June 21st, 2018
Daily Market Commentary
- Canadian investors could be forgiven for getting a little excited. The country’s stock market just hit a record, surpassing a January high before its bigger, brasher U.S. cousin. But look at the longer-term picture and there’s less to get fired up about. Since the financial-crisis low of March 9, 2009, the S&P/TSX Composite Indexhas gained 117 percent compared with an increase of 309 percent for the S&P 500 Index. And Canada is expected to lag again in 2018, with strategists forecasting a full-year gain of about 5 percent versus 10 percent for the S&P 500.
- The dollar strengthened, Treasuries climbed and stocks fell on Thursday as two prominent euroskeptics were handed key roles in the Italian parliament, adding to the worry list for investors fretting over the outlook for global trade. Italian bonds and stocks slumped on the news. The main European equity gauge, already under pressure in the wake of Daimler AG’s cut to its profit outlook, headed lower and futures on the S&P followed suit.
- U.S. stock index futures dropped as investors remained wary about the risk of a full-blown global trading war, with the auto sector in the spotlight after Daimler AG cut its profit outlook, blaming the trade tensions. The German carmaker became the first prominent company to warn on its outlook due to the U.S.-China spat, claiming Chinese customers will now buy fewer cars after Beijing slaps tariffs on U.S. auto imports.
- Asian stocks declined amid concern about trade disputes between the U.S. and China. Philippine stocks tumbled into a bear market. The MSCI Asia Pacific Index fell 0.6 percent to 168.80 as of 4:08 p.m. in Hong Kong. Japan’s Topix retreated, while benchmarks in South Korean and Hong Kong also closed lower. The Philippines key gauge ended at a 17-month low after slumping 22 percent from a record close on January 29.
- Brent crude oil fell to near $73 a barrel as OPEC and its allies inched closer to reaching an agreement on relaxing output curbs at a meeting in Vienna this week. Futures in London for August delivery dropped 1.9 percent. Saudi Arabia’s energy minister said the group needs to release more oil to the market, while his Iranian counterpart — who earlier in the week rejected any proposal to boost output — said he was optimistic about the outcome of OPEC’s meeting Friday. Brent’s premium to West Texas Intermediate narrowed to its smallest level in three weeks as the drop in the global benchmark outpaced those in U.S. futures.
- Gold has fallen out of favor, with the metal heading for its worst daily run in a year and trading at the lowest since December. A surging dollar, resilient U.S. stock market and prospects for tighter monetary policy from the Federal Reserve have contributed to the decline. Those factors have overshadowed any demand for a haven as escalating trade tensions stoke concerns over global growth among the world’s central bankers.
- Bank of England Chief Economist Andy Haldane unexpectedly threw his support behind an immediate interest-rate increase, defying the majority of policy makers who voted to keep the rate unchanged. The pound rose. The Monetary Policy Committee held bank rate at 0.5 percent, as predicted by all 61 economists in a Bloomberg survey. But in a surprise a 6-3 vote, Haldane joined Ian McCafferty and Michael Saunders in calling for a quarter-point hike. That’s the first time a BOE chief economist has dissented since 2011 and the first time Haldane, who started in 2014, has ever gone against the majority.
- Emerging market stocks are about to get a $600 billion boost. That’s how much the asset class will expand after MSCI Inc. said on Wednesday it will add both Saudi Arabia and Argentina to its equity index of developing nations. Neither decision was assured, and together, they could prompt a relief rally after a selloff knocked $2.7 trillion from emerging economies since late January amid threats of a global trade war and higher U.S. rates.
- U.S. President Donald Trump is planning to meet with Vladimir Putin, the president of Russia, during Trump’s visit to Europe next month, according to two people familiar with the matter. Two possibilities for the meeting are either before the NATO summit in Brussels on July 11 or after Trump’s visit to Britain on July 13, one of the people said. Both people asked for anonymity to discuss the plans, because they aren’t final.
- Xiaomi Corp. started taking orders for the world’s biggest initial public offering in nearly two years, sharply curtailing its earlier valuation ambitions as it seeks to raise up to $6.1 billion in Hong Kong. China Mobile Ltd., the nation’s biggest wireless carrier, and U.S. chip giantQualcomm Inc. are among firms that agreed to buy Xiaomi stock as cornerstone investors. The smartphone giant expects to take orders from institutional investors through June 28 and aims to start trading in Hong Kong July 9, according to terms for the deal obtained by Bloomberg.
- Global trade tensions deepened Thursday with China reiterating it will hit back if the latest tariff threats from Donald Trump materialize, while India followed the European Union in slapping retaliatory levies on U.S. goods. China is “fully prepared” to respond to any new list of U.S. tariffs, according to a commerce ministry spokesman, who said the nation will use a combination of quantitative and qualitative measures. Trump on Monday evening ordered up identification of $200 billion in Chinese imports for additional tariffs of 10 percent — with another $200 billion after that if Beijing retaliates.
- Daimler AG became the first prominent company to cut its profit outlook due to escalating trade tensions between the U.S. and China, claiming Chinese customers will now buy fewer cars after Beijing slaps tariffs on U.S. auto imports. The manufacturer of Mercedes-Benz cars said late Wednesday its full-year earnings excluding some items will be slightly lower than last year. Many SUVs are built in Alabama and then shipped to China. Those vehicles are now caught up in retaliatory tariffs announced in China in response to President Donald Trump’s levies on $50 billion in Chinese goods.
- The Trump administration has collected more than $775 million so far from its metal import tariffs, as lawmakers from both parties blasted the duties and said the process for requests by companies for exclusions must improve. The tariffs President Donald Trump imposed in March have generated $582 million from steel imports and $195 million from aluminum as of last week, and the combined total is expected to top $1 billion within the next six weeks, according to the Commerce Department.
- It’s decision time for Comcast Corp., which faces one of the biggest moments in the cable giant’s 55-year-old history. After Walt Disney Co. raised its offer for 21st Century Fox Inc.’s entertainment assets to $71.3 billion, Comcast Chief Executive Officer Brian Roberts is now mulling how to respond to the escalating bidding war.
- The Turkish government imposed tariffs of $266.5 million on $1.1 billion worth of U.S. goods Thursday in retaliation for President Donald Trump’s levies on steel and aluminum imports. The tariffs will affect 12 percent of the $9.4 billion worth of goods that the U.S. exports to Turkey, according to data provided by the U.S. Trade Representative. Total goods and services trade between U.S. and Turkey was $22.4 billion in 2016, the most recent data available.
- The American dream continues to fade for many people. Housing affordability dropped this quarter to the lowest since late 2008, according to data released this month by the National Association of Realtors. In May, the median price of a previously owned homes rose to a record $264,800, NAR data show.
- India raised tariffs on a slew of items in retaliation to U.S. imposing higher levies on some products shipped from the South Asian nation, a move that echoes steps taken by China and the European Union. The import duty on chickpeas and Bengal gram, or chana, has been increased to 70 percent and will be effective from Aug. 4, the ministry of finance said in a notification dated June 20. The tariffs have also been raised on other items including walnuts, almonds, boric acid, apples, diagnostic reagents and some hot-rolled coil products.
- Even after dialing back its valuation ambitions, Xiaomi Corp. still has a shot at becoming the world’s most expensive major maker of phone gear. The Chinese smartphone brand is marketing shares in its Hong Kong initial public offering at as much as 51.3 times this year’s estimated earnings, a person with knowledge of the matter said. That valuation, which assumes an over-allotment option is fully exercised, would be the highest for any communications equipment vendor globally with a market capitalization of at least $10 billion, according to data compiled by Bloomberg.
- European private equity firm Permira Holdings is in early-stage talks with investors to raise as much as 10 billion euros ($12 billion) for its seventh buyout fund, people familiar with the matter said. The firm is likely to start fundraising next year for its largest pool of capital since the global financial crisis, said the people, who asked not to be identified as the discussions are confidential. Permira, which held its annual investor conference in London last week, has invested and committed over 50 percent of the 7.5 billion euros it gathered in 2016 for its sixth fund, the people said.
- Shareholders of Spain’s bad bank are seeking assurances that they won’t face further provisioning costs if it goes ahead with a 30 billion-euro ($35 billion) sale of soured real estate assets, according to people with knowledge of the matter. Board members at the bad bank — known as Sareb — raised concerns about the impact of the transaction on the company’s business plan after Executive Chairman Jaime Echegoyen presented the proposal, the people said, asking not to be named as the subject is private. Goldman Sachs Group Inc. was asked to gauge appetite and a price range that can mitigate the impact on provisions, said the people.
- With fewer than 24 hours to go before a pivotal meeting, Saudi Arabia urged OPEC to help consumers by boosting oil supply as opposition from arch-rival Iran showed signs of wavering. The intensive negotiations between ministers in Vienna this week are the culmination of a process that has whipsawed oil markets for weeks. Saudi Arabia and Russia’s desire to roll back production cuts has encountered fierce opposition from Iran and Venezuela, while U.S. President Donald Trump has lobbed the occasional rhetorical bomb at the cartel on behalf of consumers.
*All sources from Bloomberg unless otherwise specified