March 26, 2019
Daily Market Commentary
- Canadian Headlines
- Canadian stocks extended Friday’s decline, while U.S. stockslost ground too as traders remained on edge after benchmark Treasury yields briefly dropped below 2.4 percent for the first time since December 2017. The S&P/TSX Composite Index fell 0.2 percent to 16,066. Energy stocks lagged while consumer staples and materials outperformed. Additionally, top copper producer Codelcohas canceled SNC-Lavalin’s contract to build two new acid plants at a smelter in the Chuquicamata mine in northern Chile.
- SNC-Lavalin Group Inc., the embattled engineering firm at the heart of Canada’s biggest political crisis in years, has been dealt another blow in Chile. Copper producer Codelco said Monday that it canceled a contract worth $260 million to build two new acid plants in the Chuquicamata mine. Montreal-based SNC has “seriously” and “repeatedly” breached aspects of its contracts, according to Codelco, which cited delays in construction and in payments to subcontractors, as well as quality issues.
- For President Donald Trump’s new North American trade accord to become law, he’ll need the help of a political rival with a track record of blocking such deals. In 2008, Nancy Pelosi was House Speaker when Democratic lawmakers denied President George W. Bush’s request for a vote within 90 days on a trade pact with Colombia. The rejection delayed approval of deals the Bush administration negotiated with South Korea and Panama, though all three were later ratified. Once again Speaker, Pelosi will play a pivotal role for Trump’s renegotiated accord with Mexico and Canada, renamed the United States-Mexico-Canada Agreement, which isn’t one of her legislative priorities. It’s a change of pace from the frenetic year of negotiations that led to the deal being signed by leaders from all three countries in November.
- After promising to sweeten the pot with the largest dividend in 32 years, Newmont Mining Corp. has won over two of its biggest investors — and an independent shareholder advisory firm — to the merits of a $10 billion merger with Goldcorp Inc. “Paulson & Co. commends the special dividend to Newmont shareholders,” a spokesman said Monday by email. “Since the Newmont board and other significant shareholders are supportive of the revised terms, we will no longer oppose the transaction.” Earlier, VanEck portfolio manager Joe Foster also praised Newmont’s decision to offer the dividend, saying he now plans to vote in favor of the deal to create the world’s largest gold miner.
- European shares advanced, snapping a four-session losing streak, as investors rotate out of cyclical sectors such as autos, miners and banks, and into defensive stocks including health care, food & beverages and real estate. The Stoxx Europe 600 Index was up 0.5 percent at its session peak as of 11:29 a.m. CET, after Japan led Asian markets higher and energy stocks increased with oil prices.
- Treasuries fell and U.S. stock index futures climbed on Tuesday as investor fears brought on by the inversion of a key part of the yield curve showed signs of ebbing. The dollar edged higher and European shares gained. The yield on benchmark U.S. debt rose after closing below 2.4 percent on Monday, though the spread between three-month and 10-year rates remained in negative territory. Futures on the Dow Jones, Nasdaq and S&P 500 indexes all advanced.
- Markets across Asia bounced back Tuesday from their worst drop of the year as the benchmark MSCI Asia Pacific Index rebounded 1 percent. Japan led the way, with the Topix index recovering all of its Monday loss. India, Taiwan and South Korea stocks also edged higher to round out gains across the region, with the big exception being China: the Shanghai Composite Index completed its worst two-day slump in more than two weeks. U.S. equity-index futures advanced 0.3 percent.
- Oil rebounded along with global markets as pessimism over the global growth outlook eased a little, while rising tension in Venezuela revived fears of supply losses. Futures rose as much as 1.4 percent in New York after falling about 2 percent over the previous two sessions. U.S. Secretary of State Mike Pompeo warned that America won’t “stand idly by” as Russia sends troops to Venezuela, holder of the world’s biggest crude reserves. Russia has about 100 soldiers on the ground in the OPEC nation, where output is slumping amid an economic crisis.
- Gold holds near the highest level in a month as investors weigh recession-risk signals emanating from U.S. The Federal Reserve may have to put rate rises on hold or even ease policy if forecasts disappoint, Chicago Fed President Charles Evans said Monday. Last week, the yield on 10-year notes fell below three-month bills for the first time since 2007 amid reports showing weakness in the U.S. and Germany.
- Euro-area banks will know by June how generous the terms of the European Central Bank’s new loans are going to be, according to Governing Council member Olli Rehn. Policy makers have yet to pass judgment on the severity of the current slowdown that prompted that measure, the Finnish central bank governor told Bloomberg in an interview. They are determined to keep lending conditions favorable with record-low interest rates and the new round of long-term funding announced earlier this month.
- Uber Technologies Inc. Chief Executive Officer Dara Khosrowshahi has cut the largest deal of his tenure, buying Middle Eastern ride-hailing competitor Careem Networks FZ for $3.1 billion. Uber will pay Dubai-based Careem $1.4 billion in cash and another $1.7 billion in convertible notes when the deal closes, the two companies said in a statement. They are seeking regulatory approval in the 15 countries where Careem operates. Bloomberg had previously reported some details of the deal, which is expected to close in the first quarter of 2020.
- Airbus SE secured a $35 billion jet deal from China during a state visit by President Xi Jinping to the French capital, dealing a blow to Boeing Co. as it grapples with the grounding of its best-selling jet. The mammoth order consists of 290 A320-series narrow-body planes and 10 A350 wide-bodies, Toulouse-based Airbus said after the transaction was announced in Paris on Monday. The deal’s value is almost double that touted by French President Emmanuel Macron in January 2018 during a trip to Beijing.
- MTN Group Ltd. shares fell almost 7 percent after Nigeria’s government said Africa’s biggest mobile operator evaded taxes and urged a Lagos court not to block a $2 billion penalty. The High Court of Lagos should throw out the Johannesburg-based company’s attempt to stop it from paying backdated taxes, T. A. Gazali, a government lawyer, said in court Tuesday. Wole Olanipekun, a lawyer for MTN, said Nigeria’s attorney-general, who imposed the penalty on the mobile carrier, had no right to do so. MTN has previously denied it didn’t pay taxes properly in the West African nation. The case was adjourned until May 7.
- Israel struck additional targets in the Gaza Strip early Tuesday as Prime Minister Benjamin Netanyahu rushed home to deal with a flare-up in violence only two weeks before close-fought elections. Israeli warplanes, tanks and helicopters launched new attacks after a night of rocket barrages from the Hamas-run territory and Israel air raids defied the militant group’s claims that Egypt had brokered a truce. Netanyahu cut short his trip to Washington after a rocket from Gaza smashed through a home in the heart of Israel, but not before witnessing U.S. President Donald Trump officially recognize his country’s sovereignty over the Golan Heights, a strategic plateau it captured from Syria in 1967.
- U.K. mortgage approvals slumped to their lowest level in almost six years, a sign of the Brexit malaise gripping the housing market. Lenders approved 35,299 home loans in February, 11 percent fewer than in January and the least since April 2013, according to seasonally adjusted figures from lobby group UK Finance published Tuesday.
- India’s central bank accepted the $5 billion it targeted from banks at its currency swap auction to ease liquidity ahead of the financial year-end this month. The authority said it received 240 bids worth $16.31 billion. The cutoff was set at a premium of 776 paise, according to a statement. In an unusual move, the Reserve Bank of India earlier this month said it would buy dollars from banks for three years and offer them rupees in return. The swap will bulk up India’s foreign-exchange reserves while injecting as much as 345.6 billion rupees into the financial system to ease a cash crunch typically seen before the fiscal year-end.
- Indonesia raised 21.1 trillion rupiah ($1.5 billion) from the sale of Islamic rupiah bonds to retail investors, a sign of growing demand for Shariah compliant investment products in the world’s largest Muslim-majority country. The amount raised from the three-year notes was more than double the 10 trillion rupiah target and the highest from retail sukuk bond sale since Feb. 2016, according to data from the Finance Ministry’s debt management office. The ministry set a return rate of 8.05 percent on the bonds to be paid out annually.
- India’s main opposition Congress party has promised income support for each poor family as part of its electoral giveaways aimed at wresting power from Prime Minister Narendra Modi’s ruling coalition. Describing it as the world’s largest minimum income plan, Congress President Rahul Gandhi said 20 percent of poor families across the country would receive 72,000 rupees ($1,046) annually through their bank accounts if the party comes to power. It is to ensure that basic income of every poor family does not fall below $174 per month.
- China could increase U.S. pork imports to the highest ever this year as part of its commitment to bolster purchases of American farm goods to resolve the trade war between the two countries, according to people familiar with the situation. China may buy as much as 300,000 metric tons of pork in 2019, the people said. That amount would be about 80 percent more than the 166,000 tons it bought from the U.S. in 2017, before the trade war started. One of the people said the Asian nation could order 200,000 tons in the first half of the year alone.
- Nissan Motor Co. paid tuition for all four of ousted chairman Carlos Ghosn’s children when they attended Stanford University between 2004 and 2015, according to people familiar with the matter. The perk was part of Ghosn’s employment contract from 1999, when he was hired as chief executive officer of the Japanese carmaker, said one of the people, who asked not to be named because the information isn’t public. The benefit, which isn’t common among top executives, would have been worth at least $601,000, according to fee schedules published by Stanford during the years his children were enrolled.
- The Trump administration is hardening its legal position toward Obamacare, arguing now the entire law is unconstitutional in a shift that promises to bring the issue to the forefront of the 2020 election campaign. The position is a change for the Justice Department after it argued last year that large parts of the 2010 law — but not all of it — should be struck in the case Texas v. U.S., which is pending before the Fifth Circuit Court of Appeals. A trial court judge sided with Texas and voided the law in a December ruling. The Justice Department now says that the entire law, enacted under President Barack Obama, should be thrown out.
- Co-working company WeWork Cos. is continuing to expand, especially overseas. But its losses are growing in lockstep with its sales, the company said Monday. At the end of last year, New York-based WeWork had more than 400,000 members worldwide paying for access to its shared or flexible office space, more than twice the number a year ago. The company said 43 percent of its revenue for the fourth quarter of 2018 came from outside the U.S. That international growth helped the company more than double its sales to $1.82 billion in 2018 from a year earlier. Over the same period, WeWork’s losses also more than doubled to $1.93 billion.
- Bristol-Myers Squibb Co.’s plan to buy Celgene Corp. will face its next hurdle in the coming days when advisers from Institutional Shareholder Services Inc. issue their recommendation on how investors should vote on the deal. An endorsement from the proxy advisory firm would serve as a major clearing event and compress the spread between Celgene’s current share price and the implied value to between $4 and $7, according to nine deal specialists surveyed by Bloomberg. However, a negative recommendation from ISS or peer Glass Lewis & Co. would probably stoke panic on Wall Street and widen it to $20 or more, they said.
*All sources from Bloomberg unless otherwise specified