August 7th, 2019

Daily Market Commentary

  • Canadian Headlines
    • Canadian stocks played catch up with a global rout following Monday’s holiday, with the nation’s benchmark falling the most this year before paring losses. The S&P/TSX Composite Index fell 0.8% on Tuesday, extending its slump for a sixth straight session — its longest losing streak since Sept. 10. Energy stocks were the biggest decliners on the benchmark as the price of oil continued to slide despite China’s move to stabilize the yuan. Gold miners soared following the precious metal’s rise to near $1,500 per ounce on Monday.
    • Despite a cool, wet start to the growing season, the pot plants were already chested high by mid-July at WeedMD Inc.’s farm in southwestern Ontario, a region better known for producing fruit and corn than cannabis. WeedMD is one of 13 Canadian pot companies that have been granted outdoor cultivation licenses in an industry that predominantly grows in greenhouses or warehouses. It has planted 21,000 plants on 27 acres that formerly grew asparagus and expects to harvest more than 25,000 kilograms (55,000 pounds) of dried pot from its outdoor operations this year, more than half its total production.
    • QuadReal Property Group Ltd. is planning to issue its first private placement bonds in U.S. dollars next year to refinance debt coming due and fund its growth. The Vancouver-based firm will aim to raise debt in both Canadian and U.S. dollars, according to Chief Financial Officer Tamara Lawson. QuadReal currently has C$1.85 billion ($1.39 billion) in private bonds with C$350 million maturing in 2021, she said.
    • TPG and Ontario Teachers’ Pension Plan Board agreed to buy as much as 35% of a cruise operator from Genting Hong Kong Ltd. for $489 million. The deal values Dream Cruises at $3.3 billion after assuming net debt of $1.87 billion, Genting said in a statement on Tuesday. Genting will post a $470 million gain from the sale, which will increase the net asset value of each of its shares by 5.5 U.S. cents, it said.

     

  • World Headlines
    • European stocks rallied slightly after three straight losing sessions as investors focused on earnings and deal activity, even as trade worries simmered. The Stoxx Europe 600 Index added 0.2% as of 8:18 a.m. in London, playing catch-up to overnight gains in U.S. equities. Bayer and Lanxess rose after agreeing to sell their stakes in Currenta in a deal valued at $3.9 billion. Glencore dropped after its profit missed estimates and UniCredit declined after lowering its full-year revenue guidance. MorphoSys and Banco BPM were among shares that gained after earnings reports.
    • U.S. equity futures extended a rebound and European stocks rallied as markets continued to recover from a brutal selloff at the start of the week. Caution was on display, however, as bonds gained while currencies were roiled by a series of dovish central-bank moves in Asia. Futures on all three major U.S. benchmarks turned higher following a surge in the underlying gauges on Tuesday.
    • Chemicals producers advanced after Bayer and Lanxess agreed to sell their stakes in Currenta, while Glencore fell after its profits missed estimates. Shares were mixed but calmer in Asia, with Japanese stocks closing barely changed while equities in Shanghai declined. The yuan dipped after China set its reference rate slightly weaker than expected. The yen gained and gold rallied toward $1,500 an ounce
    • Brent crude steadied after falling into a bear market as concern the U.S.-China trade war will continue to sap demand outweighed an industry report showing American crude stockpiles are still shrinking. Futures traded near $59 a barrel in London after settling 1.5% lower on Tuesday, taking their decline from a late-April peak to more than 20%. The U.S. government’s Energy Information Administration lowered its estimates for growth in global oil demand in 2019 to 1 million barrels a day, while tensions between Washington and Beijing heightened after America designated China a currency manipulator on Monday.
    • Gold futures rallied above $1,500 an ounce on sustained demand for the traditional haven as the U.S.-China trade war festers, global growth slows and central banks around the world ease monetary policy. The metal advanced as much as 1.3% to $1,503.30 an ounce on the Comex, the highest since 2013. The move extends this year’s climb to 17%, with gains underpinned by inflows into exchange-traded funds. Central banks in India and New Zealand both surprised markets on Wednesday with bigger-than-expected interest rate cuts, boosting speculation others will follow. Silver surged.
    • Iron ore has yet to find a bottom, extending a brutal sell-off on rising concern Chinese demand will weaken this half as supplies rebound. That blow adds to trade-war headwinds as investors shun risk assets. Futures in Singapore sank into the $80s a ton, while the contract in Dalian hit the lowest since May. On Tuesday, Fortescue Metals Group Ltd. warned there’s potential for mainland demand to soften this half compared with the first six months. That’s just the latest red flag after a run of indicators from rising port holdings to sinking mills’ profitability that foreshadowed the market’s swoon.
    • Glencore Plc reported the weakest profit in three years and announced plans to halt about a fifth of the world’s cobalt production after prices for the battery metal plunged. Glencore will shutter the Mutanda project in the Democratic Republic of Congo for about two years in a move to put a floor under the cobalt market, which has seen prices fall more than 70% since April last year. Despite the plunge in profits, Glencore’s billionaire Chief Executive Officer Ivan Glasenberg struck an upbeat tone on the outlook for the rest of the year, saying he doesn’t see a big pullback in commodities demand because of the U.S. and China trade war.
    • Bank of China Ltd. is seeking to grow its presence in Schuldschein, helped by investments sometimes more than 20 times the market average. The lender aims to become a lead arranger on deals, after twice being a co-arranger, according to Yongjun Liu, head of corporate banking at BOC’s Frankfurt branch. The bank is also seeking to lure Chinese borrowers into the German-centric market, he said.
    • Ukraine is selling $1.35 billion worth of non-performing loans in a bid to create a new marketplace for the country’s bad debt pile. This is the first major batch of as much as $15 billion of bad loans that Ukraine’s deposit protection fund DGF wants to put up for sale over the next year or so, according to Bliss A. Morris, founder and chief executive officer of First Financial Network (FFN), a U.S. consultancy advising on the deal.
    • China’s central bank set its daily currency reference rate marginally stronger than 7 a dollar, leaving analysts anticipating Thursday’s fixing as a key policy signal. The Wednesday level of 6.9996 gives the People’s Bank of China little headroom if it wants to track the spot rate lower while staying on the strong side of 7. The currency has recently breached that key psychological level, stoking criticism from Donald Trump and roiling global markets, but the fixing hasn’t. The yuan was down 0.28% at 7.0449 a dollar at 5:03 p.m. in Shanghai.
    • Singapore Airlines Ltd. just picked a fight with Emirates in a grab for India’s international travellers, and a slice of one of the world’s fastest-growing aviation markets. Singapore Air’s unprofitable Indian venture Vistara completed its first overseas flight — between New Delhi and Singapore — on Wednesday. It’s the start of an uphill battle against Middle East airline giants, led by Emirates and Etihad Airways PJSC, that dominate India’s offshore routes.
    • CVS Health Corp. raised its 2019 earnings forecast for the second time this year after topping Wall Street’s estimates, driven by growing revenue and profit at the drug-benefits unit. The shares were up 4.5% in early New York trading. The company expects adjusted earnings for the year to be $6.89 to $7 per share, an increase from its May forecast of $6.75 to $6.90.
    • Three central banks across Asia Pacific delivered surprise interest-rate decisions on Wednesday as policymakers take aggressive action to counter a worsening global economy. New Zealand and India led with bigger-than-expected interest rate cuts, while Thailand’s 25-point reduction was a surprise to all but two in a Bloomberg survey of economists.
    • The U.S. National Highway Traffic Administration sent Tesla Inc.’s Elon Musk a cease-and-desist letter last year regarding Model 3 safety claims and subpoenaed the carmaker for information on several crashes, according to documents posted by a nonprofit advocacy group. NHTSA lawyers took issue with an Oct. 7 Tesla blog post that said the Model 3 had achieved the lowest probability of injury of any vehicle the agency ever tested, the documents released Tuesday by the legal transparency group Plainsite show. The regulator said the claims were inconsistent with its advertising guidelines regarding crash ratings and that it would ask the Federal Trade Commission to investigate whether the statements were unfair or deceptive acts.
    • U.S. technology companies would pay an additional $1 billion a month or more in tariffs if President Donald Trump follows through on his threat to impose duties on additional Chinese imports next month, a trade group said. Trump said last week that he plans to add a 10% tariff on essentially all remaining Chinese imports — a category of goods valued at $300 billion that includes a raft of consumer and tech goods. About $250 billion in imports from China have already been hit with a 25% tariff. The Consumer Technology Association said the industry paid $1.7 billion in tariffs in June. The additional levies set to take effect on Sept. 1 would impact about $13 billion in technology imports from China that month, including mobile phones, laptops, televisions and smartwatches, the group said.
    • Falling mortgage rates are spurring more U.S. homeowners to take advantage of the trend by refinancing to lock in more favourable payments. A gauge of mortgage refinancing volume rose 11.8% last week to the highest level since November 2016, according to a Mortgage Bankers Association report Wednesday that also showed refinancings accounted for 53.9% of all applications, the biggest share since late 2017. The average 30-year mortgage rate fell to 4.01%, also the lowest since November 2016.
    • The escalating trade war between the U.S. and China is nudging the world economy toward its first recession in a decade with investors demanding politicians and central bankers act fast to change course. In the U.S. alone, the recession risk is “much higher than it needs to be and much higher than it was two months ago,” Lawrence Summers, a former U.S. Treasury secretary and a White House economic adviser during the last downturn, told Bloomberg Television. “You can often play with fire and not have anything untoward happen, but if you do it too much you eventually get burned.”
    • DeepMind, the artificial-intelligence company owned by Googleparent Alphabet Inc., saw its revenue almost double last year, but gains were dwarfed by losses that increased to hundreds of millions of dollars. The London-based company also has more than a billion dollars of debt due for repayment this year, according to full-year accounts for the year ended Dec. 31 posted to U.K. business registry Companies House. Losses for 2018 widened to 470.2 million pounds ($572 million) from 302.2 million pounds in 2017. Revenue rose to 102.8 million pounds, up from 54.4 million pounds. Staff costs also nearly doubled against the year-ago period to 398 million pounds in 2018.
    • Short-seller Muddy Waters targeted Burford Capital Ltd., driving the litigation-finance company’s stock down as much as 64% and piling pressure on fund manager Neil Woodford, a big Burford shareholder. Muddy Waters said in a report on its website Wednesday that the London-listed company overstates the returns it earns on its investments and questioned its financial reporting and governance. Shares of Burford — which counts Woodford Investment Management among its top holders — had slumped by 19% Tuesday amid market speculation about Muddy Waters’ next target.
    • Walt Disney Co. opened the most highly anticipated theme-park attraction in the company’s history — and attendance fell. Profit at the company’s domestic resorts slumped in the latest quarter, which was marked by the ballyhooed opening of Star Wars: Galaxy’s Edge, the largest addition ever to the Disneyland resort in Anaheim, California. A second version of the space-themed land opens in Florida this month.
    • Uber Technologies Inc. and Lyft Inc. will get a chance to jump-start their languishing stocks when they report second-quarter financial results this week. With shares of both ride-hailing companies trading more than 10% below their initial public offering prices, investors will be looking for signs that revenue growth remains strong and that they remain on track toward profitability. Lyft will be the first to report on Wednesday after markets close. Uber’s release is on Thursday.
    • DuPont de Nemours Inc. — fresh off the breakup of chemical giant DowDuPont Inc. — is considering unloading its nutrition and biosciencesdivision, according to people familiar with the matter. The Wilmington, Delaware-based specialty chemicals maker is working with advisers to evaluate options that could include selling or spinning off the business, said the people, who asked to not be identified because the matter isn’t public. It is also considering a so-called Reverse Morris Trust, or tax-free merger with another company.
    • Kirin Holding Co. agreed to buy a 30% stake in Japanese cosmetics maker Fancl Corp. for 129.3 billion yen ($1.2 billion) as the beer and food maker keeps up its push into health and well-being products. The Japanese brewer will become Fancl’s majority shareholder after buying 39.5 million shares from founder and Chairman Kenji Ikemori, his relatives and their asset management companies, Kirin said in a statement Tuesday. The two companies will form a business tie-up to develop lifestyle, skincare and other products, as well as share distribution channels.
    • Bayer AG and Lanxess AG agreed to sell a chemical-parks operator to funds managed by Macquarie Infrastructure and Real Assets in a deal valued at 3.5 billion euros ($3.9 billion). Shares of the German companies gained on the deal, with Bayer up 1.4% early Wednesday in Frankfurt and Lanxess surging as much as 5%. The sale extends Bayer Chief Executive Officer Werner Baumann’s push to unload assets outside the core health-care and crop-science units. It comes as Bayer battles a wave of U.S. lawsuits over its Roundup weedkiller, which plaintiffs say causes cancer.

    *All sources from Bloomberg unless otherwise specified