June 27th, 2019
Daily Market Commentary
- Canadian Headlines
- Canadian equities fell for a fourth day despite a rally in crude oil prices. The S&P/TSX Composite Index lost 0.4% to 16,312. Real estate led the declines as yields on 10-year treasuries rose. Energy and health care were the only two groups to advance. Meanwhile, The Trump administration is throwing a lifeline to the massive Pebble Mine planned near Alaska’s Bristol Bay. Separately, Pieridae Energy Ltd. will buy Shell’s southern Alberta assets as part of plan to build a $10-billion LNG plant in Nova Scotia.
- Manulife Financial Corp. has done business in Asia for more than a century, but never in India. Now the insurer sees the country becoming a big part of its operations in the region. “We think that India can be an important part — and quite a significant part — of our business there” in the next 10 to 20 years, Manulife Chief Executive Officer Roy Gori, 50, said in an interview at the insurer’s Toronto headquarters. Manulife last week announced a joint venture with India’s Mahindra & Mahindra Financial Services Ltd., a firm with more than 6 million customers and assets under management in excess of $8.5 billion. India was one of the few countries in the region the insurer had yet to enter.
- China’s suspension of Canadian pork imports could upend North American meat trade flows at a time when the world is already feeling the disruptive pressures of African swine fever. On Tuesday, the Chinese embassy in Canada said imports of the meat were halted due to counterfeit health certificates, threatening to derail pork exports that had jumped 50% so far this year over 2018 levels. Now, Canadian supply originally intended for the Asian nation could end up looking for a new home in the U.S. and elsewhere, according to traders and analysts. The U.S. is already facing a glut of meat, while at same time supplies are being squeezed in Asia by the spreading deadly pig disease.
- World Headlines
- European equities opened higher on Thursday, with miners leading the gains, as investors looked forward to the U.S.-China meeting at the Group of 20 summit. The Stoxx Europe 600 Index added 0.2%. Bayer AG advanced 6.1% as Elliott Management Corp. disclosed a 1.1 billion-euro ($1.3 billion) stake and said the company could unlock about 30 billion euros in shareholder value. Hennes & Mauritz AB jumped 7.3% despite reporting pretax profit below estimates after analysts praised June sales. Rio Tinto gained 1.4%.
- U.S. equity futures were mixed on Thursday and European stocks turned lower amid edgy trading in the build-up to a potentially pivotal G-20 meeting in Japan. Treasuries reversed a small drop and gold pared a decline. Contracts for all three of the main U.S. gauges had been solidly up, but those for the Dow Jones Industrial Average dropped as Boeing fell in pre-market trading after the FAA found new risks related to its grounded 737 Max. S&P 500 and Nasdaq 100 futures pared some of their gain and Treasuries turned higher when the Wall Street Journal reported that China’s insistence the U.S. lift a ban on technology sales to Huawei will be included in President Xi Jinping’s terms for a trade truce.
- Earlier in Asia, hopes for a renewed trade detente between the world’s biggest economies spurred a broad equity rally. Crude oil gave up some of its recent gains. The yuan edged up offshore. The average daily trading volume on the MSCI Asia Pacific Index has jumped 58% so far this year to about 21 billion shares — on track for a record high — despite the concerns. Market watchers have pointed to one key factor — dovish central banks.
- Oil retreated from a five-week high in New York after U.S. President Donald Trump warned he might impose substantial additional tariffs on Chinese imports. Futures fell as much as 1.1% after closing 2.7% higher on Wednesday as government data showed U.S. crude stockpiles dropped the most since September 2016. Trump said in an interview with Fox Business Network that there would be more levies on Chinese goods if there’s no progress at his meeting with President Xi Jinping on the sidelines of the G-20 summit on Saturday.
- Gold dropped for a second day as investors take stock of the recent rally and await the much-anticipated meeting between President Donald Trump and his Chinese counterpart Xi Jinping at the G-20 Summit in Japan. Bullion remains near a six-year high, after the Federal Reserve opened the door to lowering interest rates at its policy-setting meeting last week, and holdings in bullion-backed ETFs are at the highest since 2013.
- Volkswagen AG is poised to raise 1.6 billion euros ($1.8 billion) selling a stake in its trucks business, but only after pricing the offer at the low end of a target range to attract investors to one of Europe’s biggest initial public offerings this year. The German automotive giant is expected to divest up to 11.5% of Traton at 27 euros a share, according to terms seen by Bloomberg. At that price, the company that bundles Swedish heavy-truck specialist Scania, Germany’s MAN and VW-branded budget trucks made in Brazil, would be valued at 13.9 billion euros. Volkswagen had considered selling stock at as much as 33 euros apiece. For VW, getting the Traton IPO away even in volatile markets is an important step in becoming less centralized and more agile in the industry’s unprecedented shift to electric and self-driving vehicles. The company temporarily shelved the sale earlier this year citing poor markets.
- Axis Bank Ltd. is considering raising at least $1.3 billion through a share sale to institutional investors, people with knowledge of the matter said, as the Indian lender seeks to bolster capital ratios and expand lending capacity. India’s third-largest private sector lender, led by Chief Executive Officer Amitabh Chaudhry, is talking to potential advisers about the fundraising, according to the people. The bank plans to seek board approval for the sale as early as next month, the people said, asking not to be identified as the information is private.
- Swiss Re AG set a price range for the initial public offering of its U.K.-based ReAssure Group Plc unit at 280 pence to 330 pence a share, implying a market value of as much as 3.3 billion pounds ($4.2 billion). The business is expected to start trading in London in July, the Zurich-based insurer said on Thursday. Up to 30% of ReAssure will be sold if an over-allotment option is used. The value is within the range forecast by Swiss Re Chief Financial Officer John Dacey in February. A successful IPO would be to be a windfall for Swiss Re shareholders. The proceeds are likely to help activate a second tranche of share buybacks, doubling the total to 2 billion francs ($2 billion) this year. The cash raised will allow ReAssure to grow through further consolidation of closed life and pension books in the U.K., Chief Executive Officer Mark Hodges has said.
- Tests on Boeing Co.’s 737 Max have revealed a safety risk unrelated to two fatal crashes that led to the model’s grounding, prompting U.S. regulators to order additional design changes. Shares of the planemaker fell about 5% in pre-market trading Thursday. The Federal Aviation Administration discovered that data processing by a flight computer on the jetliner could cause the plane to dive in a way that pilots had difficulty recovering from in simulator tests, according to two people familiar with the finding who asked not to be named discussing it.
- U.S. oil has gained a stronger foothold in Asia at the expense of Iran and Venezuela as sanctions from the Trump Administration disrupt crude flows to the world’s biggest consuming region. Shipments of American oil to China in May surged almost 65% from April, while cargoes sent to South Korea were more than three times higher from a year earlier, according to government data compiled by Bloomberg. By comparison, imports from Iran to both Asian nations shrunk last month and Chinese purchases of Venezuelan crude dwindled as the OPEC producers were hobbled by U.S. sanctions.
- Ford Motor Co. will eliminate about 20% of the workforce across its European operations in a sweeping overhaul that reflects the challenges facing carmakers in the region. The restructuring, which has been announced piecemeal, will involve reducing its manufacturing footprint in Europe to 18 facilities by the end of 2020 from 24 at the beginning of this year. Germany, the U.K. and Russia will be hardest hit by the cuts, which total about 12,000 staff and workers employed at joint ventures, Ford said Thursday.
- Prime Minister Theresa May has given her strongest signal yet that she could oppose her successor if he tries to force the U.K. out of the European Union without a deal. Speaking to reporters on her way to the Group of 20 summit in Japan, May declined to promise she will loyally follow the orders of the next Conservative Party leader and vote for whatever Brexit policy either Boris Johnson or Jeremy Hunt — the two candidates to succeed her — chooses. May is due to be replaced by the end of July after resigning over her failure to get her own Brexit plan approved in the U.K. Parliament. She has already voted against leaving the EU without an agreement, arguing it would disrupt trade and damage the economy.
- The People’s Bank of China has asked commercial lenders not to lower the interest rate of home mortgages from the current level in order to curb the growth of home loans, according to people familiar with the matter. The PBOC offered verbal guidance to state-owned banks, joint stock banks and other commercial lenders, the people said, asking not to be identified as they’re not authorized to speak publicly. Banks received the guidance early this month, according to two of the people.
- Equity traders are usually disappointed when MSCI Inc. downgrades a country’s index status. Not so with Pakistan. Investors had expected the index provider to start talks on demoting the country after it failed to meet the minimum market-size threshold to maintain its emerging-market status. But the New York-based company left out any mention of Pakistan in its annual-review statement earlier this week, and the nation’s equity benchmark has now declined for four straight days, on course for the biggest monthly loss this year.
- Deutsche Bank AG has spent much of the past few years sitting on outsized cash reserves intended to restore confidence in its ability to withstand liabilities related to the 2008 mortgage crisis. Now, in a move that reflects the dilemma banks face in a world awash with negative-yielding securities, the lender is sinking more of that cash into bonds backed by risky corporate loans. Germany’s biggest bank is buying collateralized loan obligations, which are bonds backed by loans made to highly leveraged and typically junk-rated companies, according to people familiar with the matter. It’s drawing on a pile of excess cash that may otherwise sit in central banks incurring negative interest rates, said the people, asking not to be identified discussing a private matter.
- HealthEquity Inc. agreed to buy WageWorks Inc. for $2 billion to gain more access to the market for health savings accounts that allow U.S. consumers to spend tax-protected dollars for medical needs. HealthEquity, based in Draper, Utah, expects the purchase to expand distribution of its products to employers and benefits advisers that provide health savings accounts and other benefits that are under consumers’ control, according to a statement Thursday. Such accounts have become an increasingly important part of coverage in the U.S. health-care market as consumers incur expenses that aren’t covered by insurance plans. President Donald Trump’s executive order aimed at increasing patients’ knowledge of prices for medical products and services up front contains provisions that would expand the use of the vehicles.
- Bayer AG rose the most in a decade after hiring a high-profile lawyer to fight a slew of cases over its Roundup weedkiller and receiving a major vote of confidence from Elliott Management Corp. Bayer’s moves to bolster its response to the wave of Roundup lawsuits, including hiring lawyer John Beisner as an adviser, signal a “step change,” the New York-based activist hedge fund said in a statement Wednesday. The shares rose as much as 8.3% in Frankfurt trading on Thursday, their biggest intraday gain since March 2009.
- Blackstone Group LP has struck its biggest deal in Australia, agreeing to buy A$1.52 billion ($1.06 billion) of offices in the central business district. The transaction comes after New York-based Blackstone last year lost outto Ontario Municipal Employees Retirement System’s real-estate unit in a A$3.35 billion bidding war for Australia’s Investa Office Fund. Blackstone will take control of the office space above Scentre Group’sWestfield mall on Sydney’s main shopping strip. Scentre will retain ownership of the mall and Sydney Tower, a 309-meter (1,014-feet) tall landmark housing an observation deck and revolving restaurant.
- Walgreens Boots Alliance Inc. reported better-than-expected quarterly results, giving the pharmacy giant some breathing room as its confronts a slew of challenges in a rapidly evolving health-care industry. The company also reaffirmed its outlook. It had said it April that earnings would be flat for the rest of its fiscal year, which goes through August.
- OPEC and its allies look set to stick with their current strategy when they meet next week, renewing a deal to restrain oil supplies to prop up prices. But in a market clouded by uncertainties, they’ll probably also hint at how the policy may change. As oil demand falters amid a global economic slowdown and supplies swell thanks to the U.S. shale boom, the coalition spearheaded by Saudi Arabia and Russia is expected to formally prolong output curbs for another six months. However, with the market being increasingly pulled in different directions by the drawn out U.S.-China trade dispute and a potential military flare-up in the Persian Gulf, the group that pumps about half the world’s oil is likely to keep its options open.
*All sources from Bloomberg unless otherwise specified