June 4th, 2019
Daily Market Commentary
- Canadian Headlines
- Canadian stocks fell for a fifth day, reaching their lowest point since March as oil prices approached a bear market. The S&P/TSX Composite Index slipped 0.1% to close at 16,015.89. Energy stocks lost 2% along with falling West Texas Intermediate crude, even as Alberta oil prices rose the most since December amid wildfires in the region. Technology and cannabis stocks also retreated. A fourth straight gain in gold prices helped to moderate the decline, with the materials sector adding 3%, the most since November. The seven biggest gainers on the benchmark were gold miners, with Semafo Inc. jumping 13% and Eldorado Gold Corp. rising 12%.
- Canadian heavy oil in Alberta surged the most since January after wildfires forced at least three producers in the region to shut in some production. On Thursday, Canadian Natural Resources Ltd. removed all 240 people working at its Pelican Lake and Woodenhouse operations in northern Alberta, halting a combined 65,000 barrels a day of heavy crude. Cenovus Energy Inc. on Friday shut five wells with minimal production at its Marten Hills site, and Deltastream Energy Corp. shut about 3,000 barrels a day of output in the area. Western Canadian Select, a regional benchmark, gained $2.75 a barrel against U.S. crude futures to settle at a $13.75 discount on Monday, the biggest gain in five months.
- World Headlines
- In Europe, the Stoxx 600 Index erases early declines of as much as 0.7% to stand 0.3% higher at 12 p.m. CET, led by gains in autos, chemicals and bank shares. The Italian market is the biggest outperformer following comments from Italian Prime Minister Giuseppe Conte who said last night the government should respect the EU budget rules for now. The euro struggled to hold an advance after regional inflation data fell slightly short of expectations. The pound fluctuated after data showed U.K. retail sales in May declined by the most on record. South Africa’s rand fell by more than 1% after reporting the biggest first-quarter GDP contraction since 2009.
- U.S. stock index futures climb, following Asian and European markets in pointing to a rebound from Monday’s declines that were fueled by a slump in tech shares prompted by regulatory probe concerns. Treasuries dropped and the dollar edged up. Investors are attempting to find their feet after the threat of antitrust probes into some of the biggest U.S. tech companies heaped pain onto already fragile markets on Monday, triggering a rout in names like Facebook and Amazon.com.
- Markets in Asia were mixed. Treasuries slumped, set to end a one-week rally that was driven by speculation the Federal Reserve will cut interest rates. The MSCI Emerging Market Index dipped 0.6%, the biggest decrease in more than a week.
- Oil held near the lowest in more than four months in London, as expectations that OPEC will continue to restrain supplies tempered concerns that threats to the global economy will hurt demand. Brent crude futures traded below $61 a barrel, paring some of Monday’s losses when the international benchmark settled at the lowest since late January. Vitol Group, the world’s largest oil trader, expects OPEC and its allies to prolong a deal to curb output in the second half of 2019, while Saudi Energy Minister Khalid Al-Falih said Monday he was committed to doing whatever it takes to stabilize markets. JPMorgan Chase & Co. said Monday the chance of a U.S. recession in the second half had risen to 40% from 25% a month ago.
- Gold hovered near a 3-month high after jumping Monday, as demand for havens grows in response to the escalating U.S.-China trade war and its impact on global growth, with bets building that the Federal Reserve will cut interest rates this year to contain the fallout. Global manufacturing was the weakest since 2012 last month and the U.S. Manufacturing Purchasing Managers dropped to the lowest level in almost a decade. St. Louis Fed President James Bullard said a rate cut may be needed“soon” ahead of a two-day conference on monetary policy which will be closely watched by investors.
- Investors’ growing conviction that the Federal Reserve will lower interest rates in coming months is putting policy makers under scrutiny when they attend what’s billed as a listening event Tuesday. With financial markets discounting at least two quarter-point Fed interest-rate cuts by year-end — one more than the case just days ago — the Fed’s conference on policy strategy, tools and communication in Chicago will be closely watched. If Fed Chairman Jerome Powell, who gives opening remarks Tuesday, wanted to counter the quickly emerging consensus about easing, he has a platform to do so.
- The biggest bullion-backed exchange-traded fund is suddenly getting a lot of love. Holdings in SPDR Gold Shares surged by the most in almost three years as the U.S.-China trade war, signs of a slowdown, and speculation the Federal Reserve will cut rates combined to fan demand. Assets in the SPDR ETF jumped 16.44 metric tons, or 2.2%, on Monday to post the biggest gain since July 2016, while a tally of holdings in all ETFs saw the biggest increase this year. The swing toward the traditional haven came as gold prices surged above $1,300 an ounce to hit the highest since February.
- The S&P 500 Index hasn’t been down this much, this persistently since U.S. stocks closed at their 2018 lows on Christmas Eve. Monday’s 0.3% decline leaves the benchmark U.S. equity gauge 6.8% below record highs reached at the end of April. The losses pushed the S&P 500 into technically oversold territory, defined as a sub-30 reading on the 14-day relative strength index, which tracks the persistence and magnitude of price swings.
- China issued a travel advisory on the U.S. through the end of the year, amid spiraling trade tensions between the two countries. The country’s Ministry of Culture and Tourism cited recent “frequent” shootings, robbery and theft in America as the reason for its alert, according to the official Xinhua News Agency on Tuesday. The travel warning was spurred by difficulties Chinese nationals are encountering while in the U.S., Foreign Ministry spokesman Geng Shuang told reporters in Beijing. Asked if the move was part of the protracted trade dispute, Geng said it was a response to “current circumstances.”
- SoftBank Group Corp. will book a pretax profit of 1.2 trillion yen ($11.1 billion) for selling part of its stake in Chinese e-commerce leader Alibaba Group Holding Ltd., completing a deal announced three years ago. Masayoshi Son’s investment giant said Tuesday it had fulfilled a deal unveiled in 2016, delivering 73 million American Depositary Shares in the online mall operator as agreed to under a forward sale contract. SoftBank, Alibaba’s biggest shareholder, was selling shares in the Chinese company for the first time in 16 years as it looked to strengthen its balance sheet and step up investments in startups.
- Volkswagen AG set plans to list its heavy-truck division Traton SE in Frankfurt and Stockholm, moving forward with one of the year’s largest European public offerings despite a wobbly stock market and a swirling trade war between China and the U.S. “The IPO will lay the foundation for Traton’s further growth by providing us with enhanced entrepreneurial flexibility and access to capital markets,” VW truck chief Andreas Renschler said in a statement late Monday. The company reaffirmed it expects the IPO to be completed “before the summer break” in August, depending on market conditions.
- A consortium led by buyout firm Hopu Investment Management is in advanced talks to buy a minority stake in Chinese air conditioner maker Gree Electric Appliances Inc. from its government-owned parent, according to people familiar with the matter. Temasek Holdings Pte. is part of the group pursuing the stake, said the people, who asked not to be named discussing confidential deliberations. The negotiations are ongoing and might not lead to a deal, they said. At Monday’s closing price, the 15% stake was valued at 47.4 billion yuan ($6.9 billion).
- Uber Technologies Inc. is under investigation from U.S. tax authorities and said that its potential tax charges in a number of key markets could change. The recently-listed ride-hailing company said in a filing Tuesday that the IRS is examining the tax years for 2013 and 2014. Uber also added that it is under examination by other state and foreign tax authorities. Uber shares in pre-market trading fell over 1% in New York. The stock was down 8.3% from the IPO price of $45 through Monday’s close in New York.
- When Donald Trump recognized Juan Guaido as the rightful leader of Venezuela in January, 50 governments quickly lined up behind the American president in an impressive show of Western unity. But as the effort to dislodge Nicolas Maduro stalls out, many of those countries are charting new diplomatic paths on Venezuela, ignoring American calls not to negotiate with him. Recently concluded talks in Norway and separate discussions between Europe and both sides of the Venezuelan divide have effectively pushed the U.S. to the margins.
- Royal Dutch Shell Plc plans to shower its investors in money, pledging returns of $125 billion between 2021 and 2025 — twice as much as a decade earlier. The oil and gas major says it can pull off this feat with crude at $60 a barrel and only a small increase in capital spending, an aggressive move to keep shareholders on its side while it weathers a disruptive transition to lower-carbon energy. The Anglo-Dutch company has already sought to stand out from some of its peers, who are boosting spending to get more barrels of oil and gas.
- Danske Bank A/S stands to get roughly $1 billion for what’s left of its Baltic and Russian assets after selling an Estonian loan portfolio worth almost half that amount. Denmark’s biggest bank is looking for buyers for the operations as it moves ahead with a total retreat from Europe’s East. That follows Danske’s admission last year that its Tallinn-based operations were at the center of a $230 billion money-laundering scandal that triggered multiple criminal investigations and ended the careers of several of its top executives.
- As big as its car market is, China has decided that its 486 aspiring electric-vehicle companies are too many. The country is considering rules to raise the barrier to entry for electric-vehicle makers and nurture fewer but more competitive players, according to people familiar with the matter. Particularly, China plans to clamp down on EV startups who farm out their manufacturing, the people said, asking not to be named as the rules are still being drafted. After hundreds of startups rushed into the electric-car business in the past decade, the government wants to prevent a crash akin to that of dot-com companies two decades ago. China’s electric-car makers have raised $18 billion since 2011, BloombergNEF estimates, but the market is in its infancy and foreign competition from the likes of Tesla Inc. is intensifying.
- China will audit 77 major pharmaceutical companies, including the local arms of Sanofi, Eli Lilly & Co. and Bristol-Myers Squibb Co., after one of its largest listed drugmakers was found to have overstated its cash position by $4.3 billion. The list of drugmakers to be audited in June and July was randomly chosen, China’s Ministry of Finance said Tuesday. The three multinationals were the only foreign companies on the list. Also included were China’s biggest domestic drug firms, among them Jiangsu Hengrui Medicine Co. and Shanghai Fosun Pharmaceutical Group Co. The announcement sent an index of health-care companies traded in Shanghai and Shenzhen down 1.8%.
- The looming U.S. antitrust investigation of Google is galvanizing as many as a dozen companies to gather their longstanding complaints about the Alphabet Inc. unit and consider bringing them to the Justice Department as the probe gets underway, according to people familiar with the matter. Rivals and companies that depend on Google have long complained that the internet giant harms competition across markets. These companies, ranging from media to advertising technology firms, are now assembling evidence and ready to assist the Justice Department, one person with knowledge of the matter said, declining to name the companies.
- Hahn & Co. is considering options for H-Line Shipping Co. including a partial or full sale of the South Korean freight company, people familiar with the matter said. The private equity firm is working with financial advisers on the potential transaction, which could value the entire shipping firm at $3.5 billion to $4 billion including debt, the people said. Some investors that helped buy the shipping assets five years ago are seeking to cash out, said one of the people, asking not to be identified because the matter is private.
*All sources from Bloomberg unless otherwise specified