August 8th, 2018
Daily Market Commentary
- As Nafta negotiators from the U.S. and Mexico meet for a third straight week in a push to complete a deal on cars, they’re also preparing for a showdown over a clause sought by the Trump administration that could end the agreement altogether. The nations are nearing an accord on content and salaries for auto manufacturing, and the issue remains their top focus, according to two people familiar with the talks. But as teams become more optimistic that a cars deal can come together, attention is starting to pivot to the so-called sunset clause pushed by U.S. Trade Representative Robert Lighthizer — another make-or-break issue.
- Investors have been pushing Canadian energy companies to merge so they can cut costs and combine resources. That isn’t going so well this year. The value of deals involving Canadian oil, natural gas and pipeline companies slumped 29 percent to $45.5 billion in the first seven months of the year, according to data compiled by Bloomberg. Exclude $22.3 billion in Enbridge Inc. outlays to absorb subsidiaries, and this year’s decline2 widens to 64 percent.
- Sun Life Financial Inc., one of Canada’s biggest life insurers, sees the country’s pension risk-transfer market growing to as much as C$5 billion ($3.9 billion) this year as more companies look to divest retirement plans. The Canadian group annuity market will probably reach at least C$4.5 billion this year, up from C$2.7 billion in 2016, Brent Simmons, senior managing director and head of the firm’s defined-benefit solutions group, said in a phone interview.
- Air France-KLM Group is trying to poach a top executive from Air Canada as its next chief executive officer, according to one of the unions leading the labor dispute that cost the European airline its previous CEO. Ben Smith, Air Canada’s chief operating officer, is “among candidates” to lead the Franco-Dutch carrier, Philippe Evain, the head of Air France’s main SNPL pilots’ union, said by phone without saying where he got the information.
- Kinder Morgan Canada Ltd. said the Trans Mountain oil pipeline expansion will cost 26 percent more than estimated and take a year longer to complete. The project is now expected to cost C$9.3 billion ($7.1 billion), Kinder said in a filing on Tuesday. The company had hinted that a revision was coming late last month, based on the uncertainty the investment had encountered.
- European equities opened lower as Glencore and Novo Nordisk paced the declines following disappointing earnings. The Stoxx Europe 600 Index retreated 0.3 percent, with health care and mining shares leading the drop. Novo fell 4.5 percent after saying that U.S. drug prices are expected to fall while Glencore, which had rallied ahead of the earnings, reported first-half adjusted EBITDA below estimates.
- U.S. futures pointing to an almost flat opening after a mixed session in Asia as earnings misses and concern over global trade kept markets in check. The dollar erased an earlier decline. Contracts on the S&P 500, Dow and Nasdaq were steady, with Tesla Inc. shares set to be closely watched after Elon Musk suggested taking the company private.
- China’s yuan edged lower, wiping out earlier gains after the central bank was said to have met lenders to encourage currency stability, while mainland stocks fell following their best day in more than two years. The yuan fell 0.14 percent at 6.8372 per dollar as of 5:07 p.m., erasing an early morning gain of 0.48 percent, and the offshore-traded currency slipped 0.32 percent.
- Oil traded near $69 a barrel in New York as falling American stockpiles and the onset of sanctions against Iran pointed to tighter supplies, offsetting concerns over escalating trade tensions between China and the U.S. Futures were little changed following a 1 percent advance over the previous two sessions. Nationwide crude inventories as well as those in the key hub of Cushing, Oklahoma, slipped last week, the American Petroleum Institute was said to report. Meanwhile, the U.S. said Tuesday it will begin imposing tariffs on an additional $16 billion in Chinese imports in two weeks.
- Gold gains for second day from lowest in more than 16 months as investors weigh the escalating trade war between the U.S. and China. Indian imports of gold in July are to said to have increased for first time this year.
- The U.S. said it will begin imposing 25 percent duties on an additional $16 billion in Chinese imports in two weeks, escalating a trade war between the world’s two biggest economies. Customs will begin collecting the duties on 279 product lines, down from 284 items on the initial list, as of Aug. 23, the U.S. Trade Representative’s Office said in an emailed statement on Tuesday. The new list covers products ranging from motorcycles to steam turbines and railway cars. China’s trade surplus with the U.S. stood at $28.1 billion, close to the record-high in June, data released Wednesday showed.
- Saudi Aramco is buying the 50 percent it doesn’t own in a synthetic-rubber joint venture with Lanxess AG for 1.4 billion euros ($1.6 billion), as the Saudi state-owned oil company deepens its push into chemicals. The sale of the holding in the Arlanxeo venture is subject to approval from antitrust regulators, with the deal expected to close by the end of the year, Cologne, Germany-based Lanxess said Wednesday in a statement. The company will use the proceeds to reduce debt, it said.
- Tesla holders may push for a go-private price above the $420 per share that CEO Elon Musk suggested in a tweet Thursday, and shares may top that mark as investors demand a higher premium and shorts cover positions, Baird analyst Ben Kallo writes in a note. Shares fall about 1 percent in pre-market trading in New York.
- Orix Corp. agreed to buy a stake in aircraft lessor Avolon Holdings Ltd. from China’s HNA Group Co. for $2.21 billion in one of the Japanese financial firm’s largest-ever deals. Through its aviation-leasing unit, Orix will get a 30 percent stake in Avolon from HNA’s Bohai Capital Holding Co. unit, the Tokyo-based company said in a statement on Wednesday. HNA is unwinding deals that had made it one of China’s most aggressive acquirers of foreign businesses.
- As the battle to land Amazon.com Inc.’s second headquarters comes down to the wire, one of the less glamorous contenders is poised to add as much as $1 billion in tax breaks to its pitch. Newark, New Jersey, is expected to approve the big bag of cash, part of a $7 billion package the state is dangling in front of Amazon to capture HQ2, as it’s called. A trio of ordinances up for adoption at a city council meeting Wednesday would give the payroll-tax exemptions to any company that creates 30,000 jobs and invests $3 billion in New Jersey’s largest city over the next 20 years. The ordinances passed the council unanimously when they came up for first consideration last month.
- CVS Health Corp. said it is working “productively” with U.S. regulators to get its $68 billion acquisition of health insurer Aetna Inc. approved, and the process is moving along as expected. The deal may be approved in the third quarter or early in the fourth quarter, CVS said in its earnings statement on Wednesday. That’s a narrower timeframe than the company had previously provided.
- Barry Sternlicht’s Starwood Property Trust Inc. plans to buy a General Electric Co. energy-finance business for $2.56 billion to expand beyond real estate holdings, according to people with direct knowledge of the matter. The acquisition includes a roughly $2.1 billion portfolio of 51 loans backed by assets such as pipelines, power plants and wind farms, as well as $400 million of unfunded commitments, said the people, who asked not to be identified because the deal hasn’t been announced. The project-finance debt unit — and its 21-person team — is part of GE Capital’s Energy Financial Services business.
- Ping An Insurance (Group) Co., the largest Chinese insurer by market value, has evaluated acquiring Prudential Plc’s Asia business, people familiar with the matter said. Ping An has sounded out the Chinese government about whether it would be supportive of a deal, according to one of the people. The Shenzhen-based insurer has also discussed potential financing options with banks, another person said, asking not to be named discussing sensitive information.
- EON SE slashed its debt pile even further in preparation for its asset swap with RWE AG, Germany’s biggest ever utility deal. Net borrowing fell by 18 percent in the first half of the year to the lowest since at least 2006, mainly due to the sale of its stake in Uniper SE to Finland’s Fortum Oyj, the Essen-based company said in a statement. EON affirmed its full-year targets and earnings were largely in line with analysts’ estimates.
- India is on track to hold its position as one of the world’s fastest-growing economies as reforms start to pay off, according to the International Monetary Fund. The $2.6 trillion economy was described by Ranil Salgado, the IMF’s mission chief for India, as an elephant starting to run, with growth forecast at 7.3 percent in the fiscal year through March 2019 and 7.5 percent in the year after that. The nation accounts for about 15 percent of global growth, according to the Washington-based fund.
- Thailand’s central bank left its benchmark interest rate unchanged near a record low as expected, and kept its rhetoric about the decreasing need for monetary policy to support the economy. Six of the seven monetary policy committee members voted to hold the one-day bond repurchase rate at 1.5 percent, where it’s been since 2015, according to a statement on the Bank of Thailand’s website on Wednesday. One MPC member voted for a 25 basis-point increase. All 20 economists surveyed by Bloomberg predicted the rate would stay on hold.
- The U.S. midterm elections are at increasing risk of interference by foreign adversaries led by Russia, and cybersecurity experts warn the Trump administration isn’t adequately defending against the meddling. At stake is control of the U.S. Congress. The risks range from social media campaigns intended to fool American voters to sophisticated computer hacking that could change the tabulation of votes.
- Samsung, South Korea’s biggest conglomerate, plans to invest 180 trillion won ($161 billion) to ramp up its ability to produce memory chips and other products vital to future growth, lending its support to President Moon Jae-in’s efforts to shore up a slowing economy. The spending will boost research and expenditure in artificial intelligence, fifth-generation wireless networks, bio-pharmaceuticals, displays, semiconductors and other key programs over the next three years, according to Samsung Electronics Co., the group’s crown jewel. Almost three-quarters of that investment will be made at home, it said in a statement.
- 21st Century Fox Inc. is making it easier to clinch a takeover of European broadcaster Sky Plc by lowering the bar for approval, to gain an edge over rival bidder Comcast Corp. Fox on Tuesday switched the conditions of shareholder acceptance for its bid to a straight offer, from a scheme of arrangement. That means Fox can use its existing holding in the British company to get to an approval threshold of as little as 50 percent of Sky shareholders, from 75 percent previously.
*All sources from Bloomberg unless otherwise specified