June 4th, 2018
Daily Market Commentary
- Bank of Canada Governor Stephen Poloz said he’s encouraged by strong business investment numbers despite all the uncertainty surrounding Nafta talks. Poloz said recent data suggests companies are “getting on” with the process of investing. Business spending has become a significant growth driver, and would be even higher were it not for the uncertainty around the North American Free Trade Agreement.
- Prices for Toronto homes climbed in May as buyers competed for fewer listings amid the worst sales slump in almost a decade. Sales dropped 22 percent to 7,834, compared with the same month last year, according to data Monday from the Toronto Real Estate Board. Seasonally adjusted, transactions fell for the fifth-straight month to the lowest level since 2009. Sellers are holding back to see if things improve, leading to strained supply and stiffer competition between buyers, which is buoying prices, the board said. New listings dropped 26 percent to 19,022, compared with May 2017. Even so, properties took 20 days on average to sell, almost twice as long as the 11 days a year earlier.
- Expect more deals in Canada’s burgeoning marijuana sector. Quebec’s largest producer Hydropothecary Corp. is exploring acquisitions to broaden its offerings or distribution footprint, according to Chief Executive Officer Sebastien St. Louis. It’s interested in rivals with provincial supply contracts as well as companies with technology to create new pot products — even if they hail from other industries, he said.
- European stocks advanced amid optimism about U.S. economic strength and as banking shares climbed following a report that Italian bank UniCredit is considering a merger with France’s Societe Generale. The Stoxx Europe 600 Index gained 0.6%, after falling 1.1% last week.
- U.S. equity futures and European stocks advanced on Monday, tracking peers in Asia as optimism over the world’s largest economy helped investors put protectionist fears to one side. Treasuries edged lower, the dollar fell, and the pound and euro rose. S&P 500 contracts pointed to the U.S. benchmark extending Friday’s advance.
- Asian equities opened the week higher after better-than-expected U.S. jobs data and President Trump said his meeting with Kim Jong Un next week is back on. All markets in the region rose except for India and the Philippines. The MSCI Asia Pacific Index rose 1.3 percent to 174.42 as of 4:17 p.m. Hong Kong time, after posting three straight weekly losses.
- Oil held losses below $66 a barrel after an OPEC committee stressed the need to ensure supplies can meet growing demand, adding to speculation the group will phase out its production cuts. Futures in New York were little changed after a 1.8 percent drop on Friday. OPEC members including Saudi Arabia and its allies emphasized the importance of ensuring stable oil supplies and offsetting output losses from some parts of the world. Meanwhile, the number of rigs targeting crude in the U.S. rose to the highest since March 2015, according to Baker Hughes.
- Gold stable as dollar holds gains and as U.S. trade tensions fail to stoke haven demand.
- President Donald Trump is headed for a showdown with America’s allies at a Group of Seven summit this week in Quebec, with the European Union and Canada threatening retaliatory measures unless he reverses course on new steel and aluminum levies. China, while open to talks to resolve the dispute, is warning it will withdraw commitments it made on trade if the president carries out a separate threat to impose tariffs on the Asian country. While China doesn’t want an escalation in trade tensions, it will defend its core interests, according to a commentary published Monday by the state-run Economic Daily.
- DS Smith Plc agreed to buy family-backed Spanish packaging supplier Europac for 1.9 billion euros ($2.22 billion) including debt to expand its offering to customers in Europe. The British company has identified savings of 50 million euros from the combination, it said in a statement Monday. Management is conducting a strategic review of DS Smith’s plastics business as it focuses on the packaging market, it said, without giving details.
- Bayer AG is days away from a transformation into the world’s biggest maker of seeds and agricultural chemicals, saying it plans to close its purchase of Monsanto Co. this week. Bayer will retain its name and drop Monsanto’s as it closes the deal Thursday while raising as much as 26 billion euros ($30 billion) in shares and bonds. The purchase is part of a multiyear transformation, as Bayer sold off its legacy plastics business and remade itself into a life-science company with roughly half its sales from medicines and half from agriculture.
- China Aircraft Leasing Group Holdings Ltd. is in talks with Airbus SE and Boeing Co. to order as many as 200 planes as the state-backed lessor seeks to meet surging demand from Asian carriers. The company is looking at single-aisle and wide-body jets from the planemakers, with the bigger aircraft slated to account for 20 percent of the order, Chief Executive Officer Mike Poon said in an interview in Sydney Monday. The models the lessor is considering include the Boeing 737 and Airbus A320 for short-haul flights, and the 787 and the A350 for long-haul routes, he said.
- Many energy and agricultural companies that trade swaps are likely to get a reprieve from the U.S. Commodity Futures Trading Commission as the derivatives regulator moves to make permanent its current threshold for requiring firms to register as swap dealers. The decision, which commissioners could vote to seek public comment on at a meeting scheduled for Monday, would keep the threshold at $8 billion in annual activity, scrapping plans to lower the level to $3 billion, according to two agency officials.
- For Microsoft Corp., acquiring GitHub Inc. would be both a return to the company’s earliest roots and a sharp turnaround from where it was a decade ago. The software maker has agreed to acquire GitHub, the code-repository company popular with many software developers, and could announce the deal as soon as Monday, according to people familiar with the matter. Microsoft’s origin story lies in the market for software-development tools. Decades before former Chief Executive Officer Steve Ballmer jumped up and down on a stage, cheering for “developers, developers, developers,”Bill Gates and Paul Allen co-founded the company to give hobbyists a way to program a new micro-computer kit, the MITS Altair.
- Wildfires, drought and severe heat: It’s shaping up to be one of the most perilous wheat seasons in years. Dry weather is plaguing crops from Australia to the U.S., yields are under threat and world stockpiles are forecast to fall. It’s quite the turnaround for a market that was saddled with a massive supply glut for years, and investors are taking notice. Prices are rallying across the globe. In the U.S., July futures for the hard red winter variety have jumped 18 percent in 2018, the second-best performer among the 22 components of the Bloomberg Commodity Index. Hedge funds are now wagering on more gains, backing away from the negative bets they held for the better part of the past nine months. At the same time, Rabobank has sounded the alarm for a potentially “explosive” move higher for U.S. prices.
- Societe Generale SA agreed with U.S. authorities to settle probes into interest-rate manipulation and the bribery of Libyan officials, drawing a line under two of the French bank’s biggest legal headaches. SocGen agreed to pay undisclosed penalties to resolve U.S. investigations that it submitted misleading numbers for the London interbank offered rate and, in a separate case, bribed Libyans to win investment deals. The penalties are fully covered by existing provisions, the lender said, without giving further details. The bank was nearing an agreement to pay as much as $1 billion to end the probes, people familiar with the matter said last month.
- Toshiba Corp.’s former memory chip business, acquired this month by a group led by Bain Capital, intends to pursue acquisitions as it prepares for an initial public offering in three years. Toshiba Memory Corp. intends to rely on its own cash flow to sustain capital spending at a pace of hundreds of billions of yen a year, Yuji Sugimoto, head of Bain Capital in Japan, told reporters in Tokyo on Monday. The Japanese electronics maker just completed the sale of its most profitable business for 2 trillion yen ($18 billion) to repair a balance sheet hammered by a bankruptcy of a nuclear energy subsidiary. That division’s now controlled by a Bain-led consortium that includes SK Hynix Inc., Apple Inc., Hoya Corp. andSeagate Technology Plc, though Toshiba is retaining 40 percent of the unit.
- Facebook Inc. is disputing a New York Times report about how it shares data with device makers from Apple and Amazon to Samsung. They’re privy to Facebook users’ information but it’s nothing like the access that led to the Cambridge Analytica controversy, the social network said. The New York Times reported Facebook had struck deals with device manufacturers that allowed them full access to information on users and their friends. But the U.S. company contends those pacts were intended to help device makers create their own versions of Facebook apps, and the data mostly remained on phones that accessed it. That kind of arrangement was necessary before phone operating systems relied on app stores, it added.
- Investors withdrew money from exchange-traded funds that buy emerging market stocks and bonds for the second straight week. China and Hong Kong and India led the losses. Withdrawals from U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $1.42 billion, compared with outflows of $101.1 million in the week ended May 25, according to data compiled by Bloomberg. Fund assets have grown $14.4 billion so far this year. Last week, stock ETFs contracted by $1.13 billion and bond funds fell by $288.4 million. The MSCI Emerging Markets Index declined 0.6 percent.
- CYBG Plc, the U.K. consumer and business lender, slightly sweetened its 1.6 billion-pound ($2.1 billion) proposal for Virgin Money Holdings U.K. Plc by offering its target shareholders a larger share of a combined company. Virgin Money shareholders would own about 38 percent of the merged company compared with 36.5 percent in CYBG’s previous approach and would retain dividends through the end of June, according to a statement. CYBG, formerly the British division of National Australia Bank Ltd., is proposing an all-stock transaction and is seeking greater scale and cost savings by acquiring Virgin Money’s mortgage assets, branches, credit cards and savings accounts.
- China’s banks, scrambling to adjust to the government’s deleveraging campaign, are likely to add to pressures on the corporate bond market as they shed more of their massive note holdings and de-risk their balance sheets. Further payment problems are likely in a market that has already seen at least 14 corporate bond defaults this year, according to Logan Wright, Hong Kong-based director at research firm Rhodium Group LLC. As well as cutting their own holdings, Chinese banks have pulled back from lending to other firms that use the funds to buy bonds, exacerbating the pressure on the market.
- California lawmakers are said to be considering a proposal to help utilities shoulder billions of dollars in potential liability costs while offering relief to wildfire victims by setting up a compensation fund that would be backed by the state and the power companies. Details, including the size, are still being worked out and the proposal — one of a number of options being considered — may not come together, according to people familiar with the discussions who asked not to be identified because they aren’t public. The fund could issue bonds, with the payments potentially provided by utility shareholders, ratepayers and revenue from the state’s cap-and-trade program or general fund, the people said.
- The International Air Transport Association cut its profit target for the global aviation market this year, predicting lower returns than six months ago as rising fuel prices and labor costs eat into the industry. Net income for 2018 is likely to total $33.8 billion, 12 percent lower than a December forecast for $38.4 billion, the industry’s main trade group said in a statement in Sydney. The new forecast compares with an all-time high of $38 billion airlines made last year, which was boosted by special accounting like one-off tax credits, IATA said.
- Richemont agreed to sell ailing French pursemaker Lancel to Italy’s Piquadro SpA, a rare divestment as the Swiss luxury-goods maker sheds a business that has been holding back its growth in fashion and accessories. Richemont completed the sale on June 2 and the transaction won’t materially impact the company’s balance sheet or cash flow, Richemont said in a statement Monday, without disclosing financial details. The disposal comes more than a decade after Richemont bought the Paris-based brand for 342 million Swiss francs ($346 million). The leather-goods maker had been grappling with weak consumer spending in its largest market, France, in recent years. Richemont had considered selling the brand in 2013 and hired Nomura Holdings Inc. to find a buyer, people familiar with the matter said at the time.
*All sources from Bloomberg unless otherwise specified