June 11th, 2019
Daily Market Commentary
- Canadian Headlines
- Delinquency rates in Canada climbed to the highest in two years as consumers added to credit card debt and auto loans took longer to pay off, according to Equifax Canada. The 90-day delinquency rate gained to 1.12% in the first quarter, up slightly from 1.08% in the same quarter a year earlier, the country’s largest credit reporting firm said Tuesday. Delinquencies rose the most among those 65 years old and over, while British Columbia and Ontario saw the first “significant” increase in arrears in half a decade, the firm said.
- World Headlines
- European equities climbed, led by gains in mining stocks after iron ore futures rallied above $100 a ton amid resilient Chinese demand. The Stoxx Europe 600 Index was up 0.3%. Rio Tinto jumped 2.2% and Glencore added 2.2%. Novo Nordisk climbed 4.6% after being raised to equalweight at Barclays. Ted Baker plunged 28% after reducing guidance.
- Futures on the S&P 500, Dow and Nasdaq gauges all pointed to gains at the open. Sentiment has turned cautiously optimistic with investors looking to the G-20 summit in Japan as the next way-station in the trade dispute between the world’s two largest economies. Keeping the tension elevated, Trump told reporters on Monday that he could impose tariffs of 25%, or “much higher than 25%” on $300 billion in Chinese goods.
- In Asia, China equities outperformed after news that local governments may spend more on infrastructure helped offset the threat by President Donald Trump to raise tariffs again if President Xi Jinping doesn’t meet with him at the Group of 20 summit at month’s end.
- Oil rose amid estimates that U.S. crude inventories declined, tempering concerns that a drawn-out trade dispute between the world’s two largest economies is pressuring demand. Futures gained 1% in New York but remained below $54 a barrel after dropping 1.4% on Monday. U.S. stockpiles fell by 1.25 million barrels last week, according to a Bloomberg survey, which would be the biggest decline since early May if confirmed by official data on Wednesday. Prices have also been supported by Saudi Arabia’s recommendation that the OPEC+ coalition should agree to continue with supply curbs when they meet in the coming weeks.
- Gold fell for a second day as the precious metal suffered amid increased risk appetite among investors as equities rose. Still, gold continues to find favor with ETF investors, with holdings of funds backed by the metal ticking up to the highest since the end of March. Gold prices remain vulnerable to profit-taking after last week’s surge, according to Commerzbank. In other precious metals, palladium rose for a fourth day, while platinum edged lower and silver traded little changed.
- Bank of England policy makers reiterated the downside risks to the U.K. economy from Brexit and global trade tensions, even as they emphasized that interest rates could still rise. Departing the European Union without a deal would hamper the U.K.’s long-term growth prospects, Michael Saunders told lawmakers on Parliament’s Treasury Committee on Tuesday. The nation would suffer from reduced openness to international trade and less appeal as a global business location. An escalation in trade turmoil would also damage British exports, investment and asset prices, he said. Those comments were echoed by Deputy Governor Ben Broadbent, who in his own responses to the group said “a disorderly Brexit remains the most significant risk” to financial stability.
- Citigroup Inc. was suspended from the primary group of dealers that participate at certain Japanese government bond auctions after it was found to have manipulated futures prices. The Ministry of Finance ordered Citigroup Global Markets Japan Inc.’s exclusion from participating in “non-price competitive auctions” and certain other government bond sales for a month from June 13, it said in a statement on Tuesday. The suspension comes days after the Financial Services Agency fined the firm 133 million yen ($1.2 million) and ordered it to improve internal controls for failing to detect instances of manipulation of the Japanese government bond market. Citigroup was found to have placed orders last October for JGB futures contracts without intending to execute them, a practice known as spoofing.
- Apple Inc. has a backup plan if the U.S.-China trade war gets out of hand. The Cupertino, Calif.-based company’s primary manufacturing partner has enough capacity to make all iPhones bound for the U.S. outside of China if necessary, according to a senior executive at Hon Hai Precision Industry Co. The Taiwanese contract manufacturer now makes most of the smartphones in the Chinese mainland. China is a crucial cog in Apple’s business, the origin of most of its iPhones and iPads as well as its largest international market. But President Donald Trump has threatened Beijing with new tariffs on about $300 billion worth of Chinese goods, an act that would escalate tensions dramatically while levying a punitive tax on Apple’s most profitable product.
- The steady drumbeat of warnings over the surge in risky corporate borrowing is growing louder and louder. Time and again, regulators in the U.S. and Europe have pointed to the hazards of businesses taking on too much debt. At issue is the $1.3 trillion leveraged lending market, composed of high-yield loans from firms with some of the weakest finances. While Federal Reserve and European Central Bank officials have drawn attention to these heavily indebted companies and the deteriorating standards of loans bundled into securities called CLOs, most regulators are careful to say a repeat of 2008 is unlikely because investors, rather than the banks they oversee, hold most of the debt.
- Deutsche Bank AG, under pressure to make cuts to its investment bank, is seeking to expand a part of its U.S. business that’s long been an area of strength: structured finance. The drive comes with the bank elevating James Davies to head of fixed income in the Americas, a unit that’s capital-intensive and faces tough oversight by regulators in stress-testing. He took on the role earlier this year after leading the business in emerging markets. The bank also will continue to push further into U.S. commercial real estate, where it’s often ranked among the top three lenders, he said.
- Fiserv Inc. starts marketing European bonds on Tuesday for its First Data Corp. acquisition, a day after selling $9 billion of notes in the U.S.. The payment processing company is considering offering notes in euros, pounds or both, according to a person familiar with the matter, who asked not to be identified because they’re not authorized to speak about it. Brookfield, Wisconsin-based Fiserv sold four U.S. notes as long as 30 years on Monday to help fund the $22 billion acquisition of First Data.
- Uncertainty over oil supply and demand fundamentals is making it tougher for Russia and Saudi Arabia — the architects of the OPEC+ deal — to reconcile their differences over the framework for an extension of their output pact into the second half, according to Goldman Sachs Group Inc. Current demand growth “neither will support exiting the production agreement, nor is bad enough to reinforce more cuts,” Goldman Sachs Head of Commodity Research Jeffrey Currie said in an interview in St. Petersburg. Combined with uncertainty over Iranian exports and growing U.S. shale output, it “becomes increasingly difficult to know what production levels will balance the market.”
- China’s central bank moved to shore up the yuan with a stronger-than-expected fixing and a planned bond sale in Hong Kong. The People’s Bank of China set its reference rate at 6.8930 per dollar Tuesday, 0.2% higher than traders’ and analysts’ average forecast of 6.9089. The strong bias in the daily fix — which restricts the onshore yuan’s moves by 2% on either side — is the largest since Bloomberg started releasing the survey estimates in August 2017. The central bank also said it plans to sell bills in Hong Kong later this month, a move that will drain liquidity and support the currency.
- Malaysia’s eastern state of Sarawak plans to build a $5 billion oil refinery that it aims to start up in 2022. The complex near the coastal city of Lawas would be able to process about 10 million tons of oil a year, or about 200,000 barrels a day, according to Facebook post by the state’s communications office. It would also be able to produce about 1.2 million tons a year of ethylene, a plastics building block, and have about 3.2 million tons a year of catalytic cracking capacity.
- Legendary investor Warren Buffett’s Berkshire Hathaway Inc. plans to issue its first deal in euros since 2017 at the same time it debuts in the pound market with a debt sale maturing in as much as 40 years. The Omaha-based company hired banks to manage a benchmark sale of 20 and 30-year bonds in euros, as well as a deal in pounds, according to person familiar with the matter, who is not authorized to speak publicly and asked not to be identified. The pound transaction would be the longest maturity in the U.K. currency sinceNorthern Electric Finance Plc, a U.K.-based utility owned by Berkshire Hathaway, issued 150 million pounds ($190.6 million) of notes due in 2049 last month. Italian utility Enel SpA, Unilever Plc and EnBW International Finance are among corporates that have issued euro-denominated debt maturing in 20 years of more this year.
- EQT Partners agreed to sell health-survey business Press Ganey Associates Inc. to a private equity consortium led by Ares Management Corp. and Leonard Green & Partners. The transaction is expected to close in the third quarter, the companies said in a statement Tuesday, confirming an earlier Bloomberg News report. Financial terms weren’t disclosed. A deal could value the business at more than $4 billion, people familiar with the matter said earlier. EQT is exiting the business following a sale process over the past couple months, the people said, asking not to be identified because the matter is private. Barclays Plc and Goldman Sachs Group Inc. advised Press Ganey on the deal.
- Compass Group Plc agreed to buy Nordic caterer Fazer Food Services for about 475 million euros ($540 million) in its biggest acquisition in almost two decades. Fazer, which operates in Finland, Sweden, Norway and Denmark, had sales of 593 million euros in the 12 months through April, Compass said in a statement Tuesday. The purchase is the U.K. food-service company’s biggest since it bought Morrison Management Specialists Inc. for $585 million in 2001, according to data compiled by Bloomberg. Compass will initially pay 420 million euros. The remainder, which depends on Fazer’s performance, will be payable over seven years.
- MBK Partners Ltd. is weighing options including a potential sale of Apex Logistics Group, four years after the buyout firm acquired the Chinese freight forwarder, people with knowledge of the matter said. The North Asian private equity firm is working with financial advisers on a potential sale of the business, which could fetch as much as $1 billion including debt, according to the people. A formal sale process could start as soon as later this year, the people said, asking not to be identified because the information is private.
- Apollo Global Management LLC agreed to buy Shutterfly Inc. for $51 a share in cash, according to a statement Monday. The deal values the online retailer at about $1.74 billion, based on the company’s outstanding shares at the end of March. Apollo will also assume Shutterfly’s more than $1 billion in debt. The buyout firm plans to merge Shutterfly with rival Snapfish LLC, whose owners will become minority shareholders in the combined business, Apollo said.
- After a 572% gain in Beyond Meat Inc. shares since its May 1 initial public offering, one of the last bulls among the fake-meat company’s underwriters is throwing in the towel, sending shares lower pre-market Tuesday. JPMorgan Chase & Co.’s Ken Goldman cut his recommendation on the stock to neutral from overweight, saying it’s now too expensive, with a $10 billion enterprise value that’s 27 times estimated 2020 sales. The two-day frenzy that lifted the stock 69% from Thursday’s close through yesterday’s close was too much, said the analyst.
- The U.K. labor market performed better than forecast in the three months through April, which may strengthen the hawkish comments coming from the Bank of England about interest-rate hikes. The number of people in work rose a greater-than-forecast 32,000 and basic pay growth unexpectedly accelerated to 3.4%, the Office for National Statistics said on Tuesday. Unemployment stayed at a 44-year-low of 3.8%. While the pace of employment growth was slower than in previous periods, that partly reflects the impact of the original Brexit date of March 29, which affected companies’ investment and hiring decisions. BOE policy makers are trying to look through the noise in the data, and some say the underlying picture suggests an inflationary risk is building.
*All sources from Bloomberg unless otherwise specified