July 2nd, 2019

Daily Market Commentary

• Canadian Headlines
  • Canada investors holding utilities and energy bonds are finally being rewarded, though it has little to do with the power businesses. AltaGas Ltd. and other energy companies are among the largest issuers of longer-term bonds in Canada and they’ve been given a boost this year by rising expectations that the Bank of Canada will eventually have to cut interest rates.
  • Dollarama agreed to acquire a 50.1% interest in Dollarcity for a purchase price estimated at $85 million to $95 million in cash, including an upfront payment of $40 million.
  • An affiliate of Brookfield Asset Management Inc. agreed to buy Genesee & Wyoming Inc. for about $6.3 billion, expanding its global portfolio of rail companies with a 120-line network spanning North America, Europe and Australia. Brookfield will pay $112 a share in cash, a 40% premium from G&W’s close on March 8, the last day of trading before Bloomberg News reported that the railroad operator was exploring a possible sale. The stock rose 8.5% to $108.46, an all-time high, at 9:54 a.m. Monday in New York.

   

• World Headlines
  • European equities climbed in early trade, adding to the previous session’s rally, as mining shares paced the advance on the surge in iron ore in the wake of the U.S.-China trade truce. The Stoxx Europe 600 Index was up 0.2%. Glencore and Rio Tinto both advanced 0.9%. Iron ore futures extended their rally above $120 a ton, notching a fresh five-year high, amid signs that demand from mills in China is being sustained after steel prices gained. Adidas fell 0.8% after HSBC cut the stock to hold. Airbus was down 0.6% on U.S. tariff woes amid the dispute with Boeing.
  • U.S. equity futures slipped and European stocks edged higher after a mixed session in Asia as enthusiasm over the latest trade truce between America and China waned. The dollar drifted while Treasuries rose. Contracts for all three main U.S. gauges came off their lows but still pointed to a small drop at the open. Wall Street started the week with a bang, as the S&P 500 Index posted record highs in the wake of a fresh trade truce between the U.S. and China. While President Donald Trump declared a new round of talks was already underway, hours later his administration expanded a list of European products that may get hit with tariffs — underscoring the threat still posed by trade tensions.
  • In Asia, shares rallied in Hong Kong and its dollar strengthened as the market reopened after a holiday to catch up with Monday’s move — despite violent local protests overnight. Chinese stocks were steady. Gold rebounded after tumbling Monday.
  • Oil steadied as investors weighed OPEC’s extending output cuts into 2020 against troubling economic data from around the world. Futures fell 0.2% in New York after closing 1.1% higher on Monday. OPEC ministers agreed to maintain production curbs for another nine months, and their allies are expected to ratify the deal on Tuesday. Still, a slew of disappointing manufacturing reports from the U.S., China and Europe continued to shake faith in oil demand. Trade concerns resurfaced after Washington proposed more tariffs on European Union goods in retaliation for aircraft subsidies.
  • Gold rebounded from its biggest decline in more than two years on signs of fresh strains on the global economy. Factory activity across Asia and Europe shrank in June, while the U.S. showed only meager growth, according to purchasing managers’ indexes. A global measure pointed to a second straight contraction, the first time that has happened since 2012. Bullion retreated back below $1,400 an ounce on Monday after the U.S and China reached a truce in their trade war and as American equities rose to a record. President Donald Trump said a new round of trade talks is underway.
  • European Central Bank policy makers aren’t yet ready to rush into additional monetary stimulus at this month’s meeting, preferring instead to wait for more data on the economy, according to euro-area central-bank officials familiar with the matter. While Governing Council members agree that they could act on July 25 if the outlook deteriorates, they are currently leaning toward the following meeting in September when they’ll have updated economic forecasts to back up their decision, the people said. The council might tweak its policy language this month to signal more stimulus is imminent.
  • Anheuser-Busch InBev NV kicked off the year’s biggest initial public offering, a sale of shares in its Asia Pacific beer unit that could raise as much as $9.8 billion and top Uber Technologies Inc.’s May listing. The Hong Kong IPO consists of 1.63 billion shares of Budweiser Brewing Company APAC Ltd. offered at HK$40 to HK$47 each, according to terms of the deal obtained by Bloomberg Tuesday. Trading is expected to start on July 19. The price range represents a market value of as much as $64 billion for Budweiser Brewing, on par with that of Heineken NV, the world’s second-largest brewer. The listing will enable acquisitions by creating a “local champion” and will help AB InBev reduce its debt, Chief Financial Officer Felipe Dutra has said.
  • Poland’s bank association has asked the government and industry regulators for help in case the European Union’s top court rules against the country’s lenders over foreign-currency mortgages, according to Puls Biznesu newspaper. The lobby’s initial estimate shows banks could face “huge” costs of at least 60 billion zloty ($16 billion), or about four years of industry profits, in a scenario of an unfavorable ruling, according to the newspaper. The Luxembourg-based court’s ruling is expected this month or in September.
  • Air India Assets Holding Ltd., a special purpose vehicle that holds part of the state-owned carrier’s debt and assets, is planning its first rupee-denominated bond sale to refinance some debt of the airline. Air India Assets is aiming to raise 220 billion rupees ($3.2 billion) and has sought fee bids from bankers on Wednesday, people familiar with the matter said. Out of the total, the company plans to raise 145 billion rupees through notes that will have a sovereign guarantee while the nation’s government will fully service the remaining.
  • Egypt’s biggest investment banks, including EFG Hermes Holding Co. and CI Capital Holding, are vying to manage the sale of a stake in state-owned United Bank, a deal that may augur a new wave of private investment in the North African nation after years of upheaval. Pharos Holding and HC Securities & Investment are also among “several” investment banks that have bid for the role, according to Egyptian central bank Governor Tarek Amer.
  • The U.S. added more European Union products to a list of goods it could hit with retaliatory tariffs in a long-running trans-Atlantic subsidy dispute between Boeing Co. and Airbus SE. The Trade Representative’s office in Washington on Monday published a list of $4 billion worth of EU goods to target in retaliation for European aircraft subsides. The products range from cherries to meat, cheese, olives and pasta, along with some types of whiskey and cast-iron tubes and pipes. It adds to a list of EU products valued at $21 billion that the USTR published in April, according to the release.
  • Hong Kong began picking up after historic protests left the legislature ransacked, the streets littered with spent tear gas canisters and the city’s Beijing-backed leader promising to push back against further unrest. Authorities announced that the central government complex in Admiralty would reopen Wednesday, but the legislative building will require a lengthier cleanup after demonstrators pulled down portraits, spray-painted slogans and draped a Union Jack-emblazoned colonial flag across the body president’s desk. Chief Executive Carrie Lam condemned the “extreme use of violence and vandalism” and defended the police’s decision to leave the Legislative Council to a small, but destructive group of protesters.
  • Tokyo Electric Power Co. Holdings Inc. is preparing its biggest yen bond offering since at least the Fukushima nuclear disaster in 2011, as local investors seek out higher-paying corporate notes amid the Bank of Japan’s prolonged negative interest policy. Tepco Power Grid Inc., a unit of the owner of Japan’s wrecked Fukushima Dai-Ichi power plant, is planning to sell as much as 150 billion yen ($1.38 billion) in a three-part sale this week. That would be the biggest offering from the power company since it was forced out of debt markets in 2011 following the tsunami-triggered nuclear accident, according to data compiled by Bloomberg. Tokyo Electric returned to debt markets in 2017 after being bailed out by the Japanese government in 2012 as the costs from the disaster clean-up swelled.
  • Saudi Arabia is restarting preparations for a potential initial public offering of oil giant Aramco, months after putting the planned listing on hold, people familiar with the matter said. Aramco, the world’s most profitable company, recently held talks with a select group of investment banks to discuss potential roles on the offering, according to the people. Detailed work on the IPO may pick up speed later this year or early next year, the people said, asking not to be identified because the information is private.
  • Bain Capital is in exclusive talks to buy a majority stake in WPP Plc’s Kantar unit in a deal valuing the market-research business at about $4 billion including debt. The buyout firm’s proposal is subject to negotiation and there’s no guarantee that talks will result in a deal, WPP said in a statement on Monday, which confirmed an earlier Bloomberg News report. The company was competing against Apollo Global Management, Platinum Equity and Vista Equity Partners in the final round of bidding, people familiar with the auction said previously.
  • Intesa Sanpaolo SpA is close to reaching an agreement to sell Prelios SpA about 3 billion euros ($3.4 billion) of troubled loans and form a partnership with the Italian debt-servicing company to manage another 7 billion euros, people familiar with the matter said. Italy’s second-biggest bank is in advanced talks to sell a portfolio of unlikely-to-pay loans and form a partnership with Prelios to service loans that will remain on its books, the people said, asking to not be identified because the process is private. A preliminary accord may be reached by the end of July and the final amount sold may change, they said.
  • For the oilfield services industry, it’s no longer about merely navigating a downturn. It’s now about survival. Five years after crude began its plunge to less than $30 a barrel from more than $100, the companies that drill and frack wells are living in a new world. The producers they work for have become increasingly efficient and cost-conscious, reacting to shareholder demands for payback and a crude market that’s recovered only part of that brutal decline. Meanwhile, the service companies that handed out discounts in the downturn are barely holding on. Schlumberger Ltd. and Halliburton Co., the two biggest, have each fallen by more than 65% since crude started tumbling, and Weatherford International Plc on Monday filed for bankruptcy. Contrast that with the oil producers, collectively down less than 50%.
  • Jeremy Hunt said he would “100% not” suspend Parliament to force through a no-deal Brexit, drawing a dividing line with Boris Johnson as the two men entered the last days of campaigning before Tory activists start voting for the U.K.’s next prime minister. Hunt’s commitment — a direct challenge to Johnson — helped win the backing of former Foreign Secretary William Hague, who said his mastery of the machinery of government makes him best placed to deliver on his promises.
  • Tesla Inc.’s push to deliver more cars in June appears to have had an impact in Europe, with a sharp rise in registrations over the previous month. Data on last month’s European car sales is trickling in, and the first countries reporting numbers point to Tesla gaining further ground in key markets like Norway and the Netherlands, where the electric-car maker’s registrations surpassed 2,500 for the first time. Despite a slowdown in the overall automotive market, Tesla should now be within touching distance of its target for at least 90,000 deliveries a quarter. Analysts expect the carmaker to report this week that it shipped 88,000 cars in the three months through June. European deliveries have been notably lumpy, with a big spike in March as the Model 3 reached the continent’s shores in large numbers, followed by a couple of less impressive months.

*All sources from Bloomberg unless otherwise specified