June 1st, 2018
Daily Market Commentary
- Bank of Nova Scotia agreed to buy MD Financial Management from the Canadian Medical Association for C$2.59 billion ($2 billion) as it looks to boost its money-management business. MD Financial, a Canadian provider of financial services to physicians and their families, has more than C$49 billion in assets under management and administration, the Toronto-based bank said Thursday in a statement. Scotiabank said it will partly pay for the acquisition by selling 19.7 million shares to raise about C$1.5 billion.
- President Donald Trump is warning Canada that any renegotiated North American Free Trade Agreement must be “a fair deal, or there will be no deal at all” — escalating a leader-level standoff triggered by U.S. tariffs on steel and aluminum. “The United States has been taken advantage of for many decades on trade,” Trump said in a statement released Thursday night by the White House. “Those days are over. Earlier today, this message was conveyed to Prime MinisterJustin Trudeau of Canada: The United States will agree to a fair deal, or there will be no deal at all.”
- Caisse de Depot et Placement du Quebec, Canada’s second-biggest pension fund, has developed a unique model for infrastructure investing in its home province of Quebec. The Caisse has struck a deal with the local transit authority in Montreal to develop a 67-kilometer (42-mile) rapid transit network, known as the Réseau express métropolitain (REM), in conjunction with funds from the provincial and federal governments.
- Stocks headed for a positive end to a tumultuous week in which political developments in Europe and escalating trade tensions roiled markets. The Stoxx Europe 600 gauge headed for the biggest gain in a month, led by banks and basic-resources stocks.
- Treasuries and the dollar edged lower as the focus shifted to U.S. jobs data due Friday. The risk-on mood prevailed even as U.S. President Donald Trump’s administration pushed ahead with tariffs on imports from its key trading partners.
- Asian stocks were mixed as an escalation in global trade war tensions stalled a regional gauge’s rebound from a 15-week low. Chinese equities fell, ignoring inclusion in MSCI benchmarks, while Japan and Hong Kong bounced from earlier losses. One stock rose for each that fell on the MSCI Asia Pacific Index, which was little changed at 172.15 as of 4:41 p.m. in Hong Kong.
- Oil in New York headed for a second weekly loss as U.S. output surged, pushing the American marker to near its weakest level in more than three years against global benchmark Brent. West Texas Intermediate futures are down 1.5 percent this week as pipeline bottlenecks in the Permian Basin add to pressure from unprecedented levels of U.S. production. Brent crude is 1.5 percent higher this week even as investors await news on whether OPEC and its allies will agree to boost production. Some members are meeting in Kuwait this weekend to discuss matters related to the group.
- Gold trades little changed as political instability in Italy shows signs of easing, with a new prime minister to be sworn in later Friday, while investors weigh the implications of escalating trade tensions.
- Deutsche Bank AG’s new chief executive officer, Christian Sewing, suffered a fresh setback in his efforts to reinvigorate Europe’s largest investment bank as S&P Global Ratings cut the lender’s credit rating. S&P reduced the rating by one notch to BBB+, the third-lowest investment grade, citing “significant execution risk” after several management changes and strategy updates in past years. Shares of the lender rebounded from a record low as the credit rating company said Deutsche Bank has good capital and liquidity buffers.
- Euro-area manufacturing lost momentum in May as the strength of export demand eased. IHS Markit said its manufacturing purchasing managers’ index was 55.5, the lowest in 15 months and unchanged from a flash estimate last week. While still well above the 50 mark that indicates expansion, both output and new orders slowed. The 19-nation region has weakened this year after enjoying the fastest growth in years at the end of 2017. May’s survey was carried out before the bout of political turmoil in Italy in the past week that sent bond yields rising.
- Italy’s populist Five Star Movement and League parties prepared to sweep to power in a spectacular reversal of political fortunes that brings an end to three months of deadlock and opens the way to a period of friction with Europe. Giuseppe Conte, 53, a law professor with no political experience, will be sworn in as prime minister along with his cabinet at 4 p.m. local time on Friday by President Sergio Mattarella.
- America’s closest allies plan to slap billions of dollars in tit-for-tat tariffs on U.S. goods after the Trump administration announced it’s imposing steel and aluminum duties on them. The reaction was swift after Commerce Secretary Wilbur Ross announced the U.S. on Friday will levy new metals duties on imports from the European Union, Mexico and Canada on national security grounds, ending their temporary exemptions. The EU said it would take immediate steps toretaliate, while Mexico vowed to impose duties on everything from U.S. flat steel to cheese. Canada’s government announced it will impose tariffs on as much as C$16.6 billion ($12.8 billion) of U.S. steel, aluminum and other products from July 1.
- Trump administration officials are making plans to order grid operators to buy electricity from struggling coal and nuclear plants in an effort to extend their life, a move that could represent an unprecedented intervention into U.S. energy markets. The Energy Department would exercise emergency authority under a pair of federal laws to direct the operators to purchase electricity or electric generation capacity from at-risk facilities, according to a memo obtained by Bloomberg News. The agency also is making plans to establish a “Strategic Electric Generation Reserve” with the aim of promoting the national defense and maximizing domestic energy supplies.
- U.S.-North Korean talks over a possible summit in Singapore shift to the White House on Friday, where President Donald Trump will host a top aide to Kim Jong Un one day after Secretary of State Mike Pompeo said the two sides made “real progress” during negotiations in New York. Trump will meet a North Korean delegation led by former spy chief Kim Yong Chol, who is carrying a letter for the president from Kim Jong Un. After a tumultuous several weeks of diplomacy, any determination about whether an on-again, off-again summit between the two leaders will go forward on June 12 in Singapore may be announced then.
- In a dramatic takedown by a short seller of a world-famous brand’s top leader, Samsonite International SA’s chief executive officer resigned after an attack on his credentials and the company’s corporate governance. The world’s largest luggage maker said CEO Ramesh Tainwala has stepped down, according to a statement Friday. Samsonite said the resignation was in the company’s best interest after its board reviewed Blue Orca Capital LLC’s allegations that Tainwala falsified educational credentials. Chief Financial Officer Kyle Francis Gendreau has taken over as CEO.
- Australia’s banking industry faces an unprecedented criminal prosecution as Australia & New Zealand Banking Group Ltd. and two of its underwriters, Deutsche Bank AG and Citigroup Inc., brace for cartel charges over a A$2.5 billion ($1.9 billion) share sale. The case follows probes by both Australia’s securities regulator and competition watchdog into ANZ Bank’s institutional placement of 80.8 million shares in August 2015. Investigators have focused on why the Melbourne-based lender didn’t disclose that underwriters had to soak up 25.5 million shares worth A$789.2 million and how they subsequently sold them onto the market.
- The U.S. has opened a criminal investigation into whether traders manipulated prices in the $550 billion market for corporate bonds issued by Fannie Mae and Freddie Mac, according to people familiar with the matter. The probe, parts of which were described by four people familiar with it, shows that investigations by the Obama Justice Department into market manipulation by bank traders are continuing under President Donald Trump. The Obama administration secured billions of dollars in settlements and criminal charges tied to the rigging of currency markets and benchmark interest rates.
- SoftBank Group Corp.’s Masayoshi Son wants his company to grow for 300 years, and he’s willing to pour billions of dollars into far-out technology to make it happen. General Motors Co., a business that is already more than a century old, is now part of that plan. GM said Thursday that the SoftBank Vision Fund is investing $2.25 billion in its Cruise autonomous-car unit. The deal adds to a collection of long-term bets Son is making through the nearly $100 billion fund, many of them in the area of automation and artificial intelligence.
- Royal Dutch Shell Plc is attempting to market some of its natural gas as clean energy, packaging it with credits for eco-friendly projects that offset pollution coming from the fuel. The oil giant is offering business customers in Europe a combination of gas and certificates that show emissions are offset with financing for carbon-reduction projects. It’s testing markets in Germany, Italy, Spain and Britain to gauge demand for what credits to use, according to David Wells, head of Shell Energy Europe.
- Prime Minister Narendra Modi’s government will review plans to sell Air India after his administration’s most high-profile privatization offer ended in a whimper with no buyers showing interest in the unprofitable flag carrier. The government will make changes to the plan, if needed, Economic Affairs Secretary Subhash Chandra Garg said. As the deadline to show preliminary interest expired Thursday, no bidder came forward to propose purchasing 76 percent of Air India Ltd., which was offered along with $5 billion debt, Aviation Secretary R.N. Choubey told reporters in New Delhi. The process for the next steps will start in two weeks, he said.
- Navistar International Corp. is pivoting from a largely complete turnaround effort to seeking greater share in a robust U.S. truck market, potentially paving the way for closer ties or even a merger with alliance partner Volkswagen AG. A new 12.4-liter diesel engine based on a design from VW’s MAN unit should help the company build on its first-quarter market share gains, Navistar Chief Executive Officer Troy Clarke said in a phone interview. The powertrain provides a glimpse into the potential for a burgeoning technical and purchasing pact the two started forming in 2016. The companies are planning their first joint product presentation at the world’s largest commercial vehicle show in Hanover, Germany, in September.
*All sources from Bloomberg unless otherwise specified