March 27, 2019
Daily Market Commentary
- Canadian stocks gained after a two-day decline as oil rebounded along with equities as pessimism over the global growth outlook eased a little. The S&P/TSX Composite Index advanced almost 0.6 percent to 16,155.16 in Toronto, the most in a week. The industrials and energy sectors gained most, with the energy index (STENRS) jumping as much as 1.7 percent, the largest intraday jump since mid-February. The consumer staples sector was the only one to decline.
- Brookfield Asset Management Inc. aims to build a private-equity juggernaut with a distinctly non-Wall Street feel. An ethos of collaboration is deeply rooted in the 120-year-old Canadian firm and permeates its open-floor offices worldwide, top executives say. “It’s the opposite of an eat-what-you-kill mentality,” Ron Bloom, a managing partner in Brookfield’s private equity group, said in an interview at Bloomberg’s headquarters in New York. “Collaboration is the norm. People who aren’t willing to work collaboratively just don’t like it.” That culture is getting tested as the Toronto-based company sets out to transform its $42 billion private-equity business, now its smallest, into a giant. Brookfield, which also has real estate, infrastructure and renewable energy divisions, added to its quiver by agreeing earlier this month to buy Oaktree Capital Group, mostly a credit shop.
- Veritas Investment Research, which has advised investors to steer clear of Canadian lenders, just downgraded Bank of Montreal to sell. Analyst Nigel D’Souza cut his rating for BMO from buy, citing valuations. At 11.2 times earnings, the stock’s multiple is the second highest among the six biggest Canadian lenders tracked by Bloomberg. With the latest downgrade, all but one of the 10 financial firms followed by Veritas are rated sell.
- Enbridge Inc.’s embattled Line 3 crude oil pipeline was given the final green light from Minnesota regulators, just two weeks after the Canadian energy company said the project would be delayed by a year. The Minnesota Public Utility Commission on Tuesday voted unanimously to approve the project, which would expand oil transportation capacity from Alberta to Wisconsin at a time when Canadian crude producers are desperate for pipeline space. The commission has faced petitions to reconsider its initial decision to allow certain modifications for the project, including from the state’s Commerce Department.
- European equities advanced at the open, with miners and automakers leading the gains, as U.S. and Chinese officials resume high-level trade talks this week. The Stoxx Europe 600 Index increased 0.2 percent. Rio Tinto Plc climbed 0.8 percent and Rolls-Royce Holdings Plc rose 1.2 percent. The FTSE 100 Index added 0.3 percent as U.K. Prime Minister Theresa May saw signs that her beleaguered Brexit deal might be winning support.
- U.S. stock index futures are steady as investors keep following developments for trade talks between the U.S. and China this week. The dollar is little changed while volatility climbs. Treasuries rallied with German bunds as investors turned their focus to a worrying economic outlook and a decisive shift toward accommodation by major central banks.
- Asian markets were mixed, though Chinese shares pushed higher as a burst of diplomacy suggests Beijing and Washington remain determined to de-escalate their eight-month trade dispute. Japanese stocks declined as more than half of the companies on the Topix index traded without the right to receive the next dividend and as investors assessed the latest U.S. economic data.
- Oil slid from near $60 a barrel in New York amid conflicting signals on U.S. crude inventories, while traders continued to weigh OPEC supply cuts and fragile demand. West Texas Intermediate futures fell 0.6 percent. Crude stockpiles rose by 1.93 million barrels last week, the American Petroleum Institute was said to report on Tuesday. But a survey of analysts by Bloomberg, conducted before the API data was released, predicted that government data due Wednesday will show a 2.5 million-barrel decline.
- Gold held a decline as investors weighed concerns about the global growth outlook, with trade negotiations back in focus. Markets are steadying as traders speculate the slide in equities and Treasury yields that began Friday in the U.S. was overdone. U.S. and Chinese officials resume high-level trade talks this week as they close in on a deal that could just be the first step in the long road to economic peace.
- U.S. and Chinese officials resume high-level trade talks this week as they close in on a deal that could just be the first step in the long road to economic peace. President Donald Trump’s top trade negotiator, Robert Lighthizer, and Treasury Secretary Steven Mnuchin are due to visit Beijing on Thursday and Friday, while top Chinese negotiator, Vice Premier Liu He, plans travel to the U.S. the following week. The burst of diplomacy suggests both sides remain determined to reach an agreement that would avoid any escalation of the eight-month trade war that has seen them impose duties on $360 billion of each others’ imports.
- Stephen Moore, who Donald Trump may nominate for a seat on the Federal Reserve Board, told the New York Times in an interview that the central bank should immediately reverse course and lower interest rates by half a percentage point. That’s a contrast from language used by sitting board members in recent days. San Francisco President Mary Daly told reporters Tuesday that the appropriate policy is being patient. Minneapolis’ Neel Kashkari and Chicago’s Charles Evans also called for called for caution since the Fed met last week.
- Google-backed Mobvoi is close to securing funding that will value the artificial intelligence startup at more than $1 billion before an initial public offering in China, people familiar with the matter said. The smartwatch and AI software developer is seeking to raise $100 million and plans to list on a proposed board for technology companies on the Shanghai bourse, the people said, requesting not to be named because the matter is private. Mobvoi, Google’s first direct investment in China after pulling its search engine in 2010, would be among the more prominent candidates for the new trading venue, envisioned as a capital-raising haven for rapidly growing firms.
- A consortium of India’s Tata Group, a unit of Singapore’s sovereign wealth fund GIC and SSG Capital Management will invest 80 billion rupees ($1.2 billion) to buy a stake in GMR Airports Ltd, which runs India’s biggest airport. The deal will pump 10 billion rupees into GMR Airports, a unit of GMR Infrastructure Ltd. and purchase 70 billion rupees of the airport unit’s equity shares from the parent, according to a statement. GMR operates Delhi International Airport Ltd., Asia’s sixth biggest.
- Theresa May’s Brexit deal is finally winning a bit of support from Conservative hardliners, though she may have to promise to step down to get it over the line. Brexiteers’ minds have been focused by the prospect of Parliament taking control of the process and voting to soften — or cancel — the divorce.
- Health insurer Centene Corp. agreed to buy managed-care provider WellCare Health Plans Inc. for more than $15 billion to expand in the market for government-sponsored healthcare. Centene, based in St. Louis, offered $305.39 per share in cash and stock for Tampa, Florida-based WellCare, the companies said in a joint statement Wednesday. Both boards backed the transaction, which has an enterprise value of $17.3 billion. The purchase will give Centene, which focuses on Medicaid and Affordable Care Act markets, a Medicare business even as the Trump administration launches a fresh assault on Obamacare. The enlarged company would be threatened if higher courts uphold a request to wipe out the entire law, though legal experts have called that outcome unlikely.
- U.S. regulators plan to revamp rules governing how medicines are manufactured, in an effort to ensure the safety of the nation’s drug supply as recalls of contaminated imports from developing countries widen. “We’ve seen a lot of instances of adulterated products — contamination, impurities — recently,” said Food and Drug Administration Commissioner Scott Gottlieb, who plans to leave his post next month, in an interview. “The underlying causes have been traced back to manufacturing, inadequate quality controls and generally poor management oversight.”
- Qualcomm Inc. has fired multiple legal shots at Apple Inc. aiming to use patents to get an import ban on the iPhone. In separate rulings Tuesday, one hit and one missed. The U.S. International Trade Commission on Tuesday invalidated a Qualcomm patent for a battery-saving feature. Earlier in the day, a separate trade judge said Apple infringed a different Qualcomm patent and recommended certain older models of the iPhone be banned. The commission is scheduled to release a final decision in that case in July.
- The first ship in the U.S. Navy’s $23 billion program to build a new class of destroyers is scheduled for a September delivery — more than five years later than originally scheduled and 10 years after construction began on the stealthy vessels built by General Dynamics Corp. Delivery plans for the Zumwalt-class guided missile destroyer have been a roller-coaster of changing milestones, most recently moved from May of this year to September, according to budget documents confirmed by a Navy spokeswoman. The ship isn’t expected to have an initial combat capability until September 2021, at least three years later than planned.
- The Swedbank AB money laundering scandal widened as Sweden’s main broadcaster published a report alleging the bank misled U.S. authorities. Former Trump campaign chairman and convicted felon Paul Manafort was among those to have received suspicious payments made through the Stockholm-based lender, the SVT network reported on Wednesday, amid intensifying scrutiny of Russian cash that passed through the bank’s Estonian unit. Separately, the bank’s headquarters were raided by Sweden’s Economic Crime Authority on Wednesday, as part of a probe into whether it breached insider information rules by giving its biggest shareholders advance notice of an SVT report on money laundering that was broadcast on Feb. 20.
- Mario Draghi said the European Central Bank is ready to soften the impact of negative interest rates if they are found to harm the transmission of its monetary policy. “If necessary, we need to reflect on possible measures that can preserve the favorable implications of negative rates for the economy, while mitigating the side effects, if any,” the ECB president told a conference in Frankfurt. “That said, low bank profitability is not an inevitable consequence of negative rates.”
- Malaysia lowered its economic growth forecast for 2019, and pledged to keep monetary policy accommodative as global risks weigh on the trade-reliant economy. Gross domestic product is expected to increase 4.3 percent to 4.8 percent in 2019, with trade tensions and lower commodity prices among the biggest wildcards, Bank Negara Malaysia said in its annual report on Wednesday. The projection marks a step down from the 4.9 percent expansion estimated in the government’s budget released in November, and compares with a 4.7 percent pace recorded in 2018.
- Singapore will allocate S$724 million ($535 million) under a current plan to transform its economy into one that relies more on fields such as research and on companies that create new markets and jobs. The additional investment includes S$500 million for digital technologies such as artificial intelligence, super-computing and robotics under the five-year plan ending 2020, a government advisory panel on research and innovation said in a statement Wednesday. The amount includes S$300 million announced by Minister for Communications and Information S. Iswaran earlier this month.
- Southwest Airlines Co., the largest operator of Boeing Co.’s 737 Max, said the model’s grounding amid safety concerns will combine with soft demand from leisure travelers to shave $150 million off first-quarter revenue. The amount is on top of a $60 million reduction from the U.S government shutdown earlier in the period, Southwest said Wednesday. The Max groundings, bad weather and reduced productivity during contract negotiations will together force the cancellation of 9,800 flights in the three months, it said.
- Qatari energy investment firm Nebras Power QSC is considering selling its stake in PT Paiton Energy, one of Indonesia’s largest independently owned power producers, according to people familiar with the matter. Nebras’s 35.5 percent holding in Paiton could be valued at more than $1 billion, the people said, asking not to be identified as the matter is private. Nebras has held initial talks with potential financial advisers, but hasn’t started a formal sale process, the people said.
- Cathay Pacific Airways Ltd. agreed to pay HK$2.25 billion ($287 million) in cash for Hong Kong’s only budget airline to enter the no-frills market, after more than a decade resisting such a move to focus on premium services. Cathay plans to operate Hong Kong Express Airways Ltd., part of HNA Group Co., as a standalone carrier after the transaction is completed by Dec. 31, the flag carrier said.
- Renault SA is aiming to restart merger talks with Nissan Motor Co. within 12 months as the first step toward the creation of a bigger auto conglomerate that will involve a bid by both companies for Fiat Chrysler Automobiles NV, the Financial Times reported. The creation of a new alliance board led by Renault chairman Jean-Dominique Senard has improved confidence that the two sides can push ahead with merger plans, the newspaper reported Wednesday, citing unidentified people familiar with both sides’ thinking.
*All sources from Bloomberg unless otherwise specified