August 31st, 2018

Daily Market Commentary

Canadian Headlines

  • President Donald Trump said the U.S. is making progress with Canada to revamp Nafta as negotiators stepped up the pace of discussions to meet a Friday deadline to reach an agreement. “Canada’s going to make a deal at some point. It may be by Friday or it may be within a period of time, but ultimately they have no choice,” Trump said Thursday in an interview with Bloomberg in Washington. “I think we’re close to a deal.”
  • Canada’s precarious relationship with its vast oil riches flared up again Thursday after a federal court struck down Prime Minister Justin Trudeau’s approval of a key pipeline, reviving fears about the country’s ability to get its resources to market. While the government pledged to press ahead with the C$4.5 billion ($3.5 billion) Trans Mountain expansion, the leader of oil-rich Alberta pulled out of Trudeau’s marquee national climate plan in protest after the ruling. Indigenous groups and the City of Vancouver had mounted the challenge, and their success highlights the extraordinary political, legal and social battles that a divided Canada has faced for years in developing the world’s third-largest crude reserves.

World Headlines

  • Contracts on the S&P, Dow and Nasdaq all pointed to a decline at the open, while carmakers were the biggest losers in the Stoxx Europe 600 Index after Trump cast doubt on the scope of a trade deal between the U.S. and Europe. Emerging-market equities fell a second day, while the Indian rupee dropped to a record as contagion spread from Argentina and Turkey. The yen climbed and European sovereign bonds were mixed while the euro edged lower as the region’s inflation unexpectedly slowed.
  • U.S. stock index futures pointed to a weak start and European equities fell following a downbeat session in Asia on Friday after President Donald Trump stepped up his tough talk on trade. Emerging-market shares took another hit, while the dollar and Treasuries edged higher.
  • There are plenty of reasons why most stock markets across Asia fell on Friday, the last trading session in August. China’s decision to limit the number of new online games and U.S. President Donald Trump’s plans to move ahead with a plan to impose tariffs pushed the MSCI Asia Pacific Index 0.3 percent lower to 165.64 as of 4:28 p.m. in Hong Kong. The benchmark is set for its third monthly decline in four. Defensive stocks led movers this month, with a sub-gauge for utilities falling 2.9 percent while a measure for healthcare shares rose 3.7 percent.
  • Oil headed for a monthly gain as expectations that American sanctions on Iranian crude will tighten global markets outweighed the risk to demand from the ongoing U.S.-China trade dispute. Brent futures in London were poised for their biggest monthly increase since April on signs that U.S. penalties will severely constrict Iranian supplies. While U.S. crude prices climbed above $70 a barrel in New York on Thursday for the first time since late July, they remained capped as a lack of pipelines slows the delivery of crude to refineries and export terminals on the coast.
  • Gold is set for a fifth straight monthly decline, the longest losing run in half a decade, hit by a strengthening dollar and U.S. equities at record highs. Bullion for immediate delivery, which was at $1,205.96 an ounce on Friday, has lost 1.5 percent in August, and the run of monthly declines is the longest since 2013.
  • Euro-area inflation unexpectedly slowed in August, which may add to policy makers’ concerns as they prepare to pare back stimulus amid increasing economic risks. Consumer-price growth came in at 2 percent, below the 2.1 percent reading in July that economists expected to see repeated. The core measure, which strips out volatile components such as energy and food, fell to 1 percent, also below expectations.
  • Coca-Cola Co. agreed to buy the U.K. chain Costa Coffee for 3.9 billion pounds ($5.1 billion), stepping into a battle with Nestle SA and Starbucks Corp. as it gains a global brand in hot drinks. Whitbread Plc agreed to sell Costa at a price that’s 16 times this year’s earnings before interest, taxes, depreciation and amortization, the companies said in a statement Friday.
  • Lyft Inc., the second-biggest U.S. ride-hailing company, has started the process for an initial public offering in an effort to beat Uber Technologies Inc. to the public markets, people familiar with the matter said. Lyft has hired IPO adviser Class V Group LLC to work closely with management as they embark on the process, said people familiar with the discussions who asked not to be identified because the matter is private. The company plans to begin taking pitches from banks as soon as September, targeting March or April for the listing, the people said.
  • President Donald Trump wants to move ahead with a plan to impose tariffs on $200 billion in Chinese imports as soon as a public-comment period concludes next week, according to six people familiar with the matter. Asked to confirm the plan in an interview with Bloomberg News in the Oval Office on Thursday, Trump smiled and said it was “not totally wrong.” He also criticized management of the yuan, saying China has devalued its currency in response to a recent slowdown in economic growth.
  • The U.K.’s struggle to secure a favorable Brexit deal may be giving Prime Minister Theresa May a headache, but it’s making London’s battered buy-to-let market attractive overseas again. Foreign-based landlords owned 12 percent of the homes rented out in the capital at the end of the first half, up from 7 percent last year, according to a report by Hamptons International. A falling pound has made it cheaper for overseas investors to buy homes using their local currencies, and many have been lured by a red-hot rental market that’s still at record levels.
  • The Bank of Japan may buy fewer bonds in September, as investors called upon the central bank to relax its grip on the world’s second-largest debt market. The BOJ reduced the number of days on which it would buy bonds in the 1-to-10 year tenors by one, while increasing the amount that it could purchase, according to its statement Friday. It could end up buying 200 billion yen ($1.8 billion) less debt than it had planned in August, based on the middle of each purchase range, according to calculations by Bloomberg.
  • President Donald Trump said he would pull out of the World Trade Organization if it doesn’t treat the U.S. better, targeting a cornerstone of the international trading system. “If they don’t shape up, I would withdraw from the WTO,” Trump said Thursday in an Oval Office interview with Bloomberg News. Trump said the agreement establishing the body “was the single worst trade deal ever made.”
  • As U.S. tax cuts prompt Apple Inc. and other tech companies to bring home their overseas cash hoards, it’s leaving a void in the market for short-term corporate bonds, where those firms had invested much of the money. That’s now making it more expensive for other companies to borrow. Once the biggest buyers of short-dated corporate debt, Apple along with 20 other cash-rich companies including Microsoft Corp. and Oracle Corp. have turned into sellers. While they once bought $25 billion of debt per quarter, they’re now selling in $50 billion clips, leaving a $300 billion-a-year hole in the market, according to data tracked by Bank of America Corp. strategists.
  • Emerging-market assets are headed for a monthly loss as declines in Argentina and Turkey sparked fears of global contagion and amid a renewed intensification of U.S.-China trade tensions. The MSCI EM index of currencies is down 2.2 percent for August as of 10:18 a.m. in London, poised for a fifth monthly loss, the longest stretch since September 2015. South Africa’s rand headed for its worst August on record, while the lira rebounded on Friday after Turkey raised taxes on dollar deposits. In Asia, the Indonesian rupiah slid to its lowest since 1998, while the Indian rupee was set for its biggest monthly drop in three years and a fresh record low.
  • Renesas Electronics Corp., the second-biggest supplier of semiconductors used in cars, said it’s considering an acquisition of Integrated Device Technology Inc. to expand beyond the automotive sector. The two companies will meet next week and Renesas plans to make a tender offer valued at about $6 billion, though prospects for an agreement are unclear, Japan’s Nikkei reported earlier Friday. Any deal will be funded with cash and loans, it added. The Japanese chipmaker later said in a statement that a deal with IDT was just one option under consideration and that nothing had been decided.
  • Keppel Infrastructure Trust is considering a binding bid for Blackstone Group LP’s chemical firm in Australia, people with knowledge of the matter said, in what would be the Singapore-focused business trust’s boldest push in years to diversify. The company is among suitors shortlisted this month to make offers for Ixom, in a deal that could fetch more than $1 billion, said the people, who asked not to be identified because the details are private. Final bids are due in a few weeks, said one of the people.
  • A Transurban Group-led consortium agreed to buy 51 percent of Sydney’s WestConnex toll road for A$9.26 billion ($6.7 billion), doubling its network in Australia’s largest city. Transurban will raise A$4.2 billion in a rights issue to help fund the acquisition, and a further A$600 million from other members of the bidding group, the Melbourne-based company said in a statement. The shares will be sold at A$10.80 each, a 10 percent discount to the latest closing price.
  • Mizuho Financial Group Inc. has dismissed five members of its Asia convertible bonds team in a cost-cutting drive amid a challenging year, according to people with knowledge of the departures. The Japanese bank told those affected earlier this week, according to the people, who asked not to be named discussing information that isn’t public. The bankers departing include John MacAloon, global head of pan-Asia multi-strategy sales, and Kim Wong, head of Asia ex-Japan convertible bond trading, both based in Hong Kong, as well as Neil Atkinson, a London-based salesman, one of the people said. That trims the team of 14 people to nine, the person said.
  • European car stocks fell and the region’s politicians expressed disappointment after U.S. President Donald Trump rejected a proposal to eliminate tariffs on auto imports and reiterated his threat to pull out of the World Trade Organization, in a move that would upend commerce globally. A gauge of the automobiles and car-parts sector in Europe fell as much as 1.7 percent on Friday morning, with Continental AG and Volkswagen AG among the companies leading the losses. European stocks fell and U.S. equity futures pointed to a dip at the open.
  • The lira rallied after Turkey raised taxes on dollar deposits, making it more attractive for investors to plough money into the local currency. The lira snapped four days of losses after the government raised taxes on dollar deposits of up to a year and scrapped a 10 percent tax on lira accounts with maturities longer than a year. The currency is still heading for a loss of around 9 percent this week and is the second worst-performing emerging-market currency this year.

*All sources from Bloomberg unless otherwise specified