May 30th, 2019
Daily Market Commentary
- Canadian Headlines
- Canadian Natural Resources Ltd. can’t yet claim the “King of the Oil Sands” status, but it’s a lot closer to overtaking its rival Suncor Energy Inc. after buying a key Athabasca drilling site. The company’s $2.8 billion purchase of Devon Energy Corp.’s Jackfish brings Canadian Natural’s oil-sands production capacity to more than 700,000 barrels a day compared with more than 900,000 barrels a day controlled by Suncor, according to data compiled by Oil Sands Magazine. The Devon purchase marks the company’s second major acquisition in the oil sands in the past two years after it bought most of Royal Dutch Shell Plc’s oil-sands operations in 2017, making it Canada’s largest overall oil producer with more than one million barrels a day of production worldwide.
- World Headlines
- European equities opened in the green on Thursday as oil’s gains boosted crude producers, outweighing pessimistic headlines about the lack of progress in the U.S.-European Union trade talks. The Stoxx Europe 600 Index added 0.3%, heading for a 5% drop this month. Many EU bourses are closed today for a holiday, including those in Denmark, Finland, Sweden and Switzerland. Axel Springer SE surged 20% after confirming talks with KKR & Co. about a potential investment. Oil majors, including Total SA, Royal Dutch Shell Plc and BP Plc led gains this morning as a report signaled a bigger-than-forecast drop in U.S. crude stockpiles, adding to supply concerns.
- U.S. equity futures climbed with European stocks on Thursday as investors awaited the latest developments in the outlook for global growth and trade. Treasury yields steadied near their lowest since 2017. Contracts on the S&P 500, Dow and Nasdaq all pointed to a positive start in New York, while the Stoxx Europe 600 gained, led by media firms, a day after posting its biggest drop in nearly three weeks.
- Asian markets were mixed, with Shanghai edging lower as China notched a fresh escalation of the tariff war by putting U.S. soybean purchases on hold. The 10-year Treasury yield was at 2.26% after falling as low as 2.21% Wednesday, while the dollar traded at a five-month high ahead of first-quarter revised GDP due later that could give clues on the direction of U.S. interest rates.
- Oil recovered in New York as signs of tighter supplies in the U.S. offset concerns that the prolonged trade war between America and China will hurt demand. Futures in New York gained 0.5%, but remain on track for a monthly loss. The American Petroleum Institute said that U.S. crude inventories fell by 5.27 million barrels last week, suggesting that more comprehensive government data due Thursday may show a larger decline than the 1.36 million-barrel drop expected by analysts.
- Gold is poised for a fourth monthly decline as investors weigh the outlook for global growth amid the escalating U.S.-China trade spat and seek out other havens such as the dollar and bonds. Platinum is heading for the biggest monthly drop in more than three years. Morgan Stanley Chief Executive Officer James Gorman said financial markets are fragile thanks to worries over the trade war, but a rout isn’t likely given the solid state of the economy and the probability that U.S.-China talks resume.
- China, the world’s largest soybean buyer, has put purchases of American supplies on hold after the trade war between Washington and Beijing escalated, according to people familiar with the matter. State-grain buyers haven’t received any further orders to continue with the so-called goodwill buying and don’t expect that to happen given the lack of agreement in trade negotiations, said the people, who asked not to be named because the information is private. Still, China currently has no plans to cancel previous purchases of American soybeans, the people said.
- Even though President Donald Trump held fire earlier this month on auto tariffs that have the potential to further roil Europe’s struggling economy, a succession of domestic dilemmas on both sides of the Atlantic threaten to frustrate efforts at a trade pact before they’ve even begun. Ten months after Trump and European Commission President Jean-Claude Juncker struck a Rose Garden truce meant to clear the way for negotiations to reduce tariffs on industrial goods and eliminate regulatory hurdles, those talks are showing few signs of going anywhere meaningful.
- FirstGroup Plc shares jumped the most in a decade after Chief Executive Officer Matthew Gregory bowed to shareholder pressure and announced a break up the U.K. bus and train operator. The stock gained as much as 13% after Gregory, who has led the Aberdeen, Scotland-based company since November, reversed a vow to keep it together. Selling the U.S. Greyhound bus service and its U.K. counterpart First Bus, and pulling back from its commitment to rail will secure the best value for shareholders, he told reporters on Thursday.
- Delek Group Ltd., the energy company controlled by Israeli billionaire Yitzhak Tshuva, agreed to buy North Sea oil and gas fields from Chevron Corp. for about $2 billion, the latest deal in a region where smaller players are becoming increasingly prominent. The purchase is part of the Israeli company’s strategy to expand beyond its domestic market and roots as a financial group into an energy business with operational knowledge. The North Sea, a prolific but aging producing region, offers that opportunity, with giants like Chevron and ConocoPhillipsselling out as they focus on more profitable output in the U.S.
- Thailand’s richest man added $2.5 billion to his fortune this year even before snapping up Starbucks Corp.’s local operations to cement his group’s position as a consumer-sector titan. Charoen Sirivadhanabhakdi’s net worth has risen to $13.4 billion mostly due to a 32% gain in Singapore-listed Thai Beverage Pcl shares, according to the Bloomberg Billionaires Index. A company affiliate is part of a venture buying out Starbucks’ Thai operations, a transaction that could value the business at more than $500 million.
- A miserable month for China’s yuan is pressuring officials to decide how much they care about defending 7 a dollar. The currency is down about 2.5% in May, headed for its worst drop since July and the biggest loss in Asia. It touched a five-month low of 6.9217 per dollar a week ago. With the G-20 summit in Japan next month, some strategists see an increasing chance that a trade war escalation could drive the yuan past 7 for the first time in more than a decade. They don’t agree on the consequences. While Citigroup Inc. says a break of the key level may trigger a sell-off in stocks, competitive devaluation and even financial instability, Bank of America Merrill Lynch argues a weaker yuan is justified by slower growth, and that massive outflows aren’t likely.
- Citigroup Inc. can beat consensus expectations in 2020 regardless of higher interest rates or stronger global growth, and is well positioned for potential supply chain shifts in Asia, Goldman said in a note upgrading the stock to buy from neutral. Analyst Richard Ramsden in a note sees “a realistic path” to a 13% return on tangible common equity, or Rotce, in 2020, which would top market expectations by 100 basis points. “The market is overly pessimistic on Citigroup’s revenue growth inflection, targeted expense savings, and outlook for credit costs given the improvement in the risk profile of their international loan book,” he said.
- KKR & Co. and Axel Springer SE are in talks about a strategic investment by the private equity firm that could take the German publisher private. KKR may launch a tender offer to buy out the minority shareholders in Axel Springer, which owns the mass-circulation daily Bild, according to a statement late Wednesday. Friede Springer — the widow of founder Axel Springer who has the largest stake — and Chief Executive Officer Mathias Doepfner support the potential investment and plan to keep their holdings.
- Top Justice Department officials want T-Mobile US Inc. and Sprint Corp. to lay the groundwork for a new wireless carrier — with its own network — as a condition to clearing their $26.5 billion merger, according to a person familiar with matter. The two companies have been pondering additional concessions that could help win Justice Department approval for their deal, according to people with knowledge of the discussions, who asked not to be identified because the talks are private. But the idea of spinning off a full-fledged national competitor would be a high bar for T-Mobile and Sprint to meet.
- Uber Technologies Inc. will get its first opportunity to address some of the concerns that contributed to a rocky Wall Street debut when it reports first-quarter earnings on Thursday afternoon. The ride-hailing giant’s shares have languished since trading began on May 10 as investors focused on how much money it’s losing, intense competition and shrinking revenue growth. The stock has fallen 11% from the $45 offering price, and investors want to know what Chief Executive Officer Dara Khosrowshahi has planned to instill confidence in Uber’s long-term strategy.
- An affiliate of Aberdeen Standard Investments has agreed to buy the Carlsbad desalination plant in Southern California for more than $1 billion, according to people with knowledge of the matter. A transaction could be announced as soon as this week, said one of the people, who asked not to be identified because the matter is private. The Claude “Bud” Lewis Carlsbad Desalination Plant, named for a former mayor, is owned by Orion Water Partners LLC, the joint venture between Stonepeak Infrastructure Partners and Brookfield Infrastructure Partners affiliate Poseidon.
- Pfizer Inc. is pushing into rural China as a generic-drug purchasing program for major cities has hurt sales of the company’s aging blockbuster treatments for heart disease. The New York-based drugmaker is trying to outrun the price-cutting initiative, hiring 600 additional people this year to drive growth outside the 11 Chinese cities that are involved, Michael Goettler, who heads Pfizer’s Upjohn division that sells older drugs, said in an interview.
- Robert Mueller’s first public statement on his investigation of President Donald Trump raised more calls from Democrats for impeachment, but any formal proceeding is likely months away — if it happens at all. House Speaker Nancy Pelosi and other party leaders are reluctant to pursue impeachment hearings, focusing instead on a slow windup of investigations by multiple committees. The House calendar could also delay the process, with members set to be away from Washington for big chunks of time for the rest of the year.
*All sources from Bloomberg unless otherwise specified