May 21st, 2019
Daily Market Commentary
- Canadian Headlines
- Canadian stocks fell, ending a three-day win streak as trade related jitters left investors to hit the sell button, globally. The S&P/TSX Composite Index fell 0.3% to 16,401.75 on Friday in Toronto. Pot stocks were among the worst performers, while consumer staples were the best. Seven of the 11 industry groups fell, with CAE Inc. as the best performing stock after earnings beat the highest estimate. Meanwhile, The U.S. and Canada have reached a deal to lift metals tariffs, and the agreement will take effect in “no later than two days,” according to a joint statement. Countries have agreed to lift “all tariffs the United States imposed under Section 232 on imports of steel and aluminum products from Canada” and “all tariffs Canada imposed in retaliation for the Section 232 action taken by the United States.”
- Another deal involving a master limited partnership is drawing investor backlash after an affiliate of Brookfield Asset Management Inc. made an unsolicited offer to buy out minority shareholders of Teekay Offshore Partners LP, an energy shipping company. Teekay Offshore said Monday a group including Brookfield Business Partners LP is proposing to acquire the units it doesn’t already own for $1.05 apiece. That’s a 9.5% discount to the closing price at the end of last week.
- Royal Bank of Canada may make loans to oil and gas companies seeking to reduce their environmental impact under its recently created green bond program. The country’s largest bank isn’t excluding fuel companies, said Lindsay Patrick, RBC’s head of sustainable financing. The loans to oil and gas firms could go to projects such as carbon-capture infrastructure. Oil and gas firms “aren’t specifically excluded in our framework,” said Patrick, although most of the lender’s green bond funding will go to renewable power and green buildings.
- An investor’s opposition to Canopy Growth Corp.’s acquisition of Acreage Holdings Inc. may signal a new trend for an industry that’s largely been free from shareholder activism. Marcato Capital Management, which holds Acreage shares, has said it will vote against the deal because it undervalues the New York-based company. Marcato believes the value of pot firms will soar with U.S. legalization, so “it is highly imprudent for Acreage to sell itself today at the proposed valuation, with so much unlocked growth and value embedded in the company.’’
- World Headlines
- U.S. equity futures and European stocks advanced on Tuesday following a mixed session in Asia as the trade-war driven turbulence that has dominated markets this month showed few signs of abating. The dollar strengthened while Treasuries slipped. Contracts on the S&P 500, Dow Jones Industrial Average and Nasdaq 100 indexes all traded in the green after the U.S. granted limited relief for consumers and carriers using Huawei Technologies, a day after the White House’s moves against the Chinese telecom giant battered stocks. Tesla Inc. fell in pre-market trading as Morgan Stanley analysts slashed their worse-case scenario for the share price to just $10.
- Asian stocks slipped, led by health care and industrial firms, after rising on Monday. Markets in the region were mixed, with India retreating and China and Indonesia advancing. Japanese stocks were back down after a two-day bounce, as technology companies slumped on escalating tensions between the U.S. and China surrounding Huawei Technologies Co. The Topix gauge dropped 0.3%, driven by Sony Corp. and Kao Corp. The Shanghai Composite Index climbed 1.2%, with Kweichow Moutai Co. and large banks providing the biggest boosts. The S&P BSE Sensex Index declined 0.6% after rising to a record on Monday.
- The S&P/ASX 200 index rose 0.4% to close at 6,500.10, erasing losses from earlier in the session after Australia’s central bank chief said he’ll consider cutting interest rates at next month’s meeting to spur faster hiring. Banks and real estate stocks contributed most to the benchmark’s gain. Lynas Corp Ltd. was among the top performers after announcing plans to lift production, invest in new downstream processing and extend its footprint into the U.S. Lynas entered a trading halt after the ASX asked the company to clarify information from its investor day presentation.
- Oil rose on signs OPEC and its allies will extend production cuts beyond June, while a steadily deteriorating U.S.-China trade relationship kept prices from pushing higher. Futures increased 0.7% in New York after closing up 0.5% on Monday. Saudi Energy Minister Khalid Al-Falih urged the OPEC+ coalition to “stay the course”on output limits after a meeting in Jeddah over the weekend. Yemeni rebels backed by Iran said they’d attacked an airport in southern Saudi Arabia, further stoking tensions in the Middle East, while China warned it could retaliate against the U.S. after Washington blacklisted Huawei Technologies Co.
- Gold held near a two-week low as the latest twists in the U.S.-China trade war fanned support for the dollar. Beijing’s ambassador to the European Union warned of the potential for retaliation after President Donald Trump blacklisted Huawei Technologies Co. Gold still stands to benefit if U.S.-China relations deteriorate, although that may be offset by diminished Asian demand, Citigroup Inc. said. The dollar’s recent strength has been the primary driver capping bullion, the bank said. One support for gold in the past decades has been central bank purchases, and that is likely to continue. Serbia’s President urged the central bank governor and Finance Minister to buy the metal as a safety measure, Vecernje Novosti reported.
- While the trade war remains the chief concern for investors just about everywhere, it seems elections are the only way to pierce the gloom. Indonesia’s Jakarta Composite Index rose as much as 1.5%, for a second day of gains, after its biggest weekly slump in more than a year made it the first in Asia to erase this year’s rally. And just like Monday’s surge for Australian and Indian stocks, it is election results pushing shares higher. Indonesian President Joko Widodo was declared the winner by a double-digit margin in official results announced a month after the bitterly contested election. Jokowi, as Widodo is known, won by an 11% margin over Prabowo Subianto, the results showed.
- Japan’s Topix was back down after a two-day bounce, as technology companies slumped on escalating tensions between the U.S. and China surrounding Huawei Technologies Co. A gauge of electronics makers fell 1%, extending its decline in May to 7.2% and poised for its worst monthly performance this year. China could retaliate against the U.S., Zhang Ming, China’s envoy to the European Union, said in an interview in Brussels on Monday. The Trump administration last week signed an order that could restrict Huawei from selling its equipment in the U.S., while putting the Chinese company on a blacklist that may forbid it from doing business with American counterparts.
- Tesla Inc. was delivered another blow Tuesday by Morgan Stanley analysts who slashed their worse-case scenario for the share price to just $10 over concerns the electric-car market is saturated. “Demand is at the heart of the problem,” analysts led by Adam Jonas said in a note. “Tesla has grown too big relative to near-term demand, putting great strain on the fundamentals.” Jonas lowered his “bear case” for Tesla shares from a previous estimate of $97, which assumes Tesla misses its current sales forecast in China by about half, and kept a price target of $230. The stock fell 2.6% to $200 in pre-market trading.
- If you thought the Federal Reserve was done with quantitative easing, you might only be half right. As soon as next year, analysts say the Fed will resume large-scale buying of debt securities — this time just U.S. Treasuries — in amounts that may ultimately exceed its crisis-era purchases. According to an estimate by Wells Fargo & Co., the central bank’s balance sheet will rise past its historic peak as it adds over $2 trillion to its Treasury debt holdings in the next decade. Of course, it won’t be called QE, which President Donald Trump has urged the Fed to restart. Rather than trying to drive down long-term interest rates to boost growth, the purchases are intended to replace the Fed’s mortgage-bond holdings gradually as they mature and to keep ample reserves in the banking system. But the effect, some say, will nevertheless be largely the same.
- To listen to New York Governor Andrew Cuomo, the 2017 Republican tax overhaul that limited state and local deductions to $10,000 was a devastating blow. The rich would flee, the middle class would suffer and blue state budgets would bleed. Perhaps this will come to pass over time, but so far, there are almost no signs of it. New York, in fact, saw revenue rise $3.7 billion in April from a year earlier, thanks to a shift in timing of taxpayer payments, a stock market that rallied through much of 2018 and a decade-long economic expansion that’s pushed national unemployment to a 50-year low. Similar windfalls arrived in New Jersey, California and Illinois — states that, like New York, had warned of dire consequences from the law.
- Merck & Co. will acquire Peloton Therapeutics Inc. for as much as $2.2 billion in cash and additional payments, making the deal just a single day before the closely held developer of cancer therapies was to begin trading on the stock market. Merck will pay $1.05 billion in cash, plus $1.15 billion in additional payments based on how the small company’s experimental drugs fare as they are developed further by Merck, the firms said in a statementannouncing the deal Tuesday.
- Crane Co. has made a hostile $896 million offer for Circor International Inc. after an earlier proposal to the rival industrial products manufacturer’s board was rejected this month. The $45-a-share cash bid is a 47% premium to Monday’s closing price and values Burlington, Massachusetts-based Circor at about $1.7 billion, including debt, Crane said in a statement on Tuesday, confirming an earlier Bloomberg report. Circor shares have gained about 44% so far this year giving the company a market value of $610.1 million at Monday’s closing price. Stamford, Connecticut-based Crane is valued at about $5.1 billion.
*All sources from Bloomberg unless otherwise specified