October 23rd, 2018
Daily Market Commentary
- For the first time in a decade, Canada’s policy makers are worrying the economy is running too hot instead of too cold. The federal government and Bank of Canada are set to release key reports that will paint a picture of an economy running at full steam, with the jobless rate at near-historic lows, consumer spending and housing holding up in the face of rising interest rates, and businesses starting to invest again. A booming U.S. economy, coupled with averting a trade war with Canada’s biggest trading partner, is only stoking growth. The problem is the Canadian economy is no longer built for speed, given its aging workforce and a long record of business under-investment. This poses a new set of problems for policy makers, in particular how quickly to put the breaks on the expansion before it overheats and what to do about structural issues that limit how much the economy can grow.
- Alberta’s Premier Rachel Notley’s government is looking for ways to increase the volume of crude oil shipped out of Canada by rail amid a worsening pipeline bottleneck. A list of strategies will be released in the next few days, she said at a press conference in Calgary Monday. Notley declined to say what those would include, but said the federal government already intervenes to regulate rail shipments of grain and other commodities and that more rail cars and locomotives need to be ordered. The announcement came as a lack of available space on pipelines out of Western Canada has contributed to record low prices for Canadian crude versus international benchmarks.
- Investors in Aurora Cannabis Inc. and Aphria Inc. are likely to see a surge in volume and higher valuations after the pot stocks list on the New York Stock Exchange, if history is any guide. Edmonton, Alberta-based Aurora begins U.S. trading Tuesday under the ticker ACB, while Leamington, Ontario-based Aphria filed last week to list but has not yet set a date for its trading debut. The listings come at an inauspicious time, as pot stocks have fallen steadily since the day before Canada legalized recreational marijuana last week. The BI Canada Cannabis Competitive Peers index has lost 21 percent since Oct. 16.
- Justin Trudeau is about to impose a carbon tax on provinces that have balked at implementing their own, doubling down on what is set to be a core fight of the next federal election. Trudeau and his environment minister will travel to Toronto on Tuesday to unveil details of their carbon “backstop.” The city is the capital of Canada’s most populous province, whose newly elected government recently canceled a cap-and-trade system. Trudeau has long pledged a national carbon price that would give provinces leeway to design their own system while threatening to force it on holdouts.
- European equities fell, led by banks, as the Italian budget dispute continued to weigh on markets and the global sell-off in stocks resumed. The Stoxx Europe 600 Index declined 1.1 percent, poised for a 7.2 percent drop this month. No sector escaped the red zone on Tuesday. Traders are watching earnings results, with Renault down 3.8 percent after third-quarter revenue declined. Ingenico retreated 4 percent after cutting its full-year guidance in a surprise statement.
- Investor nerves are on full display in the flight to quality beginning to take shape after global equities tried and failed to stem this month’s declines. U.S. growth data later in the week as well as earnings from companies including Amazon, Alphabet, Microsoft and Intel could be key to how far much further the drop will go. In the meantime, uncertainty over the death of a Saudi journalist, Italy’s budget and Brexit are among the factors weighing on sentiment.
- Equities failed to get any reprieve after China announced fresh measuresto ease the funding strains of private companies, as top officials seek to restore confidence in the world’s second-largest economy. The State Council announced it would support bond financing by private firms, and said the central bank will provide funding to facilitate this.
- Oil traded at the lowest level in more than a month after Saudi Arabia reiterated its plan to lift oil output and as tumbling equities weakened sentiment. Futures in New York fell as much as 1.8 percent. Saudi Arabian Energy Minister Khalid Al-Falih said the world’s biggest oil exporter will meet any shortfall in supply as a result of Iranian crude sanctions. Stock markets in Europe and Asia declined alongside U.S. futures as investors flocked to haven assets.
- Gold rose to highest in three months on simmering tensions between the U.S. and Saudi Arabia over the killing of a prominent critic of the kingdom. European stocks slumped alongside U.S. futures to track a rout in Asia as the global equity selloff boosted demand for a haven. Palladium traded near a record as the U.S. planned to pull out of a nuclear weapons pact with Russia, fueling tensions with one of the largest producers at a time when consumers are already scrambling for supplies.
- Japanese shares slumped on Tuesday, marking more than half a trillion dollars lost in market value this year, on growing investor concerns over upcoming corporate earnings and a slowdown in China’s economy. The Topix index tumbled 2.7 percent to its lowest in more than a year, extending its decline this year to 9.2 percent. The Tokyo Stock Exchange’s first section shaved off $529 billion, poised for its worst annual performance since 2011. Technology and chemical companies weighed most heavily on the benchmark gauge ahead of a slew of earnings reports. About 200 Japanese companies are due to report results this week.
- Vladimir Putin’s determination to control the flow of energy to a Russian region cut off from the rest of the country may cost Gazprom PJSCmore than $3 billion — a sum larger than it paid to shareholders this year. The state-run natural-gas supplier is allocating most of the amount for the exclave of Kaliningrad, sandwiched between Poland and Lithuania, in its revised 2018 budget to be discussed by the board Friday, according to documents for the meeting seen by Bloomberg.
- Apple Inc. chip supplier AMS AG and Atos SE plummeted after delivering disappointing forecasts, stunning investors and triggering a selloff in some of Europe’s largest technology stocks. Computer services company Ingenico SA also fell initially after it cited the under-performance of its point-of-sale transactions unit for a cut in full-year profit guidance. The French payments processor has appointed a committee of independent directors to review strategic options for the company. Bloomberg reported in October that Natixis SA was among those exploring a potential combination with the company.
- Citigroup Inc. and JPMorgan Chase & Co. were among international firms that asked their wealth managers to reconsider travel to China, according to people familiar with the matter, as UBS Group AGremoved its curbs. A UBS spokesman said on Tuesday the bank had lifted its own travel restrictions. The moves came after a UBS wealth manager’s departure from China was delayed last week. Julius Baer Group Ltd. also barred trips by its relationship managers.
- Deutsche Lufthansa AG is trying to decide whether to take its first Boeing Co. 787 Dreamliners, or to expand its fleet of Airbus SE’s marquee A350 wide-body jets as it updates its long-range aircraft, according to people familiar with the plans. Lufthansa has requested proposals from both Airbus and Boeing, and is looking to order about 20 jets in a deal that may be finalized in the next few months, said the people, who asked not to be identified as the discussions are private. The campaign to woo an influential blue-chip customer will probably hinge on more than the customary discounts for a deal valued at about $5 billion at list prices.
- China’s central bank plans to give 10 billion yuan ($1.4 billion) to China Bond Insurance Co. to provide credit support for debt sales by private enterprises, according to people familiar with the situation. The money is part of the plan the People’s Bank of China announced late on Monday to support private firms issuing debt. The central bank didn’t provide any details on how the plan would work, its size, or when it would begin. Officials also hadn’t responded to multiple requests for comment.
- The U.S. economy is poised for its best back-to-back quarters of growth since 2014, handing President Donald Trump a $20 trillion talking point just in time for the midterm congressional elections. The report due Friday, the last data before the Nov. 6 vote, will show gross domestic product expanded at a 3.4 percent annualized pace in the July-September period after a 4.2 percent gain in the prior quarter, according to the median estimate of economists surveyed by Bloomberg. Consumer spending and business investment probably drove growth, and inventory accumulation also contributed.
- Bayer AG shares slumped after the German conglomerate failed to persuade a California state judge to set aside a jury’s verdict in the first trial over allegations that its Roundup weed killer causes cancer. The stock fell as much as 8.5 percent in Frankfurt trading, the most since the first jury verdict in the case on Aug. 13, even though the judge on Monday said damages should be slashed to $78.6 million from $289 million. Bayer said it plans to appeal the ruling.
- Johnson & Johnson agreed to buy the shares it doesn’t already own in Japanese skincare products company Ci:z Holdings Co. for 230 billion yen ($2 billion), as the world’s most valuable health-care company seeks to strengthen its presence in the Asian nation. The U.S. company will pay 5,900 yen a share in cash for the remaining stake in Ci:z, J&J said in a statement Tuesday. That represents a 55 percent premium to the Japanese company’s closing price of 3,800 yen in Tokyo. J&J affiliate Cilag GmbH International acquired a 20 percent stake in 2016 as part of a collaboration to distribute Ci:z products outside Japan.
- GAM Holding AG’s assets tumbled by a fifth in its main investment management business as star manager Tim Haywood’s suspension sent investors fleeing across funds, underscoring the challenges for the Swiss money manager as it struggles to stabilize the firm. The shares plunged. The third-quarter numbers provide the first comprehensive account of the fallout at GAM, which on Tuesday reiterated that it’s exploring options to maximize shareholder value. Assets in investment management fell 21 percent from the end of June, to 66.8 billion francs ($67 billion). The company has lost more than half of its market value this year, prompting it to review spending and investment.
- Saudi Arabia signed more than 25 deals ranging from petrochemicals to metals at its signature investment forum, as Turkey added to outrage overshadowing the event by urging the kingdom to hold culprits in the killing of a government critic to account. State-run Saudi Aramco signed 15 of the agreements, including deals with French oil giant Total SA, oil-services provider Halliburton Co. and Hyundai Heavy Industries Co. Commodities trading house Trafigura Group and an affiliate of Riyadh-based Modern Industrial Investment Holding Group announced a joint venture to develop a smelter and refining complex, according to an emailed statement.
- Uber Technologies Inc. said Cameron Poetzscher, a longtime executive in charge of corporate deals, has resigned. His departure, which follows allegations of sexual misconduct, leaves another vacancy in Uber’s finance department as the ride-hailing company races toward an initial public offering targeted for the first half of next year. Poetzscher, a former Goldman Sachs Group Inc. executive, had been accused of misconduct at the San Francisco-based company and was previously disciplined, the Wall Street Journal reported last month. He told the newspaper he had committed an error in judgment and expressed regret. The Journal reported his resignation earlier Monday.
- Full Truck Alliance Group is close to securing as much as $1 billion in new funds to replenish its war chest and jumpstart an expansion into driverless technology, according to people familiar with the matter. China’s biggest online marketplace for long-haul deliveries is in advanced negotiations with new and existing backers including SoftBank Group Corp.and Tencent Holdings Ltd. on a funding that could hike its valuation by as much as 40 percent to $9 billion, the people said, requesting not to be named discussing private deals. But that’s lower than an initial target of $10 billion, reflecting cooling sentiment toward tech companies, the people added.
- Nidec Corp., a Japanese supplier to Apple Inc., and Germany’s Schaeffler AG are among bidders competing for Taiwanese components maker Precision Motion Industries Inc., according to people familiar with the matter. Nidec and Schaeffler are conducting due diligence as they weigh binding offers for the closely held company, the people said, asking not to be identified because the matter is private. The potential sale, which has also attracted buyout firms, could value the Taichung-based firm at more than $1 billion, said the people. No final decisions have been made, and the companies could still decide against pursuing an agreement, the people said.
- Walmart Inc. is extending free two-day shipping next month to millions of third-party products sold over its website, part of the company’s aggressive push to capture online shoppers. The world’s biggest retailer already offers the free service for orders of $35 or more on items it sells directly, which has helped it boost sales and keep pace with Amazon.com Inc. Walmart will also let shoppers drop off returns of third-party items at its 4,700 stores, rather than having to ship them back.
*All sources from Bloomberg unless otherwise specified