April 27th, 2018
Daily Market Commentary
- The U.S. and its Nafta partners are stepping up efforts to reach a tentative deal in the coming days — with one Mexican minister saying a pact is “reasonably close” while the U.S. prepares for talks with China. U.S. Trade Representative Robert Lighthizer met for a third straight day Thursday with Canadian Foreign Affairs Minister Chrystia Freeland and Mexican Economy Minister Ildefonso Guajardo, with talks resuming Friday. Freeland on Thursday noted “significant progress’’ on the key issue of rules for cars, while Guajardo cautioned they are juggling many “highly complex” issues.
- A survey of Crescent Point Energy Corp. shareholders conducted early this year indicates the Canadian oil and gas producer was ripe for an activist before Cation Capital Inc. launched its battle for board seats. Consulting firm Brendan Wood International, which polled the majority of Crescent Point’s institutional shareholders, found an overwhelming interest among them to replace not only the majority of the board but also Chief Executive Officer Scott Saxberg.
- European stocks hold steady as traders assess an onslaught of profit updates and a historic meeting between the leaders of North and South Korea. The Stoxx 600 is little changed, heading for its longest streak of consecutive weekly gains since October 2017.
- U.S. stock index futures edge lower with contracts on the Dow Jones Industrial Average dropping the most after equities rallied Thursday. Investor sentiment is moderating after the S&P 500 Index climbed 1% Thursday. Traders will continue to parse earnings reports Friday, with Exxon Mobil and Chevron Corp.
- While China bonds rallied across tenors in April, the performance of five-year government notes is especially eye-catching. The yield on five-year sovereign bonds is set to plunge the most in more than nine years this month, widening its discount to the cost on notes due in a decade to the largest since April 2014. That came even as benchmark 10-year debt is poised for its best month in nearly two years and has outperformed every other government bond in Asia.
- Oil traded near $68 as investors weighed the impact of a potential U.S. pull-out from the Iran nuclear deal and the historic meeting between the leaders of North and South Korea. Futures in New York slipped 0.4 percent, on course for a 0.7 percent drop this week. French President Emmanuel Macron earlier this week predicted President Donald Trump will exit the Iran agreement, while U.S. Defense Secretary Jim Mattis said Thursday a decision on a withdrawal hasn’t been made. North Korean leader Kim Jong Un and South Korean President Moon Jae-in agreed to finally end seven decades of hostile relations this year.
- Gold trades near 5-week low and is poised for second weekly decline after stronger dollar, Treasuries selloff and higher equity markets curb demand for the precious metal.
- Aluminum is heading for its biggest weekly loss since the depths of the financial crisis as the market is buffeted by developments in the unfolding saga of U.S. sanctions against United Co. Rusal. Prices slid 1.3 percent to $2,245 a ton on the London Metal Exchange on Friday, adding to a 9.1 percent weekly loss that’s the biggest since December 2008. Still, aluminum is heading for one of its best months in years, and investors are bracing for further volatility following unprecedented price swings since the sanctions were announced April 6.
- Fujifilm Holdings Corp. said it received a request from Xerox Corp. to renegotiate a $6.1 billion deal that would bring the once-iconic American company under the control of the Japanese office equipment maker. Fujifilm’s January agreement to take over Xerox has been under pressure from activist investors Carl Icahn and Darwin Deason, who combined own about 13 percent of the American photocopy maker and have said the deal “dramatically undervalues” Xerox. Deason is suing to block the transaction, and the case is currently going through New York state court.
- Russia’s central bank put a stop to monetary easing following five consecutive cuts in interest rates after the latest round of U.S. sanctions jolted the ruble and raised risks for inflation. The one-week auction rate was kept at 7.25 percent, according to a statement on Friday. All but three of the 36 economists surveyed by Bloomberg correctly forecast the move, with the rest seeing a reduction of a quarter-percentage point. Policy makers said the potential for rate cuts “shrank somewhat.”
- Sprint Corp. and T-Mobile US Inc. rallied in late trading Thursday on a report that the wireless carriers aim to complete a merger deal as early as next week. The two companies have made progress in negotiating terms and are nearing an agreement, according to Reuters, which cited unnamed people familiar with the situation. The report sent Sprint shares up as much as 9 percent, while T-Mobile climbed 4.1 percent.
- Central banks from Frankfurt to Ottawa appear to be taking a lower gear on the road away from easy monetary policy amid signs some key economies are slowing. The European Central Bank avoided any discussion of its next steps toward ending bond buying and Sweden’s Riks bank pushed back a plan to raise interest rates for the first time in seven years. Just days earlier, the Bank of Canada governor said more work is needed to heal the scars of the crisis.
- The U.K. economy registered its worst performance since the end of 2012 in the first quarter, fueling speculation that the Bank of England will refrain from increasing interest rates next month. The pound fell as investors further pared back bets on a hike in borrowing costs that had been seen as a near-certainty until last week, when Governor Mark Carney first sowed the seeds of doubt on whether his institution would deliver it. The Office for National Statistics said gross domestic product barely rose in the initial three months of 2018, with growth of only 0.1 percent.
- Royal Bank of Scotland Group Plc forged ahead in the first quarter, cutting costs to the lowest in at least five years, indicating the lender is well-positioned to restore dividends once it settles a U.S. misconduct probe. Pretax profit was almost twice analysts’ estimate, largely because the Edinburgh-based bank posted a rare quarter without misconduct charges. Loan impairments also remained modest, while sharp cuts to the bank’s branch network have started to pay off, according to a statement Friday.
- For half a century, Payam’s family hardware firm near Ferdowsi Square has supplied Tehran’s builders with tools — through revolution, war and more recently sanctions. But it has rarely seen times as bad as these. A slump in the value of Iran’s rial currency amid a tense standoff with the U.S. has triggered a chain of events that’s paralyzed money markets and businesses. Payam’s range of Bosch and Karcher products is hardly selling, and suppliers are wary of meeting new orders.
- Banca Monte dei Paschi di Siena SpA’s former chairman and chief executive officer will both go on trial in Milan on charges of false accounting and market manipulation over how they booked deals that their predecessors had used to hide losses. Fabrizio Viola, the former CEO, and Alessandro Profumo were indicted in connection with transactions they accounted for as repurchase agreements instead of derivatives, according to defense lawyers. Profumo is currently CEO of Leonardo SpA, the Italian aerospace and defense conglomerate. The bank itself was also charged and the first hearing was scheduled for July 17, the lawyers said.
- China’s five biggest banks posted the strongest start to a year since 2014 as an economic recovery improved margins and asset quality in the first quarter. Industrial & Commercial Bank of China Ltd., the world’s largest lender by assets, posted a 4 percent increase in quarterly profit. Its closest rivals China Construction Bank Corp., Agricultural Bank of China Ltd., Bank of China Ltd. and Bank of Communications Co. also reported similar growth rates.
- With Bank Indonesia’s intervention and interest rate hike threat having little impact on the currency market, its second line of defense may come into more prominence. The central bank has at least $60 billion in swap facilities under bilateral agreements with Japan, South Korea and Australia and the regional Chiang Mai Initiative Multilateralization Agreement, official data show. It can also tap into International Monetary Fund’s credit line for crisis prevention.
- Big U.S. lenders including Ally Financial Inc. and JPMorgan Chase & Co. boosted car loans in the first quarter as the pace of auto sales picked up and the economy continued to create jobs. Loan originations rose 1.4 percent to $35.3 billion, the highest since the third quarter of 2016, based on the combined results of the biggest lenders, which also include Capital One Financial Corp., Banco Santander SA’s U.S. operations and Wells Fargo & Co. Santander’s loans jumped 17 percent to $6.3 billion to lead the group, while Wells Fargo lagged behind with a 20 percent decline to $4.4 billion.
- China extended the grace period to implement strict new regulations for the country’s asset management industry, following banks’ requests for easier rules and more time to comply. All existing asset management products must now comply by the end of 2020 instead of the original deadline of June 30, 2019, according to final rules published by the People’s Bank of China on Friday. Regulators didn’t relent on their plan to stop financial institutions guaranteeing AMP returns. Regulation of China’s 100 trillion yuan ($16 trillion) asset management industry is vital to government efforts to crack down on financial risks and contain growth in shadow banking products. President Xi Jinping in March merged the nation’s banking and insurance watchdogs and gave their chief a powerful position at the central bank to improve oversight and close loopholes.
- SK Lubricants Co., a unit of South Korea’s biggest refiner, canceled an initial public offering worth as much as $1.4 billion, citing difficulties in getting a satisfactory valuation for the company. The company and its parent firm, Seoul-listed SK Innovation Co., withdrew plans for the IPO Friday. It had aimed to offer 12.8 million shares at 101,000 won to 122,000 won apiece, with the roadshow starting on April 16, pricing of the offering on April 27, and trading to begin in May. SK Innovation’s shares fell as much as 1.8 percent on Friday.
- A decade after American International Group Inc. was pulled from the brink of collapse by a public bailout, a group of its former employees are battling for $100 million in bonuses in what could be the last great payday dispute from the crisis era. The 23 former traders, analysts and managers at the London branch of AIG Management France SA and AIG Financial Products, subsidiaries of the insurance giant, are demanding bonuses they say were promised to them even as the financial crisis unfurled. The two-week trial — which is set to start Monday in London — will once again test how sympathetic the courts are to employees of a company whose actions threatened the stability of the global markets.
- Chinese e-commerce startup Xiaohongshu, or “Little Red Book,” is in early talks to raise at least $200 million at a valuation or more than $2.5 billion to quicken its expansion in a heated e-commerce space, according to people familiar with the matter. The women-focused shopping site co-founded in 2013 by Charlwin Mao is seeking to more than double its valuation since its last round of funding more than two years ago, the people said, requesting not to be named because the matter is private. Its plans are preliminary and the fundraising targets may change, they added.
- Under siege by Elliott Management Corp., Hyundai Motor Co. announced plans to scrap some of its own shares the automaker holds for the first time since 2004, as the activist investor steps up its campaign for better shareholder returns. The company proposes to cancel about 8.5 million of treasury shares worth 960 billion won ($890 million), it said in a regulatory filing Friday. That includes a buyback and cancellation of 400 billion won of those shares. The Seoul-based firm currently holds about 16.8 million of common and preferred stock under the treasury category, or 6.3 percent of the total.
- Daimler AG struck a more upbeat tone, calling for “slightly” higher 2018 earnings, as sales growth of its higher-priced Mercedes-Benz luxury cars like the S-Class coupe helps offset record spending to develop electric vehicles. The change from a flat forecast issued two months ago shows the strategyof pushing powerful and lucrative gas-guzzlers to finance the electric car revolution is paying off. The return-on-sales in the Mercedes unit rose slightly to 9 percent, even as spending on new technology jumped 9.5 percent during the first quarter.
*All sources from Bloomberg unless otherwise specified