July 3rd, 2018
Daily Market Commentary
- What’s a little trade skirmish between friends? Not much, according to strategists who say a tit-for-tat tariff stand-off with the U.S. will be overshadowed by a rebound in energy shares that will drive Canadian stocks 4.9 percent higher by year end. The S&P/TSX Composite Index closed at 16,278 Friday for a second-quarter gain of 5.9 percent, its best quarter since the end of 2013. The benchmark will end the year at 17,068, according to the average of 10 estimates compiled by Bloomberg. That’s marginally ahead of the level that was predicted in January but still lags the 8.3 percent gain predicted for the S&P 500 in the U.S, according to a Bloomberg survey.
- Condo buyers in Canada’s already pricey markets may be the next to pay up as the trade battle with the U.S. radiates through the construction industry. Canada imposed a 25 percent tariff on U.S. steel imports on July 1, retaliating against levies President Donald Trump slapped on goods from its northern neighbor a month ago. Prime Minister Justin Trudeau’s government is also said to be preparing quotas and tariffs for other countries to prevent a flood of steel rushing in to undercut prices.
- European stocks followed Asian markets lower on Monday, on fears that worsening trade disputes between the United States and other countries, as well as political uncertainty in Germany, could hurt global economic growth. Investors also watched warily for signs of instability in Europe, as a rebellion against Germany’s chancellor, Angela Merkel, escalated over the weekend. Ms. Merkel, seen as among the most stable leaders in European politics as recently as a year ago, has been badly damaged in recent weeks by a mutiny from within her conservative alliance.
- Most stock markets rebounded on Tuesday, with European shares and U.S. futures rallying following a mixed Asian session in which all eyes were on the yuan. Futures on the S&P 500, Dow Jones and Nasdaq all pointed to a firmer open. Miner Glencore Plc headed for the biggest decline in two years, however, after saying it has been subpoenaed by the U.S. Department of Justice.
- China’s stocks clawed back losses in the last hour of trading and the yuan erased its drop after sinking through a key level, with unexpected comments on the currency from the central bank stoking speculation the authorities are stepping up efforts to stem a rout in the market. The Shanghai Composite Index added 0.4 percent at the close after earlier plunging as much as 1.9 percent. The yuan climbed 0.3 percent after earlier sliding through 6.7 per dollar, where traders and analysts had expected intervention from the central bank.
- Oil rose above $74 a barrel on signs that a surge in supply by Saudi Arabia was only enough to maintain OPEC production last month. Futures in New York climbed as much as 1.2 percent to touch its highest intraday level since November 2014. While Saudi Arabia raised crude supply by the most in five years in June, disruptions in Libya coupled with ongoing losses in Venezuela meant the kingdom’s boost was only enough to steady the group’s total output. Meanwhile, the premium for near-term U.S. oil increased to the highest since 2014 versus longer dated contracts as analysts forecast shrinking supplies across America.
- Gold gains after earlier touching lowest since Dec. 12 as dollar falls after People’s Bank of China Governor Yi Gang pledged to keep the yuan stable. Impending trade tariffs between the U.S. and China remain in focus.
- A discussion about how high U.S. interest rates should go in this tightening cycle could feature prominently in the release of minutes later this week of the Federal Reserve’s June 12-13 policy meeting. The record may also show officials debated the risks posed by a mounting dispute between the U.S. and key trading partners, a stronger dollar and the flattening yield curve, concerns that could damp expectations for a faster pace of rate increases. The minutes will be released at 2 p.m. in Washington on Thursday.
- U.K. construction growth unexpectedly accelerated to the fastest in seven months in June as new orders increased and house-building boosted activity. IHS Markit said in a report Tuesday that its Purchasing Managers’ Index for the sector climbed to 53.1 last month, up from 52.5 in May and beating economists’ forecasts for no change. New orders had their strongest rise in more than a year, while residential and commercial work also picked up.
- German Chancellor Angela Merkel halted the immediate threat of a government breakup in Europe’s biggest economy, crafting a plan to tighten migration and keep her Bavarian sister party in the fold. The euro and stocks rose after Merkel and Interior Minister Horst Seehofer, her antagonist who had threatened to resign, ended their two-week standoff late Monday. The compromise — which Merkel called “really good” — averts a split of the alliance that’s governed Germany for most of the time since World War II, but its success could well depend on factors beyond Merkel’s control and it may prove only to be a temporary solution.
- Glencore Plc tumbled the most in two years after U.S. authorities demanded documents relating to possible corruption and money laundering. The world’s biggest commodity trader said Tuesday that it’s been subpoenaed by the U.S. Department of Justice to hand over documents related to the Foreign Corrupt Practices Act and U.S money laundering statutes. The documents relate to the company’s business in Nigeria, the Democratic Republic of Congo and Venezuela from 2007 to the present. The shares plunged as much as 13 percent, knocking more than 5.5 billion pounds ($7.3 billion) off Glencore’s market value, about half the $14.8 billion of profit the company made last year.
- The U.S. moved to block China Mobile Ltd. from entering its telecommunications market on national security grounds, launching another salvo in the fight between the world’s two biggest economies days before they’re expected to impose tariffs on each other over trade. The Federal Communications Commission should deny state-backed China Mobile’s seven-year-old application to offer international voice traffic between the U.S. and foreign countries, the National Telecommunications and Information Administration said in an email on Monday. NTIA, a branch of the Commerce Department, said China Mobile’s entry “would pose unacceptable national security and law enforcement risks.”
- Societe Generale SA is acquiring the Commerzbank AG business that includes the German lender’s exchange-traded products and market-making operations as it seeks expansion in Europe’s largest economy. The French bank will take over investments products, flow products and asset management businesses based in Frankfurt, London, Paris, Hong Kong and Zurich, according to an e-mailed statement on Tuesday. While it didn’t disclose financial details, it did say the acquisition will have a positive effect on return on tangible equity after integration and a limited impact on capital.
- Theresa May is holding one-to-one talks with cabinet ministers in an attempt to win their support for her Brexit plan after surprising them with a new proposal for a customs deal with the European Union, people familiar with the matter said. May’s efforts to unite her top team come ahead of a crucial meeting of her cabinet at her country estate Friday, when ministers are due to agree Britain’s blueprint for its future relationship with the EU. Pro- and anti-Brexit ministers have been split over how closely to stick to the EU’s trade regime, leaving negotiations with Brussels stalled.
- Several states have barred medical providers from shocking patients with surprise bills for thousands of dollars, but pensions in those same states are poised to profit from the practice. Public-employee retirement funds in California, New York, Oregon and other states have heavily invested with a private-equity firm, KKR & Co., that’s been buying up companies known for demanding steep payouts for emergency medical treatment and hospital stays that may not have been entirely covered by a person’s health plan.
- Italy’s sovereign bonds, the worst performers in the euro region this year, have found one ally as investors come to terms with the country’s first populist government. A hedge fund which oversees about 1.4 billion euros ($1.6 billion) is betting that Italian securities will fare better than their German peers as concerns over the existence of the shared currency are overdone.
- Equinor ASA, Norway’s biggest energy company, has decided to go ahead with a 7.8 billion kroner ($958 million) project to boost natural gas reserves at the giant Troll field in the North Sea. Equinor will submit a plan for development and production for Troll Phase 3 to Norway’s Petroleum and Energy Ministry on Tuesday, it said in a statement. The project will increase gas reserves at Troll by about 2.2 billion barrels of oil equivalent and extend the field’s productive life beyond 2050. The break-even price is less than $10 a barrel.
- The election of Mexico’s first left-wing president in recent decades is expected to slow the country’s march toward the creation of a private oil market, though not derail it. Andres Manuel Lopez Obrador won a landslide victory on July 1, riding a wave of disenchantment with the ruling business classes. In his post-election speech, Lopez Obrador said that he will audit oil contracts for graft and bring any anomalies to congress and courts. He could also suspend or cancel Mexico’s bid rounds, the result of 2013 legislative changes that ended state-owned Petroleos Mexicanos’s nearly eight-decade monopoly in the oil market, as the government has sought to reverse long-term production declines.
- Apple and Facebook have figured out how to keep us glued to their devices and platforms. But they haven’t figured out how to curb the misinformation that plagued them during the 2016 election and have struggled to regain public trust. And now, in the run-up to the 2018 midterms, they certainly don’t agree on a solution. Last week, Apple launched a human-curated political news section to help readers steer clear of falsehoods surrounding the midterms. The company’s announcement reignited a fiery debate with Facebook about whether tech giants should hire people to curate news or rely on algorithms instead.
- Billionaire property investors David and Simon Reuben sold part of their stake in data center provider Global Switch Holdings Plc for about 2.1 billion pounds ($2.8 billion) as demand for information storage rises. The venture, which includes China Citic Bank International and Jiangsu Sha Steel Group, the largest privately held steelmaker in China, bought a 25 percent stake in Global Switch ahead of a planned initial public offering for the firm next year.
- General Motors Co. has created its own ride-hailing platform and quietly built one of the largest charging stations in the U.S. to get its Cruise self-driving car unit ready to enter the robo-taxi business next year. Cruise has installed 18 fast chargers in a parking facility near San Francisco’s Embarcadero, the well-trafficked boulevard along the city’s eastern shoreline where Uber Technologies Inc. and Lyft Inc. have busy drivers. And GM’s self-driving car unit has been testing its own Cruise Anywhere ride-hailing app and fleet-management system, said people familiar with the matter.
- CK Hutchison Holdings Ltd. agreed to take control of its Italian mobile-phone joint venture, paying 2.45 billion euros ($2.9 billion) for the entire business and marking Chairman Victor Li’s third major deal in the two months since he took over as head of the Hong Kong conglomerate. Veon Ltd., the wireless carrier formerly known as VimpelCom, will sell its 50 percent stake in closely held Wind Tre SpA to joint venture partner CK, the companies said in statements on Tuesday. The deal, subject to European Union and Italian regulatory approvals, is expected to be completed in the third quarter or early in the fourth quarter, according to Veon.
- U.K. interest rates may need to rise faster than markets are currently pricing, according to Bank of England policy maker Michael Saunders. Saunders, who has voted for a hike at the BOE’s last three meetings, said in an interview with CNBC that the U.K. economy is running out of slack, while the impact of the first quarter’s bad weather appears to be temporary. Markets are currently pricing in about 30 basis points of hikes over the next 12 months, according to BOE data.
- Evidence of new efforts by Kim Jong Un to expand his nuclear arsenal shows the challenge facing U.S. Secretary of State Mike Pompeo when he returns to Pyongyang this week to seek a detailed disarmament plan. Several reports released in recent days suggest that Kim continued to ramp up his weapons production before his June 12 summit with President Donald Trump, after which the U.S. leader declared North Korea was “no longer a nuclear threat.” The reports published by independent researchers and media organizations detail efforts to increase fuel production, build more missile launchers and expand a key rocket-engine manufacturing facility.
- Financial advisers counting on an industry pact to switch jobs safely with clients in tow could run into obstacles after a ruling by a Georgia state court last week. The decision, involving advisers who jumped to Morgan Stanley from Aprio Wealth Management LLC in 2014, holds that those who agree to give their employers advance notice before quitting aren’t absolved of that duty by the terms of the industry accord. It could complicate job changes for many U.S. brokers and registered investment advisers who work at firms that are members of the Protocol for Broker Recruiting.
*All sources from Bloomberg unless otherwise specified