June 17th, 2019

Daily Market Commentary

• Canadian Headlines
  • Stifel Financial Corp. is in talks to acquire GMP Capital Inc., according to the Globe and Mail, which cited unnamed sources in the financial sector familiar with the matter. A deal could be announced as soon as this week and the goal is to close it by September, the Toronto-based newspaper said, though it cautioned that a deal hasn’t yet been finalized and talks could yet break down. Stifel and GMP Capital declined to comment to the Globe and Mail. GMP is a Toronto based investment bank that has traditionally focused on energy and mining and has also targeted the cannabis business since Canada legalized pot last year.

   

• World Headlines
  • European shares opened little changed Monday as investors turn their focus this week to central-bank policy and the trade dispute between the U.S. and China ahead of the Group of 20 summit this month. The Europe Stoxx 600 Index climbed 0.1%, with banks and technology shares leading gains, while the travel sector fell, dragged down by Deutsche Lufthansa AG after the German carrier lowered its profit forecast for a second time this year.
  • U.S. equity futures drifted along with European stocks on Monday following a mixed session in Asia as a big week for central-bank policy gets underway. Treasuries fell and the dollar was steady. Contracts on the S&P 500, Dow Jones Industrial Average and Nasdaq 100 gauges struggled. Investors will be scrutinizing the Fed’s decision and messaging on Wednesday for signals on the chances of rates cuts ahead. Meanwhile, U.S. Commerce Secretary Wilbur Ross reiterated that the prospect of a major trade deal is unlikely to emerge from a possible meeting between President Donald Trump and Chinese President Xi Jinping at the Group of 20 summit in Osaka this month.
  • Japan’s Topix index declined amid concerns that global trade woes may hurt corporate profits. Electronics makers were the biggest contributor to the slide in the benchmark gauge, mirroring a drop in U.S. technology shares after Broadcom Inc. cut its sales forecast, blaming the escalating trade war between the U.S. and China. Huawei Technologies Co. is preparing for a 40% to 60% drop in international smartphone shipments, people familiar with the matter say. A U.S. government report showed retail sales posted a broad-based gain in May, undermining the case for a dovish turn by the Federal Reserve.
  • Brent crude slipped below $62 a barrel as fears of weakening demand outweighed concern that rising tensions in the Middle East could disrupt oil flows. Futures slid 0.4% after adding 3.4% the past two sessions. The International Energy Agency forecast on Friday that global oil supplies will expand far more than demand next year, putting further pressure on the Organization of Petroleum Exporting Countries and its allies to extend production cuts. Meanwhile, U.S. Commerce Secretary Wilbur Ross warned against expecting a trade breakthrough with China at this month’s G-20 summit in Japan.
  • Gold extended a retreat from a 14-month high as investors await clues from the Federal Reserve about the outlook for interest rates after solid U.S. economic data last week. Bullion’s recent rally came as speculators boosted their net bullish bets to the highest in more than a year. Further price advances could be constrained in the short-term, according to Swiss refiner MKS PAMP Group, as economists don’t see a move from Fed this week and are divided on whether officials will cut at all in 2019.
  • Pfizer Inc. agreed to buy Array BioPharma Inc. for $10.6 billion to gain medicines for cancer, one of the hottest areas of pharmaceutical development. The agreed price of $48 in cash is 62% above Array’s close last Friday at a time when most Big Pharma players are hunting for new cancer treatments. Array brings medicines for melanoma, a lethal skin cancer, that shows potential in other hard-to-treat forms of the ailment. Array’s shares jumped in May after trial results showed the drug-maker may have the first chemotherapy-free regimen targeting a genetic mutation for patients with advanced cancer.
  • Iran warned European nations on Monday that it would breach in 10 days the landmark 2015 nuclear agreement unless they take action to alleviate the pressure of tightening U.S. sanctions in the coming weeks. The spokesman for Iran’s atomic energy agency, Behrouz Kamalvandi, said the country would exceed a cap on stockpiles of low-grade uranium on June 27 and threatened to raise enrichment purity beyond a 3.67% limit meant to prevent Iran from making weapons-grade material.
  • Investors withdrew money from exchange-traded funds that buy emerging market stocks and bonds last week. This was the seventh straight week of outflows, the longest losing streak since the eight weeks ended July 13. Outflows from U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $415.3 million in the week ended June 14, compared with losses of $554.4 million in the previous week, according to data compiled by Bloomberg. So far this year, inflows have totalled $11.3 billion.
  • Volkswagen AG’s plan to list its truck division later this month will test whether it can pull off a feat that was once unthinkable for the German automotive giant: get smaller. For decades, the world’s biggest carmaker only knew how to expand — adding Bentley luxury cruisers, Ducati racing bikes and Scania heavy trucks while taking its network of factories well past the 100 mark and its headcount over 640,000. Even in the face of the debilitating diesel-cheating scandal in 2015, the manufacturer didn’t trim its portfolio, bolstering investment in electric cars instead and even creating a new division for mobility services.
  • Rolls-Royce Holdings Plc awarded a unit of Abu Dhabi sovereign wealth fund Mubadala Investment Co. a $6.5 billion contract to service hundreds of engines that power the Airbus SE A330 jetliner. Sanad Aerotech will maintain 75 Trent 700 engines a year over nine years under the deal. That’s about 50 more than it services now, and represents one-quarter of all the A330 turbines that are overhauled globally for London-based Rolls each year, according to a statement Monday.
  • Deutsche Bank AG is considering exiting U.S. equities trading and creating a non-core unit to wind down as much as 50 billion euros ($56 billion) in unwanted assets as part of a broader overhaul to be announced next month, according to a person familiar with the matter. A complete exit isn’t the favored outcome at this point because the lender wants to be able to meet the needs of European clients seeking access to U.S. markets, the person said, asking not to be identified in disclosing the private deliberations. Cuts to the rates business are also likely, according to the person. The bank’s supervisory board discussed options on a call last week.
  • Prosperity Bancshares Inc. agreed to buy LegacyTexas Financial Group Inc., a lender with 42 locations in the Dallas-Fort Worth region, in a cash-and-stock transaction the companies valued at about $2.1 billion. “Through the second-largest bank merger in the history of Texas, our combined companies create the second-largest bank by deposits headquartered in Texas,” Prosperity Chief Executive Officer David Zalman said Monday in a statement. “Our increased scale better positions us to invest in future opportunities and serve our customers.” Zalman said in March that investment bankers had been pitching more deals in the wake of BB&T Corp.’s combination with SunTrust Banks Inc., announced in February.
  • The suspense is building ahead of the Group of 20 summit in Japan next week, with many analysts and investors betting that Presidents Donald Trump and Xi Jinping will meet on the sidelines and agree to resume the trade talks that broke down last month. But there’s a very real possibility the wagering on a truce may be in vain, and U.S. Commerce Secretary Wilbur Ross’s weekend comments tempered expectations for a deal.
  • A zero-emission Hummer sounds as paradoxical as non-alcoholic whiskey, but General Motors Co. is mulling over the idea of building an electric vehicle that would bring the defunct gas-guzzling brand back to life. For now, it’s just an idea GM is considering as it plans which vehicles will be included in a fleet of electrified SUVs and trucks, say people familiar with the matter. The Hummer name has surfaced as way to tap growing demand for rugged SUVs with off-road capabilities, while avoiding the gasoline-burning image that made the brand something of a pariah a decade ago, said the people, who asked not to be named because the conversations are private.
  • Airbus SE won its first order for a new longer range model, the A321XLR, and pressed its advantage over rival Boeing Co., which is still trying to get its most-popular narrow-body back into the skies after two fatal crashes. The European manufacturer gave details about the A321XLR on the first day of the Paris Air Show on Monday and said Air Lease Corp. ordered 27 as part of a larger 100-plane contract worth $11 billion at list prices, confirming an earlier report by Bloomberg. The A321XLR could fly on trans-Atlantic routes and has a range of 4,700 nautical miles.
  • One of China’s biggest state-owned infrastructure companies excluded UBS Group AG from a bond deal after the bank’s global chief economist sparked a furor with his use of the phrase “Chinese pig.” The decision by China Railway Construction Corp. marked the first known case of a corporate issuer distancing itself from UBS over last week’s comment by economist Paul Donovan. His quip on the swine flu epidemic led to a public uproar in China even as some on Wall Street said the reaction was overblown.
  • Abu Dhabi National Oil Co. and chemical producer OCI NV plan to combine their Middle East and North Africa crop-nutrient businesses, creating the region’s fertilizer producer to challenge U.S. and Russian exporters. OCI will merge its ammonia and urea assets in North Africa with Adnoc’s fertilizer complex in the United Arab Emirates, the companies said in a statement Monday. The combined company will have $1.74 billion in annual sales, according to the statement, which confirmed an earlier Bloomberg News report.
  • Alibaba Group Holding Ltd. plans a one-to-eight share split, as the e-commerce giant prepares for a stock sale that could be Hong Kong’s largest since 2010. China’s largest company is proposing to increase the number of ordinary shares eight-fold to 32 billion, it said in a statement. The proposal will be discussed and put to a vote at its annual general meeting in Hong Kong on July 15. If approved, the split should take place no later than July 2020. Alibaba is said to have filed for a listing in Hong Kong last week via a confidential exchange application. That sale of stock, which could raise as much as $20 billion, replenishes the online retailer’s war-chest and helps it attract investors closer to home as tensions between China and the U.S. escalate.
  • Babcock International Group Plc rejected an approach for an all-share merger from rival services provider Serco Group Plc, stating such a tie-up has no strategic merit. Serco made the unsolicited bid on Jan. 23, without making a follow-up offer, the London-based company said Monday. Shares of Babcock advanced as much as 3.9%, the most in almost two weeks. The no-premium proposal envisaged creating a 4 billion-pound ($5 billion) behemoth by combining Babcock’s defense services with Serco’s atomic weapons division in Berkshire, England, the Sunday Times reported earlier.
  • Huawei Technologies Co. is preparing for a drop in international smartphone shipments of 40 million to 60 million as the Trump administration’s blacklisting hammers one of the Chinese tech giant’s most important businesses. China’s largest technology company is crunching internal estimates and exploring options including pulling the latest model of its marquee overseas label, the Honor 20, people familiar with the matter say. The device begins selling in parts of Europe June 21 including France and the U.K., but executives are monitoring the launch and may cut off shipments if it sells poorly as expected, they said, asking not to be identified discussing internal matters. Already, two of France’s largest carriers aren’t bothering with the Honor at all, two people familiar with the matter said.

  ·         Boeing Co. Chief Executive Officer Dennis Muilenburg said he’s confident the grounded 737 Max aircraft will re-establish its position as a single-aisle workhorse for decades to come, as the company works through an in-depth review of the airframe design and its internal processes in the wake of two deadly crashes. “The long-term, multi-decade strategy hasn’t changed,” Muilenburg said in an interview with Bloomberg Television in Paris on the first day of this year’s air show. Any all-out new aircraft in that space remains “a much more distant decision for the next couple decades,” the CEO said, adding that he’s confident in the Max’s product strategy

*All sources from Bloomberg unless otherwise specified