April 8th, 2019

Daily Market Commentary


  • Canadian Headlines
    • Justin Trudeau is trying to move on after the most bruising two months of his time in office — but the damage may already be done. Resignations have been piling up for the Canadian prime minister amid a scandal over whether he and his staff pressured the former attorney general to intervene in a legal case involving a Montreal-based construction giant. It’s punished his Liberal Party in opinion polls and put a dent in Trudeau’s personal brand. Last week, Trudeau expelled two former ministers at the center of the SNC-Lavalin Group Inc. ordeal and tried to stop the bleeding. The lawmakers are viewed alternatively as dissident troublemakers or principled whistle-blowers, so the prime minister is trying to change the channel to an issue on which he feels he’s an unambiguous winner: climate change.

    World Headlines

    • European shares fell slightly after mixed trading in Asia. U.K. Prime Minister Theresa May is seeking to negotiate a compromise over Brexit, while BMW AG drew focus toward automakers after it warned about an antitrust-related charge. The Stoxx Europe 600 Index fell 0.1 percent. Germany’s BMW declined after it said it’s likely to take a charge exceeding 1 billion euros ($1.1 billion). Oil extended gains after fighting in Libya added to supply concerns, putting focus on stocks including Royal Dutch Shell Plc.
    • Contracts on the S&P 500 Index were slightly lower after the U.S. benchmark rounded out last week with gains that took it to a six-month high, while the Stoxx Europe 600 also nudged into the red. A rally in Shanghai fizzled out, and equities fell in Tokyo as the yen pushed higher. Shares rose in Sydney and saw modest gains in Hong Kong. Treasuries and the dollar were steady after President Donald Trump stepped up pressure on the Federal Reserve to sustain growth.
    • Japanese stocks fell as the yen gained against the dollar and as investors sold into a recent rally amid ongoing uncertainties over developments in U.S.-China trade talks. Automakers were the biggest drag on the Topix index, while banks fell after U.S. Treasury yields declined. The benchmark gauge rose 2.1 percent last week to its highest level in more than a month. U.S. equities climbed toward all-time highs on Friday after a report showed that the U.S. economy is adding jobs with few signs of inflation.
    • Oil held gains after rising to the highest in more than four months in London as ongoing tensions in Libya added to concerns over supply. Brent futures added as much as 0.7 percent, approaching $71 a barrel. Libya’s internationally-recognized government vowed to counterattack against forces loyal to strongman Khalifa Haftar which are trying to enter the capital Tripoli. Saudi Arabian Energy Minister Khalid Al-Falih also said in a Bloomberg TV interview that the Organization of Petroleum Exporting Countries, which is cutting output, remains focused on bringing down inventories.
    • Gold advanced as optimism over China’s steady pace of increases to its bullion reserves countered U.S. labor market data that helped boost equities to near all-time highs Friday. Platinum rose for a seventh day to the highest since May. Investors were also weighing President Donald Trump’s call for the Federal Reserve to cut rates, as well as U.S.-China trade talks, with Trump’s economic adviser Larry Kudlow saying the sides are “closer and closer” to a deal.
    • European Central Bank policy makers are in no rush to revamp their negative interest-rate policy despite Mario Draghi’s suggestion to look at the matter. With two days to go before the institution’s April decision, the president’s call to “reflect” on softening the impact on banks has spurred limited action aside from a public debate. ECB committees, whose work is often the basis for formal policy proposals, didn’t discuss the matter in the week or so since his speech, according to people with knowledge of the matter. The Governing Council may also need time to develop more of a consensus. Some officials are still convinced that the benefits of a deposit rate below zero outweigh the drawbacks and see no need to redesign the policy, said the people, who asked not to be identified.
    • Donald Trump’s frustration over his inability to fulfill his signature 2016 campaign promise to curb illegal immigration led him to oust his second homeland security chief, as the president eyes his re-election prospects next year. Homeland Security Secretary Kirstjen Nielsen resigned at Trump’s request after a meeting with him on Sunday at the White House residence, according to people familiar with the matter. Her departure follows Trump’s decision last month to give a larger say on immigration policy to a hard-line aide, Stephen Miller, who had complained that Nielsen was too weak, some of the people said.
    • Versum Materials Inc. moved to accept Merck KGaA’s offer to buy the U.S. semiconductor-components maker after the German company raised its bid, trumping a planned merger with Entegris Inc. The German pharma and chemicals group proposed $53 a share, Versum said in a statement Monday, up from $48 on Feb. 27 when Merck first disclosed a bid that encroached on an agreed $3.8 billion deal with Entegris. Versum called Merck’s latest offer, which values the target’s equity at $5.8 billion, superior to the Entegris deal and said the board will pursue a definitive agreement.
    • The parent company of Gree Electric Appliances Inc. is considering selling almost all of its stake in the Zhuhai-based Chinese appliance giant in a deal that could be worth up to 43 billion yuan ($6.4 billion). A 15 percent stake will be sold at a price no less than the average stock price of the last 30 trading days, Gree Electric said in a statement to the Shenzhen stock exchange on Monday. The company did not identify the buyer of the stake.
    • Pinterest Inc. is seeking to raise as much as $1.28 billion in an U.S. initial public offering that could value the company below the amount it reached in its last private valuation. The maker of online inspiration boards is offering 75 million shares for $15 to $17 apiece, according to a filing Monday. Based on the total number of Class A and Class B shares outstanding after the offering, if it priced at the top of the range, that would give Pinterest a market valuation of about $9 billion, according to data compiled by Bloomberg. Its fully diluted value could be higher.
    • Investors added money to exchange-traded funds that buy emerging market stocks and bonds last week. This was the third straight week of inflows. Inflows to U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $4.28 million in the week ended April 5, compared with gains of $340.2 million in the previous week, according to data compiled by Bloomberg. So far this year, inflows have totalled $19 billion.
    • SoftBank Group Corp. appointed Nomura Holdings Inc. as the lead underwriter for its 500 billion yen ($4.5 billion) bond sale, which may be the country’s biggest ever, according to people familiar with the matter. Nomura plans to sell about 150 billion yen of the notes, while Daiwa Securities Group Inc. will handle about 90 billion yen and SMBC Nikko Securities Inc.about 80 billion yen, the people said, asking not to be identified because the matter is private. The sale is aimed at individual investors and will help SoftBank repay a mountain of debt coming due over the next six months.
    • 2U Inc., an online education company used by New York University and Harvard University, is in talks to acquire coding “boot camp” operator Trilogy Education Services Inc. for about $750 million, according to people familiar with the matter. 2U could announce a cash-and-stock deal for Trilogy as soon as this week, said the people, who asked to not be identified because the matter isn’t public. The deal will boost 2U’s presence in the fast-growing enterprise-learning market, in which corporations work with education providers to improve employees’ skills. Trilogy works with some of the U.S.’s largest employers, including General Electric Co., Salesforce.com Inc. and Bank of America Corp.
    • German Chancellor Angela Merkel will host a meeting with U.K. Prime Minister Theresa May in Berlin on Tuesday, government spokesman Steffen Seibert says at a regular government press conference.
    • China’s on a bullion-buying spree as Asia’s top economy expanded its gold reserves for a fourth straight month, adding to investors’ optimism that central banks from around the world will press on with a drive to build up holdings. Prices advanced back toward $1,300 an ounce. The People’s Bank of China raised reserves to 60.62 million ounces in March from 60.26 million a month earlier, according to data on its website on Sunday. In tonnage terms, last month’s inflow was 11.2 tons, following the addition of 9.95 tons in February, 11.8 tons in January and 9.95 tons in December.
    • Prime Minister Narendra Modi’s ruling Bharatiya Janata Party pledged spend $1.44 trillion on infrastructure to boost the economy and raise living standards, in a bid to match its main rival’s populist promises. The BJP, which is seeking to retain power in elections starting April 11, released its manifesto in New Delhi on Monday, reiterating its pledge to double farmers’ income by 2022, improve GDP share from manufacturing and double exports. It will also scrap Article 370 of the Indian Constitution which grants special concessions to the disputed state of Kashmir.
    • In a bond sale closely watched by investors globally, Saudi Aramco and its bankers are preparing to kick off what could be at least a $10 billion offering this week. Early indications suggest investors are already crowding in. Demand for the most highly anticipated sale of the year already totaled $30 billion, Aramco Chairman and Saudi Energy Minister Khalid Al-Falih told Bloomberg TV in an interview in Riyadh on Monday. The state-owned oil giant and bankers spent the last week drumming up support for its debut offering at presentations in cities ranging from New York and Chicago to Singapore and Tokyo.
    • Theresa May will meet German Chancellor Angela Merkel and French President Emmanuel Macron on Tuesday, a day before she makes her case for a Brexit extension at a key EU summit in Brussels. She needs to show she has a clear plan to ratify the divorce deal; an official said the government could make a compromise offer to the opposition Labour Party on Monday.
    • Investment firms Intermediate Capital Group and Merieux Equity Partners have agreed to acquire Italian generics drugmaker Doc Generici from CVC Capital Partners for an undisclosed amount. The pharmaceutical company may have been valued at about 1.1 billion euros ($1.2 billion), people familiar with the matter said previously. Bloomberg reported last week that ICG and CVC were close to a deal. The takeover will be among the biggest announced for a European health-care company this year, according to data compiled by Bloomberg. While the global volume of deals in pharmaceuticals, biotechnology and health products and services is up about 14 percent this year, takeovers of European firms in the industry have dropped 82 percent, the data show. Bidders are holding back on deals in Europe generally this year amid fears about the continent’s economic outlook and the ripple effects of Brexit.
    • The Trump administration’s stern warning to Libyan militia leader Khalifa Haftar to halt his forces’ advance on Tripoli, which sent oil prices to their highest level in more than four months amid mounting supply concerns. Secretary of State Michael Pompeo said in a statement late Sunday that the U.S. was “deeply concerned” about the warlord’s threat to the internationally recognized capital. He said the military campaign was endangering civilians and undermining efforts to resolve the dispute peacefully.

    General Electric fell in pre-market trading on Monday after a key analyst at JPMorgan returned to a bearish view on the stock, reversing a December upgrade that had provided a major boost to positive sentiment. teve Tusa downgraded the shares to underweight from neutral and trimmed his price target by $1 to a Street-low view of $5, a level that suggests shares of the industrial conglomerate could lose half their value from their Friday closing price. Shares are down 5.4 percent before the bell

*All sources from Bloomberg unless otherwise specified