March 19, 2019
Daily Market Commentary
- Canadian Headlines
- Canadian stocks were buoyed Monday by marijuana and energy stocks, while U.S. equity benchmarks pushed higher at the start of a week filled with potentially significant catalysts. The S&P/TSX Composite Index rose 0.7 percent to 16,251.37. Pot names jumped and the Horizons Marijuana Life Sciences Index ETF advanced 2.8 percent. Energy also climbed as oil hit a high for the year.
- Canada’s next budget will look very familiar, with Justin Trudeau set to spend much of a revenue windfall and continued red ink in his government’s books. Finance Minister Bill Morneau will unveil his fourth fiscal plan Tuesday amid an economic slowdown and a dip in the polls for Trudeau’s team amid allegations of judicial interference. The Liberal government has seen higher-than-expected revenues and has hinted there will be new measures on skills training, housing, pharmaceutical coverage and support for seniors. None of it will sharply change the course of a government whose previous budgets have put windfalls toward social programs and transfers, while running deficits that steadily decline as a share of the economy. While Morneau has telegraphed the same will be true this year, the October vote that will decide if Trudeau gets a second mandate sharpens the focus on new spending.
- Canada Pension Plan Investment Board, which manages around C$368.5 billion ($277 billion), is considering opening its first office in China as it seeks greater exposure to the world’s second-largest economy. Canada’s largest pension fund investor could open an office in Beijing as soon as next year, Hong Kong-based head of Asia Pacific Suyi Kim said in an interview this month. Staff there would then work closely with CPPIB’s 130 employees in Hong Kong, which have helped to invest C$42 billion in Greater China so far, she said.
- World Headlines
- European equities opened steady as mining shares climbed amid higher copper prices and Asos Plc tumbled on a sales update. The Stoxx Europe 600 Index increased 0.1 percent. Rio Tinto Plc added 0.6 percent, while retailer Asos slumped 12 percent as it maintained full-year revenue growth guidance after a December profit warning. Evraz Plc fell 5.5 percent after Billionaire Roman Abramovich and his partners sold 1.8 percent of the steelmaker through an accelerated book build.
- U.S. equity futures climbed alongside European stocks on Tuesday, while Asian shares drifted as investors marked time ahead of this week’s slew of central bank decisions. The dollar steadied and Treasuries edged higher. Contracts for the S&P 500 Index pointed to a gain at the open in New York after the underlying gauge climbed to a five-month high on Monday. Futures for the Dow Jones and Nasdaq gauges followed suit.
- Net northbound fund flows climbed to around 130 billion yuan ($19.4 billion) this year as of Monday, with sentiment helped by Beijing’s looser monetary policy and an easing of trade tensions with the U.S. The market could be further supported by foreign inflows, as MSCI Inc. expands the weighting of mainland-listed shares in benchmark indexes tracked by global investors. The Hong Kong Monetary Authority spent nearly $1 billion defending the exchange-rate peg this month, as the Hong Kong dollar’s wide interest-rate discount to the greenback makes shorting the city’s currency lucrative. The latest intervention by the HKMA came Monday U.S. time.
- Oil in New York rose to the highest level this year after OPEC and its partners agreed to go beyond their pledged supply curbs in the coming months. Futures gained as much as 0.7 percent after advancing 1 percent on Monday. A committee of the OPEC+ group reaffirmed at a meeting in Baku, Azerbaijan that it will continue production cuts until at least June. Saudi Arabian Energy Minister Khalid Al-Falih said oil market fundamentals have “significantly improved but more needs to be done.”
- Gold rose for a third day amid expectations of dovish signals for monetary policy from the Federal Reserve as it meets this week. The Fed is expected to hold interest rates steady, announce plans for the end of the asset roll-off from its balance sheet, and lower projections for the number of interest-rate hikes this year. The decision is due Wednesday. Meanwhile, palladium extended this year’s gain to reach an all-time high as automakers grapple with an ongoing shortage of the precious metal used in catalytic converters.
- Theresa May looks set to seek a long Brexit delay after the House of Commons speaker torpedoed her plan to put her deal to another vote in Parliament. EU leaders are planning to offer a conditional extension giving the prime minister time for one last try, officials familiar with the plan said.
- Investors holding $557 billion don’t seem to trust the epic stock rally of 2019, according to a survey by Bank of America Merrill Lynch. Fund managers this month cut their equity exposure to the lowest level since September 2016, according to BofA, despite the 18 percent rebound in global shares. Investors are long defensive assets, such as cash and real estate investment trusts, and short cyclical instruments, such as U.K. and euro-zone stocks, the survey showed. Although equities around the globe have been enjoying a robust recovery this year amid softer monetary policy, many investors have remained on the sidelines after being burned by the sudden sell-off at the end of 2018.
- GEMS Education, the Dubai-based school operator backed by Blackstone Group LP, is in advanced talks to invest in Saudi Arabia’s Maarif for Education & Training chain of schools, according to people with knowledge of the matter. The deal for the largest owner and operator of private schools in the kingdom could be worth about $400 million, the people said, asking not to be identified because the discussions are private. Samba Capital is advising the owners who are seeking to sell all or part of the company, the people said. A final decision hasn’t been made and the company’s plans could change, they said.
- China is looking at excluding Boeing Co.’s troubled 737 Max jet from a list of American exports it would buy as part of a trade deal with the U.S., people familiar with the matter said. Boeing jets were featured on a draft list of American products China would buy to reduce its trade surplus with the U.S., the people said, asking not to be identified discussing private deliberations. Now, safety concerns are pushing China to examine whether to cut the 737 Max from the list altogether or replace it with other Boeing models after the crash of a plane operated by Ethiopian Airlines led to the aircraft being grounded worldwide, they said.
- The U.S. Securities and Exchange Commission said it’s “stunning” that Elon Musk didn’t seek pre-approval of any of his tweets about Tesla Inc. in the months since he was ordered by a judge to do so. Musk’s August tweets about taking Tesla private resulted in $40 million in fines, the appointment of two independent board directors and the replacement of Musk as chairman. His settlement with the SEC, approved by a judge in October, called for Tesla to designate an attorney to pre-approve company-related tweets. The electric-car maker appointed one in late December, but that person is monitoring the tweets in real time, not approving them beforehand.
- Ford Motor Co. is boosting production of its biggest, highly lucrative sport utility vehicles for the second time in two years at a U.S. factory already bursting at the seams. The automaker is increasing Ford Expedition and Lincoln Navigator output by 20 percent — about 20,000 additional SUVs a year — by speeding up the assembly line and redesigning it so multiple workers can manufacture the SUVs simultaneously. Ford executives declined to say how much they’re spending, but an upgrade of the same Kentucky plant announced in February 2018 cost $25 million and followed a $900 million investment the year before.
- Norsk Hydro ASA, one of the world’s biggest aluminum producers, is suffering production outages after a cyber attack affected operations across Europe and the U.S. Some operations, such as primary production potlines, have moved to a manual mode where possible, according to spokesman Halvor Molland. Other operations such as extrusion plants have been temporarily stopped. The company is doing everything possible to fix the problem, but isn’t ready to give any forecasts yet, he said by phone. Aluminum futures were little changed on the London Metal Exchange.
- J Sainsbury Plc pledged 1 billion pounds ($1.3 billion) in price cuts after its planned purchase of Walmart Inc.’s Asda as it seeks to overcome regulators’ concerns that the deal could lead to higher costs for U.K. grocery shoppers. The supermarket chains said they’d make 300 million pounds worth of reductions in the first year and a further 700 million pounds over the following two years as they follow through on a previous commitment to reduce prices by 10 percent on a range of everyday items.
- Tencent Holdings Ltd. is planning to clear out about 10 percent of its existing managers to make room for younger executives as China’s largest gaming and social media company confronts a slowdown in growth, according to people familiar with the matter. President Martin Lau told an internal meeting late last year that its lowest-performing general managers will need to leave the company or be demoted, mainly because not much staff-pruning has occurred in the past, the people said, asking not to be identified talking about a private matter. Tencent may then promote star performers, one of the people said. Jane Yip, a spokeswoman for the company, declined to comment.
- Hong Kong’s government plans to spend HK$624 billion ($80 billion), equivalent to half its fiscal reserves, to reclaim land for artificial islands that’ll help ease its housing crunch. The price tag for the so-called Lantau Tomorrow Vision includes costs for reclamation, infrastructure and improving transportation, Michael Wong, secretary for development, said at a briefing Tuesday. More than a third, or HK$256 billion, will go toward building artificial islands spanning 1,000 hectares off Lantau Island.
- Volkswagen AG’s main owners, the Porsche and Piech billionaire clan, may buy more shares after paying 400 million euros ($454 million) to boost their voting stake in the world’s biggest automaker, saying the German manufacturer is undervalued. Porsche Automobil Holding SE is keeping its options “open” to further increase its stake in the world’s biggest carmaker, Porsche SE Chief Executive Officer and VW Chairman Hans Dieter Poetsch told reporters Tuesday.
- Deutsche Bank AG is working with Citigroup Inc on its possible combination with Commerzbank AG, according to people familiar with the matter. Citigroup has received a formal mandate to advise Germany’s largest bank on the deal with the country’s second-largest lender, the people said, asking not to be identified discussing private information. The lender is also working with law firm Freshfields, they said. Rothschild & Co. and Goldman Sachs Group Inc. are advising Commerzbank AG, Bloomberg reported on Monday after the two banks officially announced merger talks over the weekend.
- CapitaLand Commercial Trust, Singapore’s biggest office landlord, is among suitors in talks about a potential acquisition of the Duo office and retail development in the city, people with knowledge of the matter said. The real estate investment trust has been negotiating the purchase of a 39-story office building called Duo Tower, along with the connected Duo Galleria mall, according to the people. The property could be valued at more than S$1.5 billion ($1.1 billion), one of the people said, asking not to be identified because the information is private.
- India is witnessing its first hostile takeover attempt of a software developer, a move the target says is a “grave threat” to its future. Larsen & Toubro Ltd., Asia’s second-largest engineering firm by value, agreed to buy 20.3 percent of Mindtree Ltd. for about 32.7 billion rupees ($480 million) and plans to acquire a controlling stake for as much as 107.3 billion rupees. V.G. Siddhartha, the largest shareholder in Mindtree through Coffee Day Enterprises and affiliated entities, agreed to sell the original stake for 980 rupees apiece.
- Bank of America Corp. has bought its biggest distressed asset in India, adding to a growing trend of foreign investors diving deeper into the country’s massive pile of bad debt. A group of investors led by the U.S. bank have paid 33 billion rupees ($479 million) for soured loans of a beleaguered Indian maker of cast iron pipes, according to people familiar with the matter. The group, which includes local bad debt buyer Assets Care & Reconstruction Enterprise, bought distressed loans of Jayaswal Neco Industries Ltd., with a face value of 47 billion rupees.
*All sources from Bloomberg unless otherwise specified