March 29th, 2018
Daily Market Commentary
- Canadian stocks fell for a second day and were on track for the lowest close in more than six weeks as commodity prices retreated and global equity markets were largely in the red. The S&P/TSX Composite Index lost 25 points or 0.2 percent to 15,190.74 at 9:52 a.m. in Toronto. Materials shares fell 1 percent as copper and gold prices retreated. Torex Gold Resources Inc. lost 7.3 percent.
- Ontario plans to run budget deficits for the next six years, breaking a pledge to keep its books balanced as it boosts spending on everything from child care to mental health ahead of a provincial election in June. After generating a surplus of C$642 million ($497 million) in 2017-18 — the first in a decade — the government of Canada’s most populous province is forecasting a budget gap of C$6.7 billion in the fiscal year starting April 1. Deficits will soar to a combined C$32 billion over six years, before reaching balance again in 2024-25, according to the budget released in Toronto on Wednesday.
- The future of Canada’s trade relationship with the U.S. is in limbo but that didn’t stop Robert Belanger from investing C$3.6 million ($2.8 million) to upgrade his Quebec fabrics plant. New weaving machines and a state-of-the-art dying system are helping his company, Belt-Tech Inc., produce enough of the webbing used in seat belts and pull straps to meet a 30 percent surge in orders from the North American auto industry. Part of the financing came from Quebec’s government, which is pushing manufacturers to modernize their factories despite uncertainties surrounding renegotiation of the North American Free Trade Agreement.
- Europe’s shares eke out a gain as global markets remain mixed amid an extended selloff in U.S. technology giants. Renault SA surges on a report it will merge with Nissan Motor Co., while Sodexo plunges on a profit warning. Even on its third straight day of gains, the Stoxx 600 is headed for its worst quarter since early 2016.
- U.S. stock index futures point to a higher open, with stocks set to bounce after sharp losses in the past two sessions, as investors await a key reading on inflation. The S&P 500 and the Dow Jones are heading for their first quarterly decline since 2015.
- Asian stocks fluctuated after closing yesterday at a six-week low, as investors assess how a spike in volatility in U.S. technology shares will affect the region’s shares and ahead of the Easter holiday that will see many of the world’s largest equity markets closed until Tuesday. India was shuttered from today. The MSCI Asia Pacific Index was little changed at 171.84 as of 4:38 p.m. in Hong Kong, set for its first quarterly loss in five.
- The prospect of flaring geopolitical tensions and falling U.S. oil stockpiles are helping lift crude again, after a five-month winning streak was broken in February. Futures in New York are up 5 percent in March, recouping last month’s losses. U.S. President Donald Trump picking two Iran hawks for his national security team has spurred speculation that sanctions may be reimposed on the OPEC member, curbing its oil exports.
- Gold holds biggest drop in almost nine months, with investors assessing impact of N. Korean leader Kim Jong Un’s visit to Beijing this week, and latest developments on trade from Washington.
- The world no longer needs “extraordinary” monetary stimulus and the European Central Bank should play its part by ending its own bond-buying program after September, according to Dutch central bank GovernorKlaas Knot. “The top priority is to normalize monetary policy and strengthen the economic and monetary union,” Knot, who sits on the ECB’s Governing Council, said as he presented his bank’s annual report in Amsterdam on Thursday. “This is now a widely-shared realization, certainly also in the financial markets.” ECB officials have signaled that they’re comfortable with investor expectations for bond purchases to be phased out by around the end of this year, though they’ve yet to take a decision. The Governing Council is currently considering how it might change its policy language to avoid any market ructions that could undermine the economy.
- Renault SA and Nissan Motor Co. are in talks to merge, seeking to solidify their two-decade-old alliance under a single stock as an unprecedented shift toward electric and shared cars transforms the industry, people with knowledge of the matter said. A deal would end the current alliance between the companies and marry them as one corporation, said the people, who asked not to be identified as the details aren’t public. Renault currently owns 43 percent of Nissan while the Japanese carmaker has a 15 percent stake in its French counterpart. Carlos Ghosn, the chairman of both companies, is driving the negotiations and would run the combined entity, the people said.
- CME Group Inc. agreed to buy Michael Spencer’s NEX Group Plc in a transatlantic deal that creates a trading venues giant spanning futures to Treasuries and foreign exchange. CME Chief Executive Officer Terry Duffy is defying industry skepticism about big cross-border exchange mergers by offering a deal that values London-based NEX at 3.9 billion pounds ($5.5 billion). CME, which already has a near monopoly over trading in Treasury futures, will add BrokerTec, the largest market for trading Treasuries.
- Former Federal Trade Commission officials say that Facebook Inc. appears to have breached a 2011 consent agreement to safeguard users’ personal information and may be facing hundreds of millions of dollars in fines. The agency could fine Facebook up to $40,000 per violation per day — which could add up quickly with millions of users involved — if it finds the social media giant broke its earlier promises to protect user data, they say.
- Signs President Donald Trump may restrict Chinese investment in U.S. technology and communications sectors could further brake activity in mergers & acquisitions categories that reached about $40 billion in the past decade. The U.S. may ban Chinese investments involving sensitive technologies, such as semiconductors and fifth-generation wireless, people familiar with the matter said this week. Trump asked Treasury Secretary Steven Mnuchin to consider restrictions after a probe into China’s intellectual property violations.
- Swiss Re AG jumped after people familiar with the matter said Japan’s SoftBank Group Corp. is edging closer to buying a quarter of the company, valuing the reinsurer at as much as 37 billion francs ($39 billion). Billionaire Masayoshi Son could buttress the finances of his diverse SoftBank empire with steady cashflows from reinsurance through the acquisition. The Tokyo-based group has raised $93 billion out of a planned $100 billion for the world’s biggest private equity pool, while taking stakes in businesses including ride-hailing, chipmaking and office sharing.
- Prime Minister Theresa May has nine months to define what Brexit will actually mean and she’ll have to do battle on three fronts to get there—in Brussels, in Parliament and with her own Conservative Party. Her priorities are to decide what the future relationship with Europe might look like, solve the intractable puzzle of the Irish border and see off an emboldened campaign for a second referendum. Some of the hardest decisions may have to be kicked down the road.
- Ping An Insurance (Group) Co., China’s largest insurer by market value, is starting preparations for an initial public offering of its OneConnect financial management portal that could raise as much as $3 billion, people with knowledge of the matter said. OneConnect picked Goldman Sachs Group Inc., JPMorgan Chase & Co., CCB International Holdings Ltd. and Ping An Securities Co. to work on the planned Hong Kong share sale, according to the people. The company is targeting a listing as soon as September, the people said, asking not to be identified because the information is private.
- Embraer SA’s first new narrow-body jet is set to fly into commercial service next week to take on Bombardier Inc. But that’s just a prelude to the bigger battle emerging between heavyweights Boeing Co. and Airbus SE. At stake: possible orders from Air France-KLM, United Continental Holdings Inc., and JetBlue Airways Corp. The sales campaigns are a key test for Embraer and Bombardier as they seek to prove the potential of a new generation of 100- to 150-seat narrow-body jets — a market sliver that Airbus and Boeing have largely abandoned for bigger, more profitable models.
- Cheniere Energy Inc. is seeking $6.4 billion in debt as it expands plans for a liquefied natural gas export terminal in Corpus Christi, Texas, according to people familiar with the talks. The deal would repackage and expand an existing agreement that initially covered two plants set to begin operating next year, the people said, asking not to be named because the information isn’t yet public. Part of the funding would now go toward plant number three, the people said.
- While China may yet be some time away from giving its big investors freer rein to put money overseas, neighbor South Korea is embracing the concept of diversifying abroad to boost risk-weighted returns. As workers in Asia’s no. 4 economy ramp up savings before a rapid rise in the aging society’s retirement rolls, some of South Korea’s biggest investors see danger in keeping all the money at home. That’s all the more so since below-target inflation helped pull down long-term Korean bond yields. The country’s pension funds and insurers say they’re looking for opportunities abroad.
- Shares of Takeda Pharmaceutical Co. fell the most in nine years after disclosing it is considering a bid for Shire Plc that could approach $50 billion, which would be the Japanese company’s biggest takeover ever. The stock decline shaved more than $3 billion from Takeda’s market cap. Coupled with a rally in Shire’s stock on the news Wednesday, the valuation gap between the two companies widened by more than $6.5 billion, posing a bigger financial challenge for Takeda if it decides to go forward with an offer.
- White House Chief of Staff John Kelly has lost some of his clout following recent missteps and wasn’t at President Donald Trump’s side for recent crucial decisions on staffing and policy moves, according to several senior aides. Kelly wasn’t with the president last week when Trump abruptly decided to oust H.R. McMaster as national security adviser and replace him with John Bolton. Just two people were in the room for that decision: Trump and Bolton. And Kelly is rarely on the line any more when Trump calls foreign leaders. Last week, when Trump spoke with President Vladimir Putin days before the U.S. decided to expel dozens of Russian diplomats, Kelly wasn’t on the call.
*All sources from Bloomberg unless otherwise specified