January 8th, 2020
Daily Market Commentary
- While recession fears aren’t gripping financial markets like they were a few months ago, Canadian households remain worried the nation’s economy is headed for a downturn. In an end-of-year survey for Bloomberg News by Nanos Research Group, 55% of Canadians said there’s at least a “somewhat likely” chance of a recession this year. Only 33% said a recession is unlikely, with 12% unsure. While the public’s concerns are at odds with economist projections for at least some modest growth in 2020, the downbeat perceptions reflect a pervasive sense of caution that has dogged the country’s households for more than a year and impacted their behaviour.
- McDonald’s Corp. and Beyond Meat Inc. are expanding their partnership — a significant step forward for the fast-growing faux meat producer. Fifty-two restaurants in southwestern Ontario will now serve the “P.L.T.” sandwiches — plant, lettuce and tomato that feature Beyond Meat’s pea-based patties — for 12 weeks starting Jan. 14. “As we expand the test, we’re continuing to listen to our guests across Southwestern Ontario and assess the appetite for a plant-based alternative within the McDonald’s menu,” Michaela Charette, head of Consumer Insights at McDonald’s Canada, said in a statement.
- A Boeing Co. 737-800 jetliner bound for Ukraine that crashed after takeoff in Iran, killing everyone on board, was most likely brought down by an engine fire, according to Tehran authorities. Ukraine International Airlines said 167 passengers and nine crew were on the plane, an older version of the 737 that predates Boeing’s grounded Max model, which crashed at 6:18 a.m. Wednesday in Sabashahr, near the Iranian capital. Iran’s Disaster Mitigation and Management Organization said early assessments indicate the cause was a technical issue; the transport ministry suggested an engine fire was to blame. The comments came as speculation swirled that the jet may have been downed by a stray missile following Iranian strikes against U.S. bases in Iraq, or in a terrorist attack.
- European stocks were little changed, recovering from losses seen in the aftermath of Iran’s missile attack on two U.S.-Iraqi bases, as Iran stressed it wasn’t seeking a war. The Stoxx Europe 600 Index added less than 0.1% as of 12:15 p.m. in London, wiping out an earlier drop of as much as 0.6%. Tech shares led gains, while energy stocks trimmed some of their earlier advance. After kicking off the year’s first trading day with gains, European stocks have been on shaky ground. While the Stoxx 600 fell for two days following the U.S. airstrike that killed a top Iranian commander, the benchmark climbed yesterday.
- U.S. stock index futures erased their losses after tumbling in the wake of an Iran missile strike at the American bases in Iraq. Contracts on the S&P 500 Index were up less than 0.1% as of 10:34 a.m. in London, rallying from a decline of as much 1.7% after President Donald Trump said in a tweet that “All is well” and Iran’s foreign minister said on Twitter the country had “concluded proportionate measures in self-defense”. Futures on the Nasdaq 100 also turned around to trade little changed, while those on the Dow Jones Industrial Average were down just 0.2%.
- Japanese stocks pared losses after U.S. President Donald Trump said “all is well” following missile launches from Iran at two bases in Iraq. The Topix index closed 1.4% lower, recouping some of an earlier 2.4% slump. Chemicals and electronic makers weighed on the benchmark gauge the most, as every industry group fell except for energy explorers. The yen, which had strengthened to 107.65 per dollar, weakened back through 108.
- Oil cooled off after rallying on Iranian airstrikes against U.S.-Iraqi military bases, amid speculation that Tehran is opting for limited retaliation over the killing of a top general. Futures in London initially surged more than 5% as the Islamic Revolutionary Guard Corps claimed responsibility for the missile strikes in Iraq, and held some gains on concern of further escalation in the oil-rich region. Yet prices eased after U.S. President Donald Trump tweeted that “all is well” following the attacks, while OPEC officials pledged to keep global markets well supplied.
- Gold surged above $1,600 an ounce for the first time in nearly seven years after Iran attacked military facilities hosting American troops. Palladium climbed to a fresh record, topping $2,100 an ounce. Gold jumped more than 2% after Tehran fired a series of rockets at U.S.-Iraqi bases early Wednesday, before paring some gains. Iran’s foreign minister said that the country wasn’t seeking a war but would defend itself against any aggression.
- 58 Home, owned by China’s Craigslist equivalent 58.com Inc., is close to completing a private fundraising en route to a U.S. initial public offering that could value the online services platform at as much as $2 billion, people familiar with the matter said. The business, known locally as 58 Daojia, is seeking funds to bankroll an expansion into China’s competitive online services arena. It’s now wrapping up a pre-IPO financing round at a valuation of more than $1 billion, the people said, requesting not to be named because the matter is private. Once that’s done, 58 Home intends to prepare for a U.S. debut in which it will seek a valuation of between $1.5 billion and $2 billion, one of the people said.
- Chinese state-owned conglomerate Citic Ltd. is planning to significantly reduce its stake in McDonald’s China Co. more than two years after it bought into the fast-food chain, as rising costs pinch the franchise’s profit. McDonald’s China said in a statement Wednesday that Citic is looking for buyers for a 22% stake, which will bring its share in the chain’s China operations down to 10%. The bottom price for the stake is set at 2.17 billion yuan ($312 million) and the bidding process is ongoing, said a disclosure document filed by Citic to the Beijing Equity Exchange.
- Aflac Inc.’s asset management arm has agreed to take a minority stake in direct lender Varagon Capital Partners as the insurer looks to capitalize on the booming world of private credit. The unit is acquiring the stake from former and current partners and affiliates of Oak Hill Capital, Varagon said in a statement Wednesday. Terms of the deal weren’t disclosed. Aflac Global Investments will also build a middle market loan portfolio of up to $3 billion over multiple years for the insurer.
- The cancer death rate in the U.S. fell by the most on record as advances in treatments for lung tumors like video-assisted surgery helped prolong the lives of patients. The mortality rate from cancer has been gradually declining for 26 years, thanks in large part to fewer people smoking cigarettes. But from 2016 to 2017, the most recent period available, it dropped by 2.2%, the most ever in a single year, according to a report released Wednesday by the American Cancer Society. That compares with an average 1.5% yearly decline over the decade. The drop translates to roughly 2.9 million fewer cancer deaths than would have occurred had mortality rates remained at their peak. For lung cancer specifically, the mortality rate declined 4.3% annually from 2013 to 2017.
- Iran fired more than a dozen missiles at U.S.-Iraqi airbases in retaliation for an American airstrike that killed a top Iranian general, yet the potential for a dramatic escalation was mitigated by the fact that there were no U.S. casualties. A U.S. official said guided missiles were used in the attacks, and Iran appeared to be shooting to miss. The official spoke on condition of anonymity because the information wasn’t yet publicly announced. The Islamic Revolutionary Guard Corps claimed responsibility for the barrage, which the Pentagon said was launched from Iran, and warned that additional operations were being prepared. At the same time, there were signs that both sides wanted to pull back from the brink of conflict, with Iran’s foreign minister saying his country didn’t wish to go to war, and Trump pronouncing that “All is well.”
- After more than a year away from the cameras and microphones, Carlos Ghosn is set to face the media again, this time not as a legendary auto executive, but as the world’s most famous fugitive. While reams have been written about the former chief executive officer of Nissan Motor Co. and Renault SA since his November 2018 arrest in Tokyo, he hasn’t spoken publicly beyond a handful of interviews, a hastily recorded video message and court testimony. Come Wednesday at 3 p.m. (8 a.m. New York, 10 p.m Tokyo), that will change, with Ghosn set to hold a tell-all news conference in Beirut, the city he fled to after his shock escape by private plane from Japan just over a week ago. The former CEO has already hinted he’ll identify those he considers responsible for his downfall, including government officials.
- Russia is poised to officially open its TurkStream natural gas pipeline on Wednesday, further diversifying export routes to Europe amid a backlash from the U.S. President Vladimir Putin and his Turkish counterpart Recep Tayyip Erdogan are meeting in Istanbul to inaugurate the pipeline in a ceremony celebrating the nations’ energy and political ties. TurkStream is set to carry Russian gas under the Black Sea to Turkey and supply several countries in southeast Europe once fully operational, just as U.S. sanctions stall another Gazprom PJSC export line.
- CVC Capital Partners and Bain Capital are among buyout firms that submitted initial bids for Curium Pharma, a French maker of medical imaging supplies, people familiar with the matter said. Clayton Dubilier & Rice, Nordic Capital and PAI Partners also made first-round offers for the business, which is owned by CapVest Ltd., according to the people. Curium could fetch at least $3 billion, the people said, asking not to be identified because the information is private.
- Thailand’s central bank will take further steps to ease restrictions on capital outflows in coming months as it tries to curb gains in the baht, Governor Veerathai Santiprabhob said. The currency fell after his comments. The Bank of Thailand plans to increase the amount of proceeds exporters can hold overseas, liberalize foreign-currency deposit accounts and take steps to enable insurance companies to invest more abroad, Veerathai said in an interview Wednesday at his Bangkok office.
- U.S. leveraged loan investors may be in store for disappointment in coming weeks as more companies jump on the bandwagon to slash borrowing costs in a red-hot market. Westinghouse Electric Co. kicks off marketing on Wednesday for a repricing of a $3 billion term loan that helped finance the acquisition of the company out of bankruptcy in 2018 by Canada’s Brookfield Asset Management Inc.’s private equity arm. It’s the biggest repricing since Refinitiv US Holdings Inc.’s $6.45 billion deal in December, which was the third-largest of its kind on record, according to data compiled by Bloomberg. Like Refinitiv, Westinghouse’s loan also carries ratings in the single B tier.
- Walgreens Boots Alliance Inc. posted first-quarter results that fell well short of Wall Street expectations, as investors wait to see whether the drugstore giant could go private as it confronts a swiftly changing health-care marketplace in the U.S. The retailer’s adjusted earnings per share of $1.37 were lower than the $1.41 expected by analysts, on average. Net income fell sharply from a year earlier. The company affirmed its 2020 guidance for roughly flat earnings.
- Oil’s rally faded as the U.S said Iranian airstrikes on military bases in Iraq didn’t cause any casualties, reinforcing speculation that Tehran is opting for limited retaliation over the killing of a top general. Futures in London initially surged more than 5% as the Islamic Revolutionary Guard Corps claimed responsibility for the missile strikes in Iraq, and held above $68 a barrel on concern of further escalation in the oil-rich region. Yet the gains had largely dissipated by the end of the morning, following a U.S. statement that no personnel had been killed and an early tweet by President Donald Trump that “all is well” following the attacks.
- Anglo American Plc has moved to buy a giant U.K. potash mine that was running out of money, adding another major growth project for the century-old miner. The deal for Sirius Minerals Plc is likely to secure 1,200 jobs and save the development of a mine in one of the U.K.’s most economically deprived areas. It’s also a further sign that Anglo is committed to growing its business — adding a second major project to its Peruvian copper-mine development — at a time when most rivals are reluctant to expand. Anglo said it’s in advanced talks with Sirius about a possible 5.5 pence-a-share offer that values the company at about $508 million. While that’s a premium of 34% on Sirius’s closing share price on Jan. 7, the company was worth more than $2.3 billion 18 months ago, before its funding plans dried up.
*All sources from Bloomberg unless otherwise specified