February 22nd, 2019
Daily Market Commentary
- The debt-trading malaise that hurt U.S. lenders last quarter has extended north of the border, though Royal Bank of Canada’s equities traders helped soften the blow. The company saw a 12 percent slump in trading revenue from fixed income, currencies and commodities in the three months through January, advancing the trend that affected U.S. banks including JPMorgan Chase & Co. and Citigroup Inc. in the fourth quarter. The decline was countered by a 47 percent surge in equities trading. Investment banking fees at Royal Bank’s RBC Capital Markets division were down 36 percent, contributing to lower earnings in the investment-banking business.
- Saputo Inc., Canada’s biggest milk processor, agreed to buy the U.K.’s Dairy Crest Group Plc for 975 million pounds ($1.3 billion), gaining a foothold in Europe just months after snapping up Australia’s biggest dairy processor. Saputo will pay 620 pence a share in cash for the maker of Cathedral City cheese and Clover dairy spread, the Montreal-based company said in a statement Friday, 12 percent more than Thursday’s close in London trading. The deal announcement comes after a five-day surge in Dairy Crest shares that lifted the price by 17 percent on heavy volume. The stock, which closed on Feb. 14 at 474.20 pence, finished trading Thursday at 555 pence. Almost 2.4 million shares traded, compared to the three-month average volume of 358,000 shares.
- European equities opened in the red as food and beverage shares, including AB InBev, fell after Kraft Heinz’s earnings missed estimates. The Stoxx Europe 600 Index was down 0.1 percent. Elekta tumbled as much as 13 percent after cutting its full-year Ebita margin forecast. AB InBev was down 2 percent and RBC had predicted the share price weakness due to its “shared DNA” with Kraft Heinz, after the U.S. company’s disappointing full-year results and an SEC investigation.
- U.S. stocks fell in thin trading, while Treasuries also declined as investors grappled with concerns about economic growth and the latest twists in global trade. The S&P 500 dropped for the first time in four sessions after economic data in both Europe and U.S. came in below expectations, reigniting worries about the world economy. Alphabet slid amid questions about the company’s YouTube platform. Health-care stocks were pulled down as Johnson & Johnson dropped after the company said it received subpoenas from federal prosecutors tied to its talc baby-powder products.
- Japanese stocks declined for the first time in a week after weaker readings for U.S. and European data rekindled concerns over a slowdown in the global economy. Banks and trading companies were the biggest drags on the Topix index, which pared its weekly gain to 2 percent. U.S. equities dropped on Thursday after reports showed sales of previously owned homes fell to the weakest pace since November 2015 and durable-goods orders were below expectations. In the euro area, a gauge of manufacturing came in lower than forecast.
- Oil headed for a second weekly increase as the U.S. and China worked on resolving their trade impasse, and as output cuts by OPEC and its allies balanced surging American supply. Futures in New York edged higher Friday, taking this week’s increase to 2.7 percent. President Donald Trump will meet with China’s vice premier and top trade negotiator on Friday as the world’s two biggest economies try to resolve their differences. While U.S. crude stockpiles have increased for five straight weeks and production has jumped to a new record, Saudi Arabia and its partners’ output cuts are creating some optimism among traders.
- Gold inched higher after posting the biggest decline in three months as investors awaited any signs of progress from trade talks between the U.S. and China. President Donald Trump will meet with China’s top trade negotiator Friday afternoon in Washington as the U.S. tries to forge a preliminary deal with its biggest economic rival before tariffs on some Chinese imports more than double next month. Adding to concerns over global growth were weaker-than-expected economic data from Europe and America as U.S. durable goods orders were below expectations and home sales missed estimates.
- Europe’s largest economy offered mixed signals on Friday that suggest it’s down but not out. Confidence among businesses continued to weaken in February, after output stagnated in the fourth quarter as inventories slumped. But healthy increases in consumption and investment speak in favor of a pickup in the coming months once lingering issues related to car production wash out.
- President Donald Trump will meet with China’s top trade negotiator Friday afternoon in Washington as the U.S. tries to forge a preliminary deal with its biggest economic rival before tariffs on some Chinese imports more than double next month. The meeting with Chinese Vice Premier Liu He was listed on the White House’s daily schedule for 2:30 p.m. and would cap the latest round of talks in Washington. Plans for a meeting between Trump and Liu signal optimism that talks are making sufficient progress to warrant another face-to-face meeting between the two men.
- Kraft Heinz Co. plummeted 21 percent in premarket trading Friday after writing down the value of some of its best-known brands by $15.4 billion, an acknowledgment that changing consumer tastes have destroyed the value of some of the company’s most iconic products. The packaged-food giant’s charge to reduce the goodwill value of the Kraft and Oscar Mayer trademarks and other assets came with disappointing fourth-quarter earnings and an accounting subpoena from securities regulators. The charges resulted in a net loss of $12.6 billion, or $10.34 a share.
- A U.S. ban on sales of most flavored e-cigarettes dealt a blow to the financial results of Juul Labs Inc. last quarter, but the company behind America’s most popular e-cigarette device sees it as a minor setback. Juul forecasts revenue of $3.4 billion for 2019, almost triple what it generated last year, according to a person who was briefed on the numbers. The financial outlook indicates high expectations from the company to sell more of its slender Juul vaping devices and accompanying nicotine pods overseas. It also suggests confidence that other governments won’t follow the U.S. in cracking down on the products, a move prompted by widespread use by teens across the country.
- Barrick Gold Corp., the world’s second-largest gold producer, has studied a bid for Newmont Mining Corp. as the Canadian mining giant looks for ways to boost production, people familiar with the matter said. Barrick has looked on and off at the feasibility of an offer for Newmont for some time, including in recent months, according to the people, who asked not to be identified because the deliberations are private. One possibility that Barrick has studied would involve teaming up with a partner, such as Newcrest Mining Ltd., in a bid for Newmont, the people said.
- European Union Trade Commissioner Cecilia Malmstrom said a trans-Atlantic trade deal could be achieved before year-end, stressing a readiness to work speedily as the bloc tries to keep at bay the threat of U.S. automotive tariffs. Malmstrom said she expects EU governments to give her the go-ahead in March to start negotiations with the U.S. to cut tariffs on industrial goods. A final agreement with President Donald Trump’s administration could be reached before the European Commission’s term ends on Oct. 31, she said.
- Societe Generale SA is drawing up plans to cut jobs at its investment bank and find a partner for its cash-equity business in a bid to offset increasing cost pressure from regulation, people familiar with the matter said. The bank could cut hundreds or even thousands of jobs at its global banking and investor solutions unit, including roles in support functions such as finance and human resources, one person familiar with the situation said, asking not to be identified because the matter is confidential. SocGen is still weighing up which parts of the business would bear the reductions, the person added.
- Daimler AG and BMW AG will invest more than 1 billion euros ($1.13 billion) to expand their merged car-sharing and ride-hailing operations to take on the likes of Uber Technologies Inc. and Lyft Inc. The investment by the two biggest luxury carmakers, who agreed to join their mobility offerings nearly a year ago, will create as many as 1,000 new jobs across five units comprising car sharing, ride hailing, electric-vehicle charging and parking services. The division will also consider cooperating with or buying startups and established players, Daimler Chief Executive Officer Dieter Zetsche said Friday in a statement.
- There are 1.2 trillion reasons for U.S. junk bond and leveraged loan issuance to stay relatively strong this year. That’s how much money private equity firms globally had available to deploy as of the end of last year, a record level that’s 17 percent above 2017 figures, according to Preqin. The buyouts they’ll need to finance should keep U.S. issuance volume from plunging this year. It’s easy to lose sight of that fact amid recent market slowness. With the Federal Reserve on hold with rate hikes, investors have lost some of their passion for floating-rate debt offerings. New U.S. leveraged loan sales have fallen nearly 20 percent to $45.7 billion through Feb. 20, according to data compiled by Bloomberg. High-yield bond sales have also declined, down about 7 percent to $35.5 billion.
- Pinterest Inc. has filed confidentially for a U.S. initial public offering and is expected to seek a valuation for the company of at least $12 billion, according to a person familiar with the matter. The visual search site could list toward the end of June, said the person, who asked not to be identified because the details aren’t public. A final decision on the San Francisco-based company’s IPO plans hasn’t been made, the person said.
- UTAC Holdings Ltd., the Singapore-based chip testing firm backed by TPG, has appointed Citigroup Inc. to advise on a planned sale of its business, people with knowledge of the matter said. The company, which also counts Affinity Equity Partners as an investor, has started gauging interest from potential buyers, according to one of the people. UTAC could fetch at least $1 billion, the people said, asking not to be identified because the information is private. UTAC may attract interest from private equity funds and Chinese semiconductor firms, said the people. The company explored options for the business last year, including a sale and an initial public offering, after completing a bond restructuring, Bloomberg News reported at the time.
- Johnson & Johnson now finds itself alone in fighting the claims of a dying California woman and thousands of people like her who allege that the company’s iconic baby powder contained asbestos and caused their cancers. That’s because J&J’s talc supplier, Imerys Talc America Inc., was dropped as a defendant in Teresa Leavitt’s case in the middle of her trial last week after the mining company sought bankruptcy protection. The filing is tailored to deal with a swelling wave of lawsuits claiming Imerys’s product contained asbestos.
- Mitsubishi UFJ Financial Group Inc. was ordered to fix deficiencies in its compliance with anti-money laundering and bank secrecy rules at its U.S. branches. Japan’s biggest bank failed to file timely reports relating to suspicious activity of customers, the U.S. Office of the Comptroller of the Currency found. It ordered MUFG to develop a written action plan detailing remedial actions for the three branches to comply with the law, according to a consent order dated Thursday.
- Telefonica SA risks a potential fine and the unraveling of a deal that made it one of Germany’s biggest mobile-phone carriers after European Union merger regulators said they suspect it broke a promise to ensure fair competition. The European Commission could ultimately fine the company’s German unit Telefonica Deutschland up to 10 percent of its global annual revenue or “revoke the decision” allowing the E-Plus tie-up, it said in an emailed statement. It sent Telefonica antitrust objections alleging it violated commitments that allowed the EU to clear the takeover in 2014.
- Stamps.com Inc. forecast full-year profit that was nearly half of the average of analysts’ estimates, as it ended a crucial partnership with the U.S. Postal Service. Shares plunged over 50 percent in post-market trade. The company, which makes a software that allows customers to print postage for U.S. mail, said during its conference call that it would discontinue its exclusive shipping partnership with USPS. Under the partnership, Stamps.com subscribers were able to buy USPS postage at a discounted rate.
- Ford Motor Co.’s discovery that its emission testing could be flawed highlights a measurement challenge that can easily lead to mistakes by carmakers, said a clean-air advocate who helped expose cheating by Volkswagen AG. Automakers have a tough time estimating load, which is the cornucopia of factors that can reduce fuel economy — including friction, weight and aerodynamics, said John German, an independent consultant who recently left the International Council on Clean Transportation. That means manufacturers often make errors when estimating the fuel economy and emissions on every variation of vehicle that they sell, he said.
- U.K. subprime lender Non-Standard Finance Plc offered to buy its larger but struggling competitor Provident Financial Plc in all-stock combination. The unsolicited proposal values Provident Financial at about 1.3 billion pounds ($1.7 billion), according to a statement on Friday. It would result in Provident Financial shareholders owning about 87.8 percent of the newly enlarged group.
- A group including a Chinese state-backed firm has approached Agility about a tie-up with its logistics business, people familiar with the matter said, potentially disrupting the Kuwaiti company’s talks with Panalpina Welttransport Holding AG. The Chinese group has had meetings with Agility’s management in recent months, though the talks were preliminary, one of the people said, asking not to be identified because the deliberations are private. Agility, which has a market value of about $3.9 billion, declined to comment.
*All sources from Bloomberg unless otherwise specified