March 26th, 2018
Daily Market Commentary
- Quebec’s dogged effort to get its fiscal house in order is rewarding the Canadian province with consistently lower borrowing costs than Ontario, a dramatic departure from the norm that’s prevailed for decades. Quebec government bonds are outperforming their provincial peers, with relative yields trading largely below Ontario’s since the end of last year. It’s a trend that’s likely to continue as the provinces release dramatically different budgets this week.
- Cryptocurrencies and the blockchain were thought by some to replace gold as the ultimate haven against financial calamity. Now the gold market is using blockchain to kick back at crypto and bring precious metals into the digital age. TradeWind Markets Inc., a technology provider backed by Sprott Inc. andGoldcorp Inc., on Monday launched a new digital gold trading and settlement platform that aims to simplify and speed up trading and reduce transaction costs. The Royal Canadian Mint will provide storage for the platform, guaranteeing that the digital gold is backed one-to-one by physical bars.
- Rio Tinto Group has yet to be contacted by Swiss authorities over a bribery investigation related to Mongolia’s giant Oyu Tolgoi copper and gold mine and the site’s $5.3 billion expansion remains on track, according to the producer’s top executive. The attorney general of Switzerland is examining whether the world’s second-biggest mining company paid bribes in the development of the project, the Office of the Attorney General said last week by email. The office also opened criminal proceedings against a former Mongolian finance minister on suspicion of bribery and money laundering, it said.
- European shares head for their first gain in four days as investors assess the latest developments in a trade conflict between the world’s two largest economies.
- Both the U.S. and emerging markets are heading for the worst deterioration in market calm since 2011 when S&P Global Ratings downgraded the world’s largest economy. Since then, every surge in volatility has brought more turbulence to developing nations than to the U.S.
- Asian stocks rebounded on Monday after last week’s selloff that erased all gains for 2018, as investors continue to assess ongoing trade conflicts between China and the U.S. The yen slid against the dollar while U.S.futures advanced. The MSCI Asia Pacific Index rose 0.3 percent to 172.54 as of 4:21 p.m. in Hong Kong, erasing earlier losses.
- Brent held near $70 a barrel after Saudi Arabia intercepted multiple ballistic missiles fired by Houthi forces in Yemen. Futures in London were little changed, after earlier rising as much as 0.9 percent on speculation a worsening of the situation with Yemen will lead to supply disruptions in the Middle East. That countered sentiment from last week’s biggest drop in U.S. equity markets since January 2016 and rising number of rigs being put to work in America.
- Gold holds near five-week high as investors weigh comments from U.S. Treasury Secretary Steven Mnuchin about a potential trade war with China.
- The pound gained for the second day, breaking above $1.42 as the U.K. Labour party said it was seeking an amendment to key Brexit legislation to prevent Britain leaving the European Union without a deal.
- The Trump administration is under growing pressure to explain the details of its trade policies after fears of a tit-for-tat economic conflict between the U.S. and China sent stocks tumbling last week. Businesses and investors are awaiting details in the coming days of the proposed product list for the tariffs on roughly $50 billion in Chinese imports President Donald Trump announced last week. While U.S. stocks fell sharply after Trump unveiled the plan, equity futures rallied today as investors’ immediate fears appeared to ease. China unveiled tariffs on $3 billion of U.S. imports in response to separate U.S. steel and aluminum tariffs, and its ambassador to the U.S. said all options are on the table, though the Asian nation doesn’t want a trade war.
- Irish packaging company Smurfit Kappa Group Plc rejected a sweetened 8.9 billion euro ($11 billion) takeover bid from International Paper Co., testing the U.S. suitor’s resolve as the industry gains from a boom in online shopping deliveries. Smurfit’s board unanimously spurned a revised offer of 37.54 euros per share, according to a statement Monday, adding that International Paper’s original offer was for 36.46 euros per share.
- Two of the world’s biggest oil traders gave China’s crude futures contract a go on its long-anticipated trading debut. Commodity giants Glencore Plc and Trafigura Group were among foreign participants as the yuan-denominated futures started on the Shanghai International Energy Exchange Monday. After an initial surge in volume thatoutpaced overnight transactions in global benchmark Brent crude in London, trading tapered off toward the end of the session and the contract closed at 429.9 yuan a barrel ($68.22).
- A consortium led by TPG is nearing an agreement to gain control of Fortis Healthcare Ltd., India’s second-largest private hospital chain by market value, people with knowledge of the matter said. The investor group, which also includes Manipal Health Enterprises Pvt, could announce a deal as soon as the next few days, according to the people, who asked not to be identified because the information is private. Under the plan being discussed, the operations of closely-held Manipal — whose backers include TPG and Temasek Holdings Pte — would be combined with Fortis’s business, the people said.
- Going organic can come with a high price tag. Just ask Givaudan SA. The Swiss flavors and fragrance company agreed Monday to buy Naturexfor about 1.3 billion euros ($1.6 billion), or 135 euros a share. That’s 42 percent above where the supplier of natural plant extracts closed in Paris trading on Friday. The deal values the Avignon, France-based company at 20 to 22 times earnings, according to Vontobel analyst Jean-Philippe Bertschy.
- Uber Technologies Inc. has agreed to sell its Southeast Asian operations to Grab, withdrawing from yet another fast-growing region to end a war of attrition with a fierce local rival. Under the agreement, Grab will acquire all of Uber’s operations in a region of 620 million people, including food delivery service UberEats. The U.S. ride-hailing behemoth in return gets a 27.5 percent stake in Grab and its chief executive officer will join the board of the Singapore-based company. Bloomberg News reported over the weekend that the two companies had finalized a deal.
- Governor Phil Murphy’s progressive agenda, outlined in his first New Jersey budget, depends on approval of $1.5 billion in new riches from Democratic lawmakers reluctant to increase residents’ financial burden in one of the highest-taxed U.S. states. A newcomer to elective office, Murphy has proposed a record $37.4 billion spending plan that presumes lawmakers will approve new taxes on millionaires, retail sales, legalized marijuana, electronic cigarettes, corporations and such services as Uber and Airbnb. That’s the greatest revenue risk for a budget since 2009, the last time a governor tried to tap New Jerseyans for more than $1 billion in general-fund tax increases.
- The U.S. agreed to revise its trade deal with South Korea and spare the country from President Donald Trump’s steel tariff, as the allies sought to resolve disputes before planned meetings with Kim Jong Un. The two countries reached an agreement “in principle” on the trade deal known as Korus, South Korea’s trade ministry said in a statement Monday. The announcement came after Treasury Secretary Steven Mnuchin said Sunday that U.S. Trade Representative Robert Lighthizer had reached a “very productive understanding.” To avoid the steel tariff, South Korea would limit U.S. shipments of the metal to about 2.7 million tons a year, the ministry said. The country also agreed to double to 50,000 the number of U.S. cars that could be imported without meeting local safety standards, although American manufacturers sell far fewer cars in the market.
- JD Sports Fashion Plc agreed to buy U.S. sportswear retailer Finish Line Inc., seeking to snatch away a company in which Mike Ashley’s Sports Direct International Plc has built a stake. The agreement is valued at a total of $558 million. Ashley’s Sports Direct International, a U.K. rival of JD Sports, is the second-largest shareholder in Indianapolis-based Finish Line, with a 9.9 percent stake. Ashley’s company also holds an indirect interest of 32 percent, according to a Sports Direct statement on Feb. 20.
- For the first time in a decade, the world’s central banks are looking beyond the dollar to build their currency reserves. With U.S. protectionism on the rise, a number of Wall Street strategists say the case for the euro has rarely been better. Existential crises that hobbled the European experiment have receded. A resurgent economy has spurred talk the region’s central bank will curb policies that drove euro yields below zero. And as President Donald Trump threatens a trade war with China, the European Union is pursuing free-trade deals all across Asia and Latin America. Of course, the dollar commands the lion’s share of the world’s $11.3 trillion of international reserves and most expect it to remain that way. But even a small shift — whether as a hedge against Trump’s trade policies or in the name of diversification — could have big consequences.
- Dana Inc. added a further sweetener to its bid for GKN Plc’s automotive unit, increasing the cash component of its proposal in a last-minute attempt to fend off a competing $11 billion hostile offer from investment firm Melrose Industries Plc. Dana also will double the size of its share buyback to $200 million after the deal closes, the Maumee, Ohio-based manufacturer said in a statement Monday. While the $6.1 billion value of the offer is unchanged, the U.S. company will now pay about $1.77 billion in cash, assume $1 billion of pension liabilities and issue about 133 million new Dana shares to GKN stockholders for its Driveline unit.
- Germany’s Helmig family made an unsolicited bid for Murray & Roberts Holdings Ltd. that values the South African engineering and construction company at about 6.7 billion rand ($574 million), almost two years after talks collapsed for a transaction between the two. Shares of the Johannesburg-based company rose by a record after the 15-rand-a-share offer from the family’s investment firm, Aton GmbH. The offer is 56 percent above Friday’s closing price.
*All sources from Bloomberg unless otherwise specified