August 29th, 2018

Daily Market Commentary

Canadian Headlines

  • Canadian stocks fell for the first time in three sessions as investors awaited developments in trade negotiations after the country’s foreign minister traveled to Washington for talks. The S&P/TSX Composite Index declined 0.5 percent to 16,355.54 in Toronto. Most sectors were weak, with health-care and energy leading losses. Cannabis shares are giving up recent gains driven by reports of more potential investment in the industry.
  • Canada’s foreign minister has rejoined Nafta talks as a U.S. deadline looms this Friday to reach a deal to renew the pact as a three-country agreement. Chrystia Freeland arrived just before 5 p.m. at the Washington office of U.S. Trade Representative Robert Lighthizer and emerged an hour later. There was little substance to talks Tuesday between Freeland and Lighthizer, who will meet again Wednesday morning, a U.S. official said, speaking on condition of anonymity.
  • TransCanada Corp. won a 49 percent price increase for space on the pipeline it’s building to haul shale gas from Appalachian fields as labor shortages and escalating land prices pushed construction costs almost $1 billion higher. U.S. regulators approved the Calgary-based company’s request to charge gas explorers $14.663 per dekatherm for space on its Mountaineer XPress Project, a 171-mile (275-kilometer) in West Virginia, according to a filing dated Aug. 24. That’s an increase from the $9.827 rate approved by the Federal Energy Regulatory Commission just eight months ago.
  • Until now, pretty much all of Canada had Justin Trudeau’s back in his Nafta fight with U.S. President Donald Trump — but cracks are emerging as some pivot to blame him if the pact falls apart. The U.S. is using a deal it announced with Mexico on Monday to pressure Canada into signing on. That’s exposing rifts within the Canadian Conservative Party, Trudeau’s main opposition, which had mostly refrained from criticizing the prime minister on this issue. Prominent former Conservative lawmakers stuck to supporting the government in talks, but Conservative Leader Andrew Scheer blamed Trudeau.
  • Exxon Mobil Corp. set a goal for reducing emissions from its Canadian oil sands, the second time this year the world’s biggest oil explorer by market value published a greenhouse-gas target. Imperial Oil Ltd., a Calgary-based subsidiary 69-percent owned by Exxon, will reduce the intensity of emissions by 10 percent over the next five years, compared with 2016 levels, the company said in a statement Tuesday. Oil sands are among the industry’s dirtiest assets.



World Headlines

  • European stocks turned lower and U.S. equity futures erased their gains on Wednesday as the mood in global markets took a gloomy turn. The euro weakened. The Stoxx Europe 600 Index had started on the front foot, but declines for national gauges including in the U.K. and Spain gradually spread.
  • S&P 500 futures gave up an earlier advance to trade little changed, though contracts for the Nasdaq stayed higher. Emerging-market assets were under pressure as the dollar gained a second day and Treasuries edged up. Investors appear to lack some conviction as the Northern hemisphere’s traditional vacation period grinds to a close. U.S. stocks remain at an all-time high, while the rest of the world has been playing a gradual game of catch-up.
  • Most Asian stocks rose as investors assessed the latest news on U.S. trade policies. The MSCI Asia Pacific Index rose 0.3 percent to 166.81 as of 4:17 p.m. in Hong Kong, set for its fourth session of gains, after a Globe and Mail report that Canada was ready to make concessions to the Trump administration on the country’s dairy market in exchange for compromises in other areas.
  • Brent crude is signaling that U.S. sanctions against Iran’s oil exports are starting to be felt in global markets. Futures for settlement in November — when the American measures will go into effect — are trading higher than contracts for later months. That market structure, known as backwardation, is reflecting fears of a supply crunch. Meanwhile, Brent’s premium to New York prices has risen as U.S. crude is weighed down by pipeline bottlenecks and speculation that President Donald Trump will pursue efforts to lower fuel costs.
  • Gold rises as investors weigh developments in Trump administration’s trade policies. Metal still headed for 5th monthly loss with ETF holdings at lowest in 10 months.
  • Varde Partners Inc. and Aditya Birla Capital Ltd. are creating a joint venture to invest as much as $1 billion in distressed assets in India, according to people familiar with the transaction, who asked not to be identified because the information is private. The U.S. investment firm and Indian financial services provider, helmed by billionaire Kumar Mangalam Birla, are expected to deploy this sum over three years, one of the people said. The venture, which will scout for deals of up to $100 million, may be announced as early as this week, the person said.
  • A $4.8 billion joint venture between Boeing Co. and Embraer SA is either a threat to Brazil’s national security, the surrender of a national treasure or a boon that would strengthen both companies. It depends which presidential candidate you ask. Brazil’s October elections will decide more than just who leads the biggest economy in Latin America. At least $33 billion of mergers, acquisitions, and stock and bond sales hang in the balance as well, according to a tally compiled by Bloomberg. In addition to Boeing and Embraer, corporate giants from Eletrobras to Petrobras to LyondellBasell all have their deals stuck on hold until voters weigh in and clear up prospects for markets and the economy.
  • NIO Inc., the Chinese electric-car maker backed by Tencent Holdings Ltd., is planning a U.S. initial public offering that would give it a valuation topping $8 billion as it gears up to take on the likes of Tesla Inc. The company is aiming to raise as much as $1.3 billion, offering 160 million American depositary shares at $6.25 to $8.25 each, according to a regulatory filing Tuesday in the U.S. That would give the company a market capitalization of about $6.4 billion to $8.5 billion.
  • The U.K. and the European Union still say in public they want a Brexit deal wrapped up in the next seven weeks. Behind the scenes, though, senior officials on both sides admit this is unlikely. They now aim to finalize divorce terms by the middle of November at the latest, according to people familiar with the British and European positions, who spoke on condition of anonymity as the discussions are private.
  • The world’s largest container shipping line says adhering to stricter environmental standards could add at least $2 billion to its annual fuel bill from 2020, one of the clearest examples yet of how vessel owners will be affected by rules to curb sulfur emissions that take effect in 16 months’ time. High crude prices, tight availability of compliant fuels, and investment in research and development are among issues that will combine to drive up the cost of complying with IMO 2020, said Simon Bergulf, director for regulatory affairs at A.P. Moller-Maersk A/S, the Copenhagen-based operator of hundreds of container ships and smaller craft like tug boats.
  • Chinese investors have dumped Hong Kong stocks at a record clip this month, as the city’s equity benchmark tumbled to its lowest in a year. Mainland investors sold net HK$25.4 billion ($3.2 billion) of Hong Kong equities in August through Tuesday, according to Bloomberg calculations based on daily turnover data. That’s the biggest monthly selling figure since China opened its first exchange link with the city in late 2014. Tencent Holdings Ltd. alone accounted for over half of the sales, as the Chinese technology giant reported its first profit drop in a decade.
  • Short positions against the so-called FAANG group of the largest U.S. technology stocks have surged by more than 40 percent in the past year as investors bet against some of the biggest drivers of the global bull market. Bearish investors have shorted about $37 billion worth of stocks in the group, which comprises Facebook Inc., Apple Inc., Inc., Netflix Inc. and Google parent Alphabet Inc., up 42 percent from a year ago. Amazon leads the way with almost $10 billion in short interest, according to data compiled by Bloomberg as of Aug. 28 from financial analytics firm S3 Partners LLC.
  • Toyota Motor Corp. is aiming to triple car production in China by as soon as 2030 in a renewed push to make up lost ground in the world’s biggest market, according to people familiar with the plan. Asia’s largest automaker is targeting to manufacture 3.5 million vehicles annually in China around that year while boosting imports to the country to half a million vehicles, the people said, asking not to be identified as the internal goal is private for now. Toyota can currently produce 1.16 million cars in China annually, and sold 1.3 million there last year for a 4.5 percent market share. Volkswagen AG and General Motors Co. delivered more than 4 million each.
  • Citic Resources Holdings Ltd. plans to use part of the approximately $766 million it will gain from selling its domestic oil and gas assets to expand overseas, a person familiar with the matter said. The unit of China’s state-owned conglomerate Citic Group has been in talks to acquire oil and gas assets in Kazakhstan, the person said, asking not to be identified because the information is private. Citic Resources is also interested in other assets in Europe, and the company may take on some operations following its parent’s deal with CEFC China Energy’s European unit, the person said.
  • Yum China Holdings Inc., which operates Pizza Hut and KFC restaurants, has rejected a buyout offer from an investor group led by Hillhouse Capital Group, according to a person familiar with the matter. The proposal to take over China’s biggest fast-food operator valued the company at $17 billion, or $46 a share in cash, according to the Wall Street Journal, which first reported the rejection. That would represent a 28 percent premium over Monday’s closing price, yet is still lower than an all-time high of $48.18 reached in January.
  • Venture capital is flowing into Massachusetts life-sciences companies at a record pace as the rush to invest in early-stage biotechnology projects gains momentum, according to a new report. Biopharma companies based in the state attracted $2.7 billion during the first half of this year, almost as much as the record $3.1 billion raised during all of 2017, according to a report by the Massachusetts Biotechnology Council. The Bay State was the top destination for biopharma venture capital last year, the trade group said, accounting for about 40 percent of the total amount raised.
  • Turkey’s central bank reintroduced borrowing limits for overnight transactions at its interbank money market, effectively tightening liquidity after a two-week period of unrestricted funding that aimed to contain stress from the nation’s currency crisis. The central bank said Wednesday that “recent evaluations” prompted the move to reintroduce an overnight borrowing limit, which will be set at 44 billion liras ($6.9 billion). That’s still a looser limit for Turkey’s embattled banks than the 22-billion-lira threshold in force before Aug. 13, when the unrestricted funding was announced as part of a swath of steps announced amid a plunge in the lira.
  • Standard Chartered Plc has already paid a painful penalty for secretly moving billions of dollars through the U.S. on behalf of Iranian clients, in violation of sanctions. But a sweeping investigation has found evidence suggesting that the bank’s Iranian business was more extensive than it admitted, according to five people familiar with the matter. Now U.S. authorities are weighing a criminal penalty against Standard Chartered and individual employees, the people said, who requested anonymity to speak about the probe.

*All sources from Bloomberg unless otherwise specified