May 23rd, 2018
Daily Market Commentary
- Canadian stocks slid, missing out on the chance to extend their rally to a 12th day. The 11-day streak of gains was the longest since 2014. The S&P/TSX Composite Index dipped 18 points or 0.1 percent to 16,144.79 Tuesday, closing just 268 points shy of a record high for the benchmark. Health-care stocks were the biggest gainers, adding 3.3 percent as shares of cannabis companies continued to climb. Canopy Growth Corp. rallied 9.4 percent to the highest since January 10. ProMetic Life Sciences Inc., which climbed almost 11 percent, was the index’s biggest gainer.
- Canadian Imperial Bank of Commerce is no longer an outlier on mortgages. CIBC has scaled back its rapid expansion of Canadian home loans, bringing it more in line with the industry and ending a two-year streak of outpacing the nation’s other big banks. Mortgage balances rose 6 percent to C$208.2 billion ($161.6 billion) in the fiscal second quarter from a year earlier, the Toronto-based bank said Wednesday in announcing earnings that beat analysts’ estimates. That’s the slowest growth in three years.
- A streaming deal for cobalt and nickel from a mine in Papua New Guinea may be the first of several such arrangements as producers look to capitalize on the battery-commodity boom to raise cash for investments. On Tuesday, Cobalt 27 Capital Corp. — a Toronto-listed vehicle designed to invest in the metal — said it reached a $113 million deal with Highlands Pacific Ltd. to buy future production from the Ramu mine in PNG. The Australian-listed miner’s shares surged as much as 56 percent Wednesday in Sydney.
- Ownership limits in Canadian airlines and the country’s biggest railway will rise this week after the wrangling over a controversial transport law finally came to an end. Transport Minister Marc Garneau’s sprawling reform of transport laws, known as Bill C-49, passed final votes Tuesday by both elected lawmakers and the country’s unelected Senate. The bill had ricocheted between the two legislatures, but the Senate eventually abandoned its opposition to avoid what one Senator called a potential constitutional crisis.
- The Dow Chemical Company is expanding into Eastern Canada with its first new sales center in the country in more than 20 years. The new Toronto office will allow the company to get closer to its customers and collaborate better as it gears up for growth after its planned spin-off from DowDuPont Inc. early next year, according to Andrew Liveris, chairman and chief executive officer of Dow Chemical.
- European equities decline after U.S. President Donald Trump cast doubt on a possible summit with North Korea set for next month, and as investors assess a slew of corporate updates. The Stoxx 600 falls 0.5%. Marks & Spencer Group jumps after the retailer reported FY18 pretax profit ahead of estimates and provided reassuring guidance for FY19.
- Gloom is returning to global markets just as trade tensions between the U.S. and China appeared to be easing. U.S. stocks closed down Tuesday after Trump expressed pessimism on a meeting with Kim Jong Un, while in Italy questions are swirling around the suitability of the nominated prime minister. Monetary policy may provide a welcome distraction when the Federal Reserve releases minutes of its latest policy meeting on Wednesday.
- Asia stocks fell for a third day as Japanese shares dropped amid a stronger yen, while investors weighed on pessimism over the planned historic meeting between the U.S. and North Korea. The MSCI Asia Pacific Index declined 0.4 percent to 173.52 as of 4:10 p.m. in Hong Kong, with more than two stocks down for each that gained. Japan’s Topix slid the most in almost two months as electronics and automobile makers dragged down the nation’s benchmark, while the yen strengthened further.
- Oil retreated from the highest level in more than three years, falling with other commodities, as traders await OPEC’s response to global crude supply concerns. Global benchmark Brent crude fell as much as 1 percent, after closing at its highest level since November 2014 on Tuesday, as a stronger dollar dulled the appeal of commodities priced in the U.S. currency. A committee representing OPEC and its allies met on Tuesday before the producers’ main meeting next month, when they will review the impact of production cuts. With supplies from Iran and Venezuela at risk, speculation is swirling that they may ease the cutbacks.
- Gold steady as geopolitical tensions resurface after President Donald Trump casts doubt on possible N. Korea summit, stocks slide in Asia.
- Coal is cooling off again and miners’ shares are spiraling lower as China’s regulators move to quell a recent price rally. The most-active contract on the Zhengzhou Commodity Exchange fell 4.1 percent at the close, the biggest decline this year. China Shenhua Energy Co., the nation’s largest miner, sank 6.4 percent in Hong Kong, while coal-hungry power producers rose. The government has outlined measures to tame prices and set a June 10 target to get them back into its preferred range below 570 yuan a metric ton, Shanghai Securities News reported Wednesday.
- Indian shares dropped — with the key indexes declining for the sixth day in seven — as investors continued to assess companies’ quarterly earnings, with most results reported so far trailing analyst estimates. Sentiments were also dented by the Indian rupee’s fall as the currency is set to close at its lowest level against the U.S. Dollar since 2016.
- A leading Brexit minister in Theresa May’s government was forced into a painful political admission — the U.K. is legally bound to settle its divorce bill even if it doesn’t get a future trade deal with the European Union. To make the bitter pill of 39 billion pounds ($52 billion) easier to swallow for the public and Brexit cheerleaders, May has been insisting that the financial settlement and a free-trade deal are part of the same package. The EU has always been clear they’re separate.
- President Donald Trump’s maximalist approach in recasting his nation’s trade relations may soon hit U.S. farmers and manufacturers, as America’s trade partners prepare retaliatory tariffs that could generate $3.45 billion in revenue. In just the past week, the European Union threatened $1.6 billion of additional levies in response to U.S. tariffs on metal imports; Russia prepared $537.6 of added duties; Turkey $266.6 million; Japan $264.3 million; and India $165.6 million, according to filings with the World Trade Organization.
- Foxconn Industrial Internet Co. plans to raise 27.1 billion yuan ($4.3 billion) selling stock in an initial public offering, kicking off the largest mainland Chinese debut since the 2015 stock market crash. Shares will be offered at 13.77 yuan apiece, valuing the company at about $43 billion — larger than eBay Inc. The smart factory unit of Hon Hai Precision Industry Co., Apple Inc.’s most important assembly partner, will float 1.97 billion shares in Shanghai, it said in a filing with the Shanghai Stock Exchange.
- Turkey is entering the grips of a full-blown currency crisis. The lira was already on course for its worst month since 2008 when it plunged to a new record Wednesday, a sign that the central bank’s apparent refusal to step in is giving traders free rein to bet against it. It sank as much as 5.2 percent. The lira has fallen on every day but three this month, a selloff that has accelerated since President Recep Tayyip Erdogan, who has long called for interest rate cuts to fuel growth, said this month he intends to take more responsibility for monetary policy if he wins the June 24 election. Traders are also punishing the nation for failing to do enough to combat double-digit inflation and a widening current-account deficit.
- ZTE Corp. is estimating losses of at least 20 billion yuan ($3.1 billion) from a U.S. technology ban that’s halted major operations as clients pull out of deals and expenses mount, people familiar with the matter said. The telecoms gear and smartphone maker however is hopeful of striking a deal soon and already has a plan in place — dubbed “T0” — to swing idled factories into action within hours once Washington agrees to lift its seven-year moratorium on purchases of American chips and components, said the people, who asked not to be identified talking about private negotiations. The company declined to comment.
- Royal Dutch Shell Plc sold its stake in a coal gasification project in China to Sinopec, ending an almost two-decade long partnership in the venture and adding to a string of asset disposals by the oil major.
- The latest standoff between the U.S. and Iran may be leaving oil-tanker owners in more of a bind than in previous years. As the U.S. reimposes sanctions on the Islamic Republic, firms that help ferry Iranian oil risk losing access to the American financial system, similar to earlier in the decade when such measures were enforced. Additionally, this time around, they’ll have to contend with being cut off from the booming business of transporting crude pumped from shale fields in Texas or wells in the Gulf of Mexico, according to shipbroker Braemar ACM.
- Apple Inc. manufacturing partner Taiwan Semiconductor Manufacturing Co. has started mass production of next-generation processors for new iPhones launching later this year, according to people familiar with the matter. The processor, likely to be called the A12 chip, will use a 7-nanometer designthat can be smaller, faster and more efficient than the 10-nanometer chips in current Apple devices like the iPhone 8 and iPhone X, the people said. They asked not to be identified discussing private plans. Apple and TSMC spokeswomen declined to comment.
- China will buy an additional $60 billion to $90 billion worth of American goods over the next several years, with agricultural products poised to benefit in the near term followed by energy and ultimately non-high-tech manufactured products, according to Morgan Stanley. The world’s largest trading nation will likely seek a “non-disruptive approach” to reducing its record trade surplus with the U.S. by gradually increasing the share of additional goods imported from there, Hong Kong-based economists Robin Xing and Jenny Zheng wrote in a report this week. Other economists say China will have to divert imports from other nations.
- Takeda Pharmaceutical Co. has invited Japanese and overseas banks to participate in the syndication of a $30.85 billion loan to back its $62 billion purchase of Shire Plc, according to people familiar with the matter. The move comes after the Japanese pharma giant said earlier this month it had reached an agreement on the bridge loan with JPMorgan Chase, MUFG Bank and Sumitomo Mitsui Banking Corp. The syndication gives more lenders an opportunity to get in on one of the biggest ever loans in Asia, which has helped drive up the average loan size for high-grade acquisitions worldwide this year.
- Rio Tinto Group is said to be ready to accept a $3.5 billion deal with Indonesia for its interest in the giant Grasberg operation, paving the way for an end to a protracted, three-way wrangle over the world’s No. 2 copper mine. A deal for Rio’s exit still depends on Freeport-McMoRan Inc. striking an agreement to transfer some of its stake to a local firm, according to people with knowledge of the discussions. No accord has been signed and an agreement may still not be reached, according to the people, who asked not be identified because the matter is confidential.
- The U.K. government has started the sale of an 850 million-pound ($1.1 billion) block of mortgages it acquired from failed lenders during the financial crisis, according to people familiar with the matter. A first round of bids for the portfolio of lifetime mortgages, a type of equity-release loan, was due on May 18, the people said, asking not to be named because the matter is confidential. UK Asset Resolution Ltd., the government agency in charge of nationalized lenders, is overseeing the sale, which is dubbed Project James, they said.
- The International Monetary Fund said it hasn’t yet reached an agreement with Ukraine on legislation to set up an anti-corruption court, highlighting friction over how judges will be appointed. The IMF wants the bill to allow international experts to assess candidates, according to Goesta Ljungman, head of the lender’s representative office in Kiev, the capital. Most Ukrainian lawmakers say that would represent foreign interference in Ukraine’s affairs and would violate the constitution.
- 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.
- Tiffany & Co.’s revamp is starting to pay off. On Wednesday, the jeweler posted strong sales growth for last quarter, raised its profit forecast for the year and announced a share buyback plan of $1 billion. Worldwide same-store sales, a key retail metric, blew away analysts’ estimates last quarter, led by gains in North America and Asia. The shares jumped 7.8 percent in early trading.
- Target Corp.’s online sales push paid off in the first quarter even as profit missed forecasts, and the retailer said performance will improve further in the current period. Digital revenue rose 28 percent in the period ended May 5, the company said Wednesday. That contributed to a 3 percent lift in same-store sales, beating analysts’ average prediction, according to Consensus Metrix. Still, Target reported earnings of $1.32 a share in the period. That compared with an average analyst estimate of $1.39.
- Lowe’s Cos.’s incoming chief executive officer has some repair work ahead of him. The home-improvement chain, which named J.C. Penney Co.’s Marvin Ellison as CEO on Tuesday, posted profit and comparable sales that missed estimates in its first fiscal quarter. The company said chilly weather at the start of spring in the U.S. — its biggest selling season — weighed on results, though sales rebounded this month. The shares fell 2.6 percent in early trading Wednesday before U.S. markets opened.
*All sources from Bloomberg unless otherwise specified