July 25th, 2018

Daily Market Commentary

Canadian Headlines

  • Canada’s equity benchmark reversed course to close lower for a third session amid pressure from cannabis, technology and consumer stocks. The S&P/TSX Composite Index slid 31 points or 0.2 percent to 16,390.13 after trading up as much as 0.6 percent earlier in the day. The healthcare sector was the biggest decliner, losing 2.3 percent as Aurora Cannabis Inc. tumbled 7.7 percent.
  • High-level talks for a new Nafta are picking up again this week following two months of limited negotiations that were instead marred by tit-for-tat tariff battles and diplomatic fallout. Canadian Foreign Affairs Minister Chrystia Freeland will discuss the North American Free Trade Agreement on Wednesday when she meets in Mexico City with officials from the incoming and outgoing Mexican administrations. On Thursday, Mexican Economy Minister Ildefonso Guajardo is traveling to Washington to discuss the status of Nafta talks with U.S. Trade Representative Robert Lighthizer. The bilateral gatherings mark the most activity on Nafta negotiations since May.



World Headlines

  • European equities edge higher at the open, as investors any word about the global trade dispute, with European Commission President Jean-Claude Junker headed to Washington Wednesday to meet U.S. President Donald Trump. The Stoxx 600 advanced less than 0.1 percent, after Asian equities traded mixed, led by the retail and financial services sectors, while basic resources and technology were in the red.
  • U.S. equity futures were little changed as traders look forward to the European Union’s trade proposals that will be presented at the White House later Wednesday. Futures on the Nasdaq pointed to a slightly firmer open, while those on the S&P 500 were flat.
  • Japanese stocks advanced to the highest level in more than five weeks, following a rally in U.S. equities as strong results helped boost investor sentiment. The Topix index rose for a second day, with energy and metals-related groups posting the largest gains. China unveiled a package of policies to boost domestic demand and economic growth late Monday. The technology sector helped boost U.S. stocks Tuesday after Google parent Alphabet Inc.’s earnings beat analysts’ estimates.
  • Oil extended gains as U.S. industry data showed a decline in crude and fuel stockpiles ahead of government figures due later Wednesday. Futures rose as much as 0.6 percent in New York after adding 0.9 percent on Tuesday. U.S. inventories of crude, gasoline and distillates fell last week, the American Petroleum Institute was said to report. Meanwhile, China announced a package of policies to spur domestic growth in the face of rising trade frictions with the U.S.
  • Gold rises ahead of President Donald Trump’s meeting with European Commission President Jean-Claude Juncker in Washington on Wednesday for talks aimed at heading off a trade war.
  • U.S. airlines plan to comply with a Chinese government demand that they revise their website identifications of Taiwan to reflect China’s claim on the island territory, said a person familiar with the discussions. The U.S. carriers affected by the mandate — American Airlines Group Inc., Delta Air Lines Inc., United Continental Holdings Inc., and Hawaiian Holdings Inc. — will begin to change the Taiwan references over the next day or two, said the person, who asked not to be named because discussions among the carriers were private.
  • A company that’s a key part of China’s ambitions to be a leader in cutting-edge wireless technology is preparing to go public to fund its expansion, but President Donald Trump’s trade war threatens to put a damper on what could be the world’s biggest initial public offering in almost four years. State-controlled China Tower Corp., which operates almost 99 percent of the country’s wireless towers and charges its three carriers leasing fees, is preparing to raise as much as $8.7 billion in a Hong Kong IPO expected to start trading next month. That would be the biggest IPO since Alibaba Group Holding Ltd.’s 2014 offering.
  • Vitol Group paid a record of more than $1.6 billion to its top executives and staff through share buybacks last year, highlighting the riches enjoyed by the partners who own the world’s largest oil trading house. The buybacks — Vitol’s principle way of rewarding about 350 top employees who own shares in the privately-held company — bring to more than $10 billion the distributions paid out from 2007 to 2017. Vitol has enjoyed strong profits in recent years, including in 2016 when net income surged to its third highest ever as it rode the ups and downs of the oil market. More recently, however, net income has been weaker.
  • President Donald Trump said that the U.S. and the European Union should drop all tariffs, barriers and subsidies, with the bloc’s trade chiefs set to present him with proposals in that direction in a crunch meeting at the White House later Wednesday. European Commission President Jean-Claude Juncker and EU Trade Commissioner Cecilia Malmstrom are due to meet with Trump in Washington on Wednesday. They plan to signal the bloc’s willingness to negotiate a bilateral trade agreement on manufactured goods, or a so-called plurilateral sectoral agreement between all major car exporters which would cut or eliminate tariffs on automobiles globally.
  • Sergio Marchionne, the former chief executive officer of Fiat Chrysler and architect of the automaker’s dramatic turnaround, has died. He was 66. His death was confirmed Wednesday by Exor NV, the holding company of Fiat’s founding Agnelli family, just days after Marchionne was replaced as CEO. His health had declined suddenly following complications from shoulder surgery at a Zurich hospital. No other details surrounding his death were disclosed.
  • President Donald Trump slammed the U.S. Federal Communications Commission for failing to approve Sinclair Broadcast Group Inc.’s acquisition of Tribune Media Co., calling the move “sad and unfair.” Ajit Pai, a Republican who was appointed chairman of the FCC by Trump, had questioned the legality of the $3.9 billion deal, which would have involved spinning off TV stations in order to meet ownership limits. The commission then voted unanimously to send the issue to an administrative hearing judge, something that can delay or even kill a deal.
  • CNN on Tuesday night played a 2016 recording of a conversation between Donald Trump and his then-lawyer Michael Cohen that appears to show that Trump was informed of an attempt to prevent news of an alleged affair with a Playboy model from coming to light. Cohen’s lawyer Lanny Davis contends the audio recording, which was made in September of 2016 by Cohen, captures the future president and Cohen talking about buying the rights to Karen McDougal’s story about what she said was an affair with Trump. McDougal sold her story to the National Enquirer, which never published it.
  • Ryanair Holdings Plc is pulling a fifth of its planes from its Dublin base this winter as the budget carrier moves to counter intensifying labor unrest that’s causing widespread European flight disruptions. The airline said on Wednesday it’ll cut its Irish fleet to 24 aircraft from 30 for winter 2018, blaming pilot walkouts for hurting bookings, air fares and consumer confidence in Irish flight schedules. It said it has sent letters informing more than 100 pilots and 200 cabin crew that their services may not be needed from Oct. 28.
  • Coca-Cola Co. is getting a boost from its healthier beverages, with its resurgent zero-sugar soda brands buoying the company’s results. Profit beat analysts’ estimates in the second quarter, helped by double-digit growth for its Coca-Cola Zero Sugar brand and efforts to cut costs. The results drove the shares up as much as 1.7 percent in early trading Wednesday.
  • Russia’s central bank delivered a strong enough message last month that it had nothing left to say in the run-up to this week’s meeting on interest rates. Taking the cue, economists surveyed by Bloomberg are unanimous for the first time in 2018, predicting that policy makers will extend their pause after keeping the benchmark at 7.25 percent in June. But the last time analysts were similarly united in their views, the Bank of Russia actually surprised with a bigger-than-forecast cut in December.
  • General Motors Co. cut its forecast for profit this year as surging prices for steel and aluminum combine with swings in South American currencies to burden the largest U.S. automaker. Adjusted earnings will drop to about $6 a share, down from a previous projection for as much as $6.50 a share, the Detroit-based company said Wednesday. Raw material costs probably will be a $1 billion headwind to GM’s profit this year — roughly double its previous expectation — while the Argentine peso and Brazilian real are likely to drag on results through the remainder of 2018.
  • Vodafone Group Plc Chief Executive Officer Vittorio Colao staked the British company’s future on Europe’s maturing telecommunications market, where business is now shrinking in a challenge for his successor Nick Read. The decline in European quarterly sales that Vodafone reported Wednesday piles pressure on Read to confront new mobile competitors in southern Europe and make a success of its $22 billion takeover of Liberty Global Plc’s German and east European businesses.
  • Fiat Chrysler Automobiles NV cut its financial targets after disappointing sales in China took a toll on second-quarter results. The shares were suspended after falling as much as 4.5 percent in Milan, marking a rocky beginning to the tenure of new Chief Executive Officer Mike Manley. Revenue will be 115 billion euros ($138 billion) to 118 billion euros this year, the Italian American automaker said Wednesday in a statement. Previously it had guided for 125 billion euros.
  • Fosun International Ltd., the Chinese group backed by billionaire Guo Guangchang, is considering an offer for all or parts of Belgian insurer Ageas in what could be its boldest move to expand its international footprint, people familiar with the matter said. Shanghai-based Fosun is talking to advisers about alternatives including teaming up with a partner to split the Brussels-based company or increasing its current stake, the people said, asking not to be identified because the deliberations are private. No final decisions have been made and Fosun may decide against pursuing a deal, they said. Representatives for Ageas and Fosun declined to comment.
  • Credit Agricole SA will buy a stake in Credito Valtellinese SpA, the Italian bank known as Creval, as part of a bancassurance partnership in the euro region’s third-largest economy. Creval’s shares gained as much as 6.6 percent. The French lender will initially acquire 5 percent of Creval through its insurance unit and may eventually double the holding, the companies said Tuesday. Credit Agricole will also purchase Global Assicurazioni SpA, a unit of Creval, and sign a 15-year agreement to gain access to the Italian lender’s distribution network in life insurance. The purchase price is 80 million euros ($93 million).
  • United Parcel Service Inc.’s plan to cash in on surging e-commerce is running into a snag: higher costs in its crucial domestic package business. The U.S. unit earned 11 cents for every dollar of sales in the second quarter, down from about 13 cents a year earlier, UPS said in a statement Wednesday as it reported earnings. The narrowing profit margin underscored the courier’s heavy investments to cut the costs of home deliveries, which are weighing on UPS’s trademark efficiency because drivers typically handle fewer parcels per stop.
  • Electricite de France SA said the completion of a new nuclear power plant in western France will be delayed by a year and the cost of the project will climb by almost 4 percent as faulty welds are fixed. The bill for the 1,650-megawatt plant at Flamanville will rise by 400 million euros ($467 million) to 10.9 billion euros, EDF said Wednesday. The utility, which has repeatedly increased the budget, had planned to start loading fuel at the end of the year but will now aim for the fourth quarter of 2019.
  • Telecom Italia SpA’s undersea-cable business Sparkle is among the assets the phone carrier is evaluating for sale to boost its stock price, according to people familiar with the matter. The former phone monopoly is contemplating ways to free up cash that it could spend on cutting debt and paying dividends, said the people, who asked not to be identified because the deliberations are private. As part of the retrenchment, the company also is looking to refocus on its home market.
  • AT&T Inc., fresh off its $85 billion purchase of Time Warner Inc., wants to be known as a modern media company. Investors still need convincing. The stock slipped on Wednesday after the phone giant added fewer wireless customers than expected last quarter, a sign its main moneymaker remains sluggish. The miss underscored the importance of integrating Time Warner services like HBO and CNN into AT&T’s mobile and pay-TV strategy.
  • Qualcomm is unlikely to get Chinese approval for its NXP Semiconductors purchase by today’s deadline and is making preparations to pay NXPI the $2b termination fee, Reuters said, citing a person close to QCOM, though the person said it was a toss-up whether deal could be approved at last minute.


*All sources from Bloomberg unless otherwise specified