March 20, 2019
Daily Market Commentary
- Canadian Headlines
- Canadian stocks gave back earlier gains, even as Marijuana stocks continued their rally with Tilray Inc. beating sales estimates. Canada forecast 2019-2020 budget deficit of C$19.8 billion, however, Loonie hasn’t reacted to the news, and it likely won’t move the needle for Bank of Canada. The S&P/TSX Composite Index fell 0.4 percent to 16,188.10 on Tuesday. Pot stocks jumped and the Horizons Marijuana Life Sciences Index ETF advanced to its highest intraday since October 19. Utilities underperformed, weighed down by Northland Power Inc., which reported a secondary offering of shares.
- Justin Trudeau unveiled a pre-election budget littered with as much new spending for key voter groups as he could deliver without sacrificing the government’s fiscal credibility. Trudeau’s finance minister, Bill Morneau, detailed his fourth fiscal planTuesday in Ottawa, the government’s last before an October election. It pledged C$22.8 billion ($17.1 billion) over six years for a wide-ranging set of measures that include new funding for young home buyers, seniors, infrastructure and indigenous communities, and loan relief for students. The plan continues the hallmark of Trudeau’s fiscal policy since taking power in 2015 — a preference for new spending over returning the budget to balance, while trying to keep deficits low enough to reassure Canadians he remains fiscally prudent. He stuck to that playbook this year, using a windfall in revenue to dish out spending without derailing the government’s plan to gradually reduce deficits over time.
- The world’s largest tobacco companies suffered a legal setbackin Quebec this month that drove two local cigarette makers into creditor protection. That may be the tip of the iceberg in Canada for British American Tobacco Plc and others facing separate government lawsuits seeking hundreds of billions of dollars. BAT, Philip Morris International Inc. and a local unit of Japan Tobacco Inc. are defendants in lawsuits by Canada’s 10 provinces that want to recoup health-care costs linked to the effects of smoking, a move reminiscent of the U.S. in the 1990s. The first of these cases, some of which date back almost two decades, is scheduled to come to trial this year. The country’s three most-populated provinces alone have signaled combined claims of more than C$500 billion ($375 billion). While such an amount would overwhelm the industry, analysts are predicting a similar outcome as in the U.S., where tobacco companies negotiated smaller settlements that allowed them to stay in business. Governments generally prefer that consumers smoke and pay taxes on legal cigarettes rather than using contraband products.
- Canada’s housing agency will spend up to C$1.25 billion ($943 million) over three years to take equity positions in homes bought by first-time buyers, part of a plan by Justin Trudeau’s government to make housing more affordable for the youngest voters. According to federal budget documents released Tuesday in Ottawa, Canada Mortgage and Housing Corp. will provide up to 10 percent funding for new homes and 5 percent for existing homes to reduce mortgage costs for low- to middle-income buyers. The financing would apply to insured mortgages, which are required if the buyer puts less than a 20 percent down payment on the property.
- European shares opened lower on Wednesday, ahead of the Federal Reserve’s policy decision. Brexit also remains in focus with nine days left until the U.K. is due to exit the European Union and uncertainty over how long it could be delayed. The Stoxx Europe 600 Index fell 0.4 percent, with basic resources the worst sector performer. With new U.S.-China trade talk concerns floating to the surface, carmakers and parts suppliers were again under scrutiny. Germany’s Bayer AG lost the first phase of a jury trial in the U.S. over claims its Roundup weed killer causes cancer, and U.K. satellite firm Inmarsat Plc received a $3.3 billion private equity-led bid.
- U.S. equity-index futures drifted and European shares fell Wednesday as investors adopted a cautious stance before the Federal Reserve policy decision and awaited further news on U.S.-China trade talks, where negotiators remain at odds. Ten-year Treasury yields slipped. Contracts on the S&P 500, Dow and Nasdaq erased an earlier gain while a series of negative corporate news stories dragged down the Stoxx Europe 600 Index.
- Japanese shares closed in the green ahead of the outcome from the U.S. Federal Reserve’s rate-setting meeting. The benchmark Topix index swung between a loss of 0.1 percent and gain of 0.3 percent before finishing the day higher. Trading companies were the biggest boost for the local market, which will be shut Thursday for a holiday. The Fed is expected to hold interest rates steady and lower its projections for the number of hikes this year.
- Oil’s rally stuttered as uncertainty over the status of trade negotiations between the U.S. and China stoked concerns over global economic growth. Futures for May were little changed in New York after dropping as much as 0.4 percent. China was said to be pushing back against American demands, raising speculation that trade tensions between the world’s biggest economies will persist. Still, the price drop was cushioned by an American Petroleum Institute report that was said to show U.S. crude stockpiles declined 2.13 million barrels last week before government data due Wednesday.
- Gold edged lower after three days of gains as investors awaited the Federal Reserve’s policy decision later Wednesday. Palladium reached another new record after topping $1,600 an ounce for the first time on Tuesday. Traders were also weighing the latest trade developments. Some U.S. negotiators are concerned that China is pushing back against American demands in trade talks, according to people familiar with the negotiations, even as President Donald Trump sounded optimistic about reaching a deal that could boost his re-election chances.
- Japanese Prime Minister Shinzo Abe and his deputy, Taro Aso, tried to close a perceived difference with the Bank of Japan over its 2 percent inflation target Wednesday, but ultimately left open a gap. Questioned by a lawmaker about his views on the target, Abe said in parliament that both he and Aso had faith in BOJ Governor Haruhiko Kuroda’s ability to achieve it. He said seeking the target had benefited the economy and there was no need to change it.
- The Trump administration will finalize $3.7 billion in loan guarantees to Southern Co. and its partners who are building a troubled nuclear reactor project in Georgia — the last of its kind under construction in the U.S. — according to two people familiar with the matter. The guarantees, expected to be announced Friday when U.S. Energy Secretary Rick Perry visits Plant Vogtle alongside Georgia Governor Brian Kemp and Southern Chief Executive Officer Tom Fanning, represents a critical lifeline for the project, which is more than five years behind schedule and has doubled in cost to $28 billion.
- BMW AG warned earnings will fall “well below” last year’s level, and embarked on a 12 billion-euro ($14 billion) efficiency drive to offset the impact of trade conflicts and unprecedented spending on electric cars. The shares fell the most since September after the German luxury carmaker said Wednesday that pretax profit is expected to decline by more than 10 percent this year. BMW is responding by stepping up a savings program with plans to cull models, reduce development times by as much as one third and hold the workforce steady this year.
- German food wholesaler Metro AG’s Chinese business has attracted potential bidders including internet giant Tencent Holdings Ltd. and domestic buyout firm Citic Private Equity, people with knowledge of the matter said. Metro kicked off its sale of a controlling stake in the Chinese unit this month and first-round offers are expected to be submitted in April, according to the people, who asked not to be identified because the information is private. The business, which could fetch at least $1.5 billion, has also drawn interest from local supermarket operator Yonghui Superstores Co., the people said.
- FedEx Corp. tumbled after cutting its annual profit forecast for the second time in three months on slowing global growth and rising costs from a 2016 acquisition in Europe. The disappointing outlook is denting investor confidence in FedEx’s ability to withstand U.S.-China trade tensions and uncertainty over the U.K.’s exit from the European Union. Earnings fell short of Wall Street’s estimates in the quarter ending in February, as a harsh U.S. winter snarled deliveries and added to the pain overseas.
- Alphabet Inc.’s Google was fined 1.49 billion euros ($1.7 billion) by the European Union for thwarting advertising rivals in what is likely EU antitrust chief Margrethe Vestager’s third and final attack on the U.S. tech giant. It’s the last in a trio of investigations that previously racked up 6.7 billion euros in financial penalties. Google is making efforts to avoid more fines linked to two older cases and is trying to stymie potential new investigations into local and job search services.
- Chinese internet giant Tencent Holdings Ltd. is weighing a bid for part of Temasek Holdings Pte’s stake in global retailer A.S. Watson Group, people with knowledge of the matter said. The Singapore state investment company is considering selling around a 10 percent stake in A.S. Watson for about $3 billion, according to the people, who asked not to be identified because the information is private. That’s just under half of its 25 percent holding. Tencent may team up with some investment funds for an offer for the stake in A.S. Watson, which is a unit of Hong Kong tycoon Victor Li’s CK Hutchison Holdings Ltd., the people said.
- China Feihe Ltd., an infant formula producer, is restarting preparations for a Hong Kong initial public offering that could raise as much as $1 billion, people with knowledge of the matter said. The Heilongjiang-based company plans to sell shares as soon as this year, according to the people. Feihe is working with China Merchants Securities Co. and JPMorgan Chase & Co. on the deal, the people said, asking not to be identified because the information is private.
- Nexstar Media Group Inc. agreed to sell 19 television stations for $1.32 billion in cash, clearing the way for its $4.1 billion acquisition of Tribune Media Co. Tegna Inc. will pay $740 million for 11 stations in eight markets, and E.W. Scripps Co. will pay $580 million for eight stations in seven markets, Nexstar said Wednesday. Nexstar said it’s in “active negotiations” to divest two more stations, in Indianapolis.
- Bayer AG slumped after a second major defeat in U.S. litigation over claims that its Roundup weed killer causes cancer, shaving almost $8 billion from its market value and raising the likelihood of a costly settlement. The legal woes Bayer inherited with its acquisition of Monsanto Co. have hammered the company’s share price, which has dropped almost 30 percent since the $63 billion transaction was clinched in June, even as the company insists that the active ingredient in the herbicide is safe. The stock fell another 12 percent to 61.1 euros in Frankfurt on Wednesday morning.
- A.P. Moller-Maersk A/S has sold the rest of its stake in Total S.A. to institutional investors, representing a potential windfall for shareholders in the world’s largest shipping company. Maersk, which is based in Copenhagen, said it got gross proceeds of 884 million euros ($1 billion) from the sale, which was done through an accelerated book-building process, according to a statement on Wednesday. It placed more than 17 million existing ordinary shares in Total, which represents its remaining stake in the French company.
- Inmarsat Plc received a takeover offer valued at about $3.3 billion from a group of private equity and pension funds, the second approach in less than a year for the U.K. satellite company. Apax Partners and Warburg Pincus, supported by the Canada Pension Plan Investment Board and Ontario Teachers’ Pension Plan Board, made a non-binding offer of $7.21 a share, Inmarsat said in a statement Tuesday after the market close in London.
- China Construction Bank Corp., the world’s second-largest lender by assets, named Liu Guiping to replace retiring President Wang Zuji, according to people familiar with the matter. Liu, 52, vice mayor of the southwestern city of Chongqing, had previously served as an executive vice president at China’s sovereign wealth fund and held various positions at Agricultural Bank of China Ltd. He was on Wednesday named deputy party secretary of CCB, which paves the way for him to become its president after board and shareholder approvals, said the people, who asked to not be identified as they aren’t authorized to speak publicly.
- UBS Group AG Chief Executive Officer Sergio Ermotti gave a gloomy outlook to investors at a conference in London Wednesday, saying conditions in the first three months have been among the toughest in years. The investment bank had “one of the worst first-quarter environments in recent history,” Ermotti said Wednesday. There has been very little merger activity or initial public offering activity outside of the U.S., he said. Investment banking revenues are down about one third compared with a year ago. The bank is slowing hiring and some IT projects as it seeks to make up for weak markets.
- The race for the 2020 Democratic presidential nomination may be about to get a front-runner. Former Vice President Joe Biden has told some supporters that he’s making plans to jump into the race, joining a diverse field of candidates vying to challenge President Donald Trump, a person familiar with the conversations said. Biden, 76, has led in early polls of primary voters, and could capture significant support from major Democratic donors, many of whom have held off from backing other candidates while awaiting his decision.
- President Donald Trump’s Twitter barrage is unlikely to re-open an idled Ohio car plant. But his intervention in the matter will intensify what are already shaping up to be hard-fought negotiations between General Motors Co. and the United Auto Workers union. In a series of tweets starting Saturday, Trump attacked both General Motors Co. and the UAW over the closing of a Chevrolet Cruze factory in Lordstown, Ohio. GM and the UAW each pushed back, but the two have otherwise been very much at odds entering bargaining over a new four-year labor contract. The president is making no bones about inserting himself in crucial talks that will determine the wages, health care and job security of thousands of Americans in states pivotal to his re-election bid.
The biggest U.S. gas-producing region is poised to unseat the Gulf Coast as the nation’s cheapest source of feedstock to produce petrochemicals in the next two decades, according to an IHS Markit study. Production of natural gas liquids such as butane and propane from the Utica and Marcellus shale deposits in Ohio, Pennsylvania and West Virginia will nearly double by 2040 to 1.17 million barrels a day from last year’s levels, according to the IHS study commissioned by Shale Crescent USA, a nonprofit pushing for manufacturing growth in the Ohio Valley, and partly funded by JobsOhio. Output of NGLs is surging alongside gas drilling in the region.
*All sources from Bloomberg unless otherwise specified