June 6th, 2018
Daily Market Commentary
- Andrea Horwath, a longtime opposition lawmaker who’s never been close to power, may soon get her chance to lead Canada’s most-populous province. Backlash against an unpopular premier and concern about a populist candidate who draws comparisons to Donald Trump could see Horwath’s New Democratic Party win this week’s election in Ontario, ushering in higher taxes for Canada’s biggest companies and high-income earners. Ontario’s vote on Thursday has narrowed to a tight two-way race: the left-leaning New Democrats against the right-leaning Progressive Conservatives. Three parties typically are in the mix, but Premier Kathleen Wynne has already conceded she won’t win, effectively ending 15 years of Liberal Party rule.
- European stocks were little changed at the open as Italian stocks retreated and the U.S. and China exchanged trade proposals meant to avoid an escalation of economic tensions. The Stoxx 600 fluctuated, with basic resources and oil shares rising and banks falling.
- Stocks across the globe extended gains on signs that major economies will step back from the brink of a trade war. U.S. futures advanced following gains across Asia after China was said to offer to buy more American products and on reports the Treasury Department favors less sweeping investment limits on the Asian nation.
- Asian equities gained, with the benchmark index rising to a three-week high, as stable U.S. yields and lower valuations lured some investors back to the region. A gauge for material stocks lead the advance, buoyed by Australian miners. The MSCI Asia Pacific Index rose 0.4 percent to 175.15 as of 4:01 p.m. in Hong Kong.
- Oil traded near $65 a barrel as an industry report showing a drop in American crude stockpiles helped counter fears that supplies may gain after the U.S. was said to ask OPEC to boost output. Futures in New York were little changed, following a 1.2 percent advance on Tuesday. The American Petroleum Institute was said to report nationwide crude inventories fell over 2 million barrels last week. Meanwhile, the U.S. government has asked Saudi Arabia and some other members of the Organization of Petroleum Exporting Countries to increase output by about 1 million barrels a day, according to people familiar with the matter.
- Gold traded little changed near $1,300/oz with prices set to remain rangebound ahead of the Federal Reserve’s expected interest rate hike next week.
- Italian bonds and stocks dropped as the country’s new government continued to unnerve investors and European Central Bank policy makers flagged the prospect of talks to end its debt-buying program. The declines were led by two-year bonds, which have swung wildly over the past week. Italy’s new Prime Minister Giuseppe Conte passed a confidence vote in the Senate Tuesday following his maiden speech that stuck to a spending platform outlined by the Five Star Movement-League coalition. Investors are also factoring in the potential for reduced support for the region’s debt from the ECB as it may discuss ending quantitative easing at its meeting next week.
- The U.S. and China continued to haggle over the shape of a deal to fend off an impending trade war, with China offering to boost purchases of American goods and the U.S. finalizing a deal to allow China’s ZTE Corp. to resume purchases from American suppliers. Ahead of a mid-June deadline for imposing tariffs on Chinese imports, China has offered to boost purchases of U.S. goods by about $25 billion this year, according to two people familiar with the matter, who spoke on condition of anonymity because the negotiations aren’t public. Crude oil, coal and farm products are among the goods that the Chinese are willing to buy more of, according to the people briefed on the talks.
- Devon Energy Corp. will boost share buybacks after agreeing to sell its stake in EnLink Midstream Partners LP to an affiliate of Global Infrastructure Partners for $3.13 billion. The Oklahoma-based independent oil and gas producer now plans to buy back $4 billion of shares by the end of 2019, an increase from the $1 billion repurchase announced previously, it said in a statement Wednesday. The deal will also reduce Devon’s consolidated debt by 40 percent.
- China has approved six mutual funds that could raise as much as 300 billion yuan ($46.9 billion) in assets to purchase Chinese depositary receipts, as it seeks to boost high-profile share listings on the domestic market. Funds chosen by officials will each be allowed to raise 5 billion yuan to 50 billion yuan, according to people familiar with the matter, who asked not to be identified because amounts haven’t been publicly disclosed. The China Securities Regulatory Commission said it approved six “strategic allocation” funds, without disclosing the fundraising targets.
- Indonesia’s central bank Governor Perry Warjiyo said his quick action in raising interest rates has helped to stabilize the currency, adding that more policy tightening and market intervention may be needed if conditions warrant it. In his first interview with international media since he took office two weeks ago, Warjiyo said previous episodes of market turmoil — like the 2013 taper tantrum — has taught him to act early.
- Twitter says it will offer $1.0 billion aggregate principal amount of convertible senior notes due in 2024 in a private placement to qualified institutional buyers.
- India’s central bank raised its benchmark interest rate for the first time since 2014 to curb rising price pressures and calm financial markets as policy tightening in the U.S. rattles emerging markets. All six members of the Monetary Policy Committee voted to increase the repurchase rate to 6.25 percent from 6 percent, the Reserve Bank of India said in a statement in Mumbai on Wednesday. The move was predicted by 14 of the 44 economists in a Bloomberg survey, with the rest seeing no change.
- Elon Musk expressed confidence about Tesla Inc. achieving the next production goal for its crucial Model 3, predicting that manufacturing will become a strength for the electric-car maker over time. The chief executive officer said it’s “quite likely” that Tesla will build 5,000 of the sedans a week by the end of this month. The money-losing carmaker has said its forecasts for profit and cash generation in the second half of this year — which Musk reaffirmed during Tesla’s annual meeting Tuesday — are dependent on reaching this target.
- Abu Dhabi plans to spend $13.6 billion over three years and allow freezone-based companies to take part in government tenders as the oil-rich emirate seeks to stimulate the economy. The government will take steps to support new industries, encourage tourism and make it easier to do business, Crown Prince Mohammed Bin Zayed Al Nayhan said. Officials have been instructed to “draw up a working plan for allocations within 90 days,” he said. Abu Dhabi stocks gained 1 percent at the open on Wednesday.
- Facebook Inc. said it had data-sharing partnerships with four Chinese consumer-device makers, including Huawei Technologies Co., escalating concerns that the social network has consistently failed to tell users how their personal information flows beyond Facebook. The disclosure came after Mark Warner, the top Democrat on the Senate Intelligence Committee, said earlier Tuesday that he saw “a serious danger” that Facebook shared user information with Chinese device makers. Facebook said it was careful about the partnerships, which were designed to help smartphone makers build custom versions of Facebook’s app. Still, the confirmation is likely to heighten scrutiny of the company’s privacy practices if the deals weren’t explicitly disclosed to users.
- General Electric Co., which expects the market for its signature natural gas turbines to remain “soft” for several years, has found a bright spot for growth in an altogether different business: batteries. “The company is investing in energy storage as a significant business for the foreseeable future,” said Robert Morgan, who was tapped by GE Power last month to lead its energy storage unit. GE is gearing up to compete with the likes of Fluence Energy, a joint venture of AES Corp. and Siemens AG, and Tesla Inc. in providing large-scale battery systems to project developers and utilities. The company is signing contracts for power grid-scale systems that can provide as much as four hours of energy, Morgan said in an interview on the sidelines of anEdison Electric Institute conference in San Diego Tuesday.
- The U.K.’s main opposition party proposed a plan to effectively stay in the European Union’s single market, a move that could nudge the country toward keeping closer to the bloc after Brexit. Labour Party leader Jeremy Corbyn put forward an amendment to Prime Minister Theresa May’s flagship Brexit legislation — to be voted on next week. It would make it a formal goal in negotiations to keep “full access” to the single market. May is determined to leave the EU’s internal market, which applies the same trade rules across national boundaries within the bloc.
- Saudi Arabia, the world’s largest oil exporter, raised pricing on key crude grades for buyers in Asia to the highest since 2014 as demand builds in the country’s biggest market amid threats to rival suppliers. State-owned Saudi Arabian Oil Co. raised its official selling price for Arab Light crude for July shipment to Asia by 20 cents to $2.10 a barrel more than the Middle East benchmark, the company said Tuesday in an emailed statement. The company’s third consecutive increase in the grade brings it to the highest since July 2014. The producer, known as Saudi Aramco, increased the premium by less than the 34 cent rise expected by six traders in a Bloomberg survey.
- Credit Suisse Group AG agreed to pay a $47 million penalty to the U.S. Department of Justice to end a probe into whether it hired employees in Asia in exchange for government contracts and other favors. Credit Suisse’s Hong Kong unit reached a non-prosecution agreement with the DOJ regarding its recruitment practices in Asia between 2007 and 2013, according to an emailed statement from the Zurich-based bank on Wednesday. The payment will have no material impact on second-quarter results since the bank has already provisioned for the payment, it said.
- Johnson & Johnson has defended lawsuits alleging its baby powder caused ovarian cancer in women in the past, but the stakes in a trial beginning in St. Louis Wednesday are massively higher, as 22 women try to link their illnesses to exposure to asbestos in the company’s talc. The case is part of a recent wave of trials over allegations the company sold talc in its iconic white Johnson’s Baby Powder bottles knowing it was tainted with asbestos and failed to warn consumers to protect the brand. The company steadfastly maintains there is no asbestos in its baby powder and the product is safe.
- Circle Internet Financial Ltd., one of the world’s most valuable cryptocurrency platforms, is looking to make a big leap into the highly regulated realm of U.S. banks and brokerages. The venture, partly backed by Goldman Sachs Group Inc., plans to seek a federal banking license to provide more services to customers. It also intends to pursue registration as a brokerage and trading venue with the Securities and Exchange Commission, so it can help investors buy and sell tokens deemed to be securities.
- China’s biggest renewables developer is planning to hand EDP-Energias de Portugal SA most of its cash-generating wind and hydro assets overseas as part of a $10.6 billion takeover deal announced last month, people familiar with the matter said. China Three Gorges Corp., which spent two decades damming the Yangtze River, wants the utility that’s based in Lisbon to manage its assets abroad and to use those to expand its reach across Europe and the Americas. They may be valued at about $8.3 billion, according to estimates fromBloomberg New Energy Finance.
- Takeda Pharmaceutical Co. Chief Executive OfficerChristophe Weber said he expects shareholders of the Japanese drugmaker to approve its acquisition of Shire Plc, despite opposition from a group of investors. The opposition group, which calls itself “Thinking About Takeda’s Future,” is made up of former Takeda employees and shareholders who collectively own about 1 percent of Takeda’s stock. Many of the 130 members have objected to the company’s direction and strategy even before Weber took over in 2015, with some belonging to a former group that was set up to oppose Takeda’s acquisition of Nycomed in 2011.
- American Securities LLC is considering the sale of ceramics and insulation maker Unifrax Corp., valued at an estimated $2 billion, according to people with knowledge of the situation. The move follows interest in New York-based Unifrax from potential acquirers, and the U.S. private equity firm has hired Goldman Sachs to advise on options, said the people, who asked not to be identified because the matter is private. Unifrax generates about $200 million in earnings before interest, taxes, depreciation and amortization, and could fetch 10 times that amount in an auction, said the people.
*All sources from Bloomberg unless otherwise specified