May 28th, 2019

Daily Market Commentary

• NEWS
• Canadian Headlines
  • Canadian stocks closed higher to start the week amid holidays in the U.S. and the U.K. Crude rebounded as supply risks helped offset trade war concerns. The S&P/TSX Composite Index added 0.7% to 16,346.66. Health care led all 11 sectors higher. Events on tap for investors this week include Bank of Nova Scotia’s second-quarter earnings Tuesday before the open, along with Husky Energy Inc.’s investor day in Toronto. Traders are also preparing for the Bank of Canada’s meeting Wednesday.
  • Bank of Nova Scotia’s productivity is showing signs of improvement after being hurt by an acquisition spree. The gain came even as Scotiabank posted quarterly results that missed analysts’ estimates with higher loan-loss provisions than expected. Net income for the three months through April 30 rose 3.8% to C$2.26 billion, or C$1.73 a share, from C$2.18 billion, or C$1.70, a year earlier. Adjusted earnings totaled C$1.70 a share, missing the C$1.74-a-share estimate of 13 analysts in a Bloomberg survey.
  • Texas money is flowing into a small corner of Canada’s oil sands at a time when big international companies are pulling out. Rangeland Energy, based in the Houston suburb of Sugar Land, is building a 50,000-barrel-a-day, 85 kilometer (53-mile) pipeline in the Marten Hills area of the Athabasca oil sands in northern Alberta to transport heavy crude from one of Canada’s newest oil plays. The conduit would link the remote location north of Fawcett Lake to the Plains Midstream Canada LP Rainbow Pipeline. The investment plan is a rare reversal of fortune for Canadian oil producers, beset by pipeline bottlenecks and mandatory production curtailments. In the past two years, companies including Royal Dutch Shell Plc and ConocoPhillipshave sold oil sands facilities, often reallocating funds into U.S. booming shale plays.

   

• World Headlines
  • European stocks rose on Tuesday, with U.K. markets also gaining following a holiday, as investors continued to digest the result of Europe’s elections, where mainstream parties held their ground against populists. The Stoxx 600 index was up 0.2% at 8.01 a.m. U.K. time, while the FTSE 100 advanced 0.7% as the upcoming Conservative leadership contest kept the pound subdued. Italy’s FTSE MIB declined 0.1%, taking losses into a second session as the country may face a $4 billion fine for failing to curb its debt. Italian banks UniCredit and Intesa Sanpaolo fell, weighing on the Stoxx banks index, which lagged other sectors.
  • U.S. equity futures fell with European stocks as traders returned from American and U.K. holidays with a cautious outlook. The dollar advanced with Treasuries. Contracts on the S&P 500 and Nasdaq 100 declined. Stalled talks in the U.S.-China trade war and escalating tensions have soured sentiment in May for risk assets. That’s driven sovereign bonds higher and pushed global stocks toward their first monthly decline of 2019. Trump said on Monday during a state visit to Japan that American tariffs on goods from China “could go up very, very substantially, very easily,” while over the weekend the Asian nation pushed back at the perception that the levies were hurting its economy.
  • Stocks climbed in Japan and China. Ten-year Treasury yields fell to their lowest levels since October 2017 as the securities returned to trading, and after President Donald Trump declared that the U.S. was “not ready” to reach a trade deal with China. The offshore yuan weakened, as the Chinese government seized a bank for the first time in more than two decades.
  • Brent crude traded around $70 a barrel as a two-day rebound eased on signs the U.S. and China are still far from reaching a trade deal, but prices remained supported by supply risks in the Middle East. Futures in London were steady after rallying 3.5% over Friday and Monday. President Donald Trump said on a state visit to Japan that the U.S. “isn’t ready” to make a trade deal with China. While Trump also said he’s not pursuing regime change in Iran, alleviating concerns of a conflict in the Persian Gulf, the situation has remained tense since a Saudi Arabia-led coalition blamed Iran for supporting terror attacks.
  • Gold traded in a narrow range between $1,280 to $1,290 an ounce, with neither the recent EU election results nor the failure of the U.S. and China to agree a trade deal sparking a price reaction from the precious metal. Sentiment has been ebbing away from gold, with holdings of exchange-traded funds backed by the metal on a downward trend since the end of January. The net-long position among investors has shortened, according to the latest Commodity Futures Trading Commission data. The strength of the dollar, which has tracked steadily higher over the last few months, has been the main drag on gold, despite geopolitical turbulence.
  • The European Union may reward its Brexit negotiator Michel Barnier with the top job of leading the European Commission as momentum is building behind the Frenchman’s informal candidacy ahead of a summit in Brussels to negotiate who will head the bloc’s main institutions. France is pushing its candidate to head the EU’s executive arm and has Spain and Ireland in its corner. Key eastern European countries are set to signal they could back Barnier as long as they get something in return, such as the the EU’s foreign policy chief, officials familiar with their position said.
  • Investors withdrew money from exchange-traded funds that buy emerging market stocks and bonds last week. This was the fourth straight week of outflows. Outflows from U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $1.17 billion in the week ended May 24, compared with losses of $3.54 billion in the previous week, according to data compiled by Bloomberg. So far this year, inflows have totalled $12.6 billion.
  • Alibaba Group Holding Ltd. is considering raising $20 billion via a second listing in Hong Kong after a record-breaking 2014 New York debut, people with knowledge of the matter said, a mega-deal that will bring China’s largest company closer to friendlier investors at home as U.S. tensions escalate. The e-commerce giant is working with financial advisers on the planned offering, the people said, asking not to be identified because the information is private. Alibaba aims to file a listing application in Hong Kong confidentially as early as the second half of 2019, the people said. A second listing is intended to diversify its funding channels and boost liquidity, one of the people said. The plans are preliminary and could change, they added.
  • Global Power Synergy Pcl, the power unit of Thailand’s biggest company, plans to raise as much as $2.3 billion from a sale of new shares to help repay short-term loans used to finance the acquisition of Glow Energy Pcl. The company is working “very hard” on the details of the new equity issuance as it aims to complete the capital raising in the third quarter, Sukittee Chaiyarak, the vice president for corporate finance and strategy, told a meeting with investors Tuesday. The board will need shareholder approval for its eventual decision, she said.
  • Global Payments Inc. agreed to buy Total System Services Inc. in a deal valued at $21.5 billion, the payment industry’s third mega-merger of the year. The transaction will create a powerhouse that provides payment technology and software to more than 3.5 million small to mid-size merchants and more than 1,300 financial institutions worldwide, the two companies said in a statement Tuesday. The all-stock deal values Total System Services, or TSYS, at $119.86 a share, a 20% premium to its $99.62 closing price on May 23, before Bloomberg first reported deal discussions with Global Payments.
  • President Donald Trump told U.S. troops stationed in Japan he plans to order traditional steam powered catapults aboard American warships instead of newer electromagnetic systems that he said may not work as well during wartime. Trump polled the sailors and Marines on the USS Wasp on steam versus electric catapults Tuesday during a visit to the the Yokosuka naval base south of Tokyo, the biggest overseas U.S. naval installation.
  • Exxon Mobil Corp. and Chevron Corp.’s unwillingness to venture beyond their core oil and gas business will face a test Wednesday when shareholders vote on climate change proposals at both oil companies’ annual meetings. The U.S. oil majors have typically enjoyed an easier ride from investors on environmental issues compared with their European rivals. But pressure is building from some investment managers, especially after Royal Dutch Shell Plc and BP Plc recently made significant shifts to address investor concerns.
  • Angela Merkel has concluded that her well-laid succession plans are a bust. The German chancellor’s heir apparent, Annegret Kramp-Karrenbauer, has seen her popularity slide since taking over as leader of the Christian Democratic Union in December, roiled the party with a failed effort to accelerate Merkel’s exit, and on Sunday oversaw the CDU’s worst ever result in a national election. All that has persuaded Merkel that Kramp-Karrenbauer may not be up to the job, according to two officials with knowledge of her thinking. There may not be much the chancellor can do about it now.
  • LCM Partners plans to join the throng of money managers raising multi-billion euro funds to invest in European debt. London-based LCM is targeting 4 billion euros ($4.5 billion) from investors for a new fund that buys up alternative debt assets such as credit-card bills and automobile finance, according to a pitch to potential backers seen by Bloomberg. An official at LCM declined to comment on its plans.
  • Investors are taking a breather from the recent market rout that has wiped out almost $1.3 trillion from China’s stock market. The CSI 300 Index hasn’t moved more than 2% in either direction in the past seven sessions, the longest streak of calm since February. The index closed 1% higher Tuesday. Volatility has dropped too, with a 10-day measure on the gauge — which comprises some of the largest listings on the Shanghai and Shenzhen stock exchanges — falling from a seven-month high this month. Stocks had plunged earlier in May as the U.S. raised tariffs on Chinese imports and threatened to blacklist the country’s tech firms including Huawei Technologies Co. and surveillance equipment maker Hangzhou Hikvision Digital Technology Co.
  • China is reining in offshore bond sales by property developers and local government financing vehicles in a bid to ease credit risk following a surge in issuance. The National Development and Reform Commission (NDRC) has tightened approvals for these firms seeking quotas for offshore bond sales since early April, according to people familiar with the matter. NDRC didn’t immediately reply to a fax seeking comment from Bloomberg.
  • Two months ago, Amazon.com Inc. halted orders from thousands of suppliers with no explanation. Panic ensued — until the orders quietly resumed weeks later, with Amazon suggesting the pause was part of a campaign to weed out counterfeit products. Suppliers breathed a sigh of relief. In the next few months, bulk orders will dry up for thousands of mostly smaller suppliers, according to three people familiar with the plan. Amazon’s aim is to cut costs and focus wholesale purchasing on major brands like Procter & Gamble, Sony and Lego, the people said. That will ensure the company has adequate supplies of must-have merchandise and help it compete with the likes of Walmart, Target and Best Buy.
  • 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.
  • Aqua-feed supplier Nutreco NV is in advanced talks to buy the animal feed assets of South Korea’s CJ CheilJedang Corp. in a deal that could be worth about 2 trillion won ($1.7 billion), according to people with knowledge of the matter. The sale, which the companies aim to reach an agreement this year, would include CJ’s feed mills in China and Southeast Asia, the people said, asking not to be identified because the information is confidential. Negotiations are ongoing and may not result in a deal, the people said.
  • Sports Illustrated, long a crown jewel of the publishing world, was sold for $110 million to Authentic Brands, which looks to make money licensing out the iconic name. Current owner Meredith Corp. is unloading the magazine as part of an effort to sell Time Inc. titles that don’t fit with its other publications. But Meredith will continue to publish the Sports Illustrated print magazine and manage its website for at least two years. It also will oversee advertising, video and social media for the brand.

*All sources from Bloomberg unless otherwise specified