July 30th, 2018
Daily Market Commentary
- Canadian stocks retreated as tech stocks tumbled the most since 2013 and crude prices posted a fourth straight weekly drop. The S&P/TSX Composite Index lost 62 points or 0.4 percent to 16,393.95, bringing the weekly decline to 0.3 percent. The tech sector led Friday’s drop, sliding 4.2 percent after Twitter followed Facebook in reporting disappointing results.
- With less than 80 days before Canada legalizes marijuana, the rollout in its largest market remains hazy. While Ontario was the first province to announce how it would regulate and distribute sales in government-run pot shops, a dramatic policy shift by newly elected Premier Doug Ford expected as early as Tuesday could move sales to private retail stores. There were already concerns Ontario’s stores wouldn’t be ready for legal sales on Oct. 17 and a shift in its retail model makes it more likely initial sales will fall short of expectations.
- Canada is standing its ground in talks to re-negotiate the North American Free Trade Agreement, the nation’s Agriculture Minister Lawrence MacAulay said in an interview. MacAuly’s comments came as farm leaders from the Group of 20 nations representing the world’s biggest economies raised concerns about protectionism and obstacles to trade amid a burgeoning global trade war. The NAFTA re-negotiation may conclude within two months, Mexico’s Agriculture Secretary Baltazar Hinojosa Ochoa said on Friday.
- Stocks began the week on the back foot as investors weighed earnings results against lofty expectations and prepared for key policy meetings from some of the world’s biggest central banks. Treasuries and European sovereign bonds fell. Miners and food and beverage makers were among the biggest losers in the Stoxx Europe 600 Index, as metals dropped and brewer Heineken reported disappointing results.
- Futures on the S&P 500 and Nasdaq pointed to a softer open following declines across most Asian markets, while those on the Dow were little changed. Central-bank policy decisions and a slew of earnings reports, including from Apple Inc., are set to dominate moves in financial markets this week. Investors will focus on whether the BOJ will fine tune its policy and look for any indications the Federal Reserve is shying away from two more interest-rate hikes before the end of this year.
- Chinese companies related to infrastructure construction, including railway builders and cement makers, are in high demand in Hong Kong and the mainland after the government unveiled new measures to aid growth. The materials and industrial sectors have been the two best performers on the MSCI China Index since the gauge rose from a seven-month low on July 19.
- Oil rose in New York after a fourth weekly decline as a weaker dollar boosted the appeal of commodities and concerns over global supply disruptions persisted. West Texas Intermediate futures added 1.1 percent following a retreat of 2.5 percent last week. Three oil fields in the North Sea are winding down output before industrial action starts later Monday, a labor union said. Tensions in the Middle East remain high as the U.S. reimposes sanctions on Iran, while Saudi Arabia halted shipments via a key Red Sea shipping lane last week after two tankers were attacked by Yemen’s Houthi militia.
- Gold declines ahead of policy meetings this week at top central banks.
- Confidence in the euro-area economy dropped to its lowest level in a year, suggesting that the global trade conflict can weigh down growth momentum. The European Commission’s measure of corporate and household sentiment index fell for a seventh straight month in July. Among executives, their view of the business climate dropped to an 11-month low.
- Bonds across global developed markets declined ahead of the Bank of Japan’s policy decision Tuesday on growing speculation that the monetary authority may adjust the nation’s policy stimulus. U.K. gilts led the drop, with 10-year yields touching the highest level in nearly a month, while U.S. Treasuries and German bunds followed suit. Yields on similar-dated Japanese bonds rose to an almost 18-month high during Asian hours on concern that Governor Haruhiko Kuroda could permit yields to fluctuate more around the BOJ’s zero percent target or remove its current 80-trillion yen ($720 billion) bond-purchase target.
- President Donald Trump is casting a long political shadow over this week’s meeting of the Federal Reserve. No increase in interest rates is expected when officials gather on Tuesday and Wednesday in Washington, according to pricing in federal funds futures and all but one of the 57 economists polled by Bloomberg. But it would be a mistake to link the pause in rate hikes to Trump’s recent complaints over the U.S. central bank’s plan to gradually raise borrowing costs, ditching two decades of White House tradition of avoiding public comment on policy out of respect for Fed independence.
- Italy’s Prime Minister Giuseppe Conte is set to burnish his government’s ties with the Trump administration, after his deputy premiers stoked tensions with the European Union. The meeting at the White House on Monday comes after President Donald Trump signed a truce in the trade confrontation with the EU last week. Yet it also comes at a time when Conte’s two political sponsors, who share Trump’s anti-establishment rhetoric, have stepped up their confrontation with European partners.
- GVC Holdings Plc jumped the most in more than two months after the sports gambling operator formed a joint venture with MGM Resorts International to offer sports and online betting in the U.S. MGM and GVC will each contribute $100 million to the 50-50 partnership, which will be based in a U.S. “technology hub” city and include executives from both companies, they said in a statement Sunday. The venture will also operate sports books in MGM’s casinos. In a separate deal, Las Vegas-based Boyd Gaming Corp. will allow the partnership to offer mobile betting through its licenses in several states.
- China used to rail against the outsize role of the U.S. dollar. But in a major turnaround, the world’s second-biggest economy has started embracing the currency of its larger rival. Chinese companies and banks—and even the government—sold bonds denominated in dollars at a record pace last year, and underwriters expect that growth to continue for years. The roughly half-trillion-dollar market has two key attractions for China’s borrowers. For some, it’s an easier place to raise cash than at home—where regulators are cracking down on leverage. For others, dollars are simply easier to use to fund acquisitions and investments abroad.
- Caesars Entertainment Corp. will begin taking sports bets at two of its casinos in New Jersey this week and in Mississippi next month, joining rivals in jumping into the business after a Supreme Court decision cleared the way for legal wagering on athletic contests. The Bally’s and Harrah’s casinos in Atlantic City, New Jersey, will open sports books on Tuesday and Wednesday, while the Horseshoe Tunica and Harrah’s Gulf Coast resorts in Mississippi will follow in mid-August, Caesars said in a statement Monday.
- Heineken NV’s attempt to challenge Anheuser-Busch InBev NV in Brazil is squeezing profit margins, with the Dutch brewer forecasting a decline in profitability this year. Shares of the world’s second-largest brewer on Monday fell the most in almost three years after it said it was expanding more quickly than expected in Latin America’s biggest economy, where its beer business is less profitable than elsewhere.
- Greece is planning a return to the markets in a bid to regain its status as a “normal” country. If the government can announce by the end of the year its program for tapping the markets in 2019, and repeat this exercise each year for the following 12 months, the plan will have worked, an official familiar with the matter said. After losing more than a quarter of its economic output during the past decade, Europe’s most indebted country is now trying to stand on its own feet again. The target is for the country to issue no more debt than what matures each year, the official said, requesting anonymity as discussions are still ongoing.
- Hyatt Hotels Corp. stepped back from making a bid for Spanish hotel operator NH Hotel Group SA, saying an offer now looks impractical. NH shares fell the most in almost six months. Hyatt wrote to NH Hotel’s board about a possible bid proposal on July 26. Two hours later, Minor International Pcl disclosed that it controlled 44 percent of the Spanish company’s shares. Bangkok-based Minor in June said it would make an offer for all of NH Hotel after agreeing to buy a stake from China’s HNA Group Co.
- The bottom for emerging-market stocks remains some way away, especially in China, said Mark Mobius, partner and co-founder of Mobius Capital Partners. Equities in Shanghai face multiple headwinds, including debt, the influence of technology stocks and the ongoing trade conflict with the U.S., Mobius said in an interview with Bloomberg TV in Hong Kong.
- PetroChina Co., the nation’s largest oil and gas producer, projected first-half profit more than doubled to possibly the highest in more than three years as a rally in global crude prices buoyed returns. Net income probably surged between 107 percent and 122 percent in the first six months of 2018 from a year ago, the Beijing-based company said in a filing to the Hong Kong stock exchange Monday, citing Chinese accounting standards. That puts profits at roughly as much as 28.1 billion yuan, the highest semi-annual result since the second half of 2014, according to Bloomberg News calculations.
- BMW AG and Daimler AG are facing more pain in China after higher tariffs on U.S.-imported cars force price hikes and consumers hold back on their next purchase. BMW, which like Daimler AG ships U.S.-made sport utility vehicles to China, said on Sunday it will join Tesla Inc. in raising prices in the Asian country. The steeper charges are a result of China’s decision to boost tariffs to 40 percent on July 6, part of a tit-for-tat trade war with the U.S. China almost simultaneously cut import duties for cars from everywhere else, creating whiplash for manufacturers as well as consumers.
- Chinese private equity firm Citic Capital Holdings Ltd. is raising what would be its largest onshore property fund, and plans to acquire shopping malls that can be made more profitable, according to people familiar with the matter. The fund, started with developer China Vanke Co.’s retail unit SCPG Holdings Co., is targeting more than 3 billion yuan ($440 million), said one of the people. It will acquire malls in tier one and two cities that are seen to have the potential to generate more rental revenue, according to the people, who asked not to be identified because the information is private.
- US Foods Holding to acquire five operating companies from Services Group of America for $1.8b in cash.
- When Apple Inc. reports results on Tuesday, investors will seek insight into upcoming new iPhones and how the current flagship iPhone X is performing. They also want executives’ latest thoughts on the growing trade dispute between the U.S. and China. The Cupertino, California-based technology giant is expected to announce fiscal third-quarter revenue of $52.3 billion, according to analyst estimates compiled by Bloomberg. That’s in line with the company’s recent forecast and translates to year-over-year revenue growth of about 15 percent, the strongest for Apple’s June quarter since 2015.
*All sources from Bloomberg unless otherwise specified