July 16th, 2018
Daily Market Commentary
- Canadian stocks posted their best week in two months despite a small decline Friday, with consumer staples and technology shares leading the weekly gains. The S&P/TSX Composite Index slipped less than 0.1 percent Friday to 16,561.12, bringing the benchmark’s weekly gain to 1.2 percent. Health-care stocks led Friday’s decline, falling 2.3 percent as Bausch Health Companies Inc., formerly Valeant Pharmaceuticals, fell 3.3 percent.
- Renewable-power contracts from Boralex Inc. and Invenergy LLC are among those targeted for cancellation by Ontario Premier Doug Ford, who’s working to terminate or wind down more than 750 contracts in a revamp of the province’s energy policies. The list of contracts in Ford’s crosshairs, released on Friday, includes one with the 50-megawatt Otter Creek Wind Farm in western Ontario, which is being developed in a partnership between Montreal-based Boralex and RES Canada. Also targeted is the proposed Strong Breeze Wind Project near Lake Erie, a 57.5-megawatt wind farm being developed by Invenergy, a closely held firm based in Chicago.
- European equities opened little changed as investors mulled the impact of trade tariffs on global growth and as President Donald Trump branded the European Union a “foe.” The Stoxx Europe 600 Index was up less than 0.1 percent after adding 0.7 percent last week. Automakers and mining shares — the biggest losers from the trade spat — were again the weakest performers, while media shares advanced the most.
- Futures on the S&P 500 were flat, while those for Nasdaq and the Dow pointed to a firmer open. With no fresh signs of a trade war escalation and President Donald Trump heading to a summit with Vladimir Putin, investors will no doubt be occupied with a slew of numbers.
- Shares in Asia fell, with volumes down in most markets with Japan shut for a holiday. The yen traded little changed after its biggest weekly slide in 10 months, while the Bloomberg Dollar Spot Index slipped for a third day.
- Oil retreated below $71 a barrel as Saudi Arabia was said to offer extra crude to some customers, while the U.S. reportedly considered tapping emergency supplies, to offset output losses around the world. Futures in New York slid as much as 1 percent after falling 3.8 percent last week. Saudi Arabia offered additional cargoes of its Arab Extra Light crude to at least two buyers in Asia, people familiar with the matter said. Meanwhile the U.S., which is seeking to choke off crude exports from Iran, is said to be mulling releasing oil from its 660 million-barrel Strategic Petroleum Reserve.
- Gold holds drop amid ongoing trade tensions and as investors await Federal Reserve Chairman Jerome Powell’s speech later this week for further clues on the central bank’s monetary policy path.
- High-grade iron ore may spike to $100 a metric ton as China intensifies a clampdown on pollution by restraining industrial activity, adding further momentum to a trend that’s reshaped the global market in recent years and driven buyers in Asia’s top economy seek out better-quality material. After sinking in March, top-quality ore with 65 percent iron content gained every month, hitting $91 a ton on Friday, and keeping it in positive territory this year even as global trade frictions mounted, according to Mysteel.com. In contrast, benchmark 62 percent ore has flat-lined in the $60s, and is down 14 percent. The divergence has exploded the gap between the two.
- China’s sovereign wealth fund has expressed a desire to invest in the domestic market as stock valuations have hit multiyear lows, underscoring how coming home may bring it new opportunities to boost returns. The $941 billion China Investment Corp. wants permission to invest in local shares and bonds, and has laid the groundwork for an application to the central government, people with knowledge of the matter said. While it remains unclear if top leaders will grant approval, the potential move by the Beijing-based investor would add an engine of growth to complement an overseas portfolio that posted record returns last year.
- Norwegian drilling workers escalated a strike early Monday, with the impact on the country’s oil production expected to remain limited to one North Sea field in the short term. The SAFE union took out a further 901 workers on top of 669 already on strike, broadening a walkout over pay and pensions to 28 installations off Norway, the Norwegian Shipowners’ Association said in a statement. Analysts have said they don’t expect the escalation to lead to any immediate additional outages.
- Theresa May’s long-running battle with her divided Conservative Party took a potentially more dangerous turn, as one of her former ministers began assembling lawmakers to vote against her Brexit plans. Euroskeptic Tories are angry that the prime minister wants to keep the U.K. closely tied to the European Union’s single market after leaving the bloc. Foreign Secretary Boris Johnson and Brexit Secretary David Davis both resigned in protest last week. Now Steve Baker, another Brexit minister who quit, is coordinating lawmakers on WhatsApp ahead of key parliamentary votes, according to a person familiar with the strategy.
- China churned out a record volume of steel in the first half as mills pushed furnaces hard to benefit from healthy margins and growing demand from sectors including property, shipbuilding and machinery. The world’s top steelmaker produced 451 million metric tons, up 6 percent from a year earlier, according to the National Bureau of Statistics on Monday. In June alone, output climbed 7.5 percent on the year to 80.2 million tons — also an all-time high when calculated in terms of tons a day.
- After U.S. moves on global trade policy that have shredded decades of trust, watch out for deals to be struck before the midterm elections in November, Citigroup Inc. said, flagging a potential rebound in commodity prices toward the year-end that’s aided by still-robust fundamentals. Among Citigroup’s forecasts should the U.S. and China pull back from the brink, soybeans may rally to $9.75 to $10 a bushel in the final quarter, it said, up from this week’s $8.34. And copper, which last traded at $6,215 a ton, could hit $6,800 in the base case, or even $8,000 under a more optimistic scenario.
- Boeing Co. and Embraer SA won orders valued at $2.3 billion from United Airlines in a boost to an alliance the two planemakers announced earlier this month. United Continental Holdings Inc. will buy 25 Embraer E-175 planes and four Boeing 787-9 Dreamliners, it said in a statement Monday. At list prices, the Embraer jets are worth about $1.2 billion in total, while the widebodies are worth $1.1 billion excluding customary discounts. Deliveries are set to start in the next two years.
- Iran demanded its fellow OPEC members stick to crude production ceilings and defied the threats of Donald Trump as the U.S. president targets its crucial oil exports. The Persian Gulf crude exporter warned that any breach of OPEC’s oil production ceiling will hurt the effectiveness of the organization, and urged strict adherence to the caps. It reminded Saudi Arabia’s oil minister that a monitoring committee set up by the group isn’t authorized to interpret OPEC decisions, and told the U.S. its efforts to cut off Iranian exports isn’t “viable.”
- Tesla Inc. may nearly double the number of cars it’s selling in Russia after a mobile-phone retailer backed by billionaire Alisher Usmanov unexpectedly added electric vehicles to the line of gadgets it offers. Svyaznoy, co-owned by Usmanov’s wireless carrier MegaFon PJSC, said it received orders for 236 vehicles in June, the first month it started sales jointly with importer Moscow Tesla Club. This compares with about 300 Teslas registered in the country since 2014.
- China’s stock exchanges said they won’t allow mainland investors to buy shares with weighted-voting rights in Hong Kong, sending Xiaomi Corp. shares slumping. The bourses will also bar trading in foreign companies and stapled securities via the Hong Kong stock link, according to a statement by the Shanghai Stock Exchange on Saturday, which said many investors don’t understand the risks associated with new products. Xiaomi tumbled as much as 9.6 percent before paring declines to 1.9 percent at the close.
- Two of the biggest risks to Jerome Powell’s monetary policy — trade tensions and loose fiscal policy — are also the stickiest political traps he’ll try to avoid when he appears before lawmakers this week. Powell, who took the Fed helm in February, delivers his second testimony to lawmakers as Fed chief when he answers questions from the Senate Banking Committee on Tuesday at 10 a.m. in Washington, followed by the House Financial Services Committee the next day.
- Ele.me, the food delivery platform acquired by Alibaba Group Holding Ltd., is on the hunt for $2 billion of new financing to help in its fight against Meituan Dianping, people familiar with the matter said. The Chinese company is seeking funds from potential investors such as venture capital firms to expand a business that’s burning enormous amounts of cash, according to the people, who requested not to be named because the matter is private. While it’s unclear how big a stake is available in Ele.me, which was valued at $9.5 billion in April’s Alibaba acquisition, investors would get a piece of a company that’s a candidate for a future initial public offering, the people added.
- Anbang Insurance Group Co. is weighing a sale of its Hexie Health Insurance Co. unit as the troubled Chinese firm reviews its assets for possible divestment, according to people familiar with the matter. The insurer is in discussions with financial advisers about a possible disposal of the unit after receiving interest, the people said, asking not to be identified because the matter is private. The health insurance firm could attract Chinese insurers as well as private equity funds, one of the people said.
- Billionaire Alisher Usmanov’s MegaFon PJSC plans spend as much as $1.26 billion buying back its entire free float and delisting from the London Stock Exchange, to take Russia’s second-largest phone carrier private. MegaFon Investment Cyprus Ltd., a unit of the carrier, will buy up to 129 million shares at $9.75 apiece by August 22, the company said in a statement Monday. That’s a 21 percent premium to MegaFon’s close on July 13 in Moscow.
*All sources from Bloomberg unless otherwise specified