May 22nd, 2018
Daily Market Commentary
- Investors are decamping Canadian banks ahead of earnings season, with six straight weeks of outflows from the largest exchange-traded fund tracking the industry. The BMO Equal Weight Banks Index ETF saw a record C$263 million ($204 million) leave the fund between April 2 and May 11, according to data compiled by Bloomberg.
- Goldcorp Inc. Chief Executive Officer David Garofalo says he’s happy with his company’s portfolio of assets, but that doesn’t mean he doesn’t have a wish list. In an ideal world, the company would have an asset in Nevada’s Carlin Trend. “If you’re an Americas-based gold company, you should be there. Barrick and Newmont are there and we should be there,” he said in an interview in Toronto, adding he’d also like to acquire something in Peru. “Those are the two holes in our portfolio geopolitically I’d love to be able to fill in due course.”
- With about two weeks left until what may be the final deadline for a new Nafta this year, Mexico and Canada are signaling there’s a deal to be had — if President Donald Trump wants one. U.S. Treasury Secretary Steven Mnuchin, speaking in an interview on Fox News Sunday, said Trump’s priority is getting a good deal, even if it means disregarding “any deadlines” to let current lawmakers approve it. That would leave a vote to the next Congress, which Trump’s Republican Party may no longer control after November’s midterm elections.
- European equities inch higher as markets including Germany and Switzerland return from Monday’s holiday. Stocks continue to benefit from investor optimism that trade tensions may ease following a pause in America’s tussle with China. The Stoxx 600 rises 0.1%, extending Monday’s 0.3% advance, led by gains in HSBC and Roche Holding. Inmarsat leads declines, sinking as much as 14%. Automakers advanced after China was said to cut the car import duty.
- U.S. index-futures inch higher as investors await the minutes of the Federal Reserve’s latest policy meeting. The U.S. 10-year Treasury yield climbs along with oil, while the dollar falls. Trade tensions eased further as China plans to cut the import duty on passenger cars after the world’s two biggest economies declared a truce in their trade dispute over the weekend.
- Most Asian stocks declined as Japanese shares fell while Taiwan’s benchmark gauge failed to hold on to gains as investors weighed easing trade tensions between the U.S. and China. The MSCI Asia Pacific Index rose 0.2 percent to 174.46 as of 4:17 p.m. in Hong Kong, with about four stocks falling for every three that gained. Japan’s Topix declined 0.2 percent as a technical chart signaled recent gains were excessive.
- Oil extended its three-year high as a new wave of U.S. sanctions on Venezuela stoked concerns over its crude production and as analysts forecast further declines in American stockpiles. Futures in New York added as much as 0.7 percent after Donald Trump ordered sanctions on debt owed to Venezuela following the re-election of President Nicolas Maduro in an election that prompted scorn from the international community. Meanwhile, U.S. crude inventories were forecast to fall for a third week in a Bloomberg survey before government data due Wednesday.
- Gold drops as threat of U.S.-China trade war abates, with dollar steady ahead of the Federal Reserve’s minutes from its meeting earlier in the month.
- China will cut the import duty on passenger cars to 15 percent, further opening up a market that’s been a chief target of the U.S. in its trade fight with the world’s second-largest economy. The Finance Ministry said Tuesday the levy will be lowered effective July 1 from the current 25 percent that has been in place for more than a decade, boosting shares of automakers from India to Europe. Bloomberg News reported last month that China was weighing proposals to reduce the car import levy to 10 percent or 15 percent.
- Airbus SE is ready to tell the World Trade Organization that the threat posed to Boeing Co. by its slow-selling A380 superjumbo is so marginal that any U.S.-led sanctions against the European Union over illegal aid should be minimal. The European planemaker will also contend that state support for the more popular A350 model was only slightly more beneficial given the cheap alternative funding available at the time thanks to historically low interest rates, its head of litigation Karl Hennessee said in an interview.
- Facebook Inc.’s Mark Zuckerberg will tout the company’s investment in Europe and again take responsibility for privacy failures, according to testimony prepared for an appearance Tuesday in front of the region’s parliament. Zuckerberg, who was asked to address concerns about the Cambridge Analytica data leak, will repeat what he’s been telling every audience recently: That the company didn’t take a broad enough view of its responsibility for user data, fake news and foreign interference in elections. For that, he’s sorry, the chief executive officer says in excerpts of his remarks released in advance by the company.
- China’s appetite for U.S. liquefied natural gas may be about to get a lot bigger after the two nations agreed to pull back from the brink of a trade war. If China makes a substantial commitment to buying U.S. LNG, it could bring $30 billion back into the country, according to a Height Securities LLC report on Monday. The White House said May 19 that China will “significantly increase purchases” of U.S. goods, while Beijing’s special envoy said the world’s two largest economies had agreed to a trade truce.
- Sony Corp., once known for pushing the boundaries of technology, is starting to look a little bit boring under Kenichiro Yoshida. The new chief executive officer’s reputation as a stoic numbers guy was demonstrated on Tuesday when he unveiled mid-term targets for the first time as chief executive officer, predicting conservative profit growth across most divisions over the next three years as the company focuses more on content and services. The strategy announcement echoed results issued less than a month ago, when Yoshida gave an outlook for the current year that set a low bar and jolted investors. The shares fell 2 percent on Tuesday, the biggest decline since May 1, the day after the earnings report.
- State Bank of India, the country’s largest lender by assets, posted a bigger-than-expected loss as bad-loan provisions more than doubled. It swung to a loss of 77.2 billion rupees ($1.1 billion) in the three months ended March 31 from a profit of 28.1 billion rupees a year earlier, the Mumbai-based lender told the exchange on Tuesday. That compares with a loss of 17.3 billion rupees predicted by the average of 14 estimates compiled by Bloomberg.
- Elliott Management Corp. is building a stake in German engineering giant Thyssenkrupp AG and would like to replace the company’s Chief Executive Officer Heinrich Hiesinger, according to people familiar with the matter. In line with its usual strategy, the fund, led by activist investor Paul Singer, may cross the threshold of 3 or 5 percent in the coming weeks, hurdles at which investors have to reveal their position, the people said, asking not to be identified because the information is private.
- Sony Corp. is buying EMI Music Publishing, getting its hands on a catalog of 2.1 million songs from Beyonce, Carole King and other artists as it embarks on a new growth plan built on content and services. The Japanese company will buy about 60 percent equity interest from a consortium led by from Mubadala Investment Co. for about $2 billion, Sony said in a statement. The Tokyo-based company already owns almost 40 percent of EMI, operates the business and had been in talks to buy the library for the past few months.
- Santos Ltd. rejected Harbour Energy Ltd.’s $10.9 billion final offer and terminated talks. The Australian oil and gas producer said Tuesday its independent directors, managing director and chief executive officer unanimously decided to reject the proposal because it didn’t represent the full value of the company. Oil prices and shares of its peers traded in Australia have rallied 14 percent and 18 percent, respectively, since the initial proposal, Santos said.
- Dubai’s biggest bank agreed to buy Sberbank PJSC’s wholly-owned Turkish unit for 14.6 billion lira ($3.2 billion) as it expands across the Middle East. State-controlled Emirates NBD PJSC will acquire the Russian lender’s 99.9 percent stake in Istanbul-based Denizbank AS and assume the subordinated debt provided by Sberbank, it said in a statement. The deal has been agreed under a locked box mechanism, based on consolidated equity capital of Denizbank as of Oct. 31.
- Two major backers of London’s Battersea Power Station project are sounding out banks for a loan of about 1.5 billion pounds ($2 billion), people with knowledge of the matter said. Malaysia’s Employees Provident Fund and state-owned asset manager Permodalan Nasional Bhd. are expected to hire banks shortly, according to the people, who asked not to be identified as the process is private. Proceeds will be used to refinance existing borrowings and complete the purchase of commercial assets being developed as part of the Battersea Power Station project’s second phase, the people said.
- Mark Carney pushed back against the Bank of England publishing a more explicit forecast for interest rates as he defended his current communication tools once again. The BOE governor was joined in his view by Deputy Governor Dave Ramsden and policy maker Michael Saunders, who both said they were skeptical of the benefits of adopting an approach like the Federal Reserve. Carney said that while the Monetary Policy Committee has actively discussed the issue, he’s not convinced it would be an improvement.
- Marks & Spencer Group Plc plans to close around a third of its large U.K. stores over the next four years, as the retailer belatedly adapts to the rise of e-commerce. M&S will close more than 100 stores that sell both clothing and food by 2022, the company said in a statement Tuesday. The London-based retailer intends to increase the proportion of online clothing sales to one-third, from about 18 percent now. The shares fell as much as 2.9 percent in London, giving back Monday’s gains.
- The National Stock Exchange of India Ltd. sued Singapore Exchange Ltd. in a Mumbai court, escalating a dispute that threatens to leave international investors without one of the world’s most widely used offshore futures contracts. NSE is trying to stop its Singapore counterpart from launching derivatives that could replace the Nifty 50 contracts that have traded in the city-state for 18 years. Global funds use these instruments to hedge their positions in one of Asia’s biggest equity markets. Indian exchanges ended agreements that allowed offshore derivatives in February, leaving SGX and others scrambling.
- For the past two years, credit-derivatives traders have been betting almost certain odds that Sears Holdings Corp. will default on its debt. Now, those wagers are being turned upside down by a complex proposal from the retailer’s biggest shareholder. Eddie Lampert’s ESL Investment Inc., the hedge fund that owns the most Sears shares, last month urged the retailer to sell some of its businesses, and said it would look to buy them. As part of its proposal, the fund said that Sears should buy back what had been some of its lowest-priced debt.
- A unit of Deutsche Bank AG that bought a $600 million claim against Seadrill Ltd. has sold on the entire position to four investors including hedge fund Attestor Capital LLP. The claims provide a ticket to ownership in the new Seadrill, which will emerge from bankruptcy protection after a Texas court approved a reorganization plan last month for the offshore driller controlled by billionaire John Fredriksen. A minority stake in the new stock will be allocated directly as a conversion of unsecured claims, and the holders also get subscription rights to an equity issue and new secured notes.
- The U.S. Air Force has delayed the launch of its first Global Positioning System III satellite from this month to October at the earliest as it reviews the upgraded rocket that Elon Musk’s SpaceX plans to use to boost it into orbit. The satellite valued at about $528 million would be launched on the latest version of the Falcon 9 rocket from Space Exploration Technologies Corp. The Block 5 rocket has more powerful engines, a stronger heat shield for the return trip through Earth’s atmosphere and new retractable landing legs.
- Lawyers for Paul Manafort accused prosecutors working with Special Counsel Robert Mueller of smearing their client through unflattering media accounts that originated with illegal grand jury leaks. The lawyers on Monday urged U.S. District Judge T.S. Ellis III to hold a hearing focusing in particular on communications involving Andrew Weissmann, one of the Mueller prosecutors, with the Associated Press. Manafort, a former chairman of President Donald Trump’s 2016 campaign, faces charges of bank and tax fraud in Ellis’ court in Alexandria, Virginia. He has also been indicted by Mueller on charges of money laundering and operating as an unregistered foreign agent of Ukraine in a separate case in Washington.
- Varian Medical Systems Inc. said it won’t submit a counterproposal for acquiring Australia’s Sirtex Medical Ltd. after China’s CDH Investments Fund Management Co. offered a higher price. Varian is committed to its offer of A$28 ($21.3) per share, the Palo-Alto, California-based company said in a statement Tuesday. China’s CDH this month made a rival unsolicited offer of A$33.60 per share in cash for Sirtex, which specializes in treating liver cancer.
*All sources from Bloomberg unless otherwise specified