June 28th, 2018
Daily Market Commentary
- The world’s largest money manager is revising its expectations for the Bank of Canada’s policy tightening path. BlackRock Inc. no longer sees the BOC raising interest rates at the conclusion of its July 11 meeting, after Governor Stephen Poloz struck a dovish tone during Wednesday’s highly anticipated speech. The shift echoes a similar change in sentiment among short-end traders, who are now pricing in roughly 50-50 odds of a rate hike, down from almost 80 percent just two weeks ago.
- Paulson & Co., the hedge fund run by billionaire manager John Paulson, plans to push to replace Detour Gold Corp.’s board of directors, citing the company’s refusal to start a strategic review process. Detour is moving forward with a plan to create long-term value for “all our shareholders, with whom we have always maintained an open dialogue,” the Toronto-based miner said its statement, released after the close of regular trading Wednesday.
- European shares resumed their drop after declines in U.S. and Asian markets, as concerns over rising protectionism lingered. The Stoxx 600 fell 0.3 percent, led by the banking and telecommunications sectors.
- U.S. stock futures advanced, shrugging off declines in Europe and Asia as investors continued to grapple with America’s strategy toward Chinese trade and investment. Emerging-market assets had another miserable day, while Treasuries were steady and the dollar fell. Contracts on the S&P 500, Nasdaq and Dow Jones all pointed to a firmer open in the wake of Wednesday’s slump.
- Asian shares extended their decline into a fourth day, with the regional benchmark set to complete its worst quarter since 2015, as investors continued to grapple with U.S. strategy toward China and investments. The MSCI Asia Pacific Index fell 0.4 percent as of 4:51 p.m. in Hong Kong, extending its weekly loss to 2.8 percent. Japan’s Topix index slid, while China’s Shanghai Composite Index sank deeper into a bear market, closing below 2,800 points for the first time in two years, as the yuan weakened.
- U.S. crude traded near the highest in 3 1/2 years as disruption at Libyan ports and a plunge in American stockpiles reinforced fears of a supply squeeze. U.S. oil stockpiles declined the most since September 2016, the Energy Information Administration reported Wednesday, just as some buyers of Iranian crude faced increasing pressured from President Donald Trump to halt imports from the Persian Gulf nation. A breakaway faction of Libya’s National Oil Corp. ordered the halt of eastern ports placed under its control by a militia leader.
- Gold drops to lowest level in more than six months amid strengthening dollar, with investors weighing global trade frictions.
- Iron ore may be about to get pulled back into the $50s. After being stuck in a very narrow range this quarter, prices may get dragged lower in the second half as global mine supply expands, steel prices ease off, and renewed production curbs at mills in China blunt overall demand. Prices may drop to $60 a metric ton in the next quarter and $55 in the fourth, according to Sun Feng, senior ferrous metals analyst at Orient Futures Co., who has more than a decade of experience tracking the market. CRU Group also sees a slight fall, with prices bottoming just below $60 in October or November.
- Consumers in the euro area are getting worried about the outlook for the economy amid escalating trade tensions and rising oil prices. A European Commission index of household sentiment fell to an eight-month low in June, and their optimism in the economy dropped to the weakest since May 2017. A broader measure of confidence that includes businesses declined a sixth straight month, though it remains at a relatively elevated level.
- Donald Trump and Vladimir Putin will hold their first bilateral summit as the leaders seek to reverse a downward spiral in relations that has been exacerbated by findings that Russia meddled in U.S. elections. Russia announced the deal after Putin hosted U.S. National Security AdviserJohn Bolton for talks in Moscow on Wednesday. Bolton, speaking at a news conference after the meeting, said the time and place of the summit will be released simultaneously by U.S. and Russian officials on Thursday.
- This week’s European Union summit looks set to be another missed opportunity for pound bulls. The meeting of European heads of state this Thursday and Friday has been flagged for weeks by pound watchers as a key moment for the currency. But with EU leaders damping down expectations of progress on Brexit and the U.K.’s impending exit from Europe bumped to number four on the summit agenda, strategists now say sterling is unlikely to get meaningful impetus.
- Apple Inc. will soon land a second supplier for the organic light-emitting diode screens used in high-end iPhones, according to people familiar with the matter, a key step in the U.S. company’s push to reduce iPhone costs and its dependence on Samsung Electronics Co. South Korea’s LG Display Co. will initially supply between 2 million and 4 million units, small relative to Apple’s sales, as it continues to work on ramping up capacity, said one of the people, who asked not to be identified because the matter is private. That would however help Apple gain leverage in price negotiations with Samsung, the sole supplier of OLED displays for the iPhone X and Apple’s primary rival in smartphones. The expense of that component is a key reason iPhone X pricing starts at $1,000 and sales haven’t met initial expectations.
- Federal Reserve Chairman Jerome Powell is testing the economy’s room to run. It’s a strategy that contains both big benefits and risks for ordinary Americans and is causing excitement, tinged with caution, inside the central bank. Take Fed treatment of one of its bedrock conceptual benchmarks, a rate of unemployment that keeps inflation stable. In June, they estimated that level at 4.5 percent. Unemployment in May was 3.8 percent. Yet with no sign of price pressures, policy makers plan to let the labor market run even hotter, with the jobless rate projected at 3.5 percent over the next two years.
- The fast-growing $3.6 trillion U.S. market for exchange-traded funds is poised to get a shot in the arm as Wall Street’s main regulator considers a plan for streamlining its approval process for the products. The proposal set to be considered at a Securities and Exchange Commission meeting in Washington on Thursday would make it easier to bring new ETFs to market. It would lay out formal steps for setting up less-complicated funds, according to people familiar with the plan, eliminating the need for many issuers to seek a special order from the SEC to allow the funds to operate.
- Walgreens Boots Alliance, Inc. today announced that its board of directors has authorized a share repurchase program for up to $10 billion of the company’s shares. The program has no specified expiration date. The company also announced that its board of directors declared a quarterly dividend of 44 cents per share, an increase of 10 percent. The increased dividend is payable 12 September 2018 to stockholders of record as of 20 August 2018, and raises the annual rate from $1.60 per share to $1.76 per share. This marks the 43rdconsecutive year that Walgreens Boots Alliance and its predecessor company, Walgreen Co., have raised the dividend.
- China is slowing approvals for offshore bonds and considering whether to ban short-dated issuance in dollars, according to people familiar with the matter, moves that would reduce financing options for the debt-laden developers that sit at the center of the nation’s economy. The National Development & Reform Commission is weighing a ban on the sale of dollar bonds with tenors of less than one year, said the people, who asked not to be named because they’re not authorized to speak publicly. The regulator is already restricting offshore issuance quotas for Chinese companies, people said.
- BP Plc plans to acquire the U.K.’s largest electric vehicle charging company, the latest in a string of acquisitions by major oil companies in the growing market for greener transport. The British oil major entered into an agreement to buy Chargemaster, which has more than 6,500 charging points across the U.K., according to a statement Thursday. It will pay about 130 million pounds ($170 million) for the purchase, staying within the $500 million annual budget for clean energy, Tufan Erginbilgic, BP’s downstream chief executive officer, said in an interview.
- Sanofi reached a final agreement to sell its European generic-drug unit to buyout firm Advent International Corp. for 1.9 billion euros ($2.2 billion) as part of a broader move by Chief Executive OfficerOlivier Brandicourt to focus resources on biotechnology and new medicines. The companies signed a contract following Advent’s binding offer, which was announced in April, Sanofi said in a statement Thursday, adding the deal is expected to close in the fourth quarter.
- Tokyo’s smoke-filled pubs and coffee shops may soon be a thing of the past as the country readies to tighten regulations ahead of the 2020 Olympics. The Tokyo Metropolitan Assembly passed an ordinance Wednesday that essentially bans smoking inside 84 percent of the city’s bars and restaurants. The rule is seen as stricter than a bill under debate in the Japanese Diet, which would restrict smoking at roughly 45 percent of national bars and restaurants, according to Nomura Securities Co. Both ordinances would come into force in April 2020.
- Sempra Energy will take a charge of about $1.5 billion and sell assets after billionaire investor Paul Singer’s fund pressed the California utility to streamline its operations. The moves will divest Sempra’s entire holdings in the U.S. of wind and solar farms as well as some natural gas storage facilities, according to a filing at the Securities and Exchange Commission on Thursday ahead of an analyst conference in New York. The plan approved by Sempra’s board earlier this week will reduce the value of assets on the balance sheet in the second quarter by as much as $1.55 billion, or $925 million after tax and non-controlling interests.
- Microsoft Corp. is catching up to Amazon.com Inc. in obtaining federal security approvals, giving it an edge over other potential bidders in the Pentagon’s winner-take-all competition for a multibillion-dollar cloud computing contract. The company best-known for its office software is advancing toward the certification needed to host the government’s most sensitive, classified information — a status held currently only by Amazon Web Services — as it expands cloud-computing storage centers through its Azure Government Secret unit.
- China is likely to step in and defend the yuan should it fall to a key psychological level, as breaking through that point risks worsening sentiment in the country’s beaten down financial markets. Most of the 18 traders and analysts surveyed by Bloomberg say policy makers will act to slow the currency’s slide once it gets close to 6.7 per dollar in China’s onshore market. That’s about 1 percent below current levels.
- Tsinghua Unigroup Ltd., the state-linked Chinese technology giant, is in advanced talks to acquire French smart-card components maker Linxens, people familiar with the matter said. The Beijing-based company could announce an agreement with Linxens’s owner, private equity firm CVC Capital Partners, as soon as the next couple weeks, according to the people. Tsinghua Unigroup has been discussing a potential valuation of about 2.2 billion euros ($2.5 billion) for Linxens, the people said, asking not to be identified because the information is private.
- Tom Farrell, chief of power giant Dominion Energy Inc., is warning South Carolina lawmakers that they’re playing a “high-stakes game” by trying to cut rates for a troubled utility he’s already offering to rescue. South Carolina legislators passed a measure Wednesday to slash the amount the utility, Scana Corp., can charge customers for a failed nuclear project. Dominion has threatened to walk away from its proposed, $7.9 billion takeover of the company if legislators reduce rates beyond what it’s already proposed. Governor Henry McMaster plans to veto the cut, but the legislature may override that after passing it with overwhelming support in both the House and Senate.
- Prudential Plc has filed for a potential listing of its Malaysian unit as the insurer explores options to reduce its stake in the business, people with knowledge of the matter said. The U.K. insurer submitted an application for an initial public offering of its local subsidiary with the Malaysian securities regulator last month, according to the people. A share sale could raise about $700 million, one of the people said, asking not to be identified because the information is private.
*All sources from Bloomberg unless otherwise specified