May 29th, 2018
Daily Market Commentary
- Canadian stocks fell the most in four weeks as oil’s slump deepened and precious metals fell. The S&P/TSX Composite Index lost 59 points, or 0.4 percent, to 16,016.14 on Monday, the benchmark’s fifth straight decline. Volume was 59 percent below the 100-day average, with both U.S. and U.K. markets closed for a holiday.
- Canada is likely to buy Kinder Morgan Canada Ltd.’s Trans Mountain oil pipeline and its controversial expansion project in a bid to ensure it gets built amid fierce opposition, according to a person familiar with the talks. Buying the pipeline outright has become increasingly likely and is now the most probable option for the Canadian government, the person said, speaking on condition of anonymity because the discussions are private. The deal, a value for which hasn’t been publicly reported, will be announced as soon as Tuesday when Prime Minister Justin Trudeau’s cabinet is due to meet in Ottawa.
- Bank of Nova Scotia continued its record earnings streak in international banking. Canada’s most global bank saw profit from its overseas unit jump 13 percent to C$745 million ($573 million), extending its record for a second quarter. The contributions, along with gains in Canadian banking, helped the Toronto-based bank company post overall profit that beat analysts’ estimates. Latin America accounted for 60 percent of international banking earnings in the quarter ended April 30.
- Canada’s foreign minister is headed to Washington as the clock ticks down to reach a deal on updating the North American Free Trade Agreement that could pass Congress this year and skirt metals tariffs. Chrystia Freeland will hold Nafta meetings in the U.S. capital on Tuesday and Wednesday, according to a statement from her office. She didn’t release a detailed itinerary, but is scheduled to meet Tuesday morning with U.S. Trade Representative Robert Lighthizer, according to a government official familiar with talks, speaking on condition of anonymity.
- Canadian National Railway Co. will likely top C$3 billion ($2.3 billion) in capital spending for the second straight year in 2019 as it aims to speed up trains and capture rising demand for freight such as grain and crude oil, its top executive said. Canada’s biggest railroad is already spending a record C$3.4 billion this year to fix well-documented bottlenecks and placate disgruntled customers ranging from grain farmers to energy companies. This year’s capital spending budget includes work on double tracks, sidings and additional locomotives, while the company works to hire more than 1,000 conductors. Next’s year capital budget may be even higher.
- The euro touched its lowest level since July as the prospect of fresh elections in Italy sent the country’s government bonds into a tailspin, with two-year yields surging to the highest level since December 2012. Traditional havens, such as the yen and franc, strengthened.
- U.S. equity futures tumbled, following global shares lower, as Italy’s political turmoil deepened. U.S. 10-year Treasuries and the dollar advanced as the euro touched its lowest level since July. Oil extended losses after Saudi Arabia and Russia said they are mulling a boost to production later this year. S&P 500 Index futures declined 0.7 percent in New York as the risk of fresh elections in Italy mounted, even as premier-designate Carlo Cottarelli puts together a cabinet.
- Asian equities fell, with Japan sliding for a seventh day and shares in Hong Kong declining amid risk-off sentiment triggered by a political deadlock in Italy. Most markets in Southeast Asia were shut for holidays. The MSCI Asia Pacific Index lost 0.4 percent to 173.11 as of 4:29 p.m. in Hong Kong, with materials and information technology companies leading the retreat.
- Oil headed for its longest run of losses since February after Saudi Arabia and Russia said OPEC and its partners may boost supply later this year. Crude futures in New York slid 2.2 percent on Tuesday after Friday’s 4 percent decline. Saudi Arabia and Russia are proposing raising production to make up for potential losses from other OPEC members, most notably Venezuela and Iran. There was no settlement Monday because of the U.S. Memorial Day holiday and all trades will be booked Tuesday.
- Gold advanced, ending a two-day run of losses, as equities sold off on uncertainty over Italy’s political future, which fueled haven demand in everything from Treasuries to the yen.
- India faces a copper supply shock after a state government ordered billionaire Anil Agarwal’s Vedanta Ltd. to shut down a plant permanently following deadly protests in a move that will slash nationwide output and stoke demand for imports. The company’s shares fell. The Tamil Nadu government directed the southern state’s pollution control board to seal the 400,000 metric-ton-per-year smelter in Tuticorin in the interests of the people, it said on Monday. About 13 people died at the site last week after police opened fire as locals protested against alleged pollution.
- KKR & Co. said it will buy BMC Software Inc., an information technology management provider that drew interest from several private equity firms. According to the agreement announced Tuesday, KKR will acquire BMC from a private investor group led by Bain Capital Private Equity and Golden Gate Capital together with GIC, Insight Venture Partners and Elliott Management. Terms of the deal weren’t revealed.
- Standard Life Aberdeen Plc will return as much as 1.75 billion pounds ($2.3 billion) to shareholders after it completes the sale of its insurance unit to Phoenix Group Holdings. The asset manager will issue 1 billion pounds of new B shares and buy back about 750 million pounds of stock using capital freed up from the sale of the insurer. The balance of the money from the deal will be used to retire bonds and support investment, the firm said in a statement ahead of its annual general meeting on Tuesday.
- Alibaba Group Holding Ltd. is selling assets from medical devices to drugs for HK$10.6 billion ($1.4 billion) to a Hong Kong-listed unit that will then become its flagship healthcare arm. Alibaba unveiled a deal Tuesday under which it will inject a plethora of businesses — from its online Tmall pharmacy to adult products such as condoms — into Alibaba Health Information Technology Ltd., in return for HK$10.6 billion worth of new stock in the affiliate. The Hong Kong-listed firm’s getting assets that generated 20.6 billion yuan ($3.2 billion) of transactions last fiscal year, a big boost for the loss-making company.
- Traders in China are unwinding positions in Tencent Holdings Ltd. faster than ever, turning to other targets amid a lack of reasons to push Asia’s biggest stock any higher. Mainland investors sold a net $81 million worth of shares in the Chinese Internet giant through trading links with Hong Kong on Tuesday, according to exchange data. That’s the 12th day of net selling in 13 days, bringing the total sold to more than $740 million since May 10, or about 7.1 percent of their total holdings in the stock.
- The shares of some iPhone display suppliers fell in Asia after South Korea’s Electronic Times reported that Apple Inc. has decided to use next-generation screens for all of its new models next year, even though several analysts said such a transition wasn’t likely. Japan Display Inc. shares fell as much as 21 percent, the biggest intraday drop since its 2014 market debut. Sharp Corp. declined as much as 4.3 percent. If true, Apple’s move would be negative for both manufacturers, which have so far been unable to mass produce OLEDs and currently supply LCD screens. Representatives for Apple, JDI and Sharp declined to comment.
- Climate change activist investors have turned their attention toward Chevron Corp. in this year’s round of annual general meetings, with the oil major facing a vote on May 30 proposing that it disclose more information on efforts to minimize methane leaks. Exxon Mobil Corp., meanwhile, won’t have a climate-related vote at its AGM for the first time in at least a decade.
- JAB Holding Co. agreed to buy sandwich chain Pret A Manger, adding a U.K. business to its portfolio of coffee and food brands that includes Panera Bread Co. and Au Bon Pain. JAB and the seller, private equity firm Bridgepoint Advisers Ltd., didn’t disclose the terms of the deal in a statement Tuesday. The price is about 1.5 billion pounds ($2 billion), including net debt, according to a person familiar with the matter.
- The U.S. has signaled a willingness to begin talks with the European Union to try to reach a settlement over illegal state subsidies handed to Airbus SE, potentially averting billions of dollars in sanctions against the trade bloc, according to a person familiar with the matter. At a meeting Monday of the World Trade Organization’s dispute-settlement body, the U.S. said it will still pursue penalties if an agreement can’t be reached, said the person, who attended the meeting and asked not to be named because the discussions aren’t public.
- Italy is always just a few steps away from the “very serious risk of losing the irreplaceable asset of trust,” Bank of Italy Governor Ignazio Visco said as a political crisis in the euro area’s third-largest economy sent debt yields soaring and bank shares tumbling. While European rules can be debated, criticized and improved, Italy cannot disregard constitutional constraints that protect savings, balance accounts and ensure the respect of international treaties, Visco said at the central bank’s annual meeting in Rome on Tuesday. “Italy’s destiny is that of Europe.”
- Chinese regulators are making progress in their attempts to tame the country’s $10 trillion shadow banking sector, but after a one-year squeeze on the riskiest areas of the industry, there’s still a lengthy battle ahead. “We’ve had a good beginning to a long journey,” said Larry Hu, a Hong Kong-based economist at Macquarie Securities Ltd. “Some components of shadow banking are shrinking and interbank leverage has started to drop. But we are far from the stage where we can claim the job is done.”
- The southwest monsoon, which waters more than half of India’s farmland, arrived on the mainland ahead of its normal schedule. The monsoon reached the southern state of Kerala on Tuesday, according to a statement on the India Meteorological Department’s website. The department had accurately predicted an onset date of May 29 for the June-September rainy season, which typically starts on June 1.
- Untapped offshore wind is luring Japan’s biggest commodity houses to invest in projects in Taiwan and at home, buoyed by favorable government policies that support development of the clean power. Mitsui & Co. this month bought a stake in the Taiwanese wind developer Yushan Energy Co. that gives the Tokyo-based company a 20 percent stake in a 300-megawatt offshore project that may cost $1.8 billion to develop. Mitsubishi Corp. is working with partners to build a separate windmill venture off Taiwan’s coast and Marubeni Corp. is developing two offshore projects in the northern Japanese prefecture of Akita.
- Ningbo Jifeng Auto Parts Co. affiliates are in talks to buy out partner Grammer AG in a possible deal that could value the German maker of vehicle seats at about 750 million euros ($872 million). Grammer stock rose the most in nine years. The German manufacturer received an indicative proposal of 60 euros a share, Amberg-based Grammer said Tuesday in a statement after Bloomberg News reported on the possible bid. That’s 17 percent more than the stock’s closing price on Monday. The prospective buyer would also pay a 1.25-euro dividend per share.
- Toshiba Corp. investor Argyle Street Management Ltd. is urging the Japanese manufacturer to buy back $10 billion of its shares and refrain from pursuing acquisitions after regulators approved the sale of its memory business. In a letter to Chief Executive Officer Nobuaki Kurumatani, the Hong Kong-based activist investor said Toshiba’s board should set a 1.1 trillion yen ($10 billion) buyback program before its annual shareholders’ meeting next month. The amount represents the net cash left after the chip unit sale, Argyle’s Kin Chan wrote in the May 28 letter obtained by Bloomberg.
- A software sensor with a knack for detecting intrusions like those from Russian hackers is being embraced by U.S. states determined to protect their election systems, though cybersecurity experts warn of the tool’s limits. The Department of Homeland Security is working with a growing number of state election officials to install “Albert sensors,” which detect traffic coming into and out of a computer network. The system can’t block a suspected attack, but it funnels suspicious information to a federal-state information-sharing center near Albany, New York, that’s intended to help identify malign behavior and alert states quickly.
- The world’s biggest maker of electric-vehicle batteries is reining in its initial public offering after its profitability weakened, pricing the sale to raise less than than half of what it originally planned. Contemporary Amperex Technology Ltd. said late Monday it plans to sell a 10 percent stake at 25.14 yuan a share. That would value it at about $8.5 billion, down from a goal of about $20 billion the company had late last year. The reduced target is result of a decline in the company’s margins, and a cap imposed by Chinese authorities on price-earnings ratios in IPOs.
*All sources from Bloomberg unless otherwise specified