July 17th, 2018

Daily Market Commentary

Canadian Headlines

  • A key segment of Canada’s marijuana industry will remain banned for up to a year after the drug becomes legal for recreational use — making it harder for Justin Trudeau to kill off the black market. Edibles, beverages, and pot for vaping are among products that will still be outlawed when the drug is legalized on Oct. 17. The government has said it wants more time to address the “unique risks” around that slice of the market, including quality control, dosage, portion sizes and packaging.
  • Lundin Mining Corp.’s effort to acquire Nevsun Resources Ltd.went hostile with a plan to make a C$1.4 billion ($1.1 billion) all-cash offer for the owner of the prized Timok copper-gold deposit in Serbia after its previous attempts were spurned. Lundin said Monday in astatement it will offer C$4.75 a share, representing a premium of about 13 percent to Monday’s closing price. The Toronto-based miner controlled by Swedish-Canadian billionaire Lukas Lundin intends to commence a formal takeover bid around July 27, it said.



World Headlines

  • European equities opened little changed as traders eyed corporate earnings while trade tensions persisted, threatening to curb global growth. The Stoxx Europe 600 Index was down less than 0.1 percent. Retail stocks gained after Casino Guichard Perrachon SA reported revenue above estimates, while tech shares retreated 0.5 percent, following U.S. peers lower.
  • Stocks drifted lower with S&P 500 futures as investors prepared to digest a flood of earnings as well as the latest clues from the Federal Reserve on monetary policy in the world’s biggest economy. The euro edged up and commodities gained. Earnings and U.S. monetary policy have become the main drivers of market sentiment this week. That’s giving respite from a backdrop of worsening trade relations between the world’s biggest economic powers. Company results have been mixed thus far, with Deutsche Bank AG and Bank of America Corp. beating estimates, counterbalancing the Netflix reading.
  • Asian equities were mixed as investors await Federal Reserve Chairman Jerome Powell’s testimony to Congress Tuesday. The MSCI Asia Pacific Index was little changed at 165.29 as of 4:45 p.m. in Hong Kong after rising as much as 0.3 percent earlier. Japan’s Topix index rose 0.9 percent after a three-day weekend, while Hong Kong’s Hang Seng Index fell 1.3 percent and China’s Shanghai Composite Index closed 0.6 percent lower.
  • Oil steadied after another sharp pullback as traders remained wary over whether supplies will be sufficient to cover a range of global disruptions. Futures in New York traded near $68 a barrel, having tumbled 4.2 percent on Monday as Libya restored output at some fields and the U.S. signaled it may take a slightly softer approach with sanctions on Iranian exports. Iraq is shipping the most crude since 2016 and the U.S. is considering tapping emergency reserves. Still, with American inventories forecast to have dropped further from the lowest level since 2015, traders remain on edge.
  • Gold holds two-day drop before Federal Reserve ChairmanJerome Powell’s testimony, which may give insight into pace of tightening, impact of trade tensions. Investors exit exchange-traded funds for fifth day
  • President Donald Trump’s equivocation on U.S. intelligence agencies during a news conference with Russian leader Vladimir Putin triggered the most intense backlash from Republicans of anything he’s done since winning election in 2016. Republicans who looked past the release of his recorded remarks about grabbing women and his refusal to denounce neo-Nazi protesters, or complained but took no substantive action when he imposed tariffs on allies found their line in the sand after he sided with Putin against the U.S. intelligence community’s consensus that Russia interfered in the 2016 election.
  • U.K. employment rose to a record high in the three months through May and wage pressures showed few signs of abating, keeping the Bank of England on course for an interest-rate increase next month. The number of people in work rose by 137,000, more than forecast, taking the employment rate to 75.7 percent, the highest since records began in 1971. While headline measures of wage growth eased modestly, an underlying gauge climbed to the highest since January.
  • Japan and the European Union signed a trade agreement on Tuesday in Tokyo that lowers barriers on the movement of goods and services between the two economies and provides a counterweight to U.S. protectionism. The Economic Partnership Agreement will remove a wide range of duties and regulatory obstacles between the EU and Japan, helping Japanese car exports and making it easier for European farmers to sell their produce in the Asian nation. Japanese Prime Minister Shinzo Abe, European Commission PresidentJean-Claude Juncker and European Council President Donald Tusk signed the pact.
  • Netflix Inc. stunned Wall Street by attracting fewer subscribers than expected last quarter, renewing concerns that the video-streaming service has become an investment bubble. The shares plunged as much as 15 percent after Netflix said it added 5.2 million users in the period, about a million fewer than it predicted. The stock pared losses before the U.S. market open on Tuesday, trading down 12 percent as of 6:18 a.m. in New York.
  • Amazon.com Inc. kicked off its big Prime Day sales promotion with technical glitches on its website and app, threatening its 36-hour sales extravaganza. Trouble on the site spiked just as the event began at 3 p.m. Eastern time Monday, but declined significantly within a couple of hours, according to Downdetector.com, which monitors web trouble. Shoppers were expected to spend $3.4 billion on Amazon during the promotion, up more than 40 percent from last year’s Prime Day, according to Coresight Research.
  • Boeing Co. sealed a deal to sell 777 freighters with a sticker price of almost $10 billion to Russia’s Volga-Dnepr Group, the world’s largest carrier of outsize cargo. Volga-Dnepr signed a letter of intent to buy 29 of the 777s and confirmed a $2 billion order for five 747-8 freighters, Boeing said Tuesday in a statement. The 777F is priced at $339.2 million before customary discounts, while the 747-8 has a list price of $403.6 million.
  • U.S. Senator Chuck Grassley, along with a fellow Republican and two Democratic lawmakers, introduced legislation in the Senate that’s aimed at allowing the government to bring lawsuits against OPEC members for antitrust violations. Lawmakers in the other chamber of Congress, the House of Representatives, already introduced a version of the “No Oil Producing and Exporting Cartels Act,” or NOPEC, bill in May. Congress has discussed various forms of NOPEC legislation since 2000, but both George W. Bush and Barack Obama threatened to use their veto power to halt it from becoming law. The risk for the Organization of Petroleum Exporting Countries is that U.S. President Donald Trump may break with this precedent.
  • Johnson & Johnson recorded 20 percent growth in its drug unit in the second quarter, but the company is trimming its forecast for the year as a strong dollar hampers its growth. The U.S. medical conglomerate said in a statement Tuesday that it was cutting its full-year revenue projection, to $80.5 billion to $81.3 billion, from $81 billion to $81.8 billion, and narrowing its adjusted earnings forecast.
  • China’s home prices rose at the fastest pace in 21 months in June even as the government stepped up a campaign against property speculation. New-home prices in 70 cities tracked by the government gained 1.1 percent from the previous month, according to Bloomberg calculations based on data from the National Bureau of Statistics released Tuesday. That compared with a 0.8 percent increase in May. It was the fourth straight monthly acceleration.
  • Indonesia’s energy subsidy will soar to a four-year high as a price freeze ordered by President Joko Widodo ahead of next year’s general elections forces the government to underwrite losses of state-run retailers. Total spending on subsidizing various fuels and electricity is seen at 163.5 trillion rupiah ($11.4 billion) in 2018, up from 94.5 trillion rupiah estimated in the budget previously, Finance Minister Sri Mulyani Indrawati told lawmakers in Jakarta on Tuesday. That would be the highest subsidy bill since 2014 and compares with 97.6 trillion rupiah last year, official data show.
  • Pinduoduo Inc., the Chinese e-commerce operator backed by Tencent Holdings Ltd., plans to raise as much as $1.6 billion in a U.S. initial public offering to bankroll a fight against rivals like Alibaba. The Shanghai-based firm is offering 85.6 million American Depositary Shares at $16 to $19 apiece, it said in a stock exchange filing. Tencent, the leader in Chinese social media and gaming, and existing shareholderSequoia Capital both expressed interest in buying $250 million worth of stock, the company added.
  • BMW AG is the first overseas carmaker to get a potential toehold in Chinese electric-car battery maker Contemporary Amperex Technology Co. Ltd., obtaining the right to make an equity investment of as much as 2.85 billion yuan ($427 million). BMW Brilliance, the German carmaker’s Chinese joint venture, is entitled to invest in CATL if the company plans to sell shares in China or abroad, according to a statement from the battery maker Tuesday. At CATL’scurrent stock price, the right would give BMW a stake of less than 2 percent of the company.
  • Indian chemical producer UPL Ltd. is seeking a loan of about $3 billion to help fund its bid for a Platform Specialty Products Corp. agricultural pesticides unit backed by shareholder activist Bill Ackman, people with knowledge of the matter said. UPL has been asking banks for an 18-month bridge loan to back its offer for the business, known as Arysta LifeScience, according to the people.Mitsubishi UFJ Financial Group Inc. and Cooperatieve Rabobank UA are in talks to provide the financing, the people said, asking not to be identified because the details are private.
  • After losing its top leadership in less than two weeks, it’s looking more likely that Thyssenkrupp AG could be headed for a breakup, although much rests on the next move of the company’s largest shareholder. Both the chief executive officer and chairman, opponents of splitting up the sprawling conglomerate into what some investors think would be more valuable parts, have resigned this month. Activist investors, including Cevian Capital, have pressured management to streamline the 207-year-old German company, which has operations in submarines, elevators and food packaging.

*All sources from Bloomberg unless otherwise specified