June 26th, 2018

 

Daily Market Commentary

Canadian Headlines

• Canadian stocks plummeted as global markets dropped amid escalating fears of President Donald Trump’s trade war. The S&P/TSX Composite Index fell 1.6 percent to 16,183.96 points. Technology lead losses, dropping 3.1 percent as Shopify Inc. slid 5.8 percent. Health care fell 2.9 percent even as cannabis companies prepare for Canada to legalize recreational marijuana. Canopy Growth Corporation fell 4.5 percent.
• The shutdown of a key oil-sands facility in Canada is flipping the global oil market on its head and slamming shares of producers that depend on the plant. Just as OPEC and allied producers agreed to pour more oil into global markets, a transformer blast first reported by Bloomberg News last week cut power to Alberta’s giant Syncrude plant, which turns heavy crude into synthetic light oil for U.S. markets. As less oil flows from up north, traders are paying a record premium for crude at America’s biggest distribution hub in Cushing, Oklahoma. Globally, the gap between Brent crude and West Texas Intermediate is narrowing rapidly after widening for months.

World Headlines

• European equities rebounded after falling the most in four months on Monday as investors watched the escalating trade tensions between the U.S. and China. The Stoxx Europe 600 Index rose 0.3 percent led by banks and miners, which were among the biggest decliners yesterday. ASML Holding NV rose 1.7 percent and HSBC Holdings Plc climbed 0.6 percent.
• The dollar advanced and U.S. stock futures turned lower as investors continued to fret over the outlook for global trade. Contracts for the S&P 500 Index fluctuated before falling while the Stoxx Europe 600 Index struggled to hold above Monday’s close even as the euro retreated.
• Asian equities pared losses even as investors voiced concerns about the escalating exchange of trade and investment restrictions between the U.S. and economic heavyweights China and Europe. The MSCI Asia Pacific Index fell 0.1 percent as of 5 p.m. in Hong Kong, after sliding as much as 0.8 percent earlier Tuesday, as most major stock markets pared or erased earlier declines.
• Brent crude traded near $75 a barrel as key Libyan oil ports were handed to a company rivaling the nation’s internationally recognized energy producer. The global oil benchmark added as much as 0.8 percent. The chairman of Tripoli-based National Oil Corp. said any attempt to buy crude from the rival company is a deviation from United Nations resolutions and Libyan law. In North America, Goldman Sachs Group Inc. warned that an oil-sands outage in Canada could lead to a shortage through July and drain stockpiles.
• Gold retreats after moving averages show so-called death cross, a signal further declines may be in store, while investors track prospects for escalation in trade, investment curbs between top economies.
• Boeing Co. isn’t waiting for next month’s Farnborough International Airshow to unveil blockbuster aircraft deals — or start booking cash. The Chicago-based planemaker is poised to bolster its backlog with orders valued at $14.4 billion thanks to two transactions announced Monday. That’s a break from an industry practice of stockpiling sales for the biggest annual trade expo, which alternates between Paris and Farnborough, outside London.
• General Electric Co. plans to spin off its health-care business and divest its stake in oilfield-services provider Baker Hughes as Chief Executive Officer John Flannery focuses the struggling company on power, aviation and renewable energy. GE also will seek to reduce net debt by about $25 billion by 2020, the Boston-based company said in a statement Tuesday, concluding a yearlong strategic review. GE will sell 20 percent of the health business and spin off the rest to its shareholders, while the stake in Baker Hughes will be sold over the next two to three years. GE shares rose 3.9 percent to $13.25 in pre-market trading.
• France’s Engie SA is among suitors considering a bid for the 7.3 billion-euro ($8.5 billion) renewables unit of EDP-Energias de Portugal SA, according to people with knowledge of the matter, adding a potential new twist to China Three Gorges Corp.’s pursuit of the company and its parent. Engie is working with advisers on evaluating offers for all or part of EDP Renovaveis SA, the people said, declining to be identified as the discussions are confidential. The Paris-based utility is most interested in the firm’s U.S. portfolio, but is considering making a bid for the complete renewables unit, two of the people said. The deliberations are in early stages, and it may opt not to make a formal offer for the Lisbon-traded asset, they said.
• The coalition of companies jockeying with Amazon.com Inc. for a lucrative Pentagon computing contract is far bigger than previously reported, signaling there’s added heft behind efforts to keep the work from going exclusively to the world’s largest cloud services provider. SAP America, General Dynamics Corp.’s CSRA unit, Red Hat Inc. and VMware Inc.are among at least nine companies that have coordinated their opposition to the government awarding the contract to a single provider, according to emails obtained by Bloomberg News. Amazon, the market leader in cloud services, is widely perceived to be the front-runner.
• France’s Eutelsat Communications SA said it won’t make a takeover offer for Inmarsat Plc, a sudden reversal that strengthens EchoStar Corp.’s hand in its pursuit of the British satellite operator. Eutelsat had said on Monday it might bid for Inmarsat, confirming a report by Bloomberg News. The change of heart means that, under U.K. takeover rules, the Paris-based company now can’t make an offer for six months except in certain circumstances, Eutelsat said Tuesday in a statement.
• Special Counsel Robert Mueller is preparing to accelerate his probe into possible collusion between Donald Trump’s presidential campaign and Russians who sought to interfere in the 2016 election, according to a person familiar with the probe. Mueller and his team of prosecutors and investigators have an eye toward producing conclusions — and possible indictments — related to collusion by fall, said the person, who asked not to be identified. He’ll be able to turn his full attention to the issue as he resolves other questions, including deciding soon whether to find that Trump sought to obstruct justice.
• Private equity firms are setting their sights on French payments processor Ingenico Group SA as they scout the market for their next target among Europe’s hottest fintechs, according to people with knowledge of the matter. The Paris-based company, with a market value of about 4.73 billion euros ($5.5 billion), is drawing preliminary interest from several buyout firms, some of which are discussing the feasibility of taking it private, the people said, declining to be identified as the deliberations are confidential. Potential suitors include CVC Capital Partners, Hellman & Friedman and Bain Capital, as well as rival fintech companies, they said. The company is in talks with advisers about preparing for a potential offer, they said.
• Irish banks are set to be forced to hold more capital to cope with a future economic downturn, according to a person familiar with the matter. The country’s central bank is leaning toward increasing the so-called counter cyclical capital buffer from zero percent in coming months, according to the person, who asked not to be identified as the information is not yet public. The bank could announce an increase within the next 10 days, when the latest buffer review is due to be published, though no final decision has been taken.
• London Heathrow airport’s 16 billion-pound ($21 billion) expansion plan may have cleared its last major political hurdle, but the project has yet to convince British Airways, the hub’s biggest customer. After U.K. lawmakers backed the construction of a third runway by 415 votes to 119 late Monday, BA owner IAG SA responded by saying that the financing arrangements proposed by Heathrow are likely to increase user charges and effectively require present-day passengers to fund future flights.
• China Energy Investment Corp. pledged almost $84 billion in shale gas and chemical manufacturing projects across West Virginia after President Donald Trump’s trade mission to Beijing in November, but when it came time to discuss details officials were a no-show. The chief executive and other officers of the world’s largest power company canceled a visit to a petrochemical conference in Pittsburgh, where the projects were to be discussed, casting doubt on their fate amid an escalating trade war between the U.S. and China.
• White House trade adviser Peter Navarro sought to ease investor concerns about U.S. trade policy, indicating that a Treasury Department report later this week on American restrictions on foreign investment won’t be as sweeping as markets are anticipating. “There’s no plans to impose investment restrictions on any countries that are interfering in any way with our country. This is not the plan,” he said in an interview on CNBC Monday with the Dow Jones Industrial Average down more than 400 points. “The whole idea that we’re putting investment restrictions on the world — please discount that.”
• Hong Kong billionaire Richard Li is laying the groundwork for a potential initial public offering of his insurance company FWD Group after five years of building the business through acquisitions, people familiar with the matter said. The company, which is backed by Swiss Re AG, is weighing a listing that could take place as soon as the next couple years, according to the people. FWD has held preliminary discussions with investment banks about a possible IPO as part of regular meetings about the insurer’s strategy, the people said, asking not to be identified because the information is private. Hong Kong is under consideration as a possible listing venue, one of the people said.
• Spectrum Pharmaceuticals Inc., a U.S. biotech company focused on oncology and hematology, is exploring options including a sale of the business amid takeover interest from other drugmakers, people familiar with the matter said. Spectrum is working with financial adviser Jefferies Group LLC on a potential sale of the business, according to the people, who asked not to be identified because the information is private. Shares of Spectrum have nearly tripled over the past two years, giving the company a market value of about $2 billion.
• Xerox Corp.’s Chief Executive Officer John Visentin blasted his Fujifilm Holdings Corp. counterpart’s efforts to revive merger talks and warned he doesn’t plan to renew the companies’ Asia joint venture in 2021. Visentin, elevated to CEO after shareholders Carl Icahn and Darwin Deasonwon a court order blocking the companies’ $6.1 billion merger deal, said in a letter to Fujifilm chairman Shigetaka Komori on Monday that a lawsuit by Fujifilm was “nothing more than a desperate, misguided negotiating ploy to save a takeover” that has already been blocked by a judge because of the “surreptitious actions of your team.” Visentin said Fujifilm’s own accounting problems had made its deal with Xerox impossible to complete.
• Xi Jinping vowed to match Donald Trump blow for blow in any trade war. Now as one gets closer, some in Beijing are starting to openly wonder whether China is ready for the fight — an unusually direct challenge to the leadership of the world’s second-largest economy. In recent weeks, prominent academics have begun to question if China’s slowing, trade-dependent economy can withstand a sustained attack from Trump, which has already started to weigh on stock prices. The sentiments are being expressed in carefully worded essays circulated on China’s heavily censored internet and — according to interviews in recent days with ministry officials and foreign diplomats who asked not to be identified — repeated in the halls of government offices, too.

 

*All sources from Bloomberg unless otherwise specified