June 3rd, 2019
Daily Market Commentary
- Canadian Headlines
- Canada will immediately pull its diplomats from Venezuela and close one of the few embassies still weathering the unsettled challenge to the nation’s autocratic president, Nicolas Maduro. Chrystia Freeland, Canada’s minister of foreign affairs, released a statement saying the Maduro government refused to extend the visas of embassy officials. Canada, one of more than 50 nations that’s accused Maduro of stealing last year’s elections, recognizes National Assembly leader Juan Guaidoas interim president until new elections are held.
- World Headlines
- European shares fell at the open on Monday, extending May’s drop, with trade-war uncertainty weighing on markets sentiment as investors turn their focus to the European Central Bank meeting later this week. The Stoxx Europe 600 Index slipped 0.8%, with all sub-sectors in the red, led by declines in oil and basic resources shares. Infineon Technologies retreated 3% after it agreed to buy Cypress Semiconductor in the latest big deal for the industry. The European shares index ended May with a 5.7% slump, making it the worst month since January 2016.
- U.S. stock-index futures extended their losses after further escalation in trade tensions fueled investors’ angst, and China’s government blamed America for the latest collapse in trade talks. Contracts on the S&P 500 Index fell as much as 0.8% after Beijing released a white paper on Sunday saying the escalating trade war between the world’s two largest economies hasn’t “made America great again” — appropriating President Donald Trump’s 2016 campaign slogan. Futures on the Nasdaq 100 and the Dow Jones Industrial Average both declined as much as 0.9%.
- Asia equities traded mixed after China extended retaliatory tariffs to cover more than two-thirds of imports from the U.S. on Saturday. With Beijing also reportedly preparing to warn on the risk of studying in America, Treasury 10-year yields fell to the lowest in almost 21 months, and JPMorgan Chase & Co. warned there’s more downside to come. Oil futures fluctuated.
- Oil stabilized on Monday, giving traders a brief respite from the rapid slump driven by fears that increasingly aggressive U.S. trade policy could trigger an economic slowdown. Futures in New York rose 0.7%. While there was no repeat of the 5.5% slump seen on Friday, the trade war still loomed over markets as China blamed the U.S. for the collapse in trade talks and said it won’t be pressured into concessions. Saudi Energy Minister Khalid Al-Falih called recent volatility “unwarranted” and reiterated his confidence that OPEC+ will keep taking action to stabilize the market beyond June.
- Gold is rallying as escalating concern about the U.S.-China trade standoff, losses in equities and concerns about slowing growth combine to spur haven demand. Bullion for immediate delivery rose as much as 0.9% to $1,317.31 an ounce, the highest since March 27. Bullion is set for a fourth daily gain and the price rally has boosted gold miners’ shares.
- Investors withdrew money from exchange-traded funds that buy emerging market stocks and bonds last week. This was the fifth straight week of outflows, the longest stretch since the eight weeks ended July 13. Outflows from U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $390.8 million in the week ended May 31, compared with losses of $1.17 billion in the previous week, according to data compiled by Bloomberg. So far this year, inflows have totaled $12.2 billion.
- Investors are chasing bond yields lower at the fastest pace since the global financial crisis on conviction that the Federal Reserve will cut borrowing costs to contain the fallout from trade tensions. The yield on two-year Treasuries is headed for the biggest two-day decline since January 2008 after China extended retaliatory tariffs to cover more than two-thirds of imports from the U.S, with Beijing also warning students about the risk of studying in America. Meanwhile, JPMorgan Chase & Co. slashed its targets for U.S. yields on concern that the trade war with will crimp economic growth and force the Federal Reserve to cut interest rates.
- Centene Corp. slumped after Humana Inc. said it won’t bid for the rival U.S. health insurer, which is planning to buy WellCare Health Plans Inc. Humana said in a regulatory filing that it has no designs on Centene, following a push for a combination from activist investors that opposed the WellCare deal. Centene shares fell 6.5 percent in premarket trading Monday, while Humana was little changed. Centene, one of the biggest providers of coverage through the U.S. Medicaid program, agreed to buy WellCare in March for more than $15 billion. In a regulatory filing about the deal, both companies acknowledged holding talks with other parties before announcing the takeover.
- U.S. President Donald Trump landed in the U.K. for a three-day state visit at a sensitive time for the country’s ruling Conservative Party. Rival candidates are jostling to replace outgoing Prime Minister Theresa May, and the president has already weighed in with his own opinions on the contenders.
- Blackstone Group LP is doubling down on the future of online shopping, agreeing to buy $18.7 billion of U.S. logistics assets from Singapore’s GLP Pte in what it says is the world’s biggest private-equity real estate deal. Blackstone will gain 179 million square feet of warehouse assets, greatly expanding the size of its U.S. industrial footprint, the New York-based company said in a statement late Sunday.
- After two fatal crashes in five months involving its best-selling 737 Max jet, Boeing Co. sent a team to reassure airline bosses of its focus on safety at their annual gathering in Seoul. They faced a tough crowd. The International Air Transport Association event began Sunday with an opening ceremony in which sobering news reports on the disasters were beamed onto super-sized screens as the industry group’s head, Alexandre de Juniac, warned that the plane-approval process is damaged and the industry under scrutiny. Doubts about a speedy resolution to the Max crisis hang over the two-day meeting, aviation’s biggest gathering since the second crash in Ethiopia in March and a key annual forum for top-level discussions. Airline chiefs said Boeing must convince regulators worldwide of the 737’s safety, not just the U.S. Federal Aviation Administration, if it’s to restore faith in the model.
- BASF SE has kicked off a sale process for its construction chemical business, which could fetch about 2.7 billion euros ($3 billion), people with knowledge of the matter said. The German company has started to contact select interested parties, a BASF representative said in response to Bloomberg queries, declining to comment further. Carlyle Group LP and building-materials maker Standard Industries Inc. are among potential suitors considering offers for the unit, the people said.
- Infineon Technologies AG AG agreed to buy Cypress Semiconductor Corp for about $8.7 billion in cash, the latest mega-deal for an industry grappling with slowing growth. The $23.85 a share offer is a 34% premium to Cypress’s Friday close, and is 50% above the price the stock was trading at on May 29, when Bloomberg first reported takeover interest in the San Jose, California-based company. Including debt, the deal values Cypress at 9 billion euros ($10 billion), the companies said in a statement.
- Norway, western Europe’s biggest oil and gas producer, is facing the risk of a strike that would cut output by 11%. A managers’ union and employers started talks in state-backed mediation at 10 a.m. in Oslo on Monday to try to reach an deal. If they fail to agree by the midnight deadline, about 200 workers will walk out at platforms operated by companies including state-controlled giant Equinor ASA. About 440,000 barrels of daily oil and gas output would be halted, according to employer group the Norwegian Oil and Gas Association. It would mean the biggest disruption since a massive labor action in 2012, which was stopped by the government after 16 days. A strike may provide some support to oil prices that last month posted their biggest monthly slump since November as investors feared that the U.S.-China trade war would hurt demand.
- The generational change at the top of Glencore Plc gained speed on Monday, after the company announced the retirement of its long standing head of oil Alex Beard. Beard, 51, was at one time seen as a possible successor to Glencore chief Ivan Glasenberg. He was all but ruled out for the job after Glasenberg saidin December that the next leader will come from a younger generation. Beard will retire at the end of June. Known for his acumen trading Russian oil, the British executive became the head of oil at Glencore in 2007 and helped lead the company through its initial public offering nearly a decade ago, becoming a billionaire on paper with a stake worth $2.8 billion in 2011.
- Global manufacturing took another knock last month from trade tensions, adding to concerns that the world economy is weakening. The latest signs of factory weakness — in countries including South Korea, Germany and Japan — underscore the growing threat to the world economy posed by the escalating U.S.-China trade war. The reports came amid a fresh warning from Wall Street about recession risks. In the U.K., where Brexit uncertainty is proving an additional burden, manufacturing shrank for the first time in almost three years in May. That’s partly due to pullback after huge stockpiling before March 29, when Britain was initially due to leave the European Union.
- KKR & Co. is exploring a potential sale for Goodpack Ltd., a Singaporean provider of intermediate bulk containers, according to people familiar with the matter. The New York-based private equity firm is working with a financial adviser on identifying potential buyers for the business, which is worth at least $2 billion, the people said. KKR may start a formal sale process as soon as year-end, the people said, asking not to be identified because the matter is private.
- A fund owned by Macquarie Group Ltd. topped a previous offer for Kcom Group Plc with an agreement to pay 563 million pounds ($712 million) in cash for the U.K. regional phone company. The offer by MEIF 6 Fibre Ltd., a unit of Macquarie Infrastructure and Real Assets, is for 108 pence per share, a premium of 11% over the the 504 million-pound cash bid by a unit of the Universities Superannuation Scheme Ltd., according to a statement from the Macquarie fund on Monday.
- Hospitality Properties Trust will buy Spirit MTA REIT’s rental real estate portfolio for $2.4 billion as the company seeks greater scale and diversification. Newton, Massachusetts-based Hospitality Properties agreed to acquire 774 retail properties leased to tenants in 22 different industries, the company said in a statement. The deal doesn’t include around 100 properties that Spirit MTA leased mainly to Shopko Stores Inc., which filed for bankruptcy in January.
*All sources from Bloomberg unless otherwise specified