March 19th, 2018

 

Daily Market Commentary

 

World Headlines

• European shares slide as U.S. bond yields rise before Jerome Powell’s first meeting as Federal Reserve chairman later this week. The Stoxx 600 Index slips 0.6% along with U.S. futures. Mining stocks are among the worst-performing sectors after iron ore futures tumbled again on record holdings at China’s ports.
• Stocks declined globally on Monday as investors braced for a week packed with risk events, from central bank decisions to Brexit talks to a G-20 gathering. Commodities were weaker across the board, the dollar reversed an advance and Treasury yields rose. The biggest focus for global markets this week will be the first U.S. interest rate decision under the Federal Reserve’s new Chairman Jerome Powell. It comes just weeks after he hinted to investors that he’s open to lifting the policy rate four times this year, rather than the three currently reflected in dot-plot forecasts.
• Asian shares slipped as traders assessed the pace of U.S. monetary tightening and trade tensions between the world’s biggest economy and China. Shares also fell after Apple Inc. was said to be making a significant investment in the development of next-generation MicroLED screens. The MSCI Asia Pacific Index dropped 0.5 percent to 177.19 as of 3:57 p.m. in Hong Kong, erasing earlier gains and heading for a second day of losses.
• Oil slipped as U.S. explorers resumed their drilling binge, raising concerns over whether output cuts by OPEC and its allies will be enough to clear a glut despite a pledge from Russia that it’s committed to the curbs. Futures in New York fell 0.4 percent after data showed American producers added oil rigs for the seventh time in eight weeks. U.S. output also continued to grow, touching a record 10.4 million barrels a day last week. Meanwhile, Russia’s assurance that it will prolong production cuts into 2019 if necessary failed to assuage fears over surging shale supplies.
• Gold headed for its longest stretch of declines in a month, dropping for a fourth day, with Federal Reserve widely expected to raise interest rates this week and investors focusing on further guidance on pace of tightening.
• Iron ore is losing altitude fast. Futures in Singapore are heading for the lowest close in more than three months as investors fret about record holdings at China’s ports and concern that demand may disappoint. The most-active SGX AsiaClear contract lost as much as 4.3 percent to $65.40 a metric ton, and was at $65.75 at 4:48 p.m. in Singapore. Prices have sunk 16 percent from the multi-month peak in February. Futures in Dalian also fell.
• Apple Inc. is designing and producing its own device displays for the first time, using a secret manufacturing facility near its California headquarters to make small numbers of the screens for testing purposes, according to people familiar with the situation. The technology giant is making a significant investment in the development of next-generation MicroLED screens, say the people, who requested anonymity to discuss internal planning. MicroLED screens use different light-emitting compounds than the current OLED displays and promise to make future gadgets slimmer, brighter and less power-hungry.
• Total SA will pay $1.45 billion for stakes in two offshore oil fields in Abu Dhabi, extending a decades-long partnership as the Middle Eastern emirate seeks to expand production capacity. The Paris-based company will take a 20 percent stake in the Umm Shaif and Nasr oil block and help develop natural gas at the fields, Abu Dhabi National Oil Co. said in a statement. Adnoc Chief Executive Officer Sultan Al Jaber and Total CEO Patrick Pouyanne also agreed for Total to take a 5 percent stake in the Lower Zakum oil field, at a signing ceremony at the Abu Dhabi Louvre.
• Samsonite International SA, the world’s biggest luggage maker, has its eyes on adding a handbag brand and is open to a deal that could rival its $1.8 billion purchase of Tumi, according to ChairmanTimothy Charles Parker. Handbags would help Samsonite fill a gap as the company focuses on boosting sales of office gear and non-travel products to women, Parker said in an interview last week. Products designed for women currently account for less than 5 percent of the company’s sales, and it aims to eventually boost that ratio to a quarter.
• Varo Energy BV, a Rotterdam-based integrated fuel supplier backed by the world’s biggest independent oil trader and a private equity giant, plans to sell as much as $980 million worth of shares in an initial public offering. The company intends to list on the Amsterdam Stock Exchange, Varo said Monday in an emailed statement. The company’s current shareholders, oil trader Vitol Group, private equity firm Carlyle Group and Dutch investor Reggeborgh, plan to sell 30 percent to 40 percent of their combined existing shares. Each of the three shareholders will sell an equal amount of stock, Varo said.
• Government officials in the U.S. and Europe are demanding answers from Facebook Inc. after reports that Cambridge Analytica, the advertising-data firm that helped Donald Trump win the U.S. presidency, retained information on tens of millions of Facebook users without their consent. Over the weekend, entreaties for the social-media giant to take responsibility evolved into calls for Chief Executive Officer Mark Zuckerberg to appear in front of lawmakers. Facebook has already testified about how its platform was used by Russian propagandists ahead of the 2016 election, but the company never put Zuckerberg himself in the spotlight with government leaders. The pressure may also foreshadow tougher regulation for the social network.
• Emerging-market investors are bracing for further fallout from allegations Russia was behind a nerve-agent attack in the U.K., overshadowing an election that extended Vladimir Putin’s tenure as the Kremlin’s longest-serving leader since Josef Stalin. Elsewhere, traders will be rooting for Group-of-20 finance ministers and central bankers to find ways to avoid a global trade war when they meet in Argentina on Monday and Tuesday, while Wednesday’s Federal Open Market Committee meeting should provide guidance on the path of U.S. monetary policy. Bloomberg Economics estimates a trade war could chop $470 billion from the global economy by 2020.
• Hammerson Plc gained the most in 28 years after rejecting a 4.9 billion-pound ($6.8 billion) offer from Klepierre SA that would have created one of the largest retail landlords in Europe. A deal for the U.K.’s largest shopping landlord would be the biggest-ever acquisition of a publicly-traded real estate company in Britain. The country’s retail property owners have been trading at wide discounts to the values of their assets as investors fear the threat of Internet shopping and the prospects for consumer spending growth following the Brexit vote.
• Investors added $1.7 billion to exchange-traded funds that buy emerging market stocks and bonds in a fifth straight week of inflows. Inflows to U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $1.7 billion, compared with $607.7 million in the previous period, according to data compiled by Bloomberg. Fund assets have grown $16.1 billion so far this year.
• It’s crunch week for businesses wanting to know the rules and trading regime they’ll be operating under just a year from now. Brexit Secretary David Davis and chief EU negotiator Michel Barnier meet in Brussels on Monday to thrash out an agreement on the transition period before a key summit on Thursday and Friday. The U.K. has been trying to secure a written promise from the EU about the transition agreement, according to a person familiar with the situation. Businesses are cranking up the pressure to make the transition as solid — and useful — as possible. They are becoming increasingly aware that any agreement reached at the summit this week will be a political commitment — not legally binding until the final withdrawal agreement is signed early next year.
• HNA Group Co. is planning to sell properties including office buildings and hotels across China, according to people familiar with the matter, as the embattled conglomerate scrambles to repay its debts. The buildings include Shanghai HNA Tower, Shanghai Yangtze International Enterprise Plaza and Renaissance Shanghai Pudong Hotel, said the people, asking not to be identified as the deliberations are private. Nine properties HNA has put up for sale in Shanghai and Beijing have a combined book value of about 14 billion yuan ($2.2 billion), one of the people said.
• Alibaba Group Holding Ltd. will invest another $2 billion in Lazada Group SA and install one of its most senior executives to run the business as it doubles its bet on Southeast Asia. Lucy Peng, who is already chairman of Lazada, will take over as chief executive officer, according to a statement Monday. Current CEO Max Bittner will step down and remain as a senior adviser.
• U.K. Prime Minister Theresa May’s government will consider further action against Russia this week after it accused Moscow of stockpiling Novichok, the nerve agent used to poison a former spy and his daughter in western England. Foreign Secretary Boris Johnson will brief his European counterparts in Brussels on Monday, after rejecting a Russian suggestion that a British laboratory may have been the source of the substance that has left double-agent Sergei Skripal and his daughter Yulia fighting for their live.

 

*All sources from Bloomberg unless otherwise specified