June 25th, 2019
Daily Market Commentary
- Canadian Headlines
- Canadian stocks ended slightly lower Monday despite a strong rally in gold. The S&P/TSX Composite Index edge down to 16,523. Technology dropped, led by Shopify Inc., after the latter was downgraded at Roth Capital on valuation. Separately, lawyers for Huawei Technologies Co.’s chief financial officer urged Canada’s justice minister to end extradition proceedings, arguing that he has the power to withdraw a process that’s been politicized by the U.S.
- Tilray Inc. has imported its first bulk supply of medical cannabis oil into the U.K., after controversy over the confiscation of one of the Canadian company’s products led to an easing of restrictions. The oral solution, containing both the psychoactive THC and non-intoxicating CBD compounds, is used to treat pain, chemotherapy-induced nausea and vomiting and multiple sclerosis-associated spasticity. It has already been supplied in bulk to Germany, Croatia, Cyprus and Malta. Another cannabis-based Tilray product that helps treat epilepsy was confiscated last year from a Northern Irish child, Billy Caldwell, sparking a media campaign to permit the substance for medical use. The U.K. government in November made it legal for specialist doctors to prescribe medical marijuana for patients with severe clinical need.
- World Headlines
- European equities retreated at the open, led by automakers and banking shares, as investors eyed the upcoming trade talks after U.S. officials insisted they weren’t prepared to compromise on demands for meaningful Chinese economic reforms. The Stoxx Europe 600 Index dropped 0.3%. Among the fallers, BNP Paribas SA declined 1.7% and Daimler AG was down 1.1%. Capgemini SE jumped 7.2% after saying it will acquire Altran Technologies SA to expand its software engineering network with internet and technology companies.
- U.S. equity futures edged lower alongside European and Asian stocks on Tuesday as geopolitical tensions simmered in the build up to this week’s G-20 meeting. Investors sought safer assets, and gold and the yen rose. With stress between the U.S. and Iran building and the White House apparently playing down hopes of a trade breakthrough when Trump and China’s Xi Jinping meet this week, investors are finding few reasons to prolong the recent central bank-fueled rally. On Tuesday, traders will keep a close eye on Federal Reserve Chairman Jerome Powell, who discusses monetary policy in a speech in New York.
- The moves tracked those in Asia, where benchmarks in Tokyo, Seoul and Sydney reversed earlier gains after Iran suggested new sanctions had closed off a diplomatic solution to a dispute with Washington. Meanwhile, Bloomberg reported President Donald Trump has recently mused to confidants about withdrawing from a longstanding defense treaty with Japan that he thinks treats the U.S. unfairly.
- Oil steadied after rallying almost 8% in three days as investors weighed the risks of a supply disruption in the Middle East against concerns over the global economy and demand. Futures were little changed near $58 a barrel in New York. President Donald Trump imposed sanctions on Iran’s supreme leader, Ayatollah Ali Khamenei, on Monday, while also asking in a tweet why the U.S. is protecting the Strait of Hormuz, the world’s most important oil choke-point. Iran said the U.S. move has shut the path to a diplomatic solution.
- Gold’s rally shows no signs of abating, with prices climbing afresh to a six-year high as cash keeps pouring into exchange-traded funds. Fresh U.S. sanctions on Iran added to uncertainty in global markets, bolstering gold’s appeal as a haven. Investors are also looking to the G-20 summit this weekend, where presidents Donald Trump and Xi Jinping are scheduled to meet to discuss trade. Another key event on traders’ watchlist is Federal Reserve Chairman Jerome Powell’s speech in New York later Tuesday.
- President Donald Trump often cites China’s massive exports to the U.S. as a grave injustice hanging over the world economy. But lately it pays to look at Chinese imports for the pain that his tariff wars are inflicting on global growth. The world’s biggest trading nation last month saw imports from Japan, South Korea and the U.S. fall sharply from a year earlier, according to official data. The 27% fall from the U.S. is perhaps not surprising given a year of tit-for-tat tariffs, but a drop of 16% from Japan and 18% from South Korea is reason to consider the broader effects of Trump’s trade battles. Such data illustrate why trade is at the top of the agenda for this week’s Group of 20 meeting of leaders who preside over more than three-quarters of the global economy. While much of the focus will be on Trump and Chinese President Xi Jinping’s ability to resume talks, the other leaders in attendance have their own stakes to worry about.
- AbbVie Inc. agreed to buy rival drugmaker Allergan Plc for $63 billion in a deal combining the makers of arthritis drug Humira and wrinkle treatment Botox in a bid to kindle growth. The takeover, at a value of $188.24 a share, is a 45% premium to Allergan’s closing price on Monday. Allergan rose 33 percent to $172 in pre-market trading in the U.S. early Tuesday. AbbVie has been looking for ways to reinvigorate its pipeline of experimental drugs as Humira, the best-selling medicine in the world, faces competition from cheaper biosimilars. Allergan, which makes Botox, has been considering a split.
- Capgemini SE said it will acquire Altran Technologies SA in a 3.6 billion-euro ($4.1 billion) deal in order to win more tech clients and keep up with rivals. Paris-based Capgemini is looking to maintain its position as a major IT consultancy in a consolidating industry, as competitors such as Accenture have been building out their sales from digital projects. Capgemini’s shares rose as much as 8% in early morning trading in Paris Tuesday, the most since October 2011. Altran rose 21% to 13.9 euros, trading just below the 14 euros-a-share offer price.
- Blue Racer Midstream, a private equity-backed natural gas pipeline owner, is considering an initial public offering that could be valued at $2.5 billion, according to people familiar with the matter. The Dallas-based company, which is a 50/50 joint venture between private equity firm First Reserve and Caiman Energy II, is working with advisers to evaluate an IPO, said the people, who asked to not be identified because the matter isn’t public. Caiman Energy II has funding from pipeline company Williams Cos., Oaktree Capital Management LP and EnCap Flatrock Midstream.
- MINISO Co., a Chinese budget household and consumer good retailer, is planning an initial public offering that could raise about $1 billion, according to people with knowledge of the matter. The company is inviting banks to pitch for roles on the proposed offering, the people said, asking not to be identified because the information is private. The share sale could take place in Hong Kong or the U.S., while the timeline is yet to be decided, the people said. MINISO, founded by Japanese designer Miyake Junya and Chinese entrepreneur Ye Guofu in 2013, designs its products in Japan and has more than 3,500 stores across 80 countries including China, the U.S., Brazil, the United Arab Emirates and Russia, according to its website. The firm posted a revenue of 17 billion yuan ($2.5 billion) in 2018.
- Iran said the path to a diplomatic solution with the U.S. had closed after the Trump administration imposed sanctions against its supreme leader and other top officials, raising tensions days after the downing of an American drone brought the Middle East to the brink of war. President Donald Trump on Monday unveiled sanctions on Ayatollah Ali Khamenei and eight senior military commanders that deny him and his office access to financial resources. Treasury Secretary Steven Mnuchin said financial restrictions would also be introduced against Iran’s Foreign Minister Javad Zarif later this week.
- China is considering adding FedEx Corp. to a list of so-called unreliable entities, said people familiar with the matter, a move that would escalate tensions with the U.S. Authorities in China have almost completed the preparations that would be needed to blacklist FedEx, the people said, declining to be named because the information hasn’t been made public. A final decision would be made by senior Chinese leaders, the people said. China’s commerce ministry announced the creation of the list in late May to target firms that the government says damage the interests of domestic companies. That followed U.S. curbs on Huawei Technologies Co. FedEx drew the ire of Chinese officials after Huawei said that documents it asked to be shipped from Japan to China were instead diverted to the U.S. without authorization.
- Norway’s $1 trillion wealth fund revoked its more than decade-long exclusion on Walmart Inc. after the U.S. retailer tightened control over potential human rights abuses in its supply chain. Walmart has made “positive developments” in monitoring its suppliers, the fund’s Council on Ethics said in a statement released Tuesday. “Furthermore, the company engages actively in selected, high-risk areas in order to help bring about improvements in working conditions,” the council said in a letter. “There seem to be fewer reports of poor working conditions in Walmart’s supply chain now than there were before.”
- Elon Musk’s Space Exploration Technologies Corp. launched its Falcon Heavy rocket for the U.S. military early Tuesday, a spectacular night time liftoff that Musk described as the company’s toughest yet. The rocket and payload rumbled aloft at 2:30 a.m. local time from NASA’s Kennedy Space Center in Florida after a three-hour delay. SpaceX then recovered the rocket’s two side boosters — which flew in April as part of the Arabsat-6A mission — at Cape Canaveral Air Force Station in Florida. The center core failed to land on a droneship in the Atlantic Ocean.
- For years, companies like Oracle and International Business Machines invested heavily to build new markets in China for their industry-leading databases. Now, boosted in part by escalating U.S. tensions, one Chinese upstart is stepping in, winning over tech giants, startups and financial institutions to its enterprise software. Beijing-based PingCAP already counts more than 300 Chinese customers. Many, including food delivery giant Meituan, its bike-sharing service Mobike, video streaming site iQIYI Inc. and smartphone maker Xiaomi Corp. are migrating away from Oracle and IBM’s services toward PingCAP’s, encapsulating a nation’s resurgent desire to Buy China.
- The U.S. blacklisting of Huawei Technologies Co. and other top Chinese tech companies is making it trickier for some mobile industry professionals to get down to business. The June 26-28 Mobile World Congress Shanghai, China’s largest forum for the mobile industry, is scheduled to start amid almost daily salvos from the Trump administration aimed at Huawei and other technology companies in the world’s largest mobile phone market. The Trump administration’s blacklisting of Huawei has dominated global industry discussions in past months, as it threatens to upend supply chains and disrupt the global roll out of fifth-generation technology — an infrastructure spending spree worth hundreds of billions of dollars. U.S.-Chinese tensions are escalating just as carriers around the world such as China Mobile Ltd. and China Telecom Corp. — set as keynote speakers at MWC Shanghai — choose equipment vendors for the 5G networks expected to support technologies from remote surgery to automated factories and driverless cars.
- Stanford University, hoping to appease officials opposed to its planned expansion, is offering to spend $4.7 billion to relieve pressures on housing and transit that are plaguing residents of California’s Bay Area. The offer would be part of an agreement with Santa Clara County to support the school’s application for a long-term land use permit, according to a statement Monday from Stanford. It would invest $3.4 billion in housing development and more than $1.1 billion in transportation upgrades and “other community benefits,” according to the statement.
- India is weighing offering incentives to attract companies moving out of China amid its trade war with the U.S., a person familiar with the development said. Financial incentives such as preferential tax rates and the tax holiday provided by Vietnam to lure companies are among measures being considered, the person said, asking not to be identified as the discussion is still private. Industries identified for incentives include electronics, consumer appliances , electric vehicles, footwear and toys, according to a trade ministry document seen by Bloomberg. Economies, including Vietnam and Malaysia, have benefited from businesses trying to sidestep tariffs, while India has largely missed out on any investment gains. The trade ministry’s effort is part of a larger plan to cut reliance on imports, while boosting exports, and needs Finance Minister Nirmala Sitharaman’s approval.
- As storm clouds gather over the world’s top oil-consuming region, OPEC and its allies would be advised to pay close attention as they prepare to make a key decision on output curbs early next month. While the Saudi Arabian-led efforts to restrain supply amid surging North American shale production have hogged headlines, a sense of malaise is quietly creeping across Asia. With the U.S.-China trade war now almost a year old and showing no signs of ending, its impact is manifesting itself in everything from profit warnings by Japanese car makers to sagging Chinese diesel consumption. From Ulsan in South Korea to Mailiao in Taiwan, the region’s big oil processors are cutting run rates as weak demand for fuel products erode their margins. To make matters worse, a wave of Asian mega-refineries is coming on stream this year, flooding the market with cheap fuel and setting off a price war.
- China’s car sales slump has slashed profit margins and raised credit risk. That’s likely to lead to consolidation as tougher emissions standards leave lots full of unsold new vehicles. Dealers have more than 3 million unsold cars — equivalent to two months’ sales — with many models spurned before stricter China VI emissions standards take effect on July 1, the China Automobile Dealers Association said. CADA estimated the average profit margin on new vehicle sales was 0.4% last year, when 39% of dealers posted losses.
- BlackRock Real Assets is aiming to boost its renewables power portfolio in Asia by as much as 10-fold as it seeks to keep pace with the world’s fastest-growing region for green energy. The unit of New York-based BlackRock Inc. plans to raise invested capital in Asia-Pacific renewables to around $3 billion to $5 billion, from $500 million now, over the next three to five years, according to Charlie Reid, managing director and portfolio manager of the BlackRock Renewable Power investment team.
*All sources from Bloomberg unless otherwise specified