June 18th, 2019
Daily Market Commentary
- Canadian Headlines
- Justin Trudeau is poised to give the green light to a major crude pipeline as he faces rising calls to support Canada’s struggling oil industry. The prime minister’s cabinet is widely expected to give the go-ahead at a meeting Tuesday to the expansion of the Trans Mountain pipeline from Alberta to Vancouver that would add 590,000 barrels of daily shipping capacity, a 15% boost to Western Canada’s current 4 million. The project would still need to get local building permits, overcome legal challenges and likely face pushback from environmentalists.
- GMP Capital Inc.’s deal with Stifel Financial Corp. will eventually yield a “pure play” Canadian wealth manager that aims to double its assets over time. GMP Capital will use proceeds from the C$70 million ($52 million) sale of its capital markets unit to Stifel and C$198 million of working capital to invest in wealth management. The plan, if approved, includes acquiring the two-thirds of the Richardson GMP money manager it doesn’t already own from its advisers and James Richardson & Sons Ltd. of Winnipeg, Manitoba.
- Capital & Counties Properties Plc is in preliminary talks to sell most of its Earls Court development in west London to Canary Wharf Group, according to people with knowledge of the matter. The talks with Canary Wharf Group, which is owned by the Qatar Investment Authority and Brookfield Asset Management Inc., are at an early stage and may not result in a deal, said the people, who asked not to be identified discussing a private negotiation. Other suitors for the project could still emerge, they added. Capital & Counties has been considering splitting out the project into a separate company or selling the land — one of the largest development sites in London — for more than a year, and has been approached by a number of potential buyers.
- World Headlines
- European equities climbed, reversing earlier declines, after European Central Bank President Mario Draghi said more stimulus would be needed if the region’s economic outlook doesn’t improve. The Stoxx Europe 600 Index rose 0.7% as of 9:37 a.m. in London, with the euro dropping after Draghi said interest-rate cuts remain “part of our tools” and that asset purchases are also an option if inflation doesn’t strengthen. Almost all industry groups gained, with the notable exception of banks. Miners rallied the most.
- Futures on the S&P 500, Nasdaq 100 and Dow Jones indexes climbed along with the Stoxx Europe 600. Treasuries rose and European sovereign bonds advanced, led by Italy and Greece, as fuel was added to the fire by a report that investor confidence in Germany’s economic outlook worsened dramatically in June. With central banks around the world moving toward looser policy as trade tensions weigh on the global economy, investors are looking for signals from the Fed tomorrow on the likelihood of interest-rates cuts. That’s the headline act in a week that includes the ECB gathering in Portugal, as well as Bank of England and Bank of Japan policy announcements. Central banks in Australia, Russia, India and Chile have recently loosened policy. The Reserve Bank of Australia said Tuesday that further easing is more likely than not.
- Japanese stocks declined, with the Topix index falling for a fourth day in five, after the yen advanced against the dollar ahead of key central bank meetings. All 33 industry groups on the Topix index dropped, with telecommunications providers and electronics makers providing the biggest drags. The Japanese currency strengthened amid weakness in the Australian dollar after minutes from an Reserve Bank of Australia policy meeting showed it is likely to lower interest rates again. The market awaits interest rate policy decisions from the Bank of Japan and Federal Reserve later this week.
- Oil held losses as economic indicators continue to look weak and OPEC and its allies are still struggling to set a date to discuss an extension to supply cuts. Futures lost as much as 0.8% in New York after retreating 1.1% on Monday. The dollar firmed as the European Central Bank said it may pump more stimulus into the region’s economy as risks to growth increase. It follows a slew of weak U.S. data on Monday. All the while, the Organization of Petroleum Exporting Countries and its allies have shifted their focus to mid-July for the next meeting to discuss extending production cuts, after talks between Russia and Iran made some progress toward resolving a standoff over the date.
- Gold rebounded amid dovish signals from the world’s biggest central banks ahead of the Federal Reserve’s meeting. Palladium rallied to the highest since March after Europe’s car market showed its first gain in nine months. Additional stimulus may be needed if the economic outlook doesn’t improve, the European Central Bank President Mario Draghi said at a Tuesday summit in Portugal. That added to expectations for easing policy, with all eyes now on the Fed’s gathering later on Tuesday and on Wednesday. Palladium and platinum — both used in autocatalysts — gained after a reportshowed a surge in German car sales in May.
- European Central Bank policy makers anticipate using an interest-rate cut as their first stimulus move if they need to act again to boost inflation, according to three euro-zone central bank officials. Lowering borrowing costs further below zero would be the most likely initial step rather than resuming asset purchases, said the officials, whose alarm at the descent of market inflation expectations to a record low is nudging them all toward favoring action. They didn’t want to be identified, citing the confidentiality of such discussions. An ECB spokesman declined to comment.
- U.S. President Donald Trump accused the euro area and China of weakening their currencies to gain an economic advantage, calling out European Central Bank President Mario Draghi for a willingness to inject monetary stimulus if needed. “Mario Draghi just announced more stimulus could come, which immediately dropped the euro against the dollar, making it unfairly easier for them to compete against the USA,” Trump tweeted Tuesday. “They have been getting away with this for years, along with China and others.”
- Financial markets have gotten used to the Federal Reserve adjusting its benchmark interest rate in small increments. They might want to be ready for a change. While no move is expected as officials gather this week, economists and investors generally agree the Fed is going to cut rates this year. The last two times the Fed began an easing cycle, in 2001 and 2007, it opted for a half-percent move over a quarter point adjustment.
- Airbus SE is working to pad its lead Tuesday after a resounding first day of the Paris Air Show, when it shut out Boeing Co. in aircraft orders by a score of $13 billion to nothing. The slugfest began in earnest on Tuesday after Boeing got in on the action with an order for 20 787s from Korean Air Lines, and Airbus promptly fired back. The trade show regained its familiar head-to-head feel after Chief Executive Officer Dennis Muilenburg used Monday to sound a note of “humility.’’ The U.S. manufacturer is struggling to get its 737 Max back in the air after two deadly crashes and a grounding that’s now in its fourth month.
- Naspers Ltd.’s biggest shareholder is considering whether to reduce its 245 billion rand ($16.5 billion) stake in Africa’s biggest company because of concern it’s overexposed to a single stock, according to four people with knowledge of the matter. South Africa’s Government Employees Pension Fund is being encouraged by its manager, the Public Investment Corp., to reduce its Naspers shareholding of about 16%, said three of the people, who asked not to be identified as the talks are private. Any decision is ultimately up to the GEPF.
- Infineon Technologies AG raised about 1.55 billion euros ($1.74 billion) in a capital increase to help finance its acquisition of Cypress Semiconductor Corp. The German chipmaker, which analysts have said may be paying too much for its U.S. rival, sold about 113 million new shares at 13.70 euros each, the company said Tuesday in a statement. The price was about 4.6% below Monday’s closing price of 14.36 euros and the shares fell as much as 6.6% in early trading in Frankfurt to the lowest in almost three years.
- Russia cut holdings of Treasuries to the lowest level since 2007 in an ongoing effort to reduce exposure to U.S. assets amid a deepening geopolitical standoff. Russia’s holdings of U.S. notes, bills and bonds dropped to $12.1 billion in April, from $13.7 billion a month earlier, according to Treasury Department data released Monday. The reduction follows a much bigger cull last year following an unexpectedly harsh batch of sanctions from Washington that fueled fears Russia’s U.S. assets could come under threat.
- Investors are piling into China’s consumer sector amid speculation company earnings will be sheltered from the economic fallout of the trade war with the U.S. A gauge of consumer staples has rallied 14% in the past three months, the only gainer among 10 industry groups on the CSI 300 Index, which has lost almost 5%. Technology shares have fared worst, dropping 20%. There’s little doubt the economy is under pressure. Industrial output growth slowed to the weakest pace since 2002 in May and investment decelerated, data last week showed. Retail sales were a bright spot, expanding 8.6% compared with a year earlier. The expectation is that such resilience in consumer spending will last, but risks of a sell-off in staples is growing as the shares grow increasingly pricey.
- OPEC proposed mid-July meetings with its allies in Vienna to discuss extending production cuts, after talks between Russia and Iran made some progress toward resolving a standoff over the date. The oil producers group, which pumps more than half the world’s crude, has been bickering for a month about the timing of ministerial talks. Their failure to agree a date just weeks before their production cuts expire gives turbulent markets little reassurance as crude prices extend their slump. After discussions with his Russian counterpart on Monday, Iran’s Oil Minister Bijan Namdar Zanganeh said he was willing to hold a meeting on July 10 to 12, a week later than most other members had wanted. The Organization of Petroleum Exporting Countries formally proposed those dates to members on Tuesday and said it would await their responses, according to a delegate from the group.
- Hutchison China MediTech Ltd., a cancer drug developer backed by billionaire Li Ka-shing, is delaying the launch of its Hong Kong share sale that could raise about $500 million, people with knowledge of the matter said. The company is looking for an appropriate window to kick off the deal amid recent market uncertainties, the people said, asking not to be identified because the information is private. The massive protests in Hong Kong against an unpopular China-backed extradition legislation also contributed to investor unease, one of the people said. The company had initially planned to sell shares in June, according to another person.
- Tieto Oyj agreed to buy Evry AS for about 13.2 billion Norwegian kroner ($1.5 billion) to form one of the biggest Nordic software and services companies with enough muscle to take on larger international rivals. Evry investors will receive 0.12 new Tieto shares and 5.28 kroner for every share, according to a joint statement published Tuesday. That values Evry at 35.48 kroner a share based on Monday’s closing price — a 15% premium to that level. Tieto advanced as much as 6.9% as trading began in Helsinki, the most in more than seven weeks. Evry rose as high as 36.50 kroner, 2.9% above the offer price.
- Metro Pacific Investments Corp., the Philippine venture of billionaire Anthoni Salim’s First Pacific Co., is preparing to kick off the sale of a stake in its hospital unit that could value the business at more than $2 billion, people with knowledge of the matter said. The Manila-listed conglomerate plans to formally start a sale process next month, according to the people, who asked not to be identified because the information is private. It is working with Bank of America Corp. to gauge interest from potential investors, which could include buyout firms and regional health-care companies, the people said.
- Facebook Inc. unveiled plans for a new cryptocurrency that the social-media giant hopes will one day trade on a global scale much like the U.S. dollar. Called Libra, the new currency will launch as soon as next year and be what’s known as a stablecoin — a digital currency that’s supported by established government-backed currencies and securities. The goal is to avoid massive fluctuations in value so Libra can be used for everyday transactions in a way that more volatile crypotcurrencies, like Bitcoin, haven’t been.
*All sources from Bloomberg unless otherwise specified