August 1st, 2018

Daily Market Commentary

Canadian Headlines

  • LG Electronics Inc., which has been integrating artificial-intelligence functions into its home appliances and smartphones, is launching its first Canadian AI lab, the latest company seeking talent in the country’s burgeoning tech industry.
  • Molson Coors Brewing Co. is betting on pot by starting a joint venture with Hydropothecary Corp. to develop non-alcoholic, cannabis-infused beverages for the Canadian market. The partnership between Molson Coors Canada and Quebec-based cannabis producer Hydropothecary will be structured as a standalone company with its own board and management team. A chief executive officer will be named in the coming weeks.
  • The U.S. and Mexico are in the final stages of negotiating a deal on rules for cars sold under Nafta, one of the biggest sticking points in discussions to overhaul the North American Free Trade Agreement, according to five people familiar with the talks.
  • Avison Young Canada Inc. has bought London-based real estate services firm Wilkinson Williams LLP, its first deal since receiving a C$250 million ($190 million) investment by a big Canadian pension fund earlier this month. Wilkinson Williams represents landlords and tenants across the U.K. and has acted as an adviser on retail and supermarket leases. Last year, the firm advised clients on investment transactions with a combined value of more than 580 million pounds ($761 million).

World Headlines

  • Treasuries fell with most European sovereign bonds following a big drop for Japanese government debt. A gauge of commodities slumped by the most in two weeks as metals, heavily exposed to global trade, retreated with oil.
  • Stocks struggled on Wednesday as the world’s two biggest economic powers once again ratcheted up rhetoric over trade, sinking commodities in the process. The dollar strengthened and Japanese bonds led sovereign debt lower. Futures for the Dow fell and contracts for the S&P 500 edged lower.
  • Asia stocks were mixed as investors assessed potential headwinds to U.S.-China trade tensions. The MSCI Asia Pacific Index gained 0.3 percent to 167.45 as of 4:51 p.m. in Hong Kong, led by healthcare and material shares.
  • Oil fell to the lowest in more than a week amid a surprise jump in U.S. crude inventories and an escalating trade dispute between the U.S. and China. Futures in New York fell as much as 1.3 percent after a 2 percent decline Tuesday. The American Petroleum Institute was said to report U.S. stockpiles rose 5.59 million barrels last week. Most analysts surveyed by Bloomberg forecast government data due Wednesday will show an inventory loss. Meanwhile, the U.S. will propose more than doubling its planned tariffs on $200 billion of Chinese imports, according to three people familiar with the internal deliberations.
  • Gold holds fourth straight monthly decline as investors assess outlook for U.S.-China trade war and before the Federal Reserve ends a policy meeting later Wednesday.
  • Apple Inc. analysts are increasingly bullish on the company’s growth prospects after its forecast for fourth-quarter sales topped estimates. The results should give investors confidence ahead of the expected debut of three new iPhone models later this year. Apple jumped 4.1 percent in post-market U.S. trading, putting it ever closer to a $1 trillion valuation. Its suppliers in the U.S. and Asia also gained.
  • Federal Reserve Chairman Jerome Powell has signaled the U.S. central bank could take a break from increasing interest rates at some point. His colleagues are now debating how quickly to consider such a pause. The Federal Open Market Committee is almost certain to keep rates steady at the close of its two-day meeting Wednesday in Washington, and will reinforce bets on a move in September if it repeats a reference to further gradual rate hikes in the accompanying policy statement.
  • Chancellor Angela Merkel’s government for the first time vetoed a possible Chinese takeover of a German company, signaling a toughening stance toward investments from the country. Merkel’s Cabinet on Wednesday voted to block the potential purchase of German machine tool manufacturer Leifeld Metal Spinning AG by a Chinese investor, the Economy Ministry said in Berlin. The government took the precautionary measure even though Yantai Taihai Group indicated at the last minute that it will withdraw its offer.
  • Rio Tinto Group’s $7 billion pledge to shareholders is the latest sign the world’s biggest miners are resisting the temptation to backslide. The mining industry has undergone a dramatic makeover since the end of the last commodity boom. Investors and management remain wary of pricey deals after much of the sector got burned by overpaying for assets and few among the largest producers see the need for major new supply growth.
  • Infineon Technologies AG held early-stage talks about buying STMicroelectronics NV last year, according to people familiar with the matter, a move that would have created Europe’s largest semiconductor manufacturer. Infineon hired BNP Paribas SA as an adviser and studied the purchase for about three months, approaching STMicro before dropping the idea last August, said the people, who asked not to be identified because the deliberations were never made public. There are no current talks, the people said. A combination would have created a group with sales of 15 billion euros ($17.5 billion).
  • Apple Inc. shares jumped 3.5 percent in pre-market trading Wednesday after the company projected sales that suggest consumers are still snapping up the company’s high-end iPhones even as updated models are on the horizon. The Cupertino, California-based technology giant said on Tuesday it expects fiscal fourth-quarter revenue between $60 billion and $62 billion. Analysts were looking for $59.4 billion, according to data compiled by Bloomberg. Fiscal third-quarter results also beat Wall Street expectations, at one point sending the shares to $198 in extended trading, a record price if the increase holds through Wednesday.
  • Carlyle Group LP is buying a stake in an American International Group Inc.-owned firm as alternative investment managers seek to load up on insurance assets and get more business from an industry desperate for higher returns. The Washington-based firm agreed to purchase 19.9 percent of DSA Reinsurance from AIG and make it into a standalone insurer, Carlyle said in a statement Wednesday. The deal comes with an agreement that gives Carlyle $6 billion from DSA to invest across its private equity, credit and real asset groups.
  • Tesla Inc., under fire from investors for burning through cash as it ramps up production, will look to China to at least partially fund the cost of building its first factory in the world’s fastest-growing auto market. The electric-car pioneer is considering raising some of the $5 billion it intends to invest in the plant near Shanghai from local partners, according to a person familiar with the plans, who asked not to be identified as the matter is private. Chief Executive Officer Elon Musk secured a preliminary deal to build the factory last month, just days after China’s retaliation against President Donald Trump’s tariff hikes boosted the cost of exporting cars made in the U.S.
  • Sprint Corp. posted its 12th straight quarter of growth in phone subscribers, a winning streak its larger rival AT&T Inc. can’t match. The results are providing a prime example of robust competition that critics say will go away with the proposed $26.5 billion takeover of Sprint by T-Mobile US Inc., a deal that would combine the No. 3 and No. 4 in the industry.
  • China Tower Corp., the state-owned wireless infrastructure owner, raised $6.9 billion after pricing its Hong Kong initial public offering at the low end of a marketed range, people with knowledge of the matter said. The Beijing-based company sold 43.1 billion shares at HK$1.26 apiece in the IPO, the people said, asking not to be identified because the information is private. The shares were marketed at HK$1.26 to HK$1.58 each, according to an earlier exchange filing.
  • Amadeus IT Group SA is in discussions with private equity firm Thoma Bravo to buy TravelClick Inc., a software maker serving the hotel industry. Terms of the deal are still under discussion, Amadeus said in a regulatory filing Wednesday, confirming a report by Bloomberg News that the talks were under way. TravelClick could fetch as much as $3 billion in a sale and may attract other suitors, said people familiar with the matter.
  • Fired Toys “R” Us Inc. workers took their travails to Congress on Tuesday to press for changes in the way private equity deals are structured. Potential U.S. presidential candidates Kirsten Gillibrand and Cory Booker, and Minority Leader Chuck Schumer were among Democratic senators who met with former staff members and workers’ rights groups on Tuesday. The ex-employees are asking for new leverage limits on private equity deals, along with a worker-protection tax and profit clawbacks that would fund payments in situations similar to the one now playing out with the demise of the private equity-owned U.S. toymaker.


*All sources from Bloomberg unless otherwise specified