May 7th, 2019

Daily Market Commentary

  • Canadian Headlines
    • The Canadian government is likely to proceed with expansion of the Trans Mountain oil pipeline when it announces its decision next month, officials familiar with the matter say. The government has made no secret about its interest in finding a way to expand the conduit, but has tiptoed around the matter to avoid opening any decision up to legal challenges that have already delayed the project — and things remain fluid as consultations continue. However, with a June 18 decision approaching, the government is likely to proceed with the expansion, the officials said, speaking on condition of anonymity because the they’re not authorized to speak publicly. Prime Minister Justin Trudeau has begun signaling his interest. “The only way to do it is to do it responsibly, and that’s what we’re doing. The need for it, and the national interest, is clear,” he said on April 30. However, to rush ahead without appropriate consultation “would be a guarantee you would continually be bogged down in the courts for the years to come.”
    • China is snapping up more Canadian crude as global heavy oil supplies dwindle amid Iran sanctions and a political crisis in Venezuela. Ambelos is the second tanker to leave Vancouver’s Westridge terminal this year bound for China, according to data compiled by Bloomberg. It’s carrying more than half a million barrels of heavy Canadian crude, according to IHS Markit. It follows the Erik Spirit, which sailed to China’s Nanhai district from Westridge last month. The shipments happened even as Canadian heavy crude has sold at an average discount to West Texas Intermediate futures of less than $11 a barrel so far this year.
    • Roots CFO Jim Rudyk has resigned to pursue an opportunity at a private, family-owned food services company, with his last day to be Aug. 9.

     

  • World Headlines
    • European stocks were steady on Tuesday as losses in cyclical sectors amid trade tensions between the U.S. and China were offset by gains in real estate and telecommunication shares. The Stoxx 600 added less than 0.1 percent as of 8:13 a.m. in London. President Donald Trump’s top trade negotiator said the U.S. planned to raise tariffs on Chinese goods on Friday. Banks, miners and auto stocks fell 0.3 percent or more, the most among industry groups. A slump in BMW profit dragged the shares lower, adding to losses in the Stoxx 600 Auto & Parts index. The FTSE 100 Index fell 0.3 percent as U.K. markets reopened after a holiday.
    • There is still some hope a trade deal could be salvaged on the news that China’s Vice Premier Liu He will visit the U.S. for talks on May 9-10. Futures on the S&P 500 pared some of their losses following China’s Ministry of Commerce announcement. The contracts had initially dropped 0.8 percent after the president’s trade representative, Robert Lighthizer, said the U.S. plans to raise tariffs on Chinese goods on Friday, accusing Beijing of backpedaling on commitments it made during negotiations.
    • Korean and Japanese shares slid as both markets reopened after holidays, while stocks in Shanghai and Hong Kong climbed. The euro erased an advance after German factory orders rebounded less than economists’ forecasts in March; bonds in the region rose. Investor sentiment remains fragile as traders wait for the next development in the trade dispute between the world’s two biggest economies.
    • Oil traded near $62 a barrel as Saudi Arabia was said to give extra crude supplies to its customers in Asia but they’ll pay a heavy price for it. Futures erased an earlier gain in New York to trade 0.7 percent lower. Saudi Aramco will sell additional cargoes to customers in the world’s biggest oil-consuming region for June loading, according to people with knowledge of the matter. Crude ended Monday 0.5 percent higher, in a day where prices were whipsawed between the U.S.-China trade war and renewed American tensions with Iran.
    • Gold imports by India surged in April amid falling prices and higher demand ahead of the second-biggest gold-buying day in the Hindu calendar. Inbound shipments grew to 121 tons last month from 52.8 tons a year earlier, according to a person familiar with the data, who asked not to be identified as the information isn’t public. Shipments were higher than the 73 tons in March as well. Finance Ministry spokesman D.S. Malik wasn’t immediately available for comment.
    • Iron ore rallied after Brazilian giant Vale SA’s operations were hit by a fresh disruption at one of its major mines, potentially setting the stage for benchmark prices to extend gains toward $100 a ton as users, investors and traders contemplate the scope for a worldwide deficit. The global iron ore market has been convulsed this year by a series of hits to supplies in Brazil and Australia at a time of record steel production in China. Vale suffered a fatal dam disaster in January that spurred a slew of mine suspensions. In the latest setback, the ruling by a court in Minas Gerais state forced Vale to halt wet-processing operations at the 30-million-ton Brucutu site, it said, hitting output again just weeks after its supply had resumed.
    • Anadarko Petroleum Corp.’s board has declared Occidental Petroleum Corp.’s sweetened $38 billion takeover “superior,” giving Chevron Corp. four days to either boost its offer or walk away from the oil industry’s biggest deal in at least four years. The announcement by Anadarko, which had rebuffed several prior bids from Occidental, comes almost a month after it agreed to be purchased by Chevron for $33 billion. Chevron has so far refused to increase its offer, saying its proposal is a better long-term option for Anadarko shareholders. If it decides not to raise the bid, Chevron can walk away with a $1 billion breakup fee.
    • China’s top trade negotiator Liu He will visit the U.S. this week for a new round of high-wire talks, in a sign Beijing is battling to keep negotiations on track after President Donald Trump ratcheted up pressure with plans to raise tariffs on Chinese goods Friday. Vice Premier Liu will meet with U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin, on May 9 and 10, according to a statement Tuesday on the Chinese Ministry of Commerce website. At the same time, China is preparing retaliatory tariffs on U.S. imports should Trump carry out his threat, according to people familiar on the matter.
    • Billionaire Xavier Niel’s phone carriers are raising about 2.7 billion euros ($3 billion) of cash through the sale of towers to Cellnex Telecom SA, as they prepare for a wave of investment to boost coverage. Niel’s Iliad SA and Salt Mobile SA are together selling about 10,700 telecommunications masts to the Spanish tower operator, in three separate deals in France, Italy and Switzerland, the companies said in statements Tuesday. Shares of Iliad rose as much as 7 percent in Paris trading, while Cellnex surged 8.8 percent in Madrid.
    • Beyond Meat Inc. just got its first sell-side bull after its splashy IPO last week. The stock, up an eye-popping 199 percent since its trading debut last week, was rated a new outperform at Bernstein, and analyst Alexia Howard sees even more upside, albeit much smaller than its recent gains. Her price target of $81 implies an 8 percent appreciation from the stock’s Monday close at $74.79.
    • Law enforcement officials from the U.S., Malaysia and Singapore are meeting near Kuala Lumpur this week to coordinate their legal approaches toward Goldman Sachs Group Inc. over its work raising money for scandal-plagued state fund 1MDB, people with knowledge of the matter said. The meetings are taking place on Tuesday and Wednesday and include representatives from the U.S. Department of Justice as well as the attorney generals’ offices in Malaysia and Singapore, the people said, asking not to be identified. Officials from Singapore’s white-collar police are also attending, the people said.
    • Occidental Petroleum Corp. Chief Executive Officer Vicki Hollub is on the cusp of winning a David versus Goliath bidding war that has captivated the oil industry. After making a series of approaches to rival Anadarko Petroleum Corp.about a merger over almost two years, Hollub was blindsided last month when the company embraced a takeover offer from Chevron Corp., despite it being considerably lower than her $38 billion bid. The University of Alabama-trained engineer didn’t back down. In a series of bold and creative moves that included securing a $10 billion investment from Warren Buffett, Hollub is back in pole position in the battle for Anadarko. In gaining the stamp of approval from Anadarko’s board on Monday, she has boxed Mike Wirth, her counterpart at Chevron, into a corner with the uncomfortable choice of tarnishing his reputation for financial conservatism or conceding defeat.
    • Pound traders are more upbeat on the outlook for Brexit as the government and opposition Labour party hold a crunch meeting to try and reach a deal. One-week risk reversals on the pound-dollar pair, a measure of market positioning, signal investors are the most optimistic on the pound in almost five months. There is only around a one-in-three chance of the talks between Labour and the ruling Conservatives ending in success, according to strategists at MUFG and Mizuho Bank Ltd., but if they do, the pound will get a boost.
    • U.S. Secretary of State Michael Pompeo canceled a visit to Berlin Tuesday at short notice, citing “pressing issues” that forced him to pull out of talks with Chancellor Angela Merkel and Foreign Minister Heiko Maas. “We look forward to rescheduling this important set of meetings,” State Department spokeswoman Morgan Ortagus said in an emailed statement, without elaborating on the nature of the issues. “The Secretary looks forward to being in Berlin soon.”
    • Vodafone Group Plc is seeking to address European Union concerns over its 18.4 billion-euro ($20.6 billion) bid for Liberty Global Plc’s cable assets by offering rival Telefonica SA wholesale access to its entire German cable network. The Spanish company’s local unit Telefonica Deutschland would be able to use the combined Vodafone and Unitymedia high-speed network across Germany under the proposal, Vodafone said in an emailed statement. That would allow it to offer internet access and TV services to 24 million customers at speeds of up to 300 Mbps, “superior to the highest available speeds offered by wholesale” cable access, it said. The companies didn’t disclose commercial details of the deal.
    • Malaysia’s central bank cut its benchmark interest rate for the first time since July 2016, seeking to support the economy as global risks mount. Bank Negara Malaysia reduced the overnight policy rate by a quarter percentage point to 3 percent, as predicted by 14 of 23 economists surveyed by Bloomberg. The rest forecast no change. Policy makers in the Southeast Asian nation are bracing for slower growth as exports take a knock from weaker global demand and rising trade tensions. The central bank is forecasting expansion of 4.3 percent to 4.8 percent this year, lower than the government’s projection of 4.9 percent.
    • A fatal airplane crash a decade ago prompted a life-saving fix across thousands of Boeing 737 cockpits. So why wasn’t the same lesson applied to the design of the 737 Max, an upgraded version on which 346 people died in recent disasters? Investigators of the 2009 crash of a Turkish Airlines jet identified a faulty altitude sensor that thought the plane was closer to the ground than it was and triggered the engines to idle. The plane’s second radio altimeter displayed the correct elevation, but it didn’t matter: the automatic throttle was tied to the first gauge. The Amsterdam-bound plane crashed into a field, killing nine people and injuring 120.
    • Anheuser-Busch InBev NV is weighing an initial public offering of its Asian unit as the world’s largest brewer jockeys for position in a massive consumer market where rivals are piling in via local alliances. The brewer on Tuesday confirmed that it might sell a minority stake in its Asia-Pacific operations — a deal that could value the business at as much as $70 billion — and list the shares on the Hong Kong Stock Exchange. The move would help AB InBev reduce its debt and pursue acquisition opportunities in a region that’s driving growth for an otherwise slow-growing business.
    • It’s turning into a trying week for Lyft Inc. investors, with the company’s first quarterly report as a public company due post-market on Tuesday and bigger rival Uber Technologies Inc.’s long-awaited initial public offering expected to price on Thursday. Coming just over a month after Lyft’s IPO, which attracted criticism for potentially over-hyping the company’s prospects, these initial results will be parsed closely by investors looking for clues into how the ride-sharing service plans to tackle its biggest challenges, including becoming profitable, staying on an aggressive growth path and competing with the larger Uber.

*All sources from Bloomberg unless otherwise specified