April 19th, 2018


Daily Market Commentary


Canadian Headlines

  • Canadian stocks closed at the highest level in four weeks as oil prices climbed to levels not seen since 2014, while the loonie weakened after the Bank of Canada held rates steady. The S&P/TSX Composite Index added 177 points or 1.2 percent to 15,529.97. Energy stocks were the biggest gainers, jumping 2.6 percent as crude prices rose on declines in U.S. stockpiles.
  • The trio of ministers leading Nafta talks meet again in Washington beginning Thursday as they continue to push for a deal in principle within weeks. U.S. Trade Representative Robert Lighthizer will meet Canada’s Chrystia Freeland and Mexico’s Ildefonso Guajardo in sessions Thursday in Washington. Some talks could continue Friday. The sessions come amid the latest technical talks — what Freeland called an “intensive phase” — after the ministers’ last session on April 6.
  • Builders in Toronto’s frenzied condo market are walking away from giant towers they have pre-sold, reflecting a rougher road to profits — and leaving buyers in the lurch. Soaring construction costs and condo values in Canada’s largest city, where prices have surged amid a booming economy and strong immigration, have spurred developers to cancel projects they started when construction was cheaper and pre-sales were less lucrative. Condo prices have increased about 20 percent since February of last year, according to the Canadian Real Estate Association.



World Headlines

  • European stocks are broadly flat after two days of gains as investors consider first-quarter corporate results amid easing trade tensions between the world’s two largest economies. The Stoxx Europe 600 Index falls less than 0.1 percent, still heading for a fourth week of gains. Weir Group jumps as much as 5 percent after the company said it plans to acquire U.S. competitor Esco Corp.
  • Asian stocks gained for a second day as Samsung Electronics Co. led a rally in technology companies, as investors focused on the global growth outlook. The MSCI Asia Pacific Index climbed 0.5 percent to 175.53 as of 4:25 p.m. in Hong Kong. Benchmarks gained across the region except for Vietnam and the Philippines, where the key gauge slid the most on an intraday basis since November 2016, dragged down by SM Investments Corp. and Ayala Land Inc.
  • Oil rallied above $69 a barrel after a surprise drop in U.S. inventories added to signs the market is in balance before a key OPEC meeting. Futures in New York rose as much as 1.2 percent after gaining 2.9 percent in the previous session. Focus is now shifting to whether OPEC and its allies will signal an extension of supply cuts at their meeting on Friday in Saudi Arabia. Total U.S. inventories of crude and fuel dropped below their five-year average for the first time since 2014, government data showed Wednesday.
  • Palladium rises, heading for best winning streak since June, as traders speculated other mining companies could face the ire of the U.S. after sanctions on United Co. Rusal roiled the aluminum market. Gold was steady.
  • U.S. two-year Treasuries haven’t yielded this much over their German counterparts for decades, yet it’s providing little help for the dollar. The explanation for some is that the interest-rate premium is getting canceled out by a Trump discount. Longer-dated U.S. Treasury yields have had record premiums over their German equivalents since late 2014, when the Federal Reserve ended its quantitative easing. More recently, the Fed’s ratcheting up of its policy interest rate has propelled shorter-dated Treasury yields, while the European Central Bank has yet to end its own QE. That’s spurred a record gap for two-year yields, according to data compiled by Bloomberg going back to 1990.
  • U.K. retail sales plunged in March as snow and freezing temperatures kept consumers indoors and disrupted deliveries of stock. The data comes as a fresh blow to the British high street after a year of consumer pullback in the face of rising prices and sluggish wage growth. While pay and inflation data this week show tentative signs that the squeeze may be starting to ease, the weather disruptions have added to the problems facing big-name retailers such as department store Debenhams, which issued a profit warning Thursday amid weaker demand for discretionary items.
  • Procter & Gamble Co. agreed to buy Merck KGaA’s consumer-health business for 3.4 billion euros ($4.2 billion) to bolster growth, betting that vitamins and decongestants can hasten its comeback. The deal gives the maker of Crest toothpaste a stable of products with sales growth of 6 percent in the past two years, double the pace of traditional consumer goods such as razors, diapers and tissues. German drugmaker Merck put the the unit up for sale last year as it pumps money into testing new medicines.
  • Chinese regulators are seeking additional concessions from Qualcomm Inc. before approving its proposed purchase of NXP Semiconductors NV, further complicating the long-delayed deal and possibly adding to trade tensions between China and the U.S. The proposed acquisition would have substantial impact on the technology industry and may have negative affects on the market, a spokesman for China’s Ministry of Commerce said. Bloomberg News reported in March that Mofcom wanted more protection for local companies, which are concerned the combined entity would extend Qualcomm’s patent licensing business into areas like mobile payments and autonomous driving.
  • Takeda Pharmaceutical Co. offered to buy drugmaker Shire Plc for about 42.4 billion pounds ($60 billion), officially kicking off what would be one of the biggest corporate takeovers ever by a Japanese company, Reuters reported. Takeda is said to have offered 46.50 pounds a share for Shire in a deal that would give Japan’s biggest drugmaker a broader global reach. Takeda would gain new assets in gastrointestinal diseases and nervous-system ailments, and key treatments that are in the late stages of testing. The possible offer comes after Shire agreed on Monday to sell its cancer unit to France’s Servier SAS for $2.4 billion.
  • One of Japan’s biggest trading houses will spend 120 billion yen ($1.1 billion) to take a majority stake in convenience store operator FamilyMart UNY Holdings Co. Itochu Corp. will boost its stake to 50.1 percent from about 40.7 percent currently, it said in a statement Thursday. The Tokyo-based company will pay 11,000 yen per share in a tender offer, an 11 percent premium over FamilyMart’s closing price Thursday.
  • Unilever, Nestle SA and other consumer giants are wooing investors with cash rewards as they lose the pricing power that’s historically driven sales growth and predators circle the industry. Unilever, the maker of Hellmann’s mayonnaise and Ben & Jerry’s ice cream, said Thursday that it plans a 6 billion-euro ($7.4 billion) share buyback, while distiller Pernod Ricard SA will boost its dividend. In adopting more shareholder-friendly stances, they’re following Nestle, which is buying back as much as $21 billion of its stock.
  • Procter & Gamble Co. agreed to buy Merck KGaA’s consumer-health business for 3.4 billion euros ($4.2 billion) to bolster growth, betting that vitamins and decongestants can hasten its comeback. The deal gives the maker of Crest toothpaste a stable of products with sales growth of 6 percent in the past two years, double the pace of traditional consumer goods such as razors, diapers and tissues. German drugmaker Merck put the the unit up for sale last year as it pumps money into testing new medicines.
  • It turns out the strengthening yen wasn’t the only thing holding back the Bank of Japan from cutting bond purchases. At least that’s what market watchers say. The currency has dropped almost 3 percent from last month’s high and long-term bond yields have fallen to the lowest level since 2016. Yet a tight auction schedule, newly appointed deputy governors at the central bank, and a bad experience of cutting purchases in January are all conspiring against the BOJ making any imminent move to taper again, analysts say.
  • Weir Group Plc plans to acquire U.S. competitor Esco Corp. at an enterprise value of $1.29 billion as the U.K. industrial-pumps maker adds to its mining-equipment product line in a revamp. The purchase will lead to $30 million in cost savings and help earnings starting in the first year of Esco’s takeover, Glasgow-based Weir said Thursday in a statement. The manufacturer will also sell its Flow Control division as it narrows its business line-up and takes advantage of a revival in its target industries.
  • The Cboe Volatility Index is how Wall Street measures anxiety. Lately it’s the gauge’s own plumbing that’s making people nervous. It’s a recurrent claim — the VIX is rigged. It got a fresh airing Wednesday, when the index swung wildly just as derivatives on it were expiring. Billions of dollars are earned or lost as VIX futures settle. The concern is that owners of those wagers are willing to spend a few million to make them pay off. The suspicions are only that, suspicions. Volatility markets are too complex for easy conclusions to be drawn, and reasonable explanations have been offered for the patterns. But strange-looking outcomes have happened enough on VIX settlement day that the debate keeps being revived.
  • Amazon.com Inc. Chief Executive Officer Jeff Bezos said the e-commerce giant has exceeded 100 million paid Prime subscribers and will continue to invest to meet “ever-rising” customer expectations. Bezos noted the milestone in his annual shareholder letter, published Wednesday. The letter is the founder’s opportunity to underline his long-term strategy for investors, seeking to bolster their confidence as he continues to plow Amazon’s money into expanding internationally, building a brick-and-mortar presence, and inventing new products like Echo speakers and the Alexa voice-activated digital assistant.
  • United Co. Rusal officials met Chinese companies and traders this week to discuss the possibility of buying alumina and selling aluminum in the Asian country as U.S. sanctions freeze out the Russian producer from markets around the world, according to people with knowledge of the talks. Rusal’s delegation in China, which includes senior marketing and sales representatives, is discussing potential options but hasn’t reached any sort of agreement and may not do so, according to the people, who asked not to be identified because the matter is private. Chinese officials were cautious about any sort of deal because of the risk of contravening sanctions, the people said.
  • President Donald Trump said he’ll abandon plans for an unprecedented summit with North Korean leader Kim Jong Un if he decides it won’t be successful — or walk out of the meeting if it’s not productive while he’s there. “If we don’t think it’s going to be successful, we won’t have it,” Trump said at a news conference with Japanese Prime Minister Shinzo Abe on Wednesday. “If I don’t think it’s a meeting that’s going to be fruitful, we won’t go. If the meeting when I’m there is not fruitful, I will respectfully leave the meeting.”
  • Months into the Korean War, President Harry Truman capped wages and imposed price controls on the steel industry, seizing authority under a newly passed law to take action in the name of national defense. Now, more than a half century later, Trump administration officials are considering using the same statute to keep struggling coal and nuclear power plants online, according to four people familiar with the discussions who asked for anonymity to discuss private deliberations.
  • Uber Technologies Inc. has chosen VMware Inc.’s Zane Rowe as the top candidate for chief financial officer to lead preparations for what could be the biggest initial public offering of 2019, people familiar with the matter said. The ride-hailing company is in advanced talks with Rowe, who currently has the same position at VMware, said the people, who asked not to be identified discussing personnel matters. An agreement hasn’t been finalized, and negotiations could fall through, one of the people said.
  • Globalization has brought the most advanced trading networks the world has seen, with the biggest, fastest vessels, robot-operated ports and vast computer databases tracking cargoes. But it all still relies on millions and millions of paper documents. That last throwback to 19th century trade is about to fall. A.P. Moeller-Maersk A/S and other container shipping lines have teamed up with technology companies to upgrade the world’s most complex logistics network.
  • The chaotic shakeup at Deutsche Bank AG sent more aftershocks through the bank’s top ranks as its chief operating officer was ousted and its head of investor relations quit. Chief Operating Officer Kim Hammonds, who reportedly called Deutsche Bank “the most dysfunctional company” she’d ever worked for, will leave “by mutual agreement” at the annual general meeting on May 24, the Frankfurt-based lender said late Wednesday. Earlier, the bank announced that John Andrews, head of investor relations for five years, is leaving because of the recent management changes.
  • Blackstone Group LP just keeps raking in money from investors. Total assets under management in the first quarter jumped to a record $449.6 billion through a combination of fundraising and financial gains, Blackstone said in a statement Thursday. That surpasses the $434.1 billion in assets at the end of last year. Inflows were $18.2 billion in the quarter. Private equity firms are coming off a record year for fundraising. The industry brought in $453 billion globally in 2017, more than the previous high of $414 billion a year earlier, which was the most since the financial crisis, according to Preqin. They’re expected to keep benefiting as investors search for better returns and flee more expensive alternatives such as hedge funds.
  • While $80 oil seemed in the clouds just a year ago, it now looks primed for capture. Technical indicators show that the price Saudi Arabia is said to be aiming for may be within reach, with global benchmark Brent crude already above $74 a barrel. While futures in London have broken past the 50 percent Fibonacci retracement of the slump from when they were above $100 in mid-2014, another signal shows the rally could persist to the line just under $82. Recent corrections in Brent have shown prices hit a speed bump only when the reading on its Relative Strength Index climbs to 75, well past the usual overbought signal of 70. With that measure now at about 68, it points to continued support for crude on its way up.
  • Dominion Energy Inc.’s $7.9 billion takeover of troubled utility-owner Scana Corp. is looking even less likely to happen after a bill passed by South Carolina legislators late Wednesday. The state Senate voted to cut the money Scana can collect from customers for a half-finished nuclear power project the company scrapped last year. Dominion has threatened to call off the merger with Scana should legislators make such a move, and the company reiterated Wednesday that it stands by previous statements. Scana fell as much as 2.6 percent to $36.26 in after-markets trading.


*All sources from Bloomberg unless otherwise specified