June 18th, 2018

 

Daily Market Commentary

Canadian Headlines

• Magna International Inc. plans to engineer and build electric vehicles in China, marking the first time North America’s largest auto supplier is expanding its car manufacturing capabilities beyond its 20-year-old Steyr venture. The Aurora, Ontario-based company is forming two joint ventures with China’s largest EV maker, Beijing Electric Vehicle Co., known as BJEV. The engineering and manufacturing ventures are set to take over an existing factory in Zhenjiang with the intention of producing vehicles by 2020, Magna said in a statement Monday. Bloomberg News reported in February that Magna was in talks with BJEV’s parent for an EV pact.
• Global diversified miner South32 Ltd. agreed to acquire Arizona Mining Inc. for $1.3 billion to add a flagship silver-lead-zinc project in the U.S. and flagged it will remain on the M&A hunt as deal-making returns to the sector. Perth-based South32 — spun out of BHP Billiton Ltd. in 2015 — will pay C$6.20 ($4.70) a share for the 83 percent of the company that it doesn’t already own, according to a filling Monday. Arizona directors have unanimously recommended the deal that’s priced at a 50 percent premium to Friday’s close.
• Baytex and Raging River to merge in an all-stock transaction, valuing the deal at approximately C$5 billion. Raging River holders to receive 1.36 shares of Baytex for each Raging River share owned.

 

 

World Headlines

• European equities dropped at the open as oil stocks paced the declines amid bets Saudi Arabia and Russia will clash with allied crude producers over whether to lift output. The Stoxx Europe 600 Index retreated 0.2%, after adding 1 percent last week as the euro weakened. Nexans SA tumbled 18% as the French cable maker forecast a plunge in profit this year.
• U.S. stock futures slipped as trade tensions between the world’s two largest economies escalate. S&P 500 Index futures fell 0.5 percent as of 10:55 a.m. in Tokyo after the White House said Friday duties on $34 billion worth of Chinese goods targeting President Xi Jinping’s Made in China 2025 plan would take effect on July 6, while tariffs on another $16 billion worth of products is being reviewed.
• Asian stocks resumed a decline for a fourth straight day amid investor concerns about an escalating trade war between the U.S. and China, the world’s two biggest economies. The MSCI Asia Pacific Index fell 0.7 percent to 171.52 as of 3:47 p.m. in Hong Kong, led by material and industrial shares.
• Brent crude erased earlier losses as OPEC was said to discuss a smaller-than-expected increase in production. Futures rose as much as 1.2 percent in London after earlier dropping 1.4 percent. OPEC members are considering a compromise agreement that would see an oil-output hike of 300,000 to 600,000 barrels a day over the next few months, according to people briefed on the talks. That level, if agreed, would be smaller than the 1.5 million-barrel increase that Russia has proposed.
• Gold steadies, after tumbling Friday on divergence in interest rate outlook in the U.S. and Europe.
• Norwegian Air Shuttle ASA surged as much as 12 percent after Deutsche Lufthansa AG Chief Executive Officer Carsten Spohr said his company was in takeover discussions with the Scandinavian discount specialist, raising the possibility of a bidding war. Lufthansa has been in contact with Norwegian and whether an agreement is reached will depend on the price on offer and the strategic value the purchase would add for the German carrier, Spohr said in an interview with Süddeutsche Zeitung. Potential restrictions by cartel authorities will also be a factor, he added.
• China’s planned levies on U.S. crude as part of an escalating trade dispute threatens to dim the attractiveness of American supplies in the world’s biggest oil-importing nation. Crude pumped from the shale fields of Texas and wells in the Gulf of Mexico have been increasingly finding their way to Asia as American oil turned relatively cheaper versus supplies from other parts of the globe. While China has been the top importer of cargoes in the region, its proposed tariffs risk eroding the benefit from U.S. crude’s discount over other benchmarks that had opened the door for arbitrage shipments to flow east.
• The first punches have been thrown in a potential trade war and now Xi Jinping is poised to match Donald Trump blow for blow. The next flurry of jabs may be imminent. In his announcement of tariffs on Chinese goods on Friday, Trump vowed additional duties if China retaliated — which Beijing immediately did. Details of U.S. restrictions on investments from China will follow in the next two weeks, according to Trade Representative Robert Lighthizer.
• LaSalle Hotel Properties has picked Blackstone Group LP as its preferred suitor, thwarting months of efforts by Pebblebrook Hotel Trust to buy the luxury-hotel owner, most recently for more than $4 billion. LaSalle’s board deemed a June 11 offer from Pebblebrook “substantially similar” to one it rejected before accepting Blackstone’s bid of $33.50 a share, according to people with knowledge of the matter. The people added that the board believed Pebblebrook’s offer “does not constitute, and could not reasonably be expected to lead to, a superior proposal” to Blackstone’s.
• Shale oil hasn’t always been Royal Dutch Shell Plc’s best friend, but they’re working on the relationship. Shell is said to have bid, with partner Blackstone Group LP, on a portfolio of U.S. shale assets BHP Billiton Ltd. wants to sell for about $10 billion. If it wins, the Anglo-Dutch oil major could exceed its goal of doubling its American onshore output, according to JPMorgan Chase & Co.
• Virgin Money Holdings U.K. Plc’s 1.7 billion-pound ($2.3 billion) takeover is likely to hasten consolidation as cost pressures squeeze smaller British banks. The acquisition by British lender CYBG Plc announced Monday follows South Africa’s FirstRand Ltd.’s 1.1 billion-pound takeover of Aldermore Group Plc last year. That may spur deals as so-called challenger banks seek to diversify products, curtail expenses and take market share from Britain’s four biggest lenders, according to analysts and investors.
• Germany’s crisis over migration policy is entering a critical phase with Chancellor Angela Merkel’s political future on the line and the ripples already being felt across Europe. Merkel received crucial backing on Monday from senior members of her Christian Democratic Union ahead of a meeting in Berlin to discuss an ultimatum from Interior Minister Horst Seehofer, who leads her Bavarian sister party. Seehofer appears set to contradict the chancellor by issuing an order to turn away migrants at Germany’s border. Merkel and Seehofer have announced dueling press conferences for later this afternoon.
• Audi CEO Rupert Stadler was arrested in Munich today in connection with the diesel-cheating scandal, making him the highest-profile target in the probe that’s engulfed the carmaker and parent Volkswagen for almost three years. Munich prosecutors investigating Audi’s role in the 2015 scandal confirmed they arrested Stadler, 55, in the Bavarian capital because of risk he may tamper with evidence, according to an emailed statement Monday.
• Equinor ASA awarded 30 billion kroner ($3.7 billion) of contracts to Baker Hughes, Halliburton Co. and Schlumberger Ltd. as Norway’s biggest oil company seeks to lock in low prices after an historic slump. The drilling and well-service contracts, the biggest awarded by Equinor, cover most of the Norwegian fields operated by the company and run for four years, with options for five two-year extensions, it said in a statement.
• Prime Minister Narendra Modi’s administration is planning to offload a stake in state-run Coal India Ltd. to speed asset sales after a disastrous attempt to find a buyer for the cash-strapped national airline, people with knowledge of the matter said. The Department of Investment and Public Asset Management is finalizing the amount of stake to be offered in the financial year ending March 31, the people said, asking not to be identified as the information is not public. If needed, the government could explore the option of staggering the sale offer in two tranches, they said.
• Noble Group Ltd. suspended its shares in Singapore on Monday pending an announcement, as efforts to get shareholder agreement on its controversial $3.5 billion debt restructuring plan drag on longer than expected. The stock fell to a record low of 5 Singapore cents last week before closing at 5.4 cents on Thursday prior to a public holiday. Once Asia’s largest commodity trader, the company has seen its market value shrink to about $50 million from more than $10 billion in 2010.
• Cerberus Capital Management is nearing a deal to buy air cargo handler Worldwide Flight Services, people with knowledge of the matter said. Cerberus beat out other bidders for closely-held Worldwide Flight Services, which is owned by U.S. private equity firm Platinum Equity, according to the people. The company could be valued at about 1.2 billion euros ($1.4 billion) including debt, one of the people said, asking not to be identified because the information is private.
• HDFC Bank Ltd., the world’s most expensive major lender, is considering relying entirely on the Indian market for a share sale that could raise as much as 155 billion rupees ($2.3 billion), people with knowledge of the matter said. The Mumbai-based bank is weighing seeking all the capital through a qualified institutional placement in India, rather than its usual practice of splitting the fundraising between an offering of local stock and a sale of American depositary receipts, according to the people. HDFC Bank aims to start taking investor orders within the next couple of weeks, the people said, asking not to be identified because the information is private.
• Google is investing $550 million in cash in China’s JD.com Inc. as the U.S. search giant pushes deeper into online commerce. Alphabet Inc.’s Google will buy newly issued Class A shares at $20.29 per share, equivalent to $40.58 per ADS, the companies said in a joint statement Monday. The pair plan to explore joint development of retail solutions in regions, including Southeast Asia, the U.S. and Europe. The deal comes just a week after Google struck an alliance with Carrefour SA to sell groceries online in France through the U.S. company’s platforms including Home and Assistant.

*All sources from Bloomberg unless otherwise specified