December 16th, 2019
Daily Market Commentary
- Hudson’s Bay Co. Chairman Richard Baker may scrap an offer to take the struggling retailer private after regulators delayed a vote on the deal following complaints from a minority shareholder. The investor group that controls the owner of Saks Fifth Avenue is “evaluating next steps, including terminating the transaction,” according to a memo sent to advisers. The group plans to make a final decision in a week or so, according to the note. Until then, it’s “pens down” until further notice, meaning no work is to be done on the deal.
- European equities advanced to a record high early Monday as cyclical sectors gained on improved political clarity from the Conservatives’ election victory in the U.K. and as traders eyed details of the U.S.-China trade deal. The Stoxx Europe 600 Index rose 0.9% to a historical intraday peak of 415.59. British American Tobacco Plc climbed 3% and Roche Holding AG added 0.9%.
- U.S. index futures climb, pointing to another positive trading session after the S&P 500 hit a new record on Friday and as European shares also advance. Oil traded near a three-month high. Contracts on the main U.S. benchmarks all rose in the wake of Friday’s agreement that will see Washington reduce tariffs and Beijing increase purchases of American farm goods, even though many details are still to be ironed out.
- Shares were mixed in Asia. Equities in Shanghai rose after Chinese data showed industrial output and retail sales both exceeded expectations. The pound strengthened, though it trimmed gains after U.K. factories posted the weakest performance in more than seven years. European bonds mostly edged higher.
- Oil steadied near a three-month high on cautious optimism that a preliminary trade deal between the U.S. and China will support global fuel consumption. Futures held near $60 a barrel in New York after settling at the highest since Sept. 16 on Friday. The deal involves China buying more American farm products and making new commitments on intellectual property, while the U.S. will suspend new levies and halve existing tariffs on $120 billion of Chinese imports. It’s expected to be signed and released publicly in early January.
- Gold steadied as the dollar dipped and investors assessed the partial trade deal between the U.S. and China. Palladium rebounded after a drop on Friday. While the trade announcements pushed equities higher and weakened safe haven demand, many details are still to be ironed out. Chinese data showed industrial output and retail sales both exceeded expectations. Still, a trade spat between China and Germany over Huawei Technologies Co., as well as disappointing factory data out of Germany and the U.K., added to investor concerns.
- The euro zone’s private sector is barely growing as 2019 draws to a close, rounding off a year that has seen factories battered by trade uncertainties. IHS Markit’s Composite Purchasing Managers’ Index stayed at 50.6 in December, slightly lower than economist estimates of 50.7. The reading signals fourth-quarter output will be the weakest since the region exited a double-dip recession in the second half of 2013. The PMI signals that the private sector is failing to pick up momentum — the 50 level divides expansion from contraction.
- U.K. manufacturing production suffered its worst month in more than seven years in December, increasing the chances that the economy as a whole will contract this quarter. The disappointing survey may reflect some nervousness in the run-up to last week’s U.K. election. Prime Minister Boris Johnson’s decisive victory in the vote removes some near-term concerns, though a myriad of questions remain over the U.K.’s future relationship with the European Union. If that undermines growth, that could impact Johnson’s plans to both increase spending and keep control of the deficit.
- International Flavors & Fragrances Inc. reached a $26.2 billion agreement for DuPont Inc.’s nutrition division, prevailing over Ireland’s Kerry Group Plc as it continues to expand in the fast-growing food-ingredients business. The transaction will create a new company comprised of the bidder’s assets and DuPont’s nutrition business. The new company will have an enterprise value of $45.4 billion, with DuPont shareholders getting a 55.4% stake and IFF shareholders getting 44.6%, the companies said in a statement Sunday after Bloomberg News reported the deal was near.
- California Governor Gavin Newsom has long called for PG&E Corp. to emerge from its bankruptcy radically transformed. Now, the beleaguered utility has to race to meet his demands — or else see its restructuring plan blow up. The state’s largest power company has until Tuesday to address conditions that Newsom laid out in a letter late last week rejecting its reorganization proposal. The governor said the current plan falls “woefully short” of meeting requirements of a key state law and insisted on changes that could reshape PG&E, including an entirely new board and the option for a takeover.
- For Chinese President Xi Jinping, the phase-one trade deal with U.S. President Donald Trump isn’t exactly a reason to pop open the champagne. After months of arduous negotiations, false starts and dashed hopes, the agreement announced on Friday night helps steady a relationship in free-fall. While that’s important for Xi, who has faced rumblings of discontent as the economy grows at the slowest pace in almost three decades and protests in Hong Kong rage with no end in sight, it’s at best a temporary respite. The deal did nothing to address the swathe of industrial policies that have driven frustrations with China in Washington. Nor will it reduce the intensifying competition between the two sides over the future of 5G technology, geopolitical hot spots like Taiwan and the South China Sea, or Beijing’s hard-line policies in China’s far western region of Xinjiang — all areas that Xi’s critics say could’ve been handled better.
- Boeing Co. is considering temporarily halting production of the 737 Max as regulatory clearance for the grounded jet’s return looks increasingly likely to slip beyond January 2020, said a person familiar with the matter. While the board is also studying another slowdown in output for its best-selling jet, executives are convinced a temporary pause would be less disruptive, said the person, who asked not to be identified as the discussions are confidential. Boeing shares fell as much as 2.8% in premarket trading in New York on Monday, adding to a 19% drop since a March crash in Ethiopia sparked a global grounding of the 737 Max.
- Donald Trump’s likely impeachment this week adds a permanent stain to a presidency plagued by unrelenting turmoil and partisan rancor, while aggravating U.S. political divisions as he starts his fight for re-election. The House is all but certain to deliver the formal rebuke in a vote on Wednesday, marking the political climax of three years of Democratic furor over Trump’s time in the White House and the end of a frenetic three-month investigation into whether he abused the power of his office.
- Investors added money to exchange-traded funds that buy emerging market stocks and bonds last week. This was the 10th straight week of inflows. Inflows to U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $1.15 billion in the week ended Dec. 13, compared with gains of $141.9 million in the previous week, according to data compiled by Bloomberg. So far this year, inflows have totalled $6.81 billion.
- Britain’s Cineworld Group Plc is on track to become North America’s biggest operator of movie theaters with its plan to buy Canada’s Cineplex Inc. for C$2.15 billion ($1.64 billion). Cineworld will pay C$34 a share for Cineplex, a 42% premium to Friday’s closing price. The deal will be funded by $2.3 billion of loans. Shares of Cineworld were down 3% as of 10:24 a.m. in London, paring an earlier loss of as much as 8.6%, the biggest intraday drop in about two years. Analysts at Citigroup Inc. said that while the deal makes sense, Cineworld’s debt will remain high afterward.
- The pickup in China’s economy in November adds to the optimism from the trade deal announced last week, though plenty of downside risks remain as the nation heads into 2020. Industrial output and private consumption were both much stronger than expected, with production jumping 6.2% from a year earlier and retail salesclimbing 8%, data released Monday showed. At the same time, fixed-asset investment in the first 11 months of this year grew at 5.2%, the slowest pace since at least 1998.
- China injected liquidity into the financial system by offering medium-term loans to banks, in the government’s latest effort to support economic growth. It kept interest rates on the loans unchanged. The People’s Bank of China added 300 billion yuan ($43 billion) through the medium-term lending facility, with 286 billion yuan used to roll over loans coming due on Monday. It offered the one-year loans at 3.25%, according to a statement. The central bank refrained from injecting cash through reverse repurchase operations for a 19th session on Monday, the longest hiatus in a year.
- WPX Energy agrees to buy Felix Energy, a Delaware Basin operator, for $2.5 billion in cash and stock. Deal price consists of $900 million cash and $1.6 billion in WPX stock issued to the seller
- Boris Johnson will appoint new ministers to his cabinet on Monday as he pushes ahead with Brexit after securing a historic victory in last week’s U.K. election. The prime minister now has the power to enforce his vision for leaving the European Union and reshaping the British economy, following the biggest win for his Conservative Party since Margaret Thatcher 32 years ago.
- PSA Group has secured the backing of one of its major shareholders, the French government, for its plan to merge with Fiat Chrysler Automobiles NV, according to people familiar with the matter. The French state, which holds roughly 12% in PSA and has board representation, is supporting a binding memorandum of understanding that could be approved this week, said the people, who asked not to be named because the deliberations are private. PSA directors are scheduled to meet Tuesday to review the terms, which reflect minor changes to an accord unveiled Oct. 31, the people said.
- State Grid Corp. of China has agreed to acquire a 49% stake in Oman’s state-owned power transmission company in the first major privatization by the Middle East’s largest non-OPEC oil producer. The Chinese state-owned company announced the deal on its website Monday, without providing any financial details. The statement confirmed an earlier Bloomberg News report. State Grid will buy the stake in a transaction that values Oman Electricity Transmission Co. at about $2 billion, people familiar with the matter have said.
- Roche Holding AG cleared a hurdle in its long-delayed takeover of Spark Therapeutics Inc. as U.K. regulators signed off on the $4.8 billion deal. The U.K.’s Competition & Markets Authority approved the transaction after scrutinizing for months how the combination might impact the market for treating hemophilia, a blood-clotting disorder at the center of both companies’ strategies. The deal would allow Roche, which sells a promising new treatment for the inherited ailment, to be at the forefront of a new generation of medicines. Spark is developing three gene therapies that may result in the first cure for hemophilia.
*All sources from Bloomberg unless otherwise specified