November 21st, 2018
Daily Market Commentary
- Justin Trudeau spent a windfall on billions in tax breaks for Canadian businesses. Their response is that he still has work to do. Finance Minister Bill Morneau unveiled a fiscal update Wednesday in Ottawa with C$14 billion ($10.5 billion) in temporary write-offs for capital investment, a pledge to slash red tape, some direct cash for businesses and a push to boost export markets. It was all meant as a bold response to warnings about Canada’s fading competitiveness, particularly after President Donald Trump cut U.S. corporate taxes.
- Canada’s Sun Life Financial Inc. is among suitors vying to acquire FTLife Insurance Co., in a deal that could value the Hong Kong insurer at more than $3 billion, people familiar with the matter said. It is competing with other bidders including the billionaire Cheng family’s Chow Tai Fook (Holding) Ltd., according to the people. Asian alternative asset manager PAG has held talks with investment funds including Singapore sovereign fund GIC Pte about a potential joint offer, the people said, asking not to be identified because the information is private.
- Canada’s biggest labor-sponsored fund is teaming up with Quebec developer Devimco Immobilier and a unit of Fiera Capital Corp. to develop a C$700 million ($528 million) real estate project in downtown Montreal. Called Maestria, the project will have about 1,500 residential units in two towers of 51 and 53 stories each linked by a walkway, according to a statement issued Thursday. It will overlook the site of the Montreal International Jazz Festival.
- European equities resumed declines after yesterday’s short reprieve as technology shares led the retreat along with mining stocks. The Stoxx Europe 600 Index was down 0.3 percent. SAP dropped 0.7 percent. The U.S. stock market is closed today for the Thanksgiving holiday, and global equity trading volumes are set to be below average. European stocks attempted to stage a recovery from a two-year low yesterday as investors assessed the possibility of the U.S. Federal Reserve softening its policy stance. Markets worldwide have been under pressure because of rising U.S. rates and trade tensions with China.
- U.S. equity futures turned lower in a subdued day of trading thanks to the American Thanksgiving holiday. Investor sentiment remains fragile following the volatility that’s rocked markets since October, wiping out many equity gains for the year. Traders are having to contend with the Trump Administration’s trade war, the president’s calls for the Fed to back off from raising rates as well as corporate credit markets playing catch-up to the broader risk sell-off.
- Japanese shares rose as risk appetite got a lift from a report saying that the U.S. Federal Reserve is mulling a pause in its monetary tightening cycle. Telecommunications firms and automakers were among the biggest contributors to the Topix gauge’s advance. The measure briefly fell into negative territory as banking stocks slumped, weighing on the broader market. The Fed is starting to consider a pause to its gradual monetary tightening and could end its cycle of interest rate hikes as early as spring, MNI reported, citing senior people at the central bank.
- Oil fell after a surprisingly large increase in U.S. inventories, while another tweet from Donald Trump calling for lower prices suggested OPEC may reconsider plans to cut production. Futures fell as much as 2 percent in New York after Wednesday’s 2.3 percent jump pared some of the losses from a rout earlier this week. America’s crude inventories rose for a ninth straight week, the longest run of gains since March 2017, according to government data Wednesday. Meanwhile, President Trump thanked Saudi Arabia for lower oil prices in his tweet, adding “let’s go lower!”
- Gold is headed for the highest close in more than 2 weeks amid thin trading, while holdings in exchange-traded funds backed by the metal tick up for a third day to the highest since Aug. 6. Gold trading volumes on Comex are about 34% lower than usual for this time of day with U.S. markets closed for the Thanksgiving holiday Thursday. Global gold mine output growth will pick up over the coming quarters, supported by elevated prices and solid project pipelines in key countries, Fitch Solutions Macro Research said in a report. Fitch sees prices rising to average $1,275/oz in 2018 and $1,400/oz by 2022.
- The U.K. and the European Union have agreed to the final bit of their Brexit deal, setting out a vision for close economic ties in a draft that hands Prime Minister Theresa May some key political wins. EU Council President Donald Tusk said the draft, which was obtained by Bloomberg, had been agreed in principle, pending leaders’ sign off on Sunday. May is briefing her Cabinet and will speak to Parliament later. A U.K. spokesman declined to comment on the text.
- Google said it will roll out new policies in Europe to provide more transparency around political ads, ahead of European Union elections in the spring. The announcement Thursday by the Alphabet Inc. division follows a year of intense global scrutiny over how popular internet services were used to spread misinformation during elections. A lack of disclosure about who pays for political ads has been a particular sore point.
- The Federal Reserve may soon change its communications to ensure future interest rate hikes are accompanied by a more cautious approach toward further increases, according to Morgan Stanley. Volatile financial markets, the deepening trade war and slowing global growth are among the reasons Chairman Jerome Powell and colleagues may soon switch from raising rates on autopilot to feeling their way depending on the strength of the expansion.
- The Department of Justice is formally reviewing antitrust legislation aimed at reining in OPEC’s power over oil markets, according to a department official. While the study is ongoing, there is an understanding that the oil cartel’s efforts to affect crude prices through production quotas has raised costs for American consumers, said the official, who spoke on condition of anonymity. That’s traditionally the type of conduct the Justice Department would frown upon, the person said.
- Nissan Motor Co.’s board voted unanimously to remove Carlos Ghosn as chairman, the NHK reported, as the directors moved to contain the damage from the iconic executive’s shock arrest. The national Japanese broadcaster reported the outcome after the board met Thursday to vote on the dismissal. Ghosn, who has been detained by Japanese authorities since Monday, is set to officially remain a director, since a shareholder vote is needed to remove him from the board completely. A Nissan spokesman declined to comment.
- Crude’s precipitous collapse has caught the attention of Chinese speculators. Trading in the county’s domestic futures on Thursday was the heaviest since the contract was listed in March, with about 265,000 contacts changing hands in nine and a half hours. Prices on the Shanghai International Energy Exchange fell 1 percent in a fourth day of losses and are down 26 percent since their peak in October.
- Trade-reliant Singapore is forecasting weaker demand from key markets in Asia next year, hurting the outlook for economic growth in the city state as the U.S-China tariff war starts to bite. Growth is seen easing to 1.5 percent to 3.5 percent in 2019 from a projected range of 3 percent to 3.5 percent in 2018, the Ministry of Trade and Industry said in a statement on Thursday. Gross domestic product for the third quarter disappointed, rising an annualized 3 percent from the second quarter and 2.2 percent from a year ago, lower than the government initially forecast.
- Country Garden Holdings Co., China’s biggest developer by sales, raised HK$7.83 billion ($1 billion) in a convertible bond sale as it takes on higher-cost funding to push out repayments. The Foshan-based company priced its sale of five-year convertible bonds with a 4.5 percent coupon, according to a Hong Kong exchange filing Thursday. The securities carry a 30 percent conversion premium. The proceeds will be used to help fund a concurrent repurchase of zero-coupon convertible bonds due in January, the filing shows.
- Indonesia has canceled all remaining bond auctions for 2018 thanks to an improved outlook for its budget financing and as a spate of rate hikes stabilized its currency, paving the way for the return of foreign investors. The Finance Ministry scrapped four conventional and Shariah-compliant auctions totaling $1.92 billion, it said in a statement. The decision was taken following better-than-expected revenue collection, said Luky Alfirman, director general of budget financing and risk management at the ministry, in a phone interview.
- Altice Europe NV’s latest earnings shock hands France’s embattled telecom companies another good reason for dealmaking. Shares in billionaire Patrick Drahi’s debt-laden operator slumped as much as 16 percent after it laid bare the heavy price to be paid to win new customers in a fiercely-competitive domestic market. The stock fell the most since August after Altice’s third-quarter sales and profits missed estimates, overshadowing the carrier’s best quarter for customer gains in France since 2005.
- Plasma protein maker Grifols SA is in talks to invest in China’s Shanghai RAAS Blood Products Co. in a transaction that would involve contributing a unit valued at $5 billion in exchange for stock. Under the plan, Barcelona-based Grifols, the world’s largest maker of immunoglobulin, would integrate its U.S. subsidiary Grifols Diagnostic Solutions into Shanghai RAAS in exchange for newly issued shares in the Chinese company. While the talks are a first step to explore a possible agreement, its structure would entail Grifols taking control of Shanghai RAAS, the Spanish company said in an emailed statement.
- China has named the former chairman of Baoshan Iron & Steel Co. as president of rival Ansteel Group Corp., signaling its intention to merge the two parent companies and create a steel giant that would top ArcelorMittal as the world’s largest producer, according to people familiar with the matter. Shares in the groups’ listed units surged. Combining the two would help Baoshan’s parent and the nation’s biggest producer, China Baowu Steel Group Corp., hit its target of 100 million metric tons of annual output by 2021, and the government meet its goal of concentrating 60 percent of production in the hands of its top 10 mills by 2020, said the people, who declined to be identified as the information isn’t public. They didn’t give a time-line for the deal and said the plan could yet be subject to change.
- Aircraft leasing companies are selling the riskiest portion of debt backed by planes for the first time as they seek to raise funds and offload the risk of airlines collapsing. Four companies, led by General Electric Co.’s GECAS, have sold about $500 million of so-called equity tranches since June. The lowest-ranking piece of aircraft securitizations, which is first to take losses if rental income from the planes falls short, was previously retained by the lessors or sold privately. Now, it’s trying to entice investors with yields of almost 20 percent.
- Tesla Inc. lowered the prices of the Model S and Model X in China, seeking to boost sales after the trade war with the U.S. hit demand in the world’s biggest car market. Prices for the models were lowered by 12 percent to 26 percent, the company said in a statement Thursday. The Model S sedan now starts at 782,900 yuan ($113,000) while the Model X sport utility vehicle is priced from 861,800 yuan, according to its website.
*All sources from Bloomberg unless otherwise specified