May 15th, 2019
Daily Market Commentary
- Canadian Headlines
- Canadian crude prices fell Tuesday as storage tanks topped out amid refinery maintenance in the U.S. Midwest. Heavy Western Canadian Select, an oil sands benchmark, fell to the biggest discount against West Texas Intermediate futures since Feb. 19, data compiled by Bloomberg show. Edmonton Mixed Sweet, a light grade, declined to the weakest level this year while synthetic crude, produced from oil sands bitumen in an upgrader, fell to the lowest in two weeks.
- Australian gold producer St Barbara Ltd. agreed to pay C$722 million ($536 million) to acquire Atlantic Gold Corp., adding a mine in Canada as the sector’s wave of consolidation continues. St Barbara offered C$2.90 a share for Vancouver-based Atlantic Gold, about a 40% premium to Tuesday’s close, and will fund the deal from cash reserves and by raising about A$490 million ($340 million) in a share sale to existing holders, according to a statement Wednesday. Atlantic said its board has unanimously approved the deal.
- World Headlines
- European equities opened little changed as investors weighed trade concerns, while positive earnings surprises fueled the appetite for some stocks. The Stoxx Europe 600 Index added 0.2%. Cement maker LafargeHolcim jumped 2.6% after first-quarter sales beat the highest estimate. British caterer Compass rose 1.2% after lifting its full-year view. EON slumped 5.3% after being cut to neutral at Goldman Sachs. All eyes remain on trade negotiations after the White House announced it was preparing tariffs on the remaining $300 billion of Chinese imports. Economists warned the new penalties will eventually weigh heavily on the American economy, and China’s economy lost steam in April. European stocks had their worst week since October last week because of concerns that tariffs will hurt global growth.
- Contracts on the S&P 500, Dow and Nasdaq swung between gains and losses, while the Stoxx Europe 600 edged lower as drops in carmakers offset gains in construction companies. Treasury yields sank to the lowest level since March, with investors still reeling from the breakdown in trade negotiations in the past week. Yields on 10-year German bunds slipped to the lowest since 2016, but they jumped for Italy’s debt, as the nation’s deputy premier Matteo Salvini racheted up tensions over the country’s deficit.
- The bright spot was Asia, where a regional equities gauge headed for its biggest one-day increase in six weeks. Mainland China led gains as speculation increased that Beijing will boost stimulus after data showed the economy lost steam. Sustained appetite for risky assets is missing as investors remain on edge following a trade-induced roller coaster for markets. The White House is preparing duties on the remaining $300 billion of Chinese imports, and economists warn the new penalties will eventually weigh heavily on the American economy. President Donald Trump is preparing to meet his Chinese counterpart, Xi Jinping, at next month’s G-20 summit, an encounter that could prove pivotal in the deepening clash over trade.
- Oil fell as an industry report signaling a jump in U.S. stockpiles eased concerns over a supply crunch, even after a drone attack in Saudi Arabia highlighted the vulnerability of the country’s energy infrastructure. Futures in New York declined 0.7% after closing up 1.2% on Tuesday. The American Petroleum Institute was said to report an 8.63 million-barrel weekly increase in crude inventories, calming supply fears after a Yemeni rebel attack on two Saudi pumping stations forced the kingdom to suspend its main cross-country crude link. In a further sign of tensions in the Persian Gulf, the U.S. ordered all non-emergency American government staff to leave Iraq.
- Gold hovered near the psychologically important $1,300 per ounce level as investors reassess safe-haven assets amid mixed signals out of China and the U.S. While China’s industrial output, retail sales and investment all slowed more than economists forecast in April, that sparked hopes that the government will need to boost stimulus to cushion the blow from the escalating trade tensions. The U.S. prepared to hit China with new tariffs, yet President Donald Trumpsaid earlier this week that he had a feeling further talks will be “very successful.”
- Iron ore is forecast to surge well above $100 a ton within months as stockpiles at China’s ports crater, mills face being forced to compete for cargoes to meet booming demand or idle furnaces, and a drop in supply spurs a global deficit. Futures rose along with miners’ shares. Prices will peak at $110 next quarter, when the port stockpiles will be completely depleted of available supplies, First NZ Capital Securities Ltd. said in a report that includes estimates from Credit Suisse Group AG. Stockpiles will then slowly rebound, with prices easing from the fourth quarter, it said.
- Germany’s economy emerged from stagnation at the beginning of 2019, returning to growth despite a slump in manufacturing that could worsen because of escalating global trade tensions. The 0.4% expansion signals some strength across the euro area in the first quarter amid a better-than-expected performance in a number of countries. But industry is under pressure and the region is at risk of being sucked into an increasingly tense U.S.-China trade conflict.
- Alibaba Group Holding Ltd.’s posted quarterly revenue and earnings that topped analyst estimates as personalized recommendations drive consumer spending across its shopping sites. Revenue at China’s biggest e-commerce company rose 51% to 93.5 billion yuan ($13.6 billion) in the three months ended in March, above the 91.7 billion-yuan average of analysts’ estimates compiled by Bloomberg. Adjusted earnings-per-share was 8.57 yuan, topping projections for 6.5 yuan. The Hangzhou-based company predicted revenue in the current financial year of more than 500 billion yuan, short of projections for 509 billion yuan.
- President Donald Trump plans in coming days to sign an executive order that would prohibit American firms from using gear made by foreign telecommunications companies that pose a security threat, according to an administration official. The official, who was granted anonymity to discuss a sensitive issue, said on Tuesday night that the order was not meant to single out any country or company. U.S. officials have said that equipment made by Huawei Technologies Co.., a Chinese telecommunications firm, could be used to spy on behalf of the Beijing government. Huawei has denied the allegations.
- Indonesia posted it’s biggest trade deficit since at least 2008 as exports plunged, adding to pressure on the currency and giving the central bank more reason to keep interest rates on hold this week. Exports dropped 13% in April from a year ago, the biggest decline in almost three years, while imports fell 6.6% as the government imposed measures to restrict overseas purchases. That caused a blowout in the trade deficit to $2.5 billion, far wider than the $509 million shortfall forecast in a Bloomberg survey of economists.
- Walmart Inc. is mulling an initial public offering for its Asda unit, a listing that that could value the U.K. grocer at as much as an estimated 8.5 billion pounds ($11 billion). News of a possible float of Britain’s fourth-largest supermarket comes only weeks after U.K. antitrust regulators blocked a planned merger with rival J Sainsbury Plc. Asda could be valued at six or seven times earnings before interest, tax, depreciation and amortization, according to Bruno Monteyne, an analyst at Sanford C. Bernstein, who estimates the company’s Ebitda at about 1.2 billion pounds. The company would need to wait until the grocery market is more attractive to investors, he said.
- China’s biggest airlines are considering banding together to seek compensation from Boeing Co. for the disruption caused by the grounding of the U.S. aircraft manufacturer’s 737 Max, people with knowledge of the matter said. Air China Ltd., China Southern Airlines Co. and China Eastern Airlines Corp. are exploring their legal options on how to coordinate their claims, according to the people, who asked not to be named discussing private deliberations. The talks are preliminary and may not result in an agreement, the people said. China’s “big three” state-run carriers are potentially a formidable force to contend with. They operate 53 of the 96 Max planes currently grounded in the country, according to data from VariFlight, a local aviation statistics company. The carriers also accounted for 65% of passengers who flew Chinese airlines in 2018, according to the Civil Aviation Administration of China.
- City Developments Ltd. is significantly boosting its presence in China by acquiring an interest of almost 25% in privately held real estate firm Sincere Property Group. Singapore’s second-largest developer will invest 5.5 billion yuan ($800 million) in Sincere via equity and a four-year loan, the company said in an exchange filing Wednesday. The deal will increase City Developments’ exposure in China from three cities to 20 and give it access to new asset classes including business parks and serviced apartments. It will mean 15% of its portfolio is now in Asia’s biggest economy.
- China’s economy lost steam in April, underscoring the fragility of the world’s second-largest economy as it girds for an intensified face-off with the U.S. over trade. Industrial output, retail sales and investment all slowed more than economists forecast. The state sector continued to boost investment while private business eased off, and growth in manufacturing investment came in at the slowest pace in data dating back to 2004. Faltering credit and consumption at home coupled with a weaker global economy means China is running out of steady growth engines right when it needs them. The soggy data spurred expectations the government will need to boost stimulus to cushion the blow from the escalating trade war, sending Asian stocks mostly higher. The yuan was little changed.
- Banco Santander SA is demanding that losses be imposed on bonds of Distribudora Internacional de Alimentacion SA as a condition for LetterOne’s rescue of the Spanish grocer, according to people familiar with the talks, who asked not to be identified because it’s private. LetterOne, the investment fund owned by Russian billionaire Mikhail Fridman, needs support from a group of bank lenders led by Santander to extend all of DIA’s loan payments and repay its bonds due in July. The fund is seeking to buy a controlling stake in DIA and raise 500 million euros ($561 million) for the deal.
- UBS Group AG has eliminated more than 150 support jobs globally in recent months, adding to European and U.S. financial services companies dismissing workers to rein in costs, according to people with knowledge of the matter. The Swiss bank cut positions serving the lender’s wealth, asset management and investment banking activities, the people said, asking not to be identified as the matter is private. The majority of cuts are in corporate center positions such as human resources, IT, marketing, and risk departments, they said.
- MTN Group Ltd. will list its Nigeria unit in Lagos on Thursday in a move that will value the pan-African wireless carrier’s largest business at 1.8 trillion naira ($5 billion). The move is a step toward a partial sell down of the carrier’s majority 79% stake, and was agreed to as part of the settlement of a $1 billion regulatory fine three years ago. MTN Nigeria is the market leader in Africa’s most populous country, with about 60 million customers at the end of last year. The price of MTN Nigeria’s shares were set at 90 naira a share, determined by referencing private sale transactions by shareholders over the past 180 business days. The true valuation of the business is uncertain due to an ongoing dispute with Nigeria’s Attorney General over a claim for $2 billion in back taxes, MTN said.
- ING Groep NV and UniCredit SpA are lining up advisers to explore a potential takeover of Commerzbank AG after the German lender’s talks with Deutsche Bank AG broke down last month, according to people familiar with the matter. The Dutch bank is working informally with boutique investment bank Perella Weinberg Partners, while the Italian lender is working with JPMorgan Chase & Co, the people said, asking not to be identified because talks are private. UniCredit also has a long-standing relationship with Lazard Ltd. and Joerg Asmussen, a former deputy German finance minister at the firm, they said.
- The U.S. ordered its non-emergency government employees to leave Iraq, a week after Secretary of State Michael Pompeo made an unannounced visit to discuss what he said was the rising threat from neighboring Iran. The move comes amid mounting tension in the Gulf, the world’s largest oil-exporting region, where any threat to shipping or oil facilities has the potential to rattle global markets. Squeezed by a year of tightening U.S. sanctions, Iran this month threatened to gradually withdraw from a landmark 2015 accord meant to curb its nuclear program. On Tuesday, an Iran-backed Yemeni rebel group attacked oil facilities in Saudi Arabia, forcing it to suspend a key pipeline. That followed a series of sabotage attacks earlier in the week on commercial vessels heading for the Strait of Hormuz, the global shipping choke-point at the mouth of the Gulf.
*All sources from Bloomberg unless otherwise specified