July 28th, 2017


Daily Market Commentary



Canadian Headlines

  • Alberta’s economy is more than just back on its feet, it’s about to run faster than any other region in Canada. Gross domestic product in the western province will rise by 2.9 percent this year, according to a Bloomberg survey of economists, up from an April estimate of 2.5 percent. That matches forecasts for neighboring British Columbia, and in 2018 Alberta comes out on top with a 2.4 percent expansion that would be tops among Canada’s 10 provinces.
  • Investors have scooped up C$3.4 billion ($2.7 billion) of provincial bonds since the Bank of Canada boosted interest rates on July 12 for the first time in seven years. Despite an initial sell-off which drove yields higher, the premium buyers demand to hold the debt over safer federal government securities is almost back to where it was before the rate increase.
  • Bombardier Inc. burned less cash than expected in the second quarter and said earnings this year will be in the top half of a previously disclosed range. Free cash flow usage in the period ended June 30 was $570 million, Bombardier said Friday in a statement. That was less than the $580 million average of analysts’ estimates compiled by Bloomberg. The company raised the floor of its forecast for this year’s earnings before interest and taxes by $50 million.



World Headlines

  • With the Swiss franc headed for the biggest weekly decline in more than two years, the one question that’s dogging traders is: why now? The franc fell 0.9 percent on Friday to 1.1370 per euro as of 11:08 a.m. in London. It has declined 3 percent this week, set for the biggest drop since the week ended Jan. 30, 2015. The Swiss National Bank removed its 1.20 minimum exchange rate for the euro-franc that month.
  • Record lows in U.S. stock volatility amount to a “ticking time bomb,” according to Dhaval Joshi, a BCA Research Inc. investment strategist. Joshi cited a gauge derived from S&P 500 Index put options, which rise in value as the benchmark declines, in a report Thursday. The indicator reached new lows four times this month, most recently last Friday. The lack of volatility cuts into the potential return from owning shares rather than bonds, Joshi wrote, and may set the stage for a “violently negative” reaction from investors.
  • Technology, automakers and chemical stocks led Japanese equities lower as the yen reversed an earlier loss against the dollar and investors focused on corporate earnings. The Topix index posted its first weekly decline in three weeks even as the benchmark touched the highest level since August 2015 in intraday trading on Thursday. The yen advanced 0.1 percent for the five days. SoftBank Group Corp. was the biggest drag on the benchmark equity gauge on Friday amid a selloff in global technology shares. Nissan Motor Co. led declines among automakers after its first-quarter operating profit fell, hurt by higher incentive spending in the U.S.
  • Hong Kong stocks had their worst day in three weeks amid earnings concerns and overnight weakness in U.S. technology shares. The Hang Seng Index retreated 0.6 percent to close at 26,979.39, after a four-day rally that pushed its 14-day relative strength index beyond the 70 level that some traders see as a signal of overheating. AIA Group Ltd. and Tencent Holdings Ltd. were among the biggest decliners. The Hang Seng China Enterprises Index fell 0.9 percent.
  • Oil headed for its biggest weekly increase this year in London as sliding U.S. inventories and signs of stronger demand signaled the supply glut in the world’s biggest consumer may be easing. U.S. oil prices are inching closer to $50 a barrel, a level Brent breached earlier this week. Concerns are abating that efforts by the Organization of Petroleum Exporting Countries and its allies to curb output will be offset by rising production elsewhere.
  • Gold heads for sixth monthly gain in seven as data shows Chinese buying of bars of the precious metal jumped by more than half in the first six months of the year. Bullion for immediate delivery holds steady at $1,259.62/oz at 10:43am in London. Metal touched $1,265.38/oz on Thursday, highest since June 15.
  • A months-long effort by Senate Republicans to pass health legislation collapsed early Friday after GOP Senator John McCain joined two of his colleagues to block a stripped-down Obamacare repeal bill. It wasn’t immediately clear what the next steps would be for the Republicans.
  • Uber Technologies Inc. has set its sights on the business world’s most seasoned chief executives to fill the leadership vacuum left by the departure of co-founder Travis Kalanick. Candidates for Uber CEO, including Jeffrey Immelt, must be capable of restoring confidence in the ride-hailing company after months of controversy. Immelt, the outgoing CEO of General Electric Co., is on a shortlist of fewer than six candidates to run Uber and prepare the business for an initial public offering, people familiar with the matter said.
  • While Elliott Management Corp. tries to cobble together enough money to beat Berkshire Hathaway Inc.’s $9 billion bid to buy one of America’s largest transmission operators, it has another problem to deal with: the state of Texas. The New York hedge fund run by billionaire Paul Singer is trying to convince Texas stakeholders that its deal to buy their biggest power distributor, Oncor Electric Delivery Co., will be superior to Berkshire’s.
  • Russia ordered the U.S. to cut its embassy and other personnel in the country and ousted it from properties in Moscow, retaliating angrily to the passage late Thursday of a new sanctions bill in the U.S. Congress.
  • German carmakers, fighting for diesel’s future, faced a setback after a Stuttgart court ruled in favor of banning the technology in the home city of Mercedes-Benz and Porsche. Automakers, the federal government and some German states are seeking to avoid such bans by instead pursuing recalls to improve emissions as the diesel-cheating scandal that erupted two years ago at Volkswagen AG continues to engulf the industry.
  • Indian stocks fell, with the benchmark equity index slipping from its record high, as pharmaceutical companies declined. The S&P BSE Sensex Index slipped 0.2 percent to 32,309.88 in Mumbai. Dr Reddy’s Laboratories dropped the most in nine months after analysts downgraded it following a 57 percent drop in April-June net income. ICICI Bank Ltd. fell 3.6 percent and was the biggest drag on the gauge after first-quarter profit declined and its bad-loan ratio stayed high.
  • An escalating legal fight between Toshiba Corp. and manufacturing partner Western Digital Corp. threatens to disrupt the chip business that both companies’ futures depend on. The two will face off in a California court hearing Friday on Western Digital’s request for an order temporarily blocking the sale. The U.S. company is arguing that it has a say in the sale of Toshiba’s semiconductor operations, as well as right of first refusal. The Tokyo-based company disagrees, saying that Western Digital is overstating its rights.
  • Pakistan’s Prime Minister Nawaz Sharif resigned after the Supreme Court ordered his disqualification from office following a corruption investigation into his family’s finances, plunging the South Asian country into political turmoil ahead of a national election next year.
  • Sweden’s economy grew at a considerably faster pace last quarter than predicted by analysts, adding to pressure on the central bank to focus on the timing of an exit from years of extreme monetary stimulus. GDP grew 1.7 percent in the second quarter from the first three months of the year, according to preliminary figures. That was the fastest pace since the fourth quarter of 2010, and almost double the 0.9 percent estimate in a Bloomberg survey of economists.
  • Hong Kong billionaire Li Ka-shing agreed to acquire CVC Capital’s German smart-meter business Ista International GmbH for about 4.5 billion euros ($5.3 billion), including debt. Li will make the investment through Cheung Kong Property Holdings Ltd. and CK Infrastructure Holdings Ltd., which will control 65 percent and 35 percent of the company respectively, the companies said in a statement Thursday. The deal must still be approved by antitrust officials.
  • Delta Buys Air France Stake as Four Top Carriers Deepen Ties. Delta Air Lines Inc., China Eastern Airlines Corp. and Air France-KLM Group are reaching for their checkbooks to forge a deeper global alliance. The U.S. and Chinese carriers will each buy a 10 percent holding in Europe’s biggest airline. At the same time, Air France-KLM will take a 31 percent stake in the U.K.’s Virgin Atlantic Airways Ltd., in which Delta is a major investor.
  • Jes Staley finally has the Barclays Plc he wants. But it cost him. The lender posted a net loss in the second quarter, driven by the cost of selling down its Africa unit and an unexpected charge for the payment protection insurance scandal. The bank said it now aims to earn a return on tangible equity of more than 10 percent as it moves past the issues that have weighed on profitability.
  • Wells Fargo & Co.’s campaign to rebuild customer and shareholder trust just hit another bump, as the bank said it may have pushed thousands of car buyers into loan defaults and repossessions by charging them for unwanted insurance. An internal review of the bank’s auto lending found more than 500,000 clients may have unwittingly paid for protection against vehicle loss or damage while making monthly loan payments, even though many drivers already had their own policies, Wells Fargo said in a statement late Thursday. The firm said it may pay as much as $80 million to affected clients — with extra money for as many as 20,000 who lost cars, “as an expression of our regret.”
  • The Borsa Istanbul Insurance Sector Index dropped as much as 2.5 percent on Friday after a brief but ferocious storm in Istanbul on Thursday showered the city with hail as large as golf balls, shattering windows, denting vehicles and damaging buildings. The insurance sector decline was its biggest since June 15 and the largest among the Borsa Istanbul sub-indexes on the day. Anadolu Sigorta, the largest insurance company by market value, dropped as much as 6.8 percent. Ak Sigorta, a unit of lender Akbank TAS, plunged 7.5 percent.
  • Merck & Co.’s key cancer drug continued its explosive growth as the drugmaker emerges as the likely leader in one of the most lucrative markets for the pharmaceutical industry. Sales of the drug, called Keytruda, more than doubled from a year before to $881 million in the second quarter, Merck said in a statement Friday. The company is pegging its future on the treatment, which belongs to a revolutionary class of new medicines that trigger the body’s own immune system to attack tumors.



*All sources from Bloomberg unless otherwise specified