May 3rd, 2019
Daily Market Commentary
- Canadian Headlines
- Hudbay Minerals and Waterton Global reach settlement pact that will result in 11 agreed nominees being elected as Hudbay’s board at shareholders meeting scheduled for May 7. Hudbay, Waterton also agree that, following meeting, corporate governance and nominating committee will initiate process to identify successor to Chair
- Luxury casino Parq Vancouver’s parent company missed an interest payment on a second-lien loan as it struggles to refinance debt taken on to build one of the largest-ever private developments in British Columbia. Parq Holdings LP was downgraded to selective default from CCC by S&P Global Ratings Thursday after the expiry of a 30-day grace period. The rating company attributed Parq’s decision to defer payment to its operational underperformance — which has affected the company’s liquidity and its ability to service its debt — as well as struggles to complete a proposed refinancing of its existing capital structure.
- World Headlines
- European stocks opened little changed on the last trading day of a week that’s seen volumes depleted due to holidays, with the timing of an impending U.S.-China trade deal still unclear and key U.S. data to come. Financials was one of the better-performing sectors after France’s Societe Generale SA indicated capital strength in its quarterly report and Asia-focused lender HSBC Holdings Plc’s profit beat estimates. Real estate went the other way after U.K.-listed mall-owner Intu Properties Plc cut its rental income forecast. German sports apparel maker Adidas AG surged the most since August following a quarterly update that benefited from double-digit growth in China.
- U.S. equity futures and Europe stocks gained as bright spots appeared in corporate earnings ahead of the latest American jobs data. Treasuries slipped, while the dollar edged higher. Futures on the S&P 500 Index climbed, signaling a rebound at the open from Thursday, when the benchmark fell amid concern that a U.S.-China trade deal remained elusive. Asian gauges were mixed, with volumes light as markets in China and Japan remain closed. German bunds and U.K. gilts dipped.
- Hong Kong stocks’ best start to a year since 2015 may be put to the test this month as the benchmark gauge struggles at a key level. After rising about 16 percent this year, the Hang Seng Index is stuck around 30,000 points as drivers of the rally wane: mainland equities are weakening and local borrowing costs aren’t so low any more. Chinese investors are also pulling out. On top of that, Hong Kong’s economy just saw its weakest growth since the aftermath of the global financial crisis a decade ago.
- Oil refiners in Asia are asking Saudi Arabia for more crude as the world’s top consuming region deals with supply disruptions from Iran to Venezuela, according to people with knowledge of the matter. Customers are seeking additional cargoes for loading in June and July from OPEC’s biggest producer, the people said, asking not to be identified because the information is confidential. The requests are for supplies on top of what the refiners are due as part of term contracts with state-run Saudi Aramco, they said.
- Shares of gold-mining companies extended a slump, dragged lower by sinking prices for the metal after comments from the Federal Reserve helped bolster the dollar. A Bloomberg Intelligence gauge of 13 miners fell as much as 2.6 percent, with losses in companies including Newmont Goldcorp Corp. and Sibanye Gold Ltd. Fed Chairman Jerome Powell said Wednesday that low inflation may be transitory and that risks to the outlook may have “moderated somewhat.” Traders trimmed bets on a Fed rate cut this year. Low rates are a boon to gold, which doesn’t pay interest.
- Investors withdrew from exchange-traded funds that focus on commodities in the past week. ETFs that invest in precious metals led the decline, and funds that focus on energy assets had losses. Outflows from U.S.-listed commodity ETFs totaled $264 million in the week ended May 2, compared with withdrawals of $140 million in the previous period, according to data compiled by Bloomberg. The funds have lost about $2.3 billion in the five-week span. Precious-metals funds had $208 million of losses, compared with $170 million of outflows the previous week. SPDR Gold Shares lost $96.5 million. Energy funds had outflows of $19.2 million, compared with inflows of $41.1 million a week earlier.
- The first tranche of results in England’s local elections suggested voters were turning their backs on both the main parties amid frustration over Brexit. Prime Minister Theresa May’s ruling Conservatives are paying the heaviest price at the polls for overseeing the political chaos of the U.K.’s divorce from the European Union. But Labour has also suffered serious set-backs, while the biggest winners so far are the pro-EU Liberal Democrats.
- Temporary federal government hiring for the U.S. Census Bureau’s 2020 count may give nonfarm payrolls a boost starting with the April jobs report due Friday, economists say. Census has began recruiting and hiring some of the hundreds of thousands of temporary workers needed for the decennial tally. The bureau said in early March that more than 170,000 recruits had applied for temporary jobs and more than 800 hired.
- Inflation in the euro area accelerated more than forecast and a core measure jumped the most in nearly a year, capping a week of encouraging data for the European Central Bank. Consumer prices rose 1.7 percent in April from a year earlier — the strongest number since November. The narrower inflation gauge that strips out volatile components such as energy and food came in at 1.2 percent, a six-month high, surging from 0.8 percent in March. Both readings beat economist estimates.
- President Donald Trump has been blunt with his demands on German defense spending, accusing Berlin of owing “billions.” Germany’s Social Democrats have just as clear a message: It’s not going to happen. Navigating a series of diplomatic dust-ups over the issue, Chancellor Angela Merkel has stood by a NATO-sponsored target of spending 2 percent of gross domestic product on the military, even if it takes longer to get there than the U.S. wants. But officials in the Social Democratic Party, which controls the Finance Ministry and has been Merkel’s junior coalition partner for nine of the last 14 years, are unequivocal — saying the 2 percent goal is an arbitrary distraction that they have no intention of attaining. Unless Merkel’s government falls, the SPD will be in power at least until the next election due in 2021.
- Warren Buffett has said that he underestimatedAmazon.com Inc.’s Jeff Bezos. Now one of Buffett’s deputies is willing to put money behind the tech giant. Berkshire Hathaway Inc. has been buying Amazon shares and the purchases will show up in a regulatory filing later this month, Buffett told CNBC in an interview Thursday. Buffett, Berkshire’s chairman and chief executive officer, said “one of the fellows in the office that manage money” made the purchases, a reference to investment managers Todd Combs and Ted Weschler.
- U.S. authorities are preparing to return about $200 million of funds allegedly misappropriated from troubled state fund 1MDB to Malaysia, according to people familiar with the matter. The total includes about $140 million from the sale of a stake in New York’s Park Lane Hotel and some $60 million from a settlement paid by the producer of the “Wolf of Wall Street” movie, said two of the people, who asked not to be named as the details are private. The transfer could happen as soon as next week, they said.
- Fire struck an oil refinery in southern California late Thursday, threatening to further crimp fuel supply in a region where retail gasoline has already surged past $4 a gallon. There was a fire at a residual pump at Phillips 66’s Los Angeles refining complex at Carson at about 4:51 p.m. local time, a company spokesman said, declining to comment on the status of the refinery operations. The blaze was extinguished at 9:43 p.m. local time, according to the Los Angeles County Fire Department. There was no major damage or injuries at the plant, the department officials said.
- Troubles among India’s non-bank financiers will persist for at least a year even if the danger of a full-blown financial crisis has passed, according to the head of the nation’s most valuable bank. Tighter regulatory oversight and asset sales have staved off the worst of the problems afflicting India’s non-bank financial firms following last year’s defaults by Infrastructure Leasing & Financial Services Ltd., according to HDFC Bank Ltd.’s Managing Director Aditya Puri. Even so, it will be another 12 to 18 months before the liquidity issues in the wider sector are resolved, Puri added in an interview with Bloomberg News Editor-in-Chief John Micklethwait in Mumbai on Thursday.
- India’s car stocks have lost $42 billion in value in the last 16 months, and some analysts say the rout may not be over. A gauge of automobile companies has fallen 30 percent since reaching a record in December 2017, and is the worst-performer among 19 sector indexes in the nation’s equity market this year. That’s as the benchmark S&P BSE Sensex Index rallied to a fresh peak last month.
- Tesla Inc. raised $2.35 billion through debt and stock offerings that were boosted from the company’s initial plans. The electric-car maker raised $750 million of common stock priced at $243 per share and borrowed $1.6 billion through an offering of convertible bonds due 2024 at a 2 percent coupon and a 27.5 percent conversion premium, Tesla said Friday in a filing. Tesla stock, which had been down 30 percent this year, closed 4.3 percent higher Thursday while the price of its bonds advanced.
- Agency mortgage-backed securities have been given a helpful boost as REITs exhibited robust demand during the first quarter and may continue to do so. Once but a small player, mortgage REITs in aggregate now hold about $300 billion in agency MBS, eclipsing the $250 billion held by Fannie Mae and Freddie Mac, according to data complied by Nomura. The two government-sponsored entities have been reducing their portfolio holdings since they fell into conservatorship in September 2008. During the first quarter REIT demand totaled about $30 billion in aggregate with the next largest demand source being banks at around $25 billion. This demand was driven “by deployment of raised equity and through increases in leverage ratios,” Nomura MBS analysts recently wrote.
- Elon Musk described autonomous-driving technology as “transformative” to Tesla Inc. in a call aimed at ginning up interest in the electric-car maker’s debt and stock offering of about $2 billion, according to two people who dialed in. The chief executive officer said autonomy is a fundamental driver for Tesla and key to how it could become a “half-trillion dollar market cap company,” said the people, who asked not to be identified because the call wasn’t open to the public. A Tesla spokesman didn’t immediately respond to a request for comment.
- Sinclair Broadcast Group Inc. agreed to buy the Fox regional sports networks from Walt Disney Co., turning the local-TV company into a cable-sports powerhouse, the Wall Street Journal reported. The deal is valued at more than $10 billion, the Journal said, citing unidentified people familiar with the matter. An agreement could be announced as early as Friday, the newspaper said.
- Occidental Petroleum Corp.’s bombshell investment from Warren Buffett is the culmination of almost two years of on-and-off-again wrangling with Anadarko Petroleum Corp. — a saga that’s so far seen the company slip through its fingers several times. With Buffett in its corner and a higher bid on the table, Occidental finally seems to have the upper hand over Chevron Corp.’s lower, but already agreed on, offer. Anadarko’s board has decided to start talking to Occidental again, and said that its bid could result in a superior proposal.
*All sources from Bloomberg unless otherwise specified