June 25th, 2018

 

Daily Market Commentary

Canadian Headlines

• Vanguard Investments Canada Inc., known for its low-cost ETFs, is launching its first suite of mutual funds. Vanguard will offer a global balanced fund, a global dividend fund, a U.S. value fund and an international growth fund, all of them actively managed, the company said in a statement Monday. The maximum management fee for each mutual fund will be 0.5 percent and could be less than that depending on the fund’s performance, said the company, a unit of Malvern, Pennsylvania-based Vanguard Group Inc.
• Even as oil prices trade near the highest in four years, offices in the capital of Canada’s energy industry are about as empty as they’ve been since at least 2008. The office vacancy rate in Calgary climbed to about 23 percent in the first quarter of this year, up from 20 percent a year earlier, according to a report from Toronto-based Altus Group Ltd. The increase is partly due to the completion of 2.5 million square feet of office space in the year through March, the real estate consulting firm said.

 

World Headlines

• European stocks retreated, led by commodity-related sectors, as Brent oil fell and investors weighed the ongoing trade spat between the U.S. and China. The Stoxx Europe 600 Index declined 0.6 percent after losing 1.1 percent last week. The prospect of an oil supply increase weighed on oil & gas shares, with BP Plc and Royal Dutch Shell Plc falling at least 1.4 percent. Autos and banks also featured among the biggest drops.
• U.S. stock futures fell during European and Asian hours as trade tensions continued to cast a pall over markets. Futures contracts on the S&P 500 Index were down 0.6 percent as of 10:10 a.m. in London after falling as much as 0.7 percent in early trading. Contracts on the Dow Jones Industrial Average and Nasdaq declined 0.7 percent and 0.9 percent, respectively.
• Asian shares declined as a cut by China’s central bank in the amount of cash some lenders must hold in reserves failed to trigger a rebound in equities, with investors assessing the outlook for global trade. The MSCI Asia Pacific Index fell 0.8 percent to 167.87 as of 5:01 p.m. in Hong Kong, set to close at its lowest level since December 6. Chinese stocks were the region’s worst performers, with the Shanghai Composite Index down 1.1 percent lower and Hong Kong’s Hang Seng Index retreating 1.3 percent. Japan’s Topix lost 1 percent, dragged down by automakers, while Singapore’ Straits Times Index entered a correction.
• Oil dropped below $75 a barrel in London after Saudi Arabia and Russia pledged about 1 million barrels of additional daily supply to allay consumer worries. Brent crude, the global benchmark, fell as much as 2.4 percent after Saudi Arabia’s Energy Minister Khalid Al-Falih promised to act decisively to keep prices under control, sitting alongside Russian counterpart Alexander Novak at OPEC’s headquarters in Vienna. Prices had jumped on Friday, when the producer group failed to clarify the size of the increase. Brent’s premium to the U.S. benchmark narrowed sharply.
• Gold drops as trade tensions between the U.S. and China, Europe fail to spur haven demand, with dollar ascendant. Moving averages show “death cross.”
• China’s central bank will cut the amount of cash some lenders must hold as reserves, unlocking about 700 billion yuan ($108 billion) of liquidity, as it seeks to control leverage and support smaller companies. The required reserve ratio for some banks will drop by 0.5 percentage point, effective July 5, the People’s Bank of China said on its website. That’s the day before the U.S. and China are scheduled to impose tariffs on each other.
• Thirteen months after unveiling a gigantic pledge from Saudi Arabia’s sovereign wealth fund, Blackstone Group LP is nearing a first close of $5 billion for its inaugural infrastructure fund, according to people familiar with the matter. The fundraising, expected to be finalized this week, is slightly behind schedule but will mark the biggest initial close for a first-time fund across any alternative investment strategy after SoftBank’s $100 billion Vision Fund and the China Structural Reform Fund, according to Preqin. The data exclude funds with a single close.
• A scion of Switzerland’s wealthy Zuellig family is seeking to sell Gold Coin, one of the biggest animal feed manufacturers in Asia, for about $500 million, people with knowledge of the matter said. Peter Zuellig’s closely held holding company, Golden Springs Group, could find a buyer for the Singapore-based business this year, according to the people. Gold Coin is likely to attract interest from international feed producers, one of the people said, asking not to be identified as the process is private.
• The Treasury Department is planning to heighten scrutiny of Chinese investments in sensitive U.S. industries under an emergency law, putting Washington’s trade war with Beijing on a potentially irreversible course. Under the plan, the White House would use one of the most significant legal measures available to declare China’s investment in U.S. companies involved in technologies such as new-energy vehicles, robotics and aerospace a threat to economic and national security, according to eight people familiar with the plans.
• Big Oil’s fortunes are becoming tied more closely to natural gas than ever before. Majors including Royal Dutch Shell Plc and BP Plc have boosted their proportion of gas output in recent years, helping them trim Exxon Mobil Corp.’s lead as the world’s most valuable oil company. Meanwhile Chevron Corp. added two giant Australian liquefied natural gas projects and Exxon is punching back with two major projects of its own, in Papua New Guinea and Mozambique.
• Uber Technologies Inc found an unexpected ally at the start of its court battle to continue operating in London: the regulator that banned the global ride-sharing firm in the first place. Transport for London’s position has “moved to one of effective neutrality,” Uber lawyer Thomas de la Mare said at the start of the highly anticipated hearing Monday in London. In September, TfL said Uber wasn’t “fit and proper” to operate in London and refused to extend its permit.
• Italian bonds slumped after the League party continued its post-election bounce in a second round of municipal voting, while the market also braced for a pickup in supply. Two-year yields briefly popped above one percent for the first time since June 14, with those on 10-year notes also surging. The anti-immigrant League and its traditional allies Forza Italia and Brothers of Italy won in the second round of local votes in most Italian cities holding elections, data on the Interior Ministry’s website show. The appointment of two euroskeptic League advisers to parliamentary positions rattled investors last week.
• China and the European Union vowed to oppose trade protectionism in an apparent rebuke to the U.S., saying unilateral actions risked pushing the world into a recession. Vice Premier Liu He — President Xi Jinping’s top economic adviser — said China and the EU had agreed to defend the multilateral trading system, following talks Monday in Beijing. The comments, made at a press briefing with European Commission Vice President Jyrki Katainen, come as both sides prepare to face off against U.S. President Donald Trump’s tariff threats.
• Donald Trump’s family separation policy is continuing to create havoc for his administration, and ramped-up rhetoric from the president won’t help. The White House has struggled to display a unified response to a self-imposed crisis that appears likely to dominate the national agenda for a third straight week. Sunday offered a fresh signal that immigration would continue to overshadow other issues as Republicans gear up for a tough midterm election in November. Trump ratcheted up his demands on immigration, saying that people who “invade” the U.S. illegally should be deported immediately without trial or other normal judicial processes.
• Recep Tayyip Erdogan, modern Turkey’s longest-serving ruler, won a mandate to govern with sweeping new powers after a double victory in presidential and parliamentary elections. Erdogan had 53 percent of the presidential vote to 31 percent for his closest challenger, Muharrem Ince of the secular Republican People’s Party or CHP, with more than 99 percent of ballots counted, according to government news agency Anadolu. The country’s electoral board hasn’t published official results yet, but it confirmed that Erdogan won.
• Meituan Dianping, the world’s fourth-most valuable tech startup, revealed huge losses but also a scorching pace of growth when it filed for a much-anticipated Hong Kong initial public offering. The company is turning to public markets to raise cash for a costly battle against some of China’s biggest internet companies, particularly as it ventures into new arenas from ride-hailing and finance to travel. Meituan, of which social media giant Tencent Holdings Ltd. owns more than a fifth, posted a net loss of 19 billion yuan ($2.9 billion) last year, hurt by ballooning marketing and research spending and after accounting for its preferred stock. However, the internet company more than doubled revenue to 33.9 billion yuan.
• Greystar agreed to acquire U.S. student housing developer EdR for about $3.2 billion as investors seek higher-yielding real estate assets. Greystar will pay $41.50 a share in cash for the firm, 13.6 percent more than its closing price on May 31, the last trading day before press reports of a possible deal surfaced, the firms said in a joint statement on Monday. The transaction was unanimously approved by EdR’s board of directors and is expected to close in the second half.
• Investors who bought shares of Xerium Technologies Inc.in the last two years are in for a major windfall after Austrian equipment maker Andritz AG agreed to buy the U.S. company for more than twice the closing price on June 22. Andritz will pay $13.50 cash per Xerium share as it continues to expand its business supplying paper producers, the Graz, Austria-based company said in a statement early on Monday. That’s a 104 percent premium on the $6.61 price at Friday’s close in New York. The deal, valued at $833 million, includes net financial liabilities of about $590 million.
• LaSalle Hotel Properties, the luxury hotel owner that agreed to be acquired by Blackstone Group LP in a $4.8 billion deal, told regulators it’s concerned that a rival bidder inappropriately acquired its shares. The losing suitor, Pebblebrook Hotel Trust, “was provided with material nonpublic information” during the sale process “and we believe that Pebblebrook was in possession of such information during the time it was purchasing the company’s shares,” LaSalle said in correspondence with the U.S. Securities and Exchange Commission last week.
• General Electric Co. is nearing the sale of its factory power-generation unit to Advent International for at least $3 billion, the Wall Street Journal reported. The private equity firm apparently triumphed over a competing bid from Cummins Inc. and a transaction may be announced as soon as Monday, the newspaper reported, citing people familiar with the matter who weren’t identified. The assets include the Jenbacher and Waukesha industrial-engine businesses, the Journal said.

 

*All sources from Bloomberg unless otherwise specified