July 27th, 2018

Daily Market Commentary

Canadian Headlines

• Even with hopeful signs on Nafta and a trade detente between the U.S. and the European Union, Canada still isn’t out of the woods on auto tariffs. U.S. Trade Representative Robert Lighthizer said Thursday he hopes a deal in principle on the North American Free Trade Agreement is within reach, a day after Canadian and Mexican ministers indicated a pact could be signed in the next few months. President Donald Trump and European Commission President Jean-Claude Juncker also agreed Wednesday to suspend new levies while trade negotiations continue.
• Ontario is expected to license private retailers for recreational marijuana sales, a shift away from previous plans for government-run stores to sell the drug after it becomes legal across Canada in October. Premier Doug Ford’s government will announce the plans as early as next week, the Globe and Mail newspaper reported late Thursday, citing a senior source in the provincial government who spoke on condition of not being named. The province will still control the wholesale and distribution of marijuana to stores and manage online sales, the Globe said.
• Canada’s improved pipeline picture may be a boon to the nation’s oil patch in a few years, but that expected good fortune is hurting efforts to move more crude in the near term. That’s because the increased prospects of three major pipelines for Canadian oil starting service in the coming years are making producers more reluctant to strike the longer-term deals that rail companies are seeking, according to Cenovus Energy Inc. Chief Executive Officer Alex Pourbaix.

World Headlines

• European equities gained on Friday and were poised for the best week in more than four months as a busy stretch of earnings comes to an end and as investors celebrated the cease-fire over trade between the region and the U.S. The Stoxx Europe 600 Index extended Friday’s advance to 0.3 percent, taking its five-day rise to 1.6 percent in the fourth straight week of gains.
• The dollar and Treasuries were little changed as traders waited the release of data later Friday, which President Donald Trump predicted will show the U.S. economy is in “terrific” shape. U.S. equity futures pared gains as European stocks climbed, with corporate earnings again taking a front seat. Futures on the S&P 500 and Nasdaq pointed to a marginally higher open even as Twitter Inc. tumbled in pre-market trading after saying monthly users missed estimates.
• Chinese stocks pare earlier losses as investors speculated their downside will be limited, after the Shanghai benchmark managed to stay above a key level. In Asia, Japanese equities climbed for a fourth day, while stock indexes in China and Hong Kong ticked lower.
• Oil is poised for a fourth weekly decline as the unexpected halt in Saudi shipments via a Red Sea waterway failed to add a greater risk premium to prices, while concerns lingered over how the U.S.-China trade spat will affect demand. U.S. futures are headed for a 1.6 percent decline this week. Trade concerns continue to cloud investor sentiment after the world’s top finance chiefs warned that the escalating tensions threatened global growth. Meanwhile, Saudi Arabia temporarily halted oil shipments via the Bab el-Mandeb Strait, a key shipping lane for crude at the southern tip of the Red Sea, after it said two tankers were attacked by Yemen’s Houthi militia.
• Gold’s set for third straight weekly decline as investors shift focus to release of U.S. growth data later Friday and Federal Reserve policy meeting next week. Silver set for worst run of weekly losses in almost 18 years.
• Uranium prices surged Thursday to the highest in more than seven months after Canada’s Cameco Corp. said it will extend the shutdown of its McArthur River and Key Lake operations indefinitely. The nuclear fuel advanced 6.2 percent to close at $25.65 a pound, both the biggest gain and highest price since December.
• Amazon.com Inc. investors have traditionally given it a pass on money-losing quarters and narrow profit margins so long as revenue growth kept surpassing expectations. That dynamic flipped on Thursday, propelling the 24-year-old company into a potentially steadier phase. Amazon reported a record second-quarter profit of $2.53 billion, or $5.07 per share. The Seattle-based company has generated net income of $4.16 billion in the first half of this year, more than the previous seven quarters combined, according to data compiled by Bloomberg. In 2014, Amazon lost $131 million.
• Hillhouse Capital and KKR & Co. are among firms exploring a potential acquisition of Yum China Holdings Inc., the $14 billion U.S.-listed operator of KFC and Pizza Hut brands on the mainland, people familiar with the matter said. The private equity firms are talking to banks about financing for a possible deal, said the people, who asked not to be identified because details are private. Potential suitors could seek to form a consortium to jointly bid for the business, said the people.
• President Donald Trump predicted data on Friday will show the U.S. economy is in “terrific” shape amid forecasts that growth topped 4 percent in the second quarter, the fastest since 2014. Speaking at a steel mill in Granite City, Illinois, on Thursday, Trump doubted the expansion would reach the 5.3 percent some economists have penciled in, but said that “if it has a four in front of it, we’re happy.” He called recent economic figures “unthinkable.”
• China’s expressed regret over Qualcomm Inc.’s decision to scrap a $44 billion takeover of NXP Semiconductors NV, an apparent attempt to avoid blame after regulators failed to rule on what would have been the largest chip acquisition in history. The takeover fell apart as tensions between China and the U.S. escalated and local regulators held off on clearing the deal — months after every other relevant jurisdiction in the world had green-lit the bid. On Friday, the State Administration for Market Regulation said it’d given Qualcomm feedback on the deal but the company failed to address its concerns. The Chinese agency added it was extending its review, despite declarations from both Qualcomm and NXP that the deal was dead.
• BP Plc agreed to pay $10.5 billion, its biggest acquisition in almost two decades, for most of BHP Billiton Ltd.’s onshore U.S. oil and natural gas assets, including in the prized Permian Basin. The deal gives the London-based energy giant a position in the Permian, a swath of west Texas and New Mexico that’s the world’s fastest-growing major oil region. It’s another sign that BP has mostly rebounded from crude’s price crash and the fatal 2010 accident in the Gulf of Mexico that left it with a more than $60 billion bill.
• North Korea released the remains of some U.S. war dead on the 65th anniversary of the armistice, the White House said, marking the first tangible outcome of President Donald Trump’s summit with Kim Jong Un and signaling progress in broader nuclear talks. A U.S. Air Force C-17 transport plane flew to the eastern North Korean city of Wonsan early Friday and returned to Osan Air Base in South Korea with boxes containing what are believed to be the remains of missing American personnel. The aircraft arrived around 11 a.m. carrying 55 sets of remains, South Korea’s Yonhap News Agency said, representing about 1 percent of the service members still missing from the 1950-53 conflict.
• Intel Corp., the world’s second-biggest semiconductor maker, reported second-quarter results that topped analysts’ estimates on most measures and raised its full-year outlook. But the shares slipped as some analysts saw signs that growth may slow at the end of the year. Revenue in the current period will be about $18.1 billion, plus or minus $500 million, the company said in a statement Thursday. That compares with an average analyst estimate of $17.6 billion, though it fell short of some of the most bullish projections. For the full year, Intel increased its revenue target to a record $69.5 billion. Even so, some investors may have done the math and decided that indicates less robust fourth-quarter growth, said Stifel Nicolaus analyst Kevin Cassidy.
• Chesapeake Energy Corp. agreed to sell its Utica Shale assets in Ohio to closely held Encino Acquisition Partners for about $2 billion as the U.S. natural gas giant whittles down its debt and streamlines operations. The agreement announced Thursday is expected to close in the fourth quarter and marks Chief Executive Officer Doug Lawler’s biggest transaction in 3 1/2 years. Almost all of the proceeds will be used to pay debt, Chesapeake said in the statement. The Oklahoma City-based driller’s shares and bonds soared.
• M&G Investments Chief Executive Officer Anne Richards has resigned after two years in the post ahead of a reorganization of the Prudential group. She will join Fidelity International as CEO. Richards will also leave the board of Prudential Plc effective Aug. 10, the group said Friday in a statement. Richards, an industry veteran who was previously at Aberdeen Asset Management, will in December take up her role at Fidelity International, which oversees 316 billion pounds ($414 billion).
• GGP Inc. shareholders approved a takeover by Brookfield Property Partners LP, clearing the way for the $15 billion deal for the second-largest U.S. mall owner to go forward. Investors in GGP voted in favor of the transaction at a special meeting Thursday in the company’s hometown of Chicago, according to a statement. The approval of two-thirds of the votes cast was needed for the takeover to proceed. Brookfield’s shareholders had already approved the deal, which the companies expect to be completed next month.
• Russia’s central bank kept interest rates unchanged for a third consecutive meeting and warned that external risks and the highest inflation expectations in almost a year mean monetary easing probably won’t resume until 2019. The benchmark was held at 7.25 percent, according to a statement on Friday. The decision was forecast by all 37 economists surveyed by Bloomberg. The central bank said the balance of risks has become pro-inflationary, making it “highly likely” that its policy will shift to a neutral stance only next year, a transition it previously wanted to complete in 2018.
• Bitcoin fell for a third day, slipping below $8,000, after the U.S. Securities and Exchange Commission rejected a request to list an exchange-traded fund run by Tyler and Cameron Winklevoss. The decline halted Bitcoin’s July rally, which had seen the cryptocurrency gain more than 30 percent after its plunge earlier this year. The U.S. turned down the Winklevoss application saying the Cboe Global Markets Inc. platform that would have listed the Bitcoin ETF failed to show that the underlying market was “resistant to manipulation.”
• Ericsson AB is open to options for its $1.2 billion U.S. call routing and billing unit including a sale, as it focuses on its wireless network business, according to a person familiar with the matter. The Swedish company sees multiple potential buyers for Telcordia Technologies Inc., which it built from assets acquired in 2012, said the person, who asked not to be identified because the deliberations are private.
• Saudi Aramco is weighing tapping the international bond market for the first time to finance the acquisition of petrochemical giant Sabic, a move into global capital markets that could offer an alternative to an initial public offering, according to people familiar with the talks. If Aramco goes ahead with an international bond — potentially among the biggest ever done by a corporate issuer — the sale would force the world’s largest oil producer to disclose its accounts to investors for the first time since nationalization four decades ago as well as many other details about oil reserves and operations.

*All sources from Bloomberg unless otherwise specified