May 9th, 2019
Daily Market Commentary
- Canadian Headlines
- Canadian Prime Minister Justin Trudeau’s plan to make housing more affordable for millennials could result in shared gains — or losses — for taxpayers. The government announced in its March federal budget that Canada’s housing agency will spend up to C$1.25 billion ($928 million) over three years to take equity stakes in homes bought by first-time buyers. CMHC will provide up to 10% funding for new homes and 5% for existing ones to reduce mortgage expenses for low- to middle-income buyers.
- Magna International fell the most since January in German trading, after the Canadian car-parts maker cut its earnings outlook in light of the global automotive slowdown and higher-than-expected costs to develop automated driving systems. Magna, based in Toronto and with a significant presence in Austria, said first-quarter sales fell 2% to $10.59 billion, and predicted net income for the year of between $1.9 billion and $2.1 billion, a range about $200 million lower than previously foreseen. It trimmed its sales forecast for the year to a range of $39.1 billion-$41.3 billion, versus $40.2 billion-$42.4 billion earlier.
- The office vacancy rate is expected to more than double in Toronto and Vancouver by 2023 as companies are lured to shiny new buildings, according to research firm CoStar Group Inc. Vacancy rates in downtown Toronto are poised to climb to about 6% in four years from a record low of 2.9% in the second quarter of 2018 as new offices come on stream and rent increases peak, according to the Canadian unit of the Washington-based commercial real estate data firm. In Vancouver, the rate is expected to slide further from a record low 2% this quarter before also reaching close to 6% by year-end 2023, CoStar said.
- One of the biggest questions hanging over Canada’s record household debt is just how much borrowers owe against their homes. Officials have warned about the dangers of Helocs — home equity lines of credit — and the potential risks to Canada’s financial system. Yet for those seeking to quantify those risks, obtaining a precise figure for Canadian Heloc debt can be tricky. Regulators agree. That’s why this month the Bank of Canada will begin collecting more detailed data on Helocs to bolster its analysis of financial-system threats. The central bank has been working informally with lenders on the reporting, which becomes a formal requirement as of May 15.
- World Headlines
- European stocks fell on Thursday as trade rhetoric heated up between the U.S. and China, with President Donald Trump’s comments that China “broke the deal” weighing on cyclical sectors including basic resources, autos and energy shares. Europe’s Stoxx 600 index was down 0.7 percent by 8:06 a.m. London time. Autos stocks fell 1.7 percent and miners declined 1.4 percent, with steelmaker ArcelorMittal dropping 3.7 percent after reporting its smallest quarterly profit since 2016.
- Stocks dropped globally and U.S. equity futures retreated on Thursday as a deadline approached for America and China to raise reciprocal tariffs. The yen climbed with gold and Treasuries as investors sought havens, while the yuan fell to its weakest since January. Contracts on the S&P 500, Dow Jones Industrial Average and Nasdaq 100 all declined.
- Asian benchmarks were down after President Donald Trump ratcheted up his hard-line rhetoric on trade. Asia’s benchmark equity gauge dropped the most in six weeks. Treasury 10-year notes jumped, hours after Wednesday’s auction saw the weakest demand for the benchmark bond in a decade. Investors are focusing on the world’s biggest economies as another phase of bilateral talks approaches. China’s top trade negotiator, Liu He, is scheduled to be in the U.S. on Thursday and Friday.
- Oil fell as flaring trade tensions between the world’s two biggest economies overshadowed concerns over supply disruptions from Iran to Venezuela. Futures in New York fell as much as 1.3%, before paring some of those losses, as U.S. President Donald Trump escalated his rhetoric against China, saying the Asian nation “broke the deal” they were negotiating. Beijing has warned it will retaliate if he follows through on a plan to raise tariffs.
- Gold rose as investors await the outcome of U.S.-China trade talks, with President Donald Trump ratcheting up his rhetoric ahead of fresh negotiations between the world’s two largest economies. Trump said China’s leaders “broke the deal” he was negotiating with them on trade. The Chinese delegation left Thursday for negotiations in the U.S. with the Ministry of Commerce announcing that it would soon publish details of planned retaliatory tariffs while urging cooperation between the two sides.
- North Korea fired two short-range missiles Thursday, South Korea said, an act of defiance that marks the country’s second test launch of weapons in less than a week. North Korea launched a short-range missile from the country’s northwest Kusong region at 4:29 p.m. and then another short-range missile at 4:49 p.m., South Korea’s Joint Chiefs of Staff said in a statement. Both missiles flew east and over land, with the first one flying 420 kilometers (260 miles) and the second one 270 kilometers across the Korean Peninsula, the Joint Chiefs of Staff said.
- The U.S. Treasury on Wednesday saw the weakest demand for its benchmark 10-year note in a decade, illustrating the diminishing appetite among some investors to accept current yields. Bids for the $27 billion of notes exceeded the offering by 2.17 times, the lowest since 2009. While there’s no danger that the government of the world’s biggest economy would fail to fund itself, the drop underscores a shift in demand dynamics for Treasuries that could leave them vulnerable to spikes in volatility.
- When you’ve waited a decade to go public, it’s natural to want the best possible conditions to make an entrance. In that regard, 2019 hasn’t been kind to Uber. After 10 tumultuous years as a private company, the most highly valued startup in the U.S. is finally ready to make its market debut. Ride-hailing giant Uber Technologies Inc. is due to price shares in its long-awaited initial public offering after the market closes Thursday. While the listing is still expected to be the largest in the biggest year for technology IPOs since 2014, it’s unlikely to hit the highs that were first expected. Uber last raised money from Toyota Motor Corp. in August, at a valuation of about $76 billion. The San Francisco-based company is now considering pricing shares at the midpoint of the marketed range or slightly below, according to a person familiar with the matter. That could see the company debut with a market value just above that of its most recent funding round, at about $79 billion.
- U.S. President Donald Trump declared that China’s leaders “broke the deal” he was negotiating with them on trade, ratcheting up his rhetoric ahead of fresh talks already clouded by imminent tariff increases and Beijing’s threats of retaliation. At a campaign rally Wednesday night in Panama City Beach, Florida, the president noted that top Chinese trade negotiator Liu He was traveling to Washington for further talks. “Good man,” Trump said, “but they broke the deal,” leading him to order higher tariffs.
- Novartis AG agreed to buy eye-disease medicines from Takeda Pharmaceutical Co. for as much as $5.3 billion as the Japanese company moves to shed debt after its acquisition of Shire Plc. The main product in the deal is Xiidra, prescription drops that compete with Allergan Plc’s blockbuster Restasis to relieve dry-eye disease, a common condition that can hinder daily activities ranging from reading to driving. Along with $3.4 billion in cash upfront, Novartis agreed to provide as much as $1.9 billion in milestone payments.
- President Donald Trump’s worldwide campaign to blackball Huawei Technologies Co. is looking like a failure. Attempts to persuade other governments to exclude Huawei equipment from the next generation of super-fast mobile networks have hit a wall — even among close allies. So far, only a handful of countries, including Australia and Japan, have joined the U.S.’s call to boycott the Chinese company.
- Warren Buffett isn’t alone in seeking a profit from U.S. oil merger activity. The total value of mergers and acquisitions where U.S. oil and gas companies were targets or sellers almost doubled over the past 12 months, reaching $317.7 billion, according to data compiled by Bloomberg. It’s not that there have been more deals — there were actually fewer than in the previous 12 months — but they are getting bigger.
- Anadarko Petroleum Corp. is looking for a revised takeover offer from Chevron Corp. that matches or exceeds the $38 billion proposal from Occidental Petroleum Corp., according to people familiar with the matter who asked not to be named because the information isn’t public. The board on Monday deemed the Occidental takeover bid “superior” to a $33 billion proposal it accepted last month. That gives Chevron until May 10 to increase its bid, seek an extension or walk away from the industry’s biggest deal in at least four years. The company has yet to say what action it will take and a spokesman didn’t immediately respond to request for comment on Wednesday. Anadarko declined to comment.
- AngloGold Ashanti Ltd. plans to sell its last South African mine, marking the exit of Anglo American Plc and the companies it spawned from the industry that created Africa’s biggest economy. Anglo’s creation in 1917 by Ernest Oppenheimer and the subsequent development of what was for decades the world’s biggest gold industry underpinned the development of South Africa into the continent’s preeminent economy. Its retreat from the industry, which has become expensive and dangerous as mines extended miles underground, began in 1998 when Anglo merged its separate gold subsidiaries to create AngloGold Ltd.
- Foreign investors in Chinese equities aren’t hanging around to see how the latest round of trade talks plays out. They’ve net sold an average 4.4 billion yuan ($646 million) of mainland shares a day through trading links with Hong Kong this week, according to datacompiled by Bloomberg, on track for the heaviest week of selling since the Shenzhen connect opened in late 2016. The pullout extends a trend from April, which saw net sales of 18 billion yuan, a monthly record.
*All sources from Bloomberg unless otherwise specified