November 6th, 2019

Daily Market Commentary

Canadian Headlines

• The Ontario Municipal Employees Retirement System bought a minority stake at Coveo that values the Montreal-based AI firm at about C$1.5 billion ($1.1 billion). Existing investors and other financial institutions including Evergreen Coast Capital, Fonds de Solidarite FTQ and IQ also participated in the capital raise that secured C$227 million. This equity investment represents a 15.5% stake. The company had raised $167.2 million in its previous five funding rounds, capping a high growth year for Coveo, with subscription revenue growing more than 55%. Coveo employs 500 people in Montreal, Quebec City, San Francisco and London, and has been hiring 60 people per quarter. Coveo uses AI to help clients like Salesforce.com Inc. improve the “digital experience” for customers using websites and apps.
• Barrick Gold Corp. increased its quarterly dividend by 25% as the world’s No. 2 producer reported earnings that beat analyst estimates. The company’s third-quarter adjusted earnings per share rose to $0.15. The average analyst estimate compiled by Bloomberg was for $0.11 a share.
• As Alberta’s finances worsen, Ontario’s and Quebec’s are poised to only get better, underscoring the changing fortunes and increasing tensions in the Canadian federation. Finance Minister Rod Phillips is expected to announce later on Wednesday that Ontario will post a smaller than previously estimated budget deficit for the fiscal year ending 2020. The next day, his Quebec counterpart Eric Girard will raise the province’s economic growth forecasts and announce plans for a sixth straight year of balanced books.
• Justin Trudeau is beginning his second term in a precarious position when it comes to his economic agenda. Only 22% of Canadians showed strong confidence in the prime minister’s ability to create conditions for economic prosperity, according to a poll by Nanos Research Group for Bloomberg News. About 30% of respondents expressed no confidence, with 47% somewhere in between on the question. It’s a particularly low level of trust among the electorate for a leader just coming off a fresh election victory. The result lies in stark contrast to the honeymoon-like expectations that greeted Trudeau’s rise to power four years ago, when his Liberal Party pledged to deliver economic change through deficit-financed tax cuts and benefits to the middle class.
• GFL Environmental Inc. scrapped what would have been one of Canada’s biggest initial public offerings after investors balked at the waste company’s debt load and growth prospects, becoming the latest IPO that failed to entice buyers. The Vaughan, Ontario-based company had sought to raise as much as $2.1 billion at the top end of the marketed range of $20 and $24 a share. The banks running the share sale earlier Tuesday communicated to investors that they had support for the offering at about $18 a share, according to people familiar with the matter.

World Headlines

• The Stoxx Europe 600 Index swung between modest gains and losses after data showed the euro-area economy remained close to stagnation last month. Banks advanced after Societe Generale SA strengthened its key capital ratio. Global cleaning giant ISS A/S slumped after cutting it full-year outlook.
• U.S. equity-index futures struggled for traction alongside stocks in Europe and Asia as a raft of corporate earnings and economic data muddied the outlook for global growth. Treasuries rose after dropping for three days. Contracts on all three major U.S. indexes edged higher, with HP Inc. rising in pre-market trading after the Wall Street Journal reported Xerox Corp. is considering a cash-stock offer for the PC maker.
• In Asia, benchmarks rose in Japan and Mumbai, but were down in Shanghai and Sydney. The yuan strengthened past 7 per dollar for a second day, while the dollar was steady as investors awaited fresh developments on the U.S.-China trade front. Bloomberg’s gauge of raw-material spot prices climbed to its highest level since April.
• Oil retreated from a six-week high as signs of another increase in U.S. crude reaffirmed the prevailing view that global markets are comfortably supplied. Futures lost as much as 0.8% in New York after rising 5.6% over the past three sessions. The American Petroleum Institute reported that crude stockpiles increased by 4.26 million barrels last week, according to people familiar, before official government data later on Wednesday. OPEC’s top official said on Tuesday that the market outlook for 2020 has improved, damping some speculation the group will deepen production cuts when it meets next month.
• Gold edged higher after posting the biggest loss in more than a month. While prices have dipped back below $1,500 an ounce, the market remains rangebound. Bullion slid 1.7%, the most since September, on Tuesday as havens suffered from optimism around a U.S.-China trade deal and improving economic data, such as U.S. services and German factory orders. The narrow trading range that’s persisting suggests there’s still underlying demand, Ole Hansen, head of commodity strategy at Saxo Bank, said in an interview on Bloomberg Television.
• Boris Johnson’s bid for re-election as British prime minister was rocked by a cabinet resignation on the day the Conservative leader launches the start of his official campaign. Welsh Secretary Alun Cairns quit after claims he knew about a former aide’s role in the collapse of a rape trial. Cairns’s exit is a blow for the Tory Party at the start of one of the most unpredictable British election contests in recent history.
• Economic prospects for the euro area brightened slightly going into the fourth quarter, with strengthening private-sector momentum and an unexpectedly sharp gain in German factory orders suggesting a growth pickup ahead. Since the 19-nation economy proved more resilient than anticipated in the third quarter to a barrage of risks ranging from trade tensions to Brexit, data have suggested the worst of its slowdown may finally be past. A gauge for business climate in the region showed a surprise improvement, manufacturing contracted less than initially reported in October and services activity accelerated somewhat faster.
• The International Monetary Fund warned Europe to prepare emergency plans for an economic slump, as risks to the region’s outlook spread and monetary policy has all but exhausted its arsenal. “Given elevated downside risks, contingency plans should be at the ready for implementation in case these risks materialize, not least because the scope for effective monetary policy action has diminished,” the IMF said in its Regional Economic Outlook for Europe. “A synchronized fiscal response” may be necessary, the fund said in the report, highlighting the dangers from trade protectionism, a chaotic Brexit and geopolitics.
• Republicans suffered setbacks in two states in off-year elections Tuesday, despite President Donald Trump’s efforts to rally supporters to the defense of GOP candidates down the ballot as the 2020 race heats up. A staunchly pro-Trump Republican governor in Kentucky faced what could be an upset loss in his re-election bid. And in Virginia, Democrats seized both houses of the Legislature from Republicans, gaining full control of state government for the first time in 26 years.
• German insurer Allianz SE has paid about $1 billion for part of Goldman Sachs Inc.’s stake in closely-held Chinese insurer Taikang Life Insurance Co., according to people with knowledge of the matter. Goldman sold a stake of about 4% in Beijing-based Taikang Life to Allianz, according to a statement by the Chinese insurer on Wednesday. The statement didn’t provide any financial details. The U.S. investment bank will retain about 8.6% in Taikang Life after the transaction.
• Postal Savings Bank of China Co. is poised for the country’s biggest initial public offering since 2015. The Beijing-based lender, which is already listed in Hong Kong, plans to raise 28.4 billion yuan ($4.1 billion) in what would be the world’s third-largest listing this year behind Uber Technologies Inc.’s $8.1 billion share sale in May and Budweiser Brewing Co.’s $5.8 billion IPO in Hong Kong in September. One of China’s largest state-owned lenders, Postal Bank plans to issue 5.17 billion A-shares at 5.5 yuan per share, according to its Shanghai stock exchange filing Wednesday, which confirmed an earlier Bloomberg report.
• Blackstone Group Inc. asked a group of its lenders to shore up demand for the 1.2 billion euros ($1.3 billion) loan needed to finance its acquisition of building materials firm CRH Europe Distribution. The New York-based investment company made a series of concessions on pricing and terms and stepped in with some of its own funds, amid tepid demand for the buyout package that launched in mid-October, according to people familiar with the matter. Blackstone this week carved out a shorter-dated portion from the first-lien loan, worth 280 million euros, that is structured to appeal to banks, said the people, who asked not to be named as they are not authorized to speak publicly. The deal allocated Tuesday evening at a higher price point than initial indications.
• Walgreens Boots Alliance Inc., led by Chief Executive Officer Stefano Pessina, has been reviewing a potential deal to take the company private in what could become the largest leveraged buyout in history, people familiar with the matter said. The company has recently held informal talks with private equity firms including KKR & Co., the people said, asking not to be identified because the information is private. Pessina is the largest shareholder in Walgreens Boots, whose businesses range from established retail chains in the U.S. and Europe to the lesser-known pharmacy supplier Alliance.
• Buyout firm EQT AB has sold a minority stake in Anticimex to Singapore sovereign wealth fund GIC Pte, in a deal valuing the Swedish pest control company at 3.6 billion euros ($4 billion). GIC will acquire just under 10% of the Stockholm-based company, Per Franzen, co-head of EQT’s private equity group, said in an interview. Asia Pacific is an important market, and having an Asian shareholder will help Anticimex further expand in the region, Franzen said.
• The staff of Texas’s utility regulator is raising concerns about the proposed $2.78 billion sale of electric utility El Paso Electric Co.to an investment fund advised by JPMorgan Chase & Co. The deal, as it stands, wouldn’t give the utility enough direct control over its own operations and would expose it to new financial risks, the staff of the state Public Utility Commission said in a filing Tuesday. Without additional conditions, the sale isn’t in the public’s interest because its risks outweigh the benefits, consultant John Antonuk said in presenting the staff’s recommendations.
• Societe Generale SA boosted a key measure of financial strength for a second straight quarter and shrank the trading division faster than planned as Chief Executive Officer Frederic Oudea restructures the investment bank. The French lender said the CET1 ratio — a closely-watched metric of its ability to absorb losses — gained almost 50 basis points to 12.5% after the sale of businesses. The lender also met early its goal of cutting 8 billion euros ($8.9 billion) of risk-weighted assets from its markets business as the bank pivots to focus on areas of strength.
• India’s top steelmaker posted a 16% increase in quarterly profit as a one-time gain helped override weakening demand in India following the slowest economic growth in six years. Tata Steel Ltd.’s group net income rose to 41.4 billion rupees ($583 million) in the three months ended September from 35.8 billion a year earlier, it said Wednesday. Sales fell 15% to 345.8 billion rupees.
• The success of China’s first euro bond offering in 15 years is likely to spur a rush of issuance from the nation’s companies. The Ministry of Finance sold 4 billion euros ($4.4 billion) of notes in maturities of seven, 12 and 20 years on Tuesday, according to people with knowledge of the sale. The offering drew nearly 20 billion euros of investor orders, with a 2 billion-euro seven-year note being the most popular. China relied on dollar bonds for earlier issues, selling $3 billion of debt last year and $2 billion in 2017. While the nation also plans to sell dollar bonds at the end of the month, the ongoing trade war is prompting Chinese firms to seek alternative funding sources.
• The Bank of Thailand cut its benchmark interest rate for the second time in three months and said it will ease rules on outflows to curb a surging currency. Five of the seven Monetary Policy Committee members voted to cut the key rate by a quarter-percentage point to 1.25%, the central bank said in a statement. That matches a record low and was in line with the forecasts of 16 of the 26 economists in a Bloomberg survey.
• Petroleo Brasileiro SA, Exxon Mobil Corp. and Chinese companies Cnooc Ltd. and CNODC have been weighing a joint bid for Buzios, the largest Brazilian oil field slated for auction on Wednesday, according to people familiar with the matter. Brazil is holding what may be the world’s priciest-ever sale of oil prospects. The auction is due to start at 10 a.m. in Rio de Janeiro. Exxon is among the companies signed up to bid for four deep-water areas known as the transfer-of-rights reserves.
• Masayoshi Son is finally disclosing the damage from SoftBank Group Corp.’s bets on WeWork and Uber Technologies Inc. The Japanese investment powerhouse on Wednesday reported its first quarterly operating loss in 14 years — about $6.5 billion –after writing down the value of a string of marquee investments. It swallowed a charge of 497.7 billion yen ($4.6 billion) for WeWork, whose spectacular implosion turned the once high-flying shared-office startup into a Silicon Valley punchline.
• CVS Health Corp. raised its 2019 profit forecast after the reporting strong results across its pharmacy services, health insurance and drugstore segments for the third quarter. After beating analysts’ estimates, CVS said its 2019 adjusted earnings will be to $6.97 to $7.05 a share, up from $6.89 to $7.00.
• Taylor Morrison Home Corp. agreed to buy William Lyon Homes for about $2.4 billion including debt, creating the nation’s fifth-largest home builder. “The combined business provides the unique opportunity to gain increased local scale and expertise within six of our major markets, while expanding Taylor Morrison into Washington, Oregon and Nevada,” Taylor Morrison Chief Executive Officer Sheryl Palmer said in a statement Wednesday. Taylor Morrison, based in Scottsdale, Arizona, will pay $2.50 in cash and 0.8 shares of its own common stock, valuing William Lyon at $21.45, according to the statement. That’s almost 17% higher than the closing price on Tuesday.
• JPMorgan Chase & Co. has long feared that technology giants will act more and more like banks. The firm’s surprising solution: help them do it. The bank has spent the last year developing an e-wallet tailored for companies such as Airbnb, Lyft Inc. and Amazon.com Inc. that it says could help online marketplaces and companies in the gig economy defend against getting cut out of the businesses they helped create. In the process, they’ll look a little more like banks. The JPMorgan product would give tech companies the ability to provide millions of customers virtual bank accounts and to offer perks such as car loans or discounts on home rentals to those who keep money stashed there. The more customers use their virtual accounts to pay for services, the less the companies would have to spend on payment-processing fees to third parties such as JPMorgan.

*All sources from Bloomberg unless otherwise specified