July 3rd, 2019
Daily Market Commentary
- Canadian Headlines
- Canadian stocks rose after a long weekend as Shopify Inc. led technology to outperform, while a decline in oil prices led to underperformance for energy stocks. The S&P/TSX Composite Index rose 0.5% to 16,471 in Toronto. Tech stocks, communications and industrials were the top three outperformers, while pot stocks and energy lagged the most. Meanwhile, Canada’s export financing agency lifted its suspension on Saudi Arabian-related activity, citing an improving environment for the nation’s businesses since a diplomatic blowout with the kingdom last summer.
- Chief Executive Officer Bruce Linton, who helped build Canada’s Canopy Growth Corp. into the world’s most valuable marijuana firm, is leaving the company. Canopy said that co-CEO Mark Zekulin will take over as the sole boss of the company as it launches a search for new a “new leader to guide the company in its next phase of growth.” Canopy, based in Smiths Falls, Ontario, has seen its market value surge to nearly $14 billion since Canada legalized marijuana last year. The company got a high-profile investment from Constellation Brands Inc., the maker of Modelo, and has a deal in place to buy Acreage Holdings, a U.S. pot company.
- An 18-month labor dispute at an aluminum smelter in Quebec controlled by Alcoa Corp. ended after workers accepted a deal, defying the recommendation of their union’s leadership. On Tuesday, about 80% of workers at the Becancour plant voted to ratify the offer after a meeting of the United Steelworkers in Trois-Rivieres, Quebec, the union said. Alcoa last week said it expects the smelter, which has been operated by managers at a fraction of its capacity, to be fully operational within 10 months if the offer was accepted. The deal, which covers everything from pension financing to the use of subcontractors, follows months of failed attempts to revive negotiations after more than 1,000 union workers were locked out in January 2018. Last week, Alcoa threatened to idle the entire facility if workers don’t sign what it called a “final offer.”
- World Headlines
- European shares opened marginally higher as investors digested the European Union’s picks to lead its most important institutions, while the U.S. said talks with China are headed in the right direction. Haven assets like utilities, consumer staples and health care led gains, while energy stocks fell again, despite a mild recovery in crude futures after the worst reaction to an OPEC meeting in more than four years on Tuesday.
- Bonds extended gains globally ahead of the U.S. holiday as investors weighed the prospect of more dovish appointees to two of the world’s major central banks. Stocks in Europe rose with U.S. equity futures, while those in Asia were mostly lower. Ten-year Treasury yields dipped to the lowest since November 2016. The Stoxx Europe 600 Index extended this week’s gains, while S&P 500 futures signaled a higher open on Wall Street. Nasdaq 100 contracts advanced, with Tesla Inc. climbing in premarket trading after a record quarter of deliveries for the electric-car maker.
- Shares in Japan, China and South Korea led losses in Asia as equities in Australia edged higher. The yen strengthened after the Bank of Japan made small tweaks to its bond buying program. The euro pared a small drop as purchasing manager data for the region was revised slightly higher. Gold extended gains.
- Oil gained after suffering its worst reaction to an OPEC meeting in more than four years. Futures rose 0.8% in New York after an industry report showed U.S. oil inventories declined by almost 5 million barrels last week. Prices were still far from recovering Tuesday’s 4.8% decline, when concerns about the global economy overshadowed OPEC and its allies’ decision to extend output cuts for nine months. It was the biggest drop following an OPEC gathering since November 2014.
- Gold resumed its rally above $1,400 an ounce on a cocktail of positive drivers, with Treasury yields hitting a two-year low and the U.S. president seeking to reshape the Federal Reserve board with two picks seen as doves. Bullion extended the biggest one-day gain in three years ahead of the U.S. holiday Thursday, as investors weighed a run of poor economic data from Asia and Europe, which fed expectations for fresh easing from central banks. Holdings in gold-backed exchange-traded funds slipped to snap 14 days of gains Tuesday, but are still near the highest since 2013.
- Tesla Inc. shares surged as a record quarter of deliveries alleviated the worst fears about demand for the Elon Musk-led company’s electric vehicles. The Model 3 maker handed over 95,200 cars to customers in the three months that ended in June, exceeding the previous best mark set in the last quarter of 2018. Tesla’s delivery count exceeded all but one analyst’s estimate in a Bloomberg News survey. Tesla shares jumped as much as 7.1% during U.S. pre-market hours. The stock had fallen 33% for the year through the end of regular trading in New York on Tuesday, in part due to demand concerns that the company’s billionaire chief executive officer has repeatedly disputed.
- China is considering buying some U.S. agricultural products as a gesture of goodwill amid the resumption of trade talks between Beijing and Washington, though the volume is likely to be smaller than before, according to people familiar with the situation. Purchases could include soybeans, corn and pork, according to the people, who asked not to be identified as they’re not authorized to speak to the media. Total volume will depend on the progress of trade talks, though it will probably be smaller than the amount China committed to buy during the previous truce, they said.
- Samsung Electronics Co. has completed a two-month redesign of the Galaxy Fold to fix embarrassing screen failures that forced its delay, people familiar with the matter say, allowing the Korean giant to debut its marquee smartphone in time for the crucial holiday season. The world’s largest smartphone maker is now in the final stages of producing a commercial version but can’t yet pin down a date to begin sales, people familiar with the matter said, asking not to be identified describing an internal effort. Samsung pulled the device after several publications including Bloomberg News reported problems with test versions, such as screen malfunctions that emerged after a film on the display was peeled off.
- This week’s U.S. jobs report could make the case for the Federal Reserve to hold off on an interest-rate cut — or to take even more drastic action. The market is currently pricing in a bit more than a quarter-point of easing for this month’s Federal Open Market Committee meeting, meaning a 25-basis-point cut is seen as all but certain, and a 50-basis-point reduction is a possibility. That could all change rapidly on Friday if the jobs report strays too far from consensus forecasts, sending analysts and investors alike scurrying to adjust their views.
- HP Inc. and Dell Technologies Inc. plan to move as much as 30% of their notebook production away from China to avert U.S. tariffs, the Nikkei cited anonymous sources as saying. Microsoft Corp., Amazon.com Inc., Sony Corp. and Nintendo Co. are also looking to move some of their game console and smart speaker manufacturing away from the country, the Nikkei Asian Review cited those sources as saying. Companies foreign and domestic are seeking to pivot production away from China amid U.S. President Donald Trump’s efforts to use punitive tariffs to negotiate friendlier trade terms for the U.S. Alphabet Inc.’s Google has already shifted much of its production of U.S.-bound motherboards to Taiwan, averting a 25% tariff, Bloomberg News reported last month.
- In a last ditch effort to avoid European Union sanctions, Italy’s Finance Minister Giovanni Tria and Prime Minister Giuseppe Conte sought to reassure Brussels that the government’s commitment to fiscal discipline will extend beyond this year into 2020. The European Commission meets Wednesday to decide on disciplinary actionagainst Italy over its debt. The letter sent by Tria and Conte on Tuesday evening says that favorable 2019 budgetary trends — higher revenue and lower-than-expected welfare costs — will continue next year.
- The highest Dutch court rejected a plan for natural gas production from Europe’s largest field, saying the government insufficiently justified why it couldn’t cut extraction linked to earthquakes more quickly. The Groningen field production limit for the current gas year, which runs through September, is “satisfactory,” the Dutch Council of State ruled Wednesday. For the following years, Economy Minister Eric Wiebes must better explain how he weighed the safety interests of the people in the region against security of supply, it said.
- Unite Group Plc agreed to buy fellow U.K. student-housing provider Liberty Living Group Plc for 1.4 billion pounds ($1.8 billion) in cash and shares. Unite is buying the assets from the Canada Pension Plan Investment Board, which will have a 20% stake in the group when the deal is completed in the third quarter, according to a company statement on Wednesday. Unite proposed selling about 26.4 million new shares to help fund the purchase. The acquisition will give Unite “an improved portfolio quality with higher exposure to larger cities,” Moody’s Investors Service said in a note. It raised its outlook for Liberty Living to positive from stable on the news. Unite shares rose as much as 2.7% on Wednesday in London. Liberty Living’s bonds rose to a record.
- The consolidation within Singapore’s REIT industry has intensified, with Ascott Residence Trust and Ascendas Hospitality Trust agreeing to combine. The deal will create the largest hospitality trust in the Asia-Pacific region, with S$7.6 billion ($5.6 billion) of assets comprising serviced residences and hotels across 15 countries in Asia, Europe and the U.S., the companies said in a statement Wednesday. The enlarged entity will have greater financial firepower to make acquisitions, Ascott Chairman Bob Tan said in the statement. It “can then be strategically positioned to potentially enjoy a positive re-rating of the unit price and gain a wider investor base, which would be beneficial to all our unitholders.”
- Broadcom Inc. is in advanced talks to buy cybersecurity firm Symantec Corp., according to people familiar with the matter, seeking a further expansion into the more profitable software business. Broadcom could reach an agreement to buy the Mountain View, California-based company within weeks, said the people, who asked to not be identified because the matter isn’t public. No deal has been finalized and the talks could fall through, the people said.
- Blackstone Group LP is in exclusive talks to sell a portfolio of Center Parcs Europe holiday resorts to German real-estate company Aroundtown SA, according to people with knowledge of the talks. Aroundtown has agreed to pay about 1 billion euros ($1.1 billion) for the seven properties, which are operated by Pierre & Vacances SA, said the people, who asked not to be identified because the negotiations are private. Eastdil Secured LLC is advising on the deal, the people said. A spokesman for Aroundtown wasn’t immediately able to comment. Representatives of Blackstone and Eastdil declined to comment. Aroundtown gained as much as 1.6% in Wednesday trading in Frankfurt.
- TC Energy Corp. will sell its Columbia Midstream Group, which operates in the Appalachian Basin and owns four natural-gas gathering systems, to a unit of UGI Corp. for about $1.28 billion, the Calgary-based company said in a statement. UGI will fund the deal, which is expected to be completed in the third quarter, with new debt, a credit facility and available liquidity.
- Synthomer Plc agreed to buy U.S.-based Omnova Solutions Inc. for $473 million in its largest-ever acquisition, as Chief Executive Officer Calum MacLean steers the British maker of latex toward higher-margin paint additives and chemicals. Holders of Beachwood, Ohio-based Omnova will receive $10.15 a share, a 58% premium to Tuesday’s closing price. Including debt, the deal is valued at $824 million, London-based Synthomer said in a statement on Wednesday. Its shares fell as much as 7.1% because the company plans to hold a rights offer to help pay for the asset.
- Pickup owners are typically as loyal as they come, but every so often a hot new truck or big enough bargain can entice die-hards to switch their rigs. Such is the case with Fred Hufnagel, who logged 14,000 miles in New York’s Catskill Mountains in his two-year-old Chevrolet Silverado before trading it in for a Ram 1500 last month. Hufnagel looked at a new Ram on the advice of a friend and liked what he saw: a comfy cabin, sunroof and brawny Hemi engine. When a dealer gave him $30,000 to trade in his Silverado, he drove off with the new Ram and hasn’t looked back. “I liked the sound of Hemis,” Hufnagel says. “They’re pretty much the same truck, but better.”
- The U.S. denounced as “coercive acts” Chinese anti-ship missile tests in the disputed South China Sea, underscoring continued strategic tensions between the two Pacific powers even as they restart trade talks. China fired at least one missile into the sea over the weekend and was expected to continue testing through a launch window that continued until Wednesday, NBC News reported Tuesday, citing anonymous U.S. officials familiar with the matter. Pentagon spokesman Lieutenant Colonel Dave Eastburn said the tests near the Spratly Islands represented a “truly disturbing” violation of President Xi Jinping’s 2015 statement that China “does not intend to pursue militarization” in the water body.
*All sources from Bloomberg unless otherwise specified