August 13th, 2018

Daily Market Commentary

Canadian Headlines

  • Canadian stocks followed global markets lower amid the ongoing trade war, with President Donald Trump doubling steel and aluminum tariffs on Turkish imports. The S&P/TSX Composite Index fell 0.6 percent to 16,326.51. Health care led losses, sinking 2.4 percent, the most in three weeks. Bausch Health Companies Inc., the drug company formerly known as Valeant, tumbled 5.4 percent, the most since mid-June.
  • Higher Canadian interest rates don’t appear to be worsening the pain for consumers, yet. Some 53 percent of Canadians say rising borrowing costs haven’t had a negative impact on their personal spending, according to a survey by Nanos Research taken earlier this month. Around 43 percent of respondents say they are feeling at least somewhat of a pinch, with the rest unsure.

World Headlines

  • European equities extended last week’s retreat as banking shares tumbled amid concerns about the Turkish economic crisis affecting liabilities of the region’s lenders. The Stoxx Europe 600 Index dropped 0.4 percent after losing 1.1 percent on Friday.
  • Futures on the Dow, S&P 500 and Nasdaq also all retreated following big declines across Asian markets. The greenback traded at the strongest in a year and the euro weakened. Treasuries rose and Italian bonds fell, while gold tested lows near $1,200 an ounce.
  • Asian shares headed for their worst day since June as plunges in Turkish and South African currencies fueled concerns about capital outflows from emerging markets. The MSCI Asia Pacific Index sank 1.6 percent to 162.85 as of 4:08 p.m. in Hong Kong, with its members losing about $280 billion of market value.
  • Oil held steady even as Turkey’s economic strife sparked an emerging-market sell-off, fueling fears of broader market turmoil. West Texas Intermediate futures were little changed in New York after adding 1.2 percent Friday. The Turkish lira extended declines to a record low, sending tremors through global markets and spurring a shift to haven assets. The rout countered oil-supply concerns amid U.S.-Iranian tensions, which earlier buoyed crude.
  • Gold drops for a third day as the dollar rises on Turkey’s slide toward a financial crisis, with its president showing no signs of backing down in a standoff with the U.S.
  • It was California’s biggest fire yet. In late July and August, wildfires devastated an area north of San Francisco far bigger than New York City, destroying more than 100 homes and injuring 2 fire fighters. It’s just one in a rash of fast-spreading blazes that have killed at least 56 people this year and last in the Golden State.
  • Shares of Bayer AG plunged by the most in almost seven years on concern about the potential costs of a protracted legal battle over Roundup weed killer, the cornerstone product of newly acquired Monsanto Co. Monsanto was socked with $289 million in damages in the first trial over claims that the herbicide causes cancer when former school groundskeeper Lee Johnson prevailed Friday in San Francisco state court. The company, whose market value fell by more than 10 billion euros ($11.4 billion) Monday, says Roundup is safe.
  • Wells Fargo & Co. is considering whether to jump-start its shrinking student-lending business by catering to borrowers holding U.S. government loans. The San Francisco-based firm would offer loans to let customers retire their government-backed student debt, John Rasmussen, the bank’s head of personal lending, said in an interview. Wells Fargo would keep the loans as it already does with private student debt. The government holds about $1.4 trillion in student loans, representing more than 90 percent of the market.
  • VF Corp. plans to spin off its Lee and Wrangler jeans business to focus on faster-growing outdoor products and active wear such as its North Face and Vans brands. The spinoff to shareholders should be completed in the first half of next year, Greensboro, North Carolina-based VF said in a statement Monday confirming a report last week from the Wall Street Journal. The jeans business, which has yet to be named, will be based in Greensboro, while VF will move its headquarters to the Denver area.
  • U.K. Prime Minister Theresa May is drawing up a plan to keep key European Union rules for longer after Brexit in order to break the deadlock in negotiations, a move that risks angering euroskeptics in her party. According to people familiar with the situation, the U.K. is working on options to avoid a hard border with Ireland, the issue that’s become the biggest obstacle to an orderly divorce. One idea would effectively prolong large parts of the so-called transition phase — the two-year grace period that’s due to run from exit day on March 29 to the end of 2020 — according to one official.
  • On the face of it, Emirates NBD PJSC’s acquisition of Turkey’s Denizbank AS has become about $1 billion cheaper. Still, the deal could prove to be the riskiest yet for Dubai’s biggest bank. Since Emirates NBD agreed to buy the Turkish lender from Russia’s Sberbank for 14.6 billion liras — worth $3.2 billion on May 22 — the value of the acquisition has fallen to about $2.1 billion in dollar terms. That’s due to the lira sinking more than 30 percent against the dollar, with most of the decline occurring last week. The two parties originally intended to close the deal by the end of this year.
  • Elon Musk’s attempt to take Tesla Inc. private will receive added scrutiny this week as the electric carmaker’s board meets with advisers to assess a proposal that’s drawn interest from Saudi Arabia’s sovereign wealth fund. The Saudi Kingdom’s Public Investment Fund is working to be part of any investor pool that emerges to take Tesla private, people with knowledge of the fund’s plans told Bloomberg News on Sunday. The fund, which recently built a stake just shy of 5 percent, is exploring how it can be involved, the people said on condition of anonymity.
  • ESure Group Plc has received an unsolicited offer of about 1.17 billion pounds ($1.5 billion) from Bain Capital Private Equity LP as private equity firms seek to consolidate the insurance industry. The offer of about 280 pence a share in cash is a 37 percent premium to the closing price on Friday, the U.K. insurer said in a statement on Monday. ESure’s board of directors expects to recommend the bid. The shares rose as much as 33 percent, the most ever, on Monday.
  • Turkish policy makers made their first move to bolster the financial system and investor confidence amid a plunge in the lira. The currency, stocks and bonds extended their decline. Promising to “take all necessary measures,” the central bank in Ankara lowered the amount commercial lenders must park at the regulator and eased rules that govern how they manage their lira and foreign-currency liquidity. While there was no mention of higher interest rates, it said all options were on the table.
  • PetroChina Co. may temporarily halt purchases of U.S. liquefied natural gas spot cargoes through the winter to avoid potential tariffs amid a trade conflict between the U.S. and China, according to people with knowledge of the strategy. Under the plan, PetroChina would boost buying of spot cargoes from other countries or swap U.S. shipments with other nations in East Asia to avoid paying additional tariffs, said the people, who asked not to be identified because the information isn’t public. PetroChina, a unit of the state-owned China National Petroleum Corp., couldn’t immediately comment when contacted by Bloomberg.
  • The People’s Bank of China is tackling a problem it rarely had to worry about until recently — persuading banks to lend the money they have. Thanks to the central bank turning on the liquidity taps, the cost for banks to borrow from one another is now lower than the cost to borrow from the PBOC, but a large chunk of those funds is sitting idle. That money isn’t feeding into the wider economy, especially not to cash-strapped smaller firms, as lenders are unwilling to make loans or buy risky bonds.
  • Speculation about who may or may not finance Tesla Inc. CEO Elon Musk’s audacious plan to take the carmaker private is distracting dealmakers from a normally quiet August spent in the Hamptons or Southern France. As the intrigue enters a second week, with pressure increasing on the billionaire founder to explain how a deal would be funded, one of the world’s most active investors has already ruled itself out.
  • Chinese banks’ bad loans increased by a record last quarter, a potential setback for authorities struggling to encourage lenders to extend more credit. Non-performing loans rose 183 billion yuan ($26.6 billion) to hit 1.96 trillion yuan by the end of June, the biggest quarterly jump in data going back more than a decade, the China Banking and Insurance Regulatory Commission said in a statement on Monday. Soured loans represented 1.86 percent of total advances, the highest ratio since March 2009.
  • Donald Trump isn’t the first American president to rely on economic sanctions and tariffs to exert U.S. power, but he’s taking that approach to new heights against allies and adversaries from Turkey to North Korea. With an unexpected tweet on Friday morning, Trump announced that he was employing tariffs — normally used to address trade disputes — to pressure Turkey over its continued detention of an American pastor held since 2016. Turkish markets, already in a tailspin over President Recep Tayyip Erdogan’s economic policies, tumbled further with Trump’s decision to double steel and aluminum tariffs.
  • Dozens of hedge funds investing billions of dollars in cryptocurrencies don’t know if they’re calculating their taxes correctly, which may be a problem now that U.S. authorities have said they’re going to be scrutinizing virtual currencies. Just like individual taxpayers, institutional investors that have plunged into Bitcoin, Ether and other digital currencies are finding there are few guidelines governing their holdings, and those that exist are murky. As a result, many funds have tried to minimize their liabilities without really knowing what the rules are.


*All sources from Bloomberg unless otherwise specified