June 14th, 2019
Daily Market Commentary
- Canadian Headlines
- Canadian equities finish Thursday’s session little changed, as consumer discretionary stocks outperformed, led by Dollarama, and telecommunications lagged. The S&P/TSX Composite Index rose 0.07% in Toronto. Dollarama rallied on better first quarter same-store results, while Meg Energy staged a late rally after Canadian investor Seymour Schulich initiated a “big new investment” in the company. Canadian borrowers joined a slew of new debt deals from around the globe to raise at least C$17.7 billion ($13.35 billion) this week as issuers including the financing arm of the nation’s housing agency and a cannabis company took advantage of a lull in the global trade war.
- Canada’s largest alternative asset manager has secured a green loan for commercial towers in Australia, adding to signs that the market for such fundraising in the Asia-Pacific region is catching up with elsewhere in the world. Brookfield Properties, a subsidiary of Brookfield Asset Management Inc., got the A$880 million ($608 million) loan to refinance facilities that were used for the two energy-efficient office towers in Perth in Western Australia. The financing is the largest single-asset green loan syndication completed Down Under. Demand is growing globally for financing that meets environmental, social and governance standards. The Asia-Pacific region has had about $122 million of green loans signed this year, close to half of the $247 million figure globally and already outpacing growth in the Americas.
- Fans across Canada are celebrating the country’s first championship in one of the four major North American sports leagues since 1993. The Toronto Raptors, led by superstar Kawhi Leonard, defeated the Golden State Warriors in six games to claim the team’s first National Basketball Association title. Canada’s most successful sporting year to date was in 1993, when the Montreal Canadiens captured the Stanley Cup while the Toronto Blue Jays won a second straight World Series.
- World Headlines
- European equities fell at the open as semiconductor makers and chip-equipment stocks tumbled after Broadcom Inc. cut its annual forecast on concerns trade tensions between the U.S. and China will wipe out a rebound in orders. The Stoxx Europe 600 Index retreated 0.3%. ASML Holding NV dropped 1.9% and Infineon Technologies AG fell 3.8%. Broadcom cut its 2019 revenue forecast to $22.5 billion, down from the $24.5 billion guidance it had given three months ago. Brent crude fluctuated and so did European oil producers as the tanker attacks in the Middle East that the U.S. blamed on Iran provided only a relatively small boost to prices.
- Global bonds rallied on bets that interest rates will fall as trade frictions jeopardize global economic growth, while U.S. equity futures slid with European stocks following a mixed session in Asia. Oil edged lower after Thursday’s surge on the heels of a suspected attack on tankers in the Gulf. Ten-year Treasury yields extended their drop after a surprise increase in U.S. jobless claims on Thursday lent credence to speculation the Federal Reserve may cut interest rates. All eyes now turn to retail data due later Friday for further clues on the strength of the American economy. S&P 500 futures declined and Nasdaq 100 contracts slid as Broadcom Inc. cut its annual sales forecast, citing trade war concerns. The Stoxx Europe 600 Index fell with Chinese shares, while Japan’s Topix index rose. Gold climbed above $1,350 an ounce, a level last seen in April 2018.
- Asian stocks swung between gains and losses, with markets in the region mixed. While Japan’s Topix Index gained 0.3%, shares in Hong Kong and China dropped. In its third-day of losses, the Hang Sang Index fell another 0.7% as calls increased for the city’s leader to delay an extradition bill. China was the the region’s worst-performer, with the benchmark Shanghai Composite falling 1%. India’s S&P BSE Sensex Index declined 0.5% amid cash-crunch woes.
- Oil headed for a weekly decline as the tanker attacks in the Middle East were overshadowed by a deepening trade war and swelling U.S. stockpiles. Futures slipped in New York on Friday and were poised for a 3.6% weekly loss. The White House blamed Iran for the attacks near the Strait of Hormuz, the biggest global choke-point for oil flows, while Tehran rejected the allegations. Global supplies will increase far more than demand next year with the start of a host of new projects, putting further pressure on OPEC, the International Energy Agency said.
- Gold smashed above $1,350 an ounce to a 14-month high as rising geopolitical tensions bolster haven demand ahead of next week’s Federal Reserve meeting, when policy makers may move closer to cutting rates. Bullion for immediate delivery rose as much as 1.2% to $1,358.26 an ounce. Prices are set for a fourth weekly gain, the longest run since January. Investors are also pouring into gold-backed exchange-traded funds, with holdings rising to the highest since late February.
- Iron ore’s bull market gathered pace this week, with prices extending gains above $100 a ton to set a fresh half-decade high amid speculation that supplies in China remain tight as steelmakers seek material. Futures in Singapore have risen 10% since last week’s close, with the July contract hitting $107.72 a ton on Friday, the highest most-active price since 2014. After such strong gains, market watchers have become more wary.
- Chinese brokerage Huatai Securities Co. priced its U.K. offering near the bottom of its range, raising about $1.5 billion from investors before it becomes the first jointly listed London-Shanghai stock. Huatai sold 75 million global depository receipts, pricing them at $20.50, the company said Friday, with potentially more to come from the sale of an over-allotment. The Nanjing-based brokerage had targeted a range between $20 and $24.50.
- Volkswagen AG valued its heavy-trucks business at as much as $18.6 billion in a planned initial public offering that will test Chief Executive Officer Herbert Diess’s ambition of overhauling the carmaking behemoth. The manufacturer intends to offer stock in Traton SE, which sells MAN and Scania AB vehicles, for between 27 euros to 33 euros per share, it said in a statement Thursday, valuing the division at 13.5 billion euros to 16.5 billion euros ($18.6 billion).
- WeWork Cos. is considering a deal to take majority control of its India affiliate, according to people familiar with the matter, a deal that would allow the shared-office startup to consolidate financial results from the fast-growing unit as it prepares for an initial public offering this year. The New York-based company is in talks to buy around 70% of WeWork India at a valuation of about $2.75 billion, said one of the people, who asked not to be named because the discussions are private. The deal, $1.9 billion at those terms, would be part cash and part stock, and could close as early as August, the person said. The transaction isn’t finalized so terms may change or the talks could break down.
- Broadcom Inc. cut its annual sales forecast, indicating the trade war between China and the U.S. will wipe out a rebound in orders it had been predicting for the second half of the year. Shares fell as much as 9% during pre-market trading in New York Friday. Revenue will be $22.5 billion in the 2019 fiscal year, the San Jose-based company said Thursday in a statement. That compares with the prediction it gave three months ago of $24.5 billion and indicates that it expects to lose out on a billion dollars of revenue per quarter in the rest of the year.
- Turkey is working on its own counter-measures against anticipated U.S. sanctions over the purchase of the S-400 Russian missile-defense system under orders from President Recep Tayyip Erdogan, a senior Turkish official said on Friday. Turkey is analyzing products imported from and exported to the U.S. as part of its possible response, the official said on condition of anonymity, citing the sensitivity of the matter. Turkey is ready to bear any consequences of its move to defend its independence and freedom, Foreign Minister Mevlut Cavusoglu said Friday.
- Boeing Co. is coming to this year’s Paris Air show with some hard choices that will go far in determining who comes out on top in the jetliner duopoly it shares with Airbus SE. Reeling from the grounding of its most important aircraft in the wake of two deadly crashes, Boeing needs to reconsider its timeline and strategy for new models. Piling on pressure is Airbus’s likely unveiling of a long-range variant of its A321 model, potentially siphoning off more business from its U.S. rival in the increasingly important market for midrange planes.
- Spanish lender Banco de Sabadell SA is considering selling its consumer-finance business as it seeks to bolster capital levels, according to two people with direct knowledge of the matter. The Spanish lender is weighing the disposal of the $235 million unit as part of a strategy to sell non-core businesses after pressure from regulators over its capital, the people said, asking not to be identified as the matter is private. Sabadell may fall short of meeting a goal to reach a 12 percent CET1 ratio for the end of 2020 by 1.6 billion euros ($1.8 billion), according to Bank of America Merrill Lynch.
- China’s industrial output growth slowed to the weakest pace since 2002 and investment decelerated, highlighting the headwinds the economy is facing as it grapples with the U.S. tariff war. Industrial output rose 5% from a year earlier, while fixed-asset investment expanded 5.6% in the first five months. Both were slower than in April and below expectations. Retail sales was a bright spot, expanding 8.6% compared to May last year, partly because a longer May Day holiday encouraged more tourism and spending. Officials have repeatedly said that the economy is strong enough to overcome the trade war and the central bank governor said recently he had “tremendous” room to adjust monetary policy if the conflict deepens. This continued slowdown may encourage policymakers to use such capacity.
- Taiwanese and Chinese investors are unlikely to meet a Friday deadline for completing the bailout of Japan Display Inc., according to people familiar with the matter, jeopardizing a rescue package for the troubled Apple Inc. supplier. The consortium, which includes Taiwan’s TPK Holding Co. and Harvest Tech Investment Management Co., is still in discussions with JDI over terms, said the people, asking not to be named because the matter is private. The group would like to complete the deal before the end of the year, but JDI wants a deal earlier than that and is looking at alternatives, said the people. Spokesmen for JDI and TPK declined to comment.
- The U.S. political and military standoff with Iran hardened as conflicting narratives about a pair of attacks on tankers near the Persian Gulf stoked regional tensions and raised the risk of a miscalculation. With U.S.-Iranian relations already at a low point, American officials released images they said showed that Iran was involved in a mine blast that forced the evacuation of a tanker near the entrance to the Gulf on Thursday. Tehran denied involvement, and the owner of the ship refuted the U.S. assertion that the blast came from a mine, adding to the confusion over what happened and who was responsible. While both sides have said they’re not looking for war, events have taken on a momentum of their own with U.S. and Iranian forces bolstering their military presence. Even so, investors took the risk in their stride. Brent oil futures in London traded slightly lower on Friday at $61.15 a barrel, set for a weekly declined as concern about faltering demand outweighed those of Middle East tensions.
- Activist investor Dan Loeb disclosed a $1.5 billion stake in Sony Corp. and pushed the company to make dramatic changes, including spinning off its semiconductor business and listing it in Japan. Sony’s shares rose 3.1% in Tokyo after Loeb’s Third Point published a letter and 102-page presentation pushing for changes at the Japanese media and electronics giant, including sales of its insurance business and stakes in companies like Spotify Technology SA. If the company spins off the semiconductor business and executes on its long-term vision, the newly independent entity could be worth $35 billion within five years, according to the New York-based hedge fund firm.
- PetSmart Inc.-controlled Chewy Inc. and its investors raised $1.02 billion in an expanded initial public offering, pricing its shares above an elevated target range. The online supplier of pet food and accessories sold 46.5 million shares on Thursday for $22 each, according to a statement. The company on Wednesday had raised its price range for 41.6 million shares to $19 to $21, after earlier marketing the stock for $17 to $19.
- Activist investor Jana Partners has built a stake in Callaway Golf Co. and is urging the sporting goods company to launch a strategic review, including exploring a potential sale. The New York-based hedge fund run by Barry Rosenstein said in a regulatory filing Thursday that it bought 9.5% of Callaway Golf because it believes the shares are undervalued. Jana plans to hold discussions with management about ways to improve its performance, including selling all or part of the company.
- When Donald Trump bemoaned that a weakening yuan had nullified some of the punitive effect of his tariffs on China, he was highlighting, unwittingly perhaps, a crucial flaw in his foreign policy tool of choice: In an era of free-floating exchange rates, currencies adjust so quickly they can offset the intended impact of higher levies before they even take hold. It’s an inconvenient truth for the U.S. in its escalating trade war with the world’s only other economic superpower, and one that could complicate the president’s efforts to use tariffs as way to pressure America’s major trading partners into making concessions. After Trump raised tariffs on $200 billion of Chinese imports last month, the yuan quickly fell toward 7 per dollar — a level not seen since the financial crisis. The drop effectively reduced the price of Chinese imports in dollars and has blunted the cost shock of higher tariffs. (The same thing happened with the peso following a similar threat against Mexico in late May; the peso plunged over 2% in less than an hour.) So for all of Trump’s tough talk about punishing China for what he considers unfair trade practices, Americans might not see any meaningful markups on Chinese-made goods.
- Nissan Motor Co. is ready to cede more board representation to French partner Renault SA, a person with knowledge of the matter said, a move that may help ease tensions between the two companies. Renault Chairman Jean-Dominique Senard is seeking more representation to give Renault, as Nissan’s largest shareholder, greater say over management and strategy. Although Nissan had initially resisted the push, the company is working on a way to accept his demands for more committee seats, the person said, asking not to be identified because the information isn’t public.
*All sources from Bloomberg unless otherwise specified