February 18th, 2020

Daily Market Commentary

Canadian Headlines

• French train maker Alstom SA agreed to buy the rail unit of Bombardier Inc. for as much as 6.2 billion euros ($6.7 billion) to almost double in size, as the Canadian company offloads assets following a costly expansion in aerospace. Alstom, based in Saint-Ouen, near Paris, will pay as little as 5.8 billion euros in the cash-and stock transaction outlined in a memorandum of understanding, according to a statement Monday. The acquisition is likely to add to earnings per share within two years and generate as much as 400 million euros in annual savings for Alstom within five years. Combining with Bombardier Transportation would make Alstom the clear No. 2 in rail equipment and help it counter the industry leader, China’s CRRC Corp., which is increasingly targeting global sales. Alstom is making a second attempt to bulk up, after a plan to merge with the rail unit of Germany’s Siemens AGwas blocked last year by the European Union on antitrust considerations.

World Headlines

• In Europe, tech companies were among the biggest laggards in the Stoxx 600 index as Apple suppliers including Dialog Semiconductor Plc and AMS AG slid. HSBC Plc tumbled the most in more than a decade after saying it will slash jobs in a “fundamental restructuring,” while also flagging risks due to the virus.
• U.S. equity-index futures fell along with European stocks on Tuesday after Apple Inc. said quarterly sales would miss forecasts, spooking investors who had hoped for a limited economic impact from the deadly coronavirus. Treasuries rose and the dollar edged higher. Contracts on the three major U.S. equity benchmarks dropped, with Apple shares slumping as much as 4.2% in pre-market trading after the iPhone maker warned on both production and sales disruptions due to the epidemic.
• Equity benchmarks in Tokyo, Seoul and Hong Kong saw declines of over 1%, while stocks in Shanghai fluctuated. European bonds climbed, while the euro edged lower after a German investor-confidence index plunged. Corporate reports on Tuesday raised renewed concerns about the coronavirus impact, even as the growth rate of cases in China’s Hubei province — the epicenter of the disease — continues to stabilize. It’s a turnaround from Monday, when sentiment was lifted by Chinese policy makers’ moves to support companies hit by the prolonged shutdown of large parts of the country. BHP Group said commodity prices will take a hit if the fallout extends beyond the end of next month.
• A five-day rally in oil prices ended as investors found new reasons to worry about how fuel demand will be affected by the impact of Asia’s deadly coronavirus. Brent futures fell 1.8% to trade below $57 a barrel in London. Citigroup Inc. said that markets are overconfident in expecting a v-shaped recovery and oil prices are likely to remain weak during the first half of the year. The outbreak has curbed travel and hit supply chains across the world, with Chinese refineries continuing to trim processing rates and Apple Inc. saying it won’t be able to meet its revenue guidance for the March quarter due to work slowdowns and lower smartphone demand.
• Gold climbed to a two-week high and palladium held above $2,500 an ounce as investors focused attention on the impact of China’s coronavirus. Haven assets are looking more attractive as companies like Apple talk about the toll the virus is having on global business. Palladium and platinum also advanced despite a report showing European car sales declined in January.
• Michael Bloomberg has qualified to join the other Democratic presidential candidates on the debate stage for the first time on Wednesday, according to a NPR/PBS NewsHour/Marist poll. Bloomberg reached 19% support in the poll released Tuesday, his fourth with more than 10% support, meeting the Democratic National Committee’s threshold for qualification.
• Apple Inc.’s shares fell 4.1% in pre-market trading after the company said the fallout from the coronavirus will cause it to miss its sales targets this quarter, sending shockwaves across tech stocks globally. Shares of Apple’s European suppliers fell in early trading, echoing an earlier decline in their Asian counterparts. Europe’s benchmark Stoxx Tech Index fell as much as 1.6% on Tuesday, with Dialog Semiconductor Plc down 6%, AMS AG dropping 5.1% and STMicroelectronics NV falling 4.8%. Equipment makers like ASML Holding NV were also affected by the broader selloff. The shares fell as much as 2.9% in Amsterdam.
• Trading in U.S. stock options has by at least one metric reached a level of bullishness not seen since the height of the dot-com boom. Investors bought to open almost 24 million call options last week, more than ever before, Sundial Capital’s Jason Goepfert wrote in a note Saturday. At the same time, selling of calls to close dropped nearly 30% from its level a couple of weeks ago, he said, attributing that to investors’ desire not to miss out on any gains. That puts the difference between the two at a record high.
• Franklin Resources Inc. is nearing an all-cash offer for asset manager Legg Mason Inc., a deal that would create an investing giant with more than $1 trillion in assets under management, according to people familiar with the matter. The owner of investment manager Franklin Templeton could announce a deal for almost $4.5 billion as soon as Tuesday for Legg Mason, said the people, who asked to not be identified because the matter isn’t public. Representatives for Franklin Resources and Legg Mason declined to comment.
• Investors added money to exchange-traded funds that buy emerging market stocks and bonds last week. This was the second 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 $265.8 million in the week ended Feb. 14, compared with gains of $125.3 million in the previous week, according to data compiled by Bloomberg. So far this year, inflows have totalled $3.79 billion.
• Russia lost its quest to overturn the largest arbitration ruling ever after a Dutch court ruled in favor of the former owners of Yukos Oil Co. The ruling by The Hague Court of Appeal Tuesday on a $50 billion award in 2014 by an arbitration panel is the latest in a 15-year legal saga that has raged between the Kremlin and the owners of what was once Russia’s biggest oil company. The court overturned a 2016 decision that found the Permanent Court of Arbitration’s initial ruling misinterpreted a treaty that Russia signed, but never ratified, according to a copy of the judgment. The decision can now be appealed to the Dutch Supreme Court.
• HSBC Holdings Plc is set to slash about 35,000 staff from its workforce and is taking $7.3 billion of charges in its most dramatic overhaul under Chairman Mark Tucker. The London-based lender is targeting cost reductions of $4.5 billion at underperforming units in the U.S. and Europe. In the meantime, it will accelerate investments in Asia, where the bank draws the bulk of its profit but is grappling with risks from the Hong Kong protests and China’s coronavirus outbreak. The board is also deciding whether the sweeping overhaul announced by interim boss Noel Quinn is enough to secure him the top job permanently.
• Walmart Inc. delivered a double whammy to investors as holiday sales couldn’t meet expectations and its outlook for the current year failed to impress investors. The shares fell in premarket trading. Comparable-store sales, a key retail metric, increased 1.9% for U.S. Walmart stores in the holiday period, compared with the 2.4% average estimate compiled by Consensus Metrix. The company also forecast profit this fiscal year that fell short of analysts’ expectations.
• DuPont Inc. removed Chief Executive Officer Marc Doyle and other top leadership, once again handing oversight of the chemicals company to executive Chairman Ed Breen to accelerate an efficiency drive. Doyle and Chief Financial Officer Jeanmarie Desmond will leave the company, the Wilmington-based company said in a statement on Tuesday. Lori Koch, vice president of investor relations and financial planning, will take over as finance chief. Breen is further cementing his role as the architect of DuPont’s past and future, having overseen its merger with Dow Chemicals and subsequent split into three companies. He’s taking full control at a pivotal time, as DuPont fields interest in divisions including electronics and construction and transport-related materials.
• Singapore’s Great Eastern Holdings Ltd. and Assicurazioni Generali SpA are among potential bidders for the life and general insurance businesses in Malaysia that AXA SA and Affin Bank Bhd. own, according to people familiar with the matter. Great Eastern, which is majority-owned by Oversea-Chinese Banking Corp., and Italy’s Generali are working with their respective advisers on potential offers, said the people, who asked not to be identified as the discussions are private. The first round of bidding is expected to conclude by the end of next month, the people said. AXA and Affin have been exploring options for their Malaysian joint venture, which could fetch about $650 million, Bloomberg News reported in September. They are seeking around $500 million on AXA Affin General Insurance Bhd., and as much as $150 million from AXA Affin Life Insurance Bhd in a transaction, the people familiar with the matter have said.
• Wanda Sports Group Co., the China-based sports marketing and event promoter, is considering selling the Ironman triathlon business it bought in 2015, according to people familiar with the matter. The company, part of Chinese billionaire Wang Jianlin’s conglomerate, is working with an adviser and has held discussions with some private-equity buyers that expressed interest in the business, said the people, who asked not to be identified as the information is private. Wanda Sports is seeking to fetch about $1 billion for the triathlon business, one of the people said

*All sources from Bloomberg unless otherwise specified