the biggest wipeout of shareholder wealth worldwide, as measured from the date of each stock’s 52-week high. Facebook Inc., the F in the FANG block of mega-cap U.S. tech shares, is the second-biggest loser with a $136 billion slump over the past three trading sessions.
Pfizer Inc. increased its full-year profit outlook, a sign of optimism after its decision to delay drug price increases amid pressure from the Trump administration. The drugmaker now sees earnings of $2.95 to $3.05 a share, excluding some items, after its second-quarter profit beat Wall Street estimates. Analysts anticipated $2.95 for the full year, on average. But Pfizer did lower the midpoint of its annual revenue guidance.
The oil trading and refining unit of China’s Sinochem Group filed for an initial public offering Monday in Hong Kong, opening a window into the firm that may merge with a state-owned peer to form a global oil-to-chemicals giant. The listing of Sinochem Energy Co., which has been in the works for more than a year, precedes the possible tie-up between its parent company and fellow state-owned firm ChemChina to create a sprawling commodities conglomerate stretching from oil refining and trading to agrochemicals and fertilizers.
Turkey’s central bank on Tuesday acknowledged it won’t meet its 5 percent inflation target for three more years, disappointing investors seeking signs that monetary policy would tighten. Although Governor Murat Cetinkaya pledged to raise borrowing costs when needed, his prediction of 6.7 percent inflation by the end of 2020 was seen as a dovish signal by investors who gathered in Ankara for the bank’s quarterly inflation report. He expects prices to rise 13.4 percent through this year and 9.3 percent through 2019.
Procter & Gamble Co. is still the king of diapers and shampoo, but an onslaught of new competition is tarnishing the consumer-goods giant’s crown. This pressure was reflected in Tuesday’s earnings report: Sales slightly missed analysts’ estimates in the company’s fiscal fourth quarter, sending the shares down as much as 2.4 percent in early trading Tuesday.
BMW AG is investing 1 billion euros ($1.17 billion) in a new assembly plant in Hungary, its first factory in Europe in nearly two decades as the luxury-car maker strengthens its European footprint amid growing protectionism. The plant will produce 150,000 vehicles a year, making both electric and combustion engine vehicles, the Munich-based carmaker said Tuesday in a statement. It’ll be BMW’s first new carmaking facility since 2000, when it decided to construct a site at Leipzig, a spokesman said, declining to confirm which models it’ll produce in Hungary.
BP Plc churned out more profit than expected in the second quarter, offering reassurance to investors about its financial strength after announcing its biggest deal in almost two decades. Avoiding the earnings disappointments that dogged rivals Royal Dutch Shell Plc and Exxon Mobil Corp., BP said it was confidently pursuing growth again. After spending much of the past eight years shaking off the impact of the fatal Gulf of Mexico oil spill and a deep industry downturn, Chief Executive Officer Bob Dudley said he would build upon all that hard work with the $10.5 billion acquisition of U.S. shale assets.
Apple Inc. investors will be focused on revenue and gross margin forecasts, iPhone sales, and services growth when the company reports fiscal third-quarter results Tuesday afternoon. Analysts are looking for sales of 41.3 million iPhone units in the quarter, along with an average selling price of $699, according to estimates compiled by Bloomberg News. While Apple’s results always generate significant buzz, the road map to the U.S.’s first $1 trillion corporate valuation may also be at stake this quarter.
Indonesia will expand the use of biodiesel as President Joko Widodo explores options to boost foreign-exchange earnings and contain a ballooning current-account deficit in Southeast Asia’s biggest economy. Widodo, known as Jokowi, will soon sign a revised presidential decree that widens the palm-biodiesel mandate to more users from August, potentially saving $5.5 billion annually in crude oil imports, according to Coordinating Minister of Economic Affairs Darmin Nasution. The president also ordered his ministers to identify new ways to boost exports and shore up foreign reserves.
Bank of Japan Governor Haruhiko Kuroda pushed through changes to his radical monetary stimulus program as the central bank prepares for a longer struggle to stoke inflation. While keeping unchanged its two major benchmarks — the negative interest rate and 10-year yield target — the BOJ took a number of steps to alleviate the strain on banks and the market distortions stemming from its policy. Yet Kuroda also indicated that the BOJ will tolerate 10-year yields deviating as much as 0.2 percent from zero, compared with 0.1 percent now.
Mexico, the biggest foreign buyer for U.S. corn, is seeking 1 million metric tons of the grain from Argentina as negotiations on the North American Free Trade Agreement drag on. Mexican officials including Agriculture Secretary Baltazar Hinojosa Ochoa met with Argentine government and industry counterparts in Buenos Aires last week, Salido said. Mexico aims to diversify supplies of corn, wheat and soybeans amid the Nafta turmoil.
SoftBank Group Corp. is interviewing banks to arrange a planned initial public offering of its domestic wireless business, in what could become one of the world’s biggest share sales in years, people with knowledge of the matter said. Foreign and local investment banks have been making formal pitches to SoftBank over the past few weeks, according to the people, who asked not to be identified because the information is private. SoftBank plans to select several lead underwriters as early as August, the people said. The offering could raise more than 2 trillion yen ($18 billion), they said.
Nintendo Co. reported quarterly earnings that topped profit estimates, as higher software sales online made up for weaker shipments of the Switch console. Operating profit was 30.5 billion yen ($274 million) in the June quarter, compared with analysts’ average projection for 25.6 billion yen. Revenue was 168 billion yen, short of the average estimate for 186.9 billion. The Kyoto-based company maintained its full-year forecasts for profit, hardware and software sales.
A weak share price, a fragile dividend and a switch of chief executives: conditions at Vodafone Group Plc may ripe for a shake-up by U.S. activist investor Elliott Management Corp. A report that Elliott has taken a stake in the world’s second-largest wireless carrier comes at a critical time for Vodafone, which is battling intense competition in Europe and trying to rescue its share price from an 8-year low.
HDFC Bank Ltd., the world’s most expensive major lender, started taking orders for a share sale that could raise as much as 155 billion rupees ($2.3 billion) as it works to bolster its capital ratios and expand lending capacity. The Indian bank is selling as many as 19 million American depository receipts, it said Monday in a statement. Mumbai-based HDFC Bank is also raising as much as 37.5 billion rupees by offering shares to institutional investors in India at 2,169.90 rupees apiece, according to terms of the deal obtained by Bloomberg.
Mizuho Financial Group Inc.’s first-quarter profit rose, as gains from fee businesses and sales of its shareholdings helped the Japanese lender offset the effects of the central bank’s continuing monetary stimulus program. Net income climbed 36 percent to 161 billion yen ($1.4 billion) in the three months ending June 30 from a year earlier, the Tokyo-based bank said in a statement on Tuesday.
*All sources from Bloomberg unless otherwise specified