October 1st, 2018
Daily Market Commentary
- The Canadian dollar reached its strongest level in four months as the nation joined the U.S. and Mexico in a trade deal to replace the North American Free Trade Agreement. The loonie appreciated almost 1 percent to touch C$1.2787 against the greenback, while Mexico’s peso rose for a fourth day. The new trade deal will be called the U.S.-Mexico-Canada Agreement, or USMCA, according to a joint statement from U.S. Trade Representative Robert Lighthizer and Canadian Foreign Affairs Minister Chrystia Freeland.
- In less than 12 hours, Prime Minister Justin Trudeau scored two of the biggest economic wins of his political career. The Canadian leader reached an agreement with President Donald Trump late Sunday to join a new Nafta trade deal with the U.S. and Mexico, ending more than a year of uncertainty for the nation’s businesses. Hours earlier, Bloomberg News reported that a Royal Dutch Shell Plc-led group is poised to announce Monday that it’s moving forward on a C$40 billion ($31 billion) natural gas terminal in Canada, one of the country’s biggest construction projects.
- Royal Dutch Shell Plc and its four partners have agreed to invest in a multibillion-dollar liquefied natural gas project in western Canada — the largest new one of its kind in years that would carve out the fastest route to Asia for North American gas. LNG Canada — comprised of Shell, Malaysia’s Petroliam Nasional Bhd, Mitsubishi Corp., PetroChina Co. and Korea Gas Corp. — is set to announce a final investment decision on the C$40 billion ($31 billion) project as early as Monday, said people with direct knowledge of the plans, who asked not to be identified because the matter isn’t public. The exact timing still hasn’t been decided. PetroChina and Korea Gas announced approvals of their share of the investment on Friday. The others partners declined to comment.
- Husky Energy Inc. made a C$3.3 billion ($2.6 billion) hostile bid for MEG Energy Corp., setting up a battle between the Canadian oil company linked to Hong Kong billionaire Li Ka-shing’s family and Chinese energy giant Cnooc Ltd., a major investor in the targeted oil-sands producer. Husky Chief Executive Officer Rob Peabody says he’s taking the cash and stock proposal directly to shareholders after MEG’s board spurned an earlier offer and that his company remains prepared to speak with directors. There’s a compelling rationale in connecting MEG’s production from northwest Alberta’s oil sands with Husky’s refining system to gain the most value from each barrel of oil, he said.
- European equities opened little changed, as Ryanair slumped the most since 2016 after cutting its earnings outlook and Linde surged after winning approval from China for a merger with Praxair. The Stoxx Europe 600 Index was up less than 0.1 percent at the open. Banking stocks were among the biggest decliners following a report in La Repubblica that the EU commission will reject Italy’s budget proposal in November.
- U.S. stock-index futures held gains as Washington and Canada agreed on a trade deal that would preserve a three-way bloc with Mexico. Tesla’s shares rallied in pre-market trading as investors assessed the implications of Elon Musk’s settlement with federal regulators. Futures contracts on the S&P 500 Index rose as much as 0.6 percent after the underlying gauge fell 0.5 percent last week ahead of last-minute trade negotiations at the weekend. Contracts on the Dow Jones Industrial Average and Nasdaq were both up as much as 0.8 percent.
- Asian shares fell slightly as declines in Australia and Indonesia offset a gain in Japan’s Nikkei 225 Stock Average. The MSCI Asia Pacific Index retreated 0.2 percent to 164.98 as of 4:29 p.m. in Hong Kong on the fourth quarter’s first trading day. Japan’s Topix index closed little changed, while the Nikkei 225 climbed 0.5 percent to a 27-year high. Australia’s S&P/ASX 200 fell 0.6 percent. Indonesia’s Jakarta Composite Index lost 0.5 percent after an earthquake and tsunami hit the island of Sulawesi, killing more than 800 people.
- Oil extended gains in London after the longest quarterly rally in a decade as a slowdown in American drilling added to concern that supply losses around the world will lead to a tight market. Brent crude rose as much as 0.7 percent, after front-month futures climbed for a fifth straight quarter. As concerns over a global crunch due to the loss of Iranian oil mount, President Donald Trump and King Salman bin Abdulaziz of Saudi Arabia discussed efforts to maintain supplies. Meanwhile, the number of working oil rigs in the U.S. dropped for a second week, signaling that American output growth may also be slowing.
- Gold falls after declining a sixth straight month in September, the longest stretch since 1997, as investors weigh the Federal Reserve’s tightening path and an escalating U.S.-China trade war.
- U.S. President Donald Trump is set to sign a successor to the North American Free Trade Agreement that will make modest revisions to a deal he once called a “disaster,” easing uncertainty for companies reliant on tariff-free commerce. U.S. and Canadian negotiators worked around the clock this weekend to secure an agreement just before a Sunday midnight deadline, allowing leaders from those nations and Mexico to sign the accord by late November. The 24-year-old Nafta will now be superseded by the U.S.-Mexico-Canada Agreement, or USMCA, covering a region that trades more than $1 trillion annually.
- Tesla Inc. jumped in pre-market trading after founder Elon Musk settled a lawsuit brought by regulators over his August tweet storm, reassuring investors he’ll still be calling the shots at the electric-car maker struggling to meet production goals. Under the agreement with the U.S. Securities and Exchange Commission, Musk and the company each will pay a $20 million penalty, and Musk will be removed as chairman for at least three years. In suing Musk, the agency had sought to oust him as both chairman and CEO.
- Royal Dutch Shell Plc and Eni SpA, along with their partners in the Karachaganak oil and gas project in Kazakhstan, will pay $1.11 billion in cash to settle a three-year dispute with the government over revenue sharing. The deal resolves a spat over one of the Central Asian nation’s biggest hydrocarbon deposits. The “amicable” settlement, in which the companies also provide a loan to Kazakhstan to build infrastructure and amend the production-sharing agreement, removes all uncertainties about the project’s future, the Energy Ministry said on Monday.
- Ryanair Holdings Plc caught investors off guard by saying labor strife and higher fuel prices are taking a heavier toll on earnings, sending the stock down the most since 2016. The shares plunged Monday after Europe’s biggest discount carrier said profit for the year through next March will be about 12 percent lower than it had forecast less than three weeks ago.
- Danske Bank A/S has appointed Jesper Nielsen from within its ranks to replace Thomas Borgen for the time being, after the chief executive officer was relieved of his duties following his role in one of Europe’s worst money laundering scandals. The European Union is trying to come to grips with the stunning string of revelations surrounding the dirty money saga. Danske’s admission that a large part of about 200 billion euros, or $235 billion, that flowed through a tiny Estonian unit was probably laundered has sent shock waves through Denmark’s parliament, with criminal investigations now under way. The scandal has also triggered a European investigation into Danske’s local regulators.
- Indian sovereign bonds rallied after the central bank said it plans to buy more debt through open-market operations, adding to optimism spurred by the government’s decision to cut its borrowing target on Friday. The yield on benchmark 10-year notes slipped as much as 12 basis points. The Reserve Bank of India will spend as much as 360 billion rupees ($5 billion) on OMO purchases in October, according to a statement released before markets opened on Monday. The central bank said it will buy the securities in the second, third and fourth weeks.
- Pfizer Inc. Chief Executive Officer Ian Read plans to step aside after eight years at the helm, handing over to veteran Albert Bourla at the start of next year. Read, 65, will stay on as executive chairman, the New York-based company said in a statement on Monday. Bourla was recently appointed chief operating officer and has taken on an increasingly prominent role in recent months.
- Casino Guichard-Perrachon SA agreed to sell the real estate underlying 55 of its Monoprix stores for 565 million euros ($655 million), giving the French retailer a much-needed infusion of cash as short sellers circle the company and its main shareholder. The agreement, along with another transaction announced in July, gets Casino halfway to its goal of selling 1.5 billion euros of assets to reduce its borrowings. Shares and bonds of Casino and parent company Rallye SA have fallen this year amid concern about the companies’ debt loads and opaque accounting.
- U.S. buyout firm Varde Partners LP is poised to create a 2.2 billion-euro ($2.5 billion) Spanish home builder in a bet on the nation’s economic recovery. The investment firm’s residential property developer, Via Celere, agreed to acquire the development land owned by Aelca, another Varde unit in the country, the company said in a statement on Monday. Varde will hold 75 percent of Via Celere and retain full control of Aelca. Bloomberg news reported the deal on Sept. 29.
- The U.S. and Canada’s trade deal could spell relief for car manufacturers thousands of miles across the ocean. Toyota Motor Corp. and Honda Motor Co. are among the automakers that would have the most to lose by any additional tariffs, as the Japanese giants build vehicles in Canada for the U.S. market. Those include the RAV4, Toyota’s best-selling sport utility vehicle, which are all shipped to the U.S. from Canada or Japan.
- Honeywell International Inc. CEO Darius Adamczyk won over investors last year with his decision to shrink the company. Now he’s got to convince them he can grow. Adamczyk, after he completes two spinoffs this year, will be facing mounting pressure to find the right acquisitions for his plan to expand sales and reshape Honeywell into a company based more on software. Investors will be scrutinizing the chief executive officer’s first large deal for signals on the direction he intends to take Honeywell, and how aggressive he’s willing to be on price.
- Evidence of the battery-powered era is all around us. Electric vehicles are cruising down our freeways. Household appliances thrum with stored solar energy that was until recently a daytime-only power source. Governments from California to China and South Korea—even Donald Trump’s Washington—have taken steps that will make battery power more ubiquitous. There’s just one hitch to this battery boom: The world isn’t making nearly enough. All of the new demand from North America, Europe and Asia is constrained at the moment by a market that remains heavily dependent on a few producers.
*All sources from Bloomberg unless otherwise specified