May 27th, 2019
Daily Market Commentary
- Canadian Headlines
- As the Bank of Canada meets this week amid trade-war chaos, a big unanswered question will loom over the gathering: Who’s right about the nation’s economic prospects, gloomy traders or optimistic policy makers? Markets are worried that Canada is deeply exposed to the U.S.-China trade spat. The Canadian yield curve is inverted, with three-month government debt yielding more than 10-year notes, suggesting fear the dispute will weigh on global growth. The rates market is pricing in 17 basis points of central bank easing through the next 12 months, according to trading of forward contracts.
- A low-ball proposal by parent Barrick Gold Corp. to buy out Acacia Mining Plc is an “appropriate” and “elegant” solution to a two-year dispute that has devastated the relationship between the global miner and one of its African subsidiaries, Barrick’s CEO says. Barrick is not prepared to consider raising its bid at this point, Mark Bristow said Friday. He also declined to comment on the reaction his proposal has received from Acacia’s minority shareholders, saying only that he is engaged in regular discussions with Barrick investors, many of whom also hold Acacia shares.
- Canadian Utilities (CU) signs definitive agreements with Heartland Generation Ltd to sell entire Canadian fossil fuel-based electricity generation portfolio for aggregate proceeds of about C$835 million, according to a statement.
- World Headlines
- Euro-area shares rise at the open Monday as results from European Union elections show the threat from populist parties is contained. The U.K. market is closed for a local holiday. The Euro Stoxx 50 Index is up 0.5%, with all main European markets higher. Auto shares lead gains in Europe as Fiat Chrysler Automobiles soars 19% after it proposed a merger with French carmaker Renault, which jumps 17%.
- Investors are looking for signs of stabilization after trade frictions and mixed economic data put global stocks on course for their first monthly decline of 2019. On a visit to Tokyo, President Donald Trump said the U.S. is making “great progress” in trade negotiations with Japan even though a deal could come only after the country’s elections in July. At the same time, he said America isn’t ready to make a trade deal with China.
- In Asia, shares rallied in China, climbed in Japan and were little changed in Hong Kong. The yuan strengthened after one of China’s senior-most economic officials said that speculators “shorting the yuan will inevitably suffer from a huge loss.” The yen fell as the U.S. and Japan discussed a trade deal. The euro held most of its gains from Friday, while the dollar rose against a basket of major currencies.
- U.S. oil held gains above $58 a barrel after American explorers reduced drilling activity to the lowest level in more than a year, even as President Donald Trump said Washington isn’t ready to make a trade deal with China. Futures in New York edged lower after closing 1.2% higher on Friday, amid the intensifying trade dispute between the world’s two largest economies. Trump said he isn’t pursuing regime change in Iran, in spite of U.S. sanctions on the OPEC member’s oil exports. Working U.S. rigs fell to its lowest level since March 2018, according to Baker Hughes data released Friday.
- Gold rose for a third day as concerns that the U.S.-China trade war is hurting global growth damps risk appetite. The U.S. isn’t ready to make a trade deal with China, President Donald Trump said while on a state visit to Japan. “I think they probably wish they made the deal that they had on the table before they tried to renegotiate it,” Trump said at a press conference in Tokyo. “They would like to make a deal. We’re not ready to make a deal.” With world stocks heading toward their first monthly decline of 2019, traders will be closely watching economic data for further clues on the impact of the trade tensions. China’s official manufacturing PMI for May is due Friday, with economists anticipating a tick down to 49.9, which signals a contraction.
- Iron ore has established a strong foothold above $100 a ton on concern there’s a global shortage in the seaborne market, with futures rallying in Singapore and China on Monday after mainland port holdings posted another steep decline and a handful of banks upgraded their price forecasts. Futures hit the highest in five years in Dalian, with most-active prices capping a ninth daily gain for a record run in trading going back to 2013. In Singapore, the June contract surged as much as 5.1% to $106.08 a ton. Miners’ shares in Sydney advanced, including Fortescue Metals Group Ltd. and Rio Tinto Group.
- Volkswagen AG is reworking its battery-purchasing plan worth about 50 billion euros ($56 billion) over concerns a supply deal with Samsung SDI Co. Ltd. might unravel, according to people familiar with the matter. Samsung initially agreed to deliver batteries for just over 20 gigawatt hours, enough to power 200,000 cars with 100 kilowatt hour packs, before different views on production volume and schedule emerged during detailed negotiations, said the people, who asked not to be identified as the talks are confidential. The impasse cut pledged supplies to less than 5 gigawatt hours, they said.
- The U.S. isn’t ready to make a trade deal with China, President Donald Trump said while on a state visit to Japan. “I think they probably wish they made the deal that they had on the table before they tried to renegotiate it,” Trump said Monday at a joint press conference in Tokyo alongside Japanese leader Shinzo Abe. “They would like to make a deal. We’re not ready to make a deal.” Trump said American tariffs on Chinese goods “could go up very, very substantially, very easily.” His comments came after trade talks between the two countries stalled earlier this month. Each side has since blamed the other, and Trump has threatened billions more in tariffs.
- Fiat Chrysler Automobiles NV proposed a merger with Renault SA to create the world’s third-biggest carmaker as manufacturers scramble for scale to tackle an expensive shift to electrification and autonomous driving. The transaction would be structured as a 50-50 ownership through a Dutch holding company, Fiat said Monday. Renault shareholders, including the French government, would get an implied premium of about 10%. In a statement, Renault’s board said it would study what it called a “friendly” proposal. The carmakers are moving ahead without Renault’s 20-year partner, Nissan Motor Co., and Mitsubishi Motors Corp., the other member of their alliance. Fiat has conditioned the merger talks on Renault agreeing not to pursue a transaction with Nissan in the short term, according to people familiar with the matter.
- Tokyo Electron Ltd., one of the world’s biggest makers of semiconductor manufacturing equipment, says it will spend as much as 150 billion yen ($1.4 billion) to buy back up to 8.5% of its outstanding shares. The company said it wants to revise its financial model in part because of trade frictions between the U.S. and China. It will use the money to buy as many as 14 million shares, the company said in a statement Monday. Chief Executive Officer Toshiki Kawai is trying to navigate the uncertainties of a volatile industry along with the trade war between the world’s two largest economies. In February, he predicted the chip industry would improve this year as major semiconductor companies worked through their inventories. Still, he forecast at the time that the market for wafer processing equipment may shrink by about 15 to 20 percent this year.
- Greece is headed for a snap election after Prime Minister Alexis Tsipras suffered a crushing defeat in European Parliament elections, a move applauded by investors early Monday with yields on 10-year bonds falling to the lowest level since Bloomberg began compiling data. The vote could come as early as June 30, after the 44-year-old leftist leader admitted the outcome left him little choice. His main opposition, New Democracy, scored about 10 percentage points more than the premier’s own Syriza party.
- China Merchants Securities Co. was fined HK$27 million ($3.4 million) by regulators in the city for its role in sponsoring the 2009 initial public offering of a Chinese recycling firm. China Metal Recycling (Holdings) Ltd. raised HK$1.55 billion in June of that year only to halt trading four years later after short seller Glaucus Research questioned the firm’s financial accounts in a report. The company’s shares never traded again and were delisted in 2016. UBS Group AG, a joint sponsor of the IPO, paid a HK$375 million fine in March for its role in helping to bring China Metal, along with two other companies, to market. According to a Securities and Futures Commission statement issued Monday, neither UBS nor China Merchants Securities followed up on red flags raised during China Metal’s application process.
- U.S. President Donald Trump said he may announce something on a U.S.-Japan trade agreement in August, hinting he will push for results well in advance of the six-month deadline he laid out earlier this month. A senior official in Japanese Prime Minister Shinzo Abe’s administration told reporters the two leaders had reached no such agreement on timing during their summit in Tokyo Monday, which followed Trump’s threat to raise tariffs on the approximately $50 billion worth of cars and auto parts Japan exported to the U.S. annually.
- Saudi Arabian Mining Co. is weighing a plan to raise as much as $5 billion through a rights offering to finance potential acquisitions, according to people with knowledge of the matter. The shares plunged. The company, also known as Maaden, is working with HSBC Holdings Plc’sSaudi Arabia unit on the possible offering that could happen later this year, some of the people said, asking not to be identified because the information is private. The size of the rights issue hasn’t been finalized and could end up being smaller than $5 billion, they said.
- Mainstream European Union parties held their ground against the assault from populists in elections for the bloc’s Parliament as the highest turnout in two decades looked set to reward pro-EU Liberals and Greens. As polls closed, the parties who rally against foreigners, want to rein in the 28-nation EU and hate the cozy relationship between centrist groups weren’t performing as well as some establishment politicians feared, according to official provisional results. Two exceptions to the EU-wide trend were France and Italy. President Emmanuel Macron had talked up this election as a straight choice between those who are for or against the EU and his party was heading for a narrow defeat to Marine Le Pen’s euroskeptic National Rally, according to the French interior ministry.
- Shares in ISS A/S fell the most in nine months after the world’s largest provider of cleaning services said it may lose a key contract. The stock fell as much as 8% after the market opened on Monday morning, its worst performance since August. Copenhagen-based ISS said a Novartis deal worth about $300 million a year — or about 2.8% of annual revenue — probably won’t be renewed after 2019.
- Huawei Technologies Co. founder Ren Zhengfei struck a defiant tone in the face of U.S. sanctions that threaten his company’s very survival. In an interview with Bloomberg Television, the billionaire founder of China’s largest technology company conceded that Trump administration export curbs will cut into a two-year lead Huawei had painstakingly built over rivals like Ericsson AB and Nokia Oyj. But the company will either ramp up its own chip supply or find alternatives to keep its edge in smartphones and 5G.
- Egypt is considering offers from a Blackstone Group unit and Edra Power Holdings Sdn Bhd of Malaysia to take over three power plants co-built by Siemens AG — a move that could cut the North African nation’s debts while bringing in much-needed foreign investment. Both Blackstone’s Zarou Ltd. and Edra have voiced interest in the state-owned facilities, according to Egypt’s electricity minister, Mohamed Shaker. The plants, which have a total capacity of 14.4 gigawatts, were inaugurated in Julyas the latest in a series of large-scale infrastructure projects under President Abdel-Fattah El-Sisi.
- Sunday’s European parliamentary election wasn’t a great night for Emmanuel Macron, but it was worse for all his rivals. And that means the French president remains in pole position for re-election in 2022. Macron’s party, Republic on the Move, finished behind Marine Le Pen’s National Rally in the EU ballot, an embarrassment for the president who had turned the vote into a de facto referendum on his vision of greater EU integration.
- Bitcoin jumped on Monday, almost breaching $9,000 as it extended what’s shaping up to be the best one-month rally since before the token’s historic surge in 2017. The largest cryptocurrency climbed as much as 10% Monday from levels late Friday, and was trading at $8,766 as of 10:40 a.m. in London. Rival coins were also stronger at the start of the week. Litecoin added more than 11% while Ether, the second largest digital token, rose 5.7%.
*All sources from Bloomberg unless otherwise specified