May 13th, 2019

Daily Market Commentary

  • NEWS 
  • Canadian Headlines
    • Bank of Canada Governor Stephen Poloz enters the final year of his term next month, and the guessing game on who could succeed him is underway. While Poloz hasn’t officially announced whether he wants to stay, no Canadian central bank governor has been given a second mandate since the early 1980s. Early front-runners include the governor’s chief deputy, who would be the first woman to take the job, and the head of BlackRock Inc.’s research unit, who would be the first French Canadian. Another contender is the dean of one of the country’s most prestigious business schools, who was passed over last time.
    • While the $38 billion takeover of Anadarko Petroleum Corp. has been seen as a potential catalyst for a wave of U.S. oil industry consolidation, the market for energy deals north of the border remains frigid, with few potential sparks seen on the horizon. There have been 14 announced offers for Canadian exploration and production assets for a total value of $30.9 million this year through Friday, according to data compiled by Bloomberg. That’s a fraction of the 33 deals with a total value of $3.6 billion in the same period a year earlier.
    • Bridging Finance Inc. is launching what it says is Canada’s first fund of funds for alternative credit — tapping into the swelling market for private debt in the country. The asset manager is planning to raise about C$500 million ($372 million) over the next 12 months, adding to its C$1.4 billion in assets under management, Chief Executive Officer David Sharpe said. Sharpe, a status member of the Mohawks of the Bay of Quinte, launched a private debt fund last month dedicated to financing Indigenous economic development which he also plans to expand to C$500 million.

     

  • World Headlines
    • European stocks opened slightly lower on Monday, and Asian markets dropped, as investors await counter-measures from China after the trade war with the U.S. escalated last week. The Stoxx 600 Index was down 0.3%, after falling 3.4% last week. Autos and real estate stocks led declines, while utilities shares advanced the most. Victrex Plc fell 4.7% after the polymer-maker said it sees second-half growth challenging. Renault SA shares fell 0.8% after the French carmaker made a formal offer to merge with Nissan Motor Co.
    • U.S. equity futures slid, extending the stock market’s biggest weekly decline of the year, as a weekend of back-and-forth trade squabbling kept investors glued to news screens as earnings season wound down. June contracts on the S&P 500 Index fell 1.4% and futures the Nasdaq 100 Index retreated 1.8% as of 9:20 a.m. in London. Last week, the cash S&P 500 slid 2.2% amid the escalating international rift. Uber Technologies Inc. fell a further 1.4% in pre-market trading after its rocky debut on Friday. In Europe, the Stoxx 600 Index slid 0.6%, led down by autos and telecom shares.
    • Investors are struggling to find positive catalysts for risk assets after the U.S. stepped up punitive tariffs on $200 billion in annual imports from China. While both economic superpowers have worked hard since talks ended Friday to project calm and emphasize that they plan to continue negotiations, markets seem to sense fundamental divisions between the two sides. With no date scheduled for a resumption in bilateral Sino-U.S. talks, shares dropped in all principal Asian markets except Hong Kong, which was closed for a holiday. Trade-sensitive commodities including soybeans and cotton fell.
    • Brent crude oil rallied after Saudi Arabia said two of its tankers were attacked on Sunday, adding to the mounting geopolitical risks in the market. Futures in London added as much as 1.9%. Saudi Arabia said two of its oil tankers were affected while sailing toward the Persian Gulf, though no one has yet claimed responsibility. Separately, U.S. officials are expected to release details of additional tariffs of 25% on all remaining Chinese imports Monday. That comes after Beijing vowed retaliation for Washington raising levies on $200 billion of Chinese goods Friday.
    • Gold retreated as the dollar advanced, with investors weighing the outlook for haven demand amid the deadlock in U.S.-China trade negotiations. The yuan slid, making gold more expensive for traders in the world’s top consumer. U.S. equity futures slumped and shares in Europe and Asia dropped as investors awaited tariff countermeasures from China, despite efforts from both sides to project calm and emphasize that they plan to continue negotiations. The escalation of trade tensions also saw traders boosting bets on rate cuts from the Federal Reserve, while some fund managers see the dollar rising further amid the turmoil.
    • Uber Technologies Inc. shares fell further after a rocky debut on Friday for the biggest initial public offering of the year. The ride-hailing giant dropped 2.1% to $40.70 at 5:15 a.m. New York time in trading before U.S. exchanges opened. The San Francisco-based company sold 180 million shares at $45 apiece on Thursday, and on Friday it never traded above that price, ending the day down 7.6% at $41.57 even as other stocks gained.
    • The emerging stalemate in U.S.-China trade negotiations reflects a breakdown in trust and widening differences that are unlikely to be resolved soon. President Donald Trump on Monday again accused China of backing out of a deal that was taking shape with U.S. officials, saying Beijing reneged on an agreement to enshrine a wide range of reforms in Chinese law. That dispute grew out of an earlier deadlock over how and when to remove existing American tariffs that provoked Beijing to threaten quit the talks, people briefed on the discussions said.
    • President Donald Trump threatened that the trade standoff with China will “get worse” if there is retaliation for U.S. tariffs that go into effect on Chinese goods Monday. “I say openly to President Xi & all of my many friends in China that China will be hurt very badly if you don’t make a deal because companies will be forced to leave China for other countries. Too expensive to buy in China. You had a great deal, almost completed, & you backed out!” Trump wrote in one of several Twitter messages. Trump’s comments come after high-level talks between Chinese and American officials broke up Friday in Washington without a deal. The White House’s top economic adviser, Larry Kudlow, predicted that the impact on U.S. jobs and growth from higher tariffs assessed on Chinese goods would be “de minimis,” while conceding that “both sides will suffer” from the trade war.
    • Investors withdrew money from exchange-traded funds that buy emerging market stocks and bonds last week. This was the second straight week of outflows. Outflows from U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $1.69 billion in the week ended May 10, compared with losses of $12.7 million in the previous week, according to data compiled by Bloomberg. This was the biggest weekly outflow since June 22. So far this year, inflows have totalled $17.3 billion.
    • Pakistan and the International Monetary Fund reached an agreement on a loan of about $6 billion designed to help the South Asian nation avert an economic crisis. The lender’s executive board will meet to approve the agreement for the 39-month loan, “subject to the timely implementation of prior actions and confirmation of international partners’ financial commitments,” IMF’s mission chief Ernesto Ramirez Rigo said in a statement. The loan would represent the 13th bailout since the late 1980s from the IMF to Pakistan, which is facing a balance-of-payments crisis triggered by high fiscal and current-account deficits and dwindling foreign exchange reserves. The pact was reached after Prime Minister Imran Khan overhauled his economic team, including the installation of Reza Baqir, who previously served in senior positions at the IMF, as the central bank governor.
    • U.S. Secretary of State Michael Pompeo makes a surprise visit to Brussels on Monday just as European Union foreign ministers are meeting to discuss ways to salvage the landmark Iran nuclear accord that Washington has abandoned. Pompeo scrapped plans for a brief trip to Moscow and will land in the Belgian capital as his 28 EU counterparts gather. President Donald Trump’s top envoy plans to meet with key European allies, though the details are not yet known. The EU and the British, French and German governments — the bloc’s three national signatories to the 2015 nuclear agreement — are struggling to hold it in place after Iran last week gave them a 60-day ultimatum for an economic lifeline. The treaty is at risk of collapsing a year after the U.S. pulled out and piled on fresh sanctions against Iran.
    • In the hyper-polarized world of U.S. politics, there’s an issue that unites Democrats and Republicans: the high cost of insulin. While millions of Americans with diabetes depend on injections of the hormone that regulates blood sugar, many are skimping on dosages because prices have soared. At Congressional hearings last month, lawmakers criticized companies for not doing enough to contain prices. The Food and Drug Administration, which is holding a hearing Monday in Silver Spring, Maryland, on insulin prices, is pushing regulatory reform to create more competition for the three companies that dominate the global $22 billion market: Eli Lilly & Co., Novo Nordisk A/Sand Sanofi.
    • Euronext NV won the permission of the Norwegian government to buy the Oslo stock exchange without imposing an ownership threshold on the Franco-Dutch company. The decision gives Euronext victory over Nasdaq Inc. in a bitter five-month takeover battle that has driven the price of the bourse up to $775 million. Euronext shareholders will vote on the bid on May 16 and the company aims to complete the purchase of a 53% controlling stake in Oslo Bors VPS by the end of June, it said in a statement. Euronext would then consolidate Oslo Bors into its financial accounts, Chief Executive Officer Stephane Boujnah said in an interview.
    • Theresa May is promising to reopen Brexit talks with the European Union to try to breathe life back into negotiations with the opposition Labour Party and take the U.K. out of the bloc by the summer. The prime minister’s office said Sunday the government will explore with the EU this week how to rewrite the outline political agreement on future customs ties, even as a senior Labour official warned that the party’s members of Parliament wouldn’t back a deal without a second referendum. The EU has said it’s willing to make changes to the political declaration, the non-binding part of the Brexit deal that focuses on future ties. It has refused to reopen the divorce deal itself, which includes the controversial Irish border backstop. The U.K. government isn’t asking to renegotiate that part.
    • Romania received a new warning from the European Union that recent legislative changes breach rule-of-law norms and bring it closer to the kind of sanctions already hanging over other eastern European countries. The warning raises the prospect that Romania will join Poland and Hungary in facing EU censure for breaching the bloc’s democratic norms, a process known as Article 7. The bloc’s ex-communist region has come under increased scrutiny as Poland and Hungary sought further sway over courts, prompting some European leaders to push for a cut in their development funding.
    • Overseas investors can soon own more Chinese stocks — the trouble is they don’t seem to want them. Foreigners are dumping mainland-listed shares at a record pace, just as MSCI Inc. prepares to expand their weighting in its benchmark indexes. Already this month, 17.4 billion yuan ($2.6 billion) of A shares have been sold through trading links with Hong Kong, putting May well on track to surpass the 18 billion yuan outflow in April. Chinese stocks remain some of the best performing in world this year, yet about $1 trillion has been wiped from the country’s equity markets in just three weeks as the trade dispute with the U.S. returned to center stage. Concern that Beijing may pare back stimulus plans also weighed: the Shanghai Composite Index has dropped 11% from an April peak.
    • Ion Investment Group has agreed to buy a majority stake in Acuris, the financial news and information company that owns Mergermarket and Debtwire, from BC Partners and GIC Pte. The deal values Acuris at 1.35 billion pounds ($1.76 billion), a person familiar with the matter said, asking not to be identified because the financial details are private. Private equity firm BC Partners announced the deal on Monday, following reports last week that an agreement was close. London-based BC Partners and GIC, the Singapore sovereign wealth fund, will remain minority shareholders, BC said in the statement, without disclosing terms.
    • Nissan Motor Co. is opposing renewed efforts by alliance partner Renault SA to merge under a holding company because such a structure won’t help turn the Japanese carmaker around, a person with knowledge of the discussions said. Talks have been ongoing since Renault Chairman Jean-Dominique Senard first made an informal proposal to Nissan Chief Executive Officer Hiroto Saikawa in April, the person said, asking not to be identified because the discussions aren’t public. Nissan rebuffed the idea then and has continued to oppose it, the person said.
    • The European Union is finalizing a list of American goods to target with retaliatory tariffs in the event that U.S. President Donald Trump, who is expected to make a decision by May 18, imposes levies on car imports. “We are already preparing a list of possible items that would be on that list,” EU trade chief Cecilia Malmstrom said in a Bloomberg Television interview on Monday. “The moment this is official — if this happens, I still hope it won’t — then we would publish that list,” she said, adding that it would “happen quite rapidly.’
    • Bitcoin jumped above the $7,000 level as its longest winning streak since 2013 continued to rekindle the global cryptocurrency market. The advance comes only a few days after the digital asset broke through $6,000, and looks set to boost investor interest in conferences on the technology underlying the biggest crypto asset taking place in New York this week. Bitcoin’s latest surge happened on Saturday, when the two U.S. exchanges carrying futures are closed, making it potentially difficult for short sellers to cover their wagers.

*All sources from Bloomberg unless otherwise specified