May 22nd, 2019
Daily Market Commentary
- Canadian Headlines
- Canadian stocks rose on Tuesday, reversing earlier losses, as U.S. equities also rebounded in the wake of the latest trade-war moves. The S&P/TSX Composite Index climbed close to 0.2% to 16,426 in Toronto. Communication services and financial companies outperformed other industry groups, while materials stocks dragged down the benchmark. Shares of New Gold retreated 10% to the lowest level in seven months. Technology also declined. Meanwhile, the Canada crude discount hit its widest in 2019 as Alberta increased output limits and oil-sands producers forged ahead with new projects. Western Canadian Select traded at $15.75 less per barrel than West Texas Intermediate on Tuesday, the widest discount since Dec. 31.
- Mortgage growth at Canadian Imperial Bank of Commerce ain’t what it used to be. Canada’s fifth-largest lender by assets was the mortgage king two years ago, when the expansion of its domestic home-loan book outpaced its rivals, thanks in part to a ramp-up of mobile mortgage specialists. CIBC is now seeing a contraction of its domestic mortgage book for the second straight quarter, with C$201 billion ($150 billion) in balances, down 1% from a year ago, as prices in once-hot markets such as Vancouver cool and tighter lending criteria affect borrowers.
- Barrick Gold Corp. is proposing to buy the shares of Acacia Mining Plc it doesn’t already own at a discount, arguing that the plan offers a route to end the unit’s crippling dispute with Tanzania’s government. The $285 million proposal made to Acacia’s board and management will offer 0.153 of Barrick shares for each Acacia share, the Toronto-based company — which already owns about two-thirds of the target, said in a statement.
- Canopy Growth Corp. agreed to acquire U.K. skin-care brand This Works for 43 million pounds ($54 million) in cash, the world’s largest cannabis producer’s latest move to expand in Europe. The purchase will allow Canopy to launch a new range of CBD-infused skin-care and sleep-aid products for global sale, the company said Wednesday. CBD, or cannabidiol, is an active ingredient of cannabis that doesn’t make users high and can be sold in the U.K. when derived from hemp. The CBD market is booming in the U.K. with products containing the compound now available in grocers Tesco Plc and J Sainsbury Plc as well as the high-end Harrods department store. Sales of CBD-based products are expected to be worth 12.5 billion pounds worldwide by 2025, according to the companies.
- European equities trimmed declines and turned little changed as investors weighed a report that the U.S. is considering cutting off the flow of American technology to as many as five Chinese companies that spurred renewed trade-war concerns. The Stoxx Europe 600 Index retreated as much as 0.2% earlier Wednesday before paring losses. Chip equipment maker ASML Holding fell 1.3% on China’s tech-ban woes. Marks & Spencer Group Plc tumbled 4.4% after full-year pretax profit missed estimates.
- U.S. equity futures drifted and European stocks edged higher after a mixed session in Asia as investors digested the latest in the Sino-American confrontation over technology. Oil declined and the dollar and Treasuries were steady before the latest Fed minutes. Stock and bond markets are fluctuating as investors try to size up how much damage the trade war will bring to global economic growth and supply chains, while the Trump administration considers adding video equipment to its growing blacklist of sales to China. With traders in wait-and-see mode, the Cboe volatility index has been retreating and on Tuesday touched its lowest level in almost three weeks.
- Asian stocks were little changed after the S&P 500 Index rose 0.9% on the U.S.’s decision to grant limited relief for consumers and carriers that do business with Huawei Technologies Co. Still, tensions may ratchet up again as the U.S. is considering cutting off the flow of vital American technology to as many as five Chinese companies including Hangzhou Hikvision Digital Technology Co., widening the dragnet beyond Huawei to include world leaders in video surveillance.
- Oil fell on signs the worsening U.S.-China trade war will take a toll on global economic growth, overshadowing the prospect of OPEC and its allies extending production curbs. Futures in New York declined as much as 1.2%. Federal Reserve Bank of Boston President Eric Rosengren said the trade standoff is adding a downside risk to his economic forecasts and the Organization for Economic Cooperation and Development downgraded its projection for global growth. The American Petroleum Institute was said to report U.S. crude stockpiles rose by 2.4 million barrels last week, putting more downward pressure on prices.
- Gold held near a two-week low as the dollar strengthened ahead of the release of minutes from the last Federal Reserve meeting and investors assessed the latest twist in the prolonged U.S.-China trade war.
- Theresa May is under pressure to ditch her Brexit deal and quit as prime minister after a final attempt to win over members of Parliament backfired. The government publishes the draft law on Wednesday. Several senior government officials said they were shocked that the premier’s new offer intended to win votes in Parliament for her European Union divorce agreement had been so badly received so quickly.
- Qualcomm shares fell 11% in pre-market trading in New York after U.S. District Judge Lucy Koh sided with the Federal Trade Commission case accusing the company of anti-competitive practices. Judge Koh, in San Jose, found Qualcomm also charged high royalties for its patents, and that its key role in manufacturing modem chips for smartphones using 5G made it likely that its behavior would continue.
- China’s President Xi Jinping called on citizens to join a “new Long March,” a phrase he’s used before to characterize achieving progress despite hardship, as the U.S. weighs stronger restrictions on Chinese technology companies amid a deepening trade war. Xi made the remarks on Monday while leaving the Long March memorial garden in Jiangxi Province, according to a video clip released by state television. The site marks the starting point of a lengthy migration from 1934 by the Communist Party’s military after setbacks that forced it to join with troops in northwest China.
- Oriflame, a Swedish cosmetics company that does much of its business in developing markets, has received an offer valuing it at $1.3 billion from the Jochnick family that founded it back in the 1960s. By proposing a 35% premium over Tuesday’s closing price, the family is hoping to build on the roughly 30% stake it already has in Oriflame and take the company private. The goal is to push through a “re-positioning” that the Jochnicks argue is better done away from the glare of the stock market.
- TransferWise Ltd. leapfrogged fintech startups, more than doubling its valuation to $3.5 billion in a fundraising round that pushes back the need for an initial public offering. Funds managed by BlackRock Inc. joined in the $292 million investment round that was led by Lead Edge Capital, along with Lone Pine Capital and Vitruvian Partners, London-based TransferWise said in a statement Tuesday. Existing investors Andreessen Horowitz and Baillie Gifford & Co., the Scottish investment manager, increased their stakes.
- Sasol Ltd., the world’s biggest maker of fuel from coal, said the cost of its giant Lake Charles chemicals project in Louisiana will balloon to as much as $12.9 billion, or about 50% more than initially planned. The cost blowout is a further setback for the development that’s part of the South African company’s plan to expand internationally. It has already suffered a number of budget increases because of factors including weather delays. Sasol shares slumped the most in 20 years after the announcement on Wednesday.
- Royal Mail Plc slashed its dividend to free up 1.8 billion pounds ($2.3 billion) in spending on a planned overhaul after earnings fell in the financial year just ended. The U.K.’s 500-year-old postal service will pay investors 15 pence a share annually from the 2020 financial year. That’s 40% lower than the 25 pence awarded in the 12 months through March, according to an statement Wednesday.
- Assicurazioni Generali SpA is in early talks to buy the Central European assets of MetLife Inc. as the Italian insurer seeks to expand through acquisitions in high-growth markets, according to people with knowledge of the matter. The business may be worth more than 2 billion euros ($2.24 billion) and is concentrated in Poland, the Czech Republic, Hungary and Romania, the people said, asking not to be identified as the plans aren’t public. Talks are at a preliminary stage and the transaction may not happen, the people said.
- Bank of Nanjing Co., the Chinese partner of BNP Paribas SA, may have more room to rally as a fresh fundraising proposal is raising hopes among analysts that it would ease the lender’s capital shortage and spur profit growth. China International Capital Corp. and Shenwan Hongyuan Group Co. said the stock may gain at least 30% over the coming year after it jumped the most in a month on Wednesday. Bank of Nanjing said late Tuesday it plans to raise as much as 14 billion yuan ($2 billion) by privately placing shares with four existing and new investors including BNP Paribas.
- The U.S. is considering cutting off the flow of vital American technology to as many as five Chinese companies including Hangzhou Hikvision Digital Technology Co., widening the dragnet beyond Huawei to include world leaders in video surveillance. The U.S. is deliberating whether to add Hikvision, Zhejiang Dahua Technology Co. and several unidentified others to a blacklist that bars them from U.S. components or software, people familiar with the matter said. The Trump administration is concerned about their role in helping Beijing repress minority Uighurs in China’s west, they said, asking not to be identified talking about private deliberations. There’s concern also that Hikvision’s or Dahua’s cameras, which come with facial recognition capabilities, could be employed in espionage, the people said.
- Apple Inc.’s earnings would take a 29% hit if China were to retaliate against the U.S. with a ban on sales of the iPhone maker’s products, Goldman Sachs estimated. While Goldman takes no view on the likelihood of a potential ban, such a restriction would represent 100% of estimated Apple earnings exposure to both mainland China and Hong Kong, assuming some offsetting impact from cost savings in sales and marketing, analysts including Rod Hall wrote in a note. The stock fell 0.5% in U.S. pre-market trading.
- BT Group Plc won’t offer phones from Huawei Technologies Co. when it starts Britain’s first 5G mobile network next week, joining a growing list of wireless operators ditching the Chinese company’s handsets after the U.S. blocked it from critical suppliers. BT decided not to include Huawei phones in its 5G launch because of uncertainty over whether they could use Android software developed by U.S. tech giant Alphabet Inc., a spokesman for the carrier said. It will still rely heavily on Huawei, the world’s largest provider of networking gear and No. 2 smartphone vendor, as it’s supplying much of the infrastructure for the new network, alongside Finnish equipment vendor Nokia Oyj.
- Marks & Spencer Group Plc plans to open more large food stores, shifting away from a strategy of expanding smaller convenience outlets as it prepares for an alliance with online grocer Ocado Group Plc. The prospect of another costly store revamp as profit falls weighed on the U.K. retailer’s shares, which declined as much as 5.4% on Wednesday. Marks & Spencer said a 601 million-pound ($763 million) shareholder rights issue to finance the Ocado deal was fully underwritten.
- The pound fell for a record 13th day against the euro as Prime Minister Theresa May came under renewed pressure to step down after her new Brexit plan was roundly rejected. Sterling dropped to the lowest level in over four months against the dollar, after many of May’s lawmakers and the opposition Labour Party vowed to vote against her proposals in Parliament next month. With May’s rivals already jockeying to replace her, there is potential for a bigger sell-off if her eventual replacement takes a more hardline stance on Brexit.
- German Chancellor Angela Merkel’s cabinet approved an aid package worth as much as 40 billion euros ($44.7 billion) by 2038 for the nation’s coal regions, launching a drive to transform chimney-stack economies into high-tech centers. Merkel’s administration announced an exit from coal power in February, saying it will wean the nation off the fossil fuel over two decades. The government pledged to compensate utilities and cushion the blow in lignite and hard-coal centers in Eastern Germany and on the Rhine River. As many as 60,000 jobs are linked to coal mining and power generation.
- Cerberus Capital Management is launching its first dedicated private equity fund as investors pour cash into the asset class. The New York-based firm is seeking about $3 billion for the fund, according to people with knowledge of the matter, who asked not to be identified because the information isn’t public. The firm has already secured some commitments from investors, the people said. The effort marks a departure for Cerberus, which has historically invested in private equity through multistrategy funds, and comes at an opportune time. Investors have become optimistic about the return potential for the asset class and that’s helped firms gather $432 billion last year.
- Natura Cosmeticos has agreed to buy Avon Products in an all-stock deal valued at more than $2 billion, Financial Times reports, citing unidentified people with direct knowledge of the matter; Avon shares surge 24% in premarket trading.
*All sources from Bloomberg unless otherwise specified