April 23rd, 2018

 

Daily Market Commentary

 

Canadian Headlines

• Bank of Canada Governor Stephen Poloz is unapologetic about his cautious approach to raising interest rates. He faces constant criticism for stoking debt accumulation with cheap credit. His reluctance to match higher U.S. rates has fueled a drop in the currency. And now there’s a new challenge: Canada’s inflation is rising at the fastest pace in seven years, while at the same time, the jobless rate is at the lowest in four decades and the expansion is running up against capacity.
• Stars Group Inc.’s $4.7-billion purchase of Sky Betting & Gaming turns the online poker giant into a major sports-betting player that could use its strong foothold in Europe to cross the Atlantic if the U.S. market fully opens. The Toronto-based operator of PokerStars, which announced the cash-and-stock deal with CVC Capital Partners and Sky Plc on Saturday, is set to win a significant foothold in the U.K. — the largest regulated gaming market. Sky Betting & Gaming, or SBG, is growing rapidly in online casino games and sports at home and recently expanded to Italy and Germany.
• Senior trade officials from the U.S., Canada and Mexico will meet again in Washington in an intensified push to reach a Nafta agreement in the next few weeks. Talks will pick up on Tuesday, after cabinet-level members vowed on Friday to keep up the momentum following consultations with their technical teams over the weekend. Mexican Economy Minister Ildefonso Guajardo said last week that after seven rounds of talks in as many months, rotating between the three countries, the three sides have entered a concentrated phase where “my negotiating team is practically living in Washington.”

 

 

World Headlines

• European stocks are little changed as the 10-year Treasury yield holds above 2.97% ahead of economic data that may confirm momentum in the euro-area manufacturing sector has peaked. The Stoxx Europe 600 Index drops 0.1%, after posting four straight weeks of gains. UBS Group AG declines after its wealth and asset-management units missed estimates for the first quarter.
• The dollar rallied at the start of a week packed with catalysts, from economic data to new debt supply, as the yield on benchmark U.S. Treasuries climbed toward 3 percent. The yield on the U.S. 10-year note climbed to 2.99 for the first time since 2014 as investors continued to weigh the outlook for international trade and growth. S&P 500 Index futures turned lower.
• Most Japanese equities declined, after the Topix index swung between gains and losses, as the yen weakened against the dollar for a fourth day and following a continued technology stock selloff in the U.S. Electronics makers weighed most on the benchmark for a second day amid global concern that smartphone demand is waning, while banks and insurers boosted the gauge as the Japanese currency traded around the lowest level since Feb. 21. The 10-year U.S. Treasury yield extended gains after rising five basis points Friday to over 2.95 percent.
• Oil held near $68 a barrel as increasing drilling in the U.S. countered price gains driven by OPEC’s plans to continue tightening crude inventories. Futures in New York dropped as much as 0.8 percent after data showed American drillers added five working oil rigs last week, stoking fears over surging U.S. output. The May oil contract gained 1.5 percent last week before expiring Friday as OPEC producers said supply curbs should continue in order to revive investments in oil and gas production.
• Gold declines to a 2-week low as the dollar strengthens and investors assess outlook for global trade and easing geopolitical tensions.
• U.S. Treasury Secretary Steven Mnuchin said he’s considering a trip to China amid a trade dispute with Beijing that finance chiefs warn could derail the global economic upswing. Mnuchin said he’s “cautiously optimistic” of reaching an agreement with China that bridges their differences over trade. “A trip is under consideration,” Mnuchin told reporters on Saturday in Washington at the IMF’s spring meetings. “I’m not going to make a comment on timing, nor do I have anything confirmed.”
• Economic momentum in the euro area kept a steady pace in April after softening earlier in the year, in a sign that growth in the region is set to continue albeit at a slower pace. A composite Purchasing Managers’ Index remained unchanged at 55.2, IHS Markit said on Monday. Economists surveyed by Bloomberg predicted a decline to 54.8. While activity in services picked up, growth in manufacturing slowed to the weakest in more than a year.
• Akorn Inc. shares lost about a third of their value after Fresenius SE walked away from a pending $4.3 billion acquisition of the U.S. maker of generic cancer drugs in response to a probe that found problems with its product-development practices. The German company said its outside experts found “material breaches” of U.S. Food and Drug Administration standards while reviewing Akorn’s operations. Fresenius said it had offered to delay its decision until Akorn had completed its own investigation, but was turned down, setting up a potential legal battle with the U.S. company over the aborted takeover.
• Walmart Inc. is close to finalizing a deal to buy a majority stake in India’s leading e-commerce company for at least $12 billion and may complete the agreement in the next two weeks, according to people familiar with the matter. All the major investors in Flipkart Online Services Pvt are now on board with the Walmart purchase, after an earlier debate over an Amazon.com Inc. acquisition, said the people, asking not to be named because the matter is private. Tiger Global Management will sell nearly all its 20 percent stake in Flipkart, while SoftBank Group Corp. will offload a substantial part of its 20 percent-plus holding, the people said. Walmart will likely end up with 60 percent to 80 percent of Flipkart, valued at about $20 billion, they said.
• CenterPoint Energy Inc. agreed to buy Midwest utility owner Vectren Corp., extending a rollup of mid-sized power and natural gas distributors across the U.S. Vectren holders will get $72 a share in cash from CenterPoint, according to a statement on PR Newswire on Monday. That’s a 9.8 percent premium to Vectren’s closing price of $65.55 on Friday, when it had a market value of $5.44 billion.
• Oil-service contractor Subsea 7 SA offered to buy McDermott International Inc. for $2 billion on the condition it abandon a planned merger with Chicago Bridge & Iron Co. Oslo-listed Subsea 7, which is looking to seize on the downturn in the oil industry to grow and create a global engineering company, swooped in last week with the offer just as McDermott prepares to close its $6 billion acquisition of CB&I. McDermott’s board rejected the bid, but Subsea 7 could be willing to increase the $7-a-share offer, it said in a statement on Monday, pushing for talks between the companies.
• Denmark is planning to build one of the world’s largest offshore wind projects. With a capacity of 800 megawatts, the facility will be capable of producing enough electricity to supply the country’s seven largest cities all year around, Energy Minister Lars Christian Lilleholt said in a tweet. Denmark’s project is larger than the world’s biggest wind farm currently in operation, which is the London Array at 630 megawatts. But it’s not the biggest one being planned, with developers in the U.K. working on at least three offshore wind farms that are expected to be even larger.
• The demise of Toys “R” Us Inc. took a toll on Hasbro Inc., which posted worse-than-expected results in the first quarter. The world’s largest publicly-traded toymaker lost $112.5 million in the quarter, versus a profit of $68.6 million a year earlier, the company said in a statement Monday. That sent the shares down 3.6 percent in early trading. Toys “R” Us, one of Hasbro’s largest customers, filed for bankruptcy in September, had a terrible fourth quarter and then announced the liquidation of several divisions, including the U.S. Toymakers are also dealing with slowing growth, and concerns that the success of making so many products based off an ever-growing slate of kids entertainment is waning.
• Henry Schein Inc. plans to spin off its animal-health unit, following similar moves by bigger players in the drug industry to separate veterinary services from their main businesses. The animal unit will merge with closely held Vets First Choice, creating a business that provides technology and analytics to veterinary practices. Melville, New York-based Henry Schein said in a statement on Monday. The businesses being combined had sales of about $3.6 billion last year, according to the statement.
• A bankrupt power generator’s plea for President Donald Trump to help saving money-losing power plants has drawn opposition from key administration officials, slowing action on the proposal, according to two people familiar with the deliberations. FirstEnergy Solutions Corp. asked the Trump administration last month to immediately declare a grid emergency and guarantee profits for money-losing coal and nuclear power plants — a move the government has generally reserved for times of war and potentially widespread blackouts. The Energy Department has yet to decide on the request, and instead opened a public comment period on the underlying authority.
• Techcombank, the Vietnamese lender backed by Warburg Pincus, and some existing investors are poised to raise about 21 trillion dong ($922 million) in a domestic initial public offering, people with knowledge of the matter said. The bank is planning to price the sale of 164.1 million shares at 128,000 dong each, the top end of a marketed range, said the people, who asked not to be identified because the details are private. It previously offered the shares at 120,000 dong to 128,000 dong apiece, according to terms for the deal obtained by Bloomberg earlier.
• Fifteen months after Donald Trump’s first travel ban set the in-your-face tone for his presidency, the controversy finally comes before the Supreme Court in a showdown over the limits of the president’s power to control who enters the country. In arguments Wednesday, the justices for the first time will directly confront the policy, which in its latest version restricts entry by people from seven countries, five of them predominantly Muslim.
• Telecom Italia SpA and French media-conglomerate Vivendi SA won the latest round against Elliott Management Corp. after a court in Milan delayed the activist investor’s attempt to reshuffle the board at Italy’s former phone monopoly. Judge Elena Riva Crugnola Monday upheld a claim filed by Telecom Italia and Vivendi to block Elliott’s plan to oust six Vivendi-backed directors at the carrier’s April 24 annual general meeting, according to a copy of the ruling obtained by Bloomberg News.
• Elliott Management Corp., which earlier this month announced it bought about $1 billion in shares of units of Hyundai Motor Group, stepped up its pressure on the South Korean conglomerate by making demands ranging from higher dividends to restructuring the group under a holding company. Elliott’s proposals, which include combining Hyundai Motor Co. with Hyundai Mobis Co. and raising dividends to as much as half of net income, have been relayed to the board of Hyundai Motor Group, it said. Group representatives weren’t immediately available to comment.
• Talks to merge three Qatari banks have hit a roadblock as shareholders, which include former Prime Minister Sheikh Hamad bin Jassim Al Thani, disagree on price, according to people with knowledge of the matter. Masraf Al Rayan QSC, Barwa Bank QSC and International Bank of Qatar QSC had reached an initial agreement over pricing late last year that’s since fallen apart, the people said, asking not to be identified because the matter is private. Discussions are currently on hold and it’s not clear if the deal will be revived, the people said.

 

*All sources from Bloomberg unless otherwise specified