April 26th, 2018
Daily Market Commentary
- Bears feasting in Canada’s government bond market may be getting a little too greedy. Yields on two-year and five-year government debt have reached the highest since 2011, surging 120 basis points since June. That mirrors a rise in 10-year U.S. Treasury yields which pushed past the 3 percent barrier for the first time since 2014 this week. But Canada is no U.S., where economic growth is forecast to be stronger this year amid corporate tax cuts and increased fiscal spending. Growth in Canada is poised to slow markedly from 2017 and that may push investors to reassess their views for interest-rate increases in the world’s 10th biggest economy, according to Sun Life Investment Management and Toronto-Dominion Bank.
- Alberta’s beleaguered oil industry may get some relief from its persistent shipping bottlenecks in the second half of the year as producers strike deals with rail companies to move more crude. Oil producers and railroads have room to strike deals that will make economic sense for both parties, Cenovus Energy Inc. Chief Executive Officer Alex Pourbaix said. The rail providers already are hiring and training crews and reactivating locomotives to help boost their crude-shipping capacity, said Keith Chiasson, head of the company’s downstream operations.
- European stocks advanced and their peers in Asia erased a decline as investors digested the latest flood of company earnings. Following a mixed start most national gauges in Europe turned positive, pushing the Stoxx Europe 600 Index into the green and toward its first advance in three days.
- U.S. equity futures pointed to a higher open, while in Asia shares in Korea and Japan rose as those in China and Hong Kong fell. With the earnings season in full swing, investors are confronting the question of whether global equities will be able to cope with higher interest rates. Signs of optimism from Facebook Inc. and Samsung Electronics Co. are offsetting pockets of concern around technology and industrial companies that have weighed on stocks this month.
- Solid earnings from technology companies buoyed sentiment in a mixed day of trade among Asian stocks. The MSCI Asia Pacific Index dropped 0.1 percent to 171.77 as of 4:43 p.m. in Hong Kong. Samsung Electronics Co. sent the South Korean benchmark 1.1 percent higher after its earnings exceeded estimates on booming exports of memory chips. Japanese stocks rose, fueled by a weaker yen and a rally in electronics and auto-related stocks.
- Oil held near $68 a barrel as President Donald Trump’s potential exit from the Iran nuclear deal increased concern over Middle East supplies, overshadowing expanding U.S. crude output and stockpiles. Futures were little changed in New York after climbing 0.5 percent Wednesday. French President Emmanuel Macron predicted Trump will pull out of the Iran accord. A revival of sanctions is expected to cut oil exports from the third-largest OPEC producer. Meanwhile, investors largely shrugged off a government report showing record American crude production and a surprise build in nationwide inventories.
- Gold holds drop after dollar strengthened to 3-month high and Treasury prices extended losses.
- Ford Motor Co. is sharpening its knives to cleave another $11.5 billion from spending plans and cut several sedans, including the Fusion and Taurus, from its lineup to more quickly reach an elusive profit target. The automaker expects to save $25.5 billion by 2022, Chief Financial Officer Bob Shanks told reporters Wednesday as Ford reported first-quarter earnings per share and revenue that beat estimates. The company now anticipates reaching an 8 percent profit margin by 2020, two years ahead of schedule.
- General Motors Co.’s hot-selling new crossovers are padding profit for the largest U.S. automaker amid a costly transition in its truck factories. Adjusted earnings fell to $1.43 a share in the first quarter, beating analysts’ average estimate for $1.24. The Chevrolet Equinox and GMC Terrain drove better-than-expected revenue and buoyed GM through downtime at pickup factories that shut down early this year for retooling to build redesigned pickup models.
- Facebook Inc.’s message for investors is clear: the business is healthy and growing. In its first-quarter earnings report, the social network said revenue jumped 49 percent, beating analysts’ estimates, as the digital-advertising business charged ahead. While Facebook is spending to fix big problems like election manipulation and privacy — issues that have dealt blows to the company’s image — “we’re going to invest even more in building the experiences that bring people together on Facebook in the first place,” Chief Executive Officer Mark Zuckerberg said on a conference call Wednesday.
- Deutsche Bank AG is abandoning its ambitions to be a top global securities firm as it embarks on possibly the most sweeping overhaul yet of its struggling investment bank. Germany’s largest lender will scale back U.S. rates sales and trading, reduce the corporate finance business in the U.S. and Asia, and review its global equities business with a view toward cutting it back, the bank said in a statement Thursday. The measures will lead to a “significant reduction” in the 97,130-person workforce this year, Deutsche Bank said.
- Success in PepsiCo Inc.’s snack division is making up for a still-fizzling beverage unit. The company posted sales and earnings that beat analysts’ estimates in the first quarter, buoyed by increased volumes of Frito-Lay chips as the drinks business continued to struggle. PepsiCo, like rival Coca-Cola Co., has focused on introducing new, innovative drinks and products. But it was food brands that drove gains in the quarter. The company previously said it had shifted its spending too far in the direction of upstarts and away from its biggest names, so it has since refocused attention on its most recognizable labels. That strategy will bear fruit later in the year, according to Chief Executive Officer Indra Nooyi.
- News of a broad U.S. investigation of Huawei Technologies Co. over possible Iran sanctions violations adds to the tension over trade as senior U.S. officials head to China in the coming days in hopes of a deal. U.S. Treasury Secretary Steven Mnuchin, who’s expected to be accompanied by U.S. Trade Representative Robert Lighthizer, will be arriving in Beijing seeking an accord that would keep the U.S. from imposing tariffs on as much as $150 billion in Chinese imports. China has vowed to retaliate with duties on everything from U.S. soybeans to airplanes.
- China is considering proposals to slash import duty on passenger cars by about half, a move that’s set to give a lift to luxury-auto makers such as BMW AG and Toyota Motor Corp.’s Lexus unit, according to people with direct knowledge of the matter. The State Council, or China’s cabinet, is weighing plans to reduce the 25 percent levy that’s been in place for more than a decade — and a contentious issue for automakers seeking greater access to the biggest automobile market — to 10 percent or 15 percent, said the people, who asked not to be identified as the deliberations are private. An announcement of a decision could be made as early as next month, the people said, as President Xi Jinping delivers on a promise to open the country’s automobile industry to greater competition.
- The Jordan Atomic Energy Commission is in “advanced” talks with China National Nuclear Corp. to build the kingdom’s first nuclear reactor at a cost of $1 billion, according to the chairman of the Middle Eastern government agency. An agreement on the proposed 220-megawatt reactor is planned to be signed next year, with operations to start in 2025, Chairman Khaled Toukan said Wednesday in an interview. Local banks have expressed interest to finance the plant, which will use helium for cooling, he said.
- Operating profit at Nippon Steel & Sumitomo Metal Corp., Japan’s biggest mill, missed estimates for the year through March and the company’s shares fell the most in a month in Tokyo. Income at the operating level was 182.4 billion yen ($1.7 billion), below the 215.5 billion yen seen by analysts, according to a company statement. That was still up 60 percent on year and the best number since 2015, reflecting rising prices and dwindling Chinese shipments. The stock closed 2.7 percent lower.
- TPG’s Rise Fund has enlisted former U.S. Secretary of State John Kerry as a senior adviser, bolstering its credibility as the fund sets out to prove that financial returns and social good can go hand-in-hand. Kerry said he will help identify investments and advise portfolio companies across Rise’s various sectors, with a focus on renewable energy opportunities. Foreign policy and economic policy are closely linked, and businesses that can empower people with job opportunities, create better access to health care and education, and develop more sustainable energy and infrastructure systems are essential to social stability, he said in an interview that included TPG Growth managing partner Bill McGlashan.
- The U.S. looks likely to overtake Saudi Arabia to become the world’s biggest oil exporter next year, according to Citigroup Inc. With American production surging to unprecedented levels as OPEC continues curbing output, the U.S. is on course to be the top exporter of crude and oil products in 2019, Citigroup said in an April 25 note. American exports of crude oil and petroleum products rose to a record 8.3 million barrels a day last week, according to U.S. government data on Wednesday. That compares with top exporter Saudi Arabia’s 9.3 million barrels a day in January, and Russia’s shipments of 7.4 million barrels a day, the bank said.
- Fiat Chrysler Automobiles NV cut its net industrial debt by 45 percent in the first quarter, bringing Chief Executive Officer Sergio Marchionne close to eliminating obligations outright as he prepares to step down from the carmaker. Net industrial debt as of March 31 unexpectedly narrowed to 1.31 billion euros ($1.6 billion), the Italian-American carmaker said Thursday in an emailed statement. Fiat Chrysler made progress on the goal despite the cost of launching a new Jeep Wrangler and currency-rate headwinds that led earnings before interest and taxes to slightly miss analysts’ estimates of 1.61 billion euros.
- Japan’s biggest bank has been accused by New York officials of dodging tough oversight by swapping its state license for a federal one, putting itself under a U.S. agency on the front lines of President Donald Trump’s push to ease financial rules. The November move by Mitsubishi UFJ Financial Group Inc. is now drawing scrutiny from a key U.S. Senate investigative panel known for its post-crisis probes into Goldman Sachs Group Inc. and other financial firms, said a person with knowledge of the matter.
- United Parcel Service Inc.’s plan to cash in on surging e-commerce is running into a snag: higher costs in its crucial domestic package business. The U.S. unit earned 7.4 cents for every dollar of sales in the first quarter, compared with about 10 cents a year ago, UPS said in a statement Thursday. The declining profit margin shows UPS’s struggle to reduce the costs of home deliveries, which are challenging the company’s trademark efficiency because drivers typically handle fewer parcels per stop.
- Southwest Airlines Co. warned that bookings have decreased after its first passenger fatality. Revenue from each seat flown a mile, a proxy for pricing power, will drop 1 percent to 3 percent in the current quarter, the discount carrier said in a statement Thursday. Southwest blamed as much as two percentage points of the decline on a drop in sales after an accident April 17 in which an engine exploded, killing a passenger.
- BGI Genomics Co., the listed arm of the world’s biggest DNA-sequencing group, is seeking to raise about $1 billion selling a stake in its equipment unit ahead of a planned initial public offering of the business, people with knowledge of the matter said. The company is working with advisers to reach out to potential investors, according to the people, who asked not to be identified because the information is private. BGI, based in the southern Chinese city of Shenzhen, aims to complete the fundraising this year and list the business in 2019, one of the people said.
- Zurich Insurance Group AG is working with advisers to cut its stake in its Malaysian life insurance unit, people with knowledge of the matter said, joining a wave of foreign players planning over $2 billion of such deals in the country. The Swiss insurer is considering options including a possible stake sale or domestic initial public offering of the business, which would help it comply with a 70 percent limit on foreign ownership, according to the people. The sale of a 30 percent stake in Zurich’s Malaysian life unit could fetch about $100 million, one of the people said, asking not to be identified because the information is private.
- Former dealmakers at Macquarie Group Ltd. and TPG Capital launched a A$4.11 billion ($3.1 billion) takeover offer for Healthscope Ltd., swooping on the Australian hospital operator after a share-price slide. Private-equity firm BGH Capital and investors including AustralianSuper and Ontario Teachers’ Pension Plan Board offered A$2.36 a share in cash, Healthscope said in a statement Thursday. That’s 16 percent more than the stock’s most recent close on April 24. Healthscope said it’s assessing the offer.
*All sources from Bloomberg unless otherwise specified