April 2nd, 2019

Daily Market Commentary


  • Canadian Headlines
    • Canadian stocks kicked off the second quarter on an upbeat note, gaining the most since mid-February amid a widespread global rally prompted by strong Chinese manufacturing data. The S&P/TSX Composite Index added 0.8 percent to 16,228.06, about 300 points from its record closing high. Consumer discretionary stocks led the way, rising 2.2 percent as Dollarama Inc. jumped 6.1 percent, the most since 2017. The stock has been rising steadily since the discount retailer reported earnings last week.
    • One group of Canadian oil producers is gaining from the output cuts imposed by Alberta: the small explorers. The local wildcatters that pump light crude far from the giant oil-sands mines of northern Alberta are getting a big price boost from the curtailments announced at the start of December, without the headaches. Many of them are exempt from the cuts and they sell most of their oil locally, so they don’t have to worry about a cross-border pipeline bottleneck. The Canadian province ordered the output caps, much like OPEC countries, in a desperate move to ease a supply glut that had storage tanks full and not enough pipeline space to export crude to the U.S. For Precision Drilling Ltd., which helps explorers pump light oil, the price boost from the measure means this winter was much busier than expected.
    • TransAlta Corp. blasted activist investors that are targeting the company, saying they appear to want to push the Canadian electricity generator into a “dead-end” strategy of doubling down on coal-fired power and are making unreasonable demands to receive discounted shares. Mangrove Partners and an entity controlled by C. John Wilder’s Bluescape Energy Partners LLC asked TransAlta to issue Wilder C$150 million ($113 million) of discounted shares as part of a proposed settlement agreement last month. The company said Monday that was “a demand that no board could reasonably accept.”
    • Bank of Canada Governor Stephen Poloz said policy makers will need to keep interest rates stimulative for now to help the economy adjust to lower oil prices and trade uncertainty. In a speech in Iqaluit, the capital of the northern territory of Nunavut, Poloz said the global slowdown, coupled with a housing sector that is taking longer to adjust to tighter mortgage rules and higher rates, means the economy still needs the help of low borrowing costs. The governor expressed confidence the country will emerge from its current soft patch, though he was noncommittal on whether that would prompt him to return to a hiking cycle.

    World Headlines

    • Europe’s stocks were little changed in early trading as U.K. Prime Minister Theresa May prepares to hold five hours of crisis talks on Brexit and European Union governments struggle to reach consensus on a mandate to begin trade talks with the U.S. The Stoxx Europe 600 Index fell 0.1% as of 9:06 a.m. CET, with real estate the top performer among sectors, while healthcare was found in the bottom. Singapore Airlines Ltd. grounded two planes due to a Rolls-Royce Holdings Plc engine issue and the British company’s stock fell 1.5 percent.
    • The global stock rally lost some steam on Tuesday in the wake of a stellar start to the week, and U.S. equity futures drifted as European shares edged up. Treasury yields fell, while the pound weakened after Britain’s parliament once again failed to reach a consensus on Brexit. Contracts on the Dow Jones, Nasdaq and S&P 500 indexes were all little changed ahead of the New York open.
    • The Asian benchmark gauge finished broadly unchanged after Japanese shares reversed modest gains to finish lower, while stocks climbed in Shanghai and Seoul. European sovereign bonds were mixed and the common currency slipped as the dollar advanced against most major peers.
    • Oil climbed to a four-month high in New York as a further retreat in OPEC’s production signaled that global markets are tightening. Futures rose as much as 0.8 percent to the highest level since November. OPEC crude production fell for a fourth month in March as Saudi Arabia forged ahead with cutbacks and as power blackouts in Venezuela further squeezed supplies, a Bloomberg survey showed on Monday. U.S. stockpiles probably declined by 900,000 barrels last week, according to another Bloomberg survey before government figures are published on Wednesday.
    • Gold held a drop below $1,300 an ounce as a rebound in U.S. manufacturing and signs of stabilization in China eased global growth concerns. The U.S. Institute for Supply Management gauge climbed from a two-year low in March, according to data Monday, while China’s manufacturing purchasing managers index posted the biggest rise since 2012. U.S. equities rallied to the highest since October on Monday, crimping demand for haven assets.
    • Iron ore surged toward $90 a ton as a salvo of bullish drivers stokes concern about a global supply squeeze, with Brazil detailing a collapse in exports in March, BHP Group flagging lower output after a cyclone, and analysts queuing up to predict further gains in prices. Futures rallied as much 3 percent in Singapore, extending the biggest quarterly gain since 2016, while the contract in Dalian ended at a two-year high, topping January’s high. In Australia, shares of miners have been in demand, with Rio Tinto Group spiking above A$100 ($71) before ending lower on Tuesday as Fortescue Metals Group Ltd. hit the highest level in more than a decade.
    • Russian billionaire Alexey Mordashov agreed to acquire the biggest stake in Russian retailer Lenta Ltd. from U.S. private equity firm TPG Capital and offered to buy the rest from other shareholders, valuing the company at $1.8 billion. Mordashov’s investment vehicle Severgroup LLC will buy 42 percent of Lenta from TPG and the European Bank for Reconstruction and Development for $729 million, according to a statement. It plans to make an offer to remaining Lenta shareholders at $3.60 per global depositary receipt, a 7 percent premium to Monday’s closing price.
    • The rise of wind power in Texas threatens to erode the long-standing correlation between the price of natural gas and the cost of electricity. Wind has become so central to the state’s power market that lackluster breezes sent West Texas wholesale electricity prices surging to $57.25 a megawatt-hour early Monday, the highest for that time of day in 14 months. That increase came even as gas, which accounts for more than half the state’s generation capacity, was assessed at negative 34 cents per million British thermal units at the Waha Hub in West Texas.
    • Citigroup Inc. is paying 4.9 billion pounds ($6.4 billion) for residential mortgages and unsecured loans from the British government’s bad bank, in a major step to offloading the assets it took on at the peak of the financial crisis. UK Asset Resolution Ltd., the government agency overseeing nationalized lenders, expects to complete the sale of two portfolios within the next few weeks, it said in a statement on Tuesday. Pacific Investment Management Co. is financing the transaction. The British government has previously sold multi-billion-pound portfolios to firms including Blackstone Group LP and Cerberus Capital Management LP. A group led by Barclays Plc agreed to acquire a 5.3 billion-pound mortgage portfolio from UKAR last year.
    • Russia fell short of its oil-output cut under the OPEC+ deal in March even as the country deepened its curbs. The nation’s production at the end of March was 190,000 barrels a day below October levels, Energy Minister Alexander Novak said in a statement on the ministry’s website on Tuesday. That’s smaller than the 228,000 cut pledged in Russia’s deal with allies in the Organization of Petroleum Exporting Countries. Excluding output from production-sharing agreements — projects including international partners such as Exxon Mobil Corp. — Russia’s output was 225,000 barrels a day below October by the end of March, according to the statement. That’s the first time the ministry has mentioned PSAs when assessing the size of its cut and didn’t immediately respond to questions on why its output target should be adjusted in this way.
    • Liquefied natural gas supply will swell further after rising to a record last year, shaking up the rankings of the biggest exporters and creating an unprecedented race for market share. Australia may become the biggest exporter this year, toppling Qatar after in 2018 narrowing the gap with the long-standing leader to just 10 million tons, or the capacity of an average production plant. The U.S., which started its export boom only three years ago, is set to become the third-largest exporter, moving one spot up as new projects start and boost output.
    • Royal Dutch Shell Plc’s position on climate change is misaligned with about half of the trade associations it’s a part of, and the disagreement with one is so severe the company will let its membership lapse next year. The findings were issued in a first-of-its-kind report on whether the company’s association with lobbying groups is undermining its work on climate change. The report is likely to reverberate across the industry, with most of Shell’s peers also members of the same groups and already facing enormous pressure from shareholders to line up their business models with the Paris climate accord.
    • China has named a new chairman for its $941 billion sovereign wealth fund, people with knowledge of the matter said, ending a two-year stretch without a top leader. Peng Chun, the chairman of Bank of Communications Co., was tapped to lead Beijing-based China Investment Corp., the people said. The 57-year-old replaces Ding Xuedong, who left in February 2017 for the State Council. Ju Weimin was named general manager, replacing Tu Guangshao, who’s retiring, the people said, asking not to be named as the appointments aren’t public yet.
    • Tencent Holdings Ltd. is planning to raise around $5 billion through a dollar bond sale on Wednesday, according to people familiar with the matter. China’s social media leader received an issuance quota of $6 billion from China’s National Development and Reform Commission, people who aren’t authorized to speak publicly and asked not to be identified said. Once priced this could become the biggest dollar bond offering in Asia excluding Japan so far this year, according to data compiled by Bloomberg. Tencent declined to comment in an emailed statement.
    • An abrupt surge in Bitcoin sent the world’s most popular cryptocurrency to the highest level since November, jolting the $160 billion market for digital assets after three months of calm. Traders struggled to pinpoint reasons for the rally, though some noted a flood of activity after Bitcoin breached the $4,200 level. The cryptocurrency briefly topped $5,000 and the value of digital assets tracked by CoinMarketCap.com jumped by about $17 billion in less than an hour. Even after paring some of its gain, Bitcoin was trading up 16 percent at $4,773.91 as of 6:38 a.m. in New York. Rival coins Ether, XRP and Litecoin also jumped, as did cryptocurrency-linked stocks including Remixpoint Inc. and CMC Markets Plc.
    • Private equity-owned Sungard Availability Services Capital Inc. is preparing a pre-arranged bankruptcy filing that would reduce its nearly $1.3 billion debt load and hand control to existing lenders in what could be the fastest court restructuring on record. The technology company aims to file for Chapter 11 protection around May 1 with a confirmation hearing the next day, according to people with knowledge of the matter. To speed up the process, Sungard negotiated the terms of a restructuring support agreement with two creditor groups, the majority of whom support the deal, said the people, who asked not to be named because the discussions are private.
    • Theresa May is expected to confront her most senior ministers with the potentially explosive option of delaying Brexit by months, as the U.K. struggles to find a plan for leaving the European Union. The British prime minister will hold five hours of crisis talks with her cabinet Tuesday, with the pro- and anti-Brexit factions in her top team set to clash over the best way forward. According to an official, ministers are likely to be asked to weigh postponing the date for leaving the bloc until potentially year-end or beyond, to allow more time to resolve the deadlock in Parliament.
    • Lyft Inc. closed its second day of trading 4.2 percent below its $72 public offering price, an ominous sign for the stampede of unicorn companies planning to follow the ride-hailing business to the stock markets this year. The IPO has become a test case, not just for rival Uber Technologies Inc., but for a glut of highly valued startups like Pinterest Inc., Postmates Inc.and Slack Technologies Inc. that have signaled plans to list this year. Slack has selected the New York Stock Exchange for a planned direct listing this summer, a person familiar with the matter told Bloomberg.
    • Macquarie Infrastructure and Real Assets Inc. is weighing a sale of Chinese water treatment assets that could fetch as much as $800 million, people with knowledge of the matter said. The unit of Australia’s Macquarie Group is working with advisers on the potential divestments, the people said. The firm will be asking for bid proposals in the coming weeks, said the people, who asked not to be identified because the information is private.
    • KKR & Co. and BlackRock Inc. are seeking to raise a $3 billion loan to fund their purchase of a stake in Abu Dhabi National Oil Co.’spipelines business, according to people with knowledge of the plan. The private equity firms’ special purpose vehicle has reached out to foreign banks for a 23-year facility, which would be one of the largest infrastructure financing deals in the Gulf this year, said the people, asking not to be identified because the information is private. Sumitomo Mitsui Banking Corp. and BNP Paribas SA are among lenders helping arrange the loan, which is expected to get more expensive over time, they said.
    • Walmart Inc. will let customers order groceries by voice through Google’s smart-home assistant, an attempt to counter Amazon.com Inc.’s growing clout in e-commerce. Beginning this month, Walmart shoppers can add items directly to their online shopping carts by saying “Hey Google, talk to Walmart.” Information from prior purchases will help identify the correct brand and size — like whether you drink 1 percent or skim milk without having to specify, according to Tom Ward, Walmart’s senior vice president of digital operations. In a blog post Tuesday, he said customers can tweak their orders at home or from their smartphone while on the go.

*All sources from Bloomberg unless otherwise specified