By MacNicol & Associates In Morning Notes
May 4th, 2018
Daily Market Commentary
- Canadian marijuana producers MedReleaf Corp. and Aurora Cannabis Inc. said they’ve been in discussions amid speculation that the companies may combine. MedReleaf said Thursday in a statement that it’s had talks with companies including Aurora “regarding various alternatives.” Aurora said the same in a separate statement. The Globe and Mail reported Wednesday that MedReleaf has contacted larger companies about a sale and that Aurora was engaged in talks. MedReleaf rose 2.2 percent in Toronto to close at C$22.25, giving it a market capitalization of $2.2 billion. Aurora climbed 0.9 percent to C$8.02 for a valuation of $4.5 billion.
- Manitoba plans to probe the “tragic waste of money” at the Canadian province’s electricity utility, which has carried out C$14 billion ($11 billion) of projects in recent years, the premier said. The government plans to commission a review of Manitoba Hydro projects, which are facing cost overruns and ballooning its debt, Brian Pallister said Thursday in an interview at Bloomberg’s New York office. The decision to reroute the Bipole III transmission line cost taxpayers almost C$1 billion and the plan to construct the Keeyask generating station was made without proper approval processes, he said.
- TransCanada Corp. will take the initial steps of clearing brush in Montana this fall for construction of the highly-contentious Keystone XL pipeline. Construction on the conduit may begin next year, according to a U.S. State Department letter addressed to the Assiniboine and Sioux Tribes obtained by Bloomberg News. The purpose of the letter, dated April 10, was to continue government-to-government communication in order to “avoid, minimize or mitigate” any negative effects of the project.
- European shares rise, led by miners, as investors assess a slew of disappointing bank earnings and await U.S. economic data. Traders will be parsing the U.S. jobs report due later on Friday for clues on the outlook for monetary tightening. HSBC, Societe Generale and BNP Paribas all fell after reporting earnings on Friday.
- U.S. index-futures are slightly lower after U.S.-China trade discussions ended in Beijing with an agreement to keep working toward more progress. Investors await the April jobs report and Alibaba’s fourth-quarter earnings. The dollar edged higher, while the benchmark ten-year Treasury yield extended its decrease.
- Asian equities fell, sending a regional benchmark to its third weekly loss, ahead of the release of jobs and payrolls data that would give a gauge of U.S. economic growth. Japan markets were shut a second day for a holiday. The MSCI Asia Pacific ex-Japan Index retreated for a fourth day, sliding 0.7 percent to 559.33 as of 5 p.m. in Hong Kong, reversing an earlier gain of as much as 0.1 percent as financial, consumer discretionary and energy shares led the retreat. The gauge is poised for a 0.7 percent loss this week. U.S. payroll and jobs data in April are due for release later today, helping investors asses the Fed’s statement Wednesday that noted a weakness in growth in the first quarter.
- Oil traded near $68 a barrel amid growing expectations that U.S. President Donald Trump will withdraw from a nuclear accord with Iran, threatening crude exports from OPEC’s third-largest producer. Futures in New York were little changed this week. Iranian Foreign MinisterMohammad Javad Zarif accused the U.S. of “bullying” businesses into putting off investments in the Middle East nation, days before Trump decides whether to pull out from the accord. A withdrawal would reintroduce sanctions on the Islamic Republic.
- Gold poised for third weekly drop, longest stretch of declines this year, as stronger dollar keeps lock on prices and as investors await monthly U.S. jobs data.
- Two days of U.S.-China trade discussions ended in Beijing with an agreement to keep on talking, and little else. China’s official Xinhua News Agency reported Friday afternoon that both sides reached a consensus on some trade issues while acknowledging major disagreements on some matters. It said they would continue discussions, without providing specifics for when they would start again. Neither side briefed the media, and the U.S. delegation led by Treasury Secretary Steven Mnuchin departed Beijing in the evening.
- Indonesia’s government is open to reviewing its scheduled borrowing this year as a bond selloff deepens in response to rising U.S. yields and a stronger dollar, a Finance Ministry official said. The government has ample liquidity after completing 46 percent of its gross borrowing target by the end of April, granting it the flexibility to manage the remaining debt sale, said Luky Alfirman, director-general for budget financing and risk management at the Finance Ministry. A crisis management protocol will allow the government to repurchase sovereign notes from the secondary market or postpone and stop a scheduled auction if needed, he said.
- The board of Flipkart Online Services Pvt has approved an agreement to sell about 75 percent of the company to a Walmart Inc.-led group for approximately $15 billion, according to people familiar with the matter, an enormous bet by the American retailer on international expansion. Under the proposed deal, SoftBank Group Corp. will sell all of the 20-plus percent stake it holds in Flipkart through an investment fund at a valuation of roughly $20 billion, said the people, asking not to be named because the matter is private. Google-parent Alphabet Inc. is likely to participate in the investment with Walmart, said one of the people. A final close is expected within 10 days, though terms could still change and a deal isn’t certain, they said.
- Lebanon will hold its first parliamentary elections in nine years, a pivotal moment for the country as it tries to ease a crippling debt burden and avoid being dragged deeper into some of the Middle East’s escalating crises. Polls open on Sunday under a new law based on proportional representation that’s meant to more accurately represent Lebanon’s complex sectarian demographics. With few expecting major changes to the delicate balance of power, the post-ballot focus will be on building a cabinet able to carry out measures sought by donors, a complicated task in a country where divisions have stymied reforms for decades.
- Nestle SA is close to a deal to acquire part of Starbucks Corp. that sells coffee and beans at supermarkets, Swiss financial blogInside Paradeplatz reported. An announcement could be made as early as Sunday, the publication reported, citing an unidentified person familiar with the matter. A Nestle representative declined to comment. The unit would give the maker of Nespresso and Nescafe additional global coffee scale after it snapped up smaller hipster brands like Blue Bottle Coffee and Chameleon Cold-Brew last year. It would also be a coup in the U.S., where Nespresso has struggled due to the prevalence of Starbucks and Green Mountain.
- The Brexit transition period will need to be extended potentially for years because any new customs regime will not be ready to come into force in time, according to senior British officials. In what would be a politically explosive decision, the U.K. will have to stay inside the European customs union beyond the transition period’s end date of December 2020 while new border measures are developed, said two people familiar with the Brexit talks. It’s not government policy, but is being discussed by senior officials.
- Newell Brands Inc., having made peace with its activist shareholders, unveiled a new initiative to accelerate its transformation. The plan, released in tandem with first-quarter results, calls for adding Jostens and Pure Fishing to the list of potential divestitures previously announced. Newell also announced Friday a deal to sell the Waddington Group to Carlyle Group LP-backed rival Novolex Holdings LLC for about $2.3 billion. In total, the company aims to sell non-core businesses now making up about 35 percent of its net sales.
- Berkshire Hathaway Inc. bought an additional 75 million shares of Apple Inc., bolstering its stake and backing the iPhone maker’s ability to generate profits, CNBC reported, citing Chairman Warren Buffett. The stock purchase adds to the almost 170 million shares that Berkshire Hathaway already owns and would see it overtake State Street Corp. to become Apple’s third-largest investor, according to data compiled by Bloomberg. The Cupertino, California-based company was already Buffett’s biggest shareholding.
- Indonesia plans to amend a forex swap facility with Japan, its largest trading partner after China, as it seeks to ring-fence the rupiah from further losses amid a selloff in stocks and bonds. Bank Indonesia is seeking to change the terms of agreement with Japan’s Finance Ministry to allow the Southeast Asian nation to draw a part of the $22.8 billion swap facility in yen, Doddy Zulverdi, executive director for international relations at the central bank, told reporters in Jakarta on Friday. The swaps are currently available only in U.S. dollars, he said.
- A period of pre-election political limbo coinciding with an increasingly perilous economic backdrop is prompting predictions that a rally in Pakistan stocks is set for a reversal. The benchmark KSE100 Index will probably fall 10-15 percent in the run-up to elections in July or August, said Muhammad Rameez, the head of international sales at Foundation Securities Pvt. in Karachi. That would wipe out this year’s 10.1 percent gain in local-currency terms, the best performance in Asia.
- John Flint is off to a bumpy start at HSBC Holdings Plc. Costs at Europe’s largest bank rose at a quicker pace than revenue in the first quarter and it took a surprise charge for past misconduct. It also said a $2 billion share buyback would be the only one this year given the “growth opportunities” it currently sees, signaling HSBC plans to reinvest the excess capital it’s generating rather than return it to investors. Some analysts had expected $4 billion or more to be repurchased.
- Elon Musk defended his criticism of two analysts who asked tough questions on Tesla Inc.’s earnings call, saying they were “trying to justify their Tesla short thesis” and were working against the interest of investors. Tesla shares had their biggest drop in more than a month on Thursday after the earnings call, during which the CEO rejected analysts’ questions following another quarter in which the company burned more than $1 billion in cash and pushed back production of its Model Y crossover. Musk said the questions “are so dry,” and turned instead to one from a channel on the YouTube video-streaming service.
- BNP Paribas SA and Societe Generale SA missed out on the trading gains that boosted earnings at some of their U.S. and European rivals in the first quarter, sending their shares tumbling. Trading income at BNP Paribas, the largest French lender, fell 15 percent as a drop in sales from fixed-income, currencies and commodities outweighed a gain in equities, the Paris-based bank said Friday. At Societe Generale, stock and bond trading both dropped.
- Facebook Inc. has been conducting market research in recent weeks to determine whether an ad-free version paid by subscriptions would spur more people to join the social network, according to people familiar with the matter. The company has studied such an option in the past, but now there’s more internal momentum to pursue it in light of Facebook’s recent privacy data scandal, the people said. The plans aren’t solid and may not go forward, according to the people, who asked not to be identified because the discussions are private.
- Chinese medical services provider Jinxin Group is planning to list fertility hospitals through a Hong Kong initial public offering that could raise about $500 million, people with knowledge of the matter said. The business, which is backed by Warburg Pincus, aims to sell shares as soon as this year, according to the people. The Chengdu-based group is working with advisers on the proposed offering, the people said, asking not to be identified because the details are private.
- Thailand’s PTT Exploration & Production Pcl is ready to shell out as much as $1 billion on an overseas petroleum asset this year, and possibly more, as it tries to prop up growth amid falling reserves. The upstream unit of state-controlled PTT Pcl is in talks to purchase a stake in oil, natural gas or liquefied natural gas assets in Southeast Asia and the Middle East, Chief Executive Officer Somporn Vongvuthipornchaisaid in an interview Thursday in Bangkok. One or more deals could be finalized this year, he said.
- Xerox Corp. said its board and management team will stay after a legal settlement with activist shareholders to remove them lapsed, adding uncertainty to a $6.1 billion deal that would see the U.S. company cede control of its operations to Japan’s Fujifilm Holdings Corp. Xerox had just days ago said it struck a deal with Carl Icahn and Darwin Deason, who opposed the Fujifilm takeover in a suit, that would have brought in executives close to Icahn and replace current Chief Executive Officer Jeffrey Jacobson and other board members. The pact would have become effective “upon execution of stipulations discontinuing the Deason litigation with respect to the Xerox defendants,” according to a statement. In the absence of such stipulations, the agreement expired May 3, it said.
*All sources from Bloomberg unless otherwise specified