February 10th, 2020

Daily Market Commentary

Canadian Headlines

  • Bombardier Inc. floundered when it developed a plane to nip at the heels of Boeing Co. and Airbus SE. Now, as the company decides whether to bet its future on private jets or trains, the rail division faces a growing threat from another giant: China. Competition from China Railway Rolling Stock Corp., the world’s largest maker of freight and passenger rail cars, is a key factor pushing Bombardier into talks to combine its train arm with Alstom SA. The French group has itself been challenged by CRRC’s move into high-speed trains.
  • Ontario Teachers Pension Plan bought a 20% stake in French funeral company OGF SA last week, giving it effective outright ownership, according to people familiar with the transaction. OTPP, which manages around $191 billion in retirement savings for 327,000 Canadian teachers, bought the stake from private-equity firm Pamplona Capital Management, the people said, without disclosing the price and asking not to be named discussing private information. The deal completes a gradual transfer of OGF’s ownership to the pension fund from Pamplona that started in 2015. The private equity investor took over the French firm in 2013. OTPP also owns Spanish undertaker Memora Servicios Funerarios SL, which it purchased in 2017.

World Headlines

  • European shares fell on Monday as investors continued to digest the economic impact of the coronavirus, and windstorms that disrupted transport during the weekend. The Stoxx Europe 600 Index dropped 0.2% at 8:06 a.m. in London, with travel and leisure and oil & gas the worst performers. A couple of deals also gained attention. Sweden’s Atlas Copco AB agreed to buy specialty software firm Isra Vision AG and French insurer Covea is in advanced talks with Exor NV, +3.9%, to acquire PartnerRe according to people familiar with the matter.
  • U.S. equity futures fluctuated while European stocks edged lower and Asian shares declined on Monday as investors struggled to gauge the economic hit from the spreading coronavirus while preparing for more corporate earnings. Treasuries and European bonds turned higher. Contracts on the three main American equity indexes swung between modest gains and losses.
  • Asia’s main equity gauges fell everywhere apart from Shanghai, as traders monitored the restart of Chinese factories and the possible chaos that may ensue as several hundreds of thousands of people begin returning to work at companies like Apple Inc. manufacturer Foxconn. General Motors Co. will restart production in China beginning Feb. 15. The dollar dipped versus a basket of its major peers following three days of gains.
  • The new coronavirus might have infected at least 500,000 people in Wuhan, the Chinese city at the epicenter of the global outbreak, by the time it peaks in coming weeks. But most of those people won’t know it. The typically bustling megacity, where the so-called 2019-nCoV virus emerged late last year, has been in effective lockdown since Jan. 23, restricting the movement of 11 million people. Recent trends in reported cases in Wuhan broadly support the preliminary mathematical modeling the London School of Hygiene & Tropical Medicine is using to predict the epidemic’s transmission dynamics.
  • The race to lead Germany was thrown wide open on Monday when Annegret Kramp-Karrenbauer announced that she will step down as leader of Angela Merkel’s Christian Democratic Union and won’t run as the party’s candidate for chancellor in the next election. Kramp-Karrenbauer, widely known by her initials AKK, has struggled to stamp her authority on the party since taking over from Merkel in December 2018 and was humiliated last week when a local chapter in eastern Germany defied her orders and threw its lot in with the far-right Alternative for Germany.
  • Volvo Cars may become a public company again, as its Chinese owner Li Shufu considers combining the Swedish automaker with his publicly traded auto unit to create a global carmaker with presence in all major markets. Volvo, wholly owned by Li’s Geely Group, will study the proposal to merge with publicly traded Geely Automobile Holdings Ltd., according to a statement Monday. The enlarged company would be listed in Stockholm as well as Hong Kong, where Geely Automobile trades now. The transaction would advance a theme of global consolidation that’s picked up in the past year and has been championed by Li, the billionaire founder of Geely, as a way to pool resources for initiatives like electrification and automated driving. Volkswagen AG and Ford Motor Co. agreed to cooperate in a broad agreement last year, and Fiat Chrysler Automobiles NV is set to merge with France’s PSA Group, owner of the Peugeot brand.
  • Investors added money to exchange-traded funds that buy emerging market stocks and bonds last week. Inflows to U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $122.4 million in the week ended Feb. 7, compared with losses of $2.52 billion in the previous week, according to data compiled by Bloomberg. So far this year, inflows have totalled $3.52 billion.
  • French insurer Covea is in advanced talks with the Agnelli family’s Exor NV to buy the Italian company’s reinsurance business PartnerRe for about $9 billion in cash, according to people familiar with the discussions. Covea approached Exor with an offer for the Bermuda-based reinsurer and is in exclusive talks with the holding company, which also controls Fiat Chrysler NV and Ferrari NV, said the people, who asked not to be identified as the discussions are private. Exor and Covea confirmed the exclusive discussions, which were first reported by Bloomberg. Talks “are ongoing and there is no certainty that they will result in a transaction,” Amsterdam-based Exor said in a statement late Sunday.
  • The U.S. Navy is requesting about $4 billion less for new ships in President Donald Trump’s fiscal 2021 budget than it received in the current year, a move that’s likely to set off a battle with the service’s advocates in Congress from Mississippi to Maine. In the budget proposal expected to be released on Monday, the Navy cuts back on the number of ships it wants to buy both this year and over the coming five years, according to the Pentagon Comptroller’s 134-page overview of the fiscal 2021-2025 plan obtained by Bloomberg News in advance of its release. The data in the overview signals hurdles to Trump’s 2016 campaign target of building a 355-ship Navy, but the extent of the delay will be debated in upcoming congressional hearings. The service’s budget for the fiscal year starting Oct. 1 drops $2 billion from this year’s approved total to $207 billion, part of an overall Pentagon budget of $705.4 billion. That overall budget represents a slight decline from this year as well.
  • Atlas Copco AB agreed to acquire Isra Vision AG for about 1.1 billion euros ($1.2 billion) as the Swedish maker of tools and compressors moves deeper into industrial software for robots and factory automation. Shareholders of the 3D machine-vision company will receive 50 euros-a-share, Atlas Copco said in a statement on Monday. Founder and Chief Executive Officer Enis Ersue — along with other executives and some investors — have committed their combined 35% stake. Already one of Germany’s top performers in the past decade, Isra Vision jumped another 44%, in line with the offer price.
  • President Donald Trump’s $4.8 trillion budget for the upcoming fiscal year proposes billions more in funding for defense and a U.S. mission to Mars, but would bring steep cuts to social programs despite almost $1 trillion in deficit spending. The proposal, scheduled to be unveiled on Monday, is an election-year embodiment of many of the policy priorities Trump has championed over his first three years in office. He proposes continuing his effort to “rebuild” the U.S. military by investing heavily in defense spending — $740.5 billion in the next fiscal year — including the creation of Space Force.
  • Google’s plan to buy Fitbit Inc. is running into a wall of antitrust and privacy worries in the U.S., Europe and Australia, where competition officials are increasingly wary of how internet giants can exert control over data to cement their dominance. Google’s $2.1 billion acquisition of the maker of smartwatches and fitness trackers, announced in November, would add wearable devices to the internet giant’s hardware business. It also advances the ambitions of Google parent Alphabet Inc. to expand in the health-care sector by adding data from Fitbit’s more than 28 million users. Google has struck cloud-service partnerships with hospital groups and signed a deal with Mayo Clinic to build new artificial intelligence tools.
  • Plenty of experts have lived to regret their predictions of the downfall, the collapse — the peak of anything China. But here  it is. A bold call for the ages: We very likely have just witnessed Peak China (as an export powerhouse). In the third quarter of last year 14% of all global goods exports came from China, according to data collated by the World Trade Organization. That was second only to the final quarter of 2015 when China’s share of global exports topped 15%. That share may still be beat in the fourth quarter of 2019, data for which is not available yet. China’s exports remained robust in 2019. (We have the Chinese numerator for all of last year; we don’t yet have the full 2019 global denominator from the WTO).
  • Singapore Press Holdings Ltd. has selected advisers to help with a planned listing of a real estate investment trust backed by student housing that could raise at least $300 million, according to people familiar with the matter. The country’s biggest media group is working with DBS Group Holdings Ltd., HSBC Holdings Plc and Oversea-Chinese Banking Corp. on the potential sale of trust units backed by university student accommodation in the U.K., according to the people. The initial public offering could take place in Singapore as soon as the second half of this year, said the people, who asked not to be named as the information is private.
  • French rail operator SNCF, one of the companies hit hardest by strikes over the country’s pension reforms, is considering a sale of leasing unit Ermewa Group, people with knowledge of the matter said. The state-owned company has been weighing a divestment of Ermewa, which rents out railcars and tank containers, among several possible asset sales as part of a strategic review, according to the people. If it pursues a sale, the business could be valued at about 2.5 billion euros ($2.7 billion), the people said, asking not to be identified because the information is private.

*All sources from Bloomberg unless otherwise specified