March 1, 2019

Daily Market Commentary

 

Canadian Headlines

• Canadian stocks ended a four-day winning streak, trending lower with the U.S. market on global risks. The S&P/TSX Composite Index dropped 0.5 percent to 15,999.01. Materials, financials, and industrials lagged, while health-care and real estate advanced. The S&P/TSX Composite Materials Sector GICS Level 1 Index (STMATR) dropped for a fourth straight session. Foreign direct investment in Canada rebounded in 2018, showing businesses may be regaining some of their confidence in an economy hampered by falling oil prices and trade uncertainty.
• When prices for Canada’s heavy crude collapsed late last year, Alberta did something quite out of character. The traditionally conservative, free-market-loving province took a page out of OPEC’s handbook and ordered its largest oil producers to throttle back output by about 325,000 barrels a day, the equivalent of almost 9 percent of daily production. The move was an unprecedented intervention meant to rescue Canada’s oil producers—and the province’s tax revenue—from a lack of pipeline capacity that caused a glut of crude to back up in storage tanks. It worked: The price of Western Canadian Select, the benchmark for crude extracted from Alberta’s oil sands, has more than tripled since closing at $13.46 a barrel in mid-November, its lowest level in at least a decade. But the unintended consequences have critics fuming and even some of the policy’s supporters wringing their hands.
• Barrick Gold Corp. has no intention of increasing its hostile offer for Newmont Mining Corp., according to a person familiar with the matter who asked not to be identified because the talks are private. On Monday, Barrick proposed to buy Newmont in an all-share $17.8 billion hostile deal that valued the rival miner’s stock at 8 percent below the prior closing price. Newmont responded that its board would consider the offer, while simultaneously criticizing Barrick’s operating model and saying that its own pending takeover of Goldcorp Inc. offered “superior benefits.”

World Headlines

• The Stoxx Europe 600 Index rose to the highest in almost five months, with 18 of 19 industry sectors in the green and car makers leading the charge, even after data showed that euro-area manufacturing contracted last month.
• U.S. stock-index futures rose after a measure of Chinese factory activity indicated a strong rebound in February, compared with official data released Thursday showing that activity slowed further. E-mini contracts on the S&P 500 Index expiring in March gained 0.6 percent as of 4:28 a.m. New York time. The China Caixin Factory PMI showed that a pickupin domestic demand from increased infrastructure spending boosted Chinese factories in February, according to a private survey by Markit Economics. Elsewhere, U.S. officials are preparing a final trade deal that President Donald Trump and his Chinese counterpart Xi Jinping could sign in weeks, people familiar with the matter said.
• The yen’s drop to a 10-week low against the greenback helped boost Japanese equities, while Chinese shares outperformed as an increase in the Caixin manufacturing gauge and confirmation that MSCI Inc. will raise the weight of Chinese stocks in its global benchmarks buoyed sentiment. Stocks are ending the week on a positive note as the latest economic data from China offered reassurance to investors concerned about the global growth outlook, while prospects of a trade deal improved. Treasuries extended a decline and the dollar pushed higher for a third day.
• Oil was little changed Friday after Saudi Arabia defied U.S. President Donald Trump’s call for lower prices and Chinese manufacturing data lifted risky assets. Futures in New York rose as much as 1.2 percent earlier and traded at a three-month high before retreating. Saudi Arabia’s Energy Minister Khalid Al-Falihsaid Wednesday that OPEC and its allies may continue output cuts even after Trump called on the group to “relax and take it easy.” A surprise decrease in U.S. crude stockpiles also supported prices, and hopes for demand were bolstered after the latest reading on China’s economy came in above expectations.
• Gold is heading for its worst week since November as the metal slides closer to the psychological $1,300/oz level. While geopolitical worries continue to simmer, the dollar and global stocks edged higher as investors weigh economic data from China and the U.S. Palladium also retreated Friday but remains headed for a fourth weekly advance. While its premium over platinum is now almost $700 per ounce, there are few signs of substitution, according to Goldman Sachs Group Inc. Car makers are more focused on meeting tighter environmental regulations rather than optimizing usage of platinum group metals, according to the bank.
• House Republicans spent almost two years forcing the Justice Department to turn over internal documents about the investigation into Hillary Clinton. Now that Democrats control the House, they’re ready to do the same thing to crack open Robert Mueller’s probe. Democrats plan to seize on the GOP’s successes, including in obtaining extensive material related to the origins of the Russia probe, as precedent for full disclosure of Special Counsel Mueller’s impending final report — and the evidence behind it.
• MSCI Inc. will expand the weighting of China-listed shares in benchmark indexes tracked by global investors, a decision that could see billions of dollars flow into one of the world’s most volatile major stock markets. The increase will occur in three steps this year beginning in May, with the weighting of Chinese A shares ultimately rising to 3.3 percent of the MSCI Emerging Markets Index in November from 0.72 percent, the company said in a statement. Shares listed on the tech-heavy ChiNext board will join its indexes for the first time.
• U.S. officials are preparing a final trade deal that President Donald Trump and his Chinese counterpart Xi Jinping could sign in weeks, people familiar with the matter said, even as a debate continues in Washington over whether to push Beijing for more concessions. The U.S. is eyeing a summit between the two presidents as soon as mid-March, said one of the people, who spoke on condition of anonymity because the preparations are confidential. The planning has been complicated by Xi’s need to lead China’s annual National People’s Congress in early March, as well as make other foreign trips, the people said.
• Lyft Inc., which got its start as a college carpooling service called Zimride in 2007, is ready to hit the on-ramp to an initial public offering ahead of larger rival Uber Technologies Inc. The smaller of the two biggest U.S. ride-hailing companies is expected to publicly submit its IPO application to regulators as soon as Friday. That will put the company ahead of Uber as well as several high-profile tech unicorns bound for IPOs this year. Lyft announced on Dec. 6 that it had privately filed with the Securities and Exchange Commission, the same day that Uber filed confidentially, people familiar with the matter have said. A wave of IPO news has followed, with messaging startup Slack Technologies Inc., image company Pinterest Inc. and food-delivery company Postmates Inc. all moving closer to listings of their own.
• In what reads as a desperate move, Gap Inc. is spinning off the best part of its business — Old Navy. The market liked the news, sending shares soaring 25 percent in premarket trading. The remaining company — which still needs a name — will consist of the namesake Gap brand, Athleta and Banana Republic, plus a couple of lesser known brands. It will have annual revenue of about $9 billion, compared to Old Navy’s $8 billion, the company said.
• Hulu and YouTube together have signed about 3 million subscribers to their live online TV services, according to people with knowledge of the matter, a sign the two internet companies may be outmaneuvering competitors like Sling TV and DirecTV Now. Hulu’s live service is nearing 2 million subscribers, while YouTube TV has eclipsed 1 million, said the people, who asked not to be identified because the numbers aren’t public. Both continue to add hundreds of thousands of customers every quarter.
• Tesla Inc.’s Elon Musk is having a harder time keeping people employed than he bargained for eight months ago. When the chief executive officer announced plans to dismiss about 9 percent of the electric-car maker’s workforce in June, he wrote in an internal memo that Tesla was “making this hard decision now so that we never have to do this again.” On Thursday, Musk told workers more jobs will be cut as Tesla moves to wind down most stores worldwide and transition to online-only ordering. This is the second culling the billionaire has announced this year — he said in January the company had “no choice” but to reduce headcount by about 7 percent.
• The U.S. laid out its vision for a sweeping trade deal with post-Brexit Britain — and it’s likely to raise alarm bells in London. President Donald Trump’s administration published its “negotiating objectives” for a future trade agreement late Thursday, including “comprehensive access” for agricultural goods and a demand to remove “unwarranted barriers” to trade in the farm industry related to health and safety checks. As a member of the European Union, the U.K. is unable to strike its own trade deals and the pursuit of agreements with countries including the U.S., India and Australia is a key argument put forward by supporters of Brexit. But opponents have argued that a U.S. trade deal would mean opening up Britain to chlorine-treated chicken and genetically modified crops.
• Mitsubishi UFJ Financial Group Inc. agreed to buy DZ Bank’s aviation finance division in one of its biggest acquisitions since it was created in 2005. The assets MUFG bought from Germany’s second-largest bank, held by its subsidiary DVB Bank, include a loan portfolio of 5.6 billion euros ($6.4 billion) as well as the unit’s employees and “parts of the operating infrastructure,” according to press releases from both banks on Friday. The firms confirmed an earlier report on the sale by Bloomberg.
• Tata Group is exploring strategic options for its Jaguar Land Rover Automotive Plc unit including a potential stake sale in the struggling luxury carmaker, people familiar with the matter said. India’s biggest conglomerate is considering alternatives ranging from a minority stake sale to finding a venture partner that would jointly develop vehicles and lower costs, said the people, who asked not to be identified because the discussions are private. The company is holding early-stage talks with potential advisers, and the deliberations may not lead to any transaction, they said.
• Caesars Entertainment Corp. gave Carl Icahn seats on its board, putting the billionaire in position to influence the choice of a new chief executive officer and push harder for a sale of the gambling giant. Three Icahn-backed candidates, Keith Cozza, Courtney Mather and James Nelson, will replace three existing board members effective immediately, Caesars said in a statement Friday. Icahn has the right to appoint a fourth member if a CEO amenable to the new directors isn’t chosen within 45 days. Caesars, the largest owner of casinos in the U.S., is under pressure from shareholders to boost returns or find a buyer. In recent weeks, investors including Icahn, Canyon Partners and Oppenheimer Funds have all urged the company to consider a sale. Caesars Chief Executive Officer Mark Frissora is slated to step down at the end of April and the company has been searching for his replacement.
• Larsen & Toubro Infotech Ltd. and Baring Private Equity Asiaare the leading bidders for a major stake in Mindtree Ltd., as the Indian tech services and consulting firm’s largest shareholder seeks to sell his holding, according to people familiar with the matter. Larsen & Toubro and Baring are both offering 950 to 1,000 rupees a share and a decision may come as soon as next week, one of the people said, asking not to be identified because the matter is private. V.G. Siddhartha, the largest shareholder in Mindtree, is selling a stake of about 20 percent that he holds through Coffee Day Enterprises and affiliated entities. The deal would be valued at about 34 billion rupees ($480 million) at the top of the price range.
• Global Switch, the U.K. data center operator controlled by Chinese investors, has chosen arrangers for a proposed Hong Kong initial public offering that could raise more than $1 billion, people with knowledge of the matter said. The London-based company picked CLSA Ltd., Goldman Sachs Group Inc. and JPMorgan Chase & Co. to lead the deal, according to the people, who asked not to be identified because the details are private. Morgan Stanley is also among banks that were chosen to work on the share sale, which could take place as soon as this year, the people said.
• One corner of America’s natural gas market has gotten so volatile, it’s already led to a nearly $1 billion mistake by the region’s biggest utility. Southern California Edison will have to charge customers an extra $815 million after failing to predict a West Coast heat wave that sent prices soaring to a record in July. The market’s volatility hasn’t let up: Gas for delivery to Los Angeles traded at almost 10 times the U.S. benchmark in early February as a winter chill dusted Pasadena with snow. It’s not the first time southern California has faced extreme weather. But this year, the temperature swings are straining a gas system already hobbled by pipeline disruptions and the partial shutdown of a major storage field. With so many pinch points in the network, cold snaps and heat waves alike can send prices flying in a state that relies heavily on gas to fuel power plants.

*All sources from Bloomberg unless otherwise specified