May 24th, 2019
Daily Market Commentary
- Canadian Headlines
- Canadian equities posted their biggest drop this year, with energy and pot stocks leading the decline. The S&P/TSX Composite Index lost 1% to 16,164.61, the biggest drop since Christmas Eve, amid a global slump. Investors are increasingly worried that the U.S.-China trade war is settling in for the long haul amid escalating tensions. Health-care stocks slid 3% as cannabis companies retreated. CannTrust Holdings Inc. fell 4.7% and Cronos Group Inc. lost 4.6%. The energy index fell 2.3% as oil future in New York lost almost 6%, their worst daily performance of the year. MEG Energy Corp. was the biggest decliner on the Canadian benchmark, losing 9.9%.
- B2Gold Corp. of Canada is considering buying an idled Zimbabwean gold mine — if it can be exempted from a law that requires producers to sell all the metal to the country’s central bank, people familiar with the situation said. Securing an exemption may open the way for further investment by gold producers in the southern African nation, where a number of companies have closed mines because of the sales requirements and Zimbabwe’s economic crisis. If a transaction with owner Metallon Corp. is concluded, B2Gold will invest $150 million to $200 million developing the Shamva gold mine, one of the people said. The Vancouver-based company will pay about a third of the book value for the mine, which was last assessed at about $167 million seven years ago, the person said, without giving further detail.
- World Headlines
- Miners pushed the Stoxx Europe 600 index higher, while shares in Asia climbed as Chinese equities finished little changed and Indian stocks rebounded. Despite the gains, a gauge of global equities is headed for a third straight weekly drop, its longest losing streak of the year.
- U.S. equity futures climbed with European stocks at the end of a bruising week in which escalating trade tensions dominated the market landscape. The pound rose after U.K. Prime Minister Theresa May laid out a timetable to quit. Contracts on the S&P 500, Dow Jones Industrial Average and Nasdaq 100 all rose in the wake of steep declines a day earlier.
- Shares in Asia edged higher, with Chinese equities little changed and Indian stocks rebounding. Despite the gains, a gauge of global equities is headed for a third straight weekly drop, its longest losing streak of the year.
- Oil rose, paring its biggest weekly loss of the year, as signs that global crude markets are tightening jostled with fears that the U.S.-China trade feud will hurt fuel demand. Futures plunged 5.7% in New York on Thursday as investors fled riskier assets following the White House’s blacklisting of Huawei Technologies Co. and several Chinese surveillance companies, moves that have been met with defiance by Beijing. But on Friday, prices in London increased by 1.1% as tightening spreads between monthly crude contracts reinforced expectations that U.S. sanctions on Iran, and a range of crises from Venezuela to Libya, will strain global supplies.
- Gold held much of Thursday’s gain, heading for a weekly advance, as escalating trade tensions between the U.S. and China damped the outlook for growth. Global stocks retreated for a third week and yields on 10-year Treasuries are near the lowest since 2017, helping to support the precious metal. Still, bullion has been pressured by a stronger dollar and traders and analysts were neutral on their outlook for gold in a weekly Bloomberg survey.
- An emotional Theresa May announced she will quit as Britain’s prime minister after admitting she had failed to deliver the one task that defined her time in office — taking the country out of the European Union. “I have done my best,” May said in a statement to cameras in the sunshine outside her Downing Street offices. “It is, and will always remain, a matter of deep regret to me that I have not been able to deliver Brexit.” May said Britain now needs a new prime minister to take over and try to complete the task that has defeated her. She will stand down as Conservative Party leader on June 7, with a leadership contest formally beginning the following week.
- The Trump administration is preparing to release an executive order as early as next week that would require greater price disclosure in the health-care industry, the Wall Street Journal reported, citing people familiar with the situation. Under the order, federal agencies may gain power to force industry players to divulge cost data, the newspaper said, and agencies such as the Justice Department may take on regional hospital plans and insurers that are believed to be driving up the cost of care. Health-care costs, such as prices for drugs and procedures that insurers pay to hospitals and companies, have long been kept out of the public eye. The White House has been working for months on a way to provide consumers and employers with more detailed pricing information in hopes of putting pressure on health costs.
- PT Softex Indonesia, a sanitary product maker backed by private equity firm CVC Capital Partners, is planning an initial public offering that could raise as much as $500 million, according to people with knowledge of the matter. The Tangerang-based company has met with potential advisers for a share sale in Indonesia that could happen as soon as this year, the people said, asking not to be identified because the information is private. Deliberations are on-going, and CVC and the company could opt to sell the business instead, the people said. A representative at Softex confirmed the company is planning an IPO, without giving more details. A representative for CVC declined to comment.
- Huawei Technologies Co. is seeking about $1 billion from a small group of lenders, its first major funding test after getting hit with U.S. curbs that threaten to cut off access to critical suppliers. The world’s largest provider of networking gear is seeking an offshore loan in either U.S. or Hong Kong dollars, said people familiar with the matter, who asked not to be identified discussing private information. The company is targeting maturities of five and seven years, the people said.
- While regulators contemplate whether Boeing Co.’s 737 Max can safely return to the skies, workers in a California airplane-storage yard keep a careful vigil against earthier concerns. Crews have sealed 34 Southwest Airlines Co. jets against the Mojave Desert’s sun, wind and sand, as well as insects and birds that can creep into wheel wells and engine air inlets. Southwest declined to discuss the expense, but one industry veteran said such sojourns run about $2,000 a month for each plane — a small but critical cost amid Boeing’s many looming financial penalties.
- Global Payments Inc. has held talks with Total System Services Inc. about a potential deal, according to people familiar with the matter, in what could be the third mega-merger in the payments industry this year. The companies have held preliminary conversations that could lead to a tie-up, said the people, who asked not to be identified because the matter isn’t public. They have also discussed possible joint ventures and other ways to partner up that may not include a full-blown merger, one of the people said.
- The Trump administration is proposing tariffs on goods from countries found to have undervalued currencies, in a move that would further escalate its assault on global trading rules. The proposal, laid out in a Federal Register notice released on Thursday, would let U.S.-based companies seek anti-subsidy tariffs on products from countries found by the U.S. Treasury Department to be engaging in competitive devaluation of their currencies. Currently no country in the world meets that criteria.
- The euro’s remarkable rally versus the pound may be nearing its end as the U.K. political turbulence seems mostly accounted for, while headwinds persist for the common currency. Sterling has this month set a record-long losing streak versus the euro as the market priced in the prospect of British Prime Minister Theresa May quitting ahead of her resignation announcement Friday, and the risk that her successor could favor a no-deal Brexit. Until there is more clarity on that front, investors may refrain from adding euro-pound long positions, especially with the latest euro-area data denting hopes of an economic rebound.
- Nomura Holdings Inc.’s chief executive officer will take a pay cut to assume responsibility for improper handling of stock market information by employees, the latest setback for the struggling Japanese securities firm. CEO Koji Nagai will forgo 30% of his salary for three months, the firm said after finding that a researcher at an affiliate shared information on potential changes to the Tokyo Stock Exchange sections inappropriately. Japan’s financial regulator plans to order the brokerage to improve internal controls, a person with knowledge of the matter said earlier, in what will be the first such action against Nomura since 2012.
- India’s economy is set for a major boost if Prime Minister Narendra Modi follows through with key campaign promises following his party’s sweeping election victory. The Bharatiya Janata Party pledged cash handouts to farmers, $1.44 trillion to build roads, railways and other infrastructure, a boost to manufacturing, and a doubling in exports. Those promises, along with tax cuts for middle class Indians, resonated with voters, who gave the BJP a majority of the seats in the parliament, according to official results on Thursday.
- Taiwan forecasts exports to shrink this year for the first time since 2016, as the trade war and U.S. restrictions on Chinese telecom giant Huawei Technology Co. plunge the global technology industry into turmoil. Taiwan revised down its outlook for full-year exports to -1.17% from a previous forecast of 0.19%, the government’s statistics office said in a statement Friday. Growth for the export-driven economy looks likely to suffer too, with officials cutting their 2019 forecast to 2.19% from 2.27%. Growth in the first quarter was 1.71%, the weakest since early 2016.
- Billionaire investor George Soros disclosed a 3% stake in GAM Holding AG after the asset manager lost two-thirds of its value over a scandal involving a former star bond trader. Soros, who rose to fame with a successful bet against the Bank of England in 1992, built the holding through a subsidiary of his family office, according to the local exchange. GAM rose as much as 20% in Zurich trading. Soros’s firm joins bargain hunter Mario Gabelli in taking a stake in the Swiss firm, which is still bleeding assets after suspending star bond manager Tim Haywood last year. The company has suffered about $28 billion in outflows since the scandal broke. GAM is now reviving efforts to sell itself after previous attempts stalled, people familiar with the matter said last month.
- Affiliates of Brookfield Asset Management Inc., Blackstone Group LP, Stonepeak Infrastructure Partners and EQT Partners are vying to acquire railroad operator Genesee & Wyoming Inc., according to people familiar with the matter. The investment firms are among suitors that have progressed into the next round of bidding for the company, said the people, asking not to be identified because the matter is private. The company is seeking at least $110 per share, they said. A deal at that price would value Genesee & Wyoming’s equity at about $6.2 billion, based its 56.5 million shares of common stock outstanding at April 1, according to data compiled by Bloomberg.
*All sources from Bloomberg unless otherwise specified