By MacNicol & Associates In Morning Notes
April 3rd, 2018
Daily Market Commentary
- Canadian stocks tumbled on the first trading day of the second quarter as retaliatory tariffs from China renewed fears of a trade war, sending oil prices down the most in nearly two months. The S&P/TSX Composite Index lost 154 points or 1 percent to 15,213.45, adding to the first quarter’s 5.2 percent slump. Energy shares fell 2.1 percent as crude prices tumbled 3 percent. Trade tensions pushed investors to sell risky assets.
- The Trump administration is pushing for a preliminary Nafta deal to announce at a summit in Peru next week, and will host cabinet ministers in Washington to try to achieve a breakthrough, according to three people familiar with the talks. The White House wants leaders from Canada and Mexico to join in unveiling the broad outlines of an updated pact at the Summit of the Americas that begins April 13, while technical talks to hammer out the finer details and legal text could continue, according to the people. They asked not to be identified because the talks are private.
- European shares headed for their first drop in four sessions as a continued slump in U.S. technology giants curbed risk appetite. The Stoxx 600 fell 0.5% as regional markets re-opened after the Easter break.
- The VIX jumped on Monday while U.S. stocks sank as concerns over rising U.S.-China trade tensions as well as Trump’s attack on Amazon.com battered equities, especially technology shares that had led the bull run over the past few years. The S&P 500 closed at a seven-week low of 2,581.88 on Monday, below its 200-DMA.
- Asian shares dropped for the second day, as technology companies led declines following a U.S. sell-off. The MSCI Asia Pacific Index slipped less than 0.1 percent to 172.43 as of 4:34 p.m. in Hong Kong after paring a 0.5 percent loss. Japan’s Topix retreated 0.3 percent after the yen strengthened against the dollar. Hong Kong’s Hang Seng Index added 0.3 percent, while South Korea’s Kospi gauge lost 0.1 percent.
- Oil recovered slightly after Monday’s selloff, but remained near a two-week low on concerns about an escalating trade war between China and the U.S. Futures added 0.7 percent in New York after losing 3 percent on Monday. China imposed retaliatory tariffs on U.S. goods valued at about $3 billion, the latest move in a trade dispute between the world’s largest economies that’s spurring investors to shy away from riskier assets. Meanwhile, American crude stockpiles are forecast to have risen for the fifth time in six weeks.
- Gold falls as rising U.S. equities futures help to calm risk-off sentiment following Monday stocks rout.
- Euro-area manufacturing expanded at the weakest pace in eight months in March as factories delayed production due to increasing capacity constraints. A Purchasing Managers’ Index dropped to 56.6 from 58.6 — in line with a previous flash estimate — IHS Markit said on Tuesday. Activity slowed across countries and industries in the region but remained indicative of solid growth nonetheless, it said.
- Walt Disney Co. offered to buy Sky News to help Rupert Murdoch’s 21st Century Fox Inc. win over U.K. regulators reviewing Fox’s 11.7 billion-pound ($16.5 billion) acquisition of broadcaster Sky Plc. Disney is interested in acquiring Sky News regardless of whether its larger $52.4 billion takeover of most of Fox goes through, guaranteeing the editorial independence of the operation, Fox said in a submission to the U.K.’s Competition and Markets Authority. Alternatively, New York-based Fox could set up Sky News as a separate company with independent governance to ensure its journalistic integrity, the filing shows.
- The titans of Detroit’s auto industry met with President Donald Trump four days after he took office and warned that jobs could be lost if the emission limits enacted by his predecessor weren’t made more flexible. On Monday, the Trump administration responded by agreeing to revise the Obama administration standards — but in a way that may backfire on the automakers. In announcing the decision, Environmental Protection Agency Administrator Scott Pruitt included a tacit threat that the federal government might no longer go along with California’s smog-fighting policies. That could lead to pollution rules that vary state-by-state, greatly complicating life for the people making the cars.
- General Motors Co. will end a 25-year-long practice of disclosing monthly vehicle-sales results and shift to quarterly reporting, complicating investors’ efforts to gauge the health of the U.S. auto market. “Thirty days is not enough time to separate real sales trends from short-term fluctuations in a very dynamic, highly competitive market,” Kurt McNeil, U.S. vice president of sales operations, said in a statement Tuesday. GM stopped holding a monthly conference call with analysts and media in January 2014 and discontinued releases of monthly production figures months earlier.
- Trains and planes were canceled across France as unions pushed forward with protests against President Emmanuel Macron’s plans to strip benefits from some state workers. A strike at railway operator SNCF began Monday evening and will run through Thursday morning, with only one in every eight long-distance trains running and one-in-five shorter regional trips due to depart on Tuesday. Roughly half of RER commuter trains to Paris are running. Eurostar, which runs service between London and Paris, canceled five trains today in each direction, or about one-third of the trains it would run on a normal Tuesday.
- Yet another corporate headache has landed on U.K. Prime Minister Theresa May’s lap in the shape of Melrose Industries Plc’s hostile 8.1 billion pound ($11.4 billion) takeover of government contractor GKN Plc. For a Conservative leader, she is viewed as anti-business, and in spite of her rhetoric about guarding the national interest, she hasn’t acted on her words. In a blow to May’s efforts to show that the country is open to business after Brexit, Unilever Plc last month picked Rotterdam over London for its corporate headquarters. The U.K.’s weaker takeover rules make its companies easier targets than Dutch ones.
- China’s biggest lenders are increasingly using short-term financing to meet demand for loans, in a development that could push up money-market rates. The banks are rushing to sell negotiable certificates of deposit, an instrument that sounds like a saving account but is actually more like a bond. Issuance of these by the five largest lenders more than doubled to 424 billion yuan ($68 billion) in the first quarter from a previous record in the three months ended Sept. 30, according to data compiled by Bloomberg.
- Swiss commodity trader Mercuria Energy Group Ltd. is getting in on a bid for Harbour Energy Ltd.’s offer for Santos Ltd. The company pledged “substantial equity funding” for the A$13.5 billion ($10.3 billion) takeover offer for the Australian energy producer, according to Linda Cook, chief executive officer of U.S.-based Harbour, who declined to be more specific. The Australian Financial Review reported Mercuria was investing A$500 million. A Mercuria spokesman didn’t immediately respond to an email seeking comment.
- Japan’s Tokyo Gas Co. is going abroad to Southeast Asia bearing enticements in addition to liquefied natural gas as its faces faltering growth at home. The company, one of the world’s biggest buyers of the supercooled fuel, is targeting Vietnam, Indonesia and the Philippines to sell cargoes as well as services such as building relatively cheaper floating storage and regasification units, according to a top official. That’s as consumption is forecast to boom in Southeast Asia at a time when it shrinks in Japan.
- China will respond to any tariffs imposed by the U.S. against alleged violations of intellectual property rights with the same proportion, scale and intensity, said its U.S. ambassador Cui Tiankai. Cui’s comments, in an interview with state-run CGTN English news channel Tuesday, are the first to indicate that China will retaliate on a scale that matches U.S. plans for additional duties on Chinese imports. The U.S. is readying duties on $50 billion of Chinese products as punishment for what Washington sees as widespread violations of intellectual property rights. U.S. Trade Representative Robert Lighthizer has until Friday to propose a list of Chinese products to be targeted to compensate for what he said was harm caused to the U.S. economy by China’s policies.
- JSW Steel Ltd., India’s largest producer of the metal, joined a consortium led by VTB Capital in a fresh bid for Essar Steel India Ltd. The investor group submitted a joint offer for Essar Steel by the April 2 deadline, the Sajjan Jindal-led company said in a statement. ArcelorMittal also submitted a fresh bid for the insolvent Indian company, after its lenders rejected an earlier round of offers last month. Vedanta Ltd. has bid for the asset too, people with knowledge of the matter said.
- Home sales in Manhattan plunged by the most since the recession as buyers at all price levels drove hard bargains and were in no rush to close deals. Sales of all condos and co-ops fell 25 percent in the first quarter from a year earlier to 2,180, according to a report Tuesday by appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate. It was the biggest annual decline since the second quarter of 2009, when Manhattan’s property market froze in the wake of Lehman Brothers Holdings Inc.’s bankruptcy filing and the global financial crisis that followed.
- Kainos Capital LP, a Dallas-based buyout firm focused on the food and consumer industries, is exploring a sale of a natural meat-preservatives company that could fetch as much as $600 million, according to people with knowledge of the situation. The potential disposal of Florida Food Products LLC follows rapid growth in demand for the company’s vegetable-based preservative to replace artificial chemicals used in foods like ham and sausages, said the people, who asked not to be identified as the matter is private. Kainos has hired Houlihan Lokey to advise on a possible sale of the asset, they said.
- Australia’s central bank left interest rates unchanged, with Governor Philip Lowe instead turning the spotlight abroad to rising U.S. funding costs that could hurt local borrowers. Lowe and his board kept the cash rate at a record-low 1.5 percent for a 20th straight month Tuesday, with markets and economists expecting no change in policy until next year. He signaled increasing concerns at the reverberations from President Donald Trump’s policies amid the U.S.’s growing trade spat with China and a recent surge in short-term money market rates at home.
*All sources from Bloomberg unless otherwise specified