June 19th, 2018
Daily Market Commentary
- Canadian stocks rose as global markets fell, with the energy sector leading gains despite growing fears of a trade war between the U.S. and China. The S&P/TSX Composite Index rose 0.4 percent to 16,383.63, less than 30 points from a record high on a closing basis. While energy gained 1.5 percent, Baytex Energy Corp. fell after agreeing to buy rival western Canadian oil producer Raging River Exploration Inc. The C$1.6 billion ($1.2 billion) deal may leave investors “somewhat frustrated,” according to analysts.
- Justin Trudeau’s defense of Canadian dairy tariffs isn’t just about farmers and politics — it’s about debt, too. The prime minister squared off with Donald Trump this month over Canada’s “supply management” system, which sets quotas for dairy, eggs and poultry and charges high tariffs above that threshold. Despite a U.S. surplus on dairy trade with Canada, the president wants to blow apart the Canadian system. Trudeau is digging in for a variety of reasons, including the financial fallout. Canada’s protected dairy system caps production to avoid oversupply and maintain stable prices for farmers.
- Canadians increasingly back the Trans Mountain pipeline but are far less supportive of Justin Trudeau’s decision to buy it. A poll published Tuesday by the Angus Reid Institute found Canadians are evenly split — 37 percent say Trudeau made the right decision, 37 percent say the wrong decision and the rest were undecided. It’s a stark difference from the popularity of the pipeline expansion itself: 57 percent of Canadians support it while 26 percent oppose, the poll found. That gap has steadily widened in the firm’s polling.
- European stocks slid for a third straight session as investors fretted over growing trade tensions between the U.S. and China. The Stoxx Europe 600 Index fell 1.2 percent, to the lowest level in almost two months, led lower by miners, tech and automakers, seen among the sectors most at risk of a trade war.
- U.S. stock futures extended declines after China said it will take “strong” counter measures should the Trump administration issue a list of goods for new tariffs. European stocks slid for a third straight session, driven lower by miners, tech and automakers, all of which are seen as being among industry groups most at risk in the event of a trade war. Futures on the S&P 500 index and on the Nasdaq both dropped as much as 1.6 percent, while contracts on the Dow Jones Industrial Average Index tumbled as much as 1.8 percent.
- China’s benchmark equity gauge tumbled to a two-year low and the yuan weakened as a worsening trade dispute with the U.S. spurred panic selling. Bonds gained. The Shanghai Composite Index plummeted almost 5 percent in intraday trading before paring losses, while a gauge of technology shares sank the most in two years. China’s currency fell to a five-month low against the dollar and the 10 year-yield on government debt dropped two basis points.
- Oil fell to near $65 a barrel as traders assessed escalating tensions between the world’s two biggest economies as well as an upcoming OPEC meeting that could see the group lift production. Futures in New York fell 1.3 percent, erasing gains from Monday. The prospect of a U.S.-China trade war rattled global financial markets as China vowed to retaliate “forcefully” against President Donald Trump’s threat of tariffs on an additional $200 billion in Chinese imports.
- Gold rises amid renewed concerns over trade protectionism after President Donald Trump threatened to slap tariffs on more Chinese goods, prompting China to pledge retaliation.
- The pound dropped to a seven-month low against the dollar after U.K. Prime Minister Theresa May lost a vote on her Brexit legislation in the House of Lords. Sterling fell for the second day versus the greenback as market focus turns to another vote on Wednesday, this time in the House of Commons. Lawmakers in the un-elected upper house backed an amendment late Monday to ensure a “meaningful vote” for Parliament on any deal with the European Union. The vote in the Commons could further determine the outcome of Brexit talks.
- Economists are increasingly questioning whether the Bank of England will raise interest rates in the coming months. Less than 55 percent of analysts surveyed by Bloomberg expect a hike in August, down from 60 percent in a similar poll in May. BOE officials are gathering this week for their June policy meeting, the minutes of which have the potential to lay the ground work for an increase later in the summer to 0.75 percent from 0.5 percent.
- ZTE Corp. dived 27 percent after American lawmakers passed a bill to restore severe penalties on China’s second-largest telecoms gear-maker, potentially up-ending a deal struck with PresidentDonald Trump to allow it to get back in business. The company has lost $7.2 billion of market capitalization in the pastweek, as its Hong Kong shares slid to their lowest in a year Tuesday and the Shenzhen stock plunged the 10-percent daily limit for the fourth straight day. ZTE has struggled to end a seven-year ban on American technology purchases that has crippled its business.
- EMR Capital Advisors Pty, a private equity firm that invests in natural resources, is near a deal to buy BHP Billiton Ltd.’s Cerro Colorado copper operation in Chile, according to people with knowledge of the matter. The acquisition by Melbourne-based EMR would end a protracted attempt by the world’s biggest miner to offload the asset, according to the people, who spoke on condition of anonymity as the details are private. An announcement may come as early as Tuesday, they said, without disclosing the price. Deutsche Bank AG said in a report last year that the asset could fetch $800 million.
- EchoStar Corp. is considering raising its offer for rival Inmarsat Plc after its initial approach for the British satellite company was rejected as being too low, according to people familiar with the matter. EchoStar, founded by billionaire Charlie Ergen, is discussing financing for an improved offer in the coming days, said the people, who asked not to be identified because the plans are private. EchoStar is working with financial advisers on its bid, the people said. A final decision hasn’t been made, and the U.S. company may decide not to proceed with an offer, they said.
- Roche Holding AG agreed to buy out Foundation Medicine Inc. for $2.4 billion, expanding in personalized medicines for cancer. Foundation Medicine shareholders will get $137 a share in cash, the companies said in a statement Tuesday. That’s 29 percent higher than Monday’s closing price.
- Harsher Federal Reserve stress tests this year won’t stop U.S. banks from increasing their payouts to shareholders. As the annual review gets under way this week, the 25 largest lenders are gearing up to announce dividends and buybacks totaling roughly $30 billion more than last year, representing a 25 percent increase, according to analysts’ estimates compiled by Bloomberg.
- Huntington Ingalls Industries Inc. is asking General Electric Co.to compensate it for damage caused by flawed workmanship during installation of propulsion system components on the U.S. Navy’s $13 billion aircraft carrier Gerald R. Ford. The problem, which forced the most expensive U.S. warship back to port in January, has yet to be fully resolved although the carrier is once again at sea.
- Volkswagen AG supervisory board members reconvened Tuesday to pick a new leader for the Audi unit after the unexpected arrest of the brand’s longtime chief, with a plan to resolve the situation later in the day, two people familiar with the deliberations said. Talks late Monday to appoint Audi sales boss Bram Schot as the unit’s interim chief executive officer following the arrest of Rupert Stadler failed to come to an agreement. The Audi board met at midmorning, after a VW steering committee meeting earlier. Stadler was arrested at his home in the early hours of Monday after police tapped his phone.
- The European Union’s 27 remaining leaders may warn the U.K. that it faces crashing out of the bloc without a deal and call for contingency preparations, as an update due from the Brexit negotiators is set to highlight the limited progress made since March. With Brexit negotiations slowly meandering toward the end of the latest three-month period as lawmakers in London bicker over the course the U.K. government should take, diplomats from the EU’s 27 other countries are now seriously considering whether a statement following a summit next week should say that “no deal” is a real proposition, according to two people familiar with the discussions.
- Kraft Heinz Co. is considering a sale of children’s milk drink brand Complan in India, which could fetch about $1 billion, people familiar with the matter said. Kraft Heinz is working with an adviser to gauge interest in the business, according to the people, who asked not to be identified because the matter isn’t public. The brand could attract local companies and private equity firms, the people said.
- Kazakhstan lost a bid to force BNY Mellon to release $22 billion of assets in the country’s sovereign wealth fund that were frozen over an unpaid arbitration award. Three U.K. judges ruled on the attempt Tuesday. Kazakhstan’s government had asked the appeals court to throw out a decision that allowed the bank continue to freeze about 40 percent of assets in the country’s oil fund.
- A consortium including Indian chemical producer UPL Ltd.is in exclusive talks to acquire Platform Specialty Products Corp.’s agricultural pesticides business, which could fetch more than $4 billion including debt, people with knowledge of the matter said. Mumbai-based UPL is teaming up with sovereign wealth fund Abu Dhabi Investment Authority and other investors for the business known as Arysta LifeScience, according to the people, who asked not to be identified as the details are private.
- Bayer AG is holding what may be Europe’s second-biggest corporate bond sale this year — a day after a $15 billion U.S. offering — to help finance the acquisition of Monsanto Co. The four-tranche sale comprises one floating-rate note and three fixed-rate bonds, according to a person with knowledge of the offering who asked not to be identified because the matter is private. The Leverkusen, Germany-based chemical maker intends to raise around 5 billion euros ($5.8 billion), a person said previously.
*All sources from Bloomberg unless otherwise specified