May 28th, 2018
Daily Market Commentary
- Bombardier Inc. will build two new private planes in response to growing demand for large-cabin business jets. The Global 5500 and Global 6500 aircraft will come equipped with redesigned cabins, an optimized wing and all-new Rolls-Royce engines, Bombardier said Sunday in a statement. The models, which will have ranges of 5,700 and 6,600 nautical miles, respectively, will likely enter service at the end of 2019, the company said.
- It’s no longer an issue of if, but when the Bank of Canada raises interest rates. Governor Stephen Poloz heads into a rate decision Wednesday where he’s expected to once again refrain from lifting borrowing costs, even as the economy shows signs of strength and is running up against capacity constraints. It’s a cautious stance driven by a wait-and-see approach to a long list of uncertainties — everything from Nafta to the housing market — rather than any concerns about fundamental economic momentum.
- National gauges in Europe gradually turned lower, led by Italy’s benchmark, as populist leaders in the country pulled the plug on their attempt to form a government after the president rejected their choice of a euro-skeptic finance minister. Trading was somewhat subdued on what is a holiday in both the U.S. and U.K. Oil losses deepened after Saudi Arabia and Russia said they are discussing reviving output.
- U.S. equity futures followed Asian shares higher on signals an America-North Korea summit is back on track, but risk appetite showed signs of cracking in Europe as Italy’s political outlook darkened. The region’s stocks and the common currency both surrendered gains. S&P 500 futures advanced, as did South Korean stocks, after President Donald Trump appeared to confirm that his June meeting with Kim Jong Un was back on.
- Asian equities rose as South Korea halted a two-day loss after President Donald Trump indicated a summit with North Korea’s Kim Jong Un is back on track. Japan slid for a sixth day while energy shares declined as oil extended its biggest loss in almost a year. The MSCI Asia Pacific Index gained 0.1 percent to 173.70 as of 4:16 p.m. Hong Kong time, rebounding from a loss of as much as 0.2 percent paced by financial companies and utilities.
- Oil in New York headed for its longest run of losses in almost four months as Saudi Arabia and Russia said they are discussing raising output to ease consumer anxiety after prices jumped to levels last seen in 2014. West Texas Intermediate dropped as much as 3.1 percent, while Brent crude futures traded above $80 a barrel last week slumped near $75 in London on Monday. Saudi Arabia and Russia signaled they’ll restore some of the output they cut as part of a deal between OPEC and its allies that took effect in January last year. Potential opposition from several producers could complicate the group’s effort to reach a consensus when it meets next month in Vienna.
- Gold drops as optimism that summit between President Donald Trump and North Korea’s Kim Jong Un will go ahead hurts haven demand, and dollar holds recent gains.
- OPEC and allied oil producers including Russia concluded that the crude market re-balanced in April, when their output cuts achieved a key goal of eliminating the global surplus. The excess in oil inventories, which has weighed on prices for three years, plunged in April to less than the five-year average for stockpiles in developed nations, according to people with knowledge of the data assessed at the meeting of the Joint Technical Committee of OPEC and other producers last week in Jeddah, Saudi Arabia.
- NIO, the Chinese electric-vehicle startup backed by Tencent Holdings Ltd., has filed confidentially for a planned U.S. initial public offering, people with knowledge of the matter said. The Shanghai-based carmaker has submitted an initial confidential filing with the U.S. Securities and Exchange Commission, according to the people, who asked not to be identified because the information is private. The share sale could raise around $2 billion, though preparations are at an early stage and the size of the deal may change, the people said.
- The China-U.S. yield gap narrowing beyond Yi Gang’s “comfortable” range will prove no deterrent to further reserve ratio cuts in the world’s second-biggest economy, analysts say. China’s 10-year bonds yield just 70 basis points more than Treasuries, near the smallest premium since 2016. The People’s Bank of China Governor in April described a 90 basis-point gap as “comfortable”, and noted that an 80-100 basis point spread had persisted between the sovereign curves even as the Federal Reserve raises rates.
- China is ready to approve Qualcomm Inc.’s $43 billion takeover of NXP Semiconductors NV if it gets assurances that the U.S. will lift a seven-year ban on homegrown telecoms giant ZTE Corp., people familiar with the matter said. The antitrust regulator has cleared all factual investigations, is satisfied with the remedies Qualcomm’s offering and only procedural issues remain, said the people, who asked not to be identified discussing internal matters. Senior officials have given a green-light for approval of a deal that’s been pending for 18 months, with an announcement possible any time, they said.
- The outlook for oil is still bullish, according to Goldman Sachs Group Inc. A plan by Saudi Arabia and Russia to revive production after over a year of curbs to clear a global glut signals supplies are currently tight, and isn’t a bearish development, analysts including Damien Courvalin wrote in a report. Even if the nations boost output by 1 million barrels a day, that would only offset involuntary production declines, according to the bank.
- Spain’s opposition parties are struggling to reconcile their differences as they try to converge on a plan for dislodging Prime MinisterMariano Rajoy. The Socialists, the largest opposition group, will present their no-confidence motion to the cross-party parliamentary party board on Monday. But that initiative needs broad support to prosper and each party has its own agenda.
- Foreign Secretary Boris Johnson repeated his call for the U.K. to make a clean break from the European Union when it leaves the bloc, warning Prime Minister Theresa May that Britain won’t be able to take full advantage of the split unless it does. Johnson wrote in the Telegraph — a tactic he’s used before to put pressure on his boss — to set out why May must resist growing calls for the U.K. to remain in the EU’s trading regime. Recently back from a trip to South America, Johnson set out what he termed the trade opportunities awaiting Britain outside of Europe.
- The European Union is seeking a last-minute deal with the U.S. to avoid inflaming global trade tensions as President Donald Trump prepares to impose tariffs on steel and aluminum imports at the end of the month. “We’re at the beginning of a decisive week,” German Economy Minister Peter Altmaier told reporters in Brussels on Monday. “We have to try to avoid higher tariffs if possible and that means we’re ready to agree with the Americans on points that are necessary in our mutual interest.”
- Indonesia’s new central bank governor set the stage for a second interest rate increase in two weeks at an early policy meeting called for Wednesday, as he wastes little time in acting against a currency rout. A day after Governor Perry Warjiyo was sworn into office, Bank Indonesia announced the monetary policy board will meet this week, about a month before its next regular monthly scheduled one. The move helped to boost thecurrency 1 percent against the dollar on Monday, the best performer in Asia, and pare back its decline for the year to 3 percent.
- China Energy Reserve & Chemicals Group Co. said it hasn’t paid a $350 million bond that matured earlier this month, in the latest example of China’s deleveraging campaign choking off financing for some companies. The oil and gas producer, which has $1.8 billion of offshore notes outstanding, cited “tightening in credit conditions” for the default. The company plans to suspend this year’s interest payments on bonds due in 2021 and 2022 while it considers asset sales and seeks to restructure the notes, China Energy said in a filing that appeared on the Hong Kong exchange on May 27.
- Subtropical Storm Alberto had a burst of strength as it closes on Florida’s Panhandle, where it should come ashore early Monday, and is spreading heavy rains across the U.S. South, potentially causing more than $1 billion in economic losses. Alberto’s top winds jumped to 65 miles (105 kilometers) per hour, which will probably be as strong as it gets, wrote Richard Pasch, a meteorologist at the National Hurricane Center in Miami. Alberto is expected to steadily weaken after landfall and become a tropical depression Monday night or Tuesday.
- Swiss Re AG said it would continue to welcome an anchor investor after Masayoshi Son’s SoftBank Group Corp. ended its pursuit of a stake in the world’s second-largest reinsurer. The collapsed talks mark the end of nearly four months of deliberations about how SoftBank would invest in Swiss Re, though the two companies may yet agree to collaborate on some businesses. A purchase of a stake would have given the Japanese technology and investment company access to steady cash flows and help diversify its sources of income.
- Blackstone Group LP offered A$3.14 billion ($2.38 billion) for Investa Office Fund in an attempt to land one of Australia’s most pursued property companies and dozens of office buildings across the country. The New York-based buyout company offered A$5.25 in cash for each share of the real estate investment trust, 13 percent more than Friday’s closing price, Investa said in a statement Monday. Investa’s directors plan to unanimously recommend investors vote for the deal unless there’s a better offer.
- Siam Cement Pcl, Thailand’s biggest cement company, doubled down on its bet on Vietnam by taking full ownership of a $5.4 billion petrochemicals complex planned for the south of the country. A unit of Siam Cement will buy a 29 percent equity stake in Long Son Petrochemicals Co. for 2.9 billion baht ($91 million) from Vietnam Oil and Gas Group by the end of June, according to a Thai exchange filing Monday. Siam Cement said it will then have full ownership of the project and that construction is due to begin in the third quarter.
- U.K. engineering company Smiths Group Plc said it’s in early stage discussions about combining its health-care equipment business with U.S. manufacturer ICU Medical Inc., which has grown rapidly in recent years following an acquisition. There’s no certainty that a deal will be reached, London-based Smiths said in a statement released before a U.K. holiday on Monday, responding to a Sky News report on a possible deal.
*All sources from Bloomberg unless otherwise specified