May 30th, 2018
Daily Market Commentary
- Justin Trudeau wants to build a Canadian economy that will thrive a decade or more from now — if that means losing a short-term edge to Donald Trump, so be it. The Canadian prime minister outlined his economic vision Tuesday, championing investments in education and healthcare, targeted immigration and responsible borrowing as ways to quell populist unrest and build a thriving society. Noticeably absent was any talk of tax cuts mirroring those in the U.S., which he called a more “ruthless” economy propped up by unsustainable deficits.
- More than 3,000 Canadian Pacific Railway Ltd. workers walked off the job Tuesday, threatening a wider disruption in freight traffic and setting up the first major labor test for Canadian Prime Minister Justin Trudeau. The strike by conductors and locomotive engineers began at 10 p.m. eastern time, Teamsters Canada Rail Conference said in an emailed statement late Tuesday. Negotiations with the company are ongoing, Teamsters said minutes after Canadian Pacific reached a tentative three-year agreement with a smaller union, the International Brotherhood of Electrical Workers.
- Canada’s purchase of Kinder Morgan Inc.’s embattled pipeline is good news for the oil patch, so long as it doesn’t become the norm. While the $3.5 billion Trans Mountain takeover keeps alive a project seen as critical to expanding markets for Canada’s crude and improving the price oil-sands producers get paid, it also reveals how key infrastructure projects can be stymied by local opposition and regulatory hurdles.
- Global markets regained some composure on Wednesday as panic over the Italian political crisis subsided and encouraging economic data helped steady nerves in Europe. Treasuries fell back with the dollar as the haven bid ebbed, and the euro jumped. Italian bonds rebounded, with the 10-year yield falling as much as 23 basis points as the country successfully passed a key test of appetite for its debt and populist leaders ruled out a last ditch bid to form a government.
- The common currency’s strength weighed on equities, with the Stoxx Europe 600 Index only edging higher as S&P 500 futures climbed. As panic eased, U.S. 10-year bonds gave up some of their gains from Tuesday to send yields back toward 2.9 percent. Traders are catching their breath after the unprecedented Italian bond slump spilled over into global risk assets. While the prospect of snap Italian elections — which could effectively become a referendum on the euro — continues to loom, some investors see the selloff as overdone while the timing of any vote remains unclear.
- Asian equities headed for the steepest loss in two months as Italy’s escalating political crisis continued to rattle global investors. Japan retreated for an eighth day, the longest losing streak in almost six years, as most markets across Asia declined. The MSCI Asia Pacific Index lost 1.3 percent to 170.71 as of 4:51 p.m. in Hong Kong, falling below its 200-day moving average for the first time since 2016.
- Oil steadied near $67 a barrel as markets regained some composure following renewed trade tensions between the U.S. and China, political turmoil in Europe and simmering concerns that OPEC may ease its output curbs. Futures in New York were little changed, though still almost $6 below last week’s high. China said it would respond accordingly to U.S. President Donald Trump’s plan to impose tariffs on $50 billion of Chinese imports. Encouraging economic data in Europe blunted panic related to Italy’s political crisis, which on Tuesday helped boost a gauge of oil market volatility to its highest level since February.
- Gold prices are barely moving as the dollar’s recent rally counters haven demand from Italy’s political crisis and lingering trade tensions between the U.S. and China.
- Two affiliates of Samsung Electronics Co. are selling as much as $1.2 billion of the smartphone maker’s stock to avoid breaching laws that limit their holdings in non-financial companies. Samsung Life Insurance Co. and Samsung Fire & Marine Insurance Co. are offering a total of 27 million shares at as much as 49,500 won apiece, according to terms for the deal obtained by Bloomberg. Samsung Electronics, the world’s biggest maker of semiconductors, fell 3.5 percent in Seoul on Wednesday.
- Bayer AG won U.S. antitrust approval for its $66 billion takeover of Monsanto Co., clearing the last major regulatory hurdle to forming the world’s biggest seed and agricultural-chemicals provider after a nearly two-year global review. The companies reached a settlement with the Justice Department that resolves the government’s concerns that the merger as initially structured would harm consumers and farmers, the U.S. said in a statement Tuesday. The agreement requires the sale of assets to BASF SE that Bayer has previously announced. The divestiture package is worth about $9 billion, the largest in a U.S. merger enforcement case, the government said.
- Analysts are pouring cold water on a report that Apple Inc. plans to use next-generation, OLED screens for all of its new iPhone models next year. The article in South Korea’s Electronic Times, if true, would be negative for major manufacturers like Japan Display Inc. and Sharp Corp., which build LCDs that are used in many phones, but a positive for OLED technology makers like Universal Display Corp. Japan Display shares fell 8 percent Tuesday, while Sharp declined 3 percent. Universal Display shares climbed 4 percent.
- AirAsia Group Bhd. shares fell to their lowest level in six months after India said it’s investigating Chief Executive Officer Tony Fernandes and other officials for allegedly paying bribes to influence local policy. India’s Central Bureau of Investigation said Tuesday that the budget airline’s executives bribed Indian officials through middlemen to sway government decisions on aviation, including obtaining a flying permit for the local unit and approvals to operate internationally. Emails and calls to Fernandes elicited no response, while a spokeswoman said he isn’t available for an interview.
- Just when central bankers thought they were about to get out of the business of emergency economic stimulus, jittery financial markets are threatening to pull some of them back in. For the European Central Bank, the latest threat requiring vigilance is political turmoil in Italy that’s reviving memories of the debt crisis that threatened to fracture the euro area. The Bank of England’s path is complicated by Brexit and, across emerging markets, central banks are trying to push back against the strong dollar.
- Rolls-Royce Holdings Plc is expecting a sharp increase in the number of Boeing Co. 787 Dreamliner planes that will have to be grounded because of faults with the engine maker’s Trent 1000 turbine. The spike will occur ahead of a deadline next month for mandated inspections forced by durability problems, Rolls said in an emailed statement. The number of parked Dreamliners is expected to peak at about 50 from the current level of 35, a person familiar with the matter said, as the aircraft await repairs.
- Royal Bank of Scotland Group Plc Chief Financial OfficerEwen Stevenson unexpectedly resigned to take up another unspecified opportunity, leaving the lender to scramble for his replacement. Stevenson’s departure leaves Alison Rose, RBS’s most senior female banker, as the most likely internal successor to become chief executive officer. Stevenson, 52, who has been at RBS for about four years, was one of two internal candidates seen as a potential replacement for chief Ross McEwan, people with knowledge of the matter said this month.
- Japan’s Orix Corp. is ready to splash out 100 billion yen ($920 million) on at least one European renewable generation deal as it looks overseas to accelerate a push into clean energy while domestic growth stalls. The Tokyo-based company that leases everything from computers to aircraft has identified several targets among onshore wind and solar assets in countries including Germany, France and the U.K., according to Yuichi Nishigori, head of the energy and eco services business division.
- Catella AB, the Swedish asset manager, is preparing the sale of wealth management and credit card operations in Luxembourg amid a wave of banking mergers in the country, according to people familiar with the talks. The company, which has a market capitalization of 1.9 billion kronor ($214 million) is planning to contact potential buyers regarding the sale in the coming weeks, the people said. The wealth management operations could fetch more than 50 million euros ($58 million) in a sale, one of the people said. Catella said in February it was in the middle of a strategic review of its card acquiring operations.
- Gama Holding AS, an Ankara-based investor with interests spanning energy, construction, hospital management and manufacturing, is in talks with lenders to restructure as much as $1 billion of debt owed mainly to large Turkish banks, according to people with knowledge of the matter. The negotiations don’t cover the borrowings of the holding company’s biggest unit, Gama Enerji AS, which is in separate discussions to refinance about $500 million of a loan it took in 2013 to build a gas-fired power plant, said the people, asking not to be identified because the deliberations are private. Gama Holding declined to comment.
- China has made progress on reforms but should allow market forces to play a more decisive role and accelerate its opening up to the rest of the world, the International Monetary Fund said. While credit growth has slowed, it remains too fast, and policy makers should de-emphasize growth targets and focus on higher-quality growth, the fund said in a statement released Wednesday in Beijing at the conclusion of its mission for the 2018 Article IV Consultation.
- The case for the People’s Bank of China to cut the amount of cash lenders are required to hold is getting stronger. Chinese banks racked up 2.93 trillion yuan ($457 billion) in medium-term loans extended by the PBOC scheduled for repayment during the rest of 2018. That has prompted some analysts to raise bets the PBOC may soon repeat a tactic used in April: cutting the Reserve Requirement Ratio to hand lenders liquidity so they can pay back the debt.
- India has been wooing Tesla Inc. to set up a factory on its soil, but billionaire Elon Musk isn’t falling for it. At least not yet. In a tweet, the chief executive officer of the electric-vehicle maker said a restrictive policy environment in the South Asian country is proving to be a hurdle for local production. Earlier this month, the Palo Alto, California-based company moved a step closer to establishing a factory in China, which would be its first production facility outside U.S. shores, as the Asian giant eases rules for carmakers such as Tesla.
- Three decades after turning a maker of wire shopping baskets into the world’s biggest advertising company, Martin Sorrell is about to find out if he still has the magic touch. The former WPP Plc chief executive officer will take control of a publicly traded company just over six weeks after his abrupt exit from WPP. S4 Capital Ltd., a vehicle largely funded by Sorrell, will be acquired byDerriston Capital Plc, an investment firm that raised 2.3 million pounds ($3 million) in its initial public offering at the end of 2016. The reverse takeover will leave Sorrell as chairman of Derriston, which will change its name to S4 and seek to make acquisitions, Derriston said.
- Alibaba Group Holding Ltd. is leading the purchase of 10 percent of Chinese delivery service ZTO Express (Cayman) Inc. for $1.38 billion, a deal that’ll augment the e-commerce giant’s ability to ship packages around the globe. The Alibaba-led investor group includes its own logistics arm Cainiao, the company said in a statement that didn’t specify other buyers. Under an agreement, Cainiao and U.S.-listed ZTO will collaborate on everything from delivery and warehouse management to technology.
- Bird, an electric scooter-sharing startup, is raising $150 million in a funding round led by Sequoia Capital that will value the company at $1 billion, people familiar with the matter said. This is the first batch of money in this new round, and the company plans to raise more, said one of the people, who asked to remain anonymous while discussing the private transaction. The funding comes as venture-backed startups, including Lime and Spin, race to raise money and to saturate U.S. city sidewalks with small electric scooters. The companies allow users to download an app to unlock the scooters and ride them for a small fee.
*All sources from Bloomberg unless otherwise specified