August 23rd, 2018

Daily Market Commentary

Canadian Headlines

  • Canadian Imperial Bank of Commerce’s prediction of a mortgage slowdown has come true. Mortgage balances rose 2.5 percent to C$208.5 billion ($160 billion) in the fiscal third quarter from a year earlier, the Toronto-based bank said Thursday in announcing earnings that beat analysts’ estimates. That’s the slowest in more than four years and about one-fifth the pace of a year ago. The deceleration ends CIBC’s three-year streak of outpacing Canada’s other large lenders on mortgage growth. Royal Bank of Canada said this week that mortgage balances were 5.9 percent higher than a year earlier.
  • President Donald Trump’s plans to punish carmakers who produce vehicles outside the U.S. and sell them to Americans are hindering his administration’s efforts to close the deal on a new Nafta this month. Among the sticking points emerging during this week’s discussions in Washington between the U.S. and Mexico toward a renewed North American Free Trade Agreement is a proposal by the administration to increase the tariffs on cars imported from Mexico that don’t meet stricter new content rules, according to five people familiar with the discussions.
  • Scotts Miracle-Gro Co. is betting its fertilizer can help cultivate a different kind of grass. Hawthorne Gardening Co., a subsidiary of the Marysville, Ohio-based company best known for its garden products, has teamed up with Canadian pot producer Flowr Corp. to build a 50,000-square-foot research facility in British Columbia. The lab will initially be used to test Hawthorne’s lights and nutrients on cannabis, but it hopes to eventually study pot genetics and its impact on human physiology.



World Headlines

  • The euro stayed lower as data showed factories taking a hit from higher raw-material costs and global trade tensions, even as the economy overall shows signs of improvement. The Stoxx Europe 600 Index edged higher, while futures for the S&P 500 Index were little changed as investors continued to weigh Trump’s legal woes. MSCI’s Asia Pacific Index declined, but stocks were mixed across that region, gaining in China and South Korea but falling in Hong Kong.
  • The dollar rallied for the first day in six as investors awaited a meeting of global central bankers after the Federal Reserve signaled no change to its pace of monetary policy tightening. U.S. equity futures were flat as European stocks drifted higher and Asian shares fell. The greenback climbed against most of its peers and Treasuries were steady after the Fed indicated in meeting minutes a readiness to increase rates again if the economy stays on track.
  • Asian shares snapped a four-day advance as the Federal Reserve signaled no change in its tightening policy as long as the U.S. economy stays healthy. The MSCI Asia Pacific Index declined 0.3 percent to 163.57 as of 4:43 p.m. in Hong Kong. A retreat by developers dragged Hong Kong stocks down the most in the region, while gains in Singapore Telecommunications Ltd. drove a 1.7 percent advance in the Straits Times Index.
  • Air China Ltd.’s parent is seeking private money for an air-cargo and logistics venture with planned total investment of 10 billion yuan ($1.5 billion) as part of Beijing’s mandate for state-owned firms to diversify their ownership. China National Aviation Holding Co., the state-owned controlling shareholder of Beijing-based Air China, is among companies looking for private partners under the nation’s so-called mixed-ownership reform, according to a list of aviation-related projects published Thursday on the website of the Civil Aviation Administration of China.
  • With legal questions mounting at home, U.S. President Donald Trump waded into South Africa’s racially charged debate about land reform, triggering a selloff in the rand. Trump said in a tweet that he’s asked U.S. Secretary of State Mike Pompeo to “closely study the South Africa land and farm seizures and expropriations.” He was intervening in a controversy about whether South Africa should implement a policy of seizing land without paying for it in a bid to address inequalities built up during apartheid and colonial rule.
  • The U.S. and China imposed fresh tariffs on each other’s goods in the middle of trade talks aimed at averting the worsening conflict between the world’s two biggest economies. Both nations started levying the previously announced taxes on $16 billion of imports from the other country shortly after noon Beijing time. China also said it would lodge a complaint about the new American tariffs to the World Trade Organization, according to a Chinese Ministry of Commerce statement on its website.
  • Elon Musk’s tweet about taking Tesla Inc. private has brought intense scrutiny, mostly of Musk, but also of U.S. securities regulators. The Securities and Exchange Commission would seem to have a strong case that Musk was at the very least being misleading when he tweeted on Aug. 7 that he’d “secured” financing for a privatization deal. He appeared to indicate he hadn’t closed a deal in a subsequent blog post. That could be a violation of securities laws. Yet the probe is fraught with minefields.
  • The stranglehold of U.S. sanctions and a succession of crises across emerging markets are taking a toll on Russia’s economy, hurting the currency and fueling outflows of capital, a top government official said. Updated forecasts to be released next week will show a smaller gain in gross domestic product this year and a weaker ruble than anticipated, with outflows accelerating in the next 12 months, Economy Minister Maxim Oreshkin said Wednesday.
  • Deutsche Bank AG threatened to end business with Russia’s government earlier this year in a letter sent to the state demanding that it provide more information related to know-your-customer records. The lender’s London branch sent the correspondence in June saying the business relationship could be terminated if Russia failed to submit the documents within 30 days. While that deadline has long since elapsed, Russia never answered the letter and the German bank hasn’t followed up on the initial request, according to two people with knowledge of the matter.
  • Not even Brexit can dent the appeal of owning commercial property in London, which has regained its status as the top destination for international investors. Foreign buyers led by Hong Kong billionaires and Korean securities firms spent more on the U.K. capital’s offices in the first half than in central Paris, Manhattan, Munich and Frankfurt combined. The weak pound is making London a bargain compared with cities in Europe, many of which have undergone their own property booms.
  • Europe’s natural gas prices have risen to their strongest level for this time of year, lifting the cost of electricity for factories and utilities. Shaking off gloom depressing broader commodity markets, the U.K. benchmark for gas is nearing levels last seen in December when a key supply line exploded, and seven traders and analysts expect further gains. The move bucks the normal seasonal pattern of weaker prices in the summer when heating demand dwindles and contrasts with slumps in everything from oil to gold, sugar and zinc.
  • China Life Insurance Co. is losing steam. A gauge of the future profitability of new policies tumbled in the first half by the most since at least 2009, Bloomberg calculations based on a filing to Hong Kong’s stock exchange Thursday show. The nation’s biggest seller of life insurance is the victim of an industry-wide slump in premiums. But China Life’s “subpar” product mix, excessive sales of low-margin products and lack of strategic direction also played a role, Morgan Stanley analysts said ahead of the result. The upshot: the industry leader’s market share, less than half of what it was in 2010, may keep slipping.
  • Oil’s rebound from the biggest price crash in a generation is sparking another revival: the use of cheaper, dirtier fuel in Southeast Asia’s two most-populous nations. Indonesia has sought to buy more lower-quality gasoline so far this year than the whole of 2017, while the Philippines is set to resume imports of higher-sulfur diesel after two years. The nations are embracing such supplies once again as crude’s recovery exacerbates economic pain and boosts inflation, threatening to undermine efforts made during oil’s slump to curb pollution.
  • Cnooc Ltd. reported the highest half-year profit since 2014 as China’s largest offshore oil and gas explorer benefited from the resurgence in crude prices. Net income in the first six months of the year rose 57 percent to 25.5 billion yuan ($3.7 billion) from 16.3 billion yuan a year ago, the company said in a statement to the Hong Kong stock exchange Thursday. That falls short of a 27.2 billion yuan estimate compiled by Bloomberg News. Oil and gas sales climbed 21 percent to 90.3 billion yuan.
  • Goldman Sachs Group Inc. is shutting two hedge funds run by people based in Asia, according to people with knowledge of the matter. The funds, which together manage about $1.4 billion in assets, were run by Goldman Sachs partners Ryan Thall and Hideki Kinuhata, the people said, asking not to be identified because the information isn’t public. Kinuhata is retiring while Thall is expected to start his own fund, the people said.
  • Ant Financial, the Chinese financial services firm partly owned by Jack Ma, will not renew a strategic partnership with U.S.-listed cash loan lender Qudian Inc. when the deal between the companies expires this month, according to people familiar with the matter. Qudian would no longer have access to potential borrowers through the consumer interface of Ant Financial’s Alipay, China’s leading internet payment platform, said the people, asking not to be identified as the matter is private. Qudian would also lose access to Ant Financial’s credit scoring system to analyze customers, they said.
  • Saudi Arabia has formally put the initial public offering of its giant oil company on hold while Aramco focuses on buying a strategic stake in local petrochemical group Sabic for as much as $70 billion. While the Sabic deal will delay the IPO, it doesn’t mean it’s canceled, people familiar with the matter said, asking not to be identified because the information is private. Khalid al-Falih, the Saudi energy minister, said Thursday in a statement that the government was committed to the Aramco IPO “at a time of its own choosing when conditions are optimum.”
  • CVC Capital Partners and Royal DSM NV are seeking a buyer for their jointly owned chemical maker AnQore, according to people with knowledge of the situation. Lazard Ltd. is advising the owners on a potential sale and information about the business has been sent to prospective bidders, said the people, who asked not to be identified because the deliberations are private. Private equity firms and other companies have expressed initial interest in AnQore, though the auction is in early stages and no final decision about a sale has been made, they said.
  • San Miguel Corp. is seeking as much as 142.8 billion pesos ($2.67 billion) selling shares of its food and beer unit in a deal that would be the biggest Philippine stock offering on record. The country’s largest company plans to offer as many as 1.02 billion shares of San Miguel Food and Beverage Inc. in the fourth quarter at an indicative price of 140 pesos each, it said in a Thursday stock exchange filing. Shares rose 15 percent today in Manila to close at 92.10 pesos, the highest since 2012, valuing the stake at as much as 93.9 billion pesos ($1.8 billion).
  • Volkswagen AG mapped out details of its transformation from a mass manufacturer of cars to a provider of transportation services by unveiling a car-sharing service and promising digital acquisitions as part of a 3.5 billion-euro ($4 billion) push into next-generation automobiles. The plan will kick off in Berlin, where the manufacturer will put 2,000 all-electric vehicles on the road by the second quarter of 2019 under the We Share label, competing with the DriveNow and Car2Go offerings of Daimler AG and BMW AG. Volkswagen plans to start technology partnerships this year, with purchases likely “clearly before Christmas,” Juergen Stackmann, head of sales at the VW namesake brand, said in a Bloomberg Television interview in the German capital.

*All sources from Bloomberg unless otherwise specified