April 4th, 2019

Daily Market Commentary


  • Canadian Headlines
    • Canada’s bond market is churning out issues backed by increasingly riskier assets — and yield-starved investors are lapping them up. Recent deals have included debt backed by a variety of assets including mortgages on Hudson’s Bay Co. stores, a junk-rated retailer; consumer loans charging interest rates of as much as 40 percent; and home equity lines of credit. Non-bank mortgage lenders may also soon issue debt, market watchers say.
    • After getting China hooked on canola, Canadian growers of the oilseed are reeling from the Asian giant’s decision to cut imports. They’re standing pat, though, on their production plans. Canola is as Canadian as maple syrup, its name a contraction of “Canada” and “ola.” University of Manitoba and government researchers created the crop in 1974, reducing certain acid levels in the inelegantly-named rapeseed plant to make the oil edible for humans and the meal edible for animals. Since then, canola has become a staple in Chinese kitchens and feed lots, generating about C$26.7 billion ($20 billion) a year for Canada. Last month, the Asian nation cut imports, blaming pests found in Canadian shipments. Now farmers face a tough call: Plant the same amount, or cut back.
    • A Canadian trade tribunal is recommending that Prime Minister Justin Trudeau’s government claw back steel tariffs imposed to contain fallout from Donald Trump’s own levies. In a decision published Wednesday, the Canadian International Trade Tribunal recommended tariff rate quotas on two types of steel — heavy plate and stainless steel wire — among seven that the government had already applied provisional levies to. On the five other products, it either found no spike in imports or found that Canadian producers hadn’t been harmed.

    World Headlines

    • European equities dipped, weighed by a fall among basic resources and oil stocks, though Germany’s Commerzbank AG was a bright spot as deal speculation came back in focus. The Stoxx Europe 600 index was down 0.3 percent, set to end a four-day winning streak. Economic data showing a surprise plunge in German factory orders in February weighed on sentiment. Banking stocks were a bright spot as Commerzbank bounced 3.7 percent following a report in the Financial Times that Italy’s UniCredit SpA was preparing a rival bid for the German lender in the event that merger talks with Deutsche Bank AG failed.
    • The global rally in stocks lost momentum on Thursday while bonds recovered ground alongside gold as investors awaited further news from U.S.-China trade negotiations and key jobs data tomorrow in Washington. Futures on the S&P 500 and Nasdaq indexes edged lower, while the Stoxx Europe 600 index fell, led by declines in oil companies and miners. Italian shares and bonds dipped after Bloomberg reported the country is set to slash this year’s growth forecast and raise the projected budget deficit.
    • Chinese shares advanced, stock markets were mostly lower across Asia, and the region’s benchmark index slipped from a six-month high. Treasuries climbed with most sovereign bonds in Europe. U.S. President Donald Trump will meet Chinese Vice Premier Liu He at the White House on Thursday, as negotiations over a trade deal between the world’s biggest economies enter what could be the final stages. The deal being crafted would give Beijing until 2025 to meet commitments on commodity purchases and allow American companies to wholly own enterprises in the Asian nation, according to three people familiar with the talks.
    • Oil retreated further from near $70 a barrel in London, a level not breached since November, as a surprise surge in U.S. crude stockpiles showed that markets remain adequately supplied. Brent crude futures, the international benchmark, slid 0.5 percent. American stockpiles rose by the most since January last week, according to Energy Information Administration figures on Wednesday, with a 7.24 million-barrel increase that surpassed analyst and industry estimates. Still, optimism that the U.S. and China are getting closer to a trade agreement is bullish for prices.
    • Gold was steady as investors awaited further news from U.S.-China trade negotiations and ahead of key U.S. jobs data tomorrow. The trade deal being crafted would give Beijing until 2025 to meet commitments on commodity purchases and allow U.S. companies to wholly own Chinese enterprises, according to people familiar with the talks. U.S. President Donald Trump will meet Chinese Vice Premier Liu He at the White House on Thursday. Investors are yanking money out of gold exchange-traded funds as hints of improving global growth and surging stocks lure them into riskier assets. The largest, the $32 billion SPDR Gold Shares fund, had lost almost $830 million in assets so far this week.
    • Jamie Dimon said the volatility that upended markets at the end of last year is probably a sign of what’s in store for investors, including wilder swings because of reduced liquidity and souring investor sentiment triggered by the global geopolitical environment. “The fourth quarter of 2018 might be a harbinger of things to come,” the chief executive officer of JPMorgan Chase & Co. said Thursday in his 51-page annual letter to shareholders. Dimon cited a raft of issues driving the more pessimistic outlook, including uncertainty about the Federal Reserve’s interest-rate shifts, Germany’s economic slowdown, Brexit and the U.S.-China trade spat.
    • U.S. President Donald Trump will meet Chinese Vice Premier Liu He at the White House on Thursday as speculation grows that negotiations over a trade deal between the world’s biggest economies are entering the final stages. Talks are continuing in Washington where Liu held meetings with U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin on Wednesday. The goal over the next few days is to strike an agreement on the core issues so Trump and Chinese leader Xi Jinping can hold a ceremony to sign a deal.
    • Facebook was upgraded to buy from neutral at Guggenheim, which wrote that positive user trends would help offset the financial risk represented by various privacy concerns. Shares rose 0.7 percent in pre-market trading, suggesting the stock could open at its highest level since late August. As of its Wednesday close, Facebook has gained about 40 percent off a December low.
    • Japan Post Holdings Co.’s insurance unit is conducting a secondary sale of shares held by its parent worth 409 billion yen ($3.7 billion) in a global offering. In its first sale since its listing in November 2015, Japan Post Insurance Co.plans to sell 112.6 million shares in Japan and 55.5 million shares overseas, the Tokyo-based insurer said in a filing Thursday. Another 24.1 million shares could be offered in an over-allotment, with 16.9 million of those in Japan and the rest abroad, it said.
    • January, February and March set up U.S. stocks to move higher in the rest of 2019, if history is any guide. The S&P 500 Index rose in all three months this year for the 20th time since 1950, according to data compiled by Bloomberg. Gains for April through December followed in each of the earlier years except 1987, when stocks crashed in October. The average advance in the nine-month period was 9.5 percent.
    • Maersk Drilling was valued at about $3.6 billion in its stock-market debut in Copenhagen as the offshore-rig market emerges out of an historic slump. The shares traded at about 570 kroner about half an hour after the open, giving it a market value of 23.7 billion kroner. That matched the average in a Bloomberg survey of eight analyst estimates. The drilling company split from A.P. Moller-Maersk A/S on Thursday, marking the last energy divestment by Denmark’s biggest company. Shareholders are hoping the spinoff creates value, while the listing also provides a new opportunity for investors looking to seize on the market recovery with one of the industry’s biggest and least-indebted companies.
    • The Italian Treasury is set to slash its growth forecast for this year and raise its projected budget deficit, according to two senior officials with knowledge of the draft outlook. The economy will expand by just 0.1 percent this year, according to the draft, which is due for cabinet approval by April 10, the officials said. The government’s previous forecast was for a 1 percent expansion and the new prediction is in line with Bloomberg’s latest survey of economists.
    • Tesla Inc. slumped in early trading after reporting a record decline in deliveries during the first quarter, stoking concern demand is slackening for the Model 3 sedan it introduced less than two years ago. The company delivered 63,000 vehicles in the three months that ended in March, according to a statement Wednesday, down from 90,966 in the fourth quarter. Tesla fell as much as 8.5 percent during U.S. pre-market hours. In the U.S., where Tesla introduced the Model 3 sedan in 2017, tax incentives for its vehicles shrank. In Europe and China, the company struggled to quickly get the cars to consumers. The 50,900 Model 3 Tesla delivered in the first quarter missed analysts’ average estimate for 51,750and was less than in the two previous quarters. The shortfall is a setback for Chief Executive Officer Elon Musk’s plan to accelerate sales with lower prices and target more markets worldwide.
    • Boeing Co. will soon learn whether the financial fallout from the global grounding of its best-selling jetliner will be a brief jolt — or a much more painful ordeal that would have repercussions for suppliers and the U.S. economy. Production of the 737 Max has continued at full tilt even though regulators grounded the single-aisle jet following a March 10 crash, the model’s second fatal accident in five months. Subcontractors have even begun to speed up the manufacturing pace for the 600,000 parts that go into each one of the single-aisle workhorses, Boeing’s largest source of profit.
    • Investors were on edge a year ago for signs the U.S. labor market was overheating. Now they’re primed for the opposite. While Friday’s jobs report is expected to show payrolls rebounded in March following the weakest reading since 2017, economists forecast a 180,000 gain. That would be a moderation from last year’s average as business investment slows and headwinds gather. Bond investors are wary that the falloff could be sharper this year, with markets reflecting bets that a recession is looming and the Federal Reserve will play defense by cutting interest rates.
    • After a weeks-long battle, bankrupt power giant PG&E Corp. has struck a deal with a group of investors to hire a chief executive officer and form a new board that will lead the company through the biggest utility bankruptcy in U.S. history. Now it just has to sell the slate to California’s leaders. And that’s already proving an uphill battle: An hour after PG&E named outgoing Tennessee Valley Authority chief Bill Johnson as its CEO and appointed 10 new directors, California Governor Gavin Newsom issued a statement saying the board “raises concerns” and lacks experience. State legislators began sounding off, with one saying: “I’m not impressed.”
    • As the Trump administration threatens to close the border with Mexico, the migration of natural gas molecules through pipelines will likely go unhindered. Gas is flowing into Mexico at a record pace this year, climbing to an all-time high of 5.3 billion cubic feet on Jan. 30, according to BloombergNEF data. It’s an increasingly important outlet for shale supply to support prices in the U.S., where production continues to soar.
    • NordLB, the German lender that was targeted by Cerberus Capital Management earlier this year, lost about 2.4 billion euros ($2.7 billion) in 2018 as the company struggled with soured shipping loans. The bank’s pretax loss amounted to 2.1 billion euros compared with earnings of 195 million euros a year earlier, NordLB said Thursday. The cost of a reorganization will likely result in another net loss this year, NordLB said, adding that it’s aiming for a profit in 2020 at the latest.
    • Nomura Holdings Inc. unveiled plans to cut $1 billion of costs at its struggling wholesale business, as Japan’s largest securities firm embarks on yet another sweeping overhaul of its international operations. The company didn’t give specifics on job cuts as it presented the effort to investors on Thursday after the market close in Tokyo. But the axe has already begun to fall, with about 100 positions being culled in Europe, the Middle East and Africa on top of reductions in Hong Kong and Singapore, people with knowledge of the matter said.
    • The trade deal that the U.S. and China are crafting would give Beijing until 2025 to meet commitments on commodity purchases and allow American companies to wholly own enterprises in the Asian nation, according to three people familiar with the talks. Talks are continuing in Washington where Chinese Vice Premier Liu He began planned meetings with U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin on Wednesday. The goal over the next few days is to strike an agreement on the core issues so President Donald Trump and Chinese leader Xi Jinping can hold a ceremony to sign a deal. Trump plans to meet Liu at the White House Thursday.
    • For SoftBank Group Corp., $100 billion isn’t enough. The Japanese conglomerate, which has reshaped the technology startup landscape with its Saudi-backed Vision Fund, is in talks with investors to add as much as $15 billion more to its already-massive fund, said people familiar with the discussions. In about two years, the Vision Fund has invested more than $70 billion in tech companies. SoftBank wants to keep up its deal spree, while leaving enough assets in reserve to continue buying shares in companies it currently backs. Later, it plans to undergo an even more ambitious effort to assemble a second Vision Fund, said the people, who asked not to be identified because the deliberations are private.
    • British buyout firm Intermediate Capital Group Plc is nearing a deal to buy Italian generic drugmaker Doc Generici from CVC Capital Partners for about 1.1 billion euros ($1.2 billion), according to people familiar with the matter. Talks are in the final stages, the people said, asking not to be identified because the matter is private. The deal is expected to be announced as soon as Thursday, said the people. CVC bought Doc Generici in 2016 from buyout firm Charterhouse Capital Partners for an undisclosed amount. Founded in 1996, Milan-based Doc Generici counts a wide portfolio of generic drugs in areas such as cardiovascular and gastrointestinal and metabolic conditions, according to its website.
    • Theresa May’s government holds intensive talks with Jeremy Corbyn’s opposition Labour Party in search of a compromise position on the U.K.’s future ties to the EU. The House of Lords debates a controversial bill to block a no-deal Brexit that passed the Commons by a single vote last night.

    America’s biggest natural gas exporter is ready to sign long-term agreements with buyers in China, the world’s top market for the fuel, with or without a trade truce. Cheniere Energy Inc. isn’t delaying any liquefied natural gas deals because of the trade dispute, Chief Executive Officer Jack Fusco said in an interview in Shanghai. If that’s happening, it’s on the part of Chinese customers or their government, he said.

*All sources from Bloomberg unless otherwise specified